Amy J. Lee
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.
The registrant’s annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), is as follows:
9.30.2015
Guggenheim Funds Annual Report
Guggenheim Funds Trust-Equity |
Guggenheim Alpha Opportunity 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-0915x0916 | guggenheiminvestments.com |
DEAR SHAREHOLDER | 2 |
ECONOMIC AND MARKET OVERVIEW | 4 |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 6 |
ALPHA OPPORTUNITY FUND | 9 |
LARGE CAP VALUE FUND | 25 |
RISK MANAGED REAL ESTATE FUND | 37 |
SMALL CAP VALUE FUND | 51 |
STYLEPLUS—LARGE CORE FUND | 62 |
STYLEPLUS—MID GROWTH FUND | 75 |
WORLD EQUITY INCOME FUND | 87 |
NOTES TO FINANCIAL STATEMENTS | 99 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 115 |
OTHER INFORMATION | 116 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 128 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 132 |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
Dear Shareholder:
Security Investors, LLC, and Guggenheim Partners Investment Management, LLC (the “Investment Advisers”) are pleased to present the shareholder report for a selection of our Funds (the “Funds”) for the annual fiscal period ended September 30, 2015.
The Investment Advisers are part of Guggenheim Investments, which represents the investment management businesses of Guggenheim Partners, LLC (“Guggenheim”), a global, diversified financial services firm.
Guggenheim Funds Distributors, LLC is the distributor of the Funds. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim and the Investment Advisers.
We encourage you to read the Economic and Market Overview section of the report, which follows this letter, and then the Managers’ Commentary for each Fund.
We are committed to providing innovative investment solutions and appreciate the trust you place in us.
Sincerely,
Donald C. Cacciapaglia
President
October 31, 2015
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at guggenheiminvestments.com or call 800.820.0888.
Alpha Opportunity Fund is subject to a number of risks and is not suitable for all investors. ● Investments in securities and derivatives, in general, are subject to market risks that may cause their prices to fluctuate over time. An investment in the fund may lose money. There can be no guarantee the Fund will achieve it investment objective. ● The fund’s use of derivatives such as futures, options and swap agreements may expose the fund to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. ● Certain of the derivative instruments, such as swaps and structured notes, are also subject to the risks of counterparty default and adverse tax treatment. ● The more the fund invests in leveraged instruments, the more the leverage will magnify any gains or losses on those investments. ● The fund’s use of short selling involves increased risk and costs, including paying more for a security than it received from its sale and the risk of unlimited losses. ● In certain circumstances the fund may be subject to liquidity risk and it may be difficult for the fund to purchase and sell particular investments within a reasonable time at a fair price. ● In certain circumstances, it may be difficult for the fund to purchase and sell particular investments within a reasonable time at a fair price. ● The Fund’s fixed income investments will change in value in response to interest rate changes and other factors. ● In certain circumstances the Fund may be subject to liquidity risk and it may be difficult for the Fund to purchase and sell particular investments within a reasonable time at a fair price. ● See the prospectus for more information on these and additional 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 underperform other segments of the equity market or the equity markets as a whole.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
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 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 not 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. ● Investing in securities of small-capitalization companies may involve a greater risk of loss and more abrupt fluctuations in market price than investments in larger-capitalization 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. ● 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.
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. ● 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, 2015 |
At the end of the period, the underlying U.S. economy continued to maintain its strong footing. A market correction that began in August persisted through the end of the period; September and October are historically difficult times for the stock market, and by extension, risk assets of any kind, including credit.
Markets had been performing solidly for most of the period. Growth mid-year bounced back from a weather-induced slowdown in the first quarter, with GDP increasing 3.9% for the second quarter. The labor and housing markets continued to strengthen, and the drop in gas prices was acting as a tax cut, which was expected to increase consumer spending power going into the holiday season. Even though labor markets are moving toward full employment, questions remain about the viability of sustained economic expansion in the U.S. In particular, there is debate about the net effect of declining energy prices and a stronger dollar. These are both positive for the U.S. consumer, but low oil prices hurt the U.S. energy industry and a strong dollar is challenging for U.S. manufacturers. In addition, oil prices and the strong dollar exert a downward pressure on inflation, and a risk of deflation is a negative for the economy.
At the same time, currency devaluation, particularly in Japan and the euro zone, is putting pressure on countries to devalue to improve export competitiveness. Those countries slow to devalue, like China, are feeling economic pressure at home, driving down asset prices, and increasing deflationary pressures, escalating the risk of financial contagion abroad. China may have to devalue the renminbi further due to continued slowing in the economy. Combined with the tepid expansion in both Europe and Japan, the pressure will be for central banks there to increase easing measures.
The U.S. Federal Reserve (the “Fed”) is hard pressed to justify a rate increase based on its self-prescribed metrics, which include rising inflation and an improved employment situation with clearly rising wages. At best, policymakers can argue that the prospects for wage growth and inflation are improving, but clear evidence is lacking.
A preemptive rate increase seems risky and opens the Fed to potential criticism given the fragility in financial markets and the prospect that rising U.S. rates could further strengthen the dollar and also potentially exacerbate foreign economic turbulence. While prices and wages remain tame, the risk of another asset bubble is increasing. The longer policy remains highly accommodative, the greater the likelihood that asset classes including commercial real estate, equities, or certain categories of bonds could become overvalued.
At period end, the risk of financial contagion remained high, which could result in central banks providing additional liquidity or delaying rate increases. Use of the monetary printing press is a handy tool to prop up asset prices and temporarily spur economic growth, which is the main reason a recession does not appear to be on the horizon for either the G-7 nations or China. It’s also worth noting that there has never been a recession in the post-war period without the Fed first raising interest rates, after which it typically takes several years for a recession to be induced.
For the year ended September 30, 2015, the Standard & Poor’s 500® Index* (“S&P 500®”) returned -0.61%. The Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned -8.66%. The return of the MSCI Emerging Markets Index* was -19.28%.
In the bond market, the Barclays U.S. Aggregate Bond Index* posted a 2.94% return for the period, while the Barclays U.S. Corporate High Yield Index* returned -3.43%. The return of the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.02% for the year.
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, 2015 |
*Index Definitions:
The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.
Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.
Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar (“USD”)-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
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 EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets.
MSCI World Index (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 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.
Russell 3000® Index measures the performance of the largest 3,000 U.S. companies, representing approximately 98% of the investable U.S. equity market.
S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad economy, representing all major industries and is considered a representation of the U.S. stock market.
| | 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, 2015 and ending September 30, 2015.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(continued) | |
| | Expense
Ratio1 | Fund
Return | Beginning
Account Value
March 31, 2015 | Ending
Account Value
September 30, 2015 | Expenses
Paid During
Period2 |
Table 1. Based on actual Fund return3 | | | | | |
Alpha Opportunity Fund | | | | | |
A-Class | 2.66% | (1.55%) | $ 1,000.00 | $ 984.50 | $ 13.23 |
C-Class | 3.34% | (1.91%) | 1,000.00 | 980.90 | 16.59 |
P-Class4 | 3.13% | (3.77%) | 1,000.00 | 962.30 | 12.62 |
Institutional Class | 2.91% | (1.42%) | 1,000.00 | 985.80 | 14.49 |
Large Cap Value Fund | | | | | |
A-Class | 1.17% | (9.17%) | 1,000.00 | 908.30 | 5.60 |
C-Class | 1.92% | (9.55%) | 1,000.00 | 904.50 | 9.17 |
P-Class4 | 1.16% | (10.38%) | 1,000.00 | 896.20 | 4.52 |
Institutional Class | 0.92% | (9.10%) | 1,000.00 | 909.00 | 4.40 |
Risk Managed Real Estate Fund | | | | | |
A-Class | 1.53% | (7.03%) | 1,000.00 | 929.70 | 7.40 |
C-Class | 2.23% | (7.36%) | 1,000.00 | 926.40 | 10.77 |
P-Class 4 | 1.42% | (3.63%) | 1,000.00 | 963.70 | 5.73 |
Institutional Class | 1.13% | (6.85%) | 1,000.00 | 931.50 | 5.47 |
Small Cap Value Fund | | | | | |
A-Class | 1.31% | (11.98%) | 1,000.00 | 880.20 | 6.17 |
C-Class | 2.06% | (12.39%) | 1,000.00 | 876.10 | 9.69 |
P-Class4 | 1.31% | (10.82%) | 1,000.00 | 891.80 | 5.09 |
Institutional Class | 1.06% | (11.92%) | 1,000.00 | 880.80 | 5.00 |
StylePlus—Large Core Fund | | | | | |
A-Class | 1.31% | (6.58%) | 1,000.00 | 934.20 | 6.35 |
C-Class | 2.25% | (6.99%) | 1,000.00 | 930.10 | 10.89 |
P-Class4 | 1.38% | (8.69%) | 1,000.00 | 913.10 | 5.42 |
Institutional Class | 1.27% | (6.58%) | 1,000.00 | 934.20 | 6.16 |
StylePlus—Mid Growth Fund | | | | | |
A-Class | 1.46% | (9.41%) | 1,000.00 | 905.90 | 6.98 |
C-Class | 2.28% | (9.77%) | 1,000.00 | 902.30 | 10.87 |
P-Class4 | 1.49% | (9.75%) | 1,000.00 | 902.50 | 5.82 |
Institutional Class | 1.48% | (9.42%) | 1,000.00 | 905.80 | 7.07 |
World Equity Income Fund | | | | | |
A-Class | 1.48% | (7.09%) | 1,000.00 | 929.10 | 7.16 |
C-Class | 2.23% | (7.44%) | 1,000.00 | 925.60 | 10.76 |
P-Class4 | 1.48% | (8.64%) | 1,000.00 | 913.60 | 5.82 |
Institutional Class | 1.23% | (6.94%) | 1,000.00 | 930.60 | 5.95 |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(concluded) | |
| | Expense
Ratio1 | Fund
Return | Beginning
Account Value
March 31, 2015 | Ending
Account Value
September 30, 2015 | Expenses
Paid During
Period2 |
Table 2. Based on hypothetical 5% return (before expenses) | | | | |
Alpha Opportunity Fund | | | | | |
A-Class | 2.66% | 5.00% | $ 1,000.00 | $ 1,011.73 | $ 13.41 |
C-Class | 3.34% | 5.00% | 1,000.00 | 1,008.32 | 16.82 |
P-Class4 | 3.13% | 5.00% | 1,000.00 | 1,009.38 | 15.77 |
Institutional Class | 2.91% | 5.00% | 1,000.00 | 1,010.48 | 14.67 |
Large Cap Value Fund | | | | | |
A-Class | 1.17% | 5.00% | 1,000.00 | 1,019.20 | 5.92 |
C-Class | 1.92% | 5.00% | 1,000.00 | 1,015.44 | 9.70 |
P-Class4 | 1.16% | 5.00% | 1,000.00 | 1,019.25 | 5.87 |
Institutional Class | 0.92% | 5.00% | 1,000.00 | 1,020.46 | 4.66 |
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 |
P-Class4 | 1.42% | 5.00% | 1,000.00 | 1,017.95 | 7.18 |
Institutional Class | 1.13% | 5.00% | 1,000.00 | 1,019.40 | 5.72 |
Small Cap Value Fund | | | | | |
A-Class | 1.31% | 5.00% | 1,000.00 | 1,018.50 | 6.63 |
C-Class | 2.06% | 5.00% | 1,000.00 | 1,014.74 | 10.40 |
P-Class4 | 1.31% | 5.00% | 1,000.00 | 1,018.50 | 6.63 |
Institutional Class | 1.06% | 5.00% | 1,000.00 | 1,019.75 | 5.37 |
StylePlus—Large Core Fund | | | | | |
A-Class | 1.31% | 5.00% | 1,000.00 | 1,018.50 | 6.63 |
C-Class | 2.25% | 5.00% | 1,000.00 | 1,013.79 | 11.36 |
P-Class4 | 1.38% | 5.00% | 1,000.00 | 1,018.15 | 6.98 |
Institutional Class | 1.27% | 5.00% | 1,000.00 | 1,018.70 | 6.43 |
StylePlus—Mid Growth Fund | | | | | |
A-Class | 1.46% | 5.00% | 1,000.00 | 1,017.75 | 7.38 |
C-Class | 2.28% | 5.00% | 1,000.00 | 1,013.64 | 11.51 |
P-Class4 | 1.49% | 5.00% | 1,000.00 | 1,017.60 | 7.54 |
Institutional Class | 1.48% | 5.00% | 1,000.00 | 1,017.65 | 7.49 |
World Equity Income Fund | | | | | |
A-Class | 1.48% | 5.00% | 1,000.00 | 1,017.65 | 7.49 |
C-Class | 2.23% | 5.00% | 1,000.00 | 1,013.89 | 11.26 |
P-Class4 | 1.48% | 5.00% | 1,000.00 | 1,017.65 | 7.49 |
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 for the Alpha Opportunity Fund would be 1.36%, 2.11%, 1.36% and 1.11% and the Risk Managed Real Estate Fund would be 1.30%, 2.05%, 1.30% and 0.99% for the A-Class, C-Class, P-Class and Institutional Class, respectively. 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, 2015 to September 30, 2015. |
4 | Since commencement of operations: May 1, 2015. 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 returns are calculated using 150 days from the commencement of operations. Expenses paid based on the hypothetical 5% return are calculated using 183 days. |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
Dear Shareholder:
Guggenheim Alpha Opportunity Fund (the “Fund”) is managed by a team of seasoned professionals, including Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities, and Portfolio Manager; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies, and Portfolio Manager; Samir Sanghani, CFA, Managing Director and Portfolio Manager; and Burak Hurmeydan, Ph.D., Vice President and Portfolio Manager. This team assumed management of the Fund on January 28, 2015, in conjunction with the Fund’s re-opening after being closed to new investors, and a change in its principal investment strategies. In the paragraphs below, the team discusses the performance of the Fund for the period beginning with the change in strategy, through the fiscal year ended September 30, 2015.
The Fund was launched in July 2003 and employed a multi-manager approach to long/short equity investing. In 2008, the Fund was closed to new investors due to collateral positions held at Lehman Brothers that were frozen in response to the firm’s bankruptcy. Despite being closed, the Fund continued to be managed for current investors. Over the years, the underlying investment strategies have evolved and portfolio management teams have changed, but in general, the Fund maintained a high beta to U.S. large-cap equities while using both long and short positions. Before the investment strategy transition in January 2015, the Funds were most recently managed by Mike Byrum, CFA, and Ryan Harder, CFA, and invested in the team’s momentum-based long/short equity strategy and S&P 500 futures. In the paragraphs below, the team discusses Fund performance for the period beginning October 1, 2014, through the implementation of the new strategy on January 28, 2015.
For the one year period ended September 30, 2015, the Guggenheim Alpha Opportunity Fund returned 2.13%1, compared with the -0.61% return of its benchmark, the S&P 500 Index. The Fund’s secondary benchmark, which was added during the period, is the Morningstar Long/Short Equity Category Average. Its return for the 12 months was -2.29%.
Previous Strategy Performance Review
For the nearly four-month period of October 1, 2014, through January 27, 2015, the Fund returned 6.80%, compared with 3.25% for the S&P 500 Index. For the period, the principal investment strategy allocated 75% of the Fund’s assets to a Domestic Long/Short strategy and 25% to an Indexed strategy. Both sleeves contributed to performance for the period.
The Fund’s Domestic Long/Short strategy had an equity beta of roughly 60%, making equity beta the largest contributor to Fund performance within the Domestic Long/Short strategy.
As for strategy factors, a long bias to Relative Strength and a short bias to Price Volatility contributed to performance. Net long positions to Trading Activity and Large Capitalization factors detracted from performance.
By industry, net long positions to Drug companies and Airlines contributed to performance. A net short position in Retail Hard Goods companies and a net long position in Oil Refining & Sales companies detracted.
Stock-specific risk contributed to performance. Both the long positions held within the Domestic Long/Short Strategy and the short positions contributed positively to performance. The long/short strategy was, on average, long 86% of strategy assets over the period, while being short 29%.
The Indexed strategy was implemented with derivatives, S&P 500 futures, which resulted in an aggregate Fund beta of approximately 70%. For the period, the Fund’s Indexed strategy contributed to performance, as did the derivatives.
Current Strategy Performance Review
For the eight-month period of January 28, 2015, through September 30, 2015, the Fund returned -4.42%, compared with -2.70% for the S&P 500 Index. The Morningstar Long/Short Equity Category Average returned -2.48% for the same period.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
For the period, the Fund was managed as a single opportunistic long/short strategy, which employs forward-looking, fundamental analysis to measure the market’s expected return for each stock in the universe. Quantitative techniques are then applied to evaluate market- and company-specific risk factors embedded in each stock and to assess which specific risk factors (such as size, growth, or sectors) are being overvalued or undervalued by the market. Finally, a portfolio is constructed within guidelines that is long the stocks that give the portfolio both the broad risk characteristics and company-specific risks that are perceived to be undervalued and is short stocks for which those characteristics are perceived to be overpriced.
The Fund will ordinarily hold simultaneous long and short positions in equity securities or securities markets that provide exposure up to a level equal to 150% of the Fund’s net assets for both the long and short positions. The Fund intends to maintain a low overall net exposure (the difference between the notional value of long positions and the notional value of short positions), typically varying between 50% net long and 30% net short, in order to maintain low correlation to traditional equity markets and lower-than-market volatility, and seek to provide consistent absolute return. The overall net exposure will change as market opportunities change, and may, based on the Fund’s view of current market conditions, be outside this range.
On average during the period, the Fund held about 114% of assets in long securities, and 85.3% short–for an average net-dollar exposure of 28.7%. Because the longs were more defensive in nature than the shorts, the net beta (sensitivity to broad market moves) averaged closer to the 0.20 range. That slight net-long exposure detracted from return, just from the market moving lower. The long positions averaged a return of -6.0%, compared to the Russell 3000 Index return of -6.9%. Short positions returned -4.1% on a stand-alone basis. While the shorts thus gave the Fund a positive contribution and hedged market risk a bit, the stock selection on the short side fell short of the Fund’s target to add “alpha,” as the names declined less than the broader market.
The Fund has been favoring large caps as its valuation models show that the traditional small cap risk premium has eroded in the last couple of years, as small caps have outperformed for well over a decade and in excess to their underlying fundamentals. Small caps are definitively riskier than large caps and therefore should trade at a higher risk premium—and the Fund’s estimate that the risk premium has flipped towards large caps is a fairly rare occurrence. The Fund’s large-cap-size bias contributed slightly to return.
The Fund’s financial fundamental tilts did not perform well. It had been biased towards companies trading at lower valuations, and avoiding or short high-momentum names trading at very high valuations (or with little to no earnings—as is common in some emerging growth sectors). The Fund has also shorted companies that are aggressively growing their assets through capex spend and acquisitions. Over the long haul, expensive and heavy spending companies tend to disappoint investors, and the Fund’s current estimate of negative risk premiums in those groups indicates that investors are perhaps too enthusiastic there.
The Fund’s sector exposures slightly hurt the Fund over the period that the Fund was managed according to the new strategy. The long portfolio has been decidedly defensive, while short sectors have been more cyclical. However, gains from being short the materials sector were more than offset by long utility names, which underperformed the market and its expected defensive behavior.
Derivatives in the Fund are used only to take an equity long or short position above 100% of NAV (that is, to increase leverage). Long-side average exposure was 114% for the period. Since the Fund’s return was negative, the derivative (swap) detracted from performance.
Performance displayed represents past performance which is no guarantee of future results.
1 | Performance figures are based on Class A 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.
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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.
Inception Dates: |
A-Class | July 7, 2003 |
C-Class | July 7, 2003 |
P-Class | May 1, 2015 |
Institutional Class | November 7, 2008 |
Ten Largest Holdings (% of Total Net Assets) |
2U, Inc. | 1.2% |
JM Smucker Co. | 1.1% |
Gilead Sciences, Inc. | 1.0% |
Viacom, Inc. — Class B | 1.0% |
Apple, Inc. | 1.0% |
International Business Machines Corp. | 0.9% |
Verizon Communications, Inc. | 0.9% |
Questar Corp. | 0.8% |
Biogen, Inc. | 0.8% |
Duke Energy Corp. | 0.8% |
Top Ten Total | 9.5% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 11 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | 10 Year |
A-Class Shares | 2.13% | 13.63% | 8.38% |
A-Class Shares with sales charge† | -2.72% | 12.30% | 7.74% |
C-Class Shares | 1.38% | 12.78% | 7.54% |
C-Class Shares with CDSC§ | 0.38% | 12.78% | 7.54% |
S&P 500 Index | -0.61% | 13.34% | 6.80% |
Morningstar Long/Short Equity Category Average | -2.29% | 5.25% | 4.86% |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | -3.77% |
S&P 500 Index | | | -8.07% |
Morningstar Long/Short Equity Category Average | | | -5.42% |
| | 1 Year | 5 Year | Since Inception
(11/07/08) |
Institutional Class Shares | 2.41% | 14.06% | 14.69% |
S&P 500 Index | -0.61% | 13.34% | 13.51% |
Morningstar Long/Short Equity Category Average | -2.29% | 5.25% | 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 S&P 500 Index and Morningstar Long/Short Equity Category Average are unmanaged indices and, unlike the Fund, have no management fees or operating expenses to reduce their reported returns. The graph is based on A-Class shares only; performance for C-Class, P-Class and Institutional Class will vary due to differences in fee structures. |
† | 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, 2015 |
ALPHA OPPORTUNITY FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 76.7% | |
| | | | | | | |
Consumer, Non-cyclical - 27.3% | |
JM Smucker Co. | | | 6,318 | | | $ | 720,821 | |
Gilead Sciences, Inc.4 | | | 6,492 | | | | 637,449 | |
Biogen, Inc.*,4 | | | 1,777 | | | | 518,546 | |
Amsurg Corp. — Class A*,4 | | | 6,256 | | | | 486,154 | |
McKesson Corp.4 | | | 2,627 | | | | 486,074 | |
Express Scripts Holding Co.* | | | 5,976 | | | | 483,817 | |
UnitedHealth Group, Inc.4 | | | 4,110 | | | | 476,801 | |
Charles River Laboratories International, Inc.*,4 | | | 7,138 | | | | 453,406 | |
Estee Lauder Companies, Inc. — Class A4 | | | 5,594 | | | | 451,324 | |
Amgen, Inc.4 | | | 3,232 | | | | 447,050 | |
Ingredion, Inc.4 | | | 5,063 | | | | 442,051 | |
Quest Diagnostics, Inc.4 | | | 7,053 | | | | 433,548 | |
HCA Holdings, Inc.*,4 | | | 5,389 | | | | 416,893 | |
United Therapeutics Corp.*,4 | | | 3,073 | | | | 403,301 | |
Tyson Foods, Inc. — Class A4 | | | 9,292 | | | | 400,485 | |
Hormel Foods Corp.4 | | | 5,674 | | | | 359,221 | |
PepsiCo, Inc.4 | | | 3,776 | | | | 356,077 | |
Mead Johnson Nutrition Co. — Class A | | | 5,015 | | | | 353,056 | |
Flowers Foods, Inc.4 | | | 13,502 | | | | 334,039 | |
Molina Healthcare, Inc.* | | | 4,781 | | | | 329,172 | |
Dr Pepper Snapple Group, Inc.4 | | | 3,983 | | | | 314,856 | |
Clorox Co.4 | | | 2,693 | | | | 311,122 | |
United Natural Foods, Inc.*,4 | | | 6,364 | | | | 308,718 | |
Cardinal Health, Inc.4 | | | 3,906 | | | | 300,059 | |
St. Jude Medical, Inc. | | | 4,748 | | | | 299,551 | |
Pfizer, Inc.4 | | | 9,222 | | | | 289,663 | |
Dean Foods Co. | | | 17,337 | | | | 286,407 | |
Intra-Cellular Therapies, Inc.* | | | 6,957 | | | | 278,558 | |
Quanta Services, Inc.* | | | 11,285 | | | | 273,210 | |
Owens & Minor, Inc. | | | 8,523 | | | | 272,225 | |
WellCare Health Plans, Inc.* | | | 3,059 | | | | 263,624 | |
MEDNAX, Inc.* | | | 3,157 | | | | 242,426 | |
Universal Corp. | | | 4,852 | | | | 240,514 | |
B&G Foods, Inc. | | | 6,455 | | | | 235,285 | |
Prestige Brands Holdings, Inc.* | | | 5,003 | | | | 225,936 | |
Coca-Cola Co.4 | | | 5,514 | | | | 221,222 | |
Enanta Pharmaceuticals, Inc.* | | | 6,099 | | | | 220,418 | |
Church & Dwight Company, Inc.4 | | | 2,591 | | | | 217,385 | |
ResMed, Inc.4 | | | 4,173 | | | | 212,656 | |
Henry Schein, Inc.* | | | 1,548 | | | | 205,450 | |
Philip Morris International, Inc. | | | 2,512 | | | | 199,277 | |
Danaher Corp. | | | 2,310 | | | | 196,835 | |
McCormick & Company, Inc.4 | | | 2,352 | | | | 193,287 | |
Magellan Health, Inc.* | | | 3,486 | | | | 193,229 | |
TrueBlue, Inc.* | | | 8,567 | | | | 192,500 | |
Deluxe Corp. | | | 3,436 | | | | 191,523 | |
Varian Medical Systems, Inc.* | | | 2,533 | | | | 186,885 | |
Johnson & Johnson | | | 1,972 | | | | 184,086 | |
Moody’s Corp. | | | 1,809 | | | | 177,644 | |
WhiteWave Foods Co. — Class A* | | | 4,381 | | | | 175,897 | |
Whole Foods Market, Inc.4 | | | 5,532 | | | | 175,088 | |
WEX, Inc.* | | | 2,004 | | | | 174,027 | |
Laboratory Corporation of America Holdings* | | | 1,580 | | | | 171,382 | |
Universal Health Services, Inc. — Class B4 | | | 1,342 | | | | 167,495 | |
Hain Celestial Group, Inc.* | | | 3,044 | | | | 157,070 | |
Kellogg Co.4 | | | 2,003 | | | | 133,300 | |
Boulder Brands, Inc.*,4 | | | 11,347 | | | | 92,932 | |
Paylocity Holding Corp.* | | | 1,202 | | | | 36,048 | |
Total Consumer, Non-cyclical | | | | | | | 17,207,075 | |
| | | | | | | | | |
Industrial - 12.8% | |
AECOM*,4 | | | 17,111 | | | | 470,724 | |
Boeing Co.4 | | | 2,762 | | | | 361,684 | |
Triumph Group, Inc.4 | | | 8,302 | | | | 349,348 | |
Dover Corp. | | | 5,316 | | | | 303,969 | |
Roper Technologies, Inc. | | | 1,736 | | | | 272,031 | |
Parker-Hannifin Corp.4 | | | 2,673 | | | | 260,083 | |
Republic Services, Inc. — Class A4 | | | 6,230 | | | | 256,676 | |
Waters Corp.* | | | 2,120 | | | | 250,605 | |
Pentair plc | | | 4,885 | | | | 249,330 | |
Gentex Corp. | | | 15,955 | | | | 247,303 | |
Rockwell Automation, Inc. | | | 2,433 | | | | 246,877 | |
United Technologies Corp.4 | | | 2,754 | | | | 245,078 | |
Nordson Corp. | | | 3,833 | | | | 241,249 | |
Stanley Black & Decker, Inc.4 | | | 2,485 | | | | 240,995 | |
Xylem, Inc. | | | 7,126 | | | | 234,089 | |
Crane Co.4 | | | 5,020 | | | | 233,982 | |
Vishay Intertechnology, Inc. | | | 23,993 | | | | 232,492 | |
Jacobs Engineering Group, Inc.*,4 | | | 6,149 | | | | 230,157 | |
Emerson Electric Co.4 | | | 5,197 | | | | 229,551 | |
Ingersoll-Rand plc | | | 4,474 | | | | 227,145 | |
EnerSys | | | 4,195 | | | | 224,768 | |
3M Co. | | | 1,523 | | | | 215,916 | |
United Parcel Service, Inc. — Class B | | | 2,156 | | | | 212,776 | |
Union Pacific Corp. | | | 2,349 | | | | 207,675 | |
Huntington Ingalls Industries, Inc.4 | | | 1,925 | | | | 206,264 | |
CH Robinson Worldwide, Inc.4 | | | 3,004 | | | | 203,611 | |
Waste Connections, Inc. | | | 4,067 | | | | 197,575 | |
Raytheon Co.4 | | | 1,797 | | | | 196,340 | |
AO Smith Corp. | | | 2,983 | | | | 194,462 | |
TASER International, Inc.* | | | 8,315 | | | | 183,138 | |
Barnes Group, Inc.4 | | | 4,894 | | | | 176,429 | |
Timken Co.4 | | | 6,129 | | | | 168,486 | |
Atlas Air Worldwide Holdings, Inc.* | | | 4,610 | | | | 159,322 | |
Agilent Technologies, Inc.4 | | | 3,467 | | | | 119,022 | |
Total Industrial | | | | | | | 8,049,152 | |
| | | | | | | | | |
Utilities - 9.1% | |
Questar Corp. | | | 27,577 | | | | 535,269 | |
Duke Energy Corp. | | | 7,045 | | | | 506,817 | |
NextEra Energy, Inc.4 | | | 4,886 | | | | 476,629 | |
UGI Corp.4 | | | 13,612 | | | | 473,970 | |
Consolidated Edison, Inc. | | | 6,751 | | | | 451,304 | |
NRG Energy, Inc. | | | 26,721 | | | | 396,807 | |
CMS Energy Corp.4 | | | 10,686 | | | | 377,430 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
ALPHA OPPORTUNITY FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Southwest Gas Corp. | | | 6,427 | | | $ | 374,823 | |
ONE Gas, Inc. | | | 8,025 | | | | 363,773 | |
Vectren Corp.4 | | | 8,326 | | | | 349,775 | |
American Electric Power Company, Inc.4 | | | 5,188 | | | | 294,990 | |
DTE Energy Co.4 | | | 3,548 | | | | 285,153 | |
Edison International | | | 4,120 | | | | 259,848 | |
Southern Co. | | | 4,633 | | | | 207,095 | |
Xcel Energy, Inc. | | | 5,612 | | | | 198,721 | |
Aqua America, Inc.4 | | | 7,240 | | | | 191,643 | |
Total Utilities | | | | | | | 5,744,047 | |
| | | | | | | | | |
Technology - 8.0% | |
2U, Inc.* | | | 21,510 | | | | 772,209 | |
Apple, Inc.4 | | | 5,482 | | | | 604,664 | |
International Business Machines Corp. | | | 4,107 | | | | 595,392 | |
Micron Technology, Inc.* | | | 30,584 | | | | 458,148 | |
Dun & Bradstreet Corp. | | | 2,867 | | | | 301,035 | |
Paycom Software, Inc.* | | | 7,823 | | | | 280,924 | |
Tessera Technologies, Inc. | | | 6,816 | | | | 220,906 | |
Synaptics, Inc.* | | | 2,657 | | | | 219,096 | |
Take-Two Interactive Software, Inc.* | | | 7,163 | | | | 205,793 | |
SanDisk Corp.4 | | | 3,690 | | | | 200,478 | |
Cirrus Logic, Inc.* | | | 6,358 | | | | 200,341 | |
Convergys Corp. | | | 8,349 | | | | 192,945 | |
Oracle Corp.4 | | | 5,124 | | | | 185,079 | |
Skyworks Solutions, Inc. | | | 2,138 | | | | 180,041 | |
CACI International, Inc. — Class A*,4 | | | 2,412 | | | | 178,416 | |
Hewlett-Packard Co.4 | | | 6,816 | | | | 174,558 | |
Icad, Inc.*,4 | | | 29,174 | | | | 99,192 | |
Total Technology | | | | | | | 5,069,217 | |
| | | | | | | | | |
Consumer, Cyclical - 7.3% | |
Wal-Mart Stores, Inc.4 | | | 7,779 | | | | 504,390 | |
Walgreens Boots Alliance, Inc. | | | 5,849 | | | | 486,052 | |
JetBlue Airways Corp.* | | | 14,161 | | | | 364,929 | |
Delta Air Lines, Inc. | | | 7,531 | | | | 337,916 | |
Sportsman’s Warehouse Holdings, Inc.* | | | 26,444 | | | | 325,790 | |
Harman International Industries, Inc. | | | 3,125 | | | | 299,969 | |
CVS Health Corp.4 | | | 2,959 | | | | 285,484 | |
NVR, Inc.* | | | 172 | | | | 262,338 | |
Kohl’s Corp.4 | | | 5,026 | | | | 232,754 | |
TiVo, Inc.* | | | 24,641 | | | | 213,391 | |
Wyndham Worldwide Corp. | | | 2,905 | | | | 208,870 | |
Macy’s, Inc. | | | 3,879 | | | | 199,070 | |
Starbucks Corp. | | | 3,383 | | | | 192,290 | |
Delphi Automotive plc | | | 2,497 | | | | 189,872 | |
Dana Holding Corp.4 | | | 11,053 | | | | 175,522 | |
PACCAR, Inc. | | | 3,171 | | | | 165,431 | |
Wolverine World Wide, Inc. | | | 7,229 | | | | 156,436 | |
Total Consumer, Cyclical | | | | | | | 4,600,504 | |
| | | | | | | | | |
Financial - 6.7% | |
Citigroup, Inc.4 | | | 9,129 | | | | 452,890 | |
Lincoln National Corp. | | | 8,274 | | | | 392,684 | |
MetLife, Inc. | | | 7,302 | | | | 344,289 | |
Prudential Financial, Inc. | | | 4,263 | | | | 324,883 | |
Regions Financial Corp.4 | | | 31,071 | | | | 279,950 | |
Ameriprise Financial, Inc.4 | | | 2,562 | | | | 279,591 | |
Capital One Financial Corp. | | | 3,727 | | | | 270,282 | |
Reinsurance Group of America, Inc. — Class A | | | 2,893 | | | | 262,077 | |
CNO Financial Group, Inc. | | | 12,617 | | | | 237,326 | |
Hancock Holding Co. | | | 8,351 | | | | 225,895 | |
Aflac, Inc.4 | | | 3,839 | | | | 223,161 | |
Principal Financial Group, Inc. | | | 4,064 | | | | 192,390 | |
Interactive Brokers Group, Inc. — Class A | | | 4,813 | | | | 189,969 | |
First Horizon National Corp. | | | 13,130 | | | | 186,183 | |
East West Bancorp, Inc. | | | 4,734 | | | | 181,880 | |
Fifth Third Bancorp | | | 9,524 | | | | 180,099 | |
Total Financial | | | | | | | 4,223,549 | |
| | | | | | | | | |
Communications - 4.7% | |
Viacom, Inc. — Class B4 | | | 14,273 | | | | 615,880 | |
Verizon Communications, Inc.4 | | | 13,450 | | | | 585,210 | |
Scripps Networks Interactive, Inc. — Class A4 | | | 5,507 | | | | 270,889 | |
Comcast Corp. — Class A4 | | | 4,632 | | | | 263,468 | |
AMC Networks, Inc. — Class A*,4 | | | 3,482 | | | | 254,778 | |
Walt Disney Co. | | | 2,458 | | | | 251,208 | |
InterDigital, Inc. | | | 3,846 | | | | 194,608 | |
Expedia, Inc. | | | 1,611 | | | | 189,582 | |
Interpublic Group of Companies, Inc. | | | 9,692 | | | | 185,408 | |
Polycom, Inc.*,4 | | | 17,568 | | | | 184,113 | |
Total Communications | | | | | | | 2,995,144 | |
| | | | | | | | | |
Energy - 0.8% | |
Chevron Corp.4 | | | 3,642 | | | | 287,281 | |
Exxon Mobil Corp. | | | 2,542 | | | | 188,998 | |
Total Energy | | | | | | | 476,279 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $51,195,303) | | | | | | | 48,364,967 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 12.3% | |
Goldman Sachs Financial Square Treasury Instruments Fund 0.00%1 | | | 7,751,553 | | | | 7,751,553 | |
Total Short Term Investments | | | | | | | | |
(Cost $7,751,553) | | | | | | | 7,751,553 | |
| | | | | | | | | |
Total Investments - 89.0% | | | | | | | | |
(Cost $58,946,856) | | | | | | | 56,116,520 | |
| | | | | | | | | |
COMMON STOCKS SOLD SHORT† - (21.7)% | |
Utilities - (0.3)% | |
SCANA Corp. | | | 3,578 | | | | (201,298 | ) |
| | | | | | | | | |
Consumer, Non-cyclical - (0.8)% | |
Insperity, Inc. | | | 940 | | | | (41,294 | ) |
Campbell Soup Co. | | | 1,863 | | | | (94,417 | ) |
Mondelez International, Inc. — Class A | | | 2,260 | | | | (94,626 | ) |
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
ALPHA OPPORTUNITY FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Hershey Co. | | | 1,036 | | | $ | (95,188 | ) |
ABIOMED, Inc.* | | | 1,924 | | | | (178,470 | ) |
Total Consumer, Non-cyclical | | | | | | | (503,995 | ) |
| | | | | | | | | |
Industrial - (1.3)% | |
FARO Technologies, Inc.* | | | 6,458 | | | | (226,030 | ) |
Louisiana-Pacific Corp.* | | | 37,638 | | | | (535,965 | ) |
Total Industrial | | | | | | | (761,995 | ) |
| | | | | | | | | |
Technology - (1.5)% | |
Benefitfocus, Inc.* | | | 568 | | | | (17,750 | ) |
RealPage, Inc.* | | | 2,223 | | | | (36,946 | ) |
HubSpot, Inc.* | | | 981 | | | | (45,489 | ) |
Workday, Inc. — Class A* | | | 666 | | | | (45,861 | ) |
Pegasystems, Inc. | | | 2,023 | | | | (49,786 | ) |
Callidus Software, Inc.* | | | 4,303 | | | | (73,108 | ) |
Cornerstone OnDemand, Inc.* | | | 2,280 | | | | (75,240 | ) |
Cvent, Inc.* | | | 2,283 | | | | (76,846 | ) |
Demandware, Inc.* | | | 1,542 | | | | (79,691 | ) |
Electronics for Imaging, Inc.* | | | 4,258 | | | | (184,286 | ) |
Ultimate Software Group, Inc.* | | | 1,528 | | | | (273,527 | ) |
Total Technology | | | | | | | (958,530 | ) |
| | | | | | | | | |
Communications - (2.1)% | |
Marketo, Inc.* | | | 2,173 | | | | (61,757 | ) |
Zendesk, Inc.* | | | 3,605 | | | | (71,055 | ) |
Infoblox, Inc.* | | | 4,471 | | | | (71,447 | ) |
Yahoo!, Inc.* | | | 7,184 | | | | (207,689 | ) |
ViaSat, Inc.* | | | 4,257 | | | | (273,683 | ) |
Facebook, Inc. — Class A* | | | 3,479 | | | | (312,762 | ) |
Amazon.com, Inc.* | | | 633 | | | | (324,026 | ) |
Total Communications | | | | | | | (1,322,419 | ) |
| | | | | | | | | |
Basic Materials - (4.5)% | |
Allegheny Technologies, Inc. | | | 9,991 | | | | (141,672 | ) |
HB Fuller Co. | | | 5,234 | | | | (177,642 | ) |
Worthington Industries, Inc. | | | 7,620 | | | | (201,777 | ) |
Commercial Metals Co. | | | 15,971 | | | | (216,407 | ) |
Valspar Corp. | | | 3,021 | | | | (217,150 | ) |
Carpenter Technology Corp. | | | 8,419 | | | | (250,634 | ) |
Compass Minerals International, Inc. | | | 3,333 | | | | (261,207 | ) |
Sensient Technologies Corp. | | | 4,920 | | | | (301,596 | ) |
Praxair, Inc. | | | 3,099 | | | | (315,664 | ) |
Ecolab, Inc. | | | 3,112 | | | | (341,449 | ) |
Royal Gold, Inc. | | | 8,764 | | | | (411,733 | ) |
Total Basic Materials | | | | | | | (2,836,931 | ) |
| | | | | | | | | |
Consumer, Cyclical - (5.4)% | |
Big 5 Sporting Goods Corp. | | | 2,893 | | | | (30,029 | ) |
Hibbett Sports, Inc.* | | | 1,363 | | | | (47,719 | ) |
Party City Holdco, Inc.* | | | 3,015 | | | | (48,149 | ) |
Ulta Salon Cosmetics & Fragrance, Inc.* | | | 298 | | | | (48,678 | ) |
Dick’s Sporting Goods, Inc. | | | 1,016 | | | | (50,404 | ) |
Tractor Supply Co. | | | 605 | | | | (51,014 | ) |
American Eagle Outfitters, Inc. | | | 11,164 | | | | (174,493 | ) |
Mattel, Inc. | | | 8,363 | | | | (176,125 | ) |
KB Home | | | 13,185 | | | | (178,657 | ) |
Nordstrom, Inc. | | | 2,541 | | | | (182,215 | ) |
Papa John’s International, Inc. | | | 2,749 | | | | (188,252 | ) |
Popeyes Louisiana Kitchen, Inc.* | | | 3,372 | | | | (190,046 | ) |
Texas Roadhouse, Inc. — Class A | | | 5,162 | | | | (192,026 | ) |
Lennar Corp. — Class A | | | 4,198 | | | | (202,050 | ) |
LKQ Corp.* | | | 7,313 | | | | (207,397 | ) |
Domino’s Pizza, Inc. | | | 2,031 | | | | (219,165 | ) |
Lithia Motors, Inc. — Class A | | | 2,157 | | | | (233,193 | ) |
Cabela’s, Inc.* | | | 5,377 | | | | (245,191 | ) |
Buffalo Wild Wings, Inc.* | | | 1,281 | | | | (247,784 | ) |
Signet Jewelers Ltd. | | | 3,567 | | | | (485,576 | ) |
Total Consumer, Cyclical | | | | | | | (3,398,163 | ) |
| | | | | | | | | |
Financial - (5.8)% | |
WageWorks, Inc.* | | | 1,238 | | | | (55,809 | ) |
Brown & Brown, Inc. | | | 6,095 | | | | (188,762 | ) |
Kemper Corp. | | | 5,414 | | | | (191,493 | ) |
T. Rowe Price Group, Inc. | | | 2,977 | | | | (206,902 | ) |
SVB Financial Group* | | | 2,021 | | | | (233,506 | ) |
Public Storage REIT | | | 1,107 | | | | (234,274 | ) |
Cousins Properties, Inc. | | | 26,148 | | | | (241,085 | ) |
Camden Property Trust | | | 3,326 | | | | (245,791 | ) |
Federal Realty Investment Trust | | | 1,990 | | | | (271,536 | ) |
Arthur J Gallagher & Co. | | | 6,628 | | | | (273,604 | ) |
Valley National Bancorp | | | 28,777 | | | | (283,166 | ) |
Morgan Stanley | | | 9,091 | | | | (286,367 | ) |
Nasdaq, Inc. | | | 5,549 | | | | (295,928 | ) |
Old Republic International Corp. | | | 19,072 | | | | (298,286 | ) |
Assurant, Inc. | | | 4,625 | | | | (365,421 | ) |
Total Financial | | | | | | | (3,671,930 | ) |
Total Common Stocks Sold Short | | | | | | | | |
(Proceeds $14,664,350) | | | | | | | (13,655,261 | ) |
| | | | | | | | | |
EXCHANGE-TRADED FUNDS SOLD SHORT† - (0.4)% | |
SPDR S&P Biotech ETF | | | 4,143 | | | | (257,902 | ) |
Total Exchange-Traded Funds Sold Short | | | | | | | | |
(Proceeds $319,046) | | | | | | | (257,902 | ) |
| | | | | | | | | |
CLOSED-END FUNDS SOLD SHORT† - (0.2)% | |
Herzfeld Caribbean Basin Fund, Inc. | | | (18,290 | ) | | | (128,213 | ) |
Total Closed-End Funds Sold Short | | | | | | | | |
(Proceeds $196,758) | | | | | | | (128,213 | ) |
Total Securities Sold Short- (22.3)% | | | | | | | | |
(Proceeds $15,180,154) | | | | | | $ | (14,041,376 | ) |
Other Assets & Liabilities, net - 33.3% | | | | | | | 21,049,826 | |
Total Net Assets - 100.0% | | | | | | $ | 63,124,970 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
ALPHA OPPORTUNITY FUND | |
| | | Unrealized
Gain (Loss) | |
| | | | |
OTC TOTAL RETURN SWAP AGREEMENTS†† | |
Morgan Stanley February 2016 Alpha
Opportunity Short Custom Basket Swap,
Terminating 02/03/162
(Notional Value $27,367,239) | | $ | 969,645 | |
Morgan Stanley February 2016 Alpha
Opportunity Long Custom Basket Swap,
Terminating 02/03/163
(Notional Value $25,531,279) | | $ | (1,054,855 | ) |
| | | Shares | | | | |
| | | | | | | |
CUSTOM BASKET OF LONG SECURITIES3 | |
Atlantic Tele-Network, Inc. | | | 7,093 | | | | 43,605 | |
Altria Group, Inc. | | | 3,906 | | | | 10,541 | |
Northrop Grumman Corp. | | | 1,261 | | | | 7,549 | |
Waste Management, Inc. | | | 3,781 | | | | 4,351 | |
General Mills, Inc. | | | 5,772 | | | | (2,495 | ) |
Kroger Co. | | | 5,281 | | | | (4,239 | ) |
EMCOR Group, Inc. | | | 4,194 | | | | (8,500 | ) |
DENTSPLY International, Inc. | | | 6,531 | | | | (13,464 | ) |
Public Service Enterprise Group, Inc. | | | 13,749 | | | | (15,233 | ) |
Computer Sciences Corp. | | | 3,024 | | | | (20,857 | ) |
AmerisourceBergen Corp. — Class A | | | 1,688 | | | | (22,470 | ) |
Cisco Systems, Inc. | | | 15,762 | | | | (25,433 | ) |
Buckle, Inc. | | | 4,511 | | | | (28,629 | ) |
Allstate Corp. | | | 3,383 | | | | (29,009 | ) |
Time, Inc. | | | 9,299 | | | | (32,481 | ) |
CenterPoint Energy, Inc. | | | 13,326 | | | | (32,982 | ) |
JPMorgan Chase & Co. | | | 10,103 | | | | (40,947 | ) |
FedEx Corp. | | | 1,262 | | | | (42,215 | ) |
Procter & Gamble Co. | | | 9,148 | | | | (44,236 | ) |
Textron, Inc. | | | 6,036 | | | | (47,645 | ) |
Agilent Technologies, Inc. | | | 10,748 | | | | (47,821 | ) |
Moog, Inc. — Class A* | | | 3,010 | | | | (47,860 | ) |
Corning, Inc. | | | 15,977 | | | | (48,673 | ) |
L-3 Communications Holdings, Inc. | | | 4,425 | | | | (52,678 | ) |
Xerox Corp. | | | 30,006 | | | | (52,938 | ) |
Eaton Corporation plc | | | 4,024 | | | | (58,760 | ) |
ADT Corp. | | | 7,770 | | | | (59,519 | ) |
Entergy Corp. | | | 9,343 | | | | (76,830 | ) |
Regal Beloit Corp. | | | 3,697 | | | | (88,661 | ) |
Archer-Daniels-Midland Co. | | | 21,095 | | | | (193,895 | ) |
Total Long Swap holdings | | | | | | | (1,072,425 | ) |
| | | | | | | | | |
CUSTOM BASKET OF SHORT SECURITIES2 | |
United States Steel Corp. | | | (19,418 | ) | | | 106,983 | |
CF Industries Holdings, Inc. | | | (6,970 | ) | | | 83,646 | |
Wynn Resorts Ltd. | | | (3,241 | ) | | | 79,112 | |
Sherwin-Williams Co. | | | (1,056 | ) | | | 62,530 | |
Air Products & Chemicals, Inc. | | | (3,706 | ) | | | 60,834 | |
Airgas, Inc. | | | (3,756 | ) | | | 57,073 | |
Men’s Wearhouse, Inc. | | | (3,844 | ) | | | 53,887 | |
PPG Industries, Inc. | | | (1,983 | ) | | | 53,784 | |
Eagle Materials, Inc. | | | (4,023 | ) | | | 52,497 | |
Starwood Hotels & Resorts Worldwide, Inc. | | | (2,868 | ) | | | 51,241 | |
Finish Line, Inc. — Class A | | | (7,115 | ) | | | 51,062 | |
SunTrust Banks, Inc. | | | (11,175 | ) | | | 50,053 | |
Kindred Healthcare, Inc. | | | (9,181 | ) | | | 44,040 | |
Clearwater Paper Corp.* | | | (5,559 | ) | | | 42,851 | |
Cree, Inc.* | | | (14,564 | ) | | | 35,516 | |
Potlatch Corp. | | | (7,530 | ) | | | 34,790 | |
ExamWorks Group, Inc.* | | | (5,290 | ) | | | 33,331 | |
PulteGroup, Inc. | | | (23,405 | ) | | | 32,276 | |
Bemis Company, Inc. | | | (4,406 | ) | | | 31,930 | |
IPG Photonics Corp.* | | | (3,299 | ) | | | 29,489 | |
American Tower REIT Corp. — Class A | | | (3,847 | ) | | | 27,998 | |
Goldman Sachs Group, Inc. | | | (1,806 | ) | | | 24,972 | |
International Flavors & Fragrances, Inc. | | | (1,696 | ) | | | 24,337 | |
Kulicke & Soffa Industries, Inc.* | | | (18,372 | ) | | | 22,138 | |
Crown Castle International REIT Corp. | | | (4,609 | ) | | | 21,959 | |
Leucadia National Corp. | | | (16,222 | ) | | | 20,727 | |
First Solar, Inc.* | | | (3,955 | ) | | | 18,474 | |
Sotheby’s | | | (5,366 | ) | | | 16,649 | |
Anixter International, Inc.* | | | (5,159 | ) | | | 16,400 | |
Martin Marietta Materials, Inc. | | | (2,769 | ) | | | 15,998 | |
MDC Holdings, Inc. | | | (6,611 | ) | | | 14,797 | |
Crocs, Inc.* | | | (13,506 | ) | | | 14,146 | |
Bank of America Corp. | | | (19,655 | ) | | | 13,998 | |
Ashland, Inc. | | | (3,060 | ) | | | 13,791 | |
Mohawk Industries, Inc.* | | | (967 | ) | | | 12,523 | |
Vulcan Materials Co. | | | (4,481 | ) | | | 12,224 | |
Headwaters, Inc.* | | | (9,515 | ) | | | 11,925 | |
American International Group, Inc. | | | (3,142 | ) | | | 10,605 | |
Garmin Ltd. | | | (4,978 | ) | | | 10,572 | |
Aon plc | | | (2,025 | ) | | | 9,760 | |
National Instruments Corp. | | | (9,253 | ) | | | 7,424 | |
Marsh & McLennan Companies, Inc. | | | (3,488 | ) | | | 6,647 | |
Tempur Sealy International, Inc.* | | | (2,595 | ) | | | 5,971 | |
MasterCard, Inc. — Class A | | | (2,025 | ) | | | 5,838 | |
FirstEnergy Corp. | | | (5,880 | ) | | | 5,595 | |
U.S. Bancorp | | | (4,461 | ) | | | 5,417 | |
Visa, Inc. — Class A | | | (2,623 | ) | | | 5,381 | |
Signature Bank* | | | (1,415 | ) | | | 5,370 | |
Brunswick Corp. | | | (3,840 | ) | | | 4,621 | |
Western Digital Corp. | | | (2,326 | ) | | | 3,296 | |
HCP REIT, Inc. | | | (6,118 | ) | | | 2,980 | |
Loews Corp. | | | (18,272 | ) | | | 2,918 | |
Sempra Energy | | | (2,770 | ) | | | 2,684 | |
Kilroy Realty Corp. | | | (3,903 | ) | | | 1,960 | |
Chipotle Mexican Grill, Inc. — Class A* | | | (259 | ) | | | 1,842 | |
Ventas REIT, Inc. | | | (3,941 | ) | | | 1,467 | |
KBR, Inc. | | | (11,209 | ) | | | 1,464 | |
Cognizant Technology Solutions Corp. — Class A* | | | (2,990 | ) | | | 1,290 | |
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
ALPHA OPPORTUNITY FUND | |
| | |
Shares
| | | Unrealized
Gain (Loss) | |
| | | | | | | |
American Airlines Group, Inc. | | | (4,828 | ) | | $ | 1,263 | |
Essex Property Trust REIT, Inc. | | | (1,381 | ) | | | 1,231 | |
Dominion Resources, Inc. | | | (2,678 | ) | | | 758 | |
General Growth Properties REIT, Inc. | | | (13,889 | ) | | | 753 | |
Royal Caribbean Cruises Ltd. | | | (4,220 | ) | | | 692 | |
Darden Restaurants, Inc. | | | (2,750 | ) | | | 579 | |
Acadia Realty Trust | | | (7,173 | ) | | | 247 | |
CME Group, Inc. — Class A | | | (4,539 | ) | | | (286 | ) |
Carnival Corp. | | | (3,796 | ) | | | (440 | ) |
Simon Property Group REIT, Inc. | | | (1,203 | ) | | | (710 | ) |
Xilinx, Inc. | | | (5,902 | ) | | | (1,034 | ) |
Bank of the Ozarks, Inc. | | | (4,494 | ) | | | (1,169 | ) |
Equity One, Inc. | | | (7,911 | ) | | | (1,926 | ) |
ProAssurance Corp. | | | (3,892 | ) | | | (2,100 | ) |
Post Properties, Inc. | | | (3,384 | ) | | | (3,037 | ) |
Plum Creek Timber Company REIT, Inc. | | | (5,238 | ) | | | (3,363 | ) |
People’s United Financial, Inc. | | | (14,604 | ) | | | (3,748 | ) |
Tanger Factory Outlet Centers, Inc. | | | (5,898 | ) | | | (4,321 | ) |
National Retail Properties, Inc. | | | (5,363 | ) | | | (4,928 | ) |
Realty Income REIT Corp. | | | (4,132 | ) | | | (5,883 | ) |
Kimco Realty REIT Corp. | | | (8,027 | ) | | | (6,282 | ) |
Regency Centers Corp. | | | (3,175 | ) | | | (6,832 | ) |
Intercontinental Exchange, Inc. | | | (1,539 | ) | | | (7,481 | ) |
Kate Spade & Co.* | | | (10,221 | ) | | | (8,585 | ) |
Adobe Systems, Inc.* | | | (2,402 | ) | | | (9,008 | ) |
Balchem Corp. | | | (3,386 | ) | | | (9,416 | ) |
Welltower REIT, Inc. | | | (3,188 | ) | | | (9,910 | ) |
SL Green Realty REIT Corp. | | | (4,209 | ) | | | (9,940 | ) |
ProLogis REIT, Inc. | | | (15,214 | ) | | | (10,105 | ) |
Healthcare Realty Trust, Inc. | | | (8,143 | ) | | | (11,903 | ) |
UDR, Inc. | | | (5,871 | ) | | | (12,560 | ) |
General Motors Co. | | | (9,693 | ) | | | (13,516 | ) |
Panera Bread Co. — Class A* | | | (1,051 | ) | | | (14,298 | ) |
CBOE Holdings, Inc. | | | (3,586 | ) | | | (14,459 | ) |
Advance Auto Parts, Inc. | | | (1,078 | ) | | | (16,193 | ) |
Greif, Inc. — Class A | | | (6,549 | ) | | | (20,604 | ) |
Itron, Inc.* | | | (9,663 | ) | | | (23,094 | ) |
Motorola Solutions, Inc. | | | (7,893 | ) | | | (35,201 | ) |
Stillwater Mining Co.* | | | (31,039 | ) | | | (40,791 | ) |
Under Armour, Inc. — Class A* | | | (2,712 | ) | | | (50,104 | ) |
Con-way, Inc. | | | (60,100 | ) | | | (77,267 | ) |
Total Short Swap holdings | | | | | | | 1,018,111 | |
* | 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 | Rate indicated is the 7 day yield as of September 30, 2015. |
2 | Total Return is based on the return of the custom basket of short securities +/- financing at a variable rate. |
3 | Total Return is based on the return of the custom basket of long securities +/ - financing at a variable rate. |
4 | All or portion of this security is pledged as short security collateral at September 30, 2015. |
| | plc — Public Limited Company |
| | REIT — Real Estate Investment Trust |
| | |
| | See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments, at value (cost $58,946,856) | | $ | 56,116,520 | |
Segregated cash with broker | | | 20,967,854 | |
Unrealized appreciation on swap agreements | | | 969,645 | |
Prepaid expenses | | | 36,828 | |
Cash | | | 3,578 | |
Receivables: | |
Securities sold | | | 1,293,087 | |
Fund shares sold | | | 82,344 | |
Dividends | | | 42,271 | |
Total assets | | | 79,512,127 | |
| | | | | |
Liabilities: | |
Securities sold short, at value (proceeds $15,180,154) | | | 14,041,376 | |
Unrealized depreciation on swap agreements | | | 1,054,855 | |
Payable for: | |
Securities purchased | | | 844,141 | |
Swap settlement | | | 302,288 | |
Management fees | | | 73,071 | |
Fund shares redeemed | | | 29,290 | |
Fund accounting/administration fees | | | 5,211 | |
Transfer agent/maintenance fees | | | 4,090 | |
Distribution and service fees | | | 3,340 | |
Trustees’ fees* | | | 83 | |
Miscellaneous | | | 29,412 | |
Total liabilities | | | 16,387,157 | |
Net assets | | $ | 63,124,970 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 68,727,609 | |
Undistributed net investment income | | | 85,210 | |
Accumulated net realized loss on investments | | | (3,911,081 | ) |
Net unrealized depreciation on investments | | | (1,776,768 | ) |
Net assets | | $ | 63,124,970 | |
| | | | | |
A-Class: | |
Net assets | | $ | 11,484,786 | |
Capital shares outstanding | | | 624,504 | |
Net asset value per share | | $ | 18.39 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 19.31 | |
| | | | | |
C-Class: | |
Net assets | | $ | 1,202,945 | |
Capital shares outstanding | | | 73,041 | |
Net asset value per share | | $ | 16.47 | |
| | | | | |
P-Class: | |
Net assets | | $ | 133,624 | |
Capital shares outstanding | | | 7,266 | |
Net asset value per share | | $ | 18.39 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 50,303,615 | |
Capital shares outstanding | | | 1,955,080 | |
Net asset value per share | | $ | 25.73 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Dividends (net of foreign withholding tax of $78) | | $ | 358,249 | |
Interest | | | 62 | |
Total investment income | | | 358,311 | |
| | | | | |
Expenses: | |
Management fees | | | 379,313 | |
Transfer agent/maintenance fees: | |
A-Class | | | 20,312 | |
C-Class | | | 3,568 | |
P-Class** | | | 123 | |
Institutional Class | | | 6,749 | |
Distribution and service fees: | |
A-Class | | | 23,579 | |
C-Class | | | 11,319 | |
P-Class** | | | 44 | |
Fund accounting/administration fees | | | 30,852 | |
Short sales dividend expense | | | 212,342 | |
Legal fees | | | 70,872 | |
Prime broker interest expense | | | 61,592 | |
Custodian fees | | | 26,533 | |
Trustees’ fees* | | | 1,630 | |
Tax expense | | | 1 | |
Miscellaneous | | | 93,144 | |
Total expenses | | | 941,973 | |
Less: | |
Expenses waived by Adviser | | | (68,666 | ) |
Net expenses | | | 873,307 | |
Net investment loss | | | (514,996 | ) |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments | | | (1,016,731 | ) |
Swap agreements | | | (492,841 | ) |
Futures contracts | | | 56,088 | |
Securities sold short | | | 2,119,551 | |
Net realized gain | | | 666,067 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments | | | (2,830,339 | ) |
Securities sold short | | | 1,138,779 | |
Swap agreements | | | 44,992 | |
Futures contracts | | | 32,652 | |
Net change in unrealized appreciation (depreciation) | | | (1,613,916 | ) |
Net realized and unrealized loss | | | (947,849 | ) |
Net decrease in net assets resulting from operations | | $ | (1,462,845 | ) |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment loss | | $ | (514,996 | ) | | $ | (88,149 | ) |
Net realized gain on investments | | | 666,067 | | | | 4,542,329 | |
Net change in unrealized appreciation (depreciation) on investments | | | (1,613,916 | ) | | | (3,297,136 | ) |
Net increase (decrease) in net assets resulting from operations | | | (1,462,845 | ) | | | 1,157,044 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (1,982 | ) | | | — | |
C-Class | | | (278 | ) | | | — | |
Institutional Class | | | (297 | ) | | | — | |
Total distributions to shareholders | | | (2,557 | ) | | | — | |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 5,408,836 | | | | 2,752,898 | ** |
B-Class | | | 235 | | | | — | |
C-Class | | | 265,649 | | | | — | |
P-Class* | | | 139,796 | | | | — | |
Institutional Class | | | 50,445,467 | | | | — | |
Distributions reinvested | | | | | | | | |
A-Class | | | 1,956 | | | | — | |
C-Class | | | 273 | | | | — | |
Institutional Class | | | 297 | | | | — | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (2,010,069 | ) | | | (3,326,323 | ) |
B-Class | | | (93 | ) | | | (628,571 | ) |
C-Class | | | (182,978 | ) | | | (203,390 | ) |
P-Class* | | | (4,920 | ) | | | — | |
Institutional Class | | | (225,328 | ) | | | (270,604 | ) |
Net increase (decrease) from capital share transactions | | | 53,839,121 | | | | (1,675,990 | ) |
Net increase (decrease) in net assets | | | 52,373,719 | | | | (518,946 | ) |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 10,751,251 | | | | 11,270,197 | |
End of year | | $ | 63,124,970 | | | $ | 10,751,251 | |
Undistributed net investment income at end of year | | $ | 85,210 | | | $ | — | |
* | Since commencement of operations: May 1, 2015. |
** | Represents conversion of B-Class to A-Class shares and purchase of 119,923 shares by the Adviser for $2,185,000. |
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF ASSETS AND LIABILITIES (concluded) |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 288,180 | | | | 151,642 | |
C-Class | | | 15,608 | | | | — | |
P-Class* | | | 7,535 | | | | — | |
Institutional Class | | | 1,897,857 | | | | — | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 103 | | | | — | |
C-Class | | | 16 | | | | — | |
Institutional Class | | | 11 | | | | — | |
Shares redeemed | | | | | | | | |
A-Class | | | (107,421 | ) | | | (185,854 | ) |
B-Class | | | — | | | | (39,060 | ) |
C-Class | | | (11,312 | ) | | | (13,056 | ) |
P-Class* | | | (269 | ) | | | — | |
Institutional Class | | | (8,239 | ) | | | (11,612 | ) |
Net increase (decrease) in shares | | | 2,082,069 | | | | (97,940 | ) |
* | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
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.
A-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 18.01 | | | $ | 16.22 | | | $ | 13.33 | | | $ | 9.82 | | | $ | 9.70 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | (.35 | ) | | | (.13 | ) | | | .03 | | | | (— | )b | | | (.04 | ) |
Net gain (loss) on investments (realized and unrealized) | | | .73 | | | | 1.92 | | | | 2.86 | | | | 3.48 | | | | .16 | |
Net increase from payments by affiliates | | | — | | | | — | | | | — | | | | .03 | c | | | — | |
Total from investment operations | | | .38 | | | | 1.79 | | | | 2.89 | | | | 3.51 | | | | .12 | |
Less distributions from: | |
Net investment income | | | (— | )e | | | — | | | | — | | | | — | | | | — | |
Total distributions | | | (— | )e | | | — | | | | — | | | | — | | | | — | |
Net asset value, end of period | | $ | 18.39 | | | $ | 18.01 | | | $ | 16.22 | | | $ | 13.33 | | | $ | 9.82 | |
| | |
Total Returnd | | | 2.13 | % | | | 11.04 | % | | | 21.38 | % | | | 35.74 | %c | | | 1.13 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 11,485 | | | $ | 7,989 | | | $ | 7,749 | | | $ | 7,250 | | | $ | 6,708 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (1.88 | %) | | | (0.73 | %) | | | 0.19 | % | | | (0.01 | %) | | | (0.33 | %) |
Total expensesf | | | 3.92 | % | | | 3.25 | % | | | 3.99 | % | | | 2.99 | % | | | 3.39 | % |
Net expensesg,i | | | 2.94 | % | | | 2.12 | % | | | 2.14 | % | | | 2.21 | % | | | 2.15 | % |
Portfolio turnover rate | | | 124 | % | | | — | | | | 488 | % | | | 707 | % | | | 868 | % |
C-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 16.25 | | | $ | 14.74 | | | $ | 12.21 | | | $ | 9.07 | | | $ | 9.03 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | (.44 | ) | | | (.23 | ) | | | (.07 | ) | | | (.09 | ) | | | (.11 | ) |
Net gain (loss) on investments (realized and unrealized) | | | .66 | | | | 1.74 | | | | 2.60 | | | | 3.21 | | | | .15 | |
Net increase from payments by affiliates | | | — | | | | — | | | | — | | | | .02 | c | | | — | |
Total from investment operations | | | .22 | | | | 1.51 | | | | 2.53 | | | | 3.14 | | | | .04 | |
Less distributions from: | |
Net investment income | | | (— | )e | | | — | | | | — | | | | — | | | | — | |
Total distributions | | | (— | )e | | | — | | | | — | | | | — | | | | — | |
Net asset value, end of period | | $ | 16.47 | | | $ | 16.25 | | | $ | 14.74 | | | $ | 12.21 | | | $ | 9.07 | |
| | |
Total Returnd | | | 1.38 | % | | | 10.24 | % | | | 20.48 | % | | | 34.62 | %c | | | 0.44 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 1,203 | | | $ | 1,117 | | | $ | 1,206 | | | $ | 1,497 | | | $ | 1,292 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (2.64 | %) | | | (1.46 | %) | | | (0.56 | %) | | | (0.76 | %) | | | (1.08 | %) |
Total expensesf | | | 4.81 | % | | | 4.11 | % | | | 4.84 | % | | | 3.80 | % | | | 4.14 | % |
Net expensesg,i | | | 3.68 | % | | | 2.87 | % | | | 2.89 | % | | | 2.96 | % | | | 2.90 | % |
Portfolio turnover rate | | | 124 | % | | | — | | | | 488 | % | | | 707 | % | | | 868 | % |
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
P-Class | | Period Ended
September 30,
2015h | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 19.11 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | (.13 | ) |
Net gain (loss) on investments (realized and unrealized) | | | (.59 | ) |
Total from investment operations | | | (.72 | ) |
Net asset value, end of period | | $ | 18.39 | |
| | | | | |
Total Returnd | | | (3.77 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 134 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (1.77 | %) |
Total expensesf | | | 3.31 | % |
Net expensesg,i | | | 2.87 | % |
Portfolio turnover rate | | | 124 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 25.13 | | | $ | 22.58 | | | $ | 18.52 | | | $ | 13.53 | | | $ | 13.33 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | (.40 | ) | | | (.12 | ) | | | .09 | | | | .04 | | | | (.01 | ) |
Net gain (loss) on investments (realized and unrealized) | | | 1.00 | | | | 2.67 | | | | 3.97 | | | | 4.82 | | | | .21 | |
Net increase from payments by affiliates | | | — | | | | — | | | | — | | | | .13 | c | | | — | |
Total from investment operations | | | .60 | | | | 2.55 | | | | 4.06 | | | | 4.99 | | | | .20 | |
Less distributions from: | |
Net investment income | | | (— | )e | | | — | | | | — | | | | — | | | | — | |
Total distributions | | | (— | )e | | | — | | | | — | | | | — | | | | — | |
Net asset value, end of period | | $ | 25.73 | | | $ | 25.13 | | | $ | 22.58 | | | $ | 18.52 | | | $ | 13.53 | |
| | |
Total Returnd | | | 2.41 | % | | | 11.29 | % | | | 21.60 | % | | | 36.88 | %c | | | 1.50 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 50,304 | | | $ | 1,645 | | | $ | 1,740 | | | $ | 1,518 | | | $ | 1,326 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (1.55 | %) | | | (0.48 | %) | | | 0.43 | % | | | 0.24 | % | | | (0.08 | %) |
Total expensesf | | | 2.80 | % | | | 2.90 | % | | | 3.67 | % | | | 2.68 | % | | | 3.12 | % |
Net expensesg,i | | | 2.80 | % | | | 1.87 | % | | | 1.90 | % | | | 1.96 | % | | | 1.90 | % |
Portfolio turnover rate | | | 124 | % | | | — | | | | 488 | % | | | 707 | % | | | 868 | % |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Net investment income is less than $0.01 per share. |
c | 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. |
d | Total return does not reflect the impact of any applicable sales charges. |
e | Distributions from net investment income are less than $0.01 per share. |
f | Does not include expenses of the underlying funds in which the Fund invests. |
g | Net expense information reflects the expense ratios after expense waivers. |
h | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
i | Net expenses may include expenses that are excluded from the expense limitation agreement and recouped amounts. Excluding these expenses, the operating expense ratios for the periods presented would be: |
| | 09/30/15 | 09/30/14 | 09/30/13 | 09/30/12 | 09/30/11 |
A-Class | 2.11% | 2.11% | 2.11% | 2.11% | 2.11% |
C-Class | 2.86% | 2.86% | 2.86% | 2.86% | 2.86% |
P-Class | 2.10% | — | — | — | — |
Institutional Class | 1.86% | 1.86% | 1.86% | 1.86% | 1.86% |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
To Our Shareholders:
Guggenheim Large Cap Value Fund (the “Fund”) is managed by a team of seasoned professionals led by James Schier, CFA, Senior Portfolio Manager. The former Portfolio Manager, Mark Mitchell, CFA, left the firm during the period, and the following individuals were added as Portfolio Managers to the Fund: Scott Hammond, Managing Director; Farhan Sharaff, Assistant Chief Investment Officer, Equities; and Gregg Strohkorb, CFA. In the following paragraphs, the team discusses performance of the Fund for the fiscal year ended September 30, 2015.
For the one year period ended September 30, 2015, the Guggenheim Large Cap Value Fund returned -7.19%1, compared with the -4.42% 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 improve returns, maintain existing high levels of profitability, or benefit from change that occurs in the industries in which they operate. In today’s rapidly changing environment marked by very sharp and quick, but constrained volatility, our long-term orientation and discipline are a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides and fundamentals once again become a more dominant factor in the market.
Performance Review
The largest contributors to the Fund’s performance for the period were stock-selection decisions in the Consumer Staples, Financials, and Utilities sectors. Two of the three leading individual contributors to performance for the period were in the Utilities sector, one of the better-performing sectors for the period. They included Edison International, a public utility with diverse subsidiaries that include regulated Southern California Edison and unregulated, non-utility assets; and AGL Resources, Inc., a distributor of natural gas whose shares rose when it agreed to be acquired by Southern Company during the period. CVS Health, a Consumer Staples holding, was another top individual contributor for the period. The company agreed to acquire Target Corp.’s pharmacies during the period, and continues to display strength in pharmacy benefit management.
The Energy, Industrials, and Consumer Discretionary sectors were the leading detractors from performance. Being underweight Energy, the worst-performing sector in the index, could not offset the effect of poor stock selection in the sector. The three leading individual detractors from Fund performance for the period were in Energy: Whiting Petroleum Corp., an exploration and production company; Haliburton Company, an oil services company; and Patterson-UTI Energy, Inc, an on-shore driller.
Commodity-oriented companies performed poorly late in the period across all industries, and Energy was especially weak. The lack of holdings in refining or other sub-industries less impacted by crude’s weakness was a detriment. Companies such as Whiting Petroleum that are essentially 100% dependent on crude pricing—as they operate in the Bakken, where all production is crude oil—were especially weak.
Stock selection in Industrials, the Fund’s largest overweight, was another detractor. The Fund has favored the prospects of many of the companies in this sector, given the country’s need to invest in upgrading infrastructure.
Fund performance was also hurt by poor stock selection in Consumer Discretionary. The Fund’s holdings in this sector were down more than 7%, while the sector in the index was up almost 4%, one of the better-performing sectors in the index. Underperformance in this sector in the Fund was driven by DeVry Education Group, a position that was reduced over the period. Following a strong year in 2014, the combination of mixed earnings, soft enrollment trends, and disappointing guidance have called into question the stability for-profit education companies had been experiencing.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
Portfolio Positioning
The largest relative sector exposures for the year were underweights in Energy and Health Care and overweights in Industrials and Consumer Staples. Of these allocations, only the underweight Health Care detracted from Fund performance for the year.
The Health Care sector underweight was predominantly driven by our view that the large pharmaceutical companies continue to be fairly valued, and are less attractive than companies in other sectors. The Energy positioning reflects the continuing troubles in the oil patch. Many of the Fund’s holdings in the sector are exploration and production companies and service companies that have manageable leverage and liquidity to weather the storm in commodity prices.
The overweights in both Industrials and Consumer Staples were driven by our bottom-up fundamental research having identified several companies with favorable risk-return profiles.
Portfolio and Market Outlook
Despite a firming economy, investors continued to be very cautious during the quarter as safe-haven areas such as Consumer Staples, Utilities, and REITs performed the best, while Energy, Information Technology, and Industrials lagged. Companies tied to the commodity cycle were especially hard hit late in the period. As the world continues to look towards the U.S. economy to be the engine for growth, and as foreign investors continue to fear the safety of their own currencies and economies, interest in U.S. assets should continue to be robust. The prolonged decline in U.S. government bond yields should continue to make equities an attractive alternative for incremental investment dollars.
Our portfolios tend to reflect a bias toward companies with balance sheet quality. We continue to find niche companies with what we believe to be attractive growth opportunities, and, as such, are constructive on the outlook.
Performance displayed represents past performance which is no guarantee of future results.
1 | Performance figures are based on Class A 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.
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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.
Inception Dates: |
A-Class | August 7, 1944 |
C-Class | January 29, 1999 |
P-Class | May 1, 2015 |
Institutional Class | June 7, 2013 |
Ten Largest Holdings (% of Total Net Assets) |
American International Group, Inc. | 4.0% |
Wells Fargo & Co. | 4.0% |
JPMorgan Chase & Co. | 3.6% |
Citigroup, Inc. | 3.2% |
Republic Services, Inc. — Class A | 2.6% |
Cisco Systems, Inc. | 2.4% |
Dow Chemical Co. | 2.3% |
Johnson & Johnson | 2.3% |
Edison International | 2.3% |
Exxon Mobil Corp. | 2.2% |
Top Ten Total | 28.9% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 27 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | 10 Year |
A-Class Shares | -7.19% | 9.86% | 5.20% |
A-Class Shares with sales charge† | -11.59% | 8.56% | 4.59% |
C-Class Shares | -7.89% | 9.02% | 4.37% |
C-Class Shares with CDSC§ | -8.77% | 9.02% | 4.37% |
Russell 1000 Value Index | -4.42% | 12.29% | 5.71% |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | -10.38% |
Russell 1000 Value Index | | | -9.94% |
| | | 1 Year | Since Inception
(06/07/13) |
Institutional Class Shares | | -6.97% | 4.93% |
Russell 1000 Value Index | | -4.42% | 6.66% |
* | 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. The graph is based on A-Class shares only; performance for C-Class, P-Class and Institutional Class will vary due to differences in fee structures. |
† | 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. |
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
LARGE CAP VALUE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 97.7% | |
| | | | | | | |
Financial - 27.6% | |
American International Group, Inc. | | | 36,092 | | | $ | 2,050,748 | |
Wells Fargo & Co. | | | 39,590 | | | | 2,032,947 | |
JPMorgan Chase & Co. | | | 29,990 | | | | 1,828,491 | |
Citigroup, Inc. | | | 33,410 | | | | 1,657,471 | |
Reinsurance Group of America, Inc. — Class A | | | 12,165 | | | | 1,102,027 | |
Zions Bancorporation | | | 28,460 | | | | 783,788 | |
Allstate Corp. | | | 12,905 | | | | 751,587 | |
Nasdaq, Inc. | | | 12,419 | | | | 662,305 | |
BB&T Corp. | | | 15,700 | | | | 558,920 | |
Legg Mason, Inc. | | | 13,420 | | | | 558,406 | |
Assured Guaranty Ltd. | | | 22,100 | | | | 552,500 | |
Sun Communities, Inc. | | | 7,610 | | | | 515,654 | |
Bank of America Corp. | | | 31,780 | | | | 495,132 | |
Equity Residential | | | 4,090 | | | | 307,241 | |
Simon Property Group, Inc. | | | 1,620 | | | | 297,626 | |
Total Financial | | | | | | | 14,154,843 | |
| | | | | | | | | |
Consumer, Non-cyclical - 20.6% | |
Johnson & Johnson | | | 12,730 | | | | 1,188,345 | |
Mondelez International, Inc. — Class A | | | 24,460 | | | | 1,024,140 | |
UnitedHealth Group, Inc. | | | 8,105 | | | | 940,261 | |
Philip Morris International, Inc. | | | 10,190 | | | | 808,373 | |
Pfizer, Inc. | | | 23,200 | | | | 728,712 | |
Archer-Daniels-Midland Co. | | | 15,490 | | | | 642,061 | |
MasterCard, Inc. — Class A | | | 7,010 | | | | 631,741 | |
Quanta Services, Inc.* | | | 23,040 | | | | 557,798 | |
Campbell Soup Co. | | | 10,760 | | | | 545,317 | |
Medtronic plc | | | 8,030 | | | | 537,528 | |
ADT Corp. | | | 17,180 | | | | 513,682 | |
Sanderson Farms, Inc. | | | 7,460 | | | | 511,532 | |
Zimmer Biomet Holdings, Inc. | | | 5,250 | | | | 493,133 | |
HCA Holdings, Inc.* | | | 6,180 | | | | 478,085 | |
Kraft Heinz Co. | | | 6,741 | | | | 475,780 | |
Teva Pharmaceutical Industries Ltd. ADR | | | 8,235 | | | | 464,948 | |
Total Consumer, Non-cyclical | | | | | | | 10,541,436 | |
| | | | | | | | | |
Industrial - 11.5% | |
Republic Services, Inc. — Class A | | | 32,860 | | | | 1,353,833 | |
General Electric Co. | | | 35,220 | | | | 888,248 | |
FLIR Systems, Inc. | | | 27,260 | | | | 763,007 | |
TE Connectivity Ltd. | | | 8,697 | | | | 520,863 | |
CH Robinson Worldwide, Inc. | | | 7,630 | | | | 517,161 | |
WestRock Co. | | | 9,798 | | | | 504,009 | |
Oshkosh Corp. | | | 11,669 | | | | 423,935 | |
Huntington Ingalls Industries, Inc. | | | 3,830 | | | | 410,385 | |
Owens-Illinois, Inc.* | | | 12,590 | | | | 260,865 | |
Caterpillar, Inc. | | | 3,440 | | | | 224,838 | |
Total Industrial | | | | | | | 5,867,144 | |
| | | | | | | | | |
Consumer, Cyclical - 9.0% | |
Wal-Mart Stores, Inc. | | | 16,505 | | | | 1,070,184 | |
CVS Health Corp. | | | 10,080 | | | | 972,518 | |
Lear Corp. | | | 7,470 | | | | 812,587 | |
PulteGroup, Inc. | | | 42,700 | | | | 805,749 | |
Kohl’s Corp. | | | 12,370 | | | | 572,855 | |
BorgWarner, Inc. | | | 9,460 | | | | 393,441 | |
Total Consumer, Cyclical | | | | | | | 4,627,334 | |
| | | | | | | | | |
Technology - 8.3% | |
Computer Sciences Corp. | | | 17,195 | | | | 1,055,430 | |
Microsoft Corp. | | | 19,050 | | | | 843,153 | |
Intel Corp. | | | 27,920 | | | | 841,509 | |
QUALCOMM, Inc. | | | 12,310 | | | | 661,416 | |
Lam Research Corp. | | | 6,600 | | | | 431,178 | |
NetApp, Inc. | | | 8,875 | | | | 262,700 | |
Stratasys Ltd.* | | | 5,160 | | | | 136,688 | |
Total Technology | | | | | | | 4,232,074 | |
| | | | | | | | | |
Energy - 7.3% | |
Exxon Mobil Corp. | | | 14,920 | | | | 1,109,302 | |
Chevron Corp. | | | 12,985 | | | | 1,024,257 | |
Whiting Petroleum Corp.* | | | 32,885 | | | | 502,153 | |
Marathon Oil Corp. | | | 16,180 | | | | 249,172 | |
Patterson-UTI Energy, Inc. | | | 18,410 | | | | 241,907 | |
Oasis Petroleum, Inc.* | | | 24,670 | | | | 214,136 | |
Superior Energy Services, Inc. | | | 11,440 | | | | 144,487 | |
ConocoPhillips | | | 2,780 | | | | 133,329 | |
Hess Corp. | | | 2,410 | | | | 120,645 | |
Total Energy | | | | | | | 3,739,388 | |
| | | | | | | | | |
Communications - 5.9% | |
Cisco Systems, Inc. | | | 45,830 | | | | 1,203,037 | |
AT&T, Inc. | | | 18,930 | | | | 616,739 | |
Time Warner, Inc. | | | 8,925 | | | | 613,594 | |
Scripps Networks Interactive, Inc. — Class A | | | 6,630 | | | | 326,130 | |
DigitalGlobe, Inc.* | | | 14,605 | | | | 277,787 | |
Total Communications | | | | | | | 3,037,287 | |
| | | | | | | | | |
Utilities - 4.2% | |
Edison International | | | 18,675 | | | | 1,177,833 | |
Public Service Enterprise Group, Inc. | | | 9,015 | | | | 380,072 | |
Ameren Corp. | | | 7,300 | | | | 308,571 | |
Exelon Corp. | | | 8,960 | | | | 266,112 | |
Total Utilities | | | | | | | 2,132,588 | |
| | | | | | | | | |
Basic Materials - 3.3% | |
Dow Chemical Co. | | | 28,070 | | | | 1,190,168 | |
Reliance Steel & Aluminum Co. | | | 9,310 | | | | 502,833 | |
Total Basic Materials | | | | | | | 1,693,001 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $49,548,468) | | | | | | | 50,025,095 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
LARGE CAP VALUE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
EXCHANGE-TRADED FUNDS†- 0.4% | |
iShares Russell 1000 Value ETF | | | 2,230 | | | $ | 208,014 | |
Total Exchange-Traded Funds | | | | | | | | |
(Cost $227,435) | | | | | | | 208,014 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 1.4% | |
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%1 | | | 736,574 | | | | 736,574 | |
Total Short Term Investments | | | | | | | | |
(Cost $736,574) | | | | | | | 736,574 | |
| | | | | | | | | |
Total Investments - 99.5% | | | | | | | | |
(Cost $50,512,477) | | | | | | $ | 50,969,683 | |
Other Assets & Liabilities, net - 0.5% | | | | | | | 246,755 | |
Total Net Assets - 100.0% | | | | | | $ | 51,216,438 | |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 4. |
1 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | ADR — American Depositary Receipt |
| | plc — Public Limited Company |
| | |
| | See Sector classification in Other Information section. |
30 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF ASSETS AND LIABILITIES | |
September 30, 2015 | |
Assets: | |
Investments, at value (cost $50,512,477) | | $ | 50,969,683 | |
Prepaid expenses | | | 26,974 | |
Receivables: | |
Securities sold | | | 680,525 | |
Dividends | | | 77,394 | |
Fund shares sold | | | 13,309 | |
Foreign taxes reclaim | | | 1,288 | |
Total assets | | | 51,769,173 | |
| | | | | |
Liabilities: | |
Payable for: | |
Securities purchased | | | 378,703 | |
Fund shares redeemed | | | 58,091 | |
Management fees | | | 19,091 | |
Transfer agent/maintenance fees | | | 19,082 | |
Distribution and service fees | | | 12,383 | |
Fund accounting/administration fees | | | 4,104 | |
Trustees’ fees* | | | 2,897 | |
Miscellaneous | | | 58,384 | |
Total liabilities | | | 552,735 | |
Net assets | | $ | 51,216,438 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 46,714,924 | |
Undistributed net investment income | | | 478,004 | |
Accumulated net realized gain on investments | | | 3,566,304 | |
Net unrealized appreciation on investments | | | 457,206 | |
Net assets | | $ | 51,216,438 | |
| | | | | |
A-Class: | |
Net assets | | $ | 45,318,062 | |
Capital shares outstanding | | | 1,158,866 | |
Net asset value per share | | $ | 39.11 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 41.06 | |
| | | | | |
C-Class: | |
Net assets | | $ | 3,345,296 | |
Capital shares outstanding | | | 91,946 | |
Net asset value per share | | $ | 36.38 | |
| | | | | |
P-Class: | |
Net assets | | $ | 8,961 | |
Capital shares outstanding | | | 229 | |
Net asset value per share | | $ | 39.13 | |
| | | | | |
Institutional Class | |
Net assets | | $ | 2,544,119 | |
Capital shares outstanding | | | 64,946 | |
Net asset value per share | | $ | 39.17 | |
STATEMENT OF OPERATIONS | |
Year Ended September 30, 2015 | |
Investment Income: | |
Dividends (net of foreign withholding tax of $745) | | $ | 1,176,367 | |
Other income | | | 250 | |
Total investment income | | | 1,176,617 | |
| | | | | |
Expenses: | |
Management fees | | | 380,974 | |
Transfer agent/maintenance fees: | |
A-Class | | | 67,701 | |
B-Class | | | 8,735 | |
C-Class | | | 7,702 | |
P-Class** | | | 83 | |
Institutional Class | | | 353 | |
Distribution and service fees: | |
A-Class | | | 126,484 | |
C-Class | | | 39,669 | |
P-Class** | | | 10 | |
Fund accounting/administration fees | | | 55,680 | |
Registration fees | | | 61,383 | |
Trustees’ fees* | | | 7,905 | |
Line of credit fees | | | 4,680 | |
Tax expense | | | 2,192 | |
Custodian fees | | | 146 | |
Miscellaneous | | | 54,021 | |
Total expenses | | | 817,718 | |
Less: | |
Expenses waived by Adviser | | | (117,091 | ) |
Net expenses | | | 700,627 | |
Net investment income | | | 475,990 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments | | | 8,151,325 | |
Net realized gain | | | 8,151,325 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments | | | (13,238,675 | ) |
Net change in unrealized appreciation (depreciation) | | | (13,238,675 | ) |
Net realized and unrealized loss | | | (5,087,350 | ) |
Net decrease in net assets resulting from operations | | $ | (4,611,360 | ) |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 31 |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 475,990 | | | $ | 462,954 | |
Net realized gain on investments | | | 8,151,325 | | | | 6,780,018 | |
Net change in unrealized appreciation (depreciation) on investments | | | (13,238,675 | ) | | | 1,707,332 | |
Net increase (decrease) in net assets resulting from operations | | | (4,611,360 | ) | | | 8,950,304 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (402,108 | ) | | | (360,085 | ) |
B-Class | | | (14,969 | ) | | | (19,432 | ) |
C-Class | | | (10,590 | ) | | | (8,265 | ) |
Institutional Class | | | (35,334 | ) | | | (26,519 | ) |
Net realized gains | | | | | | | | |
A-Class | | | (1,529,881 | ) | | | — | |
B-Class | | | (41,043 | ) | | | — | |
C-Class | | | (138,586 | ) | | | — | |
Institutional Class | | | (102,374 | ) | | | — | |
Total distributions to shareholders | | | (2,274,885 | ) | | | (414,301 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 12,175,794 | | | | 27,638,398 | |
B-Class | | | 65,624 | | | | 59,007 | |
C-Class | | | 879,081 | | | | 1,719,770 | |
P-Class* | | | 10,000 | | | | — | |
Institutional Class | | | 264,341 | | | | 448,328 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 1,855,957 | | | | 345,368 | |
B-Class | | | 55,872 | | | | 19,404 | |
C-Class | | | 146,562 | | | | 8,202 | |
Institutional Class | | | 137,708 | | | | 26,518 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (22,897,730 | ) | | | (22,442,543 | ) |
B-Class | | | (1,365,292 | ) | | | (973,891 | ) |
C-Class | | | (1,209,560 | ) | | | (1,715,189 | ) |
P-Class* | | | — | | | | — | |
Institutional Class | | | (887,546 | ) | | | (374,679 | ) |
Net increase (decrease) from capital share transactions | | | (10,769,189 | ) | | | 4,758,693 | |
Net increase (decrease) in net assets | | | (17,655,434 | ) | | | 13,294,696 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 68,871,872 | | | | 55,577,176 | |
End of year | | $ | 51,216,438 | | | $ | 68,871,872 | |
Undistributed net investment income at end of year | | $ | 478,004 | | | $ | 463,001 | |
* | Since commencement of operations: May 1, 2015. |
32 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 283,554 | | | | 660,974 | |
B-Class | | | 1,656 | | | | 1,550 | |
C-Class | | | 21,744 | | | | 42,907 | |
P-Class* | | | 229 | | | | — | |
Institutional Class | | | 6,257 | | | | 10,680 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 43,212 | | | | 8,728 | |
B-Class | | | 1,419 | | | | 533 | |
C-Class | | | 3,646 | | | | 220 | |
Institutional Class | | | 3,208 | | | | 670 | |
Shares redeemed | | | | | | | | |
A-Class | | | (544,300 | ) | | | (529,031 | ) |
B-Class | | | (34,996 | ) | | | (25,223 | ) |
C-Class | | | (30,302 | ) | | | (43,704 | ) |
Institutional Class | | | (20,632 | ) | | | (9,126 | ) |
Net increase (decrease) in shares | | | (265,305 | ) | | | 119,178 | |
* | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
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.
A-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011e | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 43.80 | | | $ | 38.28 | | | $ | 31.25 | | | $ | 24.58 | | | $ | 26.08 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .36 | | | | .30 | | | | .29 | | | | .25 | | | | .16 | |
Net gain (loss) on investments (realized and unrealized) | | | (3.36 | ) | | | 5.51 | | | | 7.03 | | | | 6.58 | | | | (1.54 | ) |
Total from investment operations | | | (3.00 | ) | | | 5.81 | | | | 7.32 | | | | 6.83 | | | | (1.38 | ) |
Less distributions from: | |
Net investment income | | | (.35 | ) | | | (.29 | ) | | | (.29 | ) | | | (.16 | ) | | | (.12 | ) |
Net realized gains | | | (1.34 | ) | | | — | | | | — | | | | — | | | | — | |
Total distributions | | | (1.69 | ) | | | (.29 | ) | | | (.29 | ) | | | (.16 | ) | | | (.12 | ) |
Net asset value, end of period | | $ | 39.11 | | | $ | 43.80 | | | $ | 38.28 | | | $ | 31.25 | | | $ | 24.58 | |
| | |
Total Returnb | | | (7.19 | %) | | | 15.25 | % | | | 23.62 | % | | | 27.90 | % | | | (5.38 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 45,318 | | | $ | 60,281 | | | $ | 47,307 | | | $ | 41,173 | | | $ | 41,036 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.85 | % | | | 0.72 | % | | | 0.82 | % | | | 0.86 | % | | | 0.56 | % |
Total expensesc | | | 1.35 | % | | | 1.48 | % | | | 1.48 | % | | | 1.65 | % | | | 1.52 | % |
Net expensesd | | | 1.16 | %h | | | 1.17 | %h | | | 1.15 | % | | | 1.18 | % | | | 1.15 | % |
Portfolio turnover rate | | | 60 | % | | | 40 | % | | | 43 | % | | | 16 | % | | | 26 | % |
C-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011e | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 40.91 | | | $ | 35.86 | | | $ | 29.30 | | | $ | 23.08 | | | $ | 24.60 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .04 | | | | (.02 | ) | | | .02 | | | | .03 | | | | (.05 | ) |
Net gain (loss) on investments (realized and unrealized) | | | (3.13 | ) | | | 5.16 | | | | 6.62 | | | | 6.19 | | | | (1.47 | ) |
Total from investment operations | | | (3.09 | ) | | | 5.14 | | | | 6.64 | | | | 6.22 | | | | (1.52 | ) |
Less distributions from: | |
Net investment income | | | (.10 | ) | | | (.09 | ) | | | (.08 | ) | | | — | | | | — | |
Net realized gains | | | (1.34 | ) | | | — | | | | — | | | | — | | | | — | |
Total distributions | | | (1.44 | ) | | | (.09 | ) | | | (.08 | ) | | | — | | | | — | |
Net asset value, end of period | | $ | 36.38 | | | $ | 40.91 | | | $ | 35.86 | | | $ | 29.30 | | | $ | 23.08 | |
| | |
Total Returnb | | | (7.89 | %) | | | 14.35 | % | | | 22.73 | % | | | 26.95 | % | | | (6.18 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 3,345 | | | $ | 3,963 | | | $ | 3,494 | | | $ | 2,257 | | | $ | 2,013 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.10 | % | | | (0.04 | %) | | | 0.08 | % | | | 0.12 | % | | | 0.20 | % |
Total expensesc | | | 2.16 | % | | | 2.33 | % | | | 2.47 | % | | | 2.45 | % | | | 2.27 | % |
Net expensesd | | | 1.91 | %h | | | 1.92 | %h | | | 1.90 | % | | | 1.93 | % | | | 1.90 | % |
Portfolio turnover rate | | | 60 | % | | | 40 | % | | | 43 | % | | | 16 | % | | | 26 | % |
34 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
P-Class | | Period Ended
September 30,
2015g | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 43.64 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .22 | |
Net gain (loss) on investments (realized and unrealized) | | | (4.73 | ) |
Total from investment operations | | | (4.51 | ) |
Net asset value, end of period | | $ | 39.13 | |
| | | | | |
Total Returnb | | | (10.38 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 9 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 1.21 | % |
Total expensesc | | | 3.29 | % |
Net expensesd | | | 1.16 | %h |
Portfolio turnover rate | | | 60 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 35 |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Period Ended
September 30,
2013f | |
Per Share Data | | | | | | | | | |
Net asset value, beginning of period | | $ | 43.87 | | | $ | 38.32 | | | $ | 36.84 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .47 | | | | .40 | | | | .13 | |
Net gain (loss) on investments (realized and unrealized) | | | (3.37 | ) | | | 5.51 | | | | 1.35 | |
Total from investment operations | | | (2.90 | ) | | | 5.91 | | | | 1.48 | |
Less distributions from: | |
Net investment income | | | (.46 | ) | | | (.36 | ) | | | — | |
Net realized gains | | | (1.34 | ) | | | — | | | | — | |
Total distributions | | | (1.80 | ) | | | (.36 | ) | | | — | |
Net asset value, end of period | | $ | 39.17 | | | $ | 43.87 | | | $ | 38.32 | |
| | |
Total Returnb | | | (6.97 | %) | | | 15.52 | % | | | 4.02 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 2,544 | | | $ | 3,339 | | | $ | 2,831 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 1.09 | % | | | 0.96 | % | | | 1.12 | % |
Total expensesc | | | 0.98 | % | | | 1.08 | % | | | 1.12 | % |
Net expensesd | | | 0.91 | %h | | | 0.92 | %h | | | 0.89 | % |
Portfolio turnover rate | | | 60 | % | | | 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. |
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 | Reverse share split — Per share amounts for the period presented through April 8, 2011 have been restated to reflect a 1:4 reverse share split effective April 8, 2011. |
f | Since commencement of operations: June 7, 2013. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
g | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
h | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the periods presented would be: |
| | 09/30/15 | 09/30/14 |
A-Class | 1.15% | 1.15% |
C-Class | 1.90% | 1.90% |
P-Class | 1.15% | — |
Institutional Class | 0.90% | 0.90% |
36 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
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, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended September 30, 2015.
For the fiscal ended September 30, 2015, the Guggenheim Risk Managed Real Estate Fund returned 10.97%1, compared with the 9.83% return of its benchmark, the FTSE NAREIT Equity REITs Index.
Market Review
Real estate investment trusts (REITs) experienced an uptick in volatility in 2015, oscillating between gains and losses that ranged from a high of 9.4% in January to a low of -8.9% in September. On balance, the sector appeared to be consolidating following a strong gain of 30.12% for 2014. Persistent concerns regarding the timing and speed at which the U.S. Federal Reserve (the Fed) begins to raise interest rates weighed on investor sentiment. While the initial rate hike had yet to come at period end, yields on various long-term fixed income benchmarks, which have a higher correlation to commercial real estate (CRE) and REIT prices, moved steadily higher. Yields on high-yield and investment-grade corporate bonds, in particular, increased by 0.67% and 1.47%, respectively, during the first three quarters of 20152.
Manufactured housing (39.57%), self-storage facilities (37.23%), and traditional apartments (24.80%) were the best-performing property sectors for the trailing 12 months. All three property types benefited from short-term leases, rising household formation, and a higher propensity to rent-versus-own compared to past housing cycles, as indicated by the steady decline in the rate of U.S. homeownership from over 69.2% in 2004 to just over 63.4% today. As a result, these properties types posted some of the highest growth rates in rent and operating income over the period.
On the other end of the spectrum, the hotel sector struggled (-9.99%). A number of factors, including a stronger U.S. dollar that hurt inbound international travel, and difficult comparisons versus the prior year’s strong results, caused top-line revenue growth to moderate and led hotel REITs to reduce growth forecasts several times. Net-lease REITs (-3.61%) and healthcare REITs (5.75%) also lagged the benchmark, as they were considered to be the most vulnerable to rising interest rates.
CRE fundamentals were strong across the U.S. at period end, as the market approached the middle-to-later innings of the CRE cycle. Property occupancy rates were at full levels, while property valuations based on rental rates sat well above the prior cycle’s highs. Capital markets conditions at period end were robust, with ample equity and debt capital earmarked for CRE, both domestically and from overseas. Finally, new construction activity, but for a few select property types and geographies, remained well below historical levels which was supportive of further gains for property owners.
Performance Review
Consistent with its objectives, the Fund outperformed the index while also reducing risk and volatility. The Fund’s daily volatility was 17.5% lower than the benchmark and 13.0% lower than the S&P 500 Index (13.35% vs. 16.19% and 15.34%, respectively).
The Fund’s outperformance was driven primarily by favorable stock selection in the office, shopping center, residential, and data-center sectors. Overweight exposure to the self-storage and manufactured-housing sectors, and underweight exposures to the net-lease and hotel sectors also contributed to outperformance.
Strategy
The Fund took a more defensive posture at various times from late 2014 until the third quarter of 2015, when the Fund moved to a more neutral stance, given the REIT sector’s depressed valuation levels in September. The Fund was positioned neutrally in terms of market exposure at period end. In terms of portfolio construction, the Fund was positioned to benefit from a late-stage economic recovery in the U.S., while being defensive in the event of a rising-interest-rate environment.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 37 |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
Key sector overweights at period end included manufactured housing, wireless towers, and self-storage REITs. We believe all three sectors present attractive growth prospects relative to current valuations and will prove defensive in the event of a downshift in economic growth. Key sector underweights included the healthcare and net-lease REITs, due primarily to their long lease durations and high sensitivity to interest rate changes. In addition, net-lease REITs offer below-average growth potential with higher relative value compared with the REIT average, while senior-housing real estate represents one of the few areas where elevated new construction levels raise concern.
Outlook
Our outlook for the REIT sector remains positive based on the favorable CRE fundamentals, robust capital-market conditions, and the backdrop of historically low new supply. Despite concerns over rising interest rates, private-market property values will likely continue to grind modestly higher due to underlying property cash flow growth. However, further multiple expansion may prove difficult given the threat of rising interest rates and CRE’s current relative valuation versus other asset classes.
Performance displayed represents past performance which is no guarantee of future results.
1 | Performance figures are based on Class A 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 have been reduced. |
2 | Moody’s Baa Bond Index and Barclays US Corporate High Yield Index OAS 12/31/14 – 9/30/15. Sector returns are for the fiscal year 9/30/14 – 9/30/15, based on FTSE NAREIT Equity REIT sub-indices. |
| | |
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. |
38 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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 |
P-Class | May 1, 2015 |
Institutional Class | March 28, 2014 |
Ten Largest Holdings (% of Total Net Assets) |
Simon Property Group REIT, Inc. | 8.8% |
Equity Residential REIT | 4.5% |
Public Storage REIT | 3.8% |
Equinix, Inc. | 3.8% |
Ventas REIT, Inc. | 3.3% |
AvalonBay Communities, REIT Inc. | 3.2% |
Boston Properties REIT, Inc. | 2.9% |
General Growth Properties REIT, Inc. | 2.9% |
Federal Realty Investment Trust | 2.8% |
Welltower REIT, Inc. | 2.6% |
Top Ten Total | 38.6% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 39 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(continued) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | | 1 Year | Since Inception
(03/28/14) |
A-Class Shares | | 10.97% | 12.98% |
A-Class Shares with sales charge† | | 5.68% | 9.39% |
C-Class Shares | | 10.20% | 12.12% |
C-Class Shares with CDSC§ | | 9.20% | 12.12% |
FTSE NAREIT EQUITY REITs Index | | 9.83% | 9.55% |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | -3.63% |
FTSE NAREIT EQUITY REITs Index | | | -3.59% |
| | | 1 Year | Since Inception
(03/28/14) |
Institutional Class Shares | | 11.36% | 13.31% |
FTSE NAREIT EQUITY REITs Index | | 9.83% | 9.55% |
* | 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 Total Return Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. The graph is based on A-Class shares only; performance for C-Class, P-Class and Institutional Class will vary due to differences in fee structures. |
† | 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. |
40 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
RISK MANAGED REAL ESTATE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 99.7% | |
| | | | | | | |
REITs - 94.1% | |
REITs-Apartments - 15.0% | |
Equity Residential REIT | | | 64,126 | | | $ | 4,817,146 | |
AvalonBay Communities, REIT Inc.4 | | | 19,556 | | | | 3,418,780 | |
Essex Property Trust REIT, Inc.4 | | | 12,018 | | | | 2,685,062 | |
Monogram Residential Trust, Inc. | | | 212,136 | | | | 1,974,986 | |
Camden Property Trust4 | | | 20,536 | | | | 1,517,610 | |
Apartment Investment & Management REIT Co. — Class A4 | | | 20,267 | | | | 750,284 | |
UDR, Inc. | | | 19,916 | | | | 686,704 | |
Total REITs-Apartments | | | | | | | 15,850,572 | |
| | | | | | | | | |
REITs-Regional Malls - 14.2% | |
Simon Property Group REIT, Inc. | | | 50,924 | | | | 9,355,758 | |
General Growth Properties REIT, Inc. | | | 116,959 | | | | 3,037,425 | |
Pennsylvania Real Estate Investment Trust | | | 71,263 | | | | 1,413,145 | |
Macerich REIT Co. | | | 8,593 | | | | 660,114 | |
Taubman Centers, Inc. | | | 9,032 | | | | 623,931 | |
Total REITs-Regional Malls | | | | | | | 15,090,373 | |
| | | | | | | | | |
REITs-Diversified - 13.9% | |
Equinix, Inc. | | | 14,591 | | | | 3,989,178 | |
Gramercy Property Trust, Inc. | | | 88,716 | | | | 1,842,631 | |
American Assets Trust, Inc.4 | | | 36,782 | | | | 1,502,913 | |
Crown Castle International REIT Corp.4 | | | 17,952 | | | | 1,415,874 | |
Retail Properties of America, Inc. — Class A | | | 95,989 | | | | 1,352,485 | |
Duke Realty Corp. | | | 66,761 | | | | 1,271,797 | |
American Tower REIT Corp. — Class A4 | | | 13,466 | | | | 1,184,739 | |
Vornado Realty Trust REIT | | | 12,654 | | | | 1,144,175 | |
Cousins Properties, Inc. | | | 113,466 | | | | 1,046,157 | |
Total REITs-Diversified | | | | | | | 14,749,949 | |
| | | | | | | | | |
REITs-Office Property - 10.4% | |
Boston Properties REIT, Inc.4 | | | 25,982 | | | | 3,076,268 | |
BioMed Realty Trust, Inc.4 | | | 85,429 | | | | 1,706,871 | |
Parkway Properties, Inc. | | | 104,236 | | | | 1,621,912 | |
New York REIT, Inc. | | | 122,753 | | | | 1,234,895 | |
Hudson Pacific Properties, Inc. | | | 38,529 | | | | 1,109,250 | |
Paramount Group, Inc. | | | 57,697 | | | | 969,310 | |
Alexandria Real Estate Equities, Inc.4 | | | 9,236 | | | | 782,012 | |
SL Green Realty REIT Corp. | | | 4,941 | | | | 534,419 | |
Total REITs-Office Property | | | | | | | 11,034,937 | |
| | | | | | | | | |
REITs-Storage - 7.6% | |
Public Storage REIT | | | 19,151 | | | | 4,052,926 | |
CubeSmart4 | | | 66,389 | | | | 1,806,445 | |
Sovran Self Storage, Inc. | | | 17,464 | | | | 1,646,855 | |
Extra Space Storage, Inc. | | | 7,987 | | | | 616,277 | |
Total REITs-Storage | | | | | | | 8,122,503 | |
| | | | | | | | | |
REITs-Warehouse/Industries - 6.5% | |
QTS Realty Trust, Inc. — Class A | | | 38,722 | | | | 1,691,764 | |
ProLogis REIT, Inc. | | | 38,308 | | | | 1,490,181 | |
Rexford Industrial Realty, Inc. | | | 84,709 | | | | 1,168,137 | |
EastGroup Properties, Inc. | | | 16,421 | | | | 889,690 | |
DCT Industrial Trust, Inc.4 | | | 25,006 | | | | 841,702 | |
First Industrial Realty Trust, Inc. | | | 38,275 | | | | 801,861 | |
Total REITs-Warehouse/Industries | | | | | | | 6,883,335 | |
| | | | | | | | | |
REITs-Shopping Centers - 6.2% | |
Federal Realty Investment Trust4 | | | 21,560 | | | | 2,941,862 | |
Kimco Realty REIT Corp. | | | 55,223 | | | | 1,349,098 | |
Regency Centers Corp. | | | 20,135 | | | | 1,251,390 | |
Equity One, Inc. | | | 44,716 | | | | 1,088,387 | |
Total REITs-Shopping Centers | | | | | | | 6,630,737 | |
| | | | | | | | | |
REITs-Health Care - 4.8% | |
Ventas REIT, Inc. | | | 63,410 | | | | 3,554,765 | |
HCP REIT, Inc. | | | 21,864 | | | | 814,434 | |
Medical Properties Trust, Inc. | | | 68,486 | | | | 757,455 | |
Total REITs-Health Care | | | | | | | 5,126,654 | |
| | | | | | | | | |
REITs-Health Care - 4.4% | |
Welltower REIT, Inc. | | | 40,204 | | | | 2,722,614 | |
Care Capital Properties, Inc. | | | 43,777 | | | | 1,441,577 | |
CareTrust REIT, Inc. | | | 44,811 | | | | 508,605 | |
Total REITs-Health Care | | | | | | | 4,672,796 | |
| | | | | | | | | |
REITs-Hotels - 3.3% | |
Chatham Lodging Trust | | | 81,319 | | | | 1,746,732 | |
Pebblebrook Hotel Trust | | | 28,709 | | | | 1,017,734 | |
Host Hotels & Resorts REIT, Inc. | | | 51,675 | | | | 816,982 | |
Total REITs-Hotels | | | | | | | 3,581,448 | |
| | | | | | | | | |
REITs-Manufactured Homes - 3.3% | |
Sun Communities, Inc. | | | 28,600 | | | | 1,937,936 | |
Equity LifeStyle Properties, Inc.4 | | | 27,406 | | | | 1,605,169 | |
Total REITs-Manufactured Homes | | | | | | | 3,543,105 | |
| | | | | | | | | |
REITs-Diversified - 2.3% | |
NorthStar Realty Finance Corp. | | | 193,763 | | | | 2,392,973 | |
| | | | | | | | | |
REITs-Mortgage - 1.0% | |
Colony Capital, Inc. — Class A | | | 54,878 | | | | 1,073,414 | |
| | | | | | | | | |
REITs-Hotels - 0.7% | |
Ashford Hospitality Prime, Inc. | | | 54,468 | | | | 764,186 | |
| | | | | | | | | |
REITs-Office Property - 0.5% | |
VEREIT, Inc.4 | | | 65,831 | | | | 508,215 | |
Total REITs | | | | | | | 100,025,197 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 41 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
RISK MANAGED REAL ESTATE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Lodging - 2.2% | |
Hotels & Motels - 2.2% | |
Starwood Hotels & Resorts Worldwide, Inc. | | | 18,976 | | | $ | 1,261,524 | |
Hilton Worldwide Holdings, Inc. | | | 48,723 | | | | 1,117,706 | |
Total Hotels & Motels | | | | | | | 2,379,230 | |
Total Lodging | | | | | | | 2,379,230 | |
| | | | | | | | | |
Real Estate - 1.9% | |
Forest City Enterprises, Inc. — Class A* | | | 102,337 | | | | 2,060,044 | |
| | | | | | | | | |
Healthcare-Services - 0.8% | |
Brookdale Senior Living, Inc. — Class A*,4 | | | 35,956 | | | | 825,550 | |
| | | | | | | | | |
Diversified Financial Services - 0.7% | |
NorthStar Asset Management Group, Inc. | | | 54,753 | | | | 786,253 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $108,961,338) | | | | | | | 106,076,274 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 0.2% | |
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%1 | | | 258,716 | | | | 258,716 | |
Total Short Term Investments | | | | | | | | |
(Cost $258,716) | | | | | | | 258,716 | |
| | | | | | | | | |
Total Investments - 98.2% | | | | | | | | |
(Cost $109,220,054) | | | | | | | 106,334,989 | |
| | | | | | | | | |
COMMON STOCKS SOLD SHORT† - (10.7)% | |
| | | | | | | | | |
REITs – (12.4)% | |
REITs-Mortgage – (0.3)% | |
Annaly Capital Management, Inc. | | | (34,578 | ) | | | (341,285 | ) |
| | | | | | | | | |
REITs-WAREHOUSE/INDUSTRIES - (0.4)% | |
ProLogis REIT, Inc. | | | (9,850 | ) | | | (383,165 | ) |
| | | | | | | | | |
REITs-Diversified – (0.4)% | |
Apple Hospitality REIT, Inc. | | | (21,525 | ) | | | (399,719 | ) |
| | | | | | | | | |
REITs-Storage – (0.5)% | |
Iron Mountain REIT, Inc. | | | (16,759 | ) | | | (519,864 | ) |
| | | | | | | | | |
REITs-Apartments – (0.8)% | |
UDR, Inc. | | | (11,512 | ) | | | (396,934 | ) |
Mid-America Apartment Communities, Inc. | | | (5,501 | ) | | | (450,367 | ) |
Total REITs-Apartments | | | | | | | (847,301 | ) |
| | | | | | | | | |
REITs-Regional Malls – (0.8)% | |
CBL & Associates Properties, Inc. | | | (30,036 | ) | | | (412,995 | ) |
Rouse Properties, Inc. | | | (27,784 | ) | | | (432,875 | ) |
Total REITs-Regional Malls | | | | | | | (845,870 | ) |
| | | | | | | | | |
REITs-Single Tenant – (1.0)% | |
National Retail Properties, Inc. | | | (14,718 | ) | | | (533,822 | ) |
Realty Income REIT Corp. | | | (11,499 | ) | | | (544,937 | ) |
Total REITs-Single Tenant | | | | | | | (1,078,759 | ) |
| | | | | | | | | |
REITs-Hotels – (1.1)% | |
Ryman Hospitality Properties, Inc. | | | (7,205 | ) | | | (354,702 | ) |
Host Hotels & Resorts REIT, Inc. | | | (25,191 | ) | | | (398,270 | ) |
Summit Hotel Properties, Inc. | | | (40,718 | ) | | | (475,179 | ) |
Total REITs-Hotels | | | | | | | (1,228,151 | ) |
| | | | | | | | | |
REITs-Office Property – (1.2)% | |
Douglas Emmett, Inc. | | | (14,453 | ) | | | (415,090 | ) |
Government Properties Income Trust | | | (26,336 | ) | | | (421,376 | ) |
Kilroy Realty Corp. | | | (6,483 | ) | | | (422,432 | ) |
Total REITs-Office Property | | | | | | | (1,258,898 | ) |
| | | | | | | | | |
REITs-Health Care – (1.5)% | |
HCP REIT, Inc. | | | (13,972 | ) | | | (520,457 | ) |
LTC Properties, Inc. | | | (12,546 | ) | | | (535,338 | ) |
Healthcare Realty Trust, Inc. | | | (22,808 | ) | | | (566,779 | ) |
Total REITs-Health Care | | | | | | | (1,622,573 | ) |
| | | | | | | | | |
REITs-Shopping Centers – (1.8)% | |
WP GLIMCHER, Inc. | | | (37,603 | ) | | | (438,451 | ) |
Weingarten Realty Investors | | | (13,445 | ) | | | (445,164 | ) |
Urban Edge Properties | | | (24,105 | ) | | | (520,427 | ) |
Brixmor Property Group, Inc. | | | (22,576 | ) | | | (530,084 | ) |
Total REITs-Shopping Centers | | | | | | | (1,934,126 | ) |
| | | | | | | | | |
REITs-Diversified – (2.6)% | |
STORE Capital Corp. | | | (14,446 | ) | | | (298,454 | ) |
Digital Realty Trust, Inc. | | | (4,705 | ) | | | (307,331 | ) |
DuPont Fabros Technology, Inc. | | | (14,075 | ) | | | (364,261 | ) |
EPR Properties | | | (7,615 | ) | | | (392,706 | ) |
Lamar Advertising Co. — Class A | | | (8,444 | ) | | | (440,608 | ) |
Liberty Property Trust | | | (14,389 | ) | | | (453,397 | ) |
Washington Real Estate Investment Trust | | | (20,482 | ) | | | (510,616 | ) |
Total REITs-Diversified | | | | | | | (2,767,373 | ) |
Total REITs | | | | | | | (13,227,084 | ) |
| | | | | | | | | |
Total Common Stocks Sold Short | | | | | | | | |
(Proceeds $13,812,768) | | | | | | | (13,227,084 | ) |
| | | | | | | | | |
EXCHANGE-TRADED FUNDS SOLD SHORT† - (0.9)% | |
iShares US Real Estate ETF | | | (13,940 | ) | | | (989,043 | ) |
Total Exchange-Traded Funds Sold Short | | | | | | | | |
(Proceeds $1,048,166) | | | | | | | (989,043 | ) |
Total Securities Sold Short- (11.6)% | | | | | | | | |
(Proceeds $14,860,934) | | | | | | $ | (14,216,128 | ) |
Other Assets & Liabilities, net - 13.4% | | | | | | | 14,253,560 | |
Total Net Assets - 100.0% | | | | | | $ | 106,372,422 | |
42 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
RISK MANAGED REAL ESTATE FUND | |
| | | Unrealized
Gain (Loss) | |
| | | | |
OTC TOTAL RETURN SWAP AGREEMENTS†† | |
Morgan Stanley February 2016
Risk Managed Real Estate Portfolio
Short Custom Basket Swap,
Terminating 06/15/172
(Notional Value $30,496,801) | | $ | 678,433 | |
Morgan Stanley February 2016
Risk Managed Real Estate Portfolio
Long Custom Basket Swap,
Terminating 06/15/173
(Notional Value $30,323,456) | | $ | (852,338 | ) |
| | | Shares | | | | |
| | | | | | | |
CUSTOM BASKET OF LONG SECURITIES3 | |
QTS Realty Trust, Inc. — Class A | | | 23,628 | | | | 76,563 | |
CubeSmart | | | 31,058 | | | | 70,486 | |
Ashford Hospitality Prime, Inc. | | | 46,366 | | | | 48,444 | |
Sovran Self Storage, Inc. | | | 10,493 | | | | 36,018 | |
Equity Residential REIT | | | 13,079 | | | | 34,302 | |
Equity LifeStyle Properties, Inc. | | | 11,161 | | | | 31,649 | |
Federal Realty Investment Trust | | | 6,417 | | | | 30,216 | |
Sun Communities, Inc. | | | 14,553 | | | | 28,219 | |
American Assets Trust, Inc. | | | 27,152 | | | | 26,388 | |
Care Capital Properties, Inc. | | | 19,729 | | | | 23,755 | |
Simon Property Group REIT, Inc. | | | 5,289 | | | | 18,713 | |
Equinix, Inc. | | | 3,620 | | | | 16,614 | |
CareTrust REIT, Inc. | | | 34,624 | | | | 16,256 | |
BioMed Realty Trust, Inc. | | | 29,348 | | | | 6,586 | |
New York REIT, Inc. | | | 65,177 | | | | 1,359 | |
Monogram Residential Trust, Inc. | | | 133,348 | | | | 217 | |
Retail Properties of America, Inc. — Class A | | | 56,552 | | | | (1,648 | ) |
Ventas REIT, Inc. | | | 10,349 | | | | (2,210 | ) |
Equity One, Inc. | | | 26,950 | | | | (2,280 | ) |
Cousins Properties, Inc. | | | 68,452 | | | | (2,930 | ) |
General Growth Properties REIT, Inc. | | | 30,352 | | | | (4,785 | ) |
Duke Realty Corp. | | | 43,698 | | | | (9,536 | ) |
Camden Property Trust | | | 8,620 | | | | (12,747 | ) |
Rexford Industrial Realty, Inc. | | | 61,103 | | | | (14,179 | ) |
Crown Castle International REIT Corp. | | | 11,646 | | | | (37,001 | ) |
American Tower REIT Corp. — Class A | | | 6,845 | | | | (39,246 | ) |
Pennsylvania Real Estate Investment Trust | | | 47,573 | | | | (58,686 | ) |
Chatham Lodging Trust | | | 50,333 | | | | (78,682 | ) |
Parkway Properties, Inc. | | | 57,962 | | | | (83,155 | ) |
Colony Capital, Inc. — Class A | | | 35,848 | | | | (103,143 | ) |
Hilton Worldwide Holdings, Inc. | | | 31,880 | | | | (109,040 | ) |
Gramercy Property Trust, Inc. | | | 49,921 | | | | (112,637 | ) |
Starwood Hotels & Resorts Worldwide, Inc. | | | 11,045 | | | | (119,558 | ) |
NorthStar Asset Management Group, Inc. | | | 36,895 | | | | (125,749 | ) |
Forest City Enterprises, Inc. — Class A* | | | 57,167 | | | | (125,877 | ) |
Brookdale Senior Living, Inc. — Class A* | | | 23,041 | | | | (170,278 | ) |
NorthStar Realty Finance Corp. | | | 78,903 | | | | (228,434 | ) |
Total Long Swap holdings | | | | | | | (976,015 | ) |
| | | | | | | | | |
CUSTOM BASKET OF SHORT SECURITIES2 | | | | | | | | |
Host Hotels & Resorts REIT, Inc. | | | (53,018 | ) | | | 144,272 | |
CBL & Associates Properties, Inc. | | | (63,390 | ) | | | 124,685 | |
Summit Hotel Properties, Inc. | | | (86,172 | ) | | | 119,669 | |
WP GLIMCHER, Inc. | | | (77,409 | ) | | | 109,120 | |
DuPont Fabros Technology, Inc. | | | (29,707 | ) | | | 85,319 | |
Lamar Advertising Co. — Class A | | | (17,911 | ) | | | 75,339 | |
Ryman Hospitality Properties, Inc. | | | (15,430 | ) | | | 74,630 | |
iShares US Real Estate ETF | | | (30,967 | ) | | | 73,219 | |
Government Properties Income Trust | | | (56,376 | ) | | | 66,309 | |
Rouse Properties, Inc. | | | (60,320 | ) | | | 57,697 | |
Entertainment Properties Trust | | | (16,286 | ) | | | 41,957 | |
Douglas Emmett, Inc. | | | (32,107 | ) | | | 36,756 | |
Washington Real Estate Investment Trust | | | (43,905 | ) | | | 36,383 | |
ProLogis REIT, Inc. | | | (20,782 | ) | | | 35,651 | |
Liberty Property Trust | | | (30,370 | ) | | | 25,120 | |
Kilroy Realty Corp. | | | (14,401 | ) | | | 16,727 | |
HCP REIT, Inc. | | | (29,951 | ) | | | 9,017 | |
Weingarten Realty Investors | | | (28,458 | ) | | | 2,127 | |
Brixmor Property Group, Inc. | | | (48,023 | ) | | | 1,562 | |
Digital Realty Trust, Inc. | | | (9,926 | ) | | | (2,999 | ) |
STORE Capital Corp. | | | (30,828 | ) | | | (7,019 | ) |
Annaly Capital Management, Inc. | | | (76,171 | ) | | | (7,221 | ) |
Apple Hospitality REIT, Inc. | | | (47,758 | ) | | | (13,997 | ) |
LTC Properties, Inc. | | | (26,706 | ) | | | (16,383 | ) |
National Retail Properties, Inc. | | | (31,444 | ) | | | (16,647 | ) |
Urban Edge Properties | | | (51,285 | ) | | | (26,215 | ) |
UDR, Inc. | | | (24,315 | ) | | | (31,224 | ) |
Realty Income REIT Corp | | | (25,545 | ) | | | (36,952 | ) |
Iron Mountain REIT, Inc. | | | (35,886 | ) | | | (42,572 | ) |
Mid-America Apartment Communities, Inc. | | | (11,703 | ) | | | (47,516 | ) |
Healthcare Realty Trust, Inc. | | | (48,272 | ) | | | (65,127 | ) |
Total Short Swap holdings | | | | | | | 821,689 | |
* | 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 | Rate indicated is the 7 day yield as of September 30, 2015. |
2 | Total Return is based on the return of the custom basket of short securities +/- financing at a variable rate. |
3 | Total Return is based on the return of the custom basket of long securities +/ - financing at a variable rate. |
4 | All or portion of this security is pledged as short collateral at September 30, 2015. |
| | REIT — Real Estate Investment Trust |
| | |
| | See Sector classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 43 |
RISK MANAGED REAL ESTATE FUND | |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments, at value (cost $109,220,054) | | $ | 106,334,989 | |
Segregated cash with broker | | | 14,188,523 | |
Unrealized appreciation on swap agreements | | | 678,433 | |
Prepaid expenses | | | 28,621 | |
Cash | | | 16,546 | |
Receivables: | |
Dividends | | | 317,857 | |
Fund shares sold | | | 29,531 | |
Other assets | | | 814 | |
Total assets | | | 121,595,314 | |
| | | | | |
Liabilities: | |
Securities sold short, at value (proceeds $14,860,934) | | | 14,216,127 | |
Unrealized depreciation on swap agreements | | | 852,338 | |
Payable for: | |
Management fees | | | 64,684 | |
Swap settlement | | | 57,793 | |
Fund shares redeemed | | | 10,623 | |
Fund accounting/administration fees | | | 8,236 | |
Transfer agent/maintenance fees | | | 1,496 | |
Trustees’ fees* | | | 284 | |
Distribution and service fees | | | 160 | |
Miscellaneous | | | 11,151 | |
Total liabilities | | | 15,222,892 | |
Net assets | | $ | 106,372,422 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 97,340,650 | |
Undistributed net investment income | | | 2,679,256 | |
Accumulated net realized gain on investments | | | 8,766,678 | |
Net unrealized depreciation on investments | | | (2,414,162 | ) |
Net assets | | $ | 106,372,422 | |
| | | | | |
A-Class: | |
Net assets | | $ | 365,568 | |
Capital shares outstanding | | | 12,279 | |
Net asset value per share | | $ | 29.77 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 31.25 | |
| | | | | |
C-Class: | |
Net assets | | $ | 95,246 | |
Capital shares outstanding | | | 3,222 | |
Net asset value per share | | $ | 29.56 | |
| | | | | |
P-Class: | |
Net assets | | $ | 29,736 | |
Capital shares outstanding | | | 999 | |
Net asset value per share | | $ | 29.77 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 105,881,872 | |
Capital shares outstanding | | | 3,540,620 | |
Net asset value per share | | $ | 29.90 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
44 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
RISK MANAGED REAL ESTATE FUND | |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Dividends | | $ | 2,645,630 | |
Interest | | | 328 | |
Total investment income | | | 2,645,958 | |
| | | | | |
Expenses: | |
Management fees | | | 871,163 | |
Transfer agent/maintenance fees: | |
A-Class | | | 2,894 | |
C-Class | | | 2,182 | |
P-Class** | | | 96 | |
Institutional Class | | | 1,031 | |
Distribution and service fees: | |
A-Class | | | 1,613 | |
C-Class | | | 1,046 | |
P-Class** | | | 20 | |
Fund accounting/administration fees | | | 107,098 | |
Short sales dividend expense | | | 1,707,408 | |
Prime broker interest expense | | | 206,651 | |
Custodian fees | | | 12,346 | |
Trustees’ fees* | | | 8,111 | |
Line of credit fees | | | 7,422 | |
Tax expense | | | 7,072 | |
Miscellaneous | | | 110,349 | |
Total expenses | | | 3,046,502 | |
Net investment loss | | | (400,544 | ) |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments | | | 8,202,304 | |
Swap agreements | | | 3,167,916 | |
Securities sold short | | | 2,138,969 | |
Net realized gain | | | 13,509,189 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments | | | 268,924 | |
Securities sold short | | | (1,029,680 | ) |
Swap agreements | | | (173,904 | ) |
Net change in unrealized appreciation (depreciation) | | | (934,660 | ) |
Net realized and unrealized gain | | | 12,574,529 | |
Net increase in net assets resulting from operations | | $ | 12,173,985 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 45 |
RISK MANAGED REAL ESTATE FUND | |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Period Ended September 30,
2014* | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income (loss) | | $ | (400,544 | ) | | $ | 22,934 | |
Net realized gain on investments | | | 13,509,189 | | | | 214,971 | |
Net change in unrealized appreciation (depreciation) on investments | | | (934,660 | ) | | | (1,479,502 | ) |
Net increase (decrease) in net assets resulting from operations | | | 12,173,985 | | | | (1,241,597 | ) |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (2,130 | ) | | | (156 | ) |
C-Class | | | — | | | | (6 | ) |
Institutional Class | | | (110,810 | ) | | | (191,573 | ) |
Net realized gains | | | | | | | | |
A-Class | | | (5,715 | ) | | | — | |
C-Class | | | (362 | ) | | | — | |
Institutional Class | | | (534,120 | ) | | | — | |
Total distributions to shareholders | | | (653,137 | ) | | | (191,735 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 1,724,691 | | | | 110,130 | |
C-Class | | | 205,333 | | | | 309,239 | |
P-Class** | | | 30,035 | | | | — | |
Institutional Class | | | 2,482,274 | | | | 105,276,555 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 6,954 | | | | 73 | |
C-Class | | | 362 | | | | — | |
Institutional Class | | | 488,786 | | | | 160,496 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (1,496,971 | ) | | | (105 | ) |
C-Class | | | (164,753 | ) | | | (260,047 | ) |
P-Class** | | | — | | | | — | |
Institutional Class | | | (12,576,840 | ) | | | (11,306 | ) |
Net increase (decrease) from capital share transactions | | | (9,300,129 | ) | | | 105,585,035 | |
Net increase in net assets | | | 2,220,719 | | | | 104,151,703 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of period | | | 104,151,703 | | | | — | |
End of period | | $ | 106,372,422 | | | $ | 104,151,703 | |
Undistributed net investment income/Accumulated net investment loss at end of period | | $ | 2,679,256 | | | $ | (31,134 | ) |
* | Since commencement of operations: March 28, 2014. |
** | Since commencement of operations: May 1, 2015. |
46 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
RISK MANAGED REAL ESTATE FUND | |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
| | | Year Ended
September 30,
2015 | | | Period Ended September 30,
2014* | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 56,206 | | | | 3,971 | |
C-Class | | | 6,656 | | | | 11,307 | |
P-Class** | | | 999 | | | | — | |
Institutional Class | | | 79,259 | | | | 3,845,861 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 229 | | | | 3 | |
C-Class | | | 12 | | | | — | |
Institutional Class | | | 16,219 | | | | 5,733 | |
Shares redeemed | | | | | | | | |
A-Class | | | (48,126 | ) | | | (4 | ) |
C-Class | | | (5,377 | ) | | | (9,376 | ) |
Institutional Class | | | (406,035 | ) | | | (417 | ) |
Net increase (decrease) in shares | | | (299,958 | ) | | | 3,857,078 | |
* | Since commencement of operations: March 28, 2014. |
** | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 47 |
RISK MANAGED REAL ESTATE FUND | |
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.
A-Class | | Year Ended
September 30,
2015 | | | Period Ended
September 30,
2014a | |
Per Share Data | | | | | | |
Net asset value, beginning of period | | $ | 26.99 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | (.21 | ) | | | .02 | |
Net gain (loss) on investments (realized and unrealized) | | | 3.18 | | | | 2.06 | |
Total from investment operations | | | 2.97 | | | | 2.08 | |
Less distributions from: | |
Net investment income | | | (.05 | ) | | | (.09 | ) |
Net realized gains | | | (.14 | ) | | | — | |
Total distributions | | | (.19 | ) | | | (.09 | ) |
Net asset value, end of period | | $ | 29.77 | | | $ | 26.99 | |
| | |
Total Returnc | | | 10.97 | % | | | 8.35 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 366 | | | $ | 107 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (0.67 | %) | | | 0.16 | % |
Total expensesd | | | 3.41 | % | | | 4.22 | %f |
Net expensese,h | | | 3.04 | % | | | 3.32 | % |
Portfolio turnover rate | | | 214 | % | | | 57 | % |
C-Class | | Year Ended
September 30,
2015 | | | Period Ended
September 30,
2014a | |
Per Share Data | | | | | | |
Net asset value, beginning of period | | $ | 26.95 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | (.43 | ) | | | (.23 | ) |
Net gain (loss) on investments (realized and unrealized) | | | 3.18 | | | | 2.19 | |
Total from investment operations | | | 2.75 | | | | 1.96 | |
Less distributions from: | |
Net investment income | | | — | | | | (.01 | ) |
Net realized gains | | | (.14 | ) | | | — | |
Total distributions | | | (.14 | ) | | | (.01 | ) |
Net asset value, end of period | | $ | 29.56 | | | $ | 26.95 | |
| | |
Total Returnc | | | 10.20 | % | | | 7.85 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 95 | | | $ | 52 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (1.42 | %) | | | (1.60 | %) |
Total expensesd | | | 5.76 | % | | | 9.33 | %f |
Net expensese,h | | | 3.76 | % | | | 2.67 | % |
Portfolio turnover rate | | | 214 | % | | | 57 | % |
48 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
RISK MANAGED REAL ESTATE 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.
P-Class | | Period Ended
September 30,
2015g | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 30.89 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .04 | |
Net gain (loss) on investments (realized and unrealized) | | | (1.16 | ) |
Total from investment operations | | | (1.12 | ) |
Net asset value, end of period | | $ | 29.77 | |
| | | | | |
Total Returnc | | | (3.63 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 30 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.30 | % |
Total expensesd | | | 4.04 | %f |
Net expensese,h | | | 2.94 | % |
Portfolio turnover rate | | | 214 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 49 |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Period Ended
September 30,
2014a | |
Per Share Data | | | | | | |
Net asset value, beginning of period | | $ | 27.00 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | (.11 | ) | | | .02 | |
Net gain (loss) on investments (realized and unrealized) | | | 3.18 | | | | 2.09 | |
Total from investment operations | | | 3.07 | | | | 2.11 | |
Less distributions from: | |
Net investment income | | | (.03 | ) | | | (.11 | ) |
Net realized gains | | | (.14 | ) | | | — | |
Total distributions | | | (.17 | ) | | | (.11 | ) |
Net asset value, end of period | | $ | 29.90 | | | $ | 27.00 | |
| | |
Total Returnc | | | 11.36 | % | | | 8.44 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 105,882 | | | $ | 103,993 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (0.35 | %) | | | 0.11 | % |
Total expensesd | | | 2.70 | % | | | 2.69 | %f |
Net expensese,h | | | 2.70 | % | | | 2.58 | % |
Portfolio turnover rate | | | 214 | % | | | 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 | Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable. |
f | Due to limited length of Fund operations, ratios for this period are not indicative of future performance. |
g | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
h | Net expenses may include expenses that are excluded from the expense limitation agreement and recouped amounts. Excluding these expenses, the operating expense ratios for the periods presented would be: |
| | 09/30/15 | 09/30/14 |
A-Class | 1.30% | 1.30% |
C-Class | 2.05% | 2.05% |
P-Class | 1.30% | — |
Institutional Class | 0.99% | 1.10% |
50 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
To Our Shareholders:
Guggenheim Small Cap Value Fund (the “Fund”) is managed by a team of seasoned professionals led by James Schier, CFA, Senior Portfolio Manager. During the period, the following individuals were added as Portfolio Managers: Scott Hammond, Managing Director; Farhan Sharaff, Assistant Chief Investment Officer, Equities; and Gregg Strohkorb, CFA. In the following paragraphs, the team discusses performance of the Fund for the fiscal year ended September 30, 2015.
For the year ended September 30, 2015, the Guggenheim Small Cap Value Fund returned -5.23%1, compared with the -1.60% 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 in which they operate. In today’s rapidly changing environment marked by very sharp and quick, but constrained volatility, our long-term orientation and discipline are a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides, and fundamentals once again become a more dominant factor in the market.
Performance Review
On the positive side, stock selection and an underweight in the Materials sector represented the leading contributor to return. Also contributing was stock selection in the Consumer Discretionary and Financials sectors. The Financials allocation grew over the period as a result of a larger allocation to REITs (real estate investment trusts). In the prior year, the Fund was underweight REITs (and Financials), which was damaging as REITs were performing well. In early 2015, the Fund began to view REITs as a sector rather than an industry within a sector, leading the Fund to have a weighting that is in line with the minimum the Fund would have for any significant sector. The weighting disparity was significantly lower at the end of the period. That brought the Financials sector closer to equal weight with the index.
The leading individual contributor to performance was property and casualty insurer Hanover Insurance Group, Inc., one of the Fund’s long-time largest holdings. The property and casualty market was favored because of its positive pricing trends. The second-largest individual contributor was CubeSmart, a self-storage REIT. The third-largest individual contributor was Consumer Discretionary holding PapaMurphy’s Holdings, Inc., franchisor of the Take ‘N’ Bake Pizza chain. All three benefited from strong earnings over the period.
Detracting most from Fund performance for the period was stock selection within Industrials, Information Technology, and Energy. Although the Industrials exposure was reduced over the period, the Fund maintains a significant overweight to the sector. The portfolio’s holdings include a number of companies that have an engineering and construction orientation, or are tied into fairly large, visible infrastructure projects. The market has favored businesses that experience an immediate pick-up in business as the economy improves, rather than companies reliant on long project rollouts.
What was owned in Energy focused on oil-centric production and service companies, which tended to experience the brunt of the market’s selling in the sector. The Fund believes the companies it owns in the sector have manageable leverage and liquidity to weather the storm in commodity prices. The sector provided the two leading individual detractors for the Fund for the period, Patterson-UTI Energy, Inc., which provides onshore drilling services, and Resolute Energy Corp., an exploration and production (E&P) company which turned in poor earnings. Over the past several quarters, the Fund has also been slowly shifting its energy focus from almost exclusively E&P shale players to more of a balance between E&P companies and service companies, while avoiding the refiners segment.
The Information Technology sector had the other leading individual detractor from return, Silicon Graphics International Corp. The company in the third quarter of 2015 guided revenue to the lower end of guidance even though earnings were ahead of expectations. This, plus the fact that the company depends on the Federal government for a significant portion of its revenues, has made the stock unusually sensitive to the budget discussions underway.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Financials and an overweight in Industrials. Both the underweight position and the overweight position were slimmed down over the period. Both these stances detracted from performance for the period.
Within Financials, REITs performed well particularly early in the period, and the strategy’s earlier underweighting in this industry was a difficult bias to overcome. However, the Fund over the period increased its REIT holdings to about 8%, which is half the benchmark weighting, from a negligible amount.
The Industrials sector is large and eclectic, and in which the Fund has diverse holdings. The portfolio’s holdings tended to lack the energy end-market exposure that many names in the benchmark possess.
Portfolio and Market Outlook
Despite a firming economy, investors continued to be very cautious during the quarter as safe-haven areas such as Consumer Staples, Utilities, and REITs performed the best, while Energy, Information Technology, and Industrials lagged. Companies tied to the commodity cycle were especially hard hit late in the period. As the world continues to look towards the U.S. economy to be the engine for growth, and as foreign investors continue to fear the safety of their own currencies and economies, interest in U.S. assets should continue to be robust. The prolonged decline in U.S. government bond yields should continue to make equities an attractive alternative for incremental investment dollars.
Our portfolios tend to reflect a bias toward companies with balance sheet quality. We continue to find niche companies with what we believe to be attractive growth opportunities, and, as such, are constructive on the outlook.
Performance displayed represents past performance which is no guarantee of future results.
1 | Performance figures are based on Class A 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.
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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.
Inception Dates: |
A-Class | July 11, 2008 |
C-Class | July 11, 2008 |
P-Class | May 1, 2015 |
Institutional Class | July 11, 2008 |
Ten Largest Holdings (% of Total Net Assets) |
Endurance Specialty Holdings Ltd. | 3.0% |
CubeSmart | 2.8% |
Diebold, Inc. | 2.7% |
Hanover Insurance Group, Inc. | 2.7% |
Laclede Group, Inc. | 2.7% |
Emergent BioSolutions, Inc. | 2.7% |
Berkshire Hills Bancorp, Inc. | 2.6% |
Apartment Investment & Management Co. — Class A | 2.5% |
Navigators Group, Inc. | 2.2% |
FLIR Systems, Inc. | 2.1% |
Top Ten Total | 26.0% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | Since Inception
(07/11/08) |
A-Class Shares | -5.23% | 8.71% | 12.98% |
A-Class Shares with sales charge† | -9.74% | 7.43% | 12.05% |
C-Class Shares | -5.97% | 7.88% | 12.15% |
C-Class Shares with CDSC§ | -6.72% | 7.88% | 12.15% |
Russell 2000 Value Index | -1.60% | 10.17% | 7.62% |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | -10.82% |
Russell 2000 Value Index | | | -10.17% |
| | 1 Year | 5 Year | Since Inception
(07/11/08) |
Institutional Class Shares | -5.01% | 8.95% | 13.23% |
Russell 2000 Value Index | -1.60% | 10.17% | 7.62% |
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 2000 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. The graph is based on A-Class shares only; performance for C-Class, P-Class and Institutional Class will vary due to differences in fee structures. |
† | 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 since inception 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. |
54 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
SMALL CAP VALUE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 96.0% | |
| | | | | | | |
Financial - 34.3% | |
Endurance Specialty Holdings Ltd. | | | 9,124 | | | $ | 556,838 | |
CubeSmart | | | 19,084 | | | | 519,276 | |
Hanover Insurance Group, Inc. | | | 6,479 | | | | 503,417 | |
Berkshire Hills Bancorp, Inc. | | | 17,610 | | | | 484,979 | |
Apartment Investment & Management Co. — Class A | | | 12,250 | | | | 453,495 | |
Navigators Group, Inc.* | | | 5,200 | | | | 405,496 | |
Sun Communities, Inc. | | | 5,344 | | | | 362,109 | |
Horace Mann Educators Corp. | | | 10,330 | | | | 343,163 | |
Camden Property Trust | | | 4,390 | | | | 324,421 | |
Wintrust Financial Corp. | | | 5,370 | | | | 286,919 | |
BioMed Realty Trust, Inc. | | | 13,460 | | | | 268,931 | |
Chatham Lodging Trust | | | 11,920 | | | | 256,042 | |
Argo Group International Holdings Ltd. | | | 4,241 | | | | 239,998 | |
Cathay General Bancorp | | | 7,540 | | | | 225,898 | |
1st Source Corp. | | | 6,095 | | | | 187,726 | |
Radian Group, Inc. | | | 11,100 | | | | 176,601 | |
Fulton Financial Corp. | | | 13,239 | | | | 160,192 | |
Acacia Research Corp. | | | 17,300 | | | | 157,084 | |
Parkway Properties, Inc. | | | 7,236 | | | | 112,592 | |
Prosperity Bancshares, Inc. | | | 2,070 | | | | 101,658 | |
NorthStar Realty Finance Corp. | | | 7,450 | | | | 92,008 | |
Trustmark Corp. | | | 2,830 | | | | 65,571 | |
Umpqua Holdings Corp. | | | 3,150 | | | | 51,345 | |
Communications Sales & Leasing, Inc. | | | 2,050 | | | | 36,695 | |
Total Financial | | | | | | | 6,372,454 | |
| | | | | | | | | |
Consumer, Non-cyclical - 20.5% | |
Emergent BioSolutions, Inc.* | | | 17,540 | | | | 499,714 | |
ABM Industries, Inc. | | | 13,930 | | | | 380,428 | |
Omega Protein Corp.* | | | 15,990 | | | | 271,350 | |
Invacare Corp. | | | 17,790 | | | | 257,421 | |
Everi Holdings, Inc.* | | | 42,790 | | | | 219,513 | |
Kindred Healthcare, Inc. | | | 12,694 | | | | 199,931 | |
Sanderson Farms, Inc. | | | 2,800 | | | | 191,996 | |
Navigant Consulting, Inc.* | | | 11,560 | | | | 183,920 | |
Premier, Inc. — Class A* | | | 4,320 | | | | 148,478 | |
Patterson Companies, Inc. | | | 3,370 | | | | 145,753 | |
ICU Medical, Inc.* | | | 1,325 | | | | 145,088 | |
Darling Ingredients, Inc.* | | | 12,360 | | | | 138,926 | |
Surgical Care Affiliates, Inc.* | | | 3,954 | | | | 129,256 | |
Greatbatch, Inc.* | | | 2,238 | | | | 126,268 | |
Great Lakes Dredge & Dock Corp.* | | | 24,608 | | | | 124,024 | |
HealthSouth Corp. | | | 3,050 | | | | 117,029 | |
Globus Medical, Inc. — Class A* | | | 5,600 | | | | 115,696 | |
Depomed, Inc.* | | | 5,262 | | | | 99,189 | |
IPC Healthcare, Inc.* | | | 1,240 | | | | 96,336 | |
Brookdale Senior Living, Inc. — Class A* | | | 3,820 | | | | 87,707 | |
Universal Corp. | | | 1,260 | | | | 62,458 | |
ICF International, Inc.* | | | 1,573 | | | | 47,803 | |
Total Consumer, Non-cyclical | | | | | | | 3,788,284 | |
| | | | | | | | | |
Technology - 10.8% | |
Diebold, Inc. | | | 17,030 | | | | 506,982 | |
Maxwell Technologies, Inc.* | | | 49,188 | | | | 266,599 | |
ManTech International Corp. — Class A | | | 8,560 | | | | 219,991 | |
IXYS Corp. | | | 19,385 | | | | 216,337 | |
Silicon Graphics International Corp.* | | | 41,420 | | | | 162,781 | |
Mercury Systems, Inc.* | | | 9,190 | | | | 146,213 | |
Brooks Automation, Inc. | | | 11,910 | | | | 139,466 | |
Cree, Inc.* | | | 5,290 | | | | 128,177 | |
KEYW Holding Corp.* | | | 18,304 | | | | 112,570 | |
Super Micro Computer, Inc.* | | | 3,783 | | | | 103,125 | |
Total Technology | | | | | | | 2,002,241 | |
| | | | | | | | | |
Industrial - 9.3% | |
FLIR Systems, Inc. | | | 13,830 | | | | 387,102 | |
Rofin-Sinar Technologies, Inc.* | | | 9,550 | | | | 247,632 | |
Oshkosh Corp. | | | 6,144 | | | | 223,212 | |
Marten Transport Ltd. | | | 12,120 | | | | 195,979 | |
Gentex Corp. | | | 9,204 | | | | 142,662 | |
Werner Enterprises, Inc. | | | 5,480 | | | | 137,548 | |
Celadon Group, Inc. | | | 8,132 | | | | 130,275 | |
LMI Aerospace, Inc.* | | | 9,250 | | | | 95,090 | |
Rand Logistics, Inc.* | | | 34,819 | | | | 74,512 | |
Kirby Corp.* | | | 770 | | | | 47,702 | |
Knight Transportation, Inc. | | | 1,940 | | | | 46,560 | |
Total Industrial | | | | | | | 1,728,274 | |
| | | | | | | | | |
Utilities - 6.5% | |
Laclede Group, Inc. | | | 9,186 | | | | 500,913 | |
Avista Corp. | | | 7,810 | | | | 259,682 | |
Black Hills Corp. | | | 6,250 | | | | 258,375 | |
Portland General Electric Co. | | | 4,910 | | | | 181,523 | |
Total Utilities | | | | | | | 1,200,493 | |
| | | | | | | | | |
Consumer, Cyclical - 5.8% | |
International Speedway Corp. — Class A | | | 9,191 | | | | 291,540 | |
Ryland Group, Inc. | | | 4,680 | | | | 191,084 | |
JC Penney Company, Inc.* | | | 14,860 | | | | 138,049 | |
Essendant, Inc. | | | 4,250 | | | | 137,828 | |
Ascena Retail Group, Inc.* | | | 8,500 | | | | 118,235 | |
ScanSource, Inc.* | | | 2,820 | | | | 99,997 | |
Sonic Automotive, Inc. — Class A | | | 2,170 | | | | 44,311 | |
Fossil Group, Inc.* | | | 780 | | | | 43,586 | |
Total Consumer, Cyclical | | | | | | | 1,064,630 | |
| | | | | | | | | |
Basic Materials - 3.2% | |
Reliance Steel & Aluminum Co. | | | 2,480 | | | | 133,945 | |
Royal Gold, Inc. | | | 2,150 | | | | 101,007 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 55 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
SMALL CAP VALUE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Landec Corp.* | | | 7,896 | | | $ | 92,146 | |
Olin Corp. | | | 5,032 | | | | 84,588 | |
Luxfer Holdings plc ADR | | | 7,630 | | | | 82,328 | |
Stillwater Mining Co.* | | | 4,570 | | | | 47,208 | |
Intrepid Potash, Inc.* | | | 7,984 | | | | 44,231 | |
Total Basic Materials | | | | | | | 585,453 | |
| | | | | | | | | |
Energy - 3.0% | |
Patterson-UTI Energy, Inc. | | | 13,180 | | | | 173,185 | |
Oasis Petroleum, Inc.* | | | 15,580 | | | | 135,235 | |
Superior Energy Services, Inc. | | | 8,870 | | | | 112,028 | |
Rowan Companies plc — Class A | | | 5,620 | | | | 90,763 | |
Sanchez Energy Corp.* | | | 6,288 | | | | 38,671 | |
Total Energy | | | | | | | 549,882 | |
| | | | | | | | | |
Communications - 2.6% | |
DigitalGlobe, Inc.* | | | 13,908 | | | | 264,530 | |
Finisar Corp.* | | | 12,450 | | | | 138,569 | |
Liquidity Services, Inc.* | | | 9,495 | | | | 70,168 | |
Total Communications | | | | | | | 473,267 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $18,967,664) | | | | | | | 17,764,978 | |
| | | | | | | | | |
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | |
Thermoenergy Corp.*,1 | | | 6,250 | | | | 16 | |
Total Convertible Preferred Stocks | | | | | | | | |
(Cost $5,968) | | | | | | | 16 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 2.1% | |
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%2 | | | 383,245 | | | | 383,245 | |
Total Short Term Investments | | | | | | | | |
(Cost $383,245) | | | | | | | 383,245 | |
| | | | | | | | | |
Total Investments - 98.1% | | | | | | | | |
(Cost $19,356,877) | | | | | | $ | 18,148,239 | |
Other Assets & Liabilities, net - 1.9% | | | | | | | 358,774 | |
Total Net Assets - 100.0% | | | | | | $ | 18,507,013 | |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 4. |
††† | Value determined based on Level 3 inputs — See Note 4. |
1 | PIPE (Private Investment in Public Equity) - Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. |
2 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | ADR — American Depositary Receipt |
| | plc — Public Limited Company |
| | |
| | See Sector classification in Other Information section. |
56 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments, at value (cost $19,356,877) | | $ | 18,148,239 | |
Prepaid expenses | | | 29,203 | |
Receivables: | |
Securities sold | | | 318,031 | |
Fund shares sold | | | 82,023 | |
Dividends | | | 29,623 | |
Total assets | | | 18,607,119 | |
| | | | | |
Liabilities: | |
Payable for: | |
Securities purchased | | | 48,529 | |
Fund shares redeemed | | | 19,803 | |
Distribution and service fees | | | 7,102 | |
Transfer agent/maintenance fees | | | 3,965 | |
Management fees | | | 2,506 | |
Fund accounting/administration fees | | | 1,491 | |
Trustees’ fees* | | | 221 | |
Professional fees | | | 6,664 | |
Miscellaneous | | | 9,825 | |
Total liabilities | | | 100,106 | |
Net assets | | $ | 18,507,013 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 18,471,118 | |
Accumulated net investment loss | | | (9,380 | ) |
Accumulated net realized gain on investments | | | 1,253,913 | |
Net unrealized depreciation on investments | | | (1,208,638 | ) |
Net assets | | $ | 18,507,013 | |
| | | | | |
A-Class: | |
Net assets | | $ | 12,865,891 | |
Capital shares outstanding | | | 1,007,082 | |
Net asset value per share | | $ | 12.78 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 13.42 | |
| | | | | |
C-Class: | |
Net assets | | $ | 5,173,222 | |
Capital shares outstanding | | | 432,778 | |
Net asset value per share | | $ | 11.95 | |
| | | | | |
P-Class: | |
Net assets | | $ | 9,017 | |
Capital shares outstanding | | | 706 | |
Net asset value per share | | $ | 12.77 | |
| | | | | |
Institutional Class | |
Net assets | | $ | 458,883 | |
Capital shares outstanding | | | 38,816 | |
Net asset value per share | | $ | 11.82 | |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Dividends (net of foreign withholding tax of $915) | | $ | 338,400 | |
Total investment income | | | 338,400 | |
| | | | | |
Expenses: | |
Management fees | | | 233,901 | |
Transfer agent/maintenance fees: | |
A-Class | | | 30,932 | |
C-Class | | | 12,551 | |
P-Class** | | | 89 | |
Institutional Class | | | 1,033 | |
Distribution and service fees: | |
A-Class | | | 39,665 | |
C-Class | | | 68,777 | |
P-Class** | | | 10 | |
Fund accounting/administration fees | | | 22,220 | |
Registration fees | | | 50,606 | |
Custodian fees | | | 7,797 | |
Tax expense | | | 3,075 | |
Trustees’ fees* | | | 2,757 | |
Line of credit fees | | | 2,504 | |
Miscellaneous | | | 37,594 | |
Total expenses | | | 513,511 | |
Less: | |
Expenses waived by Adviser | | | (153,832 | ) |
Net expenses | | | 359,679 | |
Net investment loss | | | (21,279 | ) |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments | | | 2,580,686 | |
Net realized gain | | | 2,580,686 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments | | | (3,368,440 | ) |
Net change in unrealized appreciation (depreciation) | | | (3,368,440 | ) |
Net realized and unrealized loss | | | (787,754 | ) |
Net decrease in net assets resulting from operations | | $ | (809,033 | ) |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 57 |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment loss | | $ | (21,279 | ) | | $ | (90,719 | ) |
Net realized gain on investments | | | 2,580,686 | | | | 8,751,257 | |
Net change in unrealized appreciation (depreciation) on investments | | | (3,368,440 | ) | | | (7,309,504 | ) |
Net increase (decrease) in net assets resulting from operations | | | (809,033 | ) | | | 1,351,034 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (85,715 | ) | | | (33,808 | ) |
Institutional Class | | | (60,526 | ) | | | (89,016 | ) |
Net realized gains | | | | | | | | |
A-Class | | | (3,174,844 | ) | | | (1,236,307 | ) |
C-Class | | | (1,734,594 | ) | | | (508,183 | ) |
Institutional Class | | | (145,234 | ) | | | (1,474,064 | ) |
Total distributions to shareholders | | | (5,200,913 | ) | | | (3,341,378 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 4,411,252 | | | | 9,171,920 | |
C-Class | | | 563,350 | | | | 4,179,080 | |
P-Class* | | | 10,100 | | | | — | |
Institutional Class | | | 415,494 | | | | 559,915 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 3,225,514 | | | | 1,239,655 | |
C-Class | | | 1,687,462 | | | | 485,717 | |
Institutional Class | | | 119,479 | | | | 25,070 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (8,280,585 | ) | | | (8,482,138 | ) |
C-Class | | | (3,649,333 | ) | | | (1,429,909 | ) |
Institutional Class | | | (608,113 | ) | | | (21,823,574 | ) |
Net decrease from capital share transactions | | | (2,105,380 | ) | | | (16,074,264 | ) |
Net decrease in net assets | | | (8,115,326 | ) | | | (18,064,608 | ) |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 26,622,339 | | | | 44,686,947 | |
End of year | | $ | 18,507,013 | | | $ | 26,622,339 | |
Accumulated net investment loss at end of year | | $ | (9,380 | ) | | $ | (146,970 | ) |
| | | | | | | | | |
Capital share activity: | | | | | | | | |
Shares sold | | | | | | | | |
A-Class | | | 298,616 | | | | 506,970 | |
C-Class | | | 41,676 | | | | 242,648 | |
P-Class* | | | 706 | | | | — | |
Institutional Class | | | 31,665 | | | | 30,658 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 230,223 | | | | 71,163 | |
C-Class | | | 127,935 | | | | 29,190 | |
Institutional Class | | | 9,233 | | | | 1,422 | |
Shares redeemed | | | | | | | | |
A-Class | | | (552,933 | ) | | | (472,674 | ) |
C-Class | | | (271,052 | ) | | | (82,761 | ) |
Institutional Class | | | (46,285 | ) | | | (1,224,766 | ) |
Net decrease in shares | | | (130,216 | ) | | | (898,150 | ) |
* | Since commencement of operations: May 1, 2015. |
58 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
A-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 16.82 | | | $ | 17.81 | | | $ | 15.04 | | | $ | 11.66 | | | $ | 14.35 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .02 | | | | (.03 | ) | | | (— | )b | | | (.03 | ) | | | (.07 | ) |
Net gain (loss) on investments (realized and unrealized) | | | (.60 | ) | | | .26 | | | | 4.05 | | | | 3.73 | | | | (.63 | ) |
Total from investment operations | | | (.58 | ) | | | .23 | | | | 4.05 | | | | 3.70 | | | | (.70 | ) |
Less distributions from: | |
Net investment income | | | (.09 | ) | | | (.03 | ) | | | (.01 | ) | | | — | | | | — | |
Net realized gains | | | (3.37 | ) | | | (1.19 | ) | | | (1.27 | ) | | | (.32 | ) | | | (1.99 | ) |
Total distributions | | | (3.46 | ) | | | (1.22 | ) | | | (1.28 | ) | | | (.32 | ) | | | (1.99 | ) |
Net asset value, end of period | | $ | 12.78 | | | $ | 16.82 | | | $ | 17.81 | | | $ | 15.04 | | | $ | 11.66 | |
| | |
Total Returnc | | | (5.23 | %) | | | 1.07 | % | | | 29.39 | % | | | 32.19 | % | | | (7.31 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 12,866 | | | $ | 17,342 | | | $ | 16,487 | | | $ | 12,294 | | | $ | 7,592 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.13 | % | | | (0.14 | %) | | | (0.02 | %) | | | (0.24 | %) | | | (0.52 | %) |
Total expenses | | | 1.99 | % | | | 1.85 | % | | | 1.91 | % | | | 2.14 | % | | | 2.33 | % |
Net expensesd | | | 1.32 | %f | | | 1.32 | %f | | | 1.30 | % | | | 1.30 | % | | | 1.30 | % |
Portfolio turnover rate | | | 62 | % | | | 45 | % | | | 34 | % | | | 62 | % | | | 70 | % |
C-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 15.96 | | | $ | 17.05 | | | $ | 14.54 | | | $ | 11.36 | | | $ | 14.13 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | (.09 | ) | | | (.15 | ) | | | (.12 | ) | | | (.14 | ) | | | (.18 | ) |
Net gain (loss) on investments (realized and unrealized) | | | (.55 | ) | | | .25 | | | | 3.90 | | | | 3.64 | | | | (.60 | ) |
Total from investment operations | | | (.64 | ) | | | .10 | | | | 3.78 | | | | 3.50 | | | | (.78 | ) |
Less distributions from: | |
Net realized gains | | | (3.37 | ) | | | (1.19 | ) | | | (1.27 | ) | | | (.32 | ) | | | (1.99 | ) |
Total distributions | | | (3.37 | ) | | | (1.19 | ) | | | (1.27 | ) | | | (.32 | ) | | | (1.99 | ) |
Net asset value, end of period | | $ | 11.95 | | | $ | 15.96 | | | $ | 17.05 | | | $ | 14.54 | | | $ | 11.36 | |
| | |
Total Returnc | | | (5.97 | %) | | | 0.30 | % | | | 28.34 | % | | | 31.35 | % | | | (8.07 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 5,173 | | | $ | 8,527 | | | $ | 5,885 | | | $ | 3,026 | | | $ | 2,305 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (0.65 | %) | | | (0.87 | %) | | | (0.75 | %) | | | (1.00 | %) | | | (1.26 | %) |
Total expenses | | | 2.72 | % | | | 2.51 | % | | | 2.58 | % | | | 2.70 | % | | | 3.07 | % |
Net expensesd | | | 2.08 | %f | | | 2.07 | %f | | | 2.05 | % | | | 2.05 | % | | | 2.05 | % |
Portfolio turnover rate | | | 62 | % | | | 45 | % | | | 34 | % | | | 62 | % | | | 70 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 59 |
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.
P-Class | | Period Ended
September 30,
2015e | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 14.33 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .04 | |
Net gain (loss) on investments (realized and unrealized) | | | (1.60 | ) |
Total from investment operations | | | (1.56 | ) |
Net asset value, end of period | | $ | 12.77 | |
| | | | | |
Total Returnc | | | (10.82 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 9 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.60 | % |
Total expenses | | | 4.04 | % |
Net expensesd,f | | | 1.31 | % |
Portfolio turnover rate | | | 62 | % |
60 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 17.04 | | | $ | 18.04 | | | $ | 15.21 | | | $ | 11.76 | | | $ | 14.43 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .05 | | | | .01 | | | | .04 | | | | — | b | | | (.04 | ) |
Net gain (loss) on investments (realized and unrealized) | | | (.49 | ) | | | .25 | | | | 4.10 | | | | 3.77 | | | | (.64 | ) |
Total from investment operations | | | (.44 | ) | | | .26 | | | | 4.14 | | | | 3.77 | | | | (.68 | ) |
Less distributions from: | |
Net investment income | | | (1.41 | ) | | | (.07 | ) | | | (.04 | ) | | | — | | | | — | |
Net realized gains | | | (3.37 | ) | | | (1.19 | ) | | | (1.27 | ) | | | (.32 | ) | | | (1.99 | ) |
Total distributions | | | (4.78 | ) | | | (1.26 | ) | | | (1.31 | ) | | | (.32 | ) | | | (1.99 | ) |
Net asset value, end of period | | $ | 11.82 | | | $ | 17.04 | | | $ | 18.04 | | | $ | 15.21 | | | $ | 11.76 | |
| | |
Total Returnc | | | (5.01 | %) | | | 1.21 | % | | | 29.74 | % | | | 32.51 | % | | | (7.11 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 459 | | | $ | 753 | | | $ | 22,315 | | | $ | 18,591 | | | $ | 638 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.33 | % | | | 0.05 | % | | | 0.23 | % | | | 0.02 | % | | | (0.30 | %) |
Total expenses | | | 1.70 | % | | | 1.33 | % | | | 1.34 | % | | | 1.44 | % | | | 2.09 | % |
Net expensesd | | | 1.07 | %f | | | 1.07 | %f | | | 1.05 | % | | | 1.05 | % | | | 1.05 | % |
Portfolio turnover rate | | | 62 | % | | | 45 | % | | | 34 | % | | | 62 | % | | | 70 | % |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Net investment income is less than $0.01 per share. |
c | Total return does not reflect the impact of any applicable sales charges. |
d | Net expense information reflects the expense ratios after expense waivers. |
e | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
f | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operation expense ratios for the periods presented would be: |
| | 09/30/15 | 09/30/14 |
A-Class | 1.30% | 1.30% |
C-Class | 2.05% | 2.05% |
P-Class | 1.30% | — |
Institutional Class | 1.05% | 1.05% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 61 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
To Our Shareholders:
Guggenheim StylePlusTM—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, 2015.
For the year ended September 30, 2015, the Guggenheim StylePlus—Large Core Fund returned -0.84%1, compared with the -0.61% return of its benchmark, the S&P 500 Index.
Through a combination of an allocation to actively managed individual equity, passive equity, and actively managed fixed income, the Fund seeks to exceed the total return of the S&P 500 Index. The allocation to actively managed individual equity via stocks, and passive equity via derivatives, is designed to provide exposure to large core equity. Remaining Fund assets are invested in the Guggenheim Strategy Funds, short-term fixed-income investment companies advised by Guggenheim Investments. The Strategy Funds invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital. For the one-year period ended September 30, 2015, investment in the Guggenheim Strategy Funds has benefited Fund performance relative to investing in other short-term investments such as overnight repurchase agreements. The actively managed equity and fixed income components seek to provide multiple sources of outperformance and take advantage of Guggenheim’s competencies in both fixed income and systematic stock selection.
The passive equity position uses derivatives such as swap agreements to gain exposure to the index. The Fund’s fixed income component invests in a variety of fixed income sectors, including asset-backed securities (ABS), mortgage-backed securities (MBS), high yield corporate bonds, and bank loans.
The active and passive decisions seek to add value by tactically allocating to actively managed equity through quantitative selection models when stock picking opportunities are high. During periods when Guggenheim views these opportunities to be less attractive, the Fund seeks to increase its passive exposure to equities and the allocation to fixed-income securities. The prospective return during such periods is the equity index plus an “alpha” component coming from the yield of the fixed-income overlay.
Performance Review
The Fund had slightly negative performance over the period. The fixed income sleeve was the largest positive contributor to performance. The actively managed equity sleeve contributed slightly to performance. The passive equity position, maintained through swap agreements, was a detractor from performance for the period.
For the Fund’s total equity position over the period, 15-20% was allocated to actively managed equity and 80-85% to passive equity. The actively managed equity sleeve decreased toward 15% over the period as the outlook for active stock selection grew less favorable, with a corresponding higher allocation of 85% to the passive equity position.
When compared with the index, the total equity position (actively managed individual equity plus passive equity derivatives) was most overweight the Industrials and Consumer Staples sectors and most underweight the Consumer Discretionary and Financials sectors.
62 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
Uncorrelated with the Fund’s active equity component, the fixed-income component was largely invested in ABS and MBS. These positions constituted the majority of the fixed income sleeve’s total return.
Performance displayed represents past performance which is no guarantee of future results.
1 | Performance figures are based on Class A 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 | 63 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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 or investments in Guggenheim Strategy Funds Trust mutual funds. Investments in those Funds do not provide “market exposure” to meet the fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
Portfolio Composition by Quality Rating* |
Rating | |
Fixed Income Instruments | |
AAA | 0.5% |
AA | 0.7% |
A | 0.8% |
Other Instruments | 98.0% |
Total Investments | 100.0% |
| | |
The chart above reflects percentages of the value of total investments. |
Inception Dates: |
A-Class | September 10, 1962 |
C-Class | January 29, 1999 |
P-Class | May 1, 2015 |
Institutional Class | March 1, 2012 |
Ten Largest Holdings (% of Total Net Assets) |
Guggenheim Strategy Fund III | 27.8% |
Guggenheim Strategy Fund II | 27.8% |
Guggenheim Strategy Fund I | 23.5% |
Apple, Inc. | 0.7% |
Black Diamond CLO Delaware Corp. | 0.7% |
Black Diamond CLO 2006-1 Luxembourg S.A. | 0.5% |
Procter & Gamble Co. | 0.4% |
Pfizer, Inc. | 0.4% |
Exxon Mobil Corp. | 0.3% |
General Electric Co. | 0.3% |
Top Ten Total | 82.4% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
* | Source: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Security ratings are determined at the time of purchase and may change thereafter. |
64 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | 10 Year |
A-Class Shares | -0.84% | 10.93% | 4.36% |
A-Class Shares with sales charge† | -5.54% | 9.61% | 3.74% |
C-Class Shares | -1.72% | 9.94% | 3.52% |
C-Class Shares with CDSC§ | -2.56% | 9.94% | 3.52% |
S&P 500 Index | -0.61% | 13.34% | 6.80% |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | -8.69% |
S&P 500 Index | | | -8.07% |
| | | 1 Year | Since Inception
(03/01/12) |
Institutional Class Shares | | -0.75% | 10.14% |
S&P 500 Index | | -0.61% | 12.14% |
* | 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 S&P 500 Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. The graph is based on A-Class shares only; performance for C-Class, P-Class and Institutional Class will vary due to differences in fee structures. |
† | 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. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 65 |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
STYLEPLUS—LARGE CORE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 15.8% | |
| | | | | | | |
Consumer, Non-cyclical - 5.2% | |
Procter & Gamble Co. | | | 9,357 | | | $ | 673,142 | |
Pfizer, Inc. | | | 20,516 | | | | 644,407 | |
Altria Group, Inc. | | | 9,449 | | | | 514,025 | |
UnitedHealth Group, Inc. | | | 4,362 | | | | 506,036 | |
Coca-Cola Co. | | | 11,127 | | | | 446,415 | |
PepsiCo, Inc. | | | 4,702 | | | | 443,399 | |
Gilead Sciences, Inc. | | | 4,427 | | | | 434,686 | |
AbbVie, Inc. | | | 7,979 | | | | 434,137 | |
Express Scripts Holding Co.* | | | 4,924 | | | | 398,647 | |
Danaher Corp. | | | 4,671 | | | | 398,016 | |
Philip Morris International, Inc. | | | 4,763 | | | | 377,849 | |
McKesson Corp. | | | 2,007 | | | | 371,356 | |
General Mills, Inc. | | | 6,606 | | | | 370,795 | |
Amgen, Inc. | | | 2,596 | | | | 359,079 | |
Colgate-Palmolive Co. | | | 5,386 | | | | 341,796 | |
Archer-Daniels-Midland Co. | | | 8,147 | | | | 337,693 | |
Cardinal Health, Inc. | | | 4,371 | | | | 335,780 | |
HCA Holdings, Inc.* | | | 4,068 | | | | 314,700 | |
AmerisourceBergen Corp. — Class A | | | 2,471 | | | | 234,720 | |
Estee Lauder Companies, Inc. — Class A | | | 2,762 | | | | 222,838 | |
Kellogg Co. | | | 2,796 | | | | 186,074 | |
Medtronic plc | | | 2,585 | | | | 173,040 | |
Johnson & Johnson | | | 1,767 | | | | 164,949 | |
Anthem, Inc. | | | 897 | | | | 125,580 | |
Allergan plc* | | | 455 | | | | 123,674 | |
Biogen, Inc.* | | | 413 | | | | 120,518 | |
Celgene Corp.* | | | 1,024 | | | | 110,766 | |
Reynolds American, Inc. | | | 2,236 | | | | 98,988 | |
Aetna, Inc. | | | 827 | | | | 90,482 | |
Moody’s Corp. | | | 903 | | | | 88,675 | |
Total Consumer, Non-cyclical | | | | | | | 9,442,262 | |
| | | | | | | | | |
Industrial - 2.7% | |
General Electric Co. | | | 24,092 | | | | 607,601 | |
United Parcel Service, Inc. — Class B | | | 4,421 | | | | 436,308 | |
United Technologies Corp. | | | 4,872 | | | | 433,559 | |
TE Connectivity Ltd. | | | 6,157 | | | | 368,743 | |
Waste Management, Inc. | | | 7,072 | | | | 352,256 | |
FedEx Corp. | | | 2,420 | | | | 348,432 | |
Boeing Co. | | | 2,593 | | | | 339,554 | |
Lockheed Martin Corp. | | | 1,404 | | | | 291,064 | |
General Dynamics Corp. | | | 1,872 | | | | 258,242 | |
Raytheon Co. | | | 2,351 | | | | 256,870 | |
Northrop Grumman Corp. | | | 1,482 | | | | 245,938 | |
Deere & Co. | | | 2,517 | | | | 186,258 | |
Union Pacific Corp. | | | 2,078 | | | | 183,716 | |
Emerson Electric Co. | | | 3,751 | | | | 165,682 | |
3M Co. | | | 1,038 | | | | 147,157 | |
Illinois Tool Works, Inc. | | | 1,479 | | | | 121,736 | |
Eaton Corporation plc | | | 1,928 | | | | 98,906 | |
Total Industrial | | | | | | | 4,842,022 | |
Technology - 2.5% | |
Apple, Inc. | | | 11,410 | | | | 1,258,522 | |
Microsoft Corp. | | | 13,170 | | | | 582,904 | |
Oracle Corp. | | | 14,435 | | | | 521,392 | |
Accenture plc — Class A | | | 4,434 | | | | 435,685 | |
International Business Machines Corp. | | | 2,936 | | | | 425,632 | |
EMC Corp. | | | 16,094 | | | | 388,831 | |
Hewlett-Packard Co. | | | 13,978 | | | | 357,977 | |
Intuit, Inc. | | | 2,670 | | | | 236,963 | |
Texas Instruments, Inc. | | | 4,757 | | | | 235,567 | |
Skyworks Solutions, Inc. | | | 1,052 | | | | 88,589 | |
Total Technology | | | | | | | 4,532,062 | |
| | | | | | | | | |
Communications - 1.3% | |
Cisco Systems, Inc. | | | 21,198 | | | | 556,447 | |
Comcast Corp. — Class A | | | 9,136 | | | | 519,656 | |
Google, Inc. — Class C* | | | 719 | | | | 437,454 | |
Facebook, Inc. — Class A* | | | 2,604 | | | | 234,100 | |
eBay, Inc.* | | | 7,776 | | | | 190,045 | |
Walt Disney Co. | | | 924 | | | | 94,433 | |
Amazon.com, Inc.* | | | 182 | | | | 93,164 | |
AT&T, Inc. | | | 2,826 | | | | 92,071 | |
Verizon Communications, Inc. | | | 2,045 | | | | 88,978 | |
Viacom, Inc. — Class B | | | 2,000 | | | | 86,300 | |
Total Communications | | | | | | | 2,392,648 | |
| | | | | | | | | |
Financial - 1.3% | |
Citigroup, Inc. | | | 11,355 | | | | 563,323 | |
Capital One Financial Corp. | | | 5,043 | | | | 365,719 | |
Prudential Financial, Inc. | | | 4,577 | | | | 348,813 | |
JPMorgan Chase & Co. | | | 4,985 | | | | 303,935 | |
Bank of America Corp. | | | 9,580 | | | | 149,256 | |
MetLife, Inc. | | | 2,922 | | | | 137,772 | |
Visa, Inc. — Class A | | | 1,958 | | | | 136,394 | |
Wells Fargo & Co. | | | 2,549 | | | | 130,891 | |
Berkshire Hathaway, Inc. — Class B* | | | 952 | | | | 124,141 | |
Progressive Corp. | | | 3,124 | | | | 95,719 | |
Total Financial | | | | | | | 2,355,963 | |
| | | | | | | | | |
Energy - 1.2% | |
Exxon Mobil Corp. | | | 8,284 | | | | 615,915 | |
Schlumberger Ltd. | | | 4,935 | | | | 340,367 | |
Chevron Corp. | | | 4,119 | | | | 324,907 | |
Occidental Petroleum Corp. | | | 3,347 | | | | 221,404 | |
Kinder Morgan, Inc. | | | 7,992 | | | | 221,219 | |
EOG Resources, Inc. | | | 2,050 | | | | 149,240 | |
Valero Energy Corp. | | | 2,023 | | | | 121,582 | |
Marathon Petroleum Corp. | | | 2,324 | | | | 107,671 | |
Halliburton Co. | | | 2,484 | | | | 87,809 | |
Total Energy | | | | | | | 2,190,114 | |
| | | | | | | | | |
Consumer, Cyclical - 1.0% | |
CVS Health Corp. | | | 5,024 | | | | 484,716 | |
Walgreens Boots Alliance, Inc. | | | 5,093 | | | | 423,228 | |
66 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
STYLEPLUS—LARGE CORE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Ford Motor Co. | | | 30,010 | | | $ | 407,236 | |
Delta Air Lines, Inc. | | | 8,687 | | | | 389,786 | |
Wal-Mart Stores, Inc. | | | 2,847 | | | | 184,599 | |
Total Consumer, Cyclical | | | | | | | 1,889,565 | |
| | | | | | | | | |
Utilities - 0.3% | |
NextEra Energy, Inc. | | | 3,892 | | | | 379,665 | |
Southern Co. | | | 2,152 | | | | 96,194 | |
Total Utilities | | | | | | | 475,859 | |
| | | | | | | | | |
Basic Materials - 0.3% | |
LyondellBasell Industries N.V. — Class A | | | 3,272 | | | | 272,754 | |
Dow Chemical Co. | | | 2,167 | | | | 91,881 | |
Newmont Mining Corp. | | | 5,658 | | | | 90,924 | |
Total Basic Materials | | | | | | | 455,559 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $29,291,574) | | | | | | | 28,576,054 | |
| | | | | | | | | |
MUTUAL FUNDS† - 79.0% | |
Guggenheim Strategy Fund III1 | | | 2,022,072 | | | | 50,309,143 | |
Guggenheim Strategy Fund II1 | | | 2,020,756 | | | | 50,215,775 | |
Guggenheim Strategy Fund I1 | | | 1,709,111 | | | | 42,522,683 | |
Total Mutual Funds | | | | | | | | |
(Cost $143,365,383) | | | | | | | 143,047,601 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 1.5% | |
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%2 | | | 2,638,117 | | | | 2,638,117 | |
Total Short Term Investments | | | | | | | | |
(Cost $2,638,117) | | | | | | | 2,638,117 | |
| | | Face
Amount | | | | |
| | | | | | | |
ASSET BACKED SECURITIES†† - 2.0% | |
Collaterialized Loan Obligations - 2.0% | |
Black Diamond CLO Delaware Corp. | | | | | | |
2005-1A, 2.25% due 06/20/173,4 | | $ | 1,250,000 | | | | 1,233,668 | |
Black Diamond CLO 2006-1 Luxembourg S.A. | | | | | | | | |
2007-1A, 0.68% due 04/29/193,4 | | | 900,000 | | | | 868,597 | |
Halcyon Loan Advisors Funding Ltd. | | | | | | |
2012-1A, 3.32% due 08/15/233,4 | | | 500,000 | | | | 490,225 | |
NewStar Commercial Loan Trust | | | | | | | | |
2007-1A, 1.62% due 09/30/223,4 | | | 500,000 | | | | 476,214 | |
Brentwood CLO Corp. | | | | | | | | |
2006-1A, 1.12% due 02/01/223,4 | | | 500,000 | | | | 475,420 | |
Total Collateralized Loan Obligations | | | | | | | 3,544,124 | |
Total Asset Backed Securities | | | | | | | | |
(Cost $3,516,973) | | | | | | | 3,544,124 | |
| | | | | | | | | |
Total Investments - 98.3% | | | | | | | | |
(Cost $178,812,047) | | | | | | $ | 177,805,896 | |
Other Assets & Liabilities, net - 1.7% | | | | | | | 3,026,685 | |
Total Net Assets - 100.0% | | | | | | $ | 180,832,581 | |
| | | Contracts | | | Unrealized
Gain (Loss) | |
| | | | | | | |
EQUITY FUTURES CONTRACTS PURCHASED† | |
December 2015 S&P 500 Index
Mini Futures Contracts
(Aggregate Value of
Contracts $1,526,600) | | | 16 | | | $ | (33,571 | ) |
| | | | | | | | | |
| | | Units | | | | |
| | | | | | | |
OTC EQUITY INDEX SWAP AGREEMENTS†† | |
Bank of America S&P 500 Index Swap
October 2015 S&P 500 Index Swap,
Terminating 10/05/155
(Notional Value $12,100,029) | | | 6,302 | | | $ | 291 | |
Bank of America S&P 500
Total Return Index Swap
September 2016 S&P 500 Index Swap,
Terminating 09/05/165
(Notional Value $37,296,103) | | | 10,447 | | | | (3,442,222 | ) |
Morgan Stanley Capital Services, Inc.
July 2016 S&P 500 Index Swap,
Terminating 07/05/165
(Notional Value $101,378,142) | | | 28,397 | | | | (9,338,048 | ) |
(Total Notional Value $150,774,274) | | | | | | $ | (12,779,979 | ) |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
1 | Affiliated issuer — See Note 8. |
2 | Rate indicated is the 7 day yield as of September 30, 2015. |
3 | Variable rate security. Rate indicated is rate effective at September 30, 2015. |
4 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $3,544,124 (cost $3,516,973), or 2.0% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
5 | Total Return based on S&P 500 Index +/- financing at a variable rate. |
| | plc — Public Limited Company |
| | |
| | See Sector classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 67 |
STYLEPLUS—LARGE CORE FUND | |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments in unaffiliated issuers, at value (cost $35,446,664) | | $ | 34,758,295 | |
Investments in affiliated issuers, at value (cost $143,365,383) | | | 143,047,601 | |
Total investments (cost $178,812,047) | | | 177,805,896 | |
Cash | | | 1,701 | |
Segregated cash with broker | | | 16,187,707 | |
Prepaid expenses | | | 30,228 | |
Unrealized appreciation on swap agreements | | | 291 | |
Receivables: | |
Dividends | | | 213,319 | |
Securities sold | | | 157,571 | |
Variation margin | | | 27,000 | |
Fund shares sold | | | 25,058 | |
Interest | | | 5,567 | |
Total assets | | | 194,454,338 | |
| | | | | |
Liabilities: | |
Unrealized depreciation on swap agreements | | | 12,780,270 | |
Payable for: | |
Swap settlement | | | 323,735 | |
Securities purchased | | | 175,245 | |
Management fees | | | 113,662 | |
Fund shares redeemed | | | 83,584 | |
Distribution and service fees | | | 39,575 | |
Transfer agent/maintenance fees | | | 25,902 | |
Fund accounting/administration fees | | | 14,397 | |
Trustees’ fees* | | | 6,192 | |
Miscellaneous | | | 59,195 | |
Total liabilities | | | 13,621,757 | |
Net assets | | $ | 180,832,581 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 174,561,713 | |
Undistributed net investment income | | | 688,782 | |
Accumulated net realized gain on investments | | | 19,401,787 | |
Net unrealized depreciation on investments | | | (13,819,701 | ) |
Net assets | | $ | 180,832,581 | |
| | | | | |
A-Class: | |
Net assets | | $ | 177,748,100 | |
Capital shares outstanding | | | 8,407,804 | |
Net asset value per share | | $ | 21.14 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 22.19 | |
| | | | | |
C-Class: | |
Net assets | | $ | 2,767,373 | |
Capital shares outstanding | | | 161,200 | |
Net asset value per share | | $ | 17.17 | |
| | | | | |
P-Class: | |
Net assets | | $ | 13,933 | |
Capital shares outstanding | | | 660 | |
Net asset value per share | | $ | 21.11 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 303,175 | |
Capital shares outstanding | | | 14,439 | |
Net asset value per share | | $ | 21.00 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
68 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STYLEPLUS—LARGE CORE FUND | |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Dividends from securities of affiliated issuers | | $ | 1,999,460 | |
Dividends from securities of unaffiliated issuers | | | 741,730 | |
Interest | | | 880,399 | |
Total investment income | | | 3,621,589 | |
| | | | | |
Expenses: | |
Management fees | | | 1,506,012 | |
Transfer agent/maintenance fees: | |
A-Class | | | 238,128 | |
B-Class | | | 14,401 | |
C-Class | | | 9,935 | |
P-Class** | | | 9 | |
Institutional Class | | | 336 | |
Distribution and service fees: | |
A-Class | | | 488,171 | |
B-Class | | | 21,136 | |
C-Class | | | 33,030 | |
P-Class** | | | 12 | |
Fund accounting/administration fees | | | 190,759 | |
Line of credit fees | | | 29,284 | |
Trustees’ fees* | | | 19,996 | |
Custodian fees | | | 18,161 | |
Tax expense | | | 9 | |
Miscellaneous | | | 135,748 | |
Total expenses | | | 2,705,127 | |
Net investment income | | | 916,462 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments in unaffiliated issuers | | | 4,312,344 | |
Investments in affiliated issuers | | | (56,207 | ) |
Swap agreements | | | 17,355,677 | |
Futures contracts | | | (48,043 | ) |
Net realized gain | | | 21,563,771 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments in unaffiliated issuers | | | (4,564,487 | ) |
Investments in affiliated issuers | | | (71,475 | ) |
Swap agreements | | | (18,461,208 | ) |
Futures contracts | | | (24,861 | ) |
Net change in unrealized appreciation (depreciation) | | | (23,122,031 | ) |
Net realized and unrealized loss | | | (1,558,260 | ) |
Net decrease in net assets resulting from operations | | $ | (641,798 | ) |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 69 |
STYLEPLUS—LARGE CORE FUND | |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 916,462 | | | $ | 1,594,339 | |
Net realized gain on investments | | | 21,563,771 | | | | 32,337,769 | |
Net change in unrealized appreciation (depreciation) on investments | | | (23,122,031 | ) | | | 3,604,720 | |
Net increase (decrease) in net assets resulting from operations | | | (641,798 | ) | | | 37,536,828 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (1,732,889 | ) | | | (394,204 | ) |
C-Class | | | (12,770 | ) | | | — | |
Institutional Class | | | (1,276 | ) | | | (125 | ) |
Net realized gains | | | | | | | | |
A-Class | | | (24,703,723 | ) | | | (30,898,467 | ) |
B-Class | | | (495,181 | ) | | | (755,687 | ) |
C-Class | | | (513,717 | ) | | | (490,315 | ) |
Institutional Class | | | (14,534 | ) | | | (4,758 | ) |
Total distributions to shareholders | | | (27,474,090 | ) | | | (32,543,556 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 9,389,928 | | | | 5,232,403 | |
B-Class | | | 73,635 | | | | 139,271 | |
C-Class | | | 1,219,839 | | | | 926,456 | |
P-Class* | | | 15,200 | | | | — | |
Institutional Class | | | 299,886 | | | | 60,516 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 24,669,740 | | | | 29,159,068 | |
B-Class | | | 493,058 | | | | 750,686 | |
C-Class | | | 522,705 | | | | 483,096 | |
Institutional Class | | | 11,270 | | | | 4,883 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (21,983,556 | ) | | | (22,280,678 | ) |
B-Class | | | (3,242,342 | ) | | | (1,341,102 | ) |
C-Class | | | (1,457,727 | ) | | | (628,059 | ) |
P-Class* | | | — | | | | — | |
Institutional Class | | | (67,861 | ) | | | (13,481 | ) |
Net increase from capital share transactions | | | 9,943,775 | | | | 12,493,059 | |
Net increase (decrease) in net assets | | | (18,172,113 | ) | | | 17,486,331 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 199,004,694 | | | | 181,518,363 | |
End of year | | $ | 180,832,581 | | | $ | 199,004,694 | |
Undistributed net investment income at end of year | | $ | 688,782 | | | $ | 1,516,265 | |
* | Since commencement of operations: May 1, 2015. |
70 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STYLEPLUS—LARGE CORE FUND | |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 407,154 | | | | 221,145 | |
B-Class | | | 4,630 | | | | 7,794 | |
C-Class | | | 63,123 | | | | 45,606 | |
P-Class* | | | 660 | | | | — | |
Institutional Class | | | 13,800 | | | | 2,509 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 1,097,897 | | | | 1,349,957 | |
B-Class | | | 30,473 | | | | 45,857 | |
C-Class | | | 28,423 | | | | 26,486 | |
Institutional Class | | | 505 | | | | 227 | |
Shares redeemed | | | | | | | | |
A-Class | | | (959,415 | ) | | | (944,947 | ) |
B-Class | | | (200,041 | ) | | | (75,228 | ) |
C-Class | | | (78,357 | ) | | | (31,801 | ) |
Institutional Class | | | (3,130 | ) | | | (548 | ) |
Net increase in shares | | | 405,722 | | | | 647,057 | |
* | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 71 |
STYLEPLUS—LARGE CORE FUND | |
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.
A-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011e | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 24.53 | | | $ | 24.27 | | | $ | 21.25 | | | $ | 16.79 | | | $ | 17.56 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .11 | | | | .20 | | | | .06 | | | | .06 | | | | .01 | |
Net gain (loss) on investments (realized and unrealized) | | | (.12 | ) | | | 4.45 | | | | 3.04 | | | | 4.42 | | | | (.74 | ) |
Total from investment operations | | | (.01 | ) | | | 4.65 | | | | 3.10 | | | | 4.48 | | | | (.73 | ) |
Less distributions from: | |
Net investment income | | | (.22 | ) | | | (.06 | ) | | | (.08 | ) | | | (.02 | ) | | | (.04 | ) |
Net realized gains | | | (3.16 | ) | | | (4.33 | ) | | | — | | | | — | | | | — | |
Total distributions | | | (3.38 | ) | | | (4.39 | ) | | | (.08 | ) | | | (.02 | ) | | | (.04 | ) |
Net asset value, end of period | | $ | 21.14 | | | $ | 24.53 | | | $ | 24.27 | | | $ | 21.25 | | | $ | 16.79 | |
| | |
Total Returnb | | | (0.84 | %) | | | 21.59 | % | | | 14.64 | % | | | 26.71 | % | | | (4.11 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 177,748 | | | $ | 192,850 | | | $ | 175,601 | | | $ | 171,907 | | | $ | 156,232 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.48 | % | | | 0.86 | % | | | 0.26 | % | | | 0.32 | % | | | 0.06 | % |
Total expensesc | | | 1.32 | % | | | 1.41 | % | | | 1.37 | % | | | 1.36 | % | | | 1.35 | % |
Net expensesd | | | 1.32 | % | | | 1.39 | % | | | 1.37 | % | | | 1.36 | % | | | 1.35 | % |
Portfolio turnover rate | | | 65 | % | | | 107 | % | | | 217 | % | | | 101 | % | | | 92 | % |
C-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011e | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 20.55 | | | $ | 21.12 | | | $ | 18.60 | | | $ | 14.81 | | | $ | 15.56 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | (.08 | ) | | | (.02 | ) | | | (.15 | ) | | | (.10 | ) | | | (.12 | ) |
Net gain (loss) on investments (realized and unrealized) | | | (.06 | ) | | | 3.78 | | | | 2.67 | | | | 3.89 | | | | (.63 | ) |
Total from investment operations | | | (.14 | ) | | | 3.76 | | | | 2.52 | | | | 3.79 | | | | (.75 | ) |
Less distributions from: | |
Net investment income | | | (.08 | ) | | | — | | | | — | | | | — | | | | — | |
Net realized gains | | | (3.16 | ) | | | (4.33 | ) | | | — | | | | — | | | | — | |
Total distributions | | | (3.24 | ) | | | (4.33 | ) | | | — | | | | — | | | | — | |
Net asset value, end of period | | $ | 17.17 | | | $ | 20.55 | | | $ | 21.12 | | | $ | 18.60 | | | $ | 14.81 | |
| | |
Total Returnb | | | (1.72 | %) | | | 20.40 | % | | | 13.55 | % | | | 25.59 | % | | | (4.82 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 2,767 | | | $ | 3,042 | | | $ | 2,275 | | | $ | 1,669 | | | $ | 1,600 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (0.44 | %) | | | (0.08 | %) | | | (0.77 | %) | | | (0.55 | %) | | | (0.70 | %) |
Total expensesc | | | 2.25 | % | | | 2.36 | % | | | 2.34 | % | | | 2.22 | % | | | 2.10 | % |
Net expensesd | | | 2.25 | % | | | 2.34 | % | | | 2.34 | % | | | 2.22 | % | | | 2.10 | % |
Portfolio turnover rate | | | 65 | % | | | 107 | % | | | 217 | % | | | 101 | % | | | 92 | % |
72 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STYLEPLUS—LARGE CORE 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.
P-Class | | Period Ended
September 30,
2015g | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 23.12 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .03 | |
Net gain (loss) on investments (realized and unrealized) | | | (2.04 | ) |
Total from investment operations | | | (2.01 | ) |
Net asset value, end of period | | $ | 21.11 | |
| | | | | |
Total Returnb | | | (8.69 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 14 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (0.31 | %) |
Total expensesc | | | 1.38 | % |
Portfolio turnover rate | | | 65 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 73 |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Period Ended
September 30,
2012f | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 24.42 | | | $ | 24.25 | | | $ | 21.28 | | | $ | 20.84 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .12 | | | | .23 | | | | .06 | | | | .07 | |
Net gain (loss) on investments (realized and unrealized) | | | (.10 | ) | | | 4.38 | | | | 3.06 | | | | .37 | |
Total from investment operations | | | .02 | | | | 4.61 | | | | 3.12 | | | | .44 | |
Less distributions from: | |
Net investment income | | | (.28 | ) | | | (.11 | ) | | | (.15 | ) | | | — | |
Net realized gains | | | (3.16 | ) | | | (4.33 | ) | | | — | | | | — | |
Total distributions | | | (3.44 | ) | | | (4.44 | ) | | | (.15 | ) | | | — | |
Net asset value, end of period | | $ | 21.00 | | | $ | 24.42 | | | $ | 24.25 | | | $ | 21.28 | |
| | |
Total Returnb | | | (0.75 | %) | | | 21.50 | % | | | 14.79 | % | | | 2.11 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 303 | | | $ | 80 | | | $ | 26 | | | $ | 10 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.52 | % | | | 0.97 | % | | | 0.26 | % | | | 0.59 | % |
Total expensesc | | | 1.25 | % | | | 1.39 | % | | | 1.25 | % | | | 1.12 | % |
Net expensesd | | | 1.25 | % | | | 1.37 | % | | | 1.25 | % | | | 1.12 | % |
Portfolio turnover rate | | | 65 | % | | | 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. |
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 | Reverse share split — Per share amounts for the period presented through April 8, 2011 have been restated to reflect a 1:4 reverse share split effective April 8, 2011. |
f | Since commencement of operations: March 1, 2012. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
g | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
74 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
To Our Shareholders:
Guggenheim StylePlusTM—Mid Growth 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, 2015.
For the year ended September 30, 2015, the Guggenheim StylePlus—Mid Growth Fund returned 1.04%1, compared with the 1.45% return of its benchmark, the Russell Midcap® Growth Index.
Through a combination of an allocation to actively managed individual equity, passive equity, and actively managed fixed income, the Fund seeks to exceed the total return of the Russell Midcap Growth Index. The allocation to actively managed individual equity via stocks, and passive equity via derivatives, is designed to provide exposure to midcap growth equity. Remaining Fund assets are invested in the Guggenheim Strategy Funds, short-term fixed-income investment companies advised by Guggenheim Investments. The Strategy Funds invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital. For the one-year period ended September 30, 2015, investment in the Guggenheim Strategy Funds has benefited Fund performance relative to investing in other short-term investments such as overnight repurchase agreements. The actively managed equity and fixed income components seek to provide multiple sources of outperformance and take advantage of Guggenheim’s competencies in both fixed income and systematic stock selection.
The passive equity position uses derivatives such as swap agreements to gain exposure to the index. The Fund’s fixed income component invests in a variety of fixed income sectors, including asset-backed securities (ABS), mortgage-backed securities (MBS), high yield corporate bonds, and bank loans.
The active and passive decisions seek to add value by tactically allocating to actively managed equity through quantitative selection models when stock picking opportunities are high. During periods when Guggenheim views these opportunities to be less attractive, the Fund seeks to increase its passive exposure to equities and the allocation to fixed-income securities. The prospective return during such periods is the equity index plus an “alpha” component coming from the yield of the fixed-income overlay.
Performance Review
The Fund had slightly positive performance over the period. The fixed income sleeve was the largest positive contributor to performance. The actively managed equity sleeve contributed slightly to performance. The passive equity position, maintained through swap agreements, was a slight detractor from performance for the period.
For the Fund’s total equity position over the period, 15-20% was allocated to actively managed equity and 80-85% to passive equity. The actively managed equity sleeve decreased toward 15% over the period as the outlook for active stock selection grew less favorable, with a corresponding higher allocation of 85% to the passive equity position.
When compared with the index, the total equity position (actively managed individual equity plus passive equity derivatives) was most overweight the Industrials and Consumer Staples sectors and most underweight the Consumer Discretionary and Financials sectors.
Uncorrelated with the Fund’s active equity component, the fixed-income component was largely invested in ABS and MBS. These positions constituted the majority of the fixed income sleeve’s total return.
Performance displayed represents past performance which is no guarantee of future results.
1 | Performance figures are based on Class A 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 | 75 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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 or investments in Guggenheim Strategy Funds Trust mutual funds. Investments in those Funds do not provide “market exposure” to meet the fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
Portfolio Composition by Quality Rating* |
Rating | |
Fixed Income Instruments | |
AAA | 0.5% |
AA | 0.7% |
A | 0.9% |
Other Instruments | 97.9% |
Total Investments | 100.0% |
| | |
The chart above reflects percentages of the value of total investments. |
Inception Dates: |
A-Class | September 17, 1969 |
C-Class | January 29, 1999 |
P-Class | May 1, 2015 |
Institutional Class | March 1, 2012 |
Ten Largest Holdings (% of Total Net Assets) |
Guggenheim Strategy Fund III | 28.8% |
Guggenheim Strategy Fund II | 28.3% |
Guggenheim Strategy Fund I | 22.3% |
Black Diamond CLO Delaware Corp. | 0.6% |
NewStar Commercial Loan Trust | 0.6% |
Black Diamond CLO 2006-1 Luxembourg S.A. | 0.5% |
Brentwood CLO Corp. | 0.3% |
Electronic Arts, Inc. | 0.3% |
Skyworks Solutions, Inc. | 0.2% |
Dr Pepper Snapple Group, Inc. | 0.2% |
Top Ten Total | 82.1% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
* | Source: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Security ratings are determined at the time of purchase and may change thereafter. |
76 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | 10 Year |
A-Class Shares | 1.04% | 11.56% | 4.41% |
A-Class Shares with sales charge† | -3.75% | 10.24% | 3.80% |
C-Class Shares | 0.20% | 10.61% | 3.57% |
C-Class Shares with CDSC§ | -0.68% | 10.61% | 3.57% |
Russell Midcap Growth Index | 1.45% | 13.58% | 8.09% |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | -9.75% |
Russell Midcap Growth Index | | | -9.35% |
| | | 1 Year | Since Inception
(03/01/12) |
Institutional Class Shares | | 1.08% | 10.08% |
Russell Midcap Growth Index | | 1.45% | 11.81% |
* | 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. The graph is based on A-Class shares only; performance for C-Class, P-Class and Institutional Class will vary due to differences in fee structures. |
† | 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. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 77 |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
STYLEPLUS—MID GROWTH FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 15.6% | |
| | | | | | | |
Consumer, Non-cyclical - 4.9% | |
Dr Pepper Snapple Group, Inc. | | | 2,302 | | | $ | 181,972 | |
Mead Johnson Nutrition Co. — Class A | | | 2,568 | | | | 180,787 | |
Hormel Foods Corp. | | | 2,724 | | | | 172,457 | |
Whole Foods Market, Inc. | | | 5,131 | | | | 162,396 | |
AmerisourceBergen Corp. — Class A | | | 1,500 | | | | 142,485 | |
Clorox Co. | | | 1,204 | | | | 139,098 | |
Tyson Foods, Inc. — Class A | | | 3,173 | | | | 136,756 | |
Kellogg Co. | | | 2,032 | | | | 135,229 | |
WhiteWave Foods Co. — Class A* | | | 3,147 | | | | 126,352 | |
Verisk Analytics, Inc. — Class A* | | | 1,689 | | | | 124,834 | |
Campbell Soup Co. | | | 2,437 | | | | 123,507 | |
Equifax, Inc. | | | 1,269 | | | | 123,321 | |
Western Union Co. | | | 6,279 | | | | 115,282 | |
Hershey Co. | | | 1,181 | | | | 108,510 | |
Mallinckrodt plc* | | | 1,671 | | | | 106,843 | |
Flowers Foods, Inc. | | | 4,271 | | | | 105,665 | |
BioMarin Pharmaceutical, Inc.* | | | 976 | | | | 102,793 | |
Zoetis, Inc. | | | 2,426 | | | | 99,903 | |
Church & Dwight Company, Inc. | | | 1,170 | | | | 98,163 | |
Brown-Forman Corp. — Class B | | | 943 | | | | 91,377 | |
Ingredion, Inc. | | | 1,029 | | | | 89,842 | |
Incyte Corp.* | | | 812 | | | | 89,588 | |
Medivation, Inc.* | | | 2,082 | | | | 88,485 | |
Hain Celestial Group, Inc.* | | | 1,639 | | | | 84,572 | |
WEX, Inc.* | | | 970 | | | | 84,235 | |
KAR Auction Services, Inc. | | | 2,366 | | | | 83,993 | |
ConAgra Foods, Inc. | | | 2,063 | | | | 83,572 | |
Monster Beverage Corp.* | | | 611 | | | | 82,571 | |
Total System Services, Inc. | | | 1,469 | | | | 66,737 | |
Intuitive Surgical, Inc.* | | | 144 | | | | 66,180 | |
HealthSouth Corp. | | | 1,538 | | | | 59,013 | |
Jazz Pharmaceuticals plc* | | | 427 | | | | 56,710 | |
Charles River Laboratories International, Inc.* | | | 870 | | | | 55,262 | |
Coca-Cola Enterprises, Inc. | | | 1,045 | | | | 50,526 | |
Cardinal Health, Inc. | | | 642 | | | | 49,318 | |
Avery Dennison Corp. | | | 668 | | | | 37,789 | |
Illumina, Inc.* | | | 195 | | | | 34,285 | |
Centene Corp.* | | | 624 | | | | 33,840 | |
Total Consumer, Non-cyclical | | | | | | | 3,774,248 | |
| | | | | | | | | |
Industrial - 3.4% | |
Amphenol Corp. — Class A | | | 3,543 | | | | 180,551 | |
Rockwell Automation, Inc. | | | 1,636 | | | | 166,004 | |
Roper Technologies, Inc. | | | 877 | | | | 137,426 | |
J.B. Hunt Transport Services, Inc. | | | 1,882 | | | | 134,375 | |
Spirit AeroSystems Holdings, Inc. — Class A* | | | 2,661 | | | | 128,633 | |
AECOM* | | | 4,661 | | | | 128,224 | |
Ingersoll-Rand plc | | | 2,434 | | | | 123,574 | |
AO Smith Corp. | | | 1,889 | | | | 123,144 | |
Middleby Corp.* | | | 1,161 | | | | 122,126 | |
CH Robinson Worldwide, Inc. | | | 1,774 | | | | 120,242 | |
Textron, Inc. | | | 3,177 | | | | 119,582 | |
Parker-Hannifin Corp. | | | 1,211 | | | | 117,830 | |
TransDigm Group, Inc.* | | | 547 | | | | 116,188 | |
Emerson Electric Co. | | | 2,386 | | | | 105,390 | |
Flowserve Corp. | | | 2,534 | | | | 104,249 | |
Stanley Black & Decker, Inc. | | | 1,059 | | | | 102,702 | |
Huntington Ingalls Industries, Inc. | | | 843 | | | | 90,327 | |
Nordson Corp. | | | 1,375 | | | | 86,543 | |
Illinois Tool Works, Inc. | | | 866 | | | | 71,280 | |
Zebra Technologies Corp. — Class A* | | | 840 | | | | 64,302 | |
Crown Holdings, Inc.* | | | 1,349 | | | | 61,717 | |
Northrop Grumman Corp. | | | 359 | | | | 59,576 | |
Trimble Navigation Ltd.* | | | 3,504 | | | | 57,536 | |
Sealed Air Corp. | | | 759 | | | | 35,582 | |
Ball Corp. | | | 561 | | | | 34,894 | |
Moog, Inc. — Class A* | | | 584 | | | | 31,577 | |
Total Industrial | | | | | | | 2,623,574 | |
| | | | | | | | | |
Technology - 2.9% | |
Electronic Arts, Inc.* | | | 2,952 | | | | 199,998 | |
Skyworks Solutions, Inc. | | | 2,251 | | | | 189,557 | |
Intuit, Inc. | | | 1,922 | | | | 170,577 | |
Red Hat, Inc.* | | | 1,856 | | | | 133,408 | |
Analog Devices, Inc. | | | 2,292 | | | | 129,292 | |
Micron Technology, Inc.* | | | 8,402 | | | | 125,862 | |
Cerner Corp.* | | | 2,081 | | | | 124,777 | |
Dun & Bradstreet Corp. | | | 1,137 | | | | 119,385 | |
Synaptics, Inc.* | | | 1,371 | | | | 113,053 | |
Applied Materials, Inc. | | | 7,477 | | | | 109,837 | |
Take-Two Interactive Software, Inc.* | | | 3,650 | | | | 104,865 | |
ServiceNow, Inc.* | | | 1,373 | | | | 95,355 | |
KLA-Tencor Corp. | | | 1,889 | | | | 94,450 | |
ON Semiconductor Corp.* | | | 9,373 | | | | 88,106 | |
IHS, Inc. — Class A* | | | 704 | | | | 81,664 | |
Teradata Corp.* | | | 2,655 | | | | 76,889 | |
PTC, Inc.* | | | 2,262 | | | | 71,796 | |
Pitney Bowes, Inc. | | | 3,399 | | | | 67,470 | |
Microsemi Corp.* | | | 1,851 | | | | 60,750 | |
Verint Systems, Inc.* | | | 1,238 | | | | 53,420 | |
Fidelity National Information Services, Inc. | | | 561 | | | | 37,632 | |
Total Technology | | | | | | | 2,248,143 | |
| | | | | | | | | |
Communications - 1.7% | |
Expedia, Inc. | | | 1,369 | | | | 161,104 | |
LinkedIn Corp. — Class A* | | | 843 | | | | 160,280 | |
Scripps Networks Interactive, Inc. — Class A | | | 2,849 | | | | 140,143 | |
AMC Networks, Inc. — Class A* | | | 1,707 | | | | 124,901 | |
Twitter, Inc.* | | | 4,438 | | | | 119,560 | |
VeriSign, Inc.* | | | 1,375 | | | | 97,020 | |
DISH Network Corp. — Class A* | | | 1,469 | | | | 85,701 | |
Discovery Communications, Inc. — Class A* | | | 3,213 | | | | 83,634 | |
Viacom, Inc. — Class B | | | 1,901 | | | | 82,028 | |
Sirius XM Holdings, Inc.* | | | 19,450 | | | | 72,743 | |
CBS Corp. — Class B | | | 1,692 | | | | 67,511 | |
78 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
STYLEPLUS—MID GROWTH FUND | |
| | |
Shares
| | | Value | |
| | | | | | | |
HomeAway, Inc.* | | | 2,347 | | | $ | 62,289 | |
Ciena Corp.* | | | 2,854 | | | | 59,135 | |
CommScope Holding Company, Inc.* | | | 1,495 | | | | 44,895 | |
Total Communications | | | | | | | 1,360,944 | |
| | | | | | | | | |
Consumer, Cyclical - 1.7% | |
PACCAR, Inc. | | | 3,478 | | | | 181,446 | |
Delphi Automotive plc | | | 2,296 | | | | 174,588 | |
Macy’s, Inc. | | | 2,864 | | | | 146,980 | |
Bed Bath & Beyond, Inc.* | | | 2,511 | | | | 143,177 | |
Marriott International, Inc. — Class A | | | 1,688 | | | | 115,122 | |
The Gap, Inc. | | | 3,727 | | | | 106,220 | |
WW Grainger, Inc. | | | 482 | | | | 103,635 | |
WABCO Holdings, Inc.* | | | 972 | | | | 101,895 | |
Carter’s, Inc. | | | 952 | | | | 86,289 | |
Leggett & Platt, Inc. | | | 1,918 | | | | 79,118 | |
Dollar Tree, Inc.* | | | 1,036 | | | | 69,060 | |
Hilton Worldwide Holdings, Inc. | | | 1,459 | | | | 33,469 | |
Total Consumer, Cyclical | | | | | | | 1,340,999 | |
| | | | | | | | | |
Financial - 0.5% | |
Alliance Data Systems Corp.* | | | 600 | | | | 155,388 | |
Ameriprise Financial, Inc. | | | 1,409 | | | | 153,764 | |
CoreLogic, Inc.* | | | 1,477 | | | | 54,989 | |
Total Financial | | | | | | | 364,141 | |
| | | | | | | | | |
Basic Materials - 0.3% | |
Valspar Corp. | | | 1,884 | | | | 135,421 | |
International Paper Co. | | | 1,825 | | | | 68,967 | |
CF Industries Holdings, Inc. | | | 682 | | | | 30,622 | |
Total Basic Materials | | | | | | | 235,010 | |
| | | | | | | | | |
Energy - 0.2% | |
Cabot Oil & Gas Corp. — Class A | | | 5,294 | | | | 115,727 | |
FMC Technologies, Inc.* | | | 1,214 | | | | 37,634 | |
Marathon Petroleum Corp. | | | 581 | | | | 26,918 | |
Total Energy | | | | | | | 180,279 | |
| | | | | | | | | |
Utilities - 0.0% | |
Calpine Corp.* | | | 2,456 | | | | 35,858 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $13,022,150) | | | | | | | 12,163,196 | |
| | | | | | | | | |
MUTUAL FUNDS† - 79.4% | |
Guggenheim Strategy Fund III1 | | | 902,633 | | | | 22,457,513 | |
Guggenheim Strategy Fund II1 | | | 889,413 | | | | 22,101,923 | |
Guggenheim Strategy Fund I1 | | | 699,109 | | | | 17,393,825 | |
Total Mutual Funds | | | | | | | | |
(Cost $62,081,940) | | | | | | | 61,953,261 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 1.6% | |
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%2 | | | 1,212,997 | | | | 1,212,997 | |
Total Short Term Investments | | | | | | | | |
(Cost $1,212,997) | | | | | | | 1,212,997 | |
| | | Face
Amount | | | | |
| | | | | | | |
ASSET BACKED SECURITIES†† - 2.0% | |
COLLATERALIZED LOAN OBLIGATIONS - 2.0% | |
Black Diamond CLO Delaware Corp. | | | | | | |
2005-1A, 2.25% due 06/20/173,4 | | $ | 500,000 | | | | 493,467 | |
NewStar Commercial Loan Trust | | | | | | | | |
2007-1A, 1.62% due 09/30/223,4 | | | 500,000 | | | | 476,214 | |
Black Diamond CLO 2006-1 Luxembourg S.A. | | | | | | | | |
2007-1A, 0.68% due 04/29/193,4 | | | 400,000 | | | | 386,043 | |
Brentwood CLO Corp. | | | | | | | | |
2006-1A, 1.12% due 02/01/223,4 | | | 250,000 | | | | 237,710 | |
Total Collateralized Loan Obligations | | | | | | | 1,593,434 | |
Total Asset Backed Securities | | | | | | | | |
(Cost $1,576,861) | | | | | | | 1,593,434 | |
| | | | | | | | | |
Total Investments - 98.6% | | | | | | | | |
(Cost $77,893,948) | | | | | | $ | 76,922,888 | |
Other Assets & Liabilities, net - 1.4% | | | | | | | 1,081,971 | |
Total Net Assets - 100.0% | | | | | | $ | 78,004,859 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 79 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
STYLEPLUS—MID GROWTH FUND | |
| | | Contracts | | | Unrealized
Gain (Loss) | |
| | | | | | | |
EQUITY FUTURES CONTRACTS PURCHASED† | |
December 2015 S&P MidCap 400 Index
Mini Futures Contracts
(Aggregate Value of
Contracts $136,210) | | | 1 | | | $ | (4,838 | ) |
| | | Units | | | | |
| | | | | | | |
OTC EQUITY INDEX SWAP AGREEMENTS†† | |
Deutsche Bank Swap
October 2015 Russell MidCap Growth Index
Swap, Terminating 10/05/155
(Notional Value $4,800,031) | | | 6,749 | | | $ | 230 | |
Bank of America Russell Mid Cap Growth Total
Return Index Swap
September 2016 Russell MidCap Growth
Index Swap, Terminating 09/05/165
(Notional Value $18,287,960) | | | 9,036 | | | | (1,931,634 | ) |
Morgan Stanley Capital Services, Inc.
July 2016 Russell MidCap Growth Index
Swap, Terminating 07/05/165
(Notional Value $42,001,997) | | | 20,753 | | | | (4,475,944 | ) |
(Total Notional Value $65,089,988) | | | | | | $ | (6,407,348 | ) |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
1 | Affiliated issuer — See Note 8. |
2 | Rate indicated is the 7 day yield as of September 30, 2015. |
3 | Variable rate security. Rate indicated is rate effective at September 30, 2015. |
4 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $1,593,434 (cost $1,576,861), or 2.0% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
5 | Total Return based on Russell MidCap Growth Index +/- financing at a variable rate. |
| | plc — Public Limited Company |
| | |
| | See Sector classification in Other Information section. |
80 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STYLEPLUS—MID GROWTH FUND | |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments in unaffiliated issuers, at value (cost $15,812,008) | | $ | 14,969,627 | |
Investments in affiliated issuers, at value (cost $62,081,940) | | | 61,953,261 | |
Total investments (cost $77,893,948) | | | 76,922,888 | |
Segregated cash with broker | | | 7,768,166 | |
Prepaid expenses | | | 24,136 | |
Unrealized appreciation on swap agreements | | | 230 | |
Cash | | | 8 | |
Receivables: | |
Securities sold | | | 94,207 | |
Dividends | | | 86,370 | |
Fund shares sold | | | 22,987 | |
Interest | | | 1,957 | |
Variation margin | | | 1,850 | |
Total assets | | | 84,922,799 | |
| | | | | |
Liabilities: | |
Unrealized depreciation on swap agreements | | | 6,407,578 | |
Payable for: | |
Swap settlement | | | 221,846 | |
Securities purchased | | | 77,213 | |
Management fees | | | 50,074 | |
Fund shares redeemed | | | 36,564 | |
Transfer agent/maintenance fees | | | 33,402 | |
Distribution and service fees | | | 19,806 | |
Fund accounting/administration fees | | | 6,342 | |
Trustees’ fees* | | | 466 | |
Miscellaneous | | | 64,649 | |
Total liabilities | | | 6,917,940 | |
Net assets | | $ | 78,004,859 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 75,291,565 | |
Undistributed net investment income | | | 86,921 | |
Accumulated net realized gain on investments | | | 10,009,619 | |
Net unrealized depreciation on investments | | | (7,383,246 | ) |
Net assets | | $ | 78,004,859 | |
| | | | | |
A-Class: | |
Net assets | | $ | 73,178,369 | |
Capital shares outstanding | | | 1,763,846 | |
Net asset value per share | | $ | 41.49 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 43.56 | |
| | | | | |
C-Class: | |
Net assets | | $ | 4,761,994 | |
Capital shares outstanding | | | 145,280 | |
Net asset value per share | | $ | 32.78 | |
| | | | | |
P-Class: | |
Net assets | | $ | 10,867 | |
Capital shares outstanding | | | 262 | |
Net asset value per share | | $ | 41.48 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 53,629 | |
Capital shares outstanding | | | 1,288 | |
Net asset value per share | | $ | 41.64 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 81 |
STYLEPLUS—MID GROWTH FUND | |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Dividends from securities of affiliated issuers | | $ | 858,334 | |
Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $176) | | | 181,106 | |
Interest | | | 382,063 | |
Total investment income | | | 1,421,503 | |
| | | | | |
Expenses: | |
Management fees | | | 652,846 | |
Transfer agent/maintenance fees: | |
A-Class | | | 144,264 | |
B-Class | | | 8,930 | |
C-Class | | | 13,351 | |
P-Class** | | | 9 | |
Institutional Class | | | 184 | |
Distribution and service fees: | |
A-Class | | | 201,994 | |
B-Class | | | 11,150 | |
C-Class | | | 50,790 | |
P-Class** | | | 11 | |
Fund accounting/administration fees | | | 82,693 | |
Custodian fees | | | 20,444 | |
Line of credit fees | | | 12,439 | |
Trustees’ fees* | | | 5,266 | |
Tax expense | | | 90 | |
Miscellaneous | | | 134,855 | |
Total expenses | | | 1,339,316 | |
Net investment income | | | 82,187 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments in unaffiliated issuers | | | 2,002,231 | |
Investments in affiliated issuers | | | (19,585 | ) |
Swap agreements | | | 9,031,097 | |
Futures contracts | | | 39,860 | |
Net realized gain | | | 11,053,603 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments in unaffiliated issuers | | | (1,620,128 | ) |
Investments in affiliated issuers | | | (32,325 | ) |
Swap agreements | | | (8,310,807 | ) |
Futures contracts | | | 14,952 | |
Net change in unrealized appreciation (depreciation) | | | (9,948,308 | ) |
Net realized and unrealized gain | | | 1,105,295 | |
Net increase in net assets resulting from operations | | $ | 1,187,482 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
82 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STYLEPLUS—MID GROWTH FUND | |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 82,187 | | | $ | 230,175 | |
Net realized gain on investments | | | 11,053,603 | | | | 12,705,930 | |
Net change in unrealized appreciation (depreciation) on investments | | | (9,948,308 | ) | | | (1,180,565 | ) |
Net increase in net assets resulting from operations | | | 1,187,482 | | | | 11,755,540 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net realized gains | | | | | | | | |
A-Class | | | (8,445,226 | ) | | | (6,590,240 | ) |
B-Class | | | (244,616 | ) | | | (268,820 | ) |
C-Class | | | (583,423 | ) | | | (456,906 | ) |
Institutional Class | | | (5,903 | ) | | | (2,003 | ) |
Total distributions to shareholders | | | (9,279,168 | ) | | | (7,317,969 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 7,359,683 | | | | 4,986,267 | |
B-Class | | | 450 | | | | 13,919 | |
C-Class | | | 1,397,441 | | | | 321,841 | |
P-Class* | | | 12,000 | | | | — | |
Institutional Class | | | 57,374 | | | | 5,279 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 8,149,102 | | | | 6,337,566 | |
B-Class | | | 243,630 | | | | 267,782 | |
C-Class | | | 567,893 | | | | 436,749 | |
Institutional Class | | | 3,831 | | | | 2,003 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (12,353,481 | ) | | | (9,031,518 | ) |
B-Class | | | (1,780,631 | ) | | | (801,755 | ) |
C-Class | | | (913,759 | ) | | | (663,153 | ) |
Institutional Class | | | (31,110 | ) | | | — | |
Net increase from capital share transactions | | | 2,712,423 | | | | 1,874,980 | |
Net increase (decrease) in net assets | | | (5,379,263 | ) | | | 6,312,551 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 83,384,122 | | | | 77,071,571 | |
End of year | | $ | 78,004,859 | | | $ | 83,384,122 | |
Undistributed net investment income at end of year | | $ | 86,921 | | | $ | — | |
* | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 83 |
STYLEPLUS—MID GROWTH FUND | |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 162,640 | | | | 112,690 | |
B-Class | | | 15 | | | | 438 | |
C-Class | | | 39,105 | | | | 8,737 | |
P-Class* | | | 262 | | | | — | |
Institutional Class | | | 1,231 | | | | 114 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 187,770 | | | | 152,676 | |
B-Class | | | 8,692 | | | | 9,321 | |
C-Class | | | 16,446 | | | | 12,770 | |
Institutional Class | | | 88 | | | | 48 | |
Shares redeemed | | | | | | | | |
A-Class | | | (274,859 | ) | | | (202,301 | ) |
B-Class | | | (61,741 | ) | | | (26,103 | ) |
C-Class | | | (25,764 | ) | | | (18,028 | ) |
Institutional Class | | | (683 | ) | | | — | |
Net increase in shares | | | 53,202 | | | | 50,362 | |
* | Since commencement of operations: May 1, 2015. |
84 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STYLEPLUS—MID GROWTH FUND | |
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.
A-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011e | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 45.82 | | | $ | 43.54 | | | $ | 36.40 | | | $ | 28.67 | | | $ | 29.44 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .07 | | | | .16 | | | | (.16 | ) | | | (.25 | ) | | | (.24 | ) |
Net gain (loss) on investments (realized and unrealized) | | | .63 | | | | 6.21 | | | | 7.30 | | | | 7.98 | | | | (.53 | ) |
Total from investment operations | | | .70 | | | | 6.37 | | | | 7.14 | | | | 7.73 | | | | (.77 | ) |
Less distributions from: | |
Net realized gains | | | (5.03 | ) | | | (4.09 | ) | | | — | | | | — | | | | — | |
Total distributions | | | (5.03 | ) | | | (4.09 | ) | | | — | | | | — | | | | — | |
Net asset value, end of period | | $ | 41.49 | | | $ | 45.82 | | | $ | 43.54 | | | $ | 36.40 | | | $ | 28.67 | |
| | |
Total Returnb | | | 1.04 | % | | | 15.61 | % | | | 19.62 | % | | | 26.96 | % | | | (2.62 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 73,178 | | | $ | 77,363 | | | $ | 70,767 | | | $ | 65,767 | | | $ | 62,575 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.16 | % | | | 0.36 | % | | | (0.40 | %) | | | (0.74 | %) | | | (0.72 | %) |
Total expensesc | | | 1.47 | % | | | 1.67 | % | | | 1.57 | % | | | 1.62 | % | | | 1.49 | % |
Net expensesd | | | 1.47 | % | | | 1.65 | % | | | 1.57 | % | | | 1.62 | % | | | 1.49 | % |
Portfolio turnover rate | | | 75 | % | | | 112 | % | | | 214 | % | | | 149 | % | | | 157 | % |
C-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011e | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 37.48 | | | $ | 36.63 | | | $ | 30.92 | | | $ | 24.55 | | | $ | 25.40 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | (.25 | ) | | | (.20 | ) | | | (.45 | ) | | | (.46 | ) | | | (.42 | ) |
Net gain (loss) on investments (realized and unrealized) | | | .58 | | | | 5.14 | | | | 6.16 | | | | 6.83 | | | | (.43 | ) |
Total from investment operations | | | .33 | | | | 4.94 | | | | 5.71 | | | | 6.37 | | | | (.85 | ) |
Less distributions from: | |
Net realized gains | | | (5.03 | ) | | | (4.09 | ) | | | — | | | | — | | | | — | |
Total distributions | | | (5.03 | ) | | | (4.09 | ) | | | — | | | | — | | | | — | |
Net asset value, end of period | | $ | 32.78 | | | $ | 37.48 | | | $ | 36.63 | | | $ | 30.92 | | | $ | 24.55 | |
| | |
Total Returnb | | | 0.20 | % | | | 14.56 | % | | | 18.47 | % | | | 25.95 | % | | | (3.35 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 4,762 | | | $ | 4,329 | | | $ | 4,103 | | | $ | 4,346 | | | $ | 4,162 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (0.68 | %) | | | (0.55 | %) | | | (1.36 | %) | | | (1.57 | %) | | | (1.48 | %) |
Total expensesc | | | 2.31 | % | | | 2.57 | % | | | 2.53 | % | | | 2.45 | % | | | 2.25 | % |
Net expensesd | | | 2.31 | % | | | 2.55 | % | | | 2.53 | % | | | 2.45 | % | | | 2.25 | % |
Portfolio turnover rate | | | 75 | % | | | 112 | % | | | 214 | % | | | 149 | % | | | 157 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 85 |
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.
P-Class | | Period Ended
September 30,
2015g | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 45.96 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | — | h |
Net gain (loss) on investments (realized and unrealized) | | | (4.48 | ) |
Total from investment operations | | | (4.48 | ) |
Net asset value, end of period | | $ | 41.48 | |
| | | | | |
Total Returnb | | | (9.75 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 11 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (0.00 | %) |
Total expensesc | | | 1.49 | % |
Portfolio turnover rate | | | 75 | % |
Institutional Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Period Ended
September 30,
2012f | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 45.96 | | | $ | 43.72 | | | $ | 36.46 | | | $ | 36.16 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .11 | | | | .11 | | | | (.07 | ) | | | (.08 | ) |
Net gain (loss) on investments (realized and unrealized) | | | .60 | | | | 6.22 | | | | 7.33 | | | | .38 | |
Total from investment operations | | | .71 | | | | 6.33 | | | | 7.26 | | | | .30 | |
Less distributions from: | |
Net realized gains | | | (5.03 | ) | | | (4.09 | ) | | | — | | | | — | |
Total distributions | | | (5.03 | ) | | | (4.09 | ) | | | — | | | | — | |
Net asset value, end of period | | $ | 41.64 | | | $ | 45.96 | | | $ | 43.72 | | | $ | 36.46 | |
| | |
Total Returnb | | | 1.08 | % | | | 15.42 | % | | | 19.91 | % | | | 0.83 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 54 | | | $ | 30 | | | $ | 21 | | | $ | 10 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.23 | % | | | 0.24 | % | | | (0.17 | %) | | | (0.41 | %) |
Total expensesc | | | 1.41 | % | | | 1.81 | % | | | 1.33 | % | | | 1.37 | % |
Net expensesd | | | 1.41 | % | | | 1.79 | % | | | 1.33 | % | | | 1.37 | % |
Portfolio turnover rate | | | 75 | % | | | 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. |
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 | 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 effect April 8, 2011. |
f | Since commencement of operations: March 1, 2012. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
g | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
h | Less than $0.01 per share. |
86 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
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; 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, 2015.
For the one year period ended September 30, 2015, the Guggenheim World Equity Income Fund returned -6.70%1, compared with the -5.11% return of its benchmark, the MSCI World Index.
The Fund seeks to deliver superior risk-adjusted returns by taking advantage of market inefficiencies that, at times, misprice stable companies. To identify the degree to which the market could potentially reward stability and other factors, the Fund’s investment team distills the global equity market down to 60 discrete fundamental stock characteristics which it uses to rank stocks it considers for the portfolio.
The Fund seeks to invest sensibly in a world with a rising number of risks; its focus on stable companies (those with factor characteristics like strong balance sheets, attractive earnings, healthy margins and lower market volatility) is designed to offer protection when the market sells off, but presents a challenge when companies lacking in these characteristics outperform.
Performance Review
For the period, the continued strength of the U.S. market (as represented by the S&P 500 Index, which returned -0.61% for the fiscal year) versus global markets (as represented by the MSCI World Index) was a headwind.
For the period, an underweight in the Materials and Energy sectors most benefited performance, as commodities prices fell across the board. While the Fund’s Energy weighting was beneficial over the period, a sizable rebound in the price of crude oil at the end of August was a headwind for the portfolio. We view the short-term improvement in oil prices as being driven primarily by headline news out of Syria. The long-term fundamentals of the oil market suggest a state of global excess supply. Oil supplies will only increase as Iranian product become available due to changing sanctions. Both of these points validate a continued underweight to the Energy sector.
In a similar vein, the Fund is underweight other businesses exposed to the volatile commodities market, specifically underweight the Materials sector. Glencore, for example, a large commodities trading firm, was not held in the Fund. The company has a heavy debt load amid increasing borrowing rates, and a declining revenue stream. Some bounces in commodities and related equities are certainly possible, but risks appear to be considerable in this sector.
The leading detractor from performance for the period was stock selection in Telecommunications Services, followed by an underweight in the Consumer Discretionary sector, where stocks historically tend to have higher volatility and lower yields than other sectors, thus not attractive candidates for inclusion in the Fund. The Fund has long had an overweight in the Telecom sector, given attractive equity yields for select names and a global consolidation trend that has been supportive of price.
Portfolio Positioning
Positioning relative to sectors shows that the cyclically defensive sectors of Utilities and Telecommunications Services were the largest overweights for the period, while Information Technology and Consumer Discretionary were the largest underweights. Of these stances, the two underweights detracted from performance for the year while the overweights contributed to performance.
The Fund traditionally has a large overweight to the Utilities sector, given its characteristics of low volatility and higher yields relative to the broad market. The overweight worked against the Fund at times, when the sector could not keep up with the strong performance of the broad market.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 87 |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
Even though the Telecom stance disappointed at times, the holdings in the sector provided healthy dividend payments. The wider merger and acquisition trend driven by high cash balances and low financing costs—for example, Verizon’s acquisition of AOL during the period—remains in place.
From a geographic perspective, the Fund’s largest overweights include Australia and Switzerland. The largest underweights include Europe, the U.S., and the UK.
Where there has been strong currency appreciation abroad, such as Switzerland, the Fund has built exposure. In Australia, positions in companies with ties to tangible goods help hedge against currency debasement occurring in many countries around the world as way to promote growth. The Fund also has large allocations to countries where monetary stimulus is large or growing, such as Europe and Japan. The regions remain an underweight for now, due to economic and monetary challenges they face, but the longer-term thesis of escalating monetary stimulus remains in play.
Countries late in the monetary cycle or that are removing stimulus measures, such as the U.S. and UK, are large underweights. The strong U.S. dollar has not benefited this positioning lately, but could change as earnings of U.S. companies come under pressure due to substantial foreign earnings being translated into fewer U.S. dollars.
Performance displayed represents past performance which is no guarantee of future results.
1 | Performance figures are based on Class A 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.
88 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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.
COUNTRY DIVERSIFICATION
At September 30, 2015, the investment diversification of the Fund by country was as follows:
Country | % of Securities | Value |
United States | 57.7% | $47,661,631 |
Japan | 11.9% | 9,789,074 |
Australia | 4.4% | 3,654,061 |
Switzerland | 4.2% | 3,465,865 |
United Kingdom | 4.1% | 3,415,103 |
Canada | 3.3% | 2,687,400 |
Singapore | 2.1% | 1,754,145 |
Other | 12.3% | 10,118,791 |
Total Securities | 100.0% | $82,546,070 |
“Country Diversification” exclude any temporary cash or derivative investments.
Inception Dates: |
A-Class | October 1, 1993 |
C-Class | January 29, 1999 |
P-Class | May 1, 2015 |
Institutional Class | May 2, 2011 |
Ten Largest Holdings (% of Total Net Assets) |
Johnson & Johnson | 1.7% |
Apple, Inc. | 1.6% |
AT&T, Inc. | 1.5% |
Pfizer, Inc. | 1.5% |
Wells Fargo & Co. | 1.5% |
Roche Holding AG | 1.4% |
Novartis AG | 1.4% |
Verizon Communications, Inc. | 1.3% |
Toyota Motor Corp. | 1.3% |
International Business Machines Corp. | 1.2% |
Top Ten Total | 14.4% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 89 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | 10 Year |
A-Class Shares | -6.70% | 4.99% | 2.85% |
A-Class Shares with sales charge† | -11.11% | 3.76% | 2.24% |
C-Class Shares | -7.40% | 4.21% | 2.07% |
C-Class Shares with CDSC§ | -8.31% | 4.21% | 2.07% |
MSCI World Index | -5.11% | 8.28% | 4.73% |
| | | | Since Inception
(05/01/15) |
P Class Shares | | | -8.64% |
MSCI World Index | | | -10.71% |
| | | 1 Year | Since Inception
(05/02/11) |
Institutional Class Shares | | -6.42% | 1.83% |
MSCI World Index | | -5.11% | 5.14% |
* | 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 World Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. The graph is based on A-Class shares only; performance for C-Class, P-Class and Institutional Class will vary due to differences in fee structures. |
† | 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. |
90 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
WORLD EQUITY INCOME FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 98.2% | |
| | | | | | | |
Consumer, Non-cyclical - 30.6% | |
Johnson & Johnson | | | 15,200 | | | $ | 1,418,919 | |
Pfizer, Inc. | | | 39,700 | | | | 1,246,977 | |
Roche Holding AG | | | 4,400 | | | | 1,160,509 | |
Novartis AG | | | 12,400 | | | | 1,137,685 | |
Altria Group, Inc. | | | 19,000 | | | | 1,033,600 | |
Eli Lilly & Co. | | | 11,900 | | | | 995,911 | |
Procter & Gamble Co. | | | 13,800 | | | | 992,772 | |
Merck & Company, Inc. | | | 20,100 | | | | 992,739 | |
Dr Pepper Snapple Group, Inc. | | | 10,400 | | | | 822,120 | |
Reynolds American, Inc. | | | 18,200 | | | | 805,714 | |
UnitedHealth Group, Inc. | | | 6,800 | | | | 788,868 | |
Cardinal Health, Inc. | | | 10,100 | | | | 775,882 | |
Kimberly-Clark Corp. | | | 7,000 | | | | 763,280 | |
Anthem, Inc. | | | 5,300 | | | | 742,000 | |
Automatic Data Processing, Inc. | | | 9,100 | | | | 731,276 | |
Baxter International, Inc. | | | 21,500 | | | | 706,275 | |
Aetna, Inc. | | | 6,300 | | | | 689,283 | |
Clorox Co. | | | 5,900 | | | | 681,627 | |
GlaxoSmithKline plc | | | 33,100 | | | | 633,910 | |
Sysco Corp. | | | 16,000 | | | | 623,520 | |
Wesfarmers Ltd. | | | 21,800 | | | | 600,060 | |
AmerisourceBergen Corp. — Class A | | | 6,000 | | | | 569,940 | |
Otsuka Holdings Company Ltd. | | | 17,500 | | | | 555,542 | |
Woolworths Ltd. | | | 28,600 | | | | 498,596 | |
PepsiCo, Inc. | | | 5,000 | | | | 471,500 | |
Patterson Companies, Inc. | | | 10,000 | | | | 432,500 | |
Philip Morris International, Inc. | | | 5,400 | | | | 428,382 | |
Nissin Foods Holdings Company Ltd. | | | 9,300 | | | | 425,635 | |
Cooper Companies, Inc. | | | 2,500 | | | | 372,150 | |
Seven & i Holdings Company Ltd. | | | 8,000 | | | | 363,069 | |
Singapore Press Holdings Ltd.* | | | 131,900 | | | | 355,938 | |
Asahi Group Holdings Ltd. | | | 11,000 | | | | 354,883 | |
Hutchison Port Holdings Trust — Class U | | | 635,500 | | | | 349,525 | |
Henry Schein, Inc.* | | | 2,400 | | | | 318,528 | |
Gartner, Inc.* | | | 3,000 | | | | 251,790 | |
Quest Diagnostics, Inc. | | | 4,000 | | | | 245,880 | |
Abbott Laboratories | | | 6,000 | | | | 241,320 | |
HCA Holdings, Inc.* | | | 3,000 | | | | 232,080 | |
Kao Corp. | | | 5,000 | | | | 225,209 | |
General Mills, Inc. | | | 4,000 | | | | 224,520 | |
Unilever plc | | | 5,100 | | | | 207,225 | |
McKesson Corp. | | | 1,000 | | | | 185,030 | |
Colgate-Palmolive Co. | | | 2,000 | | | | 126,920 | |
Total Consumer, Non-cyclical | | | | | | | 25,779,089 | |
| | | | | | | | | |
Financial - 23.0% | |
Wells Fargo & Co. | | | 24,000 | | | | 1,232,400 | |
U.S. Bancorp | | | 19,700 | | | | 807,897 | |
Swedbank AB — Class A | | | 35,200 | | | | 777,555 | |
CME Group, Inc. — Class A | | | 8,000 | | | | 741,920 | |
Marsh & McLennan Companies, Inc. | | | 13,500 | | | | 704,970 | |
HSBC Holdings plc* | | | 90,900 | | | | 685,686 | |
New York Community Bancorp, Inc. | | | 36,200 | | | | 653,772 | |
Zurich Insurance Group AG* | | | 2,600 | | | | 638,259 | |
T. Rowe Price Group, Inc. | | | 9,100 | | | | 632,450 | |
Daito Trust Construction Company Ltd. | | | 6,200 | | | | 626,693 | |
M&T Bank Corp. | | | 5,000 | | | | 609,750 | |
Hannover Rueck SE | | | 5,900 | | | | 603,549 | |
Allianz AG | | | 3,800 | | | | 595,575 | |
Nordea Bank AB | | | 51,800 | | | | 576,762 | |
American Capital Agency Corp. | | | 29,100 | | | | 544,170 | |
Everest Re Group Ltd. | | | 3,000 | | | | 520,020 | |
People’s United Financial, Inc. | | | 31,600 | | | | 497,068 | |
Simon Property Group, Inc. | | | 2,600 | | | | 477,672 | |
RenaissanceRe Holdings Ltd. | | | 4,300 | | | | 457,176 | |
DBS Group Holdings Ltd. | | | 38,600 | | | | 439,712 | |
H&R Real Estate Investment Trust | | | 27,800 | | | | 428,468 | |
PartnerRe Ltd. | | | 3,000 | | | | 416,640 | |
First Capital Realty, Inc. | | | 29,600 | | | | 414,737 | |
ASX Ltd. | | | 14,200 | | | | 377,511 | |
Insurance Australia Group Ltd. | | | 101,400 | | | | 344,440 | |
Host Hotels & Resorts, Inc. | | | 20,600 | | | | 325,686 | |
ACE Ltd. | | | 3,000 | | | | 310,200 | |
Federation Centres | | | 158,858 | | | | 305,485 | |
Gjensidige Forsikring ASA | | | 20,700 | | | | 278,676 | |
Annaly Capital Management, Inc. | | | 28,100 | | | | 277,347 | |
Hang Seng Bank Ltd. | | | 15,000 | | | | 269,417 | |
Admiral Group plc | | | 11,500 | | | | 261,122 | |
Government Properties Trust, Inc.* | | | 80,900 | | | | 256,068 | |
Digital Realty Trust, Inc. | | | 3,900 | | | | 254,748 | |
Suncorp Group Ltd. | | | 29,500 | | | | 252,381 | |
Swiss Prime Site AG* | | | 3,000 | | | | 219,212 | |
Bank of Montreal | | | 4,000 | | | | 218,128 | |
Bendigo & Adelaide Bank Ltd. | | | 31,300 | | | | 217,695 | |
WR Berkley Corp. | | | 4,000 | | | | 217,480 | |
PNC Financial Services Group, Inc. | | | 2,400 | | | | 214,080 | |
JPMorgan Chase & Co. | | | 3,100 | | | | 189,007 | |
Aviva plc | | | 23,018 | | | | 157,353 | |
CNP Assurances | | | 10,300 | | | | 142,843 | |
Singapore Exchange Ltd. | | | 26,100 | | | | 128,942 | |
Total Financial | | | | | | | 19,300,722 | |
| | | | | | | | | |
Consumer, Cyclical - 12.5% | |
Toyota Motor Corp. | | | 18,200 | | | | 1,057,665 | |
McDonald’s Corp. | | | 9,800 | | | | 965,594 | |
Wal-Mart Stores, Inc. | | | 14,000 | | | | 907,760 | |
Costco Wholesale Corp. | | | 6,000 | | | | 867,420 | |
Mitsui & Company Ltd. | | | 59,300 | | | | 662,679 | |
Sumitomo Corp. | | | 68,500 | | | | 657,847 | |
Marubeni Corp. | | | 131,200 | | | | 638,527 | |
LVMH Moet Hennessy Louis Vuitton SE | | | 3,600 | | | | 612,304 | |
ITOCHU Corp. | | | 57,200 | | | | 599,633 | |
Lawson, Inc. | | | 7,000 | | | | 514,109 | |
Persimmon plc* | | | 16,600 | | | | 504,240 | |
Sankyo Company Ltd. | | | 13,500 | | | | 478,304 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 91 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
WORLD EQUITY INCOME FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Next plc* | | | 4,000 | | | $ | 460,177 | |
Mitsubishi Corp. | | | 20,900 | | | | 340,362 | |
Compass Group plc | | | 19,400 | | | | 309,027 | |
InterContinental Hotels Group plc | | | 7,200 | | | | 248,659 | |
FamilyMart Company Ltd. | | | 5,000 | | | | 227,169 | |
Home Depot, Inc. | | | 1,500 | | | | 173,235 | |
Macy’s, Inc. | | | 3,000 | | | | 153,960 | |
Taylor Wimpey plc* | | | 50,000 | | | | 147,795 | |
Total Consumer, Cyclical | | | | | | | 10,526,466 | |
| | | | | | | | | |
Communications - 9.9% | |
AT&T, Inc. | | | 38,800 | | | | 1,264,103 | |
Verizon Communications, Inc. | | | 24,400 | | | | 1,061,644 | |
Comcast Corp. — Class A | | | 15,000 | | | | 858,600 | |
Telstra Corp., Ltd. | | | 171,900 | | | | 676,814 | |
Singapore Telecommunications Ltd. | | | 212,700 | | | | 538,107 | |
Elisa Oyj | | | 15,400 | | | | 520,074 | |
BCE, Inc. | | | 11,000 | | | | 450,177 | |
Vivendi S.A.* | | | 18,000 | | | | 425,032 | |
NTT DOCOMO, Inc. | | | 24,600 | | | | 408,719 | |
TeliaSonera AB | | | 62,200 | | | | 334,688 | |
Motorola Solutions, Inc. | | | 4,800 | | | | 328,224 | |
StarHub Ltd. | | | 122,500 | | | | 297,859 | |
Shaw Communications, Inc. — Class B | | | 12,000 | | | | 232,334 | |
SES S.A. | | | 7,100 | | | | 223,509 | |
Thomson Reuters Corp. | | | 5,000 | | | | 200,955 | |
TDC A/S | | | 35,000 | | | | 180,174 | |
Rogers Communications, Inc. — Class B | | | 5,000 | | | | 172,257 | |
TELUS Corp. | | | 5,000 | | | | 157,534 | |
Total Communications | | | | | | | 8,330,804 | |
| | | | | | | | | |
Technology - 8.5% | |
Apple, Inc. | | | 11,900 | | | | 1,312,570 | |
International Business Machines Corp. | | | 7,200 | | | | 1,043,784 | |
Canon, Inc. | | | 26,600 | | | | 765,924 | |
Accenture plc — Class A | | | 7,700 | | | | 756,602 | |
Paychex, Inc. | | | 15,000 | | | | 714,450 | |
Fidelity National Information Services, Inc. | | | 10,300 | | | | 690,924 | |
Microsoft Corp. | | | 10,300 | | | | 455,878 | |
SAP AG | | | 6,000 | | | | 388,557 | |
Fiserv, Inc.* | | | 4,000 | | | | 346,440 | |
Oracle Corporation Japan | | | 8,000 | | | | 336,126 | |
Synopsys, Inc.* | | | 4,000 | | | | 184,720 | |
Intuit, Inc. | | | 1,400 | | | | 124,250 | |
Total Technology | | | | | | | 7,120,225 | |
| | | | | | | | | |
Utilities - 7.5% | |
PPL Corp. | | | 24,300 | | | | 799,227 | |
CLP Holdings Ltd. | | | 91,362 | | | | 779,811 | |
Southern Co. | | | 17,200 | | | | 768,840 | |
Duke Energy Corp. | | | 9,900 | | | | 712,206 | |
Dominion Resources, Inc. | | | 10,000 | | | | 703,800 | |
Osaka Gas Company Ltd.* | | | 145,900 | | | | 550,979 | |
CenterPoint Energy, Inc. | | | 23,900 | | | | 431,156 | |
DTE Energy Co. | | | 4,800 | | | | 385,776 | |
AGL Energy Ltd. | | | 34,000 | | | | 381,079 | |
SCANA Corp. | | | 4,900 | | | | 275,674 | |
Sempra Energy | | | 2,300 | | | | 222,456 | |
Fortis, Inc. | | | 5,700 | | | | 163,018 | |
Consolidated Edison, Inc. | | | 1,100 | | | | 73,535 | |
Engie | | | 3,200 | | | | 51,638 | |
Total Utilities | | | | | | | 6,299,195 | |
| | | | | | | | | |
Industrial - 3.1% | |
Lockheed Martin Corp. | | | 3,800 | | | | 787,778 | |
Waste Management, Inc. | | | 11,600 | | | | 577,796 | |
MTR Corporation Ltd. | | | 111,000 | | | | 481,234 | |
Amphenol Corp. — Class A | | | 7,000 | | | | 356,720 | |
Thermo Fisher Scientific, Inc. | | | 2,000 | | | | 244,560 | |
Mettler-Toledo International, Inc.* | | | 500 | | | | 142,370 | |
Total Industrial | | | | | | | 2,590,458 | |
| | | | | | | | | |
Energy - 2.6% | |
Eni SpA | | | 46,300 | | | | 726,955 | |
Exxon Mobil Corp. | | | 8,200 | | | | 609,670 | |
Columbia Pipeline Group, Inc. | | | 19,200 | | | | 351,168 | |
Royal Dutch Shell plc — Class B | | | 11,000 | | | | 260,086 | |
TransCanada Corp. | | | 7,900 | | | | 249,792 | |
Total Energy | | | | | | | 2,197,671 | |
| | | | | | | | | |
Basic Materials - 0.5% | |
Sherwin-Williams Co. | | | 1,000 | | | | 222,780 | |
Airgas, Inc. | | | 2,000 | | | | 178,660 | |
Total Basic Materials | | | | | | | 401,440 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $88,235,044) | | | | | | | 82,546,070 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 1.7% | |
Goldman Sachs Financial Square Treasury Instruments Fund 0.00%1 | | | 1,450,100 | | | | 1,450,100 | |
Total Short Term Investments | | | | | | | | |
(Cost $1,450,100) | | | | | | | 1,450,100 | |
| | | | | | | | | |
Total Investments - 99.9% | | | | | | | | |
(Cost $89,685,144) | | | | | | $ | 83,996,170 | |
Other Assets & Liabilities, net - 0.1% | | | | | | | 57,368 | |
Total Net Assets - 100.0% | | | | | | $ | 84,053,538 | |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 4. |
1 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | plc — Public Limited Company |
| | |
| | See Sector classification in Other Information section. |
92 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments, at value (cost $89,685,144) | | $ | 83,996,170 | |
Foreign currency, at value (cost $28,680) | | | 28,683 | |
Prepaid expenses | | | 28,812 | |
Receivables: | |
Dividends | | | 294,002 | |
Foreign taxes reclaim | | | 207,681 | |
Fund shares sold | | | 42,606 | |
Total assets | | | 84,597,954 | |
| | | | | |
Liabilities: | |
Overdraft due to custodian bank | | | 772 | |
Payable for: | |
Fund shares redeemed | | | 379,951 | |
Management fees | | | 46,767 | |
Distribution and service fees | | | 20,399 | |
Fund accounting/administration fees | | | 10,578 | |
Transfer agent/maintenance fees | | | 10,564 | |
Trustees’ fees* | | | 1,029 | |
Distributions to shareholders | | | 31,051 | |
Miscellaneous | | | 43,305 | |
Total liabilities | | | 544,416 | |
Net assets | | $ | 84,053,538 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 109,988,632 | |
Distributions in excess of net investment income | | | (288,845 | ) |
Accumulated net realized loss on investments | | | (19,943,662 | ) |
Net unrealized depreciation on investments | | | (5,702,587 | ) |
Net assets | | $ | 84,053,538 | |
| | | | | |
A-Class: | |
Net assets | | $ | 73,567,757 | |
Capital shares outstanding | | | 5,990,787 | |
Net asset value per share | | $ | 12.28 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 12.89 | |
| | | | | |
C-Class: | |
Net assets | | $ | 5,936,144 | |
Capital shares outstanding | | | 562,564 | |
Net asset value per share | | $ | 10.55 | |
| | | | | |
P-Class: | |
Net assets | | $ | 9,134 | |
Capital shares outstanding | | | 741 | |
Net asset value per share | | $ | 12.33 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 4,540,503 | |
Capital shares outstanding | | | 371,298 | |
Net asset value per share | | $ | 12.23 | |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Dividends (net of foreign withholding tax of $256,570) | | $ | 3,406,543 | |
Other income | | | 115 | |
Total investment income | | | 3,406,658 | |
| | | | | |
Expenses: | |
Management fees | | | 667,458 | |
Transfer agent/maintenance fees: | |
A-Class | | | 103,055 | |
B-Class | | | 14,060 | |
C-Class | | | 13,165 | |
P-Class** | | | 90 | |
Institutional Class | | | 4,354 | |
Distribution and service fees: | |
A-Class | | | 203,685 | |
C-Class | | | 60,115 | |
P-Class** | | | 10 | |
Fund accounting/administration fees | | | 138,250 | |
Tax expense | | | 10,188 | |
Custodian fees | | | 9,261 | |
Trustees’ fees* | | | 7,949 | |
Line of credit fees | | | 6,154 | |
Miscellaneous | | | 157,679 | |
Total expenses | | | 1,395,473 | |
Net investment income | | | 2,011,185 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments | | | (1,216,924 | ) |
Foreign currency | | | (61,023 | ) |
Net realized loss | | | (1,277,947 | ) |
Net change in unrealized appreciation (depreciation) on: | |
Investments | | | (6,973,425 | ) |
Foreign currency | | | (919 | ) |
Net change in unrealized appreciation (depreciation) | | | (6,974,344 | ) |
Net realized and unrealized loss | | | (8,252,291 | ) |
Net decrease in net assets resulting from operations | | $ | (6,241,106 | ) |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 93 |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 2,011,185 | | | $ | 2,231,596 | |
Net realized gain (loss) on investments | | | (1,277,947 | ) | | | 5,032,043 | |
Net change in unrealized appreciation (depreciation) on investments | | | (6,974,344 | ) | | | 112,540 | |
Net increase (decrease) in net assets resulting from operations | | | (6,241,106 | ) | | | 7,376,179 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (2,093,228 | ) | | | (2,342,975 | ) |
B-Class | | | (37,182 | ) | | | (82,131 | ) |
C-Class | | | (113,425 | ) | | | (87,065 | ) |
P-Class* | | | (87 | ) | | | — | |
Institutional Class | | | (100,864 | ) | | | (17,450 | ) |
Total distributions to shareholders | | | (2,344,786 | ) | | | (2,529,621 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 21,530,432 | | | | 19,667,007 | |
B-Class | | | 426 | | | | 316,980 | |
C-Class | | | 2,875,991 | | | | 2,381,875 | |
P-Class* | | | 10,001 | | | | — | |
Institutional Class | | | 5,710,071 | | | | 729,944 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 2,035,374 | | | | 2,327,878 | |
B-Class | | | 37,174 | | | | 81,697 | |
C-Class | | | 89,045 | | | | 81,979 | |
P-Class* | | | 87 | | | | — | |
Institutional Class | | | 44,847 | | | | 17,450 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (21,295,826 | ) | | | (13,679,896 | ) |
B-Class | | | (1,916,762 | ) | | | (985,303 | ) |
C-Class | | | (1,746,534 | ) | | | (707,859 | ) |
P-Class* | | | — | | | | — | |
Institutional Class | | | (1,698,989 | ) | | | (87,320 | ) |
Net increase from capital share transactions | | | 5,675,337 | | | | 10,144,432 | |
Net increase (decrease) in net assets | | | (2,910,555 | ) | | | 14,990,990 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 86,964,093 | | | | 71,973,103 | |
End of year | | $ | 84,053,538 | | | $ | 86,964,093 | |
(Distributions in excess of net investment income)/Undistributed net investment income at end of year | | $ | (288,845 | ) | | $ | 64,616 | |
* | Since commencement of operations: May 1, 2015. |
94 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 1,601,893 | | | | 1,436,425 | |
B-Class | | | 36 | | | | 26,018 | |
C-Class | | | 249,395 | | | | 202,224 | |
P-Class* | | | 734 | | | | — | |
Institutional Class | | | 430,264 | | | | 52,741 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 156,014 | | | | 172,998 | |
B-Class | | | 3,234 | | | | 7,052 | |
C-Class | | | 7,937 | | | | 7,031 | |
P-Class* | | | 7 | | | | — | |
Institutional Class | | | 3,463 | | | | 1,301 | |
Shares redeemed | | | | | | | | |
A-Class | | | (1,598,406 | ) | | | (1,012,114 | ) |
B-Class | | | (167,791 | ) | | | (84,436 | ) |
C-Class | | | (154,420 | ) | | | (62,524 | ) |
Institutional Class | | | (130,120 | ) | | | (6,471 | ) |
Net increase in shares | | | 402,240 | | | | 740,245 | |
* | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 95 |
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.
A-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 13.51 | | | $ | 12.60 | | | $ | 10.55 | | | $ | 9.70 | | | $ | 10.52 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .29 | | | | .38 | | | | .18 | | | | .15 | | | | .05 | |
Net gain (loss) on investments (realized and unrealized) | | | (1.18 | ) | | | .95 | | | | 2.16 | | | | .70 | | | | (.81 | ) |
Total from investment operations | | | (.89 | ) | | | 1.33 | | | | 2.34 | | | | .85 | | | | (.76 | ) |
Less distributions from: | |
Net investment income | | | (.34 | ) | | | (.42 | ) | | | (.29 | ) | | | (— | )e | | | (.06 | ) |
Total distributions | | | (.34 | ) | | | (.42 | ) | | | (.29 | ) | | | (— | )e | | | (.06 | ) |
Net asset value, end of period | | $ | 12.28 | | | $ | 13.51 | | | $ | 12.60 | | | $ | 10.55 | | | $ | 9.70 | |
| | |
Total Returnb | | | (6.70 | %) | | | 10.62 | % | | | 22.58 | % | | | 8.82 | % | | | (7.32 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 73,568 | | | $ | 78,783 | | | $ | 65,966 | | | $ | 61,838 | | | $ | 65,573 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 2.21 | % | | | 2.81 | % | | | 1.59 | % | | | 1.45 | % | | | 0.04 | % |
Total expensesc | | | 1.48 | % | | | 1.66 | % | | | 1.93 | % | | | 2.05 | % | | | 1.85 | % |
Net expensesd | | | 1.43 | %h | | | 1.49 | %h | | | 1.59 | % | | | 1.63 | % | | | 1.82 | % |
Portfolio turnover rate | | | 131 | % | | | 131 | % | | | 154 | % | | | 41 | % | | | 206 | % |
C-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Year Ended
September 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 11.61 | | | $ | 10.79 | | | $ | 9.01 | | | $ | 8.33 | | | $ | 9.06 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .17 | | | | .25 | | | | .08 | | | | .06 | | | | (.04 | ) |
Net gain (loss) on investments (realized and unrealized) | | | (1.02 | ) | | | .81 | | | | 1.84 | | | | .62 | | | | (.69 | ) |
Total from investment operations | | | (.85 | ) | | | 1.06 | | | | 1.92 | | | | .68 | | | | (.73 | ) |
Less distributions from: | |
Net investment income | | | (.21 | ) | | | (.24 | ) | | | (.14 | ) | | | — | | | | — | |
Total distributions | | | (.21 | ) | | | (.24 | ) | | | (.14 | ) | | | — | | | | — | |
Net asset value, end of period | | $ | 10.55 | | | $ | 11.61 | | | $ | 10.79 | | | $ | 9.01 | | | $ | 8.33 | |
| | |
Total Returnb | | | (7.40 | %) | | | 9.79 | % | | | 21.57 | % | | | 8.16 | % | | | (8.06 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 5,936 | | | $ | 5,337 | | | $ | 3,377 | | | $ | 3,015 | | | $ | 3,426 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 1.50 | % | | | 2.13 | % | | | 0.80 | % | | | 0.68 | % | | | (0.37 | %) |
Total expensesc | | | 2.28 | % | | | 2.62 | % | | | 2.89 | % | | | 2.88 | % | | | 2.60 | % |
Net expensesd | | | 2.23 | %h | | | 2.24 | %h | | | 2.35 | % | | | 2.38 | % | | | 2.58 | % |
Portfolio turnover rate | | | 131 | % | | | 131 | % | | | 154 | % | | | 41 | % | | | 206 | % |
96 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
P-Class | | Period Ended
September 30,
2015g | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 13.62 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .12 | |
Net gain (loss) on investments (realized and unrealized) | | | (1.29 | ) |
Total from investment operations | | | (1.17 | ) |
Less distributions from: | |
Net investment income | | | (.12 | ) |
Total distributions | | | (.12 | ) |
Net asset value, end of period | | $ | 12.33 | |
| | | | | |
Total Returnb | | | (8.64 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 9 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 2.14 | % |
Total expensesc | | | 3.54 | % |
Net expensesd | | | 1.48 | %h |
Portfolio turnover rate | | | 131 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 97 |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Year Ended
September 30,
2012 | | | Period Ended
September 30,
2011f | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 13.45 | | | $ | 12.53 | | | $ | 10.50 | | | $ | 9.70 | | | $ | 12.37 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .36 | | | | .44 | | | | .28 | | | | .28 | | | | .13 | |
Net gain (loss) on investments (realized and unrealized) | | | (1.21 | ) | | | .90 | | | | 2.10 | | | | .52 | | | | (2.80 | ) |
Total from investment operations | | | (.85 | ) | | | 1.34 | | | | 2.38 | | | | .80 | | | | (2.67 | ) |
Less distributions from: | |
Net investment income | | | (.37 | ) | | | (.42 | ) | | | (.35 | ) | | | (— | )e | | | — | |
Total distributions | | | (.37 | ) | | | (.42 | ) | | | (.35 | ) | | | (— | )e | | | — | |
Net asset value, end of period | | $ | 12.23 | | | $ | 13.45 | | | $ | 12.53 | | | $ | 10.50 | | | $ | 9.70 | |
| | |
Total Returnb | | | (6.42 | %) | | | 10.83 | % | | | 23.17 | % | | | 8.17 | % | | | (21.58 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 4,541 | | | $ | 911 | | | $ | 252 | | | $ | 90 | | | $ | 285 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 2.70 | % | | | 3.27 | % | | | 2.42 | % | | | 2.70 | % | | | 2.99 | % |
Total expensesc | | | 1.23 | % | | | 1.33 | % | | | 1.73 | % | | | 1.90 | % | | | 2.27 | % |
Net expensesd | | | 1.23 | %h | | | 1.23 | %h | | | 1.26 | % | | | 1.32 | % | | | 1.36 | % |
Portfolio turnover rate | | | 131 | % | | | 131 | % | | | 154 | % | | | 41 | % | | | 206 | % |
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. |
d | Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable. |
e | Distributions from net investment income are less than $0.01 per share. |
f | Since commencement of operations: May 2, 2011. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
g | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
h | Net expenses may include expenses that are excluded from the expense limitation agreement and recouped amounts. Excluding these expenses, the operating expense ratios for the periods presented would be: |
| | 09/30/15 | 09/30/14 |
A-Class | 1.46% | 1.46% |
C-Class | 2.21% | 2.21% |
P-Class | 1.46% | — |
Institutional Class | 1.21% | 1.21% |
98 | 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 an open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, C-Class shares, P-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%. 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 previously offered have been converted to A-Class shares effective July 31, 2014 for the Alpha Opportunity Fund, and effective August 8, 2015 for the other funds in the Trust. 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. At September 30, 2015, the Trust consisted of seventeen funds.
This report covers the Alpha Opportunity 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”), each a diversified investment company, with the exception of the Large Cap Value Fund and Risk Managed Real Estate Fund, which are each a non-diversified investment company.
Guggenheim Investments (“GI”) provides advisory services, and Rydex Fund Services, LLC (“RFS”) provides transfer agent, administrative and accounting services to the Trust. Guggenheim Funds Distributors, LLC (“GFD”) acts as principal underwriter for the Trust. GI, RFS and GFD are affiliated entities.
Significant Accounting Policies
The Funds operate as investment companies and accordingly follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The NAV of each Class of the Funds is calculated by dividing the market value of the Fund’s securities and other assets, less all liabilities, attributable to the Class by the number of outstanding shares of the Class.
A. The Board of Trustees of the Funds (the “Board”) has adopted policies and procedures for the valuation of the Funds’ investments (the “Valuation Procedures”). Pursuant to the Valuation Procedures, the Board has delegated to a valuation committee, consisting of representatives from Guggenheim’s investment management, fund administration, legal and compliance departments (the “Valuation Committee”), the day-to-day responsibility for implementing the Valuation Procedures, including, under most circumstances, the responsibility for determining the fair value of the Funds’ securities or other assets.
Valuations of the Funds’ securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed and will review the valuation of all assets which have been fair valued for reasonableness. The Funds’ officers, through the Valuation Committee and consistent with the monitoring and review responsibilities set forth in the Valuation Procedures, regularly review procedures used by, and valuations provided by, the pricing services.
If the pricing service cannot or does not provide a valuation for a particular investment or such valuation is deemed unreliable, such investment is fair valued by the Valuation Committee.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 99 |
NOTES TO FINANCIAL STATEMENTS (continued) |
Equity securities listed on an exchange (New York Stock Exchange (“NYSE”) or American Stock Exchange) are valued at the last quoted sales price as of the close of business on the NYSE, usually 4:00 p.m. on the valuation date. Equity securities listed on the NASDAQ market system are valued at the NASDAQ Official Closing Price on the valuation date, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on a given day, the security is valued at the closing bid price on that day.
Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the NYSE. The values of foreign securities are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currency are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities. In addition, the Board of Trustees has authorized the Valuation Committee and GI to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.
Open-end investment companies (“Mutual Funds”) are valued at their NAV as of the close of business, on the valuation date. Exchange-traded funds (“ETFs”) and closed-end investment companies (“CEFs”) are valued at the last quoted sales price.
Debt securities with a maturity of greater than 60 days at acquisition are valued at prices that reflect broker/dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term debt securities with a maturity of 60 days or less at acquisition are valued at amortized cost, provided such amount approximates market value.
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, such factors may include obtaining information as to how (a) these contracts and other derivative investments trade in the futures or other derivative markets, respectively, and (b) the securities underlying these contracts and other derivative investments trade in the cash market.
100 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
B. 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.
C. 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.
D. 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.
E. 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.
F. Security transactions are recorded on the trade date for financial reporting purposes. Realized gains and losses from securities transactions are recorded using the identified cost basis. Proceeds from lawsuits related to investment holdings are recorded as realized gains in the respective Fund. Dividend income is recorded on the ex-dividend date, net of applicable taxes withheld by foreign countries. Taxable non-cash dividends are recorded as dividend income. Interest income, including amortization of premiums and accretion of discounts, is accrued on a daily basis. Interest income also includes paydown gains and losses on mortgage-backed and asset-backed securities and senior and subordinated loans. Amendment fees are earned as compensation for evaluating and accepting changes to the original loan agreement and are recognized when received. Dividend income from REITs is recorded based on the income included in the distributions received from the REIT investments using published REIT classifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
G. 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.
H. 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.
I. Under the fee arrangement with the custodian, the Funds may earn credits based on overnight custody cash balances. These credits are utilized to reduce related custodial expenses. The custodian fees disclosed in the Statement of Operations are before the reduction in
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 101 |
NOTES TO FINANCIAL STATEMENTS (continued) |
expense from the related earnings credits, if any. For the year ended September 30, 2015, there were no earnings credits received.
J. 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.
K. 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.
L. The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at prevailing exchange rates. Purchases and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Funds. Foreign investments may also subject the Funds to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which could affect the market and/or credit risk of the investments.
The Funds do not isolate that portion of the results of operations resulting from changes in the foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Reported net realized foreign exchange gains and losses arise from sales of foreign currencies and currency gains or losses realized between the trade and settlement dates on investment transactions. Net unrealized exchange gains and losses arise from changes in the fair values of assets and liabilities other than investments in securities at the fiscal period end, resulting from changes in exchange rates.
2. Financial Instruments and Derivatives
As part of its investment strategy, the Funds utilize short sales and a variety of derivative instruments. These investments involve, to varying degrees, elements of market risk and risks in excess of the amounts recognized in the Statements of Assets and Liabilities. Valuation and accounting treatment of these instruments can be found under Significant Accounting Policies in Note 1 of these Notes to Financial Statements.
Short Sales
A short sale is a transaction in which a Fund sells a security it does not own. If the security sold short decreases in price between the time the Fund sells the security and closes its short position, that Fund will realize a gain on the transaction. Conversely, if the security increases in price during the period, that Fund will realize a loss on the transaction. The risk of such price increases is the principal risk of engaging in short sales.
Derivatives
Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more other assets, such as securities, currencies, commodities or indices. Derivative instruments may be used to increase investment flexibility (including to maintain cash reserves while maintaining exposure to certain other assets), for risk management (hedging) purposes, to facilitate trading, to reduce transaction costs and to pursue higher investment returns. Derivative instruments may also be used to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. U.S. GAAP requires disclosures to enable investors to better understand how and why a Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund’s financial position and results of operations.
The Funds may utilize derivatives for the following purposes:
Duration: the use of an instrument to manage the interest rate risk of a portfolio.
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NOTES TO FINANCIAL STATEMENTS (continued) |
Hedge: an investment made in order to reduce the risk of adverse price movements in a security by taking an offsetting position to protect against broad market moves.
Index Exposure: the use of an instrument to obtain exposure to a listed or other type of index.
Leverage: gaining total exposure to equities or other assets on the long and short sides at greater than 100% of invested capital.
Speculation: the use of an instrument to express a macro-economic and other investment views.
For any Fund whose investment strategy consistently involves applying leverage, the value of the Fund’s shares will tend to increase or decrease more than the value of any increase or decrease in the underlying index or other asset. In addition, because an investment in derivative instruments generally requires a small investment relative to the amount of investment exposure assumed, an opportunity for increased net income is created; but, at the same time, leverage risk will increase. The Fund’s use of leverage, through borrowings or instruments such as derivatives, may cause the Fund to be more volatile and riskier than if they had not been leveraged.
Swaps
A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. A Fund utilizing OTC swaps bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty or if the underlying asset declines in value. Certain standardized swaps are subject to mandatory central clearing. Central clearing generally reduces counterparty credit risk and increases liquidity, but central clearing does not make swap transactions risk-free. Additionally, there is no guarantee that a Fund or an underlying fund could eliminate its exposure under an outstanding swap agreement by entering into an offsetting swap agreement with the same or another party.
Total return swaps involve commitments where single or multiple cash flows are exchanged based on the price of an underlying reference asset (such as index or basket) or a fixed or variable interest rate. Index swaps will usually be computed based on the current index value as of the close of regular trading on the NYSE or other exchange, with the swap value being adjusted to include dividends accrued, financing charges and/or interest associated with the swap agreement. Custom basket swaps are computed in a similar manner, but the composition of the custom basket swap is not tied directly to a publically available index. As such, the constituents of the basket are available on the respective Fund’s Schedule of Investments. A Fund utilizing a total return index swap bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty or if the underlying index declines in value.
The following table represents the Funds’ use and volume of total return swaps for the period ended September 30, 2015:
| | | | Average Notional | |
Fund | Use | | Long | | | Short | |
Alpha Opportunity Fund | Hedge, Leverage | | $ | 17,618,027 | | | $ | (16,742,463 | ) |
Risk Managed Real Estate Fund | Leverage | | | 32,971,958 | | | | (7,609,964 | ) |
StylePlus—Large Core Fund | Index Exposure | | | 163,080,973 | | | | — | |
StylePlus—Mid Growth Fund | Index Exposure | | | 69,921,236 | | | | — | |
Futures
A futures contract is an agreement to purchase (long) or sell (short) an agreed amount of securities or other instruments at a set price for delivery at a future date. There are significant risks associated with a Fund’s use of futures contracts, including: (i) there may be an imperfect or no correlation between the changes in market value of the underlying asset and the prices of futures contracts; (ii) there may not be a liquid secondary market for a futures contract; (iii) trading restrictions or limitations may be imposed by an exchange; and (iv) government regulations may restrict trading in futures contracts. When investing in futures, there is minimal counterparty credit risk to a Fund because futures are exchange-
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 103 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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.
The following table represents the Funds’ use and volume of futures for the period ended September 30, 2015:
Fund | Use | | Average Notional | |
Alpha Opportunity Fund | Index Exposure | | $ | 692,550 | |
StylePlus—Large Core Fund | Index Exposure | | | 767,041 | |
StylePlus—Mid Growth Fund | Index Exposure | | | 902,529 | |
Derivative Investment Holdings Categorized by Risk Exposure
The following is a summary of the location of derivative investments on the Funds’ Statements of Assets and Liabilities as of September 30, 2015:
Derivative Investment Type | Asset Derivatives | Liability Derivatives |
Equity contracts | Variation margin | Variation margin |
| | Unrealized appreciation on swap agreements | Unrealized depreciation on swap agreements |
The following table sets forth the fair value of the Fund’s derivative investments categorized by primary risk exposure at September 30, 2015:
Asset Derivative Investments Value | |
Fund | | Futures
Equity
Contracts* | | | Swaps
Equity
Contracts | | | Total Value at
September 30,
2015 | |
Alpha Opportunity Fund | | $ | — | | | $ | 969,645 | | | $ | 969,645 | |
Risk Managed Real Estate Fund | | | — | | | | 678,433 | | | | 678,433 | |
StylePlus—Large Core Fund | | | — | | | | 291 | | | | 291 | |
StylePlus—Mid Growth Fund | | | — | | | | 230 | | | | 230 | |
Liability Derivative Investments Value | |
Fund | | Futures
Equity
Contracts* | | | Swaps
Equity
Contracts | | | Total Value at
September 30,
2015 | |
Alpha Opportunity Fund | | $ | — | | | $ | 1,054,855 | | | $ | 1,054,855 | |
Risk Managed Real Estate Fund | | | — | | | | 852,338 | | | | 852,338 | |
StylePlus—Large Core Fund | | | 33,571 | | | | 12,780,270 | | | | 12,813,841 | |
StylePlus—Mid Growth Fund | | | 4,838 | | | | 6,407,578 | | | | 6,412,416 | |
* | 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 period ended September 30, 2015:
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 change in unrealized appreciation (depreciation) on futures contracts |
| | Net change in unrealized appreciation (depreciation) on swap agreements |
104 | 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 period ended September 30, 2015:
Realized Gain (Loss) on Derivative Investments Recognized on the Statements of Operations | |
Fund | | Futures
Equity
Contracts | | | Swaps
Equity
Contracts | | | Total | |
Alpha Opportunity Fund | | $ | 56,088 | | | $ | (492,841 | ) | | $ | (436,753 | ) |
Risk Managed Real Estate Fund | | | — | | | | 3,167,916 | | | | 3,167,916 | |
StylePlus—Large Core Fund | | | (48,043 | ) | | | 17,355,677 | | | | 17,307,634 | |
StylePlus—Mid Growth Fund | | | 39,860 | | | | 9,031,097 | | | | 9,070,957 | |
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statements of Operations | |
Fund | | Futures
Equity
Contracts | | | Swaps
Equity
Contracts | | | Total | |
Alpha Opportunity Fund | | $ | 32,652 | | | $ | 44,992 | | | $ | 44,992 | |
Risk Managed Real Estate Fund | | | — | | | | (173,904 | ) | | | (173,904 | ) |
StylePlus—Large Core Fund | | | (24,861 | ) | | | (18,461,208 | ) | | | (18,486,069 | ) |
StylePlus—Mid Growth Fund | | | 14,952 | | | | (8,310,807 | ) | | | (8,295,855 | ) |
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 repurchase agreements allocated to the Funds.
The Trust has established counterparty credit guidelines and enters into transactions only with financial institutions of investment grade or better. The Trust monitors the counterparty credit risk.
3. Fees and Other Transactions with Affiliates
Under the terms of an investment advisory contract, the Funds pay GI investment advisory fees calculated at their annualized rates below, based on the average daily net assets of the Funds:
Fund | Management Fees
(as a % of Net Assets) |
Alpha Opportunity Fund | 1.25% |
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% |
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NOTES TO FINANCIAL STATEMENTS (continued) |
RFS is paid the following for providing transfer agent services to the Funds. Transfer agent fees are assessed to the applicable class of each Fund.
Annual charge per account | $5.00 – $8.00 |
Transaction fee | $0.60 – $1.10 |
Minimum annual charge per Fund† | $25,000 |
Certain out-of-pocket charges | Varies |
† | Not subject to Funds during first twelve months of operations. |
RFS also acts as the administrative agent for the Funds, and as such performs administrative functions and the bookkeeping, accounting and pricing functions for each Fund. For these services, RFS receives the following:
Fund | Fund Accounting/
Administrative Fees
(as a % of Net Assets) |
Alpha Opportunity 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 0.150% |
| | 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.
The Funds have adopted Distribution Plans related to the offering of A-Class, C-Class and P-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 and P-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.
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.
106 | 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:
| | Limit | Effective
Date | Contract
End Date |
Alpha Opportunity Fund – A-Class | 2.11% | 11/30/12 | 02/01/16 |
Alpha Opportunity Fund – C-Class | 2.86% | 11/30/12 | 02/01/16 |
Alpha Opportunity Fund - P-Class** | 2.11% | 05/01/15 | 02/01/17 |
Alpha Opportunity Fund – Institutional Class | 1.86% | 11/30/12 | 02/01/16 |
Large Cap Value Fund – A-Class | 1.15% | 11/30/12 | 02/01/16 |
Large Cap Value Fund – C-Class | 1.90% | 11/30/12 | 02/01/16 |
Large Cap Value Fund - P-Class** | 1.15% | 05/01/15 | 02/01/17 |
Large Cap Value Fund – Institutional Class | 0.90% | 06/05/13 | 02/01/16 |
Risk Managed Real Estate Fund – A-Class* | 1.30% | 03/26/14 | 02/01/16 |
Risk Managed Real Estate Fund – C-Class* | 2.05% | 03/26/14 | 02/01/16 |
Risk Managed Real Estate Fund – P-Class** | 1.30% | 05/01/15 | 02/01/17 |
Risk Managed Real Estate Fund – Institutional Class* | 1.10% | 03/26/14 | 02/01/16 |
Small Cap Value Fund – A-Class | 1.30% | 11/30/12 | 02/01/16 |
Small Cap Value Fund – C-Class | 2.05% | 11/30/12 | 02/01/16 |
Small Cap Value Fund - P-Class** | 1.30% | 05/01/15 | 02/01/17 |
Small Cap Value Fund – Institutional Class | 1.05% | 11/30/12 | 02/01/16 |
World Equity Income Fund – A-Class | 1.46% | 08/15/13 | 02/01/16 |
World Equity Income Fund – C-Class | 2.21% | 08/15/13 | 02/01/16 |
World Equity Income Fund - P-Class** | 1.46% | 05/01/15 | 02/01/17 |
World Equity Income Fund – Institutional Class | 1.21% | 08/15/13 | 02/01/16 |
* | Commencement of operations: March 28, 2014. |
** | Commencement of operations: May 1, 2015. |
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 9/30/2015, the amount of fees waived or expenses reimbursed that are subject to recoupment are presented in the following table:
Fund | | Expires
2016 | | | Expires
2017 | | | Expires
2018 | | | Fund
Total | |
Alpha Opportunity Fund | | $ | 204,142 | | | $ | 126,237 | | | $ | 68,666 | | | $ | 399,045 | |
Large Cap Value Fund | | | 189,178 | | | | 213,340 | | | | 117,091 | | | | 519,609 | |
Risk Managed Real Estate Fund | | | — | | | | 468 | | | | — | | | | 468 | |
Small Cap Value Fund | | | 173,126 | | | | 199,545 | | | | 153,832 | | | | 526,503 | |
World Equity Income Fund | | | 247,162 | | | | 167,150 | | | | — | | | | 414,312 | |
For the year ended September 30, 2015, GI recouped $24,679 from the Risk Managed Real Estate Fund and $22,291 from World Equity Income Fund. These amounts are included in Management Fees in the Statement of Operations.
For the year ended September 30, 2015, GFD retained sales charges of $660,571 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 | 107 |
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’ investments at September 30, 2015. See the Schedule of Investments for more details on the classification of securities.
| | | Level 1
Investments
In Securities | | | Level 1
Other Financial
Instruments* | | | Level 2
Investments
In Securities | | | Level 2
Other Financial
Instruments* | | | Level 3
Investments
In Securities | | | Total | |
Assets | | | | | | | | | | | | | | | | | | |
Alpha Opportunity Fund | | $ | 56,116,520 | | | $ | — | | | $ | — | | | $ | 969,645 | | | $ | — | | | $ | 57,086,165 | |
Large Cap Value Fund | | | 50,969,683 | | | | — | | | | — | | | | — | | | | — | | | | 50,969,683 | |
Risk Managed Real Estate Fund | | | 106,334,989 | | | | — | | | | — | | | | 678,433 | | | | — | | | | 107,013,422 | |
Small Cap Value Fund | | | 18,148,223 | | | | — | | | | — | | | | — | | | | 16 | | | | 18,148,239 | |
StylePlus—Large Core Fund | | | 174,261,772 | | | | — | | | | 3,544,124 | | | | 291 | | | | — | | | | 177,806,187 | |
StylePlus—Mid Growth Fund | | | 75,329,454 | | | | — | | | | 1,593,434 | | | | 230 | | | | — | | | | 76,923,118 | |
World Equity Income Fund | | | 83,996,170 | | | | — | | | | — | | | | — | | | | — | | | | 83,996,170 | |
| | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Alpha Opportunity Fund | | $ | 14,041,376 | | | $ | — | | | $ | — | | | $ | 1,054,855 | | | $ | — | | | $ | 15,096,231 | |
Risk Managed Real Estate Fund | | | 14,216,127 | | | | — | | | | — | | | | 852,338 | | | | — | | | | 15,068,465 | |
StylePlus—Large Core Fund | | | — | | | | 33,571 | | | | — | | | | 12,780,270 | | | | — | | | | 12,813,841 | |
StylePlus—Mid Growth Fund | | | — | | | | 4,838 | | | | — | | | | 6,407,578 | | | | — | | | | 6,412,416 | |
* | 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.
108 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
Certain fixed income securities are valued by obtaining a monthly indicative quote from a broker-dealer, adjusted for fluctuations in criteria such as credit spreads and interest rates.
For the year ended September 30, 2015, 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. Offsetting
In the normal course of business, the Funds enter into transactions subject to enforceable master netting arrangements or other similar arrangements. Generally, the right to offset in those agreements allows the Funds to counteract the exposure to a specific counterparty with collateral received or delivered to that counterparty based on the terms of the arrangements. These arrangements provide for the right to liquidate upon the occurrence of an event of default, credit event upon merger or additional termination event.
In order to better define their contractual rights and to secure rights that will help the Funds mitigate their counterparty risk, the Funds may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with their derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between a Fund and a counterparty that governs OTC derivatives, including foreign exchange contracts, and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of a default (close-out netting) or similar event, including the bankruptcy or insolvency of the counterparty.
For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Funds and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Funds and cash collateral received from the counterparty, if any, is reported separately on the Statements of Assets and Liabilities as segregated cash with broker/receivable for variation margin, or payable for swap settlement/variation margin. Generally, the amount of collateral due from or to a counterparty must exceed a minimum transfer amount threshold (e.g., $300,000) before a transfer is required to be made. To the extent amounts due to the Funds from their counterparties are not fully collateralized, contractually or otherwise, the Funds bear the risk of loss from counterparty nonperformance. The Funds attempt to mitigate counterparty risk by only entering into agreements with counterparties that they believe to be of good standing and by monitoring the financial stability of those counterparties.
For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements of Assets and Liabilities.
The 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.
Fund | Instrument | | Gross
Amounts of
Recognized
Assets1 | | | Gross
Amounts
Offset In the
Statements of
Assets and
Liabilities | | | Net Amount
of Assets
Presented on the Statements
of Assets and
Liabilities | | | Financial
Instruments | | | Cash
Collateral
Received | | | Net
Amount | |
Alpha Opportunity Fund | Swap equity contracts | | $ | 969,645 | | | $ | — | | | $ | 969,645 | | | $ | 969,645 | | | $ | — | | | $ | — | |
Risk Managed Real Estate Fund | Swap equity contracts | | | 678,433 | | | | — | | | | 678,433 | | | | 678,433 | | | | — | | | | — | |
StylePlus—Large Core Fund | Swap equity contracts | | | 291 | | | | — | | | | 291 | | | | — | | | | — | | | | 291 | |
StylePlus—Mid Growth Fund | Swap equity contracts | | | 230 | | | | — | | | | 230 | | | | — | | | | — | | | | 230 | |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 109 |
NOTES TO FINANCIAL STATEMENTS (continued) |
Fund | Instrument | | Gross
Amounts of
Recognized
Liabilities1 | | | Gross
Amounts
Offset In the
Statements
of Assets and
Liabilities | | | Net Amount
of Liabilities
Presented on the Statements
of Assets and
Liabilities | | | Financial
Instruments | | | Cash
Collateral
Pledged | | | Net
Amount | |
Alpha Opportunity Fund | Swap equity contracts | | $ | 1,054,855 | | | $ | — | | | $ | 1,054,855 | | | $ | 969,645 | | | $ | 85,210 | | | $ | — | |
Risk Managed Real Estate Fund | Swap equity contracts | | | 852,338 | | | | — | | | | 852,338 | | | | 678,645 | | | | 173,693 | | | | — | |
StylePlus—Large Core Fund | Swap equity contracts | | | 12,780,270 | | | | — | | | | 12,780,270 | | | | — | | | | 12,780,270 | | | | — | |
StylePlus—Mid Growth Fund | Swap equity contracts | | | 6,407,578 | | | | — | | | | 6,407,578 | | | | — | | | | 6,407,578 | | | | — | |
1 | Exchange-traded futures are excluded from these reported amounts. |
6. Federal Income Tax Information
The Funds intend to comply with the provisions of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and will distribute substantially all taxable net investment income and capital gains sufficient to relieve the Funds from all, or substantially all, federal income, excise and state income taxes. Therefore, no provision for federal or state income tax is required.
Tax positions taken or expected to be taken in the course of preparing the Funds’ tax returns are evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management has analyzed the Funds’ tax positions taken, or to be taken, on Federal income tax returns for all open tax years, and has concluded that no provision for income tax is required in the Funds’ financial statements. The Funds’ federal tax returns are subject to examination by the Internal Revenue Service for a period of three years after they are filed.
Tax basis capital losses in excess of capital gains are carried forward to offset future net capital gains. For the year ended September 30, 2015, the following capital loss carryforward amounts were used:
Fund | | Amount | |
Large Cap Value Fund | | $ | 1,512,927 | |
World Equity Income Fund | | | 899,982 | |
The tax character of distributions paid during the year ended September 30, 2015 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Alpha Opportunity Fund | | $ | 2,557 | | | $ | — | | | $ | 2,557 | |
Large Cap Value Fund | | | 463,001 | | | | 1,811,884 | | | | 2,274,885 | |
Risk Managed Real Estate Fund | | | 538,258 | | | | 114,879 | | | | 653,137 | |
Small Cap Value Fund | | | — | | | | 5,200,913 | | | | 5,200,913 | |
StylePlus—Large Core Fund | | | 27,474,090 | | | | — | | | | 27,474,090 | |
StylePlus—Mid Growth Fund | | | 9,279,013 | | | | 155 | | | | 9,279,168 | |
World Equity Income Fund | | | 2,344,786 | | | | — | | | | 2,344,786 | |
110 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
The tax character of distributions paid during the year ended September, 2014 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Alpha Opportunity Fund | | $ | — | | | $ | — | | | $ | — | |
Large Cap Value Fund | | | 414,301 | | | | — | | | | 414,301 | |
Risk Managed Real Estate Fund | | | 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 | |
Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.
Tax components of accumulated earnings/(deficit) as of September, 2015, were as follows:
Fund | | Undistributed
Ordinary
Income | | | Undistributed
Long-Term
Capital Gain | | | Net Unrealized
Appreciation/
(Depreciation) | | | Accumulated
Capital and
Other Losses | | | Other
Temporary
Differences | |
Alpha Opportunity Fund | | $ | — | | | $ | — | | | $ | (1,932,139 | ) | | $ | (3,670,500 | ) | | $ | — | |
Large Cap Value Fund | | | 478,004 | | | | 3,669,546 | | | | 353,964 | | | | — | | | | — | |
Risk Managed Real Estate Fund | | | 15,797,857 | | | | — | | | | (6,759,704 | ) | | | (6,381 | ) | | | — | |
Small Cap Value Fund | | | — | | | | 1,331,330 | | | | (1,286,055 | ) | | | (9,380 | ) | | | — | |
StylePlus—Large Core Fund | | | 1,489,891 | | | | 18,677,775 | | | | (13,896,798 | ) | | | — | | | | — | |
StylePlus—Mid Growth Fund | | | 776,617 | | | | 9,350,134 | | | | (7,413,457 | ) | | | — | | | | — | |
World Equity Income Fund | | | 120,374 | | | | — | | | | (6,031,719 | ) | | | (19,614,530 | ) | | | (409,219 | ) |
For Federal income tax purposes, capital loss carryforwards represent realized losses of the Funds that may be carried forward and applied against future capital gains. For taxable years beginning on or before December 22, 2010, such capital losses may be carried forward for a maximum of eight years. Under the RIC Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those taxable years must be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. For the year ended September 30, 2015, 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:
Fund | | Capital Loss
Carryovers
Utilized | | | Capital Loss
Carryovers
Expired | | | Expires in
2017 | | | Expires in
2018 | | | Unlimited
Short-Term | | | Unlimited
Long-Term | | | Total
Capital Loss
Carryforward | |
Alpha Opportunity Fund | | $ | 1,976,276 | | | $ | — | | | $ | — | | | $ | (3,670,500 | ) | | $ | — | | | $ | — | | | $ | (3,670,500 | ) |
Large Cap Value Fund | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Risk Managed Real Estate Fund | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Small Cap Value Fund | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
StylePlus—Large Core Fund | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
StylePlus—Mid Growth Fund | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
World Equity Income Fund | | | — | | | | — | | | | (12,357,585 | ) | | | (5,357,504 | ) | | | — | | | | — | | | | (17,715,089 | ) |
As of September 30, 2015, the following reclassifications were made to the capital accounts of the Funds to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations, which are primarily due to equalization accounting, foreign currency reclasses, passive foreign investment companies, paydowns
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 111 |
NOTES TO FINANCIAL STATEMENTS (continued) |
from asset backed securities, net operating losses and netting of operating losses with net short-term capital gains, return of capital on investments, dividend reclasses, short dividend expense, and excise taxes paid. Net investment income, net realized gains and net assets were not affected by these changes.
On the Statements of Assets and Liabilities, the following adjustments were made for permanent book/tax differences:
Fund | | Paid In
Capital | | | Undistributed
Net Investment
Income | | | Accumulated
Net Realized
Gain (Loss) | |
Alpha Opportunity Fund | | $ | (1,639,739 | ) | | $ | 602,763 | | | $ | 1,036,976 | |
Large Cap Value Fund | | | 1,091,045 | | | | 2,014 | | | | (1,093,059 | ) |
Risk Managed Real Estate Fund | | | 1,055,778 | | | | 3,223,874 | | | | (4,279,652 | ) |
Small Cap Value Fund | | | 816,355 | | | | 305,110 | | | | (1,121,465 | ) |
StylePlus—Large Core Fund | | | 1,610,254 | | | | 2,990 | | | | (1,613,244 | ) |
StylePlus—Mid Growth Fund | | | 936,308 | | | | 4,734 | | | | (941,042 | ) |
World Equity Income Fund | | | (35,307 | ) | | | (19,860 | ) | | | 55,167 | |
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Fund | | Tax
Cost | | | Tax
Unrealized
Gain | | | Tax
Unrealized
Loss | | | Net
Unrealized
Gain (Loss) | |
Alpha Opportunity Fund | | $ | 59,187,439 | | | $ | 540,820 | | | $ | (3,611,739 | ) | | $ | (3,070,919 | ) |
Large Cap Value Fund | | | 50,615,719 | | | | 5,550,085 | | | | (5,196,121 | ) | | | 353,964 | |
Risk Managed Real Estate Fund | | | 113,739,501 | | | | 917,392 | | | | (8,321,904 | ) | | | (7,404,512 | ) |
Small Cap Value Fund | | | 19,434,294 | | | | 1,516,307 | | | | (2,802,362 | ) | | | (1,286,055 | ) |
StylePlus—Large Core Fund | | | 178,922,714 | | | | 1,026,975 | | | | (2,143,793 | ) | | | (1,116,818 | ) |
StylePlus—Mid Growth Fund | | | 77,928,997 | | | | 324,667 | | | | (1,330,776 | ) | | | (1,006,109 | ) |
World Equity Income Fund | | | 90,014,276 | | | | 2,204,946 | | | | (8,223,052 | ) | | | (6,018,106 | ) |
Pursuant to Federal income tax regulations applicable to investment companies, the Funds can elect 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 also can elect 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. The Funds have elected to defer the following late year losses:
Fund | | Ordinary | | | Capital | |
Small Cap Value Fund | | $ | (9,380 | ) | | $ | — | |
World Equity Income Fund | | | — | | | | (1,899,441 | ) |
7. Securities Transactions
For the year ended September 30, 2015, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | | Purchases | | | Sales | |
Alpha Opportunity Fund | | $ | 44,402,701 | | | $ | 9,491,870 | |
Large Cap Value Fund | | | 33,899,013 | | | | 45,417,250 | |
Risk Managed Real Estate Fund | | | 161,212,555 | | | | 146,149,185 | |
Small Cap Value Fund | | | 14,271,874 | | | | 21,303,871 | |
StylePlus—Large Core Fund | | | 123,198,767 | | | | 142,056,755 | |
StylePlus—Mid Growth Fund | | | 60,827,224 | | | | 66,560,568 | |
World Equity Income Fund | | | 124,997,041 | | | | 118,459,015 | |
112 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
8. Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a portfolio company of a fund, or control of or by, or common control under GI, result in that portfolio company being considered an affiliated company of such fund, as defined in the 1940 Act.
The Funds may invest in the Guggenheim Strategy Funds Trust consisting of Guggenheim Strategy Fund I, Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III (collectively, the “Cash Management Funds”), open-end management investment companies managed by GI. The Cash Management Funds, which launched on March 11, 2014, are offered as cash management options only to mutual funds, trusts, and other accounts managed by GI and/or its affiliates, and are not available to the public. The Cash Management Funds pay no investment management fees. The Cash Management Funds’ annual report on Form N-CSR dated September 30, 2014 is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at http://www.sec.gov/Archives/edgar/data/1601445/000089180414001107/gug60774-ncsr.htm.
Transactions during the year ended September 30, 2015 in which the portfolio company is an “affiliated person” are as follows:
Affiliated issuers by Fund | | Value
9/30/14 | | | Additions | | | Reductions | | | Value
9/30/15 | | | Shares
9/30/15 | | | Investment
Income | | | Realized
Gain (Loss) | |
StylePlus—Large Core Fund | | | | | | | | | | | | | | | | | | | | | |
Guggenheim Strategy Fund I | | $ | 23,036,746 | | | $ | 36,926,547 | | | $ | (17,450,000 | ) | | $ | 42,522,683 | | | | 1,709,111 | | | $ | 427,151 | | | $ | (56,207 | ) |
Guggenheim Strategy Fund II | | | 30,278,579 | | | | 20,024,657 | | | | — | | | | 50,215,775 | | | | 2,020,756 | | | | 622,675 | | | | — | |
Guggenheim Strategy Fund III | | | 43,398,278 | | | | 6,960,478 | | | | — | | | | 50,309,143 | | | | 2,022,072 | | | | 949,634 | | | | — | |
| | | $ | 96,713,603 | | | $ | 63,911,682 | | | $ | (17,450,000 | ) | | $ | 143,047,601 | | | | | | | $ | 1,999,460 | | | $ | (56,207 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
StylePlus—Mid Growth Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Guggenheim Strategy Fund I | | $ | 8,517,668 | | | $ | 16,967,635 | | | $ | (8,100,000 | ) | | $ | 17,393,825 | | | | 699,109 | | | $ | 167,833 | | | $ | (19,585 | ) |
Guggenheim Strategy Fund II | | | 13,261,482 | | | | 8,878,505 | | | | — | | | | 22,101,923 | | | | 889,413 | | | | 277,637 | | | | — | |
Guggenheim Strategy Fund III | | | 17,812,592 | | | | 4,667,289 | | | | — | | | | 22,457,513 | | | | 902,633 | | | | 412,864 | | | | — | |
| | | $ | 39,591,742 | | | $ | 30,513,429 | | | $ | (8,100,000 | ) | | $ | 61,953,261 | | | | | | | $ | 858,334 | | | $ | (19,585 | ) |
9. Line of Credit
The Trust, with the exception of Alpha Opportunity Fund and Capital Stewardship Fund, secured a committed, $625,000,000 line of credit from Citibank, N.A., good through October 9, 2015, 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 Trust did not have any borrowings under this agreement as of and for the year ended September 30, 2015. The Trust also pays a commitment fee at an annualized rate of 0.07% of the average daily amount of their unused commitment amount.
10. 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, 2015.
Although the ultimate resolution of these transactions is uncertain, the Fund has recorded a liability 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, 2015, was $18,615.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 113 |
NOTES TO FINANCIAL STATEMENTS (concluded) |
11. Alpha Opportunity Fund
As noted in the Fund’s prior shareholder report, the Fund resolved certain outstanding short sale transactions with Lehman Brothers International Europe (“LBIE”) and its administrator in June 2014.
Effective January 28, 2015, the Fund, which had not accepted subscriptions since October 3, 2008, began accepting subscriptions for shares from new and existing shareholders.
12. Large Shareholder Risk
As of September 30, 2015, 70.7% of the Alpha Opportunity Fund (the “Fund”) was held by Macro Opportunities Fund. The Fund may experience adverse effects if a large number of shares of the Fund are held by a single shareholder (e.g., an institutional investor, financial intermediary or another GI Fund). The Fund is subject to the risk that a redemption by those shareholders of all or a large portion of the Fund could cause the Fund to liquidate its assets at inopportune times, or at a loss or depressed value, which could adversely impact the Fund’s performance and cause the value of a shareholder’s investment to decline. Redemptions of a large number of shares also may increase transaction costs or, by necessitating a sale of portfolio securities, have adverse tax consequences for shareholders. They also potentially limit the use of any capital loss carryforwards and certain other losses to offset future realized capital gains (if any) and may limit or prevent a Fund’s use of tax equalization.
114 | 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 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 (seven of the series constituting the Guggenheim Funds Trust) (the “Funds”) as of September 30, 2015, and the related statements of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the years or periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the 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 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, 2015, 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 above listed Funds (seven of the series constituting the Guggenheim Funds Trust) at September 30, 2015, the results of their operations for the year then ended, and the changes in their net assets and their financial highlights for each of the years or periods indicated therein, in conformity with U.S. generally accepted accounting principles.
McLean, Virginia
November 25, 2015
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 115 |
OTHER INFORMATION (Unaudited) |
Federal Income Tax Information
In January 2016, shareholders will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by shareholders in the calendar year 2015.
The Trust’s investment income (dividend income plus short-term gains, if any) qualifies as follows:
Of the ordinary income distributions paid during the year, the following funds had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | Dividend
received deduction |
Large Cap Value Fund | 82.39% |
Risk Managed Real Estate Fund | 2.20% |
StylePlus—Large Core Fund | 4.65% |
StylePlus—Mid Growth Fund | 3.17% |
World Equity Income Fund | 69.54% |
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 | Qualified
dividend income |
Large Cap Value Fund | 83.92% |
Risk Managed Real Estate Fund | 2.22% |
StylePlus—Large Core Fund | 4.65% |
StylePlus—Mid Growth Fund | 3.17% |
World Equity Income Fund | 100.00% |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2015, the 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 | Qualified | Qualified
short-term |
StylePlus—Large Core Fund | 2.91% | 100.00% |
StylePlus—Mid Growth Fund | 3.14% | 100.00% |
Risk Managed Real Estate Fund | 0.00% | 100.00% |
With respect to the taxable year ended September 30, 2015, the Funds hereby designate as capital gain dividends the amounts listed below, or, if subsequently determined to be different, the net capital gain of such year:
Fund | | LTCG
dividend | | | From Proceeds of Shareholder Redemptions | |
Large Cap Value Fund | | $ | 1,811,884 | | | $ | 1,093,059 | |
Risk Managed Real Estate Fund | | | 114,879 | | | | 487,801 | |
Small Cap Value Fund | | | 5,200,913 | | | | 875,913 | |
StylePlus—Large Core Fund | | | — | | | | 1,610,254 | |
StylePlus—Mid Growth Fund | | | 155 | | | | 936,309 | |
116 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited)(continued) |
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.
Sector Classification
Information in the “Schedule of Investments” is categorized by sectors using sector-level classifications used by Bloomberg Industry Classification System, a widely recognized industry classification system provider. In each Fund’s registration statement, the Funds have investment policies relating to concentration in specific industries. For purposes of these investment policies, the Funds usually classify industries based on industry-level classifications used by widely recognized industry classification system providers such as Bloomberg Industry Classification System, Global Industry Classification Standards and Barclays Global Classification Scheme.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
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”). The Trust includes the following series:
● Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) | ● Guggenheim Capital Stewardship Fund (“Capital Stewardship Fund”) |
● 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 Fund (“Mid Cap Value Fund”) |
● Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”) | ● Guggenheim Municipal Income Fund (“Municipal Income Fund”) |
● Guggenheim Risk Managed Real Estate Fund (“Risk Managed Real Estate 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”) |
● Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | ● Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 117 |
OTHER INFORMATION (Unaudited)(continued) |
With the exception of Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 adviser 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 five separate investment management agreements which group the series as follows: (i) Mid Cap Value Fund, Mid Cap Value Institutional Fund, Small Cap Value Fund, StylePlus—Large Core Fund and World Equity Income Fund; (ii) Large Cap Value Fund; (iii) StylePlus—Mid Growth; (iv) Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund; and (v) Alpha Opportunity Fund. (The Funds identified in (i) through (v) 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 Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 five separate investment advisory agreements which group includes the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund; (iii) Capital Stewardship Fund; (iv) Limited Duration Fund; and (v) Risk Managed Real Estate 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,” with the members of the Board referred to individually as 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.
Following an initial two-year term, the Advisory Agreements continue in effect from year to year provided that such continuance is specifically approved at least annually by (i) the Board or a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund, and, in either event, (ii) the vote of a majority of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”) casting votes in person at a meeting called for such purpose. At meetings held in person on April 29, 2015 (the “April Meeting”) and on May 19, 2015 (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely of the Independent Trustees, met separately from Guggenheim to consider the proposed renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.1 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
1 | Since the Capital Stewardship Fund was subject to an investment management agreement approved by the Board for an initial term of two years at an in-person meeting of the Board held on August 19-20, 2014, it was not included in the contract renewal process conducted at the meetings in April and May 2015. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, excluding the Capital Stewardship Fund. |
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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 also received by the full Board) throughout the year regarding performance and operating results of the 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 presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Independent Trustees. In addition, Guggenheim made a presentation at the April Meeting, which addressed areas identified for discussion by the Committee 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) staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various services performed by Guggenheim for the provision of a continuous investment program for each Fund, monitoring compliance with Fund investment strategies and statutory requirements, reviewing trading processes and conducting investment performance analyses; (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 gross revenues, expenses and earnings for Guggenheim by product line and each Fund, including a breakout of various expenses, a description of Guggenheim’s 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, and certain information about Guggenheim’s insurance policies, business continuity plan, proxy voting procedures, trade allocation, shareholder communications and compliance monitoring, among other things.
The Committee considered the foregoing Contract Materials in the context of its substantial accumulated experience governing the Trust and weighed the factors and standards discussed with Independent Legal Counsel. 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 Funds2 to recommend that the Board approve the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
Investment 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, areas of responsibility and duties of 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 also considered the Advisers’ attention to relevant developments in the mutual fund industry and its observance of compliance and regulatory requirements, and 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
2 | At the May Meeting, the Board determined to close and liquidate the Enhanced World Equity Fund based upon the Adviser’s recommendation (the “Liquidation Proposal”). Following an evaluation of strategic options, the Board determined that liquidation of the Fund as a series of the Trust would be in the best interests of the Fund and its shareholders. In view of the Liquidation Proposal, the Committee recommended the continuation of the Advisory Agreement with respect to the Enhanced World Equity Fund to provide for the continuation of advisory services until such time as the Fund was liquidated. |
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took into account the various compliance and risk management initiatives undertaken by Guggenheim, including, among other things, the hiring of additional staff to support the firm’s Chief Risk Officer, initiatives related to the risks associated with the investment process and risk at the enterprise level, 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 consolidate compliance manuals and align processes of the Funds with those of other Funds managed by the Advisers or another Guggenheim affiliate. 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 the Advisers’ parent company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). (The Committee received the audited consolidated financial statements of GPIMH once available following the April 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 during 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, 2014, 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, 2014, 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-year 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-year and three-year periods, ranking in the 1st and 4th percentiles, respectively. In light of various changes to this Fund, including 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 and the assumption by Security Investors of such investment management responsibility, the impact on portfolio management as a result of the Lehman bankruptcy,3 and subsequent changes to the Fund’s investment strategies, a reduction in the fund accounting and administration fee and the re-opening of the Fund to
3 | The Committee considered the circumstances that affected 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 had consisted of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales, which limited the management of the portfolio. |
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new subscriptions, the Committee considered more recent performance periods, including the one-year and the three-month periods. 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, 2014, ranking in the 11th and 4th percentiles, respectively.
Floating Rate Strategies Fund: The returns of the Fund’s Class A shares ranked in the 6th and 1st percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
High Yield Fund: The Fund’s Class A shares ranked in the 64th, 7th and 46th percentiles of the performance universe for the five-year, three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for the three-year and one-year periods.
Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014, ranking in the 14th, 4th and 3rd percentiles, respectively. The Committee also noted Guggenheim’s statement that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year, three-year and one-year periods ended December 31, 2014, and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile.
Large 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 ended December 31, 2014, and ranked in the 76th, 60th and 78th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the returns for the Fund’s Class A shares for the ten-year period ended December 31, 2014, which exceeded the performance universe median, ranking in the 45th percentile. The Committee also noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Limited Duration Fund: The Committee noted the Fund’s inception date of December 16, 2013 and observed that the returns of the Fund’s Class A shares ranked in the 8th and 18th percentiles of the performance universe for the one-year and three-month periods ended December 31, 2014, respectively, outperforming the median returns.
Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 3rd and 8th percentiles of the performance universe for the three-year and one-year periods ended December 31, 2014, 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 three-year and one-year periods ended December 31, 2014.
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 ended December 31, 2014, and ranked in the 92nd, 80th and 67th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board
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meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2014 in the 1st quartile (22nd percentile) and that, according to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. The Committee also noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. In addition, the Committee noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Mid Cap Value Institutional Fund: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 88th, 72nd and 61st percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
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.
Risk Managed Real Estate Fund: The returns of the Fund’s Class A shares ranked in the 67th percentile of its performance universe for the three-month period ended December 31, 2014. The Committee considered that the Fund was recently organized as of February 12, 2014 and has a limited period of operation.
StylePlus—Large Core Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 10th and the 41st percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund outperformed its benchmark for the one-year period ended December 31, 2014.
StylePlus—Mid Growth Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the
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median of its performance universe for both periods, ranking in the 13th and 36th percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund had outperformed its benchmark for the one-year period ended December 31, 2014.
Small Cap Value Fund: The Fund underperformed its performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 87th, 71st and 92nd percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st and 2nd percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
World Equity Income Fund: The Fund implemented a strategy change and a new portfolio management team in August 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded its performance universe median for the one-year period, ranking in the 27th percentile, and lagged its performance universe median for the three-month period, ranking in the 83rd percentile.
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 and/or institutional separate account with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients. 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 regulatory and legal structures, tax status, and for historical pricing reasons. In this regard, the Committee took into account Guggenheim’s assertion that the differences in fees reflected the Advisers’ greater level of responsibilities and significantly broader scope of services regarding the Funds, the more extensive regulatory obligations and risks associated with managing the Funds, and other financial considerations with respect to the Funds.
In further considering the comparative fee and expense data presented in the Contract Materials and addressed by Guggenheim, the Committee made the following observations:
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Alpha Opportunity Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the second quartile (27th and 45th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had 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 fourth quartile (82nd percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (40th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (77th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (84th percentile) of its peer group. The Committee also considered that the Adviser had 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 is in the second quartile (31st percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (22nd percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Limited Duration Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (72nd percentile) of its peer group and the asset weighted total net expense ratio is in the second quartile (45th percentile) of its peer group. The Committee also considered that the Adviser had 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 (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 second quartile (43rd percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (85th percentile) of its peer group.
Mid Cap Value Institutional Fund: The contractual advisory fee of the Fund is in the first quartile (15th percentile) of its peer group and the total net expense ratio is in the third quartile (69th percentile) of its peer group.
Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the second quartile (26th and 38th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Risk Managed Real Estate Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the first quartile (1st percentile as to each) of its peer group.
StylePlus—Large Core Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the fourth quartile (80th and 100th percentiles, respectively) of its peer group.
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StylePlus—Mid Growth Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the second quartile (34th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (100th percentile) of its peer group.
Small Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (78th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (25th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (86th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (19th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (27th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (80th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
With respect to the costs of services provided and profits realized by Guggenheim Investments from its relationship with the Funds, the Committee reviewed a profitability analysis and data from management for each Fund setting forth the average assets under management for the twelve months ended December 31, 2014, ending assets under management as of December 31, 2014, gross revenues received by Guggenheim Investments, expenses incurred in providing services to the Funds, earnings and the operating margin/profitability rate, including variance information relative to the foregoing amounts as of December 31, 2013. In addition, the Chief Financial Officer of Guggenheim Investments reviewed with, and addressed questions from, the Committee concerning the expense allocation methodology employed in producing the profitability analysis. In the course of its review of Guggenheim Investments’ profitability, the Committee took into account the complexity of the investment strategies employed for the Funds, in addition to the foregoing data and various figures.
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 Investments’ profitability from its relationship with the Funds was not unreasonable.
Economies of Scale: 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 have 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 also noted the Adviser’s statement that Guggenheim continues to develop the infrastructure needed to support Fund asset growth and to achieve economies of scale across the firm’s various products and product lines. Thus, while Guggenheim may be benefiting from certain economies of scale and related cost efficiencies, it is concurrently realizing new costs and expenses associated with investment in infrastructure, personnel and systems.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 125 |
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 Total Return Bond Fund—having assets in excess of (or approaching) $1 billion as of March 31, 2015. 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 total net expense ratio is competitive with the peer group median.
Macro Opportunities Fund: 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 (43rd percentile) and the total net expense ratio is competitive with the peer group median.
Total Return Bond Fund: 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 in the first quartile (19th percentile).
The Committee determined that, taking into account all relevant factors, the advisory fee structure for each Fund 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 and compliance policies and procedures, 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 included as part of its considerations the unaudited financial information concerning GPIMH presented by the Chief Financial Officer of Guggenheim Investments. (As noted, the Committee received the audited consolidated financial statements of GPIMH once available following the April Meeting.)
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 Fund’s Class A shares outperformed the performance universe for the five-year and three-year periods ended December 31, 2014, ranking in the 1st and 35th percentiles, respectively. On January 13, 2012, the Fund acquired the assets and assumed the liabilities of TS&W/Claymore Tax-Advantaged Balanced Fund (the “Predecessor Fund”), a closed-end fund which used different investment strategies and had different investment advisers. Class A shares of the Fund have assumed the performance, financial and other historical information of the Predecessor Fund’s common shares and the performance of Class A shares of the Fund reflects the performance of the Predecessor Fund. In light of the foregoing, the Committee took into account more recent periods and noted that the Fund’s Class A shares outperformed the performance universe median for the one-year and
126 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited)(concluded) |
three-month periods ended December 31, 2014, ranking in the 18th and 47th percentiles, respectively. In this connection, the Committee also considered that the Fund outperformed its benchmark over the one-year and three-month periods ended December 31, 2014.
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: 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” 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 or conclusive 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. Thereafter, on May 20, 2015, the Board, including all of the Independent Trustees, approved the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 127 |
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). | 107 | Current: Trustee, Purpose Investments Inc. (2014-Present). |
Donald A. Chubb, Jr. (1946 ) | Trustee | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-present). | 103 | Current: Midland Care, Inc. (2011-present). |
Jerry B. Farley
(1946) | Trustee | Since 2005 | Current: President, Washburn University (1997-present). | 103 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust (2000-present). |
Roman Friedrich III
(1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and Managing Partner, Roman Friedrich & Company (1998-present). Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | 103 | Current: Zincore Metals, Inc. (2009-present).Former: Axiom Gold and Silver Corp. (2011-2012). |
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 103 | 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). | 109 | Current: Edward-Elmhurst Healthcare System (2012-present). |
Maynard F. Oliverius (1943) | Trustee | Since 1998 | Current: Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 103 | Current: Fort Hays State University Foundation (1999-present); Stormont-Vail Foundation (2013-present); University of Minnesota HealthCare Alumni Association Foundation (2009-present). |
128 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s)
Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other
Directorships Held by Trustees |
INDEPENDENT TRUSTEES - concluded | | |
Ronald E. Toupin, Jr.
(1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management (1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999); Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | 106 | Former: Bennett Group of Funds (2011-2013). |
INTERESTED TRUSTEES | | |
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). | 239 | Current: Clear Spring Life Insurance Company (2015-present); Guggenheim Partners Japan, Ltd. (2014-present); Delaware Life (2013-present); Guggenheim Life and Annuity Company (2011-present); Paragon Life Insurance Company of Indiana (2011-present). |
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
*** | This Trustee is deemed to be an "interested person" of the Funds under the 1940 Act by reason of his position with the Funds' Investment Manager and/or the parent of the Investment Manager. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 129 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s)
Held with
the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS | |
Joseph M. Arruda
(1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). |
William H. Belden, III
(1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). |
Mark J. Furjanic
(1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). |
James Howley
(1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). |
Amy J. Lee
(1961) | Vice President and Chief Legal Officer | Since 2007 (Vice President) Since 2014 (Chief Legal Officer) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2013-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). |
Mark E. Mathiasen
(1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
Michael P. Megaris
(1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (2014-present); Senior Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). |
Elisabeth Miller
(1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Managing Director, Guggenheim Investments (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). |
130 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(concluded) |
Name, Address* and Year of Birth | Position(s)
Held with
the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - concluded | |
Alison Santay
(1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-2014). |
Kimberly Scott
(1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). |
Bryan Stone
(1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). |
John L. Sullivan
(1955) | Chief Financial Officer and Treasurer | Since 2014 | Current: CFO, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex (2010-present); Senior Managing Director, Guggenheim Investments (2010-present). Former: Managing Director and CCO, each of the funds in the Van Kampen Investments fund complex (2004-2010); Managing Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); CFO and Treasurer, Van Kampen Funds (1996-2004). |
* | The business address of each officer is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each officer serves an indefinite term, until his or her successor is duly elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 131 |
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.
132 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited)(concluded) |
How We Protect Privacy Online
Our concern for the privacy of our shareholders also extends to those who use our web site, guggenheiminvestments.com. Our web site uses some of the most secure forms of online communication available, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These technologies provide a high level of security and privacy when you access your account information or initiate online transactions. The Guggenheim Investments web site offers customized features that require our use of “http cookies”—tiny pieces of information that we ask your browser to store. However, we make very limited use of these cookies. We only use cookies for session management and security features on the Guggenheim Investments web site. We do not use them to pull data from your hard drive, to learn your email address, or to view data in cookies created by other web sites. We will not share the information in our cookies or give others access to it. See the legal information area on our web site for more details about web site security and privacy features.
How We Safeguard Your Personal Information
We restrict access to nonpublic personal information about shareholders to our employees and in some cases to third parties (for example, the service providers described above) as permitted by law. We maintain strict physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
We’ll Keep You Informed
As required by federal law, we will notify shareholders of our privacy policy annually. We reserve the right to modify this policy at any time, but rest assured that if we do change it, we will tell you promptly. You will also be able to access our privacy policy from our web site at guggenheiminvestments.com. Should you have any questions regarding our privacy policy, contact us at 800.820.0888 or 301.296.5100.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 133 |
9.30.2015
Guggenheim Funds Annual Report
Guggenheim High Yield Fund | | |
Guggenheim Investment Grade Bond Fund | | |
Guggenheim Limited Duration Fund | | |
Guggenheim Municipal Income Fund | | |
SBINC-ANN-0915x0916 | guggenheiminvestments.com |
DEAR SHAREHOLDER | 2 |
ECONOMIC AND MARKET OVERVIEW | 4 |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 6 |
HIGH YIELD FUND | 9 |
INVESTMENT GRADE BOND FUND | 27 |
LIMITED DURATION FUND | 45 |
MUNICIPAL INCOME FUND | 62 |
NOTES TO FINANCIAL STATEMENTS | 74 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 95 |
OTHER INFORMATION | 96 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 108 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 112 |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
Dear Shareholder:
Security Investors, LLC and Guggenheim Partners Investment Management, LLC (the “Investment Advisers”) are pleased to present the shareholder report for a selection of our Funds (the “Funds”) for the annual fiscal period ended September 30, 2015.
The Investment Advisers are part of Guggenheim Investments, which represents the investment management businesses of Guggenheim Partners, LLC (“Guggenheim”), a global, diversified financial services firm.
Guggenheim Funds Distributors, LLC is the distributor of the Funds. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim and the Investment Advisers.
We encourage you to read the Economic and Market Overview section of the report, which follows this letter, and then the Managers’ Commentary for each Fund.
We are committed to providing innovative investment solutions and appreciate the trust you place in us.
Sincerely,
Donald C. Cacciapaglia
President
October 31, 2015
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at guggenheiminvestments.com or call 800.820.0888.
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.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
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 may use leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. ● The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. ● Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. ● Investments in reverse repurchase agreements 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 may use leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. ● The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. ● Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. ● Investments in reverse repurchase agreements 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.
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.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2015 |
At the end of the period, the underlying U.S. economy continued to maintain its strong footing. A market correction that began in August persisted through the end of the period; September and October are historically difficult times for the stock market, and by extension, risk assets of any kind, including credit.
Markets had been performing solidly for most of the period. Growth mid-year bounced back from a weather-induced slowdown in the first quarter, with GDP increasing 3.9% for the second quarter. The labor and housing markets continued to strengthen, and the drop in gas prices was acting as a tax cut, which was expected to increase consumer spending power going into the holiday season. Even though labor markets are moving toward full employment, questions remain about the viability of sustained economic expansion in the U.S. In particular, there is debate about the net effect of declining energy prices and a stronger dollar. These are both positive for the U.S. consumer, but low oil prices hurt the U.S. energy industry and a strong dollar is challenging for U.S. manufacturers. In addition, oil prices and the strong dollar exert a downward pressure on inflation, and a risk of deflation is a negative for the economy.
At the same time, currency devaluation, particularly in Japan and the euro zone, is putting pressure on countries to devalue to improve export competitiveness. Those countries slow to devalue, like China, are feeling economic pressure at home, driving down asset prices, and increasing deflationary pressures, escalating the risk of financial contagion abroad. China may have to devalue the renminbi further due to continued slowing in the economy. Combined with the tepid expansion in both Europe and Japan, the pressure will be for central banks there to increase easing measures.
The U.S. Federal Reserve (the “Fed”) is hard pressed to justify a rate increase based on its self-prescribed metrics, which include rising inflation and an improved employment situation with clearly rising wages. At best, policymakers can argue that the prospects for wage growth and inflation are improving, but clear evidence is lacking.
A preemptive rate increase seems risky and opens the Fed to potential criticism given the fragility in financial markets and the prospect that rising U.S. rates could further strengthen the dollar and also potentially exacerbate foreign economic turbulence. While prices and wages remain tame, the risk of another asset bubble is increasing. The longer policy remains highly accommodative, the greater the likelihood that asset classes including commercial real estate, equities, or certain categories of bonds could become overvalued.
At period end, the risk of financial contagion remained high, which could result in central banks providing additional liquidity or delaying rate increases. Use of the monetary printing press is a handy tool to prop up asset prices and temporarily spur economic growth, which is the main reason a recession does not appear to be on the horizon for either the G-7 nations or China. It’s also worth noting that there has never been a recession in the post-war period without the Fed first raising interest rates, after which it typically takes several years for a recession to be induced.
For the 12 months ended September 30, 2015, the Standard & Poor’s 500® Index* (“S&P 500®”) returned -0.61%. The Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned -8.66%. The return of the MSCI Emerging Markets Index* was -19.28%.
In the bond market, the Barclays U.S. Aggregate Bond Index* posted a 2.94% return for the period, while the Barclays U.S. Corporate High Yield Index* returned -3.43%. The return of the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.02% for the 12-month period.
The opinions and forecasts expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ECONOMIC AND MARKET OVERVIEW (Unaudited)(concluded) | September 30, 2015 |
*Index Definitions
The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.
Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.
Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar (“USD”)-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
Barclays 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 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.
MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets.
S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad economy, representing all major industries and is considered a representation of the U.S. stock market.
| | 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, 2015 and ending September 30, 2015.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(continued) | |
| | Expense
Ratio1 | Fund
Return | Beginning
Account Value
March 31, 2015 | Ending
Account Value
September 30, 2015 | Expenses
Paid During
Period2 |
Table 1. Based on actual Fund return3 | | | | | |
High Yield Fund | | | | | |
A-Class | 1.19% | (2.66%) | $ 1,000.00 | $ 973.40 | $ 5.89 |
C-Class | 1.94% | (2.98%) | 1,000.00 | 970.20 | 9.58 |
P-Class4 | 1.19% | (4.06%) | 1,000.00 | 959.40 | 4.79 |
Institutional Class | 0.94% | (2.50%) | 1,000.00 | 975.00 | 4.65 |
Investment Grade Bond Fund | | | | | |
A-Class | 1.10% | (0.28%) | 1,000.00 | 997.20 | 5.51 |
C-Class | 1.85% | (0.65%) | 1,000.00 | 993.50 | 9.25 |
P-Class4 | 1.09% | (0.11%) | 1,000.00 | 998.90 | 4.48 |
Institutional Class | 0.85% | (0.21%) | 1,000.00 | 997.90 | 4.26 |
Limited Duration Fund | | | | | |
A-Class | 0.88% | 0.63% | 1,000.00 | 1,006.30 | 4.43 |
C-Class | 1.63% | 0.24% | 1,000.00 | 1,002.40 | 8.18 |
P-Class4 | 0.88% | 0.32% | 1,000.00 | 1,003.20 | 3.62 |
Institutional Class | 0.63% | 0.77% | 1,000.00 | 1,007.70 | 3.17 |
Municipal Income Fund | | | | | |
A-Class | 0.81% | (0.46%) | 1,000.00 | 995.40 | 4.05 |
C-Class | 1.56% | (0.84%) | 1,000.00 | 991.60 | 7.79 |
P-Class4 | 0.81% | 0.06% | 1,000.00 | 1,000.60 | 3.33 |
Institutional Class | 0.56% | (0.34%) | 1,000.00 | 996.60 | 2.80 |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(concluded) | |
| | Expense
Ratio1 | Fund
Return | Beginning
Account Value
March 31, 2015 | Ending
Account Value
September 30, 2015 | Expenses
Paid During
Period2 |
Table 2. Based on hypothetical 5% return (before expenses) | | | | |
High Yield Fund | | | | | |
A-Class | 1.19% | 5.00% | $ 1,000.00 | $ 1,019.10 | $ 6.02 |
C-Class | 1.94% | 5.00% | 1,000.00 | 1,015.34 | 9.80 |
P-Class4 | 1.19% | 5.00% | 1,000.00 | 1,019.10 | 6.02 |
Institutional Class | 0.94% | 5.00% | 1,000.00 | 1,020.36 | 4.76 |
Investment Grade Bond Fund | | | | | |
A-Class | 1.10% | 5.00% | 1,000.00 | 1,019.55 | 5.57 |
C-Class | 1.85% | 5.00% | 1,000.00 | 1,015.79 | 9.35 |
P-Class4 | 1.09% | 5.00% | 1,000.00 | 1,019.60 | 5.52 |
Institutional Class | 0.85% | 5.00% | 1,000.00 | 1,020.81 | 4.31 |
Limited Duration Fund | | | | | |
A-Class | 0.88% | 5.00% | 1,000.00 | 1,020.66 | 4.46 |
C-Class | 1.63% | 5.00% | 1,000.00 | 1,016.90 | 8.24 |
P-Class4 | 0.88% | 5.00% | 1,000.00 | 1,020.66 | 4.46 |
Institutional Class | 0.63% | 5.00% | 1,000.00 | 1,021.91 | 3.19 |
Municipal Income Fund | | | | | |
A-Class | 0.81% | 5.00% | 1,000.00 | 1,021.01 | 4.10 |
C-Class | 1.56% | 5.00% | 1,000.00 | 1,017.25 | 7.89 |
P-Class4 | 0.81% | 5.00% | 1,000.00 | 1,021.01 | 4.10 |
Institutional Class | 0.56% | 5.00% | 1,000.00 | 1,022.26 | 2.84 |
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, 2015 to September 30, 2015. |
4 | Since commencement of operations: May 1, 2015. Expenses paid based on actual fund return are calculated using 150 days from the commencement of operations. Expenses paid based on hypothetical 5% return are calculated using 183 days. |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
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, 2015.
For the one-year period ended September 30, 2015, Guggenheim High Yield Bond Fund returned -2.40%1, compared with the -3.43% return of its benchmark, the Barclays U.S. Corporate High Yield Index.
The Fund seeks to deliver high current income as well as capital appreciation. The Fund seeks to outperform the broad high yield market and has the flexibility to invest across a broad array of high yield securities. Investments are made through rigorous credit selection based on proprietary research that incorporates knowledge of companies, industries, and capital structures to develop a unique perspective on the worthiness of each investment.
At the start of the period, market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities sparked risk aversion that drove market volatility. After a second-straight winter soft patch, and a dramatic drop in the price of oil, U.S. economic data began to strengthen in 2015, appearing to provide support for the Fed to proceed with raising interest rates sometime in 2015. The world kept a watchful eye on the Fed during the summer, as headlines moved from Greece to China, as China devalued the yuan in August, the first time in 20 years. As China’s move sent shockwaves through global financial markets, the Fed opted to keep rates at the zero-bound at its September meeting, citing concerns about potential downside risks to the U.S. outlook posed by recent global market volatility.
Fund performance for the period was primarily a result of credit selection, as Guggenheim’s bottom-up, fundamental approach results in the construction of portfolios with strong downside protection that outperforms when the broader market underperforms.
The Fund has continued to generate strong risk adjusted returns as its allocations to bank loans and investment grade bonds have helped to both decrease volatility and diversify sources of return. The allocation to bank loans contributed to performance as the asset class was the prominent outperformer among risk assets, with the Credit Suisse Leveraged Loan Index posting a gain of 1.2% over the last twelve months compared to a loss of 3.4% for the Barclays High Yield Index and a loss of 0.6% for the S&P 500 (based on total returns). The Barclays U.S. Corporate Investment Grade Index gained 1.7% during the period.
We have incrementally added exposure to BB rated credits versus B and CCC rated credits since the beginning of 2015. Our research indicates that this particular part of the market performs very well versus other fixed income areas leading up to and during Federal Reserve rate tightening. This has been consistently true over the last 20 years.
The Fund’s incremental increase in exposure to BB rated credits contributed to performance as higher quality high yield bonds outperformed for most of the period. On a total return basis, BB rated bonds were flat, B rated bonds returned -4.3%, and CCC bonds returned -8.7% for the twelve month period ended September 30, 2015, according to Barclays.
Exposure to energy credits detracted from performance, particularly during the first quarter of the twelve month period (4Q 2014), as the sudden decline in oil prices affected the prices of issuers in that sector. However, we moved quickly to reduce exposure to energy credits and rebalance among sub-sectors favoring exposure to issuers more involved with movement/transportation of oil rather than its production.
For the period, an underweight to the Metals & Mining industry contributed to performance, as falling commodity prices continue to weigh on that sector. An overweight to the Technology also contributed to performance.
Following the selloff in August and September, we view cheap valuations in the high yield market as a buying opportunity against a strong economic backdrop. High yield spreads have widened to 704 basis points, on average, above their ex-recession average of 535 basis points—levels not seen in over three years. Excluding commodity-sensitive sectors such as energy and metals and mining, high-yield bond spreads are trading at 634 basis points which looks attractive compared
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
to 487 bps spreads at the beginning of the last four tightening cycles. Moreover, high-yield bonds are currently trading approximately 535 basis points wider than investment-grade bonds—levels not seen since late 2011, and well above the ex-recession average high-yield premium of 417 basis points over investment grade corporate bonds.
The relative value between B-rated corporate bonds over higher quality credits also looks attractive given our positive macroeconomic outlook. B-rated bonds are currently trading 225 basis points wider than BB-rated bonds, 69 basis points above the historical average premium.
There may be some additional volatility ahead, but we are already seeing value that has resulted from spread widening over the past few months. Guggenheim believes an accommodative Fed supports a benign credit environment, and the U.S. economy is well positioned for continued growth. The Fed may not have the clarity it seeks to tighten U.S. monetary policy anytime soon, which means rates will remain low for an extended period.
While market volatility may persist over the near term, we believe that the U.S. economy remains solid and the chance of entering a recession in the near-term is remote. As such, we believe that high yield spreads, which at the end of the period were at their widest level in over three years, have room to compress from their current levels.
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.
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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 Rating1 |
Rating | |
Fixed Income Instruments | |
A | 0.6% |
BBB | 6.1% |
BB | 37.5% |
B | 36.4% |
CCC | 11.0% |
NR2 | 1.4% |
Other Instruments | 7.0% |
Total Investments | 100.0% |
| | |
The chart above reflects percentages of the value of total investments. |
Inception Dates: |
A-Class | August 5, 1996 |
C-Class | May 1, 2000 |
P-Class | May 1, 2015 |
Institutional Class | July 11, 2008 |
Ten Largest Holdings (% of Total Net Assets) |
Vector Group Ltd. | 1.5% |
Central Garden & Pet Co. | 1.4% |
Opal Acquisition, Inc. | 1.2% |
Open Text Corp. | 1.2% |
Seaspan Corp. | 1.2% |
MDC Partners, Inc. | 1.2% |
Epicor Software | 1.2% |
Checkers Drive-In Restaurants, Inc. | 1.1% |
WMG Acquisition Corp. | 1.1% |
Flakt Woods | 1.1% |
Top Ten Total | 12.2% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
1 | Source: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities except for those labeled “NR” have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Security ratings are determined at the time of purchase and may change thereafter. |
2 | NR securities do not necessarily indicate low credit quality. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 11 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | 10 Year |
A-Class Shares | -2.40% | 5.69% | 6.89% |
A-Class Shares with sales charge† | -7.04% | 4.67% | 6.37% |
C-Class Shares | -3.14% | 4.90% | 6.10% |
C-Class Shares with CDSC§ | -4.04% | 4.90% | 6.10% |
Barclays U.S. Corporate High Yield Index | -3.43% | 6.15% | 7.25% |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | -4.06% |
Barclays U.S. Corporate High Yield Index | | | -6.01% |
| | 1 Year | 5 Year | Since Inception
(07/11/08) |
Institutional Class Shares | -2.21% | 5.95% | 8.44% |
Barclays U.S. Corporate High Yield Index | -3.43% | 6.15% | 8.55% |
* | 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. The graph is based on A-Class shares only; performance for C-Class shares, P-Class shares and Institutional Class shares will vary due to differences in fee structures. |
† | 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. |
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
HIGH YIELD FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 1.1% | |
| | | | | | | |
Technology - 0.8% | |
Travelport, LLC*,†† | | | 87,682 | | | $ | 1,158,279 | |
Cengage Learning Acquisitions, Inc.*,†† | | | 2,107 | | | | 53,623 | |
Total Technology | | | | | | | 1,211,902 | |
| | | | | | | | | |
Consumer, Cyclical - 0.3% | |
Metro-Goldwyn-Mayer, Inc.*,†† | | | 7,040 | | | | 539,884 | |
| | | | | | | | | |
Energy - 0.0% | |
Stallion Oilfield Holdings Ltd.*,†† | | | 8,257 | | | | 42,111 | |
| | | | | | | | | |
Diversified - 0.0% | |
Leucadia National Corp. | | | 81 | | | | 1,641 | |
| | | | | | | | | |
Basic Materials - 0.0% | |
Mirabela Nickel Ltd.*,†††,1 | | | 1,044,540 | | | | 73 | |
| | | | | | | | | |
Consumer, Non-cyclical - 0.0% | |
Crimson Wine Group Ltd.* | | | 8 | | | | 72 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $2,479,799) | | | | | | | 1,795,683 | |
| | | | | | | | | |
PREFERRED STOCKS†† - 3.4% | |
Financial - 2.0% | |
Morgan Stanley 6.38%2,3 | | | 46,000 | | | | 1,170,240 | |
Kemper Corp. 7.38% due 02/27/54 | | | 39,000 | | | | 1,026,480 | |
Aspen Insurance Holdings Ltd. 5.95%1,2,3 | | | 37,000 | | | | 943,500 | |
Total Financial | | | | | | | 3,140,220 | |
| | | | | | | | | |
Industrial - 1.2% | |
Seaspan Corp. 6.38% due 04/30/19 | | | 80,000 | | | | 1,980,800 | |
U.S. Shipping Corp. due *,†††,1 | | | 14,718 | | | | 11,039 | |
Total Industrial | | | | | | | 1,991,839 | |
| | | | | | | | | |
Technology - 0.2% | |
Medianews Group, Inc.* | | | 11,074 | | | | 376,516 | |
Total Preferred Stocks | | | | | | | | |
(Cost $5,598,152) | | | | | | | 5,508,575 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 3.2% | |
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%8 | | | 5,107,856 | | | | 5,107,856 | |
Total Short Term Investments | | | | | | | | |
(Cost $5,107,856) | | | | | | | 5,107,856 | |
| | | Face
Amount | | | | |
| | | | | | | |
CORPORATE BONDS††,6 - 72.5% | |
Consumer, Non-cyclical - 11.5% | |
Vector Group Ltd. | | | | | | |
7.75% due 02/15/21 | | $ | 2,330,000 | | | | 2,463,684 | |
Central Garden & Pet Co. | | | | | | | | |
8.25% due 03/01/18 | | | 2,184,000 | | | | 2,214,030 | |
ADT Corp. | | | | | | | | |
6.25% due 10/15/214 | | | 1,200,000 | | | | 1,237,500 | |
3.50% due 07/15/22 | | | 850,000 | | | | 752,250 | |
Tenet Healthcare Corp. | | | | | | | | |
3.84% due 06/15/202 | | | 1,650,000 | | | | 1,638,656 | |
Valeant Pharmaceuticals International, Inc. | | | | | | | | |
5.50% due 03/01/235 | | | 750,000 | | | | 712,499 | |
5.88% due 05/15/235 | | | 350,000 | | | | 334,469 | |
5.37% due 03/15/205 | | | 300,000 | | | | 291,563 | |
Bumble Bee Holdco SCA | | | | | | | | |
9.63% due 03/15/185 | | | 1,024,000 | | | | 1,036,800 | |
FTI Consulting, Inc. | | | | | | | | |
6.00% due 11/15/22 | | | 1,000,000 | | | | 1,035,000 | |
Bumble Bee Holdings, Inc. | | | | | | | | |
9.00% due 12/15/175 | | | 950,000 | | | | 969,000 | |
Midas Intermediate Holdco II LLC/Midas Intermediate Holdco II Finance, Inc. | | | | | | | | |
7.88% due 10/01/225 | | | 950,000 | | | | 926,250 | |
KeHE Distributors LLC / KeHE Finance Corp. | | | | | | | | |
7.63% due 08/15/215 | | | 845,000 | | | | 887,250 | |
WEX, Inc. | | | | | | | | |
4.75% due 02/01/235 | | | 800,000 | | | | 764,000 | |
Biogen, Inc. | | | | | | | | |
3.63% due 09/15/22 | | | 600,000 | | | | 604,728 | |
Halyard Health, Inc. | | | | | | | | |
6.25% due 10/15/22 | | | 550,000 | | | | 561,000 | |
CHS/Community Health Systems, Inc. | | | | | | | | |
5.13% due 08/15/18 | | | 500,000 | | | | 511,250 | |
DaVita HealthCare Partners, Inc. | | | | | | | | |
5.00% due 05/01/25 | | | 450,000 | | | | 432,000 | |
US Foods, Inc. | | | | | | | | |
8.50% due 06/30/19 | | | 395,000 | | | | 408,825 | |
Jaguar Holding Company II/ Pharmaceutical Product Development LLC | | | | | | | | |
6.38% due 08/01/235 | | | 400,000 | | | | 389,000 | |
Tempur Sealy International, Inc. | | | | | | | | |
5.63% due 10/15/235 | | | 150,000 | | | | 150,563 | |
R&R Ice Cream plc | | | | | | | | |
8.25% due 05/15/207 | | AUD | 200,000 | | | | 143,302 | |
Total Consumer, Non-cyclical | | | | | | | 18,463,619 | |
| | | | | | | | | |
Communications - 11.3% | |
MDC Partners, Inc. | | | | | | | | |
6.75% due 04/01/205 | | | 2,000,000 | | | | 1,975,000 | |
Sirius XM Radio, Inc. | | | | | | | | |
5.38% due 04/15/255 | | | 1,750,000 | | | | 1,671,250 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
HIGH YIELD FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
McGraw-Hill Global Education Holdings LLC/McGraw-Hill Global Education Finance | | | | | | |
9.75% due 04/01/21 | | $ | 1,300,000 | | | $ | 1,420,250 | |
Sprint Communications, Inc. | | | | | | | | |
9.00% due 11/15/185 | | | 600,000 | | | | 629,580 | |
7.00% due 03/01/205 | | | 600,000 | | | | 600,000 | |
Level 3 Financing, Inc. | | | | | | | | |
5.38% due 05/01/25 | | | 1,250,000 | | | | 1,186,713 | |
DISH DBS Corp. | | | | | | | | |
5.88% due 07/15/22 | | | 750,000 | | | | 663,750 | |
5.87% due 11/15/24 | | | 550,000 | | | | 467,156 | |
Unitymedia Hessen GmbH & Company KG/Unitymedia NRW GmbH | | | | | | | | |
5.00% due 01/15/255 | | | 1,100,000 | | | | 1,034,000 | |
Virgin Media Secured Finance plc | | | | | | | | |
5.25% due 01/15/265 | | | 1,050,000 | | | | 966,000 | |
Avaya, Inc. | | | | | | | | |
7.00% due 04/01/195 | | | 1,050,000 | | | | 832,125 | |
Zayo Group LLC/Zayo Capital, Inc. | | | | | | | | |
6.38% due 05/15/25 | | | 800,000 | | | | 768,000 | |
TIBCO Software, Inc. | | | | | | | | |
11.38% due 12/01/215 | | | 750,000 | | | | 748,125 | |
Neptune Finco Corp. | | | | | | | | |
6.63% due 10/15/255 | | | 650,000 | | | | 653,250 | |
CSC Holdings LLC | | | | | | | | |
5.25% due 06/01/24 | | | 700,000 | | | | 552,125 | |
6.75% due 11/15/21 | | | 100,000 | | | | 89,500 | |
CCO Safari II LLC | | | | | | | | |
4.46% due 07/23/22 | | | 600,000 | | | | 600,317 | |
Midcontinent Communications & Midcontinent Finance Corp. | | | | | | | | |
6.88% due 08/15/235 | | | 500,000 | | | | 498,125 | |
Altice US Finance I Corp. | | | | | | | | |
5.38% due 07/15/235 | | | 500,000 | | | | 480,000 | |
UPCB Finance IV Ltd. | | | | | | | | |
5.38% due 01/15/255 | | | 500,000 | | | | 470,000 | |
Cogent Communications Group, Inc. | | | | | | | | |
5.37% due 03/01/225 | | | 400,000 | | | | 387,000 | |
Sirius XM Canada Holdings, Inc. | | | | | | | | |
5.63% due 04/23/215 | | CAD | 500,000 | | | | 372,762 | |
Inmarsat Finance plc | | | | | | | | |
4.88% due 05/15/225 | | | 350,000 | | | | 340,375 | |
Sprint Corp. | | | | | | | | |
7.63% due 02/15/25 | | | 400,000 | | | | 309,750 | |
Cable One, Inc. | | | | | | | | |
5.75% due 06/15/225 | | | 300,000 | | | | 295,650 | |
CenturyLink, Inc. | | | | | | | | |
5.63% due 04/01/25 | | | 350,000 | | | | 278,250 | |
Total Communications | | | | | | | 18,289,053 | |
| | | | | | | | | |
Energy - 10.5% | |
Sabine Pass Liquefaction LLC | | | | | | | | |
6.25% due 03/15/22 | | | 1,050,000 | | | | 976,500 | |
5.63% due 02/01/21 | | | 1,000,000 | | | | 927,500 | |
ContourGlobal Power Holdings S.A. | | | | | | | | |
7.13% due 06/01/195 | | | 1,750,000 | | | | 1,754,550 | |
CONSOL Energy, Inc. | | | | | | | | |
8.00% due 04/01/235 | | | 1,300,000 | | | | 928,720 | |
5.88% due 04/15/22 | | | 950,000 | | | | 638,875 | |
Legacy Reserves Limited Partnership/Legacy Reserves Finance Corp. | | | | | | | | |
6.63% due 12/01/21 | | | 1,090,000 | | | | 741,200 | |
8.00% due 12/01/20 | | | 965,000 | | | | 694,800 | |
Antero Resources Corp. | | | | | | | | |
5.63% due 06/01/23 | | | 800,000 | | | | 702,000 | |
5.13% due 12/01/22 | | | 300,000 | | | | 258,000 | |
5.38% due 11/01/21 | | | 250,000 | | | | 220,000 | |
Atlas Energy Holdings Operating Company LLC/Atlas Resource Finance Corp. | | | | | | | | |
7.75% due 01/15/211 | | | 1,450,000 | | | | 609,000 | |
9.25% due 08/15/211 | | | 1,100,000 | | | | 462,000 | |
Unit Corp. | | | | | | | | |
6.63% due 05/15/21 | | | 1,300,000 | | | | 1,066,000 | |
EP Energy LLC/Everest Acquisition Finance, Inc. | | | | | | | | |
9.38% due 05/01/20 | | | 650,000 | | | | 559,000 | |
6.38% due 06/15/23 | | | 650,000 | | | | 479,778 | |
Comstock Resources, Inc. | | | | | | | | |
10.00% due 03/15/205 | | | 1,350,000 | | | | 938,250 | |
Keane Group Holdings LLC | | | | | | | | |
8.50% due 08/08/19†††,1 | | | 981,250 | | | | 802,172 | |
FTS International, Inc. | | | | | | | | |
7.84% due 06/15/202,5 | | | 700,000 | | | | 518,206 | |
6.25% due 05/01/22 | | | 700,000 | | | | 217,000 | |
SandRidge Energy, Inc. | | | | | | | | |
8.75% due 06/01/205 | | | 750,000 | | | | 454,688 | |
8.13% due 10/15/22 | | | 900,000 | | | | 193,500 | |
7.50% due 03/15/21 | | | 250,000 | | | | 55,000 | |
BreitBurn Energy Partners Limited Partnership / BreitBurn Finance Corp. | | | | | | | | |
7.88% due 04/15/22 | | | 1,750,000 | | | | 625,625 | |
TerraForm Power Operating LLC | | | | | | | | |
5.87% due 02/01/235 | | | 400,000 | | | | 353,000 | |
6.13% due 06/15/255 | | | 225,000 | | | | 194,625 | |
Gibson Energy, Inc. | | | | | | | | |
6.75% due 07/15/215 | | | 500,000 | | | | 480,625 | |
Ultra Resources, Inc. | | | | | | | | |
4.51% due 10/12/20†††,1 | | | 600,000 | | | | 435,438 | |
Ultra Petroleum Corp. | | | | | | | | |
5.75% due 12/15/185 | | | 500,000 | | | | 360,000 | |
Summit Midstream Holdings LLC/Summit Midstream Finance Corp. | | | | | | | | |
7.50% due 07/01/21 | | | 300,000 | | | | 288,000 | |
IronGate Energy Services LLC | | | | | | | | |
11.00% due 07/01/187 | | | 120,000 | | | | 76,200 | |
Schahin II Finance Company SPV Ltd. | | | | | | | | |
5.88% due 09/25/227 | | | 217,167 | | | | 45,605 | |
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
HIGH YIELD FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
SemGroup, LP | | | | | | |
8.75% due 11/15/15†††,1,9 | | $ | 1,300,000 | | | $ | 1 | |
Total Energy | | | | | | | 17,055,858 | |
| | | | | | | | | |
Financial - 9.6% | |
Jefferies Finance LLC/JFIN Company-Issuer Corp. | | | | | | | | |
7.50% due 04/15/215 | | | 1,600,000 | | | | 1,495,999 | |
7.38% due 04/01/205 | | | 950,000 | | | | 915,610 | |
American Equity Investment Life Holding Co. | | | | | | | | |
6.63% due 07/15/21 | | | 1,350,000 | | | | 1,417,500 | |
Kennedy-Wilson, Inc. | | | | | | | | |
5.88% due 04/01/24 | | | 1,300,000 | | | | 1,270,750 | |
Citigroup, Inc. | | | | | | | | |
6.30%2,3 | | | 700,000 | | | | 673,505 | |
5.95%2,3 | | | 450,000 | | | | 424,125 | |
Icahn Enterprises Limited Partnership/Icahn Enterprises Finance Corp. | | | | | | | | |
5.88% due 02/01/224 | | | 900,000 | | | | 905,625 | |
National Financial Partners Corp. | | | | | | | | |
9.00% due 07/15/215 | | | 900,000 | | | | 868,500 | |
JPMorgan Chase & Co. | | | | | | | | |
5.30%2,3 | | | 850,000 | | | | 835,125 | |
Credit Acceptance Corp. | | | | | | | | |
6.13% due 02/15/21 | | | 700,000 | | | | 689,500 | |
Wilton Re Finance LLC | | | | | | | | |
5.87% due 03/30/332,5 | | | 650,000 | | | | 688,433 | |
Bank of America Corp. | | | | | | | | |
6.10%2,3 | | | 700,000 | | | | 682,500 | |
Ares Finance Company II LLC | | | | | | | | |
5.25% due 09/01/255 | | | 650,000 | | | | 661,554 | |
Digital Delta Holdings LLC | | | | | | | | |
4.75% due 10/01/25 | | | 600,000 | | | | 608,573 | |
NewStar Financial, Inc. | | | | | | | | |
7.25% due 05/01/205 | | | 600,000 | | | | 597,000 | |
DuPont Fabros Technology, LP | | | | | | | | |
5.63% due 06/15/23 | | | 550,000 | | | | 552,750 | |
EPR Properties | | | | | | | | |
5.75% due 08/15/22 | | | 450,000 | | | | 477,322 | |
Compass Bank | | | | | | | | |
3.88% due 04/10/25 | | | 450,000 | | | | 419,490 | |
Greystar Real Estate Partners LLC | | | | | | | | |
8.25% due 12/01/225 | | | 310,000 | | | | 323,950 | |
Majid AL Futtaim Holding | | | | | | | | |
7.12% due 12/31/493 | | | 300,000 | | | | 309,750 | |
Cabot Financial Luxembourg S.A. | | | | | | | | |
6.50% due 04/01/215 | | GBP | 200,000 | | | | 295,651 | |
Quicken Loans, Inc. | | | | | | | | |
5.75% due 05/01/255 | | | 250,000 | | | | 234,688 | |
Iron Mountain, Inc. | | | | | | | | |
6.00% due 10/01/205 | | | 190,000 | | | | 191,843 | |
Total Financial | | | | | | | 15,539,743 | |
| | | | | | | | | |
Consumer, Cyclical - 9.4% | |
WMG Acquisition Corp. | | | | | | | | |
6.75% due 04/15/225 | | | 1,900,000 | | | | 1,786,000 | |
6.00% due 01/15/215 | | | 350,000 | | | | 350,000 | |
5.63% due 04/15/225 | | | 150,000 | | | | 145,500 | |
Checkers Drive-In Restaurants, Inc. | | | | | | | | |
11.00% due 12/01/175 | | | 1,750,000 | | | | 1,859,375 | |
Ferrellgas Limited Partnership/ Ferrellgas Finance Corp. | | | | | | | | |
6.75% due 06/15/23 | | | 1,300,000 | | | | 1,183,000 | |
6.75% due 01/15/22 | | | 450,000 | | | | 418,500 | |
6.50% due 05/01/21 | | | 100,000 | | | | 93,500 | |
AmeriGas Finance LLC/ AmeriGas Finance Corp. | | | | | | | | |
7.00% due 05/20/22 | | | 1,500,000 | | | | 1,537,499 | |
Hanesbrands, Inc. | | | | | | | | |
6.38% due 12/15/20 | | | 1,200,000 | | | | 1,242,000 | |
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. | | | | | | | | |
5.50% due 03/01/255 | | | 1,400,000 | | | | 1,200,500 | |
Suburban Propane Partners Limited Partnership/Suburban Energy Finance Corp. | | | | | | | | |
5.50% due 06/01/24 | | | 650,000 | | | | 601,250 | |
5.75% due 03/01/25 | | | 100,000 | | | | 94,750 | |
Wyndham Worldwide Corp. | | | | | | | | |
5.10% due 10/01/25 | | | 650,000 | | | | 658,999 | |
Petco Animal Supplies, Inc. | | | | | | | | |
9.25% due 12/01/185 | | | 550,000 | | | | 558,250 | |
Seminole Hard Rock Entertainment Incorporated/ Seminole Hard Rock International LLC | | | | | | | | |
5.87% due 05/15/215 | | | 500,000 | | | | 492,500 | |
VWR Funding, Inc. | | | | | | | | |
4.62% due 04/15/22 | | EUR | 450,000 | | | | 474,224 | |
Nathan’s Famous, Inc. | | | | | | | | |
10.00% due 03/15/205 | | | 450,000 | | | | 471,375 | |
Men’s Wearhouse, Inc. | | | | | | | | |
7.00% due 07/01/224 | | | 450,000 | | | | 463,559 | |
NPC International Incorporated /NPC Operating Company A Inc. /NPC Operating Co B Inc. | | | | | | | | |
10.50% due 01/15/20 | | | 400,000 | | | | 416,000 | |
Interval Acquisition Corp. | | | | | | | | |
5.63% due 04/15/23 | | | 400,000 | | | | 394,000 | |
QVC, Inc. | | | | | | | | |
4.85% due 04/01/24 | | | 400,000 | | | | 387,566 | |
Carrols Restaurant Group, Inc. | | | | | | | | |
8.00% due 05/01/22 | | | 300,000 | | | | 315,750 | |
Fiat Chrysler Automobiles N.V. | | | | | | | | |
5.25% due 04/15/23 | | | 150,000 | | | | 139,875 | |
Total Consumer, Cyclical | | | | | | | 15,283,972 | |
| | | | | | | | | |
Technology - 7.9% | |
Open Text Corp. | | | | | | | | |
5.63% due 01/15/235 | | | 2,000,000 | | | | 1,983,750 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
HIGH YIELD FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Epicor Software | | | | | | |
9.24% due 06/21/23††† | | $ | 2,000,000 | | | $ | 1,940,000 | |
Micron Technology, Inc. | | | | | | | | |
5.25% due 08/01/23 | | | 1,800,000 | | | | 1,655,640 | |
NCR Corp. | | | | | | | | |
6.38% due 12/15/234 | | | 1,200,000 | | | | 1,176,000 | |
5.88% due 12/15/21 | | | 400,000 | | | | 392,000 | |
Iron Mountain, Inc. | | | | | | | | |
6.12% due 09/15/22 | | GBP | 850,000 | | | | 1,282,619 | |
Aspect Software, Inc. | | | | | | | | |
10.63% due 05/15/171 | | | 1,235,000 | | | | 1,043,575 | |
Audatex North America, Inc. | | | | | | | | |
6.13% due 11/01/235 | | | 800,000 | | | | 804,000 | |
Infor US, Inc. | | | | | | | | |
6.50% due 05/15/22 | | | 800,000 | | | | 734,000 | |
First Data Corp. | | | | | | | | |
5.38% due 08/15/235 | | | 550,000 | | | | 544,500 | |
Lock AS | | | | | | | | |
7.00% due 08/15/21 | | EUR | 400,000 | | | | 467,189 | |
Applied Materials, Inc. | | | | | | | | |
3.90% due 10/01/25 | | | 450,000 | | | | 448,480 | |
Moto Finance plc | | | | | | | | |
6.37% due 09/01/20 | | GBP | 250,000 | | | | 382,762 | |
Total Technology | | | | | | | 12,854,515 | |
| | | | | | | | | |
Industrial - 6.4% | |
Amsted Industries, Inc. | | | | | | | | |
5.38% due 09/15/245 | | | 1,300,000 | | | | 1,264,250 | |
CEVA Group plc | | | | | | | | |
7.00% due 03/01/215 | | | 1,300,000 | | | | 1,150,500 | |
Interoute Finco plc | | | | | | | | |
7.38% due 10/15/20 | | EUR | 1,000,000 | | | | 1,103,693 | |
Reynolds Group Issuer Incorporated/Reynolds Group Issuer LLC / Reynolds Group Issuer Lu | | | | | | | | |
7.88% due 08/15/19 | | | 800,000 | | | | 832,000 | |
LMI Aerospace, Inc. | | | | | | | | |
7.38% due 07/15/19 | | | 711,000 | | | | 686,115 | |
Reliance Intermediate Holdings, LP | | | | | | | | |
6.50% due 04/01/235 | | | 650,000 | | | | 650,000 | |
StandardAero Aviation Holdings, Inc. | | | | | | | | |
10.00% due 07/15/235 | | | 650,000 | | | | 643,500 | |
Anixter, Inc. | | | | | | | | |
5.50% due 03/01/23 | | | 650,000 | | | | 640,250 | |
BMBG Bond Finance SCA | | | | | | | | |
4.98% due 10/15/202,5 | | EUR | 550,000 | | | | 614,629 | |
Orbital ATK, Inc. | | | | | | | | |
5.50% due 10/01/23 | | | 600,000 | | | | 601,500 | |
Actuant Corp. | | | | | | | | |
5.63% due 06/15/22 | | | 600,000 | | | | 598,500 | |
Hexcel Corp. | | | | | | | | |
4.70% due 08/15/25 | | | 400,000 | | | | 407,902 | |
Building Materials Corporation of America | | | | | | | | |
6.00% due 10/15/255 | | | 350,000 | | | | 353,500 | |
Unifrax I LLC/Unifrax Holding Co. | | | | | | | | |
7.50% due 02/15/195 | | | 350,000 | | | | 343,000 | |
Berry Plastics Escrow LLC/Berry Plastics Escrow Corp. | | | | | | | | |
6.00% due 10/15/22 | | | 320,000 | | | | 320,800 | |
Moog, Inc. | | | | | | | | |
5.25% due 12/01/225 | | | 200,000 | | | | 200,000 | |
Total Industrial | | | | | | | 10,410,139 | |
| | | | | | | | | |
Utilities - 2.1% | |
LBC Tank Terminals Holding Netherlands BV | | | | | | | | |
6.88% due 05/15/235 | | | 1,400,000 | | | | 1,452,500 | |
AES Corp. | | | | | | | | |
5.50% due 03/15/24 | | | 650,000 | | | | 576,225 | |
7.38% due 07/01/21 | | | 300,000 | | | | 311,250 | |
4.88% due 05/15/23 | | | 350,000 | | | | 307,125 | |
Terraform Global Operating LLC | | | | | | | | |
9.75% due 08/15/225 | | | 950,000 | | | | 762,375 | |
Total Utilities | | | | | | | 3,409,475 | |
| | | | | | | | | |
Diversified - 2.0% | |
Opal Acquisition, Inc. | | | | | | | | |
8.88% due 12/15/215 | | | 2,150,000 | | | | 2,023,687 | |
HRG Group, Inc. | | | | | | | | |
7.88% due 07/15/19 | | | 1,185,000 | | | | 1,229,438 | |
Total Diversified | | | | | | | 3,253,125 | |
| | | | | | | | | |
Basic Materials - 1.8% | |
TPC Group, Inc. | | | | | | | | |
8.75% due 12/15/205 | | | 1,605,000 | | | | 1,372,275 | |
Eldorado Gold Corp. | | | | | | | | |
6.13% due 12/15/205 | | | 1,225,000 | | | | 1,065,750 | |
Cascades, Inc. | | | | | | | | |
5.75% due 07/15/235 | | | 350,000 | | | | 334,250 | |
Mirabela Nickel Ltd. | | | | | | | | |
9.50% due 06/24/19†††,1 | | | 253,466 | | | | 78,574 | |
1.00% due 09/10/44†††,1 | | | 5,561 | | | | — | |
Total Basic Materials | | | | | | | 2,850,849 | |
Total Corporate Bonds | | | | | | | | |
(Cost $129,665,132) | | | | | | | 117,410,348 | |
| | | | | | | | | |
SENIOR FLOATING RATE INTERESTS††,2,6 - 26.8% | |
Industrial - 6.8% | |
Flakt Woods | | | | | | | | |
2.63% due 03/20/17†††,1 | | EUR | 1,617,056 | | | | 1,781,055 | |
Mitchell International, Inc. | | | | | | | | |
8.50% due 10/11/21 | | | 1,250,000 | | | | 1,242,713 | |
CareCore National LLC | | | | | | | | |
5.50% due 03/05/21 | | | 1,202,222 | | | | 1,124,077 | |
DAE Aviation | | | | | | | | |
5.25% due 07/07/22 | | | 750,000 | | | | 750,000 | |
KC Merger Sub, Inc. | | | | | | | | |
6.00% due 08/12/22 | | | 750,000 | | | | 738,750 | |
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
HIGH YIELD FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Hillman Group, Inc. | | | | | | |
3.56% due 06/28/191 | | $ | 757,143 | | | $ | 694,897 | |
Hardware Holdings LLC | | | | | | | | |
6.75% due 03/30/20†††,1 | | | 594,000 | | | | 579,150 | |
API Technologies Corp. | | | | | | | | |
9.00% due 02/06/18†††,1 | | | 562,534 | | | | 559,122 | |
SRS Distribution, Inc. | | | | | | | | |
5.25% due 08/25/22 | | | 550,000 | | | | 547,019 | |
CPM Holdings, Inc. | | | | | | | | |
6.00% due 04/11/22 | | | 498,750 | | | | 499,164 | |
Hunter Defense Technologies | | | | | | | | |
6.50% due 08/05/19††† | | | 475,000 | | | | 465,869 | |
Mast Global | | | | | | | | |
8.75% due 09/12/19†††,1 | | | 417,597 | | | | 414,818 | |
Atkore International, Inc. | | | | | | | | |
7.75% due 10/08/211 | | | 450,000 | | | | 413,438 | |
SIRVA Worldwide, Inc. | | | | | | | | |
7.50% due 03/27/19 | | | 379,651 | | | | 374,905 | |
Transdigm, Inc. | | | | | | | | |
3.50% due 05/16/22 | | | 348,334 | | | | 342,601 | |
Wencor (Jazz Acq) | | | | | | | | |
3.70% due 06/19/19 | | | 321,538 | | | | 293,533 | |
CEVA Logistics US Holdings | | | | | | | | |
6.50% due 03/19/21 | | | 91,168 | | | | 81,432 | |
CEVA Logistics Holdings BV (Dutch) | | | | | | | | |
6.50% due 03/19/21 | | | 66,097 | | | | 59,038 | |
CEVA Group Plc (United Kingdom) | | | | | | | | |
6.50% due 03/19/21 | | | 63,633 | | | | 56,837 | |
NANA Development Corp. | | | | | | | | |
8.00% due 03/15/181 | | | 55,556 | | | | 53,611 | |
CEVA Logistics Canada, ULC | | | | | | | | |
6.50% due 03/19/21 | | | 11,396 | | | | 10,179 | |
Total Industrial | | | | | | | 11,082,208 | |
| | | | | | | | | |
Consumer, Cyclical - 5.9% | |
Sky Bet | | | | | | | | |
6.08% due 02/25/22 | | GBP | 950,000 | | | | 1,437,308 | |
Fitness International LLC | | | | | | | | |
5.50% due 07/01/20 | | | 1,186,114 | | | | 1,131,256 | |
Talbots, Inc. | | | | | | | | |
5.50% due 03/19/20 | | | 1,020,833 | | | | 1,001,264 | |
Mavis Tire | | | | | | | | |
6.25% due 10/31/20†††,1 | | | 947,625 | | | | 934,067 | |
GCA Services Group, Inc. | | | | | | | | |
9.25% due 11/02/20 | | | 800,000 | | | | 792,000 | |
DLK Acquisitions BV | | | | | | | | |
8.50% due 08/28/191 | | EUR | 700,000 | | | | 766,609 | |
Sterling Intermidiate Corp. | | | | | | | | |
4.50% due 06/20/22 | | | 498,750 | | | | 496,880 | |
Navistar, Inc. | | | | | | | | |
6.50% due 08/07/20 | | | 500,000 | | | | 487,500 | |
Alexander Mann Solutions Ltd. | | | | | | | | |
5.75% due 12/20/19 | | | 451,341 | | | | 447,956 | |
National Vision, Inc. | | | | | | | | |
6.75% due 03/11/22 | | | 450,000 | | | | 441,563 | |
PF Changs | | | | | | | | |
4.25% due 07/02/19 | | | 400,000 | | | | 392,000 | |
BBB Industries, LLC | | | | | | | | |
4.41% due 11/04/191 | | | 467,143 | | | | 419,586 | |
Service King | | | | | | | | |
4.50% due 08/18/21 | | | 299,244 | | | | 298,248 | |
Sears Holdings Corp. | | | | | | | | |
5.50% due 06/29/18 | | | 298,481 | | | | 293,165 | |
Warner Music Group | | | | | | | | |
3.75% due 07/01/20 | | | 198,481 | | | | 194,370 | |
Total Consumer, Cyclical | | | | | | | 9,533,772 | |
| | | | | | | | | |
Technology - 3.7% | |
TIBCO Software, Inc. | | | | | | | | |
6.50% due 12/04/20 | | | 945,624 | | | | 936,167 | |
Sparta Holding Corp. | | | | | | | | |
6.50% due 07/28/20††† | | | 891,000 | | | | 883,833 | |
Greenway Medical Technologies | | | | | | | | |
9.25% due 11/04/211 | | | 550,000 | | | | 533,500 | |
6.00% due 11/04/201 | | | 343,875 | | | | 336,998 | |
Advanced Computer Software | | | | | | | | |
6.50% due 03/18/22 | | | 547,250 | | | | 545,428 | |
10.50% due 01/31/23 | | | 300,000 | | | | 288,375 | |
Deltek, Inc. | | | | | | | | |
5.00% due 06/25/22 | | | 448,875 | | | | 448,502 | |
EIG Investors Corp. | | | | | | | | |
5.00% due 11/08/19 | | | 392,000 | | | | 391,675 | |
Micro Focus International plc | | | | | | | | |
5.25% due 11/19/21 | | | 351,941 | | | | 351,392 | |
Telx Group | | | | | | | | |
7.50% due 04/09/21 | | | 300,000 | | | | 299,874 | |
Avaya, Inc. | | | | | | | | |
6.50% due 03/30/18 | | | 292,040 | | | | 253,345 | |
Flexera Software LLC | | | | | | | | |
8.00% due 04/02/21 | | | 250,000 | | | | 245,313 | |
Quorum Business Solutions | | | | | | | | |
5.75% due 08/06/21 | | | 218,350 | | | | 216,712 | |
GlobalLogic Holdings, Inc. | | | | | | | | |
6.25% due 05/31/19 | | | 196,500 | | | | 195,518 | |
The Active Network, Inc. | | | | | | | | |
5.50% due 11/13/20 | | | 147,745 | | | | 146,145 | |
Total Technology | | | | | | | 6,072,777 | |
| | | | | | | | | |
Consumer, Non-cyclical - 3.0% | |
IHC Holding Corp. | | | | | | | | |
7.00% due 04/30/21†††,1 | | | 847,875 | | | | 836,040 | |
JBS USA, Inc. | | | | | | | | |
4.00% due 08/18/22 | | | 600,000 | | | | 599,743 | |
Reddy Ice Holdings, Inc. | | | | | | | | |
6.75% due 05/01/191 | | | 585,000 | | | | 482,625 | |
NES Global Talent | | | | | | | | |
6.50% due 10/03/19 | | | 514,714 | | | | 478,684 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
HIGH YIELD FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
AdvancePierre Foods, Inc. | | | | | | |
9.50% due 10/10/17 | | $ | 461,000 | | | $ | 459,271 | |
American Seafoods | | | | | | | | |
6.00% due 08/19/211 | | | 450,000 | | | | 443,250 | |
Pelican Products, Inc. | | | | | | | | |
9.25% due 04/09/21 | | | 300,000 | | | | 297,000 | |
CTI Foods Holding Co. LLC | | | | | | | | |
8.25% due 06/28/21 | | | 290,000 | | | | 278,400 | |
Taxware Holdings | | | | | | | | |
7.50% due 04/01/22†††,1 | | | 249,375 | | | | 247,054 | |
Performance Food Group | | | | | | | | |
6.75% due 11/14/19 | | | 244,375 | | | | 244,272 | |
Albertson’s (Safeway) Holdings LLC | | | | | | | | |
5.50% due 08/25/21 | | | 198,535 | | | | 198,412 | |
Targus Group International, Inc. | | | | | | | | |
14.75% due 05/24/161 | | | 225,855 | | | | 141,611 | |
Arctic Glacier Holdings, Inc. | | | | | | | | |
6.00% due 05/10/19 | | | 138,811 | | | | 136,729 | |
Total Consumer, Non-cyclical | | | | | | | 4,843,091 | |
| | | | | | | | | |
Financial - 2.9% | |
Lineage Logistics LLC | | | | | | | | |
4.50% due 04/07/21 | | | 842,237 | | | | 809,601 | |
York Risk Services | | | | | | | | |
4.75% due 10/01/21 | | | 742,500 | | | | 711,256 | |
Acrisure LLC | | | | | | | | |
5.25% due 05/19/22 | | | 700,000 | | | | 677,250 | |
Intertrust Group | | | | | | | | |
8.00% due 04/16/22 | | | 500,000 | | | | 498,750 | |
Expert Global Solutions | | | | | | | | |
8.50% due 04/03/18 | | | 477,734 | | | | 471,762 | |
Cunningham Lindsey U.S., Inc. | | | | | | | | |
9.25% due 06/10/201 | | | 623,636 | | | | 467,727 | |
Safe-Guard | | | | | | | | |
6.25% due 08/19/21 | | | 413,357 | | | | 413,874 | |
Trademonster | | | | | | | | |
7.25% due 08/29/19†††,1 | | | 346,500 | | | | 345,147 | |
Transunion Holding Co. | | | | | | | | |
3.50% due 04/09/21 | | | 347,355 | | | | 343,447 | |
Total Financial | | | | | | | 4,738,814 | |
| | | | | | | | | |
Communications - 2.6% | |
Mitel Networks Corp. | | | | | | | | |
5.50% due 04/29/22 | | | 897,750 | | | | 890,459 | |
Cartrawler | | | | | | | | |
4.25% due 04/29/21 | | EUR | 650,000 | | | | 726,379 | |
Cengage Learning Acquisitions, Inc. | | | | | | | | |
7.00% due 03/31/20 | | | 606,597 | | | | 600,986 | |
Neptune Finco Corp. | | | | | | | | |
5.00% due 09/23/22 | | | 500,000 | | | | 496,750 | |
Anaren, Inc. | | | | | | | | |
9.25% due 08/18/21 | | | 500,000 | | | | 490,000 | |
Gogo LLC | | | | | | | | |
7.50% due 03/21/181 | | | 433,270 | | | | 433,270 | |
MergerMarket Ltd. | | | | | | | | |
4.50% due 02/04/21 | | | 295,500 | | | | 288,113 | |
Cablevision Systems | | | | | | | | |
2.69% due 04/17/20 | | | 212,363 | | | | 210,736 | |
Total Communications | | | | | | | 4,136,693 | |
| | | | | | | | | |
Utilities - 0.7% | |
Veresen Midstream LP | | | | | | | | |
5.25% due 03/31/22 | | | 746,250 | | | | 740,653 | |
Stonewall (Green Energy) | | | | | | | | |
6.50% due 11/12/21 | | | 400,000 | | | | 393,000 | |
Total Utilities | | | | | | | 1,133,653 | |
| | | | | | | | | |
Basic Materials - 0.6% | |
Zep, Inc. | | | | | | | | |
5.75% due 06/27/22 | | | 997,500 | | | | 995,006 | |
| | | | | | | | | |
Energy - 0.6% | |
PSS Companies | | | | | | | | |
5.50% due 01/28/20 | | | 539,740 | | | | 464,176 | |
Cactus Wellhead | | | | | | | | |
7.00% due 07/31/20 | | | 445,500 | | | | 334,125 | |
Arch Coal, Inc. | | | | | | | | |
6.25% due 05/16/18 | | | 198,974 | | | | 111,923 | |
FTS International | | | | | | | | |
5.75% due 04/16/21 | | | 241,818 | | | | 73,271 | |
Total Energy | | | | | | | 983,495 | |
Total Senior Floating Rate Interests | | | | | | | | |
(Cost $45,076,864) | | | | | | | 43,519,509 | |
| | | | | | | | | |
SENIOR FIXED RATE INTERESTS†† - 1.2% | |
Consumer, Cyclical - 0.5% | |
Dollar Tree, Inc. | | | | | | | | |
4.25% due 03/09/22 | | | 650,000 | | | | 649,993 | |
OneSky | | | | | | | | |
7.50% due 06/03/19†††,1 | | | 152,258 | | | | 156,826 | |
Total Consumer, Cyclical | | | | | | | 806,819 | |
| | | | | | | | | |
Communications - 0.4% | |
Lions Gate Entertainment Corp. | | | | | | | | |
5.00% due 03/17/22 | | | 610,000 | | | | 610,763 | |
| | | | | | | | | |
Financial - 0.3% | |
Magic Newco, LLC | | | | | | | | |
12.00% due 06/12/19 | | | 500,000 | | | | 542,500 | |
Total Senior Fixed Rate Interests | | | | | | | | |
(Cost $1,965,046) | | | | | | | 1,960,082 | |
| | | | | | | | | |
ASSET-BACKED SECURITIES†† - 0.2% | |
Collateralized Debt Obligations - 0.2% | |
SRERS Funding Ltd. | | | | | | | | |
2011-RS, 0.44% due 05/09/462,5 | | | 388,521 | | | | 372,854 | |
Total Asset-Backed Securities | | | | | | | | |
(Cost $362,951) | | | | | | | 372,854 | |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
HIGH YIELD FUND | |
| | | Value | |
| | | | |
Total Investments - 108.4% | | | |
(Cost $190,255,800) | | $ | 175,674,907 | |
Other Assets & Liabilities, net - (8.4)% | | | (13,590,657 | ) |
Total Net Assets - 100.0% | | $ | 162,084,250 | |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† | |
Counterparty | | Contracts to Buy (Sell) | | Currency | Settlement
Date | | Settlement
Value | | | Value at September 30,
2015 | | | Net Unrealized
Appreciation/
(Depreciation) | |
BNY Mellon | | | (2,260,000 | ) | GBP | 10/07/15 | | $ | 3,429,991 | | | $ | 3,418,743 | | | $ | 11,248 | |
BNY Mellon | | | (499,000 | ) | CAD | 10/07/15 | | | 376,854 | | | | 373,907 | | | | 2,947 | |
BNY Mellon | | | 85,000 | | AUD | 10/07/15 | | | (59,541 | ) | | | (59,634 | ) | | | 94 | |
BNY Mellon | | | (288,000 | ) | AUD | 10/07/15 | | | 199,630 | | | | 202,055 | | | | (2,425 | ) |
BNY Mellon | | | (4,350,000 | ) | EUR | 10/07/15 | | | 4,829,174 | | | | 4,861,974 | | | | (32,800 | ) |
| | | | | | | | | | | | | | | | | $ | (20,936 | ) |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
†† | Value determined based on Level 2 inputs, unless otherwise noted — See Note 4. |
††† | Value determined based on Level 3 inputs — See Note 4. |
1 | Illiquid security. |
2 | Variable rate security. Rate indicated is rate effective at September 30, 2015. |
3 | Perpetual maturity. |
4 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 7. |
5 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $65,196,047 (cost $69,465,645), or 40.2% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
6 | The face amount is denominated in U.S. Dollars unless otherwise indicated. |
7 | 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 $265,107 (cost $440,353), or 0.2% of total net assets — See Note 13. |
8 | Rate indicated is the 7 day yield as of September 30, 2015. |
9 | Security is in default of interest and/or principal obligations. |
| | plc — Public Limited Company |
| | REIT — Real Estate Investment Trust |
| | |
| | See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments, at value (cost $190,255,800) | | $ | 175,674,907 | |
Foreign currency, at value (cost $114,706) | | | 113,963 | |
Cash | | | 196,580 | |
Prepaid expenses | | | 31,712 | |
Unrealized appreciation on forward foreign currency exchange contracts | | | 14,289 | |
Receivables: | |
Interest | | | 2,574,167 | |
Securities sold | | | 617,430 | |
Fund shares sold | | | 248,646 | |
Dividends | | | 14,876 | |
Foreign taxes reclaim | | | 2,670 | |
Total assets | | | 179,489,240 | |
| | | | | |
Liabilities: | |
Reverse repurchase agreements | | | 2,096,100 | |
Unfunded loan commitments, at value (Note 11) (proceeds $1,400,222) | | | 1,119,396 | |
Unrealized depreciation on forward foreign currency exchange contracts | | | 35,225 | |
Payable for: | |
Securities purchased | | | 7,906,786 | |
Fund shares redeemed | | | 5,906,351 | |
Distributions to shareholders | | | 117,650 | |
Management fees | | | 85,256 | |
Distribution and service fees | | | 27,015 | |
Transfer agent/maintenance fees | | | 20,877 | |
Fund accounting/administration fees | | | 13,312 | |
Trustees’ fees* | | | 3,977 | |
Miscellaneous | | | 73,045 | |
Total liabilities | | | 17,404,990 | |
Commitments and contingent liabilities (Note 15) | | | — | |
Net assets | | $ | 162,084,250 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 176,835,594 | |
Undistributed net investment income | | | 482,009 | |
Accumulated net realized loss on investments | | | (914,114 | ) |
Net unrealized depreciation on investments | | | (14,319,239 | ) |
Net assets | | $ | 162,084,250 | |
| | | | | |
A-Class: | |
Net assets | | $ | 73,236,156 | |
Capital shares outstanding | | | 6,784,829 | |
Net asset value per share | | $ | 10.79 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 11.33 | |
| | | | | |
C-Class: | |
Net assets | | $ | 13,671,053 | |
Capital shares outstanding | | | 1,256,629 | |
Net asset value per share | | $ | 10.88 | |
| | | | | |
P-Class: | |
Net assets | | $ | 9,591 | |
Capital shares outstanding | | | 888 | |
Net asset value per share | | $ | 10.80 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 75,167,450 | |
Capital shares outstanding | | | 8,531,189 | |
Net asset value per share | | $ | 8.81 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Interest (net of foreign withholding tax of $3,126) | | $ | 10,271,230 | |
Dividends | | | 436,097 | |
Total investment income | | | 10,707,327 | |
| | | | | |
Expenses: | |
Management fees | | | 894,414 | |
Transfer agent/maintenance fees: | |
A-Class | | | 117,027 | |
B-Class | | | 12,158 | |
C-Class | | | 21,518 | |
P-Class** | | | 93 | |
Institutional Class | | | 33,033 | |
Distribution and service fees: | |
A-Class | | | 185,160 | |
C-Class | | | 140,919 | |
P-Class** | | | 11 | |
Fund accounting/administration fees | | | 141,613 | |
Interest expense | | | 34,883 | |
Line of credit fees | | | 17,480 | |
Trustees’ fees* | | | 12,845 | |
Custodian fees | | | 8,037 | |
Tax expense | | | 88 | |
Miscellaneous | | | 169,462 | |
Total expenses | | | 1,788,741 | |
Less: | |
Expenses waived by Adviser | | | (53,603 | ) |
Net expenses | | | 1,735,138 | |
Net investment income | | | 8,972,189 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments | | | (1,061,912 | ) |
Foreign currency | | | (249,206 | ) |
Forward foreign currency exchange contracts | | | 1,716,253 | |
Net realized gain | | | 405,135 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments | | | (13,446,819 | ) |
Foreign currency | | | 41,864 | |
Forward foreign currency exchange contracts | | | (493,243 | ) |
Net change in unrealized appreciation (depreciation) | | | (13,898,198 | ) |
Net realized and unrealized loss | | | (13,493,063 | ) |
Net decrease in net assets resulting from operations | | $ | (4,520,874 | ) |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 8,972,189 | | | $ | 7,512,555 | |
Net realized gain on investments | | | 405,135 | | | | 4,836,256 | |
Net change in unrealized appreciation (depreciation) on investments | | | (13,898,198 | ) | | | (2,985,500 | ) |
Net increase (decrease) in net assets resulting from operations | | | (4,520,874 | ) | | | 9,363,311 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (4,807,748 | ) | | | (5,820,148 | ) |
B-Class | | | (52,842 | ) | | | (99,790 | ) |
C-Class | | | (802,666 | ) | | | (738,796 | ) |
P-Class | | | (235 | )* | | | — | |
Institutional Class | | | (3,966,454 | ) | | | (1,911,261 | ) |
Net realized gains | | | | | | | | |
A-Class | | | (1,532,517 | ) | | | — | |
B-Class | | | (20,686 | ) | | | — | |
C-Class | | | (263,521 | ) | | | — | |
P-Class | | | — | * | | | — | |
Institutional Class | | | (944,650 | ) | | | — | |
Total distributions to shareholders | | | (12,391,319 | ) | | | (8,569,995 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 33,036,938 | | | | 62,904,723 | |
B-Class | | | 7,076 | | | | 142,328 | |
C-Class | | | 5,046,504 | | | | 7,344,432 | |
P-Class | | | 10,001 | * | | | — | |
Institutional Class | | | 74,875,388 | | | | 28,060,805 | |
Redemption fees collected | | | | | | | | |
A-Class | | | 41,648 | | | | 66,165 | |
B-Class | | | 490 | | | | 1,013 | |
C-Class | | | 8,074 | | | | 9,220 | |
P-Class | | | 1 | * | | | — | |
Institutional Class | | | 33,446 | | | | 19,942 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 5,856,839 | | | | 5,125,824 | |
B-Class | | | 66,438 | | | | 93,097 | |
C-Class | | | 824,962 | | | | 552,770 | |
P-Class | | | 235 | * | | | — | |
Institutional Class | | | 3,711,027 | | | | 1,189,371 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (40,000,821 | ) | | | (56,529,637 | ) |
B-Class | | | (1,185,413 | ) | | | (782,961 | ) |
C-Class | | | (5,333,911 | ) | | | (2,735,624 | ) |
P-Class | | | — | * | | | — | |
Institutional Class | | | (33,586,946 | ) | | | (11,032,316 | ) |
Net increase from capital share transactions | | | 43,411,976 | | | | 34,429,152 | |
Net increase in net assets | | | 26,499,783 | | | | 35,222,468 | |
* | Since the commencement of operations: May 1, 2015. |
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Net assets: | | | | | | |
Beginning of year | | $ | 135,584,467 | | | $ | 100,361,999 | |
End of year | | $ | 162,084,250 | | | $ | 135,584,467 | |
Undistributed net investment income/(Distributions in excess of net investment income) at end of year | | $ | 482,009 | | | $ | (263,479 | ) |
| | | | | | | | | |
Capital share activity: | | | | | | | | |
Shares sold | | | | | | | | |
A-Class | | | 2,907,297 | | | | 5,157,454 | |
B-Class | | | 574 | | | | 11,694 | |
C-Class | | | 437,537 | | | | 596,582 | |
P-Class | | | 867 | * | | | — | |
Institutional Class | | | 8,020,780 | | | | 2,794,173 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 512,078 | | | | 420,028 | |
B-Class | | | 5,810 | | | | 7,688 | |
C-Class | | | 71,624 | | | | 44,965 | |
P-Class | | | 21 | * | | | — | |
Institutional Class | | | 399,647 | | | | 118,766 | |
Shares redeemed | | | | | | | | |
A-Class | | | (3,526,055 | ) | | | (4,630,360 | ) |
B-Class | | | (104,833 | ) | | | (64,801 | ) |
C-Class | | | (463,316 | ) | | | (222,849 | ) |
P-Class | | | — | * | | | — | |
Institutional Class | | | (3,627,052 | ) | | | (1,101,374 | ) |
Net increase in shares | | | 4,634,979 | | | | 3,131,966 | |
* | Since the commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
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.
A-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Period Ended
September 30,
2012a | | | Year Ended
December 31,
2011 | | | Year Ended
December 31,
2010 | |
Per Share Data | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 12.02 | | | $ | 11.85 | | | $ | 11.95 | | | $ | 11.12 | | | $ | 12.89 | | | $ | 12.07 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .69 | | | | .72 | | | | .81 | | | | .58 | | | | .87 | | | | .96 | |
Net gain (loss) on investments (realized and unrealized) | | | (.97 | ) | | | .27 | | | | .27 | | | | .84 | | | | (1.30 | ) | | | .78 | |
Total from investment operations | | | (.28 | ) | | | .99 | | | | 1.08 | | | | 1.42 | | | | (.43 | ) | | | 1.74 | |
Less distributions from: | |
Net investment income | | | (.74 | ) | | | (.83 | ) | | | (.90 | ) | | | (.59 | ) | | | (1.07 | ) | | | (.92 | ) |
Net realized gains | | | (.22 | ) | | | — | | | | (.29 | ) | | | — | | | | (.27 | ) | | | — | |
Total distributions | | | (.96 | ) | | | (.83 | ) | | | (1.19 | ) | | | (.59 | ) | | | (1.34 | ) | | | (.92 | ) |
Redemption fees collected | | | .01 | | | | .01 | | | | .01 | | | | — | c | | | — | | | | — | |
Net asset value, end of period | | $ | 10.79 | | | $ | 12.02 | | | $ | 11.85 | | | $ | 11.95 | | | $ | 11.12 | | | $ | 12.89 | |
| | |
Total Returnd | | | (2.40 | %) | | | 9.18 | % | | | 9.54 | % | | | 12.93 | % | | | (3.50 | %) | | | 14.92 | % |
Ratios/Supplemental Data | |
Net assets, end of period
(in thousands) | | $ | 73,236 | | | $ | 82,854 | | | $ | 70,451 | | | $ | 64,174 | | | $ | 86,041 | | | $ | 172,443 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 6.01 | % | | | 5.91 | % | | | 6.84 | % | | | 7.19 | % | | | 6.92 | % | | | 7.69 | % |
Total expenses | | | 1.27 | % | | | 1.32 | % | | | 1.41 | % | | | 1.44 | % | | | 1.34 | % | | | 1.28 | % |
Net expensesf,g | | | 1.20 | % | | | 1.26 | % | | | 1.18 | % | | | 1.17 | % | | | 1.18 | % | | | 1.14 | % |
Portfolio turnover rate | | | 72 | % | | | 97 | % | | | 101 | % | | | 55 | % | | | 102 | % | | | 77 | % |
C-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Period Ended
September 30,
2012a | | | Year Ended
December 31,
2011 | | | Year Ended
December 31,
2010 | |
Per Share Data | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 12.12 | | | $ | 11.95 | | | $ | 12.03 | | | $ | 11.20 | | | $ | 12.97 | | | $ | 12.14 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .61 | | | | .63 | | | | .73 | | | | .56 | | | | .79 | | | | .87 | |
Net gain (loss) on investments (realized and unrealized) | | | (.98 | ) | | | .27 | | | | .27 | | | | .80 | | | | (1.32 | ) | | | .79 | |
Total from investment operations | | | (.37 | ) | | | .90 | | | | 1.00 | | | | 1.36 | | | | (.53 | ) | | | 1.66 | |
Less distributions from: | |
Net investment income | | | (.66 | ) | | | (.74 | ) | | | (.80 | ) | | | (.53 | ) | | | (.97 | ) | | | (.83 | ) |
Net realized gains | | | (.22 | ) | | | — | | | | (.29 | ) | | | — | | | | (.27 | ) | | | — | |
Total distributions | | | (.88 | ) | | | (.74 | ) | | | (1.09 | ) | | | (.53 | ) | | | (1.24 | ) | | | (.83 | ) |
Redemption fees collected | | | .01 | | | | .01 | | | | .01 | | | | — | c | | | — | | | | — | |
Net asset value, end of period | | $ | 10.88 | | | $ | 12.12 | | | $ | 11.95 | | | $ | 12.03 | | | $ | 11.20 | | | $ | 12.97 | |
| | |
Total Returnd | | | (3.14 | %) | | | 8.46 | % | | | 8.69 | % | | | 12.33 | % | | | (4.30 | %) | | | 14.07 | % |
Ratios/Supplemental Data | |
Net assets, end of period
(in thousands) | | $ | 13,671 | | | $ | 14,674 | | | $ | 9,463 | | | $ | 9,054 | | | $ | 7,991 | | | $ | 10,264 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 5.25 | % | | | 5.14 | % | | | 6.10 | % | | | 6.37 | % | | | 6.32 | % | | | 6.92 | % |
Total expenses | | | 2.01 | % | | | 2.09 | % | | | 2.17 | % | | | 2.19 | % | | | 2.08 | % | | | 2.04 | % |
Net expensesf,g | | | 1.95 | % | | | 2.01 | % | | | 1.93 | % | | | 1.92 | % | | | 1.94 | % | | | 1.89 | % |
Portfolio turnover rate | | | 72 | % | | | 97 | % | | | 101 | % | | | 55 | % | | | 102 | % | | | 77 | % |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
P-Class | | Period Ended
September 30,
2015e | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 11.53 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .27 | |
Net gain (loss) on investments (realized and unrealized) | | | (.73 | ) |
Total from investment operations | | | (.46 | ) |
Less distributions from: | |
Net investment income | | | (.27 | ) |
Total distributions | | | (.27 | ) |
Redemption fees collected | | | — | c |
Net asset value, end of period | | $ | 10.80 | |
| | | | | |
Total Returnd | | | (4.06 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 10 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 5.76 | % |
Total expenses | | | 3.36 | % |
Net expensesf,g | | | 1.19 | % |
Portfolio turnover rate | | | 72 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Period Ended
September 30,
2012a | | | Year Ended
December 31,
2011 | | | Year Ended
December 31,
2010 | |
Per Share Data | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 9.87 | | | $ | 9.74 | | | $ | 9.90 | | | $ | 9.26 | | | $ | 10.96 | | | $ | 10.47 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .58 | | | | .61 | | | | .70 | | | | .55 | | | | .79 | | | | .86 | |
Net gain (loss) on investments (realized and unrealized) | | | (.79 | ) | | | .23 | | | | .22 | | | | .64 | | | | (1.12 | ) | | | .68 | |
Total from investment operations | | | (.21 | ) | | | .84 | | | | .92 | | | | 1.19 | | | | (.33 | ) | | | 1.54 | |
Less distributions from: | |
Net investment income | | | (.64 | ) | | | (.72 | ) | | | (.80 | ) | | | (.55 | ) | | | (1.10 | ) | | | (1.05 | ) |
Net realized gains | | | (.22 | ) | | | — | | | | (.29 | ) | | | — | | | | (.27 | ) | | | — | |
Total distributions | | | (.86 | ) | | | (.72 | ) | | | (1.09 | ) | | | (.55 | ) | | | (1.37 | ) | | | (1.05 | ) |
Redemption fees collected | | | .01 | | | | .01 | | | | .01 | | | | — | c | | | — | | | | — | |
Net asset value, end of period | | $ | 8.81 | | | $ | 9.87 | | | $ | 9.74 | | | $ | 9.90 | | | $ | 9.26 | | | $ | 10.96 | |
| | |
Total Returnd | | | (2.21 | %) | | | 9.50 | % | | | 9.97 | % | | | 13.17 | % | | | (3.30 | %) | | | 15.33 | % |
Ratios/Supplemental Data | |
Net assets, end of period
(in thousands) | | $ | 75,167 | | | $ | 36,880 | | | $ | 18,755 | | | $ | 9,974 | | | $ | 7,900 | | | $ | 2,785 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 6.21 | % | | | 6.12 | % | | | 7.12 | % | | | 7.42 | % | | | 7.61 | % | | | 7.99 | % |
Total expenses | | | 0.94 | % | | | 1.01 | % | | | 1.01 | % | | | 1.11 | % | | | 1.08 | % | | | 1.02 | % |
Net expensesf,g | | | 0.94 | % | | | 1.01 | % | | | 0.93 | % | | | 0.92 | % | | | 0.95 | % | | | 0.89 | % |
Portfolio turnover rate | | | 72 | % | | | 97 | % | | | 101 | % | | | 55 | % | | | 102 | % | | | 77 | % |
a | The Fund changed its fiscal year end from December 31 to September 30 in 2012. |
b | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
c | Redemption fees collected are less than $0.01 per share. |
d | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
e | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
f | Net expense information reflects the expense ratios after expense waivers. |
g | Net expenses may include expenses that are excluded from the expense limitation agreement and recouped amounts. Excluding these expenses, the operating expense ratios for the years would be: |
| | 09/30/15 | 09/30/14 |
A-Class | 1.16% | 1.16% |
C-Class | 1.91% | 1.91% |
P-Class | 1.16% | — |
Institutional Class | 0.91% | 0.91% |
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
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 and Assistant Chief Investment Officer; Jeffrey B. Abrams, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the fiscal year ended September 30, 2015.
For the one-year period ended September 30, 2015, Guggenheim Investment Grade Bond Fund returned 2.12%1, compared with the 2.94% return of its benchmark, the Barclays U.S. Aggregate Bond Index.
The Fund seeks 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.
At the start of the period, market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities sparked risk aversion that drove market volatility. After a second-straight winter soft patch, and a dramatic drop in the price of oil, U.S. economic data began to strengthen in 2015, appearing to provide support for the Fed to proceed with raising interest rates sometime in 2015. The world kept a watchful eye on the Fed during the summer, as headlines moved from Greece to China, as China devalued the yuan in August, the first time in 20 years. As China’s move sent shockwaves through global financial markets, the Fed opted to keep rates zero-bound at its September meeting, citing concerns about potential downside risks to the U.S. outlook posed by recent global market volatility.
A key to Fund performance for the period was price appreciation stemming from the general tightening of credit spreads, except during the last few weeks of the period. Positive returns were driven largely by good credit selection in asset-backed securities (including collateralized loan obligations, or CLOs, and aircraft securitizations), mortgage-backed securities (including commercial mortgage-backed securities and non-agency residential mortgage-backed securities, or NARMBS), preferred securities, and investment-grade corporate bonds. Derivatives, which consisted of interest-rate swaps used to extend duration, contributed slightly to performance for the year. Being underweight duration relative to the Index also detracted from performance for the period. The lower duration stance stems partly from the Fund’s small allocation to Treasury bonds, compared with the Index’s allocation, its largest.
The chief attributes of the Fund over the period were holding a majority of the portfolio in structured credit, including commercial ABS and collateralized loan obligations (CLOs); and building up exposure to non-agency residential mortgage backed securities (NARMBS). The Fund believes the residential sector has been offering good relative value due to low interest rates, an improving residential real estate market, and strong economic fundamentals.
A majority of the Fund’s structured credit holdings feature floating rates, yields higher than traditional securitized assets like auto or credit-card receivables, and, often, investment-grade ratings. The Fund believes that commercial ABS and CLOs offer some downside protection, and amortizing structures to keep credit exposure lower over time. Many of the NARMBS were purchased at discounts and also typically have floating coupons that help keep duration short.
Besides the increase in NARMBS, other notable position changes over the period included a reduction in exposure to leveraged credit and an increase in exposure to U.S. Treasury bonds.
The cut in leveraged credit by half over the course of the 12 months was partly in response to deteriorating fundamentals in the energy market and in anticipation of volatility associated with a market correction or rising interest rates. As the Fund became more defensive, overall portfolio liquidity increased and average credit quality improved across sectors. The shift in Treasuries resulted from decisions regarding curve positioning.
Guggenheim believes an accommodative Fed supports a benign credit environment, and the U.S. economy is well positioned for continued growth. The Fed may not have the clarity it seeks to tighten U.S. monetary policy anytime soon, which means rates will remain low for an extended period. The Fund will continue to focus on allocating to structured credit that should shield investors from rate volatility without having to sacrifice yield.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 27 |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
Periods of economic expansion have coincided with tightening spreads and low defaults, and economic data for the period indicate the U.S. expansion remains on track. Still, the watchword across risk assets in the past few months has been caution, as credit spreads widened during heightened market volatility. The Fund takes advantage of such periods of widening to add to spread duration and to take on more risk in expectation of a rebound.
The Fund invests excess cash into the Guggenheim Strategy Funds which, in turn, invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital. For the one -year period ended September 30, 2015, investment in the Guggenheim Strategy Funds has benefited Fund performance relative to investing in other short-term investments such as overnight repurchase agreements.
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.
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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 or investments in Guggenheim Strategy Funds Trust mutual funds. Investments in those Funds do not provide “market exposure” to meet the fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
Inception Dates: |
A-Class | August 15, 1985 |
C-Class | May 1, 2000 |
P-Class | May 1, 2015 |
Institutional Class | January 29, 2013 |
Ten Largest Holdings (% of Total Net Assets) |
U.S. Treasury Notes | 6.6% |
Guggenheim Strategy Fund I | 2.4% |
GCAT LLC | 1.6% |
Willis Engine Securitization Trust II | 1.5% |
LSTAR Securities Investment Trust | 1.4% |
Citigroup, Inc. | 1.4% |
Northwoods Capital VIII Ltd. | 1.3% |
U.S. Treasury Bonds | 1.1% |
Bank of America Corp. | 1.1% |
New Jersey Transportation Trust Fund Authority Revenue Bonds | 1.0% |
Top Ten Total | 19.4% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
Portfolio Composition by Quality Rating1 |
Rating | |
Fixed Income Instruments | |
AAA | 11.5% |
AA | 17.9% |
A | 19.7% |
BBB | 13.9% |
BB | 7.9% |
B | 4.1% |
CCC | 5.4% |
CC | 0.3% |
D | 0.2% |
NR2 | 14.3% |
Other Instruments | 4.8% |
Total Investments | 100.0% |
| | |
The chart above reflects percentages of the value of total investments. |
1 | Source: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities except for those labeled “NR” have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Security ratings are determined at the time of purchase and may change thereafter. |
2 | NR securities do not necessarily indicate low credit quality. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | 10 Year |
A-Class Shares | 2.12% | 4.76% | 3.55% |
A-Class Shares with sales charge† | -2.72% | 3.76% | 3.05% |
C-Class Shares | 1.36% | 3.95% | 2.78% |
C-Class Shares with CDSC§ | 0.39% | 3.95% | 2.78% |
Barclays U.S. Aggregate Bond Index | 2.94% | 3.10% | 4.64% |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | -0.11% |
Barclays U.S. Aggregate Bond Index | | | 0.21% |
| | | 1 Year | Since Inception
(01/29/13) |
Institutional Class Shares | | 2.37% | 4.59% |
Barclays U.S. Aggregate Bond Index | | 2.94% | 2.12% |
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The 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. The graph is based on A-Class shares only; performance for C-Class shares, P-Class shares and Institutional Class shares will vary due to differences in fee structures. |
† | 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. |
30 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
INVESTMENT GRADE BOND FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 0.0% | |
| | | | | | | |
Financial - 0.0% | |
Rescap Liquidating Trust* | | | 5,199 | | | $ | 47,571 | |
| | | | | | | | | |
Industrial - 0.0% | |
Constar International Holdings LLC*,†††,1 | | | 68 | | | | — | |
| | | | | | | | | �� |
Total Common Stocks | | | | | | | | |
(Cost $262,501) | | | | | | | 47,571 | |
| | | | | | | | | |
PREFERRED STOCKS†† - 1.9% | |
Financial - 1.5% | |
Woodbourne Capital Trust I 0.03%†††,2,3,4 | | | 950,000 | | | | 435,604 | |
Woodbourne Capital Trust II 0.03%†††,2,3,4 | | | 950,000 | | | | 435,604 | |
Woodbourne Capital Trust IV 0.03%†††,2,3,4 | | | 950,000 | | | | 435,603 | |
Woodbourne Capital Trust III 0.03%†††,2,3,4 | | | 950,000 | | | | 435,603 | |
Aspen Insurance Holdings Ltd. 5.95%1,2,3 | | | 15,549 | | | | 396,500 | |
AgriBank FCB 6.88%2,3 | | | 1,500 | | | | 157,781 | |
Total Financial | | | | | | | 2,296,695 | |
| | | | | | | | | |
Industrial - 0.4% | |
Seaspan Corp. 6.38% due 04/30/195 | | | 22,000 | | | | 544,720 | |
Constar International Holdings LLC*,†††,1 | | | 7 | | | | — | |
Total Industrial | | | | | | | 544,720 | |
Total Preferred Stocks | | | | | | | | |
(Cost $4,909,053) | | | | | | | 2,841,415 | |
| | | | | | | | | |
MUTUAL FUNDS† - 2.4% | |
Guggenheim Strategy Fund I6 | | | 141,254 | | | | 3,514,410 | |
Total Mutual Funds | | | | | | | | |
(Cost $3,516,030) | | | | | | | 3,514,410 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 1.9% | |
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%15 | | | 2,800,271 | | | | 2,800,271 | |
Total Short Term Investments | | | | | | | | |
(Cost $2,800,271) | | | | | | | 2,800,271 | |
| | | Face
Amount | | | | |
| | | | | | | |
ASSET-BACKED SECURITIES†† - 43.7% | |
Collateralized Loan Obligations - 29.6% | |
Golub Capital Partners CLO Ltd. | | | | | | |
2015-25A, 2.29% due 08/05/272,4 | | $ | 1,500,000 | | | | 1,483,236 | |
2014-21A, 2.75% due 10/25/262,4 | | | 600,000 | | | | 587,254 | |
2013-17A, 4.11% due 10/25/252,4 | | | 250,000 | | | | 249,078 | |
Great Lakes CLO Ltd. | | | | | | | | |
2012-1A, 4.39% due 01/15/232,4 | | | 1,000,000 | | | | 999,978 | |
2015-1A, 2.22% due 07/15/262,4 | | | 1,000,000 | | | | 989,476 | |
2014-1A, 3.99% due 04/15/252,4 | | | 250,000 | | | | 248,172 | |
Northwoods Capital VIII Ltd. | | | | | | |
2007-8A, 2.29% due 07/28/222,4 | | | 1,950,000 | | | | 1,949,287 | |
CIFC Funding Ltd. | | | | | | | | |
2015-2A, 2.23% due 12/05/242,4 | | | 1,500,000 | | | | 1,496,563 | |
Grayson CLO Ltd. | | | | | | | | |
2006-1A, 0.71% due 11/01/212,4 | | | 1,400,000 | | | | 1,293,900 | |
Flagship CLO VI | | | | | | | | |
2007-1A, 2.73% due 06/10/212,4 | | | 1,250,000 | | | | 1,227,971 | |
Telos CLO Ltd. | | | | | | | | |
2013-3A, 3.29% due 01/17/242,4 | | | 1,250,000 | | | | 1,208,365 | |
Babson CLO Ltd. | | | | | | | | |
2012-2A, due 05/15/234,7 | | | 1,000,000 | | | | 745,412 | |
2014-IA, due 07/20/254,7 | | | 650,000 | | | | 432,304 | |
Telos Clo Ltd. | | | | | | | | |
2007-2A, 2.49% due 04/15/222,4 | | | 1,100,000 | | | | 1,076,364 | |
Rockwall CDO Ltd. | | | | | | | | |
2007-1A, 0.85% due 08/01/242,4 | | | 1,100,000 | | | | 1,006,915 | |
Marea CLO Ltd. | | | | | | | | |
2015-1A, 2.09% due 10/15/232,4 | | | 1,000,000 | | | | 997,661 | |
Northwoods Capital XIV Ltd. | | | | | | | | |
2014-14A, 2.77% due 11/12/252,4 | | | 1,000,000 | | | | 997,066 | |
KKR Financial CLO Ltd. | | | | | | | | |
2007-1A, 2.57% due 05/15/212,4 | | | 1,000,000 | | | | 995,601 | |
Vibrant CLO Limited 2012-1 | | | | | | | | |
2015-1A, 2.38% due 07/17/242,4 | | | 1,000,000 | | | | 995,302 | |
KKR CLO 12 Ltd. | | | | | | | | |
2015-12, 2.58% due 07/15/272,4 | | | 1,000,000 | | | | 994,173 | |
Rampart CLO Ltd. | | | | | | | | |
2007-1A, 2.17% due 10/25/212,4 | | | 1,000,000 | | | | 990,148 | |
ALM VII R Ltd. | | | | | | | | |
2013-7RA, 2.89% due 04/24/242,4 | | | 1,000,000 | | | | 988,960 | |
Fortress Credit Opportunities V CLO Ltd. | | | | | | | | |
2014-5A, 2.93% due 10/15/262,4 | | | 1,000,000 | | | | 988,216 | |
Fortress Credit BSL II Ltd. | | | | | | | | |
2013-2A, 2.54% due 10/19/252,4 | | | 1,000,000 | | | | 986,241 | |
Fortress Credit Investments IV Ltd. | | | | | | | | |
2015-4A, 2.22% due 07/17/232,4 | | | 1,000,000 | | | | 986,016 | |
Venture CLO Ltd. | | | | | | | | |
2013-14A, 3.08% due 08/28/252,4 | | | 1,000,000 | | | | 973,506 | |
Figueroa CLO Ltd. | | | | | | | | |
2013-1A, 3.08% due 03/21/242,4 | | | 1,000,000 | | | | 968,636 | |
MT Wilson Clo II Ltd. | | | | | | | | |
2007-2A, 3.04% due 07/11/202,4 | | | 1,000,000 | | | | 967,462 | |
Dryden 37 Senior Loan Fund | | | | | | | | |
2015-37A, due 04/15/274,7 | | | 1,000,000 | | | | 933,341 | |
MCF CLO I LLC | | | | | | | | |
2013-1A, 3.84% due 04/20/232,4 | | | 900,000 | | | | 890,738 | |
COA Summit CLO Limited | | | | | | | | |
2014-1A, 3.09% due 04/20/232,4 | | | 800,000 | | | | 794,940 | |
Newstar Trust | | | | | | | | |
2012-2A, 3.53% due 01/20/232,4 | | | 750,000 | | | | 751,313 | |
ARES XII CLO Ltd. | | | | | | | | |
2007-12A, 3.58% due 11/25/202,4 | | | 750,000 | | | | 749,988 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 31 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
INVESTMENT GRADE BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
OZLM Funding Ltd. | | | | | | |
2012-2A, 3.55% due 10/30/232,4 | | $ | 750,000 | | | $ | 749,947 | |
Acis CLO Ltd. | | | | | | | | |
2013-1A, 3.24% due 04/18/242,4 | | | 500,000 | | | | 484,158 | |
2013-2A, 3.50% due 10/14/222,4 | | | 250,000 | | | | 246,204 | |
Ivy Hill Middle Market Credit Fund VII Ltd. | | | | | | | | |
2013-7A, 3.74% due 10/20/252,4 | | | 600,000 | | | | 588,513 | |
Fortress Credit Opportunities III CLO, LP | | | | | | | | |
2014-3A, 2.82% due 04/28/262,4 | | | 300,000 | | | | 295,479 | |
2014-3A, 3.53% due 04/28/262,4 | | | 300,000 | | | | 292,385 | |
KVK CLO Ltd. | | | | | | | | |
2013-1A, due 04/14/254,7 | | | 1,000,000 | | | | 573,041 | |
Black Diamond CLO Ltd. | | | | | | | | |
2013-1A, 3.55% due 02/01/232,4 | | | 550,000 | | | | 541,461 | |
KKR CLO Trust | | | | | | | | |
2012-1A, 3.59% due 12/15/242,4 | | | 500,000 | | | | 500,053 | |
Cerberus Onshore II CLO-2 LLC | | | | | | | | |
2014-1A, 2.98% due 10/15/232,4 | | | 500,000 | | | | 499,430 | |
Cent CLO, LP | | | | | | | | |
2014-16AR, 2.55% due 08/01/242,4 | | | 500,000 | | | | 499,347 | |
Oxford Finance Funding Trust | | | | | | | | |
2014-1A, 3.48% due 12/15/224 | | | 500,000 | | | | 498,650 | |
MCF CLO III LLC | | | | | | | | |
2014-3A, 3.21% due 01/20/242,4 | | | 500,000 | | | | 481,185 | |
Treman Park CLO Ltd. | | | | | | | | |
2015-1A, due 04/20/274,7 | | | 500,000 | | | | 476,050 | |
Eastland CLO Ltd. | | | | | | | | |
2007-1A, 0.70% due 05/01/222,4 | | | 450,000 | | | | 424,734 | |
ICE EM CLO | | | | | | | | |
2007-1A, 1.12% due 08/15/222,4 | | | 414,546 | | | | 404,514 | |
Westwood CDO I Ltd. | | | | | | | | |
2007-1A, 1.00% due 03/25/212,4 | | | 400,000 | | | | 379,415 | |
Halcyon Loan Advisors Funding Ltd. | | | | | | | | |
2012-2A, 4.85% due 12/20/242,4 | | | 350,000 | | | | 349,971 | |
Newstar Commercial Loan Funding LLC | | | | | | | | |
2013-1A, 4.90% due 09/20/232,4 | | | 350,000 | | | | 332,871 | |
ALM VII R-2 Ltd. | | | | | | | | |
2013-7R2A, 2.89% due 04/24/242,4 | | | 300,000 | | | | 296,818 | |
Neuberger Berman CLO Ltd. | | | | | | | | |
2012-12A, due 07/25/234,7 | | | 450,000 | | | | 273,479 | |
Dryden XXIII Senior Loan Fund | | | | | | | | |
2014-23A, 3.24% due 07/17/232,4 | | | 250,000 | | | | 251,191 | |
TICC CLO LLC | | | | | | | | |
2012-1A, 5.08% due 08/25/232,4 | | | 250,000 | | | | 250,033 | |
Cerberus Onshore II CLO LLC | | | | | | | | |
2014-1A, 2.99% due 10/15/232,4 | | | 250,000 | | | | 249,743 | |
Garrison Funding Ltd. | | | | | | | | |
2013-2A, 3.68% due 09/25/232,4 | | | 250,000 | | | | 248,822 | |
Gallatin CLO VII Ltd. | | | | | | | | |
2014-1A, 3.19% due 07/15/232,4 | | | 250,000 | | | | 247,778 | |
ALM XIV Ltd. | | | | | | | | |
2014-14A, 3.24% due 07/28/262,4 | | | 250,000 | | | | 245,625 | |
NewStar Arlington Senior Loan Program LLC | | | | | | | | |
2014-1A, 3.60% due 07/25/252,4 | | | 250,000 | | | | 241,889 | |
Carlyle Global Market Strategies CLO Ltd. | | | | | | | | |
2012-3A, due 10/04/244,7 | | | 250,000 | | | | 187,341 | |
Keuka Park CLO Ltd. | | | | | | | | |
2013-1A, due 10/21/244,7 | | | 250,000 | | | | 175,259 | |
Copper River CLO Ltd. | | | | | | | | |
2007-1A, due 01/20/212,4,7 | | | 700,000 | | | | 131,671 | |
Total Collateralized Loan Obligations | | | | | | | 43,360,640 | |
| | | | | | | | | |
Transport-Aircraft - 8.4% | |
Willis Engine Securitization Trust II | | | | | | | | |
2012-A, 5.50% due 09/15/374 | | | 2,151,922 | | | | 2,156,442 | |
AASET | | | | | | | | |
2014-1, 5.12% due 12/15/292 | | | 1,413,462 | | | | 1,392,260 | |
2014-1, 7.37% due 12/15/292 | | | 706,731 | | | | 706,731 | |
Emerald Aviation Finance Ltd. | | | | | | | | |
2013-1, 4.65% due 10/15/384 | | | 1,100,260 | | | | 1,128,626 | |
2013-1, 6.35% due 10/15/384 | | | 220,052 | | | | 225,553 | |
Castlelake Aircraft Securitization Trust | | | | | | | | |
2014-1, 5.25% due 02/15/294 | | | 930,637 | | | | 921,517 | |
2014-1, 7.50% due 02/15/294 | | | 372,255 | | | | 369,091 | |
Rise Ltd. | | | | | | | | |
4.74% due 02/12/39 | | | 1,126,302 | | | | 1,134,749 | |
ECAF I Ltd. | | | | | | | | |
2015-1A, 4.95% due 06/15/404 | | | 1,000,000 | | | | 999,800 | |
AIM Aviation Finance Ltd. | | | | | | | | |
2015-1A, 4.21% due 02/15/404 | | | 958,333 | | | | 958,408 | |
Diamond Head Aviation Ltd. | | | | | | | | |
2015-1, 3.81% due 07/14/284 | | | 953,645 | | | | 948,686 | |
Turbine Engines Securitization Ltd. | | | | | | | | |
2013-1A, 5.13% due 12/13/484 | | | 832,795 | | | | 837,126 | |
AABS Ltd. | | | | | | | | |
4.87% due 01/15/38 | | | 416,667 | | | | 419,250 | |
Total Transport-Aircraft | | | | | | | 12,198,239 | |
| | | | | | | | | |
Collateralized Debt Obligations - 5.2% | |
Triaxx Prime CDO Ltd. | | | | | | | | |
2006-2A, 0.45% due 10/02/392,4 | | | 1,363,858 | | | | 1,276,616 | |
Gramercy Real Estate CDO Ltd. | | | | | | | | |
2007-1A, 0.60% due 08/15/562,4 | | | 1,330,032 | | | | 1,225,968 | |
PFP Ltd. | | | | | | | | |
2015-2, 2.21% due 07/14/342,4 | | | 1,000,000 | | | | 996,297 | |
SRERS Funding Ltd. | | | | | | | | |
2011-RS, 0.44% due 05/09/462,4 | | | 1,010,155 | | | | 969,420 | |
Banco Bradesco SA | | | | | | | | |
4.21% due 03/12/26†††,1 | | | 948,978 | | | | 958,506 | |
RAIT CRE CDO I Ltd. | | | | | | | | |
2006-1X, 0.53% due 11/20/46 | | | 812,449 | | | | 752,346 | |
N-Star Real Estate CDO IX Ltd. | | | | | | | | |
0.51% due 02/01/411 | | | 665,054 | | | | 654,184 | |
N-Star REL CDO VIII Ltd. | | | | | | | | |
2006-8A, 0.55% due 02/01/412,4 | | | 500,000 | | | | 464,274 | |
32 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
INVESTMENT GRADE BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
DIVCORE CLO Ltd. | | | | | | |
2013-1A B, 4.10% due 11/15/32 | | $ | 300,000 | | | $ | 299,220 | |
Total Collateralized Debt Obligations | | | | | | | 7,596,831 | |
| | | | | | | | | |
Insurance - 0.5% | |
Chesterfield Financial Holdings LLC | | | | | | | | |
2014-1A, 4.50% due 12/15/344 | | | 705,750 | | | | 705,679 | |
Total Asset-Backed Securities | | | | | | | | |
(Cost $63,549,587) | | | | | | | 63,861,389 | |
| | | | | | | | | |
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 21.2% | |
Residential Mortgage-Backed Securities - 17.6% | |
LSTAR Securities Investment Trust | | | | | | | | |
2014-1, 3.29% due 09/01/212,4 | | | 2,009,598 | | | | 2,009,598 | |
2015-6, 2.19% due 05/01/202,4 | | | 1,320,738 | | | | 1,297,097 | |
2015-5, 2.19% due 04/01/202,4 | | | 1,003,738 | | | | 983,262 | |
2015-1, 2.19% due 01/01/202,4 | | | 709,441 | | | | 699,438 | |
2015-2, 2.19% due 01/01/202,4 | | | 705,533 | | | | 692,127 | |
GCAT LLC | | | | | | | | |
2014-2, 3.72% due 10/25/194,8 | | | 2,334,269 | | | | 2,347,262 | |
NRPL Trust | | | | | | | | |
2014-2A, 3.75% due 10/25/572,4 | | | 995,404 | | | | 987,938 | |
2015-1A, 3.88% due 11/01/544 | | | 684,958 | | | | 685,943 | |
American Home Mortgage Assets Trust | | | | | | | | |
2006-4, 0.38% due 10/25/462 | | | 1,442,694 | | | | 956,160 | |
2007-1, 0.90% due 02/25/472 | | | 1,141,324 | | | | 696,652 | |
Banc of America Funding Ltd. | | | | | | | | |
2013-R1, 0.41% due 11/03/412,4 | | | 1,514,994 | | | | 1,409,398 | |
CIT Mortgage Loan Trust | | | | | | | | |
2007-1, 1.64% due 10/25/372,4 | | | 1,396,636 | | | | 1,328,501 | |
Luminent Mortgage Trust | | | | | | | | |
2006-2, 0.39% due 02/25/462 | | | 1,506,098 | | | | 1,110,729 | |
American Home Mortgage Investment Trust | | | | | | | | |
2006-1, 0.59% due 03/25/462 | | | 1,330,700 | | | | 1,109,505 | |
HarborView Mortgage Loan Trust | | | | | | | | |
2006-14, 0.37% due 01/25/472 | | | 898,860 | | | | 682,162 | |
2006-12, 0.41% due 01/19/382 | | | 407,754 | | | | 344,012 | |
New Century Home Equity Loan Trust | | | | | | | | |
2005-3, 0.70% due 07/25/352 | | | 1,100,000 | | | | 988,300 | |
Banc of America Funding Trust | | | | | | | | |
2014-R7, 0.34% due 09/26/362,4 | | | 999,475 | | | | 919,417 | |
VOLT XXXIII LLC | | | | | | | | |
2015-NPL5, 3.50% due 03/25/554 | | | 909,861 | | | | 906,368 | |
Deutsche Alt-A Securities Mortgage Loan Trust Series | | | | | | | | |
2007-OA2, 0.99% due 04/25/472 | | | 1,012,407 | | | | 871,074 | |
Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | | | | | | | | |
2006-AR9, 1.04% due 11/25/462 | | | 691,237 | | | | 474,351 | |
2006-8, 4.73% due 10/25/36 | | | 420,341 | | | | 321,237 | |
MASTR Adjustable Rate Mortgages Trust | | | | | | | | |
2003-5, 2.13% due 11/25/332 | | | 834,418 | | | | 756,115 | |
Structured Asset Securities Corporation Mortgage Loan Trust | | | | | | | | |
2006-OPT1, 0.45% due 04/25/362 | | | 600,000 | | | | 558,836 | |
Nationstar HECM Loan Trust | | | | | | | | |
2014-1A, 4.50% due 11/25/174 | | | 418,846 | | | | 423,424 | |
Chase Mortgage Finance Trust Series | | | | | | | | |
2006-S3, 6.00% due 11/25/36 | | | 451,564 | | | | 388,337 | |
Saxon Asset Securities Trust | | | | | | | | |
2005-4, 0.63% due 11/25/372 | | | 400,000 | | | | 346,423 | |
Residential Asset Securitization Trust | | | | | | | | |
2006-A12, 6.25% due 11/25/36 | | | 450,995 | | | | 331,118 | |
UCFC Manufactured Housing Contract | | | | | | | | |
1997-2, 7.38% due 10/15/28 | | | 279,573 | | | | 302,494 | |
Nomura Resecuritization Trust | | | | | | | | |
2012-1R, 0.64% due 08/27/472,4 | | | 233,858 | | | | 220,482 | |
GreenPoint Mortgage Funding Trust | | | | | | | | |
2005-HE4, 0.90% due 07/25/302 | | | 204,374 | | | | 197,552 | |
GSAA Home Equity Trust | | | | | | | | |
2007-7, 0.46% due 07/25/372 | | | 171,538 | | | | 145,741 | |
GreenPoint Mortgage Funding Trust Series | | | | | | | | |
2007-AR1, 0.27% due 02/25/472 | | | 114,703 | | | | 110,481 | |
First Franklin Mortgage Loan Trust | | | | | | | | |
2006-FF1, 0.53% due 01/25/362 | | | 50,000 | | | | 44,334 | |
JP Morgan Mortgage Trust | | | | | | | | |
2006-A3, 2.63% due 04/25/362 | | | 29,782 | | | | 24,932 | |
Total Residential Mortgage-Backed Securities | | | | | | | 25,670,800 | |
| | | | | | | | | |
Commercial Mortgage-Backed Securities - 3.6% | |
Hilton USA Trust | | | | | | | | |
2013-HLT, 4.41% due 11/05/304 | | | 1,100,000 | | | | 1,106,035 | |
2013-HLT, 4.60% due 11/05/302,4 | | | 350,000 | | | | 353,391 | |
Boca Hotel Portfolio Trust | | | | | | | | |
2013-BOCA, 3.26% due 08/15/262,4 | | | 1,000,000 | | | | 997,357 | |
Motel 6 Trust | | | | | | | | |
2015-MTL6, 4.53% due 02/05/304 | | | 1,000,000 | | | | 991,677 | |
Capmark Military Housing Trust | | | | | | | | |
2007-ROBS, 6.06% due 10/10/524 | | | 485,851 | | | | 458,133 | |
2007-AETC, 5.74% due 02/10/52†††,4 | | | 339,358 | | | | 334,156 | |
GMAC Commercial Mortgage Asset Corp. | | | | | | | | |
2003-PRES, 6.24% due 10/10/41†††,4 | | | 476,873 | | | | 528,538 | |
LSTAR Commercial Mortgage Trust | | | | | | | | |
2014-2, 5.11% due 01/20/412,4 | | | 500,000 | | | | 505,981 | |
Total Commercial Mortgage-Backed Securities | | | | | | | 5,275,268 | |
| | | | | | | | | |
Government Agency - 0.0% | |
Ginnie Mae | | | | | | | | |
#518436, 7.25% due 09/15/29 | | | 9,067 | | | | 9,594 | |
#1849, 8.50% due 08/20/24 | | | 876 | | | | 922 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
INVESTMENT GRADE BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Fannie Mae13 | | | | | | |
1990-108, 7.00% due 09/25/20 | | $ | 5,789 | | | $ | 6,298 | |
Total Government Agency | | | | | | | 16,814 | |
Total Collateralized Mortgage Obligations | | | | | | | | |
(Cost $31,122,804) | | | | | | | 30,962,882 | |
| | | | | | | | | |
CORPORATE BONDS†† - 17.0% | |
Financial - 12.0% | |
Citigroup, Inc. | | | | | | | | |
5.87%2,3 | | | 2,000,000 | | | | 1,964,999 | |
Bank of America Corp. | | | | | | | | |
6.10%2,3 | | | 1,600,000 | | | | 1,560,000 | |
6.25%2,3 | | | 400,000 | | | | 391,000 | |
Teachers Insurance & Annuity Association of America | | | | | | | | |
4.90% due 09/15/444,9 | | | 1,000,000 | | | | 1,028,697 | |
4.38% due 09/15/542,4,9 | | | 500,000 | | | | 506,070 | |
JPMorgan Chase & Co. | | | | | | | | |
5.00%2,3 | | | 1,500,000 | | | | 1,458,750 | |
Fifth Third Bancorp | | | | | | | | |
5.10%2,3,9 | | | 1,484,000 | | | | 1,357,860 | |
Ares Finance Company II LLC | | | | | | | | |
5.25% due 09/01/254,9 | | | 1,300,000 | | | | 1,323,108 | |
AmTrust Financial Services, Inc. | | | | | | | | |
6.12% due 08/15/231,5 | | | 970,000 | | | | 1,011,357 | |
SunTrust Banks, Inc. | | | | | | | | |
5.63%2,3,9 | | | 1,000,000 | | | | 1,000,000 | |
Garanti Diversified Payment Rights Finance Co. | | | | | | | | |
0.47% due 07/09/172 | | | 832,000 | | | | 810,534 | |
Corporation Financiera de Desarrollo S.A. | | | | | | | | |
5.25% due 07/15/292,4,5 | | | 600,000 | | | | 589,500 | |
GMH Military Housing-Navy Northeast LLC | | | | | | | | |
6.30% due 10/15/49††† | | | 485,000 | | | | 516,811 | |
Customers Bank | | | | | | | | |
6.13% due 06/26/292,5,14 | | | 500,000 | | | | 505,000 | |
Wilton Re Finance LLC | | | | | | | | |
5.87% due 03/30/332,4,5 | | | 475,000 | | | | 503,086 | |
American Express Co. | | | | | | | | |
5.20% due 12/31/492,3,5 | | | 500,000 | | | | 495,150 | |
Morgan Stanley | | | | | | | | |
5.55%2,3 | | | 500,000 | | | | 492,500 | |
Pacific Northwest Communities LLC | | | | | | | | |
5.91% due 06/15/504,5 | | | 400,000 | | | | 427,916 | |
Atlantic Marine Corporations Communities LLC | | | | | | | | |
5.43% due 12/01/504 | | | 386,054 | | | | 385,390 | |
ACC Group Housing LLC | | | | | | | | |
6.35% due 07/15/54†††,4 | | | 300,000 | | | | 322,971 | |
CIC Receivables Master Trust | | | | | | | | |
4.89% due 10/07/21†††,1 | | | 300,000 | | | | 301,704 | |
Cadence Bank North America | | | | | | | | |
6.25% due 06/28/292,5,14 | | | 200,000 | | | | 200,000 | |
HSBC Holdings plc | | | | | | | | |
6.37% due 2,3 | | | 200,000 | | | | 191,250 | |
Prosight Global Inc. | | | | | | | | |
7.50% due 11/26/20†††,1 | | | 100,000 | | | | 104,979 | |
TIG Holdings, Inc. | | | | | | | | |
8.60% due 01/15/2714 | | | 34,000 | | | | 28,305 | |
Total Financial | | | | | | | 17,476,937 | |
| | | | | | | | | |
Technology - 1.4% | |
Hewlett Packard Enterprise Co. | | | | | | | | |
4.90% due 10/15/25 | | | 800,000 | | | | 797,800 | |
4.40% due 10/15/22 | | | 600,000 | | | | 592,812 | |
Open Text Corp. | | | | | | | | |
5.63% due 01/15/234 | | | 325,000 | | | | 322,360 | |
CDK Global, Inc. | | | | | | | | |
4.50% due 10/15/249 | | | 305,000 | | | | 307,173 | |
Total Technology | | | | | | | 2,020,145 | |
| | | | | | | | | |
Basic Materials - 1.3% | |
Newcrest Finance Pty Ltd. | | | | | | | | |
4.20% due 10/01/224 | | | 1,200,000 | | | | 1,052,505 | |
Yamana Gold, Inc. | | | | | | | | |
4.95% due 07/15/24 | | | 985,000 | | | | 880,137 | |
Mosaic Global Holdings, Inc. | | | | | | | | |
7.38% due 08/01/181 | | | 18,000 | | | | 20,248 | |
Total Basic Materials | | | | | | | 1,952,890 | |
| | | | | | | | | |
Communications - 1.0% | |
Avaya, Inc. | | | | | | | | |
7.00% due 04/01/194,9 | | | 650,000 | | | | 515,125 | |
CSC Holdings LLC | | | | | | | | |
6.75% due 11/15/219 | | | 550,000 | | | | 492,250 | |
DISH DBS Corp. | | | | | | | | |
5.88% due 07/15/22 | | | 500,000 | | | | 442,500 | |
Nortel Networks Ltd. | | | | | | | | |
6.88% due 09/01/2310 | | | 31,000 | | | | 14,648 | |
Total Communications | | | | | | | 1,464,523 | |
| | | | | | | | | |
Consumer, Cyclical - 0.7% | |
Northern Group Housing LLC | | | | | | | | |
6.80% due 08/15/534 | | | 600,000 | | | | 694,980 | |
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | | | | | | | | |
5.50% due 03/01/254 | | | 400,000 | | | | 343,000 | |
Total Consumer, Cyclical | | | | | | | 1,037,980 | |
| | | | | | | | | |
Industrial - 0.3% | |
Skyway Concession Company LLC | | | | | | | | |
0.71% due 06/30/262,4,9 | | | 250,000 | | | | 203,125 | |
SBM Baleia Azul | | | | | | | | |
5.50% due 09/15/27†††,1 | | | 260,550 | | | | 195,256 | |
Constar International, Inc | | | | | | | | |
11.00% due 12/31/17†††,1 | | | 5,747 | | | | — | |
Total Industrial | | | | | | | 398,381 | |
34 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
INVESTMENT GRADE BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Diversified - 0.2% | |
HRG Group, Inc. | | | | | | |
7.88% due 07/15/19 | | $ | 300,000 | | | $ | 311,250 | |
| | | | | | | | | |
Consumer, Non-cyclical - 0.1% | |
ADT Corp. | | | | | | | | |
6.25% due 10/15/219 | | | 150,000 | | | | 154,688 | |
| | | | | | | | | |
Energy - 0.0% | |
Williams Companies, Inc. | | | | | | | | |
8.75% due 03/15/32 | | | 12,000 | | | | 11,417 | |
Total Corporate Bonds | | | | | | | | |
(Cost $25,365,351) | | | | | | | 24,828,211 | |
| | | | | | | | | |
U.S. GOVERNMENT SECURITIES†† - 7.7% | |
U.S. Treasury Notes | | | | | | | | |
2.00% due 08/15/25 | | | 9,744,000 | | | | 9,692,493 | |
U.S. Treasury Bonds | | | | | | | | |
due 11/15/44 | | | 3,819,000 | | | | 1,581,643 | |
Total U.S. Government Securities | | | | | | | | |
(Cost $11,209,721) | | | | | | | 11,274,136 | |
| | | | | | | | | |
MUNICIPAL BONDS†† - 7.1% | |
Illinois - 1.3% | |
State of Illinois General Obligation Unlimited | | | | | | | | |
6.90% due 03/01/359 | | | 500,000 | | | | 524,720 | |
5.65% due 12/01/38 | | | 500,000 | | | | 484,875 | |
Chicago, Illinois, Second Lien Water Revenue Bonds, Taxable Build America Bonds | | | | | | | | |
6.74% due 11/01/40 | | | 550,000 | | | | 615,021 | |
City of Chicago Illinois General Obligation Unlimited | | | | | | | | |
5.43% due 01/01/42 | | | 300,000 | | | | 251,658 | |
0.00% due 01/01/3011 | | | 150,000 | | | | 71,369 | |
Total Illinois | | | | | | | 1,947,643 | |
| | | | | | | | | |
Florida - 1.3% | |
County of Miami-Dade Florida Revenue Bonds | | | | | | | | |
0.00% due 10/01/459,11 | | | 5,100,000 | | | | 1,213,595 | |
0.00% due 10/01/425,11 | | | 2,500,000 | | | | 691,525 | |
Total Florida | | | | | | | 1,905,120 | |
| | | | | | | | | |
California - 1.1% | |
Stockton Unified School District General Obligation Unlimited | | | | | | | | |
0.00% due 08/01/3611 | | | 875,000 | | | | 379,050 | |
0.00% due 08/01/3511 | | | 565,000 | | | | 255,753 | |
Inland Valley Development Agency Tax Allocation | | | | | | | | |
5.50% due 03/01/339 | | | 500,000 | | | | 532,605 | |
San Marcos Unified School District General Obligation Unlimited | | | | | | | | |
0.00% due 08/01/4711 | | | 1,400,000 | | | | 344,834 | |
Total California | | | | | | | 1,512,242 | |
| | | | | | | | | |
New Jersey - 1.0% | |
New Jersey Transportation Trust Fund Authority Revenue Bonds | | | | | | | | |
0.00% due 12/15/329,11 | | | 3,500,000 | | | | 1,501,814 | |
| | | | | | | | | |
Puerto Rico - 0.8% | |
Commonwealth of Puerto Rico General Obligation Unlimited | | | | | | | | |
5.00% due 07/01/311 | | | 500,000 | | | | 485,525 | |
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue Bonds | | | | | | | | |
5.13% due 07/01/471,5 | | | 500,000 | | | | 454,590 | |
Puerto Rico Highways & Transportation Authority Revenue Bonds | | | | | | | | |
5.50% due 07/01/281 | | | 250,000 | | | | 243,063 | |
Total Puerto Rico | | | | | | | 1,183,178 | |
| | | | | | | | | |
Michigan - 0.7% | |
Detroit City School District General Obligation Unlimited | | | | | | | | |
7.75% due 05/01/395 | | | 850,000 | | | | 1,059,219 | |
| | | | | | | | | |
Alabama - 0.7% | |
County of Jefferson Alabama Sewer Revenue Bonds | | | | | | | | |
0.00% due 10/01/3411 | | | 775,000 | | | | 270,855 | |
0.00% due 10/01/3611 | | | 800,000 | | | | 244,472 | |
0.00% due 10/01/3511 | | | 475,000 | | | | 155,534 | |
0.00% due 10/01/3211 | | | 300,000 | | | | 121,227 | |
0.00% due 10/01/3111 | | | 250,000 | | | | 109,580 | |
Total Alabama | | | | | | | 901,668 | |
| | | | | | | | | |
New York - 0.2% | |
Port Authority NY & NJ-182 | | | | | | | | |
5.31% due 08/01/46 | | | 310,000 | | | | 333,117 | |
Total Municipal Bonds | | | | | | | | |
(Cost $10,345,339) | | | | | | | 10,344,001 | |
| | | | | | | | | |
SENIOR FLOATING RATE INTERESTS††,2 - 3.1% | |
Consumer, Cyclical - 1.2% | |
Compucom Systems, Inc. | | | | | | | | |
4.25% due 05/11/20 | | | 713,944 | | | | 571,154 | |
Warner Music Group | | | | | | | | |
3.75% due 07/01/20 | | | 498,728 | | | | 488,399 | |
Arby’s | | | | | | | | |
4.76% due 11/16/20 | | | 338,214 | | | | 338,353 | |
Ollies Bargain Outlet | | | | | | | | |
4.75% due 09/28/19 | | | 255,828 | | | | 254,549 | |
Total Consumer, Cyclical | | | | | | | 1,652,455 | |
| | | | | | | | | |
Communications - 1.0% | |
MergerMarket Ltd. | | | | | | | | |
4.50% due 02/04/21 | | | 591,000 | | | | 576,224 | |
Light Tower Fiber LLC | | | | | | | | |
4.00% due 04/13/20 | | | 498,724 | | | | 488,750 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 35 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
INVESTMENT GRADE BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Asurion Corp. | | | | | | |
5.00% due 08/04/22 | | $ | 229,425 | | | $ | 216,412 | |
5.00% due 05/24/19 | | | 223,548 | | | | 212,874 | |
Total Communications | | | | | | | 1,494,260 | |
| | | | | | | | | |
Consumer, Non-cyclical - 0.4% | |
Albertson’s (Safeway) Holdings LLC | | | | | | | | |
5.50% due 08/25/21 | | | 397,071 | | | | 396,825 | |
NES Global Talent | | | | | | | | |
6.50% due 10/03/19 | | | 128,185 | | | | 119,212 | |
Performance Food Group | | | | | | | | |
6.75% due 11/14/19 | | | 98,241 | | | | 98,200 | |
Total Consumer, Non-cyclical | | | | | | | 614,237 | |
| | | | | | | | | |
Financial - 0.2% | |
Magic Newco, LLC | | | | | | | | |
5.00% due 12/12/18 | | | 244,338 | | | | 244,339 | |
American Stock Transfer & Trust | | | | | | | | |
5.75% due 06/26/20 | | | 95,655 | | | | 94,658 | |
Total Financial | | | | | | | 338,997 | |
| | | | | | | | | |
Technology - 0.2% | |
Greenway Medical Technologies | | | | | | | | |
6.00% due 11/04/201 | | | 343,875 | | | | 336,998 | |
| | | | | | | | | |
Industrial - 0.1% | |
CareCore National LLC | | | | | | | | |
5.50% due 03/05/21 | | | 127,170 | | | | 118,904 | |
Total Senior Floating Rate Interests | | | | | | | | |
(Cost $4,755,599) | | | | | | | 4,555,851 | |
| | | | | | | | | |
FOREIGN GOVERNMENT BONDS†† - 1.4% | |
Kenya Government International Bond | | | | | | | | |
6.87% due 06/24/244,9 | | | 850,000 | | | | 770,100 | |
Dominican Republic International Bond | | | | | | | | |
6.85% due 01/27/454,9 | | | 700,000 | | | | 673,750 | |
Mexico Government International Bond | | | | | | | | |
4.60% due 01/23/469 | | | 600,000 | | | | 534,000 | |
Total Foreign Government Bonds | | | | | | | | |
(Cost $2,181,692) | | | | | | | 1,977,850 | |
| | | | | | | | | |
FEDERAL AGENCY DISCOUNT NOTES†† - 0.2% | |
Federal Home Loan Bank | | | | | | | | |
0.05% due 10/07/1512 | | | 250,000 | | | | 249,998 | |
| | | | | | | | | |
Total Federal Agency Discount Notes | | | | | | | | |
(Cost $249,998) | | | | | | | 249,998 | |
| | | | | | | | | |
| | | Contracts | | | | |
| | | | | | | |
OPTIONS PURCHASED† - 0.1% | |
Call options on: | | | | | | |
iShares 7-10 Year Treasury Bond ETF Expiring December 2015 with strike price of $106.00 | | | 581 | | | | 113,295 | |
Total Options Purchased | | | | | | | | |
(Cost $70,324) | | | | | | | 113,295 | |
| | | | | | | | | |
Total Investments - 107.7% | | | | | | | | |
(Cost $160,338,270) | | | | | | $ | 157,371,280 | |
| | | | | | | | | |
OPTIONS WRITTEN† - 0.0% | |
Call options on: | | | | | | | | |
iShares 7-10 Year Treasury Bond ETF Expiring December 2015 with strike price of $111.00 | | | 581 | | | | (23,240 | ) |
Total Options Written | | | | | | | | |
(Premiums received $15,663) | | | | | | | (23,240 | ) |
Other Assets & Liabilities, net - (7.7)% | | | | | | | (11,298,117 | ) |
Total Net Assets - 100.0% | | | | | | $ | 146,049,923 | |
36 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
INVESTMENT GRADE BOND FUND | |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
†† | Value determined based on Level 2 inputs, unless otherwise noted — See Note 4. |
††† | Value determined based on Level 3 inputs — See Note 4. |
1 | Illiquid security. |
2 | Variable rate security. Rate indicated is rate effective at September 30, 2015. |
3 | Perpetual maturity. |
4 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $90,524,374 (cost $92,597,881), or 62.0% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
5 | All or a portion of this security is pledged as collateral for open call options written contracts at September 30, 2015. |
6 | Affiliated issuer— See Note 10. |
7 | Residual interest. |
8 | Security is a step up/step down bond. The coupon increases or decreases at regular intervals until the bond reaches full maturity. |
9 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 7. |
10 | Security is in default of interest and/or principal obligations. |
11 | Zero coupon rate security. |
12 | The issuer operates under a Congressional charter; its securities are neither issued nor guaranteed by the U.S. Government. |
13 | 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. |
14 | 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 $733,305 (cost $728,979), or 0.1% of total net assets — See Note 13. |
15 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | plc — Public Limited Company |
| | |
| | See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 37 |
INVESTMENT GRADE BOND FUND | |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments in unaffiliated issuers, at value (cost $156,822,240) | | $ | 153,856,870 | |
Investments in affiliated issuers, at value (cost $3,516,030) | | | 3,514,410 | |
Total investments (cost $160,338,270) | | | 157,371,280 | |
Foreign currency, at value (cost $2,777) | | | 2,777 | |
Prepaid expenses | | | 27,801 | |
Cash | | | 23,966 | |
Receivables: | |
Securities sold | | | 1,365,199 | |
Interest | | | 675,246 | |
Fund shares sold | | | 81,815 | |
Dividends | | | 8,828 | |
Total assets | | | 159,556,912 | |
| | | | | |
Liabilities: | |
Reverse repurchase agreements | | | 10,997,608 | |
Options written, at value (premiums received $15,663) | | | 23,240 | |
Payable for: | |
Securities purchased | | | 1,573,982 | |
Fund shares redeemed | | | 631,877 | |
Distribution and service fees | | | 43,285 | |
Management fees | | | 42,420 | |
Distributions to shareholders | | | 37,908 | |
Transfer agent/maintenance fees | | | 23,674 | |
Fund accounting/administration fees | | | 11,316 | |
Trustees’ fees* | | | 3,563 | |
Miscellaneous | | | 118,116 | |
Total liabilities | | | 13,506,989 | |
Net assets | | $ | 146,049,923 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 180,402,518 | |
Distributions in excess of net investment income | | | (338,751 | ) |
Accumulated net realized loss on investments | | | (31,039,277 | ) |
Net unrealized depreciation on investments | | | (2,974,567 | ) |
Net assets | | $ | 146,049,923 | |
| | | | | |
A-Class: | |
Net assets | | $ | 115,018,962 | |
Capital shares outstanding | | | 6,355,403 | |
Net asset value per share | | $ | 18.10 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 19.00 | |
| | | | | |
C-Class: | |
Net assets | | $ | 24,111,288 | |
Capital shares outstanding | | | 1,337,987 | |
Net asset value per share | | $ | 18.02 | |
| | | | | |
P-Class: | |
Net assets | | $ | 10,149 | |
Capital shares outstanding | | | 560 | |
Net asset value per share | | $ | 18.12 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 6,909,524 | |
Capital shares outstanding | | | 382,331 | |
Net asset value per share | | $ | 18.07 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
38 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
INVESTMENT GRADE BOND FUND | |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Interest | | $ | 6,464,556 | |
Dividends from securities of unaffiliated issuers | | | 229,185 | |
Dividends from securities of affiliated issuers | | | 16,164 | |
Total investment income | | | 6,709,905 | |
| | | | | |
Expenses: | |
Management fees | | | 698,393 | |
Transfer agent/maintenance fees: | |
A-Class | | | 109,776 | |
B-Class | | | 14,197 | |
C-Class | | | 39,449 | |
P-Class** | | | 104 | |
Institutional Class | | | 7,214 | |
Distribution and service fees: | |
A-Class | | | 271,346 | |
B-Class | | | 13,639 | |
C-Class | | | 238,568 | |
P-Class** | | | 12 | |
Fund accounting/administration fees | | | 132,693 | |
Interest expense | | | 78,716 | |
Custodian fees | | | 16,890 | |
Line of credit fees | | | 16,448 | |
Trustees’ fees* | | | 11,910 | |
Tax expense | | | 3 | |
Miscellaneous | | | 188,507 | |
Total expenses | | | 1,837,865 | |
Less: | |
Expenses waived by Adviser | | | (171,425 | ) |
Net expenses | | | 1,666,440 | |
Net investment income | | | 5,043,465 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments in unaffiliated issuers | | | (3,637,904 | ) |
Swap agreements | | | 1,000,910 | |
Foreign currency | | | 13,021 | |
Forward foreign currency exchange contracts | | | 74,169 | |
Options purchased | | | (496,590 | ) |
Options written | | | 221,585 | |
Net realized loss | | | (2,824,809 | ) |
Net change in unrealized appreciation (depreciation) on: | |
Investments in unaffiliated issuers | | | 1,031,699 | |
Investments in affiliated issuers | | | (1,620 | ) |
Swap agreements | | | (555,665 | ) |
Options purchased | | | 42,971 | |
Options written | | | (7,577 | ) |
Net change in unrealized appreciation (depreciation) | | | 509,808 | |
Net realized and unrealized loss | | | (2,315,001 | ) |
Net increase in net assets resulting from operations | | $ | 2,728,464 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 39 |
INVESTMENT GRADE BOND FUND | |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 5,043,465 | | | $ | 3,843,638 | |
Net realized gain (loss) on investments | | | (2,824,809 | ) | | | 1,203,726 | |
Net change in unrealized appreciation (depreciation) on investments | | | 509,808 | | | | 3,816,359 | |
Net increase in net assets resulting from operations | | | 2,728,464 | | | | 8,863,723 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (4,661,405 | ) | | | (3,901,798 | ) |
B-Class | | | (47,942 | ) | | | (90,367 | ) |
C-Class | | | (851,092 | ) | | | (663,466 | ) |
P-Class | | | (186 | )* | | | — | |
Institutional Class | | | (271,114 | ) | | | (43,335 | ) |
Total distributions to shareholders | | | (5,831,739 | ) | | | (4,698,966 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 46,869,449 | | | | 34,856,715 | |
B-Class | | | 52,221 | | | | 113,376 | |
C-Class | | | 10,722,431 | | | | 7,556,050 | |
P-Class | | | 47,999 | * | | | — | |
Institutional Class | | | 10,634,690 | | | | 6,598,753 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 4,442,417 | | | | 3,669,266 | |
B-Class | | | 47,722 | | | | 90,089 | |
C-Class | | | 740,294 | | | | 598,003 | |
P-Class | | | 186 | * | | | — | |
Institutional Class | | | 226,521 | | | | 43,339 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (33,418,832 | ) | | | (25,960,887 | ) |
B-Class | | | (2,196,898 | ) | | | (1,240,203 | ) |
C-Class | | | (7,495,634 | ) | | | (6,049,767 | ) |
P-Class | | | (37,888 | )* | | | — | |
Institutional Class | | | (9,741,384 | ) | | | (925,391 | ) |
Net increase from capital share transactions | | | 20,893,294 | | | | 19,349,343 | |
Net increase in net assets | | | 17,790,019 | | | | 23,514,100 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 128,259,904 | | | | 104,745,804 | |
End of year | | $ | 146,049,923 | | | $ | 128,259,904 | |
Distributions in excess of net investment income at end of year | | $ | (338,751 | ) | | $ | (620,132 | ) |
* | Since the commencement of operations: May 1, 2015. |
40 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
INVESTMENT GRADE BOND FUND | |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 2,543,649 | | | | 1,908,779 | |
B-Class | | | 2,821 | | | | 6,183 | |
C-Class | | | 584,251 | | | | 414,295 | |
P-Class | | | 2,628 | * | | | — | |
Institutional Class | | | 577,777 | | | | 357,987 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 241,345 | | | | 201,435 | |
B-Class | | | 2,590 | | | | 4,978 | |
C-Class | | | 40,376 | | | | 33,009 | |
P-Class | | | 10 | * | | | — | |
Institutional Class | | | 12,321 | | | | 2,362 | |
Shares redeemed | | | | | | | | |
A-Class | | | (1,812,612 | ) | | | (1,424,258 | ) |
B-Class | | | (120,112 | ) | | | (68,669 | ) |
C-Class | | | (409,164 | ) | | | (333,003 | ) |
P-Class | | | (2,078 | )* | | | — | |
Institutional Class | | | (527,752 | ) | | | (50,139 | ) |
Net increase in shares | | | 1,136,050 | | | | 1,052,959 | |
* | Since the commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 41 |
INVESTMENT GRADE BOND FUND | |
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.
A-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Period Ended
September 30,
2012a | | | Year Ended
December 31,
2011b | | | Year Ended
December 31,
2010b | |
Per Share Data | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 18.50 | | | $ | 17.81 | | | $ | 17.92 | | | $ | 17.41 | | | $ | 16.71 | | | $ | 16.20 | |
Income (loss) from investment operations: | |
Net investment income (loss)c | | | .69 | | | | .65 | | | | .61 | | | | .27 | | | | .42 | | | | .40 | |
Net gain (loss) on investments (realized and unrealized) | | | (.30 | ) | | | .83 | | | | (.04 | ) | | | .51 | | | | .74 | | | | .59 | |
Total from investment operations | | | .39 | | | | 1.48 | | | | .57 | | | | .78 | | | | 1.16 | | | | .99 | |
Less distributions from: | |
Net investment income | | | (.79 | ) | | | (.79 | ) | | | (.68 | ) | | | (.27 | ) | | | (.46 | ) | | | (.48 | ) |
Total distributions | | | (.79 | ) | | | (.79 | ) | | | (.68 | ) | | | (.27 | ) | | | (.46 | ) | | | (.48 | ) |
Net asset value, end of period | | $ | 18.10 | | | $ | 18.50 | | | $ | 17.81 | | | $ | 17.92 | | | $ | 17.41 | | | $ | 16.71 | |
| | |
Total Returnd | | | 2.12 | % | | | 8.47 | % | | | 3.21 | % | | | 4.51 | % | | | 6.94 | % | | | 6.11 | % |
Ratios/Supplemental Data | |
Net assets, end of period
(in thousands) | | $ | 115,019 | | | $ | 99,565 | | | $ | 83,642 | | | $ | 98,063 | | | $ | 108,999 | | | $ | 101,971 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.72 | % | | | 3.55 | % | | | 3.40 | % | | | 2.04 | % | | | 2.43 | % | | | 2.51 | % |
Total expensese | | | 1.17 | % | | | 1.19 | % | | | 1.21 | % | | | 1.15 | % | | | 1.15 | % | | | 1.21 | % |
Net expensesf,i | | | 1.07 | % | | | 1.05 | % | | | 1.04 | % | | | 1.00 | % | | | 1.00 | % | | | 0.98 | % |
Portfolio turnover rate | | | 57 | % | | | 61 | % | | | 119 | % | | | 52 | % | | | 43 | % | | | 39 | % |
C-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Period Ended
September 30,
2012a | | | Year Ended
December 31,
2011b | | | Year Ended
December 31,
2010b | |
Per Share Data | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 18.42 | | | $ | 17.73 | | | $ | 17.82 | | | $ | 17.31 | | | $ | 16.62 | | | $ | 16.12 | |
Income (loss) from investment operations: | |
Net investment income (loss)c | | | .55 | | | | .51 | | | | .48 | | | | .17 | | | | .29 | | | | .28 | |
Net gain (loss) on investments (realized and unrealized) | | | (.30 | ) | | | .83 | | | | (.05 | ) | | | .51 | | | | .73 | | | | .54 | |
Total from investment operations | | | .25 | | | | 1.34 | | | | .43 | | | | .68 | | | | 1.02 | | | | .82 | |
Less distributions from: | |
Net investment income | | | (.65 | ) | | | (.65 | ) | | | (.52 | ) | | | (.17 | ) | | | (.33 | ) | | | (.32 | ) |
Total distributions | | | (.65 | ) | | | (.65 | ) | | | (.52 | ) | | | (.17 | ) | | | (.33 | ) | | | (.32 | ) |
Net asset value, end of period | | $ | 18.02 | | | $ | 18.42 | | | $ | 17.73 | | | $ | 17.82 | | | $ | 17.31 | | | $ | 16.62 | |
| | |
Total Returnd | | | 1.36 | % | | | 7.69 | % | | | 2.42 | % | | | 3.95 | % | | | 6.32 | % | | | 5.05 | % |
Ratios/Supplemental Data | |
Net assets, end of period
(in thousands) | | $ | 24,111 | | | $ | 20,673 | | | $ | 17,876 | | | $ | 20,929 | | | $ | 22,035 | | | $ | 19,284 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.00 | % | | | 2.80 | % | | | 2.65 | % | | | 1.29 | % | | | 1.68 | % | | | 1.76 | % |
Total expensese | | | 1.99 | % | | | 1.99 | % | | | 2.03 | % | | | 1.92 | % | | | 1.90 | % | | | 1.96 | % |
Net expensesf,i | | | 1.82 | % | | | 1.80 | % | | | 1.79 | % | | | 1.75 | % | | | 1.75 | % | | | 1.73 | % |
Portfolio turnover rate | | | 57 | % | | | 61 | % | | | 119 | % | | | 52 | % | | | 43 | % | | | 39 | % |
42 | 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.
P-Class | | Period Ended
September 30,
2015g | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 18.45 | |
Income (loss) from investment operations: | |
Net investment income (loss)c | | | .25 | |
Net gain (loss) on investments (realized and unrealized) | | | (.26 | ) |
Total from investment operations | | | (.01 | ) |
Less distributions from: | |
Net investment income | | | (.32 | ) |
Total distributions | | | (.32 | ) |
Net asset value, end of period | | $ | 18.12 | |
| | | | | |
Total Returnd | | | (0.11 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 10 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.25 | % |
Total expensese | | | 3.29 | % |
Net expensesf,i | | | 1.09 | % |
Portfolio turnover rate | | | 57 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 43 |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Period Ended
September 30,
2013h | |
Per Share Data | | | | | | | | | |
Net asset value, beginning of period | | $ | 18.47 | | | $ | 17.80 | | | $ | 18.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)c | | | .74 | | | | .68 | | | | .46 | |
Net gain (loss) on investments (realized and unrealized) | | | (.31 | ) | | | .83 | | | | (.21 | ) |
Total from investment operations | | | .43 | | | | 1.51 | | | | .25 | |
Less distributions from: | |
Net investment income | | | (.83 | ) | | | (.84 | ) | | | (.45 | ) |
Total distributions | | | (.83 | ) | | | (.84 | ) | | | (.45 | ) |
Net asset value, end of period | | $ | 18.07 | | | $ | 18.47 | | | $ | 17.80 | |
| | |
Total Returnd | | | 2.37 | % | | | 8.64 | % | | | 1.35 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 6,910 | | | $ | 5,909 | | | $ | 174 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 4.01 | % | | | 3.72 | % | | | 3.85 | % |
Total expensese | | | 0.94 | % | | | 0.88 | % | | | 1.17 | % |
Net expensesf,i | | | 0.82 | % | | | 0.78 | % | | | 0.82 | % |
Portfolio turnover rate | | | 57 | % | | | 61 | % | | | 119 | % |
a | The Fund changed its fiscal year end from December 31 to September 30 in 2012. |
b | 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. |
c | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
d | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
e | Does not include expenses of the underlying funds in which the Fund invests. |
f | Net expense information reflects the expense ratios after expense waivers. |
g | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
h | Since commencement of operations: January 29, 2013. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
i | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the years would be: |
| | 09/30/15 | 09/30/14 | 09/30/13 |
A-Class | 1.00% | 1.00% | 1.02% |
C-Class | 1.75% | 1.75% | 1.77% |
P-Class | 1.00% | — | — |
Institutional Class | 0.75% | 0.75% | 0.77% |
44 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
To Our Shareholders
Guggenheim Limited Duration Fund (the “Fund”) is managed by a team of seasoned professionals, including Anne B. Walsh, Senior Managing Director and Assistant Chief Investment Officer; 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 fiscal year ended September 30, 2015.
For the one-year period ended September 30, 2015, Guggenheim Limited Duration Fund returned 2.15%1, compared with the 1.20% return of its benchmark, the Barclays U.S. Aggregate Bond 1-3 Year Index.
The Fund seeks to provide a high level of income consistent with the preservation of capital. It invests at least 80% of its assets in a diversified portfolio of debt securities.
At the start of the period, market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities sparked risk aversion that drove market volatility. After a second-straight winter soft patch, and a dramatic drop in the price of oil, U.S. economic data began to strengthen in 2015, appearing to provide support for the Fed to proceed with raising interest rates sometime in 2015. The world kept a watchful eye on the Fed during the summer, as headlines moved from Greece to China, as China devalued the yuan in August, the first time in 20 years. As China’s move sent shockwaves through global financial markets, the Fed opted to keep rates zero-bound at its September meeting, citing concerns about potential downside risks to the U.S. outlook posed by recent global market volatility.
A key to Fund performance for the period was price appreciation stemming from the general tightening of credit spreads, except during the last few weeks of the period. Positive returns were driven largely by good credit selection in asset-backed securities (including collateralized loan obligations, or CLOs, and aircraft securitizations), mortgage-backed securities (including commercial mortgage-backed securities and non-agency residential mortgage-backed securities, or NARMBS), preferred securities, and bank loans. There were no significant detractors from performance for the period. Derivative use in the portfolio was nearly zero during the period and neutral to performance.
The chief attributes of the Fund over the period were holding a majority of the portfolio in structured credit, including commercial ABS and collateralized loan obligations (CLOs); and building up exposure to non-agency residential mortgage backed securities (NARMBS). The Fund believes the residential sector has been offering good relative value due to low interest rates, an improving residential real estate market, and strong economic fundamentals.
A majority of the Fund’s structured credit holdings feature floating rates, yields higher than traditional securitized assets like auto or credit-card receivables, and, often, investment-grade ratings. The Fund believes that commercial ABS and CLOs offer some downside protection, and amortizing structures to keep credit exposure lower over time. Many of the NARMBS were purchased at discounts and also typically have floating coupons that help keep duration short. Floating rate instruments accounted for more than half the portfolio at the end of the period.
Besides the increase in NARMBS, another notable position change over the period included a reduction in exposure to leveraged credit. The cut in leveraged credit by more than half over the course of the 12 months was partly in response to deteriorating fundamentals in the energy market and in anticipation of volatility associated with a market correction or rising interest rates. As the Fund became more defensive, overall portfolio liquidity increased and average credit quality improved across sectors.
Guggenheim believes an accommodative Fed supports a benign credit environment, and the U.S. economy is well positioned for continued growth. The Fed may not have the clarity it seeks to tighten U.S. monetary policy anytime soon, which means rates will remain low for an extended period. The Fund will continue to focus on allocating to structured credit that should shield investors from rate volatility without having to sacrifice yield.
Periods of economic expansion have coincided with tightening spreads and low defaults, and economic data for the period indicate the U.S. expansion remains on track. Still, the watchword across risk assets in the past few months has been caution, as credit spreads widened during heightened market volatility. The Fund takes advantage of such periods of widening to add to spread duration and to take on more risk in expectation of a rebound.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 45 |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
The Fund invests excess cash into the Guggenheim Strategy Funds which, in turn, invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital. For the one-year period ended September 30, 2015, investment in the Guggenheim Strategy Funds has benefited Fund performance relative to investing in other short-term investments such as overnight repurchase agreements.
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.
46 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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 or investments in Guggenheim Strategy Funds Trust mutual funds. Investments in those Funds do not provide “market exposure” to meet the fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
Inception Dates: |
A-Class | December 16, 2013 |
C-Class | December 16, 2013 |
P-Class | May 1, 2015 |
Institutional Class | December 16, 2013 |
Ten Largest Holdings (% of Total Net Assets) |
Guggenheim Strategy Fund I | 2.4% |
Banc of America Funding Ltd. | 1.8% |
Triaxx Prime CDO Ltd. | 1.8% |
ARES XII CLO Ltd. | 1.6% |
Black Diamond CLO Ltd. | 1.6% |
Fortress Credit BSL II Ltd. | 1.6% |
GoldenTree Loan Opportunities VII Ltd. | 1.6% |
Golub Capital Partners CLO Ltd. | 1.6% |
Great Lakes CLO Ltd. | 1.6% |
LSTAR Securities Investment Trust | 1.4% |
Top Ten Total | 17.0% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
Portfolio Composition by Quality Rating1 |
Rating | |
Fixed Income Instruments | |
AAA | 13.9% |
AA | 13.4% |
A | 13.7% |
BBB | 11.8% |
BB | 7.0% |
B | 2.6% |
CCC | 2.1% |
D | 0.1% |
NR2 | 22.9% |
Other Instruments | 12.5% |
Total Investments | 100.0% |
| | |
The chart above reflects percentages of the value of total investments. |
1 | Source: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities except for those labeled “NR” have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Security ratings are determined at the time of purchase and may change thereafter. |
2 | NR securities do not necessarily indicate low credit quality. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 47 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | | 1 Year | Since Inception
(12/16/13) |
A-Class Shares | | 2.15% | 2.18% |
A-Class Shares with sales charge† | | -0.13% | 0.88% |
C-Class Shares | | 1.37% | 1.40% |
C-Class Shares with CDSC‡ | | 0.38% | 1.40% |
Institutional Class Shares | | 2.41% | 2.46% |
Barclays U.S. Aggregate Bond 1-3 Year Index | | 1.20% | 1.01% |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | 0.32% |
Barclays U.S. Aggregate Bond 1-3 Year Index | | | 0.39% |
* | 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. The graph is based on A-Class shares only; performance for C-Class shares, P-Class shares and Institutional Class shares will vary due to differences in fee structures. |
† | Fund returns are calculated using the maximum sales charge of 2.25%. |
‡ | 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, 2015 |
LIMITED DURATION FUND | |
| | |
Shares
| | | Value | |
| | | | | | | |
PREFERRED STOCKS†† - 0.2% | |
| | | | | | | |
Industrial - 0.2% | |
Seaspan Corp. 6.38% due 04/30/191 | | | 20,000 | | | $ | 495,200 | |
Total Preferred Stocks | | | | | | | | |
(Cost $503,824) | | | | | | | 495,200 | |
| | | | | | | | | |
MUTUAL FUNDS† - 2.4% | |
Guggenheim Strategy Fund I2 | | | 292,165 | | | | 7,269,053 | |
Total Mutual Funds | | | | | | | | |
(Cost $7,273,589) | | | | | | | 7,269,053 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 3.8% | |
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%12 | | | 11,514,574 | | | | 11,514,574 | |
Total Short Term Investments | | | | | | | | |
(Cost $11,514,574) | | | | | | | 11,514,574 | |
| | | Face
Amount | | | | |
| | | | | | | |
ASSET-BACKED SECURITIES†† - 50.4% | |
Collateralized Loan Obligations - 41.5% | |
Fortress Credit BSL II Ltd. | | | | | | |
2013-2A, 1.79% due 10/19/253,4,5 | | $ | 5,000,000 | | | | 4,932,126 | |
2013-2A, 2.54% due 10/19/254,5 | | | 1,500,000 | | | | 1,479,362 | |
Golub Capital Partners CLO Ltd. | | | | | | | | |
2015-25A, 2.29% due 08/05/274,5 | | | 5,000,000 | | | | 4,944,123 | |
2014-10AR, 3.24% due 10/20/214,5 | | | 700,000 | | | | 697,801 | |
2014-21A, 2.75% due 10/25/264,5 | | | 500,000 | | | | 489,378 | |
2014-18A, 3.80% due 04/25/264,5 | | | 250,000 | | | | 244,157 | |
MT Wilson Clo II Ltd. | | | | | | | | |
2007-2A, 1.29% due 07/11/204,5 | | | 4,500,000 | | | | 4,371,087 | |
2007-2A, 3.04% due 07/11/204,5 | | | 1,000,000 | | | | 967,462 | |
Great Lakes CLO Ltd. | | | | | | | | |
2015-1A, 2.22% due 07/15/264,5 | | | 5,000,000 | | | | 4,947,380 | |
2014-1A, 3.99% due 04/15/254,5 | | | 250,000 | | | | 248,172 | |
Ares XII CLO Ltd. | | | | | | | | |
2007-12A, 2.33% due 11/25/204,5 | | | 5,000,000 | | | | 4,982,068 | |
Black Diamond CLO Ltd. | | | | | | | | |
2013-1A, 1.70% due 02/01/234,5 | | | 5,000,000 | | | | 4,952,117 | |
GoldenTree Loan Opportunities VII Ltd. | | | | | | | | |
2013-7A, 1.45% due 04/25/254,5 | | | 5,000,000 | | | | 4,900,349 | |
CIFC Funding Ltd. | | | | | | | | |
2015-2A, 2.23% due 12/05/243,4,5 | | | 2,000,000 | | | | 1,995,418 | |
2007-1A, 1.81% due 05/10/214,5 | | | 1,000,000 | | | | 966,547 | |
2013-3A, 3.29% due 01/29/254,5 | | | 600,000 | | | | 595,790 | |
2006-1BA, 4.32% due 12/22/204,5 | | | 500,000 | | | | 496,827 | |
Fifth Street SLF II Ltd. | | | | | | | | |
2015-2A, 2.25% due 09/29/274,5 | | | 3,000,000 | | | | 2,979,900 | |
Rampart CLO Ltd. | | | | | | | | |
2007-1A, 2.17% due 10/25/214,5 | | | 3,000,000 | | | | 2,970,445 | |
Cavalry CLO II | | | | | | |
2013-2A, 1.64% due 01/17/244,5 | | | 3,000,000 | | | | 2,957,429 | |
KKR CLO 12 Ltd. | | | | | | | | |
2015-12, 2.58% due 07/15/274,5 | | | 2,500,000 | | | | 2,485,432 | |
Portola CLO Ltd. | | | | | | | | |
2007-1A, 3.82% due 11/15/214,5 | | | 2,000,000 | | | | 2,005,912 | |
Venture CLO Ltd. | | | | | | | | |
2015-11A, 2.26% due 11/14/223,4,5 | | | 2,000,000 | | | | 1,995,538 | |
Dryden XXIV Senior Loan Fund | | | | | | | | |
2015-24RA, 3.02% due 11/15/233,4,5 | | | 2,000,000 | | | | 1,994,877 | |
Fortress Credit Funding V, LP | | | | | | | | |
2015-5A, 2.92% due 08/15/224,5 | | | 2,000,000 | | | | 1,991,604 | |
Garrison Funding Ltd. | | | | | | | | |
2015-1A, 2.78% due 05/25/274,5 | | | 2,000,000 | | | | 1,985,186 | |
KKR CLO Trust | | | | | | | | |
2012-1A, 2.49% due 12/15/244,5 | | | 2,000,000 | | | | 1,980,533 | |
FS Senior Funding 2015-1 Ltd. | | | | | | | | |
2015-1A, 3.03% due 05/28/254,5 | | | 2,000,000 | | | | 1,972,800 | |
Fortress Credit Opportunities V CLO Ltd. | | | | | | | | |
2014-5A, 2.93% due 10/15/264,5 | | | 1,000,000 | | | | 988,216 | |
2014-5A, 3.83% due 10/15/264,5 | | | 1,000,000 | | | | 980,349 | |
Steele Creek CLO Ltd. | | | | | | | | |
2014-1A, 2.58% due 08/21/264,5 | | | 2,000,000 | | | | 1,966,013 | |
Airlie CLO Ltd. | | | | | | | | |
2006-2A, 1.74% due 12/20/204,5 | | | 2,000,000 | | | | 1,868,228 | |
OFSI Fund V Ltd. | | | | | | | | |
2013-5A, 3.49% due 04/17/254,5 | | | 1,500,000 | | | | 1,478,035 | |
Flagship CLO VI | | | | | | | | |
2007-1A, 2.73% due 06/10/214,5 | | | 1,500,000 | | | | 1,473,565 | |
Dryden 37 Senior Loan Fund | | | | | | | | |
2015-37A, due 04/15/275,6 | | | 1,500,000 | | | | 1,400,011 | |
Venture VII CDO Ltd. | | | | | | | | |
2006-7A, 0.52% due 01/20/224,5 | | | 1,332,766 | | | | 1,307,327 | |
Cerberus Onshore II CLO LLC | | | | | | | | |
2014-1A, 2.32% due 10/15/234,5 | | | 850,537 | | | | 850,179 | |
2014-1A, 2.99% due 10/15/234,5 | | | 250,000 | | | | 249,743 | |
Symphony CLO IX, LP | | | | | | | | |
2012-9A, 4.54% due 04/16/224,5 | | | 600,000 | | | | 596,507 | |
2012-9A, 3.54% due 04/16/224,5 | | | 500,000 | | | | 499,611 | |
Kingsland V Ltd. | | | | | | | | |
2007-5A, 1.09% due 07/14/214,5 | | | 1,070,000 | | | | 1,022,000 | |
Symphony CLO Ltd. | | | | | | | | |
2015-10AR, 3.14% due 07/23/234,5 | | | 1,000,000 | | | | 1,004,747 | |
Voya CLO Ltd. | | | | | | | | |
2015-3AR, 3.24% due 10/15/224,5 | | | 1,000,000 | | | | 1,004,071 | |
Benefit Street Partners CLO Ltd. | | | | | | | | |
2015-IA, 3.23% due 10/15/254,5 | | | 1,000,000 | | | | 1,002,300 | |
Ares XXIII CLO Ltd. | | | | | | | | |
2014-1AR, 3.49% due 04/19/234,5 | | | 1,000,000 | | | | 1,000,053 | |
Highbridge Loan Management Ltd. | | | | | | | | |
2014-1A, 2.57% due 09/20/224,5 | | | 1,000,000 | | | | 999,943 | |
Madison Park Funding VIII Ltd. | | | | | | | | |
2014-8A, 3.10% due 04/22/224,5 | | | 500,000 | | | | 500,012 | |
2014-8A, 2.50% due 04/22/224,5 | | | 500,000 | | | | 498,542 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 49 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
LIMITED DURATION FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
ACAS CLO Ltd. | | | | | | |
2014-1AR, 2.64% due 09/20/234,5 | | $ | 1,000,000 | | | $ | 998,210 | |
Marea CLO Ltd. | | | | | | | | |
2015-1A, 2.09% due 10/15/234,5 | | | 1,000,000 | | | | 997,661 | |
Oxford Finance Funding Trust | | | | | | | | |
2014-1A, 3.48% due 12/15/225 | | | 1,000,000 | | | | 997,300 | |
Northwoods Capital XIV Ltd. | | | | | | | | |
2014-14A, 2.77% due 11/12/253,4,5 | | | 1,000,000 | | | | 997,066 | |
Marea CLO 2012-1 Ltd. | | | | | | | | |
2015-1A, 3.04% due 10/15/234,5 | | | 1,000,000 | | | | 996,383 | |
Vibrant CLO Limited 2012-1 | | | | | | | | |
2015-1A, 2.38% due 07/17/244,5 | | | 1,000,000 | | | | 995,302 | |
Adirondack Park CLO Ltd. | | | | | | | | |
2013-1A, 3.29% due 04/15/244,5 | | | 1,000,000 | | | | 994,687 | |
Golub Capital Partners Clo 24M Ltd. | | | | | | | | |
2015-24A, 4.02% due 02/05/274,5 | | | 1,000,000 | | | | 994,397 | |
Oaktree EIF II Series Ltd. | | | | | | | | |
2014-A2, 2.57% due 11/15/253,4,5 | | | 1,000,000 | | | | 991,762 | |
Golub Capital Partners Clo 23M Ltd. | | | | | | | | |
2015-23A, 2.14% due 05/05/274,5 | | | 1,000,000 | | | | 990,750 | |
Fortress Credit Opportunities VI CLO Ltd. | | | | | | | | |
2015-6A, 2.97% due 10/10/264,5 | | | 1,000,000 | | | | 989,551 | |
Fortress Credit Investments IV Ltd. | | | | | | | | |
2015-4A, 2.22% due 07/17/234,5 | | | 1,000,000 | | | | 986,016 | |
Fortress Credit Opportunities III CLO, LP | | | | | | | | |
2014-3A, 2.82% due 04/28/264,5 | | | 1,000,000 | | | | 984,931 | |
Battalion CLO Ltd. | | | | | | | | |
2007-1A, 2.44% due 07/14/224,5 | | | 1,000,000 | | | | 981,387 | |
San Gabriel CLO Ltd. | | | | | | | | |
2007-1A, 2.58% due 09/10/214,5 | | | 1,000,000 | | | | 980,746 | |
Black Diamond CLO Delaware Corp. | | | | | | | | |
2005-2A, 2.12% due 01/07/184,5 | | | 1,000,000 | | | | 978,482 | |
Duane Street CLO IV Ltd. | | | | | | | | |
2007-4A, 2.56% due 11/14/214,5 | | | 1,000,000 | | | | 969,915 | |
Westbrook CLO Ltd. | | | | | | | | |
2006-1A, 2.05% due 12/20/204,5 | | | 1,000,000 | | | | 966,312 | |
Madison Park Funding V Ltd. | | | | | | | | |
2007-5A, 1.78% due 02/26/214,5 | | | 1,000,000 | | | | 952,274 | |
Treman Park CLO Ltd. | | | | | | | | |
2015-1A, due 04/20/275,6 | | | 1,000,000 | | | | 952,100 | |
OHA Credit Partners IX Ltd. | | | | | | | | |
2013-9A, due 10/20/255,6 | | | 1,000,000 | | | | 930,071 | |
Rockwall CDO Ltd. | | | | | | | | |
2007-1A, 0.85% due 08/01/244,5 | | | 1,000,000 | | | | 915,378 | |
KVK CLO Ltd. | | | | | | | | |
2014-2A, 3.29% due 07/15/264,5 | | | 500,000 | | | | 478,386 | |
2013-1A, due 04/14/255,6 | | | 750,000 | | | | 429,781 | |
Venture VI CDO Ltd. | | | | | | | | |
2006-1A, 1.78% due 08/03/204,5 | | | 850,000 | | | | 820,805 | |
Race Point V CLO Ltd. | | | | | | | | |
2014-5A, 4.09% due 12/15/224,5 | | | 750,000 | | | | 748,517 | |
Gramercy Park CLO Ltd. | | | | | | | | |
2014-1A, 3.22% due 07/17/234,5 | | | 700,000 | | | | 700,011 | |
Connecticut Valley Structured Credit CDO III Ltd. | | | | | | | | |
2006-3A, 6.67% due 03/23/235 | | | 441,767 | | | | 440,579 | |
2006-3A, 0.98% due 03/23/234,5 | | | 241,806 | | | | 238,842 | |
Babson CLO Ltd. | | | | | | | | |
2012-2A, due 05/15/235,6 | | | 750,000 | | | | 559,059 | |
LCM X, LP | | | | | | | | |
2014-10AR, 3.14% due 04/15/224,5 | | | 500,000 | | | | 500,959 | |
Gale Force 4 CLO Ltd. | | | | | | | | |
2007-4A, 3.83% due 08/20/214,5 | | | 500,000 | | | | 500,153 | |
Cent CLO 16, LP | | | | | | | | |
2014-16AR, 3.50% due 08/01/244,5 | | | 500,000 | | | | 500,060 | |
OZLM Funding Ltd. | | | | | | | | |
2012-2A, 3.55% due 10/30/234,5 | | | 500,000 | | | | 499,964 | |
Babson Mid-Market CLO Incorporated 2007-II | | | | | | | | |
2007-2A, 1.99% due 04/15/214,5 | | | 500,000 | | | | 499,889 | |
Cerberus Onshore II CLO-2 LLC | | | | | | | | |
2014-1A, 2.98% due 10/15/234,5 | | | 500,000 | | | | 499,430 | |
Cent CLO, LP | | | | | | | | |
2014-16AR, 2.55% due 08/01/244,5 | | | 500,000 | | | | 499,347 | |
BlueMountain CLO 2012-2 Ltd. | | | | | | | | |
2012-2A, 3.08% due 11/20/244,5 | | | 500,000 | | | | 498,813 | |
COA Summit CLO Limited | | | | | | | | |
2014-1A, 4.14% due 04/20/234,5 | | | 500,000 | | | | 497,017 | |
Anchorage Capital CLO 4 Ltd. | | | | | | | | |
2014-4A, 2.45% due 07/28/264,5 | | | 500,000 | | | | 496,039 | |
Gallatin CLO VII Ltd. | | | | | | | | |
2014-1A, 3.19% due 07/15/234,5 | | | 500,000 | | | | 495,556 | |
ALM VII R-2 Ltd. | | | | | | | | |
2013-7R2A, 2.89% due 04/24/244,5 | | | 500,000 | | | | 494,696 | |
Katonah Ltd. | | | | | | | | |
2007-10A, 2.33% due 04/17/204,5 | | | 500,000 | | | | 494,639 | |
Shackleton II CLO Ltd. | | | | | | | | |
2012-2A, 4.34% due 10/20/234,5 | | | 500,000 | | | | 491,321 | |
Halcyon Loan Advisors Funding Ltd. | | | | | | | | |
2012-1A, 3.32% due 08/15/234,5 | | | 500,000 | | | | 490,225 | |
ColumbusNova CLO Ltd. | | | | | | | | |
2007-1A, 1.67% due 05/16/194,5 | | | 500,000 | | | | 488,388 | |
Madison Park Funding III Ltd. | | | | | | | | |
2006-3A, 1.72% due 10/25/204,5 | | | 500,000 | | | | 484,907 | |
Katonah IX CLO Ltd. | | | | | | | | |
2006-9A, 1.70% due 01/25/194,5 | | | 500,000 | | | | 484,644 | |
Figueroa CLO 2013-1 Ltd. | | | | | | | | |
2013-1A, 3.08% due 03/21/244,5 | | | 500,000 | | | | 484,318 | |
WhiteHorse IV Ltd. | | | | | | | | |
2007-4A, 1.74% due 01/17/204,5 | | | 500,000 | | | | 483,774 | |
Telos CLO 2013-4 Ltd. | | | | | | | | |
2013-4A, 3.04% due 07/17/244,5 | | | 500,000 | | | | 480,354 | |
NewStar Arlington Senior Loan Program LLC | | | | | | | | |
2014-1A, 3.60% due 07/25/254,5 | | | 250,000 | | | | 241,889 | |
2014-1A, 4.55% due 07/25/254,5 | | | 250,000 | | | | 235,306 | |
Shasta CLO Ltd. | | | | | | | | |
2007-1A, 1.69% due 04/20/214,5 | | | 500,000 | | | | 474,808 | |
50 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
LIMITED DURATION FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
ALM XIV Ltd. | | | | | | |
2014-14A, 3.74% due 07/28/264,5 | | $ | 500,000 | | | $ | 471,783 | |
CIFC Funding 2012-III Ltd. | | | | | | | | |
2013-3A, 4.54% due 01/29/254,5 | | | 400,000 | | | | 399,981 | |
Keuka Park CLO Ltd. | | | | | | | | |
2013-1A, due 10/21/245,6 | | | 500,000 | | | | 350,518 | |
Kingsland IV Ltd. | | | | | | | | |
2007-4A, 1.74% due 04/16/214,5 | | | 250,000 | | | | 234,868 | |
Golub Capital Partners CLO 18 Ltd. | | | | | | | | |
2014-18A, 4.30% due 04/25/264,5 | | | 250,000 | | | | 232,195 | |
Neuberger Berman CLO Ltd. | | | | | | | | |
2012-12A, due 07/25/235,6 | | | 350,000 | | | | 212,706 | |
Copper River CLO Ltd. | | | | | | | | |
2007-1A, due 01/20/214,5,6 | | | 500,000 | | | | 94,051 | |
Total Collateralized Loan Obligations | | | | | | | 127,488,531 | |
| | | | | | | | | |
Collateralized Debt Obligations - 5.2% | |
Triaxx Prime CDO Ltd. | | | | | | | | |
2006-2A, 0.45% due 10/02/394,5 | | | 5,741,038 | | | | 5,397,150 | |
PFP Ltd. | | | | | | | | |
2015-2, 2.21% due 07/14/344,5 | | | 3,000,000 | | | | 2,988,891 | |
SRERS Funding Ltd. | | | | | | | | |
2011-RS, 0.44% due 05/09/464,5 | | | 2,538,339 | | | | 2,435,978 | |
Resource Capital Corporation Ltd. | | | | | | | | |
2015-CRE4, 1.60% due 08/15/324,5 | | | 2,000,000 | | | | 1,990,000 | |
Resource Capital Corporation | | | | | | | | |
2015-CRE3, 3.35% due 03/15/324,5 | | | 1,000,000 | | | | 999,998 | |
Wrightwood Capital Real Estate CDO Ltd. | | | | | | | | |
2005-1A, 0.76% due 11/21/404,5 | | | 700,000 | | | | 663,598 | |
Highland Park CDO I Ltd. | | | | | | | | |
2006-1A, 0.66% due 11/25/514,5 | | | 602,015 | | | | 579,028 | |
Helios Series I Multi Asset CBO Ltd. | | | | | | | | |
2001-1A, 1.29% due 12/13/364,5 | | | 461,064 | | | | 442,459 | |
Gramercy Real Estate CDO Ltd. | | | | | | | | |
2007-1A, 0.60% due 08/15/564,5 | | | 456,011 | | | | 420,332 | |
Total Collateralized Debt Obligations | | | | | | | 15,917,434 | |
| | | | | | | | | |
Transport-Aircraft - 2.9% | |
AIM Aviation Finance Ltd. | | | | | | | | |
2015-1A, 4.21% due 02/15/405 | | | 1,916,667 | | | | 1,916,816 | |
Diamond Head Aviation Ltd. | | | | | | | | |
2015-1, 3.81% due 07/14/285 | | | 1,907,289 | | | | 1,897,371 | |
AASET | | | | | | | | |
2014-1, 5.12% due 12/15/294 | | | 1,177,885 | | | | 1,160,216 | |
2014-1, 7.37% due 12/15/294 | | | 471,154 | | | | 471,154 | |
ECAF I Ltd. | | | | | | | | |
2015-1A, 5.80% due 06/15/405 | | | 1,000,000 | | | | 1,016,875 | |
Atlas Ltd. | | | | | | | | |
2014-1, 4.87% due 12/15/39††† | | | 963,500 | | | | 971,372 | |
Castlelake Aircraft Securitization Trust | | | | | | | | |
2014-1, 7.50% due 02/15/295 | | | 372,255 | | | | 369,091 | |
2014-1, 5.25% due 02/15/295 | | | 372,255 | | | | 368,607 | |
Rise Ltd. | | | | | | | | |
4.74% due 02/12/39 | | | 450,521 | | | | 453,900 | |
AABS Ltd. | | | | | | | | |
4.87% due 01/15/38 | | | 416,667 | | | | 419,250 | |
Total Transport-Aircraft | | | | | | | 9,044,652 | |
| | | | | | | | | |
Financial - 0.3% | |
H2 Asset Funding Ltd. | | | | | | | | |
2.11% due 03/19/37 | | | 1,000,000 | | | | 992,562 | |
| | | | | | | | | |
Communications - 0.3% | |
Miramax LLC | | | | | | | | |
2014-1A, 3.34% due 07/20/265 | | | 826,800 | | | | 830,273 | |
| | | | | | | | | |
Insurance - 0.2% | |
Chesterfield Financial Holdings LLC | | | | | | | | |
2014-1A, 4.50% due 12/15/345 | | | 705,750 | | | | 705,679 | |
Total Asset-Backed Securities | | | | | | | | |
(Cost $155,483,691) | | | | | | | 154,979,131 | |
| | | | | | | | | |
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 29.7% | |
Residential Mortgage-Backed Securities - 22.6% | |
LSTAR Securities Investment Trust | | | | | | | | |
2015-1, 2.19% due 01/01/204,5 | | | 4,445,829 | | | | 4,383,143 | |
2014-1, 3.29% due 09/01/214,5 | | | 3,790,833 | | | | 3,790,833 | |
2015-2, 2.19% due 01/01/204,5 | | | 3,856,911 | | | | 3,783,630 | |
2015-4, 2.19% due 04/01/204,5 | | | 3,359,302 | | | | 3,291,444 | |
2015-3, 2.20% due 03/01/204,5 | | | 2,912,311 | | | | 2,857,851 | |
2015-6, 2.19% due 05/01/204,5 | | | 2,830,154 | | | | 2,779,494 | |
2015-5, 2.19% due 04/01/204,5 | | | 2,145,923 | | | | 2,102,146 | |
Banc of America Funding Ltd. | | | | | | | | |
2013-R1, 0.41% due 11/03/414,5 | | | 6,059,974 | | | | 5,637,593 | |
Nationstar HECM Loan Trust | | | | | | | | |
2015-1A, 3.84% due 05/25/185 | | | 2,742,370 | | | | 2,761,237 | |
2014-1A, 4.50% due 11/25/175 | | | 1,431,057 | | | | 1,446,699 | |
Oak Hill Advisors Residential Loan Trust | | | | | | | | |
2015-NPL2, 3.72% due 07/25/555 | | | 2,864,743 | | | | 2,852,859 | |
2015-NPL1, 3.47% due 01/25/555 | | | 938,383 | | | | 937,390 | |
NRPL Trust | | | | | | | | |
2014-2A, 3.75% due 10/25/574,5 | | | 1,900,316 | | | | 1,886,064 | |
2015-1A, 3.88% due 11/01/545 | | | 1,826,553 | | | | 1,829,182 | |
GCAT LLC | | | | | | | | |
2014-2, 3.72% due 10/25/195,7 | | | 1,830,799 | | | | 1,840,989 | |
2015-1, 3.63% due 05/26/205 | | | 1,739,316 | | | | 1,738,208 | |
VOLT XXXIII LLC | | | | | | | | |
2015-NPL5, 3.50% due 03/25/555 | | | 3,434,727 | | | | 3,421,540 | |
VOLT XXVII LLC | | | | | | | | |
2014-NPL7, 3.38% due 08/27/575 | | | 2,436,204 | | | | 2,433,824 | |
Nomura Resecuritization Trust | | | | | | | | |
2015-4R, 0.56% due 03/26/364,5 | | | 2,068,038 | | | | 1,834,763 | |
2012-1R, 0.64% due 08/27/474,5 | | | 350,788 | | | | 330,723 | |
Vericrest Opportunity Loan Trust | | | | | | | | |
2015-NPL3, 3.38% due 10/25/585 | | | 2,082,793 | | | | 2,076,568 | |
AJAX Mortgage Loan Trust | | | | | | | | |
2015-A, 3.88% due 11/25/545 | | | 1,936,329 | | | | 1,925,872 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
LIMITED DURATION FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
VOLT XXXIV LLC | | | | | | |
2015-NPL7, 3.25% due 02/25/555 | | $ | 1,908,148 | | | $ | 1,892,181 | |
BCAP LLC Trust | | | | | | | | |
2014-RR3, 0.31% due 10/26/364,5 | | | 2,006,339 | | | | 1,887,363 | |
Structured Asset Investment Loan Trust | | | | | | | | |
2005-2, 0.93% due 03/25/354 | | | 1,000,000 | | | | 933,903 | |
2005-1, 0.91% due 02/25/354,5 | | | 550,000 | | | | 516,312 | |
CSMC Series | | | | | | | | |
2014-6R, 0.37% due 09/27/364,5 | | | 818,944 | | | | 777,844 | |
2014-2R, 0.40% due 02/27/464,5 | | | 480,352 | | | | 444,854 | |
CIT Mortgage Loan Trust | | | | | | | | |
2007-1, 1.64% due 10/25/374,5 | | | 1,252,156 | | | | 1,191,070 | |
Encore Credit Receivables Trust | | | | | | | | |
2005-4, 0.63% due 01/25/364 | | | 1,077,390 | | | | 996,255 | |
UCFC Manufactured Housing Contract | | | | | | | | |
1997-2, 7.38% due 10/15/28 | | | 715,706 | | | | 774,386 | |
First Frankin Mortgage Loan Trust | | | | | | | | |
2006-FF4, 0.38% due 03/25/364 | | | 814,711 | | | | 755,760 | |
GreenPoint Mortgage Funding Trust | | | | | | | | |
2005-HE4, 0.90% due 07/25/304 | | | 749,373 | | | | 724,359 | |
Structured Asset Securities Corporation Mortgage Loan Trust | | | | | | | | |
2007-BC1, 0.32% due 02/25/374 | | | 600,000 | | | | 526,000 | |
HarborView Mortgage Loan Trust | | | | | | | | |
2006-12, 0.41% due 01/19/384 | | | 507,427 | | | | 428,104 | |
GSAMP Trust | | | | | | | | |
2005-HE6, 0.63% due 11/25/354 | | | 450,000 | | | | 419,105 | |
Residential Asset Securitization Trust | | | | | | | | |
2006-A12, 6.25% due 11/25/36 | | | 560,697 | | | | 411,660 | |
Accredited Mortgage Loan Trust | | | | | | | | |
2007-1, 0.32% due 02/25/374 | | | 375,554 | | | | 357,524 | |
Soundview Home Loan Trust | | | | | | | | |
2003-1, 2.44% due 08/25/314 | | | 232,984 | | | | 231,351 | |
Morgan Stanley Re-REMIC Trust | | | | | | | | |
2010-R5, 0.54% due 06/26/364,5 | | | 234,162 | | | | 177,170 | |
GreenPoint Mortgage Funding Trust Series | | | | | | | | |
2007-AR1, 0.27% due 02/25/474 | | | 165,173 | | | | 159,093 | |
Total Residential Mortgage-Backed Securities | | | | | | | 69,546,346 | |
| | | | | | | | | |
Commercial Mortgage-Backed Securities - 7.1% | |
CSMC Series | | | | | | | | |
2014-ICE, 1.01% due 04/15/274,5 | | | 3,500,000 | | | | 3,486,749 | |
2014-ICE, 2.36% due 04/15/274,5 | | | 1,500,000 | | | | 1,486,883 | |
2014-ICE, 1.80% due 04/15/274,5 | | | 1,000,000 | | | | 995,161 | |
Hilton USA Trust | | | | | | | | |
2013-HLT, 4.60% due 11/05/304,5 | | | 1,500,000 | | | | 1,514,532 | |
2013-HLT, 4.41% due 11/05/305 | | | 1,300,000 | | | | 1,307,133 | |
2013-HLF, 2.95% due 11/05/304,5 | | | 985,465 | | | | 984,384 | |
GAHR Commercial Mortgage Trust | | | | | | | | |
2015-NRF, 1.51% due 12/15/164,5 | | | 2,000,000 | | | | 1,997,624 | |
Resource Capital Corporation Ltd. | | | | | | | | |
2014-CRE2, 2.71% due 04/15/324,5 | | | 2,000,000 | | | | 1,991,786 | |
Motel 6 Trust | | | | | | | | |
2015-MTL6, 4.53% due 02/05/305 | | | 1,000,000 | | | | 991,677 | |
2015-MTL6, 5.27% due 02/05/305 | | | 1,000,000 | | | | 982,895 | |
COMM Mortgage Trust | | | | | | | | |
2014-KYO, 2.55% due 06/11/274,5 | | | 1,500,000 | | | | 1,488,360 | |
Hyatt Hotel Portfolio Trust | | | | | | | | |
2015-HYT, 3.26% due 11/15/294,5 | | | 1,000,000 | | | | 1,003,184 | |
JP Morgan Chase Commercial Mortgage Securities Trust | | | | | | | | |
2014-FL5, 2.31% due 07/15/314,5 | | | 1,000,000 | | | | 994,991 | |
Morgan Stanley Capital I Trust | | | | | | | | |
2015-XLF1, 2.41% due 08/14/314,5 | | | 1,000,000 | | | | 994,367 | |
CDGJ Commercial Mortgage Trust | | | | | | | | |
2014-BXCH, 2.71% due 12/15/274,5 | | | 1,000,000 | | | | 993,849 | |
LSTAR Commercial Mortgage Trust | | | | | | | | |
2011-1, 5.48% due 06/25/434,5 | | | 611,391 | | | | 609,629 | |
Total Commercial Mortgage-Backed Securities | | | | | | | 21,823,204 | |
Total Collateralized Mortgage Obligations | | | | | | | | |
(Cost $91,671,248) | | | | | | | 91,369,550 | |
| | | | | | | | | |
CORPORATE BONDS†† - 6.1% | |
Financial - 4.1% | |
Citigroup, Inc. | | | | | | | | |
5.95%4,8 | | | 995,000 | | | | 966,006 | |
5.80%4,8 | | | 755,000 | | | | 743,109 | |
5.87%4,8 | | | 495,000 | | | | 486,338 | |
6.30%4,8 | | | 30,000 | | | | 28,865 | |
JPMorgan Chase & Co. | | | | | | | | |
5.00%4,8 | | | 1,280,000 | | | | 1,244,800 | |
5.30%3,4,8 | | | 750,000 | | | | 736,875 | |
Bank of America Corp. | | | | | | | | |
5.12%4,8 | | | 1,900,000 | | | | 1,854,874 | |
SunTrust Banks, Inc. | | | | | | | | |
5.63%4,8 | | | 1,500,000 | | | | 1,500,000 | |
Morgan Stanley | | | | | | | | |
5.55%4,8 | | | 1,500,000 | | | | 1,477,500 | |
Capital One Financial Corp. | | | | | | | | |
5.55% due 12/31/493,4,8 | | | 1,000,000 | | | | 987,500 | |
Goldman Sachs Group, Inc. | | | | | | | | |
5.38%3,4,8 | | | 1,000,000 | | | | 976,875 | |
HSBC Holdings plc | | | | | | | | |
5.63%3,4,8 | | | 750,000 | | | | 721,875 | |
CCR Incorporated MT100 Payment Rights Master Trust | | | | | | | | |
0.64% due 07/10/174 | | | 652,526 | | | | 642,151 | |
Corporation Financiera de Desarrollo S.A. | | | | | | | | |
5.25% due 07/15/294,5 | | | 350,000 | | | | 343,875 | |
Total Financial | | | | | | | 12,710,643 | |
| | | | | | | | | |
Industrial - 0.6% | |
Quality Distribution LLC / QD Capital Corp. | | | | | | | | |
9.88% due 11/01/181 | | | 708,000 | | | | 729,594 | |
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
LIMITED DURATION FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
CNH Industrial Capital LLC | | | | | | |
3.88% due 07/16/18 | | $ | 600,000 | | | $ | 588,000 | |
Dynagas LNG Partners Limited Partnership/Dynagas Finance, Inc. | | | | | | | | |
6.25% due 10/30/191,9 | | | 600,000 | | | | 498,000 | |
Total Industrial | | | | | | | 1,815,594 | |
| | | | | | | | | |
Consumer, Non-cyclical - 0.4% | |
Bumble Bee Holdings, Inc. | | | | | | | | |
9.00% due 12/15/171,5 | | | 1,316,000 | | | | 1,342,320 | |
| | | | | | | | | |
Diversified - 0.4% | |
HRG Group, Inc. | | | | | | | | |
7.88% due 07/15/193 | | | 1,050,000 | | | | 1,089,375 | |
| | | | | | | | | |
Utilities - 0.3% | |
AES Corp. | | | | | | | | |
3.32% due 06/01/194 | | | 1,000,000 | | | | 950,000 | |
| | | | | | | | | |
Basic Materials - 0.2% | |
Yamana Gold, Inc. | | | | | | | | |
4.95% due 07/15/241 | | | 750,000 | | | | 670,155 | |
| | | | | | | | | |
Consumer, Cyclical - 0.1% | |
AmeriGas Finance LLC/ AmeriGas Finance Corp. | | | | | | | | |
6.75% due 05/20/20 | | | 250,000 | | | | 253,125 | |
| | | | | | | | | |
Energy - 0.0% | |
Schahin II Finance Company SPV Ltd. | | | | | | | | |
5.88% due 09/25/2211 | | | 390,900 | | | | 82,089 | |
Total Corporate Bonds | | | | | | | | |
(Cost $19,707,176) | | | | | | | 18,913,301 | |
| | | | | | | | | |
SENIOR FLOATING RATE INTERESTS††,4 - 2.7% | |
Technology - 0.6% | |
First Data Corp. | | | | | | | | |
3.70% due 03/23/18 | | | 800,000 | | | | 792,753 | |
4.20% due 03/24/21 | | | 150,000 | | | | 149,625 | |
Avaya, Inc. | | | | | | | | |
6.25% due 05/29/20 | | | 495,571 | | | | 387,165 | |
Deltek, Inc. | | | | | | | | |
5.00% due 06/25/22 | | | 296,208 | | | | 295,962 | |
Sabre, Inc. | | | | | | | | |
4.00% due 02/19/19 | | | 196,465 | | | | 195,531 | |
Total Technology | | | | | | | 1,821,036 | |
| | | | | | | | | |
Consumer, Cyclical - 0.6% | |
BJ’s Wholesale Club, Inc. | | | | | | | | |
4.50% due 09/26/19 | | | 494,642 | | | | 489,201 | |
Hoyts Group Holdings LLC | | | | | | | | |
4.00% due 05/29/20 | | | 347,335 | | | | 344,730 | |
Smart & Final Stores LLC | | | | | | | | |
4.00% due 11/15/19 | | | 270,796 | | | | 269,780 | |
NPC International, Inc. | | | | | | | | |
4.00% due 12/28/18 | | | 249,354 | | | | 246,030 | |
Fitness International LLC | | | | | | | | |
5.50% due 07/01/20 | | | 246,875 | | | | 235,457 | |
Arby’s | | | | | | | | |
4.76% due 11/16/20 | | | 193,265 | | | | 193,345 | |
Total Consumer, Cyclical | | | | | | | 1,778,543 | |
| | | | | | | | | |
Industrial - 0.5% | |
Travelport Holdings LLC | | | | | | | | |
5.75% due 09/02/21 | | | 1,091,750 | | | | 1,085,614 | |
Dematic S.A. | | | | | | | | |
4.25% due 12/27/19 | | | 245,625 | | | | 244,704 | |
Doncasters Group Ltd. | | | | | | | | |
4.50% due 04/09/20 | | | 240,490 | | | | 239,288 | |
Total Industrial | | | | | | | 1,569,606 | |
| | | | | | | | | |
Consumer, Non-cyclical - 0.5% | |
Albertson’s (Safeway) Holdings LLC | | | | | | | | |
5.50% due 08/25/21 | | | 694,874 | | | | 694,443 | |
Diamond Foods, Inc. | | | | | | | | |
4.25% due 08/20/18 | | | 493,117 | | | | 491,115 | |
American Tire Distributors, Inc. | | | | | | | | |
5.25% due 09/01/21 | | | 297,004 | | | | 296,879 | |
Total Consumer, Non-cyclical | | | | | | | 1,482,437 | |
| | | | | | | | | |
Communications - 0.3% | |
Asurion Corp. | | | | | | | | |
4.25% due 07/08/20 | | | 347,335 | | | | 324,883 | |
5.00% due 08/04/22 | | | 99,750 | | | | 94,092 | |
5.00% due 05/24/19 | | | 96,694 | | | | 92,077 | |
Univision Communications, Inc. | | | | | | | | |
4.00% due 03/01/20 | | | 496,040 | | | | 492,399 | |
Total Communications | | | | | | | 1,003,451 | |
| | | | | | | | | |
Basic Materials - 0.1% | |
Chromaflo Technologies | | | | | | | | |
4.50% due 12/02/19 | | | 396,812 | | | | 381,931 | |
| | | | | | | | | |
Financial - 0.1% | |
USI Holdings Corp. | | | | | | | | |
4.25% due 12/27/19 | | | 370,277 | | | | 365,956 | |
Total Senior Floating Rate Interests | | | | | | | | |
(Cost $8,544,740) | | | | | | | 8,402,960 | |
| | | | | | | | | |
FOREIGN GOVERNMENT BONDS†† - 0.3% | |
Kenya Government International Bond | | | | | | | | |
6.87% due 06/24/245 | | | 850,000 | | | | 770,100 | |
Total Foreign Government Bonds | | | | | | | | |
(Cost $859,594) | | | | | | | 770,100 | |
| | | | | | | | | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
LIMITED DURATION FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
REPURCHASE AGREEMENTS††,10 - 4.6% | |
Jefferies & Company, Inc. | | | | | | |
issued 09/25/15 at 2.69%
due 11/03/15 | | $ | 2,913,000 | | | $ | 2,913,000 | |
issued 09/23/15 at 2.70%
due 10/28/15 | | | 2,860,000 | | | | 2,860,000 | |
issued 09/23/15 at 3.20%
due 10/28/15 | | | 2,622,000 | | | | 2,622,000 | |
issued 09/08/15 at 2.70%
due 10/15/15 | | | 1,729,000 | | | | 1,729,000 | |
issued 09/15/15 at 3.21%
due 10/13/15 | | | 1,387,000 | | | | 1,387,000 | |
issued 09/18/15 at 3.21%
due 10/22/15 | | | 911,000 | | | | 911,000 | |
issued 09/15/15 at 2.71%
due 10/13/15 | | | 785,000 | | | | 785,000 | |
issued 08/26/15 at 2.70%
due 10/01/15 | | | 439,000 | | | | 439,000 | |
issued 09/29/15 at 3.19%
due 11/02/15 | | | 321,000 | | | | 321,000 | |
issued 09/03/15 at 3.20%
due 10/07/15 | | | 206,000 | | | | 206,000 | |
Total Repurchase Agreements | | | | | | | | |
(Cost $14,173,000) | | | | | | | 14,173,000 | |
| | | Contracts | | | | |
| | | | | | | |
OPTIONS PURCHASED† - 0.1% | |
Call options on: | | | | | | |
iShares 7-10 Year Treasury Bond ETF Expiring December 2015 with strike price of $106.00 | | | 1,056 | | | | 205,920 | |
Total Options Purchased | | | | | | | | |
(Cost $127,776) | | | | | | | 205,920 | |
| | | | | | | | | |
Total Investments - 100.3% | | | | | | | | |
(Cost $309,859,212) | | | | | | $ | 308,092,789 | |
| | | | | | | | | |
OPTIONS WRITTEN† - 0.0% | |
Call options on: | | | | | | | | |
iShares 7-10 Year Treasury Bond ETF Expiring December 2015 with strike price of $111.00 | | | 1,056 | | | | (42,240 | ) |
Total Options Written | | | | | | | | |
(Premiums received $28,511) | | | | | | | (42,240 | ) |
Other Assets & Liabilities, net - (0.3)% | | | | | | | (1,041,763 | ) |
Total Net Assets - 100.0% | | | | | | $ | 307,008,786 | |
† | 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 | All or a portion of this security is pledged as collateral for open call options written contracts at September 30, 2015. |
2 | Affiliated issuer — See Note 10. |
3 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 7. |
4 | Variable rate security. Rate indicated is rate effective at September 30, 2015. |
5 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $238,310,773 (cost $239,242,238), or 77.6% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
6 | Residual interest. |
7 | Security is a step up/step down bond. The coupon increases or decreases at regular intervals until the bond reaches full maturity. |
8 | Perpetual maturity. |
9 | Illiquid security. |
10 | Repurchase Agreement — See Note 6. |
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 $82,089 (cost $374,795), or 0.0% of total net assets — See Note 13. |
12 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | plc — Public Limited Company |
| | |
| | See Sector Classification in Other Information section. |
54 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments in unaffiliated issuers, at value (cost $288,412,623) | | $ | 286,650,736 | |
Investments in affiliated issuers, at value (cost $7,273,589) | | | 7,269,053 | |
Repurchase agreements, at value (cost $14,173,000) | | | 14,173,000 | |
Total investments (cost $309,859,212) | | | 308,092,789 | |
Prepaid expenses | | | 39,789 | |
Cash | | | 3,004,075 | |
Receivables: | |
Fund shares sold | | | 14,690,161 | |
Interest | | | 1,011,372 | |
Dividends | | | 4,422 | |
Total assets | | | 326,842,608 | |
| | | | | |
Liabilities: | |
Reverse repurchase agreements | | | 11,274,167 | |
Options written, at value (premiums received $28,511) | | | 42,240 | |
Payable for: | |
Securities purchased | | | 7,925,528 | |
Fund shares redeemed | | | 375,678 | |
Management fees | | | 72,813 | |
Distributions to shareholders | | | 64,401 | |
Distribution and service fees | | | 31,567 | |
Fund accounting/administration fees | | | 21,686 | |
Transfer agent/maintenance fees | | | 1,490 | |
Trustees’ fees* | | | 301 | |
Miscellaneous | | | 23,951 | |
Total liabilities | | | 19,833,822 | |
Net assets | | $ | 307,008,786 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 309,619,704 | |
Distributions in excess of net investment income | | | (503,382 | ) |
Accumulated net realized loss on investments | | | (327,384 | ) |
Net unrealized depreciation on investments | | | (1,780,152 | ) |
Net assets | | $ | 307,008,786 | |
| | | | | |
A-Class: | |
Net assets | | $ | 117,627,901 | |
Capital shares outstanding | | | 4,771,849 | |
Net asset value per share | | $ | 24.65 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 25.22 | |
| | | | | |
C-Class: | |
Net assets | | $ | 10,322,787 | |
Capital shares outstanding | | | 419,040 | |
Net asset value per share | | $ | 24.63 | |
| | | | | |
P-Class: | |
Net assets | | $ | 2,736,052 | |
Capital shares outstanding | | | 110,985 | |
Net asset value per share | | $ | 24.65 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 176,322,046 | |
Capital shares outstanding | | | 7,154,982 | |
Net asset value per share | | $ | 24.64 | |
* | 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 | 55 |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Interest | | $ | 6,111,374 | |
Dividends from securities of unaffiliated issuers | | | 45,837 | |
Dividends from securities of affiliated issuers | | | 23,589 | |
Total investment income | | | 6,180,800 | |
| | | | | |
Expenses: | |
Management fees | | | 748,305 | |
Transfer agent/maintenance fees | |
A-Class | | | 20,624 | |
C-Class | | | 2,723 | |
P-Class** | | | 121 | |
Institutional Class | | | 6,937 | |
Distribution and service fees: | |
A-Class | | | 148,644 | |
C-Class | | | 39,991 | |
P-Class** | | | 1,354 | |
Fund accounting/administration fees | | | 157,973 | |
Interest expense | | | 109,672 | |
Trustees’ fees* | | | 10,291 | |
Line of credit fees | | | 9,850 | |
Custodian fees | | | 9,056 | |
Tax expense | | | 2 | |
Miscellaneous | | | 138,943 | |
Total expenses | | | 1,404,486 | |
Less: | |
Expenses waived by Adviser | | | (180,387 | ) |
Net expenses | | | 1,224,099 | |
Net investment income | | | 4,956,701 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments in unaffiliated issuers | | | (272,435 | ) |
Net realized loss | | | (272,435 | ) |
Net change in unrealized appreciation (depreciation) on: | |
Investments in unaffiliated issuers | | | (1,587,731 | ) |
Investments in affiliated issuers | | | (4,536 | ) |
Options purchased | | | 78,144 | |
Options written | | | (13,729 | ) |
Net change in unrealized appreciation (depreciation) | | | (1,527,852 | ) |
Net realized and unrealized loss | | | (1,800,287 | ) |
Net increase in net assets resulting from operations | | $ | 3,156,414 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
56 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Period Ended September 30,
2014a | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 4,956,701 | | | $ | 1,097,055 | |
Net realized gain (loss) on investments | | | (272,435 | ) | | | 112,474 | |
Net change in unrealized appreciation (depreciation) on investments | | | (1,527,852 | ) | | | (260,661 | ) |
Net increase in net assets resulting from operations | | | 3,156,414 | | | | 948,868 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (1,877,597 | ) | | | (89,880 | ) |
C-Class | | | (92,400 | ) | | | (5,453 | ) |
P-Class | | | (14,688 | )* | | | — | |
Institutional Class | | | (3,607,196 | ) | | | (993,125 | ) |
Net realized gains | | | | | | | | |
A-Class | | | (10,524 | ) | | | — | |
C-Class | | | (358 | ) | | | — | |
P-Class | | | — | * | | | — | |
Institutional Class | | | (24,979 | ) | | | — | |
Total distributions to shareholders | | | (5,627,742 | ) | | | (1,088,458 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 123,676,382 | | | | 25,872,935 | |
C-Class | | | 10,713,529 | | | | 1,176,069 | |
P-Class | | | 2,751,295 | * | | | — | |
Institutional Class | | | 144,227,876 | | | | 85,617,617 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 1,735,098 | | | | 71,252 | |
C-Class | | | 77,547 | | | | 4,971 | |
P-Class | | | 14,688 | * | | | — | |
Institutional Class | | | 3,470,791 | | | | 802,150 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (23,872,067 | ) | | | (8,887,662 | ) |
C-Class | | | (1,041,909 | ) | | | (537,027 | ) |
P-Class | | | (14,275 | )* | | | — | |
Institutional Class | | | (39,087,053 | ) | | | (17,152,503 | ) |
Net increase from capital share transactions | | | 222,651,902 | | | | 86,967,802 | |
Net increase in net assets | | | 220,180,574 | | | | 86,828,212 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 86,828,212 | | | | — | |
End of year | | $ | 307,008,786 | | | $ | 86,828,212 | |
(Distributions in excess of net investment income)/Undistributed net investment income at end of period | | $ | (503,382 | ) | | $ | 121,071 | |
a | Since commencement of operations: December 16, 2013. |
* | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 57 |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
| | | Year Ended
September 30,
2015 | | | Period Ended September 30,
2014a | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 4,981,438 | | | | 1,034,665 | |
C-Class | | | 432,133 | | | | 47,044 | |
P-Class | | | 110,968 | * | | | — | |
Institutional Class | | | 5,820,359 | | | | 3,423,937 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 69,980 | | | | 2,851 | |
C-Class | | | 3,131 | | | | 200 | |
P-Class | | | 594 | * | | | — | |
Institutional Class | | | 139,945 | | | | 32,093 | |
Shares redeemed | | | | | | | | |
A-Class | | | (961,747 | ) | | | (355,338 | ) |
C-Class | | | (42,003 | ) | | | (21,465 | ) |
P-Class | | | (577 | )* | | | — | |
Institutional Class | | | (1,575,206 | ) | | | (686,146 | ) |
Net increase in shares | | | 8,979,015 | | | | 3,477,841 | |
a | Since commencement of operations: December 16, 2013. |
* | Since commencement of operations: May 1, 2015. |
58 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
A-Class | | Year Ended
September 30,
2015 | | | Period Ended
September 30,
2014a | |
Per Share Data | | | | | | |
Net asset value, beginning of period | | $ | 24.97 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .69 | | | | .52 | |
Net gain (loss) on investments (realized and unrealized) | | | (.16 | ) | | | (.08 | ) |
Total from investment operations | | | .53 | | | | .44 | |
Less distributions from: | |
Net investment income | | | (.84 | ) | | | (.47 | ) |
Net realized gains | | | (.01 | ) | | | — | |
Total distributions | | | (.85 | ) | | | (.47 | ) |
Net asset value, end of period | | $ | 24.65 | | | $ | 24.97 | |
| | |
Total Returnc | | | 2.15 | % | | | 1.75 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 117,628 | | | $ | 17,035 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 2.79 | % | | | 2.67 | % |
Total expensese | | | 0.99 | % | | | 1.14 | % |
Net expensesf,g | | | 0.87 | % | | | 0.83 | % |
Portfolio turnover rate | | | 26 | % | | | 40 | % |
C-Class | | Year Ended
September 30,
2015 | | | Period Ended
September 30,
2014a | |
Per Share Data | | | | | | |
Net asset value, beginning of period | | $ | 24.96 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .49 | | | | .38 | |
Net gain (loss) on investments (realized and unrealized) | | | (.16 | ) | | | (.09 | ) |
Total from investment operations | | | .33 | | | | .29 | |
Less distributions from: | |
Net investment income | | | (.65 | ) | | | (.33 | ) |
Net realized gains | | | (.01 | ) | | | — | |
Total distributions | | | (.66 | ) | | | (.33 | ) |
Net asset value, end of period | | $ | 24.63 | | | $ | 24.96 | |
| | |
Total Returnc | | | 1.37 | % | | | 1.13 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 10,323 | | | $ | 643 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 1.96 | % | | | 1.93 | % |
Total expensese | | | 1.76 | % | | | 2.14 | % |
Net expensesf,g | | | 1.62 | % | | | 1.56 | % |
Portfolio turnover rate | | | 26 | % | | | 40 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 59 |
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.
P-Class | | Period Ended
September 30,
2015d | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 24.86 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .25 | |
Net gain (loss) on investments (realized and unrealized) | | | (.17 | ) |
Total from investment operations | | | .08 | |
Less distributions from: | |
Net investment income | | | (.29 | ) |
Total distributions | | | (.29 | ) |
Net asset value, end of period | | $ | 24.65 | |
| | | | | |
Total Returnc | | | 0.32 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 2,736 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 2.39 | % |
Total expensese | | | 0.94 | % |
Net expensesf,g | | | 0.88 | % |
Portfolio turnover rate | | | 26 | % |
60 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Period Ended
September 30,
2014a | |
Per Share Data | | | | | | |
Net asset value, beginning of period | | $ | 24.96 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .78 | | | | .57 | |
Net gain (loss) on investments (realized and unrealized) | | | (.19 | ) | | | (.08 | ) |
Total from investment operations | | | .59 | | | | .49 | |
Less distributions from: | |
Net investment income | | | (.90 | ) | | | (.53 | ) |
Net realized gains | | | (.01 | ) | | | — | |
Total distributions | | | (.91 | ) | | | (.53 | ) |
Net asset value, end of period | | $ | 24.64 | | | $ | 24.96 | |
| | |
Total Returnc | | | 2.41 | % | | | 1.98 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 176,322 | | | $ | 69,150 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.14 | % | | | 2.90 | % |
Total expensese | | | 0.73 | % | | | 0.96 | % |
Net expensesf,g | | | 0.62 | % | | | 0.57 | % |
Portfolio turnover rate | | | 26 | % | | | 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 | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
d | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
e | Does not include expenses of the underlying funds in which the Fund invests. |
f | Net expense information reflects the expense ratios after expense waivers. |
g | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the years would be: |
| | 09/30/15 | 09/30/14 |
A-Class | 0.80% | 0.79% |
C-Class | 1.55% | 1.52% |
P-Class | 0.80% | — |
Institutional Class | 0.55% | 0.54% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 61 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
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 Assistant Chief Investment Officer; 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 fiscal year ended September 30, 2015.
For the one-year period ended September 30, 2015, the Guggenheim Municipal Income Fund returned 2.39%1, compared with the 3.16% return of the Barclays Municipal Bond Index, the Fund’s benchmark.
The Fund seeks to provide current income with an emphasis on income exempt from federal income tax, while also considering capital appreciation. It invests in a diversified portfolio of primarily investment-grade municipal securities whose interest is free from federal income tax*. It employs an investment strategy that seeks to identify opportunities to capture attractive relative value.
Municipal bonds performed well over the period relative to other fixed income sectors, benefiting from the generally benign interest rate environment and the slowly improving U.S. economy, as well as the continuing positive credit picture of state and local governments. After a strong finish to 2014, events in Greece, uncertainty over the Fed’s rate hike, and slowing global growth stemming from a slowing Chinese economy all weighed on municipal market performance in 2015. At its September meeting, the Fed opted to keep rates at the zero-bound, citing concerns about potential downside risks to the U.S. outlook posed by recent global market volatility. Investors generally shunned risk in the last weeks of the period, as equities dropped and spreads widened in many bond sectors. But after the Fed’s decision to not hike, municipal bonds rallied, leading to a strong return for September and trailing 12 months.
Outflows from municipal bond mutual funds had picked up over the summer in anticipation of a Fed hike in September. When the Fed declined to hike, the pace of outflows slowed. As of the end of the period, aggregate inflows through nine months of 2015 were approximately $5.1 billion.
Issuance in municipals remained stable over the fiscal year. Strong activity in the first half should lead to total 2015 issuance of approximately $400 billion. Refunding issues dominated issuance in the first half; new money transactions are expected to be the primary purpose of transactions in the second half.
Fund contributors included revenue bonds—secured claims backed by dedicated revenue streams—typically issued by utilities, transportation agencies, and health care providers; and general obligation bonds issued by state and local governments. From a maturity perspective, long-dated bonds performed best. The Fund continues to focus on identifying attractive risk-adjusted investment opportunities among A rated bonds, as well as distressed credits that carry municipal bond insurance from certain providers.
The Fund’s Puerto Rico investments (approximately 10% of the portfolio) were temporarily impacted by events in the territory, such as when the Governor of Puerto Rico asserted in the summer that its $72 billion of debt is not payable. The Fund’s Puerto Rico exposure is wrapped by monolines (insurance company guarantees to issuers), and the market believes monolines have enough claims-paying resources to face a default by Puerto Rico, as evidenced by their sizeable market caps. More than 50% of the Fund’s Puerto Rico exposure is in floating rate securities, which provide for income upside once the Fed starts hiking rates. Investors seemed comfortable isolating events affecting Puerto Rico from the rest of the municipal market, keeping contagion risk in check. After the period end, the Obama Administration advanced a plan for a Puerto Rico bankruptcy regime and new fiscal oversight.
Guggenheim believes an accommodative Fed supports a benign credit environment, and the U.S. economy is well positioned for continued growth. The Fed may not have the clarity it seeks to tighten U.S. monetary policy anytime soon, which means rates will remain low but volatile for an extended period.
62 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
Periods of economic expansion have coincided with tightening spreads and low defaults, and economic data for the period indicate the U.S. expansion remains on track. Still, the watchword across risk assets in the past few months has been caution, as credit spreads widened during heightened market volatility. The Fund takes advantage of such periods of widening to add to spread duration and take on more risk in expectation of a rebound.
* | Income may be subject to the federal Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxed as capital gains. This is not tax advice. Investors should consult with a tax advisor before making any tax-related investment decisions. |
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 | 63 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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 Rating1 |
Rating | |
Fixed Income Instruments | |
AAA | 5.3% |
AA | 63.7% |
A | 11.6% |
BBB | 7.3% |
BB | 3.6% |
CC | 1.2% |
Other Instruments | 7.3% |
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 |
P-Class | May 1, 2015 |
Institutional Class | January 13, 2012 |
Ten Largest Holdings (% of Total Net Assets) |
North Texas Tollway Authority Revenue Bonds | 4.6% |
City of Detroit Michigan Water Supply System Revenue Bonds | 4.3% |
Triborough Bridge & Tunnel Authority Revenue Bonds | 4.0% |
Metropolitan Transportation Authority Revenue Bonds | 3.6% |
Michigan Finance Authority Revenue Bonds | 3.4% |
Tustin Unified School District General Obligation Unlimited | 3.3% |
County of Wayne Michigan General Obligation Limited | 3.1% |
State of California General Obligation Unlimited | 3.0% |
Arizona Health Facilities Authority Revenue Bonds | 3.0% |
Regents of the University of California Medical Center Pooled Revenue Bonds | 2.9% |
Top Ten Total | 35.2% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
1 | Source: BlackRock Solutions. 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. Security ratings are determined at the time of purchase and may change thereafter. |
64 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | 10 Year |
A-Class Shares§ | 2.39% | 5.14% | 3.62% |
A-Class Shares with sales charge† | -2.44% | 4.12% | 3.12% |
Barclays Municipal Bond Index | 3.16% | 4.14% | 4.64% |
| | | 1 Year | Since Inception
(01/13/12) |
C-Class Shares | | 1.71% | 3.40% |
C-Class Shares with CDSC‡ | | 0.71% | 3.40% |
Institutional Class Shares | | 2.73% | 4.42% |
Barclays Municipal Bond Index | | 3.16% | 3.50% |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | 0.06% |
Barclays Municipal Bond Index | | | 1.39% |
* | 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 Bond Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. The graph is based on A-Class shares only; performance for C-Class shares, P-Class shares and Institutional Class shares will vary due to differences in fee structures. |
§ | 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. |
† | 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 | 65 |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
MUNICIPAL INCOME FUND | |
| | |
Shares
| | | Value | |
| | | | | | | |
SHORT TERM INVESTMENTS† - 7.5% | |
Fidelity Institutional Tax-Exempt Portfolio 0.01%5 | | | 4,507,725 | | | $ | 4,507,725 | |
Total Short Term Investments | | | | | | | | |
(Cost $4,507,725) | | | | | | | 4,507,725 | |
| | | Face
Amount | | | | |
| | | | | | | |
MUNICIPAL BONDS†† - 94.2% | |
| | | | | | | |
Michigan - 20.7% | |
Michigan Finance Authority Revenue Bonds | | | | | | |
5.00% due 07/01/31 | | $ | 1,800,000 | | | | 2,014,920 | |
5.00% due 07/01/44 | | | 1,200,000 | | | | 1,263,785 | |
5.00% due 07/01/32 | | | 1,000,000 | | | | 1,112,200 | |
5.00% due 07/01/34 | | | 300,000 | | | | 321,954 | |
City of Detroit Michigan Water Supply System Revenue Bonds | | | | | | | | |
5.00% due 07/01/33 | | | 2,530,000 | | | | 2,569,458 | |
4.75% due 07/01/29 | | | 230,000 | | | | 243,299 | |
5.00% due 07/01/41 | | | 200,000 | | | | 209,966 | |
5.00% due 07/01/34 | | | 155,000 | | | | 156,159 | |
4.25% due 07/01/16 | | | 125,000 | | | | 128,124 | |
County of Wayne Michigan General Obligation Limited | | | | | | | | |
5.00% due 12/01/30 | | | 1,845,000 | | | | 1,850,074 | |
Detroit City School District General Obligation Unlimited | | | | | | | | |
5.00% due 05/01/32 | | | 1,000,000 | | | | 1,085,680 | |
5.00% due 05/01/30 | | | 300,000 | | | | 327,363 | |
Detroit Wayne County Stadium Authority Revenue Bonds | | | | | | | | |
5.00% due 10/01/26 | | | 1,100,000 | | | | 1,194,578 | |
Total Michigan | | | | | | | 12,477,560 | |
| | | | | | | | | |
California - 13.4% | |
Tustin Unified School District General Obligation Unlimited | | | | | | | | |
6.00% due 08/01/36 | | | 1,600,000 | | | | 1,964,944 | |
State of California General Obligation Unlimited | | | | | | | | |
5.00% due 03/01/26 | | | 1,500,000 | | | | 1,829,400 | |
Regents of the University of California Medical Center Pooled Revenue Bonds | | | | | | | | |
0.96% due 05/15/431 | | | 2,000,000 | | | | 1,746,680 | |
Stockton Public Financing Authority Revenue Bonds | | | | | | | | |
6.25% due 10/01/38 | | | 1,000,000 | | | | 1,202,100 | |
6.25% due 10/01/40 | | | 250,000 | | | | 298,975 | |
College of the Sequoias Tulare Area Improvement District No. 3 General Obligation Unlimited | | | | | | | | |
6.85% due 08/01/322 | | | 1,000,000 | | | | 547,480 | |
Oakland Unified School District/Alameda County General Obligation Unlimited | | | | | | |
5.00% due 08/01/224 | | | 300,000 | | | | 345,513 | |
Culver Redevelopment Agency Tax Allocation | | | | | | | | |
0.00% due 11/01/233 | | | 195,000 | | | | 143,218 | |
Total California | | | | | | | 8,078,310 | |
| | | | | | | | | |
New York - 12.0% | |
Triborough Bridge & Tunnel Authority Revenue Bonds | | | | | | | | |
0.63% due 11/15/271 | | | 2,500,000 | | | | 2,433,324 | |
Metropolitan Transportation Authority Revenue Bonds | | | | | | | | |
0.43% due 11/01/321 | | | 2,200,000 | | | | 2,175,162 | |
City of New York New York General Obligation Unlimited | | | | | | | | |
5.00% due 08/01/28 | | | 1,000,000 | | | | 1,198,440 | |
New York City Water & Sewer System Revenue Bonds | | | | | | | | |
5.00% due 06/15/39 | | | 1,000,000 | | | | 1,140,010 | |
New York State Urban Development Corp. Revenue Bonds | | | | | | | | |
5.00% due 03/15/35 | | | 250,000 | | | | 284,900 | |
Total New York | | | | | | | 7,231,836 | |
| | | | | | | | | |
Illinois - 10.6% | |
Metropolitan Water Reclamation District of Greater Chicago General Obligation Unlimited | | | | | | | | |
5.00% due 12/01/44 | | | 1,250,000 | | | | 1,410,563 | |
City of Chicago Illinois General Obligation Unlimited | | | | | | | | |
4.75% due 01/01/28 | | | 500,000 | | | | 498,585 | |
5.50% due 01/01/42 | | | 500,000 | | | | 497,205 | |
5.00% due 01/01/24 | | | 100,000 | | | | 100,381 | |
5.00% due 01/01/23 | | | 70,000 | | | | 71,717 | |
5.00% due 01/01/22 | | | 55,000 | | | | 55,410 | |
Will County Township High School District No. 204 Joliet General Obligation Limited | | | | | | | | |
6.25% due 01/01/31 | | | 1,000,000 | | | | 1,186,720 | |
Chicago Board of Education General Obligation Unlimited | | | | | | | | |
5.00% due 12/01/23 | | | 1,200,000 | | | | 1,175,508 | |
Southern Illinois University Revenue Bonds | | | | | | | | |
5.00% due 04/01/32 | | | 1,000,000 | | | | 1,034,600 | |
University of Illinois Revenue Bonds | | | | | | | | |
6.00% due 10/01/29 | | | 200,000 | | | | 233,572 | |
Metropolitan Pier & Exposition Authority Revenue Bonds | | | | | | | | |
0.00% due 06/15/453 | | | 500,000 | | | | 115,960 | |
Total Illinois | | | | | | | 6,380,221 | |
| | | | | | | | | |
66 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MUNICIPAL INCOME FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Puerto Rico - 7.0% | |
Puerto Rico Electric Power Authority Revenue Bonds | | | | | | |
0.74% due 07/01/291,4 | | $ | 1,550,000 | | | $ | 1,124,215 | |
5.00% due 07/01/244 | | | 870,000 | | | | 838,930 | |
5.00% due 07/01/224 | | | 620,000 | | | | 607,786 | |
Puerto Rico Industrial Tourist Educational Medical & Envirml Ctl Facs Fing Auth Revenue Bonds | | | | | | | | |
5.00% due 07/01/334 | | | 1,000,000 | | | | 896,630 | |
Puerto Rico Infrastructure Financing Authority Revenue Bonds | | | | | | | | |
5.50% due 07/01/234 | | | 775,000 | | | | 723,819 | |
Total Puerto Rico | | | | | | | 4,191,380 | |
| | | | | | | | | |
New Jersey - 6.1% | |
Hudson County Improvement Authority Revenue Bonds | | | | | | | | |
6.00% due 01/01/40 | | | 1,500,000 | | | | 1,705,950 | |
New Jersey Turnpike Authority Revenue Bonds | | | | | | | | |
0.70% due 01/01/241 | | | 1,000,000 | | | | 1,000,990 | |
New Jersey Transportation Trust Fund Authority Revenue Bonds | | | | | | | | |
1.22% due 06/15/341 | | | 1,000,000 | | | | 973,500 | |
Total New Jersey | | | | | | | 3,680,440 | |
| | | | | | | | | |
Texas - 6.1% | |
North Texas Tollway Authority Revenue Bonds | | | | | | | | |
5.75% due 01/01/40 | | | 2,500,000 | | | | 2,739,099 | |
Harris County-Houston Sports Authority Revenue Bonds | | | | | | | | |
0.00% due 11/15/533 | | | 4,000,000 | | | | 636,040 | |
State of Texas General Obligation Unlimited | | | | | | | | |
5.00% due 10/01/29 | | | 250,000 | | | | 302,058 | |
Total Texas | | | | | | | 3,677,197 | |
| | | | | | | | | |
Pennsylvania - 3.8% | |
Pennsylvania Turnpike Commission Revenue Bonds | | | | | | | | |
1.29% due 12/01/201 | | | 500,000 | | | | 506,280 | |
1.00% due 12/01/211 | | | 500,000 | | | | 497,915 | |
County of Allegheny Pennsylvania General Obligation Unlimited | | | | | | | | |
0.75% due 11/01/261 | | | 1,000,000 | | | | 946,610 | |
Reading School District General Obligation Unlimited | | | | | | | | |
5.00% due 02/01/27 | | | 300,000 | | | | 339,237 | |
Total Pennsylvania | | | | | | | 2,290,042 | |
| | | | | | | | | |
Arizona - 3.0% | |
Arizona Health Facilities Authority Revenue Bonds | | | | | | | | |
1.03% due 01/01/371 | | | 2,000,000 | | | | 1,777,080 | |
| | | | | | | | | |
Maryland - 2.0% | |
County of Montgomery Maryland General Obligation Unlimited | | | | | | | | |
5.00% due 11/01/26 | | | 1,000,000 | | | | 1,230,970 | |
| | | | | | | | | |
Massachusetts - 2.0% | |
Massachusetts Development Finance Agency Revenue Bonds | | | | | | | | |
6.88% due 01/01/41 | | | 1,000,000 | | | | 1,178,980 | |
| | | | | | | | | |
Washington - 1.8% | |
Greater Wenatchee Regional Events Center Public Facilities Dist Revenue Bonds | | | | | | | | |
5.00% due 09/01/274 | | | 500,000 | | | | 530,720 | |
5.25% due 09/01/324 | | | 500,000 | | | | 522,820 | |
Total Washington | | | | | | | 1,053,540 | |
| | | | | | | | | |
Mississippi - 1.4% | |
Mississippi Development Bank Revenue Bonds | | | | | | | | |
6.50% due 10/01/31 | | | 500,000 | | | | 577,070 | |
6.25% due 10/01/26 | | | 230,000 | | | | 266,812 | |
Total Mississippi | | | | | | | 843,882 | |
| | | | | | | | | |
West Virginia - 0.9% | |
West Virginia Higher Education Policy Commission Revenue Bonds | | | | | | | | |
5.00% due 04/01/29 | | | 500,000 | | | | 570,405 | |
| | | | | | | | | |
Indiana - 0.9% | |
County of Knox Indiana Revenue Bonds | | | | | | | | |
5.00% due 04/01/27 | | | 470,000 | | | | 514,265 | |
| | | | | | | | | |
Florida - 0.8% | |
County of Miami-Dade Florida Revenue Bonds | | | | | | | | |
0.00% due 10/01/453 | | | 2,000,000 | | | | 475,920 | |
| | | | | | | | | |
Colorado - 0.8% | |
Auraria Higher Education Center Revenue Bonds | | | | | | | | |
5.00% due 04/01/28 | | | 390,000 | | | | 465,734 | |
| | | | | | | | | |
Virginia - 0.5% | |
Virginia College Building Authority Revenue Bonds | | | | | | | | |
5.00% due 02/01/28 | | | 250,000 | | | | 301,168 | |
| | | | | | | | | |
Georgia - 0.4% | |
Savannah Economic Development Authority Revenue Bonds | | | | | | | | |
5.00% due 12/01/28 | | | 200,000 | | | | 234,332 | |
Total Municipal Bonds | | | | | | | | |
(Cost $54,855,195) | | | | | | | 56,653,262 | |
| | | | | | | | | |
Total Investments - 101.7% | | | | | | | | |
(Cost $59,362,920) | | | | | | $ | 61,160,987 | |
Other Assets & Liabilities, net - (1.7)% | | | | | | | (1,029,086 | ) |
Total Net Assets - 100.0% | | | | | | $ | 60,131,901 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 67 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
MUNICIPAL INCOME FUND | |
† | 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, 2015. |
2 | Security is a step up/step down bond. The coupon increases or decreases at regular intervals until the bond reaches full maturity. |
3 | Zero coupon rate security. |
4 | Illiquid security. |
5 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | |
| | See Sector Classification in Other Information section. |
68 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments, at value (cost $59,362,920) | | $ | 61,160,987 | |
Prepaid expenses | | | 22,675 | |
Receivables: | |
Securities sold | | | 3,634,792 | |
Interest | | | 658,338 | |
Fund shares sold | | | 176,945 | |
Total assets | | | 65,653,737 | |
| | | | | |
Liabilities: | |
Payable for: | |
Securities purchased | | | 5,327,401 | |
Fund shares redeemed | | | 63,194 | |
Distributions to shareholders | | | 45,510 | |
Distribution and service fees | | | 11,951 | |
Trustees’ fees* | | | 5,430 | |
Fund accounting/administration fees | | | 4,707 | |
Management fees | | | 2,768 | |
Transfer agent/maintenance fees | | | 2,474 | |
Miscellaneous | | | 58,401 | |
Total liabilities | | | 5,521,836 | |
Net assets | | $ | 60,131,901 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 86,476,470 | |
Undistributed net investment income | | | — | |
Accumulated net realized loss on investments | | | (28,142,636 | ) |
Net unrealized appreciation on investments | | | 1,798,067 | |
Net assets | | $ | 60,131,901 | |
| | | | | |
A-Class: | |
Net assets | | $ | 49,085,736 | |
Capital shares outstanding | | | 3,919,480 | |
Net asset value per share | | $ | 12.52 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 13.14 | |
| | | | | |
C-Class: | |
Net assets | | $ | 2,471,906 | |
Capital shares outstanding | | | 197,484 | |
Net asset value per share | | $ | 12.52 | |
| | | | | |
P-Class: | |
Net assets | | $ | 10,004 | |
Capital shares outstanding | | | 799 | |
Net asset value per share | | $ | 12.52 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 8,564,255 | |
Capital shares outstanding | | | 683,570 | |
Net asset value per share | | $ | 12.53 | |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Interest | | $ | 1,858,890 | |
Total investment income | | | 1,858,890 | |
| | | | | |
Expenses: | |
Management fees | | | 300,158 | |
Transfer agent/maintenance fees: | |
A-Class | | | 62,459 | |
C-Class | | | 1,677 | |
P-Class** | | | 88 | |
Institutional Class | | | 7,344 | |
Distribution and service fees: | |
A-Class | | | 125,449 | |
C-Class | | | 19,674 | |
P-Class** | | | 11 | |
Fund accounting/administration fees | | | 57,029 | |
Registration fees | | | 53,875 | |
Line of credit fees | | | 7,278 | |
Trustees’ fees* | | | 6,220 | |
Custodian fees | | | 785 | |
Tax expense | | | 1 | |
Miscellaneous | | | 54,738 | |
Total expenses | | | 696,786 | |
Less: | |
Expenses waived by Adviser | | | (214,145 | ) |
Net expenses | | | 482,641 | |
Net investment income | | | 1,376,249 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments | | | 266,390 | |
Net realized gain | | | 266,390 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments | | | (419,085 | ) |
Net change in unrealized appreciation (depreciation) | | | (419,085 | ) |
Net realized and unrealized loss | | | (152,695 | ) |
Net increase in net assets resulting from operations | | $ | 1,223,554 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 69 |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 1,376,249 | | | $ | 1,630,155 | |
Net realized gain on investments | | | 266,390 | | | | 597,388 | |
Net change in unrealized appreciation (depreciation) on investments | | | (419,085 | ) | | | 3,446,106 | |
Net increase in net assets resulting from operations | | | 1,223,554 | | | | 5,673,649 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (1,146,185 | ) | | | (1,390,241 | ) |
C-Class | | | (30,351 | ) | | | (20,717 | ) |
P-Class | | | (100 | )* | | | — | |
Institutional Class | | | (199,613 | ) | | | (219,197 | ) |
Total distributions to shareholders | | | (1,376,249 | ) | | | (1,630,155 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 21,002,499 | | | | 7,402,924 | |
C-Class | | | 2,084,724 | | | | 333,716 | |
P-Class | | | 10,000 | * | | | — | |
Institutional Class | | | 4,945,093 | | | | 5,038,833 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 704,334 | | | | 803,386 | |
C-Class | | | 21,242 | | | | 13,179 | |
P-Class | | | 100 | * | | | — | |
Institutional Class | | | 116,901 | | | | 101,486 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (16,588,738 | ) | | | (18,029,547 | ) |
C-Class | | | (700,489 | ) | | | (826,566 | ) |
P-Class | | | — | * | | | — | |
Institutional Class | | | (2,933,434 | ) | | | (5,559,429 | ) |
Net increase (decrease) from capital share transactions | | | 8,662,232 | | | | (10,722,018 | ) |
Net increase (decrease) in net assets | | | 8,509,537 | | | | (6,678,524 | ) |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 51,622,364 | | | | 58,300,888 | |
End of year | | $ | 60,131,901 | | | $ | 51,622,364 | |
Undistributed net investment income at end of year | | $ | — | | | $ | — | |
| | | | | | | | | |
Capital share activity: | | | | | | | | |
Shares sold | | | | | | | | |
A-Class | | | 1,657,982 | | | | 621,507 | |
C-Class | | | 165,051 | | | | 27,623 | |
P-Class | | | 791 | * | | | — | |
Institutional Class | | | 391,788 | | | | 423,863 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 55,887 | | | | 67,225 | |
C-Class | | | 1,686 | | | | 1,099 | |
P-Class | | | 8 | * | | | — | |
Institutional Class | | | 9,270 | | | | 8,465 | |
Shares redeemed | | | | | | | | |
A-Class | | | (1,319,843 | ) | | | (1,515,958 | ) |
C-Class | | | (55,776 | ) | | | (71,141 | ) |
P-Class | | | — | * | | | — | |
Institutional Class | | | (233,057 | ) | | | (463,637 | ) |
Net increase (decrease) in shares | | | 673,787 | | | | (900,954 | ) |
* | Since commencement of operations: May 1, 2015. |
70 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
A-Class† | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Period Ended
September 30,
2012a | | | Year Ended
December 31,
2011 | | | Year Ended
December 31,
2010 | |
Per Share Data | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 12.51 | | | $ | 11.59 | | | $ | 12.59 | | | $ | 11.82 | | | $ | 11.54 | | | $ | 11.01 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .29 | | | | .36 | | | | .38 | | | | .26 | | | | .64 | | | | .71 | |
Distributions to preferred shareholders from: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | — | | | | — | | | | — | | | | (.01 | ) | | | (.10 | ) | | | (.10 | ) |
Net gain (loss) on investments (realized and unrealized) | | | .01 | | | | .92 | | | | (1.00 | ) | | | .78 | | | | .54 | | | | .68 | |
Total from investment operations | | | .30 | | | | 1.28 | | | | (.62 | ) | | | 1.03 | | | | 1.08 | | | | 1.29 | |
Less distributions from: | |
Net investment income | | | (.29 | ) | | | (.36 | ) | | | (.38 | ) | | | (.26 | ) | | | (.80 | ) | | | (.76 | ) |
Total distributions | | | (.29 | ) | | | (.36 | ) | | | (.38 | ) | | | (.26 | ) | | | (.80 | ) | | | (.76 | ) |
Net asset value, end of period | | $ | 12.52 | | | $ | 12.51 | | | $ | 11.59 | | | $ | 12.59 | | | $ | 11.82 | | | $ | 11.54 | |
| | |
Total Returnc | | | 2.39 | % | | | 11.20 | % | | | (5.09 | %) | | | 8.91 | % | | | 9.64 | % | | | 12.03 | % |
Ratios/Supplemental Data | |
Net assets, end of period
(in thousands) | | $ | 49,086 | | | $ | 44,090 | | | $ | 50,463 | | | $ | 77,609 | | | $ | 182,150 | | | $ | 177,868 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 2.28 | % | | | 3.00 | % | | | 3.04 | % | | | 2.78 | % | | | 4.60 | % | | | 5.37 | % |
Total expenses | | | 1.17 | % | | | 1.29 | % | | | 1.14 | % | | | 1.15 | % | | | 2.09 | % | | | 1.80 | % |
Net expensesf,g | | | 0.81 | % | | | 0.83 | % | | | 0.82 | % | | | 0.87 | % | | | 2.09 | % | | | 1.80 | % |
Portfolio turnover rate | | | 80 | % | | | 173 | % | | | 91 | % | | | 121 | % | | | 104 | % | | | 156 | % |
C-Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Period Ended
September 30,
2012d | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 12.50 | | | $ | 11.59 | | | $ | 12.58 | | | $ | 11.98 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .19 | | | | .27 | | | | .28 | | | | .20 | |
Net gain (loss) on investments (realized and unrealized) | | | .02 | | | | .91 | | | | (.98 | ) | | | .62 | |
Total from investment operations | | | .21 | | | | 1.18 | | | | (.70 | ) | | | .82 | |
Less distributions from: | |
Net investment income | | | (.19 | ) | | | (.27 | ) | | | (.29 | ) | | | (.22 | ) |
Total distributions | | | (.19 | ) | | | (.27 | ) | | | (.29 | ) | | | (.22 | ) |
Net asset value, end of period | | $ | 12.52 | | | $ | 12.50 | | | $ | 11.59 | | | $ | 12.58 | |
| | |
Total Returnc | | | 1.71 | % | | | 10.28 | % | | | (5.70 | %) | | | 7.04 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 2,472 | | | $ | 1,082 | | | $ | 1,495 | | | $ | 1,176 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 1.54 | % | | | 2.24 | % | | | 2.30 | % | | | 2.36 | % |
Total expenses | | | 1.87 | % | | | 2.08 | % | | | 1.93 | % | | | 1.94 | % |
Net expensesf,g | | | 1.56 | % | | | 1.58 | % | | | 1.57 | % | | | 1.55 | % |
Portfolio turnover rate | | | 80 | % | | | 173 | % | | | 91 | % | | | 121 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 71 |
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.
P-Class | | Period Ended
September 30,
2015e | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 12.64 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .13 | |
Net gain (loss) on investments (realized and unrealized) | | | (.12 | ) |
Total from investment operations | | | .01 | |
Less distributions from: | |
Net investment income | | | (.13 | ) |
Total distributions | | | (.13 | ) |
Net asset value, end of period | | $ | 12.52 | |
| | | | | |
Total Returnc | | | 0.06 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 10 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 2.46 | % |
Total expenses | | | 3.17 | % |
Net expensesf,g | | | 0.81 | % |
Portfolio turnover rate | | | 80 | % |
72 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | | | Year Ended
September 30,
2013 | | | Period Ended
September 30,
2012d | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 12.51 | | | $ | 11.60 | | | $ | 12.59 | | | $ | 11.98 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .32 | | | | .39 | | | | .40 | | | | .29 | |
Net gain (loss) on investments (realized and unrealized) | | | .02 | | | | .91 | | | | (.98 | ) | | | .62 | |
Total from investment operations | | | .34 | | | | 1.30 | | | | (.58 | ) | | | .91 | |
Less distributions from: | |
Net investment income | | | (.32 | ) | | | (.39 | ) | | | (.41 | ) | | | (.30 | ) |
Total distributions | | | (.32 | ) | | | (.39 | ) | | | (.41 | ) | | | (.30 | ) |
Net asset value, end of period | | $ | 12.53 | | | $ | 12.51 | | | $ | 11.60 | | | $ | 12.59 | |
| | |
Total Returnc | | | 2.73 | % | | | 11.38 | % | | | (4.76 | %) | | | 7.76 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 8,564 | | | $ | 6,451 | | | $ | 6,343 | | | $ | 1,051 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 2.53 | % | | | 3.23 | % | | | 3.35 | % | | | 3.37 | % |
Total expenses | | | 0.89 | % | | | 0.97 | % | | | 0.93 | % | | | 0.86 | % |
Net expensesf,g | | | 0.56 | % | | | 0.58 | % | | | 0.57 | % | | | 0.55 | % |
Portfolio turnover rate | | | 80 | % | | | 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. |
a | 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. |
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 | Since commencement of operations: January 13, 2012. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
e | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
f | Net expense information reflects the expense ratios after expense waivers. |
g | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the years would be: |
| | 09/30/15 | 09/30/14 |
A-Class | 0.80% | 0.80% |
C-Class | 1.55% | 1.54% |
P-Class | 0.81% | — |
Institutional Class | 0.55% | 0.55% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 73 |
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 an open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, C-Class shares, P-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%. 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 previously offered have been converted to A-Class shares effective August 8, 2015 for the funds in the Trust. 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. At September 30, 2015, the Trust consisted of seventeen funds.
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.
This report covers High Yield Fund, Investment Grade Bond Fund, Limited Duration Fund and the Municipal Income Fund (the “Funds”), each a diversified investment company.
Guggenheim Investments (“GI”) provides advisory services, and Rydex Fund Services, LLC (“RFS”) provides transfer agent, administrative and accounting services to the Trust. Guggenheim Funds Distributors, LLC (“GFD”) acts as principal underwriter for the Trust. GI, RFS and GFD are affiliated entities.
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 Funds operate as investment companies and accordingly follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The NAV of each Class of the Funds is calculated by dividing the market value of the Fund’s securities and other assets, less all liabilities, attributable to the Class by the number of outstanding shares of the Class.
A. The Board of Trustees of the Funds (the “Board”) has adopted policies and procedures for the valuation of the Funds’ investments (the “Valuation Procedures”). Pursuant to the Valuation Procedures, the Board has delegated to a valuation committee, consisting of representatives from Guggenheim’s investment management, fund administration, legal and compliance departments (the “Valuation Committee”), the day-to-day responsibility for implementing the Valuation Procedures, including, under most circumstances, the responsibility for determining the fair value of the Funds’ securities or other assets.
Valuations of the Funds’ securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed and will review the valuation of all assets which have been fair valued for reasonableness. The Funds’ officers, through the Valuation Committee and consistent with the monitoring and review responsibilities set forth in the Valuation Procedures, regularly review procedures used by, and valuations provided by, the pricing services.
74 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
If the pricing service cannot or does not provide a valuation for a particular investment or such valuation is deemed unreliable, such investment is fair valued by the Valuation Committee.
Equity securities listed on an exchange (New York Stock Exchange (“NYSE”) or American Stock Exchange) are valued at the last quoted sales price as of the close of business on the NYSE, usually 4:00 p.m. on the valuation date. Equity securities listed on the NASDAQ market system are valued at the NASDAQ Official Closing Price on the valuation date, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on a given day, the security is valued at the closing bid price on that day.
Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the NYSE. The values of foreign securities are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currency are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities. In addition, the Board of Trustees has authorized the Valuation Committee and GI to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.
Open-end investment companies (“Mutual Funds”) are valued at their NAV as of the close of business, on the valuation date. Exchange-traded funds (“ETFs”) and closed-end investment companies (“CEFs”) are valued at the last quoted sales price.
U.S. government securities are valued by either independent pricing services, the last traded fill price, or at the reported bid price at the close of business.
Debt securities with a maturity of greater than 60 days at acquisition are valued at prices that reflect broker/dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term debt securities with a maturity of 60 days or less at acquisition are valued at amortized cost, provided such amount approximates market value.
Repurchase agreements are valued at amortized cost, provided such amounts approximate 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 (“OTC”) options are valued using the average bid price (for long options), or average ask price (for short options) obtained from one or more security dealers.
The value of interest rate swap agreements entered into by a Fund are accounted for using the unrealized gain or loss on the agreements that is determined using the spread priced off the previous day’s Chicago Mercantile Exchange (“CME“) price.
Forward foreign currency exchange contracts are valued daily based on the applicable exchange rate of the underlying currency. The change in value of the contract is recorded as unrealized appreciation or depreciation until the forward foreign currency contract is closed. When the forward foreign currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time the contract was opened and the value at the time it was closed.
Investments for which market quotations are not readily available are fair valued as determined in good faith by GI under the direction of the Board of Trustees using methods established or ratified by the Board of Trustees. Valuations in accordance with these methods are intended to reflect each security’s (or asset’s) “fair value.” Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to: (i) the type of security, (ii) the initial cost of the security, (iii) the existence of any contractual restrictions on the security’s disposition, (iv) the price and extent of public trading in similar securities of the issuer or of
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 75 |
NOTES TO FINANCIAL STATEMENTS (continued) |
comparable companies, (v) quotations or evaluated prices from broker-dealers and/or pricing services, (vi) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), (vii) an analysis of the company’s financial statements, and (viii) an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold (e.g. the existence of pending merger activity, public offerings or tender offers that might affect the value of the security).
In connection with futures contracts and other derivative investments, such factors may include obtaining information as to how (a) these contracts and other derivative investments trade in the futures or other derivative markets, respectively, and (b) the securities underlying these contracts and other derivative investments trade in the cash market.
B. Certain U.S. Government and Agency Obligations are traded on a discount basis; the interest rates shown on the Schedules of Investments reflect the effective rates paid at the time of purchase by the Funds. Other securities bear interest at the rates shown, payable at fixed dates through maturity.
C. Senior loans in which the Funds invest generally pay interest rates which are periodically adjusted by reference to a base short-term, floating rate plus a premium. These base lending rates are generally (I) the lending rate offered by one or more major European banks, such as the one-month or three-month London Inter-Bank Offered Rate (LIBOR), (ii) the prime rate offered by one or more major United States banks, or (iii) the bank’s certificate of deposit rate. Senior floating rate interests often require prepayments from excess cash flows or permit the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. The interest rate indicated is the rate in effect at September 30, 2015.
D. The Funds may purchase and sell interests in securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Funds actually take delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Funds will generally purchase these securities with the intention of acquiring such securities, they may sell such securities before the settlement date.
E. 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. Swap agreements are marked-to-market daily and the change, if any, is recorded as unrealized gain or loss. Payments received or made as a result of an agreement or termination of the agreement are recognized as realized gains or losses.
G. Forward foreign currency exchange contracts are valued daily based on the applicable exchange rate of the underlying currency. The change in value of the contract is recorded as unrealized appreciation or depreciation until the forward foreign currency contract is closed. When the forward foreign currency contract is closed, the Funds record a realized gain or loss equal to the difference between the value at the time the contract was opened and the value at the time it was closed.
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
76 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
amortization of premiums and accretion of discounts, is accrued on a daily basis. Interest income also includes paydown gains and losses on mortgage-backed and asset-backed securities and senior and subordinated loans. Amendment fees are earned as compensation for evaluating and accepting changes to the original loan agreement and are recognized when received. Dividend income from REITs is recorded based on the income included in the distributions received from the REIT investments using published REIT classifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
I. 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. 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.
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 Statement of Operations are before the reduction in expense from the related earnings credits, if any. For the year ended September 30, 2015, there were no earnings credits received.
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. 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 aff ect 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.
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 and Derivatives
As part of their investment strategy, the Funds utilize a variety of derivative instruments. These investments involve, to varying degrees, elements of market risk and risks in excess of the amounts recognized in the Statements of Assets and Liabilities. Valuation and accounting treatment of these instruments can be found under Significant Accounting Policies in Note 1 of these Notes to Financial Statements.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 77 |
NOTES TO FINANCIAL STATEMENTS (continued) |
Derivatives
Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more other assets, such as securities, currencies, commodities or indices. Derivative instruments may be used to increase investment flexibility (including to maintain cash reserves while maintaining exposure to certain other assets), for risk management (hedging) purposes, to facilitate trading, to reduce transaction costs and to pursue higher investment returns. Derivative instruments may also be used to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. U.S. GAAP requires disclosures to enable investors to better understand how and why a Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund’s financial position and results of operations.
The Funds may utilize derivatives for the following purposes:
Duration: the use of an instrument to manage the interest rate risk of a portfolio.
Hedge: an investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position to protect against broad market moves.
Options Purchased and Written
A call option on a security gives the purchaser of the option the right to buy, and the writer of a call option the obligation to sell, the underlying security. The purchaser of a put option has the right to sell, and the writer of the put option the obligation to buy, the underlying security at any time during the option period. The risk associated with purchasing options is limited to the premium originally paid. The following table represents the Funds’ use, and volume of call/put options purchased on a quarterly basis:
Fund | Use | Average Number
of Contracts |
Investment Grade Bond Fund | Hedge, Duration | 1,210 |
Limited Duration Fund | Hedge, Duration | 264 |
The risk in writing a call option is that a Fund may incur a loss if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there may be an imperfect correlation between the movement in prices of options and the underlying securities where a Fund may not be able to enter into a closing transaction because of an illiquid secondary market; or, for OTC options, a Fund may be at risk because of the counterparty’s inability to perform.
The following tables represent the Funds’ use and activity of options written for the year ended September 30, 2015:
Fund | Use |
Investment Grade Bond Fund | Hedge, Duration |
Limited Duration Fund | Hedge, Duration |
78 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
Options Written Activity
| | | Investment Grade Bond Fund | | | Limited Duration Fund | |
| | | Number of
Contracts | | | Premium
Amount | | | Number of
Contracts | | | Premium
Amount | |
Balance at September 30, 2014 | | | — | | | $ | — | | | | — | | | $ | — | |
Options Written | | | 3,410 | | | | 237,248 | | | | 1,056 | | | | 28,511 | |
Options terminated in closing purchase transactions | | | — | | | | — | | | | — | | | | — | |
Options expired | | | (2,829 | ) | | | (221,585 | ) | | | — | | | | — | |
Options exercised | | | — | | | | — | | | | — | | | | — | |
Balance at September 30, 2015 | | | 581 | | | $ | 15,663 | | | | 1,056 | | | $ | 28,511 | |
Swaps
A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. A Fund utilizing OTC swaps bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty or if the underlying asset declines in value. Certain standardized swaps are subject to mandatory central clearing. Central clearing generally reduces counterparty credit risk and increases liquidity, but central clearing does not make swap transactions risk-free. Additionally, there is no guarantee that a Fund or an underlying fund could eliminate its exposure under an outstanding swap agreement by entering into an off setting swap agreement with the same or another party.
Interest rate swaps involve the exchange by a Fund with another party for its respective commitment to pay or receive interest on a notional amount of principal. Interest rate swaps are generally valued using the closing price from the prior day, subject to an adjustment for the current day’s spreads. Interest rate swaps are generally subject to mandatory central clearing, but central clearing does not make interest rate swap transactions risk free.
The following table represents the Funds’ use, and volume of interest rate swaps on a quarterly basis:
| | | | Average Notional | |
Fund | Use | | Long | |
Investment Grade Bond Fund | Hedge, Duration | | $ | 550,000 | |
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract is an agreement between two parties to exchange two designated currencies at a specific time in the future. Certain types of forward foreign currency exchange contracts may be cash-settled, in an amount equal to the change in exchange rates during the term of the contract. The contracts can be used to hedge or manage exposure to foreign currency risks with portfolio investments or to gain exposure to foreign currencies.
The market value of a forward foreign currency exchange contract changes with fluctuations in foreign currency exchange rates. Furthermore, a Fund may be exposed to risk if the counterparties cannot meet the contract terms or if the currency value changes unfavorably as compared to the U.S. dollar.
The following table represents the Funds’ use, and volume of forward foreign currency exchange contracts on a quarterly basis:
| | | | Average Settlement | |
Fund | Use | | Purchased | | | Sold | |
High Yield Fund | Hedge | | $ | 9,487,411 | | | $ | 14,885 | |
Investment Grade Bond Fund | Hedge | | | 346,495 | | | | — | |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 79 |
NOTES TO FINANCIAL STATEMENTS (continued) |
Derivative Investment Holdings Categorized by Risk Exposure
The following is a summary of the location of derivative investments on the Funds’ Statements of Assets and Liabilities as of September 30, 2015:
Derivative Investment Type | Asset Derivatives | Liability Derivatives |
Currency contracts | Unrealized appreciation on forward foreign
currency exchange contracts | Unrealized depreciation on forward foreign
currency exchange contracts |
Interest Rate contracts | Options Purchased, at value | Options Written, at value |
The following table sets forth the fair value of the Fund’s derivative investments categorized by primary risk exposure at September 30, 2015:
Asset Derivative Investments Value | |
Fund | | Options
Purchased
Interest Rate
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total Value at
September 30,
2015 | |
High Yield Fund | | $ | — | | | $ | 14,289 | | | $ | 14,289 | |
Investment Grade Bond Fund | | | 113,295 | | | | — | | | | 113,295 | |
Limited Duration Fund | | | 205,920 | | | | — | | | | 205,920 | |
Liability Derivative Investments Value | |
Fund | | Options
Written
Interest Rate
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total Value at
September 30,
2015 | |
High Yield Fund | | $ | — | | | $ | 35,225 | | | $ | 35,225 | |
Investment Grade Bond Fund | | | 23,240 | | | | — | | | | 23,240 | |
Limited Duration Fund | | | 42,240 | | | | — | | | | 42,240 | |
* | 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, 2015:
Derivative Investment Type | Location of Gain (Loss) on Derivatives |
Currency contracts | Net realized gain (loss) on forward foreign currency exchange contracts |
| | Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts |
Interest Rate contracts | Net change in unrealized appreciation (depreciation) on options purchased |
| | Net change in unrealized appreciation (deprecation) on options written |
| | Net realized gain (loss) on swap agreements |
| | Net change in unrealized appreciation (depreciation) on swap agreements |
80 | 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, 2015:
Realized Gain (Loss) on Derivative Investments Recognized on the Statements of Operations | |
Fund | | Swaps
Interest
Rate
Contracts | | | Options
Written
Interest Rate
Contracts | | | Options
Purchased
Interest Rate
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total | |
High Yield Fund | | $ | — | | | $ | — | | | $ | — | | | $ | 1,716,253 | | | $ | 1,716,253 | |
Investment Grade Bond Fund | | | 1,000,910 | | | | 221,585 | | | | (496,590 | ) | | | 74,169 | | | | 800,074 | |
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statements of Operations | |
Fund | | Swaps
Interest
Rate
Contracts | | | Options
Written
Interest Rate
Contracts | | | Options
Purchased
Interest Rate
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total | |
High Yield Fund | | $ | — | | | $ | — | | | $ | — | | | $ | (493,243 | ) | | $ | (493,243 | ) |
Investment Grade Bond Fund | | | (555,665 | ) | | | (7,577 | ) | | | 42,971 | | | | — | | | | (520,271 | ) |
Limited Duration Fund | | | — | | | | (13,729 | ) | | | 78,144 | | | | — | | | | 64,415 | |
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 repurchase agreements allocated to the Funds.
The Trust has established counterparty credit guidelines and enters into transactions only with financial institutions of investment grade or better. The Trust monitors the counterparty credit risk.
3. Fees and Other Transactions with Affiliates
Under the terms of an investment advisory contract, the Funds pay GI investment advisory fees calculated at their annualized rates below, based on the average daily net assets of the Funds:
Fund | Management Fees
(as a % of Net Assets) |
High Yield Fund | 0.60% |
Investment Grade Bond Fund | 0.50% |
Limited Duration Fund | 0.45% |
Municipal Income Fund | 0.50% |
RFS is paid the following for providing transfer agent services to the Funds. Transfer agent fees are assessed to the applicable class of each Fund.
Annual charge per account | $5.00 – $8.00 |
Transaction fee | $0.60 – $1.10 |
Minimum annual charge per Fund† | $25,000 |
Certain out-of-pocket charges | Varies |
† | Not subject to Funds during first twelve months of operations. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 81 |
NOTES TO FINANCIAL STATEMENTS (continued) |
RFS also acts as the administrative agent for the Funds, and as such performs administrative functions and the bookkeeping, accounting and pricing functions for each Fund. For these services, RFS receives the following:
Fund | Fund Accounting/
Administrative Fees
(as a % of Net Assets) |
High Yield Fund | 0.095% |
Investment Grade Bond Fund | 0.095% |
Limited Duration Fund | 0.095% |
Municipal Income 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 Funds have adopted Distribution Plans related to the offering of A-Class, C-Class and P-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 and P-Class shares, and 1.00% of the average daily net assets of each Fund’s C-Class shares.
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:
| | Limit | Effective
Date | Contract
End Date |
High Yield Fund — A-Class | 1.16% | 11/30/12 | 02/01/16 |
High Yield Fund — C-Class | 1.91% | 11/30/12 | 02/01/16 |
High Yield Fund — P-Class* | 1.16% | 05/01/15 | 02/01/17 |
High Yield Fund — Institutional Class | 0.91% | 11/30/12 | 02/01/16 |
Investment Grade Bond Fund — A-Class | 1.00% | 11/30/12 | 02/01/16 |
Investment Grade Bond Fund — C-Class | 1.75% | 11/30/12 | 02/01/16 |
Investment Grade Bond Fund — P-Class* | 1.00% | 05/01/15 | 02/01/17 |
Investment Grade Bond Fund — Institutional Class | 0.75% | 11/30/12 | 02/01/16 |
Limited Duration Fund — A-Class | 0.80% | 12/01/13 | 02/01/16 |
Limited Duration Fund — C-Class | 1.55% | 12/01/13 | 02/01/16 |
Limited Duration Fund — P-Class* | 0.80% | 05/01/15 | 02/01/17 |
Limited Duration Fund — Institutional Class | 0.55% | 12/01/13 | 02/01/16 |
Municipal Income Fund — A-Class | 0.80% | 11/30/12 | 02/01/16 |
Municipal Income Fund — C-Class | 1.55% | 11/30/12 | 02/01/16 |
Municipal Income Fund — P-Class* | 0.80% | 05/01/15 | 02/01/17 |
Municipal Income Fund — Institutional Class | 0.55% | 11/30/12 | 02/01/16 |
* | Since the commencement of operations: May 1, 2015 |
82 | 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, 2015, the amount of fees waived or expenses reimbursed that are subject to recoupment are presented in the following table:
Fund | | Expires
2016 | | | Expires
2017 | | | Expires
2018 | | | Fund
Total | |
High Yield Fund | | $ | 207,619 | | | $ | 81,112 | | | $ | 53,603 | | | $ | 342,334 | |
Investment Grade Bond Fund | | | 234,110 | | | | 183,531 | | | | 171,425 | | | | 589,066 | |
Limited Duration Fund | | | — | | | | 142,224 | | | | 180,387 | | | | 322,611 | |
Municipal Income Fund | | | 236,488 | | | | 242,274 | | | | 214,145 | | | | 692,907 | |
For the year ended September 30, 2015, no amounts were recouped by GI.
If a Fund invests in an affiliated fund, the investing Fund’s Adviser has agreed to waive fees at the investing fund level. Fee waivers will be calculated at the investing Fund level without regard to any expense cap, if any, in effect for the investing Fund. Fees waived under this arrangement are not subject to reimbursement to GI.
For the year ended September 30, 2015, GFD retained sales charges of $660,571 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.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 83 |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following table summarizes the inputs used to value the Funds’ investments at September 30, 2015. See the Schedules of Investments for more details on the classification of securities.
| | | Level 1
Investments
In Securities | | | Level 2
Investments
In Securities | | | Level 2
Other Financial
Instruments* | | | Level 3
Investments
In Securities | | | Total | |
Assets | | | | | | | | | | | | | | | |
High Yield Fund | | $ | 5,109,569 | | | $ | 160,045,060 | | | $ | 14,289 | | | $ | 10,470,278 | | | $ | 175,639,196 | |
Investment Grade Bond Fund | | | 6,475,547 | | | | 145,890,398 | | | | — | | | | 5,005,335 | | | | 157,371,280 | |
Limited Duration Fund | | | 18,989,547 | | | | 288,131,870 | | | | — | | | | 971,372 | | | | 308,092,789 | |
Municipal Income Fund | | | 4,507,725 | | | | 56,653,262 | | | | — | | | | — | | | | 61,160,987 | |
| | |
Liabilities | | | | | | | | | | | | | | | | | | | | |
High Yield Fund | | $ | — | | | $ | — | | | $ | 35,225 | | | $ | — | | | $ | 35,225 | |
Investment Grade Bond Fund | | | 23,240 | | | | — | | | | — | | | | — | | | | 23,240 | |
Limited Duration Fund | | | 42,240 | | | | — | | | | — | | | | — | | | | 42,240 | |
* | Other financial instruments may include forward foreign currency exchange contracts, 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 inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The suitability of the techniques and sources employed to determine fair valuation are regularly monitored and subject to change.
The following is a summary of significant unobservable inputs used in the fair valuation of assets and liabilities categorized within Level 3 of the fair value hierarchy:
Fund | Category and
Subcategory | | | Ending Balance
at 09/30/15 | Valuation
Technique | Unobservable
Inputs |
| | Investments, at value | | | | | |
High Yield Fund | Senior Floating Rate Interests | | $ | 6,467,005 | Monthly Model Priced | Purchase Price |
| | | | | 579,150 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | Total Senior Floating Rate Interests | | | 7,046,155 | | |
| | Corporate Bonds | | | 2,820,748 | Monthly Model Priced | Purchase Price |
| | | | | 435,438 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | Total Corporate Bonds | | | 3,256,186 | | |
| | Senior Fixed Rate Interests | | | 156,826 | Monthly Model Priced | Purchase Price |
84 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
Fund | Category and
Subcategory | | | Ending Balance
at 09/30/15 | Valuation
Technique | Unobservable
Inputs |
| | Preferred Stocks | | | 11,038 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote
|
| | | | | | | |
Investment Grade Bond Fund | Preferred Stocks | | | 1,742,414 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | Corporate Bonds | | | 729,655 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | | | | 712,067 | Option Adjusted Spread off multiple month end broker marks over the 3 month LIBOR | Indicative Quote |
| | Total Corporate Bonds | | | 1,441,722 | | |
| | Asset-Backed Securities | | | 958,505 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | Collateralized Mortgage Obligations | | | 528,538 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | | | | 334,156 | Option Adjusted Spread off multiple month end broker marks over the 3 month LIBOR | Indicative Quote |
| | Total Collateralized
Mortgage Obligations | | | 862,694 | | |
| | | | | | | |
Limited Duration Fund | Asset-Backed Securities | | | 971,372 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
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 Fund recognized transfers between the levels as of the beginning of the period. As of September 30, 2015, the Fund had transfers in/out of Level 3 due to changes in securities valuation method. See the table below for changes to and from Level 2 and Level 3. 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, 2015:
LEVEL 3 – Fair value measurement using significant unobservable inputs
| | | Senior Floating
Rate Interests | | | Senior Fixed
Rate Interests | | | Preferred
Stocks | | | Common
Stocks | | | Corporate
Bonds | | | Total | |
High Yield Fund | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | |
Beginning Balance | | $ | 1,762,119 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,787,125 | | | $ | 3,549,244 | |
Purchases | | | 3,403,776 | | | | 156,071 | | | | — | | | | — | | | | 1,962,522 | | | | 5,522,369 | |
Sales, maturities and paydowns | | | (109,412 | ) | | | — | | | | — | | | | — | | | | (18,751 | ) | | | (128,163 | ) |
Total change in unrealized gains or losses included in earnings | | | (160,101 | ) | | | 755 | | | | (6,329 | ) | | | (60,281 | ) | | | (474,710 | ) | | | (700,666 | ) |
Transfers into Level 3 | | | 2,433,756 | | | | — | | | | 17,367 | | | | 60,354 | | | | — | | | | 2,511,477 | |
Transfers out of Level 3 | | | (283,983 | ) | | | — | | | | — | | | | — | | | | — | | | | (283,983 | ) |
Ending Balance | | $ | 7,046,155 | | | $ | 156,826 | | | $ | 11,038 | | | $ | 73 | | | $ | 3,256,186 | | | $ | 10,470,278 | |
Net change in unrealized appreciation (depreciation) for investments still held at September 30, 2015 | | $ | 31,761 | | | $ | 1,391 | | | $ | (6,329 | ) | | $ | (60,281 | ) | | $ | (488,464 | ) | | $ | (521,922 | ) |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 85 |
NOTES TO FINANCIAL STATEMENTS (continued) |
| | | Collateralized
Mortgage
Obligations | | | Asset-Backed
Securities | | | Preferred
Stocks | | | Corporate
Bonds | | | Total | |
Investment Grade Bond Fund | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | |
Beginning Balance | | $ | 473,556 | | | $ | — | | | $ | 2,142,060 | | | $ | 2,255,460 | | | $ | 4,871,076 | |
Purchases | | | — | | | | 1,000,000 | | | | — | | | | 967,544 | | | | 1,967,544 | |
Sales, maturities and paydowns | | | (9,068 | ) | | | (51,024 | ) | | | — | | | | (161,415 | ) | | | (221,507 | ) |
Total realized gains or losses included in earnings | | | — | | | | — | | | | — | | | | (37,735 | ) | | | (37,735 | ) |
Total change in unrealized gains or losses included in earnings | | | 53,095 | | | | 9,529 | | | | (399,646 | ) | | | (505,852 | ) | | | (842,874 | ) |
Transfers into Level 3 | | | 345,111 | | | | — | | | | — | | | | — | | | | 345,111 | |
Transfers out of Level 3 | | | — | | | | — | | | | — | | | | (1,076,280 | ) | | | (1,076,280 | ) |
Ending Balance | | $ | 862,694 | | | $ | 958,505 | | | $ | 1,742,414 | | | $ | 1,441,722 | | | $ | 5,005,335 | |
Net change in unrealized appreciation (depreciation) for investments still held at September 30, 2015 | | $ | 52,426 | | | $ | 9,528 | | | $ | (399,646 | ) | | $ | (45,762 | ) | | $ | (383,454 | ) |
| | | Senior Floating
Rate Interests | | | Asset-Backed
Securities | | | Total | |
Limited Duration Fund | | | | | | | | | |
Assets: | | | | | | | | | |
Beginning Balance | | $ | 888,202 | | | $ | — | | | $ | 888,202 | |
Purchases | | | — | | | | 958,683 | | | | 958,683 | |
Total change in unrealized gains or losses included in earnings | | | — | | | | 12,689 | | | | 12,689 | |
Transfers into Level 3 | | | — | | | | — | | | | — | |
Transfers out of Level 3 | | | (888,202 | ) | | | — | | | | (888,202 | ) |
Ending Balance | | $ | — | | | $ | 971,372 | | | $ | 971,372 | |
Net change in unrealized appreciation (depreciation) for investments still held at September 30, 2015 | | $ | — | | | $ | 12,689 | | | $ | 12,689 | |
5. Offsetting
In the normal course of business, the Funds enter into transactions subject to enforceable master netting arrangements or other similar arrangements. Generally, the right to offset in those agreements allows the Funds to counteract the exposure to a specific counterparty with collateral received or delivered to that counterparty based on the terms of the arrangements. These arrangements provide for the right to liquidate upon the occurrence of an event of default, credit event upon merger or additional termination event.
In order to better define their contractual rights and to secure rights that will help the Funds mitigate their counterparty risk, the Funds may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with their derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between a Fund and a counterparty that governs OTC derivatives, including foreign exchange contracts, and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of a default (close-out netting) or similar event, including the bankruptcy or insolvency of the counterparty.
For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Funds and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Funds and cash collateral received from the counterparty, if any, is reported separately on the Statements of Assets and Liabilities as segregated cash with broker/receivable for variation margin, or payable for swap settlement/variation margin. Generally, the amount of collateral due from or to a counterparty must
86 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 toenforceable netting arrangements and offset in the Statements of Assets and Liabilities in conformity with U.S. GAAP.
| | | | | | | | | | | | | Gross Amounts Not Offset In the Statements of Assets and Liabilities | | | | |
Fund | Instrument | | Gross Amounts of Recognized Assets | | | Gross Amounts Offset In the Statements of Assets and Liabilities | | | Net Amount of Assets Presented on the Statements of Assets and Liabilities | | | Financial
Instruments | | | Cash Collateral Received | | | Net
Amount | |
High Yield Fund | Forward foreign currency exchange contracts | | $ | 14,289 | | | $ | — | | | $ | 14,289 | | | $ | 14,289 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | Gross Amounts Not Offset In the Statements of Assets and Liabilities | | | | |
Fund | Instrument | | Gross Amounts of Recognized Liabilities | | | Gross Amounts Offset In the Statements of Assets and Liabilities | | | Net Amount of Liabilities Presented on the Statements of Assets and Liabilities | | | Financial Instruments | | | Cash Collateral Pledged | | | Net Amount | |
High Yield Fund | Forward foreign currency exchange contracts | | $ | 35,225 | | | $ | — | | | $ | 35,225 | | | $ | 14,289 | | | $ | — | | | $ | 20,936 | |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 87 |
NOTES TO FINANCIAL STATEMENTS (continued) |
6. 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.
Fund | Counterparty and Terms of Agreement | | | Face
Value | | | Repurchase
Price | | Collateral | | | Par
Value | | | Fair
Value |
Limited Duration Fund | Jefferies & Company, Inc. | | | | | | | | | | | | | | |
| | 2.69% - 3.21% | | | | | | | | | | | | | | |
| | Due 10/01/15 - 11/03/15 | | $ | 14,173,000 | | $ | 14,212,133 | | Nomad CLO Ltd. 01/15/25* | | $ | 7,912,000 | | $ | 6,725,200 |
| | | | | | | | | | Government Development Bank for Puerto Rico | | | | | | |
| | | | | | | | | | 5.00% - 5.75% | | | | | | |
| | | | | | | | | | 08/01/20 - 08/01/25 | | | 14,826,500 | | | 5,495,157 |
| | | | | | | | | | Commonwealth of Puerto Rico | | | | | | |
| | | | | | | | | | 5.50% | | | | | | |
| | | | | | | | | | 07/01/18 - 07/02/19 | | | 3,587,500 | | | 2,645,218 |
| | | | | | | | | | Atlas Senior Loan Fund Ltd. | | | | | | |
| | | | | | | | | | 01/30/24* | | | 1,717,735 | | | 1,252,646 |
| | | | | | | | | | Puerto Rico Aqueduct and Sewer Authority | | | | | | |
| | | | | | | | | | 3.92% | | | | | | |
| | | | | | | | | | 07/01/16 | | | 1,498,250 | | | 1,124,000 |
| | | | | | | | | | Residential Asset Mortgage Products, Inc. | | | | | | |
| | | | | | | | | | 0.53% | | | | | | |
| | | | | | | | | | 05/25/36 | | | 282,499 | | | 197,329 |
| | | | | | | | | | | | | | $ | | 17,439,550 |
* Residual interest.
In the event of counterparty default, the Funds have the right to collect the collateral to off set 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.
7. 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.
88 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
For the year ended September 30, 2015, the following Funds entered into reverse repurchase agreements as follows:
Fund | | Number
of Days
Outstanding | | | Balance at
September 30,
2015 | | | Average
Balance
Outstanding | | | Average
interest
Rate | |
High Yield Fund | | | 365 | | | $ | 2,096,100 | | | $ | 8,989,518 | | | | 0.39 | % |
Investment Grade Bond Fund | | | 365 | | | | 10,997,608 | | | | 11,982,651 | | | | 0.66 | % |
Limited Duration Fund | | | 365 | | | | 11,274,167 | | | | 10,937,286 | | | | 1.00 | % |
In June 2014, the FASB issued Accounting Standards Update 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (ASU 2014-11) that expanded secured borrowing accounting for certain repurchase agreements. The ASU also sets forth additional disclosure requirements for certain transactions accounted for as secured borrowings, which applies to the reverse repurchase agreements held by the Funds. The ASU became effective prospectively for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The Funds have adopted the ASU.
The following is a summary of the remaining contractual maturities of the reverse repurchase agreements outstanding as of year-end, aggregated by asset class of the related collateral pledged by the Funds:
| | | Overnight and Continuous | | | Up to
30 days | | | 31-90
days | | | Greater than 90 days | | | Total | |
High Yield Fund | | | | | | | | | | | | | | | |
Corporate Bonds | | $ | 2,096,100 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,096,100 | |
Gross amount of recognized liabilities for
reverse repurchase agreements | | | | | | | | | | | | | | | | | | $ | 2,096,100 | |
| | | | | | | | | | | | | | | | | | | | | |
Investment Grade Bond Fund | | | | | | | | | | | | | | | | | | | | |
Corporate Bonds | | | 152,625 | | | | 2,941,251 | | | | 428,125 | | | | 1,916,325 | | | $ | 5,438,326 | |
Foreign Government Bonds | | | 516,783 | | | | 667,250 | | | | 883,750 | | | | | | | | 2,067,783 | |
Municipal Bond | | | — | | | | 2,954,000 | | | | 537,500 | | | | — | | | | 3,491,500 | |
Gross amount of recognized liabilities for
reverse repurchase agreements | | | | | | | | | | | | | | | | | | $ | 10,997,608 | |
| | | | | | | | | | | | | | | | | | | | | |
Limited Duration Fund | | | | | | | | | | | | | | | | | | | | |
Asset-Backed Securities | | | — | | | | — | | | | 7,660,000 | | | | — | | | $ | 7,660,000 | |
Corporate Bonds | | | — | | | | 3,052,370 | | | | 561,797 | | | | — | | | | 3,614,167 | |
Gross amount of recognized liabilities for
reverse repurchase agreements | | | | | | | | | | | | | | | | | | $ | 11,274,167 | |
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 GUGGENHEIM FUNDS ANNUAL REPORT | 89 |
NOTES TO FINANCIAL STATEMENTS (continued) |
Tax basis capital losses in excess of capital gains are carried forward to offset future net capital gains. For the year ended September 30, 2015, the following capital loss carryforward amounts were used:
Fund | Amount |
Investment Grade Bond Fund | $ 46,953 |
Municipal Income Fund | 481,551 |
The tax character of distributions paid during the year ended September 30, 2015 was as follows:
Fund | | Ordinary
Income | | | Tax-Exempt
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
High Yield Fund | | $ | 10,220,862 | | | $ | — | | | $ | 2,170,457 | | | $ | 12,391,319 | |
Investment Grade Bond Fund | | | 5,831,739 | | | | — | | | | — | | | | 5,831,739 | |
Limited Duration Fund | | | 5,627,742 | | | | — | | | | — | | | | 5,627,742 | |
Municipal Income Fund | | | 128,018 | | | | 1,248,231 | | | | — | | | | 1,376,249 | |
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Fund | | Ordinary
Income | | | Tax-Exempt
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
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 | |
Municipal Income Fund | | | 32,486 | | | | 1,597,669 | | | | — | | | | 1,630,155 | |
Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.
Tax components of accumulated earnings/(deficit) as of September 30, 2015, were as follows:
Fund | | Undistributed
Ordinary
Income | | | Undistributed
Tax-Exempt
Income | | | Undistributed
Long-Term
Capital Gain | | | Net Unrealized
Appreciation/
(Depreciation) | | | Accumulated
Capital and
Other Losses | | | Other
Temporary Differences | |
High Yield Fund | | $ | 1,299,403 | | | $ | — | | | $ | — | | | $ | (14,304,425 | ) | | $ | (910,489 | ) | | $ | (835,833 | ) |
Investment Grade Bond Fund | | | 423,054 | | | | — | | | | — | | | | (3,350,543 | ) | | | (30,993,640 | ) | | | (431,466 | ) |
Limited Duration Fund | | | 492,690 | | | | — | | | | — | | | | (2,183,511 | ) | | | (327,384 | ) | | | (592,713 | ) |
Municipal Income Fund | | | — | | | | 124,356 | | | | — | | | | 1,798,067 | | | | (28,142,636 | ) | | | (124,356 | ) |
For Federal income tax purposes, capital loss carryforwards represent realized losses of the Funds that may be carried forward and applied against future capital gains. For taxable years beginning on or before December 22, 2010, such capital losses may be carried forward for a maximum of eight years. Under the RIC Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those taxable years must be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. As of September 30, 2015, capital loss carryforwards for the Funds were as follows:
| | | | | | | | | | | | Unlimited | | | | |
Fund | | Expires in
2016 | | | Expires in
2017 | | | Expires in
2018 | | | Short-Term | | | Long-Term | | | Total
Capital Loss
Carryforward | |
High Yield Fund | | $ | — | | | $ | — | | | $ | — | | | $ | (611,507 | ) | | $ | (298,982 | ) | | $ | (910,489 | ) |
Investment Grade Bond Fund | | | (7,628,175 | ) | | | (17,929,397 | ) | | | (1,528,707 | ) | | | — | | | | — | | | | (27,086,279 | ) |
Limited Duration Fund | | | — | | | | — | | | | — | | | | (167,381 | ) | | | (160,003 | ) | | | (327,384 | ) |
Municipal Income Fund | | | — | | | | (27,927,475 | ) | | | — | | | | — | | | | — | | | | (27,927,475 | ) |
90 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
As of September 30, 2015, the following reclassifications were made to the capital accounts of the Funds to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations, which are primarily due to the inherent differences between book and tax treatment of swaps, foreign currency, certain CLO investments, transactions, paydowns from asset-backed securities, bond market discount/premium amortization and dividend reclasses. Net investment income, net realized gains and net assets were not affected by these changes.
On the Statements of Assets and Liabilities, the following adjustments were made for permanent book/tax differences:
Fund | | Paid In
Capital | | | Undistributed
Net Investment
Income | | | Accumulated
Net Realized
Loss | |
High Yield Fund | | $ | (1 | ) | | $ | 1,403,244 | | | $ | (1,403,243 | ) |
Investment Grade Bond Fund | | | — | | | | 1,081,236 | | | | (1,081,236 | ) |
Limited Duration Fund | | | — | | | | 19,088 | | | | (19,088 | ) |
Municipal Income Fund | | | — | | | | — | | | | — | |
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Fund | | Tax
Cost | | | Tax
Unrealized
Gain | | | Tax
Unrealized
Loss | | | Net
Unrealized
Gain/(Loss) | |
High Yield Fund | | $ | 190,261,923 | | | $ | 1,249,207 | | | $ | (15,836,223 | ) | | $ | (14,587,016 | ) |
Investment Grade Bond Fund | | | 160,714,246 | | | | 2,788,981 | | | | (6,131,947 | ) | | | (3,342,966 | ) |
Limited Duration Fund | | | 310,262,571 | | | | 1,054,439 | | | | (3,224,221 | ) | | | (2,169,782 | ) |
Municipal Income Fund | | | 59,362,920 | | | | 2,258,667 | | | | (460,600 | ) | | | 1,798,067 | |
Pursuant to Federal income tax regulations applicable to investment companies, the Funds can elect 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 also can elect 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. The Funds have elected to defer the following late year losses:
Fund | | Ordinary | | | Capital | |
Investment Grade Bond Fund | | $ | — | | | $ | (3,907,361 | ) |
Municipal Income Fund | | | — | | | | (215,161 | ) |
9. Securities Transactions
For the year ended September 30, 2015, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | | Purchases | | | Sales | |
High Yield Fund | | $ | 152,542,443 | | | $ | 113,836,202 | |
Investment Grade Bond Fund | | | 95,212,564 | | | | 76,521,908 | |
Limited Duration Fund | | | 227,406,138 | | | | 41,742,568 | |
Municipal Income Fund | | | 53,106,226 | | | | 44,469,955 | |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 91 |
NOTES TO FINANCIAL STATEMENTS (continued) |
For the period ended September 30, 2015, the cost of purchases and proceeds from sales of government securities were as follows:
Fund | | Purchases | | | Sales | |
Investment Grade Bond Fund | | $ | 14,107,652 | | | $ | 3,258,387 | |
10. Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a portfolio company of a fund, or control of or by, or common control under GI, result in that portfolio company being considered an affiliated company of such fund, as defined in the 1940 Act.
The Funds may invest in the Guggenheim Strategy Funds Trust consisting of Guggenheim Strategy Fund I, Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III (collectively, the “Cash Management Funds”), open-end management investment companies managed by GI. The Cash Management Funds, which launched on March 11, 2014, are offered as cash management options only to mutual funds, trusts, and other accounts managed by GI and/or its affiliates, and are not available to the public. The Cash Management Funds pay no investment management fees. The Cash Management Funds’ annual report on Form N-CSR dated September 30, 2014 is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at http://www.sec.gov/Archives/edgar/data/1601445/000089180414001107/gug60774-ncsr.htm.
Transactions during the year ended September 30, 2015 in which the portfolio company is an “affiliated person” are as follows:
Affiliated issuers by Fund | | Value 09/30/14 | | | Additions | | | Reductions | | | Value 09/30/15 | | | Shares 09/30/15 | | | Investment Income | | | Realized Gain (Loss) | | | Capital Gain Distributions | |
Investment Grade Bond Fund | | | | | | | | | | | | | | | | | | | | | | | | |
Guggenheim Strategy Fund I | | $ | — | | | $ | 3,516,030 | | | $ | — | | | $ | 3,514,410 | | | | 141,254 | | | $ | 16,164 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Limited Duration Fund | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Guggenheim Strategy Fund I | | | — | | | | 7,273,589 | | | | — | | | | 7,269,053 | | | | 292,165 | | | | 23,589 | | | | — | | | | — | |
11. Loan Commitments
Pursuant to the terms of certain loan agreements, certain Funds held unfunded loan commitments as of September 30, 2015. The Funds are obligated to fund these loan commitments at the borrower’s discretion.
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NOTES TO FINANCIAL STATEMENTS (continued) |
The unfunded loan commitments as of September 30, 2015 were as follows:
Borrower | Maturity Date | | Face Amount | | | Value | |
High Yield Fund | | | | | | | |
Acosta, Inc. | 09/26/19 | | $ | 1,000,000 | | | $ | 106,171 | |
Advantage Sales & Marketing, Inc. | 07/25/19 | | | 1,100,000 | | | | 108,263 | |
BBB Industries, LLC | 11/04/19 | | | 532,857 | | | | 66,449 | |
Beacon Roofing Supply, Inc. | 07/27/16 | | | 550,000 | | | | — | |
Deltek, Inc. | 06/25/20 | | | 800,000 | | | | 94,362 | |
Epicor Software | 06/01/20 | | | 1,000,000 | | | | 116,300 | |
Eyemart Express | 12/18/19 | | | 600,000 | | | | 61,402 | |
Hillman Group, Inc. | 06/28/19 | | | 242,857 | | | | 19,966 | |
Learning Care Group (US), Inc. | 05/05/19 | | | 500,000 | | | | 48,841 | |
Lincoln Finance Ltd. | 12/31/15 | | | 1,900,000 | | | | — | |
McGraw-Hill Global Education Holdings LLC | 03/22/18 | | | 1,000,000 | | | | 67,194 | |
National Technical Systems | 06/12/21 | | | 250,000 | | | | 29,681 | |
Phillips-Medsize Corp. | 06/14/19 | | | 1,100,000 | | | | 97,145 | |
Pro Mach Group, Inc. | 10/22/19 | | | 900,000 | | | | 88,051 | |
Signode Industrial Group US, Inc. | 05/01/19 | | | 1,800,000 | | | | 160,832 | |
Wencor Group | 06/19/19 | | | 628,462 | | | | 54,739 | |
| | | | $ | 13,904,176 | | | $ | 1,119,396 | |
12. Line of Credit
The Trust, with the exception of Alpha Opportunity Fund and Capital Stewardship Fund, secured a committed $625,000,000 line of credit from Citibank, N.A. good through October 9, 2015, 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 Trust did not have any borrowings under this agreement as of and for the year ended September 30, 2015. The Trust also pays a commitment fee at an annualized rate of 0.07% of the average daily amount of their unused commitment amount.
13. Restricted Securities
The securities below are considered illiquid and restricted under guidelines established by the Board of Trustees:
Fund | Restricted Securities | Acquisition Date | | Amortized
Cost | | | Value | |
High Yield Fund | R&R Ice Cream plc | | | | | | | |
| | 8.25% due 05/15/20 | 06/19/14 | | $ | 187,926 | | | $ | 143,302 | |
| | IronGate Energy Services LLC | | | | | | | | | |
| | 11.00% due 07/01/18 | 07/10/13 | | | 114,291 | | | | 76,200 | |
| | Schahin II Finance Company SPV Ltd. | | | | | | | | | |
| | 5.88% due 09/25/22 | 03/12/15 | | | 138,136 | | | | 45,605 | |
| | | | | | 440,353 | | | | 265,107 | |
Investment Grade Bond Fund | Customers Bank | | | | | | | | | |
| | 6.13% due 06/26/29 | 06/24/14 | | | 500,000 | | | | 505,000 | |
| | Cadence Bank North America | | | | | | | | | |
| | 6.25% due 06/28/29 | 06/06/14 | | | 200,000 | | | | 200,000 | |
| | TIG Holdings, Inc. | | | | | | | | | |
| | 8.60% due 01/15/27 | 06/29/05 | | | 28,979 | | | | 28,305 | |
| | | | | | 728,979 | | | | 733,305 | |
Limited Duration Fund | Schahin II Finance Company SPV Ltd. | | | | | | | | | |
| | 5.88% due 09/25/22 | 01/08/14 | | | 374,795 | | | | 82,089 | |
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NOTES TO FINANCIAL STATEMENTS (concluded) |
14. P-Class Shares
Effective May 1, 2015, the Funds started to offer P-Class shares.
P-Class shares of the Funds are offered primarily through broker/dealers and other financial intermediaries with which Guggenheim Funds Distributors, LLC has an agreement for the use of P-Class shares of the Funds in investment products, programs or accounts. P-Class shares do not have a minimum initial investment amount, subsequent investment amount or a minimum account balance.
15. Legal Proceedings
Motors Liquidation Company
In June 2015, Guggenheim High Yield Fund became aware that it was named as a defendant in the case entitled Official Committee of Unsecured Creditors of Motors Liquidation Company v. JPMorgan Chase Bank, N.A., et al., Adversary Proceeding No. 09-00504 (Bankr. S.D.N.Y.). The lawsuit was initially filed in the United States Bankruptcy Court for the Southern District of New York on July 31, 2009 by the Official Committee of Unsecured Creditors of Motors Liquidation Company (f/k/a General Motors) against the former holders of an approximately $1.5 billion term loan issued pursuant to a term loan agreement, dated as of November 29, 2006, between General Motors, as borrower, JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”), and various institutions as lenders, including Guggenheim High Yield Fund (f/k/a Security Income Fund – High Yield Series). The term loan lenders received a full repayment of the term loan pursuant to a court order issued in connection with the General Motors chapter 11 bankruptcy filing on June 1, 2009. The plaintiffs are seeking a court order that the lenders return the proceeds received in 2009 based on the contention that the security interest held by the lenders was not properly perfected, and as a result the lenders were unsecured creditors at the time General Motors filed for bankruptcy.
This lawsuit does not allege any wrongdoing on the part of the Guggenheim High Yield Fund and the Fund intends to vigorously defend the matter. If the plaintiffs are successful, it is reasonably possible that the Guggenheim High Yield Fund will be required to make payments in some amount (but not likely to exceed approximately $1,000,000), although the Fund may file or otherwise be a party to a cross-claim against a codefendant. At this stage of the proceedings, the Guggenheim High Yield Fund is unable to make a reliable predication as to the outcome of this lawsuit or the effect, if any, on the Fund’s net asset value. The Guggenheim High Yield Fund was not previously aware that it had been named as a defendant in this case because, in 2009, the Bankruptcy Court allowed the plaintiffs to refrain from serving any of the defendants other than JPMorgan with notice of the filing of the lawsuit.
16. Subsequent Event
Beginning on October 1, 2015, A-Class shares of each Fund other than Limited Duration Fund are offered at NAV plus an initial sales charge as follows:
Amount of Investment | Sales Charge as a % of Offering Price | Sales Charge % of Net Amount Invested |
Less than $50,000 | 4.00% | 4.17% |
$50,000 but less than $100,000 | 3.75% | 3.90% |
$100,000 but less than $250,000 | 2.75% | 2.83% |
$250,000 but less than $1,000,000 | 1.75% | 1.78% |
$1,000,000 or greater | None | None |
The current sales charge rates for Limited Duration Fund are as follows:
Amount of Investment | Sales Charge as a % of Offering Price | Sales Charge % of Net Amount Invested |
Less than $100,000 | 2.25% | 2.30% |
$100,000 to $249,999 | 1.25% | 1.27% |
$250,000 or greater | None | None |
94 | 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 High Yield Fund, Guggenheim Investment Grade Bond Fund, Guggenheim Limited Duration Fund and Guggenheim Municipal Income Fund (four of the series constituting the Guggenheim Funds Trust) (the “Funds”) as of September 30, 2015, and the related statements of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the years or periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2015, by correspondence with the custodian, brokers, and paying agents or by other appropriate auditing procedures where replies from custodians, brokers, or paying agents were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the above listed Funds (four of the series constituting the Guggenheim Funds Trust) at September 30, 2015, the results of their operations for the year then ended, and the changes in their net assets and their financial highlights for each of the years or periods indicated therein, in conformity with U.S. generally accepted accounting principles.
McLean, Virginia
November 25, 2015
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OTHER INFORMATION (Unaudited) |
Tax Information
In January 2016, shareholders will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by shareholders in the calendar year 2015.
The Trust’s investment income (dividend income plus short-term gains, if any) qualifies as follows:
Of the ordinary income distributions paid during the year, the following funds had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | Dividend
received deduction |
High Yield Fund | 2.72% |
Investment Grade Bond Fund | 1.16% |
Limited Duration Fund | 1.08% |
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 | Qualified
dividend income |
High Yield Fund | 3.26% |
Investment Grade Bond Fund | 2.15% |
Limited Duration Fund | 1.08% |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2015, the 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 | Qualified | Qualified
short-term |
High Yield Fund | 72.52% | 100.00% |
Investment Grade Bond Fund | 50.26% | 0.00% |
Limited Duration Fund | 55.06% | 0.00% |
Municipal Income Fund designates $1,248,231 as tax-exempt interest income according to IRC Section 852(b)(5)(A).
With respect to the taxable year ended September 30, 2015, the High Yield Fund hereby designates as capital gain dividends $2,170,457 or, if subsequently determined to be different, the net capital gain of such year.
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.
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OTHER INFORMATION (Unaudited)(continued) |
Sector Classification
Information in the “Schedule of Investments” is categorized by sectors using sector-level Classifications defined by the Bloomberg Industry Classification System, a widely recognized industry classification system provider. Each Fund’s registration statement has investment policies relating to concentration in specific sectors/industries. For purposes of these investment policies, the Funds usually classify sectors/industries based on industry-level Classifications used by widely recognized industry classification system providers such as Bloomberg Industry Classification System, Global Industry Classification Standards and Barclays Global Classification Scheme.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
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”). The Trust includes the following series:
● Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) | ● Guggenheim Capital Stewardship Fund (“Capital Stewardship Fund”) |
● 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 Fund (“Mid Cap Value Fund”) |
● Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund���) | ● Guggenheim Municipal Income Fund (“Municipal Income Fund”) |
● Guggenheim Risk Managed Real Estate Fund (“Risk Managed Real Estate 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”) |
● Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | ● Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 adviser 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 five separate investment management agreements which group the series as follows: (i) Mid Cap Value Fund, Mid Cap Value Institutional Fund, Small Cap Value Fund, StylePlus—Large Core Fund and World Equity Income Fund; (ii) Large Cap Value Fund; (iii) StylePlus—Mid Growth; (iv) Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund; and (v) Alpha Opportunity Fund. (The Funds identified in (i) through (v) above are collectively
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OTHER INFORMATION (Unaudited)(continued) |
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 Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 five separate investment advisory agreements which group includes the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund; (iii) Capital Stewardship Fund; (iv) Limited Duration Fund; and (v) Risk Managed Real Estate Fund. (The investment management agreements pertaining to the SIAdvised 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,” with the members of the Board referred to individually as 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.
Following an initial two-year term, the Advisory Agreements continue in effect from year to year provided that such continuance is specifically approved at least annually by (i) the Board or a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund, and, in either event, (ii) the vote of a majority of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”) casting votes in person at a meeting called for such purpose. At meetings held in person on April 29, 2015 (the “April Meeting”) and on May 19, 2015 (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely of the Independent Trustees, met separately from Guggenheim to consider the proposed renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.1 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 also received by the full Board) throughout the year regarding performance and operating results of the 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 presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Independent Trustees. In addition, Guggenheim made a presentation at the April Meeting, which addressed areas identified for discussion by the Committee Chair and Independent Legal Counsel. Throughout
1 | Since the Capital Stewardship Fund was subject to an investment management agreement approved by the Board for an initial term of two years at an in-person meeting of the Board held on August 19-20, 2014, it was not included in the contract renewal process conducted at the meetings in April and May 2015. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, excluding the Capital Stewardship Fund. |
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OTHER INFORMATION (Unaudited)(continued) |
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) staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various services performed by Guggenheim for the provision of a continuous investment program for each Fund, monitoring compliance with Fund investment strategies and statutory requirements, reviewing trading processes and conducting investment performance analyses; (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 gross revenues, expenses and earnings for Guggenheim by product line and each Fund, including a breakout of various expenses, a description of Guggenheim’s 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, and certain information about Guggenheim’s insurance policies, business continuity plan, proxy voting procedures, trade allocation, shareholder communications and compliance monitoring, among other things.
The Committee considered the foregoing Contract Materials in the context of its substantial accumulated experience governing the Trust and weighed the factors and standards discussed with Independent Legal Counsel. 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 Funds2 to recommend that the Board approve the renewal of each Advisory Agreement and the Sub Advisory Agreement for an additional 12-month term.
Investment 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, areas of responsibility and duties of 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 also considered the Advisers’ attention to relevant developments in the mutual fund industry and its observance of compliance and regulatory requirements, and 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 additional staff to support the firm’s Chief Risk Officer, initiatives related to the risks associated with the investment process and risk at the enterprise level, 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 consolidate compliance manuals and align processes of the Funds with those of other Funds managed by the Advisers or another Guggenheim affiliate. 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.
2 | At the May Meeting, the Board determined to close and liquidate the Enhanced World Equity Fund based upon the Adviser’s recommendation (the “Liquidation Proposal”). Following an evaluation of strategic options, the Board determined that liquidation of the Fund as a series of the Trust would be in the best interests of the Fund and its shareholders. In view of the Liquidation Proposal, the Committee recommended the continuation of the Advisory Agreement with respect to the Enhanced World Equity Fund to provide for the continuation of advisory services until such time as the Fund was liquidated. |
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OTHER INFORMATION (Unaudited)(continued) |
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 the Advisers’ parent company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). (The Committee received the audited consolidated financial statements of GPIMH once available following the April 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 during 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, 2014, 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, 2014, 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-year 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-year and three-year periods, ranking in the 1st and 4th percentiles, respectively. In light of various changes to this Fund, including 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 and the assumption by Security Investors of such investment management responsibility, the impact on portfolio management as a result of the Lehman bankruptcy,3 and subsequent changes to the Fund’s investment strategies, a reduction in the fund accounting and administration fee and the re-opening of the Fund to new subscriptions, the Committee considered more recent performance periods, including the one-year and the three-month periods. 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, 2014, ranking in the 11th and 4th percentiles, respectively.
Floating Rate Strategies Fund: The returns of the Fund’s Class A shares ranked in the 6th and 1st percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
High Yield Fund: The Fund’s Class A shares ranked in the 64th, 7th and 46th percentiles of the performance universe for the five-year, three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for the three-year and one-year periods.
3 | The Committee considered the circumstances that affected 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 had consisted of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales, which limited the management of the portfolio. |
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OTHER INFORMATION (Unaudited)(continued) |
Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014, ranking in the 14th, 4th and 3rd percentiles, respectively. The Committee also noted Guggenheim’s statement that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year, three-year and one-year periods ended December 31, 2014, and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile.
Large 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 ended December 31, 2014, and ranked in the 76th, 60th and 78th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the returns for the Fund’s Class A shares for the ten-year period ended December 31, 2014, which exceeded the performance universe median, ranking in the 45th percentile. The Committee also noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Limited Duration Fund: The Committee noted the Fund’s inception date of December 16, 2013 and observed that the returns of the Fund’s Class A shares ranked in the 8th and 18th percentiles of the performance universe for the one-year and three-month periods ended December 31, 2014, respectively, outperforming the median returns.
Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 3rd and 8th percentiles of the performance universe for the three-year and one-year periods ended December 31, 2014, 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 three-year and one-year periods ended December 31, 2014.
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 ended December 31, 2014, and ranked in the 92nd, 80th and 67th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2014 in the 1st quartile (22nd percentile) and that, according to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. The Committee also noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers
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OTHER INFORMATION (Unaudited)(continued) |
with smaller market capitalizations. In addition, the Committee noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Mid Cap Value Institutional Fund: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 88th, 72nd and 61st percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
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.
Risk Managed Real Estate Fund: The returns of the Fund’s Class A shares ranked in the 67th percentile of its performance universe for the three-month period ended December 31, 2014. The Committee considered that the Fund was recently organized as of February 12, 2014 and has a limited period of operation.
StylePlus—Large Core Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 10th and the 41st percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund outperformed its benchmark for the one-year period ended December 31, 2014.
StylePlus—Mid Growth Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 13th and 36th percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund had outperformed its benchmark for the one-year period ended December 31, 2014.
Small Cap Value Fund: The Fund underperformed its performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 87th, 71st and 92nd percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing
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OTHER INFORMATION (Unaudited)(continued) |
Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st and 2nd percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
World Equity Income Fund: The Fund implemented a strategy change and a new portfolio management team in August 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded its performance universe median for the one-year period, ranking in the 27th percentile, and lagged its performance universe median for the three-month period, ranking in the 83rd percentile.
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 and/or institutional separate account with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients. 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 regulatory and legal structures, tax status, and for historical pricing reasons. In this regard, the Committee took into account Guggenheim’s assertion that the differences in fees reflected the Advisers’ greater level of responsibilities and significantly broader scope of services regarding the Funds, the more extensive regulatory obligations and risks associated with managing the Funds, and other financial considerations with respect to the Funds.
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 and the asset weighted total net expense ratio are in the second quartile (27th and 45th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had 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 fourth quartile (82nd percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
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High Yield Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the second quartile (40th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (77th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (84th percentile) of its peer group. The Committee also considered that the Adviser had 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 is in the second quartile (31st percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (22nd percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Limited Duration Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (72nd percentile) of its peer group and the asset weighted total net expense ratio is in the second quartile (45th percentile) of its peer group. The Committee also considered that the Adviser had 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 (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 second quartile (43rd percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (85th percentile) of its peer group.
Mid Cap Value Institutional Fund: The contractual advisory fee of the Fund is in the first quartile (15th percentile) of its peer group and the total net expense ratio is in the third quartile (69th percentile) of its peer group.
Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the second quartile (26th and 38th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Risk Managed Real Estate Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the first quartile (1st percentile as to each) of its peer group.
StylePlus—Large Core Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the fourth quartile (80th and 100th percentiles, respectively) of its peer group.
StylePlus—Mid Growth Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the second quartile (34th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (100th percentile) of its peer group.
Small Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (78th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (25th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
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OTHER INFORMATION (Unaudited)(continued) |
Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (86th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (19th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (27th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (80th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
With respect to the costs of services provided and profits realized by Guggenheim Investments from its relationship with the Funds, the Committee reviewed a profitability analysis and data from management for each Fund setting forth the average assets under management for the twelve months ended December 31, 2014, ending assets under management as of December 31, 2014, gross revenues received by Guggenheim Investments, expenses incurred in providing services to the Funds, earnings and the operating margin/profitability rate, including variance information relative to the foregoing amounts as of December 31, 2013. In addition, the Chief Financial Officer of Guggenheim Investments reviewed with, and addressed questions from, the Committee concerning the expense allocation methodology employed in producing the profitability analysis. In the course of its review of Guggenheim Investments’ profitability, the Committee took into account the complexity of the investment strategies employed for the Funds, in addition to the foregoing data and various figures.
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 Investments’ profitability from its relationship with the Funds was not unreasonable.
Economies of Scale: 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 have 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 also noted the Adviser’s statement that Guggenheim continues to develop the infrastructure needed to support Fund asset growth and to achieve economies of scale across the firm’s various products and product lines. Thus, while Guggenheim may be benefiting from certain economies of scale and related cost efficiencies, it is concurrently realizing new costs and expenses associated with investment in infrastructure, personnel and systems.
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 Total Return Bond Fund—having assets in excess of (or approaching) $1 billion as of March 31, 2015. 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 total net expense ratio is competitive with the peer group median.
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OTHER INFORMATION (Unaudited)(continued) |
Macro Opportunities Fund: 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 (43rd percentile) and the total net expense ratio is competitive with the peer group median.
Total Return Bond Fund: 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 in the first quartile (19th percentile).
The Committee determined that, taking into account all relevant factors, the advisory fee structure for each Fund 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 and compliance policies and procedures, 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 included as part of its considerations the unaudited financial information concerning GPIMH presented by the Chief Financial Officer of Guggenheim Investments. (As noted, the Committee received the audited consolidated financial statements of GPIMH once available following the April Meeting.)
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 Fund’s Class A shares outperformed the performance universe for the five-year and three-year periods ended December 31, 2014, ranking in the 1st and 35th percentiles, respectively. On January 13, 2012, the Fund acquired the assets and assumed the liabilities of TS&W/Claymore Tax-Advantaged Balanced Fund (the “Predecessor Fund”), a closed-end fund which used different investment strategies and had different investment advisers. Class A shares of the Fund have assumed the performance, financial and other historical information of the Predecessor Fund’s common shares and the performance of Class A shares of the Fund reflects the performance of the Predecessor Fund. In light of the foregoing, the Committee took into account more recent periods and noted that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2014, ranking in the 18th and 47th percentiles, respectively. In this connection, the Committee also considered that the Fund outperformed its benchmark over the one-year and three-month periods ended December 31, 2014.
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: 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” 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 or conclusive 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. Thereafter, on May 20, 2015, the Board, including all of the Independent Trustees, approved the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
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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). | 107 | Current: Trustee, Purpose Investments Inc. (2014-Present). |
Donald A. Chubb, Jr. (1946) | Trustee | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-present). | 103 | Current: Midland Care, Inc. (2011-present). |
Jerry B. Farley (1946) | Trustee | Since 2005 | Current: President, Washburn University (1997-present). | 103 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust (2000-present). |
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and Managing Partner, Roman Friedrich & Company (1998-present). Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | 103 | Current: Zincore Metals, Inc. (2009-present). Former: Axiom Gold and Silver Corp. (2011-2012). |
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 103 | 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). | 109 | Current: Edward-Elmhurst Healthcare System (2012-present). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s)
During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships
Held by Trustees |
INDEPENDENT TRUSTEES - concluded | | |
Maynard F. Oliverius (1943) | Trustee | Since 1998 | Current: Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 103 | Current: Fort Hays State University Foundation (1999-present); Stormont-Vail Foundation (2013-present); University of Minnesota HealthCare Alumni Association Foundation (2009-present). |
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management (1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999); Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | 106 | Former: Bennett Group of Funds (2011-2013). |
INTERESTED TRUSTEES | | | | |
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). | 239 | Current: Clear Spring Life Insurance Company (2015-present); Guggenheim Partners Japan, Ltd. (2014-present); Delaware Life (2013-present); Guggenheim Life and Annuity Company (2011-present); Paragon Life Insurance Company of Indiana (2011-present). |
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
*** | This Trustee is deemed to be an "interested person" of the Funds under the 1940 Act by reason of his position with the Funds' Investment Manager and/or the parent of the Investment Manager. |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS | | | |
Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). |
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). |
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). |
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). |
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 2007 (Vice President) Since 2014 (Chief Legal Officer) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2013-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). |
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (2014-present); Senior Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). |
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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 Occupations
During Past Five Years |
OFFICERS - concluded | |
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Managing Director, Guggenheim Investments (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). |
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-2014). |
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). |
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). |
John L. Sullivan (1955) | Chief Financial Officer and Treasurer | Since 2014 | Current: CFO, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex (2010-present); Senior Managing Director, Guggenheim Investments (2010-present). Former: Managing Director and CCO, each of the funds in the Van Kampen Investments fund complex (2004-2010); Managing Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); CFO and Treasurer, Van Kampen Funds (1996-2004). |
* | The business address of each officer is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each officer serves an indefinite term, until his or her successor is duly elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 111 |
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.
112 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited)(concluded) |
How We Protect Privacy Online
Our concern for the privacy of our shareholders also extends to those who use our web site, guggenheiminvestments.com. Our web site uses some of the most secure forms of online communication available, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These technologies provide a high level of security and privacy when you access your account information or initiate online transactions. The Guggenheim Investments web site offers customized features that require our use of “http cookies”—tiny pieces of information that we ask your browser to store. However, we make very limited use of these cookies. We only use cookies for session management and security features on the Guggenheim Investments web site. We do not use them to pull data from your hard drive, to learn your email address, or to view data in cookies created by other web sites. We will not share the information in our cookies or give others access to it. See the legal information area on our web site for more details about web site security and privacy features.
How We Safeguard Your Personal Information
We restrict access to nonpublic personal information about shareholders to our employees and in some cases to third parties (for example, the service providers described above) as permitted by law. We maintain strict physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
We’ll Keep You Informed
As required by federal law, we will notify shareholders of our privacy policy annually. We reserve the right to modify this policy at any time, but rest assured that if we do change it, we will tell you promptly. You will also be able to access our privacy policy from our web site at guggenheiminvestments.com. Should you have any questions regarding our privacy policy, contact us at 800.820.0888 or 301.296.5100.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 113 |
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9.30.2015
Guggenheim Funds Annual Report
Fundamental Alpha |
Guggenheim Mid Cap Value Fund | | |
SBMCV-ANN-0915x0916 | guggenheiminvestments.com |
DEAR SHAREHOLDER | 2 |
ECONOMIC AND MARKET OVERVIEW | 3 |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 5 |
MID CAP VALUE FUND | 8 |
NOTES TO FINANCIAL STATEMENTS | 23 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 32 |
OTHER INFORMATION | 33 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 52 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 60 |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
Dear Shareholder:
Security Investors, LLC (the “Investment Adviser”) is pleased to present the shareholder report for Guggenheim Mid Cap Value Fund (the “Fund”) for the annual fiscal period ended September 30, 2015.
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 Fund. 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 Managers’ 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, 2015
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at guggenheiminvestments.com or call 800.820.0888.
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- and/or mid-sized company securities may present additional risks such as less predictable earnings, higher volatility and less liquidity than larger, more established companies.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2015 |
At the end of the period, the underlying U.S. economy continued to maintain its strong footing. A market correction that began in August persisted through the end of the period; September and October are historically difficult times for the stock market, and by extension, risk assets of any kind, including credit.
Markets had been performing solidly for most of the period. Growth mid-year bounced back from a weather-induced slowdown in the first quarter, with GDP increasing 3.9% for the second quarter. The labor and housing markets continued to strengthen, and the drop in gas prices was acting as a tax cut, which was expected to increase consumer spending power going into the holiday season. Even though labor markets are moving toward full employment, questions remain about the viability of sustained economic expansion in the U.S. In particular, there is debate about the net effect of declining energy prices and a stronger dollar. These are both positive for the U.S. consumer, but low oil prices hurt the U.S. energy industry and a strong dollar is challenging for U.S. manufacturers. In addition, oil prices and the strong dollar exert a downward pressure on inflation, and a risk of deflation is a negative for the economy.
At the same time, currency devaluation, particularly in Japan and the euro zone, is putting pressure on countries to devalue to improve export competitiveness. Those countries slow to devalue, like China, are feeling economic pressure at home, driving down asset prices, and increasing deflationary pressures, escalating the risk of financial contagion abroad. China may have to devalue the renminbi further due to continued slowing in the economy. Combined with the tepid expansion in both Europe and Japan, the pressure will be for central banks there to increase easing measures.
The U.S. Federal Reserve (the “Fed”) is hard pressed to justify a rate increase based on its self-prescribed metrics, which include rising inflation and an improved employment situation with clearly rising wages. At best, policymakers can argue that the prospects for wage growth and inflation are improving, but clear evidence is lacking.
A preemptive rate increase seems risky and opens the Fed to potential criticism given the fragility in financial markets and the prospect that rising U.S. rates could further strengthen the dollar and also potentially exacerbate foreign economic turbulence. While prices and wages remain tame, the risk of another asset bubble is increasing. The longer policy remains highly accommodative, the greater the likelihood that asset classes including commercial real estate, equities, or certain categories of bonds could become overvalued.
At period end, the risk of financial contagion remained high, which could result in central banks providing additional liquidity or delaying rate increases. Use of the monetary printing press is a handy tool to prop up asset prices and temporarily spur
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ECONOMIC AND MARKET OVERVIEW (Unaudited)(concluded) | September 30, 2015 |
economic growth, which is the main reason a recession does not appear to be on the horizon for either the G-7 nations or China. It’s also worth noting that there has never been a recession in the post-war period without the Fed first raising interest rates, after which it typically takes several years for a recession to be induced.
For the 12 months ended September 30, 2015, the Standard & Poor’s 500® Index* (“S&P 500®”) returned -0.61%. The Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned -8.66%. The return of the MSCI Emerging Markets Index* was -19.28%.
In the bond market, the Barclays U.S. Aggregate Bond Index* posted a 2.94% return for the period, while the Barclays U.S. Corporate High Yield Index* returned -3.43%. The return of the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.02% for the 12-month period.
The opinions and forecasts expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
*Index Definitions:
The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.
Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.
Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar (“USD”)-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets.
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 capitalization-weighted index of 500 stocks designed to measure the performance of the broad economy, representing all major industries and is considered a representation of the U.S. stock market.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) |
All mutual funds have operating expenses and it is important for our shareholders to understand the impact of costs on their investments. Shareholders of a Fund incur two types of costs: (i) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and exchange fees; and (ii) ongoing costs, including management fees, administrative services, and shareholder reports, among others. These ongoing costs, or operating expenses, are deducted from a fund’s gross income and reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense ratio. The following examples are intended to help investors understand the ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 made at the beginning of the period and held for the entire six-month period beginning March 31, 2015 and ending September 30, 2015.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 5 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(continued) |
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)(concluded) |
| | Expense
Ratio1 | Fund
Return | Beginning
Account Value
March 31,
2015 | Ending
Account Value
September 30,
2015 | Expenses
Paid During
Period2 |
Table 1. Based on actual Fund return3 |
Mid Cap Value Fund |
A-Class | 1.44% | (10.26%) | $ 1,000.00 | $ 897.40 | $ 6.85 |
C-Class | 2.17% | (10.60%) | 1,000.00 | 894.00 | 10.30 |
P-Class4 | 1.85% | (9.26%) | 1,000.00 | 907.40 | 7.25 |
| |
Table 2. Based on hypothetical 5% return (before expenses) |
Mid Cap Value Fund |
A-Class | 1.44% | 5.00% | $ 1,000.00 | $ 1,017.85 | $ 7.28 |
C-Class | 2.17% | 5.00% | 1,000.00 | 1,014.19 | 10.96 |
P-Class4 | 1.85% | 5.00% | 1,000.00 | 1,015.79 | 9.35 |
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, 2015 to September 30, 2015. |
4 | Since commencement of operations: May 1, 2015. Expenses paid based on actual Fund return are calculated using 150 days from the commencement of operations. Expenses paid based on hypothetical 5% return are calculated using 183 days. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
To Our Shareholders:
Guggenheim Mid Cap Value Fund (the “Fund”) is managed by a team of seasoned professionals led by James Schier, CFA, Senior Portfolio Manager. During the period, the following individuals were added as Portfolio Managers to the Fund: Scott Hammond, Managing Director and Portfolio Manager; Farhan Sharaff, Assistant Chief Investment Officer, Equities; and Gregg Strohkorb, CFA. In the following paragraphs, the team discusses performance of the Fund for the fiscal year ended September 30, 2015.
For the year ended September 30, 2015, the Guggenheim Mid Cap Value Fund returned -6.83%1, compared with the -2.44% 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 companies can improve returns, maintain existing high levels of profitability, or benefit from change that occurs within the industries in which they operate. In today’s rapidly changing environment marked by very sharp and quick, but constrained volatility, our long-term orientation and discipline are a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides, and fundamentals once again become a more dominant factor in the market.
Performance Review
Stock selection in Utilities sector was the leading contributor to performance. The Fund’s Utilities sector holdings, weighted about the same as the index, returned twice that of the index. Within the sector, the Fund favored companies that have meaningful exposure to non-regulated businesses. Stock selection within the Materials sector was another large contributor to performance. The Fund’s Materials holdings had a negative return, but lost considerably less than the sector in the index.
The leading individual contributor to performance was Hanover Insurance Group, Inc., one of the Fund’s long-time largest holdings. The Fund favored the property and casualty market because of its positive pricing trends. Other large contributors were companies with strong earnings: Mednax, Inc., a provider of physician management services with specialty in neonatal care, and Hologic, Inc., a maker of diagnostic devices.
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited)(continued) | September 30, 2015 |
The leading detractor from return for the period was stock selection in the Energy sector. Commodity-oriented companies performed poorly late in the period across all industries, and Energy was especially weak. The lack of holdings in refining or other sub-industries less impacted by crude’s weakness was a detriment. Companies such as Whiting Petroleum Corp. and Oasis Petroleum, Inc., that are essentially 100% dependent on crude pricing—as they operate in the Bakken, where all production is crude oil—were especially weak. Whiting Petroleum, Corp. was the leading individual detractor for the year followed by Oasis Petroleum, Inc. and Resolute Energy Corp.
The second-leading detractor from return was the Fund’s stock selection in the Information Technology sector. Maxwell Technologies was leading detractor in that sector. It has faced challenges in transitioning the business from a lumpy Chinese bus market to domestic offerings of ultra-capacitors.
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Financials and an overweight in Consumer Staples.
Within Financials, the underweighting in REITs (real estate investment trusts) was damaging early in the period, when this industry performed well. In early 2015, we began to view REITs as a sector rather than an industry within a sector, leading the Fund to have a weighting that is in line with the minimum the Fund would have for any significant sector. The weighting disparity was significantly lower at the end of the period. That brought the Financials sector closer to equal weight with the index.
The overweight to Consumer Staples was a significant contributor to return for the year. It was driven by our bottom-up fundamental research having identified several companies with favorable risk-return profiles.
Portfolio and Market Outlook
Despite a firming economy, investors continued to be very cautious during the quarter as safe-haven areas such as Consumer Staples, Utilities, and REITs performed the best, while Energy, Information Technology, and Industrials lagged. Companies tied to the commodity cycle were especially hard hit late in the period. As the world continues to look towards the U.S. economy to be the engine for growth, and as foreign investors continue to fear the safety of their own currencies and economies, interest in U.S. assets should continue to be robust. The prolonged decline in U.S. government bond yields should continue to make equities an attractive alternative for incremental investment dollars.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
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 Class A 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.
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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.
Inception Dates: |
A-Class | May 1, 1997 |
C-Class | January 29, 1999 |
P-Class | May 1, 2015 |
Ten Largest Holdings (% of Total Net Assets) |
Hanover Insurance Group, Inc. | 2.7% |
Reinsurance Group of America, Inc. — Class A | 2.4% |
MEDNAX, Inc. | 2.3% |
FLIR Systems, Inc. | 2.2% |
Ameren Corp. | 2.1% |
Alleghany Corp. | 2.1% |
Pinnacle West Capital Corp. | 2.0% |
Computer Sciences Corp. | 1.9% |
Sonoco Products Co. | 1.9% |
FirstMerit Corp. | 1.8% |
Top Ten Total | 21.4% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 11 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | 10 Year |
A-Class Shares | -6.83% | 7.68% | 6.62% |
A-Class Shares with sales charge† | -11.26% | 6.42% | 5.99% |
C-Class Shares | -7.49% | 6.90% | 5.84% |
C-Class Shares with CDSC§ | -8.28% | 6.90% | 5.84% |
Russell 2500 Value Index | -2.44% | 11.49% | 6.31% |
| | | | |
| | | | Since Inception
(05/01/15) |
P-Class Shares | | | -9.26% |
Russell 2500 Value Index | | | -9.95% |
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 2500 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. The graph is based on A-Class shares only; performance for C-Class and P-Class will vary due to differences in fee structures. |
† | 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, 2015 |
MID CAP VALUE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 96.2% | |
| | | | | | | |
Financial - 32.0% | |
Hanover Insurance Group, Inc. | | | 212,500 | | | $ | 16,511,249 | |
Reinsurance Group of America, Inc. — Class A | | | 160,124 | | | | 14,505,633 | |
Alleghany Corp.* | | | 27,380 | | | | 12,816,852 | |
FirstMerit Corp. | | | 617,990 | | | | 10,919,883 | |
Wintrust Financial Corp. | | | 169,790 | | | | 9,071,880 | |
Camden Property Trust | | | 121,140 | | | | 8,952,246 | |
Zions Bancorporation | | | 324,220 | | | | 8,929,019 | |
BioMed Realty Trust, Inc. | | | 446,830 | | | | 8,927,663 | |
CubeSmart | | | 316,440 | | | | 8,610,332 | |
Popular, Inc. | | | 284,550 | | | | 8,601,947 | |
Endurance Specialty Holdings Ltd. | | | 130,600 | | | | 7,970,518 | |
Sun Communities, Inc. | | | 110,750 | | | | 7,504,420 | |
Assured Guaranty Ltd. | | | 296,810 | | | | 7,420,250 | |
Kilroy Realty Corp. | | | 101,880 | | | | 6,638,501 | |
Apartment Investment & Management Co. — Class A | | | 176,500 | | | | 6,534,030 | |
Radian Group, Inc. | | | 362,770 | | | | 5,771,671 | |
Fulton Financial Corp. | | | 428,119 | | | | 5,180,240 | |
Jones Lang LaSalle, Inc. | | | 35,790 | | | | 5,145,528 | |
Trustmark Corp. | | | 208,590 | | | | 4,833,030 | |
E*TRADE Financial Corp.* | | | 176,380 | | | | 4,644,085 | |
Alexandria Real Estate Equities, Inc. | | | 52,930 | | | | 4,481,583 | |
Parkway Properties, Inc. | | | 234,359 | | | | 3,646,626 | |
Prosperity Bancshares, Inc. | | | 69,770 | | | | 3,426,405 | |
Ocwen Financial Corp.* | | | 497,915 | | | | 3,341,010 | |
NorthStar Realty Finance Corp. | | | 242,400 | | | | 2,993,640 | |
UDR, Inc. | | | 55,620 | | | | 1,917,778 | |
Umpqua Holdings Corp. | | | 105,810 | | | | 1,724,703 | |
Chatham Lodging Trust | | | 62,500 | | | | 1,342,500 | |
Communications Sales & Leasing, Inc. | | | 67,550 | | | | 1,209,145 | |
Total Financial | | | | | | | 193,572,367 | |
| | | | | | | | | |
Consumer, Non-cyclical - 17.2% | |
MEDNAX, Inc.* | | | 182,692 | | | | 14,028,920 | |
HealthSouth Corp. | | | 231,420 | | | | 8,879,585 | |
Bunge Ltd. | | | 111,550 | | | | 8,176,615 | |
Navigant Consulting, Inc.* | | | 511,652 | | | | 8,140,384 | |
Kindred Healthcare, Inc. | | | 411,716 | | | | 6,484,527 | |
Sanderson Farms, Inc. | | | 92,060 | | | | 6,312,554 | |
Quanta Services, Inc.* | | | 239,340 | | | | 5,794,421 | |
Hologic, Inc.* | | | 140,141 | | | | 5,483,717 | |
ICF International, Inc.* | | | 164,124 | | | | 4,987,728 | |
Premier, Inc. — Class A* | | | 142,890 | | | | 4,911,129 | |
Patterson Companies, Inc. | | | 108,270 | | | | 4,682,678 | |
Darling Ingredients, Inc.* | | | 403,070 | | | | 4,530,507 | |
Emergent BioSolutions, Inc.* | | | 141,755 | | | | 4,038,600 | |
Globus Medical, Inc. — Class A* | | | 172,350 | | | | 3,560,751 | |
IPC Healthcare, Inc.* | | | 44,520 | | | | 3,458,759 | |
Brookdale Senior Living, Inc. — Class A* | | | 125,250 | | | | 2,875,740 | |
Surgical Care Affiliates, Inc.* | | | 85,521 | | | | 2,795,681 | |
Universal Corp. | | | 39,860 | | | | 1,975,860 | |
Ingredion, Inc. | | | 22,550 | | | | 1,968,841 | |
Everi Holdings, Inc.* | | | 233,280 | | | | 1,196,726 | |
Total Consumer, Non-cyclical | | | | 104,283,723 | |
| | | | | | | | | |
Industrial - 12.8% | |
FLIR Systems, Inc. | | | 472,560 | | | | 13,226,954 | |
Sonoco Products Co. | | | 298,850 | | | | 11,278,599 | |
Orbital ATK, Inc. | | | 134,462 | | | | 9,663,784 | |
Owens-Illinois, Inc.* | | | 397,563 | | | | 8,237,505 | |
Oshkosh Corp. | | | 198,528 | | | | 7,212,522 | |
Gentex Corp. | | | 462,953 | | | | 7,175,772 | |
WestRock Co. | | | 131,380 | | | | 6,758,187 | |
Huntington Ingalls Industries, Inc. | | | 54,266 | | | | 5,814,602 | |
Werner Enterprises, Inc. | | | 179,360 | | | | 4,501,936 | |
Kirby Corp.* | | | 25,270 | | | | 1,565,477 | |
Knight Transportation, Inc. | | | 61,740 | | | | 1,481,760 | |
Total Industrial | | | | | | | 76,917,098 | |
| | | | | | | | | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MID CAP VALUE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Utilities - 9.5% | |
Ameren Corp. | | | 304,321 | | | $ | 12,863,648 | |
Pinnacle West Capital Corp. | | | 188,240 | | | | 12,073,714 | |
Westar Energy, Inc. | | | 230,450 | | | | 8,858,498 | |
Great Plains Energy, Inc. | | | 271,897 | | | | 7,346,657 | |
Portland General Electric Co. | | | 157,928 | | | | 5,838,598 | |
Black Hills Corp. | | | 125,760 | | | | 5,198,918 | |
Avista Corp. | | | 146,910 | | | | 4,884,758 | |
Total Utilities | | | | | | | 57,064,791 | |
| | | | | | | | | |
Technology - 7.8% | |
Computer Sciences Corp. | | | 186,190 | | | | 11,428,342 | |
Diebold, Inc. | | | 316,630 | | | | 9,426,075 | |
IXYS Corp. | | | 788,331 | | | | 8,797,774 | |
Maxwell Technologies, Inc.* | | | 1,241,251 | | | | 6,727,580 | |
Cree, Inc.* | | | 170,270 | | | | 4,125,642 | |
Super Micro Computer, Inc.* | | | 121,265 | | | | 3,305,684 | |
KEYW Holding Corp.* | | | 281,545 | | | | 1,731,502 | |
ManTech International Corp. — Class A | | | 63,400 | | | | 1,629,380 | |
Total Technology | | | | | | | 47,171,979 | |
| | | | | | | | | |
Consumer, Cyclical - 7.8% | |
Visteon Corp.* | | | 81,660 | | | | 8,267,258 | |
DR Horton, Inc. | | | 236,620 | | | | 6,947,163 | |
Ryland Group, Inc. | | | 139,150 | | | | 5,681,495 | |
Caleres, Inc. | | | 182,585 | | | | 5,574,320 | |
JC Penney Company, Inc.* | | | 486,120 | | | | 4,516,055 | |
Essendant, Inc. | | | 128,542 | | | | 4,168,617 | |
Ascena Retail Group, Inc.* | | | 282,620 | | | | 3,931,244 | |
PulteGroup, Inc. | | | 170,210 | | | | 3,211,863 | |
WESCO International, Inc.* | | | 34,634 | | | | 1,609,442 | |
Sonic Automotive, Inc. — Class A | | | 71,190 | | | | 1,453,700 | |
Fossil Group, Inc.* | | | 25,140 | | | | 1,404,823 | |
Total Consumer, Cyclical | | | | | | | 46,765,980 | |
| | | | | | | | | |
Energy - 3.4% | |
Oasis Petroleum, Inc.* | | | 511,760 | | | | 4,442,076 | |
Whiting Petroleum Corp.* | | | 282,592 | | | | 4,315,180 | |
Patterson-UTI Energy, Inc. | | | 239,880 | | | | 3,152,023 | |
Rowan Companies plc — Class A | | | 184,510 | | | | 2,979,837 | |
Sanchez Energy Corp.* | | | 438,780 | | | | 2,698,497 | |
Superior Energy Services, Inc. | | | 208,466 | | | | 2,632,926 | |
Total Energy | | | | | | | 20,220,539 | |
| | | | | | | | | |
Basic Materials - 2.9% | |
Reliance Steel & Aluminum Co. | | | 81,590 | | | | 4,406,675 | |
Landec Corp.* | | | 332,313 | | | | 3,878,093 | |
Royal Gold, Inc. | | | 70,610 | | | | 3,317,258 | |
Olin Corp. | | | 165,250 | | | | 2,777,853 | |
Stillwater Mining Co.* | | | 150,200 | | | | 1,551,566 | |
Intrepid Potash, Inc.* | | | 266,761 | | | | 1,477,856 | |
Total Basic Materials | | | | | | | 17,409,301 | |
| | | | | | | | | |
Communications - 2.8% | |
DigitalGlobe, Inc.* | | | 420,527 | | | | 7,998,423 | |
Finisar Corp.* | | | 362,450 | | | | 4,034,069 | |
Scripps Networks Interactive, Inc. — Class A | | | 48,300 | | | | 2,375,877 | |
Liquidity Services, Inc.* | | | 311,180 | | | | 2,299,620 | |
Total Communications | | | | | | | 16,707,989 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $569,862,216) | | | | | | | 580,113,767 | |
| | | | | | | | | |
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | |
Thermoenergy Corp.*,1, 2 | | | 858,334 | | | | 2,256 | |
Total Convertible Preferred Stocks | | | | | |
(Cost $819,654) | | | | | | | 2,256 | |
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
MID CAP VALUE FUND | |
| | | Shares | | | Value | |
| | | | | | | |
SHORT TERM INVESTMENTS† - 3.0% | |
Dreyfus Treasury Prime Cash Management Fund 0.00%3 | | | 18,066,556 | | | $ | 18,066,556 | |
Total Short Term Investments | | | | | |
(Cost $18,066,556) | | | | | | | 18,066,556 | |
| | | | | | | | | |
Total Investments - 99.2% | | | | | | | | |
(Cost $588,748,426) | | | | | | $ | 598,182,579 | |
Other Assets & Liabilities, net - 0.8% | | | | 4,713,924 | |
Total Net Assets - 100.0% | | | | | | $ | 602,896,503 | |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 4. |
††† | Value determined based on Level 3 inputs — See Note 4. |
1 | PIPE (Private Investment in Public Equity) — Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. |
2 | Illiquid security. |
3 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | plc — Public Limited Company |
| | |
| | See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
STATEMENT OF ASSETS AND LIABILITIES |
MID CAP VALUE FUND |
September 30, 2015
Assets: | |
Investments, at value (cost $588,748,426) | | $ | 598,182,579 | |
Prepaid expenses | | | 73,856 | |
Cash | | | 10,107 | |
Receivables: | |
Securities sold | | | 7,709,785 | |
Dividends | | | 928,291 | |
Fund shares sold | | | 60,269 | |
Foreign taxes reclaim | | | 13,049 | |
Total assets | | | 606,977,936 | |
| | | | | |
Liabilities: | |
Payable for: | |
Fund shares redeemed | | | 1,509,577 | |
Securities purchased | | | 1,291,352 | |
Management fees | | | 425,658 | |
Distribution and service fees | | | 208,779 | |
Fund accounting/administration fees | | | 48,710 | |
Transfer agent/maintenance fees | | | 42,583 | |
Trustees’ fees* | | | 11,066 | |
Miscellaneous | | | 543,708 | |
Total liabilities | | | 4,081,433 | |
Net assets | | $ | 602,896,503 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 501,168,967 | |
Undistributed net investment income | | | — | |
Accumulated net realized gain on investments | | | 92,293,383 | |
Net unrealized appreciation on investments | | | 9,434,153 | |
Net assets | | $ | 602,896,503 | |
| | | | | |
A-Class: | |
Net assets | | $ | 476,792,176 | |
Capital shares outstanding | | | 15,451,139 | |
Net asset value per share | | $ | 30.86 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 32.40 | |
| | | | | |
C-Class: | |
Net assets | | $ | 126,047,042 | |
Capital shares outstanding | | | 5,136,404 | |
Net asset value per share | | $ | 24.54 | |
| | | | | |
P-Class: | |
Net assets | | $ | 57,285 | |
Capital shares outstanding | | | 1,862 | |
Net asset value per share | | $ | 30.77 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF OPERATIONS |
MID CAP VALUE FUND |
Year Ended September 30, 2015
Investment Income: | |
Dividends (net of foreign withholding tax of $12,234) | | $ | 15,019,696 | |
Interest | | | 10,322 | |
Total investment income | | | 15,030,018 | |
| | | | | |
Expenses: | |
Management fees | | | 7,562,843 | |
Transfer agent/maintenance fees: | |
A-Class | | | 1,471,266 | |
B-Class | | | 34,555 | |
C-Class | | | 240,452 | |
P-Class** | | | 10 | |
Distribution and service fees: | |
A-Class | | | 1,918,667 | |
B-Class | | | 79,278 | |
C-Class | | | 1,663,057 | |
P-Class** | | | 35 | |
Fund accounting/administration fees | | | 894,616 | |
Trustees’ fees* | | | 97,697 | |
Line of credit fees | | | 83,791 | |
Custodian fees | | | 50,036 | |
Tax expense | | | 52 | |
Miscellaneous | | | 502,849 | |
Total expenses | | | 14,599,204 | |
Net investment income | | | 430,814 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments | | | 148,539,157 | |
Net realized gain | | | 148,539,157 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments in unaffiliated issuers | | | (179,558,088 | ) |
Net change in unrealized appreciation (depreciation) | | | (179,558,088 | ) |
Net realized and unrealized loss | | | (31,018,931 | ) |
Net decrease in net assets resulting from operations | | $ | (30,588,117 | ) |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since the commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
STATEMENTS OF CHANGES IN NET ASSETS |
MID CAP VALUE FUND | |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income (loss) | | $ | 430,814 | | | $ | (674,993 | ) |
Net realized gain on investments | | | 148,539,157 | | | | 183,049,385 | |
Net change in unrealized appreciation (depreciation) on investments | | | (179,558,088 | ) | | | (112,657,063 | ) |
Net increase (decrease) in net assets resulting from operations | | | (30,588,117 | ) | | | 69,717,329 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net realized gains | | | | | | | | |
A-Class | | | (123,882,978 | ) | | | (66,154,623 | ) |
B-Class | | | (1,863,094 | ) | | | (1,531,403 | ) |
C-Class | | | (28,169,528 | ) | | | (16,551,729 | ) |
Total distributions to shareholders | | | (153,915,600 | ) | | | (84,237,755 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 95,234,863 | | | | 212,574,766 | |
B-Class | | | 61,226 | | | | 89,153 | |
C-Class | | | 9,969,782 | | | | 26,075,051 | |
P-Class* | | | 62,301 | | | | — | |
Distributions reinvested | | | | | | | | |
A-Class | | | 114,025,165 | | | | 60,093,834 | |
B-Class | | | 1,753,261 | | | | 1,462,878 | |
C-Class | | | 24,118,771 | | | | 12,947,243 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (604,909,941 | ) | | | (285,246,325 | ) |
B-Class | | | (12,817,123 | ) | | | (8,904,634 | ) |
C-Class | | | (63,102,815 | ) | | | (60,608,402 | ) |
Net decrease from capital share transactions | | | (435,604,510 | ) | | | (41,516,436 | ) |
Net decrease in net assets | | | (620,108,227 | ) | | | (56,036,862 | ) |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 1,223,004,730 | | | | 1,279,041,592 | |
End of year | | $ | 602,896,503 | | | $ | 1,223,004,730 | |
Undistributed net investment income/(Accumulated net investment loss) at end of year | | $ | — | | | $ | (926,867 | ) |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
MID CAP VALUE FUND | |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 2,752,607 | | | | 5,437,655 | |
B-Class | | | 2,355 | | | | 2,867 | |
C-Class | | | 363,138 | | | | 808,772 | |
P-Class* | | | 1,862 | | | | — | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 3,380,581 | | | | 1,617,164 | |
B-Class | | | 68,273 | | | | 49,371 | |
C-Class | | | 893,949 | | | | 419,548 | |
Shares redeemed | | | | | | | | |
A-Class | | | (17,642,149 | ) | | | (7,320,216 | ) |
B-Class | | | (501,001 | ) | | | (286,983 | ) |
C-Class | | | (2,316,755 | ) | | | (1,870,843 | ) |
Net decrease in shares | | | (12,997,140 | ) | | | (1,142,665 | ) |
* | Since the commencement of operations: May 1, 2015. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
FINANCIAL HIGHLIGHTS |
MID CAP VALUE FUND | |
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.
A-Class | | Year Ended
Sept. 30,
2015 | | | Year Ended
Sept. 30,
2014 | | | Year Ended
Sept. 30,
2013 | | | Year Ended
Sept. 30,
2012 | | | Year Ended
Sept. 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 37.73 | | | $ | 38.15 | | | $ | 33.05 | | | $ | 27.13 | | | $ | 29.55 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .06 | | | | .03 | | | | .04 | | | | (.07 | ) | | | (.03 | ) |
Net gain (loss) on investments (realized and unrealized) | | | (2.24 | ) | | | 2.04 | | | | 8.59 | | | | 6.54 | | | | (2.31 | ) |
Total from investment operations | | | (2.18 | ) | | | 2.07 | | | | 8.63 | | | | 6.47 | | | | (2.34 | ) |
Less distributions from: | |
Net investment income | | | — | | | | — | | | | — | | | | — | | | | (.08 | ) |
Net realized gains | | | (4.69 | ) | | | (2.49 | ) | | | (3.53 | ) | | | (.55 | ) | | | — | |
Total distributions | | | (4.69 | ) | | | (2.49 | ) | | | (3.53 | ) | | | (.55 | ) | | | (.08 | ) |
Net asset value, end of period | | $ | 30.86 | | | $ | 37.73 | | | $ | 38.15 | | | $ | 33.05 | | | $ | 27.13 | |
| | |
Total Returnc | | | (6.83 | %) | | | 5.52 | % | | | 28.93 | % | | | 24.13 | % | | | (7.98 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 476,792 | | | $ | 1,017,208 | | | $ | 1,038,762 | | | $ | 903,221 | | | $ | 973,467 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.18 | % | | | 0.08 | % | | | 0.11 | % | | | (0.22 | %) | | | (0.10 | %) |
Total expensesd | | | 1.42 | % | | | 1.39 | % | | | 1.39 | % | | | 1.46 | % | | | 1.32 | % |
Portfolio turnover rate | | | 84 | % | | | 35 | % | | | 23 | % | | | 19 | % | | | 28 | % |
FINANCIAL HIGHLIGHTS (continued) |
MID CAP VALUE FUND | |
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.
C-Class | | Year Ended
Sept. 30,
2015 | | | Year Ended
Sept. 30,
2014 | | | Year Ended
Sept. 30,
2013 | | | Year Ended
Sept. 30,
2012 | | | Year Ended
Sept. 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 31.14 | | | $ | 32.13 | | | $ | 28.57 | | | $ | 23.68 | | | $ | 25.93 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | (.15 | ) | | | (.21 | ) | | | (.18 | ) | | | (.25 | ) | | | (.24 | ) |
Net gain (loss) on investments (realized and unrealized) | | | (1.76 | ) | | | 1.71 | | | | 7.27 | | | | 5.69 | | | | (2.01 | ) |
Total from investment operations | | | (1.91 | ) | | | 1.50 | | | | 7.09 | | | | 5.44 | | | | (2.25 | ) |
Less distributions from: | |
Net realized gains | | | (4.69 | ) | | | (2.49 | ) | | | (3.53 | ) | | | (.55 | ) | | | — | |
Total distributions | | | (4.69 | ) | | | (2.49 | ) | | | (3.53 | ) | | | (.55 | ) | | | — | |
Net asset value, end of period | | $ | 24.54 | | | $ | 31.14 | | | $ | 32.13 | | | $ | 28.57 | | | $ | 23.68 | |
| | |
Total Returnc | | | (7.49 | %) | | | 4.74 | % | | | 27.98 | % | | | 23.28 | % | | | (8.68 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 126,047 | | | $ | 192,942 | | | $ | 219,695 | | | $ | 191,249 | | | $ | 188,745 | |
Ratios to average net assets: | |
Net investment income (loss) | | | (0.53 | %) | | | (0.65 | %) | | | (0.62 | %) | | | (0.92 | %) | | | (0.85 | %) |
Total expensesd | | | 2.12 | % | | | 2.12 | % | | | 2.12 | % | | | 2.17 | % | | | 2.07 | % |
Portfolio turnover rate | | | 84 | % | | | 35 | % | | | 23 | % | | | 19 | % | | | 28 | % |
FINANCIAL HIGHLIGHTS (concluded) |
MID CAP VALUE FUND |
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.
P-Class | | Period Ended
Sept. 30,
2015a | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 33.91 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .10 | |
Net gain (loss) on investments (realized and unrealized) | | | (3.24 | ) |
Total from investment operations | | | (3.14 | ) |
Net asset value, end of period | | $ | 30.77 | |
| | | | | |
Total Returnc | | | (9.26 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 57 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.71 | % |
Total expensesd | | | 1.32 | % |
Portfolio turnover rate | | | 84 | % |
a | Since commencement of operations: May 1, 2015. 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. |
d | Does not include expenses of the underlying funds in which the Fund invests. |
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 an open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, C-Class shares, P-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%. 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 previously offered have been converted to A-Class shares effective July 31, 2014 for the Alpha Opportunity Fund, and effective August 8, 2015 for the other funds in the Trust. 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. At September 30, 2015, the Trust consisted of seventeen funds (the “Funds”).
This report covers the Mid Cap Value Fund (the “Fund”), a diversified investment company. Only A-Class, C-Class and P-Class shares had been issued by the 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 Fund operates as an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
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NOTES TO FINANCIAL STATEMENTS (continued) |
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 each Class of the Fund is calculated by dividing the market value of the Fund’s securities and other assets, less all liabilities, attributable to the Class by the number of outstanding shares of the Class.
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.
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NOTES TO FINANCIAL STATEMENTS (continued) |
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. 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. Interest income also includes paydown gains and losses on mortgage-backed and asset-backed securities and senior and subordinated loans. Amendment fees are earned as compensation for evaluating and accepting changes to the original loan agreement and are recognized when received. Dividend income from REITs is recorded based on the income included in the distributions received from the REIT investments using published REIT classifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
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.
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NOTES TO FINANCIAL STATEMENTS (continued) |
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 year ended September 30, 2015, there were no earnings credits received.
F. 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. 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.
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
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NOTES TO FINANCIAL STATEMENTS (continued) |
The tax character of distributions paid during the year ended September 30, 2015 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Mid Cap Value Fund | | $ | 2,885,724 | | | $ | 151,029,876 | | | $ | 153,915,600 | |
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Mid Cap Value Fund | | $ | 4,082,954 | | | $ | 80,154,801 | | | $ | 84,237,755 | |
Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.
Tax components of accumulated earnings/(deficit) as of September 30, 2015, were as follows:
Fund | | Undistributed
Ordinary
Income | | | Undistributed
Long-Term
Capital Gain | | | Net Unrealized
Appreciation/
(Depreciation) | | | Accumulated
Capital and
Other Losses | |
Mid Cap Value Fund | | $ | — | | | $ | 94,749,801 | | | $ | 6,977,735 | | | $ | — | |
For Federal income tax purposes, capital loss carryforwards represent realized losses of the Funds that may be carried forward and applied against future capital gains. Under the RIC Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. As of September 30, 2015, the Fund had no capital loss carryforwards.
As of September 30, 2015, the following reclassifications were made to the capital accounts of the Fund to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations, which are due to equalization accounting, passive foreign investment companies, and dividend reclasses. Net investment income, net realized gains and net assets were not affected by these changes.
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NOTES TO FINANCIAL STATEMENTS (continued) |
On the Statement of Assets and Liabilities, the following adjustments were made for permanent book/tax differences:
Fund | | Paid In
Capital | | | Undistributed
Net Investment
Income | | | Accumulated
Net Realized
Gain (Loss) | |
Mid Cap Value Fund | | $ | 43,144,851 | | | $ | 496,053 | | | $ | (43,640,904 | ) |
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Fund | | Tax
Cost | | | Tax
Unrealized
Gain | | | Tax
Unrealized
Loss | | | Net
Unrealized
Gain/(Loss) | |
Mid Cap Value Fund | | $ | 591,204,844 | | | $ | 75,824,710 | | | $ | (68,846,975 | ) | | $ | 6,977,735 | |
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 rate below, which are assessed to the applicable classes 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.
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NOTES TO FINANCIAL STATEMENTS (continued) |
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, C-Class and P-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, B-Class and P-Class shares, and 1.00% of the average daily net assets of the Fund’s C-Class shares.
For the year ended September 30, 2015, GFD retained sales charges of $660,571 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 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.
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NOTES TO FINANCIAL STATEMENTS (continued) |
The following table summarizes the inputs used to value the Fund’s investments at September 30, 2015. See the Schedule of Investments for more details on the classification of securities.
| | | Level 1
Investments
In Securities | | | Level 2
Investments
In Securities | | | Level 3
Investments
In Securities | | | Total | |
Assets | | | | | | | | | | | | |
Mid Cap Value Fund | | $ | 598,180,323 | | | $ | — | | | $ | 2,256 | | | $ | 598,182,579 | |
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 levels as of the beginning of the period.
For the year ended September 30, 2015, 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. Securities Transactions
For the year ended September 30, 2015, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | | Purchases | | | Sales | |
Mid Cap Value Fund | | $ | 771,979,830 | | | $ | 1,353,883,249 | |
6. Line of Credit
The Trust, with the exception of Alpha Opportunity Fund and Capital Stewardship Fund, secured a committed, $625,000,000 line of credit from Citibank, N.A., good through October 9, 2015, 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 Trust did not have any borrowings under this agreement as of and for the year ended September 30, 2015. The Trust also pays a commitment fee at an annualized rate of 0.07% of the average daily amount of their unused commitment amount.
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NOTES TO FINANCIAL STATEMENTS (concluded) |
7. 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, 2015.
Although the ultimate resolution of these transactions is uncertain, the Fund has recorded a liability 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 in miscellaneous payables by the Fund as of September 30, 2015, was $473,594.
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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 Mid Cap Value Fund (one of the series constituting the Guggenheim Funds Trust) (the “Fund”) as of September 30, 2015, 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 years or periods indicated therein. 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, 2015, by correspondence with custodians 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, 2015, 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 years or periods indicated therein, in conformity with U.S. generally accepted accounting principles.
McLean, Virginia
November 25, 2015
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OTHER INFORMATION (Unaudited) |
In January 2016, shareholders will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by shareholders in the calendar year 2015.
The Fund’s investment income (dividend income plus short-term gains, if any) qualifies as follows:
Of the ordinary income distributions paid during the year, the following funds had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | Dividend
received deduction |
Mid Cap Value Fund | 100.00% |
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 | Qualified
dividend income |
Mid Cap Value Fund | 100.00% |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2015, the 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 | Qualified | Qualified
short-term |
Mid Cap Value Fund | 0.00% | 100.00% |
With respect to the taxable year ended September 30, 2015, 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:
Fund | | LTCG
dividend | | | From Proceeds
of Shareholder
Redemptions |
Mid Cap Value Fund | | $ | 151,029,876 | | | $ | 43,144,851 |
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OTHER INFORMATION (Unaudited)(continued) |
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.
Sector Classification
Information in the “Schedule of Investments” is categorized by sectors using sector-level Classifications defined by the Bloomberg Industry Classification System, a widely recognized industry classification system provider. Each Fund’s registration statement has investment policies relating to concentration in specific sectors/industries. For purposes of these investment policies, the Funds usually classify sectors/industries based on industry-level Classifications used by widely recognized industry classification system providers such as Bloomberg Industry Classification System, Global Industry Classification Standards and Barclays Global Classification Scheme.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
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”). The Trust includes the following series:
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OTHER INFORMATION (Unaudited)(continued) |
● Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) ● Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”) ● Guggenheim High Yield Fund (“High Yield Fund”) ● Guggenheim Large Cap Value Fund (“Large Cap Value Fund”) ● Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”) ● Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”) ● Guggenheim Risk Managed Real Estate Fund (“Risk Managed Real Estate Fund”) ● Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core Fund”) ● Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | ● Guggenheim Capital Stewardship Fund (“Capital Stewardship Fund”) ● Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”) ● Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”) ● Guggenheim Limited Duration Fund (“Limited Duration Fund”) ● 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 Fund”) ● Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 adviser 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 five separate investment management agreements which group the series as follows: (i) Mid Cap Value Fund, Mid Cap Value Institutional Fund, Small Cap Value Fund, StylePlus—Large Core Fund and World Equity Income Fund; (ii) Large Cap Value Fund; (iii) StylePlus—Mid Growth; (iv)
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OTHER INFORMATION (Unaudited)(continued) |
Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund; and (v) Alpha Opportunity Fund. (The Funds identified in (i) through (v) 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 Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 five separate investment advisory agreements which group includes the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund; (iii) Capital Stewardship Fund; (iv) Limited Duration Fund; and (v) Risk Managed Real Estate Fund. (The investment management agreements pertaining to the SIAdvised 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,” with the members of the Board referred to individually as 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.
Following an initial two-year term, the Advisory Agreements continue in effect from year to year provided that such continuance is specifically approved at least annually by (i) the Board or a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund, and, in either event, (ii) the vote of a majority of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”) casting votes in person at a meeting called for such purpose. At meetings held in person on April 29, 2015 (the “April Meeting”) and on May 19, 2015 (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely of the Independent Trustees, met separately from Guggenheim to consider the
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OTHER INFORMATION (Unaudited)(continued) |
proposed renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.1 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 also received by the full Board) throughout the year regarding performance and operating results of the 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 presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Independent Trustees. In addition, Guggenheim made a presentation at the April Meeting, which addressed areas identified for discussion by the Committee 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) staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various services performed by Guggenheim for the provision of a
1 | Since the Capital Stewardship Fund was subject to an investment management agreement approved by the Board for an initial term of two years at an in-person meeting of the Board held on August 19-20, 2014, it was not included in the contract renewal process conducted at the meetings in April and May 2015. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, excluding the Capital Stewardship Fund. |
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OTHER INFORMATION (Unaudited)(continued) |
continuous investment program for each Fund, monitoring compliance with Fund investment strategies and statutory requirements, reviewing trading processes and conducting investment performance analyses; (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 gross revenues, expenses and earnings for Guggenheim by product line and each Fund, including a breakout of various expenses, a description of Guggenheim’s 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, and certain information about Guggenheim’s insurance policies, business continuity plan, proxy voting procedures, trade allocation, shareholder communications and compliance monitoring, among other things.
The Committee considered the foregoing Contract Materials in the context of its substantial accumulated experience governing the Trust and weighed the factors and standards discussed with Independent Legal Counsel. 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 Funds2 to recommend that the Board approve the renewal of each Advisory Agreement and the Sub Advisory Agreement for an additional 12-month term.
Investment 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, areas of responsibility and duties of key personnel performing services for the Funds, including those personnel providing compliance oversight. In this connection, the Committee considered
2 | At the May Meeting, the Board determined to close and liquidate the Enhanced World Equity Fund based upon the Adviser’s recommendation (the “Liquidation Proposal”). Following an evaluation of strategic options, the Board determined that liquidation of the Fund as a series of the Trust would be in the best interests of the Fund and its shareholders. In view of the Liquidation Proposal, the Committee recommended the continuation of the Advisory Agreement with respect to the Enhanced World Equity Fund to provide for the continuation of advisory services until such time as the Fund was liquidated. |
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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 also considered the Advisers’ attention to relevant developments in the mutual fund industry and its observance of compliance and regulatory requirements, and 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 additional staff to support the firm’s Chief Risk Officer, initiatives related to the risks associated with the investment process and risk at the enterprise level, 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 consolidate compliance manuals and align processes of the Funds with those of other Funds managed by the Advisers or another Guggenheim affiliate. 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 the Advisers’ parent company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). (The Committee received the audited consolidated financial statements of GPIMH once available following the April 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 during the year, the Committee concluded that each Adviser and its personnel were
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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, 2014, 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, 2014, 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-year 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-year and three-year periods, ranking in the 1st and 4th percentiles, respectively. In light of various changes to this Fund, including 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 and the assumption by Security Investors of such investment management responsibility, the impact on portfolio management as a result of the Lehman bankruptcy,3 and subsequent changes to the Fund’s investment strategies, a reduction in the fund accounting and administration fee and the re-opening of the Fund to new subscriptions, the Committee considered more recent performance periods, including the one-year and the three-month
3 | The Committee considered the circumstances that affected 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 had consisted of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales, which limited the management of the portfolio. |
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periods. 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, 2014, ranking in the 11th and 4th percentiles, respectively.
Floating Rate Strategies Fund: The returns of the Fund’s Class A shares ranked in the 6th and 1st percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
High Yield Fund: The Fund’s Class A shares ranked in the 64th, 7th and 46th percentiles of the performance universe for the five-year, three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for the three-year and one-year periods.
Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014, ranking in the 14th, 4th and 3rd percentiles, respectively. The Committee also noted Guggenheim’s statement that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year, three-year and one-year periods ended December 31, 2014, and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile.
Large 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 ended December 31, 2014, and ranked in the 76th, 60th and 78th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the returns for the Fund’s Class A shares for the ten-year
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period ended December 31, 2014, which exceeded the performance universe median, ranking in the 45th percentile. The Committee also noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Limited Duration Fund: The Committee noted the Fund’s inception date of December 16, 2013 and observed that the returns of the Fund’s Class A shares ranked in the 8th and 18th percentiles of the performance universe for the one-year and three-month periods ended December 31, 2014, respectively, outperforming the median returns.
Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 3rd and 8th percentiles of the performance universe for the three-year and one-year periods ended December 31, 2014, 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 three-year and one-year periods ended December 31, 2014.
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 ended December 31, 2014, and ranked in the 92nd, 80th and 67th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2014 in the 1st quartile (22nd percentile) and that, according
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to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. The Committee also noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. In addition, the Committee noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Mid Cap Value Institutional Fund: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 88th, 72nd and 61st percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
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
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performance, the Committee concluded that Security Investors had appropriately reviewed and monitored GPIM’s investment performance as Sub-Adviser to the Fund.
Risk Managed Real Estate Fund: The returns of the Fund’s Class A shares ranked in the 67th percentile of its performance universe for the three�month period ended December 31, 2014. The Committee considered that the Fund was recently organized as of February 12, 2014 and has a limited period of operation.
StylePlus—Large Core Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 10th and the 41st percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund outperformed its benchmark for the one-year period ended December 31, 2014.
StylePlus—Mid Growth Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 13th and 36th percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund had outperformed its benchmark for the one-year period ended December 31, 2014.
Small Cap Value Fund: The Fund underperformed its performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 87th, 71st and 92nd percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued
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confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st and 2nd percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
World Equity Income Fund: The Fund implemented a strategy change and a new portfolio management team in August 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded its performance universe median for the one-year period, ranking in the 27th percentile, and lagged its performance universe median for the three-month period, ranking in the 83rd percentile.
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 and/or institutional separate account with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients. The Committee considered Guggenheim’s explanation that lower fees are charged in certain instances due to numerous factors, including the scope of contract, types
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of investors, applicable regulatory and legal structures, tax status, and for historical pricing reasons. In this regard, the Committee took into account Guggenheim’s assertion that the differences in fees reflected the Advisers’ greater level of responsibilities and significantly broader scope of services regarding the Funds, the more extensive regulatory obligations and risks associated with managing the Funds, and other financial considerations with respect to the Funds.
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 and the asset weighted total net expense ratio are in the second quartile (27th and 45th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had 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 fourth quartile (82nd percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (40th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (77th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (84th percentile) of its peer group. The Committee also considered that the Adviser had 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 is in the second quartile (31st percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (22nd percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
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Limited Duration Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (72nd percentile) of its peer group and the asset weighted total net expense ratio is in the second quartile (45th percentile) of its peer group. The Committee also considered that the Adviser had 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 (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 second quartile (43rd percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (85th percentile) of its peer group.
Mid Cap Value Institutional Fund: The contractual advisory fee of the Fund is in the first quartile (15th percentile) of its peer group and the total net expense ratio is in the third quartile (69th percentile) of its peer group.
Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the second quartile (26th and 38th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Risk Managed Real Estate Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the first quartile (1st percentile as to each) of its peer group.
StylePlus—Large Core Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the fourth quartile (80th and 100th percentiles, respectively) of its peer group.
StylePlus—Mid Growth Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the second quartile (34th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (100th percentile) of its peer group.
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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 (78th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (25th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (86th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (19th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (27th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (80th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
With respect to the costs of services provided and profits realized by Guggenheim Investments from its relationship with the Funds, the Committee reviewed a profitability analysis and data from management for each Fund setting forth the average assets under management for the twelve months ended December 31, 2014, ending assets under management as of December 31, 2014, gross revenues received by Guggenheim Investments, expenses incurred in providing services to the Funds, earnings and the operating margin/profitability rate, including variance information relative to the foregoing amounts as of December 31, 2013. In addition, the Chief Financial Officer of Guggenheim Investments reviewed with, and addressed questions from, the Committee concerning the expense allocation methodology employed in producing the profitability analysis. In the course of its review of Guggenheim Investments’ profitability, the Committee took into account the complexity of the investment strategies employed for the Funds, in addition to the foregoing data and various figures.
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
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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 Investments’ profitability from its relationship with the Funds was not unreasonable.
Economies of Scale: 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 have 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 also noted the Adviser’s statement that Guggenheim continues to develop the infrastructure needed to support Fund asset growth and to achieve economies of scale across the firm’s various products and product lines. Thus, while Guggenheim may be benefiting from certain economies of scale and related cost efficiencies, it is concurrently realizing new costs and expenses associated with investment in infrastructure, personnel and systems.
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 Total Return Bond Fund—having assets in excess of (or approaching) $1 billion as of March 31, 2015. 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 total net expense ratio is competitive with the peer group median.
Macro Opportunities Fund: 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.
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Mid Cap Value Fund: The Fund’s contractual advisory fee is in line with the peer group median (43rd percentile) and the total net expense ratio is competitive with the peer group median.
Total Return Bond Fund: 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 in the first quartile (19th percentile).
The Committee determined that, taking into account all relevant factors, the advisory fee structure for each Fund 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 and compliance policies and procedures, 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 included as part of its considerations the unaudited financial information concerning GPIMH presented by the Chief Financial Officer of Guggenheim Investments. (As noted, the Committee received the audited consolidated financial statements of GPIMH once available following the April Meeting.)
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 Fund’s Class A shares outperformed the performance universe for the five-year and three-year periods ended December 31, 2014, ranking in the 1st and 35th percentiles, respectively. On January 13, 2012, the Fund acquired the assets and assumed the liabilities of TS&W/Claymore Tax-Advantaged Balanced Fund (the “Predecessor Fund”),
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a closed-end fund which used different investment strategies and had different investment advisers. Class A shares of the Fund have assumed the performance, financial and other historical information of the Predecessor Fund’s common shares and the performance of Class A shares of the Fund reflects the performance of the Predecessor Fund. In light of the foregoing, the Committee took into account more recent periods and noted that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2014, ranking in the 18th and 47th percentiles, respectively. In this connection, the Committee also considered that the Fund outperformed its benchmark over the one-year and three-month periods ended December 31, 2014.
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: 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” 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 or conclusive 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. Thereafter, on May 20, 2015, the Board, including all of the Independent Trustees, approved the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) |
A Board of Trustees oversees the Trust, as well as other trusts of GI, in which its members have no stated term of service, and continue to serve after election until resignation. The Statement of Additional Information includes further information about Fund Trustees and Officers, and can be obtained without charge by calling 800.820.0888.
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by 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). | 107 | Current: Trustee, Purpose Investments Inc. (2014-Present). |
Donald A. Chubb, Jr. (1946) | Trustee | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-present). | 104 | Current: Midland Care, Inc. (2011-present). |
Jerry B. Farley (1946) | Trustee | Since 2005 | Current: President, Washburn University (1997-present). | 103 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust (2000-present). |
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - continued | | |
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and Managing Partner, Roman Friedrich & Company (1998-present). Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | 103 | Current: Zincore Metals, Inc. (2009-present). Former: Axiom Gold and Silver Corp. (2011-2012). |
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 103 | 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). | 109 | Current: Edward-Elmhurst Healthcare System (2012-present). |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - concluded | | |
Maynard F. Oliverius (1943) | Trustee | Since 1998 | Current: Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 103 | Current: Fort Hays State University Foundation (1999-present); Stormont-Vail Foundation (2013-present); University of Minnesota HealthCare Alumni Association Foundation (2009-present). |
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management (1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999); Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | 106 | Former: Bennett Group of Funds (2011-2013). |
54 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
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). | 239 | Current: Clear Spring Life Insurance Company (2015-present); Guggenheim Partners Japan, Ltd. (2014-present); Delaware Life (2013-present); Guggenheim Life and Annuity Company (2011-present); Paragon Life Insurance Company of Indiana (2011-present). |
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
*** | This Trustee is deemed to be an "interested person" of the Funds under the 1940 Act by reason of his position with the Funds' Investment Manager and/or the parent of the Investment Manager. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 55 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS | | | |
Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). |
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). |
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). |
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). |
56 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - continued | |
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 2007 (Vice President) Since 2014 (Chief Legal Officer) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2013-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). |
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (2014-present); Senior Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). |
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Managing Director, Guggenheim Investments (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 57 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - continued | |
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-2014). |
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). |
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). |
58 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(concluded) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - concluded | |
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 | 59 |
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
60 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited)(continued) |
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 | 61 |
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.
62 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
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9.30.2015
Guggenheim Funds Annual Report
Fundamental Alpha |
Guggenheim Mid Cap Value Institutional Fund | | |
SBMCVI-ANN-0915x0916 | guggenheiminvestments.com |
DEAR SHAREHOLDER | 2 |
ECONOMIC AND MARKET OVERVIEW | 3 |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 5 |
MID CAP VALUE INSTITUTIONAL FUND | 8 |
NOTES TO FINANCIAL STATEMENTS | 20 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 28 |
OTHER INFORMATION | 29 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 48 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 56 |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
Dear Shareholder:
Security Investors, LLC, (the “Investment Adviser”) is pleased to present the shareholder report for Guggenheim Mid Cap Value Institutional Fund (the “Fund”) for the annual fiscal period ended September 30, 2015.
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 Fund. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim and the Investment Advisers.
We encourage you to read the Economic and Market Overview section of the report, which follows this letter, and then the Managers’ Commentary for 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, 2015
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at guggenheiminvestments.com or call 800.820.0888.
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, 2015 |
At the end of the period, the underlying U.S. economy continued to maintain its strong footing. A market correction that began in August persisted through the end of the period; September and October are historically difficult times for the stock market, and by extension, risk assets of any kind, including credit.
Markets had been performing solidly for most of the period. Growth mid-year bounced back from a weather-induced slowdown in the first quarter, with GDP increasing 3.9% for the second quarter. The labor and housing markets continued to strengthen, and the drop in gas prices was acting as a tax cut, which was expected to increase consumer spending power going into the holiday season. Even though labor markets are moving toward full employment, questions remain about the viability of sustained economic expansion in the U.S. In particular, there is debate about the net effect of declining energy prices and a stronger dollar. These are both positive for the U.S. consumer, but low oil prices hurt the U.S. energy industry and a strong dollar is challenging for U.S. manufacturers. In addition, oil prices and the strong dollar exert a downward pressure on inflation, and a risk of deflation is a negative for the economy.
At the same time, currency devaluation, particularly in Japan and the euro zone, is putting pressure on countries to devalue to improve export competitiveness. Those countries slow to devalue, like China, are feeling economic pressure at home, driving down asset prices, and increasing deflationary pressures, escalating the risk of financial contagion abroad. China may have to devalue the renminbi further due to continued slowing in the economy. Combined with the tepid expansion in both Europe and Japan, the pressure will be for central banks there to increase easing measures.
The U.S. Federal Reserve (the “Fed”) is hard pressed to justify a rate increase based on its self-prescribed metrics, which include rising inflation and an improved employment situation with clearly rising wages. At best, policymakers can argue that the prospects for wage growth and inflation are improving, but clear evidence is lacking.
A preemptive rate increase seems risky and opens the Fed to potential criticism given the fragility in financial markets and the prospect that rising U.S. rates could further strengthen the dollar and also potentially exacerbate foreign economic turbulence. While prices and wages remain tame, the risk of another asset bubble is increasing. The longer policy remains highly accommodative, the greater the likelihood that asset classes including commercial real estate, equities, or certain categories of bonds could become overvalued.
At period end, the risk of financial contagion remained high, which could result in central banks providing additional liquidity or delaying rate increases. Use of the monetary printing press is a handy tool to prop up asset prices and temporarily spur economic growth, which is the main reason a recession does not appear to be on the
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ECONOMIC AND MARKET OVERVIEW (Unaudited)(concluded) | September 30, 2015 |
horizon for either the G-7 nations or China. It’s also worth noting that there has never been a recession in the post-war period without the Fed first raising interest rates, after which it typically takes several years for a recession to be induced.
For the 12 months ended September 30, 2015, the Standard & Poor’s 500® Index* (“S&P 500®”) returned -0.61%. The Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned -8.66%. The return of the MSCI Emerging Markets Index* was -19.28%.
In the bond market, the Barclays U.S. Aggregate Bond Index* posted a 2.94% return for the period, while the Barclays U.S. Corporate High Yield Index* returned -3.43%. The return of the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.02% for the 12-month period.
The opinions and forecasts expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
*Index Definitions:
The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.
Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.
Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar (“USD”)-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets.
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 capitalization-weighted index of 500 stocks designed to measure the performance of the broad economy, representing all major industries and is considered a representation of the U.S. stock market.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) |
All mutual funds have operating expenses and it is important for our shareholders to understand the impact of costs on their investments. Shareholders of a Fund incur two types of costs: (i) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and exchange fees; and (ii) ongoing costs, including management fees, administrative services, and shareholder reports, among others. These ongoing costs, or operating expenses, are deducted from a fund’s gross income and reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense ratio. The following examples are intended to help investors understand the ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 made at the beginning of the period and held for the entire six-month period beginning March 31, 2015 and ending September 30, 2015.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 5 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(continued) |
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)(concluded) |
| | Expense
Ratio1 | Fund
Return | Beginning
Account Value
March 31,
2015 | Ending
Account Value
September 30,
2015 | Expenses
Paid During
Period2 |
Table 1. Based on actual Fund return3 |
Mid Cap Value Institutional Fund | 1.04% | (9.71%) | $ 1,000.00 | $ 902.90 | $ 4.96 |
| |
Table 2. Based on hypothetical 5% return (before expenses) |
Mid Cap Value Institutional Fund | 1.04% | 5.00% | $ 1,000.00 | $ 1,019.85 | $ 5.27 |
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, 2015 to September 30, 2015. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
MANAGER’S COMMENTARY (Unaudited) | September 30, 2015 |
To Our Shareholders:
Guggenheim Mid Cap Value Institutional Fund (the “Fund”) is managed by a team of seasoned professionals led by James Schier, CFA, Senior Portfolio Manager. During the period, the following individuals were added as Portfolio Managers to the Fund: Scott Hammond, Managing Director and Portfolio Manager; Farhan Sharaff, Assistant Chief Investment Officer, Equities; and Gregg Strohkorb, CFA. In the following paragraphs, the team discusses performance of the Fund for the fiscal year ended September 30, 2015.
For the year ended September 30, 2015, the Guggenheim Mid Cap Value Institutional Fund returned -5.85%1, compared with the -2.44% 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 companies can improve returns, maintain existing high levels of profitability, or benefit from change that occurs within the industries in which they operate. In today’s rapidly changing environment marked by very sharp and quick, but constrained volatility, our long-term orientation and discipline are a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides, and fundamentals once again become a more dominant factor in the market.
Performance Review
Stock selection in Utilities sector was the leading contributor to performance. The Fund’s Utilities sector holdings, weighted about the same as the index, returned twice that of the index. Within the sector, the Fund favored companies that have meaningful exposure to non-regulated businesses. Stock selection within the Materials sector was another large contributor to performance. The Fund’s Materials holdings had a negative return, but lost considerably less than the sector in the index.
The leading individual contributor to performance was Hanover Insurance Group, Inc., one of the Fund’s long-time largest holdings. The Fund favored the property and casualty market because of its positive pricing trends. Other large contributors were companies with strong earnings: MEDNAX, Inc., a provider of physician management services with specialty in neonatal care, and Hologic, Inc., a maker of diagnostic devices.
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGER’S COMMENTARY (Unaudited)(continued) | September 30, 2015 |
The leading detractor from return for the period was stock selection in the Energy sector. Commodity-oriented companies performed poorly late in the period across all industries, and Energy was especially weak. The lack of holdings in refining or other sub-industries less impacted by crude’s weakness was a detriment. Companies such as Whiting Petroleum Corp. and Oasis Petroleum, Inc., that are essentially 100% dependent on crude pricing—as they operate in the Bakken, where all production is crude oil—were especially weak. Whiting Petroleum was the leading individual detractor for the year followed by Oasis Petroleum and Resolute Energy Corp.
The second-leading detractor from return was the Fund’s stock selection in the Information Technology sector. Maxwell Technologies, Inc. was leading detractor in that sector. It has faced challenges in transitioning the business from a lumpy Chinese bus market to domestic offerings of ultra-capacitors.
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Financials and an overweight in Consumer Staples.
Within Financials, the underweighting in REITs (Real Estate Investment Trusts) was damaging early in the period, when this industry performed well. In early 2015, we began to view REITs as a sector rather than an industry within a sector, leading the Fund to have a weighting that is in line with the minimum the Fund would have for any significant sector. The weighting disparity was significantly lower at the end of the period. That brought the Financials sector closer to equal weight with the index.
The overweight to Staples was a significant contributor to return for the year. It was driven by our bottom-up fundamental research having identified several companies with favorable risk-return profiles.
Portfolio and Market Outlook
Despite a firming economy, investors continued to be very cautious during the quarter as safe-haven areas such as Consumer Staples, Utilities, and REITs performed the best, while Energy, Information Technology, and Industrials lagged. Companies tied to the commodity cycle were especially hard hit late in the period. As the world continues to look towards the U.S. economy to be the engine for growth, and as foreign investors continue to fear the safety of their own currencies and economies, interest in U.S. assets should continue to be robust. The prolonged decline in U.S. government bond yields should continue to make equities an attractive alternative for incremental investment dollars.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
MANAGER’S COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
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 do not reflect 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.
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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.
Inception Date: July 11, 2008 |
Ten Largest Holdings (% of Total Net Assets) |
Hanover Insurance Group, Inc. | 2.7% |
Reinsurance Group of America, Inc. — Class A | 2.4% |
MEDNAX, Inc. | 2.3% |
Alleghany Corp. | 2.3% |
Ameren Corp. | 2.2% |
FLIR Systems, Inc. | 2.2% |
Pinnacle West Capital Corp. | 2.1% |
Computer Sciences Corp. | 2.0% |
Sonoco Products Co. | 1.9% |
FirstMerit Corp. | 1.8% |
Top Ten Total | 21.9% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 11 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | 5 Year | Since Inception
(07/11/08) |
Mid Cap Value Institutional Fund | -5.85% | 8.03% | 8.89% |
Russell 2500 Value Index | -2.44% | 11.49% | 8.94% |
* | 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. |
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
MID CAP VALUE INSTITUTIONAL FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 96.9% | |
| | | | | | | |
Financial - 32.6% | |
Hanover Insurance Group, Inc. | | | 101,027 | | | $ | 7,849,797 | |
Reinsurance Group of America, Inc. — Class A | | | 76,053 | | | | 6,889,641 | |
Alleghany Corp.* | | | 13,870 | | | | 6,492,686 | |
FirstMerit Corp. | | | 295,220 | | | | 5,216,537 | |
Popular, Inc. | | | 146,253 | | | | 4,421,228 | |
Zions Bancorporation | | | 158,980 | | | | 4,378,309 | |
CubeSmart | | | 155,690 | | | | 4,236,325 | |
Camden Property Trust | | | 57,190 | | | | 4,226,341 | |
BioMed Realty Trust, Inc. | | | 210,950 | | | | 4,214,781 | |
Wintrust Financial Corp. | | | 78,050 | | | | 4,170,212 | |
Sun Communities, Inc. | | | 56,090 | | | | 3,800,658 | |
Endurance Specialty Holdings Ltd. | | | 62,020 | | | | 3,785,081 | |
Assured Guaranty Ltd. | | | 144,890 | | | | 3,622,250 | |
Apartment Investment & Management Co. — Class A | | | 91,660 | | | | 3,393,253 | |
Kilroy Realty Corp. | | | 48,160 | | | | 3,138,106 | |
Radian Group, Inc. | | | 172,040 | | | | 2,737,156 | |
Fulton Financial Corp. | | | 209,259 | | | | 2,532,034 | |
Alexandria Real Estate Equities, Inc. | | | 29,180 | | | | 2,470,671 | |
Trustmark Corp. | | | 100,350 | | | | 2,325,110 | |
Jones Lang LaSalle, Inc. | | | 16,000 | | | | 2,300,320 | |
E*TRADE Financial Corp.* | | | 83,640 | | | | 2,202,241 | |
Parkway Properties, Inc. | | | 114,708 | | | | 1,784,856 | |
Ocwen Financial Corp.* | | | 241,897 | | | | 1,623,129 | |
Prosperity Bancshares, Inc. | | | 31,770 | | | | 1,560,225 | |
NorthStar Realty Finance Corp. | | | 115,280 | | | | 1,423,708 | |
UDR, Inc. | | | 25,470 | | | | 878,206 | |
Umpqua Holdings Corp. | | | 49,670 | | | | 809,621 | |
Chatham Lodging Trust | | | 30,220 | | | | 649,126 | |
Communications Sales & Leasing, Inc. | | | 30,870 | | | | 552,573 | |
Total Financial | | | | | | | 93,684,181 | |
| | | | | | | | | |
Consumer, Non-cyclical - 17.3% | |
MEDNAX, Inc.* | | | 87,126 | | | | 6,690,405 | |
HealthSouth Corp. | | | 109,500 | | | | 4,201,515 | |
Bunge Ltd. | | | 52,730 | | | | 3,865,109 | |
Navigant Consulting, Inc.* | | | 207,870 | | | | 3,307,211 | |
Kindred Healthcare, Inc. | | | 198,562 | | | | 3,127,352 | |
Quanta Services, Inc.* | | | 127,400 | | | | 3,084,354 | |
Sanderson Farms, Inc. | | | 43,600 | | | | 2,989,652 | |
Hologic, Inc.* | | | 68,668 | | | | 2,686,979 | |
ICF International, Inc.* | | | 78,357 | | | | 2,381,269 | |
Premier, Inc. — Class A* | | | 66,800 | | | | 2,295,916 | |
Patterson Companies, Inc. | | | 52,243 | | | | 2,259,510 | |
Emergent BioSolutions, Inc.* | | | 76,237 | | | | 2,171,992 | |
Darling Ingredients, Inc.* | | | 191,290 | | | | 2,150,100 | |
Globus Medical, Inc. — Class A* | | | 83,030 | | | | 1,715,400 | |
IPC Healthcare, Inc.* | | | 19,090 | | | | 1,483,102 | |
Surgical Care Affiliates, Inc.* | | | 43,162 | | | | 1,410,966 | |
Brookdale Senior Living, Inc. — Class A* | | | 59,540 | | | | 1,367,038 | |
Ingredion, Inc. | | | 11,520 | | | | 1,005,811 | |
Universal Corp. | | | 19,310 | | | | 957,197 | |
Everi Holdings, Inc.* | | | 112,220 | | | | 575,689 | |
Total Consumer, Non-cyclical | | | | 49,726,567 | |
| | | | | | | | | |
Industrial - 12.6% | |
FLIR Systems, Inc. | | | 222,200 | | | | 6,219,378 | |
Sonoco Products Co. | | | 141,296 | | | | 5,332,511 | |
Orbital ATK, Inc. | | | 68,428 | | | | 4,917,920 | |
Owens-Illinois, Inc.* | | | 188,279 | | | | 3,901,141 | |
Oshkosh Corp. | | | 99,158 | | | | 3,602,410 | |
WestRock Co. | | | 66,760 | | | | 3,434,134 | |
Huntington Ingalls Industries, Inc. | | | 25,674 | | | | 2,750,969 | |
Gentex Corp. | | | 154,917 | | | | 2,401,214 | |
Werner Enterprises, Inc. | | | 86,120 | | | | 2,161,612 | |
Knight Transportation, Inc. | | | 30,510 | | | | 732,240 | |
Kirby Corp.* | | | 11,760 | | | | 728,532 | |
Total Industrial | | | | | | | 36,182,061 | |
| | | | | | | | | |
Utilities - 9.7% | |
Ameren Corp. | | | 151,164 | | | | 6,389,701 | |
Pinnacle West Capital Corp. | | | 94,320 | | | | 6,049,685 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
MID CAP VALUE INSTITUTIONAL FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Westar Energy, Inc. | | | 108,140 | | | $ | 4,156,902 | |
Great Plains Energy, Inc. | | | 128,475 | | | | 3,471,395 | |
Portland General Electric Co. | | | 76,070 | | | | 2,812,308 | |
Avista Corp. | | | 78,960 | | | | 2,625,420 | |
Black Hills Corp. | | | 60,346 | | | | 2,494,704 | |
Total Utilities | | | | | | | 28,000,115 | |
| | | | | | | | | |
Consumer, Cyclical - 8.1% | |
Visteon Corp.* | | | 41,100 | | | | 4,160,964 | |
DR Horton, Inc. | | | 121,140 | | | | 3,556,671 | |
Caleres, Inc. | | | 93,678 | | | | 2,859,989 | |
Ryland Group, Inc. | | | 70,010 | | | | 2,858,508 | |
JC Penney Company, Inc.* | | | 231,100 | | | | 2,146,919 | |
Essendant, Inc. | | | 65,136 | | | | 2,112,360 | |
Ascena Retail Group, Inc.* | | | 127,880 | | | | 1,778,811 | |
PulteGroup, Inc. | | | 81,520 | | | | 1,538,282 | |
WESCO International, Inc.* | | | 17,865 | | | | 830,187 | |
Sonic Automotive, Inc. — Class A | | | 33,760 | | | | 689,379 | |
Fossil Group, Inc.* | | | 12,070 | | | | 674,472 | |
Total Consumer, Cyclical | | | | | | | 23,206,542 | |
| | | | | | | | | |
Technology - 7.8% | |
Computer Sciences Corp. | | | 92,350 | | | | 5,668,443 | |
Diebold, Inc. | | | 150,470 | | | | 4,479,492 | |
IXYS Corp. | | | 366,527 | | | | 4,090,441 | |
Maxwell Technologies, Inc.* | | | 595,221 | | | | 3,226,098 | |
Cree, Inc.* | | | 79,460 | | | | 1,925,316 | |
Super Micro Computer, Inc.* | | | 60,049 | | | | 1,636,936 | |
ManTech International Corp. — Class A | | | 28,330 | | | | 728,081 | |
KEYW Holding Corp.* | | | 92,856 | | | | 571,064 | |
Total Technology | | | | | | | 22,325,871 | |
| | | | | | | | | |
Energy - 3.4% | |
Oasis Petroleum, Inc.* | | | 242,240 | | | | 2,102,643 | |
Whiting Petroleum Corp.* | | | 134,351 | | | | 2,051,540 | |
Patterson-UTI Energy, Inc. | | | 109,000 | | | | 1,432,260 | |
Rowan Companies plc — Class A | | | 87,350 | | | | 1,410,703 | |
Sanchez Energy Corp.* | | | 227,247 | | | | 1,397,569 | |
Superior Energy Services, Inc. | | | 99,994 | | | | 1,262,924 | |
HydroGen Corp.*,†††,1 | | | 1,265,700 | | | | 1 | |
Total Energy | | | | | | | 9,657,640 | |
| | | | | | | | | |
Communications - 2.8% | |
DigitalGlobe, Inc.* | | | 201,751 | | | | 3,837,303 | |
Finisar Corp.* | | | 174,150 | | | | 1,938,290 | |
Scripps Networks Interactive, Inc. — Class A | | | 26,730 | | | | 1,314,849 | |
Liquidity Services, Inc.* | | | 147,831 | | | | 1,092,471 | |
Total Communications | | | | | | | 8,182,913 | |
| | | | | | | | | |
Basic Materials - 2.6% | |
Reliance Steel & Aluminum Co. | | | 38,540 | | | | 2,081,546 | |
Landec Corp.* | | | 158,984 | | | | 1,855,344 | |
Royal Gold, Inc. | | | 33,430 | | | | 1,570,541 | |
Olin Corp. | | | 78,224 | | | | 1,314,945 | |
Stillwater Mining Co.* | | | 70,300 | | | | 726,199 | |
Total Basic Materials | | | | | | | 7,548,575 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $278,534,265) | | | | | | | 278,514,465 | |
| | | | | | | | | |
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | |
Thermoenergy Corp.*,2,3 | | | 793,750 | | | | 2,086 | |
Total Convertible Preferred Stocks | | | | | |
(Cost $757,980) | | | | | | | 2,086 | |
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
MID CAP VALUE INSTITUTIONAL FUND | |
| | | Shares | | | Value | |
| | | | | | | |
SHORT TERM INVESTMENTS† - 2.0% | |
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%4 | | | 5,678,605 | | | $ | 5,678,605 | |
Total Short Term Investments | | | | | |
(Cost $5,678,605) | | | | | | | 5,678,605 | |
| | | | | | | | | |
Total Investments - 98.9% | | | | | | | | |
(Cost $284,970,850) | | | | | | $ | 284,195,156 | |
Other Assets & Liabilities, net - 1.1% | | | | 3,174,685 | |
Total Net Assets - 100.0% | | | | | | $ | 287,369,841 | |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
††† | Value determined based on Level 3 inputs — See Note 4. |
1 | Affiliated issuer — See Note 6. |
2 | PIPE (Private Investment in Public Equity) — Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. |
3 | Illiquid security. |
4 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | plc — Public Limited Company |
| | |
| | See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
STATEMENT OF ASSETS AND LIABILITIES |
MID CAP VALUE INSTITUTIONAL FUND |
September 30, 2015
Assets: | |
Investments in unaffiliated issuers, at value (cost $284,968,319) | | $ | 284,195,155 | |
Investments in affiliated issuers, at value (cost $2,531) | | | 1 | |
Total investments (cost $284,970,850) | | | 284,195,156 | |
Prepaid expenses | | | 35,117 | |
Cash | | | 4,414 | |
Receivables: | |
Securities sold | | | 3,797,637 | |
Dividends | | | 449,354 | |
Fund shares sold | | | 198,882 | |
Foreign taxes reclaim | | | 10,107 | |
Total assets | | | 288,690,667 | |
| | | | | |
Liabilities: | |
Payable for: | |
Securities purchased | | | 689,608 | |
Fund shares redeemed | | | 332,431 | |
Management fees | | | 183,022 | |
Fund accounting/administration fees | | | 23,183 | |
Transfer agent/maintenance fees | | | 7,511 | |
Trustees’ fees* | | | 2,518 | |
Miscellaneous | | | 82,553 | |
Total liabilities | | | 1,320,826 | |
Net assets | | $ | 287,369,841 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 262,088,037 | |
Undistributed net investment income | | | 2,520,139 | |
Accumulated net realized gain on investments | | | 23,537,359 | |
Net unrealized depreciation on investments | | | (775,694 | ) |
Net assets | | $ | 287,369,841 | |
Capital shares outstanding | | | 27,598,021 | |
Net asset value per share | | $ | 10.41 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF OPERATIONS |
MID CAP VALUE INSTITUTIONAL FUND |
Year Ended September 30, 2015
Investment Income: | |
Dividends (net of foreign withholding tax of $2,656) from unaffiliated issuers | | $ | 7,847,493 | |
Interest | | | 23,997 | |
Total investment income | | | 7,871,490 | |
| | | | | |
Expenses: | |
Management fees | | | 3,757,786 | |
Transfer agent/maintenance fees | | | 675,828 | |
Fund accounting/administration fees | | | 475,987 | |
Trustees’ fees* | | | 44,018 | |
Line of credit fees | | | 41,343 | |
Custodian fees | | | 26,372 | |
Tax expense | | | 521 | |
Miscellaneous | | | 263,404 | |
Total expenses | | | 5,285,259 | |
Net investment income | | | 2,586,231 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments in unaffiliated issuers | | | 60,951,511 | |
Net realized gain | | | 60,951,511 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments in unaffiliated issuers | | | (81,449,262 | ) |
Net change in unrealized appreciation (depreciation) | | | (81,449,262 | ) |
Net realized and unrealized loss | | | (20,497,751 | ) |
Net decrease in net assets resulting from operations | | $ | (17,911,520 | ) |
* | 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 | 17 |
STATEMENTS OF CHANGES IN NET ASSETS |
MID CAP VALUE INSTITUTIONAL FUND | |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 2,586,231 | | | $ | 2,551,218 | |
Net realized gain on investments | | | 60,951,511 | | | | 73,635,732 | |
Net change in unrealized appreciation (depreciation) on investments | | | (81,449,262 | ) | | | (43,832,495 | ) |
Net increase (decrease) in net assets resulting from operations | | | (17,911,520 | ) | | | 32,354,455 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | (2,549,762 | ) | | | (3,106,999 | ) |
Net realized gains | | | (71,890,688 | ) | | | (35,348,105 | ) |
Total distributions to shareholders | | | (74,440,450 | ) | | | (38,455,104 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | 180,989,626 | | | | 164,229,754 | |
Distributions reinvested | | | 40,920,075 | | | | 23,335,832 | |
Cost of shares redeemed | | | (440,288,527 | ) | | | (154,829,343 | ) |
Net increase (decrease) from capital share transactions | | | (218,378,826 | ) | | | 32,736,243 | |
Net increase (decrease) in net assets | | | (310,730,796 | ) | | | 26,635,594 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 598,100,637 | | | | 571,465,043 | |
End of year | | $ | 287,369,841 | | | $ | 598,100,637 | |
Undistributed net investment income at end of year | | $ | 2,520,139 | | | $ | 2,150,653 | |
| | | | | | | | | |
Capital share activity: | | | | | | | | |
Shares sold | | | 15,865,670 | | | | 12,370,911 | |
Shares issued from reinvestment of distributions | | | 3,627,667 | | | | 1,834,578 | |
Shares redeemed | | | (38,179,646 | ) | | | (11,576,179 | ) |
Net increase (decrease) in shares | | | (18,686,309 | ) | | | 2,629,310 | |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FINANCIAL HIGHLIGHTS |
MID CAP VALUE INSTITUTIONAL FUND | |
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.
Institutional Class | | Year
Ended
Sept. 30,
2015 | | | Year
Ended
Sept. 30,
2014 | | | Year
Ended
Sept. 30,
2013 | | | Year
Ended
Sept. 30,
2012 | | | Year
Ended
Sept. 30,
2011 | |
Per Share Data | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 12.92 | | | $ | 13.09 | | | $ | 11.29 | | | $ | 9.97 | | | $ | 11.34 | |
Income (loss) from investment operations: | |
Net investment income (loss)a | | | .06 | | | | .06 | | | | .06 | | | | .03 | | | | .04 | |
Net gain (loss) on investments (realized and unrealized) | | | (.66 | ) | | | .65 | | | | 2.90 | | | | 2.30 | | | | (.87 | ) |
Total from investment operations | | | (.60 | ) | | | .71 | | | | 2.96 | | | | 2.33 | | | | (.83 | ) |
Less distributions from: | |
Net investment income | | | (.07 | ) | | | (.07 | ) | | | (.04 | ) | | | (.04 | ) | | | (.06 | ) |
Net realized gains | | | (1.84 | ) | | | (.81 | ) | | | (1.12 | ) | | | (.97 | ) | | | (.48 | ) |
Total distributions | | | (1.91 | ) | | | (.88 | ) | | | (1.16 | ) | | | (1.01 | ) | | | (.54 | ) |
Net asset value, end of period | | $ | 10.41 | | | $ | 12.92 | | | $ | 13.09 | | | $ | 11.29 | | | $ | 9.97 | |
| | |
Total Returnb | | | (5.85 | %) | | | 5.53 | % | | | 28.89 | % | | | 24.96 | % | | | (8.05 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 287,370 | | | $ | 598,101 | | | $ | 571,465 | | | $ | 490,741 | | | $ | 472,266 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 0.52 | % | | | 0.42 | % | | | 0.51 | % | | | 0.30 | % | | | 0.34 | % |
Total expensesd | | | 1.05 | % | | | 1.05 | % | | | 1.01 | % | | | 1.01 | % | | | 0.98 | % |
Net expensesd | | | 1.05 | % | | | 1.05 | % | | | 1.01 | % | | | 0.98 | %c | | | 0.90 | %c |
Portfolio turnover rate | | | 95 | % | | | 41 | % | | | 24 | % | | | 33 | % | | | 38 | % |
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 | Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable. |
d | Does not include expenses of the underlying funds in which the Fund invests. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
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 an open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, C-Class shares, P-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%. 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 previously offered have been converted to A-Class shares effective July 31, 2014 for the Alpha Opportunity Fund, and effective August 8, 2015 for the other funds in the Trust. 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. At September 30, 2015, the Trust consisted of seventeen funds (the “Funds”).
This report covers the Mid Cap Value Institutional Fund (the “Fund”), a diversified investment company.
Guggenheim Investments (“GI”) provides advisory services, and Rydex Fund Services, LLC (“RFS”) provides transfer agent, administrative and accounting services to the Trust. Guggenheim Funds Distributors, LLC (“GFD”) acts as principal underwriter for the Trust. GI, RFS and GFD are affiliated entities.
Significant Accounting Policies
The Fund operates as an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 the 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.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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. 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 the distributions received from the REIT investments using published REIT classifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
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. 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 year ended September 30, 2015, 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.
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
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. 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 tax character of distributions paid during the year ended September 30, 2015 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Mid Cap Value Institutional Fund | | $ | 5,649,717 | | | $ | 68,790,733 | | | $ | 74,440,450 | |
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Mid Cap Value Institutional Fund | | $ | 6,118,621 | | | $ | 32,336,483 | | | $ | 38,455,104 | |
Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
NOTES TO FINANCIAL STATEMENTS (continued) |
Tax components of accumulated earnings/(deficit) as of September 30, 2015, were as follows:
Fund | | Undistributed
Ordinary
Income | | | Undistributed
Long-Term
Capital Gain | | | Net Unrealized
Appreciation/
(Depreciation) | | | Accumulated
Capital and
Other Losses | |
Mid Cap Value Institutional Fund | | $ | 2,520,139 | | | $ | 25,619,255 | | | $ | (2,857,590 | ) | | $ | — | |
For Federal income tax purposes, capital loss carryforwards represent realized losses of the Funds that may be carried forward and applied against future capital gains. Under the RIC Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. As of September 30, 2015, the Fund had no capital loss carryforwards.
As of September 30, 2015, the following reclassifications were made to the capital accounts of the Fund to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations, which are due to equalization accounting, passive foreign investment companies, and dividend reclasses. Net investment income, net realized gains and net assets were not affected by these changes.
On the Statement of Assets and Liabilities, the following adjustments were made for permanent book/tax differences:
Fund | | Paid In
Capital | | | Undistributed
Net Investment
Income | | | Accumulated
Net Realized
Loss | |
Mid Cap Value Institutional Fund | | $ | 22,881,809 | | | $ | 333,017 | | | $ | (23,214,826 | ) |
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Fund | | Tax
Cost | | | Tax
Unrealized
Gain | | | Tax
Unrealized
Loss | | | Net
Unrealized Loss | |
Mid Cap Value Institutional Fund | | $ | 287,052,745 | | | $ | 30,193,584 | | | $ | (33,051,173 | ) | | $ | (2,857,589 | ) |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
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.
RSF 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.). |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 investments at September 30, 2015. See Schedule of Investments for more details on the classification of securities.
| | | Level 1
Investments
In Securities | | | Level 2
Investments
In Securities | | | Level 3
Investments
In Securities | | | Total | |
Assets | | | | | | | | | | | | |
Mid Cap Value Institutional Fund | | $ | 284,193,069 | | | $ | — | | | $ | 2,087 | | | $ | 284,195,156 | |
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 levels as of the beginning of the period.
For the year ended September 30, 2015, 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. Securities Transactions
For the year ended September 30, 2015, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | | Purchases | | | Sales | |
Mid Cap Value Institutional Fund | | $ | 452,835,739 | | | $ | 728,917,575 | |
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (concluded) |
6. 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, 2015 in which the portfolio company is an “affiliated person” are as follows:
Affiliated issuers by Fund | | Value
09/30/14 | | | Additions | | | Reductions | | | Value
09/30/15 | | | Shares
09/30/15 | | | Investment
Income | |
Mid Cap Value Institutional Fund | | | | | | | |
HydroGen Corp. | | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | | | | 1,265,700 | | | $ | — | |
7. Line of Credit
The Trust, with the exception of Alpha Opportunity Fund and Capital Stewardship Fund, secured a committed, $625,000,000 line of credit from Citibank, N.A., good through October 9, 2015, 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 Trust did not have any borrowings under this agreement as of and for the year-ended September 30, 2015. The Trust also pays a commitment fee at an annualized rate of 0.07% of the average daily amount of their unused commitment amount.
8. 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, 2015.
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, 2015, was $15,940.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 27 |
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 Mid Cap Value Institutional Fund (one of the series constituting the Guggenheim Funds Trust) (the “Fund”) as of September 30, 2015, 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 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, 2015, by correspondence with custodians 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, 2015, 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.
McLean, Virginia
November 25, 2015
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited) |
Tax Information
In January 2016, shareholders will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by shareholders in the calendar year 2015.
The Fund’s investment income (dividend income plus short-term gains, if any) qualifies as follows:
Of the ordinary income distributions paid during the year, the following funds had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | Dividend
received deduction |
Mid Cap Value Institutional Fund | 100.00% |
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 | Qualified
dividend income |
Mid Cap Value Institutional Fund | 100.00% |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2015, the Fund had the following 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 | Qualified | Qualified
short-term |
Mid Cap Value Institutional Fund | 0.00% | 100.00% |
With respect to the taxable year ended September 30, 2015, 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:
Fund | | LTCG
dividend income | | | From Proceeds
of Shareholder
Redemptions | |
Mid Cap Value Institutional Fund | | $ | 68,790,733 | | | $ | 22,881,809 | |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
OTHER INFORMATION (Unaudited)(continued) |
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.
Sector Classification
Information in the “Schedule of Investments” is categorized by sectors using sector-level Classifications defined by Bloomberg Industry Classification System, a widely recognized industry classification system provider. Each Fund’s registration statement, has investment policies relating to concentration in specific sectors/industries. For purposes of these investment policies, the Funds usually classify industries based on industry-level Classifications used by widely recognized industry classification system providers such as Bloomberg Industry Classification System, Global Industry Classification Standards and Barclays Global Classification Scheme.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
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”). The Trust includes the following series:
30 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited)(continued) |
● Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) ● Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”) ● Guggenheim High Yield Fund (“High Yield Fund”) ● Guggenheim Large Cap Value Fund (“Large Cap Value Fund”) ● Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”) ● Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”) ● Guggenheim Risk Managed Real Estate Fund (“Risk Managed Real Estate Fund”) ● Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core Fund”) ● Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | ● Guggenheim Capital Stewardship Fund (“Capital Stewardship Fund”) ● Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”) ● Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”) ● Guggenheim Limited Duration Fund (“Limited Duration Fund”) ● 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 Fund”) ● Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 adviser 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 five separate investment management agreements which group the series as follows: (i) Mid Cap Value Fund, Mid Cap Value Institutional Fund, Small Cap Value Fund, StylePlus—Large Core Fund and World Equity Income Fund; (ii) Large Cap Value Fund; (iii) StylePlus—Mid Growth; (iv)
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 31 |
OTHER INFORMATION (Unaudited)(continued) |
Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund; and (v) Alpha Opportunity Fund. (The Funds identified in (i) through (v) 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 Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 five separate investment advisory agreements which group includes the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund; (iii) Capital Stewardship Fund; (iv) Limited Duration Fund; and (v) Risk Managed Real Estate Fund. (The investment management agreements pertaining to the SIAdvised 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,” with the members of the Board referred to individually as 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.
Following an initial two-year term, the Advisory Agreements continue in effect from year to year provided that such continuance is specifically approved at least annually by (i) the Board or a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund, and, in either event, (ii) the vote of a majority of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”) casting votes in person at a meeting called for such purpose. At meetings held in person on April 29, 2015 (the “April Meeting”) and on May 19, 2015 (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely
32 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited)(continued) |
of the Independent Trustees, met separately from Guggenheim to consider the proposed renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.1 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 also received by the full Board) throughout the year regarding performance and operating results of the 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 presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Independent Trustees. In addition, Guggenheim made a presentation at the April Meeting, which addressed areas identified for discussion by the Committee 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”).
1 | Since the Capital Stewardship Fund was subject to an investment management agreement approved by the Board for an initial term of two years at an in-person meeting of the Board held on August 19-20, 2014, it was not included in the contract renewal process conducted at the meetings in April and May 2015. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, excluding the Capital Stewardship Fund. |
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OTHER INFORMATION (Unaudited)(continued) |
Among other things, Guggenheim provided: (i) staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various services performed by Guggenheim for the provision of a continuous investment program for each Fund, monitoring compliance with Fund investment strategies and statutory requirements, reviewing trading processes and conducting investment performance analyses; (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 gross revenues, expenses and earnings for Guggenheim by product line and each Fund, including a breakout of various expenses, a description of Guggenheim’s 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, and certain information about Guggenheim’s insurance policies, business continuity plan, proxy voting procedures, trade allocation, shareholder communications and compliance monitoring, among other things.
The Committee considered the foregoing Contract Materials in the context of its substantial accumulated experience governing the Trust and weighed the factors and standards discussed with Independent Legal Counsel. 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 Funds2 to recommend that the Board approve the renewal of each Advisory Agreement and the Sub Advisory Agreement for an additional 12-month term.
Investment 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
2 | At the May Meeting, the Board determined to close and liquidate the Enhanced World Equity Fund based upon the Adviser’s recommendation (the “Liquidation Proposal”). Following an evaluation of strategic options, the Board determined that liquidation of the Fund as a series of the Trust would be in the best interests of the Fund and its shareholders. In view of the Liquidation Proposal, the Committee recommended the continuation of the Advisory Agreement with respect to the Enhanced World Equity Fund to provide for the continuation of advisory services until such time as the Fund was liquidated. |
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education, experience, professional affiliations, areas of responsibility and duties of 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 also considered the Advisers’ attention to relevant developments in the mutual fund industry and its observance of compliance and regulatory requirements, and 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 additional staff to support the firm’s Chief Risk Officer, initiatives related to the risks associated with the investment process and risk at the enterprise level, 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 consolidate compliance manuals and align processes of the Funds with those of other Funds managed by the Advisers or another Guggenheim affiliate. 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 the Advisers’ parent company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). (The Committee received the audited consolidated financial statements of GPIMH once available following the April 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
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performance of its duties through Board meetings, discussions and reports during 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, 2014, 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, 2014, 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-year 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-year and three-year periods, ranking in the 1st and 4th percentiles, respectively. In light of various changes to this Fund, including 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 and the assumption by Security Investors of such investment management responsibility, the impact on portfolio management as a result of the Lehman bankruptcy,3 and subsequent changes to the Fund’s investment strategies, a reduction in the fund accounting and administration fee and the re-opening of the Fund to new subscriptions, the Committee considered more recent performance periods, including the one-year and the three-month
3 | The Committee considered the circumstances that affected 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 had consisted of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales, which limited the management of the portfolio. |
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periods. 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, 2014, ranking in the 11th and 4th percentiles, respectively.
Floating Rate Strategies Fund: The returns of the Fund’s Class A shares ranked in the 6th and 1st percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
High Yield Fund: The Fund’s Class A shares ranked in the 64th, 7th and 46th percentiles of the performance universe for the five-year, three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for the three-year and one-year periods.
Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014, ranking in the 14th, 4th and 3rd percentiles, respectively. The Committee also noted Guggenheim’s statement that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year, three-year and one-year periods ended December 31, 2014, and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile.
Large 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 ended December 31, 2014, and ranked in the 76th, 60th and 78th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the returns for the Fund’s Class A shares for the ten-year
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period ended December 31, 2014, which exceeded the performance universe median, ranking in the 45th percentile. The Committee also noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Limited Duration Fund: The Committee noted the Fund’s inception date of December 16, 2013 and observed that the returns of the Fund’s Class A shares ranked in the 8th and 18th percentiles of the performance universe for the one-year and three-month periods ended December 31, 2014, respectively, outperforming the median returns.
Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 3rd and 8th percentiles of the performance universe for the three-year and one-year periods ended December 31, 2014, 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 three-year and one-year periods ended December 31, 2014.
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 ended December 31, 2014, and ranked in the 92nd, 80th and 67th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2014 in the 1st quartile (22nd percentile) and that, according
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to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. The Committee also noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. In addition, the Committee noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Mid Cap Value Institutional Fund: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 88th, 72nd and 61st percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
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
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performance, the Committee concluded that Security Investors had appropriately reviewed and monitored GPIM’s investment performance as Sub-Adviser to the Fund.
Risk Managed Real Estate Fund: The returns of the Fund’s Class A shares ranked in the 67th percentile of its performance universe for the three-month period ended December 31, 2014. The Committee considered that the Fund was recently organized as of February 12, 2014 and has a limited period of operation.
StylePlus—Large Core Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 10th and the 41st percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund outperformed its benchmark for the one-year period ended December 31, 2014.
StylePlus—Mid Growth Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 13th and 36th percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund had outperformed its benchmark for the one-year period ended December 31, 2014.
Small Cap Value Fund: The Fund underperformed its performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 87th, 71st and 92nd percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued
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confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st and 2nd percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
World Equity Income Fund: The Fund implemented a strategy change and a new portfolio management team in August 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded its performance universe median for the one-year period, ranking in the 27th percentile, and lagged its performance universe median for the three-month period, ranking in the 83rd percentile.
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 and/or institutional separate account with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients. The Committee considered Guggenheim’s explanation that lower fees are charged in certain instances due to numerous factors, including the scope of contract, types
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of investors, applicable regulatory and legal structures, tax status, and for historical pricing reasons. In this regard, the Committee took into account Guggenheim’s assertion that the differences in fees reflected the Advisers’ greater level of responsibilities and significantly broader scope of services regarding the Funds, the more extensive regulatory obligations and risks associated with managing the Funds, and other financial considerations with respect to the Funds.
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 and the asset weighted total net expense ratio are in the second quartile (27th and 45th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had 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 fourth quartile (82nd percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (40th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (77th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (84th percentile) of its peer group. The Committee also considered that the Adviser had 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 is in the second quartile (31st percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (22nd percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
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Limited Duration Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (72nd percentile) of its peer group and the asset weighted total net expense ratio is in the second quartile (45th percentile) of its peer group. The Committee also considered that the Adviser had 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 (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 second quartile (43rd percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (85th percentile) of its peer group.
Mid Cap Value Institutional Fund: The contractual advisory fee of the Fund is in the first quartile (15th percentile) of its peer group and the total net expense ratio is in the third quartile (69th percentile) of its peer group.
Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the second quartile (26th and 38th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Risk Managed Real Estate Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the first quartile (1st percentile as to each) of its peer group.
StylePlus—Large Core Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the fourth quartile (80th and 100th percentiles, respectively) of its peer group.
StylePlus—Mid Growth Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the second quartile (34th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (100th percentile) of its peer group.
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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 (78th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (25th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (86th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (19th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (27th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (80th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
With respect to the costs of services provided and profits realized by Guggenheim Investments from its relationship with the Funds, the Committee reviewed a profitability analysis and data from management for each Fund setting forth the average assets under management for the twelve months ended December 31, 2014, ending assets under management as of December 31, 2014, gross revenues received by Guggenheim Investments, expenses incurred in providing services to the Funds, earnings and the operating margin/profitability rate, including variance information relative to the foregoing amounts as of December 31, 2013. In addition, the Chief Financial Officer of Guggenheim Investments reviewed with, and addressed questions from, the Committee concerning the expense allocation methodology employed in producing the profitability analysis. In the course of its review of Guggenheim Investments’ profitability, the Committee took into account the complexity of the investment strategies employed for the Funds, in addition to the foregoing data and various figures.
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
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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 Investments’ profitability from its relationship with the Funds was not unreasonable.
Economies of Scale: 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 have 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 also noted the Adviser’s statement that Guggenheim continues to develop the infrastructure needed to support Fund asset growth and to achieve economies of scale across the firm’s various products and product lines. Thus, while Guggenheim may be benefiting from certain economies of scale and related cost efficiencies, it is concurrently realizing new costs and expenses associated with investment in infrastructure, personnel and systems.
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 Total Return Bond Fund—having assets in excess of (or approaching) $1 billion as of March 31, 2015. 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 total net expense ratio is competitive with the peer group median.
Macro Opportunities Fund: 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.
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Mid Cap Value Fund: The Fund’s contractual advisory fee is in line with the peer group median (43rd percentile) and the total net expense ratio is competitive with the peer group median.
Total Return Bond Fund: 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 in the first quartile (19th percentile).
The Committee determined that, taking into account all relevant factors, the advisory fee structure for each Fund 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 and compliance policies and procedures, 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 included as part of its considerations the unaudited financial information concerning GPIMH presented by the Chief Financial Officer of Guggenheim Investments. (As noted, the Committee received the audited consolidated financial statements of GPIMH once available following the April Meeting.)
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 Fund’s Class A shares outperformed the performance universe for the five-year and three-year periods ended December 31, 2014, ranking in the 1st and 35th percentiles, respectively. On January 13, 2012, the Fund acquired the assets and assumed the liabilities of TS&W/Claymore Tax-Advantaged Balanced Fund (the “Predecessor Fund”),
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a closed-end fund which used different investment strategies and had different investment advisers. Class A shares of the Fund have assumed the performance, financial and other historical information of the Predecessor Fund’s common shares and the performance of Class A shares of the Fund reflects the performance of the Predecessor Fund. In light of the foregoing, the Committee took into account more recent periods and noted that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2014, ranking in the 18th and 47th percentiles, respectively. In this connection, the Committee also considered that the Fund outperformed its benchmark over the one-year and three-month periods ended December 31, 2014.
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: 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” 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 or conclusive 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. Thereafter, on May 20, 2015, the Board, including all of the Independent Trustees, approved the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 47 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) |
A Board of Trustees oversees the Trust, as well as other trusts of GI, in which its members have no stated term of service, and continue to serve after election until resignation. The Statement of Additional Information includes further information about Fund Trustees and Officers, and can be obtained without charge by calling 800.820.0888.
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by 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). | 107 | Current: Trustee, Purpose Investments Inc. (2014-Present). |
Donald A. Chubb, Jr. (1946) | Trustee | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-present). | 103 | Current: Midland Care, Inc. (2011-present). |
Jerry B. Farley (1946) | Trustee | Since 2005 | Current: President, Washburn University (1997-present). | 103 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust (2000-present). |
48 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - continued | | |
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and Managing Partner, Roman Friedrich & Company (1998-present). Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | 103 | Current: Zincore Metals, Inc. (2009-present). Former: Axiom Gold and Silver Corp. (2011-2012). |
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 103 | 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). | 109 | Current: Edward-Elmhurst Healthcare System (2012-present). |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 49 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - concluded | | |
Maynard F. Oliverius (1943) | Trustee | Since 1998 | Current: Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 103 | Current: Fort Hays State University Foundation (1999-present); Stormont-Vail Foundation (2013-present); University of Minnesota HealthCare Alumni Association Foundation (2009-present). |
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management (1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999); Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | 106 | Former: Bennett Group of Funds (2011-2013). |
50 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
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). | 239 | Current: Clear Spring Life Insurance Company (2015-present); Guggenheim Partners Japan, Ltd. (2014-present); Delaware Life (2013-present); Guggenheim Life and Annuity Company (2011-present); Paragon Life Insurance Company of Indiana (2011-present). |
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
*** | This Trustee is deemed to be an "interested person" of the Funds under the 1940 Act by reason of his position with the Funds' Investment Manager and/or the parent of the Investment Manager. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS | | | |
Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). |
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). |
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). |
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). |
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - continued | |
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 2007 (Vice President) Since 2014 (Chief Legal Officer) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2013-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). |
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (2014-present); Senior Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). |
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Managing Director, Guggenheim Investments (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - continued | |
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-2014). |
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). |
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). |
54 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(concluded) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - concluded | |
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 | 55 |
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
56 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited)(continued) |
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 | 57 |
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.
58 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
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9.30.2015
Guggenheim Funds Annual Report
| |
Guggenheim Capital Stewardship Fund | | |
SBCAP-ANN-0915x0916 | guggenheiminvestments.com |
DEAR SHAREHOLDER | 2 |
ECONOMIC AND MARKET OVERVIEW | 3 |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 5 |
CAPITAL STEWARDSHIP FUND | 7 |
NOTES TO FINANCIAL STATEMENTS | 14 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 19 |
OTHER INFORMATION | 20 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 31 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 35 |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
Dear Shareholder:
Guggenheim Partners Investment Management, LLC (“GIPM” or the “Investment Adviser”), is pleased to present the annual shareholder report for the Guggenheim Capital Stewardship Fund (the “Fund”). The report covers the annual fiscal period ended September 30, 2015.
Concinnity Advisors, LP, serves as the Fund’s sub-adviser (the “Sub-Adviser”).
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 information on 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, 2015
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at guggenheiminvestments.com or call 800.820.0888.
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. Please read the prospectus for more detailed information regarding these and other risks.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2015 |
At the end of the period, the underlying U.S. economy continued to maintain its strong footing. A market correction that began in August persisted through the end of the period; September and October are historically difficult times for the stock market, and by extension, risk assets of any kind, including credit.
Markets had been performing solidly for most of the period. Growth mid-year bounced back from a weather-induced slowdown in the first quarter, with GDP increasing 3.9% for the second quarter. The labor and housing markets continued to strengthen, and the drop in gas prices was acting as a tax cut, which was expected to increase consumer spending power going into the holiday season. Even though labor markets are moving toward full employment, questions remain about the viability of sustained economic expansion in the U.S. In particular, there is debate about the net effect of declining energy prices and a stronger dollar. These are both positive for the U.S. consumer, but low oil prices hurt the U.S. energy industry and a strong dollar is challenging for U.S. manufacturers. In addition, oil prices and the strong dollar exert a downward pressure on inflation, and a risk of deflation is a negative for the economy.
At the same time, currency devaluation, particularly in Japan and the euro zone, is putting pressure on countries to devalue to improve export competitiveness. Those countries slow to devalue, like China, are feeling economic pressure at home, driving down asset prices, and increasing deflationary pressures, escalating the risk of financial contagion abroad. China may have to devalue the renminbi further due to continued slowing in the economy. Combined with the tepid expansion in both Europe and Japan, the pressure will be for central banks there to increase easing measures.
The U.S. Federal Reserve (the “Fed”) is hard pressed to justify a rate increase based on its self-prescribed metrics, which include rising inflation and an improved employment situation with clearly rising wages. At best, policymakers can argue that the prospects for wage growth and inflation are improving, but clear evidence is lacking.
A preemptive rate increase seems risky and opens the Fed to potential criticism given the fragility in financial markets and the prospect that rising U.S. rates could further strengthen the dollar and also potentially exacerbate foreign economic turbulence. While prices and wages remain tame, the risk of another asset bubble is increasing. The longer policy remains highly accommodative, the greater the likelihood that asset classes including commercial real estate, equities, or certain categories of bonds could become overvalued.
At period end, the risk of financial contagion remained high, which could result in central banks providing additional liquidity or delaying rate increases. Use of the monetary printing press is a handy tool to prop up asset prices and temporarily spur economic growth, which is the main reason a recession does not appear to be on the horizon for either the G-7 nations or China. It’s also worth noting that there has never been a recession in the post-war period without the Fed first raising interest rates, after which it typically takes several years for a recession to be induced.
For the 12 months ended September 30, 2015, the Standard & Poor’s 500® Index* (“S&P 500®”) returned -0.61%. The Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned -8.66%. The return of the MSCI Emerging Markets Index* was -19.28%.
In the bond market, the Barclays U.S. Aggregate Bond Index* posted a 2.94% return for the period, while the Barclays U.S. Corporate High Yield Index* returned -3.43%. The return of the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.02% for the 12-month period.
The opinions and forecasts expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ECONOMIC AND MARKET OVERVIEW (Unaudited)(concluded) | September 30, 2015 |
*Index Definitions
The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.
Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.
Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar (“USD”)-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets.
S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad economy, representing all major industries and is considered a representation of the U.S. stock market.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) | |
All mutual funds have operating expenses and it is important for our shareholders to understand the impact of costs on their investments. Shareholders of a Fund incur two types of costs: (i) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and exchange fees; and (ii) ongoing costs, including management fees, administrative services, and shareholder reports, among others. These ongoing costs, or operating expenses, are deducted from a fund’s gross income and reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense ratio. The following examples are intended to help investors understand the ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 made at the beginning of the period and held for the entire six-month period beginning March 31, 2015 and ending September 30, 2015.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 5 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(concluded) | |
| | Expense
Ratio1 | Fund
Return | Beginning
Account Value
March 31, 2015 | Ending
Account Value
September 30, 2015 | Expenses
Paid During
Period2 |
Table 1. Based on actual Fund return3 | | | | | |
Capital Stewardship Fund | | | | | |
Institutional Class | 1.17% | (7.57%) | $ 1,000.00 | $ 924.30 | $ 5.64 |
| |
Table 2. Based on hypothetical 5% return (before expenses) | | | | |
Capital Stewardship Fund | | | | | |
Institutional Class | 1.17% | 5.00% | $ 1,000.00 | $ 1,019.20 | $ 5.92 |
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, 2015 to September 30, 2015. |
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
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. The following paragraphs discuss the Fund for the fiscal year ended September 30, 2015.
For the period ended September 30, 2015, Guggenheim Capital Stewardship Fund Institutional Shares returned -4.15%, compared with the -0.61% return of its benchmark, the S&P 500 Index.
Strategy Overview
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 (5) community engagement.
Performance Review
The Fund underperformed its benchmark by 3.54% during the fiscal year ended on September 30, 2015. Of this (-3.54%) underperformance, (-1.12%) resulted from fund-related expenses including management fees, (-1.96%) from active security selection, (-0.18%) from active sector allocation, and (-0.29%) from implementation shortfalls that were primarily driven by portfolio rebalances.
Security selection impacts were mainly driven by securities from the following sectors: Information Technology (-0.93%), Consumer Discretionary (-0.85%), Industrials (-0.52%), and Energy (+0.51%).
Throughout the period, underweighting the Consumer Discretionary sector, the best performing sector, while overweighting the Energy sector, the worst performing sector, negatively impacted the fund by (-0.92%) and (-0.46%) respectively. Their impacts were largely offset by underweight in Materials (+0.47%), overweight in Health Care (+0.33%), and underweight in Utilities (+0.29%).
Performance displayed represents past performance which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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.
Inception Date: September 26, 2014 |
Ten Largest Holdings (% of Total Net Assets) |
Apple, Inc. | 4.5% |
Microsoft Corp. | 2.4% |
General Electric Co. | 2.3% |
Procter & Gamble Co. | 2.2% |
JPMorgan Chase & Co. | 2.1% |
Google, Inc. — Class A | 2.0% |
Consolidated Edison, Inc. | 1.8% |
PepsiCo, Inc. | 1.8% |
Pfizer, Inc. | 1.7% |
Chevron Corp. | 1.6% |
Top Ten Total | 22.4% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | Since Inception
(09/26/14) |
Guggenheim Capital Stewardship Fund | -4.15% | -4.91% |
S&P 500 Index | -0.61% | -1.12% |
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The S&P 500 Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
| | |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
CAPITAL STEWARDSHIP FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 99.9% | |
| | | | | | | |
Consumer, Non-cyclical - 24.7% | |
Procter & Gamble Co. | | | 57,361 | | | $ | 4,126,550 | |
PepsiCo, Inc. | | | 35,633 | | | | 3,360,192 | |
Pfizer, Inc. | | | 100,058 | | | | 3,142,822 | |
Coca-Cola Co. | | | 73,764 | | | | 2,959,412 | |
Johnson & Johnson | | | 29,376 | | | | 2,742,250 | |
Gilead Sciences, Inc. | | | 26,477 | | | | 2,599,777 | |
AbbVie, Inc. | | | 40,264 | | | | 2,190,764 | |
Amgen, Inc. | | | 15,469 | | | | 2,139,672 | |
Estee Lauder Companies, Inc. — Class A | | | 25,427 | | | | 2,051,450 | |
ConAgra Foods, Inc. | | | 47,695 | | | | 1,932,124 | |
Hormel Foods Corp. | | | 28,412 | | | | 1,798,764 | |
HCA Holdings, Inc.* | | | 19,117 | | | | 1,478,891 | |
Dr Pepper Snapple Group, Inc. | | | 18,446 | | | | 1,458,156 | |
Colgate-Palmolive Co. | | | 21,534 | | | | 1,366,548 | |
Mondelez International, Inc. — Class A | | | 32,497 | | | | 1,360,649 | |
Medtronic plc | | | 19,875 | | | | 1,330,433 | |
Molson Coors Brewing Co. — Class B | | | 14,642 | | | | 1,215,579 | |
United Therapeutics Corp.* | | | 8,558 | | | | 1,123,152 | |
Celgene Corp.* | | | 10,176 | | | | 1,100,738 | |
Merck & Company, Inc. | | | 21,967 | | | | 1,084,950 | |
Kroger Co. | | | 27,835 | | | | 1,004,008 | |
Constellation Brands, Inc. — Class A | | | 7,544 | | | | 944,584 | |
ADT Corp. | | | 29,115 | | | | 870,539 | |
Kellogg Co. | | | 12,990 | | | | 864,485 | |
MasterCard, Inc. — Class A | | | 9,028 | | | | 813,603 | |
Biogen, Inc.* | | | 2,677 | | | | 781,175 | |
Aetna, Inc. | | | 5,219 | | | | 571,011 | |
Molina Healthcare, Inc.* | | | 8,013 | | | | 551,695 | |
Total Consumer, Non-cyclical | | | | | | | 46,963,973 | |
| | | | | | | | | |
Industrial - 19.6% | |
General Electric Co. | | | 175,571 | | | | 4,427,900 | |
Boeing Co. | | | 16,854 | | | | 2,207,032 | |
3M Co. | | | 15,327 | | | | 2,172,909 | |
United Technologies Corp. | | | 22,149 | | | | 1,971,040 | |
Ingersoll-Rand plc | | | 36,312 | | | | 1,843,560 | |
Corning, Inc. | | | 98,905 | | | | 1,693,253 | |
AECOM* | | | 60,060 | | | | 1,652,251 | |
FedEx Corp. | | | 11,021 | | | | 1,586,804 | |
Stanley Black & Decker, Inc. | | | 16,108 | | | | 1,562,154 | |
Raytheon Co. | | | 13,528 | | | | 1,478,069 | |
Honeywell International, Inc. | | | 15,419 | | | | 1,460,025 | |
Union Pacific Corp. | | | 16,223 | | | | 1,434,275 | |
United Parcel Service, Inc. — Class B | | | 13,638 | | | | 1,345,934 | |
CH Robinson Worldwide, Inc. | | | 19,021 | | | | 1,289,243 | |
Rockwell Automation, Inc. | | | 12,572 | | | | 1,275,681 | |
Dover Corp. | | | 20,389 | | | | 1,165,843 | |
Agilent Technologies, Inc. | | | 32,455 | | | | 1,114,180 | |
Emerson Electric Co. | | | 24,608 | | | | 1,086,935 | |
Eaton Corporation plc | | | 15,561 | | | | 798,279 | |
Thermo Fisher Scientific, Inc. | | | 6,504 | | | | 795,309 | |
Snap-on, Inc. | | | 5,215 | | | | 787,152 | |
Masco Corp. | | | 30,653 | | | | 771,843 | |
CSX Corp. | | | 27,234 | | | | 732,595 | |
Deere & Co. | | | 9,537 | | | | 705,738 | |
Parker-Hannifin Corp. | | | 6,746 | | | | 656,386 | |
Gentex Corp. | | | 38,561 | | | | 597,696 | |
AGCO Corp. | | | 12,797 | | | | 596,724 | |
Total Industrial | | | | | | | 37,208,810 | |
| | | | | | | | | |
Technology - 15.9% | |
Apple, Inc. | | | 77,941 | | | | 8,596,893 | |
Microsoft Corp. | | | 104,829 | | | | 4,639,731 | |
International Business Machines Corp. | | | 15,447 | | | | 2,239,351 | |
Intel Corp. | | | 52,385 | | | | 1,578,884 | |
EMC Corp. | | | 62,864 | | | | 1,518,794 | |
Accenture plc — Class A | | | 14,502 | | | | 1,424,967 | |
Hewlett-Packard Co. | | | 50,883 | | | | 1,303,114 | |
Micron Technology, Inc.* | | | 85,556 | | | | 1,281,629 | |
Red Hat, Inc.* | | | 16,054 | | | | 1,153,962 | |
Xerox Corp. | | | 117,083 | | | | 1,139,218 | |
Computer Sciences Corp. | | | 17,221 | | | | 1,057,025 | |
QUALCOMM, Inc. | | | 17,913 | | | | 962,465 | |
SanDisk Corp. | | | 13,596 | | | | 738,671 | |
Teradyne, Inc. | | | 36,436 | | | | 656,212 | |
Teradata Corp.* | | | 22,295 | | | | 645,663 | |
Convergys Corp. | | | 26,447 | | | | 611,190 | |
NetApp, Inc. | | | 18,702 | | | | 553,579 | |
Total Technology | | | | | | | 30,101,348 | |
| | | | | | | | | |
Communications - 10.2% | |
Google, Inc. — Class A* | | | 6,001 | | | | 3,830,858 | |
Cisco Systems, Inc. | | | 114,064 | | | | 2,994,180 | |
Facebook, Inc. — Class A* | | | 30,144 | | | | 2,709,946 | |
AT&T, Inc. | | | 65,940 | | | | 2,148,325 | |
Verizon Communications, Inc. | | | 47,715 | | | | 2,076,080 | |
Walt Disney Co. | | | 18,285 | | | | 1,868,727 | |
Priceline Group, Inc.* | | | 776 | | | | 959,803 | |
CBS Corp. — Class B | | | 23,450 | | | | 935,655 | |
AMC Networks, Inc. — Class A* | | | 8,716 | | | | 637,750 | |
Viacom, Inc. — Class B | | | 14,660 | | | | 632,579 | |
VeriSign, Inc.* | | | 8,670 | | | | 611,755 | |
Total Communications | | | | | | | 19,405,658 | |
| | | | | | | | | |
Consumer, Cyclical - 10.0% | |
Wal-Mart Stores, Inc. | | | 47,495 | | | | 3,079,575 | |
CVS Health Corp. | | | 31,849 | | | | 3,072,792 | |
Home Depot, Inc. | | | 17,360 | | | | 2,004,907 | |
Delta Air Lines, Inc. | | | 35,901 | | | | 1,610,877 | |
Costco Wholesale Corp. | | | 10,640 | | | | 1,538,225 | |
Lowe’s Companies, Inc. | | | 22,296 | | | | 1,536,640 | |
NIKE, Inc. — Class B | | | 9,119 | | | | 1,121,363 | |
Target Corp. | | | 14,248 | | | | 1,120,748 | |
Ford Motor Co. | | | 63,728 | | | | 864,789 | |
Macy’s, Inc. | | | 16,829 | | | | 863,664 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
CAPITAL STEWARDSHIP FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Whirlpool Corp. | | | 5,810 | | | $ | 855,581 | |
Kohl’s Corp. | | | 16,657 | | | | 771,386 | |
Spirit Airlines, Inc.* | | | 11,662 | | | | 551,613 | |
Total Consumer, Cyclical | | | | | | | 18,992,160 | |
| | | | | | | | | |
Financial - 8.3% | |
JPMorgan Chase & Co. | | | 65,823 | | | | 4,013,228 | |
Capital One Financial Corp. | | | 22,421 | | | | 1,625,971 | |
Principal Financial Group, Inc. | | | 31,789 | | | | 1,504,891 | |
Ameriprise Financial, Inc. | | | 13,221 | | | | 1,442,808 | |
Wells Fargo & Co. | | | 27,549 | | | | 1,414,641 | |
Visa, Inc. — Class A | | | 19,829 | | | | 1,381,288 | |
Alliance Data Systems Corp.* | | | 4,999 | | | | 1,294,641 | |
Simon Property Group, Inc. | | | 5,555 | | | | 1,020,565 | |
PNC Financial Services Group, Inc. | | | 11,283 | | | | 1,006,444 | |
Allstate Corp. | | | 17,016 | | | | 991,012 | |
Total Financial | | | | | | | 15,695,489 | |
| | | | | | | | | |
Energy - 7.6% | |
Chevron Corp. | | | 39,406 | | | | 3,108,345 | |
ConocoPhillips | | | 36,750 | | | | 1,762,531 | |
Schlumberger Ltd. | | | 23,701 | | | | 1,634,658 | |
Valero Energy Corp. | | | 23,460 | | | | 1,409,946 | |
Occidental Petroleum Corp. | | | 20,886 | | | | 1,381,609 | |
Spectra Energy Corp. | | | 38,623 | | | | 1,014,626 | |
Phillips 66 | | | 10,192 | | | | 783,153 | |
Baker Hughes, Inc. | | | 14,231 | | | | 740,581 | |
Hess Corp. | | | 14,373 | | | | 719,512 | |
Marathon Oil Corp. | | | 42,635 | | | | 656,579 | |
EOG Resources, Inc. | | | 8,905 | | | | 648,284 | |
FMC Technologies, Inc.* | | | 17,185 | | | | 532,735 | |
Total Energy | | | | | | | 14,392,559 | |
| | | | | | | | | |
Utilities - 2.8% | |
Consolidated Edison, Inc. | | | 50,883 | | | | 3,401,529 | |
Entergy Corp. | | | 28,433 | | | | 1,850,988 | |
Total Utilities | | | | | | | 5,252,517 | |
| | | | | | | | | |
Basic Materials - 0.8% | |
Newmont Mining Corp. | | | 60,112 | | | | 966,000 | |
EI du Pont de Nemours & Co. | | | 11,606 | | | | 559,409 | |
Total Basic Materials | | | | | | | 1,525,409 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $202,348,590) | | | | | | | 189,537,923 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 0.4% | |
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%1 | | | 701,136 | | | | 701,136 | |
Total Short Term Investments | | | | | | | | |
(Cost $701,136) | | | | | | | 701,136 | |
| | | | | | | | | |
Total Investments - 100.3% | | | | | | | | |
(Cost $203,049,726) | | | | | | $ | 190,239,059 | |
Other Assets & Liabilities, net - (0.3)% | | | | | | | (570,864 | ) |
Total Net Assets - 100.0% | | | | | | $ | 189,668,195 | |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 3. |
| | plc — Public Limited Company |
1 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | |
| | See Sector Classification in Other Information section. |
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2015 |
Assets: | |
Investments, at value (cost $203,049,726) | | $ | 190,239,059 | |
Prepaid expenses | | | 8,258 | |
Receivables: | |
Securities sold | | | 657,938 | |
Dividends | | | 195,774 | |
Total assets | | | 191,101,029 | |
| | | | | |
Liabilities: | |
Overdraft due to custodian bank | | | 1 | |
Payable for: | |
Fund shares redeemed | | | 1,234,827 | |
Management fees | | | 143,016 | |
Fund accounting/administration fees | | | 15,096 | |
Trustees’ fees* | | | 11,106 | |
Transfer agent/maintenance fees | | | 593 | |
Miscellaneous | | | 28,195 | |
Total liabilities | | | 1,432,834 | |
Net assets | | $ | 189,668,195 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 200,547,534 | |
Undistributed net investment income | | | 1,923,509 | |
Accumulated net realized gain on investments | | | 7,819 | |
Net unrealized depreciation on investments | | | (12,810,667 | ) |
Net assets | | $ | 189,668,195 | |
Capital shares outstanding | | | 8,006,047 | |
Net asset value per share | | $ | 23.69 | |
STATEMENT OF OPERATIONS |
Year Ended September 30, 2015 |
Investment Income: | |
Dividends | | $ | 4,966,970 | |
Interest | | | 37 | |
Total investment income | | | 4,967,007 | |
| | | | | |
Expenses: | |
Management fees | | | 1,884,564 | |
Transfer agent/maintenance fees | | | 1,544 | |
Fund accounting/administration fees | | | 198,923 | |
Legal fees | | | 214,008 | |
Trustees’ fees* | | | 23,565 | |
Custodian fees | | | 13,449 | |
Miscellaneous | | | 71,776 | |
Total expenses | | | 2,407,829 | |
Net investment income | | | 2,559,178 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments | | | 506,679 | |
Net realized gain | | | 506,679 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments | | | (11,027,250 | ) |
Net change in unrealized appreciation (depreciation) | | | (11,027,250 | ) |
Net realized and unrealized loss | | | (10,520,571 | ) |
Net decrease in net assets resulting from operations | | $ | (7,961,393 | ) |
* | 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 |
STATEMENTS OF CHANGES IN NET ASSETS |
| | | Year Ended
September 30,
2015 | | | Period Ended September 30,
2014a | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 2,559,178 | | | $ | 1,464 | |
Net realized gain on investments | | | 506,679 | | | | — | |
Net change in unrealized appreciation (depreciation) on investments | | | (11,027,250 | ) | | | (1,783,417 | ) |
Net decrease in net assets resulting from operations | | | (7,961,393 | ) | | | (1,781,953 | ) |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | (637,133 | ) | | | — | |
Total distributions to shareholders | | | (637,133 | ) | | | — | |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | 38,908,526 | | | | 297,903,896 | |
Distributions reinvested | | | 476,495 | | | | — | |
Cost of shares redeemed | | | (50,132,804 | ) | | | (87,107,439 | ) |
Net increase (decrease) from capital share transactions | | | (10,747,783 | ) | | | 210,796,457 | |
Net increase (decrease) in net assets | | | (19,346,309 | ) | | | 209,014,504 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of period | | | 209,014,504 | | | | — | |
End of period | | $ | 189,668,195 | | | $ | 209,014,504 | |
Undistributed net investment income at end of period | | $ | 1,923,509 | | | $ | 1,464 | |
| | | | | | | | | |
Capital share activity: | | | | | | | | |
Shares sold | | | 1,485,730 | | | | 11,928,585 | |
Shares issued from reinvestment of distributions | | | 18,671 | | | | — | |
Shares redeemed | | | (1,929,837 | ) | | | (3,497,102 | ) |
Net increase (decrease) in shares | | | (425,436 | ) | | | 8,431,483 | |
a | Since commencement of operations: September 26, 2014. |
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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.
Institutional Class | | Year Ended
September 30,
2015 | | | Period Ended
September 30,
2014a | |
Per Share Data | | | | | | |
Net asset value, beginning of period | | $ | 24.79 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .31 | | | | — | c |
Net gain (loss) on investments (realized and unrealized) | | | (1.33 | ) | | | (.21 | ) |
Total from investment operations | | | (1.02 | ) | | | (.21 | ) |
Less distributions from: | |
Net investment income | | | (.08 | ) | | | — | |
Total distributions | | | (.08 | ) | | | — | |
Net asset value, end of period | | $ | 23.69 | | | $ | 24.79 | |
| | |
Total Returne | | | (4.15 | %) | | | (0.84 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 189,668 | | | $ | 209,015 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 1.22 | % | | | 0.13 | % |
Total expensesd | | | 1.15 | % | | | 1.24 | % |
Portfolio turnover rate | | | 221 | % | | | — | |
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 | Does not include expenses of the underlying funds in which the Fund invests. |
e | Total return does not reflect the impact of any applicable sales charge and has not been annualized. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
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 an open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, C-Class shares, P-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%. 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 previously offered have been converted to A-Class shares effective July 31, 2014 for the Alpha Opportunity Fund, and effective August 8, 2015 for the other funds in the Trust. 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, 2015, the Trust consisted of seventeen funds (the “Funds”).
This report covers the Guggenheim Capital Stewardship Fund (the “Fund”), a diversified investment company. As of September 30, 2015, 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 Fund operates as an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The NAV of the 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.
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
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.
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. 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 the distributions received from the REIT investments using published REIT classifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
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. 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 year ended September 30, 2015, 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.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 is paid the following for providing transfer agent services to the Fund. Transfer agent fees are assessed to the applicable class of the Fund.
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 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.
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.
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following table summarizes the inputs used to value the Fund’s investments at September 30, 2015. See the Schedule of Investments for more details on the classification of securities.
| | | Level 1
Investments
In Securities | | | Level 2
Investments
In Securities | | | Level 3
Investments
In Securities | | | Total | |
Assets | | | | | | | | | | | | |
Capital Stewardship Fund | | $ | 190,239,059 | | | $ | — | | | $ | — | | | $ | 190,239,059 | |
For the year ended September 30, 2015, 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.
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.
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
The tax character of distributions paid during the year ended September 30, 2015 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Capital Stewardship Fund | | $ | 637,133 | | | $ | — | | | $ | 637,133 | |
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Capital Stewardship Fund | | $ | — | | | $ | — | | | $ | — | |
Tax components of accumulated earnings/(deficit) as of September 30, 2015, were as follows:
Fund | | Undistributed
Ordinary
Income | | | Undistributed
Long-Term
Capital Gain | | | Net Unrealized
Appreciation/
(Depreciation) | | | Accumulated
Capital and
Other Losses | |
Capital Stewardship Fund | | $ | 2,944,287 | | | $ | — | | | $ | (13,823,626 | ) | | $ | — | |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
NOTES TO FINANCIAL STATEMENTS (concluded) |
For Federal income tax purposes, capital loss carryforwards represent realized losses of the Funds that may be carried forward and applied against future capital gains. Under the RIC Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. As of September 30, 2015, the Fund had no capital loss carryforwards.
As of September 30, 2015, the following reclassifications were made to the capital accounts of the Fund to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations, which are due to equalization accounting for undistributed income and capital gains. Net investment income, net realized gains and net assets were not affected by these changes.
On the Statement of Assets and Liabilities, the following adjustments were made for permanent book/tax differences:
Fund | | Paid In
Capital | | | Undistributed
Net Investment
Income | | | Accumulated
Net Realized
Gain (Loss) | |
Capital Stewardship Fund | | $ | 498,860 | | | $ | — | | | $ | (498,860 | ) |
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Fund | | Tax
Cost | | | Tax
Unrealized
Gain | | | Tax
Unrealized
Loss | | | Net
Unrealized
Gain/(Loss) | |
Capital Stewardship Fund | | $ | 204,062,685 | | | $ | 4,202,346 | | | $ | (18,025,972 | ) | | $ | (13,823,626 | ) |
5. Securities Transactions
For the year ended September 30, 2015, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | | Purchases | | | Sales | |
Capital Stewardship Fund | | $ | 459,641,720 | | | $ | 467,804,081 | |
6. Line of Credit
The Trust, with the exception of Alpha Opportunity Fund and Capital Stewardship Fund, secured a committed, $625,000,000 line of credit from Citibank, N.A., good through October 9, 2015, 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 Trust did not have any borrowings under this agreement as of and for the year ended September 30, 2015. The Trust also pays a commitment fee at an annualized rate of 0.07% of the average daily amount of their unused commitment amount.
18 | 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, 2015, and the related statement of operations for the year then ended, and the statements of changes in net assets and financial highlights for the year then ended and 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 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, 2015, by correspondence with the custodian. 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 Capital Stewardship Fund (one of the series constituting the Guggenheim Funds Trust) at September 30, 2015, the results of its operations for the year then ended, and the changes in its net assets and its financial highlights for the year then ended and 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, 2015
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
OTHER INFORMATION (Unaudited) |
In January 2016, shareholders will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by shareholders in the calendar year 2015.
The Fund’s investment income(dividend income plus short-term gains, if any) qualifies as follows:
Of the ordinary income distributions paid during the year, the following funds had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | Dividend
received
deduction |
Capital Stewardship Fund | 99.77% |
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 | Qualified
dividend
income |
Capital Stewardship Fund | 99.77% |
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.
Sector Classification
Information in the “Schedule of Investments” is categorized by sectors using sector-level Classifications defined by the Bloomberg Industry Classification System, a widely recognized industry classification system provider. Each Fund’s registration statement has investment policies relating to concentration in specific sectors/industries. For purposes of these investment policies, the Funds usually classify sectors/industries based on industry-level Classifications used by widely recognized industry classification system providers such as Bloomberg Industry Classification System, Global Industry Classification Standards and Barclays Global Classification Scheme.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited)(continued) |
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”). The Trust includes the following series:
● Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) ● Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”) ● Guggenheim High Yield Fund (“High Yield Fund”) ● Guggenheim Large Cap Value Fund (“Large Cap Value Fund”) ● Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”) ● Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”) ● Guggenheim Risk Managed Real Estate Fund (“Risk Managed Real Estate Fund”) ● Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core Fund”) ● Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | ● Guggenheim Capital Stewardship Fund (“Capital Stewardship Fund”) ● Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”) ● Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”) ● Guggenheim Limited Duration Fund (“Limited Duration Fund”) ● 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 Fund”) ● Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 adviser 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 five separate investment management agreements which group the series as follows: (i) Mid Cap Value Fund, Mid Cap Value Institutional Fund, Small Cap Value Fund, StylePlus—Large Core Fund and World Equity Income Fund; (ii) Large Cap Value Fund; (iii) StylePlus—Mid Growth; (iv) Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund; and (v) Alpha Opportunity Fund. (The Funds identified in (i) through (v) 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 Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 five separate investment advisory agreements which group includes the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund; (iii) Capital Stewardship Fund; (iv) Limited
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
OTHER INFORMATION (Unaudited)(continued) |
Duration Fund; and (v) Risk Managed Real Estate Fund. (The investment management agreements pertaining to the SIAdvised 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,” with the members of the Board referred to individually as 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.
Following an initial two-year term, the Advisory Agreements continue in effect from year to year provided that such continuance is specifically approved at least annually by (i) the Board or a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund, and, in either event, (ii) the vote of a majority of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”) casting votes in person at a meeting called for such purpose. At meetings held in person on April 29, 2015 (the “April Meeting”) and on May 19, 2015 (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely of the Independent Trustees, met separately from Guggenheim to consider the proposed renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.1 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 also received by the full Board) throughout the year regarding performance and operating results of the 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 presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Independent Trustees. In addition, Guggenheim made a presentation at the April Meeting, which addressed areas identified for discussion by the Committee 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) staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various services performed by Guggenheim for the provision of a continuous investment program for each Fund, monitoring compliance with Fund investment strategies and statutory requirements, reviewing trading processes and conducting investment performance analyses; (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
1 | Since the Capital Stewardship Fund was subject to an investment management agreement approved by the Board for an initial term of two years at an in-person meeting of the Board held on August 19-20, 2014, it was not included in the contract renewal process conducted at the meetings in April and May 2015. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, excluding the Capital Stewardship Fund. |
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited)(continued) |
the Funds to other funds (including such information presented in the FUSE reports as well as supplemental information prepared by Guggenheim), charts showing gross revenues, expenses and earnings for Guggenheim by product line and each Fund, including a breakout of various expenses, a description of Guggenheim’s 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, and certain information about Guggenheim’s insurance policies, business continuity plan, proxy voting procedures, trade allocation, shareholder communications and compliance monitoring, among other things.
The Committee considered the foregoing Contract Materials in the context of its substantial accumulated experience governing the Trust and weighed the factors and standards discussed with Independent Legal Counsel. 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 Funds2 to recommend that the Board approve the renewal of each Advisory Agreement and the Sub Advisory Agreement for an additional 12-month term.
Investment 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, areas of responsibility and duties of 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 also considered the Advisers’ attention to relevant developments in the mutual fund industry and its observance of compliance and regulatory requirements, and 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 additional staff to support the firm’s Chief Risk Officer, initiatives related to the risks associated with the investment process and risk at the enterprise level, 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 consolidate compliance manuals and align processes of the Funds with those of other Funds managed by the Advisers or another Guggenheim affiliate. 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 the Advisers’ parent company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). (The Committee received the audited consolidated financial statements of GPIMH once available following the April 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
2 | At the May Meeting, the Board determined to close and liquidate the Enhanced World Equity Fund based upon the Adviser’s recommendation (the “Liquidation Proposal”). Following an evaluation of strategic options, the Board determined that liquidation of the Fund as a series of the Trust would be in the best interests of the Fund and its shareholders. In view of the Liquidation Proposal, the Committee recommended the continuation of the Advisory Agreement with respect to the Enhanced World Equity Fund to provide for the continuation of advisory services until such time as the Fund was liquidated. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
OTHER INFORMATION (Unaudited)(continued) |
reports during 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, 2014, 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, 2014, 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-year 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-year and three-year periods, ranking in the 1st and 4th percentiles, respectively. In light of various changes to this Fund, including 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 and the assumption by Security Investors of such investment management responsibility, the impact on portfolio management as a result of the Lehman bankruptcy,3 and subsequent changes to the Fund’s investment strategies, a reduction in the fund accounting and administration fee and the re-opening of the Fund to new subscriptions, the Committee considered more recent performance periods, including the one-year and the three-month periods. 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, 2014, ranking in the 11th and 4th percentiles, respectively.
Floating Rate Strategies Fund: The returns of the Fund’s Class A shares ranked in the 6th and 1st percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
High Yield Fund: The Fund’s Class A shares ranked in the 64th, 7th and 46th percentiles of the performance universe for the five-year, three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for the three-year and one-year periods.
Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014, ranking in the 14th, 4th and 3rd percentiles, respectively. The Committee also noted Guggenheim’s statement that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year, three-year and one-year periods ended December 31, 2014, and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile.
Large 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 ended December 31, 2014, and ranked in the 76th, 60th and 78th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for
3 | The Committee considered the circumstances that affected 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 had consisted of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales, which limited the management of the portfolio. |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited)(continued) |
disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the returns for the Fund’s Class A shares for the ten-year period ended December 31, 2014, which exceeded the performance universe median, ranking in the 45th percentile. The Committee also noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Limited Duration Fund: The Committee noted the Fund’s inception date of December 16, 2013 and observed that the returns of the Fund’s Class A shares ranked in the 8th and 18th percentiles of the performance universe for the one-year and three-month periods ended December 31, 2014, respectively, outperforming the median returns.
Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 3rd and 8th percentiles of the performance universe for the three-year and one-year periods ended December 31, 2014, 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 three-year and one-year periods ended December 31, 2014.
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 ended December 31, 2014, and ranked in the 92nd, 80th and 67th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2014 in the 1st quartile (22nd percentile) and that, according to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. The Committee also noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. In addition, the Committee noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Mid Cap Value Institutional Fund: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 88th, 72nd and 61st percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
OTHER INFORMATION (Unaudited)(continued) |
and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
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.
Risk Managed Real Estate Fund: The returns of the Fund’s Class A shares ranked in the 67th percentile of its performance universe for the three month period ended December 31, 2014. The Committee considered that the Fund was recently organized as of February 12, 2014 and has a limited period of operation.
StylePlus—Large Core Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 10th and the 41st percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund outperformed its benchmark for the one-year period ended December 31, 2014.
StylePlus—Mid Growth Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 13th and 36th percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund had outperformed its benchmark for the one-year period ended December 31, 2014.
Small Cap Value Fund: The Fund underperformed its performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 87th, 71st and 92nd percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st and 2nd percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited)(continued) |
World Equity Income Fund: The Fund implemented a strategy change and a new portfolio management team in August 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded its performance universe median for the one-year period, ranking in the 27th percentile, and lagged its performance universe median for the three-month period, ranking in the 83rd percentile.
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 and/or institutional separate account with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients. 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 regulatory and legal structures, tax status, and for historical pricing reasons. In this regard, the Committee took into account Guggenheim’s assertion that the differences in fees reflected the Advisers’ greater level of responsibilities and significantly broader scope of services regarding the Funds, the more extensive regulatory obligations and risks associated with managing the Funds, and other financial considerations with respect to the Funds.
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 and the asset weighted total net expense ratio are in the second quartile (27th and 45th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had 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 fourth quartile (82nd percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (40th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (77th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (84th percentile) of its peer group. The Committee also considered that the Adviser had 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 is in the second quartile (31st percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (22nd percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
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OTHER INFORMATION (Unaudited)(continued) |
Limited Duration Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (72nd percentile) of its peer group and the asset weighted total net expense ratio is in the second quartile (45th percentile) of its peer group. The Committee also considered that the Adviser had 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 (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 second quartile (43rd percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (85th percentile) of its peer group.
Mid Cap Value Institutional Fund: The contractual advisory fee of the Fund is in the first quartile (15th percentile) of its peer group and the total net expense ratio is in the third quartile (69th percentile) of its peer group.
Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the second quartile (26th and 38th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Risk Managed Real Estate Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the first quartile (1st percentile as to each) of its peer group.
StylePlus—Large Core Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the fourth quartile (80th and 100th percentiles, respectively) of its peer group.
StylePlus—Mid Growth Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the second quartile (34th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (100th percentile) of its peer group.
Small Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (78th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (25th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (86th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (19th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (27th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (80th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
With respect to the costs of services provided and profits realized by Guggenheim Investments from its relationship with the Funds, the Committee reviewed a profitability analysis and data from management for each Fund setting forth the average assets under management for the twelve months ended December 31, 2014, ending assets under management as of December 31, 2014, gross revenues received by Guggenheim Investments, expenses incurred in providing services to the Funds, earnings and the operating margin/profitability rate, including variance information relative to the foregoing amounts as of December 31, 2013. In addition, the Chief Financial Officer of Guggenheim Investments reviewed with, and addressed questions from, the Committee concerning the expense allocation methodology employed in producing
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited)(continued) |
the profitability analysis. In the course of its review of Guggenheim Investments’ profitability, the Committee took into account the complexity of the investment strategies employed for the Funds, in addition to the foregoing data and various figures.
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 Investments’ profitability from its relationship with the Funds was not unreasonable.
Economies of Scale: 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 have 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 also noted the Adviser’s statement that Guggenheim continues to develop the infrastructure needed to support Fund asset growth and to achieve economies of scale across the firm’s various products and product lines. Thus, while Guggenheim may be benefiting from certain economies of scale and related cost efficiencies, it is concurrently realizing new costs and expenses associated with investment in infrastructure, personnel and systems.
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 Total Return Bond Fund—having assets in excess of (or approaching) $1 billion as of March 31, 2015. 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 total net expense ratio is competitive with the peer group median.
Macro Opportunities Fund: 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 (43rd percentile) and the total net expense ratio is competitive with the peer group median.
Total Return Bond Fund: 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 in the first quartile (19th percentile).
The Committee determined that, taking into account all relevant factors, the advisory fee structure for each Fund was reasonable.
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OTHER INFORMATION (Unaudited)(concluded) |
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 and compliance policies and procedures, 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 included as part of its considerations the unaudited financial information concerning GPIMH presented by the Chief Financial Officer of Guggenheim Investments. (As noted, the Committee received the audited consolidated financial statements of GPIMH once available following the April Meeting.)
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 Fund’s Class A shares outperformed the performance universe for the five-year and three-year periods ended December 31, 2014, ranking in the 1st and 35th percentiles, respectively. On January 13, 2012, the Fund acquired the assets and assumed the liabilities of TS&W/Claymore Tax-Advantaged Balanced Fund (the “Predecessor Fund”), a closed-end fund which used different investment strategies and had different investment advisers. Class A shares of the Fund have assumed the performance, financial and other historical information of the Predecessor Fund’s common shares and the performance of Class A shares of the Fund reflects the performance of the Predecessor Fund. In light of the foregoing, the Committee took into account more recent periods and noted that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2014, ranking in the 18th and 47th percentiles, respectively. In this connection, the Committee also considered that the Fund outperformed its benchmark over the one-year and three-month periods ended December 31, 2014.
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: 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” 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 or conclusive 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. Thereafter, on May 20, 2015, the Board, including all of the Independent Trustees, approved the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
30 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) |
A Board of Trustees oversees the Trust, as well as other trusts of GI, in which its members have no stated term of service, and continue to serve after election until resignation. The Statement of Additional Information includes further information about Fund Trustees and Officers, and can be obtained without charge by visiting guggenheiminvestments.com or by calling 800.820.0888.
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships
Held by 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). | 107 | Current: Trustee, Purpose Investments Inc. (2014-Present). |
Donald A. Chubb, Jr. (1946) | Trustee | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-present). | 104 | Current: Midland Care, Inc. (2011-present). |
Jerry B. Farley (1946) | Trustee | Since 2005 | Current: President, Washburn University (1997-present). | 103 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust (2000-present). |
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and Managing Partner, Roman Friedrich & Company (1998-present). Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | 103 | Current: Zincore Metals, Inc. (2009-present). Former: Axiom Gold and Silver Corp. (2011-2012). |
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 103 | 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). | 109 | Current: Edward-Elmhurst Healthcare System (2012-present). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s)
Held with
the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - continued | | |
Maynard F. Oliverius (1943) | Trustee | Since 1998 | Current: Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 103 | Current: Fort Hays State University Foundation (1999-present); Stormont-Vail Foundation (2013-present); University of Minnesota HealthCare Alumni Association Foundation (2009-present). |
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management (1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999); Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | 106 | Former: Bennett Group of Funds (2011-2013). |
INTERESTED TRUSTEE | |
Donald C. Cacciapaglia*** (1951) | President, Chief Executive Officer and Trustee | Since 2012 | Current: President and CEO, certain other funds in the Fund Complex (2012-present); Vice Chairman, Guggenheim Investments (2010-present). Former: Chairman and CEO, Channel Capital Group, Inc. (2002-2010). | 239 | Current: Clear Spring Life Insurance Company (2015-present); Guggenheim Partners Japan, Ltd. (2014-present); Delaware Life (2013-present); Guggenheim Life and Annuity Company (2011-present); Paragon Life Insurance Company of Indiana (2011-present). |
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
*** | This Trustee is deemed to be an "interested person" of the Funds under the 1940 Act by reason of his position with the Funds' Investment Manager and/or the parent of the Investment Manager. |
32 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal 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 2007 (Vice President) Since 2014 (Chief Legal Officer) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2013-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). |
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (2014-present); Senior Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). |
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Managing Director, Guggenheim Investments (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). |
| | 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 Occupations
During Past Five Years |
OFFICERS - continued | |
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-2014). |
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). |
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). |
John L. Sullivan (1955) | Chief Financial Officer and Treasurer | Since 2014 | Current: CFO, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex (2010-present); Senior Managing Director, Guggenheim Investments (2010-present). Former: Managing Director and CCO, each of the funds in the Van Kampen Investments fund complex (2004-2010); Managing Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); CFO and Treasurer, Van Kampen Funds (1996-2004). |
* | The business address of each officer is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each officer serves an indefinite term, until his or her successor is duly elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
34 | 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.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 35 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited)(concluded) |
How We Protect Privacy Online
Our concern for the privacy of our shareholders also extends to those who use our web site, guggenheiminvestments.com. Our web site uses some of the most secure forms of online communication available, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These technologies provide a high level of security and privacy when you access your account information or initiate online transactions. The Guggenheim Investments web site offers customized features that require our use of “http cookies”—tiny pieces of information that we ask your browser to store. However, we make very limited use of these cookies. We only use cookies for session management and security features on the Guggenheim Investments web site. We do not use them to pull data from your hard drive, to learn your email address, or to view data in cookies created by other web sites. We will not share the information in our cookies or give others access to it. See the legal information area on our web site for more details about web site security and privacy features.
How We Safeguard Your Personal Information
We restrict access to nonpublic personal information about shareholders to our employees and in some cases to third parties (for example, the service providers described above) as permitted by law. We maintain strict physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
We’ll Keep You Informed
As required by federal law, we will notify shareholders of our privacy policy annually. We reserve the right to modify this policy at any time, but rest assured that if we do change it, we will tell you promptly. You will also be able to access our privacy policy from our web site at guggenheiminvestments.com. Should you have any questions regarding our privacy policy, contact us at 800.820.0888 or 301.296.5100.
36 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
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9.30.2015
Guggenheim Funds Annual Report
| |
Guggenheim Macro Opportunities Fund | | |
MO-ANN-0915x0916 | guggenheiminvestments.com |
DEAR SHAREHOLDER | 2 |
ECONOMIC AND MARKET OVERVIEW | 4 |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 6 |
MACRO OPPORTUNITIES FUND | 9 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 58 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 90 |
OTHER INFORMATION | 91 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 110 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 118 |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
Dear Shareholder:
Guggenheim Partners Investment Management, LLC (the “Investment Adviser”), is pleased to present the shareholder report for Guggenheim Macro Opportunities Fund (the “Fund”) for the annual fiscal period ended September 30, 2015.
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 Fund. 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 Managers’ 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, 2015
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at guggenheiminvestments.com or call 800.820.0888.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
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 may use leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. ● The use of short selling involves increased risks and costs. You risk paying more for a security than you received from its sale. Theoretically, stocks sold short have the risk of unlimited losses. ● The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. ● Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. ● Investments in reverse repurchase agreements expose the Fund to the many of the same risks as investments in derivatives. ● The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. ● The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). ● Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. ● A highly liquid secondary market may not exist for the commodity-linked structured notes the Fund invests in, and there can be no assurance that a highly liquid secondary market will develop. ● The Fund’s exposure to the commodity markets may subject the Fund to greater volatility as commodity-linked investments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity such as droughts, floods, weather, embargos, tariffs and international economic, political and regulatory developments. ● The Fund’s investments in municipal securities can be affected by events that affect the municipal bond market. ● The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. ● The Fund’s investments in restricted securities may involve financial and liquidity risk. ● You may have a gain or loss when you sell your shares. ● It is important to note that the Fund is not guaranteed by the U.S. government. ● This Fund is considered nondiversified and can invest a greater portion of its assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single security could cause greater fluctuations in the value of fund shares than would occur in a more diversified fund. ● Please read the prospectus for more detailed information regarding these and other risks.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2015 |
At the end of the period, the underlying U.S. economy continued to maintain its strong footing. A market correction that began in August persisted through the end of the period; September and October are historically difficult times for the stock market, and by extension, risk assets of any kind, including credit.
Markets had been performing solidly for most of the period. Growth mid-year bounced back from a weather-induced slowdown in the first quarter, with GDP increasing 3.9% for the second quarter. The labor and housing markets continued to strengthen, and the drop in gas prices was acting as a tax cut, which was expected to increase consumer spending power going into the holiday season. Even though labor markets are moving toward full employment, questions remain about the viability of sustained economic expansion in the U.S. In particular, there is debate about the net effect of declining energy prices and a stronger dollar. These are both positive for the U.S. consumer, but low oil prices hurt the U.S. energy industry and a strong dollar is challenging for U.S. manufacturers. In addition, oil prices and the strong dollar exert a downward pressure on inflation, and a risk of deflation is a negative for the economy.
At the same time, currency devaluation, particularly in Japan and the euro zone, is putting pressure on countries to devalue to improve export competitiveness. Those countries slow to devalue, like China, are feeling economic pressure at home, driving down asset prices, and increasing deflationary pressures, escalating the risk of financial contagion abroad. China may have to devalue the renminbi further due to continued slowing in the economy. Combined with the tepid expansion in both Europe and Japan, the pressure will be for central banks there to increase easing measures.
The U.S. Federal Reserve (the “Fed”) is hard pressed to justify a rate increase based on its self-prescribed metrics, which include rising inflation and an improved employment situation with clearly rising wages. At best, policymakers can argue that the prospects for wage growth and inflation are improving, but clear evidence is lacking.
A preemptive rate increase seems risky and opens the Fed to potential criticism given the fragility in financial markets and the prospect that rising U.S. rates could further strengthen the dollar and also potentially exacerbate foreign economic turbulence. While prices and wages remain tame, the risk of another asset bubble is increasing. The longer policy remains highly accommodative, the greater the likelihood that asset classes including commercial real estate, equities, or certain categories of bonds could become overvalued.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ECONOMIC AND MARKET OVERVIEW (Unaudited)(concluded) | September 30, 2015 |
At period end, the risk of financial contagion remained high, which could result in central banks providing additional liquidity or delaying rate increases. Use of the monetary printing press is a handy tool to prop up asset prices and temporarily spur economic growth, which is the main reason a recession does not appear to be on the horizon for either the G-7 nations or China. It’s also worth noting that there has never been a recession in the post-war period without the Fed first raising interest rates, after which it typically takes several years for a recession to be induced.
For the 12 months ended September 30, 2015, the Standard & Poor’s 500® Index* (“S&P 500®”) returned -0.61%. The Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned -8.66%. The return of the MSCI Emerging Markets Index* was -19.28%.
In the bond market, the Barclays U.S. Aggregate Bond Index* posted a 2.94% return for the period, while the Barclays U.S. Corporate High Yield Index* returned -3.43%. The return of the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.02% for the 12-month period.
The opinions and forecasts expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
*Index Definitions
The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.
Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.
Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar (“USD”)-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets.
S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad economy, representing all major industries and is considered a representation of the U.S. stock market.
| | 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, 2015 and ending September 30, 2015.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(continued) |
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(concluded) |
| | Expense
Ratio1 | Fund
Return | Beginning
Account Value
March 31,
2015 | Ending
Account Value
September 30,
2015 | Expenses
Paid During
Period2 |
Table 1. Based on actual Fund return3 |
Macro Opportunities Fund |
A-Class | 1.36% | (1.34%) | $ 1,000.00 | $ 986.60 | $ 6.77 |
C-Class | 2.12% | (1.72%) | 1,000.00 | 982.80 | 10.54 |
P-Class4 | 1.25% | (0.95%) | 1,000.00 | 990.50 | 5.11 |
Institutional Class | 1.03% | (1.18%) | 1,000.00 | 988.20 | 5.13 |
| |
Table 2. Based on hypothetical 5% return (before expenses) |
Macro Opportunities Fund |
A-Class | 1.36% | 5.00% | $ 1,000.00 | $ 1,018.25 | $ 6.88 |
C-Class | 2.12% | 5.00% | 1,000.00 | 1,014.44 | 10.71 |
P-Class4 | 1.25% | 5.00% | 1,000.00 | 1,018.80 | 6.33 |
Institutional Class | 1.03% | 5.00% | 1,000.00 | 1,019.90 | 5.22 |
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, 2015 to September 30, 2015. |
4 | Since commencement of operations: May 1, 2015. Expenses paid based on actual Fund return are calculated using 150 days from the commencement of operations. Expenses paid based on hypothetical 5% return are calculated using 183 days. |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
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 and Assistant Chief Investment Officer; Kevin H. Gundersen, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the fiscal year ended September 30, 2015.
For the one-year period ended September 30, 2015, Guggenheim Macro Opportunities Fund returned 1.59%1, compared with the 0.02% 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. Unconstrained to a benchmark, the Fund has the flexibility to invest across a broad array of fixed-income securities, as well as equities, commodities, and alternative investments.
At the start of the period, market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities sparked risk aversion that drove market volatility. After a second-straight winter soft patch, and a dramatic drop in the price of oil, U.S. economic data began to strengthen in 2015, appearing to provide support for the Fed to proceed with raising interest rates sometime in 2015. The world kept a watchful eye on the Fed during the summer, as headlines moved from Greece to China, as China devalued the yuan in August, the first time in 20 years. As China’s move sent shockwaves through global financial markets, the Fed opted to keep rates zero-bound at its September meeting, citing concerns about potential downside risks to the U.S. outlook posed by recent global market volatility.
A key to Fund performance for the period was price appreciation stemming from the general tightening of credit spreads, except during the last few weeks of the period. Positive returns were driven largely by good credit selection in asset-backed securities (including collateralized loan obligations, or CLOs, and aircraft securitizations), bank loans, mortgage-backed securities (including commercial mortgage-backed securities and non-agency residential mortgage-backed securities, or NARMBS), and preferred securities. The high yield bond allocation was the largest detractor from performance. Although the Fund had very little exposure to the energy sector, spreads widened across a variety of high yield sectors in sympathy with the massive sell-off in energy credits as oil fell to multi-year lows.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
MANAGERS’ COMMENTARY (Unaudited)(continued) | September 30, 2015 |
The Fund makes macro-themed investments to take positions based on its views on certain segments of the financial markets, or to hedge against changes in interest rates, currency or equity prices, or improve diversification. Many of these positions are made with derivatives, such as a hedge on the U.S. market, or interest rate swaps to shorten duration, and as a whole, the derivatives contributed marginally to return for the period.
The chief attributes of the Fund over the period were maintaining low duration of a little more than one year; holding a majority of the portfolio in structured credit, including commercial ABS and CLOs; and building up exposure to NARMBS. The Fund believes the residential sector has been offering good relative value due to low interest rates, an improving residential real estate market, and strong economic fundamentals.
A majority of the Fund’s structured credit holdings feature floating rates, yields higher than traditional securitized assets like auto or credit-card receivables, and, often, investment-grade ratings. The Fund believes that commercial ABS and CLOs offer some downside protection, and amortizing structures to keep credit exposure lower over time. Many of the NARMBS were purchased at discounts and also typically have floating coupons that help keep duration short. Floating rate instruments accounted for about half the portfolio at the end of the period.
Besides the increase in NARMBS, other notable position changes over the period included a reduction in exposure to leveraged credit. The cut in leveraged credit by a third over the course of the 12 months was partly in response to deteriorating fundamentals in the energy market and in anticipation of volatility associated with a market correction or rising interest rates. As the Fund became more defensive, overall portfolio liquidity increased and average credit quality improved across sectors.
Guggenheim believes an accommodative Fed supports a benign credit environment, and the U.S. economy is well positioned for continued growth. The Fed may not have the clarity it seeks to tighten U.S. monetary policy anytime soon, which means rates will remain low for an extended period. The Fund will continue to focus on allocating to structured credit that should shield investors from rate volatility without having to sacrifice yield.
Periods of economic expansion have coincided with tightening spreads and low defaults, and economic data for the period indicate the U.S. expansion remains on track. Still, the watchword across risk assets in the past few months has been caution, as credit spreads widened during heightened market volatility. The Fund takes advantage of such periods of widening to add to spread duration and to take on more risk in expectation of a rebound.
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
The Fund invests excess cash into the Guggenheim Strategy Funds which, in turn, invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital. For the one -year period ended September 30, 2015, investment in the Guggenheim Strategy Funds has benefited Fund performance relative to investing in other short-term investments such as overnight repurchase agreements.
Performance displayed represents past performance which is no guarantee of future results.
1 | Performance figures are based on Class A 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 | 11 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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 or investments in Guggenheim Strategy Funds Trust mutual funds. Investments in those Funds do not provide “market exposure” to meet the fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(continued) | September 30, 2015 |
Inception Dates: |
A-Class | November 30, 2011 |
C-Class | November 30, 2011 |
P-Class | May 1, 2015 |
Institutional Class | November 30, 2011 |
Ten Largest Holdings (% of Total Net Assets) |
Guggenheim Strategy Fund I | 4.8% |
Guggenheim Limited Duration Fund - Institutional Class | 1.6% |
LSTAR Securities Investment Trust 2015-2 | 1.4% |
LSTAR Securities Investment Trust 2015-1 | 1.3% |
Guggenheim Alpha Opportunity Fund - Institutional Class | 1.3% |
Motel 6 Trust | 1.3% |
Triaxx Prime CDO Ltd. | 1.2% |
Nationstar HECM Loan Trust | 1.2% |
Guggenheim Strategy Fund II | 1.1% |
LSTAR Securities Investment Trust 2015-3 | 1.0% |
Top Ten Total | 16.2% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
Portfolio Composition by Quality Rating1 |
Rating | % of Total Investments |
Fixed Income Instruments | |
AAA | 0.5% |
AA | 2.1% |
A | 10.5% |
BBB | 10.9% |
BB | 15.2% |
B | 15.1% |
CCC | 10.2% |
CC | 1.6% |
D | 0.2% |
A+ | 0.1% |
NR2 | 18.5% |
Other Instruments | 15.2% |
Total Investments | 100.0% |
| | |
The chart above reflects percentages of the value of total investments. |
1 | Source: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities except for those labeled “NR” have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Security ratings are determined at the time of purchase and may change thereafter." |
2 | NR securities do not necessarily indicate low credit quality. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | Since Inception
(11/30/11) |
A-Class Shares | 1.59% | 6.13% |
A-Class Shares with sales charge† | -3.25% | 4.79% |
C-Class Shares | 0.84% | 5.37% |
C-Class Shares with CDSC§ | -0.13% | 5.37% |
Institutional Class Shares | 1.92% | 6.49% |
Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index | 0.02% | 0.06% |
| | | Since Inception
(05/01/15) |
P-Class Shares | | -0.95% |
Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index | | 0.02% |
* | 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. The graph is based on A-Class shares only; performance for C-Class shares, P-Class shares and Institutional Class shares will vary due to differences in fee structures. |
† | 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. |
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
CONSOLIDATED SCHEDULE OF INVESTMENTS | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 3.2% | |
| | | | | | | |
Consumer, Non-cyclical - 1.0% | |
Archer-Daniels-Midland Co.1 | | | 40,567 | | | $ | 1,681,502 | |
JM Smucker Co. | | | 12,100 | | | | 1,380,489 | |
Procter & Gamble Co.1 | | | 17,592 | | | | 1,265,568 | |
Gilead Sciences, Inc.1 | | | 12,483 | | | | 1,225,706 | |
Biogen, Inc.*,1 | | | 3,418 | | | | 997,407 | |
Amsurg Corp. — Class A*,1 | | | 12,030 | | | | 934,851 | |
McKesson Corp.1 | | | 5,052 | | | | 934,771 | |
Express Scripts Holding Co.*,1 | | | 11,492 | | | | 930,392 | |
UnitedHealth Group, Inc.1 | | | 7,904 | | | | 916,943 | |
Charles River Laboratories International, Inc.*,1 | | | 13,726 | | | | 871,876 | |
Estee Lauder Companies, Inc. — Class A1 | | | 10,757 | | | | 867,875 | |
Amgen, Inc.1 | | | 6,215 | | | | 859,659 | |
Ingredion, Inc.1 | | | 9,737 | | | | 850,137 | |
Quest Diagnostics, Inc.1 | | | 13,562 | | | | 833,656 | |
HCA Holdings, Inc.*,1 | | | 10,364 | | | | 801,759 | |
United Therapeutics Corp.*,1 | | | 5,909 | | | | 775,497 | |
Tyson Foods, Inc. — Class A1 | | | 17,896 | | | | 771,318 | |
Hormel Foods Corp. | | | 10,932 | | | | 692,105 | |
PepsiCo, Inc.1 | | | 7,262 | | | | 684,807 | |
Mead Johnson Nutrition Co. — Class A1 | | | 9,643 | | | | 678,867 | |
Flowers Foods, Inc.1 | | | 25,965 | | | | 642,374 | |
DENTSPLY International, Inc.1 | | | 12,560 | | | | 635,159 | |
Molina Healthcare, Inc.*,1 | | | 9,194 | | | | 633,007 | |
General Mills, Inc.1 | | | 11,099 | | | | 622,987 | |
Dr Pepper Snapple Group, Inc.1 | | | 7,659 | | | | 605,444 | |
Clorox Co.1 | | | 5,178 | | | | 598,214 | |
United Natural Foods, Inc.*,1 | | | 12,237 | | | | 593,617 | |
Cardinal Health, Inc.1 | | | 7,512 | | | | 577,072 | |
St. Jude Medical, Inc. | | | 9,130 | | | | 576,012 | |
Pfizer, Inc.1 | | | 17,733 | | | | 556,993 | |
Dean Foods Co.1 | | | 33,340 | | | | 550,777 | |
Intra-Cellular Therapies, Inc.* | | | 13,280 | | | | 531,731 | |
Quanta Services, Inc.* | | | 21,701 | | | | 525,381 | |
Owens & Minor, Inc. | | | 16,389 | | | | 523,465 | |
WellCare Health Plans, Inc.* | | | 5,882 | | | | 506,911 | |
MEDNAX, Inc.*,1 | | | 6,070 | | | | 466,115 | |
Universal Corp. | | | 9,331 | | | | 462,537 | |
B&G Foods, Inc. | | | 12,413 | | | | 452,454 | |
ADT Corp.1 | | | 14,943 | | | | 446,796 | |
Prestige Brands Holdings, Inc.* | | | 9,622 | | | | 434,530 | |
Coca-Cola Co.1 | | | 10,604 | | | | 425,432 | |
Enanta Pharmaceuticals, Inc.* | | | 11,729 | | | | 423,886 | |
Church & Dwight Company, Inc.1 | | | 4,982 | | | | 417,990 | |
ResMed, Inc.1 | | | 8,024 | | | | 408,903 | |
Altria Group, Inc.1 | | | 7,512 | | | | 408,653 | |
Henry Schein, Inc.* | | | 2,978 | | | | 395,240 | |
Philip Morris International, Inc.1 | | | 4,830 | | | | 383,164 | |
Danaher Corp.1 | | | 4,442 | | | | 378,503 | |
McCormick & Company, Inc.1 | | | 4,523 | | | | 371,700 | |
Magellan Health, Inc.*,1 | | | 6,703 | | | | 371,547 | |
TrueBlue, Inc.* | | | 16,474 | | | | 370,171 | |
Deluxe Corp.1 | | | 6,608 | | | | 368,330 | |
Kroger Co.1 | | | 10,155 | | | | 366,291 | |
Varian Medical Systems, Inc.* | | | 4,871 | | | | 359,382 | |
Johnson & Johnson1 | | | 3,791 | | | | 353,890 | |
Moody’s Corp.1 | | | 3,479 | | | | 341,638 | |
WhiteWave Foods Co. — Class A* | | | 8,425 | | | | 338,264 | |
Whole Foods Market, Inc.1 | | | 10,639 | | | | 336,724 | |
WEX, Inc.* | | | 3,854 | | | | 334,681 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Laboratory Corporation of America Holdings* | | | 3,039 | | | $ | 329,640 | |
Universal Health Services, Inc. — Class B1 | | | 2,582 | | | | 322,259 | |
AmerisourceBergen Corp. — Class A1 | | | 3,240 | | | | 307,768 | |
Hain Celestial Group, Inc.*,1 | | | 5,854 | | | | 302,066 | |
Kellogg Co. | | | 3,674 | | | | 244,505 | |
Boulder Brands, Inc.*,1 | | | 21,794 | | | | 178,493 | |
Paylocity Holding Corp.* | | | 2,293 | | | | 68,767 | |
Total Consumer, Non-cyclical | | | | 38,804,648 | |
| | | | | | | | | |
Industrial - 0.6% | |
Agilent Technologies, Inc.1 | | | 27,300 | | | | 937,209 | |
AECOM*,1 | | | 32,905 | | | | 905,217 | |
L-3 Communications Holdings, Inc.1 | | | 8,510 | | | | 889,465 | |
Boeing Co.1 | | | 5,311 | | | | 695,475 | |
Triumph Group, Inc.1 | | | 15,965 | | | | 671,807 | |
Dover Corp. | | | 10,223 | | | | 584,551 | |
Corning, Inc.1 | | | 30,723 | | | | 525,977 | |
Roper Technologies, Inc. | | | 3,338 | | | | 523,065 | |
Parker-Hannifin Corp.1 | | | 5,141 | | | | 500,219 | |
Republic Services, Inc. — Class A1 | | | 11,980 | | | | 493,576 | |
Waters Corp.* | | | 4,077 | | | | 481,942 | |
Pentair plc1 | | | 9,394 | | | | 479,470 | |
Gentex Corp.1 | | | 30,681 | | | | 475,556 | |
Rockwell Automation, Inc. | | | 4,678 | | | | 474,676 | |
United Technologies Corp.1 | | | 5,297 | | | | 471,380 | |
Nordson Corp. | | | 7,371 | | | | 463,931 | |
Stanley Black & Decker, Inc.1 | | | 4,779 | | | | 463,467 | |
Xylem, Inc. | | | 13,703 | | | | 450,144 | |
Crane Co.1 | | | 9,653 | | | | 449,926 | |
Vishay Intertechnology, Inc. | | | 46,194 | | | | 447,620 | |
Jacobs Engineering Group, Inc.*,1 | | | 11,824 | | | | 442,572 | |
Emerson Electric Co.1 | | | 9,994 | | | | 441,435 | |
Textron, Inc.1 | | | 11,606 | | | | 436,850 | |
Ingersoll-Rand plc1 | | | 8,604 | | | | 436,825 | |
EnerSys | | | 8,067 | | | | 432,230 | |
3M Co.1 | | | 2,928 | | | | 415,103 | |
United Parcel Service, Inc. — Class B | | | 4,146 | | | | 409,170 | |
Northrop Grumman Corp.1 | | | 2,425 | | | | 402,429 | |
Regal Beloit Corp.1 | | | 7,109 | | | | 401,303 | |
Union Pacific Corp. | | | 4,516 | | | | 399,260 | |
Eaton Corporation plc1 | | | 7,738 | | | | 396,959 | |
Huntington Ingalls Industries, Inc.1 | | | 3,702 | | | | 396,669 | |
CH Robinson Worldwide, Inc.1 | | | 5,776 | | | | 391,497 | |
Waste Connections, Inc.1 | | | 7,820 | | | | 379,896 | |
Raytheon Co.1 | | | 3,456 | | | | 377,603 | |
AO Smith Corp. | | | 5,736 | | | | 373,930 | |
Waste Management, Inc.1 | | | 7,271 | | | | 362,169 | |
EMCOR Group, Inc.1 | | | 8,065 | | | | 356,876 | |
TASER International, Inc.* | | | 15,991 | | | | 352,202 | |
FedEx Corp.1 | | | 2,426 | | | | 349,295 | |
Barnes Group, Inc.1 | | | 9,412 | | | | 339,303 | |
Timken Co.1 | | | 11,785 | | | | 323,970 | |
Moog, Inc. — Class A*,1 | | | 5,788 | | | | 312,957 | |
Atlas Air Worldwide Holdings, Inc.* | | | 8,865 | | | | 306,374 | |
Total Industrial | | | | | | | 20,621,550 | |
| | | | | | | | | |
Financial - 0.4% | |
California Republic Bancorp*,2 | | | 166,500 | | | | 4,895,104 | |
JPMorgan Chase & Co.1 | | | 19,429 | | | | 1,184,586 | |
Citigroup, Inc.1 | | | 17,555 | | | | 870,904 | |
Lincoln National Corp.1 | | | 15,910 | | | | 755,089 | |
MetLife, Inc.1 | | | 14,042 | | | | 662,080 | |
Prudential Financial, Inc. | | | 8,197 | | | | 624,693 | |
Regions Financial Corp.1 | | | 59,750 | | | | 538,348 | |
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Ameriprise Financial, Inc.1 | | | 4,928 | | | $ | 537,793 | |
Capital One Financial Corp. | | | 7,168 | | | | 519,823 | |
Reinsurance Group of America, Inc. — Class A | | | 5,563 | | | | 503,952 | |
CNO Financial Group, Inc. | | | 24,262 | | | | 456,368 | |
Hancock Holding Co. | | | 16,059 | | | | 434,396 | |
Aflac, Inc.1 | | | 7,383 | | | | 429,174 | |
Allstate Corp.1 | | | 6,505 | | | | 378,851 | |
Principal Financial Group, Inc. | | | 7,816 | | | | 370,009 | |
Interactive Brokers Group, Inc. — Class A | | | 9,256 | | | | 365,334 | |
First Horizon National Corp. | | | 25,249 | | | | 358,031 | |
East West Bancorp, Inc.1 | | | 9,103 | | | | 349,737 | |
Fifth Third Bancorp1 | | | 18,316 | | | | 346,356 | |
Total Financial | | | | | | | 14,580,628 | |
| | | | | | | | | |
Utilities - 0.4% | |
Entergy Corp.1 | | | 17,967 | | | | 1,169,651 | |
Public Service Enterprise Group, Inc.1 | | | 26,439 | | | | 1,114,668 | |
Questar Corp. | | | 53,030 | | | | 1,029,312 | |
Duke Energy Corp.1 | | | 13,548 | | | | 974,643 | |
NextEra Energy, Inc.1 | | | 9,396 | | | | 916,580 | |
UGI Corp. | | | 26,177 | | | | 911,483 | |
Consolidated Edison, Inc.1 | | | 12,981 | | | | 867,780 | |
NRG Energy, Inc.1 | | | 51,384 | | | | 763,052 | |
CMS Energy Corp.1 | | | 20,549 | | | | 725,791 | |
Southwest Gas Corp. | | | 12,359 | | | | 720,777 | |
ONE Gas, Inc. | | | 15,432 | | | | 699,533 | |
Vectren Corp.1 | | | 16,010 | | | | 672,580 | |
American Electric Power Company, Inc.1 | | | 9,976 | | | | 567,235 | |
DTE Energy Co.1 | | | 6,823 | | | | 548,365 | |
Edison International | | | 7,922 | | | | 499,641 | |
CenterPoint Energy, Inc.1 | | | 25,626 | | | | 462,293 | |
Southern Co. | | | 8,908 | | | | 398,188 | |
Xcel Energy, Inc. | | | 10,792 | | | | 382,145 | |
Aqua America, Inc.1 | | | 13,991 | | | | 370,342 | |
Total Utilities | | | | | | | 13,794,059 | |
| | | | | | | | | |
Technology - 0.4% | |
Travelport, LLC*,†† | | | 166,134 | | | | 2,194,629 | |
2U, Inc.* | | | 41,042 | | | | 1,473,408 | |
Apple, Inc.1 | | | 10,541 | | | | 1,162,672 | |
International Business Machines Corp. | | | 7,864 | | | | 1,140,044 | |
Micron Technology, Inc.*,1 | | | 58,813 | | | | 881,020 | |
Dun & Bradstreet Corp.1 | | | 5,513 | | | | 578,865 | |
Xerox Corp.1 | | | 57,702 | | | | 561,440 | |
Cengage Learning Acquisitions, Inc.*,†† | | | 21,660 | | | | 551,247 | |
Paycom Software, Inc.* | | | 14,937 | | | | 536,388 | |
Tessera Technologies, Inc. | | | 13,108 | | | | 424,830 | |
Synaptics, Inc.* | | | 5,109 | | | | 421,288 | |
Take-Two Interactive Software, Inc.* | | | 13,775 | | | | 395,756 | |
SanDisk Corp.1 | | | 7,096 | | | | 385,526 | |
Cirrus Logic, Inc.* | | | 11,919 | | | | 375,568 | |
Convergys Corp.1 | | | 16,054 | | | | 371,008 | |
Computer Sciences Corp.1 | | | 5,815 | | | | 356,925 | |
Oracle Corp.1 | | | 9,854 | | | | 355,926 | |
Skyworks Solutions, Inc. | | | 4,111 | | | | 346,187 | |
CACI International, Inc. — Class A*,1 | | | 4,639 | | | | 343,147 | |
Hewlett-Packard Co.1 | | | 13,108 | | | | 335,696 | |
Icad, Inc.*,1 | | | 54,194 | | | | 184,260 | |
Total Technology | | | | | | | 13,375,830 | |
| | | | | | | | | |
Consumer, Cyclical - 0.2% | |
Wal-Mart Stores, Inc.1 | | | 14,959 | | | | 969,942 | |
Walgreens Boots Alliance, Inc. | | | 11,248 | | | | 934,710 | |
JetBlue Airways Corp.*,1 | | | 27,232 | | | | 701,769 | |
Delta Air Lines, Inc.1 | | | 14,482 | | | | 649,807 | |
Sportsman’s Warehouse Holdings, Inc.* | | | 50,458 | | | | 621,642 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Harman International Industries, Inc. | | | 6,009 | | | $ | 576,804 | |
CVS Health Corp.1 | | | 5,690 | | | | 548,971 | |
NVR, Inc.* | | | 331 | | | | 504,847 | |
Kohl’s Corp.1 | | | 9,664 | | | | 447,540 | |
TiVo, Inc.* | | | 47,185 | | | | 408,622 | |
Wyndham Worldwide Corp.1 | | | 5,586 | | | | 401,634 | |
Macy’s, Inc.1 | | | 7,459 | | | | 382,796 | |
Starbucks Corp. | | | 6,505 | | | | 369,744 | |
Delphi Automotive plc1 | | | 4,801 | | | | 365,068 | |
Dana Holding Corp.1 | | | 21,255 | | | | 337,529 | |
Buckle, Inc.1 | | | 8,674 | | | | 320,678 | |
PACCAR, Inc. | | | 6,097 | | | | 318,080 | |
Wolverine World Wide, Inc.1 | | | 13,902 | | | | 300,839 | |
Total Consumer, Cyclical | | | | | | | 9,161,022 | |
| | | | | | | | | |
Communications - 0.2% | |
Viacom, Inc. — Class B1 | | | 26,896 | | | | 1,160,564 | |
Verizon Communications, Inc.1 | | | 25,865 | | | | 1,125,386 | |
Atlantic Tele-Network, Inc.1 | | | 13,640 | | | | 1,008,405 | |
Cisco Systems, Inc.1 | | | 30,311 | | | | 795,663 | |
Scripps Networks Interactive, Inc. — Class A1 | | | 10,590 | | | | 520,922 | |
Comcast Corp. — Class A1 | | | 8,907 | | | | 506,630 | |
AMC Networks, Inc. — Class A*,1 | | | 6,697 | | | | 490,019 | |
Walt Disney Co.1 | | | 4,726 | | | | 482,997 | |
InterDigital, Inc.1 | | | 7,396 | | | | 374,238 | |
Expedia, Inc.1 | | | 3,097 | | | | 364,455 | |
Interpublic Group of Companies, Inc.1 | | | 18,730 | | | | 358,305 | |
Polycom, Inc.*,1 | | | 33,783 | | | | 354,046 | |
Time, Inc.1 | | | 17,882 | | | | 340,652 | |
Total Communications | | | | | | | 7,882,282 | |
| | | | | | | | | |
Energy - 0.0% | |
Chevron Corp.1 | | | 7,003 | | | | 552,397 | |
Exxon Mobil Corp. | | | 4,888 | | | | 363,423 | |
Total Energy | | | | | | | 915,820 | |
| | | | | | | | | |
Basic Materials - 0.0% | |
Mirabela Nickel Ltd.*,†††,2 | | | 7,057,522 | | | | 495 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $129,111,207) | | | | | | | 119,136,334 | |
| | | | | | | | | |
PREFERRED STOCKS†† - 0.7% | |
Industrial - 0.4% | |
Seaspan Corp. 6.38% due 04/30/19 | | | 520,000 | | | | 12,875,200 | |
| | | | | | | | | |
Financial - 0.3% | |
Aspen Insurance Holdings Ltd. 5.95%2,3,4 | | | 186,833 | | | | 4,764,242 | |
Cent CLO 16, LP due 08/1/24*,6 | | | 7,000 | | | | 4,195,915 | |
BreitBurn Energy Partners due *,†††,2 | | | 374,458 | | | | 1,954,671 | |
ALM Loan Funding Ltd. due 06/20/23*,6 | | | 1,373 | | | | 1,197,762 | |
WhiteHorse II Ltd. due 06/15/17*,†††,6,7 | | | 2,100,000 | | | | 210 | |
GSC Partners CDO Fund V Ltd. due 11/20/16*,†††,6,7 | | | 5,200 | | | | 1 | |
Total Financial | | | | | | | 12,112,801 | |
Total Preferred Stocks | | | | | | | | |
(Cost $26,144,611) | | | | | | | 24,988,001 | |
| | | | | | | | | |
MUTUAL FUNDS†,8 - 9.2% | |
Guggenheim Strategy Fund I | | | 7,129,532 | | | | 177,382,768 | |
Guggenheim Limited Duration Fund — Institutional Class | | | 2,419,052 | | | | 59,605,430 | |
Guggenheim Alpha Opportunity Fund — Institutional Class | | | 1,881,326 | | | | 48,406,518 | |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Guggenheim Strategy Fund II | | | 1,611,392 | | | $ | 40,043,095 | |
Guggenheim Risk Managed Real Estate Fund — Institutional Class | | | 403,870 | | | | 12,075,709 | |
Total Mutual Funds | | | | | | | | |
(Cost $338,198,335) | | | | | | | 337,513,520 | |
| | | | | | | | | |
CLOSED-END FUNDS†,8 - 0.2% | |
Guggenheim Strategic Opportunities Fund | | | 315,681 | | | | 5,644,376 | |
Total Closed-End Funds | | | | | | | | |
(Cost $6,073,028) | | | | | | | 5,644,376 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS†,18 - 2.5% | |
Federated U.S. Treasury Cash Reserve Fund 0.00% | | | 93,466,805 | | | | 93,466,805 | |
Western Asset Institutional U.S. Treasury Reserves 0.01% | | | 18,656 | | | | 18,656 | |
Total Short Term Investments | | | | | |
(Cost $93,485,461) | | | | | | | 93,485,461 | |
| | | Face
Amount | | | | |
| | | | | | | |
ASSET-BACKED SECURITIES†† - 28.6% | |
Collateralized Loan Obligations - 19.7% | |
Treman Park CLO Ltd. | | | | | | |
2015-1A, due 04/20/276,7 | | $ | 28,400,000 | | | | 26,546,131 | |
KKR Financial CLO Ltd. | | | | | | | | |
2007-1A, 2.57% due 05/15/213,7 | | | 10,850,000 | | | | 10,802,271 | |
2007-1A, 5.32% due 05/15/213,7 | | | 6,000,000 | | | | 5,999,697 | |
2015-12, 3.28% due 07/15/273,7 | | | 5,000,000 | | | | 4,852,977 | |
2007-1X, 5.32% due 05/15/21 | | | 800,000 | | | | 799,960 | |
KVK CLO Ltd. | | | | | | | | |
2014-2A, 3.29% due 07/15/263,7 | | | 8,250,000 | | | | 7,893,369 | |
2013-1A, due 04/14/256,7 | | | 11,900,000 | | | | 6,819,185 | |
2014-1A, 3.22% due 05/15/263,7 | | | 5,000,000 | | | | 4,731,242 | |
2014-3A, due 10/15/266,7 | | | 2,500,000 | | | | 1,550,000 | |
Voya CLO Ltd. | | | | | | | | |
2013-1X, due 04/15/246 | | | 20,000,000 | | | | 14,475,254 | |
2015-3AR, 4.24% due 10/15/223,7 | | | 4,000,000 | | | | 3,906,011 | |
2014-2A, 3.12% due 07/17/263,7 | | | 2,000,000 | | | | 1,985,773 | |
CIFC Funding Ltd. | | | | | | | | |
2015-2A, 3.03% due 12/05/243,7 | | | 8,250,000 | | | | 8,229,268 | |
2014-1AR, 3.38% due 08/14/243,7 | | | 3,250,000 | | | | 3,222,140 | |
2013-2A, 3.89% due 04/21/253,7 | | | 2,250,000 | | | | 2,131,404 | |
2006-1BA, 4.32% due 12/22/203,7 | | | 2,000,000 | | | | 1,987,307 | |
2015-2A, 3.98% due 12/05/243,7 | | | 2,000,000 | | | | 1,949,106 | |
2014-1A, 3.09% due 04/18/253,7 | | | 1,750,000 | | | | 1,701,877 | |
2013-4A, 3.83% due 11/27/243,7 | | | 1,000,000 | | | | 949,659 | |
Avery | | | | | | | | |
2013-3X, due 01/18/256 | | | 19,800,000 | | | | 17,604,179 | |
Dryden 37 Senior Loan Fund | | | | | | | | |
2015-37A, due 04/15/276,7 | | | 16,000,000 | | | | 14,120,778 | |
Neuberger Berman CLO Ltd. | | | | | | | | |
2014-12A, 3.40% due 07/25/233,7 | | | 5,300,000 | | | | 5,324,018 | |
2012-12X, due 07/25/236 | | | 7,000,000 | | | | 4,254,115 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
2012-12A, due 07/25/236,7 | | $ | 5,900,000 | | | $ | 3,585,611 | |
Babson CLO Ltd. | | | | | | | | |
2012-2A, due 05/15/236,7 | | | 11,850,000 | | | | 8,833,127 | |
2014-IA, due 07/20/256,7 | | | 6,400,000 | | | | 4,256,535 | |
OHA Credit Partners IX Ltd. | | | | | | | | |
2013-9A, due 10/20/256,7 | | | 14,000,000 | | | | 13,020,999 | |
Gramercy Park CLO Ltd. | | | | | | | | |
2014-1A, 3.22% due 07/17/233,7 | | | 7,500,000 | | | | 7,500,117 | |
2012-1A, due 07/17/236,7 | | | 2,650,000 | | | | 2,058,712 | |
2014-1A, 4.32% due 07/17/233,7 | | | 1,750,000 | | | | 1,754,264 | |
due 07/17/236 | | | 1,250,000 | | | | 971,091 | |
Fortress Credit Opportunities VI CLO Ltd. | | | | | | | | |
2015-6A, 5.52% due 10/10/263,7 | | | 5,400,000 | | | | 5,250,827 | |
2015-6A, 2.97% due 10/10/263,7 | | | 4,000,000 | | | | 3,958,203 | |
2015-6A, 3.93% due 10/10/263,7 | | | 3,000,000 | | | | 2,951,172 | |
Golub Capital Partners CLO Ltd. | | | | | | | | |
2015-25A, 3.14% due 08/05/273,7 | | | 6,000,000 | | | | 5,931,782 | |
2014-10AR, 3.24% due 10/20/213,7 | | | 4,000,000 | | | | 3,987,432 | |
2014-18A, 3.80% due 04/25/263,7 | | | 2,200,000 | | | | 2,148,578 | |
Northwoods Capital XIV Ltd. | | | | | | | | |
2014-14A, 3.66% due 11/12/253,7 | | | 6,000,000 | | | | 5,908,012 | |
2014-14A, 2.77% due 11/12/253,7 | | | 5,750,000 | | | | 5,733,127 | |
Great Lakes CLO Ltd. | | | | | | | | |
2015-1A, 4.02% due 07/15/263,7 | | | 4,250,000 | | | | 4,225,563 | |
2014-1A, 3.99% due 04/15/253,7 | | | 3,000,000 | | | | 2,978,062 | |
2012-1A, due 01/15/236,7 | | | 3,250,000 | | | | 2,165,489 | |
2014-1A, 4.49% due 04/15/253,7 | | | 1,500,000 | | | | 1,400,621 | |
NewStar Clarendon Fund CLO LLC | | | | | | | | |
2015-1A, 3.00% due 01/25/273,7 | | | 7,000,000 | | | | 6,922,300 | |
2015-1A, 3.65% due 01/25/273,7 | | | 4,000,000 | | | | 3,815,600 | |
Newstar Commercial Loan Funding LLC | | | | | | | | |
2015-1A, 4.16% due 01/20/273,7 | | | 5,000,000 | | | | 4,999,523 | |
2013-1A, 4.90% due 09/20/233,7 | | | 3,250,000 | | | | 3,090,942 | |
2014-1A, 5.04% due 04/20/253,7 | | | 1,250,000 | | | | 1,208,674 | |
2013-1A, 5.65% due 09/20/233,7 | | | 750,000 | | | | 735,123 | |
Highbridge Loan Management Ltd. | | | | | | | | |
2014-1A, 3.57% due 09/20/223,7 | | | 6,500,000 | | | | 6,512,374 | |
2014-1A, 4.57% due 09/20/223,7 | | | 3,500,000 | | | | 3,486,035 | |
Telos CLO Ltd. | | | | | | | | |
2014-6A, 3.29% due 01/17/273,7 | | | 5,000,000 | | | | 4,818,187 | |
2013-3A, 3.29% due 01/17/243,7 | | | 2,750,000 | | | | 2,658,404 | |
2013-3A, 4.54% due 01/17/243,7 | | | 2,550,000 | | | | 2,453,882 | |
Dryden 41 Senior Loan Fund | | | | | | | | |
2015-41A, due 10/15/275,7 | | | 10,500,000 | | | | 9,054,360 | |
Shackleton CLO Ltd. | | | | | | | | |
2013-4A, 3.29% due 01/13/253,7 | | | 6,250,000 | | | | 6,135,032 | |
2014-5A, 3.01% due 05/07/263,7 | | | 2,750,000 | | | | 2,585,260 | |
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
ARES XXVI CLO Ltd. | | | | | | |
2013-1A, due 04/15/256,7 | | $ | 9,500,000 | | | $ | 5,088,283 | |
2013-1A, 3.04% due 04/15/253,7 | | | 2,000,000 | | | | 1,946,237 | |
2013-1A, 4.04% due 04/15/253,7 | | | 1,500,000 | | | | 1,434,379 | |
Galaxy XIX CLO Ltd. | | | | | | | | |
2015-19A, due 01/24/276,7 | | | 5,500,000 | | | | 5,181,588 | |
2015-19A, 3.69% due 01/24/273,7 | | | 3,000,000 | | | | 2,981,467 | |
Atlas Senior Loan Fund V Ltd. | | | | | | | | |
2014-1A, 3.29% due 07/16/263,7 | | | 8,000,000 | | | | 7,842,558 | |
Cent CLO 16, LP | | | | | | | | |
2014-16AR, 3.50% due 08/01/243,7 | | | 7,250,000 | | | | 7,250,867 | |
Atlas Senior Loan Fund II Ltd. | | | | | | | | |
2012-2A, due 01/30/246,7 | | | 9,600,000 | | | | 7,000,733 | |
Jasper CLO Ltd. | | | | | | | | |
2005-1A, 1.21% due 08/01/173,7 | | | 7,000,000 | | | | 6,909,066 | |
ACIS CLO Ltd. | | | | | | | | |
2015-6A, 3.67% due 05/01/273,7 | | | 3,000,000 | | | | 2,992,968 | |
2013-1A, 4.79% due 04/18/243,7 | | | 2,100,000 | | | | 2,099,764 | |
2013-2A, 4.14% due 10/14/223,7 | | | 1,800,000 | | | | 1,781,823 | |
OCP CLO Ltd. | | | | | | | | |
2014-7A, 3.17% due 10/20/263,7 | | | 5,000,000 | | | | 4,833,142 | |
2014-6A, 3.39% due 07/17/263,7 | | | 2,000,000 | | | | 1,976,360 | |
Benefit Street Partners CLO Ltd. | | | | | | | | |
2015-IA, 3.23% due 10/15/253,7 | | | 6,500,000 | | | | 6,514,950 | |
Venture XI CLO Ltd. | | | | | | | | |
2015-11A, 3.26% due 11/14/223,7 | | | 4,000,000 | | | | 3,978,405 | |
2015-11A, 4.26% due 11/14/223,7 | | | 2,500,000 | | | | 2,443,048 | |
Fortress Credit Opportunities V CLO Ltd. | | | | | | | | |
2014-5A, 4.78% due 10/15/263,7 | | | 3,500,000 | | | | 3,285,380 | |
2014-5A, 3.83% due 10/15/263,7 | | | 3,000,000 | | | | 2,941,046 | |
Golub Capital Partners CLO 18 Ltd. | | | | | | | | |
2014-18A, 2.80% due 04/25/263,7 | | | 5,000,000 | | | | 4,926,929 | |
2014-18A, 4.30% due 04/25/263,7 | | | 1,200,000 | | | | 1,114,534 | |
Dryden XXIII Senior Loan Fund | | | | | | | | |
2014-23A, 3.24% due 07/17/233,7 | | | 6,000,000 | | | | 6,028,584 | |
ALM VII R-2 Ltd. | | | | | | | | |
2013-7R2A, 2.89% due 04/24/243,7 | | | 3,250,000 | | | | 3,215,525 | |
2013-7R2A, 3.74% due 04/24/243,7 | | | 2,500,000 | | | | 2,461,339 | |
Fortress Credit Investments IV Ltd. | | | | | | | | |
2015-4A, 3.82% due 07/17/233,7 | | | 5,800,000 | | | | 5,509,493 | |
ALM XIV Ltd. | | | | | | | | |
2014-14A, 3.24% due 07/28/263,7 | | | 3,100,000 | | | | 3,045,750 | |
2014-14A, 3.74% due 07/28/263,7 | | | 2,500,000 | | | | 2,358,917 | |
Fortress Credit Opportunities III CLO, LP | | | | | | | | |
2014-3A, 3.53% due 04/28/263,7 | | | 5,500,000 | | | | 5,360,383 | |
Carlyle Global Market Strategies CLO Ltd. | | | | | | | | |
2014-2AR, 4.18% due 07/20/233,7 | | | 3,000,000 | | | | 2,985,018 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
2012-3A, due 10/04/246,7 | | $ | 1,800,000 | | | $ | 1,348,858 | |
2015-1AR, 4.04% due 04/20/223,7 | | | 1,000,000 | | | | 997,787 | |
Fortress Credit Funding V, LP | | | | | | | | |
2015-5A, 3.92% due 08/15/223,7 | | | 5,000,000 | | | | 4,984,038 | |
Fifth Street SLF II Ltd. | | | | | | | | |
2015-2A, 3.14% due 09/29/273,7 | | | 5,000,000 | | | | 4,960,000 | |
Atlas Senior Loan Fund IV Ltd. | | | | | | | | |
2014-2A, 3.02% due 02/17/263,7 | | | 3,900,000 | | | | 3,781,084 | |
2014-2A, 3.77% due 02/17/263,7 | | | 1,210,000 | | | | 1,134,499 | |
Cerberus Onshore II CLO-2 LLC | | | | | | | | |
2014-1A, 3.63% due 10/15/233,7 | | | 2,500,000 | | | | 2,471,695 | |
2014-1A, 4.43% due 10/15/233,7 | | | 2,500,000 | | | | 2,422,959 | |
Clear Lake CLO Ltd. | | | | | | | | |
2007-1A, 1.80% due 12/20/203,7 | | | 5,000,000 | | | | 4,823,730 | |
Mountain Hawk II CLO Ltd. | | | | | | | | |
2013-2A, 3.44% due 07/22/243,7 | | | 2,750,000 | | | | 2,416,670 | |
2013-2A, 2.89% due 07/22/243,7 | | | 2,500,000 | | | | 2,336,657 | |
NewStar Commercial Loan Trust | | | | | | | | |
2007-1A, 2.62% due 09/30/223,7 | | | 4,000,000 | | | | 3,739,087 | |
2007-1A, 1.62% due 09/30/223,7 | | | 1,000,000 | | | | 952,428 | |
Golub Capital Partners CLO 24M Ltd. | | | | | | | | |
2015-24A, 4.52% due 02/05/273,7 | | | 5,000,000 | | | | 4,685,191 | |
ALM VII R Ltd. | | | | | | | | |
2013-7RA, 3.74% due 04/24/243,7 | | | 4,750,000 | | | | 4,636,023 | |
NewStar Arlington Senior Loan Program LLC | | | | | | | | |
2014-1A, 4.55% due 07/25/253,7 | | | 2,750,000 | | | | 2,588,366 | |
2014-1A, 3.60% due 07/25/253,7 | | | 2,000,000 | | | | 1,935,109 | |
Battalion CLO Ltd. | | | | | | | | |
2007-1A, 2.44% due 07/14/223,7 | | | 4,600,000 | | | | 4,514,381 | |
Marathon CLO V Ltd. | | | | | | | | |
2013-5A, due 02/21/256,7 | | | 5,500,000 | | | | 4,210,945 | |
Halcyon Loan Advisors Funding Ltd. | | | | | | | | |
2012-2A, 3.20% due 12/20/243,7 | | | 3,250,000 | | | | 3,217,503 | |
2012-1A, 3.32% due 08/15/233,7 | | | 1,000,000 | | | | 980,451 | |
Golub Capital Partners CLO 21M Ltd. | | | | | | | | |
2014-21A, 3.60% due 10/25/263,7 | | | 4,300,000 | | | | 4,182,839 | |
Flagship CLO VI | | | | | | | | |
2007-1A, 2.73% due 06/10/213,7 | | | 4,200,000 | | | | 4,125,981 | |
BlueMountain CLO Ltd. | | | | | | | | |
2012-2A, 4.43% due 11/20/243,7 | | | 4,100,000 | | | | 4,069,079 | |
Symphony CLO V Ltd. | | | | | | | | |
2007-5A, 4.54% due 01/15/243,7 | | | 4,000,000 | | | | 4,008,614 | |
Catamaran CLO Ltd. | | | | | | | | |
2015-1A, 3.40% due 04/22/273,7 | | | 4,000,000 | | | | 3,936,602 | |
Oaktree EIF II Series Ltd. | | | | | | | | |
2014-A2, 3.47% due 11/17/253,7 | | | 4,000,000 | | | | 3,931,610 | |
Golub Capital Partners CLO 25M Ltd. | | | | | | | | |
2015-25A, 4.14% due 08/05/273,7 | | | 4,000,000 | | | | 3,912,781 | |
Adirondack Park CLO Ltd. | | | | | | | | |
2013-1A, 3.94% due 04/15/243,7 | | | 4,000,000 | | | | 3,837,438 | |
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
JFIN CLO Ltd. | | | | | | |
2007-1A, 3.09% due 07/20/213,7 | | $ | 4,000,000 | | | $ | 3,758,645 | |
Airlie CLO Ltd. | | | | | | | | |
2006-2A, 1.74% due 12/20/203,7 | | | 4,000,000 | | | | 3,736,457 | |
Fifth Street Senior Loan Fund I LLC | | | | | | | | |
2015-1A, 4.04% due 01/20/273,7 | | | 3,500,000 | | | | 3,480,229 | |
Marea CLO Ltd. | | | | | | | | |
2015-1A, 4.04% due 10/15/233,7 | | | 3,500,000 | | | | 3,446,520 | |
Grayson CLO Ltd. | | | | | | | | |
2006-1A, 0.71% due 11/01/213,7 | | | 3,700,000 | | | | 3,419,596 | |
ACA CLO Ltd. | | | | | | | | |
2007-1A, 1.24% due 06/15/223,7 | | | 3,550,000 | | | | 3,403,424 | |
Ivy Hill Middle Market Credit Fund IX Ltd. | | | | | | | | |
2014-9A, 3.59% due 10/18/253,7 | | | 3,500,000 | | | | 3,377,585 | |
West CLO Ltd. | | | | | | | | |
2013-1A, due 11/07/256,7 | | | 5,300,000 | | | | 2,345,361 | |
2013-1A, 3.21% due 11/07/253,7 | | | 1,000,000 | | | | 958,969 | |
Figueroa CLO Ltd. | | | | | | | | |
2013-2A, 4.10% due 12/18/253,7 | | | 3,500,000 | | | | 3,273,806 | |
Primus Clo II Ltd. | | | | | | | | |
2007-2A, 1.24% due 07/15/213,7 | | | 3,500,000 | | | | 3,263,359 | |
Mountain Hawk I CLO Ltd. | | | | | | | | |
2013-1A, 3.01% due 01/20/243,7 | | | 3,400,000 | | | | 3,236,906 | |
Duane Street CLO II Ltd. | | | | | | | | |
2006-2A, 4.08% due 08/20/183,7 | | | 3,250,000 | | | | 3,208,120 | |
Rockwall CDO Ltd. | | | | | | | | |
2007-1A, 0.55% due 08/01/243,7 | | | 1,880,393 | | | | 1,828,996 | |
2007-1A, 0.85% due 08/01/243,7 | | | 1,500,000 | | | | 1,373,066 | |
Oaktree EIF II Series B1 Ltd. | | | | | | | | |
2015-B1A, 3.42% due 02/15/263,7 | | | 3,250,000 | | | | 3,171,964 | |
VENTURE XIII CLO Ltd. | | | | | | | | |
2013-13A, due 06/10/256,7 | | | 4,790,000 | | | | 3,166,058 | |
Shackleton I CLO Ltd. | | | | | | | | |
2012-1A, 5.06% due 08/14/233,7 | | | 3,000,000 | | | | 3,000,160 | |
Rampart CLO Ltd. | | | | | | | | |
2007-1A, 4.10% due 10/25/213,7 | | | 3,000,000 | | | | 2,999,890 | |
AMMC CLO XI Ltd. | | | | | | | | |
2012-11A, due 10/30/236,7 | | | 5,650,000 | | | | 2,977,846 | |
Marathon CLO VII Ltd. | | | | | | | | |
2014-7A, 3.79% due 10/28/253,7 | | | 3,000,000 | | | | 2,973,210 | |
Neuberger Berman CLO XVIII Ltd. | | | | | | | | |
2014-18A, 3.43% due 11/14/253,7 | | | 3,000,000 | | | | 2,961,565 | |
Black Diamond CLO Delaware Corp. | | | | | | | | |
2005-1A, 2.25% due 06/20/173,7 | | | 1,500,000 | | | | 1,480,401 | |
2005-2A, 2.12% due 01/07/183,7 | | | 1,500,000 | | | | 1,467,723 | |
Carlyle Global Market Strategies | | | | | | | | |
2013-3X SUB, due 07/15/256 | | | 4,000,000 | | | | 2,940,680 | |
Franklin CLO VI Ltd. | | | | | | | | |
2007-6A, 2.56% due 08/09/193,7 | | | 3,000,000 | | | | 2,909,301 | |
Vibrant CLO II Ltd. | | | | | | | | |
2013-2A, 3.04% due 07/24/243,7 | | | 3,000,000 | | | | 2,896,006 | |
Race Point V CLO Ltd. | | | | | | | | |
2014-5A, 4.09% due 12/15/223,7 | | | 2,900,000 | | | | 2,894,264 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Silvermore CLO Ltd. | | | | | | |
2014-1A, 3.32% due 05/15/263,7 | | $ | 3,000,000 | | | $ | 2,893,750 | |
Vibrant CLO Ltd. | | | | | | | | |
2015-1A, 4.18% due 07/17/243,7 | | | 3,000,000 | | | | 2,867,995 | |
Mountain Hawk III CLO Ltd. | | | | | | | | |
2014-3A, 3.09% due 04/18/253,7 | | | 3,000,000 | | | | 2,828,896 | |
Sound Point CLO I Ltd. | | | | | | | | |
2012-1A, 4.87% due 10/20/233,7 | | | 2,750,000 | | | | 2,758,895 | |
Marathon CLO VI Ltd. | | | | | | | | |
2014-6A, 3.16% due 05/13/253,7 | | | 2,750,000 | | | | 2,648,998 | |
Fortress Credit BSL Ltd. | | | | | | | | |
2013-1A, 3.19% due 01/19/253,7 | | | 2,750,000 | | | | 2,640,245 | |
Symphony CLO IX, LP | | | | | | | | |
2012-9A, 4.54% due 04/16/223,7 | | | 2,600,000 | | | | 2,584,863 | |
LCM X, LP | | | | | | | | |
2014-10AR, 4.04% due 04/15/223,7 | | | 2,500,000 | | | | 2,484,529 | |
Apidos CLO XX | | | | | | | | |
2015-20A, 3.49% due 01/16/273,7 | | | 2,500,000 | | | | 2,484,494 | |
Gallatin CLO VII Ltd. | | | | | | | | |
2014-1A, 4.05% due 07/15/233,7 | | | 2,500,000 | | | | 2,450,656 | |
Galaxy XVIII CLO Ltd. | | | | | | | | |
2014-18A, 3.29% due 10/15/263,7 | | | 2,500,000 | | | | 2,434,376 | |
San Gabriel CLO Ltd. | | | | | | | | |
2007-1A, 2.58% due 09/10/213,7 | | | 2,450,000 | | | | 2,402,827 | |
Westwood CDO II Ltd. | | | | | | | | |
2007-2X, 2.09% due 04/25/22 | | | 1,550,000 | | | | 1,459,015 | |
2007-2A, 2.10% due 04/25/223,7 | | | 1,000,000 | | | | 941,300 | |
Symphony CLO XI Ltd. | | | | | | | | |
2013-11A, 4.29% due 01/17/253,7 | | | 2,500,000 | | | | 2,375,354 | |
Global Leveraged Capital Credit Opportunity Fund | | | | | | | | |
2006-1A, 1.29% due 12/20/183,7 | | | 2,376,000 | | | | 2,342,008 | |
Finn Square CLO Ltd. | | | | | | | | |
2012-1A, due 12/24/236,7 | | | 3,250,000 | | | | 2,183,573 | |
Venture XVI CLO Ltd. | | | | | | | | |
2014-16A, 3.04% due 04/15/263,7 | | | 2,250,000 | | | | 2,181,629 | |
Octagon Loan Funding Ltd. | | | | | | | | |
2014-1A, due 11/18/266,7 | | | 3,000,000 | | | | 2,171,456 | |
Venture XII CLO Ltd. | | | | | | | | |
2013-12A, 3.98% due 02/28/243,7 | | | 2,250,000 | | | | 2,133,497 | |
Keuka Park CLO Ltd. | | | | | | | | |
2013-1A, due 10/21/246,7 | | | 3,000,000 | | | | 2,103,105 | |
Callidus Debt Partners CLO Fund VI Ltd. | | | | | | | | |
2007-6A, 3.29% due 10/23/213,7 | | | 2,100,000 | | | | 2,063,859 | |
Gale Force 4 CLO Ltd. | | | | | | | | |
2007-4A, 3.83% due 08/20/213,7 | | | 2,000,000 | | | | 2,000,610 | |
OHA Credit Partners VII Ltd. | | | | | | | | |
2012-7A, 4.33% due 11/20/233,7 | | | 2,000,000 | | | | 1,978,987 | |
Churchill Financial Cayman Ltd. | | | | | | | | |
2007-1A, 2.88% due 07/10/193,7 | | | 1,000,000 | | | | 988,860 | |
2007-1A, 1.53% due 07/10/193,7 | | | 1,000,000 | | | | 982,210 | |
Blue Hill CLO Ltd. | | | | | | | | |
2013-1A, 3.29% due 01/15/263,7 | | | 2,000,000 | | | | 1,958,939 | |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Cerberus Onshore II CLO LLC | | | | | | |
2014-1A, 3.79% due 10/15/233,7 | | $ | 1,000,000 | | | $ | 993,399 | |
2014-1A, 4.29% due 10/15/233,7 | | | 1,000,000 | | | | 958,725 | |
AMMC CLO XIV Ltd. | | | | | | | | |
2014-14A, 3.10% due 07/27/263,7 | | | 2,000,000 | | | | 1,940,540 | |
Limerock CLO II Ltd. | | | | | | | | |
2014-2A, 3.14% due 04/18/263,7 | | | 2,000,000 | | | | 1,918,283 | |
NXT Capital CLO LLC | | | | | | | | |
2015-1A, 4.43% due 04/21/273,7 | | | 2,000,000 | | | | 1,871,294 | |
Lime Street CLO Corp. | | | | | | | | |
2007-1A, 2.84% due 06/20/213,7 | | | 2,000,000 | | | | 1,837,241 | |
Kingsland III Ltd. | | | | | | | | |
2006-3A, 1.93% due 08/24/213,7 | | | 1,890,000 | | | | 1,812,863 | |
Regatta Funding Ltd. | | | | | | | | |
2007-1X, 3.64% due 06/15/203 | | | 1,800,000 | | | | 1,799,088 | |
Symphony CLO XV Ltd. | | | | | | | | |
2014-15A, 3.49% due 10/17/263,7 | | | 1,750,000 | | | | 1,745,752 | |
OHA Credit Partners VI Ltd. | | | | | | | | |
2015-6A, 3.81% due 05/15/233,7 | | | 1,750,000 | | | | 1,745,583 | |
Shackleton II CLO Ltd. | | | | | | | | |
2012-2A, 4.34% due 10/20/233,7 | | | 1,750,000 | | | | 1,719,625 | |
Octagon Investment Partners XV Ltd. | | | | | | | | |
2013-1A, 3.14% due 01/19/253,7 | | | 1,750,000 | | | | 1,714,075 | |
Canyon Capital CLO Ltd. | | | | | | | | |
2013-1A, 3.09% due 01/15/243,7 | | | 1,750,000 | | | | 1,708,318 | |
Madison Park Funding XI Ltd. | | | | | | | | |
2013-11A, 3.79% due 10/23/253,7 | | | 1,750,000 | | | | 1,680,060 | |
Telos CLO Ltd. | | | | | | | | |
2007-2A, 2.49% due 04/15/223,7 | | | 1,650,000 | | | | 1,614,546 | |
Landmark VIII CLO Ltd. | | | | | | | | |
2006-8A, 1.74% due 10/19/203,7 | | | 1,650,000 | | | | 1,570,732 | |
MCF CLO IV LLC | | | | | | | | |
2014-1A, 6.20% due 10/15/253,7 | | | 1,750,000 | | | | 1,566,599 | |
MCF CLO III LLC | | | | | | | | |
2014-3A, 3.46% due 01/20/243,7 | | | 1,750,000 | | | | 1,553,922 | |
Copper River CLO Ltd. | | | | | | | | |
2007-1A, due 01/20/216,7 | | | 8,150,000 | | | | 1,533,024 | |
Avalon IV Capital Ltd. | | | | | | | | |
2014-1A, 4.14% due 04/17/233,7 | | | 1,500,000 | | | | 1,493,955 | |
OZLM Funding V Ltd. | | | | | | | | |
2013-5A, 3.29% due 01/17/263,7 | | | 1,500,000 | | | | 1,487,447 | |
MCF CLO I LLC | | | | | | | | |
2013-1A, 3.84% due 04/20/233,7 | | | 1,500,000 | | | | 1,484,563 | |
Symphony CLO Ltd. | | | | | | | | |
2015-10AR, 4.14% due 07/23/233,7 | | | 1,500,000 | | | | 1,476,987 | |
Sands Point Funding Ltd. | | | | | | | | |
2006-1A, 2.04% due 07/18/203,7 | | | 1,500,000 | | | | 1,473,004 | |
Greywolf CLO III Ltd. | | | | | | | | |
2014-1A, 3.15% due 04/22/263,7 | | | 1,500,000 | | | | 1,460,951 | |
Steele Creek CLO Ltd. | | | | | | | | |
2014-1A, 3.53% due 08/21/263,7 | | | 1,500,000 | | | | 1,460,538 | |
Covenant Credit Partners CLO I Ltd. | | | | | | | | |
2014-1A, 3.21% due 07/20/263,7 | | | 1,500,000 | | | | 1,447,605 | |
Kingsland IV Ltd. | | | | | | | | |
2007-4A, 1.74% due 04/16/213,7 | | | 1,500,000 | | | | 1,409,210 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
ALM VI Ltd. | | | | | | |
2012-6A, due 06/14/236,7 | | $ | 1,600,000 | | | $ | 1,395,790 | |
OHA Park Avenue CLO I Ltd. | | | | | | | | |
2007-1A, 3.59% due 03/14/223,7 | | | 1,413,497 | | | | 1,378,558 | |
Duane Street CLO IV Ltd. | | | | | | | | |
2007-4A, 2.56% due 11/14/213,7 | | | 1,400,000 | | | | 1,357,880 | |
TICP CLO II Ltd. | | | | | | | | |
2014-2A, 3.29% due 07/20/263,7 | | | 1,300,000 | | | | 1,276,573 | |
COA Summit CLO Limited | | | | | | | | |
2014-1A, 4.14% due 04/20/233,7 | | | 1,250,000 | | | | 1,242,543 | |
ColumbusNova CLO Ltd. | | | | | | | | |
2007-1A, 1.67% due 05/16/193,7 | | | 1,250,000 | | | | 1,220,970 | |
GoldenTree Loan Opportunities III Ltd. | | | | | | | | |
2007-3A, 3.50% due 05/01/223,7 | | | 1,250,000 | | | | 1,210,025 | |
ICE EM CLO | | | | | | | | |
2007-1A, 1.37% due 08/15/223,7 | | | 1,250,000 | | | | 1,193,875 | |
Ares XXV CLO Ltd. | | | | | | | | |
2013-3A, due 01/17/246,7 | | | 2,000,000 | | | | 1,087,182 | |
Black Diamond CLO Luxembourg S.A. | | | | | | | | |
2007-1A, 0.98% due 04/29/193,7 | | | 1,100,000 | | | | 1,049,409 | |
Palmer Square CLO Ltd. | | | | | | | | |
2014-1A, 2.84% due 10/17/223,7 | | | 1,000,000 | | | | 993,976 | |
Katonah Ltd. | | | | | | | | |
2007-10A, 2.33% due 04/17/203,7 | | | 1,000,000 | | | | 989,278 | |
Gleneagles CLO Ltd. | | | | | | | | |
2005-1A, 1.20% due 11/01/173,7 | | | 1,000,000 | | | | 985,678 | |
WhiteHorse VIII Ltd. | | | | | | | | |
2014-1A, 2.94% due 05/01/263,7 | | | 1,000,000 | | | | 977,519 | |
Pangaea CLO Ltd. | | | | | | | | |
2007-1A, 0.79% due 10/21/213,7 | | | 1,000,000 | | | | 976,965 | |
Halcyon Loan Investors CLO I, Inc. | | | | | | | | |
2006-1A, 3.83% due 11/20/203,7 | | | 1,000,000 | | | | 972,699 | |
ACAS CLO Ltd. | | | | | | | | |
2013-1A, 3.04% due 04/20/253,7 | | | 1,000,000 | | | | 971,508 | |
Halcyon Loan Investors CLO II, Inc. | | | | | | | | |
2007-2A, 1.69% due 04/24/213,7 | | | 1,000,000 | | | | 966,772 | |
OHA Loan Funding Ltd. | | | | | | | | |
2013-1A, 3.89% due 07/23/253,7 | | | 1,000,000 | | | | 963,476 | |
Cavalry CLO II | | | | | | | | |
2013-2A, 4.29% due 01/17/243,7 | | | 1,000,000 | | | | 955,654 | |
Eastland CLO Ltd. | | | | | | | | |
2007-1A, 0.70% due 05/01/223,7 | | | 1,000,000 | | | | 943,852 | |
Connecticut Valley Structured Credit CDO III Ltd. | | | | | | | | |
2006-3A, 0.98% due 03/23/233,7 | | | 483,612 | | | | 477,684 | |
2006-3A, 6.67% due 03/23/237 | | | 441,767 | | | | 440,579 | |
ARES CLO Ltd. | | | | | | | | |
2013-1X, due 04/15/256 | | | 1,660,000 | | | | 889,111 | |
Marathon CLO Ltd. | | | | | | | | |
due 02/21/256 | | | 1,000,000 | | | | 765,626 | |
Garrison Funding Ltd. | | | | | | | | |
2013-2A, 4.93% due 09/25/233,7 | | | 750,000 | | | | 747,400 | |
Venture XV CLO Ltd. | | | | | | | | |
2013-15A, 3.39% due 07/15/253,7 | | | 750,000 | | | | 741,947 | |
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Venture CLO Ltd. | | | | | | |
2013-14A, 3.08% due 08/28/253,7 | | $ | 750,000 | | | $ | 730,130 | |
Fortress Credit Opportunities | | | | | | | | |
2005-1A, 0.63% due 07/15/193,7 | | | 732,646 | | | | 678,706 | |
Westwood CDO I Ltd. | | | | | | | | |
2007-1A, 1.00% due 03/25/213,7 | | | 700,000 | | | | 663,976 | |
Callidus Debt Partners CLO Fund VI Ltd. | | | | | | | | |
2007-6A, 1.54% due 10/23/213,7 | | | 500,000 | | | | 482,123 | |
Ableco Capital LLC | | | | | | | | |
2013-1, 4.92% due 05/31/192,3 | | | 284,024 | | | | 284,016 | |
TCW Global Project Fund III Ltd. | | | | | | | | |
2005-1A, 1.17% due 09/01/173,7 | | | 218,945 | | | | 217,500 | |
Marathon CLO II Ltd. | | | | | | | | |
2005-2A, due 12/20/196,7 | | | 2,250,000 | | | | 80,286 | |
BlackRock Senior Income Series Corp. | | | | | | | | |
2004-1X, due 09/15/16†††,6 | | | 2,382,940 | | | | 2 | |
Total Collateralized Loan Obligations | | | | 723,643,912 | |
| | | | | | | | | |
Transport-Aircraft - 5.0% | |
AASET | | | | | | | | |
2014-1, 7.37% due 12/15/293 | | | 18,610,577 | | | | 18,610,577 | |
2014-1, 5.12% due 12/15/293 | | | 17,668,269 | | | | 17,403,245 | |
2014-1 C, 10.00% due 08/15/30 | | | 7,346,490 | | | | 7,346,490 | |
AIM Aviation Finance Ltd. | | | | | | | | |
2015-1A, 4.21% due 02/15/407 | | | 19,166,667 | | | | 19,168,162 | |
2015-1A, 5.07% due 02/15/407 | | | 17,681,250 | | | | 17,798,830 | |
ECAF I Ltd. | | | | | | | | |
2015-1A, 5.80% due 06/15/407 | | | 29,750,000 | | | | 30,252,031 | |
Castlelake Aircraft Securitization Trust | | | | | | | | |
2014-1, 7.50% due 02/15/297 | | | 14,054,274 | | | | 13,934,813 | |
2014-1, 5.25% due 02/15/297 | | | 7,654,271 | | | | 7,579,259 | |
Stripes | | | | | | | | |
2013-1 A1, 3.84% due 03/20/23†††,2 | | | 9,688,950 | | | | 9,595,839 | |
Atlas Ltd. | | | | | | | | |
2014-1, 4.87% due 12/15/39††† | | | 6,985,375 | | | | 7,042,446 | |
Turbine Engines Securitization Ltd. | | | | | | | | |
2013-1A, 5.13% due 12/13/487 | | | 3,886,377 | | | | 3,906,587 | |
2013-1A, 6.38% due 12/13/487 | | | 2,542,646 | �� | | | 2,567,564 | |
Rise Ltd. | | | | | | | | |
2014-1, 4.74% due 02/12/39 | | | 6,307,292 | | | | 6,354,596 | |
Emerald Aviation Finance Ltd. | | | | | | | | |
2013-1, 6.35% due 10/15/387 | | | 6,161,458 | | | | 6,315,495 | |
Eagle I Ltd. | | | | | | | | |
2014-1A, 5.29% due 12/15/397 | | | 5,003,906 | | | | 5,057,532 | |
Willis Engine Securitization Trust II | | | | | | | | |
2012-A, 5.50% due 09/15/377 | | | 4,695,104 | | | | 4,704,963 | |
AABS Ltd. | | | | | | | | |
2013-1, 4.87% due 01/15/38 | | | 3,291,667 | | | | 3,312,075 | |
Airplanes Pass Through Trust | | | | | | | | |
2001-1A, 0.76% due 03/15/193,13 | | | 3,816,049 | | | | 1,192,515 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 27 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Atlas Air Class A-1 Pass Through Trust | | | | | | |
1999-1, 7.20% due 01/02/192 | | $ | 301,901 | | | $ | 305,675 | |
Aerco Ltd. | | | | | | | | |
2000-2A, 1.17% due 07/15/253 | | | 827,641 | | | | 157,335 | |
Total Transport-Aircraft | | | | | | | 182,606,029 | |
| | | | | | | | | |
Collateralized Debt Obligations - 3.9% | |
Triaxx Prime CDO Ltd. | | | | | | | | |
2006-2A, 0.45% due 10/02/393,7 | | | 48,005,380 | | | | 44,934,668 | |
SRERS Funding Ltd. | | | | | | | | |
2011-RS, 0.44% due 05/09/463,7 | | | 15,281,838 | | | | 14,665,580 | |
Gramercy Real Estate CDO Ltd. | | | | | | | | |
2007-1A, 0.60% due 08/15/563,7 | | | 14,896,355 | | | | 13,730,836 | |
N-Star Real Estate CDO IX Ltd. | | | | | | | | |
0.51% due 02/01/412 | | | 9,673,519 | | | | 9,515,400 | |
N-Star REL CDO VIII Ltd. | | | | | | | | |
2006-8A, 0.55% due 02/01/413,7 | | | 8,100,000 | | | | 7,521,246 | |
2006-8A, 0.48% due 02/01/413,7 | | | 1,844,015 | | | | 1,800,380 | |
RAIT CRE CDO I Ltd. | | | | | | | | |
2006-1X, 0.53% due 11/20/46 | | | 9,999,378 | | | | 9,259,648 | |
Highland Park CDO I Ltd. | | | | | | | | |
2006-1A, 0.73% due 11/25/513,7 | | | 8,250,000 | | | | 5,694,276 | |
2006-1A, 0.66% due 11/25/513,7 | | | 2,793,816 | | | | 2,687,140 | |
Resource Capital Corp. CRE | | | | | | | | |
2015-CRE4, 3.21% due 08/15/323,7 | | | 7,750,000 | | | | 7,711,250 | |
Resource Capital Corporation | | | | | | | | |
2015-CRE3, 4.20% due 03/15/323,7 | | | 7,000,000 | | | | 6,999,979 | |
Wrightwood Capital Real Estate CDO Ltd. | | | | | | | | |
2005-1A, 0.76% due 11/21/403,7 | | | 5,000,000 | | | | 4,739,986 | |
Putnam Structured Product CDO Ltd. | | | | | | | | |
2002-1A, 0.88% due 01/10/383,7 | | | 3,700,428 | | | | 3,473,895 | |
Banco Bradesco SA | | | | | | | | |
2014-1B, 5.43% due 03/12/26†††,2 | | | 3,321,422 | | | | 3,363,272 | |
DIVCORE Ltd. | | | | | | | | |
2013-1A B, 4.10% due 11/15/32 | | | 3,250,000 | | | | 3,241,550 | |
Helios Series I Multi Asset CBO Ltd. | | | | | | | | |
2001-1A, 1.29% due 12/13/363,7 | | | 2,766,383 | | | | 2,654,756 | |
Pasadena CDO Ltd. | | | | | | | | |
2002-1A, 1.20% due 06/19/373,7 | | | 1,707,518 | | | | 1,654,993 | |
Total Collateralized Debt Obligations | | | | 143,648,855 | |
| | | | | | | | | |
Insurance - 0.0% | |
Northwind Holdings LLC | | | | | | | | |
2007-1A, 1.11% due 12/01/373,7 | | | 558,268 | | | | 502,441 | |
| | | | | | | | | |
Credit Card - 0.0% | |
Credit Card Pass-Through Trust | | | | | | | | |
2012-BIZ, due 12/15/495,7 | | | 355,636 | | | | 290,413 | |
Total Asset-Backed Securities | | | | | |
(Cost $1,059,495,880) | | | | | | | 1,050,691,650 | |
| | | | | | | | | |
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 26.2% | |
Residential Mortgage-Backed Securities - 23.6% | |
LSTAR Securities Investment Trust | | | | | | | | |
2015-2, 2.19% due 01/01/203,7 | | | 53,855,653 | | | | 52,832,396 | |
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
2015-1, 2.19% due 01/01/203,7 | | $ | 50,133,817 | | | $ | 49,426,931 | |
2015-3, 2.20% due 03/01/203,7 | | | 37,478,107 | | | | 36,777,266 | |
2014-1, 3.29% due 09/01/213,7 | | | 26,627,174 | | | | 26,627,174 | |
2015-4, 2.19% due 04/01/203,7 | | | 27,158,298 | | | | 26,609,700 | |
2015-5, 2.19% due 04/01/203,7 | | | 22,255,297 | | | | 21,801,289 | |
2015-6, 2.19% due 05/01/203,7 | | | 6,320,676 | | | | 6,207,536 | |
Nationstar HECM Loan Trust | | | | | | | | |
2014-1A, 4.50% due 11/25/177 | | | 42,097,513 | | | | 42,557,638 | |
2015-1A, 3.84% due 05/25/187 | | | 10,055,358 | | | | 10,124,539 | |
Lehman XS Trust Series | | | | | | | | |
2007-2N, 0.37% due 02/25/373 | | | 27,033,842 | | | | 19,359,421 | |
2007-15N, 0.44% due 08/25/373 | | | 14,624,376 | | | | 11,647,146 | |
2006-16N, 0.38% due 11/25/463 | | | 13,207,063 | | | | 10,616,524 | |
2006-10N, 0.40% due 07/25/463 | | | 10,019,729 | | | | 7,859,896 | |
HarborView Mortgage Loan Trust | | | | | | | | |
2006-14, 0.37% due 01/25/473 | | | 39,957,935 | | | | 30,324,836 | |
2006-12, 0.41% due 01/19/383 | | | 12,029,643 | | | | 10,149,121 | |
2005-13, 0.50% due 02/19/363 | | | 7,430,365 | | | | 5,500,283 | |
Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | | | | | | | | |
2006-AR9, 1.03% due 11/25/463 | | | 47,628,660 | | | | 32,684,596 | |
2006-AR9, 1.04% due 11/25/463 | | | 10,852,428 | | | | 7,447,305 | |
2006-8, 4.73% due 10/25/36 | | | 3,982,534 | | | | 2,617,815 | |
American Home Mortgage Assets Trust | | | | | | | | |
2007-1, 0.90% due 02/25/473 | | | 37,242,097 | | | | 22,732,166 | |
2006-4, 0.38% due 10/25/463 | | | 16,281,887 | | | | 10,790,984 | |
2006-6, 0.38% due 12/25/463 | | | 6,673,612 | | | | 4,581,581 | |
Banc of America Funding Ltd. | | | | | | | | |
2013-R1, 0.41% due 11/03/413,7 | | | 37,874,838 | | | | 35,234,962 | |
Vericrest Opportunity Loan Trust | | | | | | | | |
2015-NPL3, 3.38% due 10/25/587 | | | 34,713,216 | | | | 34,609,458 | |
VOLT XXXIII LLC | | | | | | | | |
2015-NPL5, 3.50% due 03/25/557 | | | 33,755,859 | | | | 33,626,271 | |
NRPL Trust | | | | | | | | |
2015-1A, 3.88% due 11/01/547 | | | 22,999,823 | | | | 23,032,920 | |
2014-2A, 3.75% due 10/25/573,7 | | | 6,877,335 | | | | 6,825,755 | |
RALI Series Trust | | | | | | | | |
2006-QO10, 0.35% due 01/25/373 | | | 10,348,291 | | | | 7,853,970 | |
2006-QO2, 0.46% due 02/25/463 | | | 15,122,229 | | | | 6,955,378 | |
2007-QO3, 0.35% due 03/25/473 | | | 7,149,518 | | | | 5,893,684 | |
2007-QO2, 0.34% due 02/25/473 | | | 8,111,257 | | | | 4,567,603 | |
2006-QO2, 0.41% due 02/25/463 | | | 4,366,666 | | | | 1,972,502 | |
IndyMac INDX Mortgage Loan Trust | | | | | | | | |
2005-AR18, 0.97% due 10/25/363 | | | 18,984,920 | | | | 14,766,755 | |
2006-AR4, 0.40% due 05/25/463 | | | 11,847,150 | | | | 10,055,411 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
GSAA Home Equity Trust | | | | | | |
2006-14, 0.36% due 09/25/363 | | $ | 19,172,074 | | | $ | 10,253,838 | |
2006-3, 0.49% due 03/25/363 | | | 6,368,237 | | | | 4,493,969 | |
2007-7, 0.46% due 07/25/373 | | | 4,317,036 | | | | 3,667,814 | |
2006-14, 0.44% due 09/25/363 | | | 5,067,631 | | | | 3,075,616 | |
2006-18, 6.00% due 11/25/36 | | | 4,396,081 | | | | 2,931,083 | |
GCAT LLC | | | | | | | | |
2014-2, 3.72% due 10/25/197,9 | | | 16,042,378 | | | | 16,131,670 | |
2015-1, 3.63% due 05/26/207 | | | 7,392,092 | | | | 7,387,383 | |
Nomura Resecuritization Trust | | | | | | | | |
2012-1R, 0.64% due 08/27/473,7 | | | 10,476,857 | | | | 9,877,581 | |
2015-4R, 0.56% due 03/26/363,7 | | | 7,986,387 | | | | 7,085,522 | |
2015-4R, 0.60% due 12/26/363,7 | | | 5,350,062 | | | | 5,098,074 | |
Oak Hill Advisors Residential Loan Trust | | | | | | | | |
2015-NPL2, 3.72% due 07/25/557 | | | 18,620,828 | | | | 18,543,588 | |
2015-NPL1, 3.47% due 01/25/557 | | | 3,127,945 | | | | 3,124,632 | |
GreenPoint Mortgage Funding Trust | | | | | | | | |
2006-AR1, 0.48% due 02/25/363 | | | 11,629,119 | | | | 9,426,878 | |
2005-HE4, 0.90% due 07/25/303 | | | 5,892,794 | | | | 5,696,093 | |
American Home Mortgage Investment Trust | | | | | | | | |
2006-1, 0.47% due 03/25/463 | | | 10,645,596 | | | | 8,803,663 | |
2006-1, 0.59% due 03/25/463 | | | 6,460,546 | | | | 5,386,648 | |
AJAX Mortgage Loan Trust | | | | | | | | |
2015-A, 3.88% due 11/25/547 | | | 12,586,135 | | | | 12,518,170 | |
WaMu Mortgage Pass-Through Certificates Series Trust | | | | | | | | |
2007-OA3, 0.97% due 04/25/473 | | | 13,455,684 | | | | 10,599,823 | |
Merrill Lynch Alternative Note Asset Trust Series | | | | | | | | |
2007-OAR3, 0.38% due 07/25/373 | | | 13,326,385 | | | | 10,166,153 | |
Luminent Mortgage Trust | | | | | | | | |
2006-2, 0.39% due 02/25/463 | | | 13,057,614 | | | | 9,629,833 | |
VOLT XXXIV LLC | | | | | | | | |
2015-NPL7, 3.25% due 02/25/557 | | | 7,632,593 | | | | 7,568,723 | |
Structured Asset Securities Corporation Mortgage Loan Trust | | | | | | | | |
2006-OPT1, 0.45% due 04/25/363 | | | 6,613,922 | | | | 6,160,161 | |
HSI Asset Securitization Corporation Trust | | | | | | | | |
2005-OPT1, 0.61% due 11/25/353 | | | 7,320,000 | | | | 6,093,527 | |
CIT Mortgage Loan Trust | | | | | | | | |
2007-1, 1.64% due 10/25/373,7 | | | 6,097,038 | | | | 5,799,594 | |
Irwin Home Equity Loan Trust | | | | | | | | |
2007-1, 5.85% due 08/25/377 | | | 5,668,070 | | | | 5,791,016 | |
Wells Fargo Alternative Loan Trust | | | | | | | | |
2007-PA3, 6.25% due 07/25/37 | | | 5,574,932 | | | | 5,048,012 | |
Soundview Home Loan Trust | | | | | | | | |
2007-1, 0.36% due 03/25/373 | | | 4,450,039 | | | | 4,118,235 | |
30 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Saxon Asset Securities Trust | | | | | | |
2005-4, 0.63% due 11/25/373 | | $ | 4,550,000 | | | $ | 3,940,559 | |
First Franklin Mortgage Loan Trust | | | | | | | | |
2006-FF1, 0.53% due 01/25/363 | | | 2,750,000 | | | | 2,438,351 | |
2006-FF1, 0.63% due 01/25/363 | | | 1,225,000 | | | | 955,577 | |
Alliance Bancorp Trust | | | | | | | | |
2007-OA1, 0.43% due 07/25/373 | | | 4,834,923 | | | | 3,166,671 | |
Home Equity Asset Trust | | | | | | | | |
2005-7, 0.64% due 01/25/363 | | | 3,250,000 | | | | 2,956,519 | |
Residential Asset Securitization Trust | | | | | | | | |
2006-A12, 6.25% due 11/25/36 | | | 3,656,717 | | | | 2,684,739 | |
GreenPoint Mortgage Funding Trust Series | | | | | | | | |
2007-AR1, 0.27% due 02/25/473 | | | 2,772,145 | | | | 2,670,114 | |
Chase Mortgage Finance Trust Series | | | | | | | | |
2006-S3, 6.00% due 11/25/36 | | | 2,985,341 | | | | 2,567,340 | |
Wachovia Asset Securitization Issuance II LLC Trust | | | | | | | | |
2007-HE1, 0.33% due 07/25/373,7 | | | 2,832,912 | | | | 2,475,430 | |
GSAA Trust | | | | | | | | |
2005-10, 0.84% due 06/25/353 | | | 2,462,000 | | | | 2,246,971 | |
Morgan Stanley Re-REMIC Trust | | | | | | | | |
2010-R5, 0.54% due 06/26/363,7 | | | 2,546,513 | | | | 1,926,723 | |
Asset Backed Securities Corporation Home Equity Loan Trust | | | | | | | | |
2006-HE5, 0.33% due 07/25/363 | | | 1,379,614 | | | | 1,237,663 | |
2004-HE8, 1.24% due 12/25/343 | | | 644,619 | | | | 618,498 | |
Structured Asset Investment Loan Trust | | | | | | | | |
2005-2, 0.93% due 03/25/353 | | | 1,500,000 | | | | 1,400,855 | |
Bear Stearns Mortgage Funding Trust | | | | | | | | |
2007-AR5, 0.36% due 06/25/473 | | | 1,700,771 | | | | 1,327,003 | |
New Century Home Equity Loan Trust | | | | | | | | |
2004-4, 0.99% due 02/25/353 | | | 1,268,923 | | | | 1,033,647 | |
Aames Mortgage Investment Trust | | | | | | | | |
2006-1, 0.51% due 04/25/363 | | | 806,385 | | | | 783,684 | |
Total Residential Mortgage-Backed Securities | | | | 873,578,455 | |
| | | | | | | | | |
Commercial Mortgage-Backed Securities - 2.2% | |
Motel 6 Trust | | | | | | | | |
2015-MTL6, 5.27% due 02/05/307 | | | 48,000,000 | | | | 47,178,959 | |
CDGJ Commercial Mortgage Trust | | | | | | | | |
2014-BXCH, 4.46% due 12/15/273,7 | | | 12,500,000 | | | | 12,396,138 | |
Hilton USA Trust | | | | | | | | |
2013-HLT, 4.60% due 11/05/303,7 | | | 11,300,000 | | | | 11,409,474 | |
GE Business Loan Trust | | | | | | | | |
2007-1A, 0.66% due 04/16/353,7 | | | 5,020,367 | | | | 4,637,052 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 31 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
LSTAR Commercial Mortgage Trust | | | | | | |
2011-1, 5.48% due 06/25/433,7 | | $ | 4,189,251 | | | $ | 4,177,178 | |
BAMLL-DB Trust | | | | | | | | |
2012-OSI, 6.78% due 04/13/297 | | | 550,000 | | | | 571,576 | |
Total Commercial Mortgage-Backed Securities | | | | 80,370,377 | |
| | | | | | | | | |
Mortgage Securities - 0.2% | |
BXHTL Mortgage Trust | | | | | | | | |
2015-JWRZ, 3.90% due 05/15/293,7 | | | 5,000,000 | | | | 4,869,790 | |
Resource Capital Corporation CRE Notes 2013 Ltd. | | | | | | | | |
2013-CRE1, 3.71% due 12/15/283,7 | | | 1,000,000 | | | | 999,997 | |
Total Mortgage Securities | | | | 5,869,787 | |
| | | | | | | | | |
Insured - 0.2% | |
Capmark Military Housing Trust | | | | | | | | |
2007-AET2, 6.06% due 10/10/527 | | | 5,892,058 | | | | 5,745,758 | |
Total Collateralized Mortgage Obligations | | | | | |
(Cost $971,505,519) | | | | | | | 965,564,377 | |
| | | | | | | | | |
SENIOR FLOATING RATE INTERESTS††,3,10 - 16.1% | |
Industrial - 3.4% | |
Travelport Holdings LLC | | | | | | | | |
5.75% due 09/02/21 | | | 28,683,250 | | | | 28,522,051 | |
Gates Global, Inc. | | | | | | | | |
4.25% due 07/05/21 | | | 8,861,630 | | | | 8,380,532 | |
DAE Aviation | | | | | | | | |
5.25% due 07/07/22 | | | 6,000,000 | | | | 6,000,000 | |
CareCore National LLC | | | | | | | | |
5.50% due 03/05/21 | | | 5,117,902 | | | | 4,785,238 | |
Connolly Corp. | | | | | | | | |
4.50% due 05/14/21 | | | 3,971,536 | | | | 3,953,346 | |
SIRVA Worldwide, Inc. | | | | | | | | |
7.50% due 03/27/19 | | | 3,701,595 | | | | 3,655,325 | |
Nord Anglia Education Finance LLC | | | | | | | | |
4.50% due 03/31/21 | | | 3,721,470 | | | | 3,649,385 | |
NVA Holdings, Inc. | | | | | | | | |
4.75% due 08/14/21 | | | 2,675,323 | | | | 2,670,855 | |
8.00% due 08/12/22 | | | 750,000 | | | | 741,563 | |
Hardware Holdings LLC | | | | | | | | |
6.75% due 03/30/20†††,2 | | | 3,465,000 | | | | 3,378,375 | |
GYP Holdings III Corp. | | | | | | | | |
4.75% due 04/01/21 | | | 3,262,720 | | | | 3,178,444 | |
Flakt Woods | | | | | | | | |
2.63% due 03/20/17†††,2 | | EUR | 2,678,249 | | | | 2,949,870 | |
Berlin Packaging LLC | | | | | | | | |
4.50% due 10/01/21 | | | 2,921,741 | | | | 2,907,132 | |
Mast Global | | | | | | | | |
8.75% due 09/12/19†††,2 | | | 2,839,659 | | | | 2,820,767 | |
Pro Mach Group, Inc. | | | | | | | | |
4.75% due 10/22/21 | | | 2,787,500 | | | | 2,786,106 | |
AlliedBarton Security Services LLC | | | | | | | | |
4.25% due 02/12/21 | | | 2,698,872 | | | | 2,658,389 | |
Goodpack Ltd. | | | | | | | | |
4.75% due 09/09/21 | | | 2,537,250 | | | | 2,418,837 | |
syncreon | | | | | | | | |
5.25% due 10/28/20 | | | 2,800,125 | | | | 2,222,599 | |
Thermasys Corp. | | | | | | | | |
5.26% due 05/03/19 | | | 2,289,500 | | | | 2,220,815 | |
Power Borrower, LLC | | | | | | | | |
4.25% due 05/06/20 | | | 1,775,604 | | | | 1,751,935 | |
8.25% due 11/06/20 | | | 275,000 | | | | 261,250 | |
KC Merger Sub, Inc. | | | | | | | | |
6.00% due 08/12/22 | | | 2,000,000 | | | | 1,970,000 | |
Doncasters Group Ltd. | | | | | | | | |
4.50% due 04/09/20 | | | 1,496,070 | | | | 1,488,589 | |
9.50% due 10/09/20 | | | 456,207 | | | | 453,926 | |
National Technical Systems | | | | | | | | |
7.00% due 06/12/21††† | | | 1,905,882 | | | | 1,886,582 | |
CPM Holdings, Inc. | | | | | | | | |
6.00% due 04/11/22 | | | 1,695,750 | | | | 1,697,157 | |
Survitec | | | | | | | | |
5.33% due 03/12/22 | | GBP | 1,125,000 | | | | 1,693,329 | |
32 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Landmark Aviation (US) | | | | | | |
4.75% due 10/25/19 | | $ | 1,705,049 | | | $ | 1,690,130 | |
CEVA Logistics US Holdings | | | | | | | | |
6.50% due 03/19/21 | | | 1,859,830 | | | | 1,661,219 | |
CHI Overhead Doors, Inc. | | | | | | | | |
4.75% due 07/29/22 | | | 1,650,000 | | | | 1,646,387 | |
V.Group Ltd. | | | | | | | | |
5.00% due 06/25/21 | | | 1,612,917 | | | | 1,609,562 | |
Milacron | | | | | | | | |
4.50% due 09/28/20 | | | 1,584,658 | | | | 1,580,696 | |
Beacon Roofing Supply, Inc. | | | | | | | | |
4.00% due 09/25/22 | | | 1,500,000 | | | | 1,495,620 | |
Hillman Group, Inc. | | | | | | | | |
4.50% due 06/30/21 | | | 790,000 | | | | 786,050 | |
3.56% due 06/28/192 | | | 757,143 | | | | 694,897 | |
Dematic S.A. | | | | | | | | |
4.25% due 12/27/19 | | | 1,410,866 | | | | 1,405,576 | |
Capstone Logistics | | | | | | | | |
5.50% due 10/07/21 | | | 1,412,442 | | | | 1,403,614 | |
Element Materials Technology | | | | | | | | |
5.00% due 08/06/21 | | | 1,354,344 | | | | 1,351,812 | |
Data Device Corp. | | | | | | | | |
7.00% due 07/15/202 | | | 1,264,331 | | | | 1,254,849 | |
CEVA Logistics Holdings BV (Dutch) | | | | | | | | |
6.50% due 03/19/21 | | | 1,348,377 | | | | 1,204,383 | |
CEVA Group Plc (United Kingdom) | | | | | | | | |
6.50% due 03/19/21 | | | 1,298,105 | | | | 1,159,480 | |
API Technologies Corp. | | | | | | | | |
9.00% due 02/06/18†††,2 | | | 1,148,507 | | | | 1,141,541 | |
US Infrastructure Corp. | | �� | | | | | | |
4.00% due 07/10/20 | | | 1,071,979 | | | | 1,059,919 | |
SI Organization | | | | | | | | |
5.75% due 11/22/19 | | | 1,056,130 | | | | 1,054,281 | |
Constantinople Acquisition GmbH | | | | | | | | |
4.75% due 04/30/22 | | | 995,000 | | | | 997,487 | |
Mitchell International, Inc. | | | | | | | | |
8.50% due 10/11/21 | | | 900,000 | | | | 894,753 | |
Exopack Holdings SA | | | | | | | | |
4.50% due 05/08/19 | | | 793,387 | | | | 790,412 | |
Hunter Defense Technologies | | | | | | | | |
6.50% due 08/05/19††† | | | 760,000 | | | | 745,391 | |
NANA Development Corp. | | | | | | | | |
8.00% due 03/15/182 | | | 650,000 | | | | 627,250 | |
Hunter Fan Co. | | | | | | | | |
6.50% due 12/20/172 | | | 570,900 | | | | 568,046 | |
Headwaters, Inc. | | | | | | | | |
4.50% due 03/24/22 | | | 498,750 | | | | 499,373 | |
Douglas Dynamics, LLC | | | | | | | | |
5.25% due 12/31/21 | | | 496,250 | | | | 495,630 | |
Tank Holdings Corp. | | | | | | | | |
5.25% due 03/16/22 | | | 472,826 | | | | 470,315 | |
CEVA Logistics Canada, ULC | | | | | | | | |
6.50% due 03/19/21 | | | 232,479 | | | | 207,652 | |
Wencor | | | | | | | | |
3.70% due 06/19/19 | | | 169,231 | | | | 154,491 | |
Camp Systems International | | | | | | | | |
8.25% due 11/29/19 | | | 120,000 | | | | 118,800 | |
Landmark Aviation (CAD) | | | | | | | | |
4.75% due 10/25/19 | | | 67,671 | | | | 67,078 | |
Total Industrial | | | | | | | 129,939,091 | |
| | | | | | | | | |
Technology - 3.1% | |
Avaya, Inc. | | | | | | | | |
6.25% due 05/29/20 | | | 14,280,774 | | | | 11,156,853 | |
6.50% due 03/30/18 | | | 6,119,644 | | | | 5,308,791 | |
Epicor Software | | | | | | | | |
4.75% due 06/01/22 | | | 11,471,250 | | | | 11,382,347 | |
TIBCO Software, Inc. | | | | | | | | |
6.50% due 12/04/20 | | | 10,948,741 | | | | 10,839,252 | |
Deltek, Inc. | | | | | | | | |
5.00% due 06/25/22 | | | 8,433,703 | | | | 8,426,702 | |
Advanced Computer Software | | | | | | | | |
10.50% due 01/31/23 | | | 4,750,000 | | | | 4,565,938 | |
6.50% due 03/18/22 | | | 3,482,500 | | | | 3,470,903 | |
Insight Venture | | | | | | | | |
7.25% due 07/15/21†††,2 | | GBP | 5,050,000 | | | | 7,516,565 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Informatica Corp. | | | | | | |
4.50% due 08/05/22 | | $ | 6,000,000 | | | $ | 5,958,780 | |
Telx Group | | | | | | | | |
4.50% due 04/09/20 | | | 4,822,862 | | | | 4,802,751 | |
7.50% due 04/09/21 | | | 875,000 | | | | 874,633 | |
Micro Focus International plc | | | | | | | | |
5.25% due 11/19/21 | | | 5,001,964 | | | | 4,994,161 | |
Greenway Medical Technologies | | | | | | | | |
6.00% due 11/04/202 | | | 3,586,125 | | | | 3,514,403 | |
9.25% due 11/04/212 | | | 550,000 | | | | 533,500 | |
Severin Acq | | | | | | | | |
5.50% due 07/29/21†††,2 | | | 3,500,000 | | | | 3,465,975 | |
EIG Investors Corp. | | | | | | | | |
5.00% due 11/08/19 | | | 2,714,043 | | | | 2,711,790 | |
Wall Street Systems | | | | | | | | |
4.50% due 04/30/21 | | | 2,510,870 | | | | 2,497,261 | |
CPI Acquisition, Inc. | | | | | | | | |
6.75% due 08/17/22 | | | 2,500,000 | | | | 2,475,000 | |
LANDesk Group, Inc. | | | | | | | | |
5.00% due 02/25/20 | | | 2,403,159 | | | | 2,394,147 | |
Interactive Data Corp. | | | | | | | | |
4.75% due 04/30/21 | | | 2,271,250 | | | | 2,262,029 | |
Mirion Technologies | | | | | | | | |
5.75% due 03/31/22 | | | 2,238,750 | | | | 2,232,034 | |
The Active Network, Inc. | | | | | | | | |
5.50% due 11/13/20 | | | 2,051,935 | | | | 2,029,713 | |
Sparta Holding Corp. | | | | | | | | |
6.50% due 07/28/20††† | | | 1,881,000 | | | | 1,865,871 | |
GlobalLogic Holdings, Inc. | | | | | | | | |
6.25% due 05/31/19 | | | 1,179,000 | | | | 1,173,105 | |
Flexera Software LLC | | | | | | | | |
4.50% due 04/02/20 | | | 823,813 | | | | 818,153 | |
8.00% due 04/02/21 | | | 350,000 | | | | 343,438 | |
Aspect Software, Inc. | | | | | | | | |
3.75% due 05/09/16 | | | 1,124,739 | | | | 1,096,621 | |
Eze Castle Software, Inc. | | | | | | | | |
4.00% due 04/06/20 | | | 693,004 | | | | 687,807 | |
7.25% due 04/05/21 | | | 400,000 | | | | 393,000 | |
Hyland Software, Inc. | | | | | | | | |
4.75% due 07/01/22 | | | 1,028,521 | | | | 1,024,027 | |
MRI Software LLC | | | | | | | | |
5.25% due 06/23/21 | | | 997,500 | | | | 995,425 | |
CCC Information Services, Inc. | | | | | | | | |
4.00% due 12/20/19 | | | 994,124 | | | | 986,976 | |
Infor, Inc. | | | | | | | | |
3.75% due 06/03/20 | | | 754,035 | | | | 728,745 | |
Quorum Business Solutions | | | | | | | | |
5.75% due 08/06/21 | | | 664,975 | | | | 659,988 | |
Sabre, Inc. | | | | | | | | |
4.00% due 02/19/19 | | | 247,475 | | | | 246,752 | |
First Data Corp. | | | | | | | | |
4.20% due 03/24/21 | | | 178,213 | | | | 177,767 | |
Total Technology | | | | | | | 114,611,203 | |
| | | | | | | | | |
Consumer, Cyclical - 3.1% | |
Mavis Tire | | | | | | | | |
6.25% due 10/31/20†††,2 | | | 9,376,500 | | | | 9,242,343 | |
Sears Holdings Corp. | | | | | | | | |
5.50% due 06/29/18 | | | 7,530,015 | | | | 7,395,905 | |
Party City Holdings, Inc. | | | | | | | | |
4.25% due 08/19/22 | | | 7,000,000 | | | | 6,980,750 | |
Navistar, Inc. | | | | | | | | |
6.50% due 08/07/20 | | | 6,500,000 | | | | 6,337,500 | |
Thame & London Ltd. | | | | | | | | |
6.00% due 06/19/17 | | GBP | 4,000,000 | | | | 5,984,419 | |
Sky Bet | | | | | | | | |
6.08% due 02/25/22 | | GBP | 3,700,000 | | | | 5,597,940 | |
National Vision, Inc. | | | | | | | | |
4.00% due 03/12/21 | | | 5,053,314 | | | | 4,897,520 | |
6.75% due 03/11/22 | | | 650,000 | | | | 637,813 | |
Advantage Sales & Marketing, Inc. | | | | | | | | |
4.25% due 07/23/21 | | | 5,241,528 | | | | 5,138,322 | |
Eyemart Express | | | | | | | | |
5.00% due 12/17/21 | | | 4,631,250 | | | | 4,625,461 | |
Neiman Marcus Group, Inc. | | | | | | | | |
4.25% due 10/25/20 | | | 4,720,370 | | | | 4,613,737 | |
Ceridian Corp. | | | | | | | | |
4.50% due 09/15/20 | | | 4,347,895 | | | | 4,111,500 | |
CHG Healthcare Services, Inc. | | | | | | | | |
4.25% due 11/19/19 | | | 3,301,115 | | | | 3,290,122 | |
34 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Mattress Firm | | | | | | |
5.00% due 10/20/21 | | $ | 3,231,819 | | | $ | 3,229,816 | |
Ipreo Holdings | | | | | | | | |
4.00% due 08/06/21 | | | 3,272,150 | | | | 3,225,129 | |
Life Time Fitness | | | | | | | | |
4.25% due 06/10/22 | | | 2,643,375 | | | | 2,629,603 | |
Fitness International LLC | | | | | | | | |
5.50% due 07/01/20 | | | 2,370,742 | | | | 2,261,096 | |
PF Changs | | | | | | | | |
4.25% due 07/02/19 | | | 2,216,795 | | | | 2,172,460 | |
Dealer Tire LLC | | | | | | | | |
5.50% due 12/22/21 | | | 1,985,000 | | | | 1,993,694 | |
1-800 Contacts, Inc. | | | | | | | | |
4.25% due 01/29/21 | | | 1,843,302 | | | | 1,835,247 | |
Capital Automotive LP | | | | | | | | |
6.00% due 04/30/20 | | | 1,770,000 | | | | 1,777,381 | |
Packers Holdings | | | | | | | | |
5.00% due 12/02/21 | | | 1,646,250 | | | | 1,646,941 | |
BBB Industries, LLC | | | | | | | | |
6.00% due 11/03/21 | | | 995,000 | | | | 993,756 | |
4.41% due 11/04/192 | | | 730,000 | | | | 646,776 | |
Kate Spade & Co. | | | | | | | | |
4.00% due 04/09/21 | | | 1,637,594 | | | | 1,622,446 | |
AlixPartners, LLP | | | | | | | | |
4.50% due 07/28/22 | | | 1,600,000 | | | | 1,593,504 | |
Compucom Systems, Inc. | | | | | | | | |
4.25% due 05/11/20 | | | 1,895,648 | | | | 1,516,518 | |
Southern Graphics, Inc. | | | | | | | | |
4.25% due 10/17/19 | | | 1,475,063 | | | | 1,460,312 | |
BJ’s Wholesale Club, Inc. | | | | | | | | |
4.50% due 09/26/19 | | | 1,441,510 | | | | 1,425,653 | |
Men’s Wearhouse | | | | | | | | |
4.50% due 06/18/21 | | | 1,382,472 | | | | 1,383,343 | |
NPC International, Inc. | | | | | | | | |
4.00% due 12/28/18 | | | 1,293,556 | | | | 1,276,313 | |
Med Finance Merger Sub LLC | | | | | | | | |
7.25% due 08/14/21†††,2 | | | 1,287,805 | | | | 1,275,203 | |
Jacobs Entertainment, Inc. | | | | | | | | |
5.25% due 10/29/18 | | | 1,198,549 | | | | 1,188,061 | |
Alexander Mann Solutions Ltd. | | | | | | | | |
5.75% due 12/20/19 | | | 1,173,486 | | | | 1,164,684 | |
Equinox Fitness | | | | | | | | |
5.00% due 01/31/20 | | | 1,145,854 | | | | 1,145,373 | |
ServiceMaster Co. | | | | | | | | |
4.25% due 07/01/21 | | | 997,481 | | | | 995,297 | |
Eldorado Resorts, Inc. | | | | | | | | |
4.25% due 07/25/22 | | | 997,500 | | | | 995,006 | |
Ollies Bargain Outlet | | | | | | | | |
4.75% due 09/28/19 | | | 996,105 | | | | 991,125 | |
California Pizza Kitchen, Inc. | | | | | | | | |
5.25% due 03/29/18 | | | 927,744 | | | | 909,189 | |
GCA Services Group, Inc. | | | | | | | | |
9.25% due 11/02/20 | | | 440,000 | | | | 435,600 | |
4.25% due 11/01/19 | | | 295,307 | | | | 293,647 | |
IntraWest Holdings S.à r.l. | | | | | | | | |
4.75% due 12/09/20 | | | 646,012 | | | | 646,012 | |
Sterling Intermidiate Corp. | | | | | | | | |
4.50% due 06/20/22 | | | 523,688 | | | | 521,724 | |
Acosta, Inc. | | | | | | | | |
4.25% due 09/26/21 | | | 500,000 | | | | 491,250 | |
Container Store, Inc. | | | | | | | | |
4.25% due 04/06/19 | | | 327,356 | | | | 323,673 | |
Arby’s | | | | | | | | |
4.76% due 11/16/20 | | | 193,265 | | | | 193,345 | |
Rite Aid Corp. | | | | | | | | |
5.75% due 08/21/20 | | | 100,000 | | | | 101,000 | |
Total Consumer, Cyclical | | | | | | | 113,213,509 | |
| | | | | | | | | |
Consumer, Non-cyclical - 2.9% | |
Albertson’s (Safeway) Holdings LLC | | | | | | | | |
5.50% due 08/25/21 | | | 28,291,294 | | | | 28,273,753 | |
5.00% due 08/23/19 | | | 8,775,000 | | | | 8,765,260 | |
IHC Holding Corp. | | | | | | | | |
7.00% due 04/30/21†††,2 | | | 7,481,250 | | | | 7,376,816 | |
One Call Medical, Inc. | | | | | | | | |
5.00% due 11/27/202 | | | 6,128,122 | | | | 5,993,304 | |
American Seafoods | | | | | | | | |
6.00% due 08/19/212 | | | 6,000,000 | | | | 5,910,000 | |
At Home Holding III Corp. | | | | | | | | |
5.00% due 06/03/22 | | | 4,987,500 | | | | 4,950,094 | |
Performance Food Group | | | | | | | | |
6.75% due 11/14/19 | | | 4,032,291 | | | | 4,030,598 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 35 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Grocery Outlet, Inc. | | | | | | |
4.75% due 10/21/21 | | $ | 3,525,869 | | | $ | 3,512,647 | |
Diamond Foods, Inc. | | | | | | | | |
4.25% due 08/20/18 | | | 2,973,013 | | | | 2,960,942 | |
American Tire Distributors, Inc. | | | | �� | | | | |
5.25% due 09/01/21 | | | 2,749,365 | | | | 2,748,210 | |
Dole Food Company, Inc. | | | | | | | | |
4.50% due 11/01/18 | | | 2,531,162 | | | | 2,522,936 | |
Taxware Holdings | | | | | | | | |
7.50% due 04/01/22†††,2 | | | 2,493,750 | | | | 2,470,542 | |
Authentic Brands | | | | | | | | |
5.50% due 05/27/21 | | | 2,278,186 | | | | 2,264,905 | |
Concordia | | | | | | | | |
4.75% due 04/21/22 | | | 1,997,500 | | | | 1,993,345 | |
AdvancePierre Foods, Inc. | | | | | | | | |
9.50% due 10/10/17 | | | 1,006,000 | | | | 1,002,228 | |
5.75% due 07/10/17 | | | 726,942 | | | | 725,583 | |
Reddy Ice Holdings, Inc. | | | | | | | | |
6.75% due 05/01/192 | | | 1,072,989 | | | | 885,216 | |
10.75% due 10/01/192 | | | 1,125,000 | | | | 675,000 | |
Arctic Glacier Holdings, Inc. | | | | | | | | |
6.00% due 05/10/19 | | | 1,530,247 | | | | 1,507,293 | |
Hostess Brands | | | | | | | | |
4.50% due 08/03/22 | | | 1,500,000 | | | | 1,500,450 | |
Phillips-Medsize Corp. | | | | | | | | |
4.75% due 06/16/21 | | | 1,481,745 | | | | 1,474,336 | |
Nellson Nutraceutical (US) | | | | | | | | |
6.00% due 12/23/21 | | | 1,473,676 | | | | 1,458,939 | |
Hearthside Foods | | | | | | | | |
4.50% due 06/02/21 | | | 1,382,500 | | | | 1,372,131 | |
Pharmaceutical Product Development | | | | | | | | |
4.25% due 08/18/22 | | | 1,296,750 | | | | 1,280,139 | |
DJO Finance LLC | | | | | | | | |
4.25% due 06/07/20 | | | 1,222,031 | | | | 1,216,434 | |
Valeo Foods Group Ltd. | | | | | | | | |
7.50% due 08/17/22 | | EUR | 1,100,000 | | | | 1,204,474 | |
AMAG Pharmaceuticals | | | | | | | | |
4.75% due 08/17/21 | | | 1,200,000 | | | | 1,192,500 | |
Physio-Control International, Inc. | | | | | | | | |
5.50% due 06/06/22 | | | 1,180,000 | | | | 1,170,418 | |
NES Global Talent | | | | | | | | |
6.50% due 10/03/19 | | | 1,115,214 | | | | 1,037,149 | |
Jacobs Douwe Eg | | | | | | | | |
4.25% due 07/02/22††† | | | 1,000,000 | | | | 995,000 | |
CTI Foods Holding Co. LLC | | | | | | | | |
8.25% due 06/28/21 | | | 1,035,000 | | | | 993,600 | |
Winebow, Inc. | | | | | | | | |
4.75% due 07/01/21 | | | 987,500 | | | | 978,859 | |
Nellson Nutraceutical (CAD) | | | | | | | | |
6.00% due 12/23/21 | | | 915,325 | | | | 906,171 | |
VWR Funding, Inc. | | | | | | | | |
4.00% due 01/15/22 | | EUR | 600,000 | | | | 671,972 | |
Fender Musical Instruments Corp. | | | | | | | | |
5.75% due 04/03/19 | | | 542,250 | | | | 539,989 | |
Targus Group International, Inc. | | | | | | | | |
14.75% due 05/24/162 | | | 224,953 | | | | 141,046 | |
Total Consumer, Non-cyclical | | | | 106,702,279 | |
| | | | | | | | | |
Communications - 1.5% | |
Univision Communications, Inc. | | | | | | | | |
4.00% due 02/28/20 | | | 16,449,245 | | | | 16,330,976 | |
4.00% due 03/01/20 | | | 7,344,744 | | | | 7,290,834 | |
Cengage Learning Acquisitions, Inc. | | | | | | | | |
7.00% due 03/31/20 | | | 9,706,476 | | | | 9,616,692 | |
Anaren, Inc. | | | | | | | | |
5.50% due 02/18/21 | | | 1,965,000 | | | | 1,942,894 | |
9.25% due 08/18/21 | | | 1,500,000 | | | | 1,470,000 | |
Neptune Finco Corp. | | | | | | | | |
5.00% due 09/23/22 | | | 3,000,000 | | | | 2,980,500 | |
Springer Science + Business Media SA | | | | | | | | |
4.75% due 08/14/20 | | | 2,938,492 | | | | 2,904,200 | |
Proquest LLC | | | | | | | | |
5.25% due 10/24/21 | | | 2,741,157 | | | | 2,736,579 | |
Asurion Corp. | | | | | | | | |
5.00% due 08/04/22 | | | 1,321,688 | | | | 1,246,721 | |
4.25% due 07/08/20 | | | 1,292,122 | | | | 1,208,599 | |
36 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Bureau van Dijk Electronic Publishing BV | | | | | | |
5.09% due 09/20/212 | | GBP | 1,000,000 | | | $ | 1,508,252 | |
Gogo LLC | | | | | | | |
11.25% due 03/21/182 | | $ | 998,056 | | | | 1,032,988 | |
7.50% due 03/21/182 | | | 473,386 | | | | 473,386 | |
Cumulus Media, Inc. | | | | | | | | |
4.25% due 12/23/20 | | | 1,386,922 | | | | 1,158,080 | |
MergerMarket Ltd. | | | | | | | | |
4.50% due 02/04/21 | | | 1,182,990 | | | | 1,153,415 | |
Mitel Networks Corp. | | | | | | | | |
5.50% due 04/29/22 | | | 897,750 | | | | 890,460 | |
Liberty Cablevision of Puerto Rico LLC | | | | | | | | |
4.50% due 01/07/22 | | | 600,000 | | | | 580,878 | |
Internet Brands | | | | | | | | |
4.75% due 07/08/21 | | | 268,144 | | | | 265,127 | |
Total Communications | | | | | | | 54,790,581 | |
| | | | | | | | | |
Financial - 1.3% | |
Intertrust Group | | | | | | | | |
4.42% due 04/16/21 | | | 4,760,000 | | | | 4,745,719 | |
8.00% due 04/16/22 | | | 1,900,000 | | | | 1,895,250 | |
Lineage Logistics LLC | | | | | | | | |
4.50% due 04/07/21 | | | 6,000,081 | | | | 5,767,577 | |
USI Holdings Corp. | | | | | | | | |
4.25% due 12/27/19 | | | 4,415,468 | | | | 4,363,940 | |
AssuredPartners | | | | | | | | |
5.00% due 04/02/21 | | | 3,966,223 | | | | 3,956,307 | |
7.75% due 04/02/22 | | | 199,500 | | | | 201,246 | |
National Financial Partners Corp. | | | | | | | | |
4.50% due 07/01/20 | | | 4,218,687 | | | | 4,144,860 | |
Alliant Holdings I L.P. | | | | | | | | |
4.50% due 08/12/22 | | | 3,790,500 | | | | 3,736,031 | |
Magic Newco, LLC | | | | | | | | |
5.00% due 12/12/18 | | | 3,371,871 | | | | 3,371,871 | |
Hyperion Insurance | | | | | | | | |
5.50% due 04/29/22 | | | 3,283,500 | | | | 3,279,396 | |
York Risk Services | | | | | | | | |
4.75% due 10/01/21 | | | 3,072,227 | | | | 2,942,948 | |
Expert Global Solutions | | | | | | | | |
8.50% due 04/03/18 | | | 2,152,660 | | | | 2,125,752 | |
Ryan LLC | | | | | | | | |
6.75% due 08/07/20 | | | 1,728,125 | | | | 1,704,363 | |
American Stock Transfer & Trust | | | | | | | | |
5.75% due 06/26/20 | | | 1,578,308 | | | | 1,561,862 | |
Acrisure LLC | | | | | | | | |
5.25% due 05/19/22 | | | 1,300,000 | | | | 1,257,750 | |
Genex Services, Inc. | | | | | | | | |
5.25% due 05/28/21 | | | 990,492 | | | | 988,016 | |
HDV Holdings | | | | | | | | |
5.75% due 09/17/202 | | | 786,050 | | | | 778,976 | |
HUB International Ltd. | | | | | | | | |
4.00% due 10/02/20 | | | 793,955 | | | | 774,852 | |
Cunningham Lindsey U.S., Inc. | | | | | | | | |
5.00% due 12/10/192 | | | 667,031 | | | | 543,630 | |
9.25% due 06/10/202 | | | 116,932 | | | | 87,699 | |
Total Financial | | | | | | | 48,228,045 | |
| | | | | | | | | |
Basic Materials - 0.4% | |
Atkore International, Inc. | | | | | | | | |
4.50% due 04/09/21 | | | 1,975,000 | | | | 1,881,188 | |
7.75% due 10/08/212 | | | 850,000 | | | | 780,938 | |
Ennis-Flint | | | | | | | | |
4.25% due 03/31/212 | | | 1,970,000 | | | | 1,925,675 | |
7.75% due 09/30/212 | | | 550,000 | | | | 511,500 | |
Noranda Aluminum Acquisition Corp. | | | | | | | | |
5.75% due 02/28/19 | | | 3,364,927 | | | | 2,269,239 | |
Zep, Inc. | | | | | | | | |
5.75% due 06/27/22 | | | 1,995,000 | | | | 1,990,012 | |
Trinseo Materials Operating S.C.A. | | | | | | | | |
4.25% due 11/05/21 | | | 1,147,125 | | | | 1,136,606 | |
Chromaflo Technologies | | | | | | | | |
4.50% due 12/02/19 | | | 1,070,796 | | | | 1,030,641 | |
Orica Chemicals | | | | | | | | |
7.25% due 02/28/22 | | | 995,000 | | | | 990,025 | |
Royal Adhesives And Sealants | | | | | | | | |
4.50% due 06/19/22 | | | 800,000 | | | | 795,400 | |
Hoffmaster Group, Inc. | | | | | | | | |
5.25% due 05/08/20 | | | 496,231 | | | | 494,063 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 37 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
4.91% due 05/09/192 | | $ | 142,857 | | | $ | 130,851 | |
Total Basic Materials | | | | | | | 13,936,138 | |
| | | | | | | | | |
Utilities - 0.3% | |
Veresen Midstream LP | | | | | | | | |
5.25% due 03/31/22 | | | 3,059,625 | | | | 3,036,677 | |
Terraform AP Acquisition Holdings LLC | | | | | | | | |
5.00% due 06/26/22 | | | 2,992,500 | | | | 2,902,725 | |
Osmose Utility Services, Inc. | | | | | | | | |
6.00% due 08/18/22 | | | 1,650,000 | | | | 1,645,364 | |
Panda Temple II Power | | | | | | | | |
7.25% due 04/03/19 | | | 1,000,000 | | | | 885,000 | |
Texas Competitive Electric Holdings Company LLC | | | | | | | | |
3.75% due 05/05/16 | | | 883,663 | | | | 882,780 | |
Stonewall (Green Energy) | | | | | | | | |
6.50% due 11/12/21 | | | 500,000 | | | | 491,250 | |
Total Utilities | | | | | | | 9,843,796 | |
| | | | | | | | | |
Energy - 0.1% | |
Cactus Wellhead | | | | | | | | |
7.00% due 07/31/20 | | | 1,485,000 | | | | 1,113,751 | |
PSS Companies | | | | | | | | |
5.50% due 01/28/20 | | | 863,781 | | | | 742,851 | |
FTS International | | | | | | | | |
5.75% due 04/16/21 | | | 2,382,727 | | | | 721,966 | |
Total Energy | | | | | | | 2,578,568 | |
Total Senior Floating Rate Interests | | | | | |
(Cost $606,672,312) | | | | | | | 593,843,210 | |
| | | | | | | | | |
CORPORATE BONDS††,10 - 15.5% | |
Financial - 7.1% | |
Citigroup, Inc. | | | | | | | | |
5.95%3,4 | | | 26,309,000 | | | | 25,373,939 | |
5.87%3,4 | | | 16,580,000 | | | | 16,289,850 | |
5.80%3,4 | | | 9,281,000 | | | | 9,134,824 | |
6.30%3,4 | | | 8,000,000 | | | | 7,697,200 | |
Bank of America Corp. | | | | | | | | |
6.25%3,4,11 | | | 21,150,000 | | | | 20,674,124 | |
6.10%3,4 | | | 17,000,000 | | | | 16,575,000 | |
5.12%3,4,11 | | | 14,200,000 | | | | 13,862,750 | |
SunTrust Banks, Inc. | | | | | | | | |
5.63%3,4,11 | | | 29,000,000 | | | | 29,000,000 | |
JPMorgan Chase & Co. | | | | | | | | |
5.00%3,4,11 | | | 20,490,000 | | | | 19,926,525 | |
5.30%3,4 | | | 1,250,000 | | | | 1,228,125 | |
Goldman Sachs Group, Inc. | | | | | | | | |
5.38%3,4,11 | | | 15,200,000 | | | | 14,848,500 | |
HSBC Holdings plc | | | | | | | | |
5.63%3,4 | | | 8,850,000 | | | | 8,518,125 | |
6.37%3,4,11 | | | 4,350,000 | | | | 4,155,938 | |
Jefferies Finance LLC / JFIN Company-Issuer Corp. | | | | | | | | |
7.38% due 04/01/207,11 | | | 5,575,000 | | | | 5,373,185 | |
7.50% due 04/15/217 | | | 5,550,000 | | | | 5,189,250 | |
6.88% due 04/15/227,11 | | | 1,100,000 | | | | 1,001,000 | |
Fifth Third Bancorp | | | | | | | | |
5.10%3,4 | | | 9,557,000 | | | | 8,744,655 | |
4.90%3,4 | | | 3,000,000 | | | | 2,812,500 | |
Morgan Stanley | | | | | | | | |
5.55%3,4 | | | 11,700,000 | | | | 11,524,500 | |
Oxford Finance LLC / Oxford Finance Company-Issuer, Inc. | | | | | | | | |
7.25% due 01/15/187 | | | 7,926,000 | | | | 8,064,705 | |
CIC Receivables Master Trust | | | | | | | | |
4.89% due 10/07/21†††,2 | | | 6,500,000 | | | | 6,536,920 | |
Customers Bank | | | | | | | | |
6.13% due 06/26/293,13 | | | 6,000,000 | | | | 6,060,000 | |
CCR Incorporated MT100 Payment Rights Master Trust | | | | | | | | |
0.64% due 07/10/173 | | | 5,935,881 | | | | 5,841,500 | |
Citizens Financial Group, Inc. | | | | | | | | |
5.50%3,4,7 | | | 5,000,000 | | | | 4,875,000 | |
Barclays plc | | | | | | | | |
8.25% due 12/29/493,4 | | | 3,150,000 | | | | 3,280,873 | |
Univest Corporation of Pennsylvania | | | | | | | | |
5.10% due 03/30/252,3 | | | 2,500,000 | | | | 2,518,750 | |
Kennedy-Wilson, Inc. | | | | | | | | |
5.88% due 04/01/24 | | | 2,050,000 | | | | 2,003,875 | |
38 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Jefferies LoanCore LLC / JLC Finance Corp. | | | | | | |
6.87% due 06/01/207 | | $ | 1,700,000 | | | $ | 1,623,500 | |
National Financial Partners Corp. | | | | | | | | |
9.00% due 07/15/217 | | | 1,501,000 | | | | 1,448,465 | |
Prosight Global Inc. | | | | | | | | |
7.50% due 11/26/20†††,2 | | | 850,000 | | | | 892,322 | |
Garanti Diversified Payment Rights Finance Co. | | | | | | | | |
0.47% due 07/09/173 | | | 208,000 | | | | 202,634 | |
Total Financial | | | | | | | 265,278,534 | |
| | | | | | | | | |
Technology - 1.4% | |
Hewlett Packard Enterprise Co. | | | | | | | | |
4.90% due 10/15/25 | | | 19,700,000 | | | | 19,645,825 | |
4.40% due 10/15/22 | | | 15,800,000 | | | | 15,610,716 | |
Infor US, Inc. | | | | | | | | |
6.50% due 05/15/22 | | | 5,270,000 | | | | 4,835,225 | |
5.75% due 08/15/207 | | | 1,250,000 | | | | 1,243,750 | |
Micron Technology, Inc. | | | | | | | | |
5.25% due 08/01/23 | | | 6,100,000 | | | | 5,610,780 | |
Epicor Software | | | | | | | | |
9.24% due 06/21/23††† | | | 1,850,000 | | | | 1,794,500 | |
First Data Corp. | | | | | | | | |
8.75% due 01/15/227 | | | 1,250,000 | | | | 1,306,250 | |
Total Technology | | | | | | | 50,047,046 | |
| | | | | | | | | |
Communications - 1.2% | |
MDC Partners, Inc. | | | | | | | | |
6.75% due 04/01/207,11 | | | 9,200,000 | | | | 9,085,000 | |
Zayo Group LLC / Zayo Capital, Inc. | | | | | | | | |
6.00% due 04/01/23 | | | 7,500,000 | | | | 7,275,000 | |
6.38% due 05/15/25 | | | 1,000,000 | | | | 960,000 | |
Avaya, Inc. | | | | | | | | |
7.00% due 04/01/197,11 | | | 9,505,000 | | | | 7,532,713 | |
McGraw-Hill Global Education Holdings LLC / McGraw-Hill Global Education Finance | | | | | | | | |
9.75% due 04/01/2111 | | | 5,350,000 | | | | 5,844,875 | |
Sprint Communications, Inc. | | | | | | | | |
9.00% due 11/15/187 | | | 3,000,000 | | | | 3,147,900 | |
7.00% due 03/01/207 | | | 2,597,000 | | | | 2,597,000 | |
DISH DBS Corp. | | | | | | | | |
5.87% due 11/15/24 | | | 2,400,000 | | | | 2,038,500 | |
5.88% due 07/15/22 | | | 1,000,000 | | | | 885,000 | |
TIBCO Software, Inc. | | | | | | | | |
11.38% due 12/01/217 | | | 2,050,000 | | | | 2,044,875 | |
Neptune Finco Corp. | | | | | | | | |
6.63% due 10/15/257 | | | 2,000,000 | | | | 2,010,000 | |
CenturyLink, Inc. | | | | | | | | |
5.63% due 04/01/25 | | | 1,150,000 | | | | 914,250 | |
Total Communications | | | | | | | 44,335,113 | |
| | | | | | | | | |
Energy - 1.1% | |
ContourGlobal Power Holdings S.A. | | | | | | | | |
7.13% due 06/01/197,11 | | | 10,800,000 | | | | 10,828,079 | |
Exterran Holdings, Inc. | | | | | | | | |
7.25% due 12/01/1811 | | | 6,432,000 | | | | 6,303,360 | |
BreitBurn Energy Partners Limited Partnership / BreitBurn Finance Corp. | | | | | | | | |
9.25% due 05/18/20†††,2 | | | 5,037,000 | | | | 4,608,855 | |
Gibson Energy, Inc. | | | | | | | | |
6.75% due 07/15/217,11 | | | 4,590,000 | | | | 4,412,138 | |
CONSOL Energy, Inc. | | | | | | | | |
8.00% due 04/01/237,11 | | | 5,950,000 | | | | 4,250,680 | |
Atlas Energy Holdings Operating Company LLC / Atlas Resource Finance Corp. | | | | | | | | |
9.25% due 08/15/212,11 | | | 3,860,000 | | | | 1,621,200 | |
7.75% due 01/15/212,11 | | | 1,350,000 | | | | 567,000 | |
Unit Corp. | | | | | | | | |
6.63% due 05/15/21 | | | 2,100,000 | | | | 1,722,000 | |
EP Energy LLC / Everest Acquisition Finance, Inc. | | | | | | | | |
9.38% due 05/01/20 | | | 1,850,000 | | | | 1,591,000 | |
Schahin II Finance Company SPV Ltd. | | | | | | | | |
5.88% due 09/25/2213 | | | 7,557,400 | | | | 1,587,054 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 39 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Ultra Resources, Inc. | | | | | | |
4.51% due 10/12/20†††,2 | | $ | 1,500,000 | | | $ | 1,088,595 | |
Sunoco Limited Partnership / Sunoco Finance Corp. | | | | | | | | |
6.38% due 04/01/23 | | | 560,000 | | | | 546,000 | |
IronGate Energy Services LLC | | | | | | | | |
11.00% due 07/01/1813 | | | 600,000 | | | | 381,000 | |
Total Energy | | | | | | | 39,506,961 | |
| | | | | | | | | |
Industrial - 1.1% | |
Quality Distribution LLC / QD Capital Corp. | | | | | | | | |
9.88% due 11/01/18 | | | 9,551,000 | | | | 9,842,306 | |
StandardAero Aviation Holdings, Inc. | | | | | | | | |
10.00% due 07/15/237 | | | 5,450,000 | | | | 5,395,500 | |
Dynagas LNG Partners Limited Partnership / Dynagas Finance, Inc. | | | | | | | | |
6.25% due 10/30/192 | | | 5,950,000 | | | | 4,938,500 | |
Interoute Finco plc | | | | | | | | |
7.38% due 10/15/20 | | EUR | 4,250,000 | | | | 4,690,697 | |
Reynolds Group Issuer Incorporated / Reynolds Group Issuer LLC / Reynolds Group Issuer Lu | | | | | | | | |
7.88% due 08/15/1911 | | | 3,900,000 | | | | 4,056,000 | |
CEVA Group plc | | | | | | | | |
7.00% due 03/01/217 | | | 2,425,000 | | | | 2,146,125 | |
Skyway Concession Company LLC | | | | | | | | |
0.71% due 06/30/263,7,11 | | | 2,500,000 | | | | 2,031,250 | |
Princess Juliana International Airport Operating Company N.V. | | | | | | | | |
5.50% due 12/20/277 | | | 1,875,400 | | | | 1,866,023 | |
LMI Aerospace, Inc. | | | | | | | | |
7.38% due 07/15/19 | | | 1,100,000 | | | | 1,061,500 | |
Building Materials Corporation of America | | | | | | | | |
6.00% due 10/15/257 | | | 1,000,000 | | | | 1,010,000 | |
SBM Baleia Azul | | | | | | | | |
5.50% due 09/15/27†††,2 | | | 955,350 | | | | 715,939 | |
Unifrax I LLC / Unifrax Holding Co. | | | | | | | | |
7.50% due 02/15/197 | | | 500,000 | | | | 490,000 | |
Novelis, Inc. | | | | | | | | |
8.38% due 12/15/17 | | | 450,000 | | | | 436,500 | |
Total Industrial | | | | | | | 38,680,340 | |
| | | | | | | | | |
Consumer, Non-cyclical - 1.0% | |
Vector Group Ltd. | | | | | | | | |
7.75% due 02/15/21 | | | 17,210,000 | | | | 18,197,423 | |
Bumble Bee Holdings, Inc. | | | | | | | | |
9.00% due 12/15/177 | | | 10,637,000 | | | | 10,849,740 | |
Tenet Healthcare Corp. | | | | | | | | |
3.84% due 06/15/203 | | | 4,900,000 | | | | 4,866,313 | |
Midas Intermediate Holdco II LLC / Midas Intermediate Holdco II Finance, Inc. | | | | | | | | |
7.88% due 10/01/227,11 | | | 2,000,000 | | | | 1,950,000 | |
KeHE Distributors LLC / KeHE Finance Corp. | | | | | | | | |
7.63% due 08/15/217 | | | 1,125,000 | | | | 1,181,250 | |
Jaguar Holding Company II / Pharmaceutical Product Development LLC | | | | | | | | |
6.38% due 08/01/237 | | | 880,000 | | | | 855,800 | |
Total Consumer, Non-cyclical | | | | 37,900,526 | |
| | | | | | | | | |
Diversified - 0.7% | |
HRG Group, Inc. | | | | | | | | |
7.88% due 07/15/1911 | | | 18,571,000 | | | | 19,267,412 | |
Opal Acquisition, Inc. | | | | | | | | |
8.88% due 12/15/217 | | | 7,730,000 | | | | 7,275,863 | |
Total Diversified | | | | | | | 26,543,275 | |
| | | | | | | | | |
Consumer, Cyclical - 0.7% | |
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | | | | | | | | |
5.50% due 03/01/257 | | | 10,400,000 | | | | 8,917,999 | |
40 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Ferrellgas Limited Partnership / Ferrellgas Finance Corp. | | | | | | |
6.75% due 06/15/2311 | | $ | 5,500,000 | | | $ | 5,005,000 | |
WMG Acquisition Corp. | | | | | | | | |
6.75% due 04/15/227,11 | | | 4,925,000 | | | | 4,629,500 | |
Checkers Drive-In Restaurants, Inc. | | | | | | | | |
11.00% due 12/01/177 | | | 2,800,000 | | | | 2,975,000 | |
Seminole Hard Rock Entertainment Incorporated / Seminole Hard Rock International LLC | | | | | | | | |
5.87% due 05/15/217 | | | 1,550,000 | | | | 1,526,750 | |
AmeriGas Finance LLC / AmeriGas Finance Corp. | | | | | | | | |
6.75% due 05/20/20 | | | 750,000 | | | | 759,375 | |
Carrols Restaurant Group, Inc. | | | | | | | | |
8.00% due 05/01/22 | | | 500,000 | | | | 526,250 | |
Nathan’s Famous, Inc. | | | | | | | | |
10.00% due 03/15/207 | | | 500,000 | | | | 523,750 | |
PF Chang’s China Bistro, Inc. | | | | | | | | |
10.25% due 06/30/207 | | | 465,000 | | | | 452,213 | |
Total Consumer, Cyclical | | | | | | | 25,315,837 | |
| | | | | | | | | |
Basic Materials - 0.7% | |
Yamana Gold, Inc. | | | | | | | | |
4.95% due 07/15/24 | | | 8,950,000 | | | | 7,997,183 | |
Newcrest Finance Pty Ltd. | | | | | | | | |
4.20% due 10/01/227 | | | 8,850,000 | | | | 7,762,220 | |
TPC Group, Inc. | | | | | | | | |
8.75% due 12/15/207 | | | 5,190,000 | | | | 4,437,450 | |
Eldorado Gold Corp. | | | | | | | | |
6.13% due 12/15/207,11 | | | 4,920,000 | | | | 4,280,400 | |
Mirabela Nickel Ltd. | | | | | | | | |
9.50% due 06/24/19†††,2 | | | 1,718,303 | | | | 532,674 | |
1.00% due 09/10/44†††,2 | | | 37,690 | | | | — | |
Total Basic Materials | | | | | | | 25,009,927 | |
| | | | | | | | | |
Utilities - 0.5% | |
AES Corp. | | | | | | | | |
3.32% due 06/01/193,11 | | | 11,532,000 | | | | 10,955,400 | |
4.88% due 05/15/23 | | | 3,000,000 | | | | 2,632,500 | |
AmeriGas Partners, LP / AmeriGas Finance Corp. | | | | | | | | |
6.50% due 05/20/21 | | | 2,830,000 | | | | 2,844,150 | |
Terraform Global Operating LLC | | | | | | | | |
9.75% due 08/15/227 | | | 2,700,000 | | | | 2,166,750 | |
FPL Energy National Wind LLC | | | | | | | | |
5.61% due 03/10/2413 | | | 45,894 | | | | 45,894 | |
Total Utilities | | | | | | | 18,644,694 | |
Total Corporate Bonds | | | | | | | | |
(Cost $599,291,810) | | | | | | | 571,262,253 | |
| | | | | | | | | |
FOREIGN GOVERNMENT BONDS†† - 1.7% | |
Kenya Government International Bond | | | | | | | | |
6.87% due 06/24/247 | | | 36,210,000 | | | | 32,806,260 | |
Dominican Republic International Bond | | | | | | | | |
6.85% due 01/27/457,11 | | | 30,400,000 | | | | 29,260,000 | |
Total Foreign Government Bonds | | | | | |
(Cost $68,169,134) | | | | | | | 62,066,260 | |
| | | | | | | | | |
MUNICIPAL BONDS†† - 0.1% | |
Puerto Rico - 0.1% | |
Puerto Rico Electric Power Authority Revenue Bonds | | | | | | | | |
0.74% due 07/01/292,3 | | | 4,000,000 | | | | 2,901,200 | |
| | | | | | | | | |
California - 0.0% | |
Stockton Public Financing Authority Revenue Bonds | | | | | | | | |
7.94% due 10/01/3811 | | | 2,000,000 | | | | 2,246,120 | |
Total Municipal Bonds | | | | | | | | |
(Cost $5,138,754) | | | | | | | 5,147,320 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 41 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
SENIOR FIXED RATE INTERESTS†† - 0.1% | |
Communications - 0.1% | |
Lions Gate Entertainment Corp. | | | | | | |
5.00% due 03/17/22 | | $ | 2,110,000 | | | $ | 2,112,637 | |
| | | | | | | | | |
Financial - 0.0% | |
Magic Newco, LLC | | | | | | | | |
12.00% due 06/12/19 | | | 1,075,000 | | | | 1,166,375 | |
| | | | | | | | | |
Consumer, Cyclical - 0.0% | |
CKX Entertainment, Inc. | | | | | | | | |
11.00% due 06/21/17†††,2 | | | 43,475 | | | | 19,999 | |
Total Senior Fixed Rate Interests | | | | | |
(Cost $3,354,427) | | | | | | | 3,299,011 | |
| | | | | | | | | |
REPURCHASE AGREEMENTS††,12 - 1.9% | |
Jefferies & Company, Inc. | | | | | | | | |
issued 09/15/15 at 3.21%
due 10/13/15 | | | 20,506,000 | | | | 20,506,000 | |
issued 08/26/15 at 3.20%
due 10/01/15 | | | 9,013,000 | | | | 9,013,000 | |
issued 09/18/15 at 3.21%
due 10/22/15 | | | 9,008,000 | | | | 9,008,000 | |
issued 09/29/15 at 3.19%
due 11/02/15 | | | 8,836,000 | | | | 8,836,000 | |
issued 09/08/15 at 2.70%
due 10/15/15 | | | 4,620,000 | | | | 4,620,000 | |
issued 09/03/15 at 3.20%
due 10/07/15 | | | 2,705,000 | | | | 2,705,000 | |
issued 09/25/15 at 2.69%
due 11/03/15 | | | 612,000 | | | | 612,000 | |
issued 08/10/15 at 1.69%
open maturity | | | 381,000 | | | | 381,000 | |
issued 09/29/15 at 2.69%
due 11/02/15 | | | 327,000 | | | | 327,000 | |
issued 09/15/15 at 2.71%
due 10/13/15 | | | 38,000 | | | | 38,000 | |
Barclays | | | | | | | | |
issued 08/13/15 at (0.35)%
open maturity | | | 6,441,093 | | | | 6,441,093 | |
issued 08/28/15 at (0.10)%
open maturity | | | 3,626,775 | | | | 3,626,775 | |
issued 06/01/15 at (0.10)%
open maturity | | | 741,000 | | | | 741,000 | |
issued 05/21/15 at (0.10)%
open maturity | | | 711,389 | | | | 711,389 | |
issued 07/30/15 at (0.75)%
open maturity | | | 223,563 | | | | 223,563 | |
issued 07/29/15 at (0.75)%
open maturity | | | 216,563 | | | | 216,563 | |
issued 05/28/15 at (0.10)%
open maturity | | | 186,000 | | | | 186,000 | |
Total Repurchase Agreements | | | | | |
(Cost $68,192,383) | | | | | | | 68,192,383 | |
| | | Contracts | | | | |
| | | | | | | |
OPTIONS PURCHASED†,10 - 0.5% | |
Call options on: | | | | | | |
SPDR Gold Shares Expiring September 2016 with strike price of $116.00 | | | 10,345 | | | | 4,706,974 | |
iShares 7-10 Year Treasury Bond ETF Expiring December 2015 with strike price of $106.00 | | | 15,513 | | | | 3,025,035 | |
| | | Notional | | | | |
| | | | | | | |
USD / CNH Expiring August 2016 with strike price of $6.66††† | | $ | 78,400,000 | | | | 1,559,141 | |
USD / TWD Expiring September 2016 with strike price of $32.48††† | | | 39,400,000 | | | | 1,522,377 | |
USD / SAR Expiring August 2016 with strike price of $3.78††† | | | 78,400,000 | | | | 568,322 | |
42 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | Notional | | Value | |
| | | | | |
U.S. Dollar/U.A.E. Dirham Expiring February 2016 with strike price of $3.68††† | | $ | 223,500,000 | | | $ | 324,075 | |
U.S. Dollar/U.A.E. Dirham Expiring February 2016 with strike price of $3.68††† | | | 74,500,000 | | | | 104,971 | |
Total Call options | | | | | | | 11,810,895 | |
| | | Contracts | | | | |
| | | | | | | |
Put options on: | | | | | | |
S&P 500 Index Expiring December 2015 with strike price of $1,965.00 | | | 594 | | | | 5,256,899 | |
| | | Notional | | | | |
| | | | | | | |
EUR / DKK Expiring September 2016 with strike price of $7.45††† | | $ | 118,700,000 | | | | 854,047 | |
Total Put options | | | | | | | 6,110,946 | |
Total Options Purchased | | | | | | | | |
(Cost $18,783,652) | | | | | | | 17,921,841 | |
| | | | | | | | | |
Total Investments - 106.5% | | | | | |
(Cost $3,993,616,513) | | | | | | $ | 3,918,755,997 | |
| | | Shares | | | | |
| | | | | | | |
COMMON STOCKS SOLD SHORT† - (2.3)% | |
Energy - (0.0)% | |
First Solar, Inc.* | | | 7,605 | | | | (325,114 | ) |
| | | | | | | | | |
Diversified - (0.0)% | |
Leucadia National Corp. | | | 31,194 | | | | (631,990 | ) |
| | | | | | | | | |
Utilities - (0.1)% | |
FirstEnergy Corp. | | | 11,307 | | | | (354,022 | ) |
Dominion Resources, Inc. | | | 5,149 | | | | (362,387 | ) |
SCANA Corp. | | | 6,880 | | | | (387,069 | ) |
Sempra Energy | | | 5,328 | | | | (515,324 | ) |
Total Utilities | | | | | | | (1,618,802 | ) |
| | |
Consumer, Non-cyclical - (0.1)% | |
Insperity, Inc. | | | 1,796 | | | | (78,898 | ) |
Campbell Soup Co. | | | 3,556 | | | | (180,218 | ) |
Mondelez International, Inc. — Class A | | | 4,314 | | | | (180,627 | ) |
Hershey Co. | | | 1,977 | | | | (181,647 | ) |
Kindred Healthcare, Inc. | | | 17,656 | | | | (278,082 | ) |
ExamWorks Group, Inc.* | | | 10,172 | | | | (297,429 | ) |
Sotheby’s | | | 10,319 | | | | (330,002 | ) |
ABIOMED, Inc.* | | | 3,699 | | | | (343,119 | ) |
MasterCard, Inc. — Class A | | | 3,893 | | | | (350,837 | ) |
Total Consumer, Non-cyclical | | | | (2,220,859 | ) |
| | | | | | | | | |
Communications - (0.1)% | |
Marketo, Inc.* | | | 4,147 | | | | (117,858 | ) |
Zendesk, Inc.* | | | 6,878 | | | | (135,565 | ) |
Infoblox, Inc.* | | | 8,531 | | | | (136,325 | ) |
Yahoo!, Inc.* | | | 13,814 | | | | (399,363 | ) |
ViaSat, Inc.* | | | 8,187 | | | | (526,342 | ) |
Anixter International, Inc.* | | | 9,921 | | | | (573,235 | ) |
Facebook, Inc. — Class A* | | | 6,639 | | | | (596,846 | ) |
Amazon.com, Inc.* | | | 1,207 | | | | (617,851 | ) |
Motorola Solutions, Inc. | | | 15,178 | | | | (1,037,872 | ) |
Total Communications | | | | | | | (4,141,257 | ) |
| | | | | | | | | |
Technology - (0.1)% | |
Benefitfocus, Inc.* | | | 1,083 | | | | (33,844 | ) |
RealPage, Inc.* | | | 4,244 | | | | (70,535 | ) |
HubSpot, Inc.* | | | 1,874 | | | | (86,897 | ) |
Workday, Inc. — Class A* | | | 1,271 | | | | (87,521 | ) |
Pegasystems, Inc. | | | 3,858 | | | | (94,945 | ) |
Callidus Software, Inc.* | | | 8,212 | | | | (139,522 | ) |
Cornerstone OnDemand, Inc.* | | | 4,350 | | | | (143,550 | ) |
Cvent, Inc.* | | | 4,357 | | | | (146,657 | ) |
Demandware, Inc.* | | | 2,942 | | | | (152,043 | ) |
Kulicke & Soffa Industries, Inc.* | | | 35,329 | | | | (324,320 | ) |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 43 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Electronics for Imaging, Inc.* | | | 8,189 | | | $ | (354,420 | ) |
Western Digital Corp. | | | 4,473 | | | | (355,335 | ) |
Cognizant Technology Solutions Corp. — Class A* | | | 5,749 | | | | (359,945 | ) |
Adobe Systems, Inc.* | | | 4,620 | | | | (379,856 | ) |
Xilinx, Inc. | | | 11,349 | | | | (481,198 | ) |
IPG Photonics Corp.* | | | 6,344 | | | | (481,954 | ) |
Ultimate Software Group, Inc.* | | | 2,934 | | | | (525,215 | ) |
Cree, Inc.* | | | 28,007 | | | | (678,610 | ) |
Total Technology | | | | | | | (4,896,367 | ) |
| | | | | | | | | |
Basic Materials - (0.3)% | |
Allegheny Technologies, Inc. | | | 19,213 | | | | (272,440 | ) |
PPG Industries, Inc. | | | 3,814 | | | | (334,450 | ) |
International Flavors & Fragrances, Inc. | | | 3,261 | | | | (336,731 | ) |
HB Fuller Co. | | | 10,065 | | | | (341,606 | ) |
Worthington Industries, Inc. | | | 14,654 | | | | (388,038 | ) |
United States Steel Corp. | | | 37,341 | | | | (389,093 | ) |
Balchem Corp. | | | 6,512 | | | | (395,734 | ) |
Commercial Metals Co. | | | 30,712 | | | | (416,148 | ) |
Valspar Corp. | | | 5,809 | | | | (417,551 | ) |
Sherwin-Williams Co. | | | 2,030 | | | | (452,243 | ) |
Carpenter Technology Corp. | | | 16,190 | | | | (481,976 | ) |
Compass Minerals International, Inc. | | | 6,409 | | | | (502,273 | ) |
Clearwater Paper Corp.* | | | 10,691 | | | | (505,043 | ) |
Sensient Technologies Corp. | | | 9,460 | | | | (579,898 | ) |
Ashland, Inc. | | | 5,884 | | | | (592,048 | ) |
CF Industries Holdings, Inc. | | | 13,404 | | | | (601,840 | ) |
Praxair, Inc. | | | 5,959 | | | | (606,984 | ) |
Stillwater Mining Co.* | | | 59,688 | | | | (616,577 | ) |
Airgas, Inc. | | | 7,223 | | | | (645,231 | ) |
Ecolab, Inc. | | | 5,985 | | | | (656,674 | ) |
Royal Gold, Inc. | | | 16,853 | | | | (791,754 | ) |
Air Products & Chemicals, Inc. | | | 7,127 | | | | (909,262 | ) |
Total Basic Materials | | | | | | | (11,233,594 | ) |
| | | | | | | | | |
Industrial - (0.3)% | |
Bemis Company, Inc. | | | 8,473 | | | | (335,277 | ) |
Garmin Ltd. | | | 9,573 | | | | (343,479 | ) |
Headwaters, Inc.* | | | 18,297 | | | | (343,984 | ) |
KBR, Inc. | | | 21,554 | | | | (359,090 | ) |
Greif, Inc. — Class A | | | 12,594 | | | | (401,875 | ) |
FARO Technologies, Inc.* | | | 12,418 | | | | (434,630 | ) |
National Instruments Corp. | | | 17,794 | | | | (494,495 | ) |
Eagle Materials, Inc. | | | 7,737 | | | | (529,366 | ) |
Itron, Inc.* | | | 18,583 | | | | (592,984 | ) |
Vulcan Materials Co. | | | 8,618 | | | | (768,726 | ) |
Martin Marietta Materials, Inc. | | | 5,324 | | | | (808,981 | ) |
Louisiana-Pacific Corp.* | | | 72,379 | | | | (1,030,677 | ) |
Con-way, Inc. | | | 114,678 | | | | (5,441,471 | ) |
Total Industrial | | | | | | | (11,885,035 | ) |
| | | | | | | | | |
Consumer, Cyclical - (0.5)% | |
Big 5 Sporting Goods Corp. | | | 5,521 | | | | (57,308 | ) |
Hibbett Sports, Inc.* | | | 2,602 | | | | (91,096 | ) |
Party City Holdco, Inc.* | | | 5,754 | | | | (91,891 | ) |
Ulta Salon Cosmetics & Fragrance, Inc.* | | | 569 | | | | (92,946 | ) |
Dick’s Sporting Goods, Inc. | | | 1,939 | | | | (96,194 | ) |
Tractor Supply Co. | | | 1,152 | | | | (97,137 | ) |
Finish Line, Inc. — Class A | | | 13,682 | | | | (264,063 | ) |
Men’s Wearhouse, Inc. | | | 7,391 | | | | (314,265 | ) |
Wynn Resorts Ltd. | | | 6,232 | | | | (331,044 | ) |
MDC Holdings, Inc. | | | 12,713 | | | | (332,826 | ) |
American Eagle Outfitters, Inc. | | | 21,469 | | | | (335,560 | ) |
Crocs, Inc.* | | | 25,972 | | | | (335,688 | ) |
Mohawk Industries, Inc.* | | | 1,860 | | | | (338,129 | ) |
Mattel, Inc. | | | 16,083 | | | | (338,708 | ) |
KB Home | | | 25,355 | | | | (343,560 | ) |
Nordstrom, Inc. | | | 4,887 | | | | (350,447 | ) |
44 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Brunswick Corp. | | | 7,385 | | | $ | (353,668 | ) |
Tempur Sealy International, Inc.* | | | 4,990 | | | | (356,436 | ) |
Chipotle Mexican Grill, Inc. — Class A* | | | 497 | | | | (357,964 | ) |
American Airlines Group, Inc. | | | 9,284 | | | | (360,498 | ) |
Papa John’s International, Inc. | | | 5,285 | | | | (361,917 | ) |
Darden Restaurants, Inc. | | | 5,288 | | | | (362,440 | ) |
Carnival Corp. | | | 7,299 | | | | (362,760 | ) |
Popeyes Louisiana Kitchen, Inc.* | | | 6,485 | | | | (365,495 | ) |
Starwood Hotels & Resorts Worldwide, Inc. | | | 5,549 | | | | (368,898 | ) |
Texas Roadhouse, Inc. — Class A | | | 9,975 | | | | (371,070 | ) |
Kate Spade & Co.* | | | 19,655 | | | | (375,608 | ) |
Lennar Corp. — Class A | | | 8,080 | | | | (388,890 | ) |
Panera Bread Co. — Class A* | | | 2,022 | | | | (391,075 | ) |
Advance Auto Parts, Inc. | | | 2,073 | | | | (392,896 | ) |
LKQ Corp.* | | | 14,063 | | | | (398,827 | ) |
Domino’s Pizza, Inc. | | | 3,905 | | | | (421,388 | ) |
Lithia Motors, Inc. — Class A | | | 4,147 | | | | (448,332 | ) |
Cabela’s, Inc.* | | | 10,324 | | | | (470,774 | ) |
Buffalo Wild Wings, Inc.* | | | 2,463 | | | | (476,417 | ) |
Under Armour, Inc. — Class A* | | | 5,215 | | | | (504,708 | ) |
General Motors Co. | | | 18,639 | | | | (559,543 | ) |
Royal Caribbean Cruises Ltd. | | | 8,116 | | | | (723,054 | ) |
PulteGroup, Inc. | | | 45,334 | | | | (855,452 | ) |
Signet Jewelers Ltd. | | | 6,860 | | | | (933,852 | ) |
Total Consumer, Cyclical | | | | | | | (14,772,824 | ) |
| | | | | | | | | |
Financial - (0.8)% | |
WageWorks, Inc.* | | | 2,364 | | | | (106,569 | ) |
American International Group, Inc. | | | 6,042 | | | | (343,306 | ) |
Aon plc | | | 3,895 | | | | (345,136 | ) |
Marsh & McLennan Companies, Inc. | | | 6,707 | | | | (350,240 | ) |
Visa, Inc. — Class A | | | 5,044 | | | | (351,365 | ) |
U.S. Bancorp | | | 8,578 | | | | (351,784 | ) |
Brown & Brown, Inc. | | | 11,721 | | | | (362,999 | ) |
ProAssurance Corp. | | | 7,484 | | | | (367,240 | ) |
Kemper Corp. | | | 10,411 | | | | (368,237 | ) |
Equity One, Inc. | | | 15,213 | | | | (370,284 | ) |
Tanger Factory Outlet Centers, Inc. | | | 11,342 | | | | (373,946 | ) |
National Retail Properties, Inc. | | | 10,314 | | | | (374,089 | ) |
Signature Bank* | | | 2,720 | | | | (374,163 | ) |
Realty Income REIT Corp. | | | 7,947 | | | | (376,608 | ) |
Kimco Realty REIT Corp. | | | 15,437 | | | | (377,126 | ) |
Bank of the Ozarks, Inc. | | | 8,643 | | | | (378,218 | ) |
Post Properties, Inc. | | | 6,507 | | | | (379,293 | ) |
Regency Centers Corp. | | | 6,106 | | | | (379,488 | ) |
Healthcare Realty Trust, Inc. | | | 15,660 | | | | (389,151 | ) |
UDR, Inc. | | | 11,289 | | | | (389,245 | ) |
T. Rowe Price Group, Inc. | | | 5,725 | | | | (397,888 | ) |
Plum Creek Timber Company REIT, Inc. | | | 10,072 | | | | (397,945 | ) |
Acadia Realty Trust | | | 13,794 | | | | (414,786 | ) |
Welltower REIT, Inc. | | | 6,130 | | | | (415,124 | ) |
Potlatch Corp. | | | 14,479 | | | | (416,850 | ) |
Ventas REIT, Inc. | | | 7,579 | | | | (424,879 | ) |
Simon Property Group REIT, Inc. | | | 2,313 | | | | (424,944 | ) |
HCP REIT, Inc. | | | 11,765 | | | | (438,246 | ) |
People’s United Financial, Inc. | | | 28,084 | | | | (441,761 | ) |
SVB Financial Group* | | | 3,886 | | | | (448,988 | ) |
Public Storage REIT | | | 2,128 | | | | (450,349 | ) |
CBOE Holdings, Inc. | | | 6,895 | | | | (462,517 | ) |
Cousins Properties, Inc. | | | 50,415 | | | | (464,826 | ) |
Camden Property Trust | | | 6,397 | | | | (472,738 | ) |
Kilroy Realty Corp. | | | 7,506 | | | | (489,091 | ) |
Federal Realty Investment Trust | | | 3,826 | | | | (522,058 | ) |
Arthur J Gallagher & Co. | | | 12,746 | | | | (526,155 | ) |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 45 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Shares | | | Value | |
| | | | | | | |
Valley National Bancorp | | | 55,338 | | | $ | (544,526 | ) |
Morgan Stanley | | | 17,483 | | | | (550,715 | ) |
Nasdaq, Inc. | | | 10,671 | | | | (569,084 | ) |
Old Republic International Corp. | | | 36,676 | | | | (573,613 | ) |
Bank of America Corp. | | | 37,796 | | | | (588,862 | ) |
Essex Property Trust REIT, Inc. | | | 2,656 | | | | (593,404 | ) |
Goldman Sachs Group, Inc. | | | 3,474 | | | | (603,642 | ) |
American Tower REIT Corp. — Class A | | | 7,399 | | | | (650,964 | ) |
General Growth Properties REIT, Inc. | | | 26,708 | | | | (693,607 | ) |
Intercontinental Exchange, Inc. | | | 2,960 | | | | (695,570 | ) |
Crown Castle International REIT Corp. | | | 8,862 | | | | (698,946 | ) |
Assurant, Inc. | | | 8,894 | | | | (702,715 | ) |
CME Group, Inc. — Class A | | | 8,728 | | | | (809,435 | ) |
SunTrust Banks, Inc. | | | 21,489 | | | | (821,739 | ) |
SL Green Realty REIT Corp. | | | 8,093 | | | | (875,339 | ) |
ProLogis REIT, Inc. | | | 29,257 | | | | (1,138,097 | ) |
Loews Corp. | | | 35,136 | | | | (1,269,815 | ) |
Total Financial | | | | | | | (27,097,705 | ) |
Total Common Stock Sold Short | | | | | |
(Proceeds $82,281,927) | | | | | | | (78,823,547 | ) |
| | | | | | | | | |
EXCHANGE-TRADED FUNDS SOLD SHORT† - (0.0)% | |
SPDR S&P Biotech ETF | | | 7,671 | | | | (477,520 | ) |
Total Exchange-Traded Funds Sold Short | | | | | |
(Proceeds $593,819) | | | | | | | (477,520 | ) |
| | | | | | | | | |
CLOSED-END FUNDS SOLD SHORT† - (0.0)% | |
Herzfeld Caribbean Basin Fund, Inc. | | | 62,345 | | | | (437,038 | ) |
Total Closed-End Funds Sold Short | | | | | |
(Proceeds $640,982) | | | | | | | (437,038 | ) |
| | | Face
Amount | | | | |
| | | | | | | |
CORPORATE BONDS SOLD SHORT†† - (0.1)% | |
Boxer Parent Company, Inc. | | | | | | |
9.00% due 10/15/19 | | $ | 700,000 | | | | (497,000 | ) |
BMC Software Finance, Inc. | | | | | | | | |
8.13% due 07/15/21 | | | 1,761,000 | | | | (1,423,108 | ) |
Marathon Oil Corp. | | | | | | | | |
2.80% due 11/01/22 | | | 3,980,000 | | | | (3,562,020 | ) |
Total Corporate Bonds Sold Short | | | | | |
(Proceeds $5,628,089) | | | | | | | (5,482,128 | ) |
Total Securities Sold Short - (2.4)% | | | | | |
(Proceeds $89,144,817) | | | | | | | (85,220,233 | ) |
| | | Contracts | | | | |
| | | | | | | |
OPTIONS WRITTEN† - (0.1)% | |
Call options on: | | | | | | |
iShares 7-10 Year Treasury Bond ETF Expiring December 2015 with strike price of $111.00 | | | 15,513 | | | | (620,520 | ) |
SPDR Gold Shares Expiring September 2016 with strike price of $132.00 | | | 10,345 | | | | (2,089,690 | ) |
Total Call options | | | | | | | (2,710,210 | ) |
Put options on: | | | | | | | | |
S&P 500 Index Expiring December 2015 with strike price of $1,820.00 | | | 594 | | | | (2,381,940 | ) |
Total Options Written | | | | | | | | |
(Premiums received $4,686,805) | | | | | | | (5,092,150 | ) |
Other Assets & Liabilities, net - (4.0)% | | | | (148,846,583 | ) |
Total Net Assets - 100.0% | | | $ | 3,679,597,031 | |
46 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
| | | Units | | | Unrealized
Gain (Loss) | |
| | | | | | | |
OTC CURRENCY SWAP AGREEMENTS†† | |
Bank of America
December 2015
U.S. Dollar Index
Future Swap,
Terminating 12/14/1514
(Notional Value
$71,254,380) | | | 739 | | | $ | 149,721 | |
| | | | | | | | | |
OTC INTEREST RATE INDEX SWAP AGREEMENTS SOLD SHORT†† | |
Bank of America
December 2015 Japan
Government Bond 10
Year Future Index Swap,
Terminating 12/10/1515
(Notional Value
$364,584,636) | | | 295 | | | $ | (1,125,924 | ) |
| | | | | | | | | |
OTC EQUITY INDEX SWAP AGREEMENTS†† | |
Bank of America
March 2016 S&P
500 Home Building
Index Swap,
Terminating 03/28/1616
(Notional Value
$10,037,274) | | | 14,782 | | | $ | 32,188 | |
Bank of America
January 2016 S&P
500 Home Building
Index Swap,
Terminating 01/08/1616
(Notional Value
$80,694,737) | | | 118,840 | | | | (2,264,380 | ) |
Bank of America
February 2016 S&P 1500
Education Services Sub-
Industry Index Swap,
Terminating 01/08/1617
(Notional Value
$10,573,381) | | | 243,458 | | | | (1,448,010 | ) |
Bank of America
January 2016 S&P 1500
Education Services Sub-
Industry Index Swap,
Terminating 01/08/1617
(Notional Value
$71,204,050) | | | 1,639,513 | | | | (8,884,163 | ) |
(Total Notional Value $172,509,442) | | | | | | $ | (12,564,365 | ) |
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 | | 2.24 | % | 01/15/26 | | $ | 308,000,000 | | | $ | 4,432,117 | | | $ | 4,432,117 | |
Merrill Lynch | Receive | 3-Month USD-LIBOR | | 2.27 | % | 08/17/25 | | | (3,600,000 | ) | | | (88,632 | ) | | | (88,632 | ) |
Merrill Lynch | Receive | 3-Month USD-LIBOR | | 2.27 | % | 08/17/25 | | | (3,850,000 | ) | | | (96,057 | ) | | | (96,057 | ) |
Merrill Lynch | Receive | 6-Month EUR-EURIBOR | | 1.03 | % | 01/15/26 | | | (257,870,000 | ) | | | (250,706 | ) | | | (250,706 | ) |
Merrill Lynch | Receive | 3-Month USD-LIBOR | | 1.59 | % | 07/20/18 | | | (34,550,000 | ) | | | (615,681 | ) | | | (615,681 | ) |
Merrill Lynch | Receive | 3-Month USD-LIBOR | | 2.73 | % | 07/20/23 | | | (23,800,000 | ) | | | (1,660,764 | ) | | | (1,660,764 | ) |
Merrill Lynch | Receive | 3-Month USD-LIBOR | | 1.71 | % | 10/02/22 | | | (14,750,000 | ) | | | — | | | | — | |
Merrill Lynch | Receive | 3-Month USD-LIBOR | | 2.01 | % | 10/02/25 | | | (17,650,000 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | $ | 1,720,277 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 47 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
MACRO OPPORTUNITIES FUND | |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† | |
| | |
Counterparty | | Contracts
to Buy (Sell) | | Currency | Settlement
Date | | Settlement
Value | | | Value at
September 30,
2015 | | | Net
Unrealized
Appreciation/
Depreciation | |
Bank of America | | | (10,800,000 | ) | GBP | 10/07/15 | | $ | 16,420,212 | | | $ | (16,337,356 | ) | | $ | 82,856 | |
Bank of America | | | 586,000 | | AUD | 10/07/15 | | | (410,159 | ) | | | 411,127 | | | | 968 | |
Bank of America | | | (586,000 | ) | AUD | 10/07/15 | | | 404,788 | | | | (411,127 | ) | | | (6,339 | ) |
Bank of America | | | (10,500,000 | ) | EUR | 10/07/15 | | | 11,707,028 | | | | (11,735,800 | ) | | | (28,773 | ) |
Bank of America | | | 5,000,000 | | EUR | 10/07/15 | | | (5,663,658 | ) | | | 5,588,476 | | | | (75,182 | ) |
| | | | | | | | | | | | | | | | | $ | (26,470 | ) |
* | 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 | All or a portion of this security is pledged as short security collateral at September 30, 2015. |
2 | Illiquid security. |
3 | Variable rate security. Rate indicated is rate effective at September 30, 2015. |
4 | Perpetual maturity. |
5 | Zero coupon rate security. |
6 | Residual interest. |
7 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $1,785,915,507 (cost $1,831,987,386), or 48.5% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
8 | Affiliated issuer — See Note 8. |
9 | Security is a step up/step down bond. The coupon increases or decreases at regular intervals until the bond reaches full maturity. |
10 | The face amount is denominated in U.S. Dollars unless otherwise indicated. |
11 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 12. |
12 | Repurchase Agreements — See Note 11. |
13 | 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 $9,266,463 (cost $14,309,365), or 0.3% of total net assets — See Note 13. |
14 | Total return based on U.S. Dollar Index +/- financing at a variable rate. |
15 | Total return based on Japan Government Bond 10 Year Future Index +/- financing at a variable rate. |
16 | Total return based on S&P 500 Home Building Index +/- financing at a variable rate. |
17 | Total return based on S&P 1500 Education Services Sub-Industry Index +/- financing at a variable rate. |
18 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | plc — Public Limited Company |
| | REIT — Real Estate Investment Trust |
| | |
| | See Sector Classification in Other Information section. |
48 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES |
MACRO OPPORTUNITIES FUND |
September 30, 2015
Assets: | |
Investments in unaffiliated issuers, at value (cost $3,581,152,767) | | $ | 3,507,405,718 | |
Investments in affiliated issuers, at value (cost $344,271,363) | | | 343,157,896 | |
Repurchase agreements, at value (cost $68,192,383) | | | 68,192,383 | |
Total investments (cost $3,993,616,513) | | | 3,918,755,997 | |
Foreign currency, at value (cost $2,330,047) | | | 2,329,894 | |
Cash | | | 56,301,735 | |
Segregated cash with broker | | | 51,957,712 | |
Unrealized appreciation on swap agreements | | | 4,614,026 | |
Unrealized appreciation on forward foreign currency exchange contracts | | | 83,824 | |
Prepaid expenses | | | 238,629 | |
Receivables: | |
Securities sold | | | 9,390,181 | |
Interest | | | 17,710,226 | |
Fund shares sold | | | 11,936,006 | |
Dividends | | | 398,587 | |
Foreign tax reclaims | | | 20,584 | |
Total assets | | | 4,073,737,401 | |
| | | | | |
Liabilities: | |
Reverse Repurchase Agreements | | | 156,490,801 | |
Securities sold short, at value (proceeds $89,144,817) | | | 85,220,233 | |
Unrealized depreciation on swap agreements | | | 16,434,317 | |
Options written, at value (premiums received $4,686,805) | | | 5,092,150 | |
Segregated cash from broker | | | 2,822,293 | |
Unfunded loan commitments, at value (Note 9) (proceeds $2,902,776) | | | 2,241,241 | |
Unrealized depreciation on forward foreign currency exchange contracts | | | 110,294 | |
Payable for: | |
Securities purchased | | | 109,906,311 | |
Fund shares redeemed | | | 10,416,303 | |
Distributions to shareholders | | | 1,829,934 | |
Management fees | | | 1,763,950 | |
Distribution and service fees | | | 494,258 | |
Fund accounting/administration fees | | | 285,491 | |
Transfer agent/maintenance fees | | | 53,276 | |
Trustees’ fees* | | | 4,580 | |
Miscellaneous | | | 974,938 | |
Total liabilities | | | 394,140,370 | |
Net assets | | $ | 3,679,597,031 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 3,808,206,945 | |
Distributions in excess of net investment income | | | (11,576,626 | ) |
Accumulated net realized loss on investments | | | (34,600,254 | ) |
Net unrealized depreciation on investments | | | (82,433,034 | ) |
Net assets | | $ | 3,679,597,031 | |
| | | | | |
A-Class: | |
Net assets | | $ | 844,522,819 | |
Capital shares outstanding | | | 32,398,227 | |
Net asset value per share | | $ | 26.07 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 27.37 | |
| | | | | |
C-Class: | |
Net assets | | $ | 374,633,184 | |
Capital shares outstanding | | | 14,383,489 | |
Net asset value per share | | $ | 26.05 | |
| | | | | |
P-Class: | |
Net assets | | $ | 63,819,282 | |
Capital shares outstanding | | | 2,448,186 | |
Net asset value per share | | $ | 26.07 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 2,396,621,746 | |
Capital shares outstanding | | | 91,832,809 | |
Net asset value per share | | $ | 26.10 | |
* | 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 | 49 |
CONSOLIDATED STATEMENT OF OPERATIONS |
MACRO OPPORTUNITIES FUND |
Year Ended September 30, 2015
| Investment Income: | |
| Interest (net of foreign withholding tax of $6,383) | | $ | 131,072,866 | |
| Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $651) | | | 7,757,474 | |
| Dividends from securities of affiliated issuers | | | 2,915,408 | |
| Other income | | | 6,687 | |
| Total investment income | | | 141,752,435 | |
| | | | | |
| Expenses: | |
| Management fees | | | 25,098,726 | |
| Transfer agent/maintenance fees: | |
| A-Class | | | 848,549 | |
| C-Class | | | 270,144 | |
| P-Class** | | | 1,553 | |
| Institutional Class | | | 764,943 | |
| Distribution and service fees: | |
| A-Class | | | 1,834,363 | |
| C-Class | | | 3,222,498 | |
| P-Class** | | | 26,951 | |
| Fund accounting/administration fees | | | 2,678,585 | |
| Interest expense | | | 1,495,464 | |
| Short sales dividend expense | | | 1,200,338 | |
| Prime broker interest expense | | | 583,053 | |
| Line of credit fees | | | 274,718 | |
| Trustees’ fees* | | | 196,609 | |
| Custodian fees | | | 131,833 | |
| Tax expense | | | 161 | |
| Miscellaneous | | | 977,127 | |
| Total expenses | | | 39,605,615 | |
| Less: | |
| Expenses waived by Advisor | | | (2,967,114 | ) |
| Expenses waived by Transfer Agent: | |
| A-Class | | | (273,711 | ) |
| C-Class | | | (27,195 | ) |
| P-Class** | | | (328 | ) |
| Institutional Class | | | (764,734 | ) |
| Total waived expenses | | | (4,033,082 | ) |
| Net expenses | | | 35,572,533 | |
| Net investment income | | | 106,179,902 | |
| Net Realized and Unrealized Gain (Loss): | |
| Net realized gain (loss) on: | |
| Investments in unaffiliated issuers | | | (7,671,047 | ) |
| Investments in affiliated issuers | | | 12,561 | |
| Swap agreements | | | 1,620,041 | |
| Foreign currency | | | (598,238 | ) |
| Forward currency exchange contracts | | | 16,202,225 | |
| Securities sold short | | | (986,202 | ) |
| Options purchased | | | (23,893,505 | ) |
| Options written | | | 6,054,050 | |
| Net realized loss | | | (9,260,115 | ) |
| Net change in unrealized appreciation (depreciation) on: | |
| Investments in unaffiliated issuers | | | (77,195,266 | ) |
| Investments in affiliated issuers | | | (1,822,593 | ) |
| Securities sold short | | | 3,924,584 | |
| Swap agreements | | | (3,842,109 | ) |
| Options purchased | | | 5,435,683 | |
| Options written | | | (629,763 | ) |
| Foreign currency | | | 440,588 | |
| Forward foreign currency exchange contracts | | | (2,168,485 | ) |
| Net change in unrealized appreciation (depreciation) | | | (75,857,361 | ) |
| Net realized and unrealized loss | | | (85,117,476 | ) |
| Net increase in net assets resulting from operations | | $ | 21,062,426 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
50 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENTS OF CHANGES IN NET ASSETS |
MACRO OPPORTUNITIES FUND | |
| | | Year Ended
September 30,
2015** | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 106,179,902 | | | $ | 46,716,434 | |
Net realized gain (loss) on investments | | | (9,260,115 | ) | | | 4,333,637 | |
Net change in unrealized appreciation (depreciation) on investments | | | (75,857,361 | ) | | | 14,470,302 | |
Net increase in net assets resulting from operations | | | 21,062,426 | | | | 65,520,373 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (32,220,860 | ) | | | (17,086,055 | ) |
C-Class | | | (11,680,427 | ) | | | (7,695,611 | ) |
P-Class* | | | (440,186 | ) | | | — | |
Institutional Class | | | (82,260,910 | ) | | | (28,337,889 | ) |
Return of capital | | | | | | | | |
A-Class | | | — | | | | (289,690 | ) |
C-Class | | | — | | | | (132,073 | ) |
Institutional Class | | | — | | | | (511,136 | ) |
Total distributions to shareholders | | | (126,602,383 | ) | | | (54,052,454 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 850,080,101 | | | | 293,031,487 | |
C-Class | | | 190,338,315 | | | | 122,101,340 | |
P-Class* | | | 65,730,196 | | | | — | |
Institutional Class | | | 2,043,569,550 | | | | 693,090,752 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 24,525,980 | | | | 13,577,467 | |
C-Class | | | 9,454,336 | | | | 6,480,901 | |
P-Class* | | | 440,175 | | | | — | |
Institutional Class | | | 70,225,372 | | | | 23,567,363 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (361,979,619 | ) | | | (289,559,280 | ) |
C-Class | | | (62,646,748 | ) | | | (45,738,386 | ) |
P-Class* | | | (1,207,063 | ) | | | — | |
Institutional Class | | | (563,882,643 | ) | | | (222,136,368 | ) |
Net increase from capital share transactions | | | 2,264,647,952 | | | | 594,415,276 | |
Net increase in net assets | | | 2,159,107,995 | | | | 605,883,195 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 1,520,489,036 | | | | 914,605,841 | |
End of year | | $ | 3,679,597,031 | | | $ | 1,520,489,036 | |
Distributions in excess of net investment income at end of year | | $ | (11,576,626 | ) | | $ | (7,364,111 | ) |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
MACRO OPPORTUNITIES FUND | |
| | | Year Ended
September 30,
2015** | | | Year Ended
September 30,
2014 | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 31,696,780 | | | | 10,851,399 | |
C-Class | | | 7,105,425 | | | | 4,522,005 | |
P-Class* | | | 2,477,290 | | | | — | |
Institutional Class | | | 76,252,160 | | | | 25,608,053 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 919,487 | | | | 503,489 | |
C-Class | | | 353,874 | | | | 240,545 | |
P-Class* | | | 16,755 | | | | — | |
Institutional Class | | | 2,628,280 | | | | 872,812 | |
Shares redeemed | | | | | | | | |
A-Class | | | (13,561,866 | ) | | | (10,733,837 | ) |
C-Class | | | (2,346,202 | ) | | | (1,696,813 | ) |
P-Class* | | | (45,859 | ) | | | — | |
Institutional Class | | | (21,112,108 | ) | | | (8,236,308 | ) |
Net increase in shares | | | 84,384,016 | | | | 21,931,345 | |
* | Since commencement of operations: May 1, 2015. |
** | Consolidated. |
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FINANCIAL HIGHLIGHTS |
MACRO OPPORTUNITIES FUND | |
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.
A-Class | | Year
Ended
Sept. 30,
2015g | | | Year
Ended
Sept. 30,
2014 | | | Year
Ended
Sept. 30,
2013 | | | Period
Ended
Sept. 30,
2012a | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 26.81 | | | $ | 26.31 | | | $ | 26.53 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .98 | | | | 1.10 | | | | 1.37 | | | | .99 | |
Net gain (loss) on investments (realized and unrealized) | | | (.55 | ) | | | .69 | | | | (.04 | ) | | | 1.52 | |
Total from investment operations | | | .43 | | | | 1.79 | | | | 1.33 | | | | 2.51 | |
Less distributions from: | |
Net investment income | | | (1.17 | ) | | | (1.27 | ) | | | (1.43 | ) | | | (.98 | ) |
Net realized gains | | | — | | | | — | | | | (.12 | ) | | | — | |
Return of capital | | | — | | | | (.02 | ) | | | — | | | | — | |
Total distributions | | | (1.17 | ) | | | (1.29 | ) | | | (1.55 | ) | | | (.98 | ) |
Net asset value, end of period | | $ | 26.07 | | | $ | 26.81 | | | $ | 26.31 | | | $ | 26.53 | |
| | |
Total Returnh | | | 1.59 | % | | | 6.88 | % | | | 5.01 | % | | | 10.19 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 844,523 | | | $ | 357,765 | | | $ | 334,751 | | | $ | 83,081 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.67 | % | | | 4.08 | % | | | 5.11 | % | | | 4.61 | % |
Total expensesc | | | 1.52 | % | | | 1.51 | % | | | 1.56 | % | | | 1.61 | % |
Net expensesd,f | | | 1.38 | % | | | 1.36 | % | | | 1.41 | % | | | 1.37 | % |
Portfolio turnover rate | | | 40 | % | | | 54 | % | | | 84 | % | | | 46 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
FINANCIAL HIGHLIGHTS (continued) |
MACRO OPPORTUNITIES FUND | |
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.
C-Class | | Year
Ended
Sept. 30,
2015g | | | Year
Ended
Sept. 30,
2014 | | | Year
Ended
Sept. 30,
2013 | | | Period
Ended
Sept. 30,
2012a | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 26.79 | | | $ | 26.29 | | | $ | 26.51 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .78 | | | | .90 | | | | 1.17 | | | | .82 | |
Net gain (loss) on investments (realized and unrealized) | | | (.55 | ) | | | .69 | | | | (.03 | ) | | | 1.53 | |
Total from investment operations | | | .23 | | | | 1.59 | | | | 1.14 | | | | 2.35 | |
Less distributions from: | |
Net investment income | | | (.97 | ) | | | (1.07 | ) | | | (1.24 | ) | | | (.84 | ) |
Net realized gains | | | — | | | | — | | | | (.12 | ) | | | — | |
Return of capital | | | — | | | | (.02 | ) | | | — | | | | — | |
Total distributions | | | (.97 | ) | | | (1.09 | ) | | | (1.36 | ) | | | (.84 | ) |
Net asset value, end of period | | $ | 26.05 | | | $ | 26.79 | | | $ | 26.29 | | | $ | 26.51 | |
| | |
Total Returnh | | | 0.84 | % | | | 6.10 | % | | | 4.26 | % | | | 9.54 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 374,633 | | | $ | 248,359 | | | $ | 163,129 | | | $ | 32,711 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 2.90 | % | | | 3.34 | % | | | 4.36 | % | | | 3.83 | % |
Total expensesc | | | 2.24 | % | | | 2.22 | % | | | 2.29 | % | | | 2.31 | % |
Net expensesd,f | | | 2.13 | % | | | 2.10 | % | | | 2.15 | % | | | 2.11 | % |
Portfolio turnover rate | | | 40 | % | | | 54 | % | | | 84 | % | | | 46 | % |
54 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FINANCIAL HIGHLIGHTS (continued) |
MACRO OPPORTUNITIES FUND | |
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.
P-Class | | Period
Ended
Sept. 30,
2015e,g | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 26.78 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .37 | |
Net gain (loss) on investments (realized and unrealized) | | | (.62 | ) |
Total from investment operations | | | (.25 | ) |
Less distributions from: | |
Net investment income | | | (.46 | ) |
Total distributions | | | (.46 | ) |
Net asset value, end of period | | $ | 26.07 | |
| | | | | |
Total Returnh | | | (0.95 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 63,819 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.36 | % |
Total expensesc | | | 1.43 | % |
Net expensesd,f | | | 1.30 | % |
Portfolio turnover rate | | | 40 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 55 |
FINANCIAL HIGHLIGHTS (continued) |
MACRO OPPORTUNITIES FUND | |
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.
Institutional Class | | Year
Ended
Sept. 30,
2015g | | | Year
Ended
Sept. 30,
2014 | | | Year
Ended
Sept. 30,
2013 | | | Period
Ended
Sept. 30,
2012a | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 26.84 | | | $ | 26.34 | | | $ | 26.56 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | 1.06 | | | | 1.18 | | | | 1.46 | | | | 1.12 | |
Net gain (loss) on investments (realized and unrealized) | | | (.54 | ) | | | .70 | | | | (.04 | ) | | | 1.47 | |
Total from investment operations | | | .52 | | | | 1.88 | | | | 1.42 | | | | 2.59 | |
Less distributions from: | |
Net investment income | | | (1.26 | ) | | | (1.36 | ) | | | (1.52 | ) | | | (1.03 | ) |
Net realized gains | | | — | | | | — | | | | (.12 | ) | | | — | |
Return of capital | | | — | | | | (.02 | ) | | | — | | | | — | |
Total distributions | | | (1.26 | ) | | | (1.38 | ) | | | (1.64 | ) | | | (1.03 | ) |
Net asset value, end of period | | $ | 26.10 | | | $ | 26.84 | | | $ | 26.34 | | | $ | 26.56 | |
| | |
Total Returnh | | | 1.92 | % | | | 7.23 | % | | | 5.35 | % | | | 10.55 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 2,396,622 | | | $ | 914,366 | | | $ | 416,727 | | | $ | 106,716 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.97 | % | | | 4.37 | % | | | 5.43 | % | | | 5.22 | % |
Total expensesc | | | 1.20 | % | | | 1.18 | % | | | 1.23 | % | | | 1.31 | % |
Net expensesd,f | | | 1.05 | % | | | 1.02 | % | | | 1.09 | % | | | 1.06 | % |
Portfolio turnover rate | | | 40 | % | | | 54 | % | | | 84 | % | | | 46 | % |
56 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FINANCIAL HIGHLIGHTS (concluded) |
MACRO OPPORTUNITIES FUND |
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 | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have 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: |
| | 09/30/15 | 09/30/14 | 09/30/13 | 09/30/12 |
A-Class | 1.30% | 1.27% | 1.29% | 1.27% |
C-Class | 2.05% | 2.01% | 2.02% | 2.01% |
P-Class | 1.21% | N/A | N/A | N/A |
Institutional Class | 0.97% | 0.94% | 0.96% | 0.95% |
g | Consolidated. |
h | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 57 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
1. Organization, Consolidation of Subsidiary 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 an open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, C-Class shares, P-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%. 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 previously offered have been converted to A-Class shares effective July 31, 2014 for the Alpha Opportunity Fund, and effective August 8, 2015 for the other funds in the Trust. 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, 2015, the Trust consisted of seventeen funds (the “Funds”).
This report covers the Macro Opportunities Fund (the “Fund”), a diversified investment company. Only A-Class, C-Class, P-Class and Institutional Class shares had been issued by the 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.
58 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Consolidation of Subsidiary
The consolidated financial statements of the Fund includes the accounts of a wholly-owned and controlled Cayman Islands subsidiary (the “Subsidiary”). Significant inter-company accounts and transactions have been eliminated in consolidation for the Fund.
The Fund may invest up to 25% of its total assets in its Subsidiary which acts as an investment vehicle in order to effect certain investments consistent with the Fund’s investment objective and policies.
A summary of the Fund’s investment in its Subsidiary is as follows:
Fund | Commencement
Date of
Subsidiary | | Subsidiary
Net Assets at September 30,
2015 | | | % of Net Assets of the Fund at September 30,
2015 | |
Macro Opportunities Fund | 01/08/15 | | $ | 2,674,572 | | | | 0.07 | % |
Significant Accounting Policies
The Fund operates as an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The NAV of each Class of the Fund is calculated by dividing the market value of the Fund’s securities and other assets, less all liabilities, attributable to the Class by the number of outstanding shares of the Class.
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 GUGGENHEIM FUNDS ANNUAL REPORT | 59 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
(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.
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.
60 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Open-end investment companies (“Mutual Funds”) are valued at their NAV as of the close of business, on the valuation date. Exchange-traded funds (“ETFs”) and closed-end investment companies (“CEFs”) are valued at the last quoted sales price.
Debt securities with a maturity of greater than 60 days at acquisition are valued at prices that reflect broker/dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term debt securities with a maturity of 60 days or less at acquisition are valued at amortized cost, provided such amount approximates market value.
Repurchase agreements are valued at amortized cost, provided such amounts approximate 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 OTC swap agreements entered into by a Fund are accounted for using the unrealized gain or loss on the agreements that is determined by marking the agreements to the last quoted value of the index that the swap pertains to at the close of the NYSE. The swap’s value is then adjusted to include dividends accrued, and financing charges and/or interest associated with the swap agreements.
The value of interest rate swap agreements entered into by a Fund are accounted for using the unrealized gain or loss on the agreements that is determined using the spread priced off the previous day’s Chicago Mercantile Exchange (“CME”) price.
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 GUGGENHEIM FUNDS ANNUAL REPORT | 61 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
the security, (iii) the existence of any contractual restrictions on the security’s disposition, (iv) the price and extent of public trading in similar securities of the issuer or of comparable companies, (v) quotations or evaluated prices from broker-dealers and/or pricing services, (vi) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), (vii) an analysis of the company’s financial statements, and (viii) an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold (e.g. the existence of pending merger activity, public offerings or tender offers that might affect the value of the security).
In connection with futures contracts and other derivative investments, such factors may include obtaining information as to how (a) these contracts and other derivative investments trade in the futures or other derivative markets, respectively, and (b) the securities underlying these contracts and other derivative investments trade in the cash market.
B. Senior loans in which the Fund invests generally pay interest rates which are periodically adjusted by reference to a base short-term, floating rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more major European banks, such as the one-month or three-month London Inter-Bank Offered Rate (LIBOR), (ii) the prime rate offered by one or more major United States banks, or (iii) the bank’s certificate of deposit rate. Senior floating rate interests often require prepayments from excess cash flows or permit the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. The interest rate indicated is the rate in effect at September 30, 2015.
C. 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.
D. When the 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.
62 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Fees, if any, paid to brokers to borrow securities in connection with short sales are recorded as interest expense. In addition, the Fund must pay out the dividend rate of the equity or coupon rate of the obligation to the lender and record this as an expense. Short dividend or interest expense is a cost associated with the investment objective of short sales transactions, rather than an operational cost associated with the day-to-day management of any mutual fund. The Fund may also receive rebate income from the broker resulting from the investment of the proceeds from securities sold short.
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. Swap agreements are marked-to-market daily and the change, if any, is recorded as unrealized gain or loss. Payments received or made as a result of an agreement or termination of the agreement are recognized as realized gains or losses.
G. 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.
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 Fund. Dividend income is recorded on
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 63 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
the ex-dividend date, net of applicable taxes withheld by foreign countries. Taxable non-cash dividends are recorded as dividend income. Interest income, including amortization of premiums and accretion of discounts, is accrued on a daily basis. Interest income also includes paydown gains and losses on mortgage-backed and asset-backed securities and senior and subordinated loans. Amendment fees are earned as compensation for evaluating and accepting changes to the original loan agreement and are recognized as interest income when received. Dividend income from REITs is recorded based on the income included in the distributions received from the REIT investments using published REIT classifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
I. The Fund declares dividends from investment income daily. The Fund pays its shareholders from its net investment income monthly and distributes any net capital gains that it has realized, at least annually. 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.
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 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, 2015, there were no earnings credits received.
L. 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.
64 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
M. 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.
N. The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at prevailing exchange rates. Purchases and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange 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.
2. Financial Instruments and Derivatives
As part of its investment strategy, the Fund utilizes 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 Statement of Assets and Liabilities. Valuation and accounting treatment of these instruments can be found under Significant Accounting Policies in Note 1 of these Notes to Consolidated Financial Statements.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 65 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Short Sales
A short sale is a transaction in which the Fund sells a security it does not own. If the security sold short decreases in price between the time the Fund sells the security and closes its short position, that Fund will realize a gain on the transaction. Conversely, if the security increases in price during the period, that Fund will realize a loss on the transaction. The risk of such price increases is the principal risk of engaging in short sales.
Derivatives
Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more other assets, such as securities, currencies, commodities or indices. Derivative instruments may be used to increase investment flexibility (including to maintain cash reserves while maintaining exposure to certain other assets), for risk management (hedging) purposes, to facilitate trading, to reduce transaction costs and to pursue higher investment returns. Derivative instruments may also be used to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. U.S. GAAP requires disclosures to enable investors to better understand how and why 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 may utilize derivatives for the following purposes:
Duration - the use of an instrument to manage the interest rate risk of a portfolio.
Hedge - an investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position to protect against broad market moves.
Index Exposure - the use of an instrument to obtain exposure to a listed or other type of index.
Leverage - gaining total exposure to equities or other assets on the long and short sides at greater than 100% of invested capital.
Speculation - the use of an instrument to express a macro-economic and other investment views.
For any Fund whose investment strategy consistently involves applying leverage, the value of the Fund’s shares will tend to increase or decrease more than the value of any increase or decrease in the underlying index or other asset. In addition, because an investment in derivative instruments generally requires a small investment relative to the amount of investment exposure assumed, an
66 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
opportunity for increased net income is created; but, at the same time, leverage risk will increase. The Fund’s use of leverage, through borrowings or instruments such as derivatives, may cause the Fund to be more volatile and riskier than if they had not been leveraged.
Options Purchased and Written
A call option on a security gives the purchaser of the option the right to buy, and the writer of a call option the obligation to sell, the underlying security. The purchaser of a put option has the right to sell, and the writer of the put option the obligation to buy, the underlying security at any time during the option period. The risk associated with purchasing options is limited to the premium originally paid. The following table represents the Fund’s use, and volume of call/put options purchased on a quarterly basis:
Fund | Use | Average Number of Contracts |
Macro Opportunities Fund | Duration, Hedge, Index exposure | 33,370 |
Fund | Use | | Average Notional* |
Macro Opportunities Fund | Duration, Hedge, Index exposure | | $ | 432,600,000 |
* | Average Notional relates to currency options. |
The risk in writing a call option is that the 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 the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there may be an imperfect correlation between the movement in prices of options and the underlying securities where the Fund may not be able to enter into a closing transaction because of an illiquid secondary market; or, for OTC options, the Fund may be at risk because of the counterparty’s inability to perform.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 67 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
The Fund used written options for Duration, Hedge, and Index exposure. The following table represents the Fund’s volume of options written for the year ended September 30, 2015:
Written Call Options | | | |
| | | Macro Opportunities Fund | |
| | | Number of
contracts | | | Premium
amount | |
Balance at September 30, 2014 | | | 354 | | | $ | 225,834 | |
Options Written | | | 93,389 | | | | 8,066,565 | |
Options terminated in closing purchase transactions | | | — | | | | — | |
Options expired | | | (67,885 | ) | | | (5,505,171 | ) |
Options exercised | | | — | | | | — | |
Balance at September 30, 2015 | | | 25,858 | | | $ | 2,787,228 | |
Written Put Options | | | |
| | | Macro Opportunities Fund | |
| | | Number of
contracts | | | Premium
amount | |
Balance at September 30, 2014 | | | — | | | $ | — | |
Options Written | | | 4,512 | | | | 6,698,311 | |
Options terminated in closing purchase transactions | | | (2,636 | ) | | | (3,857,178 | ) |
Options expired | | | (1,282 | ) | | | (941,556 | ) |
Options exercised | | | — | | | | — | |
Balance at September 30, 2015 | | | 594 | | | $ | 1,899,577 | |
Swaps
A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. A fund utilizing OTC swaps bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty or if the underlying asset declines in value. Certain standardized swaps are subject to mandatory central clearing. Central clearing generally reduces counterparty credit risk and increases liquidity, but central clearing does not make swap transactions risk-free. Additionally, there is no guarantee that the 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.
68 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Total return swaps involve commitments where single or multiple cash flows are exchanged based on the price of an underlying reference asset (such as index or basket) or a fixed or variable interest rate. Index swaps will usually be computed based on the current index value as of the close of regular trading on the NYSE or other exchange, with the swap value being adjusted to include dividends accrued, financing charges and/or interest associated with the swap agreement. A fund utilizing a total return index swap bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty or if the underlying index declines in value.
The following table represents the Fund’s use, and volume of total return swaps on a quarterly basis:
| | | | Average Notional | |
| | | | | |
Fund | Use | | Long | | | Short | |
Macro Opportunities Fund | Index Exposure, Speculation | | $ | 153,335,587 | | | $ | 10,318,323 | |
Interest rate swaps involve the exchange by the Fund with another party for its respective commitment to pay or receive interest on a notional amount of principal. Interest rate swaps are generally valued using the closing price from the prior day, subject to an adjustment for the current day’s spreads. Interest rate swaps are generally subject to mandatory central clearing, but central clearing does not make interest rate swap transactions risk free.
The following table represents the Fund’s use, and volume of interest rate swaps on a quarterly basis:
| | | | Average Notional | |
| | | | | |
Fund | Use | | Long | | | Short | |
Macro Opportunities Fund | Duration, Hedge | | $ | 250,750,000 | | | $ | 571,190,834 | |
Currency swaps enable the Fund to gain exposure to currencies in a market without actually possessing a given currency, or to hedge a position. Currency swaps involve the exchange of the principal and interest in one currency for the principal and interest in another currency. As in other types of OTC swaps, the Fund may be at risk due to the counterparty’s inability to perform.
The following table represents the Fund’s use, and volume of currency swaps on a quarterly basis:
Fund | Use | | Average Notional | |
Macro Opportunities Fund | Hedge | | $ | 61,640,808 | |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 69 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract is an agreement between two parties to exchange two designated currencies at a specific time in the future. Certain types of forward foreign currency exchange contracts may be cash-settled, in an amount equal to the change in exchange rates during the term of the contract. The contracts can be used to hedge or manage exposure to foreign currency risks with portfolio investments or to gain exposure to foreign currencies.
The market value of a forward foreign currency exchange contract changes with fluctuations in foreign currency exchange rates. Furthermore, the Fund may be exposed to risk if the counterparties cannot meet the contract terms or if the currency value changes unfavorably as compared to the U.S. dollar.
The following table represents the Fund’s use, and volume of forward currency exchange contracts on a quarterly basis:
| | | | Average Settlement | |
Fund | Use | | Purchased | | | Sold | |
Macro Opportunities Fund | Hedge | | $ | 121,574,606 | | | $ | 1,518,454 | |
Derivative Investment Holdings Categorized by Risk Exposure
The following is a summary of the location of derivative investments on the Fund’s Statement of Assets and Liabilities as of September 30, 2015:
Derivative Investment Type | Asset Derivatives | Liability Derivatives |
Equity/Currency/Interest Rate contracts | Unrealized appreciation on swap agreements | Unrealized depreciation on swap agreements |
| | Investments in unaffiliated issuers, at value | Options written, at value |
Currency contracts | Unrealized appreciation on forward foreign currency exchange contracts | Unrealized depreciation on forward foreign currency exchange contracts |
70 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
The following table sets forth the fair value of the Fund’s derivative investments categorized by primary risk exposure at September 30, 2015:
Asset Derivative Investments Value | |
Fund | | Swaps
Equity
Contracts | | | Swaps
Currency
Contracts | | | Swaps
Interest
Rate
Contracts | | | Options
Purchased
Equity
Contracts | | | Options
Purchased
Interest Rate
Contracts | | | Options
Purchased
Commodities
Contracts | | | Options
Purchased
Foreign Currency
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total
Value at
September
30, 2015 | |
Macro Opportunities Fund | | $ | 32,188 | | | $ | 149,721 | | | $ | 4,432,117 | | | $ | 5,256,899 | | | $ | 3,025,035 | | | $ | 4,706,974 | | | $ | 4,932,933 | | | $ | 83,824 | | | $ | 22,619,691 | |
Liability Derivative Investments Value | |
Fund | | Swaps
Equity
Contracts | | | Swaps
Currency
Contracts | | | Swaps
Interest
Rate
Contracts | | | Options
Written
Equity
Contracts | | | Options
Written
Interest Rate
Contracts | | | Options
Written
Commodities
Contracts | | | Options
Written
Foreign Currency
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total
Value at
September
30, 2015 | |
Macro Opportunities Fund | | $ | 12,596,553 | | | $ | — | | | $ | 3,837,764 | | | $ | 2,381,940 | | | $ | 620,520 | | | $ | 2,089,690 | | | $ | — | | | $ | 110,294 | | | $ | 21,636,761 | |
The following is a summary of the location of derivative investments on the Fund’s Statement of Operations for the year ended September 30, 2015:
Derivative Investment Type | Location of Gain (Loss) on Derivatives |
Currency contracts | Net realized gain (loss) on forward foreign currency exchange contracts |
| | Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts |
Equity/Currency/Interest Rate/Commodity contracts | Net realized gain (loss) on options purchased |
| | Net change in unrealized appreciation (depreciation) on options purchased |
| | Net realized gain (loss) on options written |
| | Net change in unrealized appreciation (depreciation) on options written |
| | Net realized gain (loss) on swap agreements |
| | Net change in unrealized appreciation (depreciation) on swap agreements |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 71 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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, 2015:
Realized Gain (Loss) on Derivative Investments Recognized on the Statement of Operations | |
Fund | | Options
Written
Equity
Contracts | | | Options
Written
Interest Rate
Contracts | | | Options
Written
Commodities
Contracts | | | Options
Purchased
Equity
Contracts | | | Options
Purchased
Interest Rate
Contracts | | | Options
Purchased
Commodities
Contracts | | | Options
Purchased
Foreign Currency
Contracts | |
Macro Opportunities Fund | | $ | (1,154,174 | ) | | $ | 5,279,337 | | | $ | 1,928,887 | | | $ | 3,544,139 | | | $ | (11,883,961 | ) | | $ | (12,445,625 | ) | | $ | (3,108,058 | ) |
Realized Gain (Loss) on Derivative Investments Recognized on the Statement of Operations | |
Fund | | Swaps
Equity
Contracts | | | Swaps
Currency
Contracts | | | Swaps
Interest
Rate
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total | |
Macro Opportunities Fund | | $ | (3,217,291 | ) | | $ | 4,768,232 | | | $ | 69,100 | | | $ | 16,202,225 | | | $ | (17,189 | ) |
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statement of Operations | |
Fund | | Options
Written
Equity
Contracts | | | Options
Written
Interest Rate
Contracts | | | Options
Written
Commodities
Contracts | | | Options
Purchased
Equity
Contracts | | | Options
Purchased
Interest Rate
Contracts | | | Options
Purchased
Commodities
Contracts | | | Options
Purchased
Foreign Currency
Contracts | |
Macro Opportunities Fund | | $ | (482,362 | ) | | $ | (202,298 | ) | | $ | 54,897 | | | $ | 955,152 | | | $ | 1,147,342 | | | $ | 4,900,918 | | | $ | (1,567,729 | ) |
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statement of Operations | |
Fund | | Swaps
Equity
Contracts | | | Swaps
Currency
Contracts | | | Swaps
Interest
Rate
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total | |
Macro Opportunities Fund | | $ | (6,553,457 | ) | | $ | (456,035 | ) | | $ | 3,167,383 | | | $ | (2,168,485 | ) | | $ | (1,204,674 | ) |
72 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
In conjunction with the use of short sales and 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 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 0.89% of the average daily net assets of the Fund.
GI has contractually agreed to waive the management fee it receives from the Subsidiary in an amount equal to the management fee paid to GI by the Subsidiary. This undertaking will continue in effect for so long as the Fund invests in the Subsidiary, and may not be terminated by GI unless GI obtains the prior approval of the Fund’s Board of Trustees for such termination. For the year September 30, 2015, the Fund waived $4,187 related to advisory fees in the Subsidiary.
RFS is paid the following for providing transfer agent services to the Fund. Transfer agent fees are assessed to the applicable class of the Fund.
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 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 GUGGENHEIM FUNDS ANNUAL REPORT | 73 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
The Fund has adopted Distribution Plans related to the offering of A-Class, C-Class and P-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 and P-Class shares, and 1.00% of the average daily net assets of the Fund’s C-Class shares.
The investment advisory contracts for the following Fund provides that the total expenses be limited to a percentage of average net assets for each class of shares, exclusive of brokerage costs, interest and dividends on securities sold short, expenses of other investment companies in which a Fund invests, interest, taxes, litigation, indemnification and extraordinary expenses. The limits are listed below:
| | Limit | Effective
Date | Contract
End Date |
Macro Opportunities Fund — A-Class | 1.36% | 11/30/12 | 02/01/16 |
Macro Opportunities Fund — C-Class | 2.11% | 11/30/12 | 02/01/16 |
Macro Opportunities Fund — P-Class* | 1.36% | 05/01/15 | 02/01/17 |
Macro Opportunities Fund — Institutional Class | 0.95% | 11/30/12 | 02/01/16 |
* | Since the commencement of operations: May 1, 2015. |
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, 2015, the amount of fees waived or expenses reimbursed that are subject to recoupment are presented in the following table:
Fund | | Expires
2016 | | | Expires
2017 | | | Expires
2018 | | | Total | |
Macro Opportunities Fund | | $ | 961,870 | | | $ | 1,567,567 | | | $ | 3,347,967 | | | $ | 5,877,404 | |
For the year ended September 30, 2015, no amounts were recouped by GI.
If a Fund invests in an affiliated fund, the investing Fund’s Adviser has agreed to waive fees at the investing fund level. Fee waivers will be calculated at the investing Fund level without regard to any expense cap, if any, in effect for the investing Fund. Fees waived under this arrangement are not subject to reimbursement to GI. For the year September 30, 2015, the Fund waived $680,928 related to investments in affiliated funds.
For the year ended September 30, 2015, GFD retained sales charges of $660,571 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.
74 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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 investments at September 30, 2015. See the Schedule of Investments for more details on the classification of securities.
| | | Level 1
Investments
In Securities | | | Level 2
Investments
In Securities | | | Level 2
Other Financial
Instruments* | | | Level 3
Investments
In Securities | | | Total | |
Assets | | | | | | | | | | | | | | | |
Macro Opportunities Fund | | $ | 566,022,230 | | | $ | 3,262,523,254 | | | $ | 4,697,850 | | | $ | 90,210,513 | | | $ | 3,923,453,847 | |
| | |
Liabilities | | | | | | | | | | | | | | | | | | | | |
Macro Opportunities Fund | | $ | 84,830,255 | | | $ | 5,482,128 | | | $ | 16,544,611 | | | $ | — | | | $ | 106,856,994 | |
* | Other financial instruments may include forward foreign currency exchange contracts and/or swaps, which are reported as unrealized gain/loss at period end. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 75 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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. A significant portion of the Fund’s 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 Fund’s 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 Fund may not have the transparency to view the underlying inputs which support the market quotations. Significant changes in an indicative quote would generally result in significant changes in the fair value of the security.
Certain fixed income securities are valued by obtaining a monthly indicative quote from a broker-dealer, adjusted for fluctuations in criteria such as credit spreads and interest rates.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The suitability of the techniques and sources employed to determine fair valuation are regularly monitored and subject to change.
76 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
The following is a summary of significant unobservable inputs used in the fair valuation of assets and liabilities categorized within Level 3 of the fair value hierarchy:
Fund | Category and Subcategory | | | Ending Balance
at 09/30/15 | | Valuation Technique | Unobservable
Inputs |
| | Investments, at value | | | | | | |
Macro Opportunities Fund | Senior Floating Rate Interests | | $ | 43,752,468 | | Monthly Model Priced | Purchase Price |
| | | | | 3,378,375 | | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | Total Senior Floating Rate Interests | | | 47,130,843 | | | |
| | Asset-Backed Securities | | | 20,001,559 | | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | Corporate Bonds | | | 13,126,692 | | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | | | | 2,327,174 | | Monthly Model Priced | Purchase Price |
| | | | | 715,939 | | Option Adjusted Spread off multiple month end broker marks over the 3 month LIBOR | Indicative Quote |
| | Total Corporate Bonds | | | 16,169,805 | | | |
| | Options Purchased | | | 4,932,931 | | Monthly Model Priced | Purchase Price |
| | Preferred Stock | | | 1,954,881 | | Monthly Model Priced | Purchase Price |
| | Senior Fixed Rate Interests | | | 19,999 | | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
Any remaining Level 3 securities held by the Fund and excluded from the tables above, were not considered material to the Fund.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. The Fund recognized transfers between the levels as of the beginning of the period. As of September 30, 2015, the Fund had transfers in/out of Level 3 due to changes in securities valuation method. See the table 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 | 77 |
NOTES TO CONSOLIDATED 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, 2015:
LEVEL 3 – Fair value measurement using significant unobservable inputs
| | | Senior
Floating/
Fixed Rate
Interests | | | Common/
Preferred
Stocks | | | Options
Purchased | | | Asset-Backed
Securities/
Collateralized
Mortgage
Obligations | | | Corporate
Bonds | | | Total | |
Macro Opportunities Fund | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | |
Beginning Balance | | $ | 8,552,308 | | | $ | — | | | $ | — | | | $ | 12,653,156 | | | $ | 13,095,759 | | | $ | 34,301,222 | |
Purchases | | | 40,420,322 | | | | 2,720,351 | | | | 6,500,660 | | | | 20,066,731 | | | | 7,844,407 | | | | 77,552,472 | |
Sales, maturities and paydowns | | | (349,617 | ) | | | — | | | | — | | | | (195,638 | ) | | | (55,990 | ) | | | (601,244 | ) |
Total realized gains or losses included in earnings | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Total change in unrealized gains or losses included in earnings | | | (464,037 | ) | | | (1,224,131 | ) | | | (1,567,729 | ) | | | 130,226 | | | | (1,989,782 | ) | | | (5,115,454 | ) |
Transfers into Level 3 | | | 4,040,089 | | | | 459,156 | | | | — | | | | 240 | | | | — | | | | 4,499,486 | |
Transfers out of Level 3 | | | (5,048,223 | ) | | | — | | | | — | | | | (12,653,156 | ) | | | (2,724,589 | ) | | | (20,425,968 | ) |
Ending Balance | | $ | 47,150,842 | | | $ | 1,955,376 | | | $ | 4,932,931 | | | $ | 20,001,559 | | | $ | 16,169,805 | | | $ | 90,210,513 | |
Net Change in unrealized appreciation (depreciation) for investments in securities still held at September 30, 2015 | | $ | 70,586 | | | $ | (1,229,073 | ) | | $ | (1,567,729 | ) | | $ | 121,598 | | | $ | (2,041,892 | ) | | $ | (4,646,511 | ) |
5. Offsetting
In the normal course of business, the Fund enters into transactions subject to enforceable master netting arrangements or other similar arrangements. Generally, the right to offset in those agreements allows the Fund 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.
78 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
In order to better define their contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its 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 Fund and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Fund 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 Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty nonperformance. The Fund attempts 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 Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statement of Assets and Liabilities.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 79 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
The following tables present derivative financial instruments and secured financing transactions that are subject to enforceable netting arrangements and offset in the Statement of Assets and Liabilities in conformity with U.S. GAAP.
| | | | | | | | | | | | | Gross Amounts Not Offset
in the Statement of
Assets and Liabilities | | | | |
Fund | Instrument | | Gross
Amounts of
Recognized
Assets1 | | | Gross
Amounts
Offset in the
Statement
of Assets and
Liabilities | | | Net Amount
of Assets
Presented on
the Statement
of Assets and
Liabilities | | | Financial
Instruments | | | Cash
Collateral
Received | | | Net
Amount | |
Macro Opportunities Fund | Swap agreements | | $ | 181,909 | | | $ | — | | | $ | 181,909 | | | $ | 181,909 | | | $ | — | | | $ | — | |
| | Forward foreign currency exchange contracts | | | 83,824 | | | | — | | | | 83,824 | | | | 83,824 | | | | — | | | | — | |
| | | | | | | | | | | | | Gross Amounts Not Offset
in the Statement of
Assets and Liabilities | | | | |
Fund | Instrument | | Gross
Amounts of
Recognized
Liabilities1 | | | Gross
Amounts
Offset in the
Statement
of Assets and
Liabilities | | | Net Amount
of Liabilities
Presented on
the Statement
of Assets and
Liabilities | | | Financial
Instruments | | | Cash
Collateral
Pledged | | | Net
Amount | |
Macro Opportunities Fund | Swap agreements | | $ | 13,722,477 | | | $ | — | | | $ | 13,722,477 | | | $ | 181,909 | | | $ | 10,740,000 | | | $ | 1,413,568 | |
| | Forward foreign currency exchange contracts | | | 110,294 | | | | — | | | | 110,294 | | | | 83,824 | | | | — | | | | 26,470 | |
1 | Centrally cleared swaps are excluded from these reported amounts. |
80 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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.
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Tax basis capital losses in excess of capital gains are carried forward to offset future net capital gains.
For the year ended September 30, 2015, the following capital loss carryforward amounts were used:
Fund | | Amount | |
Macro Opportunities Fund | | $ | — | |
The tax character of distributions paid during the year ended September 30, 2015 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Return of
Capital | | | Total
Distributions | |
Macro Opportunities Fund | | $ | 126,602,383 | | | $ | — | | | $ | — | | | $ | 126,602,383 | |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 81 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Return of
Capital | | | Total
Distributions | |
Macro Opportunities Fund | | $ | 53,119,555 | | | $ | — | | | $ | 932,899 | | | $ | 54,052,454 | |
Tax components of accumulated earnings/(deficit) as of September 30, 2015, were as follows:
Fund | | Undistributed
Ordinary
Income | | | Undistributed
Long-Term
Capital Gain | | | Net Unrealized
Appreciation/
(Depreciation) | | | Accumulated
Capital Losses | | | Other
Temporary
Differences | |
Macro Opportunities Fund | | $ | 24,664,347 | | | $ | — | | | $ | (103,824,122 | ) | | $ | (41,952,470 | ) | | $ | (7,497,669 | ) |
Note: Capital Loss Carryforward amounts may be limited due to Federal income tax regulations.
For Federal income tax purposes, capital loss carryforwards represent realized losses of the Fund(s) that may be carried forward and applied against future capital gains. Under the RIC Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. As of September 30, 2015, capital loss carryforwards for the Fund were as follows:
Fund | | Unlimited
Short-Term | | | Unlimited
Long-Term | | | Total
Capital Loss
Carryforward | |
Macro Opportunities Fund | | $ | (21,406,882 | ) | | $ | (20,545,588 | ) | | $ | (41,952,470 | ) |
As of September 30, 2015 the following reclassifications were made to the capital accounts of the Fund, to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations, which are due to equalization accounting, passive foreign investment companies, foreign currency reclasses, paydowns on asset backed securities, certain CLO investments, swaps, return of capital on investments, short dividends expense, dividends received from mutual fund investments and transactions with the fund’s wholly owned foreign subsidiary. Net investment income, net realized gains and net assets were not affected by these changes.
82 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
On the Statement of Assets and Liabilities, the following adjustments were made for permanent book/tax differences:
Fund | | Paid In
Capital | | | Undistributed
Net Investment
Income | | | Accumulated
Net Realized
Loss | |
Macro Opportunities Fund | | $ | (4,383,701 | ) | | $ | 16,755,401 | | | $ | (12,371,700 | ) |
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Fund | | Tax
Cost | | | Tax
Unrealized
Gain | | | Tax
Unrealized
Loss | | | Net
Unrealized
Loss | |
Macro Opportunities Fund | | $ | 4,012,466,156 | | | $ | 44,976,124 | | | $ | (140,760,992 | ) | | $ | (95,784,868 | ) |
7. Securities Transactions
For the year ended September 30, 2015, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | | Purchases | | | Sales | |
Macro Opportunities Fund | | $ | 3,289,203,654 | | | $ | 1,097,374,846 | |
8. Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a portfolio company of a fund, or control of or by, or common control under GI, result in that portfolio company being considered an affiliated company of such fund, as defined in the 1940 Act.
The Fund may invest in the Guggenheim Strategy Funds Trust consisting of Guggenheim Strategy Fund I, Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III (collectively, the “Cash Management Funds”), open-end management investment companies managed by GI. The Cash Management Funds, which launched on March 11, 2014, are offered as cash management options only to mutual funds, trusts, and other accounts managed by GI and/or its affiliates, and are not available to the public. The Cash Management Funds pay no investment management fees. The Cash Management Funds’ annual report on Form N-CSR dated September 30,
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 83 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
2014 is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at http://www.sec.gov/Archives/edgar/data/1601445/000089180414001107/gug60774-ncsr.htm.
Transactions during the year ended September 30, 2015 in which the portfolio company is an “affiliated person” are as follows:
Affiliated issuers
by Fund | | Value
09/30/14 | | | Additions | | | Reductions | | | Value
09/30/15 | | | Shares
09/30/15 | | | Investment
Income | | | Realized
Gain | |
Macro Opportunities Fund | | | | | | | | | | |
Guggenheim Alpha Opportunity Fund —
Institutional Class | | $ | — | | | $ | 50,000,000 | | | $ | — | | | $ | 48,406,518 | | | | 1,881,326 | | | $ | — | | | $ | — | |
Guggenheim Limited Duration Fund — Institutional Class | | | 45,498,128 | | | | 14,791,518 | | | | — | | | | 59,605,430 | | | | 2,419,052 | | | | 1,791,252 | | | | 438 | |
Guggenheim Risk Managed Real Estate Fund — Institutional Class | | | 10,843,512 | | | | 68,832 | | | | — | | | | 12,075,709 | | | | 403,870 | | | | 56,709 | | | | 12,123 | |
Guggenheim Strategic Opportunities Fund | | | — | | | | 6,073,028 | | | | — | | | | 5,644,376 | | | | 315,681 | | | | 361,976 | | | | — | |
Guggenheim Strategy Fund I | | | — | | | | 177,565,889 | | | | — | | | | 177,382,768 | | | | 7,129,532 | | | | 565,889 | | | | — | |
Guggenheim Strategy Fund II | | | — | | | | 40,139,582 | | | | — | | | | 40,043,095 | | | | 1,611,392 | | | | 139,582 | | | | — | |
| | | $ | 56,341,640 | | | $ | 288,638,849 | | | $ | — | | | $ | 343,157,896 | | | | | | | $ | 2,915,408 | | | $ | 12,561 | |
9. Loan Commitments
Pursuant to the terms of certain loan agreements, the Fund held unfunded loan commitments as of September 30, 2015. The Fund is obligated to fund these loan commitments at the borrower’s discretion.
84 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
The unfunded loan commitments as of September 30, 2015 were as follows:
Borrower | Maturity
Date | | Face
Amount | | | Value | |
Macro Opportunities Fund | | | | | | | |
Acosta, Inc. | 09/26/2019 | | $ | 6,000,000 | | | $ | 637,027 | |
Advantage Sales & Marketing, Inc. | 07/25/2019 | | | 1,500,000 | | | | 147,631 | |
American Stock Transfer & Trust | 06/26/2018 | | | 400,000 | | | | 29,269 | |
Authentic Brands | 05/27/2021 | | | 140,000 | | | | 1,334 | |
Authentic Brands | 05/27/2021 | | | 93,693 | | | | — | |
BBB Industries, LLC | 11/04/2019 | | | 1,020,000 | | | | 116,286 | |
Beacon Roofing Supply, Inc. | 07/27/2016 | | | 3,700,000 | | | | — | |
Ceva Group plc (United Kingdom) | 03/19/2019 | | | 1,000,000 | | | | 141,374 | |
Epicor Software | 06/01/2020 | | | 2,000,000 | | | | 232,600 | |
Eyemart Express | 12/18/2019 | | | 500,000 | | | | 51,168 | |
Hillman Group, Inc. | 06/28/2019 | | | 242,857 | | | | 19,966 | |
Hoffmaster Group, Inc. | 05/09/2019 | | | 357,143 | | | | 30,014 | |
IntraWest Holdings S.à r.l. | 12/10/2018 | | | 750,000 | | | | 19,121 | |
Learning Care Group (US), Inc. | 05/05/2019 | | | 500,000 | | | | 48,841 | |
Lincoln Finance Ltd. | 12/31/2015 | | | 15,000,000 | | | | — | |
McGraw-Hill Global Education Holdings LLC | 03/22/2018 | | | 2,000,000 | | | | 134,387 | |
Med Finance Merger Sub LLC | 08/14/2021 | | | 312,195 | | | | 3,014 | |
National Financial Partners Corp. | 07/01/2018 | | | 1,000,000 | | | | 77,396 | |
National Technical Systems | 06/12/2021 | | | 594,118 | | | | 33,166 | |
NVA Holdings, Inc. | 08/14/2021 | | | 173,333 | | | | 847 | |
Phillips-Medsize Corp. | 06/14/2019 | | | 1,100,000 | | | | 97,145 | |
Pro Mach Group, Inc. | 10/22/2019 | | | 900,000 | | | | 88,051 | |
Signode Industrial Group US, Inc. | 05/01/2019 | | | 3,400,000 | | | | 303,794 | |
Wencor Group | 06/19/2019 | | | 330,769 | | | | 28,810 | |
| | | | $ | 43,014,108 | | | $ | 2,241,241 | |
10. Line of Credit
The Trust, with the exception of Alpha Opportunity Fund and Capital Stewardship Fund, secured a committed, $625,000,000 line of credit from Citibank, N.A., good through October 9, 2015, 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 Trust did not have any borrowings under this agreement as of and for the year ended September 30, 2015. The Trust also pays a commitment fee at an annualized rate of 0.07% of the average daily amount of their unused commitment amount.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 85 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
11. Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund’s policy that its custodian takes possession of the underlying collateral. For the following repurchase agreements, 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.
Counterparty and
Terms of Agreement | | | Face
Value | | | Repurchase
Price | | Collateral | | | Par/Shares
Value | | | Fair
Value |
Jefferies & Company, Inc. | | | | | | | | | | | | | | |
1.69% - 3.21% | | | | | | | | Acis CLO Ltd. | | | | | | |
Due 10/01/15 -11/3/15 | | $ | 56,046,000 | | $ | 56,203,659 | | 05/01/26* | | $ | 25,375,000 | | $ | 20,335,162 |
| | | | | | | | | Ares CLO Ltd | | | | | | |
| | | | | | | | | 11/25/20* | | | 12,375,000 | | | 13,498,650 |
| | | | | | | | | Neuberger Berman CLO Ltd. | | | | | | |
| | | | | | | | | 01/23/24* | | | 11,368,500 | | | 7,048,470 |
| | | | | | | | | CIFC Funding Ltd. | | | | | | |
| | | | | | | | | 01/19/23* | | | 12,500,000 | | | 5,825,000 |
| | | | | | | | | Whitehorse Ltd. | | | | | | |
| | | | | | | | | 02/03/25* | | | 9,025,000 | | | 5,249,777 |
| | | | | | | | | Cedar Funding Ltd. | | | | | | |
| | | | | | | | | 10/23/26* | | | 6,000,000 | | | 4,740,000 |
| | | | | | | | | Atlas Senior Loan Fund Ltd. | | | | | | |
| | | | | | | | | 01/30/24* | | | 5,782,265 | | | 4,216,676 |
| | | | | | | | | Commonwealth of Puerto Rico | | | | | | |
| | | | | | | | | 5.50% | | | | | | |
| | | | | | | | | 07/01/19 | | | 5,138,000 | | | 3,647,929 |
| | | | | | | | | Aberdeen Loan Funding Ltd. | | | | | | |
| | | | | | | | | 11/01/18* | | | 7,750 | | | 3,642,500 |
| | | | | | | | | Red River CLO Ltd. | | | | | | |
| | | | | | | | | 07/27/18* | | | 9,000 | | | 3,150,000 |
| | | | | | | | | Government Development Bank of Puerto Rico | | | | | | |
| | | | | | | | | 5.50% - 5.75% | | | | | | |
| | | | | | | | | 08/01/20 - 08/01/25 | | | 5,554,250 | | | 2,100,203 |
| | | | | | | | | Harbourview CLO VII Ltd. | | | | | | |
| | | | | | | | | 11/18/26* | | | 3,500,000 | | | 1,995,000 |
| | | | | | | | | City of Detroit MI Sewage Disposal System Revenue | | | | | | |
| | | | | | | | | 5.25% | | | | | | |
| | | | | | | | | 07/01/27 | | | 346,500 | | | 368,763 |
86 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Counterparty and
Terms of Agreement | Face
Value | Repurchase
Price | | Collateral | Shares
Value | | | | Fair
Value |
| | | | | Liberty CLO Ltd | | | | | |
| | | | | 11/01/17* | 5,000 | | | $ | 129,282 |
| | | | | | | | | $ | 75,947,412 |
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 right 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. The Fund’s 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 Fund enters into repurchase agreements to evaluate potential risks.
The following repurchase agreements were used as a means of borrowing securities to sell short.
Counterparty and
Terms of Agreement | | Face
Value | | Repurchase
Price | | Collateral | | Par
Value | | Fair
Value |
Barclays | | | | | | NGPL Pipeco LLC | | | | |
(0.75)% - (0.10)% | | | | | | 7.12% | | | | |
open maturity | $ | 12,146,383 | $ | 12,114,701 | | 12/15/17 | $ | 6,825,000 | $ | 6,483,750 |
| | | | | | | Marathon Oil Corp. | | | | |
| | | | | | | 2.80% | | | | |
| | | | | | | 11/01/22 | | 3,980,000 | | 3,562,020 |
| | | | | | | BMC Software Finance Inc. | | | | |
| | | | | | | 8.13% | | | | |
| | | | | | | 07/15/21 | | 1,761,000 | | 1,423,117 |
| | | | | | | Boxer Parent Company, Inc. | | | | |
| | | | | | | 9.00% | | | | |
| | | | | | | 10/15/19 | | 700,000 | | 497,000 |
| | | | | | | | | | $ | 11,965,887 |
12. Reverse Repurchase Agreements
The Fund 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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, 2015, the Fund entered into reverse repurchase agreements as follows:
Fund | | Number
of Days Outstanding | | | Balance at September 30,
2015 | | | Average
Balance Outstanding | | | Average
Interest
Rate | |
Macro Opportunities Fund | | | 365 | | | $ | 156,490,801 | | | $ | 180,017,698 | | | | 0.83 | % |
In June 2014, the FASB issued Accounting Standards Update 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (ASU 2014-11) that expanded secured borrowing accounting for certain repurchase agreements. The ASU also sets forth additional disclosure requirements for certain transactions accounted for as secured borrowings, which applies to the reverse repurchase agreements held by the Fund. The ASU became effective prospectively for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The Fund has adopted the ASU.
The following is a summary of the remaining contractual maturities of the reverse repurchase agreements outstanding as of September 30, 2015, aggregated by asset class of the related collateral pledged by the Fund:
Fund | | Overnight and Continuous | | | Up to
30 days | | | 31-90
days | | | Greater than 90 days | | | Total | |
Macro Opportunities Fund | | | | | | | | | | | | | | | |
Corporate Bonds | | $ | 24,432,000 | | | $ | 101,834,357 | | | $ | 19,379,843 | | | $ | — | | | $ | 145,646,201 | |
Foreign Government Bonds | | | 8,769,600 | | | | — | | | | — | | | | — | | | | 8,769,600 | |
Municipal Bond | | | — | | | | 2,075,000 | | | | — | | | | — | | | | 2,075,000 | |
Gross amount of recognized liabilities for reverse repurchase agreements | | $ | 33,201,600 | | | $ | 103,909,357 | | | $ | 19,379,843 | | | $ | — | | | $ | 156,490,801 | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded) |
13. Restricted Securities
The securities below are considered illiquid and restricted under guidelines established by the Board of Trustees:
Fund | Restricted Securities | Acquisition Date | | Amortized
Cost | | | Value | |
Macro Opportunities Fund | IronGate Energy Services LLC | 07/10/13 | | $ | 571,456 | | | $ | 381,000 | |
| | Schahin II Finance Company SPV Ltd. | 03/21/12 | | | 4,805,999 | | | | 1,587,054 | |
| | Customers Bank | 06/24/14 | | | 6,000,000 | | | | 6,060,000 | |
| | Airplanes Pass Through Trust | 01/18/12 | | | 2,887,959 | | | | 1,192,515 | |
| | FPL Energy National Wind LLC | 08/31/12 | | | 43,951 | | | | 45,894 | |
| | | | | | 14,309,365 | | | | 9,266,463 | |
14. P-Class Shares
Effective May 1, 2015, the Fund started to offer P-Class shares.
P-Class shares of the Fund are offered primarily through broker/dealers and other financial intermediaries with which Guggenheim Funds Distributors, LLC has an agreement for the use of P-Class shares of the Fund in investment products, programs or accounts. P-Class shares do not have a minimum initial investment amount, subsequent investment amount or a minimum account balance.
15. Subsequent Events
Beginning on October 1, 2015, A-Class shares of the Fund are offered at NAV plus an initial sales charge as follows:
Amount of Investment | Sales Charge as % of Offering Price | Sales Charge as %
of Net Amount Invested |
Less than $50,000 | 4.00% | 4.17% |
$50,000 but less than $100,000 | 3.75% | 3.90% |
$100,000 but less than $250,000 | 2.75% | 2.83% |
$250,000 but less than $1,000,000 | 1.75% | 1.78% |
$1,000,000 or greater | None | None |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Board of Trustees and Shareholders
of Guggenheim Funds Trust
We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, of Guggenheim Macro Opportunities Fund (one of the series constituting the Guggenheim Funds Trust) (the “Fund”) as of September 30, 2015, and the related consolidated 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 (consolidated for the year ended September 30, 2015), and the financial highlights for each of the years or periods indicated therein (consolidated for the year or period ended September 30, 2015). 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, 2015, by correspondence with the custodian, brokers, and paying agents or by other appropriate auditing procedures where replies from custodians, brokers, or paying agents were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the consolidated financial position of the Guggenheim Macro Opportunities Fund (one of the series constituting the Guggenheim Funds Trust) at September 30, 2015, the consolidated 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 (consolidated for the year ended September 30, 2015), and its financial highlights for each of the years or periods indicated therein (consolidated for the year or period ended September 30, 2015), in conformity with U.S. generally accepted accounting principles.
McLean, Virginia
November 25, 2015
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OTHER INFORMATION (Unaudited) |
Tax Information
In January 2016, shareholders will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by shareholders in the calendar year 2015.
The Fund’s investment income (dividend income plus short-term gains, if any) qualifies as follows:
Of the ordinary income distributions paid during the year, the following fund had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | Dividend
Received Deduction |
Macro Opportunities Fund | 4.73% |
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 | Qualified
Dividend Income |
Macro Opportunities Fund | 5.19% |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2015, the 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 | Qualified
Interest | Qualified
Short-Term
Capital Gain |
Macro Opportunities Fund | 46.17% | 0.00% |
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OTHER INFORMATION (Unaudited)(continued) |
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.
Sector Classification
Information in the “Schedule of Investments” is categorized by sectors using sector-level Classifications defined by the Bloomberg Industry Classification System, a widely recognized industry classification system provider. Each Fund’s registration statement has investment policies relating to concentration in specific sectors/industries. For purposes of these investment policies, the Funds usually classify sectors/industries based on industry-level Classifications used by widely recognized industry classification system providers such as Bloomberg Industry Classification System, Global Industry Classification Standards and Barclays Global Classification Scheme.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
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”). The Trust includes the following series:
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● Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) ● Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”) ● Guggenheim High Yield Fund (“High Yield Fund”) ● Guggenheim Large Cap Value Fund (“Large Cap Value Fund”) ● Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”) ● Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”) ● Guggenheim Risk Managed Real Estate Fund (“Risk Managed Real Estate Fund”) ● Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core Fund”) ● Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | ● Guggenheim Capital Stewardship Fund (“Capital Stewardship Fund”) ● Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”) ● Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”) ● Guggenheim Limited Duration Fund (“Limited Duration Fund”) ● 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 Fund”) ● Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 adviser 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 five separate investment management agreements which group the series as follows: (i) Mid Cap Value Fund, Mid Cap Value Institutional Fund, Small Cap Value Fund, StylePlus—Large Core Fund and World Equity Income Fund; (ii) Large Cap Value Fund; (iii) StylePlus—Mid Growth; (iv)
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Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund; and (v) Alpha Opportunity Fund. (The Funds identified in (i) through (v) 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 Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 five separate investment advisory agreements which group includes the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund; (iii) Capital Stewardship Fund; (iv) Limited Duration Fund; and (v) Risk Managed Real Estate Fund. (The investment management agreements pertaining to the SIAdvised 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,” with the members of the Board referred to individually as 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.
Following an initial two-year term, the Advisory Agreements continue in effect from year to year provided that such continuance is specifically approved at least annually by (i) the Board or a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund, and, in either event, (ii) the vote of a majority of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”) casting votes in person at a meeting called for such purpose. At meetings held in person on April 29, 2015 (the “April Meeting”) and on May 19, 2015 (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely
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OTHER INFORMATION (Unaudited)(continued) |
of the Independent Trustees, met separately from Guggenheim to consider the proposed renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.1 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 also received by the full Board) throughout the year regarding performance and operating results of the 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 presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Independent Trustees. In addition, Guggenheim made a presentation at the April Meeting, which addressed areas identified for discussion by the Committee 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”).
1 | Since the Capital Stewardship Fund was subject to an investment management agreement approved by the Board for an initial term of two years at an in-person meeting of the Board held on August 19-20, 2014, it was not included in the contract renewal process conducted at the meetings in April and May 2015. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, excluding the Capital Stewardship Fund. |
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Among other things, Guggenheim provided: (i) staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various services performed by Guggenheim for the provision of a continuous investment program for each Fund, monitoring compliance with Fund investment strategies and statutory requirements, reviewing trading processes and conducting investment performance analyses; (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 gross revenues, expenses and earnings for Guggenheim by product line and each Fund, including a breakout of various expenses, a description of Guggenheim’s 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, and certain information about Guggenheim’s insurance policies, business continuity plan, proxy voting procedures, trade allocation, shareholder communications and compliance monitoring, among other things.
The Committee considered the foregoing Contract Materials in the context of its substantial accumulated experience governing the Trust and weighed the factors and standards discussed with Independent Legal Counsel. 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 Funds2 to recommend that the Board approve the renewal of each Advisory Agreement and the Sub Advisory Agreement for an additional 12-month term.
Investment 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
2 | At the May Meeting, the Board determined to close and liquidate the Enhanced World Equity Fund based upon the Adviser’s recommendation (the “Liquidation Proposal”). Following an evaluation of strategic options, the Board determined that liquidation of the Fund as a series of the Trust would be in the best interests of the Fund and its shareholders. In view of the Liquidation Proposal, the Committee recommended the continuation of the Advisory Agreement with respect to the Enhanced World Equity Fund to provide for the continuation of advisory services until such time as the Fund was liquidated. |
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OTHER INFORMATION (Unaudited)(continued) |
education, experience, professional affiliations, areas of responsibility and duties of 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 also considered the Advisers’ attention to relevant developments in the mutual fund industry and its observance of compliance and regulatory requirements, and 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 additional staff to support the firm’s Chief Risk Officer, initiatives related to the risks associated with the investment process and risk at the enterprise level, 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 consolidate compliance manuals and align processes of the Funds with those of other Funds managed by the Advisers or another Guggenheim affiliate. 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 the Advisers’ parent company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). (The Committee received the audited consolidated financial statements of GPIMH once available following the April 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
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performance of its duties through Board meetings, discussions and reports during 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, 2014, 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, 2014, 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-year 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-year and three-year periods, ranking in the 1st and 4th percentiles, respectively. In light of various changes to this Fund, including 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 and the assumption by Security Investors of such investment management responsibility, the impact on portfolio management as a result of the Lehman bankruptcy,3 and subsequent changes to the Fund’s investment strategies, a reduction in the fund accounting and administration fee and the re-opening of the Fund to new subscriptions, the Committee considered more recent performance periods, including the one-year and the three-month
3 | The Committee considered the circumstances that affected 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 had consisted of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales, which limited the management of the portfolio. |
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periods. 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, 2014, ranking in the 11th and 4th percentiles, respectively.
Floating Rate Strategies Fund: The returns of the Fund’s Class A shares ranked in the 6th and 1st percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
High Yield Fund: The Fund’s Class A shares ranked in the 64th, 7th and 46th percentiles of the performance universe for the five-year, three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for the three-year and one-year periods.
Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014, ranking in the 14th, 4th and 3rd percentiles, respectively. The Committee also noted Guggenheim’s statement that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year, three-year and one-year periods ended December 31, 2014, and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile.
Large 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 ended December 31, 2014, and ranked in the 76th, 60th and 78th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the returns for the Fund’s Class A shares for the ten-year
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period ended December 31, 2014, which exceeded the performance universe median, ranking in the 45th percentile. The Committee also noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Limited Duration Fund: The Committee noted the Fund’s inception date of December 16, 2013 and observed that the returns of the Fund’s Class A shares ranked in the 8th and 18th percentiles of the performance universe for the one-year and three-month periods ended December 31, 2014, respectively, outperforming the median returns.
Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 3rd and 8th percentiles of the performance universe for the three-year and one-year periods ended December 31, 2014, 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 three-year and one-year periods ended December 31, 2014.
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 ended December 31, 2014, and ranked in the 92nd, 80th and 67th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2014 in the 1st quartile (22nd percentile) and that, according
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OTHER INFORMATION (Unaudited)(continued) |
to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. The Committee also noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. In addition, the Committee noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Mid Cap Value Institutional Fund: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 88th, 72nd and 61st percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
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
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OTHER INFORMATION (Unaudited)(continued) |
performance, the Committee concluded that Security Investors had appropriately reviewed and monitored GPIM’s investment performance as Sub-Adviser to the Fund.
Risk Managed Real Estate Fund: The returns of the Fund’s Class A shares ranked in the 67th percentile of its performance universe for the three month period ended December 31, 2014. The Committee considered that the Fund was recently organized as of February 12, 2014 and has a limited period of operation.
StylePlus—Large Core Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 10th and the 41st percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund outperformed its benchmark for the one-year period ended December 31, 2014.
StylePlus—Mid Growth Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 13th and 36th percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund had outperformed its benchmark for the one-year period ended December 31, 2014.
Small Cap Value Fund: The Fund underperformed its performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 87th, 71st and 92nd percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued
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OTHER INFORMATION (Unaudited)(continued) |
confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st and 2nd percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
World Equity Income Fund: The Fund implemented a strategy change and a new portfolio management team in August 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded its performance universe median for the one-year period, ranking in the 27th percentile, and lagged its performance universe median for the three-month period, ranking in the 83rd percentile.
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 and/or institutional separate account with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients. The Committee considered Guggenheim’s explanation that lower fees are charged in certain instances due to numerous factors, including the scope of contract, types
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OTHER INFORMATION (Unaudited)(continued) |
of investors, applicable regulatory and legal structures, tax status, and for historical pricing reasons. In this regard, the Committee took into account Guggenheim’s assertion that the differences in fees reflected the Advisers’ greater level of responsibilities and significantly broader scope of services regarding the Funds, the more extensive regulatory obligations and risks associated with managing the Funds, and other financial considerations with respect to the Funds.
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 and the asset weighted total net expense ratio are in the second quartile (27th and 45th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had 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 fourth quartile (82nd percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (40th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (77th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (84th percentile) of its peer group. The Committee also considered that the Adviser had 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 is in the second quartile (31st percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (22nd percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
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OTHER INFORMATION (Unaudited)(continued) |
Limited Duration Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (72nd percentile) of its peer group and the asset weighted total net expense ratio is in the second quartile (45th percentile) of its peer group. The Committee also considered that the Adviser had 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 (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 second quartile (43rd percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (85th percentile) of its peer group.
Mid Cap Value Institutional Fund: The contractual advisory fee of the Fund is in the first quartile (15th percentile) of its peer group and the total net expense ratio is in the third quartile (69th percentile) of its peer group.
Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the second quartile (26th and 38th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Risk Managed Real Estate Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the first quartile (1st percentile as to each) of its peer group.
StylePlus—Large Core Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the fourth quartile (80th and 100th percentiles, respectively) of its peer group.
StylePlus—Mid Growth Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the second quartile (34th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (100th percentile) of its peer group.
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OTHER INFORMATION (Unaudited)(continued) |
Small Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (78th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (25th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (86th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (19th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (27th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (80th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
With respect to the costs of services provided and profits realized by Guggenheim Investments from its relationship with the Funds, the Committee reviewed a profitability analysis and data from management for each Fund setting forth the average assets under management for the twelve months ended December 31, 2014, ending assets under management as of December 31, 2014, gross revenues received by Guggenheim Investments, expenses incurred in providing services to the Funds, earnings and the operating margin/profitability rate, including variance information relative to the foregoing amounts as of December 31, 2013. In addition, the Chief Financial Officer of Guggenheim Investments reviewed with, and addressed questions from, the Committee concerning the expense allocation methodology employed in producing the profitability analysis. In the course of its review of Guggenheim Investments’ profitability, the Committee took into account the complexity of the investment strategies employed for the Funds, in addition to the foregoing data and various figures.
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
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OTHER INFORMATION (Unaudited)(continued) |
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 Investments’ profitability from its relationship with the Funds was not unreasonable.
Economies of Scale: 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 have 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 also noted the Adviser’s statement that Guggenheim continues to develop the infrastructure needed to support Fund asset growth and to achieve economies of scale across the firm’s various products and product lines. Thus, while Guggenheim may be benefiting from certain economies of scale and related cost efficiencies, it is concurrently realizing new costs and expenses associated with investment in infrastructure, personnel and systems.
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 Total Return Bond Fund—having assets in excess of (or approaching) $1 billion as of March 31, 2015. 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 total net expense ratio is competitive with the peer group median.
Macro Opportunities Fund: 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.
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OTHER INFORMATION (Unaudited)(continued) |
Mid Cap Value Fund: The Fund’s contractual advisory fee is in line with the peer group median (43rd percentile) and the total net expense ratio is competitive with the peer group median.
Total Return Bond Fund: 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 in the first quartile (19th percentile).
The Committee determined that, taking into account all relevant factors, the advisory fee structure for each Fund 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 and compliance policies and procedures, 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 included as part of its considerations the unaudited financial information concerning GPIMH presented by the Chief Financial Officer of Guggenheim Investments. (As noted, the Committee received the audited consolidated financial statements of GPIMH once available following the April Meeting.)
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 Fund’s Class A shares outperformed the performance universe for the five-year and three-year periods ended December 31, 2014, ranking in the 1st and 35th percentiles, respectively. On January 13, 2012, the Fund acquired the assets and assumed the liabilities of TS&W/Claymore Tax-Advantaged Balanced Fund (the “Predecessor Fund”),
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OTHER INFORMATION (Unaudited)(concluded) |
a closed-end fund which used different investment strategies and had different investment advisers. Class A shares of the Fund have assumed the performance, financial and other historical information of the Predecessor Fund’s common shares and the performance of Class A shares of the Fund reflects the performance of the Predecessor Fund. In light of the foregoing, the Committee took into account more recent periods and noted that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2014, ranking in the 18th and 47th percentiles, respectively. In this connection, the Committee also considered that the Fund outperformed its benchmark over the one-year and three-month periods ended December 31, 2014.
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: 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” 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 or conclusive 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. Thereafter, on May 20, 2015, the Board, including all of the Independent Trustees, approved the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) |
A Board of Trustees oversees the Trust, as well as other trusts of GI, in which its members have no stated term of service, and continue to serve after election until resignation. The Statement of Additional Information includes further information about Fund Trustees and Officers, and can be obtained without charge by calling 800.820.0888.
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by 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). | 107 | Current: Trustee, Purpose Investments Inc. (2014-Present). |
Donald A. Chubb, Jr. (1946) | Trustee | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-present). | 103 | Current: Midland Care, Inc. (2011-present). |
Jerry B. Farley (1946) | Trustee | Since 2005 | Current: President, Washburn University (1997-present). | 103 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust (2000-present). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - continued | | |
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and Managing Partner, Roman Friedrich & Company (1998-present). Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | 103 | Current: Zincore Metals, Inc. (2009-present). Former: Axiom Gold and Silver Corp. (2011-2012). |
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 103 | 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). | 109 | Current: Edward-Elmhurst Healthcare System (2012-present). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - concluded | | |
Maynard F. Oliverius (1943) | Trustee | Since 1998 | Current: Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 103 | Current: Fort Hays State University Foundation (1999-present); Stormont-Vail Foundation (2013-present); University of Minnesota HealthCare Alumni Association Foundation (2009-present). |
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management (1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999); Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | 106 | Former: Bennett Group of Funds (2011-2013). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
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). | 239 | Current: Clear Spring Life Insurance Company (2015-present); Guggenheim Partners Japan, Ltd. (2014-present); Delaware Life (2013-present); Guggenheim Life and Annuity Company (2011-present); Paragon Life Insurance Company of Indiana (2011-present). |
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850 |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
*** | This Trustee is deemed to be an "interested person" of the Funds under the 1940 Act by reason of his position with the Funds' Investment Manager and/or the parent of the Investment Manager. |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS | | | |
Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). |
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). |
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). |
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - continued | |
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 2007 (Vice President) Since 2014 (Chief Legal Officer) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2013-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). |
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (2014-present); Senior Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). |
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Managing Director, Guggenheim Investments (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - continued | |
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-2014). |
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). |
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). |
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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 Occupations
During Past Five Years |
OFFICERS - concluded | |
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 | 117 |
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
118 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited)(continued) |
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 | 119 |
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.
120 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
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9.30.2015
Guggenheim Funds Annual Report
| |
Guggenheim Floating Rate Strategies Fund | | |
FR-ANN-0915x0916 | guggenheiminvestments.com |
DEAR SHAREHOLDER | 2 |
ECONOMIC AND MARKET OVERVIEW | 4 |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 6 |
FLOATING RATE STRATEGIES FUND | 9 |
NOTES TO FINANCIAL STATEMENTS | 40 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 61 |
OTHER INFORMATION | 62 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 81 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 89 |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
Dear Shareholder:
Guggenheim Partners Investment Management, LLC (the “Investment Adviser”), is pleased to present the shareholder report for Guggenheim Floating Rate Strategies Fund (the “Fund”) for the annual fiscal period ended September 30, 2015.
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 Managers’ 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, 2015
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at guggenheiminvestments.com or call 800.820.0888.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
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 may use leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. ● The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. ● Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. ● Investments in reverse repurchase agreements and synthetic instruments (such as synthetic collateralized debt obligations) expose the Fund to the many of the same risks as investments in derivatives. ● The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. ● The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political, or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). ● The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. ● The Fund’s investments in restricted securities may involve financial and liquidity risk. ● The Fund is subject to active trading risks that may increase volatility and impact its ability to achieve its investment objective. ● You may have a gain or loss when you sell your shares. ● It is important to note that the Fund is not guaranteed by the U.S. government. ● Please read the prospectus for more detailed information regarding these and other risks.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2015 |
At the end of the period, the underlying U.S. economy continued to maintain its strong footing. A market correction that began in August persisted through the end of the period; September and October are historically difficult times for the stock market, and by extension, risk assets of any kind, including credit.
Markets had been performing solidly for most of the period. Growth mid-year bounced back from a weather-induced slowdown in the first quarter, with GDP increasing 3.9% for the second quarter. The labor and housing markets continued to strengthen, and the drop in gas prices was acting as a tax cut, which was expected to increase consumer spending power going into the holiday season. Even though labor markets are moving toward full employment, questions remain about the viability of sustained economic expansion in the U.S. In particular, there is debate about the net effect of declining energy prices and a stronger dollar. These are both positive for the U.S. consumer, but low oil prices hurt the U.S. energy industry and a strong dollar is challenging for U.S. manufacturers. In addition, oil prices and the strong dollar exert a downward pressure on inflation, and a risk of deflation is a negative for the economy.
At the same time, currency devaluation, particularly in Japan and the euro zone, is putting pressure on countries to devalue to improve export competitiveness. Those countries slow to devalue, like China, are feeling economic pressure at home, driving down asset prices, and increasing deflationary pressures, escalating the risk of financial contagion abroad. China may have to devalue the renminbi further due to continued slowing in the economy. Combined with the tepid expansion in both Europe and Japan, the pressure will be for central banks there to increase easing measures.
The U.S. Federal Reserve (the Fed) is hard pressed to justify a rate increase based on its self-prescribed metrics, which include rising inflation and an improved employment situation with clearly rising wages. At best, policymakers can argue that the prospects for wage growth and inflation are improving, but clear evidence is lacking.
A preemptive rate increase seems risky and opens the Fed to potential criticism given the fragility in financial markets and the prospect that rising U.S. rates could further strengthen the dollar and also potentially exacerbate foreign economic turbulence. While prices and wages remain tame, the risk of another asset bubble is increasing. The longer policy remains highly accommodative, the greater the likelihood that asset classes including commercial real estate, equities, or certain categories of bonds could become overvalued.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ECONOMIC AND MARKET OVERVIEW (Unaudited)(concluded) | September 30, 2015 |
At period end, the risk of financial contagion remained high, which could result in central banks providing additional liquidity or delaying rate increases. Use of the monetary printing press is a handy tool to prop up asset prices and temporarily spur economic growth, which is the main reason a recession does not appear to be on the horizon for either the G-7 nations or China. It’s also worth noting that there has never been a recession in the post-war period without the Fed first raising interest rates, after which it typically takes several years for a recession to be induced.
For the 12 months ended September 30, 2015, the Standard & Poor’s 500® Index* (“S&P 500®”) returned -0.61%. The Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned -8.66%. The return of the MSCI Emerging Markets Index* was -19.28%.
In the bond market, the Barclays U.S. Aggregate Bond Index* posted a 2.94% return for the period, while the Barclays U.S. Corporate High Yield Index* returned -3.43%. The return of the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.02% for the 12-month period.
The opinions and forecasts expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
*Index Definitions
The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.
Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.
Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar (“USD”)-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
Credit Suisse Leveraged Loan Index which tracks the investable market of the U.S. dollar-denominated leveraged loan market. It consists of issues rated “5B” or lower, meaning that the highest rated issues included in this index are Moody’s/S&P ratings of Baa1/BB+ or Ba1/BBB+. All loans are funded term loans with a tenor of at least one year and are made by issuers domiciled in developed countries.
MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets.
S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad economy, representing all major industries and is considered a representation of the U.S. stock market.
| | 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, 2015 and ending September 30, 2015.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(continued) |
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(concluded) |
| | Expense
Ratio1 | Fund
Return | Beginning
Account Value
March 31,
2015 | Ending
Account Value
September 30,
2015 | Expenses
Paid During
Period2 |
Table 1. Based on actual Fund return3 |
Floating Rate Strategies Fund |
A-Class | 1.03% | 0.48% | $ 1,000.00 | $ 1,004.80 | $ 5.18 |
C-Class | 1.78% | 0.10% | 1,000.00 | 1,001.00 | 8.93 |
P-Class4 | 1.02% | (0.24%) | 1,000.00 | 997.60 | 4.19 |
Institutional Class | 0.79% | 0.60% | 1,000.00 | 1,006.00 | 3.97 |
| |
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 | 1.78% | 5.00% | 1,000.00 | 1,016.14 | 9.00 |
P-Class4 | 1.02% | 5.00% | 1,000.00 | 1,019.95 | 5.16 |
Institutional Class | 0.79% | 5.00% | 1,000.00 | 1,021.11 | 4.00 |
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, 2015 to September 30, 2015. |
4 | Since commencement of operations: May 1, 2015. Expenses paid based on actual fund return are calculated using 150 days from the commencement of operations. Expenses paid based on hypothetical 5% return are calculated using 183 days. |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited) |
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; Anne B. Walsh, Senior Managing Director and Assistant Chief Investment Officer; Kevin H. Gundersen, Senior Managing Director and Portfolio Manager; James W. Michal, Managing Director and Portfolio Manager; and Thomas J. Hauser, Managing Director and Portfolio Manager, who was added as a portfolio manager for the Fund during the period. Michael P. Damaso no longer serves as a portfolio manager for the Fund. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the fiscal year ended September 30, 2015.
For the one-year period ended September 30, 2015, Guggenheim Floating Rate Strategies Fund returned 2.36%1, compared with the 1.24% 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 investing primarily in bank loans and other floating-rate securities. It offers opportunities for investors seeking an alternative to traditional fixed income securities that may help hedge interest rate and inflation exposure.
At the start of the period, market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities sparked risk aversion that drove market volatility. After a second-straight winter soft patch, and a dramatic drop in the price of oil, U.S. economic data began to strengthen in 2015, appearing to provide support for the Fed to proceed with raising interest rates sometime in 2015. The world kept a watchful eye on the Fed during the summer, as headlines moved from Greece to China, as China devalued the yuan in August, the first time in 20 years. As China’s move sent shockwaves through global financial markets, the Fed opted to keep rates at the zero-bound at its September meeting, citing concerns about potential downside risks to the U.S. outlook posed by recent global market volatility.
Fund performance for the period was primarily a result of credit selection, as Guggenheim’s bottom-up, fundamental approach results in the construction of portfolios with strong downside protection that outperform when the broader market underperforms. In addition, the Fund’s continued underweight to Energy and Utility exposure relative to the broader market was also a positive.
The Fund has continued to generate strong risk-adjusted returns as its allocations to bank loans and asset-backed securities have helped to both decrease volatility and diversify sources of return. The allocation to bank loans contributed to
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
MANAGERS’ COMMENTARY (Unaudited)(continued) |
performance as the asset class was the prominent outperformer among risk assets, with the Credit Suisse Leveraged Loan Index posting a gain of 1.2% over the last twelve months compared to a loss of 3.4% for the Barclays High Yield Index and a loss of 0.6% for the S&P 500 (based on total returns).
The chief attributes of the Fund over the period were maintaining low duration relative to the index; holding a majority of the portfolio in floating rate instruments, primarily bank loans; having an allocation to structured credit, including commercial ABS and collateralized loan obligations (CLOs); and building up exposure to non-agency residential mortgage backed securities (NARMBS). The Fund believes the residential sector has been offering good relative value due to low interest rates, an improving residential real estate market, and strong economic fundamentals.
During the first quarter of the twelve month period (4Q 2014), an overweight to the Energy sector detracted from performance as the sudden decline in oil prices affected the prices of issuers in that sector. However, we moved quickly to reduce exposure to energy credits and rebalance among sub-sectors favoring exposure to issuers more involved with movement/transportation of oil rather than its production.
The Fund has also maintained an underweight to the Metals and Mining industry, which has also positively contributed to performance, as falling commodity prices continue to weigh on that sector. An overweight to Technology and Software also contributed positively to performance.
While there may be some additional macroeconomic volatility ahead, the Fund has benefited from the spread widening over the last few months that has allowed the Fund to selectively add assets at better values, and we continue to anticipate that the Fed will remain in an accommodative stance, which has historically supported a benign credit environment. The Fed continues to study the data, which means rates will remain low for an extended period.
While market volatility may persist over the near term, we believe that the U.S. economy remains solid and the chance of entering a recession in the near-term is remote. Bank loan mutual fund outflows, anemic new issue supply, and increased mergers and acquisitions (M&A) activity have masked one of the greatest benefits of bank loan investing—relative stability. Against highly volatile markets, the year-to-date performance of the bank loan market has been positive and stable. We continue to believe that bank loans will be one of the best performing fixed-income asset classes over the next couple of years.
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited)(concluded) |
The Fund invests excess cash into the Guggenheim Strategy Funds which, in turn, invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital. For the one -year period ended September 30, 2015, investment in the Guggenheim Strategy Funds has benefited Fund performance relative to investing in other short-term investments such as overnight repurchase agreements.
Performance displayed represents past performance which is no guarantee of future results.
1 | Performance figures are based on Class A 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 | 11 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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 or investments in Guggenheim Strategy Funds Trust mutual funds. Investments in those Funds do not provide “market exposure” to meet the fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(continued) | September 30, 2015 |
Inception Dates: |
A-Class | November 30, 2011 |
C-Class | November 30, 2011 |
P-Class | May 1, 2015 |
Institutional Class | November 30, 2011 |
Ten Largest Holdings (% of Total Net Assets) |
Guggenheim Strategy Fund I | 1.9% |
Cartrawler | 1.1% |
Epicor Software | 1.0% |
Neptune Finco Corp. | 1.0% |
Petsmart, Inc. | 1.0% |
Cengage Learning Acquisitions, Inc. | 1.0% |
Endo Luxembourg Finance Co. | 0.9% |
TIBCO Software, Inc. | 0.9% |
Alliant Holdings I L.P. | 0.9% |
Multiplan, Inc. | 0.9% |
Top Ten Total | 10.6% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(continued) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | Since Inception
(11/30/11) |
A-Class Shares | 2.36% | 5.91% |
A-Class Shares with sales charge† | -2.50% | 4.57% |
C-Class Shares | 1.63% | 5.13% |
C-Class Shares with CDSC‡ | 0.65% | 5.13% |
Institutional Class Shares | 2.59% | 6.16% |
Credit Suisse Leveraged Loan Index | 1.24% | 5.12% |
| | | |
| | | Since Inception
(05/01/15) |
P-Class Shares | | -0.24% |
Credit Suisse Leveraged Loan Index | | -1.36% |
* | 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. The graph is based on A-Class shares only; performance for C-Class shares, P-Class shares and Institutional Class shares will vary due to differences in fee structures. |
† | 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. |
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Portfolio Composition by Quality Rating1
Rating | % of Total Investments |
Fixed Income Instruments |
AAA | 0.3% |
AA | 1.5% |
A | 4.1% |
BBB | 7.3% |
BB | 27.7% |
B | 43.8% |
CCC | 4.8% |
CC | 0.5% |
NR2 | 3.8% |
Other Instruments | 6.2% |
Total Investments | 100.0% |
| | |
The chart above reflects percentages of the value of total investments. |
1 | Source: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities except for those labeled “NR” have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Security ratings are determined at the time of purchase and may change thereafter. |
2 | NR securities do not necessarily indicate low credit quality. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Shares | | | Value | |
| | | | | | | |
COMMON STOCKS† - 0.1% | |
| | | | | | | |
Technology - 0.1% | |
Travelport, LLC*,†† | | | 154,558 | | | $ | 2,041,711 | |
| | | | | | | | | |
Basic Materials - 0.0% | |
Mirabela Nickel Ltd.*,†††,1 | | | 4,755,634 | | | | 334 | |
| | | | | | | | | |
Total Common Stocks | | | | | | | | |
(Cost $4,724,318) | | | | | | | 2,042,045 | |
| | | | | | | | | |
MUTUAL FUNDS† - 1.9% | |
Guggenheim Strategy Fund I2 | | | 1,407,662 | | | | 35,022,618 | |
Total Mutual Funds | | | | | | | | |
(Cost $35,050,753) | | | | | | | 35,022,618 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 4.5% | |
Federated U.S. Treasury Cash Reserve Fund 0.00%10 | | | 81,503,484 | | | | 81,503,484 | |
Total Short Term Investments | | | | | |
(Cost $81,503,484) | | | | | | | 81,503,484 | |
| | | Face
Amount | | | | |
| | | | | | | |
SENIOR FLOATING RATE INTERESTS††,4,6 - 68.9% | |
Industrial - 13.6% | |
Transdigm, Inc. | | | | | | |
3.50% due 05/16/22 | | $ | 13,033,346 | | | | 12,818,817 | |
3.75% due 06/04/21 | | | 4,006,719 | | | | 3,953,069 | |
Multiplan, Inc. | | | | | | | | |
3.75% due 03/31/21 | | | 16,081,853 | | | | 15,868,768 | |
Amber Bidco Foster + Partners | | | | | | | | |
4.28% due 06/30/21†††,1 | | | 10,480,000 | | | | 10,306,640 | |
5.08% due 06/30/21††† | | GBP | 3,500,000 | | | | 5,207,024 | |
Gates Global, Inc. | | | | | | | | |
4.25% due 07/05/21 | | | 15,323,478 | | | | 14,491,566 | |
Flakt Woods | | | | | | | | |
2.63% due 03/20/17†††,1 | | EUR | 12,244,976 | | | | 13,486,827 | |
Brickman Group Holdings, Inc. | | | | | | |
4.00% due 12/18/20 | | | 12,398,703 | | | | 12,190,156 | |
US Infrastructure Corp. | | | | | | | | |
4.00% due 07/10/20 | | | 12,076,349 | | | | 11,940,490 | |
DAE Aviation | | | | | | | | |
5.25% due 07/07/22 | | | 8,850,000 | | | | 8,850,000 | |
Rexnord LLC/ RBS Global, Inc. | | | | | | | | |
4.00% due 08/21/20 | | | 8,232,000 | | | | 8,148,363 | |
Thermasys Corp. | | | | | | | | |
5.26% due 05/03/19 | | | 6,483,750 | | | | 6,289,238 | |
Hardware Holdings LLC | | | | | | | | |
6.75% due 03/30/20†††,1 | | | 6,187,500 | | | | 6,032,813 | |
CPM Holdings, Inc. | | | | | | | | |
6.00% due 04/11/22 | | | 5,785,500 | | | | 5,790,302 | |
Mitchell International, Inc. | | | | | | | | |
8.50% due 10/11/21 | | | 3,050,000 | | | | 3,032,219 | |
4.50% due 10/13/20 | | | 2,743,360 | | | | 2,727,942 | |
Crosby Worldwide | | | | | | | | |
3.75% due 11/23/20 | | | 6,606,317 | | | | 5,714,464 | |
SIRVA Worldwide, Inc. | | | | | | | | |
7.50% due 03/27/19 | | | 5,694,761 | | | | 5,623,576 | |
Power Borrower, LLC | | | | | | | | |
4.25% due 05/06/20 | | | 3,649,943 | | | | 3,601,290 | |
8.25% due 11/06/20 | | | 1,670,000 | | | | 1,586,500 | |
Berlin Packaging LLC | | | | | | | | |
4.50% due 10/01/21 | | | 4,908,440 | | | | 4,883,898 | |
Mast Global | | | | | | | | |
8.75% due 09/12/19†††,1 | | | 4,593,566 | | | | 4,563,006 | |
Beacon Roofing Supply, Inc. | | | | | | | | |
4.00% due 09/25/22 | | | 4,500,000 | | | | 4,486,860 | |
Berry Plastics Corp. | | | | | | | | |
4.00% due 09/16/22 | | | 2,600,000 | | | | 2,593,084 | |
3.50% due 02/07/20 | | | 1,077,889 | | | | 1,066,938 | |
3.75% due 01/06/21 | | | 815,500 | | | | 809,090 | |
Connolly Corp. | | | | | | | | |
4.50% due 05/14/21 | | | 4,435,268 | | | | 4,414,954 | |
CHI Overhead Doors, Inc. | | | | | | | | |
4.75% due 07/29/22 | | | 4,050,000 | | | | 4,041,131 | |
CareCore National LLC | | | | | | | | |
5.50% due 03/05/21 | | | 4,123,841 | | | | 3,855,791 | |
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
NVA Holdings, Inc. | | | | | | |
4.75% due 08/14/21 | | $ | 3,760,702 | | | $ | 3,754,422 | |
Doncasters Group Ltd. | | | | | | | | |
9.50% due 10/09/20 | | | 2,348,621 | | | | 2,336,878 | |
4.50% due 04/09/20 | | | 1,417,523 | | | | 1,410,435 | |
Goodpack Ltd. | | | | | | | | |
4.75% due 09/09/21 | | | 3,454,079 | | | | 3,292,877 | |
CEVA Logistics US Holdings | | | | | | | | |
6.50% due 03/19/21 | | | 3,501,639 | | | | 3,127,699 | |
Reynolds Group Holdings | | | | | | | | |
4.50% due 12/03/18 | | | 3,109,251 | | | | 3,108,536 | |
syncreon | | | | | | | | |
5.25% due 10/28/20 | | | 3,733,500 | | | | 2,963,466 | |
Learning Care Group (US), Inc. | | | | | | | | |
5.00% due 05/05/21 | | | 2,717,117 | | | | 2,707,771 | |
GYP Holdings III Corp. | | | | | | | | |
4.75% due 04/01/21 | | | 2,765,000 | | | | 2,693,580 | |
NANA Development Corp. | | | | | | | | |
8.00% due 03/15/181 | | | 2,550,000 | | | | 2,460,750 | |
SI Organization | | | | | | | | |
5.75% due 11/22/19 | | | 2,288,281 | | | | 2,284,277 | |
CEVA Logistics Holdings BV (Dutch) | | | | | | | | |
6.50% due 03/19/21 | | | 2,538,689 | | | | 2,267,582 | |
CEVA Group Plc (United Kingdom) | | | | | | | | |
6.50% due 03/19/21 | | | 2,444,038 | | | | 2,183,039 | |
PLZ Aeroscience | | | | | | | | |
5.25% due 07/31/22 | | | 2,000,000 | | | | 1,995,000 | |
Tank Holdings Corp. | | | | | | | | |
5.25% due 03/16/22 | | | 1,891,304 | | | | 1,881,262 | |
Constantinople Acquisition GmbH | | | | | | | | |
4.75% due 04/30/22 | | | 1,840,750 | | | | 1,845,352 | |
Nord Anglia Education Finance LLC | | | | | | | | |
4.50% due 03/31/21 | | | 1,478,375 | | | | 1,449,739 | |
Braas Monier Buildings Group | | | | | | | | |
3.90% due 10/15/20 | | EUR | 1,216,837 | | | | 1,358,408 | |
Dematic S.A. | | | | | | | | |
4.25% due 12/27/19 | | | 1,341,205 | | | | 1,336,175 | |
Element Materials Technology | | | | | | | | |
5.00% due 08/06/21 | | | 1,246,505 | | | | 1,244,174 | |
Quikrete Holdings, Inc. | | | | | | | | |
4.00% due 09/28/20 | | | 1,250,000 | | | | 1,241,150 | |
SIG Onex Wizard Acquisition | | | | | | | | |
4.25% due 03/11/22 | | | 1,144,250 | | | | 1,141,149 | |
Camp Systems International | | | | | | | | |
8.25% due 11/29/19 | | | 1,150,000 | | | | 1,138,500 | |
Waste Industries USA, Inc. | | | | | | | | |
4.25% due 02/27/20 | | | 895,500 | | | | 897,730 | |
Wencor (Jazz Acq) | | | | | | | | |
3.70% due 06/19/19 | | | 964,615 | | | | 880,598 | |
AlliedBarton Security Services LLC | | | | | | | | |
4.25% due 02/12/21 | | | 694,968 | | | | 684,544 | |
Pro Mach Group, Inc. | | | | | | | | |
4.75% due 10/22/21 | | | 623,434 | | | | 623,122 | |
CEVA Logistics Canada, ULC | | | | | | | | |
6.50% due 03/19/21 | | | 437,705 | | | | 390,962 | |
Atkore International, Inc. | | | | | | | | |
7.75% due 10/08/211 | | | 400,000 | | | | 367,500 | |
Omnitracs, Inc. | | | | | | | | |
8.75% due 05/25/21 | | | 350,000 | | | | 338,625 | |
Hunter Fan Co. | | | | | | | | |
6.50% due 12/20/171 | | | 219,577 | | | | 218,479 | |
Total Safety U.S., Inc. | | | | | | | | |
9.25% due 09/11/20 | | | 59,750 | | | | 46,505 | |
Total Industrial | | | | | | | 242,045,102 | |
| | | | | | | | | |
Technology - 12.6% | |
Epicor Software | | | | | | | | |
4.75% due 06/01/22 | | | 18,753,000 | | | | 18,607,663 | |
TIBCO Software, Inc. | | | | | | | | |
6.50% due 12/04/20 | | | 16,822,981 | | | | 16,654,751 | |
Deltek, Inc. | | | | | | | | |
5.00% due 06/25/22 | | | 15,760,234 | | | | 15,747,153 | |
The Active Network, Inc. | | | | | | | | |
5.50% due 11/13/20 | | | 12,079,158 | | | | 11,948,341 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Informatica Corp. | | | | | | |
4.50% due 08/05/22 | | $ | 10,600,000 | | | $ | 10,527,178 | |
Infor, Inc. | | | | | | | | |
3.75% due 06/03/20 | | | 10,479,698 | | | | 10,125,986 | |
First Data Corp. | | | | | | | | |
3.70% due 03/23/18 | | | 8,200,000 | | | | 8,125,708 | |
4.20% due 03/24/21 | | | 1,199,869 | | | | 1,196,870 | |
3.70% due 09/24/18 | | | 400,000 | | | | 395,800 | |
Greenway Medical Technologies | | | | | | | | |
6.00% due 11/04/201 | | | 9,825,000 | | | | 9,628,500 | |
Telx Group | | | | | | | | |
4.50% due 04/09/20 | | | 9,005,216 | | | | 8,967,665 | |
7.50% due 04/09/21 | | | 600,000 | | | | 599,748 | |
GlobalLogic Holdings, Inc. | | | | | | | | |
6.25% due 05/31/19 | | | 9,579,375 | | | | 9,531,478 | |
Micro Focus International plc | | | | | | | | |
5.25% due 11/19/21 | | | 9,037,849 | | | | 9,023,750 | |
Advanced Computer Software | | | | | | | | |
6.50% due 03/18/22 | | | 6,467,500 | | | | 6,445,963 | |
10.50% due 01/31/23 | | | 2,200,000 | | | | 2,114,750 | |
Avaya, Inc. | | | | | | | | |
6.25% due 05/29/20 | | | 7,352,539 | | | | 5,744,171 | |
6.50% due 03/30/18 | | | 3,223,269 | | | | 2,796,186 | |
Sabre, Inc. | | | | | | | | |
4.00% due 02/19/19 | | | 8,542,266 | | | | 8,512,003 | |
LANDesk Group, Inc. | | | | | | | | |
5.00% due 02/25/20 | | | 8,330,637 | | | | 8,299,398 | |
Go Daddy Operating Company, LLC | | | | | | | | |
4.25% due 05/13/21 | | | 7,856,050 | | | | 7,854,793 | |
Sensata Technologies | | | | | | | | |
3.00% due 10/14/21 | | | 7,804,531 | | | | 7,785,020 | |
Aspect Software, Inc. | | | | | | | | |
3.75% due 05/09/16 | | | 7,708,997 | | | | 7,516,273 | |
Banca Civica (UK) - Chambertin | | | | | | | | |
5.08% due 05/29/20†††,1 | | GBP | 3,800,000 | | | | 5,631,862 | |
4.76% due 08/04/20†††,1 | | GBP | 503,500 | | | | 732,982 | |
EIG Investors Corp. | | | | | | | | |
5.00% due 11/08/19 | | | 5,327,772 | | | | 5,323,350 | |
CDW LLC | | | | | | | | |
3.25% due 04/29/20 | | | 4,875,035 | | | | 4,827,162 | |
American Builders & Contractors Supply Co., Inc. | | | | | | | | |
3.50% due 04/16/20 | | | 4,236,610 | | | | 4,197,761 | |
Wall Street Systems | | | | | | | | |
4.50% due 04/30/21 | | | 4,191,228 | | | | 4,168,512 | |
Linxens | | | | | | | | |
5.00% due 07/29/22 | | | 3,400,000 | | | | 3,374,500 | |
Eze Castle Software, Inc. | | | | | | | | |
7.25% due 04/05/21 | | | 1,441,176 | | | | 1,415,956 | |
4.00% due 04/06/20 | | | 990,006 | | | | 982,581 | |
Interactive Data Corp. | | | | | | | | |
4.75% due 04/30/21 | | | 2,248,976 | | | | 2,239,845 | |
CCC Information Services, Inc. | | | | | | | | |
4.00% due 12/20/19 | | | 1,795,454 | | | | 1,782,545 | |
Travelport Holdings LLC | | | | | | | | |
5.75% due 09/02/21 | | | 1,741,228 | | | | 1,731,442 | |
Sparta Holding Corp. | | | | | | | | |
6.50% due 07/28/20††† | | | 1,435,500 | | | | 1,423,954 | |
Applied Systems, Inc. | | | | | | | | |
4.25% due 01/25/21 | | | 1,270,333 | | | | 1,265,251 | |
Total Technology | | | | | | | 227,246,851 | |
| | | | | | | | | |
Consumer, Cyclical - 12.0% | |
Petsmart, Inc. | | | | | | | | |
4.25% due 03/11/22 | | | 17,407,036 | | | | 17,361,778 | |
Sears Holdings Corp. | | | | | | | | |
5.50% due 06/29/18 | | | 15,678,949 | | | | 15,399,707 | |
Navistar, Inc. | | | | | | | | |
6.50% due 08/07/20 | | | 15,450,000 | | | | 15,063,750 | |
Warner Music Group | | | | | | | | |
3.75% due 07/01/20 | | | 14,515,832 | | | | 14,215,209 | |
BJ’s Wholesale Club, Inc. | | | | | | | | |
4.50% due 09/26/19 | | | 12,369,644 | | | | 12,233,578 | |
Acosta, Inc. | | | | | | | | |
4.25% due 09/26/21 | | | 11,752,046 | | | | 11,546,385 | |
Dollar Tree, Inc. | | | | | | | | |
3.50% due 07/06/22 | | | 11,315,984 | | | | 11,314,400 | |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Life Time Fitness | | | | | | |
4.25% due 06/10/22 | | $ | 11,172,000 | | | $ | 11,113,794 | |
Party City Holdings, Inc. | | | | | | | | |
4.25% due 08/19/22 | | | 9,900,000 | | | | 9,872,775 | |
Ipreo Holdings | | | | | | | | |
4.00% due 08/06/21 | | | 8,907,806 | | | | 8,779,801 | |
National Vision, Inc. | | | | | | | | |
4.00% due 03/12/21 | | | 8,110,826 | | | | 7,860,770 | |
Neiman Marcus Group, Inc. | | | | | | | | |
4.25% due 10/25/20 | | | 7,887,080 | | | | 7,708,911 | |
Eyemart Express | | | | | | | | |
5.00% due 12/17/21 | | | 7,277,726 | | | | 7,268,628 | |
Smart & Final Stores LLC | | | | | | | | |
4.00% due 11/15/19 | | | 6,460,926 | | | | 6,436,698 | |
ServiceMaster Co. | | | | | | | | |
4.25% due 07/01/21 | | | 6,203,420 | | | | 6,189,834 | |
Ceridian Corp. | | | | | | | | |
4.50% due 09/15/20 | | | 6,062,988 | | | | 5,733,344 | |
Sky Bet | | | | | | | | |
6.08% due 02/25/22 | | GBP | 3,700,000 | | | | 5,597,940 | |
Sterling Intermidiate Corp. | | | | | | | | |
4.50% due 06/20/22 | | | 4,314,188 | | | | 4,298,009 | |
Eldorado Resorts, Inc. | | | | | | | | |
4.25% due 07/25/22 | | | 3,740,625 | | | | 3,731,273 | |
Nassa Midco AS | | | | | | | | |
3.75% due 07/09/21 | | EUR | 3,300,000 | | | | 3,671,321 | |
Compucom Systems, Inc. | | | | | | | | |
4.25% due 05/11/20 | | | 4,263,543 | | | | 3,410,834 | |
Fitness International LLC | | | | | | | | |
5.50% due 07/01/20 | | | 3,456,250 | | | | 3,296,398 | |
Equinox Fitness | | | | | | | | |
5.00% due 01/31/20 | | | 3,156,831 | | | | 3,155,505 | |
Digital Cinema | | | | | | | | |
3.25% due 05/17/21 | | | 2,902,500 | | | | 2,890,397 | |
Capital Automotive LP | | | | | | | | |
6.00% due 04/30/20 | | | 2,830,000 | | | | 2,841,801 | |
California Pizza Kitchen, Inc. | | | | | | | | |
5.25% due 03/29/18 | | | 2,899,200 | | | | 2,841,216 | |
Ollies Bargain Outlet | | | | | | | | |
4.75% due 09/28/19 | | | 2,730,185 | | | | 2,716,534 | |
Mattress Firm | | | | | | | | |
5.00% due 10/20/21 | | | 2,363,569 | | | | 2,362,104 | |
GCA Services Group, Inc. | | | | | | | | |
4.25% due 11/01/19 | | | 1,612,796 | | | | 1,603,733 | |
9.25% due 11/02/20 | | | 200,000 | | | | 198,000 | |
Pinnacle Entertainment, Inc. | | | | | | | | |
3.75% due 08/13/20 | | | 1,410,357 | | | | 1,408,087 | |
NPC International, Inc. | | | | | | | | |
4.00% due 12/28/18 | | | 916,030 | | | | 903,819 | |
Container Store, Inc. | | | | | | | | |
4.25% due 04/06/19 | | | 880,530 | | | | 870,624 | |
Kate Spade & Co. | | | | | | | | |
4.00% due 04/09/21 | | | 584,169 | | | | 578,766 | |
Advantage Sales & Marketing, Inc. | | | | | | | | |
4.25% due 07/23/21 | | | 534,799 | | | | 524,269 | |
Rite Aid Corp. | | | | | | | | |
5.75% due 08/21/20 | | | 500,000 | | | | 505,000 | |
Jacobs Entertainment, Inc. | | | | | | | | |
5.25% due 10/29/18 | | | 479,419 | | | | 475,224 | |
Total Consumer, Cyclical | | | | | | | 215,980,216 | |
| | | | | | | | | |
Consumer, Non-cyclical - 10.5% | |
Endo Luxembourg Finance Co. | | | | | | | | |
3.75% due 06/13/22 | | | 16,800,000 | | | | 16,731,791 | |
Albertson’s (Safeway) Holdings LLC | | | | | | | | |
5.50% due 08/25/21 | | | 15,237,591 | | | | 15,228,144 | |
Valeant Pharmaceuticals International, Inc. | | | | | | | | |
4.00% due 04/01/22 | | | 9,452,500 | | | | 9,345,025 | |
3.75% due 08/05/20 | | | 4,000,000 | | | | 3,936,000 | |
At Home Holding III Corp. | | | | | | | | |
5.00% due 06/03/22 | | | 12,468,750 | | | | 12,375,234 | |
Authentic Brands | | | | | | | | |
5.50% due 05/27/21 | | | 12,252,804 | | | | 12,181,370 | |
Performance Food Group | | | | | | | | |
6.75% due 11/14/19 | | | 11,751,253 | | | | 11,746,318 | |
Hostess Brands | | | | | | | | |
4.50% due 08/03/22 | | | 11,500,000 | | | | 11,503,450 | |
Pinnacle Foods Corp. | | | | | | | | |
3.00% due 04/29/20 | | | 9,662,025 | | | | 9,628,378 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Dole Food Company, Inc. | | | | | | |
4.50% due 11/01/18 | | $ | 8,452,570 | | | $ | 8,425,100 | |
CTI Foods Holding Co. LLC | | | | | | | | |
8.25% due 06/28/21 | | | 7,420,000 | | | | 7,123,200 | |
4.50% due 06/29/20 | | | 1,323,000 | | | | 1,299,848 | |
Hill-Rom Holdings, Inc. | | | | | | | | |
3.50% due 09/08/22 | | | 7,600,000 | | | | 7,602,736 | |
Reddy Ice Holdings, Inc. | | | | | | | | |
6.75% due 05/01/191 | | | 4,779,943 | | | | 3,943,453 | |
10.75% due 10/01/191 | | | 2,000,000 | | | | 1,200,000 | |
Taxware Holdings | | | | | | | | |
7.50% due 04/01/22†††,1 | | | 5,087,250 | | | | 5,039,906 | |
American Tire Distributors, Inc. | | | | | | | | |
5.25% due 09/01/21 | | | 5,024,797 | | | | 5,022,686 | |
Sterigenics Norion Holdings | | | | | | | | |
4.25% due 05/16/22 | | | 5,000,000 | | | | 4,959,400 | |
Arctic Glacier Holdings, Inc. | | | | | | | | |
6.00% due 05/10/19 | | | 4,623,630 | | | | 4,554,276 | |
Physio-Control International, Inc. | | | | | | | | |
5.50% due 06/06/22 | | | 4,180,000 | | | | 4,146,058 | |
Alere, Inc. | | | | | | | | |
4.25% due 06/20/22 | | | 3,491,250 | | | | 3,487,968 | |
Nellson Nutraceutical (US) | | | | | | | | |
6.00% due 12/23/21 | | | 3,094,719 | | | | 3,063,772 | |
Pharmaceutical Product Development | | | | | | | | |
4.25% due 08/18/22 | | | 2,743,125 | | | | 2,707,986 | |
DJO Finance LLC | | | | | | | | |
4.25% due 06/07/20 | | | 2,664,167 | | | | 2,651,965 | |
Serta Simmons Holdings LLC | | | | | | | | |
4.25% due 10/01/19 | | | 2,602,371 | | | | 2,601,070 | |
Genoa Healthcare | | | | | | | | |
4.50% due 05/02/22 | | | 2,593,500 | | | | 2,582,166 | |
Concordia | | | | | | | | |
4.75% due 04/21/22 | | | 2,375,000 | | | | 2,370,060 | |
Continental Foods | | | | | | | | |
4.25% due 08/20/21 | | EUR | 1,962,963 | | | | 2,191,714 | |
Grocery Outlet, Inc. | | | | | | | | |
4.75% due 10/21/21 | | | 2,089,474 | | | | 2,081,638 | |
Nellson Nutraceutical (CAD) | | | | | | | | |
6.00% due 12/23/21 | | | 1,922,182 | | | | 1,902,960 | |
AdvancePierre Foods, Inc. | | | | | | | | |
5.75% due 07/10/17 | | | 1,444,086 | | | | 1,441,386 | |
9.50% due 10/10/17 | | | 461,000 | | | | 459,271 | |
NES Global Talent | | | | | | | | |
6.50% due 10/03/19 | | | 1,715,713 | | | | 1,595,613 | |
Catalent Pharma Solutions, Inc. | | | | | | | | |
4.25% due 05/20/21 | | | 1,203,333 | | | | 1,201,829 | |
Aramark Corp. | | | | | | | | |
3.25% due 02/24/21 | | | 1,201,700 | | | | 1,196,449 | |
Fender Musical Instruments Corp. | | | | | | | | |
5.75% due 04/03/19 | | | 905,442 | | | | 901,667 | |
Post Holdings | | | | | | | | |
3.75% due 06/02/21 | | | 486,265 | | | | 485,900 | |
Targus Group International, Inc. | | | | | | | | |
14.75% due 05/24/161 | | | 224,953 | | | | 141,046 | |
Total Consumer, Non-cyclical | | | | 189,056,833 | |
| | | | | | | | | |
Communications - 9.3% | |
Cartrawler | | | | | | | | |
4.25% due 04/29/21 | | EUR | 17,700,000 | | | | 19,779,850 | |
Neptune Finco Corp. | | | | | | | | |
5.00% due 09/23/22 | | | 18,000,000 | | | | 17,883,000 | |
Cengage Learning Acquisitions, Inc. | | | | | | | | |
7.00% due 03/31/20 | | | 17,519,803 | | | | 17,357,745 | |
Univision Communications, Inc. | | | | | | | | |
4.00% due 02/28/20 | | | 13,388,881 | | | | 13,292,615 | |
4.00% due 03/01/20 | | | 1,285,413 | | | | 1,275,978 | |
Ziggo BV | | | | | | | | |
3.75% due 01/14/22 | | EUR | 12,300,000 | | | | 13,481,136 | |
Asurion Corp. | | | | | | | | |
4.25% due 07/08/20 | | | 6,547,364 | | | | 6,124,143 | |
5.00% due 08/04/22 | | | 5,092,238 | | | | 4,803,406 | |
5.00% due 05/24/19 | | | 1,886,101 | | | | 1,796,040 | |
Light Tower Fiber LLC | | | | | | | | |
4.00% due 04/13/20 | | | 11,777,975 | | | | 11,542,415 | |
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Zayo Group LLC | | | | | | |
3.75% due 05/06/21 | | $ | 8,179,296 | | | $ | 8,120,733 | |
Scout24 AG | | | | | | | | |
4.25% due 02/12/21 | | EUR | 6,000,000 | | | | 6,693,435 | |
Houghton Mifflin Co. | | | | | | | | |
4.00% due 05/31/21 | | | 6,284,250 | | | | 6,205,697 | |
Springer Science + Business Media SA | | | | | | | | |
4.75% due 08/14/20 | | | 6,169,000 | | | | 6,097,008 | |
Virgin Media Bristol LLC | | | | | | | | |
3.50% due 06/30/23 | | | 5,857,895 | | | | 5,766,394 | |
Gogo LLC | | | | | | | | |
11.25% due 03/21/181 | | | 4,162,021 | | | | 4,307,692 | |
7.50% due 03/21/181 | | | 1,358,130 | | | | 1,358,130 | |
CBS Outdoor Americas Capital LLC | | | | | | | | |
3.00% due 02/01/21 | | | 4,600,000 | | | | 4,569,594 | |
Numericable US LLC | | | | | | | | |
4.00% due 07/20/22 | | | 3,300,000 | | | | 3,232,350 | |
Live Nation Worldwide, Inc. | | | | | | | | |
3.50% due 08/14/20 | | | 2,940,000 | | | | 2,928,975 | |
EMI Music Publishing | | | | | | | | |
4.00% due 08/19/22 | | | 2,577,845 | | | | 2,563,022 | |
Internet Brands | | | | | | | | |
4.75% due 07/08/21 | | | 2,155,934 | | | | 2,131,680 | |
Anaren, Inc. | | | | | | | | |
5.50% due 02/18/21 | | | 1,572,000 | | | | 1,554,315 | |
9.25% due 08/18/21 | | | 275,000 | | | | 269,500 | |
Charter Communications Operating, LLC | | | | | | | | |
3.00% due 01/03/21 | | | 1,591,858 | | | | 1,563,602 | |
Cumulus Media, Inc. | | | | | | | | |
4.25% due 12/23/20 | | | 1,395,229 | | | | 1,165,016 | |
Level 3 Communications, Inc. | | | | | | | | |
4.00% due 08/01/19 | | | 750,000 | | | | 749,250 | |
Total Communications | | | | | | | 166,612,721 | |
| | | | | | | | | |
Financial - 7.5% | |
Alliant Holdings I L.P. | | | | | | | | |
4.50% due 08/12/22 | | | 16,562,000 | | | | 16,324,003 | |
Transunion Holding Co. | | | | | | | | |
3.50% due 04/09/21 | | | 14,935,848 | | | | 14,767,820 | |
National Financial Partners Corp. | | | | | | | | |
4.50% due 07/01/20 | | | 14,259,930 | | | | 14,010,382 | |
HUB International Ltd. | | | | | | | | |
4.00% due 10/02/20 | | | 12,540,035 | | | | 12,238,322 | |
Hyperion Insurance | | | | | | | | |
5.50% due 04/29/22 | | | 11,741,000 | | | | 11,726,324 | |
York Risk Services | | | | | | | | |
4.75% due 10/01/21 | | | 11,552,109 | | | | 11,065,996 | |
AssuredPartners | | | | | | | | |
5.00% due 04/02/21 | | | 8,871,395 | | | | 8,849,217 | |
Magic Newco, LLC | | | | | | | | |
5.00% due 12/12/18 | | | 7,443,751 | | | | 7,443,751 | |
Intertrust Group | | | | | | | | |
8.00% due 04/16/22 | | | 3,300,000 | | | | 3,291,750 | |
4.42% due 04/16/21 | | | 2,616,000 | | | | 2,608,152 | |
American Stock Transfer & Trust | | | | | | | | |
5.75% due 06/26/20 | | | 5,739,301 | | | | 5,679,497 | |
Lineage Logistics LLC | | | | | | | | |
4.50% due 04/07/21 | | | 5,291,150 | | | | 5,086,118 | |
Expert Global Solutions | | | | | | | | |
8.50% due 04/03/18 | | | 4,174,422 | | | | 4,122,242 | |
7.45% due 04/02/17†††,1 | | | 504,167 | | | | 479,374 | |
WTG Holdings | | | | | | | | |
4.75% due 01/15/21 | | | 4,157,064 | | | | 4,131,082 | |
Jefferies Finance LLC | | | | | | | | |
4.50% due 05/14/20 | | | 3,840,375 | | | | 3,830,774 | |
Genex Services, Inc. | | | | | | | | |
5.25% due 05/28/21 | | | 2,765,000 | | | | 2,758,088 | |
Fly Leasing Ltd. | | | | | | | | |
3.50% due 08/09/19 | | | 2,458,047 | | | | 2,435,015 | |
Cunningham Lindsey U.S., Inc. | | | | | | | | |
5.00% due 12/10/191 | | | 1,574,437 | | | | 1,283,166 | |
9.25% due 06/10/201 | | | 194,886 | | | | 146,165 | |
USI Holdings Corp. | | | | | | | | |
4.25% due 12/27/19 | | | 1,381,939 | | | | 1,365,812 | |
AmWINS Group, LLC | | | | | | | | |
5.25% due 09/06/19 | | | 1,091,831 | | | | 1,094,331 | |
Total Financial | | | | | | | 134,737,381 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Basic Materials - 1.8% | |
Chromaflo Technologies | | | | | | |
4.50% due 12/02/19 | | $ | 9,227,797 | | | $ | 8,881,755 | |
Univar, Inc. | | | | | | | | |
4.25% due 07/01/22 | | | 8,600,000 | | | | 8,426,624 | |
Zep, Inc. | | | | | | | | |
5.75% due 06/27/22 | | | 6,284,250 | | | | 6,268,539 | |
INEOS US Finance LLC | | | | | | | | |
4.25% due 03/31/22 | | | 4,477,489 | | | | 4,337,567 | |
Ennis-Flint | | | | | | | | |
4.25% due 03/31/211 | | | 2,068,500 | | | | 2,021,959 | |
7.75% due 09/30/211 | | | 270,000 | | | | 251,100 | |
Hoffmaster Group, Inc. | | | | | | | | |
5.25% due 05/08/20 | | | 942,839 | | | | 938,719 | |
4.91% due 05/09/191 | | | 500,000 | | | | 457,980 | |
Minerals Technologies, Inc. | | | | | | | | |
3.75% due 05/10/21 | | | 1,200,296 | | | | 1,191,294 | |
Total Basic Materials | | | | | | | 32,775,537 | |
| | | | | | | | | |
Utilities - 1.2% | |
Veresen Midstream LP | | | | | | | | |
5.25% due 03/31/22 | | | 11,343,000 | | | | 11,257,928 | |
Stonewall (Green Energy) | | | | | | | | |
6.50% due 11/12/21 | | | 5,950,000 | | | | 5,845,875 | |
Panda Temple II Power | | | | | | | | |
7.25% due 04/03/19 | | | 4,500,000 | | | | 3,982,500 | |
Total Utilities | | | | | | | 21,086,303 | |
| | | | | | | | | |
Energy - 0.4% | |
PSS Companies | | | | | | | | |
5.50% due 01/28/20 | | | 5,668,253 | | | | 4,874,697 | |
Floatel International Ltd. | | | | | | | | |
6.00% due 06/26/20 | | | 3,312,619 | | | | 2,128,358 | |
Total Energy | | | | | | | 7,003,055 | |
Total Senior Floating Rate Interests | | | | | |
(Cost $1,268,402,256) | | | | | | | 1,236,543,999 | |
| | | | | | | | | |
CORPORATE BONDS††,6 - 7.5% | |
Energy - 1.9% | |
Crestwood Midstream Partners Limited Partnership / Crestwood Midstream Finance Corp. | | | | | | | | |
6.00% due 12/15/20 | | | 6,300,000 | | | | 5,654,250 | |
Sabine Pass Liquefaction LLC | | | | | | | | |
5.63% due 04/15/23 | | | 4,200,000 | | | | 3,727,500 | |
5.63% due 02/01/21 | | | 1,300,000 | | | | 1,205,750 | |
CONSOL Energy, Inc. | | | | | | | | |
5.88% due 04/15/22 | | | 6,750,000 | | | | 4,539,375 | |
ContourGlobal Power Holdings S.A. | | | | | | | | |
7.13% due 06/01/193 | | | 3,500,000 | | | | 3,509,100 | |
Ultra Petroleum Corp. | | | | | | | | |
5.75% due 12/15/183 | | | 4,680,000 | | | | 3,369,600 | |
Unit Corp. | | | | | | | | |
6.63% due 05/15/21 | | | 4,000,000 | | | | 3,280,000 | |
Gibson Energy, Inc. | | | | | | | | |
6.75% due 07/15/213 | | | 2,905,000 | | | | 2,792,431 | |
FTS International, Inc. | | | | | | | | |
7.84% due 06/15/203,4 | | | 2,950,000 | | | | 2,183,870 | |
6.25% due 05/01/22 | | | 1,250,000 | | | | 387,500 | |
Legacy Reserves Limited Partnership / Legacy Reserves Finance Corp. | | | | | | | | |
8.00% due 12/01/20 | | | 2,750,000 | | | | 1,980,000 | |
Ultra Resources, Inc. | | | | | | | | |
4.66% due 10/12/22†††,1 | | | 1,800,000 | | | | 1,181,952 | |
Precision Drilling Corp. | | | | | | | | |
6.62% due 11/15/20 | | | 1,000,000 | | | | 872,500 | |
Exterran Holdings, Inc. | | | | | | | | |
7.25% due 12/01/18 | | | 700,000 | | | | 686,000 | |
Atlas Energy Holdings Operating Company LLC / Atlas Resource Finance Corp. | | | | | | | | |
9.25% due 08/15/211 | | | 1,375,000 | | | | 577,500 | |
7.75% due 01/15/211 | | | 125,000 | | | | 52,500 | |
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
BreitBurn Energy Partners Limited Partnership / BreitBurn Finance Corp. | | | | | | |
7.88% due 04/15/22 | | $ | 850,000 | | | $ | 303,875 | |
Total Energy | | | | | | | 36,303,703 | |
| | | | | | | | | |
Financial - 1.2% | |
Icahn Enterprises Limited Partnership / Icahn Enterprises Finance Corp. | | | | | | | | |
5.88% due 02/01/22 | | | 5,000,000 | | | | 5,031,249 | |
4.88% due 03/15/19 | | | 1,750,000 | | | | 1,752,625 | |
6.00% due 08/01/20 | | | 1,700,000 | | | | 1,746,750 | |
Kennedy-Wilson, Inc. | | | | | | | | |
5.88% due 04/01/24 | | | 6,705,000 | | | | 6,554,138 | |
Cabot Financial Luxembourg S.A. | | | | | | | | |
6.50% due 04/01/213 | | GBP | 1,300,000 | | | | 1,921,731 | |
Credit Acceptance Corp. | | | | | | | | |
6.13% due 02/15/21 | | | 1,400,000 | | | | 1,379,000 | |
Jefferies Finance LLC / JFIN Company-Issuer Corp. | | | | | | | | |
7.38% due 04/01/203 | | | 1,050,000 | | | | 1,011,990 | |
National Financial Partners Corp. | | | | | | | | |
9.00% due 07/15/213 | | | 850,000 | | | | 820,250 | |
Oxford Finance LLC / Oxford Finance Company-Issuer, Inc. | | | | | | | | |
7.25% due 01/15/183 | | | 650,000 | | | | 661,375 | |
Fidelity & Guaranty Life Holdings, Inc. | | | | | | | | |
6.38% due 04/01/213 | | | 450,000 | | | | 468,000 | |
Total Financial | | | | | | | 21,347,108 | |
| | | | | | | | | |
Communications - 1.2% | |
Interoute Finco plc | | | | | | | | |
% due 10/15/20 | | EUR | 7,250,000 | | | | 8,127,275 | |
Level 3 Financing, Inc. | | | | | | | | |
3.91% due 01/15/184 | | | 4,210,000 | | | | 4,210,000 | |
Midcontinent Communications & Midcontinent Finance Corp. | | | | | | | | |
6.88% due 08/15/233 | | | 4,000,000 | | | | 3,985,000 | |
Alcatel-Lucent USA, Inc. | | | | | | | | |
6.75% due 11/15/203 | | | 1,825,000 | | | | 1,920,813 | |
MDC Partners, Inc. | | | | | | | | |
6.75% due 04/01/203 | | | 1,000,000 | | | | 987,500 | |
CyrusOne Limited Partnership / CyrusOne Finance Corp. | | | | | | | | |
6.38% due 11/15/22 | | | 600,000 | | | | 610,500 | |
UPCB Finance VI Ltd. | | | | | | | | |
6.88% due 01/15/223 | | | 477,000 | | | | 502,639 | |
Avaya, Inc. | | | | | | | | |
7.00% due 04/01/193 | | | 610,000 | | | | 483,425 | |
Total Communications | | | | | | | 20,827,152 | |
| | | | | | | | | |
Consumer, Non-cyclical - 1.0% | |
Tenet Healthcare Corp. | | | | | | | | |
3.84% due 06/15/204 | | | 7,000,000 | | | | 6,951,875 | |
Central Garden & Pet Co. | | | | | | | | |
8.25% due 03/01/18 | | | 5,206,000 | | | | 5,277,583 | |
Vector Group Ltd. | | | | | | | | |
7.75% due 02/15/21 | | | 4,440,000 | | | | 4,694,745 | |
Bumble Bee Holdings, Inc. | | | | | | | | |
9.00% due 12/15/173 | | | 1,754,000 | | | | 1,789,080 | |
Total Consumer, Non-cyclical | | | | 18,713,283 | |
| | | | | | | | | |
Industrial - 0.8% | |
CEVA Group plc | | | | | | | | |
7.00% due 03/01/213 | | | 5,800,000 | | | | 5,133,000 | |
BMBG Bond Finance SCA | | | | | | | | |
4.98% due 10/15/203,4 | | EUR | 4,000,000 | | | | 4,470,027 | |
Anixter, Inc. | | | | | | | | |
5.50% due 03/01/23 | | | 3,000,000 | | | | 2,955,000 | |
Unifrax I LLC / Unifrax Holding Co. | | | | | | | | |
7.50% due 02/15/193 | | | 1,525,000 | | | | 1,494,500 | |
Total Industrial | | | | | | | 14,052,527 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Technology - 0.6% | |
First Data Corp. | | | | | | |
5.38% due 08/15/233 | | $ | 4,500,000 | | | $ | 4,455,000 | |
Infor US, Inc. | | | | | | | | |
5.75% due 08/15/203 | | | 3,250,000 | | | | 3,233,750 | |
MSCI, Inc. | | | | | | | | |
5.75% due 08/15/253 | | | 1,500,000 | | | | 1,511,250 | |
NCR Corp. | | | | | | | | |
6.38% due 12/15/23 | | | 800,000 | | | | 784,000 | |
Total Technology | | | | | | | 9,984,000 | |
| | | | | | | | | |
Utilities - 0.3% | |
Terraform Global Operating LLC | | | | | | | | |
9.75% due 08/15/223 | | | 4,600,000 | | | | 3,691,500 | |
AES Corp. | | | | | | | | |
5.50% due 04/15/25 | | | 1,150,000 | | | | 1,006,250 | |
LBC Tank Terminals Holding Netherlands BV | | | | | | | | |
6.88% due 05/15/233 | | | 630,000 | | | | 653,625 | |
Total Utilities | | | | | | | 5,351,375 | |
| | | | | | | | | |
Consumer, Cyclical - 0.2% | |
WMG Acquisition Corp. | | | | | | | | |
6.75% due 04/15/223 | | | 2,280,000 | | | | 2,143,200 | |
Checkers Drive-In Restaurants, Inc. | | | | | | | | |
11.00% due 12/01/173 | | | 1,000,000 | | | | 1,062,500 | |
Men’s Wearhouse, Inc. | | | | | | | | |
7.00% due 07/01/229 | | | 525,000 | | | | 540,818 | |
Atlas Air Class A-1 Pass Through Trust | | | | | | | | |
7.20% due 01/02/191 | | | 8,227 | | | | 8,330 | |
Total Consumer, Cyclical | | | | | | | 3,754,848 | |
| | | | | | | | | |
Diversified - 0.2% | |
Opal Acquisition, Inc. | | | | | | | | |
8.88% due 12/15/213 | | | 3,195,000 | | | | 3,007,294 | |
HRG Group, Inc. | | | | | | | | |
7.88% due 07/15/19 | | | 490,000 | | | | 508,375 | |
Total Diversified | | | | | | | 3,515,669 | |
| | | | | | | | | |
Basic Materials - 0.1% | |
TPC Group, Inc. | | | | | | | | |
8.75% due 12/15/203 | | | 1,455,000 | | | | 1,244,025 | |
Mirabela Nickel Ltd. | | | | | | | | |
9.50% due 06/24/19†††,1 | | | 1,166,383 | | | | 361,579 | |
1.00% due 09/10/44†††,1 | | | 25,570 | | | | — | |
Eldorado Gold Corp. | | | | | | | | |
6.13% due 12/15/203 | | | 265,000 | | | | 230,550 | |
Total Basic Materials | | | | | | | 1,836,154 | |
Total Corporate Bonds | | | | | | | | |
(Cost $150,590,294) | | | | | | | 135,685,819 | |
| | | | | | | | | |
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 6.7% | |
LSTAR Securities Investment Trust | | | | | | | | |
2014-1, 3.29% due 09/01/213,4 | | | 7,901,374 | | | | 7,901,373 | |
2015-5, 2.19% due 04/01/203,4 | | | 6,818,497 | | | | 6,679,399 | |
2015-2, 2.19% due 01/01/203,4 | | | 5,079,835 | | | | 4,983,318 | |
2015-1, 2.19% due 01/01/203,4 | | | 4,729,605 | | | | 4,662,918 | |
2015-4, 2.19% due 04/01/203,4 | | | 3,785,129 | | | | 3,708,669 | |
2015-3, 2.20% due 03/01/203,4 | | | 2,005,198 | | | | 1,967,701 | |
Lehman XS Trust Series | | | | | | | | |
2007-15N, 0.44% due 08/25/374 | | | 6,855,176 | | | | 5,459,600 | |
2007-2N, 0.37% due 02/25/374 | | | 4,124,593 | | | | 2,953,695 | |
2006-16N, 0.38% due 11/25/464 | | | 3,018,757 | | | | 2,426,634 | |
GSAA Home Equity Trust | | | | | | | | |
2006-14, 0.36% due 09/25/364 | | | 13,485,442 | | | | 7,212,447 | |
2007-7, 0.46% due 07/25/374 | | | 1,143,586 | | | | 971,606 | |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Banc of America Funding Ltd. | | | | | | |
2013-R1, 0.41% due 11/03/413,4 | | $ | 8,584,963 | | | $ | 7,986,590 | |
GreenPoint Mortgage Funding Trust | | | | | | | | |
2005-HE4, 0.90% due 07/25/304 | | | 4,973,110 | | | | 4,807,107 | |
2006-AR1, 0.48% due 02/25/364 | | | 2,851,858 | | | | 2,311,793 | |
IndyMac INDX Mortgage Loan Trust | | | | | | | | |
2005-AR18, 0.97% due 10/25/364 | | | 4,591,124 | | | | 3,571,045 | |
2006-AR4, 0.40% due 05/25/464 | | | 3,485,266 | | | | 2,958,162 | |
HarborView Mortgage Loan Trust | | | | | | | | |
2006-12, 0.41% due 01/19/384 | | | 4,041,293 | | | | 3,409,542 | |
2005-13, 0.50% due 02/19/364 | | | 3,827,764 | | | | 2,833,479 | |
Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | | | | | | | | |
2006-AR9, 1.04% due 11/25/464 | | | 4,458,482 | | | | 3,059,562 | |
2006-AR9, 1.03% due 11/25/464 | | | 4,390,851 | | | | 3,013,169 | |
American Home Mortgage Investment Trust | | | | | | | | |
2006-1, 0.59% due 03/25/464 | | | 7,026,093 | | | | 5,858,188 | |
Nomura Resecuritization Trust | | | | | | | | |
2015-4R, 0.56% due 03/26/363,4 | | | 3,102,057 | | | | 2,752,145 | |
2012-1R, 0.64% due 08/27/473,4 | | | 2,595,828 | | | | 2,447,347 | |
RALI Series Trust | | | | | | | | |
2006-QO10, 0.35% due 01/25/374 | | | 4,240,743 | | | | 3,218,567 | |
2006-QO2, 0.41% due 02/25/464 | | | 4,055,727 | | | | 1,832,045 | |
Structured Asset Securities Corporation Mortgage Loan Trust | | | | | | | | |
2006-OPT1, 0.45% due 04/25/364 | | | 4,300,000 | | | | 4,004,990 | |
2007-BC1, 0.32% due 02/25/374 | | | 900,000 | | | | 789,000 | |
AJAX Mortgage Loan Trust | | | | | | | | |
2015-A, 3.88% due 11/25/543 | | | 4,011,105 | | | | 3,989,445 | |
CIT Mortgage Loan Trust | | | | | | | | |
2007-1, 1.64% due 10/25/373,4 | | | 3,274,870 | | | | 3,115,106 | |
Merrill Lynch Alternative Note Asset Trust Series | | | | | | | | |
2007-OAR3, 0.38% due 07/25/374 | | | 2,959,447 | | | | 2,257,641 | |
GSAMP Trust | | | | | | | | |
2005-HE6, 0.63% due 11/25/354 | | | 2,250,000 | | | | 2,095,524 | |
Wachovia Asset Securitization Issuance II LLC Trust | | | | | | | | |
2007-HE1, 0.33% due 07/25/373,4 | | | 2,384,667 | | | | 2,083,748 | |
Morgan Stanley Re-REMIC Trust | | | | | | | | |
2010-R5, 0.54% due 06/26/363,4 | | | 1,317,162 | | | | 996,581 | |
Bear Stearns Mortgage Funding Trust | | | | | | | | |
2007-AR5, 0.36% due 06/25/474 | | | 895,143 | | | | 698,423 | |
Alliance Bancorp Trust | | | | | | | | |
2007-OA1, 0.43% due 07/25/374 | | | 879,077 | | | | 575,758 | |
New Century Home Equity Loan Trust | | | | | | | | |
2004-4, 0.99% due 02/25/354 | | | 503,541 | | | | 410,177 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Asset Backed Securities Corporation Home Equity Loan Trust | | | | | | |
2004-HE8, 1.24% due 12/25/344 | | $ | 300,822 | | | $ | 288,632 | |
Total Collateralized Mortgage Obligations | | | | | |
(Cost $120,651,862) | | | | | | | 120,291,126 | |
| | | | | | | | | |
ASSET-BACKED SECURITIES†† - 5.9% | |
Collateralized Loan Obligations - 3.5% | |
OHA Credit Partners IX Ltd. | | | | | | | | |
2013-9A, 0.00% due 10/20/253,5 | | | 6,000,000 | | | | 5,580,429 | |
KKR Financial CLO Ltd. | | | | | | | | |
2007-1A, 2.57% due 05/15/213,4 | | | 4,100,000 | | | | 4,081,964 | |
2007-1X, 5.32% due 05/15/21 | | | 650,000 | | | | 649,967 | |
Avery | | | | | | | | |
2013-3X, due 01/18/255 | | | 4,300,020 | | | | 3,823,148 | |
ACIS CLO Ltd. | | | | | | | | |
2013-2A, 4.14% due 10/14/223,4 | | | 1,800,000 | | | | 1,781,823 | |
2013-1A, 4.79% due 04/18/243,4 | | | 1,000,000 | | | | 999,887 | |
2015-6A, 3.67% due 05/01/273,4 | | | 1,000,000 | | | | 997,656 | |
Golub Capital Partners Clo 24M Ltd. | | | | | | | | |
2015-24A, 4.02% due 02/05/273,4 | | | 3,750,000 | | | | 3,728,988 | |
Fortress Credit Funding V, LP | | | | | | | | |
2015-5A, 3.92% due 08/15/223,4 | | | 3,500,000 | | | | 3,488,827 | |
Fortress Credit Opportunities VI CLO Ltd. | | | | | | | | |
2015-6A, 3.93% due 10/10/263,4 | | | 3,500,000 | | | | 3,443,034 | |
Newstar Commercial Loan Funding LLC | | | | | | | | |
2013-1A, 4.90% due 09/20/233,4 | | | 2,750,000 | | | | 2,615,412 | |
2013-1A, 5.65% due 09/20/233,4 | | | 250,000 | | | | 245,041 | |
2014-1A, 5.04% due 04/20/253,4 | | | 250,000 | | | | 241,735 | |
Treman Park CLO Ltd. | | | | | | | | |
2015-1A, 0.00% due 04/20/273,5 | | | 3,000,000 | | | | 2,856,299 | |
Halcyon Loan Advisors Funding Ltd. | | | | | | | | |
2012-1A, 3.32% due 08/15/233,4 | | | 2,600,000 | | | | 2,549,172 | |
ALM XIV Ltd. | | | | | | | | |
2014-14A, 3.74% due 07/28/263,4 | | | 2,650,000 | | | | 2,500,452 | |
Fortress Credit Opportunities V CLO Ltd. | | | | | | | | |
2014-5A, 4.78% due 10/15/263,4 | | | 2,500,000 | | | | 2,346,700 | |
Symphony CLO Ltd. | | | | | | | | |
2015-10AR, 3.14% due 07/23/233,4 | | | 2,000,000 | | | | 2,009,494 | |
Duane Street CLO IV Ltd. | | | | | | | | |
2007-4A, 2.56% due 11/14/213,4 | | | 2,000,000 | | | | 1,939,829 | |
MCF CLO I LLC | | | | | | | | |
2013-1A, 3.84% due 04/20/233,4 | | | 1,500,000 | | | | 1,484,563 | |
Grayson CLO Ltd. | | | | | | | | |
2006-1A, 0.71% due 11/01/213,4 | | | 1,200,000 | | | | 1,109,058 | |
Telos Clo Ltd. | | | | | | | | |
2007-2A, 2.49% due 04/15/223,4 | | | 1,100,000 | | | | 1,076,364 | |
Cerberus Onshore II CLO LLC | | | | | | | | |
2014-1A, 4.29% due 10/15/233,4 | | | 600,000 | | | | 575,235 | |
2014-1A, 3.79% due 10/15/233,4 | | | 500,000 | | | | 496,699 | |
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Telos CLO Ltd. | | | | | | |
2013-3A, 4.54% due 01/17/243,4 | | $ | 1,050,000 | | | $ | 1,010,422 | |
Gramercy Park CLO Ltd. | | | | | | | | |
2014-1A, 4.32% due 07/17/233,4 | | | 1,000,000 | | | | 1,002,436 | |
Venture XI CLO Ltd. | | | | | | | | |
2015-11A, 3.26% due 11/14/223,4 | | | 1,000,000 | | | | 994,601 | |
COA Summit CLO Limited | | | | | | | | |
2014-1A, 4.14% due 04/20/233,4 | | | 1,000,000 | | | | 994,034 | |
Churchill Financial Cayman Ltd. | | | | | | | | |
2007-1A, 2.88% due 07/10/193,4 | | | 1,000,000 | | | | 988,860 | |
NewStar Commercial Loan Trust | | | | | | | | |
2007-1A, 1.62% due 09/30/223,4 | | | 500,000 | | | | 476,214 | |
2007-1A, 2.62% due 09/30/223,4 | | | 500,000 | | | | 467,386 | |
Garrison Funding Ltd. | | | | | | | | |
2013-2A, 4.93% due 09/25/233,4 | | | 750,000 | | | | 747,400 | |
Shackleton II CLO Ltd. | | | | | | | | |
2012-2A, 4.34% due 10/20/233,4 | | | 750,000 | | | | 736,982 | |
Westchester CLO Ltd. | | | | | | | | |
2007-1A, 0.64% due 08/01/223,4 | | | 750,000 | | | | 717,947 | |
ARES XXVI CLO Ltd. | | | | | | | | |
2013-1A, 0.00% due 04/15/253,5 | | | 1,250,000 | | | | 669,511 | |
NewStar Arlington Senior Loan Program LLC | | | | | | | | |
2014-1A, 3.60% due 07/25/253,4 | | | 600,000 | | | | 580,533 | |
ACA CLO Ltd. | | | | | | | | |
2007-1A, 1.24% due 06/15/223,4 | | | 575,000 | | | | 551,259 | |
Kingsland III Ltd. | | | | | | | | |
2006-3A, 1.93% due 08/24/213,4 | | | 500,000 | | | | 479,593 | |
Westwood CDO I Ltd. | | | | | | | | |
2007-1A, 1.00% due 03/25/213,4 | | | 500,000 | | | | 474,268 | |
Kingsland IV Ltd. | | | | | | | | |
2007-4A, 1.74% due 04/16/213,4 | | | 500,000 | | | | 469,737 | |
MCF CLO III LLC | | | | | | | | |
2014-3A, 3.46% due 01/20/243,4 | | | 500,000 | | | | 443,978 | |
Eastland CLO Ltd. | | | | | | | | |
2007-1A, 0.70% due 05/01/223,4 | | | 350,000 | | | | 330,348 | |
Black Diamond CLO Delaware Corp. | | | | | | | | |
2005-2A, 2.12% due 01/07/183,4 | | | 250,000 | | | | 244,620 | |
Great Lakes CLO Ltd. | | | | | | | | |
2014-1A, 4.49% due 04/15/253,4 | | | 250,000 | | | | 233,437 | |
TCW Global Project Fund III Ltd. | | | | | | | | |
2005-1A, 1.17% due 09/01/173,4 | | | 182,454 | | | | 181,250 | |
Total Collateralized Loan Obligations | | | | 63,416,592 | |
| | | | | | | | | |
Collateralized Debt Obligations - 2.0% | |
Gramercy Real Estate CDO Ltd. | | | | | | | | |
2007-1A, 0.60% due 08/15/563,4 | | | 10,830,258 | | | | 9,982,879 | |
PFP 2015-2 Ltd. | | | | | | | | |
2015-2, 2.91% due 07/14/343,4 | | | 5,000,000 | | | | 5,000,785 | |
RAIT CRE CDO I Ltd. | | | | | | | | |
2006-1X, 0.53% due 11/20/46 | | | 4,999,689 | | | | 4,629,824 | |
Triaxx Prime CDO Ltd. | | | | | | | | |
2006-2A, 0.45% due 10/02/393,4 | | | 4,893,842 | | | | 4,580,802 | |
N-Star REL CDO VIII Ltd. | | | | | | | | |
2006-8A, 0.55% due 02/01/413,4 | | | 3,250,000 | | | | 3,017,784 | |
2006-8A, 0.48% due 02/01/413,4 | | | 1,209,190 | | | | 1,180,577 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 27 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
N-Star Real Estate CDO IX Ltd. | | | | | | |
0.51% due 02/01/411 | | $ | 3,264,813 | | | $ | 3,211,447 | |
DIVCORE CLO Ltd. | | | | | | | | |
2013-1A B, 4.10% due 11/15/32 | | | 1,600,000 | | | | 1,595,840 | |
SRERS Funding Ltd. | | | | | | | | |
2011-RS, 0.44% due 05/09/463,4 | | | 1,165,564 | | | | 1,118,561 | |
Highland Park CDO I Ltd. | | | | | | | | |
2006-1A, 0.66% due 11/25/513,4 | | | 981,927 | | | | 944,434 | |
Putnam Structured Product CDO Ltd. | | | | | | | | |
2002-1A, 0.88% due 01/10/383,4 | | | 925,107 | | | | 868,474 | |
Total Collateralized Debt Obligations | | | | 36,131,407 | |
| | | | | | | | | |
Transport-Aircraft - 0.4% | |
Castlelake Aircraft Securitization Trust | | | | | | | | |
2014-1, 5.25% due 02/15/293 | | | 3,536,422 | | | | 3,501,765 | |
2014-1, 7.50% due 02/15/293 | | | 2,605,785 | | | | 2,583,636 | |
Airplanes Pass Through Trust | | | | | | | | |
2001-1A, 0.76% due 03/15/194,8 | | | 1,631,031 | | | | 509,697 | |
Aerco Ltd. | | | | | | | | |
2000-2A, 1.17% due 07/15/254 | | | 869,237 | | | | 165,242 | |
Total Transport-Aircraft | | | | | | | 6,760,340 | |
| | | | | | | | | |
Insurance - 0.0% | |
Northwind Holdings LLC | | | | | | | | |
2007-1A, 1.11% due 12/01/373,4 | | | 360,985 | | | | 324,887 | |
| | | | | | | | | |
Credit Card - 0.0% | |
Credit Card Pass-Through Trust | | | | | | | | |
2012-BIZ, due 12/15/493 | | | 160,036 | | | | 130,686 | |
Total Asset-Backed Securities | | | | | |
(Cost $105,303,607) | | | | | | | 106,763,912 | |
| | | | | | | | | |
SENIOR FIXED RATE INTERESTS†† - 0.7% | |
Communications - 0.4% | |
Lions Gate Entertainment Corp. | | | | | | | | |
5.00% due 03/17/22 | | | 7,780,000 | | | | 7,789,725 | |
| | | | | | | | | |
Consumer, Cyclical - 0.3% | |
Men’s Wearhouse | | | | | | | | |
5.00% due 06/18/21 | | | 4,700,000 | | | | 4,688,250 | |
CKX Entertainment, Inc. | | | | | | | | |
11.00% due 06/21/17†††,1 | | | 145,875 | | | | 67,103 | |
Total Consumer, Cyclical | | | | | | | 4,755,353 | |
| | | | | | | | | |
Financial - 0.0% | |
Magic Newco, LLC | | | | | | | | |
12.00% due 06/12/19 | | | 500,000 | | | | 542,500 | |
Total Senior Fixed Rate Interests | | | | | |
(Cost $13,113,678) | | | | | | | 13,087,578 | |
| | | | | | | | | |
COMMERCIAL PAPER††,5- 7.7% | |
Apple, Inc. | | | | | | | | |
0.17% due 10/26/15 | | | 20,000,000 | | | | 19,997,638 | |
Nissan Motor Acceptance Corp. | | | | | | | | |
0.35% due 10/19/15 | | | 17,500,000 | | | | 17,496,938 | |
Diageo Capital plc | | | | | | | | |
0.30% due 10/02/15 | | | 15,000,000 | | | | 14,999,875 | |
Harley-Davidson Financial Services, Inc. | | | | | | | | |
0.30% due 10/13/15 | | | 15,000,000 | | | | 14,998,500 | |
AirGas, Inc. | | | | | | | | |
0.44% due 10/05/153 | | | 14,000,000 | | | | 13,999,316 | |
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Ryder System, Inc. | | | | | | |
0.36% due 10/26/15 | | $ | 14,000,000 | | | $ | 13,996,500 | |
VF Corp. | | | | | | | | |
0.38% due 10/23/15 | | | 13,125,000 | | | | 13,121,952 | |
Snap-On, Inc. | | | | | | | | |
0.28% due 10/01/15 | | | 10,000,000 | | | | 10,000,000 | |
American Water Capital Corp. | | | | | | | | |
0.37% due 10/13/153 | | | 10,000,000 | | | | 9,998,767 | |
Mattel, Inc. | | | | | | | | |
0.27% due 10/13/15 | | | 9,000,000 | | | | 8,999,190 | |
Total Commercial Paper | | | | | | | | |
(Cost $137,608,676) | | | | | | | 137,608,676 | |
| | | | | | | | | |
Total Investments - 103.9% | | | | | |
(Cost $1,916,948,928) | | | | | | $ | 1,868,549,257 | |
Other Assets & Liabilities, net - (3.9)% | | | | (70,582,269 | ) |
Total Net Assets - 100.0% | | | $ | 1,797,966,988 | |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† | |
| | |
Counterparty | | Contracts to Buy (Sell) | | Currency | Settlement
Date | | Settlement
Value | | | Value at Sept. 30,
2015 | | | Net Unrealized Appreciation/(Depreciation) | |
BNY Mellon | | | (12,703,500 | ) | GBP | 10/7/2015 | | $ | 19,290,403 | | | $ | 19,216,816 | | | $ | 73,587 | |
BNY Mellon | | | 395,000 | | AUD | 10/7/2015 | | | (276,690 | ) | | | (277,125 | ) | | | 435 | |
BNY Mellon | | | (395,000 | ) | AUD | 10/7/2015 | | | 273,798 | | | | 277,125 | | | | (3,327 | ) |
BNY Mellon | | | 2,350,000 | | EUR | 10/7/2015 | | | (2,644,561 | ) | | | (2,626,584 | ) | | | (17,977 | ) |
BNY Mellon | | | (60,900,000 | ) | EUR | 10/7/2015 | | | 67,608,440 | | | | 68,067,642 | | | | (459,202 | ) |
| | | | | | | | | | | | | | | | | $ | (406,484 | ) |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
FLOATING RATE STRATEGIES FUND | |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
†† | Value determined based on Level 2 inputs, unless otherwise noted — See Note 4. |
††† | Value determined based on Level 3 inputs — See Note 4. |
1 | Illiquid security. |
2 | Affiliated issuer — See Note 7. |
3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $238,095,070 (cost $230,855,555), or 13.2% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
4 | Variable rate security. Rate indicated is rate effective at September 30, 2015. |
5 | Residual interest. |
6 | The face amount is denominated in U.S. Dollars unless otherwise indicated. |
7 | Zero coupon rate security. |
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 $509,697 (cost $1,234,625), or 0.0% of total net assets — See Note 11. |
9 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 10. |
10 | Rate indicated is the 7 day yield as of September 30, 2015. |
| | plc — Public Limited Company |
| | REIT — Real Estate Investment Trust |
| | |
| | See Sector Classification in Other Information section. |
30 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF ASSETS AND LIABILITIES |
FLOATING RATE STRATEGIES FUND |
September 30, 2015
Assets: | |
Investments in unaffiliated issuers, at value (cost $1,881,898,175) | | $ | 1,833,526,639 | |
Investments in affiliated issuers, at value (cost $35,050,753) | | | 35,022,618 | |
Total investments (cost $1,916,948,928) | | | 1,868,549,257 | |
Foreign currency, at value (cost $349,993) | | | 349,993 | |
Cash | | | 4,187,832 | |
Prepaid expenses | | | 144,789 | |
Unrealized appreciation on forward foreign currency exchange contracts | | | 74,022 | |
Receivables: | |
Fund shares sold | | | 10,651,669 | |
Interest | | | 6,677,520 | |
Securities sold | | | 3,103,699 | |
Foreign taxes reclaim | | | 24,538 | |
Dividends | | | 23,614 | |
Total assets | | | 1,893,786,933 | |
| | | | | |
Liabilities: | |
Unfunded loan commitments, at value (Note 8) (proceeds $4,931,472) | | | 3,454,562 | |
Unrealized depreciation on forward foreign currency exchange contracts | | | 480,506 | |
Reverse repurchase agreements | | | 402,088 | |
Payable for: | |
Securities purchased | | | 67,845,441 | |
Fund shares redeemed | | | 21,410,214 | |
Distributions to shareholders | | | 979,652 | |
Management fees | | | 740,066 | |
Distribution and service fees | | | 204,058 | |
Fund accounting/administration fees | | | 139,448 | |
Transfer agent/maintenance fees | | | 35,417 | |
Trustees’ fees* | | | 2,865 | |
Miscellaneous | | | 125,628 | |
Total liabilities | | | 95,819,945 | |
Net assets | | $ | 1,797,966,988 | |
Net assets consist of: | |
Paid in capital | | $ | 1,840,051,432 | |
Undistributed net investment income | | | 5,002,242 | |
Accumulated net realized gain on investments | | | 215,347 | |
Net unrealized depreciation on investments | | | (47,302,033 | ) |
Net assets | | $ | 1,797,966,988 | |
| | | | | |
A-Class: | |
Net assets | | $ | 400,270,252 | |
Capital shares outstanding | | | 15,466,720 | |
Net asset value per share | | $ | 25.88 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 27.17 | |
| | | | | |
C-Class: | |
Net assets | | $ | 145,808,243 | |
Capital shares outstanding | | | 5,636,660 | |
Net asset value per share | | $ | 25.87 | |
| | | | | |
P-Class: | |
Net assets | | $ | 20,536,155 | |
Capital shares outstanding | | | 793,290 | |
Net asset value per share | | $ | 25.89 | |
| | | | | |
Institutional Class: | |
Net assets | | $ | 1,231,352,338 | |
Capital shares outstanding | | | 47,543,023 | |
Net asset value per share | | $ | 25.90 | |
* | 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 |
STATEMENT OF OPERATIONS |
FLOATING RATE STRATEGIES FUND |
Year Ended September 30, 2015
Investment Income: | |
Interest | | $ | 70,442,821 | |
Dividends from securities of affiliated issuers | | | 50,753 | |
Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $2,139) | | | 45,434 | |
Total investment income | | | 70,539,008 | |
| | | | | |
Expenses: | |
Management fees | | | 9,202,043 | |
Transfer agent/maintenance fees | |
A-Class | | | 427,221 | |
C-Class | | | 126,985 | |
P-Class** | | | 191 | |
Institutional Class | | | 393,033 | |
Distribution and service fees: | |
A-Class | | | 830,089 | |
C-Class | | | 1,282,039 | |
P-Class** | | | 6,765 | |
Fund accounting/administration fees | | | 1,344,895 | |
Line of credit fees | | | 167,660 | |
Trustees’ fees* | | | 101,850 | |
Custodian fees | | | 95,676 | |
Tax expense | | | 1,447 | |
Miscellaneous | | | 526,008 | |
Total expenses | | | 14,505,902 | |
Less: | |
Expenses waived by Adviser | | | (1,224,136 | ) |
Net expenses | | | 13,281,766 | |
Net investment income | | | 57,257,242 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments in unaffiliated issuers | | | (5,038,463 | ) |
Foreign currency | | | (2,535,070 | ) |
Forward currency exchange contracts | | | 20,045,696 | |
Net realized gain | | | 12,472,163 | |
Net change in unrealized appreciation (depreciation) on: | |
Investments in unaffiliated issuers | | | (36,864,314 | ) |
Investments in affiliated issuers | | | (28,135 | ) |
Foreign currency | | | 83,757 | |
Forward foreign currency exchange contracts | | | (4,504,198 | ) |
Net change in unrealized appreciation (depreciation) | | | (41,312,890 | ) |
Net realized and unrealized loss | | | (28,840,727 | ) |
Net increase in net assets resulting from operations | | $ | 28,416,515 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
32 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENTS OF CHANGES IN NET ASSETS |
FLOATING RATE STRATEGIES FUND | |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 57,257,242 | | | $ | 51,193,821 | |
Net realized gain on investments | | | 12,472,163 | | | | 8,475,388 | |
Net change in unrealized appreciation (depreciation) on investments | | | (41,312,890 | ) | | | (8,424,760 | ) |
Net increase in net assets resulting from operations | | | 28,416,515 | | | | 51,244,449 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (14,747,792 | ) | | | (19,618,301 | ) |
C-Class | | | (4,776,563 | ) | | | (5,268,652 | ) |
P-Class* | | | (100,000 | ) | | | — | |
Institutional Class | | | (43,675,370 | ) | | | (31,207,426 | ) |
Net realized gains | | | | | | | | |
A-Class | | | (968,588 | ) | | | (760,820 | ) |
C-Class | | | (397,766 | ) | | | (250,718 | ) |
Institutional Class | | | (2,326,328 | ) | | | (1,010,452 | ) |
Total distributions to shareholders | | | (66,992,407 | ) | | | (58,116,369 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 269,729,701 | | | | 346,835,950 | |
C-Class | | | 61,495,860 | | | | 58,742,934 | |
P-Class* | | | 21,013,826 | | | | — | |
Institutional Class | | | 920,575,822 | | | | 664,581,990 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 12,878,840 | | | | 15,511,424 | |
C-Class | | | 4,256,809 | | | | 4,571,714 | |
P-Class* | | | 99,953 | | | | — | |
Institutional Class | | | 37,311,662 | | | | 25,876,740 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (238,118,241 | ) | | | (374,228,993 | ) |
C-Class | | | (48,812,351 | ) | | | (51,062,726 | ) |
P-Class* | | | (368,247 | ) | | | — | |
Institutional Class | | | (454,573,514 | ) | | | (389,646,851 | ) |
Net increase from capital share transactions | | | 585,490,120 | | | | 301,182,182 | |
Net increase in net assets | | | 546,914,228 | | | | 294,310,262 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 1,251,052,760 | | | | 956,742,498 | |
End of year | | $ | 1,797,966,988 | | | $ | 1,251,052,760 | |
Undistributed net investment income/Distributions in excess of net investment income at end of year | | $ | 5,002,242 | | | $ | (510,475 | ) |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
STATEMENTS OF CHANGES IN NET ASSETS(concluded) |
FLOATING RATE STRATEGIES FUND | |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 10,278,287 | | | | 12,939,395 | |
C-Class | | | 2,343,633 | | | | 2,194,462 | |
P-Class* | | | 803,544 | | | | — | |
Institutional Class | | | 35,050,422 | | | | 24,773,852 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 491,118 | | | | 579,106 | |
C-Class | | | 162,389 | | | | 170,795 | |
P-Class* | | | 3,839 | | | | — | |
Institutional Class | | | 1,421,995 | | | | 965,789 | |
Shares redeemed | | | | | | | | |
A-Class | | | (9,071,267 | ) | | | (13,963,500 | ) |
C-Class | | | (1,862,040 | ) | | | (1,905,834 | ) |
P-Class* | | | (14,093 | ) | | | — | |
Institutional Class | | | (17,315,843 | ) | | | (14,540,760 | ) |
Net increase in shares | | | 22,291,984 | | | | 11,213,305 | |
* | Since commencement of operations: May 1, 2015. |
34 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FINANCIAL HIGHLIGHTS |
FLOATING RATE STRATEGIES FUND | |
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.
A-Class | | Year Ended
Sept. 30,
2015 | | | Year Ended
Sept. 30,
2014 | | | Year Ended
Sept. 30,
2013 | | | Period Ended
Sept. 30,
2012a | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 26.52 | | | $ | 26.62 | | | $ | 26.10 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | 1.04 | | | | 1.10 | | | | 1.30 | | | | 1.09 | |
Net gain (loss) on investments (realized and unrealized) | | | (.42 | ) | | | .05 | | | | .65 | | | | .97 | |
Total from investment operations | | | .62 | | | | 1.15 | | | | 1.95 | | | | 2.06 | |
Less distributions from: | |
Net investment income | | | (1.18 | ) | | | (1.20 | ) | | | (1.37 | ) | | | (.96 | ) |
Net realized gains | | | (.08 | ) | | | (.05 | ) | | | (.06 | ) | | | — | |
Total distributions | | | (1.26 | ) | | | (1.25 | ) | | | (1.43 | ) | | | (.96 | ) |
Net asset value, end of period | | $ | 25.88 | | | $ | 26.52 | | | $ | 26.62 | | | $ | 26.10 | |
| | |
Total Returne | | | 2.36 | % | | | 4.42 | % | | | 7.61 | % | | | 8.37 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 400,270 | | | $ | 365,207 | | | $ | 378,324 | | | $ | 44,175 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.97 | % | | | 4.10 | % | | | 4.90 | % | | | 5.13 | % |
Total expensesc | | | 1.19 | % | | | 1.18 | % | | | 1.19 | % | | | 1.39 | % |
Net expensesd,g | | | 1.03 | % | | | 1.04 | % | | | 1.05 | % | | | 1.06 | % |
Portfolio turnover rate | | | 44 | % | | | 58 | % | | | 50 | % | | | 61 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 35 |
FINANCIAL HIGHLIGHTS (continued) |
FLOATING RATE STRATEGIES FUND | |
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.
C-Class | | Year Ended
Sept. 30,
2015 | | | Year Ended
Sept. 30,
2014 | | | Year Ended
Sept. 30,
2013 | | | Period Ended
Sept. 30,
2012a | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 26.51 | | | $ | 26.60 | | | $ | 26.09 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .85 | | | | .90 | | | | 1.11 | | | | .93 | |
Net gain (loss) on investments (realized and unrealized) | | | (.43 | ) | | | .06 | | | | .63 | | | | .98 | |
Total from investment operations | | | .42 | | | | .96 | | | | 1.74 | | | | 1.91 | |
Less distributions from: | |
Net investment income | | | (.98 | ) | | | (1.00 | ) | | | (1.17 | ) | | | (.82 | ) |
Net realized gains | | | (.08 | ) | | | (.05 | ) | | | (.06 | ) | | | — | |
Total distributions | | | (1.06 | ) | | | (1.05 | ) | | | (1.23 | ) | | | (.82 | ) |
Net asset value, end of period | | $ | 25.87 | | | $ | 26.51 | | | $ | 26.60 | | | $ | 26.09 | |
| | |
Total Returne | | | 1.63 | % | | | 3.64 | % | | | 6.77 | % | | | 7.72 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 145,808 | | | $ | 132,370 | | | $ | 120,606 | | | $ | 24,358 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.23 | % | | | 3.35 | % | | | 4.19 | % | | | 4.36 | % |
Total expensesc | | | 1.91 | % | | | 1.89 | % | | | 1.93 | % | | | 2.06 | % |
Net expensesd,g | | | 1.78 | % | | | 1.79 | % | | | 1.81 | % | | | 1.80 | % |
Portfolio turnover rate | | | 44 | % | | | 58 | % | | | 50 | % | | | 61 | % |
36 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FINANCIAL HIGHLIGHTS (continued) |
FLOATING RATE STRATEGIES FUND | |
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.
P-Class | | Period Ended
Sept. 30,
2015f | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 26.37 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .40 | |
Net gain (loss) on investments (realized and unrealized) | | | (.46 | ) |
Total from investment operations | | | (.06 | ) |
Less distributions from: | |
Net investment income | | | (.42 | ) |
Total distributions | | | (.42 | ) |
Net asset value, end of period | | $ | 25.89 | |
| | | | | |
Total Returne | | | (0.24 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 20,536 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.68 | % |
Total expensesc | | | 1.04 | % |
Net expensesd,g | | | 1.02 | % |
Portfolio turnover rate | | | 44 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 37 |
FINANCIAL HIGHLIGHTS (continued) |
FLOATING RATE STRATEGIES FUND |
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.
Institutional Class | | Year Ended
Sept. 30,
2015 | | | Year Ended
Sept. 30,
2014 | | | Year Ended
Sept. 30,
2013 | | | Period Ended
Sept. 30,
2012a | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 26.54 | | | $ | 26.64 | | | $ | 26.12 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | 1.10 | | | | 1.16 | | | | 1.36 | | | | 1.10 | |
Net gain (loss) on investments (realized and unrealized) | | | (.42 | ) | | | .06 | | | | .65 | | | | 1.02 | |
Total from investment operations | | | .68 | | | | 1.22 | | | | 2.01 | | | | 2.12 | |
Less distributions from: | |
Net investment income | | | (1.24 | ) | | | (1.27 | ) | | | (1.43 | ) | | | (1.00 | ) |
Net realized gains | | | (.08 | ) | | | (.05 | ) | | | (.06 | ) | | | — | |
Total distributions | | | (1.32 | ) | | | (1.32 | ) | | | (1.49 | ) | | | (1.00 | ) |
Net asset value, end of period | | $ | 25.90 | | | $ | 26.54 | | | $ | 26.64 | | | $ | 26.12 | |
| | |
Total Returne | | | 2.59 | % | | | 4.67 | % | | | 7.86 | % | | | 8.59 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 1,231,352 | | | $ | 753,476 | | | $ | 457,813 | | | $ | 72,197 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 4.18 | % | | | 4.32 | % | | | 5.12 | % | | | 5.16 | % |
Total expensesc | | | 0.85 | % | | | 0.87 | % | | | 0.86 | % | | | 0.99 | % |
Net expensesd,g | | | 0.79 | % | | | 0.80 | % | | | 0.81 | % | | | 0.80 | % |
Portfolio turnover rate | | | 44 | % | | | 58 | % | | | 50 | % | | | 61 | % |
38 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FINANCIAL HIGHLIGHTS (concluded) |
FLOATING RATE STRATEGIES FUND |
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 | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have 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: |
| | 9/30/15 | 9/30/14 | 9/30/13 | 9/30/12 |
A-Class | 1.02% | 1.02% | 1.03% | 1.01% |
C-Class | 1.77% | 1.77% | 1.78% | 1.76% |
P-Class | 1.01% | N/A | N/A | N/A |
Institutional Class | 0.78% | 0.78% | 0.79% | 0.77% |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 39 |
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 an open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, C-Class shares, P-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%. 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 previously offered have been converted to A-Class shares effective July 31, 2014 for the Alpha Opportunity Fund, and effective August 8, 2015 for the other funds in the Trust. 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. At September 30, 2015, the Trust consisted of seventeen funds (the “Funds”).
This report covers the Floating Rate Strategies Fund (the “Fund”), a diversified investment company, while the other funds are in separate reports. Only A-Class, C-Class, P-Class and Institutional Class shares had been issued by the Fund.
The Fund was previously a series (the “Predecessor Fund”) 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 Fund approved the reorganization of the Predecessor Fund with and into the Fund, 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.
40 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 Fund operates as an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The NAV of each Class of the Fund is calculated by dividing the market value of the Fund’s securities and other assets, less all liabilities, attributable to the Class by the number of outstanding shares of the Class.
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.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 41 |
NOTES TO FINANCIAL STATEMENTS (continued) |
Equity securities listed on an exchange (New York Stock Exchange (“NYSE”) or American Stock Exchange) are valued at the last quoted sales price as of the close of business on the NYSE, usually 4:00 p.m. on the valuation date. Equity securities listed on the NASDAQ market system are valued at the NASDAQ Official Closing Price on the valuation date, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on a given day, the security is valued at the closing bid price on that day.
Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the NYSE. The values of foreign securities are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currency are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities such as World Equity Benchmark Shares. In addition, the Board of Trustees has authorized the Valuation Committee and GI to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.
Open-end investment companies (“Mutual Funds”) are valued at their NAV as of the close of business, on the valuation date. Exchange-traded funds (“ETFs”) and closed-end investment companies (“CEFs”) are valued at the last quoted sales price.
Debt securities with a maturity of greater than 60 days at acquisition are valued at prices that reflect broker/dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term debt securities with a maturity of 60 days or less at acquisition are valued at amortized cost, provided such amount approximates market value.
Typically loans are valued using information provided by an independent third party pricing service which uses broker quotes in a non-active market.
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
42 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 Fund invests generally pay interest rates which are periodically adjusted by reference to a base short-term, floating rate plus a premium. These base lending rates are generally (I) the lending rate offered by one or more major European banks, such as the one-month or three-month London Inter-Bank Offered Rate (LIBOR), (ii) the prime rate offered by one or more major United States banks, or (iii) the bank’s certificate of deposit rate. Senior floating rate interests often require prepayments from excess cash flows or permit the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. The interest rate indicated is the rate in effect at September 30, 2015.
C. 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 takes 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.
D. 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.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 43 |
NOTES TO FINANCIAL STATEMENTS (continued) |
E. 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. Interest income also includes paydown gains and losses on mortgage-backed and asset-backed securities and senior and subordinated loans. Amendment fees are earned as compensation for evaluating and accepting changes to the original loan agreement and are recognized when received. Dividend income from REITs is recorded based on the income included in the distributions received from the REIT investments using published REIT classifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
F. The Fund declares dividends from investment income daily. The Fund pays its shareholders from its net investment income monthly and distributes any net capital gains that it has realized, at least annually. 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.
G. 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.
H. 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, 2015, there were no earnings credits received.
44 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
I. 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.
J. 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.
K. 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 Fund 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 Fund does 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.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 45 |
NOTES TO FINANCIAL STATEMENTS (continued) |
2. Financial Instruments and Derivatives
As part of its investment strategy, the Fund utilizes derivative instruments which involve, to varying degrees, elements of market risk and risks in excess of the amounts recognized in the Statement of Assets and Liabilities. Valuation and accounting treatment of these instruments can be found under Significant Accounting Policies in Note 1 of these Notes to Financial Statements.
Derivatives
Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more other assets, such as securities, currencies, commodities or indices. Derivative instruments may be used to increase investment flexibility (including to maintain cash reserves while maintaining exposure to certain other assets), for risk management (hedging) purposes, to facilitate trading, to reduce transaction costs and to pursue higher investment returns. Derivative instruments may also be used to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. U.S. GAAP requires disclosures to enable investors to better understand how and why 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 may utilize derivatives for the following purpose:
Hedge: an investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position to protect against broad market moves.
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract is an agreement between two parties to exchange two designated currencies at a specific time in the future. Certain types of forward foreign currency exchange contracts may be cash-settled, in an amount equal to the change in exchange rates during the term of the contract. The contracts can be used to hedge or manage exposure to foreign currency risks with portfolio investments or to gain exposure to foreign currencies.
The market value of a forward foreign currency exchange contract changes with fluctuations in foreign currency exchange rates. Furthermore, the Fund may be exposed to risk if the counterparties cannot meet the contract terms or if the currency value changes unfavorably as compared to the U.S. dollar.
46 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following table represents the Fund’s use, and volume of forward foreign currency exchange contracts on a quarterly basis:
| | | | Average Settlement | |
Fund | Use | | Purchased | | | Sold | |
Floating Rate Strategies Fund | Hedge | | $ | 105,572,234 | | | $ | (865,263 | ) |
Derivative Investment Holdings Categorized by Risk Exposure
The following is a summary of the location of derivative investments on the Fund’s Statement of Assets and Liabilities as of September 30, 2015:
Derivative Investment Type | Asset Derivatives | Liability Derivatives |
Currency contracts | Unrealized appreciation on forward foreign currency exchange contracts | Unrealized depreciation on forward foreign currency exchange contracts |
The following table sets forth the fair value of the Fund’s derivative investments categorized by primary risk exposure at September 30, 2015:
Asset Derivative Investments Value | |
Fund | | Forward
Foreign Currency
Exchange Contracts | |
Floating Rate Strategies Fund | | $ | 74,022 | |
Liability Derivative Investments Value | |
Fund | | Forward
Foreign Currency
Exchange Contracts | |
Floating Rate Strategies Fund | | $ | 480,506 | |
The following is a summary of the location of derivative investments on the Fund’s Statement of Operations for the year ended September 30, 2015:
Derivative Investment Type | Location of Gain (Loss) on Derivatives |
Currency contracts | Net realized gain (loss) on forward foreign currency exchange contracts |
| | Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 47 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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, 2015:
Realized Gain (Loss) on Derivative Investments Recognized on the Statement of Operations | |
Fund | | Forward
Foreign Currency
Exchange Contracts | |
Floating Rate Strategies Fund | | $ | 20,045,696 | |
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statement of Operations | |
Fund | | Forward
Foreign Currency
Exchange Contracts | |
Floating Rate Strategies Fund | | $ | (4,504,198 | ) |
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 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 0.65% of the average daily net assets of the Fund.
RFS is paid the following for providing transfer agent services to the Fund. Transfer agent fees are assessed to the applicable class of the Fund.
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. |
48 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 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, C-Class and P-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 and P-Class shares, and 1.00% of the average daily net assets of the Fund’s C-Class shares.
The investment advisory contract for the Fund provides 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:
| | Limit | Effective
Date | Contract
End Date |
Floating Rate Strategies Fund - A-Class | 1.02% | 11/30/12 | 02/01/16 |
Floating Rate Strategies Fund - C-Class | 1.77% | 11/30/12 | 02/01/16 |
Floating Rate Strategies Fund - P-Class* | 1.02% | 05/01/15 | 02/01/17 |
Floating Rate Strategies Fund - Institutional Class | 0.78% | 11/30/12 | 02/01/16 |
* | Since the commencement of operations: May 1, 2015 |
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, 2015, the amount of fees waived or expenses reimbursed that are subject to recoupment are presented in the following table:
Fund | | Expires
2016 | | | Expires
2017 | | | Expires
2018 | | | Total | |
Floating Rate Strategies Fund | | $ | 430,026 | | | $ | 1,206,044 | | | $ | 1,224,136 | | | $ | 2,860,206 | |
For the year ended September 30, 2015, no amounts were recouped by GI.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 49 |
NOTES TO FINANCIAL STATEMENTS (continued) |
For the year ended September 30, 2015, GFD retained sales charges of $660,571 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 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 investments at September 30, 2015. See the Schedule of Investments for more details on classification of securities.
| | | Level 1
Investments
In Securities | | | Level 2
Investments
In Securities | | | Level 2
Other Financial
Instruments* | | | Level 3
Investments
In Securities | | | Total | |
Assets | | | | | | | | | | | | | | | |
Floating Rate Strategies Fund | | $ | 116,526,102 | | | $ | 1,697,507,799 | | | $ | 74,022 | | | $ | 54,515,356 | | | $ | 1,868,623,279 | |
| | |
Liabilities | | | | | | | | | | | | | | | | | | | | |
Floating Rate Strategies Fund | | $ | — | | | $ | — | | | $ | 480,506 | | | $ | — | | | $ | 480,506 | |
50 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
* | Other financial instruments may include forward foreign currency exchange contracts, which are reported as unrealized gain/loss at period end. |
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. A significant portion of the Fund’s 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 Fund’s 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 Fund may not have the transparency to view the underlying inputs which support the market quotations. Significant changes in an indicative quote would generally result in significant changes in the fair value of the security.
Certain fixed income securities are valued by obtaining a monthly indicative quote from a broker-dealer, adjusted for fluctuations in criteria such as credit spreads and interest rates.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The suitability of the techniques and sources employed to determine fair valuation are regularly monitored and subject to change.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following is a summary of significant unobservable inputs used in the fair value valuation of assets and liabilities categorized within Level 3 of the fair value hierarchy.
Fund | Category and Subcategory | | Ending Balance
at 09/30/15 | Valuation
Technique | Unobservable
Inputs |
| | Investments, at value | | | | |
Floating Rate Strategies Fund | Senior Floating Rate Interests | $ | 46,871,576 | Monthly Model Priced | Purchase Price |
| | | | 6,032,813 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | Total Senior Floating Rate Interests | | 52,904,389 | | |
| | Corporate Bonds | | 1,181,951 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | | | 361,579 | Monthly Model Priced | Purchase Price |
| | Total Corporate Bonds | | 1,543,530 | | |
| | Senior Fixed Rate Interests | | 67,103 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
Any remaining Level 3 securities held by the Fund and excluded from the table above were not considered material to the Fund.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. The Fund recognized transfers between the levels as of the beginning of the period. As of September 30, 2015, the Fund had transfers in/out of Level 3 due to changes in securities valuation method. See the table below for changes to and from Level 2 and Level 3. There were no other securities that transferred between levels.
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
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, 2015:
LEVEL 3 – Fair value measurement using significant unobservable inputs
| | | Senior
Floating Rate
Interests | | | Asset-Backed
Securities | | | Common
Stocks | | | Corporate
Bonds | | | Senior Fixed
Rate Interests | | | Total | |
Floating Rate Strategies Fund | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | |
Beginning Balance | | $ | 27,188,014 | | | $ | 2,113,450 | | | $ | — | | | $ | 2,729,079 | | | $ | — | | | $ | 32,030,543 | |
Purchases | | | 14,827,294 | | | | — | | | | — | | | | 103,637 | | | | — | | | | 14,930,931 | |
Sales | | | (1,069,672 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,069,672 | ) |
Total realized gains or losses included in earnings | | | (24,641 | ) | | | — | | | | — | | | | — | | | | — | | | | (24,641 | ) |
Total change in unrealized gains or losses included in earnings | | | (1,971,110 | ) | | | — | | | | (274,450 | ) | | | (1,289,186 | ) | | | (56,891 | ) | | | (3,591,637 | ) |
Transfers in Level 3 | | | 15,244,646 | | | | — | | | | 274,784 | | | | — | | | | 123,994 | | | | 15,643,424 | |
Transfers out of Level 3 | | | (1,290,142 | ) | | | (2,113,450 | ) | | | — | | | | — | | | | — | | | | (3,403,592 | ) |
Ending Balance | | $ | 52,904,389 | | | $ | — | | | $ | 334 | | | $ | 1,543,530 | | | $ | 67,103 | | | $ | 54,515,356 | |
Net change in unrealized appreciation (depreciation) for investments in securities still held at September 30, 2015 | | $ | 235,008 | | | $ | — | | | $ | (274,450 | ) | | $ | (1,323,904 | ) | | $ | (62,714 | ) | | $ | (1,426,060 | ) |
5. 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
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 tax character of distributions paid during the year ended September 30, 2015 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Floating Rate Strategies Fund | | $ | 66,140,027 | | | $ | 852,380 | | | $ | 66,992,407 | |
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Floating Rate Strategies Fund | | $ | 57,106,379 | | | $ | 1,009,990 | | | $ | 58,116,369 | |
Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.
Tax components of accumulated earnings/(deficit) as of September 30, 2015, were as follows:
Fund | | Undistributed
Ordinary
Income | | | Undistributed
Long-Term
Capital Gain | | | Net Unrealized
Appreciation/
(Depreciation) | | | Other
Temporary
Differences | |
Floating Rate Strategies Fund | | $ | 11,581,748 | | | $ | — | | | $ | (48,010,322 | ) | | $ | (5,655,870 | ) |
For Federal income tax purposes, capital loss carryforwards represent realized losses of the Funds that may be carried forward and applied against future capital gains. Under the RIC Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. As of September 30, 2015, the Fund had no capital loss carryforwards.
As of September 30, 2015, the following reclassifications were made to the capital accounts of the Fund to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations, which are due to foreign currency reclasses, passive foreign investment companies, paydowns on asset backed securities, certain CLO investments and dividend reclasses. Net investment income, net realized gains and net assets were not affected by these changes.
54 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
On the Statement of Assets and Liabilities the following adjustments were made for permanent book/tax differences:
Fund | | Paid In
Capital | | | Undistributed
Net Investment
Income | | | Accumulated
Net Realized
Loss | |
Floating Rate Strategies Fund | | $ | — | | | $ | 11,846,657 | | | $ | (11,846,657 | ) |
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Fund | | Tax
Cost | | | Tax
Unrealized
Gain | | | Tax
Unrealized
Loss | | | Net
Unrealized
Loss | |
Floating Rate Strategies Fund | | $ | 1,918,063,700 | | | $ | 8,304,167 | | | $ | (57,818,610 | ) | | $ | (49,514,443 | ) |
6. Securities Transactions
For the year ended September 30, 2015, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | | Purchases | | | Sales | |
Floating Rate Strategies Fund | | $ | 1,032,466,218 | | | $ | 580,518,807 | |
7. 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 Fund may invest in the Guggenheim Strategy Funds Trust consisting of Guggenheim Strategy Fund I, Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III (collectively, the “Cash Management Funds”), open-end management investment companies managed by GI. The Cash Management Funds, which launched on March 11, 2014, are offered as cash management options only to mutual funds, trusts, and other accounts managed by GI and/or its affiliates, and are not available to the public. The Cash Management Funds pay no investment management fees. The Cash Management Funds’ annual report on Form N-CSR dated September 30,
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 55 |
NOTES TO FINANCIAL STATEMENTS (continued) |
2014 is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at http://www.sec.gov/Archives/edgar/data/1601445/000089180414001107/gug60774-ncsr.htm.
Transactions during the year ended September 30, 2015 in which the portfolio company is an “affiliated person” are as follows:
Affiliated issuers by Fund | | Value
09/30/14 | | | Additions | | | Reductions | | | Value
09/30/15 | | | Shares
09/30/15 | | | Investment
Income | |
Floating Rate Strategies Fund | | | | | | | |
Guggenheim Strategy Fund I | | $ | — | | | $ | 35,050,753 | | | $ | — | | | $ | 35,022,618 | | | | 1,407,662 | | | $ | 50,753 | |
8. Loan Commitments
Pursuant to the terms of certain loan agreements, the Fund held unfunded loan commitments as of September 30, 2015. The Fund is obligated to fund these loan commitments at the borrower’s discretion.
The unfunded loan commitments as of September 30, 2015 were as follows:
Borrower | Maturity
Date | | Face
Amount | | | Value | |
Floating Rate Strategies Fund | | | | | | | |
Advantage Sales & Marketing, Inc. | 07/25/2019 | | $ | 8,000,000 | | | $ | 787,363 | |
American Stock Transfer & Trust | 06/26/2018 | | | 800,000 | | | | 58,537 | |
Authentic Brands | 05/27/2021 | | | 1,300,000 | | | | 12,383 | |
Banca Civica (UK) - Chambertin | 08/04/2020 | | | 3,296,500 | | | | 121,189 | |
Beacon Roofing Supply, Inc. | 07/27/2016 | | | 2,600,000 | | | | — | |
Ceva Group plc (United Kingdom) | 03/19/2019 | | | 3,000,000 | | | | 424,120 | |
Expert Global Solutions | 04/02/2017 | | | 352,155 | | | | 17,317 | |
Hoffmaster Group, Inc. | 05/09/2019 | | | 1,250,000 | | | | 105,050 | |
Intertrust Group | 02/15/2019 | | | 1,475,000 | | | | 70,220 | |
IntraWest Holdings S.à r.l. | 12/10/2018 | | | 6,900,000 | | | | 175,911 | |
Kronos, Inc. | 10/30/2017 | | | 500,000 | | | | 31,093 | |
Lincoln Finance Ltd. | 12/31/2015 | | | 14,000,000 | | | | — | |
McGraw-Hill Global Education Holdings LLC | 03/22/2018 | | | 3,500,000 | | | | 235,178 | |
National Financial Partners Corp. | 07/01/2018 | | | 3,000,000 | | | | 232,188 | |
NVA Holdings, Inc. | 08/14/2021 | | | 243,333 | | | | 1,190 | |
Signode Industrial Group US, Inc. | 05/01/2019 | | | 11,400,000 | | | | 1,018,606 | |
Wencor Group | 06/19/2019 | | | 1,885,385 | | | | 164,217 | |
| | | | $ | 63,502,373 | | | $ | 3,454,562 | |
56 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
9. Line of Credit
The Trust, with the exception of Alpha Opportunity Fund and Capital Stewardship Fund, secured a committed, $625,000,000 line of credit from Citibank, N.A., good through October 9, 2015, 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 Trust did not have any borrowings under this agreement as of and for the year ended September 30, 2015. The Trust also pays a commitment fee at an annualized rate of 0.07% of the average daily amount of their unused commitment amount.
10. Reverse Repurchase Agreements
The Fund 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 period ended September 30, 2015, the Fund entered into reverse repurchase agreements as follows:
Fund | | Number
of Days
outstanding | | | Balance at
September 30,
2015 | | | Average
balance
outstanding | | | Average
interest
rate | |
Floating Rate Strategies Fund | | | 364 | | | $ | 402,088 | | | $ | 409,092 | | | | (1.02 | %) |
In June 2014, the FASB issued Accounting Standards Update 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (ASU 2014-11) that expanded secured borrowing accounting for certain repurchase agreements. The ASU also sets forth additional disclosure requirements for certain transactions accounted for as secured borrowings, which applies to the reverse repurchase agreements held by the Fund. The ASU became effective prospectively for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The Fund has adopted the ASU.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 57 |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following is a summary of the remaining contractual maturities of the reverse repurchase agreements outstanding as of year-end, aggregated by asset class of the related collateral pledged by the Fund:
| | | Overnight and
Continuous | | | Up to
30 days | | | 31-90
days | | | Greater
than 90 days | | | Total | |
Floating Rate Strategies Fund | | | | | | | | | | | | | | | |
Corporate Bonds | | $ | 402,088 | | | $ | — | | | $ | — | | | $ | — | | | $ | 402,088 | |
Gross amount of recognized liabilities for reverse repurchase agreements | | | $ | 402,088 | |
11. Restricted Securities
The securities below are considered illiquid and restricted under guidelines established by the Board of Trustees:
Fund | Restricted Securities | Acquisition
Date | | Amortized
Cost | | | Value | |
Floating Rate Strategies Fund | Airplanes Pass Through Trust 2001-1A, 0.76% due 03/15/19 | 12/27/11 | | $ | 1,234,625 | | | $ | 509,697 | |
12. Offsetting
In the normal course of business, the Fund enters into transactions subject to enforceable master netting arrangements or other similar arrangements. Generally, the right to offset in those agreements allows the Fund 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 Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its 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.
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NOTES TO FINANCIAL STATEMENTS (continued) |
For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Fund 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 Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty nonperformance. The Fund attempts 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 Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statement 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 Statement of Assets and Liabilities in conformity with U.S. GAAP.
| | | | | | | | | | | | | Gross Amounts Not
Offset in the Statement
of Assets and Liabilities | | | | |
Fund | Instrument | | Gross
Amounts of
Recognized
Assets | | | Gross
Amounts
Offset in the
Statement of
Assets and
Liabilities | | | Net Amount
of Assets
Presented on
the Statement
of Assets and
Liabilities | | | Financial
Instruments | | | Cash
Collateral
Received | | | Net Amount | |
Floating Rate Strategies Fund | Forward foreign currency exchange contracts | | $ | 74,022 | | | $ | — | | | $ | 74,022 | | | $ | 74,022 | | | $ | — | | | $ | — | |
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NOTES TO FINANCIAL STATEMENTS (concluded) |
| | | | | | | | | | | | | Gross Amounts Not
Offset in the Statement
of Assets and Liabilities | | | | |
Fund | Instrument | | Gross
Amounts of
Recognized
Liabilities | | | Gross
Amounts
Offset in the
Statement of
Assets and
Liabilities | | | Net Amount
of Liabilities
Presented on
the Statement
of Assets and
Liabilities | | | Financial
Instruments | | | Cash
Collateral
Received | | | Net Amount | |
Floating Rate Strategies Fund | Forward foreign currency exchange contracts | | $ | 480,506 | | | $ | — | | | $ | 480,506 | | | $ | 74,022 | | | $ | — | | | $ | 406,484 | |
13. P-Class Shares
Effective May 1, 2015, the Fund started to offer P-Class shares.
P-Class shares of the Fund are offered primarily through broker/dealers and other financial intermediaries with which Guggenheim Funds Distributors, LLC has an agreement for the use of P-Class shares of the Fund in investment products, programs or accounts. P-Class shares do not have a minimum initial investment amount, subsequent investment amount or a minimum account balance. The Fund reserves the right to modify its minimum investment amount and account balance requirements at any time, with or without prior notice to you.
14. Subsequent Event
Beginning on October 1, 2015, A-Class shares of the Fund are offered at NAV plus an initial sales charge as follows:
Amount of Investment | Sales Charge as %
of Offering Price | Sales Charge as %
of Net Amount Invested |
Less than $50,000 | 3.00% | 3.09% |
$50,000 but less than $100,000 | 2.75% | 2.83% |
$100,000 but less than $250,000 | 2.25% | 2.30% |
$250,000 but less than $1,000,000 | 1.25% | 1.27% |
$1,000,000 or greater | None | None |
60 | 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 Floating Rate Strategies Fund (one of the series constituting the Guggenheim Funds Trust) (the “Fund”) as of September 30, 2015, 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 years or periods indicated therein. 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, 2015, by correspondence with the custodian, brokers, and paying agents or by other appropriate auditing procedures where replies from brokers or paying agents were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Guggenheim Floating Rate Strategies Fund (one of the series constituting the Guggenheim Funds Trust) at September 30, 2015, 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 years or periods indicated therein, in conformity with U.S. generally accepted accounting principles.
McLean, Virginia
November 25, 2015
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OTHER INFORMATION (Unaudited) |
Tax Information
In January 2016, shareholders will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by shareholders in the calendar year 2015.
The Fund’s investment income(dividend income plus short-term gains, if any) qualifies as follows:
Of the ordinary income distributions paid during the year, the following funds had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | Dividend
Received Deduction |
Floating Rate Strategies Fund | 0.05% |
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 | Qualified
Dividend Income |
Floating Rate Strategies Fund | 0.05% |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2015, the 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 | Qualified
Interest | Qualified
Short-Term
Capital Gain |
Floating Rate Strategies Fund | 69.30% | 100.00% |
With respect to the taxable year ended September 30, 2015, the Fund hereby designates as capital gain dividends $852,380 or, if subsequently determined to be different, the net capital gain of such year.
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OTHER INFORMATION (Unaudited)(continued) |
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.
Sector Classification
Information in the “Schedule of Investments” is categorized by sectors using sector-level Classifications defined by the Bloomberg Industry Classification System, a widely recognized industry classification system provider. Each Fund’s registration statement has investment policies relating to concentration in specific sectors/industries. For purposes of these investment policies, the Funds usually classify sectors/industries based on industry-level Classifications used by widely recognized industry classification system providers such as Bloomberg Industry Classification System, Global Industry Classification Standards and Barclays Global Classification Scheme.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
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”). The Trust includes the following series:
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OTHER INFORMATION (Unaudited)(continued) |
● Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) ● Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”) ● Guggenheim High Yield Fund (“High Yield Fund”) ● Guggenheim Large Cap Value Fund (“Large Cap Value Fund”) ● Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”) ● Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”) ● Guggenheim Risk Managed Real Estate Fund (“Risk Managed Real Estate Fund”) ● Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core Fund”) ● Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | ● Guggenheim Capital Stewardship Fund (“Capital Stewardship Fund”) ● Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”) ● Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”) ● Guggenheim Limited Duration Fund (“Limited Duration Fund”) ● 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 Fund”) ● Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 adviser 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 five separate investment management agreements which group the series as follows: (i) Mid Cap Value Fund, Mid Cap Value Institutional Fund, Small Cap Value Fund, StylePlus—Large Core Fund and World Equity Income Fund; (ii) Large Cap Value Fund; (iii) StylePlus—Mid Growth; (iv)
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OTHER INFORMATION (Unaudited)(continued) |
Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund; and (v) Alpha Opportunity Fund. (The Funds identified in (i) through (v) 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 Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 five separate investment advisory agreements which group includes the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund; (iii) Capital Stewardship Fund; (iv) Limited Duration Fund; and (v) Risk Managed Real Estate 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,” with the members of the Board referred to individually as 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.
Following an initial two-year term, the Advisory Agreements continue in effect from year to year provided that such continuance is specifically approved at least annually by (i) the Board or a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund, and, in either event, (ii) the vote of a majority of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”) casting votes in person at a meeting called for such purpose. At meetings held in person on April 29, 2015 (the “April Meeting”) and on May 19, 2015 (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely
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OTHER INFORMATION (Unaudited)(continued) |
of the Independent Trustees, met separately from Guggenheim to consider the proposed renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.1 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 also received by the full Board) throughout the year regarding performance and operating results of the 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 presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Independent Trustees. In addition, Guggenheim made a presentation at the April Meeting, which addressed areas identified for discussion by the Committee 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”).
1 | Since the Capital Stewardship Fund was subject to an investment management agreement approved by the Board for an initial term of two years at an in-person meeting of the Board held on August 19-20, 2014, it was not included in the contract renewal process conducted at the meetings in April and May 2015. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, excluding the Capital Stewardship Fund. |
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OTHER INFORMATION (Unaudited)(continued) |
Among other things, Guggenheim provided: (i) staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various services performed by Guggenheim for the provision of a continuous investment program for each Fund, monitoring compliance with Fund investment strategies and statutory requirements, reviewing trading processes and conducting investment performance analyses; (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 gross revenues, expenses and earnings for Guggenheim by product line and each Fund, including a breakout of various expenses, a description of Guggenheim’s 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, and certain information about Guggenheim’s insurance policies, business continuity plan, proxy voting procedures, trade allocation, shareholder communications and compliance monitoring, among other things.
The Committee considered the foregoing Contract Materials in the context of its substantial accumulated experience governing the Trust and weighed the factors and standards discussed with Independent Legal Counsel. 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 Funds2 to recommend that the Board approve the renewal of each Advisory Agreement and the Sub Advisory Agreement for an additional 12-month term.
Investment 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
2 | At the May Meeting, the Board determined to close and liquidate the Enhanced World Equity Fund based upon the Adviser’s recommendation (the “Liquidation Proposal”). Following an evaluation of strategic options, the Board determined that liquidation of the Fund as a series of the Trust would be in the best interests of the Fund and its shareholders. In view of the Liquidation Proposal, the Committee recommended the continuation of the Advisory Agreement with respect to the Enhanced World Equity Fund to provide for the continuation of advisory services until such time as the Fund was liquidated. |
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OTHER INFORMATION (Unaudited)(continued) |
education, experience, professional affiliations, areas of responsibility and duties of 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 also considered the Advisers’ attention to relevant developments in the mutual fund industry and its observance of compliance and regulatory requirements, and 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 additional staff to support the firm’s Chief Risk Officer, initiatives related to the risks associated with the investment process and risk at the enterprise level, 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 consolidate compliance manuals and align processes of the Funds with those of other Funds managed by the Advisers or another Guggenheim affiliate. 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 the Advisers’ parent company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). (The Committee received the audited consolidated financial statements of GPIMH once available following the April 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
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OTHER INFORMATION (Unaudited)(continued) |
performance of its duties through Board meetings, discussions and reports during 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, 2014, 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, 2014, 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-year 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-year and three-year periods, ranking in the 1st and 4th percentiles, respectively. In light of various changes to this Fund, including 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 and the assumption by Security Investors of such investment management responsibility, the impact on portfolio management as a result of the Lehman bankruptcy,3 and subsequent changes to the Fund’s investment strategies, a reduction in the fund accounting and administration fee and the re-opening of the Fund to new subscriptions, the Committee considered
3 | The Committee considered the circumstances that affected 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 had consisted of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales, which limited the management of the portfolio. |
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OTHER INFORMATION (Unaudited)(continued) |
more recent performance periods, including the one-year and the three-month periods. 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, 2014, ranking in the 11th and 4th percentiles, respectively.
Floating Rate Strategies Fund: The returns of the Fund’s Class A shares ranked in the 6th and 1st percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
High Yield Fund: The Fund’s Class A shares ranked in the 64th, 7th and 46th percentiles of the performance universe for the five-year, three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for the three-year and one-year periods.
Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014, ranking in the 14th, 4th and 3rd percentiles, respectively. The Committee also noted Guggenheim’s statement that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year, three-year and one-year periods ended December 31, 2014, and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile.
Large 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 ended December 31, 2014, and ranked in the 76th, 60th and 78th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record,
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OTHER INFORMATION (Unaudited)(continued) |
the FUSE report listed the returns for the Fund’s Class A shares for the ten-year period ended December 31, 2014, which exceeded the performance universe median, ranking in the 45th percentile. The Committee also noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Limited Duration Fund: The Committee noted the Fund’s inception date of December 16, 2013 and observed that the returns of the Fund’s Class A shares ranked in the 8th and 18th percentiles of the performance universe for the one-year and three-month periods ended December 31, 2014, respectively, outperforming the median returns.
Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 3rd and 8th percentiles of the performance universe for the three-year and one-year periods ended December 31, 2014, 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 three-year and one-year periods ended December 31, 2014.
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 ended December 31, 2014, and ranked in the 92nd, 80th and 67th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the Fund’s performance for the ten-year period ended
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December 31, 2014 in the 1st quartile (22nd percentile) and that, according to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. The Committee also noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. In addition, the Committee noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Mid Cap Value Institutional Fund: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 88th, 72nd and 61st percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
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
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OTHER INFORMATION (Unaudited)(continued) |
performance, the Committee concluded that Security Investors had appropriately reviewed and monitored GPIM’s investment performance as Sub-Adviser to the Fund.
Risk Managed Real Estate Fund: The returns of the Fund’s Class A shares ranked in the 67th percentile of its performance universe for the three month period ended December 31, 2014. The Committee considered that the Fund was recently organized as of February 12, 2014 and has a limited period of operation.
StylePlus—Large Core Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 10th and the 41st percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund outperformed its benchmark for the one-year period ended December 31, 2014.
StylePlus—Mid Growth Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 13th and 36th percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund had outperformed its benchmark for the one-year period ended December 31, 2014.
Small Cap Value Fund: The Fund underperformed its performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 87th, 71st and 92nd percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued
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confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st and 2nd percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
World Equity Income Fund: The Fund implemented a strategy change and a new portfolio management team in August 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded its performance universe median for the one-year period, ranking in the 27th percentile, and lagged its performance universe median for the three-month period, ranking in the 83rd percentile.
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 and/or institutional separate account with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients. The Committee considered Guggenheim’s explanation that lower fees are charged in certain instances due to numerous factors, including the scope of contract, types
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of investors, applicable regulatory and legal structures, tax status, and for historical pricing reasons. In this regard, the Committee took into account Guggenheim’s assertion that the differences in fees reflected the Advisers’ greater level of responsibilities and significantly broader scope of services regarding the Funds, the more extensive regulatory obligations and risks associated with managing the Funds, and other financial considerations with respect to the Funds.
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 and the asset weighted total net expense ratio are in the second quartile (27th and 45th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had 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 fourth quartile (82nd percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (40th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (77th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (84th percentile) of its peer group. The Committee also considered that the Adviser had 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 is in the second quartile (31st percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (22nd percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
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Limited Duration Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (72nd percentile) of its peer group and the asset weighted total net expense ratio is in the second quartile (45th percentile) of its peer group. The Committee also considered that the Adviser had 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 (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 second quartile (43rd percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (85th percentile) of its peer group.
Mid Cap Value Institutional Fund: The contractual advisory fee of the Fund is in the first quartile (15th percentile) of its peer group and the total net expense ratio is in the third quartile (69th percentile) of its peer group.
Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the second quartile (26th and 38th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Risk Managed Real Estate Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the first quartile (1st percentile as to each) of its peer group.
StylePlus—Large Core Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the fourth quartile (80th and 100th percentiles, respectively) of its peer group.
StylePlus—Mid Growth Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the second quartile (34th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (100th percentile) of its peer group.
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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 (78th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (25th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (86th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (19th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (27th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (80th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
With respect to the costs of services provided and profits realized by Guggenheim Investments from its relationship with the Funds, the Committee reviewed a profitability analysis and data from management for each Fund setting forth the average assets under management for the twelve months ended December 31, 2014, ending assets under management as of December 31, 2014, gross revenues received by Guggenheim Investments, expenses incurred in providing services to the Funds, earnings and the operating margin/profitability rate, including variance information relative to the foregoing amounts as of December 31, 2013. In addition, the Chief Financial Officer of Guggenheim Investments reviewed with, and addressed questions from, the Committee concerning the expense allocation methodology employed in producing the profitability analysis. In the course of its review of Guggenheim Investments’ profitability, the Committee took into account the complexity of the investment strategies employed for the Funds, in addition to the foregoing data and various figures.
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
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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 Investments’ profitability from its relationship with the Funds was not unreasonable.
Economies of Scale: 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 have 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 also noted the Adviser’s statement that Guggenheim continues to develop the infrastructure needed to support Fund asset growth and to achieve economies of scale across the firm’s various products and product lines. Thus, while Guggenheim may be benefiting from certain economies of scale and related cost efficiencies, it is concurrently realizing new costs and expenses associated with investment in infrastructure, personnel and systems.
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 Total Return Bond Fund—having assets in excess of (or approaching) $1 billion as of March 31, 2015. 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 total net expense ratio is competitive with the peer group median.
Macro Opportunities Fund: 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.
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OTHER INFORMATION (Unaudited)(continued) |
Mid Cap Value Fund: The Fund’s contractual advisory fee is in line with the peer group median (43rd percentile) and the total net expense ratio is competitive with the peer group median.
Total Return Bond Fund: 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 in the first quartile (19th percentile).
The Committee determined that, taking into account all relevant factors, the advisory fee structure for each Fund 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 and compliance policies and procedures, 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 included as part of its considerations the unaudited financial information concerning GPIMH presented by the Chief Financial Officer of Guggenheim Investments. (As noted, the Committee received the audited consolidated financial statements of GPIMH once available following the April Meeting.)
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 Fund’s Class A shares outperformed the performance universe for the five-year and three-year periods ended December 31, 2014, ranking in the 1st and 35th percentiles, respectively. On January 13, 2012, the Fund acquired the assets and assumed the liabilities of TS&W/Claymore Tax-Advantaged Balanced Fund (the “Predecessor Fund”),
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OTHER INFORMATION (Unaudited)(concluded) |
a closed-end fund which used different investment strategies and had different investment advisers. Class A shares of the Fund have assumed the performance, financial and other historical information of the Predecessor Fund’s common shares and the performance of Class A shares of the Fund reflects the performance of the Predecessor Fund. In light of the foregoing, the Committee took into account more recent periods and noted that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2014, ranking in the 18th and 47th percentiles, respectively. In this connection, the Committee also considered that the Fund outperformed its benchmark over the one-year and three-month periods ended December 31, 2014.
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: 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” 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 or conclusive 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. Thereafter, on May 20, 2015, the Board, including all of the Independent Trustees, approved the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
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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). | 107 | Current: Trustee, Purpose Investments Inc. (2014-Present). |
Donald A. Chubb, Jr. (1946) | Trustee | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-present). | 103 | Current: Midland Care, Inc. (2011-present). |
Jerry B. Farley (1946) | Trustee | Since 2005 | Current: President, Washburn University (1997-present). | 103 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust (2000-present). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - continued | | |
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and Managing Partner, Roman Friedrich & Company (1998-present). Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | 103 | Current: Zincore Metals, Inc. (2009-present). Former: Axiom Gold and Silver Corp. (2011-2012). |
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 103 | 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). | 109 | Current: Edward-Elmhurst Healthcare System (2012-present). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - concluded | | |
Maynard F. Oliverius (1943) | Trustee | Since 1998 | Current: Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 103 | Current: Fort Hays State University Foundation (1999-present); Stormont-Vail Foundation (2013-present); University of Minnesota HealthCare Alumni Association Foundation (2009-present). |
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management (1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999); Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | 106 | Former: Bennett Group of Funds (2011-2013). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
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). | 229 | Current: Clear Spring Life Insurance Company (2015-present); Guggenheim Partners Japan, Ltd. (2014-present); Delaware Life (2013-present); Guggenheim Life and Annuity Company (2011-present); Paragon Life Insurance Company of Indiana (2011-present). |
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
*** | This Trustee is deemed to be an "interested person" of the Funds under the 1940 Act by reason of his position with the Funds' Investment Manager and/or the parent of the Investment Manager. |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS | | | |
Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). |
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). |
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). |
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - continued | |
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 2007 (Vice President) Since 2014 (Chief Legal Officer) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2013-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). |
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (2014-present); Senior Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). |
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Managing Director, Guggenheim Investments (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - continued | |
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-2014). |
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). |
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 87 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(concluded) |
Name, Address* and Year of Birth | Position(s) held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - concluded | |
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. |
88 | 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
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 89 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited)(continued) |
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.
90 | 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.
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9.30.2015
Guggenheim Funds Annual Report
| |
Guggenheim Total Return Bond Fund | | |
TRB-ANN-0915x0916 | guggenheiminvestments.com |
DEAR SHAREHOLDER | 2 |
ECONOMIC AND MARKET OVERVIEW | 4 |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 6 |
TOTAL RETURN BOND FUND | 9 |
NOTES TO FINANCIAL STATEMENTS | 46 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 73 |
OTHER INFORMATION | 74 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 93 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 101 |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
Dear Shareholder:
Guggenheim Partners Investment Management, LLC (the “Investment Adviser”), is pleased to present the shareholder report for Guggenheim Total Return Bond Fund (the “Fund”) for the annual fiscal period ended September 30, 2015.
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 Fund. 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 Managers’ 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, 2015
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at guggenheiminvestments.com or call 800.820.0888.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
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.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2015 |
At the end of the period, the underlying U.S. economy continued to maintain its strong footing. A market correction that began in August persisted through the end of the period; September and October are historically difficult times for the stock market, and by extension, risk assets of any kind, including credit.
Markets had been performing solidly for most of the period. Growth mid-year bounced back from a weather-induced slowdown in the first quarter, with GDP increasing 3.9% for the second quarter. The labor and housing markets continued to strengthen, and the drop in gas prices was acting as a tax cut, which was expected to increase consumer spending power going into the holiday season. Even though labor markets are moving toward full employment, questions remain about the viability of sustained economic expansion in the U.S. In particular, there is debate about the net effect of declining energy prices and a stronger dollar. These are both positive for the U.S. consumer, but low oil prices hurt the U.S. energy industry and a strong dollar is challenging for U.S. manufacturers. In addition, oil prices and the strong dollar exert a downward pressure on inflation, and a risk of deflation is a negative for the economy.
At the same time, currency devaluation, particularly in Japan and the euro zone, is putting pressure on countries to devalue to improve export competitiveness. Those countries slow to devalue, like China, are feeling economic pressure at home, driving down asset prices, and increasing deflationary pressures, escalating the risk of financial contagion abroad. China may have to devalue the renminbi further due to continued slowing in the economy. Combined with the tepid expansion in both Europe and Japan, the pressure will be for central banks there to increase easing measures.
The U.S. Federal Reserve (the Fed) is hard pressed to justify a rate increase based on its self-prescribed metrics, which include rising inflation and an improved employment situation with clearly rising wages. At best, policymakers can argue that the prospects for wage growth and inflation are improving, but clear evidence is lacking.
A preemptive rate increase seems risky and opens the Fed to potential criticism given the fragility in financial markets and the prospect that rising U.S. rates could further strengthen the dollar and also potentially exacerbate foreign economic turbulence. While prices and wages remain tame, the risk of another asset bubble is increasing. The longer policy remains highly accommodative, the greater the likelihood that asset classes including commercial real estate, equities, or certain categories of bonds could become overvalued.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ECONOMIC AND MARKET OVERVIEW (Unaudited)(concluded) | September 30, 2015 |
At period end, the risk of financial contagion remained high, which could result in central banks providing additional liquidity or delaying rate increases. Use of the monetary printing press is a handy tool to prop up asset prices and temporarily spur economic growth, which is the main reason a recession does not appear to be on the horizon for either the G-7 nations or China. It’s also worth noting that there has never been a recession in the post-war period without the Fed first raising interest rates, after which it typically takes several years for a recession to be induced.
For the 12 months ended September 30, 2015, the Standard & Poor’s 500® Index* (“S&P 500®”) returned -0.61%. The Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned -8.66%. The return of the MSCI Emerging Markets Index* was -19.28%.
In the bond market, the Barclays U.S. Aggregate Bond Index* posted a 2.94% return for the period, while the Barclays U.S. Corporate High Yield Index* returned -3.43%. The return of the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.02% for the 12-month period.
The opinions and forecasts expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
*Index Definitions
The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.
Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.
Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar (“USD”)-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets.
S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad economy, representing all major industries and is considered a representation of the U.S. stock market.
| | 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, 2015 and ending September 30, 2015.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(continued) |
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(concluded) |
| | Expense
Ratio1 | Fund
Return | Beginning
Account Value
March 31,
2015 | Ending
Account Value
September 30,
2015 | Expenses
Paid During
Period2 |
Table 1. Based on actual Fund return3 |
Total Return Bond Fund |
A-Class | 0.93% | (0.39%) | $ 1,000.00 | $ 996.10 | $ 4.65 |
C-Class | 1.65% | (0.75%) | 1,000.00 | 992.50 | 8.24 |
P-Class4 | 0.84% | (0.21%) | 1,000.00 | 997.90 | 3.45 |
Institutional Class | 0.59% | (0.22%) | 1,000.00 | 997.80 | 2.95 |
| |
Table 2. Based on hypothetical 5% return (before expenses) |
Total Return Bond Fund |
A-Class | 0.93% | 5.00% | $ 1,000.00 | $ 1,020.41 | $ 4.71 |
C-Class | 1.65% | 5.00% | 1,000.00 | 1,016.80 | 8.34 |
P-Class4 | 0.84% | 5.00% | 1,000.00 | 1,020.86 | 4.26 |
Institutional Class | 0.59% | 5.00% | 1,000.00 | 1,022.11 | 2.99 |
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, 2015 to September 30, 2015. |
4 | Since commencement of operations: May 1, 2015. Expenses paid based on actual fund return are calculated using 150 days from the commencement of operations. Expenses paid based on hypothetical 5% return are calculated using 183 days. |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2015 |
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 and Assistant Chief Investment Officer; Jeffrey B. Abrams, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the fiscal year ended September 30, 2015.
For the one-year period ended September 30, 2015, Guggenheim Total Return Bond Fund returned 2.56%1, compared with the 2.94% 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 primarily in high-quality, investment-grade fixed-income securities across multiple sectors. The Fund employs a tactical sector allocation strategy, offering the opportunity to capitalize on total return potential created by changing market conditions.
At the start of the period, market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities sparked risk aversion that drove market volatility. After a second-straight winter soft patch, and a dramatic drop in the price of oil, U.S. economic data began to strengthen in 2015, appearing to provide support for the Fed to proceed with raising interest rates sometime in 2015. The world kept a watchful eye on the Fed during the summer, as headlines moved from Greece to China, as China devalued the yuan in August, the first time in 20 years. As China’s move sent shockwaves through global financial markets, the Fed opted to keep rates zero-bound at its September meeting, citing concerns about potential downside risks to the U.S. outlook posed by recent global market volatility.
A key to Fund performance for the period was price appreciation stemming from the general tightening of credit spreads, except during the last few weeks of the period. Positive returns were driven largely by good credit selection in asset-backed securities (including collateralized loan obligations, or CLOs, and aircraft securitizations), mortgage-backed securities (including commercial mortgage-backed securities and non-agency residential mortgage-backed securities, or NARMBS), preferred securities, and investment-grade corporate bonds. There were no significant detractors from performance for the period. Derivatives, which consisted of interest-rate swaps used to extend duration, contributed slightly to performance for the year. Being underweight duration relative to the Index also
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
MANAGERS’ COMMENTARY (Unaudited)(continued) | September 30, 2015 |
detracted from performance for the period. The lower duration stance stems partly from the Fund’s small allocation to Treasury bonds, compared with the Index’s allocation, its largest.
The chief attributes of the Fund over the period were holding a majority of the portfolio in structured credit, including commercial ABS and CLOs; and building up exposure to NARMBS. The Fund believes the residential sector has been offering good relative value due to low interest rates, an improving residential real estate market, and strong economic fundamentals.
A majority of the Fund’s structured credit holdings feature floating rates, yields higher than traditional securitized assets like auto or credit-card receivables, and, often, investment-grade ratings. The Fund believes that commercial ABS and CLOs offer some downside protection, and amortizing structures to keep credit exposure lower over time. Many of the NARMBS were purchased at discounts and also typically have floating coupons that help keep duration short. Floating rate instruments accounted for about half the portfolio at the end of the period.
Besides the increase in NARMBS, other notable position changes over the period included a reduction in exposure to leveraged credit and an increase in exposure to U.S. Treasury bonds.
The cut in leveraged credit by half over the course of the 12 months was partly in response to deteriorating fundamentals in the energy market and in anticipation of volatility associated with a market correction or rising interest rates. As the Fund became more defensive, overall portfolio liquidity increased and average credit quality improved across sectors. The shift in Treasuries resulted from decisions regarding curve positioning.
To manage curve positioning, the Fund added to the long end of its barbell strategy long-maturity zero-coupon Treasury bonds and municipal securities, the latter offering yield premiums to Treasuries and purchased at steep discounts. By balancing these with the short-term and floating rate holdings, the Fund kept its effective duration at around 4 years for most of the period, compared with an Index average of 5.5 years.
Guggenheim believes an accommodative Fed supports a benign credit environment, and the U.S. economy is well positioned for continued growth. The Fed may not have the clarity it seeks to tighten U.S. monetary policy anytime soon, which means rates will remain low for an extended period. The Fund will continue to focus on allocating to structured credit that should shield investors from rate volatility without having to sacrifice yield.
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
MANAGERS’ COMMENTARY (Unaudited)(concluded) | September 30, 2015 |
Periods of economic expansion have coincided with tightening spreads and low defaults, and economic data for the period indicate the U.S. expansion remains on track. Still, the watchword across risk assets in the past few months has been caution, as credit spreads widened during heightened market volatility. The Fund takes advantage of such periods of widening to add to spread duration and to take on more risk in expectation of a rebound.
The Fund invests excess cash into the Guggenheim Strategy Funds which, in turn, invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital. For the one -year period ended September 30, 2015, investment in the Guggenheim Strategy Funds has benefited Fund performance relative to investing in other short-term investments such as overnight repurchase agreements.
Performance displayed represents past performance which is no guarantee of future results.
1 | Performance figures are based on Class A 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 | 11 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2015 |
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 or investments in Guggenheim Strategy Funds Trust mutual funds. Investments in those Funds do not provide “market exposure” to meet the fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(continued) | September 30, 2015 |
Inception Dates: |
A-Class | November 30, 2011 |
C-Class | November 30, 2011 |
P-Class | May 1, 2015 |
Institutional Class | November 30, 2011 |
Portfolio Composition by Quality Rating1 |
Rating | % of Total Investments |
Fixed Income Instruments | |
AAA | 16.8% |
AA | 13.7% |
A | 12.3% |
BBB | 9.5% |
BB | 9.6% |
B | 3.8% |
CCC | 7.3% |
CC | 1.3% |
D | 0.2% |
NR2 | 16.4% |
Other Instruments | 9.1% |
Total Investments | 100.0% |
| | |
The chart above reflects percentages of the value of total investments. |
Ten Largest Holdings (% of Total Net Assets) |
U.S. Treasury Notes | 7.2% |
Guggenheim Strategy Fund I | 4.9% |
U.S. Treasury Bonds | 2.4% |
AIM Aviation Finance Ltd. | 1.6% |
Triaxx Prime CDO Ltd. | 1.3% |
LMREC, Inc. | 1.0% |
LSTAR Securities Investment Trust | 1.0% |
Ares Finance Company II LLC | 1.0% |
LSTAR Securities Investment Trust | 0.9% |
CIFC Funding Ltd. | 0.9% |
Top Ten Total | 22.2% |
| | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
1 | 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. |
2 | NR securities do not necessarily indicate low credit quality. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | September 30, 2015 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2015
| | 1 Year | Since Inception
(11/30/11) |
A-Class Shares | 2.56% | 6.27% |
A-Class Shares with sales charge† | -2.30% | 4.93% |
C-Class Shares | 1.82% | 5.50% |
C-Class Shares with CDSC§ | 0.84% | 5.50% |
Institutional Class Shares | 2.91% | 6.64% |
Barclays U.S. Aggregate Bond Index | 2.94% | 2.67% |
| | Since Inception
(05/01/15) |
P-Class Shares | -0.21% |
Barclays U.S. Aggregate Bond Index | 0.21% |
* | 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. The graph is based on A-Class shares only; performance for C-Class shares, P-Class shares and Institutional Class shares will vary due to differences in fee structures. |
† | 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. |
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
SCHEDULE OF INVESTMENTS | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | |
Shares
| | | Value | |
| | | | | | | |
PREFERRED STOCKS†† - 0.2% | |
| | | | | | | |
Financial - 0.1% | |
Aspen Insurance Holdings Ltd. 5.95%1,2,3 | | | 63,889 | | | $ | 1,629,169 | |
AgriBank FCB 6.88%1,3 | | | 2,500 | | | | 262,969 | |
WhiteHorse II Ltd. due 06/15/17*,†††,4,5 | | | 450,000 | | | | 45 | |
GSC Partners CDO Fund V Ltd. due 11/20/16*,†††,4,5 | | | 1,325 | | | | — | |
Total Financial | | | | | | | 1,892,183 | |
| | | | | | | | | |
Industrial - 0.1% | |
Seaspan Corp. 6.38% due 04/30/19 | | | 44,000 | | | | 1,089,440 | |
Total Preferred Stocks | | | | | | | | |
(Cost $3,064,781) | | | | | | | 2,981,623 | |
| | | | | | | | | |
MUTUAL FUNDS† - 4.9% | |
Guggenheim Strategy Fund I6 | | | 3,846,700 | | | | 95,705,888 | |
Total Mutual Funds | | | | | | | | |
(Cost $95,773,142) | | | | | | | 95,705,888 | |
| | | | | | | | | |
CLOSED-END FUNDS† - 0.2% | |
Guggenheim Strategic Opportunities Fund6 | | | 166,010 | | | | 2,968,259 | |
Total Closed-End Funds | | | | | | | | |
(Cost $3,168,474) | | | | | | | 2,968,259 | |
| | | | | | | | | |
SHORT TERM INVESTMENTS† - 3.9% | |
Federated U.S. Treasury Cash Reserve Fund 0.00%13 | | | 75,906,041 | | | | 75,906,041 | |
Total Short Term Investments | | | | | |
(Cost $75,906,041) | | | | | | | 75,906,041 | |
| | | Face
Amount | | | | |
| | | | | | | |
ASSET-BACKED SECURITIES†† - 35.6% | |
Collateralized Loan Obligations - 24.2% | |
CIFC Funding Ltd. | | | | | | |
2015-2A, 2.23% due 12/05/241,4 | | $ | 18,500,000 | | | | 18,457,620 | |
2007-1A, 1.81% due 05/10/211,4 | | | 3,250,000 | | | | 3,141,276 | |
2015-1A, 2.47% due 01/22/271,4 | | | 3,000,000 | | | | 2,990,596 | |
2015-2A, 2.32% due 04/15/271,4 | | | 2,000,000 | | | | 1,976,000 | |
2014-1AR, 3.38% due 08/14/241,4 | | | 750,000 | | | | 743,571 | |
2014-1A, 3.09% due 04/18/251,4 | | | 500,000 | | | | 486,251 | |
Golub Capital Partners CLO Ltd. | | | | | | | | |
2015-25A, 2.29% due 08/05/271,4 | | | 16,500,000 | | | | 16,315,607 | |
2014-21A, 2.75% due 10/25/261,4 | | | 2,700,000 | | | | 2,642,643 | |
2014-10AR, 3.24% due 10/20/211,4 | | | 1,000,000 | | | | 996,858 | |
2014-18A, 3.80% due 04/25/261,4 | | | 500,000 | | | | 488,313 | |
2013-17A, 4.11% due 10/25/251,4 | | | 400,000 | | | | 398,525 | |
Fortress Credit BSL II Ltd. | | | | | | | | |
2013-2A, 1.79% due 10/19/251,4 | | | 15,500,000 | | | | 15,289,591 | |
2013-2A, 2.54% due 10/19/251,4 | | | 4,000,000 | | | | 3,944,965 | |
Black Diamond CLO Ltd. | | | | | | | | |
2013-1A, 1.70% due 02/01/231,4 | | | 16,000,000 | | | | 15,846,778 | |
2013-1A, 3.55% due 02/01/231,4 | | | 650,000 | | | | 639,908 | |
Great Lakes CLO Ltd. | | | | | | | | |
2015-1A, 2.22% due 07/15/261,4 | | | 10,000,000 | | | | 9,894,762 | |
2015-1A, 2.97% due 07/15/261,4 | | | 4,000,000 | | | | 3,958,320 | |
2012-1A, 4.39% due 01/15/231,4 | | | 1,250,000 | | | | 1,249,972 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
2012-1A, due 01/15/234,5 | | $ | 1,000,000 | | | $ | 666,304 | |
2014-1A, 3.99% due 04/15/251,4 | | | 250,000 | | | | 248,172 | |
Marea CLO Ltd. | | | | | | | | |
2015-1A, 2.09% due 10/15/231,4 | | | 14,393,000 | | | | 14,359,341 | |
Fortress Credit Investments IV Ltd. | | | | | | | | |
2015-4A, 2.22% due 07/17/231,4 | | | 14,000,000 | | | | 13,804,222 | |
Venture CLO Ltd. | | | | | | | | |
2015-11A, 2.26% due 11/14/221,4 | | | 11,500,000 | | | | 11,474,346 | |
2013-14A, 3.08% due 08/28/251,4 | | | 1,250,000 | | | | 1,216,883 | |
2013-12A, 3.18% due 02/28/241,4 | | | 750,000 | | | | 737,098 | |
Treman Park CLO Ltd. | | | | | | | | |
2015-1A, due 04/20/274,5 | | | 13,600,000 | | | | 12,737,056 | |
Oaktree EIF II Series Ltd. | | | | | | | | |
2014-A2, 2.57% due 11/15/251,4 | | | 8,000,000 | | | | 7,934,099 | |
2014-A2, 3.47% due 11/17/251,4 | | | 2,000,000 | | | | 1,965,805 | |
2015-B1A, 2.62% due 02/15/261,4 | | | 1,500,000 | | | | 1,486,991 | |
Dryden 37 Senior Loan Fund | | | | | | | | |
2015-37A, due 04/15/274,5 | | | 10,000,000 | | | | 9,333,406 | |
Voya CLO Ltd. | | | | | | | | |
2013-1X, due 04/15/245 | | | 9,500,000 | | | | 6,875,745 | |
2015-3AR, 3.24% due 10/15/221,4 | | | 2,250,000 | | | | 2,259,159 | |
KKR CLO 12 Ltd. | | | | | | | | |
2015-12, 2.58% due 07/15/271,4 | | | 8,000,000 | | | | 7,953,383 | |
Fifth Street SLF II Ltd. | | | | | | | | |
2015-2A, 2.25% due 09/29/271,4 | | | 8,000,000 | | | | 7,946,400 | |
ACIS CLO Ltd. | | | | | | | | |
2015-6A, 2.78% due 05/01/271,4 | | | 7,500,000 | | | | 7,510,535 | |
Vibrant CLO Limited | | | | | | | | |
2015-1A, 3.08% due 07/17/241,4 | | | 7,000,000 | | | | 6,940,473 | |
Avery | | | | | | | | |
2013-3X, due 01/18/255 | | | 7,500,060 | | | | 6,668,303 | |
TICC CLO LLC | | | | | | | | |
2012-1A, 3.83% due 08/25/231,4 | | | 6,250,000 | | | | 6,264,654 | |
2012-1A, 5.08% due 08/25/231,4 | | | 350,000 | | | | 350,046 | |
Marathon CLO VII Ltd. | | | | | | | | |
2014-7A, 3.79% due 10/28/251,4 | | | 4,000,000 | | | | 3,964,280 | |
2014-7A, 2.94% due 10/28/251,4 | | | 2,500,000 | | | | 2,514,025 | |
Fifth Street Senior Loan Fund I LLC | | | | | | | | |
2015-1A, 2.29% due 01/20/271,4 | | | 5,000,000 | | | | 5,012,799 | |
2015-1A, 3.29% due 01/20/271,4 | | | 1,250,000 | | | | 1,254,773 | |
Rockwall CDO Ltd. | | | | | | | | |
2006-1A, 0.80% due 08/01/211,4 | | | 2,900,000 | | | | 2,867,316 | |
2007-1A, 0.85% due 08/01/241,4 | | | 2,100,000 | | | | 1,922,293 | |
2007-1A, 0.55% due 08/01/241,4 | | | 1,262,271 | | | | 1,227,769 | |
2006-1A, 0.95% due 08/01/211,4 | | | 200,000 | | | | 191,399 | |
Portola CLO Ltd. | | | | | | | | |
2007-1A, 3.82% due 11/15/211,4 | | | 6,000,000 | | | | 6,017,735 | |
Fortress Credit Opportunities III CLO, LP | | | | | | | | |
2014-3A, 2.18% due 04/28/261,4 | | | 5,000,000 | | | | 4,966,309 | |
2014-3A, 2.82% due 04/28/261,4 | | | 650,000 | | | | 640,205 | |
2014-3A, 3.53% due 04/28/261,4 | | | 400,000 | | | | 389,846 | |
Oxford Finance Funding Trust | | | | | | | | |
2014-1A, 3.48% due 12/15/224 | | | 6,000,000 | | | | 5,983,800 | |
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Northwoods Capital XIV Ltd. | | | | | | |
2014-14A, 2.77% due 11/12/251,4 | | $ | 6,000,000 | | | $ | 5,982,393 | |
Fortress Credit Funding V, LP | | | | | | | | |
2015-5A, 2.92% due 08/15/221,4 | | | 6,000,000 | | | | 5,974,812 | |
Cerberus Onshore II CLO LLC | | | | | | | | |
2014-1A, 2.32% due 10/15/231,4 | | | 5,953,759 | | | | 5,951,251 | |
OHA Credit Partners IX Ltd. | | | | | | | | |
2013-9A, due 10/20/254,5 | | | 6,000,000 | | | | 5,580,428 | |
Muir Woods CLO Ltd. | | | | | | | | |
2012-1A, 2.94% due 09/14/231,4 | | | 5,500,000 | | | | 5,501,657 | |
Garrison Funding Ltd. | | | | | | | | |
2015-1A, 2.78% due 05/25/271,4 | | | 5,000,000 | | | | 4,962,966 | |
2013-2A, 3.68% due 09/25/231,4 | | | 500,000 | | | | 497,643 | |
KKR Financial CLO Ltd. | | | | | | | | |
2007-1A, 2.57% due 05/15/211,4 | | | 2,900,000 | | | | 2,887,243 | |
2007-1A, 5.32% due 05/15/211,4 | | | 2,500,000 | | | | 2,499,874 | |
Fortress Credit Opportunities VI CLO Ltd. | | | | | | | | |
2015-6A, 2.97% due 10/10/261,4 | | | 5,000,000 | | | | 4,947,754 | |
Golub Capital Partners Clo Ltd. | | | | | | | | |
2015-24A, 2.97% due 02/05/271,4 | | | 5,000,000 | | | | 4,947,544 | |
OCP CLO Ltd. | | | | | | | | |
2014-7A, 2.27% due 10/20/261,4 | | | 3,500,000 | | | | 3,459,631 | |
2014-6A, 2.34% due 07/17/261,4 | | | 1,500,000 | | | | 1,484,071 | |
SHACKLETON CLO Ltd. | | | | | | | | |
2013-4A, 2.29% due 01/13/251,4 | | | 5,000,000 | | | | 4,924,425 | |
Halcyon Loan Advisors Funding Ltd. | | | | | | | | |
2012-2A, 3.20% due 12/20/241,4 | | | 4,000,000 | | | | 3,960,004 | |
2012-2A, 4.85% due 12/20/241,4 | | | 600,000 | | | | 599,950 | |
Babson CLO Ltd. | | | | | | | | |
2012-2A, due 05/15/234,5 | | | 4,750,000 | | | | 3,540,705 | |
2014-IA, due 07/20/254,5 | | | 1,300,000 | | | | 864,609 | |
ACAS CLO Ltd. | | | | | | | | |
2014-1AR, 2.64% due 09/20/231,4 | | | 4,000,000 | | | | 3,992,840 | |
Canyon Capital CLO Ltd. | | | | | | | | |
2013-1A, 2.24% due 01/15/241,4 | | | 4,000,000 | | | | 3,953,011 | |
Cavalry CLO II | | | | | | | | |
2013-2A, 1.64% due 01/17/241,4 | | | 4,000,000 | | | | 3,943,238 | |
MT Wilson CLO II Ltd. | | | | | | | | |
2007-2A, 3.04% due 07/11/201,4 | | | 4,000,000 | | | | 3,869,846 | |
Kingsland V Ltd. | | | | | | | | |
2007-5A, 1.09% due 07/14/211,4 | | | 4,000,000 | | | | 3,820,560 | |
Madison Park Funding VIII Ltd. | | | | | | | | |
2014-8A, 3.10% due 04/22/221,4 | | | 2,000,000 | | | | 2,000,047 | |
2014-8A, 2.50% due 04/22/221,4 | | | 1,500,000 | | | | 1,495,625 | |
Steele Creek CLO Ltd. | | | | | | | | |
2014-1A, 2.58% due 08/21/261,4 | | | 3,300,000 | | | | 3,243,921 | |
2014-1A, 3.53% due 08/21/261,4 | | | 250,000 | | | | 243,423 | |
Greywolf CLO III Ltd. | | | | | | | | |
2014-1A, 3.15% due 04/22/261,4 | | | 2,000,000 | | | | 1,947,935 | |
2014-1A, 2.35% due 04/22/261,4 | | | 1,500,000 | | | | 1,479,650 | |
Carlyle Global Market Strategies CLO Ltd. | | | | | | | | |
2014-1A, 3.29% due 04/17/251,4 | | | 2,500,000 | | | | 2,471,329 | |
2014-2AR, 4.18% due 07/20/231,4 | | | 750,000 | | | | 746,255 | |
2012-3A, due 10/04/244,5 | | | 250,000 | | | | 187,341 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Telos CLO Ltd. | | | | | | |
2013-3A, 3.29% due 01/17/241,4 | | $ | 2,000,000 | | | $ | 1,933,385 | |
2014-6A, 2.39% due 01/17/271,4 | | | 1,500,000 | | | | 1,465,225 | |
Fortress Credit Opportunities V CLO Ltd. | | | | | | | | |
2014-5A, 3.83% due 10/15/261,4 | | | 1,750,000 | | | | 1,715,610 | |
2014-5A, 2.93% due 10/15/261,4 | | | 1,500,000 | | | | 1,482,324 | |
Benefit Street Partners CLO Ltd. | | | | | | | | |
2015-IA, 3.23% due 10/15/251,4 | | | 3,000,000 | | | | 3,006,900 | |
Madison Park Funding Ltd. | | | | | | | | |
2007-6A, 3.55% due 07/26/211,4 | | | 3,000,000 | | | | 2,976,924 | |
Octagon Investment Partners XIX Ltd. | | | | | | | | |
2014-1A, 3.14% due 04/15/261,4 | | | 3,000,000 | | | | 2,952,629 | |
Regatta IV Funding Ltd. | | | | | | | | |
2014-1A, 3.25% due 07/25/261,4 | | | 3,000,000 | | | | 2,932,490 | |
Neuberger Berman CLO Ltd. | | | | | | | | |
2012-12X, due 07/25/235 | | | 3,000,000 | | | | 1,823,192 | |
2012-12A, due 07/25/234,5 | | | 1,500,000 | | | | 911,596 | |
OHA Credit Partners VI Ltd. | | | | | | | | |
2015-6A, 2.81% due 05/15/231,4 | | | 2,500,000 | | | | 2,494,065 | |
KKR CLO Trust | | | | | | | | |
2012-1A, 2.49% due 12/15/241,4 | | | 2,000,000 | | | | 1,980,533 | |
2012-1A, 3.59% due 12/15/241,4 | | | 500,000 | | | | 500,053 | |
ARES XXVI CLO Ltd. | | | | | | | | |
2013-1A, due 04/15/254,5 | | | 4,300,000 | | | | 2,303,118 | |
Cerberus Onshore II CLO-2 LLC | | | | | | | | |
2014-1A, 2.98% due 10/15/231,4 | | | 2,250,000 | | | | 2,247,433 | |
St. James River CLO Ltd. | | | | | | | | |
2007-1A, 2.63% due 06/11/211,4 | | | 2,250,000 | | | | 2,209,364 | |
KVK CLO Ltd. | | | | | | | | |
2013-1A, due 04/14/254,5 | | | 3,800,000 | | | | 2,177,555 | |
Newstar Commercial Loan Funding LLC | | | | | | | | |
2015-1A, 3.11% due 01/20/271,4 | | | 1,000,000 | | | | 994,539 | |
2013-1A, 4.90% due 09/20/231,4 | | | 700,000 | | | | 665,741 | |
2014-1A, 3.89% due 04/20/251,4 | | | 500,000 | | | | 493,712 | |
Symphony CLO Ltd. | | | | | | | | |
2015-10AR, 3.14% due 07/23/231,4 | | | 2,000,000 | | | | 2,009,494 | |
ALM VII R Ltd. | | | | | | | | |
2013-7RA, 2.89% due 04/24/241,4 | | | 2,000,000 | | | | 1,977,920 | |
TICP CLO I Ltd. | | | | | | | | |
2014-1A, 3.30% due 04/26/261,4 | | | 2,000,000 | | | | 1,965,967 | |
Ivy Hill Middle Market Credit Fund IX Ltd. | | | | | | | | |
2014-9A, 2.74% due 10/18/251,4 | | | 1,000,000 | | | | 976,688 | |
2014-9A, 3.59% due 10/18/251,4 | | | 1,000,000 | | | | 965,024 | |
Duane Street CLO IV Ltd. | | | | | | | | |
2007-4A, 2.56% due 11/14/211,4 | | | 2,000,000 | | | | 1,939,829 | |
NewStar Clarendon Fund CLO LLC | | | | | | | | |
2015-1A, 3.65% due 01/25/271,4 | | | 2,000,000 | | | | 1,907,800 | |
Madison Park Funding V Ltd. | | | | | | | | |
2007-5A, 1.78% due 02/26/211,4 | | | 2,000,000 | | | | 1,904,549 | |
Sound Point CLO IV Ltd. | | | | | | | | |
2013-3A, 2.63% due 01/21/261,4 | | | 2,000,000 | | | | 1,887,651 | |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Galaxy XIX CLO Ltd. | | | | | | |
2015-19A, due 01/24/274,5 | | $ | 2,000,000 | | | $ | 1,884,214 | |
Newstar Trust | | | | | | | | |
2012-2A, 4.53% due 01/20/231,4 | | | 1,000,000 | | | | 1,001,840 | |
2012-2A, 3.53% due 01/20/231,4 | | | 750,000 | | | | 751,313 | |
Cent CLO 16, LP | | | | | | | | |
2014-16AR, 3.50% due 08/01/241,4 | | | 1,750,000 | | | | 1,750,209 | |
Cent CLO, LP | | | | | | | | |
2014-16AR, 2.55% due 08/01/241,4 | | | 1,750,000 | | | | 1,747,713 | |
Westchester CLO Ltd. | | | | | | | | |
2007-1A, 0.74% due 08/01/221,4 | | | 1,850,000 | | | | 1,709,553 | |
Gramercy Park CLO Ltd. | | | | | | | | |
2014-1A, 3.22% due 07/17/231,4 | | | 1,600,000 | | | | 1,600,025 | |
Race Point V CLO Ltd. | | | | | | | | |
2014-5A, 3.19% due 12/15/221,4 | | | 1,100,000 | | | | 1,093,854 | |
2014-5A, 4.09% due 12/15/221,4 | | | 500,000 | | | | 499,011 | |
NewStar Arlington Senior Loan Program LLC | | | | | | | | |
2014-1A, 4.76% due 07/25/254 | | | 700,000 | | | | 712,445 | |
2014-1A, 2.90% due 07/25/251,4 | | | 500,000 | | | | 492,827 | |
2014-1A, 3.60% due 07/25/251,4 | | | 400,000 | | | | 387,022 | |
ACA CLO Ltd. | | | | | | | | |
2007-1A, 1.24% due 06/15/221,4 | | | 1,575,000 | | | | 1,509,970 | |
Adirondack Park CLO Ltd. | | | | | | | | |
2013-1A, 3.29% due 04/15/241,4 | | | 1,500,000 | | | | 1,492,031 | |
MCF CLO I LLC | | | | | | | | |
2013-1A, 3.84% due 04/20/231,4 | | | 1,500,000 | | | | 1,484,563 | |
NYLIM Flatiron CLO Ltd. | | | | | | | | |
2006-1A, 1.78% due 08/08/201,4 | | | 1,500,000 | | | | 1,453,457 | |
ING Investment Management CLO Ltd. | | | | | | | | |
2007-4A, 2.49% due 06/14/221,4 | | | 1,500,000 | | | | 1,428,842 | |
Dryden XXIII Senior Loan Fund | | | | | | | | |
2014-23A, 3.24% due 07/17/231,4 | | | 1,250,000 | | | | 1,255,955 | |
COA Summit CLO Limited | | | | | | | | |
2014-1A, 3.09% due 04/20/231,4 | | | 1,250,000 | | | | 1,242,093 | |
Acis CLO Ltd. | | | | | | | | |
2013-1A, 3.24% due 04/18/241,4 | | | 800,000 | | | | 774,653 | |
2013-2A, 3.50% due 10/14/221,4 | | | 375,000 | | | | 369,306 | |
Telos Clo Ltd. | | | | | | | | |
2007-2A, 2.49% due 04/15/221,4 | | | 1,100,000 | | | | 1,076,364 | |
Global Leveraged Capital Credit Opportunity Fund | | | | | | | | |
2006-1A, 1.29% due 12/20/181,4 | | | 1,036,000 | | | | 1,021,178 | |
ALM XIV Ltd. | | | | | | | | |
2014-14A, 3.24% due 07/28/261,4 | | | 750,000 | | | | 736,875 | |
2014-14A, 3.74% due 07/28/261,4 | | | 300,000 | | | | 283,070 | |
Ares XXIII CLO Ltd. | | | | | | | | |
2014-1AR, 3.49% due 04/19/231,4 | | | 1,000,000 | | | | 1,000,053 | |
Symphony CLO XV Ltd. | | | | | | | | |
2014-15A, 3.49% due 10/17/261,4 | | | 1,000,000 | | | | 997,572 | |
Gallatin CLO VII Ltd. | | | | | | | | |
2014-1A, 3.19% due 07/15/231,4 | | | 1,000,000 | | | | 991,112 | |
NXT Capital CLO LLC | | | | | | | | |
2015-1A, 3.93% due 04/21/271,4 | | | 1,000,000 | | | | 989,145 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Churchill Financial Cayman Ltd. | | | | | | |
2007-1A, 2.88% due 07/10/191,4 | | $ | 1,000,000 | | | $ | 988,860 | |
Neuberger Berman CLO XVIII Ltd. | | | | | | | | |
2014-18A, 3.43% due 11/14/251,4 | | | 1,000,000 | | | | 987,188 | |
Catamaran CLO Ltd. | | | | | | | | |
2015-1A, 3.40% due 04/22/271,4 | | | 1,000,000 | | | | 984,150 | |
Flagship CLO VI | | | | | | | | |
2007-1A, 2.73% due 06/10/211,4 | | | 1,000,000 | | | | 982,376 | |
Ivy Hill Middle Market Credit Fund VII Ltd. | | | | | | | | |
2013-7A, 3.74% due 10/20/251,4 | | | 1,000,000 | | | | 980,855 | |
San Gabriel CLO Ltd. | | | | | | | | |
2007-1A, 2.58% due 09/10/211,4 | | | 1,000,000 | | | | 980,746 | |
WhiteHorse IV Ltd. | | | | | | | | |
2007-4A, 1.74% due 01/17/201,4 | | | 1,000,000 | | | | 967,549 | |
Limerock CLO II Ltd. | | | | | | | | |
2014-2A, 3.14% due 04/18/261,4 | | | 1,000,000 | | | | 959,141 | |
Highbridge Loan Management Ltd. | | | | | | | | |
2013-2A, 3.99% due 10/20/241,4 | | | 1,000,000 | | | | 938,740 | |
Lime Street CLO Corp. | | | | | | | | |
2007-1A, 2.84% due 06/20/211,4 | | | 1,000,000 | | | | 918,621 | |
Atlas Senior Loan Fund II Ltd. | | | | | | | | |
2012-2A, due 01/30/244,5 | | | 1,200,000 | | | | 875,092 | |
ARES XII CLO Ltd. | | | | | | | | |
2007-12A, 3.58% due 11/25/201,4 | | | 750,000 | | | | 749,988 | |
Keuka Park CLO Ltd. | | | | | | | | |
2013-1A, due 10/21/244,5 | | | 1,000,000 | | | | 701,035 | |
Grayson CLO Ltd. | | | | | | | | |
2006-1A, 0.71% due 11/01/211,4 | | | 750,000 | | | | 693,161 | |
Finn Square CLO Ltd. | | | | | | | | |
2012-1A, due 12/24/234,5 | | | 1,000,000 | | | | 671,869 | |
Anchorage Capital CLO 4 Ltd. | | | | | | | | |
2014-4A, 2.45% due 07/28/261,4 | | | 600,000 | | | | 595,247 | |
GoldenTree Credit Opportunities Financing Ltd. | | | | | | | | |
2012-1A, 4.34% due 09/15/241,4 | | | 500,000 | | | | 502,022 | |
OZLM Funding V Ltd. | | | | | | | | |
2013-5A, 3.29% due 01/17/261,4 | | | 500,000 | | | | 495,816 | |
ColumbusNova CLO Ltd. | | | | | | | | |
2007-1A, 1.67% due 05/16/191,4 | | | 500,000 | | | | 488,388 | |
AMMC CLO XIV Ltd. | | | | | | | | |
2014-14A, 3.10% due 07/27/261,4 | | | 500,000 | | | | 485,135 | |
NewStar Commercial Loan Trust | | | | | | | | |
2007-1A, 1.62% due 09/30/221,4 | | | 500,000 | | | | 476,214 | |
Westwood CDO I Ltd. | | | | | | | | |
2007-1A, 1.00% due 03/25/211,4 | | | 500,000 | | | | 474,268 | |
MCF CLO IV LLC | | | | | | | | |
2014-1A, 6.20% due 10/15/251,4 | | | 500,000 | | | | 447,600 | |
Ares XXV CLO Ltd. | | | | | | | | |
2013-3A, due 01/17/244,5 | | | 750,000 | | | | 407,693 | |
ALM VII R-2 Ltd. | | | | | | | | |
2013-7R2A, 2.89% due 04/24/241,4 | | | 400,000 | | | | 395,757 | |
Covenant Credit Partners CLO I Ltd. | | | | | | | | |
2014-1A, 3.21% due 07/20/261,4 | | | 350,000 | | | | 337,774 | |
Copper River CLO Ltd. | | | | | | | | |
2007-1A, due 01/20/211,4,5 | | | 1,500,000 | | | | 282,152 | |
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
TICP CLO II Ltd. | | | | | | |
2014-2A, 3.29% due 07/20/261,4 | | $ | 250,000 | | | $ | 245,495 | |
ICE EM CLO | | | | | | | | |
2007-1A, 1.12% due 08/15/221,4 | | | 243,850 | | | | 237,949 | |
Eastland CLO Ltd. | | | | | | | | |
2007-1A, 0.70% due 05/01/221,4 | | | 250,000 | | | | 235,963 | |
Marathon CLO II Ltd. | | | | | | | | |
2005-2A, due 12/20/194,5 | | | 250,000 | | | | 8,921 | |
BlackRock Senior Income Series Corp. | | | | | | | | |
2004-1X, due 09/15/16†††,5 | | | 496,446 | | | | 1 | |
Total Collateralized Loan Obligations | | | | 471,141,848 | |
| | | | | | | | | |
Collateralized Debt Obligations - 5.8% | |
Triaxx Prime CDO Ltd. | | | | | | | | |
2006-2A, 0.45% due 10/02/391,4 | | | 33,618,287 | | | | 31,499,365 | |
LMREC, Inc. | | | | | | | | |
2015-CRE1, 1.95% due 02/22/321,4 | | | 20,000,000 | | | | 19,864,169 | |
2015-CRE1, 3.70% due 02/22/321,4 | | | 2,000,000 | | | | 1,967,656 | |
PFP Ltd. | | | | | | | | |
2015-2, 2.21% due 07/14/341,4 | | | 16,500,000 | | | | 16,438,901 | |
Resource Capital Corporation | | | | | | | | |
2015-CRE3, 2.60% due 03/15/321,4 | | | 4,500,000 | | | | 4,499,996 | |
2015-CRE3, 3.35% due 03/15/321,4 | | | 3,000,000 | | | | 2,999,994 | |
2015-CRE3, 4.20% due 03/15/321,4 | | | 2,000,000 | | | | 1,999,994 | |
SRERS Funding Ltd. | | | | | | | | |
2011-RS, 0.44% due 05/09/461,4 | | | 9,083,035 | | | | 8,716,751 | |
Resource Capital Corporation Ltd. | | | | | | | | |
2015-CRE4, 1.60% due 08/15/321,4 | | | 3,750,000 | | | | 3,731,250 | |
ACRE Commercial Mortgage Trust | | | | | | | | |
2014-FL2, 2.71% due 08/15/311,4 | | | 3,500,000 | | | | 3,445,918 | |
N-Star REL CDO VIII Ltd. | | | | | | | | |
2006-8A, 0.55% due 02/01/411,4 | | | 3,650,000 | | | | 3,389,204 | |
Banco Bradesco SA | | | | | | | | |
4.21% due 03/12/26†††,2 | | | 3,226,524 | | | | 3,258,919 | |
Anchorage Credit Funding 1 Ltd. | | | | | | | | |
2015-1A, 4.30% due 07/28/302,4,12 | | | 3,000,000 | | | | 3,077,002 | |
RAIT CRE CDO I Ltd. | | | | | | | | |
2006-1X, 0.53% due 11/20/46 | | | 2,499,844 | | | | 2,314,912 | |
N-Star Real Estate CDO IX Ltd. | | | | | | | | |
0.51% due 02/01/412 | | | 1,934,704 | | | | 1,903,080 | |
Gramercy Real Estate CDO Ltd. | | | | | | | | |
2007-1A, 0.60% due 08/15/561,4 | | | 1,672,040 | | | | 1,541,216 | |
Wrightwood Capital Real Estate CDO Ltd. | | | | | | | | |
2005-1A, 0.76% due 11/21/401,4 | | | 1,250,000 | | | | 1,184,997 | |
Highland Park CDO I Ltd. | | | | | | | | |
2006-1A, 0.66% due 11/25/511,4 | | | 537,722 | | | | 517,190 | |
DIVCORE CLO Ltd. | | | | | | | | |
2013-1A B, 4.10% due 11/15/32 | | | 500,000 | | | | 498,700 | |
Total Collateralized Debt Obligations | | | | 112,849,214 | |
| | | | | | | | | |
Transport-Aircraft - 4.5% | |
AIM Aviation Finance Ltd. | | | | | | | | |
2015-1A, 4.21% due 02/15/404 | | | 31,625,000 | | | | 31,627,467 | |
2015-1A, 5.07% due 02/15/404 | | | 2,635,417 | | | | 2,652,942 | |
AASET | | | | | | | | |
2014-1, 5.12% due 12/15/291 | | | 9,187,500 | | | | 9,049,688 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
2014-1 C, 10.00% due 08/15/30 | | $ | 2,938,596 | | | $ | 2,938,596 | |
2014-1, 7.37% due 12/15/291 | | | 2,826,923 | | | | 2,826,923 | |
ECAF I Ltd. | | | | | | | | |
2015-1A, 4.95% due 06/15/404 | | | 11,250,000 | | | | 11,247,750 | |
Diamond Head Aviation Ltd. | | | | | | | | |
2015-1, 3.81% due 07/14/284 | | | 6,198,691 | | | | 6,166,457 | |
Rise Ltd. | | | | | | | | |
4.74% due 02/12/39 | | | 5,000,781 | | | | 5,038,287 | |
Castlelake Aircraft Securitization Trust | | | | | | | | |
2014-1, 5.25% due 02/15/294 | | | 2,695,598 | | | | 2,669,181 | |
2014-1, 7.50% due 02/15/294 | | | 1,340,240 | | | | 1,328,848 | |
Atlas Ltd. | | | | | | | | |
2014-1, 4.87% due 12/15/39††† | | | 3,854,000 | | | | 3,885,487 | |
Emerald Aviation Finance Ltd. | | | | | | | | |
2013-1, 4.65% due 10/15/384 | | | 1,848,438 | | | | 1,896,092 | |
2013-1, 6.35% due 10/15/384,7 | | | 396,094 | | | | 405,996 | |
Stripes | | | | | | | | |
2013-1 A1, 3.84% due 03/20/23†††,2 | | | 1,989,695 | | | | 1,970,574 | |
Turbine Engines Securitization Ltd. | | | | | | | | |
2013-1A, 5.13% due 12/13/484 | | | 1,387,992 | | | | 1,395,210 | |
Willis Engine Securitization Trust II | | | | | | | | |
2012-A, 5.50% due 09/15/374 | | | 1,173,776 | | | | 1,176,241 | |
AABS Ltd. | | | | | | | | |
4.87% due 01/15/38 | | | 416,667 | | | | 419,250 | |
Airplanes Pass Through Trust | | | | | | | | |
2001-1A, 0.76% due 03/15/191,2,4,12 | | | 745,212 | | | | 232,879 | |
Aerco Ltd. | | | | | | | | |
2000-2A, 1.17% due 07/15/251 | | | 348,228 | | | | 66,198 | |
Total Transport-Aircraft | | | | | | | 86,994,066 | |
| | | | | | | | | |
Net Lease - 0.7% | |
Spirit Master Funding LLC | | | | | | | | |
2014-2A, 5.76% due 03/20/424 | | | 5,049,453 | | | | 5,434,474 | |
2014-4A, 4.63% due 01/20/454 | | | 2,000,000 | | | | 2,064,666 | |
Store Master Funding I LLC | | | | | | | | |
2015-1A, 4.17% due 04/20/454 | | | 4,490,625 | | | | 4,559,653 | |
STORE Master Funding LLC | | | | | | | | |
2012-1A, 5.77% due 08/20/424 | | | 1,816,356 | | | | 1,929,118 | |
Total Net Lease | | | | | | | 13,987,911 | |
| | | | | | | | | |
Insurance - 0.3% | |
Chesterfield Financial Holdings LLC | | | | | | | | |
2014-1A, 4.50% due 12/15/344 | | | 5,881,250 | | | | 5,880,661 | |
Northwind Holdings LLC | | | | | | | | |
2007-1A, 1.11% due 12/01/371,4 | | | 360,985 | | | | 324,887 | |
Total Insurance | | | | | | | 6,205,548 | |
| | | | | | | | | |
Communications - 0.1% | |
Hana Small Business Lending Loan Trust | | | | | | | | |
2014-2014, 3.10% due 01/25/401,4 | | | 2,116,369 | | | | 2,106,845 | |
Total Asset Backed Securities | | | | | |
(Cost $694,984,418) | | | | | | | 693,285,432 | |
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 30.0% | |
Residential Mortgage- Backed Securities - 23.8% | |
LSTAR Securities Investment Trust | | | | | | |
2015-2, 2.19% due 01/01/201,4 | | $ | 19,143,450 | | | $ | 18,779,724 | |
2015-3, 2.20% due 03/01/201,4 | | | 18,858,410 | | | | 18,505,757 | |
2015-1, 2.19% due 01/01/201,4 | | | 17,594,132 | | | | 17,346,055 | |
2015-4, 2.19% due 04/01/201,4 | | | 14,194,232 | | | | 13,907,509 | |
2014-1, 3.29% due 09/01/211,4 | | | 13,108,060 | | | | 13,108,060 | |
2015-5, 2.19% due 04/01/201,4 | | | 11,110,342 | | | | 10,883,691 | |
2015-6, 2.19% due 05/01/201,4 | | | 3,301,846 | | | | 3,242,743 | |
RALI Series Trust | | | | | | | | |
2006-QO10, 0.35% due 01/25/371 | | | 20,644,707 | | | | 15,668,569 | |
2005-QO1, 1.70% due 08/25/351 | | | 5,232,883 | | | | 4,428,416 | |
2006-QO2, 0.46% due 02/25/461 | | | 6,254,784 | | | | 2,876,850 | |
2007-QO3, 0.35% due 03/25/471 | | | 3,385,086 | | | | 2,790,486 | |
Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | | | | | | | | |
2006-AR9, 1.03% due 11/25/461 | | | 25,430,346 | | | | 17,451,270 | |
2006-AR1, 0.44% due 02/25/361 | | | 3,877,574 | | | | 2,845,934 | |
2006-8, 4.73% due 10/25/36 | | | 1,403,034 | | | | 1,008,376 | |
2006-AR9, 1.04% due 11/25/461 | | | 1,347,913 | | | | 924,984 | |
Nationstar HECM Loan Trust | | | | | | | | |
2014-1A, 4.50% due 11/25/174 | | | 16,928,359 | | | | 17,113,387 | |
2015-1A, 3.84% due 05/25/184 | | | 4,799,148 | | | | 4,832,166 | |
American Home Mortgage Assets Trust | | | | | | | | |
2006-4, 0.38% due 10/25/461 | | | 16,880,235 | | | | 11,187,544 | |
2007-1, 0.90% due 02/25/471 | | | 13,844,957 | | | | 8,450,810 | |
Lehman XS Trust Series | | | | | | | | |
2007-2N, 0.37% due 02/25/371 | | | 13,605,428 | | | | 9,743,092 | |
2007-15N, 0.44% due 08/25/371 | | | 7,266,487 | | | | 5,787,176 | |
2005-7N, 0.46% due 12/25/351 | | | 3,835,036 | | | | 3,356,619 | |
VOLT XXXIII LLC | | | | | | | | |
2015-NPL5, 3.50% due 03/25/554 | | | 17,105,395 | | | | 17,039,727 | |
Banc of America Funding Ltd. | | | | | | | | |
2013-R1, 0.41% due 11/03/411,4 | | | 18,179,922 | | | | 16,912,782 | |
Oak Hill Advisors Residential Loan Trust | | | | | | | | |
2015-NPL2, 3.72% due 07/25/554 | | | 9,071,685 | | | | 9,034,056 | |
2015-NPL1, 3.47% due 01/25/554 | | | 5,317,506 | | | | 5,311,875 | |
NRPL Trust | | | | | | | | |
2015-1A, 3.88% due 11/01/544 | | | 10,046,044 | | | | 10,060,500 | |
2014-2A, 3.75% due 10/25/571,4 | | | 3,979,805 | | | | 3,949,956 | |
Vericrest Opportunity Loan Trust | | | | | | | | |
2015-NPL3, 3.38% due 10/25/584 | | | 13,885,287 | | | | 13,843,783 | |
VOLT XXVII LLC | | | | | | | | |
2014-NPL7, 3.38% due 08/27/574 | | | 12,966,893 | | | | 12,954,224 | |
HarborView Mortgage Loan Trust | | | | | | | | |
2006-14, 0.37% due 01/25/471 | | | 11,848,225 | | | | 8,991,843 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
2006-12, 0.41% due 01/19/381 | | $ | 3,733,212 | | | $ | 3,149,622 | |
GCAT LLC | | | | | | | | |
2014-2, 3.72% due 10/25/194,7 | | | 8,238,597 | | | | 8,284,453 | |
2015-1, 3.63% due 05/26/204 | | | 3,478,631 | | | | 3,476,416 | |
American Home Mortgage Investment Trust | | | | | | | | |
2006-1, 0.47% due 03/25/461 | | | 9,581,036 | | | | 7,923,297 | |
2006-1, 0.59% due 03/25/461 | | | 4,298,159 | | | | 3,583,702 | |
CIT Mortgage Loan Trust | | | | | | | | |
2007-1, 1.64% due 10/25/371,4 | | | 10,479,585 | | | | 9,968,338 | |
New Century Home Equity Loan Trust | | | | | | | | |
2005-3, 0.70% due 07/25/351 | | | 10,870,000 | | | | 9,766,206 | |
WaMu Mortgage Pass-Through Certificates Series Trust | | | | | | | | |
2007-OA3, 0.97% due 04/25/471 | | | 8,529,204 | | | | 6,718,948 | |
2006-AR11, 1.12% due 09/25/461 | | | 2,393,864 | | | | 1,823,262 | |
IndyMac INDX Mortgage Loan Trust | | | | | | | | |
2005-AR18, 0.97% due 10/25/361 | | | 10,919,431 | | | | 8,493,297 | |
Morgan Stanley Resecuritization Trust | | | | | | | | |
2014-R9, 0.33% due 11/26/461,4 | | | 9,030,817 | | | | 8,181,920 | |
Banc of America Funding Trust | | | | | | | | |
2014-R7, 0.34% due 09/26/361,4 | | | 8,565,497 | | | | 7,879,401 | |
VOLT XXXIV LLC | | | | | | | | |
2015-NPL7, 3.25% due 02/25/554 | | | 7,632,593 | | | | 7,568,723 | |
Nomura Resecuritization Trust | | | | | | | | |
2015-4R, 0.56% due 03/26/361,4 | | | 3,102,057 | | | | 2,752,145 | |
2015-4R, 0.60% due 12/26/361,4 | | | 2,399,959 | | | | 2,286,921 | |
2012-1R, 0.64% due 08/27/471,4 | | | 374,173 | | | | 352,771 | |
GSAA Home Equity Trust | | | | | | | | |
2006-14, 0.36% due 09/25/361 | | | 7,051,424 | | | | 3,771,327 | |
2006-18, 6.00% due 11/25/367 | | | 1,598,451 | | | | 1,065,766 | |
2007-7, 0.46% due 07/25/371 | | | 571,793 | | | | 485,803 | |
BCAP LLC | | | | | | | | |
2014-RR2, 0.47% due 03/26/361,4 | | | 5,638,611 | | | | 5,268,408 | |
GreenPoint Mortgage Funding Trust | | | | | | | | |
2005-HE4, 0.90% due 07/25/301 | | | 5,076,659 | | | | 4,907,200 | |
AJAX Mortgage Loan Trust | | | | | | | | |
2015-A, 3.88% due 11/25/544 | | | 4,840,821 | | | | 4,814,681 | |
Deutsche Alt-A Securities Mortgage Loan Trust Series | | | | | | | | |
2007-OA2, 0.99% due 04/25/471 | | | 5,589,332 | | | | 4,809,055 | |
Luminent Mortgage Trust | | | | | | | | |
2006-2, 0.39% due 02/25/461 | | | 6,116,242 | | | | 4,510,655 | |
Popular ABS Mortgage Pass-Through Trust | | | | | | | | |
2005-5, 0.63% due 11/25/351 | | | 4,776,161 | | | | 4,482,279 | |
Park Place Securities Incorporated Asset-Backed Pass-Through Certificates Series | | | | | | | | |
2005-WCW2, 0.72% due 07/25/351 | | | 5,000,000 | | | | 4,382,855 | |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Soundview Home Loan Trust | | | | | | |
2007-1, 0.36% due 03/25/371 | | $ | 4,227,537 | | | $ | 3,912,323 | |
First NLC Trust | | | | | | | | |
2005-1, 0.65% due 05/25/351 | | | 3,981,543 | | | | 3,349,835 | |
BCAP LLC Trust | | | | | | | | |
2014-RR3, 0.31% due 10/26/361,4 | | | 3,407,360 | | | | 3,205,304 | |
GSAA Trust | | | | | | | | |
2005-10, 0.84% due 06/25/351 | | | 3,312,000 | | | | 3,022,733 | |
RFMSI Series Trust | | | | | | | | |
2006-S11, 6.00% due 11/25/36 | | | 3,182,476 | | | | 2,965,979 | |
Structured Asset Securities Corporation Mortgage Loan Trust | | | | | | | | |
2006-OPT1, 0.45% due 04/25/361 | | | 1,400,000 | | | | 1,303,950 | |
2006-BC6, 0.36% due 01/25/371 | | | 1,250,000 | | | | 1,062,499 | |
Irwin Home Equity Loan Trust | | | | | | | | |
2007-1, 5.85% due 08/25/374 | | | 2,125,526 | | | | 2,171,631 | |
UCFC Manufactured Housing Contract | | | | | | | | |
1997-2, 7.38% due 10/15/28 | | | 1,207,753 | | | | 1,306,776 | |
Structured Asset Investment Loan Trust | | | | | | | | |
2005-2, 0.93% due 03/25/351 | | | 1,373,500 | | | | 1,282,716 | |
CSMC Series | | | | | | | | |
2014-6R, 0.37% due 09/27/361,4 | | | 1,247,915 | | | | 1,185,286 | |
Alliance Bancorp Trust | | | | | | | | |
2007-OA1, 0.43% due 07/25/371 | | | 1,318,615 | | | | 863,638 | |
Chase Mortgage Finance Trust Series | | | | | | | | |
2006-S3, 6.00% due 11/25/36 | | | 928,215 | | | | 798,249 | |
Wells Fargo Alternative Loan Trust | | | | | | | | |
2007-PA3, 6.25% due 07/25/37 | | | 849,204 | | | | 768,941 | |
GSAMP Trust | | | | | | | | |
2005-HE6, 0.63% due 11/25/351 | | | 800,000 | | | | 745,075 | |
Saxon Asset Securities Trust | | | | | | | | |
2005-4, 0.63% due 11/25/371 | | | 750,000 | | | | 649,543 | |
Residential Asset Securitization Trust | | | | | | | | |
2006-A12, 6.25% due 11/25/36 | | | 682,587 | | | | 501,151 | |
Morgan Stanley Re-REMIC Trust | | | | | | | | |
2010-R5, 0.54% due 06/26/361,4 | | | 585,405 | | | | 442,925 | |
GreenPoint Mortgage Funding Trust Series | | | | | | | | |
2007-AR1, 0.27% due 02/25/471 | | | 247,759 | | | | 238,640 | |
First Franklin Mortgage Loan Trust | | | | | | | | |
2006-FF1, 0.53% due 01/25/361 | | | 150,000 | | | | 133,001 | |
Total Residential Mortgage- Backed Securities | | | | 462,955,610 | |
| | | | | | | | | |
Commercial Mortgage-Backed Securities - 4.8% | |
CSMC Series | | | | | | | | |
2014-ICE, 2.36% due 04/15/271,4 | | | 14,160,000 | | | | 14,036,171 | |
2014-ICE, 1.80% due 04/15/271,4 | | | 3,900,000 | | | | 3,881,128 | |
Motel 6 Trust | | | | | | | | |
2015-MTL6, 5.27% due 02/05/304 | | | 15,000,000 | | | | 14,743,424 | |
Capmark Military Housing Trust | | | | | | | | |
2007-AETC, 5.74% due 02/10/52†††,4 | | | 8,386,993 | | | | 8,258,420 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
2007-ROBS, 6.06% due 10/10/524 | | $ | 4,858,506 | | | $ | 4,581,328 | |
Hilton USA Trust | | | | | | | | |
2013-HLF, 2.95% due 11/05/301,4 | | | 4,483,866 | | | | 4,478,947 | |
2013-HLT, 4.60% due 11/05/301,4 | | | 3,000,000 | | | | 3,029,064 | |
2013-HLT, 4.41% due 11/05/304 | | | 1,850,000 | | | | 1,860,151 | |
Morgan Stanley Capital I Trust | | | | | | | | |
2015-XLF1, 2.41% due 08/14/311,4 | | | 7,600,000 | | | | 7,557,189 | |
COMM Mortgage Trust | | | | | | | | |
2014-KYO, 2.55% due 06/11/271,4 | | | 6,000,000 | | | | 5,953,440 | |
CDGJ Commercial Mortgage Trust | | | | | | | | |
2014-BXCH, 2.71% due 12/15/271,4 | | | 3,000,000 | | | | 2,981,547 | |
2014-BXCH, 4.46% due 12/15/271,4 | | | 2,000,000 | | | | 1,983,382 | |
Comm Mortgage Trust | | | | | | | | |
2013-CR13, 1.15% due 12/10/231,14 | | | 52,952,097 | | | | 2,763,834 | |
2013-CR13, 3.04% due 12/10/18 | | | 450,000 | | | | 466,965 | |
Citigroup Commercial Mortgage Trust | | | | | | | | |
2015-GC29, 1.31% due 04/10/481,14 | | | 24,962,612 | | | | 1,977,588 | |
2013-GC15, 4.37% due 09/10/461 | | | 380,000 | | | | 419,648 | |
Hyatt Hotel Portfolio Trust | | | | | | | | |
2015-HYT, 3.26% due 11/15/291,4 | | | 2,000,000 | | | | 2,006,368 | |
JPMBB Commercial Mortgage Securities Trust | | | | | | | | |
2013-C12, 0.99% due 07/15/451,14 | | | 55,046,260 | | | | 1,905,096 | |
Boca Hotel Portfolio Trust | | | | | | | | |
2013-BOCA, 3.26% due 08/15/261,4 | | | 1,700,000 | | | | 1,695,507 | |
GS Mortgage Securities Trust | | | | | | | | |
2015-GC28, 1.32% due 02/10/481,14 | | | 21,900,389 | | | | 1,595,181 | |
BAMLL Commercial Mortgage Securities Trust | | | | | | | | |
2014-ICTS, 3.15% due 06/15/281,4 | | | 1,500,000 | | | | 1,492,890 | |
BLCP Hotel Trust | | | | | | | | |
2014-CLRN, 2.71% due 08/15/291,4 | | | 1,500,000 | | | | 1,468,658 | |
GMAC Commercial Mortgage Asset Corp. | | | | | | | | |
2003-PRES, 6.24% due 10/10/41†††,4 | | | 953,747 | | | | 1,057,076 | |
LSTAR Commercial Mortgage Trust | | | | | | | | |
2011-1, 5.48% due 06/25/431,4 | | | 815,188 | | | | 812,839 | |
2014-2, 5.11% due 01/20/411,4 | | | 500,000 | | | | 505,981 | |
WFRBS Commercial Mortgage Trust | | | | | | | | |
2013-C12, 1.61% due 03/15/481,4,14 | | | 14,572,616 | | | | 1,051,210 | |
Wells Fargo Commercial Mortgage Trust | | | | | | | | |
2015-NXS1, 1.35% due 05/15/481,14 | | | 11,962,786 | | | | 921,326 | |
GS Mortgage Securities Corporation II | | | | | | | | |
2013-GC10, 2.94% due 02/10/46 | | | 225,000 | | | | 227,520 | |
BAMLL-DB Trust | | | | | | | | |
2012-OSI, 5.81% due 04/13/294 | | | 200,000 | | | | 208,391 | |
Total Commercial Mortgage- Backed Securities | | | | 93,920,269 | |
| | | | | | | | | |
Government Agency - 1.1% | |
Federal National Mortgage Association | | | | | | | | |
5.00% due 09/14/16 | | | 13,599,933 | | | | 14,964,389 | |
4.50% due 09/14/16 | | | 3,399,999 | | | | 3,683,609 | |
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Freddie Mac Multifamily Structured Pass Through Certificates | | | | | | |
2015-K043, 0.68% due 12/25/241,14 | | $ | 44,939,955 | | | $ | 1,932,958 | |
2014-K715, 2.86% due 01/25/21 | | | 450,000 | | | | 470,706 | |
Total Government Agency | | | | | | | 21,051,662 | |
| | | | | | | | | |
Mortgage Securities - 0.3% | |
BXHTL Mortgage Trust | | | | | | | | |
2015-JWRZ, 3.06% due 05/15/291,4 | | | 2,500,000 | | | | 2,472,377 | |
CSAIL Commercial Mortgage Trust | | | | | | | | |
2015-C1, 1.12% due 04/15/501,14 | | | 34,907,526 | | | | 2,255,864 | |
Resource Capital Corporation Ltd. | | | | | | | | |
2014-CRE2, 2.71% due 04/15/321,4 | | | 2,000,000 | | | | 1,991,786 | |
Total Mortgage Securities | | | | | | | 6,720,027 | |
Total Collateralized Mortgage Obligations | | | | | |
(Cost $590,472,468) | | | | | | | 584,647,568 | |
| | | | | | | | | |
CORPORATE BONDS†† - 15.5% | |
Financial - 9.5% | |
Citigroup, Inc. | | | | | | | | |
5.95%3,8 | | | 16,090,000 | | | | 15,490,732 | |
5.87% 1,3,8 | | | 5,685,000 | | | | 5,585,513 | |
5.80%3,8 | | | 4,965,000 | | | | 4,886,801 | |
6.30%3 | | | 2,375,000 | | | | 2,285,106 | |
5.38% due 08/09/20 | | | 500,000 | | | | 558,076 | |
3.75% due 06/16/24 | | | 200,000 | | | | 203,422 | |
Bank of America Corp. | | | | | | | | |
6.25% 1,3,8 | | | 11,550,000 | | | | 11,290,124 | |
6.10% 1,3 | | | 8,900,000 | | | | 8,677,499 | |
5.12% 1,3,8 | | | 4,350,000 | | | | 4,246,688 | |
4.00% due 04/01/24 | | | 780,000 | | | | 802,859 | |
4.10% due 07/24/23 | | | 320,000 | | | | 332,477 | |
Ares Finance Company II LLC | | | | | | | | |
5.25% due 09/01/254,8 | | | 18,380,000 | | | | 18,706,704 | |
Teachers Insurance & Annuity Association of America | | | | | | | | |
4.90% due 09/15/444,8 | | | 11,050,000 | | | | 11,367,102 | |
4.38% due 09/15/541,4,8 | | | 1,300,000 | | | | 1,315,782 | |
JPMorgan Chase & Co. | | | | | | | | |
5.00% 1,3,8 | | | 9,750,000 | | | | 9,481,874 | |
5.30% 1,3 | | | 500,000 | | | | 491,250 | |
4.50% due 01/24/22 | | | 380,000 | | | | 410,008 | |
3.20% due 01/25/23 | | | 270,000 | | | | 268,020 | |
HSBC Holdings plc | | | | | | | | |
6.37% 1,3,8 | | | 8,800,000 | | | | 8,395,000 | |
5.63% 1,3,8 | | | 2,200,000 | | | | 2,117,500 | |
SunTrust Banks, Inc. | | | | | | | | |
5.63% 1,3,8 | | | 9,900,000 | | | | 9,900,000 | |
GMH Military Housing-Navy Northeast LLC | | | | | | | | |
6.30% due 10/15/49††† | | | 8,725,000 | | | | 9,297,273 | |
Goldman Sachs Group, Inc. | | | | | | | | |
5.38% 1,3,8 | | | 8,300,000 | | | | 8,108,063 | |
3.63% due 01/22/23 | | | 220,000 | | | | 222,868 | |
Corporation Financiera de Desarrollo S.A. | | | | | | | | |
5.25% due 07/15/291,4 | | | 6,650,000 | | | | 6,533,625 | |
Morgan Stanley | | | | | | | | |
5.55% 1,3,8 | | | 5,950,000 | | | | 5,860,750 | |
7.30% due 05/13/19 | | | 340,000 | | | | 396,995 | |
Citizens Financial Group, Inc. | | | | | | | | |
5.50% 1,3,4,8 | | | 5,000,000 | | | | 4,875,000 | |
Fort Benning Family Communities LLC | | | | | | | | |
0.56% due 01/15/36†††,1,4 | | | 6,000,000 | | | | 4,653,420 | |
Fifth Third Bancorp | | | | | | | | |
4.90% 1,3 | | | 2,000,000 | | | | 1,875,000 | |
5.10% 1,3,9 | | | 1,500,000 | | | | 1,372,500 | |
Wells Fargo & Co. | | | | | | | | |
5.88% 1,3 | | | 2,500,000 | | | | 2,559,375 | |
Customers Bank | | | | | | | | |
6.13% due 06/26/291,2,4,12 | | | 2,000,000 | | | | 2,020,000 | |
AmTrust Financial Services, Inc. | | | | | | | | |
6.12% due 08/15/232 | | | 1,930,000 | | | | 2,012,287 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 27 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
CCR Incorporated MT100 Payment Rights Master Trust | | | | | | |
0.64% due 07/10/171 | | $ | 989,314 | | | $ | 973,584 | |
4.75% due 07/10/224 | | | 927,381 | | | | 928,930 | |
Cadence Bank North America | | | | | | | | |
6.25% due 06/28/291,2,4 | | | 1,200,000 | | | | 1,200,000 | |
Pacific Northwest Communities LLC | | | | | | | | |
5.91% due 06/15/504 | | | 1,000,000 | | | | 1,069,790 | |
Fort Knox Military Housing Privatization Project | | | | | | | | |
0.55% due 02/15/52†††,1,4 | | | 1,782,495 | | | | 1,068,428 | |
Atlantic Marine Corporations Communities LLC | | | | | | | | |
5.43% due 12/01/504 | | | 1,061,650 | | | | 1,059,824 | |
Oxford Finance LLC / Oxford Finance Company-Issuer, Inc. | | | | | | | | |
7.25% due 01/15/184 | | | 1,000,000 | | | | 1,017,500 | |
Univest Corporation of Pennsylvania | | | | | | | | |
5.10% due 03/30/251,2 | | | 1,000,000 | | | | 1,007,500 | |
Wilton Re Finance LLC | | | | | | | | |
5.87% due 03/30/331,4 | | | 925,000 | | | | 979,693 | |
American Tower Corp. | | | | | | | | |
5.00% due 02/15/24 | | | 400,000 | | | | 420,260 | |
3.50% due 01/31/23 | | | 420,000 | | | | 404,630 | |
Garanti Diversified Payment Rights Finance Co. | | | | | | | | |
0.47% due 07/09/171 | | | 832,000 | | | | 810,534 | |
International Lease Finance Corp. | | | | | | | | |
7.13% due 09/01/18 | | | 730,000 | | | | 802,927 | |
Nasdaq, Inc. | | | | | | | | |
5.55% due 01/15/20 | | | 720,000 | | | | 792,582 | |
First Niagara Financial Group, Inc. | | | | | | | | |
6.75% due 03/19/20 | | | 700,000 | | | | 789,598 | |
EPR Properties | | | | | | | | |
4.50% due 04/01/258 | | | 785,000 | | | | 752,790 | |
ACC Group Housing LLC | | | | | | | | |
6.35% due 07/15/54†††,4 | | | 625,000 | | | | 672,856 | |
Tri-Command Military Housing LLC | | | | | | | | |
5.38% due 02/15/484 | | | 559,657 | | | | 540,444 | |
CIC Receivables Master Trust | | | | | | | | |
4.89% due 10/07/21†††,2 | | | 500,000 | | | | 502,840 | |
First American Financial Corp. | | | | | | | | |
4.30% due 02/01/23 | | | 500,000 | | | | 501,347 | |
Kennedy-Wilson, Inc. | | | | | | | | |
5.88% due 04/01/24 | | | 500,000 | | | | 488,750 | |
Voya Financial, Inc. | | | | | | | | |
5.50% due 07/15/22 | | | 350,000 | | | | 398,642 | |
Credit Suisse Group Funding Guernsey Ltd. | | | | | | | | |
3.75% due 03/26/25 | | | 410,000 | | | | 398,173 | |
Principal Financial Group, Inc. | | | | | | | | |
6.05% due 10/15/36 | | | 340,000 | | | | 395,466 | |
Credit Suisse USA, Inc. | | | | | | | | |
7.13% due 07/15/32 | | | 150,000 | | | | 197,857 | |
Jackson National Life Insurance Co. | | | | | | | | |
8.15% due 03/15/274 | | | 125,000 | | | | 165,045 | |
Prosight Global Inc. | | | | | | | | |
7.50% due 11/26/20†††,2 | | | 100,000 | | | | 104,979 | |
Total Financial | | | | | | | 185,044,662 | |
| | | | | | | | | |
Technology - 1.2% | |
Hewlett Packard Enterprise Co. | | | | | | | | |
4.90% due 10/15/25 | | | 10,300,000 | | | | 10,271,675 | |
4.40% due 10/15/22 | | | 8,300,000 | | | | 8,200,566 | |
Micron Technology, Inc. | | | | | | | | |
5.25% due 08/01/23 | | | 2,800,000 | | | | 2,575,440 | |
CDK Global, Inc. | | | | | | | | |
4.50% due 10/15/248 | | | 1,150,000 | | | | 1,158,194 | |
Xerox Corp. | | | | | | | | |
5.63% due 12/15/19 | | | 730,000 | | | | 808,130 | |
Open Text Corp. | | | | | | | | |
5.63% due 01/15/234 | | | 500,000 | | | | 495,938 | |
Total Technology | | | | | | | 23,509,943 | |
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Consumer, Non-cyclical - 1.0% | |
Vector Group Ltd. | | | | | | |
7.75% due 02/15/218 | | $ | 4,287,000 | | | $ | 4,532,966 | |
Bumble Bee Holdings, Inc. | | | | | | | | |
9.00% due 12/15/174,8 | | | 3,501,000 | | | | 3,571,020 | |
Bon Secours Charity Health System, Inc. | | | | | | | | |
6.25% due 11/01/35 | | | 3,000,000 | | | | 3,139,098 | |
Tenet Healthcare Corp. | | | | | | | | |
3.84% due 06/15/201,8 | | | 2,500,000 | | | | 2,482,813 | |
ADT Corp. | | | | | | | | |
6.25% due 10/15/218 | | | 2,000,000 | | | | 2,062,500 | |
Reynolds American, Inc. | | | | | | | | |
6.15% due 09/15/43 | | | 730,000 | | | | 828,966 | |
Altria Group, Inc. | | | | | | | | |
4.00% due 01/31/24 | | | 780,000 | | | | 807,784 | |
Molson Coors Brewing Co. | | | | | | | | |
5.00% due 05/01/42 | | | 870,000 | | | | 767,119 | |
Express Scripts Holding Co. | | | | | | | | |
7.25% due 06/15/19 | | | 500,000 | | | | 582,618 | |
Anthem, Inc. | | | | | | | | |
6.38% due 06/15/37 | | | 400,000 | | | | 479,382 | |
Actavis Funding SCS | | | | | | | | |
2.35% due 03/12/18 | | | 400,000 | | | | 401,592 | |
Boston Scientific Corp. | | | | | | | | |
2.85% due 05/15/20 | | | 400,000 | | | | 399,912 | |
Kraft Foods Group, Inc. | | | | | | | | |
6.88% due 01/26/39 | | | 320,000 | | | | 397,792 | |
Total Consumer, Non-cyclical | | | | 20,453,562 | |
| | | | | | | | | |
Consumer, Cyclical - 0.8% | |
Wyndham Worldwide Corp. | | | | | | | | |
5.10% due 10/01/25 | | | 5,800,000 | | | | 5,880,295 | |
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | | | | | | | | |
5.50% due 03/01/254,8 | | | 6,600,000 | | | | 5,659,500 | |
Northern Group Housing LLC | | | | | | | | |
6.80% due 08/15/534 | | | 1,200,000 | | | | 1,389,960 | |
HP Communities LLC | | | | | | | | |
5.62% due 09/15/324 | | | 1,000,000 | | | | 1,076,090 | |
QVC, Inc. | | | | | | | | |
4.38% due 03/15/23 | | | 1,000,000 | | | | 972,061 | |
Petco Animal Supplies, Inc. | | | | | | | | |
9.25% due 12/01/184 | | | 600,000 | | | | 609,000 | |
Hasbro, Inc. | | | | | | | | |
6.35% due 03/15/40 | | | 400,000 | | | | 453,439 | |
Atlas Air Class A-1 Pass Through Trust | | | | | | | | |
7.20% due 01/02/192 | | | 8,227 | | | | 8,330 | |
Total Consumer, Cyclical | | | | | | | 16,048,675 | |
| | | | | | | | | |
Industrial - 0.7% | |
Autoridad del Canal de Panama | | | | | | | | |
4.95% due 07/29/352,4,12 | | | 4,500,000 | | | | 4,456,543 | |
Princess Juliana International Airport Operating Company N.V. | | | | | | | | |
5.50% due 12/20/274 | | | 2,834,907 | | | | 2,820,733 | |
Quality Distribution LLC / QD Capital Corp. | | | | | | | | |
9.88% due 11/01/188 | | | 2,360,000 | | | | 2,431,980 | |
Dynagas LNG Partners Limited Partnership / Dynagas Finance, Inc. | | | | | | | | |
6.25% due 10/30/192 | | | 1,700,000 | | | | 1,411,000 | |
Building Materials Corporation of America | | | | | | | | |
6.00% due 10/15/254 | | | 1,000,000 | | | | 1,010,000 | |
Skyway Concession Company LLC | | | | | | | | |
0.71% due 06/30/261,4 | | | 750,000 | | | | 609,375 | |
SBM Baleia Azul | | | | | | | | |
5.50% due 09/15/27†††,2 | | | 434,250 | | | | 325,427 | |
CEVA Group plc | | | | | | | | |
7.00% due 03/01/214 | | | 350,000 | | | | 309,750 | |
Total Industrial | | | | | | | 13,374,808 | |
| | | | | | | | | |
Communications - 0.5% | |
McGraw-Hill Global Education Holdings LLC / McGraw-Hill Global Education Finance | | | | | | | | |
9.75% due 04/01/21 | | | 1,500,000 | | | | 1,638,750 | |
Avaya, Inc. | | | | | | | | |
7.00% due 04/01/194,8 | | | 1,700,000 | | | | 1,347,250 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
DISH DBS Corp. | | | | | | |
5.87% due 11/15/248 | | $ | 1,500,000 | | | $ | 1,274,062 | |
CC Holdings GS V LLC / Crown Castle GS III Corp. | | | | | | | | |
3.85% due 04/15/23 | | | 800,000 | | | | 797,189 | |
DIRECTV Holdings LLC / DIRECTV Financing Company, Inc. | | | | | | | | |
5.00% due 03/01/21 | | | 730,000 | | | | 795,659 | |
Comcast Cable Communications Holdings, Inc. | | | | | | | | |
9.46% due 11/15/22 | | | 570,000 | | | | 795,356 | |
Telefonica Emisiones SAU | | | | | | | | |
5.46% due 02/16/21 | | | 710,000 | | | | 793,326 | |
Koninklijke KPN N.V. | | | | | | | | |
8.38% due 10/01/30 | | | 600,000 | | | | 790,789 | |
Time Warner, Inc. | | | | | | | | |
6.50% due 11/15/36 | | | 500,000 | | | | 580,973 | |
AT&T, Inc. | | | | | | | | |
6.15% due 09/15/34 | | | 500,000 | | | | 545,860 | |
Symantec Corp. | | | | | | | | |
4.20% due 09/15/20 | | | 500,000 | | | | 518,031 | |
Vodafone Group plc | | | | | | | | |
7.88% due 02/15/30 | | | 300,000 | | | | 371,466 | |
Total Communications | | | | | | | 10,248,711 | |
| | | | | | | | | |
Diversified - 0.5% | |
HRG Group, Inc. | | | | | | | | |
7.88% due 07/15/198 | | | 7,050,000 | | | | 7,314,375 | |
Opal Acquisition, Inc. | | | | | | | | |
8.88% due 12/15/214,8 | | | 1,895,000 | | | | 1,783,669 | |
Total Diversified | | | | | | | 9,098,044 | |
| | | | | | | | | |
Basic Materials - 0.5% | |
Yamana Gold, Inc. | | | | | | | | |
4.95% due 07/15/248 | | | 6,450,000 | | | | 5,763,334 | |
Newcrest Finance Pty Ltd. | | | | | | | | |
4.20% due 10/01/224 | | | 850,000 | | | | 745,524 | |
4.45% due 11/15/214,8 | | | 625,000 | | | | 588,821 | |
Southern Copper Corp. | | | | | | | | |
7.50% due 07/27/35 | | | 440,000 | | | | 426,993 | |
5.25% due 11/08/42 | | | 430,000 | | | | 325,291 | |
TPC Group, Inc. | | | | | | | | |
8.75% due 12/15/204 | | | 696,000 | | | | 595,080 | |
Eldorado Gold Corp. | | | | | | | | |
6.13% due 12/15/204 | | | 550,000 | | | | 478,500 | |
Total Basic Materials | | | | | | | 8,923,543 | |
| | | | | | | | | |
Utilities - 0.4% | |
AES Corp. | | | | | | | | |
3.32% due 06/01/191,8 | | | 6,600,000 | | | | 6,270,000 | |
4.88% due 05/15/23 | | | 1,000,000 | | | | 877,500 | |
LBC Tank Terminals Holding Netherlands BV | | | | | | | | |
6.88% due 05/15/234 | | | 550,000 | | | | 570,625 | |
Total Utilities | | | | | | | 7,718,125 | |
| | | | | | | | | |
Energy - 0.4% | |
ContourGlobal Power Holdings S.A. | | | | | | | | |
7.13% due 06/01/194,8 | | | 2,800,000 | | | | 2,807,280 | |
Exterran Holdings, Inc. | | | | | | | | |
7.25% due 12/01/188 | | | 1,400,000 | | | | 1,372,000 | |
Valero Energy Corp. | | | | | | | | |
7.50% due 04/15/32 | | | 630,000 | | | | 746,334 | |
Unit Corp. | | | | | | | | |
6.63% due 05/15/21 | | | 700,000 | | | | 574,000 | |
Marathon Petroleum Corp. | | | | | | | | |
5.13% due 03/01/21 | | | 450,000 | | | | 490,353 | |
Atlas Energy Holdings Operating Company LLC / Atlas Resource Finance Corp. | | | | | | | | |
9.25% due 08/15/212 | | | 1,000,000 | | | | 420,000 | |
Buckeye Partners, LP | | | | | | | | |
4.88% due 02/01/21 | | | 400,000 | | | | 408,546 | |
Schahin II Finance Company SPV Ltd. | | | | | | | | |
5.88% due 09/25/222,4,12 | | | 781,800 | | | | 164,178 | |
Total Energy | | | | | | | 6,982,691 | |
Total Corporate Bonds | | | | | | | | |
(Cost $309,305,933) | | | | | | | 301,402,764 | |
30 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
U.S. GOVERNMENT SECURITIES†† - 10.9% | |
U.S. Treasury Notes | | | | | | |
2.00% due 08/15/258 | | $ | 141,727,000 | | | $ | 140,977,830 | |
3.13% due 05/15/19 | | | 1,000,000 | | | | 1,070,990 | |
2.88% due 03/31/18 | | | 1,000,000 | | | | 1,051,289 | |
2.38% due 06/30/18 | | | 800,000 | | | | 832,542 | |
2.75% due 02/28/18 | | | 500,000 | | | | 523,490 | |
2.38% due 05/31/18 | | | 500,000 | | | | 520,209 | |
1.38% due 09/30/18 | | | 500,000 | | | | 506,472 | |
1.25% due 10/31/18 | | | 400,000 | | | | 403,417 | |
Total U.S. Treasury Notes | | | | | | | 145,886,239 | |
U.S. Treasury Bonds | | | | | | | | |
due 11/15/44 | | | 110,552,000 | | | | 45,785,220 | |
8.75% due 05/15/20 | | | 3,000,000 | | | | 3,995,897 | |
4.75% due 02/15/41 | | | 2,600,000 | | | | 3,526,115 | |
8.00% due 11/15/21 | | | 2,550,000 | | | | 3,499,113 | |
4.38% due 05/15/40 | | | 2,070,000 | | | | 2,656,661 | |
2.75% due 11/15/42 | | | 2,200,000 | | | | 2,141,907 | |
8.13% due 05/15/21 | | | 1,500,000 | | | | 2,032,578 | |
8.13% due 08/15/21 | | | 500,000 | | | | 683,236 | |
8.75% due 08/15/20 | | | 500,000 | | | | 673,880 | |
7.88% due 02/15/21 | | | 500,000 | | | | 665,104 | |
Total U.S. Treasury Bonds | | | | | | | 65,659,711 | |
Total U.S. Government Securities | | | | | |
(Cost $209,090,016) | | | | | | | 211,545,950 | |
| | | | | | | | | |
MUNICIPAL BONDS†† - 4.5% | |
New Jersey - 0.9% | |
New Jersey Transportation Trust Fund Authority Revenue Bonds | | | | | | | | |
due 12/15/308,10 | | | 14,335,000 | | | | 6,640,975 | |
due 12/15/3210 | | | 7,380,000 | | | | 3,166,684 | |
New Jersey Economic Development Authority Revenue Bonds | | | | | | | | |
7.43% due 02/15/29 | | | 6,475,000 | | | | 7,320,181 | |
Total New Jersey | | | | | | | 17,127,840 | |
| | | | | | | | | |
Texas - 0.8% | |
Harris County-Houston Sports Authority Revenue Bonds | | | | | | | | |
due 11/15/468,10 | | | 15,315,000 | | | | 3,512,189 | |
due 11/15/4210 | | | 6,315,000 | | | | 1,790,681 | |
due 11/15/4810 | | | 7,965,000 | | | | 1,643,896 | |
due 11/15/4410 | | | 5,950,000 | | | | 1,517,310 | |
Dallas, Texas, Convention Center Hotel Development Corporation, Hotel Revenue Bonds, Taxable Build America Bonds | | | | | |
7.09% due 01/01/42 | | | 6,100,000 | | | | 7,830,143 | |
Total Texas | | | | | | | 16,294,219 | |
| | | | | | | | | |
Illinois - 0.8% | |
State of Illinois General Obligation Unlimited | | | | | | | | |
5.65% due 12/01/388 | | | 5,350,000 | | | | 5,188,163 | |
6.90% due 03/01/358 | | | 1,600,000 | | | | 1,679,104 | |
6.63% due 02/01/35 | | | 500,000 | | | | 517,005 | |
City of Chicago Illinois General Obligation Unlimited | | | | | | | | |
5.43% due 01/01/428 | | | 3,230,000 | | | | 2,709,518 | |
6.05% due 01/01/29 | | | 500,000 | | | | 478,815 | |
6.31% due 01/01/44 | | | 300,000 | | | | 275,022 | |
0.00% due 01/01/3010 | | | 310,000 | | | | 147,495 | |
County of Cook Illinois General Obligation Unlimited | | | | | | | | |
6.23% due 11/15/348 | | | 2,300,000 | | | | 2,396,968 | |
Chicago Transit Authority Revenue Bonds | | | | | | | | |
6.20% due 12/01/40 | | | 1,000,000 | | | | 1,053,790 | |
Chicago, Illinois, Second Lien Wastewater Transmission Revenue Project Bonds, Taxable Build America Bonds | | | | | | | | |
6.90% due 01/01/40 | | | 260,000 | | | | 291,127 | |
Total Illinois | | | | | | | 14,737,007 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 31 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Puerto Rico - 0.7% | |
Puerto Rico Highways & Transportation Authority Revenue Bonds | | | | | | |
5.25% due 07/01/352 | | $ | 1,250,000 | | | $ | 1,135,513 | |
4.95% due 07/01/262 | | | 850,000 | | | | 839,341 | |
5.50% due 07/01/282 | | | 800,000 | | | | 777,800 | |
5.00% due 07/01/292 | | | 765,000 | | | | 700,686 | |
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue Bonds | | | | | | | | |
5.13% due 07/01/472 | | | 2,000,000 | | | | 1,818,360 | |
5.00% due 07/01/28 | | | 1,000,000 | | | | 972,360 | |
Commonwealth of Puerto Rico General Obligation Unlimited | | | | | | | | |
5.00% due 07/01/312 | | | 1,660,000 | | | | 1,611,943 | |
5.13% due 07/01/302 | | | 1,035,000 | | | | 1,027,931 | |
Puerto Rico Electric Power Authority Revenue Bonds | | | | | | | | |
5.25% due 07/01/32 | | | 1,000,000 | | | | 926,310 | |
0.74% due 07/01/291,2 | | | 1,060,000 | | | | 768,818 | |
5.00% due 07/01/22 | | | 535,000 | | | | 532,325 | |
5.00% due 07/01/242 | | | 400,000 | | | | 384,876 | |
Puerto Rico Industrial Tourist Educational Medical & Envirml Ctl Facs Fing Auth Revenue Bonds | | | | | | | | |
5.00% due 07/01/332 | | | 2,035,000 | | | | 1,824,642 | |
Puerto Rico Municipal Finance Agency General Obligation Unlimited | | | | | | | | |
5.00% due 08/01/272 | | | 550,000 | | | | 545,122 | |
Total Puerto Rico | | | | | | | 13,866,027 | |
| | | | | | | | | |
California - 0.5% | |
San Marcos Unified School District General Obligation Unlimited | | | | | | | | |
due 08/01/4710 | | | 13,100,000 | | | | 3,226,661 | |
Antelope Valley Community College District General Obligation Unlimited | | | | | | | | |
due 08/01/348,10 | | | 5,600,000 | | | | 2,480,576 | |
Chaffey Joint Union High School District General Obligation Unlimited | | | | | | | | |
due 08/01/3710 | | | 6,000,000 | | | | 2,256,840 | |
Stockton Unified School District General Obligation Unlimited | | | | | | | | |
due 08/01/3610 | | | 1,950,000 | | | | 844,740 | |
due 08/01/3510 | | | 1,265,000 | | | | 572,615 | |
San Francisco City & County Redevelopment Agency Tax Allocation | | | | | | | | |
4.87% due 08/01/35 | | | 500,000 | | | | 498,420 | |
Inland Valley Development Agency Tax Allocation | | | | | | | | |
5.50% due 03/01/33 | | | 400,000 | | | | 426,084 | |
Total California | | | | | | | 10,305,936 | |
| | | | | | | | | |
Michigan - 0.3% | |
Detroit City School District General Obligation Unlimited | | | | | | | | |
7.75% due 05/01/398 | | | 4,900,000 | | | | 6,106,086 | |
| | | | | | | | | |
Florida - 0.3% | |
County of Miami-Dade Florida Revenue Bonds | | | | | | | | |
due 10/01/458,10 | | | 13,000,000 | | | | 3,093,480 | |
due 10/01/428,10 | | | 10,000,000 | | | | 2,766,100 | |
Total Florida | | | | | | | 5,859,580 | |
| | | | | | | | | |
New York - 0.2% | |
Port Authority of New York & New Jersey Revenue Bonds | | | | | | | | |
4.82% due 06/01/458 | | | 1,750,000 | | | | 1,804,075 | |
Port Auth NY & NJ-182, | | | | | | | | |
5.31% due 08/01/46 | | | 1,500,000 | | | | 1,611,855 | |
Total New York | | | | | | | 3,415,930 | |
32 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Alabama - 0.0% | |
County of Jefferson Alabama Sewer Revenue Revenue Bonds | | | | | | |
due 10/01/3610 | | $ | 2,350,000 | | | $ | 718,137 | |
due 10/01/3410 | | | 1,800,000 | | | | 629,082 | |
due 10/01/3510 | | | 1,375,000 | | | | 450,230 | |
due 10/01/3110 | | | 725,000 | | | | 317,782 | |
due 10/01/3210 | | | 720,000 | | | | 290,945 | |
Total Alabama | | | | | | | 2,406,176 | |
| | | | | | | | | |
Massachusetts - 0.0% | |
Massachusetts Housing Finance Agency Revenue Bonds | | | | | | | | |
4.51% due 12/01/40 | | | 400,000 | | | | 388,748 | |
Total Municipal Bonds | | | | | | | | |
(Cost $93,391,544) | | | | | | | 90,507,549 | |
| | | | | | | | | |
SENIOR FLOATING RATE INTERESTS†† - 3.9% | |
Technology - 0.9% | |
Avaya, Inc. | | | | | | | | |
6.25% due 05/29/20 | | | 4,779,803 | | | | 3,734,222 | |
6.50% due 03/30/18 | | | 922,377 | | | | 800,162 | |
Informatica Corp. | | | | | | | | |
4.50% due 08/05/22 | | | 3,000,000 | | | | 2,979,390 | |
Epicor Software | | | | | | | | |
4.75% due 06/01/22 | | | 2,992,500 | | | | 2,969,308 | |
TIBCO Software, Inc. | | | | | | | | |
6.50% due 12/04/20 | | | 1,990,000 | | | | 1,970,100 | |
Advanced Computer Software | | | | | | | | |
10.50% due 01/31/23 | | | 2,000,000 | | | | 1,922,500 | |
Deltek, Inc. | | | | | | | | |
5.00% due 06/25/22 | | | 1,647,502 | | | | 1,646,134 | |
Micro Focus International plc | | | | | | | | |
5.25% due 11/19/21 | | | 759,606 | | | | 758,421 | |
EIG Investors Corp. | | | | | | | | |
5.00% due 11/08/19 | | | 632,222 | | | | 631,698 | |
Interactive Data Corp. | | | | | | | | |
4.75% due 04/30/21 | | | 395,000 | | | | 393,396 | |
Aspect Software, Inc. | | | | | | | | |
3.75% due 05/09/16 | | | 15,944 | | | | 15,545 | |
Total Technology | | | | | | | 17,820,876 | |
| | | | | | | | | |
Consumer, Non-cyclical - 0.8% | |
Albertson’s (Safeway) Holdings LLC | | | | | | | | |
5.50% due 08/25/21 | | | 6,998,373 | | | | 6,994,034 | |
Pharmaceutical Product Development | | | | | | | | |
4.25% due 08/18/22 | | | 3,990,000 | | | | 3,938,888 | |
One Call Medical, Inc. | | | | | | | | |
5.00% due 11/27/202 | | | 1,683,021 | | | | 1,645,995 | |
JBS USA, Inc. | | | | | | | | |
4.00% due 08/18/22 | | | 1,600,000 | | | | 1,599,312 | |
Grocery Outlet, Inc. | | | | | | | | |
4.75% due 10/21/21 | | | 1,291,746 | | | | 1,286,902 | |
Auris Luxemborg | | | | | | | | |
4.25% due 01/17/22 | | | 398,003 | | | | 396,840 | |
Performance Food Group | | | | | | | | |
6.75% due 11/14/19 | | | 345,710 | | | | 345,564 | |
Sage Products, Inc. | | | | | | | | |
4.25% due 12/13/19 | | | 280,605 | | | | 279,991 | |
Arctic Glacier Holdings, Inc. | | | | | | | | |
6.00% due 05/10/19 | | | 120,246 | | | | 118,443 | |
Total Consumer, Non-cyclical | | | | 16,605,969 | |
| | | | | | | | | |
Communications - 0.7% | |
Univision Communications, Inc. | | | | | | | | |
4.00% due 02/28/20 | | | 2,977,465 | | | | 2,956,057 | |
4.00% due 03/01/20 | | | 496,040 | | | | 492,399 | |
EMI Music Publishing | | | | | | | | |
4.00% due 08/19/22 | | | 3,000,000 | | | | 2,982,749 | |
Light Tower Fiber LLC | | | | | | | | |
4.00% due 04/13/20 | | | 2,878,547 | | | | 2,820,976 | |
Internet Brands | | | | | | | | |
4.75% due 07/08/21 | | | 2,569,450 | | | | 2,540,543 | |
Proquest LLC | | | | | | | | |
5.25% due 10/24/21 | | | 1,370,579 | | | | 1,368,290 | |
Total Communications | | | | | | | 13,161,014 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
Industrial - 0.6% | |
Travelport Holdings LLC | | | | | | |
5.75% due 09/02/21 | | $ | 7,195,625 | | | $ | 7,155,185 | |
Berry Plastics Corp. | | | | | | | | |
4.00% due 09/16/22 | | | 3,750,000 | | | | 3,740,025 | |
Hardware Holdings LLC | | | | | | | | |
6.75% due 03/30/20†††,2 | | | 841,500 | | | | 820,463 | |
CareCore National LLC | | | | | | | | |
5.50% due 03/05/21 | | | 382,507 | | | | 357,644 | |
Wencor Group | | | | | | | | |
4.50% due 06/18/21 | | | 297,084 | | | | 290,958 | |
Thermasys Corp. | | | | | | | | |
5.26% due 05/03/19 | | | 95,000 | | | | 92,150 | |
Total Industrial | | | | | | | 12,456,425 | |
| | | | | | | | | |
Consumer, Cyclical - 0.4% | |
Equinox Fitness | | | | | | | | |
5.00% due 01/31/20 | | | 1,687,186 | | | | 1,686,477 | |
Eyemart Express | | | | | | | | |
5.00% due 12/17/21 | | | 1,462,500 | | | | 1,460,672 | |
Mattress Firm | | | | | | | | |
5.00% due 10/20/21 | | | 1,205,903 | | | | 1,205,155 | |
BBB Industries, LLC | | | | | | | | |
6.00% due 11/03/21 | | | 995,000 | | | | 993,756 | |
1-800 Contacts, Inc. | | | | | | | | |
4.25% due 01/29/21 | | | 738,358 | | | | 735,131 | |
Neiman Marcus Group, Inc. | | | | | | | | |
4.25% due 10/25/20 | | | 591,000 | | | | 577,649 | |
Sears Holdings Corp. | | | | | | | | |
5.50% due 06/29/18 | | | 495,462 | | | | 486,638 | |
Container Store, Inc. | | | | | | | | |
4.25% due 04/06/19 | | | 258,428 | | | | 255,521 | |
Warner Music Group | | | | | | | | |
3.75% due 07/01/20 | | | 249,364 | | | | 244,200 | |
Compucom Systems, Inc. | | | | | | | | |
4.25% due 05/11/20 | | | 294,660 | | | | 235,728 | |
Capital Automotive LP | | | | | | | | |
6.00% due 04/30/20 | | | 140,000 | | | | 140,584 | |
Total Consumer, Cyclical | | | | | | | 8,021,511 | |
| | | | | | | | | |
Basic Materials - 0.2% | |
Univar, Inc. | | | | | | | | |
4.25% due 07/01/22 | | | 3,629,462 | | | | 3,556,292 | |
Platform Specialty Products | | | | | | | | |
4.75% due 06/05/20 | | | 496,250 | | | | 481,983 | |
Total Basic Materials | | | | | | | 4,038,275 | |
| | | | | | | | | |
Financial - 0.2% | |
National Financial Partners Corp. | | | | | | | | |
4.50% due 07/01/20 | | | 1,211,404 | | | | 1,190,204 | |
Hyperion Insurance | | | | | | | | |
5.50% due 04/29/22 | | | 995,000 | | | | 993,756 | |
USI Holdings Corp. | | | | | | | | |
4.25% due 12/27/19 | | | 498,728 | | | | 492,908 | |
American Stock Transfer & Trust | | | | | | | | |
5.75% due 06/26/20 | | | 239,138 | | | | 236,646 | |
Total Financial | | | | | | | 2,913,514 | |
Total Senior Floating Rate Interests | | | | | |
(Cost $76,341,347) | | | | | | | 75,017,584 | |
| | | | | | | | | |
FOREIGN GOVERNMENT BONDS†† - 1.4% | |
Kenya Government International Bond | | | | | | | | |
6.87% due 06/24/244,8 | | | 12,250,000 | | | | 11,098,500 | |
Dominican Republic InternatioSnal Bond | | | | | | | | |
6.85% due 01/27/454,8 | | | 9,700,000 | | | | 9,336,250 | |
Mexico Government International Bond | | | | | | | | |
4.60% due 01/23/468 | | | 7,900,000 | | | | 7,031,000 | |
Commonwealth of the Bahamas | | | | | | | | |
6.95% due 11/20/294 | | | 110,000 | | | | 128,425 | |
Total Foreign Government Bonds | | | | | |
(Cost $30,456,708) | | | | | | | 27,594,175 | |
34 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
| | | Face
Amount | | | Value | |
| | | | | | | |
REPURCHASE AGREEMENTS††,11 - 1.6% | |
Jefferies & Company, Inc. | | | | | | |
issued 09/08/15 at 3.20%
due 10/15/15 | | $ | 17,216,000 | | | $ | 17,216,000 | |
issued 09/03/15 at 3.20%
due 10/07/15 | | | 5,222,000 | | | | 5,222,000 | |
issued 09/23/15 at 3.20%
due 10/28/15 | | | 4,003,000 | | | | 4,003,000 | |
issued 09/18/15 at 3.21%
due 10/22/15 | | | 3,456,000 | | | | 3,456,000 | |
issued 09/08/15 at 2.70%
due 10/15/15 | | | 920,000 | | | | 920,000 | |
Total Repurchase Agreements | | | | | |
(Cost $30,817,000) | | | | | | | 30,817,000 | |
| | | Contracts | | | | |
| | | | | | | |
OPTIONS PURCHASED† - 0.1% | |
Call options on: | | | | | | |
iShares 7-10 Year Treasury Bond ETF Expiring December 2015 with strike price of $106 | | | 7,338 | | | | 1,430,910 | |
Total Options Purchased | | | | | | | | |
(Cost $888,192) | | | | | | | 1,430,910 | |
| | | | | | | | | |
Total Investments - 112.7% | | | | | |
(Cost $2,213,660,064) | | | | | | $ | 2,193,810,743 | |
| | | | | | | | | |
OPTIONS WRITTEN† - 0.0% | |
Call options on: | | | | | | | | |
iShares 7-10 Year Treasury Bond ETF Expiring December 2015 with strike price of $111 | | | 7,338 | | | | (293,520 | ) |
Total Options Written | | | | | | | | |
(Premiums received $197,829) | | | | | | $ | (293,520 | ) |
Other Assets & Liabilities, net - (12.7)% | | | | (246,758,226 | ) |
Total Net Assets - 100.0% | | | $ | 1,946,758,997 | |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 35 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2015 |
TOTAL RETURN BOND FUND | |
CENTRALLY CLEARED INTEREST RATE SWAP AGREEMENTS†† | |
| | |
Counterparty | Floating
Rate | Floating Rate Index | | Fixed
Rate | | Maturity Date | | Notional Amount | | | Market Value | | | Unrealized Appreciation | |
Merrill Lynch | Pay | 3-Month USD-LIBOR | | 2.23 | % | 03/13/25 | | $ | 6,000,000 | | | $ | 142,260 | | | $ | 142,260 | |
Merrill Lynch | Pay | 3-Month USD-LIBOR | | 2.29 | % | 12/24/24 | | | 3,000,000 | | | | 91,320 | | | | 91,320 | |
| | | | | | | | | | | | | | | | | $ | 233,580 | |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† | |
| | |
Counterparty | | Contracts to Buy (Sell) | | Currency | Settlement Date | | Settlement Value | | | Value at September 30, 2015 | | | Net Unrealized Depreciation | |
BNY Mellon | | (449,000 | ) | EUR | 10/07/15 | | $ | 498,460 | | | $ | 501,845 | | | $ | (3,386 | ) |
BNY Mellon | | 449,000 | | EUR | 10/07/15 | | | (506,652 | ) | | | (501,845 | ) | | | (4,806 | ) |
| | | | | | | | | | | | | | | | $ | (8,192 | ) |
* | 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, 2015. |
2 | Illiquid security. |
3 | Perpetual maturity. |
4 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $1,130,964,860 (cost $1,141,441,455), or 58.1% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
5 | Residual interest. |
6 | Affiliated issuer — See Note 7. |
7 | Security is a step up/step down bond. The coupon increases or decreases at regular intervals until the bond reaches full maturity. |
8 | Securities or a portion thereof is held as collateral for reverse repurchase agreements at September 30, 2015 — See Note 11. |
9 | All or a portion of this security is pledged as collateral for open call options written contracts at September 30, 2015. |
10 | Zero coupon rate security. |
11 | Repurchase Agreement — See Note 10. |
12 | Security is a 144A or Section 4(a)(2) security. These securities are considered illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $11,150,602 (cost $11,974,311), or 0.57% of total net assets — See Note 12. |
13 | Rate indicated is the 7 day yield as of September 30, 2015. |
14 | Interest only security. |
| | plc — Public Limited Company |
| | |
| | See Sector Classification in Other Information section. |
36 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENT OF ASSETS AND LIABILITIES |
TOTAL RETURN BOND FUND |
September 30, 2015
Assets: | |
Investments in unaffiliated issuers, at value (cost $2,083,901,448) | | $ | 2,064,319,596 | |
Investments in affiliated issuers, at value (cost $98,941,616) | | | 98,674,147 | |
Repurchase agreements, at value (cost $30,817,000) | | | 30,817,000 | |
Total investments (cost $2,213,660,064) | | | 2,193,810,743 | |
Foreign currency, at value (cost $17,658) | | | 17,658 | |
Cash | | | 21,402,745 | |
Segregated cash with broker | | | 56,865 | |
Unrealized appreciation on swap agreements | | | 233,580 | |
Prepaid expenses | | | 108,419 | |
Receivables: | |
Securities sold | | | 14,626,172 | |
Fund shares sold | | | 9,076,180 | |
Interest | | | 8,836,558 | |
Dividends | | | 86,274 | |
Swap settlement | | | 24,040 | |
Total assets | | | 2,248,279,234 | |
| | | | | |
Liabilities: | |
Reverse repurchase agreements | | | 242,410,995 | |
Options written, at value (premiums received $197,829) | | | 293,520 | |
Unfunded loan commitments, at value (Note 8) (proceeds $286,000) | | | 233,577 | |
Unrealized depreciation on forward foreign currency exchange contracts | | | 8,192 | |
Payable for: | |
Securities purchased | | | 52,899,270 | |
Fund shares redeemed | | | 3,490,025 | |
Distributions to shareholders | | | 1,084,756 | |
Management fees | | | 260,130 | |
Distribution and service fees | | | 160,599 | |
Fund accounting/administration fees | | | 148,015 | |
Transfer agent/maintenance fees | | | 31,494 | |
Trustees’ fees* | | | 4,022 | |
Miscellaneous | | | 495,642 | |
Total liabilities | | | 301,520,237 | |
Net assets | | $ | 1,946,758,997 | |
| | | | | |
Net assets consist of: | |
Paid in capital | | $ | 1,976,950,244 | |
Distributions in excess of net investment income | | | (5,568,813 | ) |
Accumulated net realized loss on investments | | | (4,955,233 | ) |
Net unrealized depreciation on investments | | | (19,667,201 | ) |
Net assets | | $ | 1,946,758,997 | |
| | | | | |
A-Class: | |
Net assets | | $ | 435,759,712 | |
Capital shares outstanding | | | 16,445,207 | |
Net asset value per share | | $ | 26.50 | |
Maximum offering price per share (Net asset value divided by 95.25%) | | $ | 27.82 | |
| | | | | |
C-Class: | |
Net assets | | $ | 89,319,748 | |
Capital shares outstanding | | | 3,371,036 | |
Net asset value per share | | $ | 26.50 | |
| | | | | |
P-Class | |
Net assets | | $ | 12,508,732 | |
Capital shares outstanding | | | 472,131 | |
Net asset value per share | | $ | 26.49 | |
| | | | | |
Institutional Class | |
Net assets | | $ | 1,409,170,805 | |
Capital shares outstanding | | | 53,121,892 | |
Net asset value per share | | $ | 26.53 | |
* | 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 | 37 |
STATEMENT OF OPERATIONS |
TOTAL RETURN BOND FUND |
Year Ended September 30, 2015
Investment Income: | |
Interest | | $ | 52,819,631 | |
Dividends from securities of unaffiliated issuers | | | 609,543 | |
Dividends from securities of affiliated issuers | | | 434,665 | |
Total investment income | | | 53,863,839 | |
| | | | | |
Expenses: | |
Management fees | | | 6,119,624 | |
Transfer agent/maintenance fees | |
A-Class | | | 431,855 | |
C-Class | | | 54,853 | |
P-Class** | | | 149 | |
Institutional Class | | | 424,960 | |
Distribution and service fees: | |
A-Class | | | 748,607 | |
C-Class | | | 583,745 | |
P-Class** | | | 3,384 | |
Fund accounting/administration fees | | | 1,162,713 | |
Interest expense | | | 774,853 | |
Trustees’ fees* | | | 75,817 | |
Line of credit fees | | | 61,057 | |
Custodian fees | | | 49,618 | |
Tax expense | | | 14 | |
Miscellaneous | | | 438,171 | |
Total expenses | | | 10,929,420 | |
Less: | |
Expenses waived by Advisor | | | (1,744,518 | ) |
Expenses waived by Transfer Agent | |
A-Class | | | (154,933 | ) |
C-Class | | | (16,798 | ) |
P-Class** | | | (40 | ) |
Institutional Class | | | (424,870 | ) |
Total waived expenses | | | (2,341,159 | ) |
Net expenses | | | 8,588,261 | |
Net investment income | | | 45,275,578 | |
| | | | | |
Net Realized and Unrealized Gain (Loss): | |
Net realized gain (loss) on: | |
Investments in unaffiliated issuers | | | (1,111,632 | ) |
Investments in affiliated issuers | | | (22,780 | ) |
Swap agreements | | | 2,644,154 | |
Foreign currency | | | 28,315 | |
Forward foreign currency exchange contracts | | | 355,750 | |
Options purchased | | | (5,535,018 | ) |
Options written | | | 2,457,096 | |
Net realized gain | | | (1,184,115 | ) |
Net change in unrealized appreciation (depreciation) on: | |
Investments in unaffiliated issuers | | | (23,279,888 | ) |
Investments in affiliated issuers | | | (261,779 | ) |
Swap agreements | | | (452,470 | ) |
Options purchased | | | 542,718 | |
Options written | | | (95,691 | ) |
Foreign currency | | | (101,241 | ) |
Forward foreign currency exchange contracts | | | (32,001 | ) |
Net change in unrealized appreciation (depreciation) | | | (23,680,352 | ) |
Net realized and unrealized loss | | | (24,864,467 | ) |
Net increase in net assets resulting from operations | | $ | 20,411,111 | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: May 1, 2015. |
38 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STATEMENTS OF CHANGES IN NET ASSETS |
TOTAL RETURN BOND FUND | |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | |
Net investment income | | $ | 45,275,578 | | | $ | 8,940,719 | |
Net realized gain (loss) on investments | | | (1,184,115 | ) | | | 1,657,336 | |
Net change in unrealized appreciation (depreciation) on investments | | | (23,680,352 | ) | | | 6,412,075 | |
Net increase in net assets resulting from operations | | | 20,411,111 | | | | 17,010,130 | |
| | | | | | | | | |
Distributions to shareholders from: | | | | | | | | |
Net investment income | | | | | | | | |
A-Class | | | (12,143,821 | ) | | | (4,018,032 | ) |
C-Class | | | (1,931,992 | ) | | | (745,825 | ) |
P-Class | | | (50,783 | )* | | | — | |
Institutional Class | | | (37,951,737 | ) | | | (6,681,315 | ) |
Net realized gains | | | | | | | | |
A-Class | | | (151,030 | ) | | | — | |
C-Class | | | (42,876 | ) | | | — | |
P-Class | | | — | * | | | — | |
Institutional Class | | | (494,795 | ) | | | — | |
Total distributions to shareholders | | | (52,767,034 | ) | | | (11,445,172 | ) |
| | | | | | | | | |
Capital share transactions: | | | | | | | | |
Proceeds from sale of shares | | | | | | | | |
A-Class | | | 458,924,613 | | | | 73,424,986 | |
C-Class | | | 71,678,491 | | | | 12,451,028 | |
P-Class | | | 12,910,094 | * | | | — | |
Institutional Class | | | 1,454,555,055 | | | | 248,033,503 | |
Distributions reinvested | | | | | | | | |
A-Class | | | 11,204,598 | | | | 3,570,349 | |
C-Class | | | 1,494,334 | | | | 648,333 | |
P-Class | | | 50,783 | * | | | — | |
Institutional Class | | | 30,228,500 | | | | 5,534,525 | |
Cost of shares redeemed | | | | | | | | |
A-Class | | | (117,493,593 | ) | | | (62,746,577 | ) |
C-Class | | | (7,519,876 | ) | | | (4,094,381 | ) |
P-Class | | | (407,473 | )* | | | — | |
Institutional Class | | | (323,091,282 | ) | | | (64,105,887 | ) |
Net increase from capital share transactions | | | 1,592,534,244 | | | | 212,715,879 | |
Net increase in net assets | | | 1,560,178,321 | | | | 218,280,837 | |
| | | | | | | | | |
Net assets: | | | | | | | | |
Beginning of year | | | 386,580,676 | | | | 168,299,839 | |
End of year | | $ | 1,946,758,997 | | | $ | 386,580,676 | |
Distributions in excess of net investment income at end of year | | $ | (5,568,813 | ) | | $ | (2,009,658 | ) |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 39 |
STATEMENTS OF CHANGES IN NET ASSETS (concluded) |
TOTAL RETURN BOND FUND | |
| | | Year Ended
September 30,
2015 | | | Year Ended
September 30,
2014 | |
Capital share activity: | | | | | | |
Shares sold | | | | | | |
A-Class | | | 17,036,418 | | | | 2,741,493 | |
C-Class | | | 2,663,981 | | | | 463,711 | |
P-Class | | | 485,553 | * | | | — | |
Institutional Class | | | 53,995,281 | | | | 9,217,148 | |
Shares issued from reinvestment of distributions | | | | | | | | |
A-Class | | | 417,283 | | | | 133,810 | |
C-Class | | | 55,663 | | | | 24,313 | |
P-Class | | | 1,915 | * | | | — | |
Institutional Class | | | 1,125,242 | | | | 206,692 | |
Shares redeemed | | | | | | | | |
A-Class | | | (4,379,242 | ) | | | (2,345,333 | ) |
C-Class | | | (280,709 | ) | | | (154,292 | ) |
P-Class | | | (15,337 | )* | | | — | |
Institutional Class | | | (12,035,818 | ) | | | (2,377,106 | ) |
Net increase in shares | | | 59,070,230 | | | | 7,910,436 | |
* | Since the commencement of operations: May 1, 2015. |
40 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FINANCIAL HIGHLIGHTS |
TOTAL RETURN BOND FUND | |
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.
A-Class | | Year Ended
Sept. 30,
2015 | | | Year Ended
Sept. 30,
2014 | | | Year Ended
Sept. 30,
2013 | | | Period Ended
Sept. 30,
2012a | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 26.94 | | | $ | 26.16 | | | $ | 26.51 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .94 | | | | 1.01 | | | | 1.20 | | | | 1.08 | |
Net gain (loss) on investments (realized and unrealized) | | | (.25 | ) | | | 1.13 | | | | (.28 | ) | | | 1.35 | |
Total from investment operations | | | .69 | | | | 2.14 | | | | .92 | | | | 2.43 | |
Less distributions from: | |
Net investment income | | | (1.09 | ) | | | (1.36 | ) | | | (1.23 | ) | | | (.92 | ) |
Net realized gains | | | (.04 | ) | | | — | | | | (.04 | ) | | | — | |
Total distributions | | | (1.13 | ) | | | (1.36 | ) | | | (1.27 | ) | | | (.92 | ) |
Net asset value, end of period | | $ | 26.50 | | | $ | 26.94 | | | $ | 26.16 | | | $ | 26.51 | |
| | |
Total Return e | | | 2.56 | % | | | 8.34 | % | | | 3.53 | % | | | 9.78 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 435,760 | | | $ | 90,805 | | | $ | 74,328 | | | $ | 30,689 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.50 | % | | | 3.80 | % | | | 4.47 | % | | | 5.10 | % |
Total expensesc | | | 1.10 | % | | | 1.19 | % | | | 1.27 | % | | | 1.51 | % |
Net expensesd,g | | | 0.91 | % | | | 0.94 | % | | | 0.98 | % | | | 0.85 | % |
Portfolio turnover rate | | | 74 | % | | | 52 | % | | | 94 | % | | | 69 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 41 |
FINANCIAL HIGHLIGHTS (continued) |
TOTAL RETURN BOND FUND | |
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.
C-Class | | Year Ended
Sept. 30,
2015 | | | Year Ended
Sept. 30,
2014 | | | Year Ended
Sept. 30,
2013 | | | Period Ended
Sept. 30,
2012a | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 26.94 | | | $ | 26.16 | | | $ | 26.50 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .74 | | | | .82 | | | | .99 | | | | .94 | |
Net gain (loss) on investments (realized and unrealized) | | | (.25 | ) | | | 1.12 | | | | (.27 | ) | | | 1.32 | |
Total from investment operations | | | .49 | | | | 1.94 | | | | .72 | | | | 2.26 | |
Less distributions from: | |
Net investment income | | | (.89 | ) | | | (1.16 | ) | | | (1.02 | ) | | | (.76 | ) |
Net realized gains | | | (.04 | ) | | | — | | | | (.04 | ) | | | — | |
Total distributions | | | (.93 | ) | | | (1.16 | ) | | | (1.06 | ) | | | (.76 | ) |
Net asset value, end of period | | $ | 26.50 | | | $ | 26.94 | | | $ | 26.16 | | | $ | 26.50 | |
| | |
Total Return e | | | 1.82 | % | | | 7.58 | % | | | 2.77 | % | | | 9.09 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 89,320 | | | $ | 25,107 | | | $ | 15,654 | | | $ | 6,607 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 2.75 | % | | | 3.10 | % | | | 3.70 | % | | | 4.38 | % |
Total expensesc | | | 1.80 | % | | | 1.90 | % | | | 2.07 | % | | | 2.26 | % |
Net expensesd,g | | | 1.63 | % | | | 1.66 | % | | | 1.77 | % | | | 1.63 | % |
Portfolio turnover rate | | | 74 | % | | | 52 | % | | | 94 | % | | | 69 | % |
42 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FINANCIAL HIGHLIGHTS (continued) |
TOTAL RETURN BOND FUND | |
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.
P-Class | | Period Ended
Sept. 30,
2015f | |
Per Share Data | | | |
Net asset value, beginning of period | | $ | 26.98 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | .36 | |
Net gain (loss) on investments (realized and unrealized) | | | (.43 | ) |
Total from investment operations | | | (.07 | ) |
Less distributions from: | |
Net investment income | | | (.42 | ) |
Total distributions | | | (.42 | ) |
Net asset value, end of period | | $ | 26.49 | |
| | | | | |
Total Return e | | | (0.21 | %) |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 12,509 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.20 | % |
Total expensesc | | | 1.02 | % |
Net expensesd,g | | | 0.84 | % |
Portfolio turnover rate | | | 74 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 43 |
FINANCIAL HIGHLIGHTS (continued) |
TOTAL RETURN BOND FUND |
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.
Institutional Class | | Year Ended
Sept. 30,
2015 | | | Year Ended
Sept. 30,
2014 | | | Year Ended
Sept. 30,
2013 | | | Period Ended
Sept. 30,
2012a | |
Per Share Data | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 26.97 | | | $ | 26.19 | | | $ | 26.54 | | | $ | 25.00 | |
Income (loss) from investment operations: | |
Net investment income (loss)b | | | 1.03 | | | | 1.09 | | | | 1.28 | | | | 1.06 | |
Net gain (loss) on investments (realized and unrealized) | | | (.25 | ) | | | 1.14 | | | | (.27 | ) | | | 1.44 | |
Total from investment operations | | | .78 | | | | 2.23 | | | | 1.01 | | | | 2.50 | |
Less distributions from: | |
Net investment income | | | (1.18 | ) | | | (1.45 | ) | | | (1.32 | ) | | | (.96 | ) |
Net realized gains | | | (.04 | ) | | | — | | | | (.04 | ) | | | — | |
Total distributions | | | (1.22 | ) | | | (1.45 | ) | | | (1.36 | ) | | | (.96 | ) |
Net asset value, end of period | | $ | 26.53 | | | $ | 26.97 | | | $ | 26.19 | | | $ | 26.54 | |
| | |
Total Return e | | | 2.91 | % | | | 8.74 | % | | | 3.88 | % | | | 10.09 | % |
Ratios/Supplemental Data | |
Net assets, end of period (in thousands) | | $ | 1,409,171 | | | $ | 270,668 | | | $ | 78,318 | | | $ | 44,566 | |
Ratios to average net assets: | |
Net investment income (loss) | | | 3.83 | % | | | 4.09 | % | | | 4.78 | % | | | 4.91 | % |
Total expensesc | | | 0.76 | % | | | 0.81 | % | | | 0.89 | % | | | 0.99 | % |
Net expensesd,g | | | 0.57 | % | | | 0.57 | % | | | 0.64 | % | | | 0.52 | % |
Portfolio turnover rate | | | 74 | % | | | 52 | % | | | 94 | % | | | 69 | % |
44 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FINANCIAL HIGHLIGHTS (concluded) |
TOTAL RETURN BOND FUND | |
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 | Since commencement of operations: May 1, 2015. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
g | 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: |
| | 09/30/15 | 09/30/14 | 09/30/13 | 09/30/12 |
A-Class | 0.84% | 0.86% | 0.86% | 0.82% |
C-Class | 1.56% | 1.58% | 1.64% | 1.59% |
P-Class | 0.75% | N/A | N/A | N/A |
Institutional Class | 0.50% | 0.50% | 0.52% | 0.50% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 45 |
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 an open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, C-Class shares, P-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%. 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 2015, the Trust consisted of seventeen funds.
This report covers the Total Return Bond Fund (the “Fund”), a diversified investment company, while the other funds are in separate reports. Only A-Class, C-Class, P-Class and Institutional shares had been issued by the 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 Fund operates as an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
46 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 each Class of the Fund is calculated by dividing the market value of the Fund’s securities and other assets, less all liabilities, attributable to the Class by the number of outstanding shares of the Class.
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.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 47 |
NOTES TO FINANCIAL STATEMENTS (continued) |
Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the NYSE. The values of foreign securities are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currency are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities such as World Equity Benchmark Shares. In addition, the Board of Trustees has authorized the Valuation Committee and GI to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.
Open-end investment companies (“Mutual Funds”) are valued at their NAV as of the close of business, on the valuation date. Exchange-traded funds (“ETFs”) and closed-end investment companies (“CEFs”) are valued at the last quoted sales price.
U.S. government securities are valued by either independent pricing services, the last traded fill price, or at the reported bid price at the close of business.
Debt securities with a maturity of greater than 60 days at acquisition are valued at prices that reflect broker/dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term debt securities with a maturity of 60 days or less at acquisition are valued at amortized cost, provided such amount approximates market value.
Repurchase agreements are valued at amortized cost, provided such amounts approximate 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.
48 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
The value of interest rate swap agreements entered into by a Fund are accounted for using the unrealized gain or loss on the agreements that is determined using the spread priced off the previous day’s Chicago Mercantile Exchange (“CME”) price.
Forward foreign currency exchange contracts are valued daily based on the applicable exchange rate of the underlying currency. The change in value of the contract is recorded as unrealized appreciation or depreciation until the forward foreign currency contract is closed. When the forward foreign currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time the contract was opened and the value at the time it was closed.
Investments for which market quotations are not readily available are fair valued as determined in good faith by GI under the direction of the Board of Trustees using methods established or ratified by the Board of Trustees. Valuations in accordance with these methods are intended to reflect each security’s (or asset’s) “fair value.” Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to: (i) the type of security, (ii) the initial cost of the security, (iii) the existence of any contractual restrictions on the security’s disposition, (iv) the price and extent of public trading in similar securities of the issuer or of comparable companies, (v) quotations or evaluated prices from broker-dealers and/or pricing services, (vi) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), (vii) an analysis of the company’s financial statements, and (viii) an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold (e.g. the existence of pending merger activity, public offerings or tender offers that might affect the value of the security).
In connection with futures contracts and other derivative investments, such factors may include obtaining information as to how (a) these contracts and other derivative investments trade in the futures or other derivative markets, respectively, and (b) the securities underlying these contracts and other derivative investments trade in the cash market.
B. Senior loans in which the Fund invests generally pay interest rates which are periodically adjusted by reference to a base short-term, floating rate plus a premium. These base lending rates are generally (I) the lending rate offered by one or more major European banks, such as the one-month or three-month London Inter-Bank Offered Rate (LIBOR), (ii) the prime rate offered by one or more major United States banks, or (iii) the bank’s certificate of deposit rate. Senior floating rate interests often require prepayments from excess cash flows or permit the borrower to repay at its election. The rate at which the borrower repays cannot
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 49 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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, 2015.
C. 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.
D. Upon the purchase of an option, the premium paid is recorded as an investment, the value of which is marked-to-market daily. If a purchased option expires, the Fund realizes a loss in the amount of the cost of the option. When the Fund enters into a closing sale transaction, it realizes a gain or loss depending on whether the proceeds from the closing sale transaction are greater or less than the cost of the option. If the Fund exercises a put option, it realizes a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Fund exercises a call option, the cost of the security purchased by the Fund upon exercise increases by the premium originally paid.
When the Fund writes (sells) an option, an amount equal to the premium received is entered in that Fund’s accounting records as an asset and equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the option written. When a written option expires, or if the Fund enters into a closing purchase transaction, it realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was sold).
E. Swap agreements are marked-to-marked 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.
F. 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
50 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
amortization of premiums and accretion of discounts, is accrued on a daily basis. Interest income also includes paydown gains and losses on mortgage-backed and asset-backed securities and senior and subordinated loans. Amendment fees are earned as compensation for evaluating and accepting changes to the original loan agreement and are recognized when received. Dividend income from REITs is recorded based on the income included in the distributions received from the REIT investments using published REIT classifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
G. The Fund declares dividends from investment income daily. The Fund pays its shareholders from its net investment income monthly and distributes any net capital gains that it has realized, at least annually. 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.
H. 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.
I. 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, 2015, there were no earnings credits received.
J. 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.
K. 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
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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.
L. The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at prevailing exchange rates. Purchases and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Funds. Foreign investments may also subject the Funds to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which could affect the market and/or credit risk of the investments
The Funds do not isolate that portion of the results of operations resulting from changes in the foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain or loss on investments.
2. Financial Instruments and Derivatives
As part of its investment strategy, the Fund utilizes a variety of derivative instruments. These investments involve, to varying degrees, elements of market risk and risks in excess of the amounts recognized in the Statements of Assets and Liabilities. Valuation and accounting treatment of these instruments can be found under Significant Accounting Policies in Note 1 of these Notes to Financial Statements.
Derivatives
Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more other assets, such as securities, currencies, commodities or indices. Derivative instruments may be used to increase investment flexibility (including to maintain cash reserves while maintaining exposure to certain other assets), for risk management (hedging) purposes, to facilitate trading, to reduce transaction costs and to pursue higher investment returns. Derivative instruments may also be used to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. U.S. GAAP requires disclosures to enable investors to better understand how
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
and why a Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund’s financial position and results of operations.
The Fund may utilize derivatives for the following purposes:
Duration – the use of an instrument to manage the interest rate risk of a portfolio.
Hedge – an investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position to protect against broad market moves.
Options Purchased and Written
A call option on a security gives the purchaser of the option the right to buy, and the writer of a call option the obligation to sell, the underlying security, or the purchaser of a put option the right to sell, and the writer of the put option the obligation to buy, the underlying security at any time during the option period. The risk associated with purchasing options is limited to the premium originally paid. The following table represents the Funds’ use and volume of call options purchased on a quarterly basis:
Fund | Use | Average Number
of Contracts |
Total Return Bond Fund | Duration, Hedge | 13,397 |
The risk in writing a call option is that the 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 the 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 (“OTC”) options, the Fund may be at risk because of the counterparty’s inability to perform.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
NOTES TO FINANCIAL STATEMENTS (continued) |
The Fund used written options for Duration and Hedge. The following table represents the Fund’s volume of options written for the year ended September 30, 2015.
Call Options Written
Written Call Options | | | |
| | | Total Return Bond Fund | |
| | | Number of
Contracts | | | Premium
Amount | |
Balance at September 30, 2014 | | | — | | | $ | — | |
Options Written | | | 38,587 | | | | 2,654,925 | |
Options terminated in closing purchase transactions | | | — | | | | — | |
Options expired | | | (31,249 | ) | | | (2,457,096 | ) |
Options exercised | | | — | | | | — | |
Balance at September 30, 2015 | | | 7,338 | | | $ | 197,829 | |
Swaps
A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. A Fund utilizing OTC swaps bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty or if the underlying asset declines in value. Certain standardized swaps are subject to mandatory central clearing. Central clearing generally reduces counterparty credit risk and increases liquidity, but central clearing does not make swap transactions risk-free. Additionally, there is no guarantee that a Fund or an underlying fund could eliminate its exposure under an outstanding swap agreement by entering into an offsetting swap agreement with the same or another party.
Total return swaps involve commitments where single or multiple cash flows are exchanged based on the price of an underlying reference asset (such as index or basket) or a fixed or variable interest rate. Index swaps will usually be computed based on the current index value as of the close of regular trading on the NYSE or other exchange, with the swap value being adjusted to include dividends accrued, financing charges and/or interest associated with the swap agreement. Custom basket swaps are computed in a similar manner, but the composition of the custom basket swap is not tied directly to a publicly available index. As such, the constituents of the basket are available on the respective Fund’s Schedule of Investments. A Fund utilizing a total return index swap bears the risk of loss of
54 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty or if the underlying index declines in value.
Interest rate swaps involve the exchange by the Fund with another party for its respective commitment to pay or receive interest on a notional amount of principal. Interest rate swaps are generally valued using the closing price from the prior day, subject to an adjustment for the current day’s spreads. Interest rate swaps are generally subject to mandatory central clearing, but central clearing does not make interest rate swap transactions risk free.
The following table represents the Fund’s use and volume of interest rate swaps on a quarterly basis:
Fund | Use | | Average Notional | |
Total Return Bond Fund | Duration, Hedge | | $ | 27,975,000 | |
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract is an agreement between two parties to exchange two designated currencies at a specific time in the future. Certain types of forward foreign currency exchange contracts may be cash-settled, in an amount equal to the change in exchange rates during the term of the contract. The contracts can be used to hedge or manage exposure to foreign currency risks with portfolio investments or to gain exposure to foreign currencies.
The market value of a forward foreign currency exchange contract changes with fluctuations in foreign currency exchange rates. Furthermore, the Fund may be exposed to risk if the counterparties cannot meet the contract terms or if the currency value changes unfavorably as compared to the U.S. dollar.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 55 |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following table represents the Fund’s use and volume of forward foreign currency exchange contracts on a quarterly basis:
| | | | Average Settlement | |
Fund | Use | | Purchased | | | Sold | |
Total Return Bond Fund | Hedge | | $ | 1,669,770 | | | $ | 126,663 | |
Derivative Investment Holdings Categorized by Risk Exposure
The following is a summary of the location of derivative investments on the Fund’s Statement of Assets and Liabilities as of September 30, 2015:
Derivative Investment Type | Asset Derivatives | Liability Derivatives |
Interest Rate contracts | Unrealized appreciation on swap agreements | Options, written at value |
| | Investments in unaffiliated issuers, at value | |
Currency contracts | | Unrealized depreciation on forward foreign currency exchange contracts |
The following table sets forth the fair value of the Fund’s derivative investments categorized by primary risk exposure at September 30, 2015:
Asset Derivative Investments Value | |
Fund | | Swaps
Interest Rate
Contracts | | | Options
Purchased
Interest
Rate
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total Value at
September 30,
2015 | |
Total Return Bond Fund | | $ | 233,580 | | | $ | 1,430,910 | | | $ | — | | | $ | 1,664,490 | |
Liability Derivative Investments Value | |
Fund | | Swaps
Interest Rate
Contracts | | | Options
Written
Interest
Rate
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total Value at
September 30,
2015 | |
Total Return Bond Fund | | $ | — | | | $ | 293,520 | | | $ | 8,192 | | | $ | 301,712 | |
56 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following is a summary of the location of derivative investments on the Fund’s Statement of Operations for the year ended September 30, 2015:
Derivative Investment Type | Location of Gain (Loss) on Derivatives |
Currency contracts | Net realized gain (loss) on forward foreign currency exchange contracts |
| | Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts |
Interest Rate 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 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, 2015:
Realized Gain (Loss) on Derivative Investments Recognized on the Statement of Operations | |
Fund | | Swaps
Interest
Rate
Contracts | | | Options
Written
Interest
Rate
Contracts | | | Options
Purchased
Interest
Rate
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total Value at
September 30, 2015 | |
Total Return Bond Fund | | $ | 2,644,154 | | | $ | 2,457,096 | | | $ | (5,535,018 | ) | | $ | 355,750 | | | $ | (78,018 | ) |
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statement of Operations | |
Fund | | Swaps
Interest
Rate
Contracts | | | Options
Written
Interest
Rate
Contracts | | | Options
Purchased
Interest
Rate
Contracts | | | Forward
Foreign
Currency
Exchange
Contracts | | | Total Value at
September 30, 2015 | |
Total Return Bond Fund | | $ | (452,470 | ) | | $ | (95,691 | ) | | $ | 542,718 | | | $ | (32,001 | ) | | $ | (37,444 | ) |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 57 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 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 0.50% of the average daily net assets of the Fund.
RFS is paid the following for providing transfer agent services to the Fund. Transfer agent fees are assessed to the applicable class of the Fund.
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 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, C-Class and P-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 and P-Class shares, and 1.00% of the average daily net assets of the Fund’s C-Class shares.
58 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
The investment advisory contracts for the following Fund provides 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:
| | Limit | Effective
Date | Contract
End Date |
Total Return Bond Fund - A-Class | 0.90% | 11/30/12 | 02/01/16 |
Total Return Bond Fund - C-Class | 1.65% | 11/30/12 | 02/01/16 |
Total Return Bond Fund - P-Class* | 0.90% | 05/01/15 | 02/01/17 |
Total Return Bond Fund - Institutional Class | 0.50% | 11/30/12 | 02/01/16 |
* | Since the commencement of operations: May 1, 2015 |
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, 2015, the amount of fees waived or expenses reimbursed that are subject to recoupment are presented in the following table:
Fund | | Expires
2016 | | | Expires
2017 | | | Expires
2018 | | | Fund
Total | |
Total Return Bond | | $ | 462,339 | | | $ | 550,932 | | | $ | 2,324,957 | | | $ | 3,338,228 | |
For the year ended September 30, 2015, no amounts were recouped by GI.
If a Fund invests in an affiliated fund, the investing Fund’s Adviser has agreed to waive fees at the investing fund level. Fee waivers will be calculated at the investing Fund level without regard to any expense cap, if any, in effect for the investing Fund. Fees waived under this arrangement are not subject to reimbursement to GI. For the year ended September 30, 2015, the following fund waived advisory fees related to investments in the affiliated funds.
Fund | | Amount | |
Total Return Bond Fund | | $ | 16,201 | |
For the year ended September 30, 2015, GFD retained sales charges of $660,571 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 | 59 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 investments at September 30, 2015. See the Schedule of Investments for more details on the classification of securities.
| | | Level 1
Investments
In Securities | | | Level 2
Investments
In Securities | | | Level 2
Other Financial
Instruments* | | | Level 3
Investments
In Securities | | | Total | |
Assets | | | | | | | | | | | | | | | |
Total Return Bond Fund | | $ | 176,011,098 | | | $ | 1,981,923,437 | | | $ | 233,580 | | | $ | 35,876,208 | | | $ | 2,194,044,323 | |
| | |
Liabilities | | | | | | | | | | | | | | | | | | | | |
Total Return Bond Fund | | $ | 293,520 | | | $ | — | | | $ | 8,192 | | | $ | — | | | $ | 301,712 | |
* | Other financial instruments may include forward foreign currency exchange contracts and/or swaps, which are reported as unrealized gain/loss at period end. |
60 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
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. A significant portion of the Fund’s 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 Fund’s 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 Fund may not have the transparency to view the underlying inputs which support the market quotations. Significant changes in an indicative quote would generally result in significant changes in the fair value of the security.
Certain fixed income securities are valued by obtaining a monthly indicative quote from a broker-dealer, adjusted for fluctuations in criteria such as credit spreads and interest rates.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The suitability of the techniques and sources employed to determine fair valuation are regularly monitored and subject to change.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 61 |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following is a summary of significant unobservable inputs used in the fair value valuation of assets and liabilities categorizes within Level 3 of the fair value hierarchy.
Fund | Category and
Subcategory | | Ending Balance
at 09/30/15 | Valuation
Technique | Unobservable
Inputs |
| | Investments, at value | | | | |
Total Return Bond Fund | Corporate Bonds | $ | 9,622,700 | Option Adjusted Spread off multiple month end broker marks over the 3 month LIBOR | Indicative Quote |
| | | | 7,002,522 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | Total Corporate Bonds | | 16,625,222 | | |
| | Collateralized Mortgage Obligations | | 8,258,420 | Option Adjusted Spread off multiple month end broker marks over the 3 month LIBOR | Indicative Quote |
| | | | 1,057,077 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | Total Collateralized Mortgage Obligations | | 9,315,497 | | |
| | Asset-Backed Securities | | 9,114,980 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| | Senior Floating Rate Interests | | 820,463 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
Any remaining Level 3 securities held by the Fund and excluded from the table above, were not considered material to the Fund.
Transfers between investment levels may occur as the markets fluctuate and/ or the availability of data used in an investment’s valuation changes. The Fund recognized transfers between the levels as of the beginning of the period. As of September 30, 2015, the Fund had transfers in/out of Level 3 due to changes in securities valuation method. See the table below for changes to and from Level 2 and Level 3. There were no other securities that transferred between levels.
62 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
Summary of Fair Value Level 3 Activity
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value for the period ended September 30, 2015:
LEVEL 3 – Fair value measurement using significant unobservable inputs
| | | Senior
Floating
Rate Interests | | | Collateralized Mortgage Obligations | | | Asset-Backed
Securities | | | Corporate
Bonds | | | Preferred
Stocks | | | Total | |
TOTAL RETURN BOND | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | |
Beginning Balance | | $ | — | | | $ | 947,112 | | | $ | 481,300 | | | $ | 4,467,661 | | | $ | — | | | $ | 5,896,074 | |
Purchases | | | 824,500 | | | | 7,331,907 | | | | 9,209,504 | | | | 15,360,057 | | | | — | | | | 32,725,968 | |
Sales, maturities and paydowns | | | (8,500 | ) | | | (57,551 | ) | | | (173,476 | ) | | | (31,899 | ) | | | — | | | | (271,426 | ) |
Total realized gains or losses included in earnings | | | — | | | | (75 | ) | | | — | | | | — | | | | — | | | | (75 | ) |
Total change in unrealized gains or losses included in earnings | | | 4,463 | | | | (39,883 | ) | | | 78,953 | | | | 48,607 | | | | (12,193 | ) | | | 79,947 | |
Transfers into Level 3 | | | — | | | | 1,133,986 | | | | — | | | | — | | | | 12,238 | | | | 1,146,224 | |
Transfers out of Level 3 | | | — | | | | — | | | | (481,300 | ) | | | (3,219,204 | ) | | | — | | | | (3,700,504 | ) |
Ending Balance | | $ | 820,463 | | | $ | 9,315,497 | | | $ | 9,114,981 | | | $ | 16,625,222 | | | $ | 45 | | | $ | 35,876,208 | |
Net change in unrealized appreciation (depreciation) for investments in securities still held at September 30, 2015 | | $ | (177 | ) | | $ | (42,936 | ) | | $ | 78,845 | | | $ | 13,483 | | | $ | (12,193 | ) | | $ | 37,022 | |
5. 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
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 63 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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.
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
The tax character of distributions paid during the year ended September 30, 2015 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Guggenheim Total Return Bond Fund | | $ | 52,078,333 | | | $ | 688,701 | | | $ | 52,767,034 | |
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Fund | | Ordinary
Income | | | Long-Term
Capital Gain | | | Total
Distributions | |
Guggenheim Total Return Bond Fund | | $ | 11,445,172 | | | $ | — | | | $ | 11,445,172 | |
Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.
Tax components of accumulated earnings/(deficit) as of September 30, 2015, were as follows:
Fund | | Undistributed
Ordinary
Income | | | Undistributed
Long-Term
Capital Gain | | | Net Unrealized
Appreciation/
(Depreciation) | | | Accumulated
Capital and
Other Losses | | | Other
Temporary
Differences | |
Guggenheim Total Return Bond Fund | | $ | 7,108,478 | | | $ | — | | | $ | (25,864,284 | ) | | $ | (5,560,022 | ) | | $ | (5,875,419 | ) |
For Federal income tax purposes, capital loss carryforwards represent realized losses of the Fund that may be carried forward and applied against future capital gains. Under the RIC Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. As of September 30, 2015, the Fund had no capital loss carryforwards.
64 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
Pursuant to Federal income tax regulations applicable to investment companies, the Fund can elect 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 Fund also can elect 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. The Fund has elected to defer the following late year loss:
Fund | | Ordinary | | | Capital | |
Total Return Bond Fund | | $ | — | | | $ | (5,560,022 | ) |
As of September 30, 2015, the following reclassifications were made to the capital accounts of the Fund to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations, which are due to swaps, paydowns on asset backed securities, foreign currency reclasses, return of capital on investments, certain CLO investments and dividend reclasses. Net investment income, net realized gains and net assets were not affected by these changes.
On the Statement of Assets and Liabilities, the following adjustments were made for permanent book/tax differences:
Fund | | Paid In
Capital | | | Undistributed
Net Investment
Income | | | Accumulated
Net Realized
Loss | |
Guggenheim Total Return Bond Fund | | $ | (1 | ) | | $ | 3,401,669 | | | $ | (3,401,668 | ) |
At September 30, 2015, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Fund | | Tax
Cost | | | Tax
Unrealized
Gain | | | Tax
Unrealized
Loss | | | Net
Unrealized
Loss | |
Guggenheim Total Return Bond Fund | | $ | 2,219,865,339 | | | $ | 15,374,951 | | | $ | (41,429,547 | ) | | $ | (26,054,596 | ) |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 65 |
NOTES TO FINANCIAL STATEMENTS (continued) |
6. Securities Transactions
For the year ended September 30, 2015, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | | Purchases | | | Sales | |
Total Return Bond Fund | | $ | 2,343,020,428 | | | $ | 860,300,143 | |
For the year ended September 30, 2015, the cost of purchases and proceeds from sales of government securities were as follows:
Fund | | Purchases | | | Sales | |
Total Return Bond Fund | | $ | 273,670,687 | | | $ | 66,209,344 | |
7. 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 Fund may invest in the Guggenheim Strategy Funds Trust consisting of Guggenheim Strategy Fund I, Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III (collectively, the “Cash Management Funds”), open-end management investment companies managed by GI. The Cash Management Funds, which launched on March 11, 2014, are offered as cash management options only to mutual funds, trusts, and other accounts managed by GI and/or its affiliates, and are not available to the public. The Cash Management Funds pay no investment management fees. The Cash Management Funds’ annual report on Form N-CSR dated September 30, 2014 is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at http://www.sec.gov/Archives/edgar/data/1601445/000089180414001107/gug60774-ncsr.htm.
66 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
Transactions during the year ended September 30, 2015 in which the portfolio company is an “affiliated person” are as follows:
Affiliated issuers by Fund | Value
09/30/14 | | | Additions | | | Reductions | | | Value
09/30/15 | | | Shares
09/30/15 | | | Investment
Income | | | Realized
Loss | |
Total Return Bond Fund | | | | | | | | | | |
Guggenheim Limited Duration Institutional Class | | $ | 2,059,674 | | | $ | 520,841 | | | $ | (2,563,399 | ) | | $ | — | | | | — | | | $ | 20,824 | | | $ | (22,780 | ) |
Guggenheim Strategic Opportunities Fund | | | — | | | | 3,168,474 | | | | — | | | | 2,968,259 | | | | 166,010 | | | | 140,699 | | | | — | |
Guggenheim Strategy Fund 1 | | | — | | | | 95,773,141 | | | | — | | | | 95,705,888 | | | | 3,846,700 | | | | 273,142 | | | | — | |
| | | $ | 2,059,674 | | | $ | 99,462,456 | | | $ | (2,563,399 | ) | | $ | 98,674,147 | | | | | | | $ | 434,665 | | | $ | (22,780 | ) |
8. Loan Commitments
Pursuant to the terms of certain loan agreements, the Fund held unfunded loan commitments as of September 30, 2015. The Fund is obligated to fund these loan commitments at the borrower’s discretion.
The unfunded loan commitments as of September 30, 2015 were as follows:
Borrower | Maturity
Date | | Face
Amount | | | Value | |
Total Return Bond Fund | | | | | | | |
Acosta, Inc. | 9/26/2019 | | $ | 2,200,000 | | | $ | 233,577 | |
Lincoln Finance Ltd. | 12/31/2015 | | | 5,000,000 | | | | — | |
| | | | $ | 7,200,000 | | | $ | 233,577 | |
9. Line of Credit
The Trust, with the exception of Alpha Opportunity Fund and Capital Stewardship Fund, secured a committed, $625,000,000 line of credit from Citibank, N.A., good through October 9, 2015, 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 Trust did not have any borrowings under this agreement as of and for the year ended September 30, 2015.The Trust also pays a commitment fee at an annualized rate of 0.07% of the average daily amount of their unused commitment amount.
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 67 |
NOTES TO FINANCIAL STATEMENTS (continued) |
10. Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund’s policy that its 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.
Fund | Counterparty and Terms of
Agreement | | Face
Value | | Repurchase
Price | | Collateral | | Par
Value | | Fair
Value |
Total Return Bond Fund | Jefferies & Company, Inc. | | | | | | | | | |
| | 2.70% - 3.21% | | | | | | | | | | |
| | Due 10/07/15 -10/28/15 | $ | 30,817,000 | $ | 30,915,077 | | Acis CLO Ltd. | | | | |
| | | | | | | | 04/18/24 - 02/01/26* | $ | 28,654,000 | $ | 23,002,360 |
| | | | | | | | American Money Management Corp. | | | | |
| | | | | | | | 04/14/27* | | 4,800,000 | | 4,903,776 |
| | | | | | | | Venture CDO Ltd. | | | | |
| | | | | | | | 02/28/24* | | 5,000,000 | | 4,050,000 |
| | | | | | | | Ares CLO Ltd. | | | | |
| | | | | | | | 11/25/20* | | 2,375,000 | | 2,590,650 |
| | | | | | | | Jefferies & Co. | | | | |
| | | | | | | | 0.34% | | | | |
| | | | | | | | 12/26/36 | | 4,410,870 | | 2,029,000 |
| | | | | | | | CVP Cascade CLO Ltd. | | | | |
| | | | | | | | 01/16/27* | | 2,250,000 | | 1,778,000 |
| | | | | | | | Nelder Grove CLO Ltd. | | | | |
| | | | | | | | 08/28/26* | | 2,050,000 | | 1,415,000 |
| | | | | | | | Jasper CLO Ltd. | | | | |
| | | | | | | | 08/01/17* | | 2,500 | | 1,200,000 |
| | | | | | | | Commonwealth of Puerto Rico | | | | |
| | | | | | | | 5.50% | | | | |
| | | | | | | | 07/01/18 | | 1,260,000 | | 1,085,540 |
| | | | | | | | | $ | 190,879,119 | $ | 147,394,175 |
68 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
11. Reverse Repurchase Agreements
The Fund 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, 2015, the following Funds entered into reverse repurchase agreements:
Fund | | Number
of Days
outstanding | | | Balance at
September 30,
2015 | | | Average
balance outstanding | | | Average
interest
rate | |
Total Return Bond Fund | | | 365 | | | $ | 242,410,995 | | | $ | 119,134,762 | | | | 0.65 | % |
In June 2014, the FASB issued Accounting Standards Update 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (ASU 2014-11) that expanded secured borrowing accounting for certain repurchase agreements. The ASU also sets forth additional disclosure requirements for certain transactions accounted for as secured borrowings, which applies to the reverse repurchase agreements held by the Funds. The ASU became effective prospectively for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The Funds have adopted the ASU.
The following is a summary of the remaining contractual maturities of the reverse repurchase agreements outstanding as of September 30, 2015, aggregated by asset class of the related collateral pledged by the Fund:
Fund | | Overnight and
Continuous | | | Up to
30 days | | | 31-90
days | | | Greater than
90 days | | | Total | |
Total Return Bond Fund | | | | | | | | | | | | | | | |
Corporate Bonds | | $ | 22,918,085 | | | $ | 30,147,537 | | | $ | 56,161,862 | | | $ | 23,571,211 | | | $ | 132,798,695 | |
Foreign Government Bonds | | | 2,772,650 | | | | 6,459,750 | | | | 9,662,338 | | | | — | | | | 18,894,738 | |
Municipal Bond | | | — | | | | 24,891,063 | | | | 8,624,000 | | | | — | | | | 33,515,063 | |
U.S. Government Securities | | | 57,202,500 | | | | — | | | | — | | | | — | | | | 57,202,500 | |
Gross amount of recognized liabilities for reverse repurchase agreements | | $ | 82,893,235 | | | $ | 61,498,350 | | | $ | 74,448,199 | | | $ | 23,571,211 | | | $ | 242,410,995 | |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 69 |
NOTES TO FINANCIAL STATEMENTS (continued) |
12. Restricted Securities
The securities below are considered illiquid and restricted under guidelines established by the Board of Trustees:
Fund | Restricted
Securities | Acquisition
Date | | Amortized
Cost | | | Value | |
Total Return Bond Fund | Autoridad del Canal de Panama 4.95% due 07/29/35 | 09/24/15 | | $ | 4,420,440 | | | $ | 4,456,543 | |
| | Anchorage Credit Funding 1 Ltd. 4.30% due 07/28/30 | 05/07/15 | | | 3,000,000 | | | | 3,077,002 | |
| | Customers Bank 6.13% due 06/26/29 | 06/24/14 | | | 2,000,000 | | | | 2,020,000 | |
| | Cadence Bank North America 6.25% due 06/28/29 | 06/06/14 | | | 1,200,000 | | | | 1,200,000 | |
| | Airplanes Pass Through Trust 0.76% due 03/15/19 | 11/30/11 | | | 576,407 | | | | 232,879 | |
| | Schahin II Finance Company SPV Ltd. 5.88% due 09/25/22 | 03/21/12 | | | 777,464 | | | | 164,178 | |
| | | | | | 11,974,311 | | | | 11,150,602 | |
13. Offsetting
In the normal course of business, the Fund enters into transactions subject to enforceable master netting arrangements or other similar arrangements. Generally, the right to offset in those agreements allows the Fund 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 Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its 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.
70 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
NOTES TO FINANCIAL STATEMENTS (continued) |
For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Fund 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 Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty nonperformance. The Fund attempts 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 Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statement 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 Statement of Assets and Liabilities in conformity with U.S. GAAP.
| | | | | | | | | | | | | Gross Amounts Not
ffset in the Statement of
Assets and Liabilities | | | | |
Fund | Instrument | | Gross
Amounts of
Recognized
Liabilities1 | | | Gross
Amounts
Offset in the
Statement of
Assets and
Liabilities | | | Net Amount
of Assets
Presented on
the Statement
of Assets and
Liabilities | | | Financial
Instruments | | | Cash
Collateral
Received | | | Net
Amount | |
Total Return Bond Fund | Forward foreign currency exchange contracts | | $ | 8,192 | | | $ | — | | | $ | 8,192 | | | $ | — | | | $ | — | | | $ | 8,192 | |
1 | Centrally cleared swaps are excluded from these reported amounts. |
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 71 |
NOTES TO FINANCIAL STATEMENTS (concluded) |
14. P-Class Shares
Effective May 1, 2015, the Funds started to offer P-Class shares.
P-Class shares of the Funds are offered primarily through broker/dealers and other financial intermediaries with which Guggenheim Funds Distributors, LLC has an agreement for the use of P-Class shares of the Funds in investment products, programs or accounts. P-Class shares do not have a minimum initial investment amount, subsequent investment amount or a minimum account balance.
15. Subsequent Event
Beginning on October 1, 2015, A-Class shares of the Fund are offered at NAV plus an initial sales charge as follows:
Amount of Investment | Sales Charge as %
of Offering Price | Sales Charge as % of
Net Amount Invested |
Less than $50,000 | 4.00% | 4.17% |
$50,000 but less than $100,000 | 3.75% | 3.90% |
$100,000 but less than $250,000 | 2.75% | 2.83% |
$250,000 but less than $1,000,000 | 1.75% | 1.78% |
$1,000,000 or greater | None | None |
72 | 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 Total Return Bond Fund (one of the series constituting the Guggenheim Funds Trust) (the “Fund”) as of September 30, 2015, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the years or periods indicated therein. 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, 2015, by correspondence with the brokers and paying agents or by other appropriate auditing procedures where replies from custodians, brokers, or paying agents were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Guggenheim Total Return Bond Fund (one of the series constituting the Guggenheim Funds Trust) at September 30, 2015, 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 years or periods indicated therein, in conformity with U.S. generally accepted accounting principles.
McLean, Virginia
November 25, 2015
| | THE GUGGENHEIM FUNDS ANNUAL REPORT | 73 |
OTHER INFORMATION (Unaudited) |
Tax Information
In January 2016, shareholders will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by shareholders in the calendar year 2015.
The Fund’s investment income (dividend income plus short-term gains, if any) qualifies as follows:
Of the ordinary income distributions paid during the fiscal year, the following fund had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | Dividend
received deduction |
Guggenheim Total Return Bond Fund | 1.13% |
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 | Qualified
dividend income |
Guggenheim Total Return Bond Fund | 1.49% |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2015, the 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 | Qualified
interest | Qualified
short-term
capital gain |
Guggenheim Total Return Bond Fund | 54.58% | 0.00% |
With respect to the taxable year ended September 30, 2015, the Fund hereby designates as capital gain dividends $520,972 or, if subsequently determined to be different, the net capital gain of such year.
74 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
OTHER INFORMATION (Unaudited)(continued) |
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.
Sector Classification
Information in the “Schedule of Investments” is categorized by sectors using sector-level classifications used by Bloomberg Industry Classification System, a widely recognized industry classification system provider. In each Fund’s registration statement, the Funds have investment policies relating to concentration in specific industries. For purposes of these investment policies, the Funds usually classify industries based on industry-level classifications used by widely recognized industry classification system providers such as Bloomberg Industry Classification System, Global Industry Classification Standards and Barclays Global Classification Scheme.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
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”). The Trust includes the following series:
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OTHER INFORMATION (Unaudited)(continued) |
● Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) ● Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”) ● Guggenheim High Yield Fund (“High Yield Fund”) ● Guggenheim Large Cap Value Fund (“Large Cap Value Fund”) ● Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”) ● Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”) ● Guggenheim Risk Managed Real Estate Fund (“Risk Managed Real Estate Fund”) ● Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core Fund”) ● Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | ● Guggenheim Capital Stewardship Fund (“Capital Stewardship Fund”) ● Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”) ● Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”) ● Guggenheim Limited Duration Fund (“Limited Duration Fund”) ● 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 Fund”) ● Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 adviser 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 five separate investment management agreements which group the series as follows: (i) Mid Cap Value Fund, Mid Cap Value Institutional Fund, Small Cap Value Fund, StylePlus—Large Core Fund and World Equity Income Fund; (ii) Large Cap Value Fund; (iii) StylePlus—Mid Growth; (iv)
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Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund; and (v) Alpha Opportunity Fund. (The Funds identified in (i) through (v) 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 Capital Stewardship Fund, Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund, Risk Managed Real Estate 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 five separate investment advisory agreements which group includes the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund; (iii) Capital Stewardship Fund; (iv) Limited Duration Fund; and (v) Risk Managed Real Estate Fund. (The investment management agreements pertaining to the SIAdvised 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,” with the members of the Board referred to individually as 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.
Following an initial two-year term, the Advisory Agreements continue in effect from year to year provided that such continuance is specifically approved at least annually by (i) the Board or a majority of the outstanding voting securities (as defined in the 1940 Act) of each Fund, and, in either event, (ii) the vote of a majority of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”) casting votes in person at a meeting called for such purpose. At meetings held in person on April 29, 2015 (the “April Meeting”) and on May 19, 2015 (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely
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of the Independent Trustees, met separately from Guggenheim to consider the proposed renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.1 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 also received by the full Board) throughout the year regarding performance and operating results of the 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 presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Independent Trustees. In addition, Guggenheim made a presentation at the April Meeting, which addressed areas identified for discussion by the Committee 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”).
1 | Since the Capital Stewardship Fund was subject to an investment management agreement approved by the Board for an initial term of two years at an in-person meeting of the Board held on August 19-20, 2014, it was not included in the contract renewal process conducted at the meetings in April and May 2015. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, excluding the Capital Stewardship Fund. |
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Among other things, Guggenheim provided: (i) staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various services performed by Guggenheim for the provision of a continuous investment program for each Fund, monitoring compliance with Fund investment strategies and statutory requirements, reviewing trading processes and conducting investment performance analyses; (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 gross revenues, expenses and earnings for Guggenheim by product line and each Fund, including a breakout of various expenses, a description of Guggenheim’s 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, and certain information about Guggenheim’s insurance policies, business continuity plan, proxy voting procedures, trade allocation, shareholder communications and compliance monitoring, among other things.
The Committee considered the foregoing Contract Materials in the context of its substantial accumulated experience governing the Trust and weighed the factors and standards discussed with Independent Legal Counsel. 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 Funds2 to recommend that the Board approve the renewal of each Advisory Agreement and the Sub Advisory Agreement for an additional 12-month term.
Investment 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
2 | At the May Meeting, the Board determined to close and liquidate the Enhanced World Equity Fund based upon the Adviser’s recommendation (the “Liquidation Proposal”). Following an evaluation of strategic options, the Board determined that liquidation of the Fund as a series of the Trust would be in the best interests of the Fund and its shareholders. In view of the Liquidation Proposal, the Committee recommended the continuation of the Advisory Agreement with respect to the Enhanced World Equity Fund to provide for the continuation of advisory services until such time as the Fund was liquidated. |
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education, experience, professional affiliations, areas of responsibility and duties of 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 also considered the Advisers’ attention to relevant developments in the mutual fund industry and its observance of compliance and regulatory requirements, and 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 additional staff to support the firm’s Chief Risk Officer, initiatives related to the risks associated with the investment process and risk at the enterprise level, 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 consolidate compliance manuals and align processes of the Funds with those of other Funds managed by the Advisers or another Guggenheim affiliate. 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 the Advisers’ parent company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). (The Committee received the audited consolidated financial statements of GPIMH once available following the April 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
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performance of its duties through Board meetings, discussions and reports during 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, 2014, 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, 2014, 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-year 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-year and three-year periods, ranking in the 1st and 4th percentiles, respectively. In light of various changes to this Fund, including 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 and the assumption by Security Investors of such investment management responsibility, the impact on portfolio management as a result of the Lehman bankruptcy,3 and subsequent changes to the Fund’s investment strategies, a reduction in the fund accounting and administration fee and the re-opening of the Fund to new subscriptions, the Committee considered more recent performance periods, including the one-year and the three-month
3 | The Committee considered the circumstances that affected 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 had consisted of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales, which limited the management of the portfolio. |
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periods. 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, 2014, ranking in the 11th and 4th percentiles, respectively.
Floating Rate Strategies Fund: The returns of the Fund’s Class A shares ranked in the 6th and 1st percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
High Yield Fund: The Fund’s Class A shares ranked in the 64th, 7th and 46th percentiles of the performance universe for the five-year, three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for the three-year and one-year periods.
Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014, ranking in the 14th, 4th and 3rd percentiles, respectively. The Committee also noted Guggenheim’s statement that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year, three-year and one-year periods ended December 31, 2014, and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile.
Large 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 ended December 31, 2014, and ranked in the 76th, 60th and 78th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the returns for the Fund’s Class A shares for the ten-year
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period ended December 31, 2014, which exceeded the performance universe median, ranking in the 45th percentile. The Committee also noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Limited Duration Fund: The Committee noted the Fund’s inception date of December 16, 2013 and observed that the returns of the Fund’s Class A shares ranked in the 8th and 18th percentiles of the performance universe for the one-year and three-month periods ended December 31, 2014, respectively, outperforming the median returns.
Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 3rd and 8th percentiles of the performance universe for the three-year and one-year periods ended December 31, 2014, 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 three-year and one-year periods ended December 31, 2014.
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 ended December 31, 2014, and ranked in the 92nd, 80th and 67th percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In this connection, the Committee observed that, as to the Fund’s longer term performance track record, the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2014 in the 1st quartile (22nd percentile) and that, according
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to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. The Committee also noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. In addition, the Committee noted Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Mid Cap Value Institutional Fund: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 88th, 72nd and 61st percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
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
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performance, the Committee concluded that Security Investors had appropriately reviewed and monitored GPIM’s investment performance as Sub-Adviser to the Fund.
Risk Managed Real Estate Fund: The returns of the Fund’s Class A shares ranked in the 67th percentile of its performance universe for the three month period ended December 31, 2014. The Committee considered that the Fund was recently organized as of February 12, 2014 and has a limited period of operation.
StylePlus—Large Core Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 10th and the 41st percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund outperformed its benchmark for the one-year period ended December 31, 2014.
StylePlus—Mid Growth Fund: The Fund implemented a strategy change and a new portfolio management team in May 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded the median of its performance universe for both periods, ranking in the 13th and 36th percentiles for the one-year and three-month periods, respectively. The Committee also took into account that the Fund had outperformed its benchmark for the one-year period ended December 31, 2014.
Small Cap Value Fund: The Fund underperformed its performance universe median for the five-year, three-year and one-year periods ended December 31, 2014 and ranked in the 87th, 71st and 92nd percentiles, respectively. In analyzing this performance data, the Committee considered management’s discussion of the effect that stock selection had on the Fund’s performance. The Committee also noted recent measures taken by the Adviser to remedy relative underperformance, including enhancements to the portfolio analytics process with additional risk controls. The Committee took into account the presentations by the Fund’s portfolio management team at recent Board meetings and the team’s view that, although market conditions over the past several years had posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective. The Committee also considered subsequent discussions with Guggenheim’s Assistant Chief Investment Officer (Equities) and the Managing Director of Equities concerning the portfolio management team’s investment thesis and portfolio construction processes and the continued
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confidence expressed by Guggenheim management in the portfolio management team’s capabilities, citing improved performance for the year-to-date as of March 31, 2015. In addition, the Committee noted Guggenheim’s statement that the underperformance for the five-year period is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and issuers with smaller market capitalizations. The Committee also considered Guggenheim’s commitment to monitor the Fund’s performance and update the Independent Trustees on a quarterly basis as to the impact of the process enhancements implemented to-date and advise on other steps that might be taken to address the Fund’s underperformance, if necessary.
Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st and 2nd percentiles of its performance universe for the three-year and one-year periods ended December 31, 2014, respectively, and outperformed the performance universe median for each of these periods.
World Equity Income Fund: The Fund implemented a strategy change and a new portfolio management team in August 2013. In light of the foregoing, the Committee considered more recent performance periods, including the one-year and three-month periods ended December 31, 2014, and observed that the returns of the Fund’s Class A shares exceeded its performance universe median for the one-year period, ranking in the 27th percentile, and lagged its performance universe median for the three-month period, ranking in the 83rd percentile.
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 and/or institutional separate account with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients. The Committee considered Guggenheim’s explanation that lower fees are charged in certain instances due to numerous factors, including the scope of contract, types
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of investors, applicable regulatory and legal structures, tax status, and for historical pricing reasons. In this regard, the Committee took into account Guggenheim’s assertion that the differences in fees reflected the Advisers’ greater level of responsibilities and significantly broader scope of services regarding the Funds, the more extensive regulatory obligations and risks associated with managing the Funds, and other financial considerations with respect to the Funds.
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 and the asset weighted total net expense ratio are in the second quartile (27th and 45th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had 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 fourth quartile (82nd percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (40th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (77th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (84th percentile) of its peer group. The Committee also considered that the Adviser had 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 is in the second quartile (31st percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (22nd percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
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Limited Duration Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (72nd percentile) of its peer group and the asset weighted total net expense ratio is in the second quartile (45th percentile) of its peer group. The Committee also considered that the Adviser had 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 (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (61st percentile) of its peer group. The Committee also considered that the Adviser had 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 second quartile (43rd percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (85th percentile) of its peer group.
Mid Cap Value Institutional Fund: The contractual advisory fee of the Fund is in the first quartile (15th percentile) of its peer group and the total net expense ratio is in the third quartile (69th percentile) of its peer group.
Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the second quartile (26th and 38th percentiles, respectively) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Risk Managed Real Estate Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the first quartile (1st percentile as to each) of its peer group.
StylePlus—Large Core Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are in the fourth quartile (80th and 100th percentiles, respectively) of its peer group.
StylePlus—Mid Growth Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the second quartile (34th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (100th percentile) of its peer group.
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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 (78th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (25th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (86th percentile) of its peer group and the asset weighted total net expense ratio is in the first quartile (19th percentile) of its peer group. The Committee also considered that the Adviser had 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 in the second quartile (27th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (80th percentile) of its peer group. The Committee also considered that the Adviser had entered into an expense limitation agreement with respect to the Fund.
With respect to the costs of services provided and profits realized by Guggenheim Investments from its relationship with the Funds, the Committee reviewed a profitability analysis and data from management for each Fund setting forth the average assets under management for the twelve months ended December 31, 2014, ending assets under management as of December 31, 2014, gross revenues received by Guggenheim Investments, expenses incurred in providing services to the Funds, earnings and the operating margin/profitability rate, including variance information relative to the foregoing amounts as of December 31, 2013. In addition, the Chief Financial Officer of Guggenheim Investments reviewed with, and addressed questions from, the Committee concerning the expense allocation methodology employed in producing the profitability analysis. In the course of its review of Guggenheim Investments’ profitability, the Committee took into account the complexity of the investment strategies employed for the Funds, in addition to the foregoing data and various figures.
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
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OTHER INFORMATION (Unaudited)(continued) |
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 Investments’ profitability from its relationship with the Funds was not unreasonable.
Economies of Scale: 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 have 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 also noted the Adviser’s statement that Guggenheim continues to develop the infrastructure needed to support Fund asset growth and to achieve economies of scale across the firm’s various products and product lines. Thus, while Guggenheim may be benefiting from certain economies of scale and related cost efficiencies, it is concurrently realizing new costs and expenses associated with investment in infrastructure, personnel and systems.
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 Total Return Bond Fund—having assets in excess of (or approaching) $1 billion as of March 31, 2015. 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 total net expense ratio is competitive with the peer group median.
Macro Opportunities Fund: 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.
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OTHER INFORMATION (Unaudited)(continued) |
Mid Cap Value Fund: The Fund’s contractual advisory fee is in line with the peer group median (43rd percentile) and the total net expense ratio is competitive with the peer group median.
Total Return Bond Fund: 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 in the first quartile (19th percentile).
The Committee determined that, taking into account all relevant factors, the advisory fee structure for each Fund 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 and compliance policies and procedures, 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 included as part of its considerations the unaudited financial information concerning GPIMH presented by the Chief Financial Officer of Guggenheim Investments. (As noted, the Committee received the audited consolidated financial statements of GPIMH once available following the April Meeting.)
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 Fund’s Class A shares outperformed the performance universe for the five-year and three-year periods ended December 31, 2014, ranking in the 1st and 35th percentiles, respectively. On January 13, 2012, the Fund acquired the assets and assumed the liabilities of TS&W/Claymore Tax-Advantaged Balanced Fund (the “Predecessor Fund”),
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OTHER INFORMATION (Unaudited)(concluded) |
a closed-end fund which used different investment strategies and had different investment advisers. Class A shares of the Fund have assumed the performance, financial and other historical information of the Predecessor Fund’s common shares and the performance of Class A shares of the Fund reflects the performance of the Predecessor Fund. In light of the foregoing, the Committee took into account more recent periods and noted that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2014, ranking in the 18th and 47th percentiles, respectively. In this connection, the Committee also considered that the Fund outperformed its benchmark over the one-year and three-month periods ended December 31, 2014.
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: 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” 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 or conclusive 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. Thereafter, on May 20, 2015, the Board, including all of the Independent Trustees, approved the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
92 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) |
A Board of Trustees oversees the Trust, as well as other trusts of GI, in which its members have no stated term of service, and continue to serve after election until resignation. The Statement of Additional Information includes further information about Fund Trustees and Officers, and can be obtained without charge by calling 800.820.0888.
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by 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). | 107 | Current: Trustee, Purpose Investments Inc. (2014-Present). |
Donald A. Chubb, Jr. (1946) | Trustee | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-present). | 103 | Current: Midland Care, Inc. (2011-present). |
Jerry B. Farley (1946) | Trustee | Since 2005 | Current: President, Washburn University (1997-present). | 103 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust (2000-present). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - continued | | |
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and Managing Partner, Roman Friedrich & Company (1998-present). Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | 103 | Current: Zincore Metals, Inc. (2009-present). Former: Axiom Gold and Silver Corp. (2011-2012). |
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 103 | 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). | 109 | Current: Edward-Elmhurst Healthcare System (2012-present). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
INDEPENDENT TRUSTEES - concluded | | |
Maynard F. Oliverius (1943) | Trustee | Since 1998 | Current: Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 103 | Current: Fort Hays State University Foundation (1999-present); Stormont-Vail Foundation (2013-present); University of Minnesota HealthCare Alumni Association Foundation (2009-present). |
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management (1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999); Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | 106 | Former: Bennett Group of Funds (2011-2013). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees |
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). | 239 | Current: Clear Spring Life Insurance Company (2015-present); Guggenheim Partners Japan, Ltd. (2014-present); Delaware Life (2013-present); Guggenheim Life and Annuity Company (2011-present); Paragon Life Insurance Company of Indiana (2011-present). |
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
*** | This Trustee is deemed to be an "interested person" of the Funds under the 1940 Act by reason of his position with the Funds' Investment Manager and/or the parent of the Investment Manager. |
96 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal 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). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - continued | |
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 2007 (Vice President) Since 2014 (Chief Legal Officer) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2013-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). |
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (2014-present); Senior Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). |
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Managing Director, Guggenheim Investments (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). |
98 | THE GUGGENHEIM FUNDS ANNUAL REPORT | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations
During Past Five Years |
OFFICERS - continued | |
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-2014). |
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). |
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). |
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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 Occupations
During Past Five Years |
OFFICERS - concluded | |
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. |
100 | 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
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GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited)(continued) |
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.
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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.
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The registrant's Board of Trustees has determined that Robert B. Karn III, an "independent" Trustee serving on the registrant's audit committee, is an "audit committee financial expert," as defined in Item 3 of Form N-CSR. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification.
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 2014 and $0 in 2015.
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 2014 and $0 in 2015.
Not applicable.
The Schedule of Investments is included under Item 1 of this form.
Not applicable.
Not applicable.
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.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
