N-CSR 1 v369020_ncsr.htm N-CSR

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number 811- 02753

 

SBL Fund

(Exact name of registrant as specified in charter)

 

805 King Farm Boulevard, Suite 600
Rockville, Maryland 20850

(Address of principal executive offices) (Zip code)

 

Donald C. Cacciapaglia

SBL Fund
805 King Farm Boulevard, Suite 600

Rockville, Maryland 20850

(Name and address of agent for service)

 

Registrant's telephone number, including area code: 1-301-296-5100

 

Date of fiscal year end: December 31

 

Date of reporting period: December 31, 2013

 

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

 

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. §3507.

 

 
 

 

 

Item 1. Reports to Stockholders.

 

 

 

 

SERIES A (STYLEPLUS–LARGE CORE SERIES)

(Formerly, Large Cap Core Series)  
SERIES B (LARGE CAP VALUE SERIES)  
SERIES C (MONEY MARKET SERIES)  
SERIES D (WORLD EQUITY INCOME SERIES)  
(Formerly, MSCI EAFE Equal Weight Series)  
SERIES E (TOTAL RETURN BOND SERIES)  
(Formerly, U.S. Intermediate Bond Series)  
SERIES F (FLOATING RATE STRATEGIES SERIES)  
SERIES J  (STYLEPLUS–MID GROWTH SERIES)  
(Formerly, Mid Cap Growth Series)  
SERIES M (MACRO OPPORTUNITIES SERIES)  
SERIES N (MANAGED ASSET ALLOCATION SERIES)  
SERIES O (ALL CAP VALUE SERIES)  
SERIES P (HIGH YIELD SERIES)  
SERIES Q (SMALL CAP VALUE SERIES)  
SERIES V (MID CAP VALUE SERIES)  
SERIES X (STYLEPLUS–SMALL GROWTH SERIES)  
(Formerly, Small Cap Growth Series)  
SERIES Y (STYLEPLUS–LARGE GROWTH SERIES)  
(Formerly, Large Cap Concentrated Growth Series)  
SERIES Z (ALPHA OPPORTUNITY SERIES) 460425800

  

 
 

 

This report and the financial statements contained herein are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. 

 

Distributed by Guggenheim Distributors, LLC.

 

 
 

 

TABLE OF CONTENTS

 

Dear SHAREHOLDER 2
   
Economic and Market Overview 5
   
about Shareholders’ fund expenses 7
   
Series A (STYLEPLUS–LARGE Core Series) 9
   
Series B (Large Cap Value Series) 18
   
Series C (Money Market Series) 24
   
Series D (WORLD EQUITY INCOME SERIES) 30
   
Series E (TOTAL RETURN Bond Series) 38
   
Series F (FLOATING RATE STRATEGIES SERIES) 48
   
Series J (STYLEPLUS–MID Growth Series) 57
   
Series M (MACRO OPPORTUNITIES Series) 67
   
Series N (Managed Asset Allocation Series) 77
   
Series O (All Cap Value Series) 83
   
Series P (High Yield Series) 90
   
Series Q (Small Cap Value Series) 100
   
Series V (Mid Cap Value Series) 107
   
Series X (STYLEPLUS–SMALL Growth Series) 114
   
Series Y (STYLEPLUS–Large Growth Series) 124
   
Series Z (Alpha Opportunity Series) 133
   
NOTES TO FINANCIAL STATEMENTS 142
   
Report of Independent Registered Public Accounting Firm 161
   
OTHER INFORMATION 162
   
INFORMATION ON BOARD OF Directors AND OFFICERS 167
   
GUGGENHEIM INVESTMENTS PRIVACY POLICIES 169

 

The GUGGENHEIM FUNDS annual report | 1

 

 
 

 

December 31, 2013

 

Dear Shareholder:

 

Security Investors, LLC and Guggenheim Partners Investment Management (the “Investment Advisers”) is pleased to present the annual shareholder report for 16 of our variable insurance funds. This report covers performance of the Funds for the annual period ended December 31, 2013. Series F (Floating Rate Strategies Series) and M (Macro Opportunities Series) were both launched on April 24, 2013.

 

The Investment Advisers is a part of Guggenheim Investments, which represents the investment management businesses of Guggenheim Partners, LLC, a global, diversified financial services firm.

 

Guggenheim Distributors, LLC is the distributor of the Funds. Guggenheim Distributors, LLC is affiliated with Guggenheim Partners, LLC and Security Investors, LLC.

 

We encourage you to read the Economic and Market Overview section of the report, which follows this letter, and then the Manager’s Commentary for each Fund.

 

We are committed to providing innovative investment solutions and appreciate the trust you place in us.

 

Sincerely,

 

 

Donald C. Cacciapaglia

President

January 31, 2014

 

Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at guggenheiminvestments.com or call 800.820.0888.

 

The Series StylePlus Funds may not be suitable for all investors. Investments in large capitalization stocks may underperform other segments of the equity market or the equity market as a whole. • Investments in small-sized company securities may present additional risks such as less predictable earnings, higher volatility and less liquidity than larger, more established companies. • Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions regarding the growth potential of the issuing companies. • The Funds may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • The Funds’ use of leverage, through borrowings or instruments such as derivatives, may cause the Funds to be more volatile than if it had not been leveraged. • The Funds’ investments in other investment vehicles subject the Funds to those risks and expenses affecting the investment vehicle. • The Funds may invest in foreign securities which carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • The Funds may invest in fixed income securities whose market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • The Funds may invest in bank loans and asset-backed securities, including mortgage backed, which involve special types of risks. • The Funds may invest in restricted securities which may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Funds are not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.

 

The Series Value Funds may not be suitable for all investors. • An investment in the Funds will fluctuate and is subject to investment risks, which means investors could lose money. The intrinsic value of the underlying stocks may never be realized or the stocks may decline in value. Investments in small- and/ or mid-sized company securities may present additional risks such as less predictable earnings, higher volatility and less liquidity than larger, more established companies. Please read the prospectus for more detailed information regarding these and other risks.

 

2 | the GUGGENHEIM FUNDS annual report

 

 
 

 

December 31, 2013

 

The Series C (Money Market Series) may not be suitable for all investors. • An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. • It is possible to lose money by investing in the Fund. The principal risks of investing in the Fund are listed below. • The Fund could lose money if the issuer of a bond is unable to repay interest and principal on time or defaults. • The issuer of a bond could also suffer a decrease in quality rating, which would affect the volatility and liquidity of the bond. • Investments in fixed-income securities are subject to the possibility that interest rates could rise sharply, causing the value of the Fund’s securities and share price to decline. • Fixed income securities with longer durations are subject to more volatility than those with shorter durations. • Regulations of money market funds are evolving. • New regulations may affect negatively the Fund’s performance, yield and cost.

 

The Series D (World Equity Income Series) may not be suitable for all investors. • Investments in securities in general are subject to market risks that may cause their prices to fluctuate over time. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets are generally subject to an even greater level of risks). Additionally, the Fund’s exposure to foreign currencies subjects the Fund to the risk that those currencies will decline in value relative to the U.S. Dollar. • The Fund’s investments in derivatives may pose risks in addition to those associated with investing directly in securities or other investments, including illiquidity of the derivatives, imperfect correlations with underlying investments or the Fund’s other portfolio holdings, lack of availability and counterparty risk. • The Fund’s use of leverage, through instruments such as derivatives, may cause the fund to be more volatile than if it had not been leveraged. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund may have significant exposure to securities in a particular capitalization range e.g., large-, mid- or small-cap securities. As a result, the Fund may be subject to the risk that the pre-denominate capitalization range may underperform other segments of the equity market or the equity market as a whole. • Please read the prospectus for more detailed information regarding these and other risks.

 

The Series E (Total Return Bond Series) may not be suitable for all investors. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. • The Fund’s investments in municipal securities can be affected by events that affect the municipal bond market. • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.

 

The Series F (Floating Rate Strategies Series) may not be suitable for all investors. • Investments in floating rate senior secured syndicated bank loans and other floating rate securities involve special types of risks, including credit rate risk, interest rate risk, liquidity risk and prepayment risk. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements and synthetic instruments (such as synthetic collateralized debt obligations) expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • The Fund is subject to active trading risks that may increase volatility and impact its ability to achieve its investment objective. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.

 

The Series M (Macro Opportunities Series) may not be suitable for all investors. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • The intrinsic value of the underlying stocks in which the Fund invests may never be realized or the stock may decline in value. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The use of short selling involves increased risks and costs. You risk paying more for a security than you received from its sale. Theoretically, stocks sold short have the risk of unlimited losses. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s

 

the GUGGENHEIM FUNDS annual report | 3

 

 
 

 

December 31, 2013

 

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. • The Fund’s investments in municipal securities can be affected by events that affect the municipal bond market. • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.

 

The Series N (Managed Asset Allocation Series) may not be suitable for all investors. • The value of an investment in the Fund will fluctuate and is subject to investment risks, which means investors could lose money. • The Fund could lose money if the issuer of a bond or a counterparty to a derivatives transaction or other transaction is unable to repay interest and principal on time or defaults. • The issuer of a bond could also suffer a decrease in quality rating, which would affect the volatility and liquidity of the bond. • Derivatives may pose risks in addition to those associated with investing directly in securities or other investments, including the risk that the Fund will be unable to sell, unwind or value the derivative because of an illiquid market, the risk that the derivative is not well correlated with underlying investments or the Fund’s other portfolio holdings, and the risk that the counterparty is unwilling or unable to meet its obligation. • The use of derivatives by the Fund to hedge risk may reduce the opportunity for gain by offsetting the positive effect of favorable price movements. • Furthermore, if the Investment Manager is incorrect about its expectations of market conditions, the use of derivatives could result in a loss, which in some cases may be unlimited. • Foreign securities carry additional risks when compared to U.S. securities, including currency fluctuations, adverse political and economic developments, unreliable or untimely information, less liquidity, limited legal recourse and higher transactional costs. • The Investment Manager may not be able to cause certain of the underlying funds’ performance to match or correlate to that of the underlying funds’ respective underlying index or benchmark, either on a daily or aggregate basis. • Factors such as underlying fund expenses, imperfect correlation between an underlying fund’s investments and those of its underlying index or underlying benchmark, rounding of share prices, changes to the composition of the underlying index or underlying benchmark, regulatory policies, high portfolio turnover rate, and the use of leverage all contribute to tracking error. • Tracking error may cause an underlying fund’s and, thus the Fund’s, performance to be less than you expect. • Please read the prospectus for more detailed information regarding these and other risks.

 

The Series P (High Yield Series) may not be suitable for all investors. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • The Fund’s use of leverage, through borrowings or instruments such as derivatives, may cause the Fund to be more volatile than if it had not been leveraged. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • The Fund may invest in foreign securities which carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.

 

The Series Z (Alpha Opportunity Series) may not be suitable for all investors. • Value stocks are subject to the risk that the intrinsic value of the stock may never be realized by the market, or that the stock’s price will decline in value. • Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions regarding the growth potential of the issuing company. Please read the prospectus for more detailed information regarding these and other risks.

 

4 | the GUGGENHEIM FUNDS annual report

 

 
 

  

Economic and Market Overview (Unaudited) December 31, 2013

 

The year ended December 31, 2013 wound down with a series of stronger-than-expected economic data releases. ISM manufacturing data (historically indicative of expansion or contraction) rose to its highest levels in over two years, consumer confidence rebounded following the government shutdown, housing starts surged, and the job market strengthened. Citing improved labor market conditions and a sustainable economic expansion, the U.S. Federal Reserve (the “Fed”) announced in December that it would reduce its monthly bond purchases by $10 billion, to $75 billion, starting in January 2014. Yet, at the same time, the Fed lengthened the time frame before which it will raise rates by promising to keep the Fed funds target rate at 0-0.25% at least as long as the unemployment rate remains above 6.5% and perhaps “well past” the time this target is reached. For the first time, the Fed also added a lower-bound target for inflation of 2%–lengthening the expected time frame before rates rise.

 

As the U.S. economy slowly strengthens, we may return to an environment where taking credit risk is not just a consequence of staying within duration targets or reaching for yield, but rather a proactive choice driven by a positive outlook on the economy. To sustain optimism, the Fed will need to monitor the unintended consequences of tapering and avoid negative economic repercussions, as happened in the summer of 2013 when a spike in 10-year Treasury yields dampened home sales. For markets, the Fed must convince investors that the economy is strong enough to withstand steady reductions of its asset purchases. These will likely be Janet Yellen’s top priorities as she takes over the helm of the Fed.

 

Last January, the global economy faced myriad headwinds, choppiness lay ahead, and we expected plenty of volatility in 2013. Nevertheless, we believed at that point that risk assets were the best choice for investors. Now, the headwinds of 2013 have largely dissipated, and the outlook appears benign for risk assets for the first three to six months of 2014, if not longer.

 

Many pundits may have underestimated the strength of the U.S. economy, with both third quarter and fourth quarter economic growth beating expectations. The final three months of 2013 were exceptionally good for U.S. equities, which produced a wealth effect that probably boosted holiday sales. All of this bodes well for the first quarter of 2014.

 

Market conditions could be even stronger in Europe. Economic data from the euro area’s periphery is improving faster than from the core, where inflation is also rising at a faster pace, giving the peripheral nations a competitive advantage. In Asia, markets have priced for a more negative scenario that now appears less likely. With the U.S. and Europe now out of recession, they are ready to underpin a recovery in export growth in the Asian region. As a synchronous global expansion gets under way, investors may become more comfortable with taking risk, and this should be reflected in asset prices in many regions around the globe.

 

For 2014, investors should bear in mind that the Fed will continue injecting liquidity into financial markets even as it tapers its asset purchases. Assuming that the Fed continues the same pace of reductions at each Federal Open Market Committee meeting, it would still purchase more than $500 billion of bonds in 2014–nearly the size of the Fed’s QE2 from November 2010 to June 2011. This should help support credit spreads. An accelerated pace of tapering from the Fed would signal faster-than-expected economic growth and spark higher demand for risk assets. On balance, we expect the impact of tapering to be neutral. Barring economic weakness, we expect relatively benign market conditions with no major spike in volatility.

 

For the year ended December 31, 2013, the Standard & Poor’s 500® (“S&P 500”) Index* returned 32.39%. Foreign markets were also strong: the Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned 22.78%. The return of the MSCI Emerging Markets Index* was -2.60%.

 

In the bond market, the Barclays U.S. Aggregate Bond Index* posted a -2.02% return for the period, while the Barclays U.S. Corporate High Yield Index* returned 7.44%. The return of the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.07% for the 12-month period.

 

The opinions and forecasts expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.

 

the GUGGENHEIM FUNDS annual report | 5

 

 
 

 

Economic and Market Overview (Unaudited) (concluded) December 31, 2013

 

*Index Definitions:

 

The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.

 

Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.

 

Barclays U.S. Corporate High Yield Index measures the market of 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 U.S. Intermediate Government/Credit Bond Index measures the performance of U.S. Dollar denominated U.S. Treasuries, government-related and investment grade U.S. corporate securities that have a remaining maturity of greater than one year and less than ten years.

 

Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.

 

Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market.

 

MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.

 

MSCI Emerging Markets Index is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global emerging markets.

 

MSCI EAFE Equal Weighted Index equally weights the issuers in the MSCI EAFE Index, which is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Equal Weighted Index is rebalanced quarterly so that each issuer has the same weight on each rebalancing date. The MSCI EAFE Index consists of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

 

MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.

 

S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad economy, representing all major industries and is considered a representation of the U.S. stock market.

 

Russell 3000® Value Index measures the performance of the broad value segment of the U.S. equity value universe. It includes those Russell 3000 companies with lower price-to-book ratios and lower forecasted growth values.

 

Russell 2500® Value Index measures the performance of the small- to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values.

 

Russell 2000® Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.

 

Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

 

Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth value.

 

Russell 1000® Value Index measures the performance for the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.

 

Russell Midcap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values.

 

6 | the GUGGENHEIM FUNDS annual report

  

 
 

 

ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)

 

All mutual funds have operating expenses and it is important for our shareholders to understand the impact of costs on their investments. Shareholders of a Fund incur two types of costs: (i) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and exchange fees; and (ii) ongoing costs, including management fees, administrative services, and shareholder reports, among others. These ongoing costs, or operating expenses, are deducted from a fund’s gross income and reduce the investment return of the fund.

 

A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense ratio. The following examples are intended to help investors understand the ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

 

The examples are based on an investment of $1,000 made at the beginning of the period and held for the entire six-month period beginning June 30, 2013 and ending December 31, 2013.

 

The following tables illustrate a Fund’s costs in two ways:

 

Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”

 

Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

 

The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.

 

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.

 

the GUGGENHEIM FUNDS annual report | 7

 

 
 

 

ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) (concluded)

 

           Beginning   Ending   Expenses 
   Expense   Fund   Account Value   Account Value   Paid During 
   Ratio1,4   Return   June 30, 2013   December 31, 2013   Period2 
Table 1. Based on actual Fund return3       
Series A (StylePlus–Large Core Series)   0.98%   16.78%  $1,000.00   $1,167.80   $ 5.35 
Series B (Large Cap Value Series)   0.84%   14.29%   1,000.00    1,142.90    4.54 
Series C (Money Market Series)   0.57%   (0.23%)   1,000.00    997.70    2.87 
Series D (World Equity Income Series)   1.12%   13.96%   1,000.00    1,139.60    6.04 
Series E (Total Return Bond Series)   0.91%   2.37%   1,000.00    1,023.70    4.64 
Series F (Floating Rate Strategies Series)   1.19%   3.10%   1,000.00    1,031.00    6.09 
Series J (StylePlus–Mid Growth Series)   1.02%   19.37%   1,000.00    1,193.70    5.64 
Series M (Macro Opportunities Series)   1.53%   3.49%   1,000.00    1,034.90    7.85 
Series N (Managed Asset Allocation Series)   1.05%   10.20%   1,000.00    1,102.00    5.56 
Series O (All Cap Value Series)   0.92%   14.94%   1,000.00    1,149.40    4.98 
Series P (High Yield Series)   1.11%   4.53%   1,000.00    1,045.30    5.72 
Series Q (Small Cap Value Series)   1.18%   18.82%   1,000.00    1,188.20    6.51 
Series V (Mid Cap Value Series)   0.95%   15.44%   1,000.00    1,154.40    5.16 
Series X (StylePlus–Small Growth Series)   1.33%   22.48%   1,000.00    1,224.80    7.46 
Series Y (StylePlus–Large Growth Series)   1.18%   19.65%   1,000.00    1,196.50    6.53 
Series Z (Alpha Opportunity Series)   2.43%   16.23%   1,000.00    1,162.30    13.24 
                          
Table 2. Based on hypothetical 5% return (before expenses)  
Series A (StylePlus–Large Core Series)   0.98%   5.00%  $1,000.00   $1,020.27   $ 4.99 
Series B (Large Cap Value Series)   0.84%   5.00%   1,000.00    1,020.97    4.28 
Series C (Money Market Series)   0.57%   5.00%   1,000.00    1,022.33    2.91 
Series D (World Equity Income Series)   1.12%   5.00%   1,000.00    1,019.56    5.70 
Series E (Total Return Bond Series)   0.91%   5.00%   1,000.00    1,020.62    4.63 
Series F (Floating Rate Strategies Series)   1.19%   5.00%   1,000.00    1,019.21    6.06 
Series J (StylePlus–Mid Growth Series)   1.02%   5.00%   1,000.00    1,020.06    5.19 
Series M (Macro Opportunities Series)   1.53%   5.00%   1,000.00    1,017.49    7.78 
Series N (Managed Asset Allocation Series)   1.05%   5.00%   1,000.00    1,019.91    5.35 
Series O (All Cap Value Series)   0.92%   5.00%   1,000.00    1,020.57    4.69 
Series P (High Yield Series)   1.11%   5.00%   1,000.00    1,019.61    5.65 
Series Q (Small Cap Value Series)   1.18%   5.00%   1,000.00    1,019.26    6.01 
Series V (Mid Cap Value Series)   0.95%   5.00%   1,000.00    1,020.42    4.84 
Series X (StylePlus–Small Growth Series)   1.33%   5.00%   1,000.00    1,018.50    6.77 
Series Y (StylePlus–Large Growth Series)   1.18%   5.00%   1,000.00    1,019.26    6.01 
Series Z (Alpha Opportunity Series)   2.43%   5.00%   1,000.00    1,012.96    12.33 

 

1Annualized and excludes expenses of the underlying funds in which the Fund invests.
2Expenses are equal to the Fund’s annualized expense ratio, net of any applicable fee waivers, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses shown do not include fees charged by insurance companies.
3Actual cumulative return at net asset value for the period June 30, 2013 to December 31, 2013.
4This ratio represents annualized net expenses which includes extraordinary expenses. Excluding these expenses, the operating expense ratios would be 0.55% for Series C (Money Market Series), 0.81% for Series E (Total Return Bond Series), 1.16% for Series F (Floating Rate Strategies Series), 1.47% for Series M (Macro Opportunities Series) and 2.35% for Series Z (Alpha Opportunity Series).

 

8 | the GUGGENHEIM FUNDS annual report

 

 
 

  

Manager’S Commentary (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series A (StylePlus–Large Core Series, formerly Large Cap Core Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chief Investment Officer; Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance and changes to the Fund that occurred during the fiscal year ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series A (StylePlus–Large Core Series, formerly Large Cap Core Series) returned 28.87%. The benchmark, the S&P 500® Index, returned 32.39%.

 

The Fund’s Board of Directors approved the following changes, which became effective on April 30, 2013: a new Fund name, new principal investment strategies and new portfolio management team.

 

The Fund’s investment objective is to deliver long-term growth of capital in excess of that produced by the total return of the S&P 500 Index. The Fund seeks to add alpha above the target index by leveraging Guggenheim’s competencies in fixed income and systematic stock selection. To accomplish this, the StylePlus strategy allocates to quantitative selection models when stock picking opportunities in the market are high. When stock selection opportunities are less attractive, the Fund invests in derivatives based on the target index, backed by a diversified portfolio of fixed income instruments. In this way, the Fund believes it will deliver the target index return plus an alpha component commensurate with the yield achieved on the active fixed income portfolio.

 

The Fund’s underperformance for the 12 months came predominantly during the four months it was being managed according to the legacy strategy. Specifically—from January 1, 2013 through April 30, 2013—the Fund underperformed the benchmark by almost four percentage points, largely due to poor stock selection in the Information Technology. The Fund’s cash position was also a drag on performance. A sector overweight and stock selection in Consumer Discretionary contributed most to the Fund’s performance.

 

For the time the Fund was being managed according to the new strategy, the eight months from April 30, 2013 through December 31, 2013, the Fund performed slightly better than the benchmark. During much of this period, the Fund maintained an approximate allocation of 20% to systematic equity selection, 80% allocated to the passive equity position, which was maintained with swap agreements and futures contracts and 53% allocated to fixed income investments (excluding short term). Beginning in December 2013, due to a more favorable outlook for active stock selection, the equity sleeve was increased to 25%, with 74% allocated to the passive equity position.

 

The equity sleeve was additive over the period, delivering the strongest returns during the months of May, June and December.

 

The fixed income allocation also contributed to performance over the eight months, after detracting from performance during the substantial debt selloff that began at the end of May and lasted in to June. The swap agreements also contributed to performance.

 

 

 

 

 

 

 

 

 

 

 

Performance displayed represents past performance, which is no guarantee of future results.

 

The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.

 

The Guggenheim Funds annual REPORT | 9

 

 
 

 

performance report and FUND PROFILE (Unaudited) December 31, 2013

 

SERIES A (STYLEPLUS–LARGE CORE SERIES) 

OBJECTIVE: Seeks long-term growth of capital.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series A (StylePlus–Large Core Series)   28.87%   16.14%   4.80%
S&P 500 Index   32.39%   17.94%   7.41%

 

Ten Largest Holdings (% of Total Net Assets)

Dreyfus Treasury Prime Cash Management Fund   6.8%
U.S. Treasury Bill   3.0%
Guggenheim BulletShares 2016 High Yield Corporate Bond ETF   2.0%
Guggenheim BulletShares 2015 High Yield Corporate Bond ETF   2.0%
Guggenheim BulletShares 2014 High Yield Corporate Bond ETF   1.9%
Floating Rate Strategies Fund Institutional Class   1.7%
Macro Opportunities Fund Institutional Class   1.7%
New York City Water & Sewer System Revenue Bonds   1.3%
Duane Street CLO IV Ltd. — Class A1T   1.3%
HSI Asset Securitization Corporation Trust 2007-WF1 — Class 2A3   1.2%
Top Ten Total   22.9%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date: May 1, 1979

 

Portfolio Composition by Quality Rating**
Rating

Fixed Income Instruments     
AAA   10.8%
AA   3.9%
A   7.4%
BBB   21.9%
BB   3.0%
B   4.6%
CCC   5.2%
NR   2.1%
Other Instruments     
Common Stock   25.3%
Short Term Investments   6.8%
Exchange Traded Funds   5.9%
Mutual Funds   3.4%
Total Investments   100.3%

The chart above reflects percentages of the value of total investments.

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The S&P 500 Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
**Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

10 | the GUGGENHEIM FUNDS annual report

 

 
 

 

Schedule of Investments December 31, 2013
Series A (styleplus–large Core Series)

 

   Shares   Value 
         
COMMON STOCKS† - 25.3%          
           
Information Technology - 5.1%          
Apple, Inc.   2,910   $1,632,830 
International Business Machines Corp.   6,919    1,297,796 
Microsoft Corp.   26,620    996,387 
Cisco Systems, Inc.   40,904    918,295 
Hewlett-Packard Co.   27,970    782,601 
Oracle Corp.   20,381    779,777 
EMC Corp.   30,566    768,735 
Corning, Inc.   38,511    686,266 
TE Connectivity Ltd.   11,910    656,360 
Google, Inc. — Class A*   463    518,889 
Western Digital Corp.   6,059    508,350 
Texas Instruments, Inc.   10,466    459,562 
Intel Corp.   15,873    412,063 
QUALCOMM, Inc.   5,511    409,192 
Seagate Technology plc   6,603    370,824 
Accenture plc — Class A   3,703    304,461 
Symantec Corp.   7,786    183,594 
Total Information Technology        11,685,982 
           
Health Care - 5.0%          
Pfizer, Inc.   43,814    1,342,023 
Merck & Company, Inc.   21,016    1,051,851 
Johnson & Johnson   10,139    928,631 
Express Scripts Holding Co.*   11,410    801,438 
Abbott Laboratories   20,581    788,869 
Medtronic, Inc.   13,298    763,172 
UnitedHealth Group, Inc.   9,606    723,331 
Covidien plc   9,695    660,230 
Cardinal Health, Inc.   9,856    658,480 
Eli Lilly & Co.   12,011    612,561 
WellPoint, Inc.   5,930    547,873 
Aetna, Inc.   7,790    534,316 
McKesson Corp.   3,083    497,596 
Cigna Corp.   5,349    467,931 
Amgen, Inc.   3,457    394,651 
Thermo Fisher Scientific, Inc.   3,212    357,656 
Stryker Corp.   2,904    218,207 
Becton Dickinson and Co.   1,591    175,790 
Total Health Care        11,524,606 
           
Industrials - 4.7%          
General Electric Co.   57,642    1,615,705 
United Technologies Corp.   8,270    941,126 
United Parcel Service, Inc. — Class B   8,127    853,985 
Caterpillar, Inc.   8,832    802,034 
FedEx Corp.   5,208    748,754 
General Dynamics Corp.   7,354    702,675 
Waste Management, Inc.   15,541    697,325 
Northrop Grumman Corp.   6,002    687,889 
CSX Corp.   23,771    683,892 
Boeing Co.   4,802    655,425 
Delta Air Lines, Inc.   19,092    524,457 
Emerson Electric Co.   6,606    463,609 
Raytheon Co.   3,707    336,225 
Union Pacific Corp.   1,851    310,968 
Lockheed Martin Corp.   1,372    203,962 
Norfolk Southern Corp.   2,040    189,373 
Republic Services, Inc. — Class A   5,236    173,835 
Stanley Black & Decker, Inc.   2,144    172,999 
Total Industrials        10,764,238 
           
Energy - 3.3%          
Exxon Mobil Corp.   12,009    1,215,311 
ConocoPhillips   11,007    777,644 
Anadarko Petroleum Corp.   9,067    719,194 
Marathon Oil Corp.   19,224    678,607 
Phillips 66   8,153    628,841 
Occidental Petroleum Corp.   6,466    614,917 
Baker Hughes, Inc.   10,811    597,416 
Chevron Corp.   4,732    591,074 
Apache Corp.   4,847    416,551 
EOG Resources, Inc.   2,289    384,186 
Valero Energy Corp.   7,410    373,464 
Devon Energy Corp.   4,406    272,599 
Nabors Industries Ltd.   10,848    184,308 
Kinder Morgan, Inc.   4,964    178,704 
Total Energy        7,632,816 
           
Consumer Staples - 3.2%          
Wal-Mart Stores, Inc.   14,272    1,123,064 
CVS Caremark Corp.   14,062    1,006,418 
PepsiCo, Inc.   9,349    775,406 
Walgreen Co.   13,175    756,772 
Kimberly-Clark Corp.   6,797    710,014 
General Mills, Inc.   13,782    687,859 
Procter & Gamble Co.   6,453    525,339 
Mondelez International, Inc. — Class A   14,836    523,711 
Philip Morris International, Inc.   4,908    427,634 
Kroger Co.   8,881    351,066 
Archer-Daniels-Midland Co.   7,531    326,845 
Kellogg Co.   3,199    195,363 
Total Consumer Staples        7,409,491 
           
Financials - 1.8%          
Citigroup, Inc.   20,145    1,049,757 
JPMorgan Chase & Co.   15,353    897,843 
Wells Fargo & Co.   9,245    419,723 
MetLife, Inc.   7,484    403,537 
Berkshire Hathaway, Inc. — Class B*   2,882    341,690 
American International Group, Inc.   5,993    305,943 
Regions Financial Corp.   23,982    237,182 
Capital One Financial Corp.   2,551    195,432 
Aflac, Inc.   2,864    191,315 
Allstate Corp.   3,391    184,945 
Total Financials        4,227,367 
           
Consumer Discretionary - 1.6%          
Comcast Corp. — Class A   20,780    1,079,832 
Time Warner, Inc.   11,801    822,766 
Target Corp.   11,314    715,837 
Ford Motor Co.   34,291    529,110 
Macy’s, Inc.   6,057    323,444 
The Gap, Inc.   4,476    174,922 
Time Warner Cable, Inc.   1,035    140,243 
Total Consumer Discretionary        3,786,154 

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 11

 

 
 

  

Schedule of Investments (continued) December 31, 2013
Series A (styleplus–large Core Series)  

 

   Shares   Value 
         
Utilities - 0.4%          
Exelon Corp.   22,205   $608,195 
American Electric Power Company, Inc.   4,997    233,560 
Total Utilities        841,755 
           
Telecommunication Services - 0.2%          
CenturyLink, Inc.   15,772    502,338 
Total Common Stocks          
(Cost $53,671,807)        58,374,747 
           
EXCHANGE TRADED FUNDS†,4 - 5.9%          
Guggenheim BulletShares 2016          
High Yield Corporate Bond ETF   169,000    4,566,380 
Guggenheim BulletShares 2015          
High Yield Corporate Bond ETF   168,800    4,520,464 
Guggenheim BulletShares 2014          
High Yield Corporate Bond ETF   169,100    4,509,897 
Total Exchange Traded Funds          
(Cost $13,569,434)        13,596,741 
           
MUTUAL FUNDS†,5 - 3.4%          
Floating Rate Strategies Fund          
Institutional Class   150,653    4,029,967 
Macro Opportunities Fund          
Institutional Class   146,257    3,910,920 
Total Mutual Funds          
(Cost $8,137,283)        7,940,887 
           
SHORT TERM INVESTMENTS† - 6.8%          
Dreyfus Treasury Prime Cash          
Management Fund   15,627,652    15,627,652 
Total Short Term Investments          
(Cost $15,627,652)        15,627,652 

  

   Face     
   Amount    
ASSET BACKED SECURITIES†† - 24.6%          
Duane Street CLO IV Ltd.          
2007-4A, 0.47% due 11/14/211,2  $3,109,214    3,047,652 
HSI Asset Securitization          
Corporation Trust          
2007-WF1, 0.33% due 05/25/371   3,100,693    2,848,173 
JP Morgan Mortgage Acquisition Trust          
2006-CH2, 0.26% due 10/25/361   2,752,754    2,702,813 
Garrison Funding 2013-2 Ltd.          
2013-2A, 2.13% due 09/25/231,2   2,400,000    2,390,400 
Argent Securities Incorporated          
Asset-Backed Pass-Through          
Certificates Series          
2005-W3, 0.50% due 11/25/351   2,281,357    2,138,025 
JP Morgan Mortgage          
Acquisition Trust          
2007-CH3, 0.31% due 03/25/371   2,135,248    2,031,578 
Brentwood CLO Corp.          
2006-1A, 0.51% due 02/01/221,2   1,511,565    1,479,822 
2006-1A, 1.06% due 02/01/221,2   600,000    531,780 
Foothill CLO Ltd.          
2007-1A, 0.48% due 02/22/211,2   1,890,230    1,853,371 
Cornerstone CLO Ltd.          
2007-1A, 0.46% due 07/15/211,2   1,850,000    1,803,750 
NewStar Commercial Loan Trust          
2006-1A, 0.63% due 03/30/221,2   1,100,000    1,073,490 
2006-1A, 0.52% due 03/30/221,2   739,436    728,344 
Goldman Sachs Asset Management CLO plc          
2007-1A, 2.99% due 08/01/221,2   1,800,000    1,726,380 
Salus CLO 2012-1 Ltd.          
2013-1AN, 2.49% due 03/05/211,2   1,700,000    1,700,000 
Halcyon Structured Asset Management          
Long Secured/Short Unsecured 2007-2 Ltd.          
2007-2A, 3.99% due 10/29/211,2   1,700,000    1,683,510 
Cerberus Onshore II CLO LLC          
2014-1A, 2.94% due 10/15/231,2   1,350,000    1,338,120 
2014-1A, 2.24% due 10/15/231,2   250,000    250,200 
Lehman XS Trust          
2007-9, 0.28% due 06/25/371   1,818,997    1,579,777 
Central Park CLO Ltd.          
2011-1A, 3.44% due 07/23/221,2   1,580,000    1,527,544 
Aegis Asset Backed Securities Trust          
2005-3, 0.63% due 08/25/351   1,600,000    1,522,638 
N-Star REL CDO VIII Ltd.          
2006-8A, 0.46% due 02/01/411,2   1,487,458    1,355,818 
Wells Fargo Home Equity Asset-Backed          
Securities 2006-2 Trust          
2006-3, 0.31% due 01/25/371   1,487,672    1,345,766 
KKR Financial CLO Corp.          
2007-1A, 2.49% due 05/15/211,2   1,400,000    1,318,240 
Black Diamond CLO Delaware Corp.          
2005-1A, 2.15% due 06/20/171,2   1,350,000    1,299,240 
Newcastle CDO Ltd.          
2007-9A, 0.42% due 05/25/52   1,317,869    1,287,031 
West Coast Funding Ltd.          
2006-1A, 0.39% due 11/02/411,2   1,308,657    1,262,069 
GreenPoint Mortgage Funding Trust          
2005-HE4, 0.87% due 07/25/301   1,400,000    1,246,123 
Symphony CLO VII Ltd.          
2011-7A, 3.44% due 07/28/211,2   1,250,000    1,239,500 
Popular ABS Mortgage          
Pass-Through Trust          
2005-A, 0.59% due 06/25/351   1,248,943    1,189,674 
FM Leveraged Capital Fund II          
2006-2A, 1.84% due 11/15/201,2   1,180,000    1,165,604 
GSC Group CDO Fund VIII Ltd.          
2007-8A, 0.62% due 04/17/211,2   1,250,000    1,158,125 
Global Leveraged Capital          
Credit Opportunity Fund          
2006-1A, 0.54% due 12/20/181,2   1,054,234    1,042,215 
California Republic Auto Receivables Trust          
2013-2, 1.23% due 03/15/19   1,000,000    999,249 
TICC CLO LLC          
2011-1A, 2.49% due 07/25/211,2   1,000,000    995,400 
Black Diamond CLO 2006-1 Luxembourg S.A.          
2007-1A, 0.63% due 04/29/191,2   1,000,000    912,400 
Northwoods Capital VII Ltd.          
2006-7A, 1.79% due 10/22/211,2   960,000    902,592 
Golub Capital Partners Fundings Ltd.          
2007-1A, 0.49% due 03/15/221,2   683,761    671,658 
ACS 2007-1 Pass Through Trust          
2007-1A, 0.48% due 06/14/371,2   645,125    599,966 
Ares XVI CLO Ltd.          
2011-16A, 3.54% due 05/17/211,2   500,000    497,500 

  

12 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Schedule of Investments (continued) December 31, 2013
Series A (styleplus–large Core Series)  

 

   Face     
   Amount   Value 
         
Race Point IV CLO Ltd.          
2007-4A, 0.99% due 08/01/211,2  $500,000   $470,500 
NewStar Commercial Loan Trust 2007-1          
2007-1A, 1.54% due 09/30/221,2   500,000    459,200 
Riverside Park CLO Ltd.          
2011-1A, 3.00% due 09/27/211,2   450,000    450,000 
Accredited Mortgage Loan Trust          
2007-1, 0.29% due 02/25/371   477,329    441,165 
DIVCORE CLO Ltd.          
2013-1A B, 4.10% due 11/15/32   400,000    398,800 
Legg Mason Real Estate CDO I Ltd.          
2006-1A, 0.45% due 03/25/381,2   186,381    183,809 
Total Asset Backed Securities          
(Cost $56,951,385)        56,849,011 
           
CORPORATE BONDS†† - 8.9%          
Financials - 3.6%          
Icahn Enterprises Limited Partnership /          
Icahn Enterprises Finance Corp.          
8.00% due 01/15/18   1,220,000    1,268,800 
7.75% due 01/15/16   620,000    632,400 
Ford Motor Credit Company LLC          
7.00% due 04/15/15   1,630,000    1,754,478 
Citigroup, Inc.          
1.20% due 07/25/161   1,510,000    1,525,692 
International Lease Finance Corp.          
2.19% due 06/15/161   1,100,000    1,105,500 
Nationstar Mortgage LLC /          
Nationstar Capital Corp.          
6.50% due 08/01/18   700,000    712,250 
Mack-Cali Realty, LP          
5.13% due 02/15/14   680,000    682,998 
WEA Finance LLC / WT Finance Aust Pty Ltd.          
5.75% due 09/02/152   450,000    485,381 
Emigrant Bancorp, Inc.          
6.25% due 06/15/142   400,000    405,371 
Total Financials        8,572,870 
           
Materials - 1.9%          
Glencore Funding LLC          
1.40% due 05/27/161,2   2,210,000    2,199,659 
Rio Tinto Finance USA plc          
1.08% due 06/17/161   1,570,000    1,581,139 
Anglo American Capital plc          
9.38% due 04/08/142   700,000    715,518 
Total Materials        4,496,316 
           
Telecommunication Services - 1.3%          
Level 3 Financing, Inc.          
3.85% due 01/15/181,2   1,700,000    1,710,625 
WPP Finance UK          
8.00% due 09/15/14   1,200,000    1,259,713 
Total Telecommunication Services        2,970,338 
           
Energy - 1.2%          
Ras Laffan Liquefied Natural          
Gas Company Limited III          
5.83% due 09/30/162   1,902,560    2,021,470 
Petroleos Mexicanos          
2.27% due 07/18/181   660,000    679,800 
Total Energy        2,701,270 
           
Consumer Staples - 0.3%          
Harbinger Group, Inc.          
7.88% due 07/15/192  590,000   633,513 
           
Consumer Discretionary - 0.3%          
Vail Resorts, Inc.          
6.50% due 05/01/19   300,000    318,000 
Sabre, Inc.          
8.50% due 05/15/192   240,000    266,400 
Total Consumer Discretionary        584,400 
           
Information Technology - 0.2%          
iGATE Corp.          
9.00% due 05/01/16   340,000    361,250 
           
Industrials - 0.1%          
Victor Technologies Group, Inc.          
9.00% due 12/15/17   180,000    192,600 
Total Corporate Bonds          
(Cost $20,480,021)        20,512,557 
           
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 5.1%          
Boca Hotel Portfolio Trust          
2013-BOCA, 3.22% due 08/15/261,2   1,900,000    1,902,276 
Hilton USA Trust          
2013-HLF, 2.92% due 11/05/301,2   1,700,000    1,700,122 
Wachovia Bank Commercial Mortgage          
Trust Series 2007-WHALE 8          
2007-WHL8, 0.25% due 06/15/201,2   1,421,546    1,407,186 
SRERS-2011 Funding Ltd.          
2011-RS, 0.42% due 05/09/461,2   1,505,762    1,364,823 
COMM 2007-FL14 Mortgage Trust          
2007-FL14, 0.92% due 06/15/221,2   1,340,253    1,322,788 
HarborView Mortgage Loan Trust          
2006-12, 0.36% due 01/19/381   1,368,628    1,112,696 
Banc of America Merrill Lynch          
Commercial Mortgage, Inc.          
2005-6, 6.13% due 09/10/471,2   1,075,200    1,109,172 
GCCFC Commercial Mortgage Trust          
2006-FL4A C, 0.40% due 11/05/21   1,000,000    985,223 
Banc of America Large Loan Trust          
2007-BMB1, 1.27% due 08/15/291,2   950,000    942,567 
Total Collateralized Mortgage Obligations          
(Cost $11,781,296)        11,846,853 
           
SENIOR FLOATING RATE INTERESTS††,1 - 3.9%          
Industrials - 1.1%          
Travelport Holdings Ltd.          
6.25% due 06/26/19   1,880,550    1,926,002 
Thermasys Corp.          
5.26% due 05/03/19   765,188    752,432 
Total Industrials        2,678,434 
           
Financials - 1.0%          
National Financial Partners          
5.25% due 07/01/20   1,512,400    1,526,268 
Knight/Getco          
5.75% due 11/30/17   603,972    604,727 
First Data Corp.          
4.16% due 03/23/18   150,000    150,104 

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 13

 

 
 

 

Schedule of Investments (concluded) December 31, 2013
Series A (styleplus–large Core Series)

 

   Face     
   Amount   Value 
         
Cunningham Lindsey U.S., Inc.          
5.00% due 12/10/19  $138,947   $138,774 
Total Financials        2,419,873 
           

Energy - 0.7%

          
Pacific Drilling 4.50% due 05/18/18   776,100    784,350 
Ocean Rig ASA 5.50% due 07/15/16   748,125    757,791 
Total Energy        1,542,141 
           
Consumer Discretionary - 0.6%          
Pinnacle Entertainment, Inc.          
3.75% due 08/15/16   646,518    650,966 
Go Daddy Operating Company LLC          
4.00% due 12/16/18   285,268    285,328 
Sears Holdings Corp.          
5.50% due 06/30/18   240,000    241,318 
Laureate Education, Inc.          
5.00% due 06/16/18   124,366    124,911 
Total Consumer Discretionary        1,302,523 
           
Information Technology - 0.4%          
Blue Coat Systems, Inc.          
4.50% due 05/31/19   887,775    889,719 
           
Health Care - 0.1%          
Apria Healthcare Group, Inc.          
6.75% due 04/06/20   179,100    179,473 
Total Senior Floating Rate Interests          
(Cost $8,875,794)        9,012,163 
           
U.S. TREASURY BILLS† - 3.0%          
U.S. Treasury Bill6          
due 02/20/14   7,000,000    6,999,783 
Total U.S. Treasury Bills          
(Cost $6,999,810)        6,999,783 
           
MUNICIPAL BONDS†† - 2.7%          
New York - 2.5%          
New York City Water & Sewer          
System Revenue Bonds          
0.30% due 06/15/331   3,120,000    3,120,000 
City of New York New York          
General Obligation Unlimited          
0.30% due 04/01/351   1,550,000    1,550,000 
0.30% due 11/01/261   1,220,000    1,220,000 
Total New York        5,890,000 
           
Michigan - 0.2%          
Michigan Finance Authority          
Revenue Notes          
4.38% due 08/20/14   375,000    378,911 
Total Municipal Bonds          
(Cost $6,265,000)        6,268,911 
           
MORTGAGE BACKED SECURITIES†† - 0.8%          
Resource Capital Corporation          
CRE Notes 2013 Ltd.          
3.02% due 12/15/281,2  1,900,000   1,901,520 
Total Mortgage Backed Securities          
(Cost $1,900,000)        1,901,520 
           
COMMERCIAL PAPER†† - 9.9%          
Centrica plc          
0.22% due 01/03/14   2,200,000    2,199,968 
FMC Technologies Inc.          
0.23% due 01/14/14   2,000,000    1,999,835 
Diageo Capital plc          
0.08% due 01/02/14   1,700,000    1,699,992 
Tesco Treasury Services plc          
0.13% due 01/06/142   1,700,000    1,699,965 
Kellogg Co.          
0.12% due 01/08/14   1,700,000    1,699,957 
Northeast Utilities          
0.18% due 01/08/14   1,700,000    1,699,941 
Kinder Morgan Energy Partners, LP          
0.23% due 01/07/142   1,700,000    1,699,935 
VW Credit, Inc.          
0.22% due 01/13/142   1,700,000    1,699,875 
Ryder System, Inc.          
0.20% due 01/15/14   1,700,000    1,699,868 
BAT International Finance          
0.25% due 01/13/14   1,700,000    1,699,858 
Potomac Electric Power Co.          
0.25% due 01/13/14   1,700,000    1,699,858 
Nissan Motor Acceptance          
0.30% due 01/13/14   1,700,000    1,699,830 
CBS Corp.          
0.24% due 01/24/142   1,700,000    1,699,739 
Total Commercial Paper          
(Cost $22,898,621)        22,898,621 
Total Investments - 100.3%          
(Cost $227,158,103)       $231,829,446 
Other Assets & Liabilities, net - (0.3)%        (635,348)
Total Net Assets - 100.0%       $231,194,098 

 

       Unrealized 
   Units   Gain 
OTC EQUITY INDEX SWAP AGREEMENTS††          
Morgan Stanley Capital Services, Inc.          
February 2014 S&P 500 Index Swap,          
Terminating 02/03/143          
(Notional Value $170,799,554)   92,406   $— 

 

*Non-income producing security.
†Value determined based on Level 1 inputs — See Note 4.
††Value determined based on Level 2 inputs — See Note 4.
1Variable rate security. Rate indicated is rate effective at December 31, 2013.
2Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $64,006,104 (cost $64,052,387), or 27.7% of total net assets.
3Total Return based on S&P 500 Index +/- financing at a variable rate.
4Investment in a product that pays a management fee to a party related to the advisor.
5Affiliated funds.
6Zero coupon rate security.
 plc — Public Limited Company

 

14 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

 

Series A (styleplus–large Core Series)
 
STATEMENT OF ASSETS
AND LIABILITIES

December 31, 2013

 

Assets:     
Investments in unaffiliated issuers, at value     
(cost $219,020,820)  $223,888,559 
Investments in affiliated issuers, at value     
(cost $8,137,283)   7,940,887 
Total investments     
(cost $227,158,103)   231,829,446 
Receivable for swap settlement   4,671,296 
Cash   95,002 
Prepaid expenses   18,823 
Receivables:     
Interest   432,128 
Securities sold   320,800 
Dividends   202,375 
Fund shares sold   3,940 
Foreign taxes reclaim   115 
Total assets   237,573,925 
Liabilities:     
Due to broker   4,039,162 
Payable for:     
Securities purchased   1,907,263 
Fund shares redeemed   203,402 
Management fees   144,960 
Fund accounting/administration fees   18,361 
Transfer agent/maintenance fees   3,698 
Directors’ fees*   2,111 
Miscellaneous  60,870 
Total liabilities  6,379,827 
Net assets  $231,194,098 
Net assets consist of:     
Paid in capital  $200,600,696 
Undistributed net investment income   1,196,673 
Accumulated net realized gain on investments   24,725,386 
Net unrealized appreciation on investments   4,671,343 
Net assets  $231,194,098 
Capital shares outstanding   7,113,720 
Net asset value per share  $32.50 

 

STATEMENT OF
OPERATIONS

Year Ended December 31, 2013

 

Investment Income:     
Dividends from securities of unaffiliated issuers  $1,936,841 
Interest   1,090,682 
Dividends from securities of affiliated issuers   264,423 
Total investment income   3,291,946 
      
Expenses:     
Management fees   1,623,772 
Transfer agent/maintenance fees   25,455 
Fund accounting/administration fees   206,448 
Directors’ fees*   22,227 
Custodian fees   15,049 
Tax expense   6 
Miscellaneous   175,888 
Total expenses   2,068,845 
Net investment income   1,223,101 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments in unaffiliated issuers   42,552,123 
Investments in affiliated issuers   3,744 
Swap agreements   26,517,485 
Futures contracts   371,912 
Net realized gain   69,445,264 
Net change in unrealized appreciation (depreciation) on:     
Investments in unaffiliated issuers   (15,664,656)
Investments in affiliated issuers   (196,396)
Net change in unrealized appreciation (depreciation)   (15,861,052)
Net realized and unrealized gain   53,584,212 
Net increase in net assets resulting from operations  $54,807,313 

 

*Relates to Directors not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 15

 

 
 

 

Series A (styleplus–large Core Series)
 
STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment income  $1,223,101   $1,952,226 
Net realized gain on investments   69,445,264    13,722,503 
Net change in unrealized appreciation (depreciation) on investments   (15,861,052)   10,476,312 
Net increase in net assets resulting from operations   54,807,313    26,151,041 
           
Capital share transactions:          
Proceeds from sale of shares   13,501,310    8,284,929 
Cost of shares redeemed   (35,729,632)   (42,815,935)
Net decrease from capital share transactions   (22,228,322)   (34,531,006)
Net increase (decrease) in net assets   32,578,991    (8,379,965)
           
Net assets:          
Beginning of year   198,615,107    206,995,072 
End of year  $231,194,098   $198,615,107 
Undistributed net investment income at end of year  $1,196,673   $1,952,226 
           
Capital share activity:          
Shares sold   476,713    335,217 
Shares redeemed   (1,236,898)   (1,738,927)
Net decrease in shares   (760,185)   (1,403,710)

 

16 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Series A (styleplus–large Core Series)
 
FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $25.22   $22.31   $23.24   $19.97   $15.38 
Income (loss) from investment operations:                         
Net investment incomea   .16    .23    .13    .18    .11 
Net gain (loss) on investments (realized and unrealized)   7.12    2.68    (1.06)   3.09    4.48 
Total from investment operations   7.28    2.91    (.93)   3.27    4.59 
Net asset value, end of period  $32.50   $25.22   $22.31   $23.24   $19.97 
                          
Total Returnb   28.87%   13.04%   (4.00%)   16.37%   29.84%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $231,194   $198,615   $206,995   $243,820   $186,007 
Ratios to average net assets:                         
Net investment income   0.56%   0.92%   0.57%   0.89%   0.68%
Total expensesc   0.96%   0.94%   0.90%   0.92%   0.92%
Portfolio turnover rate   267%   103%   87%   111%   78%

 

aNet investment income per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
cDoes not include expenses of the underlying funds in which the Fund invests.

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 17

  

 
 

 

Manager’S Commentary (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series B (Large Cap Value Series) is managed by a team of seasoned professionals led by Mark A. Mitchell, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series B (Large Cap Value Series) returned 31.96%, compared with the Russell 1000® Value Index, which returned 32.53%.

 

The strategy is to select securities of companies that appear undervalued by the overall market relative to assets, earnings, growth potential or cash flows. The investment approach is a defined and disciplined process with three key philosophical tenets that drive our investment decisions: a valuation focus, a long-term investment horizon and an opportunistic approach.

 

The portfolio’s performance for the period was helped by stock selection in the Financials, Consumer Discretionary and Energy sectors, and an underweight in the Telecommunications Services sector. The Fund’s holdings in the Consumer Discretionary sector benefited from broad recoveries in both the auto and housing industries.

 

The largest detractor from performance was stock selection in the Industrials sector, which was overweight relative to the benchmark. Stock selection in the Materials sector was also a detractor.

 

The holdings contributing most to portfolio performance over the period were Harman International Industries, Inc., a maker and marketer of audio and electronic systems; and Aetna, Inc., a managed care company that specializes in corporate health plans.

 

The main detractors were McDermott International, Inc., which missed earnings early in 2013 and guided earnings down for other quarters and is no longer held in the portfolio; and Coeur Mining, Inc., which underperformed due to the selloff in gold earlier in 2013.

 

Sector positioning in the Fund is mostly a result of stock selection decisions where the Fund believes it is finding the most attractive valuations or investment opportunities. The largest changes in positioning from a year ago were an increase in the Energy sector exposure and a decrease in the Industrials sector exposure.

 

Nonetheless, for the period, the Fund had its largest overweight relative to the benchmark in Industrials, primarily in the engineering and construction industry. Opportunities appear attractive in investing in maintaining U.S. infrastructure and grids for distributing oil, gas and electricity.

 

The Fund was most underweight relative to the benchmark in Utilities and Health Care. In Health Care, the underweight was mostly in the large pharmaceuticals industry, which has been underperforming lately due to patent expirations and lack of reinvestment opportunities in new drug therapies. The Fund is overweight in the managed-care-provider industry, which was a boost to performance for the period. High valuations in the Utilities sector currently make this sector unattractive.

 

The Fund was also underweight relative to the benchmark in the Financials sector, the largest in both the Fund and the benchmark. This stance was a source of positive performance for the period, as was the Fund’s stock selection in the sector. The Fund continues to favor the insurance industry within Financials, and has no weighting in REITs, which make up a large part of the sector in the benchmark. The Fund’s underweight in REITs is because they appear expensive, prices having been driven up by yield-hungry investors searching for bond substitutes.

 

The slow-growth economy is making it more challenging to find investments with attractive growth prospects. While either a more powerful recovery or a significant market pullback could change this scenario, investors are currently finding it difficult to get paid for taking risk.

 

The Fund continues to focus on searching for companies it believes have good long-term fundamental prospects and attractive valuations that are likely to generate strong performance relative to the broader market, regardless of macroeconomic events.

 

 

 

 

 

 

 

 

 

 

 

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.

 

18 | The Guggenheim Funds annual REPORT

 

 
 

  

performance report and FUND PROFILE (Unaudited) December 31, 2013

 

SERIES B (LARGE CAP VALUE SERIES)

OBJECTIVE: Seeks long-term growth of capital.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series B (Large Cap Value Series)   31.96%   16.60%   7.91%
Russell 1000 Value Index   32.53%   16.67%   7.58%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date: May 1, 1979

 

Ten Largest Holdings (% of Total Net Assets)

Wells Fargo & Co.   4.4%
CVS Caremark Corp.   3.5%
American International Group, Inc.   3.2%
Dow Chemical Co.   3.2%
Chevron Corp.   3.2%
JPMorgan Chase & Co.   3.0%
Time Warner, Inc.   3.0%
Dreyfus Treasury Prime Cash Management Fund   2.9%
Computer Sciences Corp.   2.9%
Aetna, Inc.   2.8%
Top Ten Total   32.1%

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 1000 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

the GUGGENHEIM FUNDS annual report | 19

 

 
 

 

Schedule of Investments December 31, 2013
Series B (Large Cap Value Series)  

 

   Shares   Value 
         
COMMON STOCKS† - 96.2%          
           
Financials - 25.7%          
Wells Fargo & Co.   272,825   $12,386,255 
American International Group, Inc.   179,839    9,180,781 
JPMorgan Chase & Co.   146,300    8,555,624 
Allstate Corp.   127,050    6,929,307 
Aon plc   56,750    4,760,758 
Reinsurance Group of America, Inc. —          
Class A   56,330    4,360,505 
Bank of America Corp.   241,100    3,753,927 
Citigroup, Inc.   67,030    3,492,933 
Berkshire Hathaway, Inc. — Class A*   19    3,380,100 
Bank of New York Mellon Corp.   82,970    2,898,972 
U.S. Bancorp   66,546    2,688,458 
CME Group, Inc. — Class A   33,340    2,615,856 
Franklin Resources, Inc.   42,730    2,466,803 
Ocwen Financial Corp.*   36,940    2,048,323 
Home Loan Servicing Solutions Ltd.   74,450    1,710,117 
NASDAQ OMX Group, Inc.   42,020    1,672,396 
Total Financials        72,901,115 
           
Energy - 17.9%          
Chevron Corp.   72,770    9,089,700 
Apache Corp.   75,022    6,447,390 
Halliburton Co.   109,840    5,574,380 
Whiting Petroleum Corp.*   88,590    5,481,063 
Cameco Corp.   261,200    5,425,124 
Phillips 66   61,220    4,721,899 
Exxon Mobil Corp.   36,690    3,713,028 
Marathon Oil Corp.   94,300    3,328,790 
ConocoPhillips   35,510    2,508,782 
Suncor Energy, Inc.   65,570    2,298,229 
Superior Energy Services, Inc.*   79,890    2,125,873 
Total Energy        50,714,258 
           
Industrials - 13.5%          
URS Corp.   146,620    7,769,394 
Parker Hannifin Corp.   58,660    7,546,022 
Republic Services, Inc. — Class A   191,700    6,364,440 
United Technologies Corp.   55,680    6,336,384 
Quanta Services, Inc.*   188,580    5,951,585 
Covanta Holding Corp.   162,770    2,889,168 
General Cable Corp.   48,900    1,438,149 
Total Industrials        38,295,142 
           
Consumer Staples - 10.1%          
CVS Caremark Corp.   139,120    9,956,817 
Wal-Mart Stores, Inc.   79,650    6,267,659 
Bunge Ltd.   69,650    5,718,962 
Mondelez International, Inc. — Class A   136,300    4,811,390 
Kraft Foods Group, Inc.   35,743    1,927,263 
Total Consumer Staples        28,682,091 
           
Information Technology - 8.5%          
Computer Sciences Corp.   145,020    8,103,717 
TE Connectivity Ltd.   122,760    6,765,304 
Cisco Systems, Inc.   268,290    6,023,111 
Global Payments, Inc.   24,466    1,590,045 
NetApp, Inc.   37,400    1,538,636 
Total Information Technology        24,020,813 
           
Health Care - 6.6%          
Aetna, Inc.   115,830    7,944,780 
UnitedHealth Group, Inc.   49,170    3,702,501 
Teva Pharmaceutical Industries Ltd. ADR   73,390    2,941,471 
Pfizer, Inc.   65,290    1,999,833 
Covidien plc   29,000    1,974,900 
Mallinckrodt plc*   3,923    205,016 
Total Health Care        18,768,501 
           
Consumer Discretionary - 6.1%          
Time Warner, Inc.   120,653    8,411,927 
Lowe’s Companies, Inc.   95,520    4,733,016 
DeVry Education Group, Inc.   73,500    2,609,250 
Kohl’s Corp.   25,860    1,467,555 
Total Consumer Discretionary        17,221,748 
           
Materials - 4.7%          
Dow Chemical Co.   205,350    9,117,540 
Coeur Mining, Inc.*   284,400    3,085,740 
Potash Corporation of Saskatchewan, Inc.   36,620    1,206,995 
Total Materials        13,410,275 
           
Utilities - 2.4%          
Edison International   149,030    6,900,089 
           
TELECOMMUNICATION SERVICES - 0.7%          
Windstream Holdings, Inc.   232,532    1,855,605 
Total Common Stocks          
(Cost $190,451,542)        272,769,637 
           
EXCHANGE TRADED FUNDS† - 0.8%          
iShares Russell 1000 Value ETF   24,930    2,347,409 
Total Exchange Traded Funds          
(Cost $2,044,469)        2,347,409 
           
SHORT TERM INVESTMENTS† - 2.9%          
Dreyfus Treasury Prime Cash          
Management Fund   8,217,629    8,217,629 
Total Short Term Investments          
(Cost $8,217,629)        8,217,629 
Total Investments - 99.9%          
(Cost $200,713,640)       $283,334,675 
Other Assets & Liabilities, net - 0.1%        192,336 
Total Net Assets - 100.0%       $283,527,011 

 

*Non-income producing security.
†Value determined based on Level 1 inputs — See Note 4.

ADR — American Depositary Receipt

plc — Public Limited Company

 

20 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Series B (Large Cap Value Series)

 

STATEMENT OF ASSETS
AND LIABILITIES

December 31, 2013

 

Assets:     
Investments, at value     
(cost $200,713,640)  $283,334,675 
Prepaid expenses   7,655 
Receivables:     
Dividends   571,442 
Fund shares sold   21,109 
Foreign taxes reclaim   6,969 
Total assets   283,941,850 
Liabilities:     
Overdraft due to custodian bank   2 
Payable for:     
Fund shares redeemed   180,004 
Management fees   153,462 
Fund accounting/administration fees   22,429 
Transfer agent/maintenance fees   4,233 
Directors’ fees*   901 
Miscellaneous   53,808 
Total liabilities   414,839 
Net assets  $283,527,011 
Net assets consist of:     
Paid in capital  $216,091,843 
Undistributed net investment income   2,829,968 
Accumulated net realized loss on investments   (18,015,835)
Net unrealized appreciation on investments   82,621,035 
Net assets  $283,527,011 
Capital shares outstanding   7,496,812 
Net asset value per share  $37.82 

 

STATEMENT OF
OPERATIONS

Year Ended December 31, 2013

 

Investment Income:     
Dividends (net of foreign withholding tax of $17,515)  $5,067,657 
Interest   861 
Total investment income   5,068,518 
      
Expenses:     
Management fees   1,756,103 
Transfer agent/maintenance fees   25,626 
Fund accounting/administration fees   256,658 
Directors’ fees*   26,394 
Custodian fees   7,783 
Tax expense   8 
Miscellaneous   165,978 
Total expenses   2,238,550 
Net investment income   2,829,968 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   31,731,371 
Net realized gain   31,731,371 
Net change in unrealized appreciation (depreciation) on:     
Investments   39,490,698 
Net change in unrealized appreciation (depreciation)   39,490,698 
Net realized and unrealized gain   71,222,069 
Net increase in net assets resulting from operations  $74,052,037 

 

*Relates to Directors 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 | 21

 

 
 

 

Series B (Large Cap Value Series)
 
STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
Increase (Decrease) In Net Assets From Operations:          
Net investment income  $2,829,968   $3,229,551 
Net realized gain on investments   31,731,371    10,161,128 
Net change in unrealized appreciation (depreciation) on investments   39,490,698    23,246,913 
Net increase in net assets resulting from operations   74,052,037    36,637,592 
           
Capital share transactions:          
Proceeds from sale of shares   21,372,678    14,915,262 
Cost of shares redeemed   (58,004,399)   (54,897,141)
Net decrease from capital share transactions   (36,631,721)   (39,981,879)
Net increase (decrease) in net assets   37,420,316    (3,344,287)
           
Net assets:          
Beginning of year   246,106,695    249,450,982 
End of year  $283,527,011   $246,106,695 
Undistributed net investment income at end of year  $2,829,968   $3,229,551 
           
Capital share activity:          
Shares sold   651,050    550,498 
Shares redeemed   (1,740,993)   (2,025,731)
Net decrease in shares   (1,089,943)   (1,475,233)

 

22 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Series B (Large Cap Value Series)

 

FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $28.66   $24.79   $25.79   $22.20   $17.55 
Income (loss) from investment operations:                         
Net investment incomea   .35    .35    .26    .19    .19 
Net gain (loss) on investments (realized and unrealized)   8.81    3.52    (1.26)   3.40    4.46 
Total from investment operations   9.16    3.87    (1.00)   3.59    4.65 
Net asset value, end of period  $37.82   $28.66   $24.79   $25.79   $22.20 
                          
Total Returnb   31.96%   15.61%   (3.88%)   16.17%   26.50%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $283,527   $246,107   $249,451   $298,181   $280,473 
Ratios to average net assets:                         
Net investment income   1.05%   1.28%   1.00%   0.81%   1.03%
Total expensesc   0.83%   0.83%   0.80%   0.80%   0.81%
Portfolio turnover rate   26%   17%   19%   17%   16%

 

aNet investment income per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
cDoes not include expenses of the underlying funds in which the Fund invests.

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 23

 

 
 

 

Manager’S Commentary (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series C (Money Market Series) is managed by a team of seasoned professionals led by Steve McFeely, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series C (Money Market Series) returned -0.52%. The Federal Reserve Board continues to hold rates near 0%, making it a challenge to maintain a positive yield. The Fed has signaled that it will continue to keep rates low for the near future.

 

Composition of Portfolio Assets

 

At December 31, 2013, the Money Market Series’ assets were concentrated in commercial paper and the Dreyfus Treasury Prime Cash Management Fund.

 

Market Review

 

The Federal Reserve has begun tapering to its quantitative easing program. However, the Fed continues to state its intentions to keep rates low for the near future. As a result, the investment environment for money market funds will continue to be challenging, as yields continue to be depressed. Because of the historically low yields, returns in the Money Market Series turned negative after the application of management fees.

 

The Money Market Series focused on high quality issuers and shorter maturities due to the relatively flat yield curve, which provided no incentive to increase the Fund’s duration. In addition, we invested in asset-backed commercial paper of large, well-diversified programs that offer multiple layers of protection.

 

Outlook

 

Our philosophy in managing the Money Market Series is to take a conservative approach that doesn’t add risk to the portfolio by reaching for marginal gains in yield. With the yield environment likely to remain low in the short term, we will continue to manage the Money Market Series conservatively with expectations of low returns. As always, we will continue to monitor the economic and market conditions when deciding portfolio strategies and will adjust the asset mix and maturity structure in the portfolio accordingly.

 

 

 

 

 

 

 

 

 

 

 

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.

 

24 | The Guggenheim Funds annual REPORT

 

 
 

 

performance report and FUND PROFILE (Unaudited) December 31, 2013

 

SERIES C (MONEY MARKET SERIES)

OBJECTIVE: Seeks as high a level of current income as is consistent with preservation of capital by investing in money market securities with varying maturities.

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date: May 1, 1979

 

The Fund invests principally in money market instruments such as commercial paper.

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series C (Money Market Series)   -0.52%   -0.47%   1.21%

 

*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.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

the GUGGENHEIM FUNDS annual report | 25

 

 
 

 

Schedule of Investments December 31, 2013
Series C (Money Market Series)  

 

   Shares   Value 
         
SHORT TERM INVESTMENTS† - 37.6%          
Dreyfus Treasury Prime Cash          
Management Fund   28,695,559   $28,695,559 
Total Short Term Investments          
(Cost $28,695,559)        28,695,559 

 

   Face     
   Amount     
ASSET BACKED SECURITIES†† - 0.2%          
Small Business Administration Pools          
#503303, 0.75% due 04/25/211   $71,383    71,285 
#503295, 0.75% due 04/25/211    44,956    44,894 
#502353, 1.00% due 09/25/181   17,575    17,627 
Total Asset Backed Securities          
(Cost $133,934)        133,806 
           
COMMERCIAL PAPER†† - 62.3%          
Prudential plc          
0.25% due 01/02/142   2,000,000    1,999,990 
0.20% due 03/07/142   1,900,000    1,899,387 
Total Prudential plc        3,899,377 
Societe Generale North America, Inc.          
0.20% due 01/31/14   3,400,000    3,399,615 
0.40% due 01/31/14   400,000    399,955 
Total Societe Generale North America, Inc.        3,799,570 
Coca-Cola Co.          
0.11% due 03/31/142   2,000,000    1,999,450 
0.09% due 03/06/142   1,700,000    1,699,715 
Total Coca-Cola Co.        3,699,165 
ING US Funding LLC          
0.33% due 03/12/14   3,000,000    2,998,929 
0.23% due 04/11/14   700,000    699,578 
Total ING US Funding LLC        3,698,507 
Jupiter Securitization Company LLC          
0.15% due 03/19/142   3,000,000    2,998,895 
0.26% due 01/03/142   600,000    599,997 
Total Jupiter Securitization Company LLC        3,598,892 
Sheffield Receivables Corp.          
0.18% due 01/23/142  2,000,000   1,999,844 
0.18% due 02/20/142   1,500,000    1,499,673 
Total Sheffield Receivables Corp.        3,499,517 
Toyota Motor Credit Corp.          
0.14% due 01/09/14   3,300,000    3,299,942 
General RE Corp.          
0.08% due 02/12/14   3,000,000    2,999,609 
AstraZeneca plc          
0.09% due 02/18/142   3,000,000    2,999,518 
American Honda Finance Corp.          
0.11% due 03/05/14   3,000,000    2,999,387 
General Electric Capital Corp.          
0.15% due 06/18/14   2,000,000    1,998,592 
0.14% due 01/14/14   1,000,000    999,984 
Total General Electric Capital Corp.        2,998,576 
BNP Paribas Finance, Inc.          
0.26% due 04/21/14   3,000,000    2,997,891 
Barton Capital LLC          
0.18% due 03/13/142   2,000,000    1,999,496 
0.18% due 02/03/142   900,000    899,852 
Total Barton Capital LLC        2,899,348 
Wal-Mart Stores, Inc.          
0.06% due 01/06/142   2,000,000    1,999,983 
Abbott Laboratories          
0.09% due 03/17/142   1,600,000    1,599,760 
Westpac Banking Corp.          
0.12% due 01/23/142   550,000   549,976 
Total Commercial Paper          
(Cost $47,537,219)        47,539,018 
Total Investments - 100.1%          
(Cost $76,366,712)       $76,368,383 
Other Assets & Liabilities, Net - (0.1)%        (64,172)
Total Net Assets - 100.0%       $76,304,211 

 

†Value determined based on Level 1 inputs — See Note 4.
††Value determined based on Level 2 inputs — See Note 4.
1Variable rate security. Rate indicated is rate effective at December 31, 2013.
2Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $24,745,536 (cost $24,745,086), or 32.4% of total net assets.
 plc — Public Limited Company

 

26 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Series C (Money Market Series)
 
STATEMENT OF ASSETS
AND LIABILITIES

December 31, 2013

 

Assets:     
Investments, at value     
(cost $76,366,712)  $76,368,383 
Prepaid expenses   2,491 
Receivables:     
Fund shares sold   26,386 
Investment advisor   14,174 
Interest   175 
Total assets   76,411,609 
Liabilities:     
Payable for:     
Fund shares redeemed   37,123 
Management fees   32,058 
Transfer agent/maintenance fees   9,945 
Fund accounting/administration fees   6,091 
Directors’ fees*   169 
Miscellaneous   22,012 
Total liabilities   107,398 
Net assets  $76,304,211 
Net assets consist of:     
Paid in capital  $76,302,540 
Undistributed net investment income   — 
Accumulated net realized gain on investments   — 
Net unrealized appreciation on investments   1,671 
Net assets  $76,304,211 
Capital shares outstanding   5,741,444 
Net asset value per share  $13.29 

 

STATEMENT OF
OPERATIONS

Year Ended December 31, 2013

 

Investment Income:     
Interest  $107,400 
Total investment income   107,400 
      
Expenses:     
Management fees   394,055 
Transfer agent/maintenance fees   29,078 
Fund accounting/administration fees   74,870 
Directors’ fees*   4,691 
Proxy expense   4,616 
Custodian fees   2,177 
Tax expense   2 
Miscellaneous   47,156 
Total expenses   556,645 
Less:     
Expenses waived by Advisor   (54,066)
Net expenses   502,579 
Net investment loss   (395,179)
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   1,246 
Net realized gain   1,246 
Net change in unrealized appreciation (depreciation) on:     
Investments   (1,813)
Net change in unrealized appreciation (depreciation)   (1,813)
Net realized and unrealized loss   (567)
Net decrease in net assets resulting from operations  $(395,746)

 

*Relates to Directors 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 | 27

 

 
 

 

Series C (Money Market Series)
 
STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment loss  $(395,179)  $(465,869)
Net realized gain on investments   1,246    — 
Net change in unrealized appreciation (depreciation) on investments   (1,813)   2,224 
Net decrease in net assets resulting from operations   (395,746)   (463,645)
           
Capital share transactions:          
Proceeds from sale of shares   99,294,222    77,832,972 
Cost of shares redeemed   (95,965,272)   (112,615,282)
Net increase (decrease) from capital share transactions   3,328,950    (34,782,310)
Net increase (decrease) in net assets   2,933,204    (35,245,955)
           
Net assets:          
Beginning of year   73,371,007    108,616,962 
End of year  $76,304,211   $73,371,007 
Undistributed net investment income at end of year  $—   $— 
           
Capital share activity:          
Shares sold   7,454,058    5,809,813 
Shares redeemed   (7,205,162)   (8,405,645)
Net increase (decrease) in shares   248,896    (2,595,832)

 

28 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Series C (Money Market Series)
 
Financial Highlights

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $13.36   $13.43   $13.50   $13.56   $13.61 
Income (loss) from investment operations:                         
Net investment lossa   (.07)   (.07)   (.08)   (.06)   (.03)
Net gain (loss) on investments (realized and unrealized)   (—)c   (—)c   .01    (—)c   (.02)
Total from investment operations   (.07)   (.07)   (.07)   (.06)   (.05)
Net asset value, end of period  $13.29   $13.36   $13.43   $13.50   $13.56 
                          
Total Returnb   (0.52%)   (0.52%)   (0.52%)   (0.44%)   (0.37%)
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $76,304   $73,371   $108,617   $106,191   $153,262 
Ratios to average net assets:                         
Net investment loss   (0.50%)   (0.53%)   (0.57%)   (0.46%)   (0.23%)
Total expenses   0.71%   0.71%   0.70%   0.70%   0.67%
Net expensesd   0.64%   0.71%   0.70%   0.70%   0.67%
Portfolio turnover rate   —    —    —    —    — 

 

aNet investment loss per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
cLess than $0.01 per share.
dNet expense information reflects the expense ratios after expense waivers and includes extraordinary expenses. Excluding extraordinary expenses, the operating expense ratio for the year ended would be:

12/31/13  
0.63%

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 29

 

 
 

 

Manager’S Commentary (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series D (World Equity Income Series, formerly, MSCI EAFE Equal Weight Series) is managed by a team of seasoned professionals, including Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Nardin Baker, CFA, Managing Director and Portfolio Manager; Ole Jakob Wold, Managing Director and Portfolio Manager; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance and changes to the Fund that occurred in the fiscal year ended December 31, 2013.

 

For the one-year period ended December 31, 2013, the Series D (World Equity Income Series, formerly, MSCI EAFE Equal Weight Series) returned 19.28%, compared with the 26.68% return of its benchmark, the MSCI World Index. However, the Fund was managed for the first seven and a half months of the period to the MSCI Equal Weighted Index, the prior benchmark, which returned 23.10% for the period. A blended benchmark return for the year was 23.17%.

 

Several changes, approved by the Fund’s Board of Directors, occurred on August 15, 2013: a new Fund name, new investment objective, new principal investment strategies and new portfolio management team. The changes were designed to provide an actively managed, differentiated strategy that seeks to provide lower downside risk with the opportunity to outperform the strategy’s capitalization-weighted benchmark over time while delivering attractive income.

 

The portfolio is constructed to take advantage of empirical evidence that supports the outperformance of low-volatility stocks relative to their high-volatility counterparts. This inefficiency is referred to as the “minimum volatility effect,” and Portfolio Manager Nardin Baker was among the first people to demonstrate its existence in a 1991 research paper.

 

The portfolio also seeks exposure to higher-yielding equity securities throughout the world. Over the past 20 years dividends paid to shareholders have comprised a significant portion of investor’s overall equity return. The characteristics of companies that have paid a consistent dividend are analogous to that seen in a typical low-volatility stock. As such, a yield tilt provides a powerful complement to the “minimum volatility effect.”

 

Prior to these changes, the Fund’s name was the MSCI EAFE Equal Weight Fund, which sought performance that corresponded, before fees and expenses, to the price and yield performance of the MSCI EAFE Equal Weighted Index, the Fund’s benchmark between May 2, 2011 and August 15, 2013.

 

Fund performance for the 12 months can be broken down into the period during which the Fund was being managed according to the legacy strategy and the period during which it was being managed according to the new strategy.

 

For the period beginning January 1, 2013, and ending August 14, 2013, the Fund performed in line with its benchmark. For the period beginning August 15, 2013, and ending December 31, 2013, the Fund underperformed its benchmark.

 

Beginning with the changes to the Fund’s investment objective and investment strategies, the new management team repositioned the portfolio to align with the new investment philosophy and process. This included purchasing stocks that have historically demonstrated low volatility and appear likely to continue doing so. To make these purchases, the Fund liquidated those holdings in the MSCI EAFE Equal Weight portfolio that did not meet the team’s minimum-volatility standards.

 

Over the last few months of 2013, the MSCI World Index delivered strong returns. A fair portion of this return was realized after a December announcement by the U.S. Federal Reserve to reduce bond purchases by $10 billion per month, beginning in January 2014. The positive market reaction to a reduction of monetary stimulus bodes well and is suggestive of a market capable of standing on its own merits.

 

Against a backdrop of a strongly appreciating market, the portfolio underperformed relative to its benchmark. The portfolio’s two largest factor bets, low-volatility and higher equity yield, both experienced negative payouts during the quarter.

 

This was most pronounced in the Utilities sector, where company characteristics generally display both low-volatility and higher yields properties relative to the broad market. These attributes resulted in an overweight to Utilities within the portfolio. While Utilities as a whole gained

 

30 | The Guggenheim Funds annual REPORT

 

 
 

 

Manager’S Commentary (Unaudited) (concluded) December 31, 2013

 

during the period, they did so at a substantially slower rate than that of the broad market. In total, the performance within the Utilities sector accounted for approximately one third of the Fund’s underperformance.

 

The continuing synchronous global expansion, combined with the strong market activity witnessed in the fourth quarter, provides substantial momentum as we head into 2014.

 

In Europe, the financial and sovereign debt crises have abated. Attractive relative valuation and improving macro conditions should set the stage for even higher returns. This will likely benefit European risk assets, which face reduced fiscal headwinds, supportive monetary policy and an uptick in economic growth. Opportunities for price appreciation aside, European markets offer an attractive dividend yield of 3.3%.

 

Japan’s currency devaluation program should continue to fuel export growth, although the consumer portion of the economy will face headwinds resulting from a hike in the consumption tax. Despite the strong gains posted during 2013, valuation of about 15.5x forward earnings looks reasonable and well below the average of more than 25x since 1996. While the “easy” money in Japan has likely been made, another year of solid performance appears likely.

 

One of the primary stories for investors to follow in 2014 will likely be the reduction of quantitative stimulus by the U.S. Federal Reserve Bank. Thus far, markets appear to have taken this policy change in stride.

 

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 | 31

 

 
 

  

performance report and FUND PROFILE (Unaudited) December 31, 2013

 

SERIES D (WORLD EQUITY INCOME SERIES)

OBJECTIVE: Seeks to provide total return, comprised of capital appreciation and income.

 

Cumulative Fund Performance*,†

 

 

Effective August 15, 2013, the Fund changed its principal investment strategy. As a result of the investment strategy change, the Fund’s new benchmark is the MSCI World Index. 0% The Fund’s performance was previously compared to the MSCI EAFE Equal Weighted MSCI World Index from 12/31/03 to 04/28/11, and the MSCI EAFE Equal Weighted Index from 04/29/11 to 12/31/13.

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series D (World Equity Income Series)   19.28%   10.15%   5.58%
MSCI EAFE Equal Weighted Index   23.10%   14.29%   N/A 
MSCI EAFE Equal Weighted Index-Blended   23.10%   13.06%   6.33%
MSCI World Index   26.68%   15.02%   6.98%

 

INVESTMENT CONCENTRATION

At December 31, 2013, the investment diversification of the series by country was as follows:

 

Country  % of Net Assets     Value 
United States   46.2%    $89,521,710 
Japan   9.9%     19,220,314 
Australia   9.2%     17,755,989 
Canada   7.1%     13,653,603 
Britain   4.9%     9,468,230 
Germany   4.7%     9,073,900 
Hong Kong   4.2%     8,136,020 
France   3.2%     6,214,448 
Other   10.1%     19,662,088 
Total Investments   99.5%    $192,706,303 

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date: April 19, 1984

 

Ten Largest Holdings (% of Total Net Assets) 

Lockheed Martin Corp.   3.2%
Deutsche Telekom AG   3.1%
Altria Group, Inc.   3.1%
General Mills, Inc.   2.4%
AstraZeneca plc   2.4%
Wal-Mart Stores, Inc.   2.3%
GDF Suez   2.2%
Canon, Inc.   2.2%
Kimberly-Clark Corp.   1.9%
Goldman Sachs Financial Square Funds - Treasury Instruments Fund   1.8%
Top Ten Total   24.6%

 

*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 EAFE Equal Weighted Index and MSCI World Index are unmanaged indices and, unlike the Fund, have no management fees or operating expenses to reduce their reported returns.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

32 | THE GUGGENHEIM FUNDS ANNUAL REPORT

  

 
 

 

Schedule of Investments December 31, 2013
Series D (world equity income Series)  

 

   Shares   Value 
         
COMMON STOCKS† - 97.7%          
           
CONSUMER STAPLES - 17.2%          
Altria Group, Inc.   155,300   $5,961,967 
General Mills, Inc.   94,700    4,726,477 
Wal-Mart Stores, Inc.   57,800    4,548,282 
Kimberly-Clark Corp.   34,900    3,645,654 
Dr Pepper Snapple Group, Inc.   45,000    2,192,400 
Campbell Soup Co.   45,300    1,960,584 
Safeway, Inc.   50,300    1,638,271 
Metcash Ltd.   543,500    1,533,652 
Lawson, Inc.   18,300    1,367,786 
Woolworths Ltd.   43,100    1,302,795 
PepsiCo, Inc.   12,200    1,011,868 
Lorillard, Inc.   19,500    988,260 
Tyson Foods, Inc. — Class A   26,200    876,652 
Hershey Co.   7,300    709,779 
Costco Wholesale Corp.   4,400    523,644 
Kellogg Co.   7,300    445,811 
Total Consumer Staples        33,433,882 
           
Telecommunication Services - 13.7%          
Deutsche Telekom AG   349,100    5,970,024 
Telstra Corporation Ltd.   746,300    3,498,750 
Elisa Oyj   79,600    2,109,233 
Belgacom S.A.   69,200    2,047,391 
Frontier Communications Corp.   428,300    1,991,595 
Bezeq The Israeli Telecommunication          
Corporation Ltd.   1,082,500    1,834,772 
NTT DOCOMO, Inc.   109,800    1,798,803 
BCE, Inc.   39,600    1,714,851 
Telecom Corporation of New Zealand Ltd.   882,700    1,673,417 
Windstream Holdings, Inc.   198,900    1,587,222 
BT Group plc   158,000    992,717 
Telenor ASA   32,000    762,978 
AT&T, Inc.   13,200    464,112 
Total Telecommunication Services        26,445,865 
           
Industrials - 12.7%          
Lockheed Martin Corp.   41,100    6,109,927 
Sumitomo Corp.   194,600    2,441,394 
Bouygues S.A.   52,200    1,969,215 
Hopewell Holdings Ltd.   528,000    1,787,405 
Raytheon Co.   17,200    1,560,040 
L-3 Communications Holdings, Inc.   14,500    1,549,470 
Northrop Grumman Corp.   13,000    1,489,930 
ALS Ltd.   187,600    1,475,873 
ITOCHU Corp.   118,800    1,465,608 
ANA Holdings, Inc.   723,900    1,443,744 
Adecco S.A.   16,000    1,266,240 
Mitsui & Company Ltd.   46,800    651,142 
NWS Holdings Ltd.   335,900    512,020 
Sojitz Corp.   258,800    459,619 
AP Moeller - Maersk A/S — Class B   19    206,212 
Auckland International Airport Ltd.   32,590    94,619 
AP Moeller - Maersk A/S — Class A   8    82,474 
TNT Express N.V.   89    826 
Total Industrials        24,565,758 
           
Consumer Discretionary - 12.3%          
McDonald’s Corp.   30,000   2,910,900 
Target Corp.   42,000    2,657,340 
Darden Restaurants, Inc.   42,700    2,321,599 
Shaw Communications, Inc. — Class B   87,400    2,126,891 
Kohl’s Corp.   36,200    2,054,350 
Sankyo Company Ltd.   39,900    1,837,837 
Family Dollar Stores, Inc.   26,000    1,689,220 
Gildan Activewear, Inc.   26,000    1,385,606 
Singapore Press Holdings Ltd.   412,500    1,346,725 
Magna International, Inc.   15,700    1,287,333 
Garmin Ltd.   26,500    1,224,830 
Li & Fung Ltd.   665,000    857,593 
Tatts Group Ltd.   265,500    734,965 
Sharp Corp.*   130,400    413,634 
McDonald’s Holdings Company Japan Ltd.   15,000    382,782 
TJX Companies, Inc.   4,800    305,904 
ProSiebenSat.1 Media AG   4,989    247,099 
Total Consumer Discretionary        23,784,608 
           
Financials - 12.0%          
Banco Santander S.A.   274,900    2,460,617 
Hannover Rueck SE   24,900    2,136,977 
ICAP plc   266,100    1,989,636 
Bendigo and Adelaide Bank Ltd.   187,300    1,965,241 
Insurance Australia Group Ltd.   370,500    1,925,535 
Annaly Capital Management, Inc.   188,600    1,880,342 
American Capital Agency Corp.   95,000    1,832,550 
Stockland   513,200    1,654,375 
CFS Retail Property Trust Group   926,400    1,609,008 
Intact Financial Corp.   22,400    1,462,827 
National Australia Bank Ltd.   39,700    1,234,764 
T&D Holdings, Inc.   82,000    1,144,005 
Progressive Corp.   26,400    719,928 
RSA Insurance Group plc   466,000    704,962 
Zurich Insurance Group AG   1,600    463,630 
Total Financials        23,184,397 
           
Utilities - 10.9%          
GDF Suez   180,500    4,245,232 
Consolidated Edison, Inc.   39,700    2,194,616 
Entergy Corp.   34,400    2,176,487 
CLP Holdings Ltd.   234,500    1,853,800 
Southern Co.   44,900    1,845,839 
Power Assets Holdings Ltd.   208,400    1,656,878 
TransAlta Corp.   123,000    1,560,876 
Pepco Holdings, Inc.   79,100    1,513,183 
Cheung Kong Infrastructure Holdings Ltd.   232,600    1,468,325 
National Grid plc   85,600    1,116,337 
SP AusNet   738,500    821,032 
E.ON SE   39,000    719,798 
Total Utilities        21,172,403 
           
Health Care - 9.8%          
AstraZeneca plc   78,800    4,664,579 
Cardinal Health, Inc.   49,800    3,327,138 
WellPoint, Inc.   35,900    3,316,801 
Bristol-Myers Squibb Co.   50,400    2,678,760 

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 33

 

 
 

 

Schedule of Investments (concluded) December 31, 2013
Series D (world equity income Series)  

 

   Shares   Value 
         
Eli Lilly & Co.   32,400   $1,652,400 
UnitedHealth Group, Inc.   21,100    1,588,830 
Coloplast A/S — Class B   20,000    1,324,156 
Eisai Company Ltd.   9,900    383,138 
Total Health Care        18,935,802 
           
Information Technology - 4.3%          
Canon, Inc.   133,500    4,221,996 
Apple, Inc.   4,000    2,244,440 
Intel Corp.   37,100    963,116 
CGI Group, Inc. — Class A*   26,400    883,272 
Total Information Technology        8,312,824 
           
Energy - 4.1%          
Seadrill Ltd.   67,700    2,763,967 
Exxon Mobil Corp.   21,000    2,125,200 
Canadian Oil Sands Ltd.   100,000    1,880,913 
TonenGeneral Sekiyu K.K.   131,900    1,208,828 
Total Energy        7,978,908 
           
Materials - 0.7%          
Agnico Eagle Mines Ltd.   51,200   1,351,034 
Total Common Stocks          
(Cost $181,309,123)        189,165,481 
           
SHORT TERM INVESTMENTS† - 1.8%          
Goldman Sachs Financial Square          
Funds - Treasury Instruments Fund   3,540,822    3,540,822 
Total Short Term Investments          
(Cost $3,540,822)        3,540,822 
Total Investments - 99.5%          
(Cost $184,849,945)       $192,706,303 
Other Assets & Liabilities, net - 0.5%        887,894 
Total Net Assets - 100.0%       $193,594,197 

 

*Non-income producing security.
†Value determined based on Level 1 inputs — See Note 4.

plc — Public Limited Company

 

34 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Series D (world equity income Series)
 
STATEMENT OF ASSETS
AND LIABILITIES

December 31, 2013

 

Assets:     
Investments, at value     
(cost $184,849,945)  $192,706,303 
Foreign currency, at value     
(cost $18,588)   18,641 
Cash   253,958 
Prepaid expenses   5,026 
Receivables:     
Dividends   726,780 
Foreign taxes reclaim   220,851 
Fund shares sold   9,288 
Total assets   193,940,847 
Liabilities:     
Payable for:     
Management fees   113,354 
Custodian fees   112,397 
Fund shares redeemed   55,689 
Fund accounting/administration fees   24,290 
Transfer agent/maintenance fees   4,242 
Directors’ fees*   2,599 
Miscellaneous   34,079 
Total liabilities   346,650 
Net assets  $193,594,197 
Net assets consist of:     
Paid in capital  $243,793,398 
Undistributed net investment income   5,045,200 
Accumulated net realized loss on investments   (63,105,490)
Net unrealized appreciation on investments   7,861,089 
Net assets  $193,594,197 
Capital shares outstanding   16,137,956 
Net asset value per share  $12.00 

 

STATEMENT OF
OPERATIONS

Year Ended December 31, 2013

 

Investment Income:     
Dividends (net of foreign withholding tax of $794,818)  $6,898,695 
Interest   16 
Total investment income   6,898,711 
      
Expenses:     
Management fees   1,324,566 
Transfer agent/maintenance fees   25,588 
Fund accounting/administration fees   283,836 
Custodian fees   170,745 
Directors’ fees*   16,904 
Tax expense   5,213 
Miscellaneous   333,380 
Total expenses   2,160,232 
Net investment income   4,738,479 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   20,811,402 
Foreign currency   (142,405)
Net realized gain   20,668,997 
Net change in unrealized appreciation (depreciation) on:     
Investments   7,863,699 
Foreign currency   7,600 
Net change in unrealized appreciation (depreciation)   7,871,299 
Net realized and unrealized gain   28,540,296 
Net increase in net assets resulting from operations  $33,278,775 

 

*Relates to Directors not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 35

 

 
 

 

Series D (world equity income Series)
 
STATEMENTs OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment income  $4,738,479   $3,712,163 
Net realized gain (loss) on investments   20,668,997    (14,531,759)
Net change in unrealized appreciation (depreciation) on investments   7,871,299    39,101,676 
Net increase in net assets resulting from operations   33,278,775    28,282,080 
           
Capital share transactions:          
Proceeds from sale of shares   10,130,604    9,335,815 
Cost of shares redeemed   (35,047,932)   (38,131,911)
Net decrease from capital share transactions   (24,917,328)   (28,796,096)
Net increase (decrease) in net assets   8,361,447    (514,016)
           
Net assets:          
Beginning of year   185,232,750    185,746,766 
End of year  $193,594,197   $185,232,750 
Undistributed net investment income at end of year  $5,045,200   $8,169,335 
           
Capital share activity:          
Shares sold   918,433    1,002,338 
Shares redeemed   (3,199,531)   (4,113,445)
Net decrease in shares   (2,281,098)   (3,111,107)

 

36 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Series D (world equity income Series)
 
FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $10.06   $8.63   $10.25   $8.86   $7.40 
Income (loss) from investment operations:                         
Net investment incomea   .28    .19    .12    .04    .09 
Net gain (loss) on investments (realized and unrealized)   1.66    1.24    (1.74)   1.35    1.37 
Total from investment operations   1.94    1.43    (1.62)   1.39    1.46 
Net asset value, end of period  $12.00   $10.06   $8.63   $10.25   $8.86 
                          
Total Returnb   19.28%   16.57%   (15.80%)   15.69%   19.73%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $193,594   $185,233   $185,747   $269,645   $270,081 
Ratios to average net assets:                         
Net investment income   2.50%   2.03%   1.23%   0.49%   1.12%
Total expensesc   1.14%   1.17%   1.21%   1.26%   1.27%
Portfolio turnover rate   150%   36%   171%   283%   317%

 

aNet investment income per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
cDoes not include expenses of the underlying funds in which the Fund invests.

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 37

 

 
 

 

Manager’S Commentary (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series E (Total Return Bond Series, formerly, U.S. Intermediate Bond Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chief Investment Officer; Anne B. Walsh, Senior Managing Director; Jeffrey B. Abrams, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the 12-month period ended December 31, 2013. On January 28, 2013, the Series name and benchmark changed to Total Return Bond Series and the Barclays U.S. Aggregate Bond Index.

 

For the one-year period ended December 31, 2013, the Series E (Total Return Bond Series, formerly, U.S. Intermediate Bond Series) returned 1.73%, compared with the -2.02% return of its benchmark, the Barclays U.S. Aggregate Bond Index. The previous benchmark, the Barclays U.S. Intermediate Government/Credit Bond Index, returned -0.87%.

 

Several changes approved by the Board of Directors took effect in January 2013. The Fund’s investment objective changed to: “seeks to provide total return, comprised of current income and capital appreciation.” The Fund’s name changed to Series E (Total Return Bond Series) and its benchmark changed to the Barclays U.S. Aggregate Index.

 

For the period, the Fund benefitted from positive performance in asset-backed securities (ABS)—primarily mezzanine collateralized loan obligations (CLOs) and commercial real estate collateralized debt obligations (CRE CDOs)—and high yield bonds and loans. While risk assets continued to outperform in 2013, the Fund was cautious to reduce risk to assets that were perceived as overvalued or overly sensitive to increases in interest rates. The Fund has been opportunistic by taking gains in lower yielding assets and redeploying proceeds into more attractive assets such as longer duration preferred debt. The Fund maintains a lower duration target; however, we will continue to look to opportunistically add fixed-rate assets during periods of interest rate volatility.

 

Detractors to performance for the period included higher duration assets such as fixed rate corporate bonds and preferred debt securities.

 

The Fund may seek certain exposures through derivative transactions, which may also create economic leverage in the Fund. The Fund may engage in derivative transactions for speculative purposes to enhance total return, to seek to hedge against fluctuations in securities prices, interest rates or currency rates, to change the effective duration of its portfolio, to manage certain investment risks and/or as a substitute for the purchase or sale of securities or currencies. Derivative use contributed slightly positive performance to the Fund.

 

 

 

 

 

 

 

 

 

 

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.

 

38 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

performance report and FUND PROFILE (Unaudited) December 31, 2013

 

SERIES E (TOTAL RETURN BOND SERIES)

OBJECTIVE: Seeks to provide total return, comprised of current income and capital appreciation.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series E (Total Return Bond Series)   1.73%   5.42%   3.00%
Barclays U.S. Aggregate Bond Index   -2.02%   4.44%   4.55%
Barclays U.S. Intermediate Government/Credit Bond Index   -0.87%   3.96%   4.09%

 

Ten Largest Holdings (% of Total Net Assets)    
Dreyfus Treasury Prime Cash Management Fund   10.1%
Willis Engine Securitization Trust II — Class A   2.2%
Argent Securities Incorporated Asset-Backed Pass-Through Certificates Series — Class A2D   1.8%
Northwoods Capital VIII Ltd. — Class D   1.8%
Infinity Property & Casualty Corp.   1.6%
Prudential Financial, Inc.   1.6%
T2 Income Fund CLO Ltd. — Class C   1.5%
JPMorgan Chase & Co.   1.4%
Penske Truck Leasing Company Lp / PTL Finance Corp.   1.4%
Emerald Aviation Finance Ltd. — Class A   1.3%
Top Ten Total   24.7%

The chart above reflects percentages of the value of total investments.

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date: April 26, 1985

 

Portfolio Composition by Quality Rating**
Rating

Fixed Income Instruments     
AAA   2.3%
AA   8.6%
A   21.1%
BBB   34.7%
BB   2.8%
B   10.7%
CCC   2.9%
NR   5.3%
Other Instruments     
Short Term Investments   9.2%
Preferred Stocks   2.3%
Unit Investment Trusts   0.1%
Total Investments   100.0%

The chart above reflects percentages of the value of total investments.

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Barclays U.S. Aggregate Bond Index and Barclays U.S. Intermediate Government/Credit Bond Index are unmanaged indices and, unlike the Fund, have no management fees or operating expenses to reduce their reported returns.
**Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

the GUGGENHEIM FUNDS annual report | 39

 

 
 

 

Schedule of Investments December 31, 2013
Series E (TOTAL RETURN Bond Series)  

 

   Shares   Value 
         
PREFERRED STOCKS†† - 2.6%          
Aspen Insurance Holdings Ltd.          
5.95%†,1,2   40,000   $906,800 
Wells Fargo & Co.          
5.85%†,1,2   15,000    353,550 
Morgan Stanley          
7.13%†,1,2   10,000    261,400 
Woodbourne Capital Trust IV          
0.00%*,1,2,4   300,000    158,760 
Woodbourne Capital Trust III          
0.00%*,1,2,4   300,000    158,760 
Woodbourne Capital Trust I          
0.00%*,1,2,4   300,000    157,350 
Woodbourne Capital Trust II          
0.00%*,1,2,4   300,000    151,320 
AgriBank FCB          
6.88%†,1,2   1,500    150,375 
City National Corp.          
6.75%1,2   4,000    105,120 
Total Preferred Stocks          
(Cost $3,080,796)        2,403,435 
           
UNIT INVESTMENT TRUSTS† - 0.1%          
Rescap Liquidating Trust   9,656    77,603 
Total Unit Investment Trusts          
(Cost $487,524)        77,603 
           
SHORT TERM INVESTMENTS† - 10.1%          
Dreyfus Treasury Prime Cash          
Management Fund   9,509,291    9,509,291 
Total Short Term Investments          
(Cost $9,509,291)        9,509,291 

 

   Face     
   Amount     
ASSET BACKED SECURITIES†† - 42.8%          
Willis Engine Securitization Trust II          
2012-A, 5.50% due 09/15/374   $2,138,156    2,118,271 
Argent Securities Incorporated          
Asset-Backed Pass-Through          
Certificates Series          
2005-W3, 0.50% due 11/25/351    1,833,234    1,718,055 
Northwoods Capital VIII Ltd.          
2007-8A, 2.24% due 07/28/221,4    1,750,000    1,666,349 
Emerald Aviation Finance Ltd.          
2013-1, 4.65% due 10/15/384   1,236,979    1,247,865 
2013-1, 6.35% due 10/15/384   247,396    248,930 
T2 Income Fund CLO Ltd.          
2007-1A, 1.74% due 07/15/191,4    1,450,000    1,383,444 
MCF CLO LLC          
3.79% due 04/20/23   750,000    734,250 
3.21% due 01/20/24   500,000    479,000 
CKE Restaurant Holdings, Inc.          
2013-1A, 4.47% due 03/20/434   1,137,063    1,135,771 
Garanti Diversified Payment          
Rights Finance Co.          
2007-A, 0.43% due 07/09/17   1,200,000   1,133,040 
Grayson CLO Ltd.          
2006-1A, 0.65% due 11/01/211,4   1,250,000    1,132,250 
West Coast Funding Ltd.          
2006-1A, 0.39% due 11/02/411,4   1,090,547    1,051,724 
Telos CLO 2007-2 Ltd.          
2007-2A, 2.44% due 04/15/221,4   1,100,000    1,012,660 
Great Lakes CLO 2012-1 Ltd.          
2012-1A, 4.34% due 01/15/231,4   1,000,000    1,004,500 
Fraser Sullivan CLO VI Ltd.          
2011-6A, 4.74% due 11/22/22†,1,4   1,000,000    1,000,591 
ALM VII R-2 Ltd.          
2013-7R2A, 2.86% due 04/24/241,4   1,000,000    981,900 
Telos CLO Ltd.          
2013-3A, 3.24% due 01/17/241,4   1,000,000    980,400 
KKR Financial CLO 2007-1 Corp.          
2007-1A, 2.49% due 05/15/211,4   1,000,000    941,600 
RAIT CRE CDO I Ltd.          
2006-1X, 0.50% due 11/20/461   1,146,606    923,018 
N-Star Real Estate CDO IX Ltd.          
0.51% due 02/01/413   991,638    901,498 
Turbine Engines Securitization Ltd.          
5.13% due 12/13/484   900,000    880,020 
Drug Royalty II Limited Partnership 1          
2012-1, 4.24% due 01/15/251,4   787,073    800,532 
Rockwall CDO II Ltd.          
2007-1A, 0.79% due 08/01/241,4   900,000    772,560 
CGRBS_13-VNO5          
3.70% due 03/15/35   900,000    771,100 
ARES XII CLO Ltd.          
2007-12A, 3.49% due 11/25/201,4   750,000    735,675 
Acis CLO 2013-2 Ltd.          
3.47% due 10/14/221,4   750,000    733,950 
ICE EM CLO          
2007-1A, 1.00% due 08/15/221,4   750,000    709,575 
Newcastle Cdo Viii 1 Ltd.          
2006-8A, 0.44% due 11/25/521,4   733,227    694,073 
Ivy Hill Middle Market Credit Fund VII Ltd.          
2013-7A, 3.69% due 10/20/251,4   600,000    589,020 
Black Diamond CLO 2012-1 Ltd.          
2013-1A, 3.49% due 02/01/231,4   550,000    549,945 
Halcyon Structured Asset Management Long          
Secured/Short Unsecured 2007-2 Ltd.          
2007-2A, 3.99% due 10/29/211,4   550,000    544,665 
Avis Budget Rental Car Funding AESOP LLC          
2013-2A, 4.00% due 05/21/184   500,000    525,000 
Structured Asset Securities Corporation          
Mortgage Loan Trust          
2006-OPT1, 0.42% due 04/25/361   600,000    511,835 
Gramercy Real Estate CDO 2007-1 Ltd.          
2007-1A, 0.52% due 08/15/561,4   617,281    508,763 

 

40 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

  

 
 

 

Schedule of Investments (continued) December 31, 2013
Series E (TOTAL RETURN Bond Series)  

 

   Face     
   Amount   Value 
         
Galaxy X CLO Ltd.          
2008-10A, 4.69% due 01/14/201,4  $500,000   $504,050 
Apidos CDO IX          
2012-9A, 3.99% due 07/15/231,4   500,000    502,400 
Newstar Trust          
2012-2A, 3.49% due 01/20/231,4   500,000    501,150 
Latitude CLO II Corp.          
2006-2A, 1.04% due 12/15/181,4   500,000    477,050 
Wachovia Asset Securitization          
Issuance II LLC Trust          
2007-HE1, 0.30% due 07/25/371,4   560,926    473,983 
Golub Capital Partners Fundings Ltd.          
2007-1A, 0.99% due 03/15/221,4   500,000    452,900 
Lehman XS Trust          
2007-9, 0.28% due 06/25/371   510,985    443,785 
N-Star REL CDO VIII Ltd.          
2006-8A, 0.53% due 02/01/411,4   500,000    389,450 
Acis CLO 2013-1 Ltd.          
2013-1A, 3.22% due 04/18/241,4   400,000    388,440 
Eastland CLO Ltd.          
2007-1A, 0.64% due 05/01/221,4   400,000    355,360 
Halcyon Loan Advisors Funding 2012-2 Ltd.          
2012-2A, 4.75% due 12/20/241,4   350,000    352,030 
Cerberus Offshore Levered I, LP          
2012-1A, 4.99% due 11/30/181,4   350,000    349,405 
Newstar Commercial Loan          
Funding 2013-1 LLC          
2013-1A, 4.95% due 09/20/231,4   350,000    346,220 
Northwoods Capital VII Ltd.          
2006-7A, 1.79% due 10/22/211,4   350,000    329,070 
Salus CLO 2012-1 Ltd.          
2013-1AN, 3.99% due 03/05/211,4   300,000    299,970 
DIVCORE CLO Ltd.          
2013-1A B, 4.10% due 11/15/32   300,000    299,100 
Westwood CDO I Ltd.          
2007-1A, 0.92% due 03/25/211,4   300,000    275,820 
GreenPoint Mortgage Funding Trust          
2005-HE4, 0.87% due 07/25/301   300,000    267,026 
TICC CLO 2012-1 LLC          
2012-1A, 4.99% due 08/25/231,4   250,000    251,175 
Ivy Hill Middle Market Credit Fund Ltd.          
2011-3A, 6.24% due 01/15/221,4   250,000    251,075 
Golub Capital Partners CLO Ltd.          
2013-17A, 3.99% due 11/21/251,4   250,000    249,250 
Garrison Funding 2013-2 Ltd.          
2013-2A, 3.73% due 09/25/231,4   250,000    248,775 
Carlyle Global Market          
Strategies CLO 2012-3 Ltd.          
2012-3A, 0.00% due 10/14/244,6   250,000    238,900 
STORE Master Funding LLC          
2013-2A, 4.37% due 07/20/434   99,394    99,354 
2013-1A, 4.16% due 03/20/434   98,850    98,567 
GSAA Home Equity Trust          
2007-7, 0.43% due 07/25/371  227,178   192,881 
Newcastle CDO Ltd.          
2007-9A, 0.42% due 05/25/521   175,716    171,604 
New Century Home Equity Loan Trust Series          
2005-1, 0.88% due 03/25/351   183,476    159,323 
Aircraft Certificate Owner Trust 2003          
2003-1A, 6.46% due 09/20/223,4   124,392    124,380 
Credit-Based Asset Servicing and          
Securitization LLC          
2005-CB5, 0.42% due 08/25/351   71,932    71,396 
First Frankin Mortgage Loan Trust          
2006-FF1, 0.50% due 01/25/361   50,000    43,237 
Legg Mason Real Estate CDO I Ltd.          
2006-1A, 0.45% due 03/25/381,4   29,658    29,249 
Total Asset Backed Securities          
(Cost $39,802,487)        40,358,204 
           
CORPORATE BONDS†† - 37.1%          
Financials - 20.9%          
Infinity Property & Casualty Corp.          
5.00% due 09/19/227   1,500,000    1,501,381 
Prudential Financial, Inc.          
5.63% due 06/15/431,7   1,500,000    1,470,000 
JPMorgan Chase & Co.          
5.15% due 12/31/491,2,7   1,500,000    1,346,249 
EPR Properties          
5.25% due 07/15/237   1,000,000    976,904 
5.75% due 08/15/22   100,000    101,955 
Susquehanna Bancshares, Inc.          
5.38% due 08/15/22   1,100,000    1,056,633 
First American Financial Corp.          
4.30% due 02/01/237   1,100,000    1,047,739 
Amtrust Financial Services, Inc.          
6.13% due 08/15/234   1,000,000    1,005,000 
PNC Financial Services Group, Inc.          
4.85% due 05/29/491,2   1,100,000    985,050 
Hospitality Properties Trust          
4.50% due 06/15/23   900,000    869,324 
5.00% due 08/15/22   100,000    101,624 
General Electric Capital Corp.          
5.25% due 06/29/491,2   750,000    705,000 
7.13% due 12/15/491,2   230,000    257,025 
Macquarie Group Ltd.          
6.25% due 01/14/214   750,000    829,019 
Leucadia National Corp.          
5.50% due 10/18/237   800,000    799,534 
Fifth Third Bancorp          
5.10% due 12/31/491,2   870,000    769,950 
Icahn Enterprises Limited Partnership /          
Icahn Enterprises Finance Corp.          
6.00% due 08/01/204   700,000    721,000 

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 41

 

 
 

 

Schedule of Investments (continued) December 31, 2013
Series E (TOTAL RETURN Bond Series)  

 

    Face        
    Amount     Value  
             
Lancashire Holdings Ltd.                
5.70% due 10/01/224   $ 700,000     $ 706,846  
Jones Lang LaSalle, Inc.                
4.40% due 11/15/22     700,000       672,321  
StanCorp Financial Group, Inc.                
5.00% due 08/15/227     600,000       589,440  
Nuveen Investments, Inc.                
9.13% due 10/15/174     565,000       565,000  
Credit Suisse AG                
6.50% due 08/08/234     500,000       531,875  
Navigators Group, Inc.                
5.75% due 10/15/23     500,000       525,688  
National Rural Utilities Cooperative                
Finance Corp.                
4.75% due 04/30/431     500,000       465,625  
Bank of New York Mellon Corp.                
4.50% due 12/31/491,2     440,000       399,300  
Allstate Corp.                
5.75% due 08/15/531     250,000       251,875  
Credit Suisse Group AG                
7.50% due 12/11/231,2,4     100,000       105,625  
Emigrant Bancorp, Inc.                
6.25% due 06/15/144     100,000       101,343  
Prosight Global Inc.                
7.50% due 11/20/203     100,000       98,510  
Total Financials             19,556,835  
                 
Consumer Discretionary - 5.9%                
Sabre, Inc.                
8.50% due 05/15/194,7     1,000,000       1,110,000  
US Airways 2013-1 Class A                
Pass Through Trust                
3.95% due 11/15/25     1,000,000       972,501  
Hawaiian Airlines 2013-1 Class A                
Pass Through Certificates                
3.90% due 01/15/26     800,000       743,000  
Northern Group Housing LLC                
6.80% due 08/15/534     600,000       598,236  
GLP Capital Limited Partnership /                
GLP Financing II, Inc.                
4.88% due 11/01/204     350,000       350,000  
4.38% due 11/01/184     150,000       153,375  
Continental Airlines 2012-2 Class B                
Pass Through Trust                
5.50% due 10/29/20     400,000       412,000  
AmeriGas Finance LLC /                
AmeriGas Finance Corp.                
7.00% due 05/20/22     320,000       347,200  
GRD Holdings III Corp.                
10.75% due 06/01/194     250,000       272,500  
International Game Technology                
5.35% due 10/15/23     250,000       257,396  
Stanadyne Corp.                
10.00% due 08/15/14     180,000       174,600  
Continental Airlines 2012-1 Class B                
Pass Through Trust                
6.25% due 04/11/20     118,665       124,005  
Total Consumer Discretionary             5,514,813  
                 
Energy - 3.7%                
Legacy Reserves Limited Partnership /                
Legacy Reserves Finance Corp.                
8.00% due 12/01/204,7     1,100,000       1,144,000  
BreitBurn Energy Partners Limited                
Partnership / BreitBurn Finance Corp.                
7.88% due 04/15/22     550,000       572,000  
Midstates Petroleum Company                
Incorporated / Midstates                
Petroleum Co LLC                
10.75% due 10/01/20     500,000       543,750  
Eagle Rock Energy Partners                
Limited Partnership /                
Eagle Rock Energy Finance Corp.                
8.38% due 06/01/19     415,000       452,350  
SESI LLC                
7.13% due 12/15/21     250,000       278,750  
Hiland Partners Limited                
Partnership / Hiland Partners                
Finance Corp.                
7.25% due 10/01/204     250,000       268,125  
Penn Virginia Resource Partners                
Limited Partnership / Penn Virginia                
Resource Finance Corporation II                
8.38% due 06/01/20     126,000       138,915  
Crestwood Midstream Partners                
Limited Partnership / Crestwood                
Midstream Finance Corp.                
7.75% due 04/01/19     110,000       119,350  
Total Energy             3,517,240  
                 
Materials - 2.9%                
Newcrest Finance Pty Ltd.                
4.20% due 10/01/224     1,100,000       878,896  
4.45% due 11/15/214     500,000       415,922  
AngloGold Ashanti Holdings plc                
5.13% due 08/01/22     1,050,000       905,624  
Barrick Gold Corp.                
4.10% due 05/01/23     625,000       564,932  
Total Materials             2,765,374  
                 
Industrials - 2.6%                
Penske Truck Leasing Company Lp /                
PTL Finance Corp.                
4.88% due 07/11/224,7     1,300,000       1,333,644  
Chicago Bridge & Iron Co.                
5.15% due 12/27/22     750,000       704,625  
SBM Baleia Azul Sarl                
5.50% due 09/15/27     477,550       452,813  

 

42 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Schedule of Investments (continued) December 31, 2013
Series E (TOTAL RETURN Bond Series)  

 

   Face     
   Amount   Value 
         
RR Donnelley & Sons Co.          
6.50% due 11/15/23  $3,000   $3,030 
Total Industrials        2,494,112 
           
Telecommunication Services - 0.6%          
Avaya, Inc.          
7.00% due 04/01/194   600,000    588,000 
           
Information Technology - 0.5%          
First Data Corp.          
8.75% due 01/15/224   250,000    266,875 
VeriSign, Inc.          
4.63% due 05/01/23   200,000    191,000 
Total Information Technology        457,875 
Total Corporate Bonds          
(Cost $35,917,837)        34,894,249 
           
MORTGAGE BACKED SECURITIES†† - 6.4%          
Fannie Mae5          
2013-28, 3.00% due 04/25/43   916,613    718,048 
2013-34, 3.00% due 04/25/43   351,761    303,784 
2013-17, 2.50% due 03/25/43   271,374    237,702 
1990-68, 6.95% due 07/25/20   1,090    1,199 
1990-103, 7.50% due 09/25/20   292    320 
VNDO 2012-6AVE Mortgage Trust          
2012-6AVE, 3.34% due 11/15/301,4   1,100,000    951,614 
Madison Avenue Trust          
2013-650M, 4.03% due 10/12/201,4   875,000    850,870 
BBCMS Trust          
2013-TYSN, 3.71% due 09/05/324   900,000    811,338 
COMM 2006-FL12 Mortgage Trust          
2006-FL12, 0.46% due 12/15/201,4   487,429    475,066 
2006-FL12, 0.40% due 12/15/201,4   324,953    316,781 
Freddie Mac5          
2013-4180, 3.00% due 03/15/43   338,253    318,795 
2013-4184, 3.00% due 03/15/43   383,842    315,781 
2013-4224, 3.00% due 07/15/43   100,598    78,317 
1990-188, 7.00% due 09/15/21   484    538 
Ginnie Mae          
2013-145, 2.75% due 09/16/44   349,119    327,578 
#518436, 7.25% due 09/15/29   9,679    11,259 
T2 Income Fund CLO Ltd.          
2007-1X,1.74% due 07/15/191   250,000    238,525 
JP Morgan Mortgage Trust          
2006-A3, 2.72% due 04/25/361   76,765    66,823 
Total Mortgage Backed Securities          
(Cost $6,392,917)        6,024,338 
           
SENIOR FLOATING RATE INTERESTS††,1 - 5.9%          
Industrials - 2.2%          
ServiceMaster Co.          
4.25% due 01/31/17   990,000    979,852 
Travelport Holdings Ltd.          
6.25% due 06/26/19   497,500    509,525 
AABS Ltd.          
4.87% due 01/12/38  471,409   472,588 
Emerald Expositions          
5.50% due 06/12/20   99,500    99,749 
Total Industrials        2,061,714 
           
Consumer Discretionary - 1.7%          
Landry’s, Inc.          
4.00% due 04/24/18   673,659    678,078 
Ollies Bargain Outlet          
5.26% due 09/28/19   445,502    447,729 
Neiman Marcus Group, Inc.          
5.00% due 10/25/20   350,000    354,036 
NES Global Talent          
6.50% due 10/02/19   150,000    149,250 
Total Consumer Discretionary        1,629,093 
           
Financials - 1.1%          
Digital Insight          
4.75% due 10/16/19   500,000    500,000 
Magic Newco, LLC          
5.00% due 12/12/18   248,741    250,296 
National Financial Partners          
5.25% due 07/01/20   199,000    200,825 
American Stock Transfer & Trust          
5.75% due 06/26/20   99,500    99,873 
Total Financials        1,050,994 
           
Telecommunication Services - 0.5%          
Asurion Corp.          
4.50% due 05/24/19   470,250    469,897 
           
Information Technology - 0.4%          
Greenway Medical Technologies          
6.00% due 11/04/20   350,000    348,250 
Total Senior Floating Rate Interests          
(Cost $5,499,721)        5,559,948 
           
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 4.2%          
Alternative Loan Trust          
2003-18CB, 5.25% due 09/25/33   1,159,319    1,186,731 
Boca Hotel Portfolio Trust          
2013-BOCA, 3.22% due 08/15/261,4   1,000,000    1,001,197 
Hilton USA Trust          
2013-HLT, 4.41% due 11/05/304   800,000    800,653 
SRERS-2011 Funding Ltd.          
2011-RS, 0.42% due 05/09/461,4   376,441    341,206 
Nomura Resecuritization Trust          
2012-1R, 0.61% due 08/27/471,4   345,513    318,321 
Credit Suisse Mortgage Capital Certificates          
2006-TF2A, 0.57% due 10/15/211,4   250,000    241,551 
Spirit Master Funding LLC          
2006-1A, 5.76% due 03/20/244   82,968    84,901 
Total Collateralized Mortgage Obligations          
(Cost $3,966,222)        3,974,560 

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 43

 

 
 

 

Schedule of Investments (concluded) December 31, 2013
Series E (TOTAL RETURN Bond Series)  

 

   Face     
   Amount   Value 
         
MUNICIPAL BONDS†† - 0.2%          
CALIFORNIA - 0.1%          
County of Sacramento California          
Revenue Bonds          
7.25% due 08/01/25  $100,000   $100,778 
           
MICHIGAN - 0.1%          
City of Detroit Michigan Sewage Disposal          
System Revenue Revenue Bonds          
5.50% due 07/01/22   100,000    99,065 
Total Municipal Bonds          
(Cost $197,825)        199,843 
Total Investments - 109.4%          
(Cost $104,854,620)       $103,001,471 
Other Assets & Liabilities, net - (9.4)%        (8,878,421)
Total Net Assets - 100.0%       $94,123,050 

 

centrally cleared INterest rate swap agreements††

 

                        Unrealized 
   Floating  Floating  Fixed   Maturity  Notional   Market   Appreciation/ 
Counterparty  Rate  Rate Index  Rate   Date  Amount   Value   (Depreciation) 
Merrill Lynch  Pay  3-Month USD-LIBOR   1.97%  09/09/18  $4,650,000   $95,325   $95,325 
Merrill Lynch  Pay  3-Month USD-LIBOR   1.70%  08/29/18   4,950,000    42,570    42,570 
Merrill Lynch  Pay  3-Month USD-LIBOR   1.59%  09/26/18   8,750,000    4,375    4,375 
Merrill Lynch  Pay  3-Month USD-LIBOR   3.89%  09/09/43   250,000    550    550 
Merrill Lynch  Pay  3-Month USD-LIBOR   3.65%  09/26/43   400,000    (17,360)   (17,360)
Merrill Lynch  Pay  3-Month USD-LIBOR   3.68%  08/29/43   1,200,000    (41,760)   (41,760)
                           $83,700 

 

*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.
1Variable rate security. Rate indicated is rate effective at December 31, 2013.
2Perpetual maturity.
3Illiquid security.
4Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $50,303,025 (cost $50,322,641), or 53.4% of total net assets.
5On 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.
6Zero coupon rate security.
7Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 14.

plc — Public Limited Company

REIT — Real Estate Investment Trust

 

44 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Series E (TOTAL RETURN Bond Series)
 
STATEMENT OF ASSETS
AND LIABILITIES

December 31, 2013

 

Assets:     
Investments, at value     
(cost $104,854,620)  $103,001,471 
Segregated cash with broker   557,527 
Cash   183,305 
Unrealized appreciation on swap agreements   142,820 
Prepaid expenses   8,188 
Receivables:     
Securities sold   1,222,425 
Interest   699,182 
Investment advisor   21,690 
Dividends   21,675 
Fund shares sold   2,067 
Total assets   105,860,350 
Liabilities:     
Reverse Repurchase Agreements   10,824,468 
Due to broker   207,472 
Unrealized depreciation on swap agreements   59,120 
Payable for:     
Securities purchased   478,000 
Management fees   60,290 
Fund shares redeemed   40,763 
Fund accounting/administration fees   7,637 
Directors’ fees*   4,745 
Transfer agent/maintenance fees   4,332 
Miscellaneous   50,473 
Total liabilities   11,737,300 
Net assets  $94,123,050 
Net assets consist of:     
Paid in capital  $101,360,819 
Undistributed net investment income   3,078,802 
Accumulated net realized loss on investments   (8,547,122)
Net unrealized depreciation on investments   (1,769,449)
Net assets  $94,123,050 
Capital shares outstanding   6,402,208 
Net asset value per share  $14.70 

 

STATEMENT OF
OPERATIONS
Year Ended December 31, 2013

 

Investment Income:     
Interest  $4,747,774 
Dividends   87,693 
Total investment income   4,835,467 
      
Expenses:     
Management fees   795,345 
Transfer agent/maintenance fees   25,550 
Fund accounting/administration fees   100,742 
Interest expense   41,992 
Custodian fees   8,530 
Line of credit fees   20,864 
Proxy expense   5,225 
Directors’ fees*   14,947 
Tax expense   3 
Miscellaneous   122,024 
Total expenses   1,135,222 
Less:     
Expenses waived by Advisor   (208,040)
Net expenses   927,182 
Net investment income   3,908,285 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   4,218,847 
Swap agreements   (7,274)
Net realized gain   4,211,573 
Net change in unrealized appreciation (depreciation) on:     
Investments   (6,511,041)
Swap agreements   83,700 
Net change in unrealized appreciation (depreciation)   (6,427,341)
Net realized and unrealized loss   (2,215,768)
Net increase in net assets resulting from operations  $1,692,517 

 

*Relates to Directors 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 | 45

 

 

 
 

 

Series E (TOTAL RETURN Bond Series)
 
STATEMENTs OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment income  $3,908,285   $3,240,411 
Net realized gain on investments   4,211,573    3,617,000 
Net change in unrealized appreciation (depreciation) on investments   (6,427,341)   (279,472)
Net increase in net assets resulting from operations   1,692,517    6,577,939 
           
Capital share transactions:          
Proceeds from sale of shares   31,425,503    21,460,693 
Cost of shares redeemed   (51,786,447)   (38,822,059)
Net decrease from capital share transactions   (20,360,944)   (17,361,366)
Net decrease in net assets   (18,668,427)   (10,783,427)
           
Net assets:          
Beginning of year   112,791,477    123,574,904 
End of year  $94,123,050   $112,791,477 
Undistributed net investment income at end of year  $3,078,802   $2,472,337 
           
Capital share activity:          
Shares sold   2,168,510    1,532,362 
Shares redeemed   (3,573,041)   (2,778,441)
Net decrease in shares   (1,404,531)   (1,246,079)

 

46 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

  

 
 

 

SERIES E (TOTAL RETURN BOND SERIES)

 

FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $14.45   $13.65   $12.98   $12.24   $11.29 
Income (loss) from investment operations:                         
Net investment incomea   .54    .38    .34    .35    .37 
Net gain (loss) on investments (realized and unrealized)   (.29)   .42    .33    .39    .58 
Total from investment operations   .25    .80    .67    .74    .95 
Net asset value, end of period  $14.70   $14.45   $13.65   $12.98   $12.24 
                          
Total Returnb   1.73%   5.86%   5.16%   6.05%   8.41%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $94,123   $112,791   $123,575   $127,091   $130,569 
Ratios to average net assets:                         
Net investment income   3.69%   2.75%   2.57%   2.72%   3.08%
Total expenses   1.07%   0.94%   0.92%   0.92%   0.92%
Net expensesc   0.87%   0.81%   0.81%   0.79%   0.77%
Portfolio turnover rate   109%   79%   49%   38%   76%

 

aNet investment income per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products. Does not include expenses of the underlying funds in which the Fund invests.
cNet expense information reflects the expense ratios after expense waivers and may include extraordinary expenses. Excluding extraordinary expenses, the operating expense ratio for the year ended would be:

12/31/13 
 0.81%

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 47

 

 
 

 

Manager’S Commentary (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series F (Floating Rate Strategies Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chief Investment Officer; Michael P. Damaso, Senior Managing Director and Portfolio Manager; Anne B. Walsh, Senior Managing Director; Kevin H. Gundersen, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the abbreviated fiscal year ended December 31, 2013.

 

For the abbreviated fiscal year from the inception date of April 24, 2013, through December 31, 2013, the Series F (Floating Rate Strategies Series) returned 2.48%, compared with the 3.10% return of its benchmark, the Credit Suisse Leveraged Loan Index.

 

The Fund seeks to provide a high level of current income while maximizing total return. The Fund pursues its objective by normally investing at least 80% of its assets in floating rate securities, including senior secured syndicated bank loans and asset-backed securities (ABS).

 

Bank loans posted their fifth consecutive year of positive returns in 2013 amid rate volatility, reflected in 77 consecutive weeks of positive flows, totaling $65 billion over that period. Strong loan demand also stemmed from robust issuance in collateralized loan obligations (CLOs). Institutional bank loans set a new record with $578 billion of gross issuance, outpacing the previous record in 2007 by 26%. Refinancing represented 42% of primary market activity, limiting net new supply, which was positive for prices and spreads as investors were forced into the secondary markets. The current default rate for senior loans is 2.2%, well below the historical average of 3.4%.

 

Interest rate risk was the dominant focus of fixed income investors as positive economic momentum and dovish statements by the Federal Reserve (the “Fed”) led to rising interest rates. The yield on the 10-year Treasury note hit a two-year high of 3.0% to close 2013. The Fed’s decision to taper its bond purchases in December was largely driven by the strength of economic momentum as evidenced by a number of data releases in recent months. Risk markets responded positively as dovish Fed statements have continued to propel asset prices higher. While we believe that many risk assets are fully valued, credit assets have potential for continued spread compression in the near-term. It remains an optimal time to take prudent credit risk, though we are cautious with respect to aggressive pricing and weaker structures from issuers. While we still like bank loans as an asset class, technical factors, such as the potential for lower demand from the CLO origination market and mutual fund flows, suggest that market events over the next few months should be monitored carefully.

 

The Fund’s performance stemmed from good credit selection, portfolio trading decisions and tactical allocations to the ABS and high yield sectors. In connection with trading, the Fund put money to work opportunistically, as near-term catalysts drove seemingly out-of-favor assets to levels that were attractive for purchase. The Fund has consistently maintained a lower-duration target, but selectively added duration amid lower rates following the Fed’s decision to not taper in late September. The Fund also took gains in floating rate assets that were less sensitive to interest rate movements and had less upside with respect to spread duration, such as CLOs and shorter-maturity bank loans. We continue to exercise prudent credit research on deals in which we are willing to invest.

 

The ABS sector was a positive contributor to Fund returns, as CLOs and floating rate ABS saw minimal mark-to-market weakness while positive carry from coupon, spread tightening and gains from amortization of discount securities helped offset some of the mark-to-market weakness experienced from fixed rate ABS. The ABS market benefited from interest rate volatility that led to increased demand for floating rate securities, which maintained a positive technical bid for floating rate ABS and CLOs. Despite the negative effects of increased interest rate volatility and the subsequent impact on housing data, the non-Agency RMBS market also maintained positive performance for the period.

 

 

 

 

 

 

 

 

 

 

 

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.

 

48 | The Guggenheim Funds annual REPORT

  

 
 

 

performance report and FUND PROFILE (Unaudited) December 31, 2013

 

SERIES F (FLOATING RATE STRATEGIES SERIES)

OBJECTIVE: Seeks to provide a high level of current income while maximizing total return.

 

Cumulative Fund Performance*,†

 

 

Annual Returns*

Period Ended December 31, 2013†

 

   Since Inception 
   (04/24/13) 
Series F (Floating Rate Strategies Series)   2.48% 
Credit Suisse Leveraged Loan Index   3.10% 

 

Ten Largest Holdings (% of Total Net Assets)
Federated U.S. Treasury Cash Reserve Fund   8.1%
Infor (US), Inc.   1.6%
AlixPartners, LLP   1.5%
Travelport Holdings Ltd.   1.3%
Harvard Drug   1.3%
Grocery Outlet, Inc.   1.3%
HUB International Ltd.   1.1%
Sears Holdings Corp.   1.1%
CHG Healthcare Services, Inc.   1.1%
Laureate Education, Inc.   1.1%
Top Ten Total   19.5%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date: April 24, 2013

 

Portfolio Composition by Quality Rating** 

Rating    
Fixed Income Instruments     
AA   1.0%
A   1.9%
BBB   6.1%
BB   17.9%
B   57.4%
CCC   6.8%
NR   0.5%
Other Instruments     
Short Term Investments   7.9%
Preferred Stocks   0.5%
Total Investments   100.0%

The chart above reflects percentages of the value of total investments.

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The CSFB Leveraged Loan Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
**Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

the GUGGENHEIM FUNDS annual report | 49

 

 
 

 

Schedule of Investments December 31, 2013
Series F (FLOATING RATE STRATEGIES Series)  

  

   Shares   Value 
         
PREFERRED STOCKS† - 0.5%          
Aspen Insurance Holdings Ltd.          
5.95%1,2   10,000   $226,700 
Total Preferred Stocks          
(Cost $250,000)        226,700 
           
SHORT TERM INVESTMENTS† - 8.1%          
Federated U.S. Treasury Cash          
Reserve Fund   3,733,293    3,733,293 
Total Short Term Investments          
(Cost $3,733,293)        3,733,293 

 

   Face     
   Amount     
SENIOR FLOATING RATE INTERESTS††,1 - 77.6%          
Consumer Discretionary - 19.1%          
AlixPartners, LLP          
5.00% due 07/10/20  $690,508    694,609 
Sears Holdings Corp.          
5.50% due 06/30/18   500,000    502,745 
CHG Healthcare Services, Inc.          
4.25% due 11/19/19   500,000    501,875 
Laureate Education, Inc.          
5.00% due 06/16/18   498,352    500,534 
NES Global Talent          
6.50% due 10/02/19   500,000    497,500 
Steinway Musical Instruments, Inc.          
9.25% due 09/18/20   200,000    206,500 
4.75% due 09/19/19   199,500    201,122 
Hudson’s Bay Co.          
4.75% due 11/04/20   400,000    406,152 
Rite Aid Corp.          
4.88% due 06/21/21   400,000    405,332 
Neiman Marcus Group, Inc.          
5.00% due 10/25/20   400,000    404,612 
Playa Resorts Holdings          
4.75% due 08/09/19   399,000    402,491 
Lions Gate Entertainment Corp.          
5.00% due 07/18/20   400,000    401,000 
Information Resources, Inc.          
4.75% due 09/26/20   399,000    400,664 
ValleyCrest Companies LLC          
5.50% due 06/13/19   398,000    399,493 
Smart & Final Stores LLC          
4.75% due 11/15/19   396,995    396,002 
Fleetpride Corp.          
5.25% due 11/19/19   396,992    391,784 
Guitar Center, Inc.          
6.25% due 04/09/17   397,900    387,455 
Totes Isotoner Corp.          
7.25% due 07/07/17   362,332    363,014 
Go Daddy Operating Company LLC          
4.00% due 12/16/18   347,843    347,917 
IntraWest Holdings S.à r.l.          
7.75% due 12/10/18  300,000   288,066 
Horseshoe Baltimore          
8.25% due 07/02/20   250,000    257,970 
Party City Holdings, Inc.          
4.25% due 07/27/19   198,496    199,179 
Arby’s          
5.00% due 11/15/20   175,000    175,767 
Ollies Bargain Outlet          
5.26% due 09/28/19   149,247    149,993 
Total Consumer Discretionary        8,881,776 
           
Industrials - 12.3%          
Travelport Holdings Ltd.          
6.25% due 06/26/19   596,950    611,379 
US Shipping Corp.          
9.00% due 04/30/18   398,000    406,956 
Doncasters Group Ltd.          
9.50% due 10/09/20   400,000    405,000 
US Infrastructure Corp.          
4.75% due 07/10/20   398,000    399,743 
Minimax Viking          
4.50% due 08/14/20   398,000    399,660 
Sabre, Inc.          
4.50% due 02/19/19   399,000    399,499 
Dematic S.A.          
5.25% due 12/28/19   396,992    398,731 
ServiceMaster Co.          
4.25% due 01/31/17   396,992    392,923 
Thermasys Corp.          
5.26% due 05/03/19   397,500    390,874 
Emerald Expositions          
5.50% due 06/12/20   298,500    299,246 
Power Borrower, LLC          
4.25% due 05/06/20   233,195    229,696 
NaNa Development Corp.          
8.00% due 03/15/18   212,500    214,625 
Filtration Group Corp.          
4.50% due 11/20/20   200,000    201,876 
Crosby Worldwide          
4.00% due 11/23/20   200,000    200,062 
syncreon          
5.25% due 10/28/20   200,000    198,876 
MRC Global, Inc.          
5.00% due 11/08/19   179,550    181,794 
Mast Global          
8.25% due 09/12/19†††   150,000    148,500 
Evergreen Tank Solutions, Inc.          
9.50% due 09/28/18   136,201    135,520 
Mitchell International, Inc.          
8.50% due 10/11/21   100,000    101,313 
Total Industrials        5,716,273 

 

50 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Schedule of Investments (continued) December 31, 2013
SERIES F (FLOATING RATE STRATEGIES SERIES)

 

   Face     
   Amount   Value 
         
FINANCIALS - 11.5%          
Magic Newco, LLC          
12.00% due 06/12/19  $250,000   $286,562 
5.00% due 12/12/18   248,993    250,549 
HUB International Ltd.          
4.75% due 10/02/20   498,750    504,361 
Cetera Financial Group, Inc.          
6.50% due 08/07/19   397,500    401,972 
National Financial Partners          
5.25% due 07/01/20   398,000    401,650 
Ceridian Corp.          
4.41% due 05/09/17   400,000    401,124 
Digital Insight          
4.75% due 10/16/19   400,000    400,000 
Nuveen Investments, Inc.          
4.17% due 05/13/17   400,000    398,084 
First Advantage Corp.          
6.25% due 02/28/19   398,000    397,256 
Cunningham Lindsey U.S., Inc.          
5.00% due 12/10/19   396,992    396,496 
HDV Holdings          
5.75% due 12/18/18   395,000    392,038 
Fly Leasing Ltd.          
4.50% due 08/08/19   300,000    301,800 
American Stock Transfer & Trust          
5.75% due 06/26/20   298,500    299,619 
CNO Financial Group, Inc.          
3.75% due 09/28/18   145,517    145,578 
Knight/Getco          
5.75% due 11/30/17   131,776    131,940 
Santander Asset Management          
4.25% due 12/17/20   100,000    100,125 
Grosvenor Capital Management          
Holdings, LLLP          
3.75% due 11/25/20   100,000    99,875 
Total Financials        5,309,029 
           
Information Technology - 11.3%          
Infor (US), Inc.          
3.75% due 06/03/20   921,555    919,408 
Active Network, Inc., The          
5.50% due 11/13/20   450,000    451,687 
Activision Blizzard          
3.25% due 10/12/20   399,000    401,290 
LANDesk Group, Inc.          
5.25% due 08/09/19   398,000    399,493 
Deltek, Inc.          
5.00% due 10/10/18   397,990    398,985 
EIG Investors Corp.          
5.00% due 11/09/19   397,000    398,739 
Greenway Medical Technologies          
6.00% due 11/04/20   400,000    398,000 
Aspect Software, Inc.          
7.00% due 05/07/16   390,000    390,733 
SumTotal Systems          
6.28% due 11/16/18  375,317   369,687 
ION Trading Technologies Ltd.          
4.50% due 05/22/20   199,000    200,244 
8.25% due 05/21/21   150,000    152,720 
P2 Energy Solutions          
5.00% due 10/30/20   260,000    260,975 
Kronos, Inc.          
4.50% due 10/30/19   249,289    251,315 
CCC Information Services, Inc.          
4.00% due 12/20/19   248,120    248,225 
Total Information Technology        5,241,501 
           
Telecommunication Services - 7.7%          
Univision Communications, Inc.          
4.50% due 03/01/20   496,250    498,423 
Live Nation Worldwide, Inc.          
3.50% due 08/14/20   399,000    400,165 
Hemisphere Media Group, Inc.          
6.25% due 07/30/20   398,000    399,493 
Alcatel-Lucent, Inc.          
5.75% due 01/30/19   397,367    398,757 
Asurion Corp.          
4.50% due 05/24/19   396,992    396,695 
Expert Global Solutions          
8.50% due 04/03/18   374,687    375,156 
Mitel Networks Corp.          
7.00% due 02/27/19   357,895    357,895 
Zayo Group LLC          
4.00% due 07/02/19   299,241    299,310 
Avaya, Inc.          
8.00% due 03/31/18   247,830    251,114 
Cumulus Media, Inc.          
4.25% due 12/18/20   200,000    201,000 
Total Telecommunication Services        3,578,008 
           
Consumer Staples - 5.7%          
Grocery Outlet, Inc.          
5.50% due 12/17/18   597,101    598,224 
DS Waters of America, Inc.          
5.25% due 08/30/20   400,000    405,500 
CTI Foods Holding Co. LLC          
4.50% due 06/28/20   299,250    298,876 
8.25% due 06/28/21   100,000    100,500 
Arctic Glacier Holdings, Inc.          
6.00% due 05/10/19   398,000    398,000 
Reddy Ice Holdings, Inc.          
6.75% due 04/01/19   397,995    397,497 
Performance Food Group          
6.25% due 11/14/19   248,750    249,889 
Dole Food Company, Inc.          
4.50% due 11/01/18   200,000    200,666 
Total Consumer Staples        2,649,152 

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 51

 

 
 

 

Schedule of Investments (continued) December 31, 2013
Series F (FLOATING RATE STRATEGIES Series)  

 

   Face     
   Amount   Value 
         
MATERIALS - 3.6%          
Chromaflo Technologies          
4.50% due 12/02/19  $450,000   $449,721 
CPG International, Inc.          
4.75% due 09/30/20   399,000    399,998 
Royal Adhesives and Sealants          
5.50% due 07/31/18   396,734    399,709 
Ennis-Flint          
6.25% due 03/30/18   300,000    301,500 
Oxbow Carbon          
8.00% due 01/18/20   100,000    101,688 
Total Materials        1,652,616 
Energy - 3.1%          
Rice Energy          
8.50% due 10/25/18   397,995    404,960 
Ocean Rig ASA          
5.50% due 07/15/16   399,000    404,155 
State Class Tankers          
6.75% due 06/19/20   400,000    403,000 
EquiPower Resources Holdings LLC          
4.25% due 12/31/19   208,750    209,272 
Total Energy        1,421,387 
           
Health Care - 1.8%          
Harvard Drug          
5.00% due 08/16/20   597,000    601,107 
Learning Care Group (US), Inc.          
6.00% due 05/08/19   248,750    249,683 
Total Health Care        850,790 
           
Utilities - 1.5%          
Astoria Generating Company          
Acquisitions LLC          
8.50% due 10/26/17   390,000    401,700 
Linden Cogeneration Power          
3.75% due 12/17/20   300,000    301,875 
Total Utilities        703,575 
Total Senior Floating Rate Interests          
(Cost $35,736,761)        36,004,107 
           
ASSET BACKED SECURITIES†† - 10.9%          
Gramercy Real Estate CDO 2007-1 Ltd.          
2007-1A, 0.52% due 08/15/561,4   548,694    452,233 
Northwoods Capital VII Ltd.          
2006-7A, 3.74% due 10/22/211,4   250,000    232,825 
2006-7A, 1.79% due 10/22/211,4   200,000    188,040 
N-Star Real Estate CDO IX Ltd.          
0.51% due 02/01/413   450,745    409,772 
Cedar Woods CRE CDO Ltd.          
0.43% due 07/25/51   461,665    375,149 
GreenPoint Mortgage Funding Trust          
2005-HE4, 0.87% due 07/25/301   350,000    311,531 
RAIT CRE CDO I Ltd.          
2006-1X, 0.50% due 11/20/461  352,867   284,058 
Structured Asset Securities Corporation          
Mortgage Loan Trust          
2006-OPT1, 0.42% due 04/25/361   300,000    255,918 
Salus CLO 2012-1 Ltd.          
2013-1AN, 4.99% due 03/05/211,4   250,000    249,975 
DIVCORE CLO Ltd.          
2013-1A B, 4.10% due 11/15/32   250,000    249,250 
Garrison Funding 2013-2 Ltd.          
2013-2A, 4.98% due 09/25/231,4   250,000    248,750 
Newstar Commercial Loan          
Funding 2013-1 LLC          
2013-1A, 4.95% due 09/20/231,4   250,000    247,300 
Acis CLO 2013-2 Ltd.          
4.11% due 10/14/221,4   250,000    238,750 
Cerberus Onshore II CLO LLC          
2014-1A, 4.24% due 10/15/231,4   250,000    238,575 
Jasper CLO Ltd.          
2005-1A, 1.14% due 08/01/171,4   250,000    232,558 
GSAA Home Equity Trust          
2007-7, 0.43% due 07/25/371   189,315    160,735 
Wachovia Asset Securitization          
Issuance II LLC Trust          
2007-HE1, 0.30% due 07/25/371,4   158,865    134,241 
Lehman XS Trust          
2007-9, 0.28% due 06/25/371   152,740    132,653 
New Century Home Equity          
Loan Trust Series          
2004-4, 0.96% due 02/25/351   102,164    92,623 
Home Equity Asset Trust          
2006-3, 0.47% due 07/25/361   100,000    90,133 
West Coast Funding Ltd.          
2006-1A, 0.39% due 11/02/411,4   92,277    88,992 
Newcastle CDO Ltd.          
2007-9A, 0.42% due 05/25/52   73,215    71,502 
Accredited Mortgage Loan Trust          
2007-1, 0.29% due 02/25/371   75,767    70,026 
Total Asset Backed Securities          
(Cost $5,053,533)        5,055,589 
           
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 3.8%          
Lehman XS Trust Series          
2006-16N, 0.35% due 11/25/461   293,484    233,717 
2005-7N, 0.43% due 12/25/351   249,423    228,813 
SRERS-2011 Funding Ltd.          
2011-RS, 0.42% due 05/09/461,4   376,441    341,206 
GreenPoint Mortgage Funding Trust          
2006-AR1, 0.45% due 02/25/361   262,813    208,911 
COMM 2006-FL12 Mortgage Trust          
2006-FL12, 0.46% due 12/15/201,4   129,981    126,684 
2006-FL12, 0.51% due 12/15/201,4   64,998    62,705 
Nomura Resecuritization Trust          
2012-1R, 0.61% due 08/27/471,4   191,952    176,845 

 

52 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Schedule of Investments (concluded) December 31, 2013
Series F (FLOATING RATE STRATEGIES Series)  

 

   Face     
   Amount   Value 
         
IndyMac INDX Mortgage Loan Trust          
2006-AR4, 0.37% due 05/25/461  $186,885   $156,535 
Bear Stearns Mortgage Funding Trust          
2007-AR5, 0.33% due 06/25/471   164,538    132,876 
Structured Asset Mortgage          
Investments II Trust          
2006-AR1, 0.39% due 02/25/361   95,605    72,290 
Total Collateralized Mortgage Obligations          
(Cost $1,742,902)        1,740,582 
           
CORPORATE BONDS†† - 0.5%          
Financials - 0.5%          
PNC Financial Services Group, Inc.          
4.85% due 05/29/491,2   250,000   223,875 
Total Corporate Bonds          
(Cost $250,000)        223,875 
Total Investments - 101.4%          
(Cost $46,766,489)       $46,984,146 
Other Assets & Liabilities, net - (1.4)%        (641,631)
Total Net Assets - 100.0%       $46,342,515 

 

†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.
1Variable rate security. Rate indicated is rate effective at December 31, 2013.
2Perpetual maturity.
3Illiquid security.
4Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $3,259,679 (cost $3,244,656), or 7.0% of total net assets.

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 53

 

 
 

 

Series F (FLOATING RATE STRATEGIES Series)
 
STATEMENT OF ASSETS
AND LIABILITIES

December 31, 2013

 

Assets:     
Investments, at value     
(cost $46,766,489)  $46,984,146 
Cash   172,072 
Prepaid expenses   3,431 
Receivables:     
Securities sold   1,340,731 
Interest   159,773 
Fund shares sold   23,872 
Investment advisor   22,634 
Dividends   3,719 
Total assets   48,710,378 
Liabilities:     
Unfunded loan commitments, at value (commitment fees received $79)   72 
Payable for:     
Securities purchased   2,314,526 
Management fees   24,536 
Distribution and service fees   9,437 
Fund accounting/administration fees   3,586 
Transfer agent/maintenance fees   2,125 
Fund shares redeemed   214 
Directors’ fees*   147 
Miscellaneous   13,220 
Total liabilities   2,367,863 
Net assets  $46,342,515 
Net assets consist of:     
Paid in capital  $45,257,278 
Undistributed net investment income   794,675 
Accumulated net realized gain on investments   72,898 
Net unrealized appreciation on investments   217,664 
Net assets  $46,342,515 
Capital shares outstanding   1,809,292 
Net asset value per share  $25.61 

 

STATEMENT OF
OPERATIONS

Period Ended December 31, 2013**

 

Investment Income:     
Interest  $1,072,621 
Dividends   9,876 
Total investment income   1,082,497 
      
Expenses:     
Management fees   175,334 
Transfer agent/maintenance fees   17,202 
Distribution and service fees   67,436 
Fund accounting/administration fees   25,627 
Professional fees   26,927 
Printing expenses   22,243 
Custodian fees   665 
Line of credit fees   6,713 
Directors’ fees*   2,529 
Proxy expense   1,017 
Miscellaneous   22,135 
Total expenses   367,828 
Less:     
Expenses waived by Advisor   (48,535)
Net expenses   319,293 
Net investment income   763,204 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   85,624 
Net realized gain   85,624 
Net change in unrealized appreciation (depreciation) on:     
Investments   217,664 
Net change in unrealized appreciation (depreciation)   217,664 
Net realized and unrealized gain   303,288 
Net increase in net assets resulting from operations  $1,066,492 

 

*Relates to Directors not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.
**Since commencement of operations: April 24, 2013.

 

54 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Series F (FLOATING RATE STRATEGIES Series)
 
STATEMENT OF CHANGES IN NET ASSETS

   Period Ended 
   December 31, 
   2013a 
     
Increase (Decrease) In Net Assets From Operations:     
Net investment income  $763,204 
Net realized gain on investments   85,624 
Net change in unrealized appreciation (depreciation) on investments   217,664 
Net increase in net assets resulting from operations   1,066,492 
      
Capital share transactions:     
Proceeds from sale of shares   62,571,845 
Cost of shares redeemed   (17,295,822)
Net increase from capital share transactions   45,276,023 
Net increase in net assets   46,342,515 
      
Net assets:     
Beginning of period   — 
End of period  $46,342,515 
Undistributed net investment income at end of period  $794,675 
      
Capital share activity:     
Shares sold   2,495,635 
Shares redeemed   (686,343)
Net increase in shares   1,809,292 

 

aSince commencement of operations: April 24, 2013.

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 55

 

 
 

 

Series F (FLOATING RATE STRATEGIES Series)
 
FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Period Ended 
   December 31, 
   2013c 
Per Share Data     
Net asset value, beginning of period  $25.00 
Income (loss) from investment operations:     
Net investment incomea   .49 
Net gain on investments (realized and unrealized)   .12 
Total from investment operations   .61 
Net asset value, end of period  $25.61 
      
Total Returnb   2.48%
Ratios/Supplemental Data     
Net assets, end of period (in thousands)  $46,343 
Ratios to average net assets:     
Net investment income   2.81%
Total expensesd   1.35%
Net expensesd,e   1.17%
Portfolio turnover rate   53%

 

aNet investment income per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
cSince commencement of operations: April 24, 2013. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized.
dDue to limited length of Fund operations, ratios for this period may not be indicative of future performance.
eNet expense information reflects the expense ratios after expense waivers and may include extraordinary expenses. Excluding extraordinary expenses, the operating expense ratio for the period would be:

12/31/13 
 1.15% 

 

56 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

  

 
 

 

Manager’S Commentary (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series J (StylePlus–Mid Growth Series, formerly Mid Cap Growth Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chief Investment Officer; Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance and changes to the Fund that occurred during the fiscal year ended December 31, 2013.

 

For the 12-month period ended December 31, 2013, the Series J (StylePlus–Mid Growth Series, formerly, Mid Cap Growth Series) returned 30.52%, compared with the benchmark, the Russell Midcap® Growth Index, which returned 35.74%.

 

The Fund’s Board of Directors approved the following changes, which became effective on April 30, 2013: a new Fund name, new principal investment strategies and new portfolio management team.

 

The Fund’s investment objective is to seek long-term growth of capital in excess of that produced by the total return of the Russell Midcap Growth Index. The Fund seeks to add alpha above the target index by leveraging Guggenheim’s competencies in fixed and systematic stock selection. To accomplish this, the StylePlus strategy allocates to quantitative selection models when stock picking opportunities in the market are high. When stock selection opportunities are less attractive, the Fund invests in derivatives based on the target index, backed by a diversified portfolio of fixed income instruments. In this way, the Fund believes it will deliver the target index return plus an alpha component commensurate with the yield achieved on the active fixed income portfolio.

 

The Fund’s underperformance for the 12 months came predominantly during the four months it was being managed according to the legacy strategy. Specifically, from January 1, 2013, through April 30, 2013, the Fund underperformed the benchmark by about four percentage points, largely due to poor stock selection in the Energy and Information Technology sectors, as well as poor stock selection and an underweight in the Consumer Staples sector. The Fund’s cash position was also a drag on performance.

 

For the time the Fund was being managed according to the new strategy, the eight months from April 30, 2013 through September 30, 2013, the Fund performed slightly better than the benchmark. During much of this period, the Fund maintained an approximate allocation of 20% to systematic equity selection, 80% allocated to the passive equity position, which was maintained with swap agreements and futures contracts, and 52% allocated to fixed income investments (excluding short term). Beginning in December 2013, due to a more favorable outlook for active stock selection, the equity sleeve was increased to 25%, with 75% allocated to the passive equity position.

 

The equity sleeve was additive over the period, delivering the strongest returns during the months of May, June and December.

 

The fixed income allocation also contributed to performance over the eight months, after detracting from performance during the substantial debt selloff that began at the end of May and lasted in to June. The swap agreements also contributed to performance.

 

 

 

 

 

 

 

 

 

 

 

Performance displayed represents past performance, which is no guarantee of future results.

 

The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.

 

The Guggenheim Funds annual REPORT | 57

 

 
 

 

performance report and FUND PROFILE (Unaudited) December 31, 2013

 

SERIES J (STYLEPLUS–MID GROWTH SERIES)

OBJECTIVE: Seeks long-term growth of capital.

 

Cumulative Fund Performance*,†

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series J (StylePlus–Mid Growth Series)   30.52%   20.92%   5.64%
Russell Midcap Growth Index   35.74%   23.37%   9.77%

 

Ten Largest Holdings (% of Total Net Assets)

Dreyfus Treasury Prime Cash Management Fund   9.2%
Guggenheim BulletShares 2016 High Yield Corporate Bond ETF   1.9%
Guggenheim BulletShares 2015 High Yield Corporate Bond ETF   1.9%
Guggenheim BulletShares 2014 High Yield Corporate Bond ETF   1.9%
Floating Rate Strategies Fund Institutional Class   1.7%
Macro Opportunities Fund Institutional Class   1.7%
New York City Water & Sewer System Revenue Bonds   1.4%
Duane Street CLO IV Ltd. — Class A1T   1.3%
U.S. Treasury Bill   1.3%
HIS Asset Securitization Corporation Trust 2007-WF1—Class 2A3   1.2%
Top Ten Total   23.5%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date:  October 1, 1992
 
Portfolio Composition by Quality Rating**
Rating

Fixed Income Instruments     
AAA   8.9%
AA   3.7%
A   7.7%
BBB   21.8%
BB   2.8%
B   4.5%
CCC   5.0%
NR   2.1%
Other Instruments     
Common Stock   25.1%
Short Term Investments   9.2%
Exchange Traded Funds   5.8%
Mutual Funds   3.4%
Total Investments   100.0%

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell Midcap Growth Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
**Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

58 | the GUGGENHEIM FUNDS annual report

 

 
 

 

Schedule of Investments December 31, 2013
Series J (STYLEPLUS–MID GROWTH SERIES)  

 

   Shares   Value 
         
COMMON STOCKS† - 25.1%          
           
Health Care - 5.6%          
DaVita HealthCare Partners, Inc.*   9,165   $580,786 
Laboratory Corporation of          
America Holdings*   5,903    539,357 
Endo Health Solutions, Inc.*   7,526    507,705 
CR Bard, Inc.   3,759    503,481 
AmerisourceBergen Corp. — Class A   6,653    467,773 
HCA Holdings, Inc.*   9,198    438,837 
Aetna, Inc.   5,901    404,749 
Quest Diagnostics, Inc.   7,265    388,968 
Universal Health Services, Inc. — Class B   4,709    382,653 
Cigna Corp.   4,235    370,478 
Actavis plc*   2,013    338,184 
St. Jude Medical, Inc.   5,424    336,017 
Becton Dickinson and Co.   2,912    321,747 
Pharmacyclics, Inc.*   2,753    291,212 
Henry Schein, Inc.*   2,290    261,655 
Zoetis, Inc.   7,673    250,830 
Mylan, Inc.*   5,768    250,331 
BioMarin Pharmaceutical, Inc.*   3,442    241,869 
Cerner Corp.*   3,939    219,560 
Alexion Pharmaceuticals, Inc.*   1,433    190,675 
Hologic, Inc.*   8,478    189,483 
Zimmer Holdings, Inc.   2,018    188,057 
Catamaran Corp.*   3,216    152,696 
Vertex Pharmaceuticals, Inc.*   1,819    135,152 
Varian Medical Systems, Inc.*   1,732    134,559 
Edwards Lifesciences Corp.*   1,941    127,640 
Tenet Healthcare Corp.*   3,025    127,413 
ResMed, Inc.   2,704    127,304 
Waters Corp.*   1,252    125,200 
Myriad Genetics, Inc.*   5,948    124,789 
Mettler-Toledo International, Inc.*   504    122,265 
Total Health Care        8,841,425 
           
Industrials - 5.5%          
Ingersoll-Rand plc   9,948    612,797 
Delta Air Lines, Inc.   16,215    445,425 
Fluor Corp.   5,379    431,880 
Dover Corp.   4,400    424,776 
Waste Management, Inc.   9,452    424,112 
United Continental Holdings, Inc.*   10,962    414,692 
Avis Budget Group, Inc.*   9,959    402,543 
AECOM Technology Corp.*   13,564    399,189 
Hertz Global Holdings, Inc.*   13,815    395,385 
Cummins, Inc.   2,774    391,051 
Stanley Black & Decker, Inc.   4,172    336,639 
Waste Connections, Inc.   7,434    324,345 
Masco Corp.   13,947    317,573 
Southwest Airlines Co.   16,736    315,306 
Alaska Air Group, Inc.   3,988    292,600 
Nielsen Holdings N.V.   5,983    274,560 
WW Grainger, Inc.   948    242,139 
Iron Mountain, Inc.   7,635    231,722 
Carlisle Companies, Inc.   2,877    228,434 
MRC Global, Inc.*   6,251   201,657 
RR Donnelley & Sons Co.   9,666    196,026 
United Rentals, Inc.*   2,412    188,015 
Rockwell Automation, Inc.   1,589    187,756 
IHS, Inc. — Class A*   1,498    179,311 
Colfax Corp.*   2,291    145,914 
IDEX Corp.   1,899    140,241 
Cintas Corp.   2,207    131,515 
TransDigm Group, Inc.   806    129,782 
Equifax, Inc.   1,845    127,471 
Rockwell Collins, Inc.   1,714    126,699 
Quanta Services, Inc.*   3,974    125,419 
Total Industrials        8,784,974 
           
Consumer Discretionary - 5.4%          
Macy’s, Inc.   11,405    609,027 
Best Buy Company, Inc.   10,909    435,051 
Discovery Communications, Inc. —          
Class A*   4,443    401,736 
The Gap, Inc.   9,591    374,816 
Coach, Inc.   6,363    357,155 
Bed Bath & Beyond, Inc.*   4,429    355,649 
Charter Communications, Inc. — Class A*   2,548    348,465 
Whirlpool Corp.   2,111    331,131 
DISH Network Corp. — Class A*   5,570    322,614 
Genuine Parts Co.   3,791    315,373 
Delphi Automotive plc   5,108    307,144 
Liberty Interactive Corp. — Class A*   10,132    297,374 
Harley-Davidson, Inc.   4,236    293,301 
Omnicom Group, Inc.   3,856    286,770 
Interpublic Group of Companies, Inc.   16,088    284,758 
Nordstrom, Inc.   4,342    268,336 
Expedia, Inc.   3,850    268,191 
Wynn Resorts Ltd.   1,222    237,325 
Dollar General Corp.*   3,934    237,299 
VF Corp.   3,520    219,437 
Mattel, Inc.   4,340    206,497 
Netflix, Inc.*   552    203,230 
O’Reilly Automotive, Inc.*   1,349    173,630 
Service Corporation International   9,554    173,214 
International Game Technology   9,482    172,193 
Ross Stores, Inc.   2,058    154,206 
Wyndham Worldwide Corp.   1,929    142,147 
Marriott International, Inc. — Class A   2,696    133,075 
Darden Restaurants, Inc.   2,339    127,171 
Starwood Hotels & Resorts Worldwide, Inc.   1,584    125,849 
L Brands, Inc.   2,030    125,556 
AutoNation, Inc.*   2,410    119,753 
Total Consumer Discretionary        8,407,473 
           
Information Technology - 4.9%          
Symantec Corp.   24,946    588,226 
NetApp, Inc.   13,561    557,899 
SanDisk Corp.   7,464    526,511 
Vantiv, Inc. — Class A*   13,629    444,441 
Western Union Co.   22,603    389,901 
ARRIS Group, Inc.*   12,412    302,418 
Intuit, Inc.   3,873    295,587 

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 59

 

 
 

 

Schedule of Investments (continued) December 31, 2013
Series J (STYLEPLUS–MID GROWTH SERIES)  

 

   Shares   Value 
         
Alliance Data Systems Corp.*   1,061   $278,969 
LinkedIn Corp. — Class A*   1,184    256,727 
Fidelity National Information Services, Inc.   4,713    252,994 
Teradata Corp.*   5,364    244,008 
Broadcom Corp. — Class A   7,816    231,743 
Harris Corp.   3,155    220,251 
FLIR Systems, Inc.   7,216    217,202 
ON Semiconductor Corp.*   25,262    208,159 
F5 Networks, Inc.*   2,273    206,525 
Maxim Integrated Products, Inc.   7,333    204,664 
DST Systems, Inc.   2,085    189,193 
Motorola Solutions, Inc.   2,778    187,515 
Rovi Corp.*   8,720    171,697 
Skyworks Solutions, Inc.*   5,342    152,568 
Applied Materials, Inc.   8,404    148,667 
IAC/InterActiveCorp   2,132    146,447 
Citrix Systems, Inc.*   2,207    139,593 
Altera Corp.   4,167    135,553 
j2 Global, Inc.   2,686    134,327 
Booz Allen Hamilton Holding Corp.   7,005    134,146 
Lam Research Corp.*   2,422    131,878 
Atmel Corp.*   16,820    131,701 
NeuStar, Inc. — Class A*   2,637    131,481 
Equinix, Inc.*   729    129,361 
Xilinx, Inc.   2,798    128,484 
Take-Two Interactive Software, Inc.*   6,994    121,486 
Total Information Technology        7,740,322 
           

CONSUMER STAPLES - 1.8%

         
Lorillard, Inc.   8,460    428,753 
Campbell Soup Co.   9,377    405,837 
ConAgra Foods, Inc.   10,643    358,669 
JM Smucker Co.   2,900    300,498 
Whole Foods Market, Inc.   5,014    289,960 
Kroger Co.   7,297    288,450 
Coca-Cola Enterprises, Inc.   5,403    238,434 
Hershey Co.   2,249    218,670 
Dr Pepper Snapple Group, Inc.   3,873    188,693 
Kellogg Co.   2,687    164,095 
Total Consumer Staples        2,882,059 
           
Energy - 1.6%          
Baker Hughes, Inc.   7,748    428,155 
Pioneer Natural Resources Co.   2,305    424,281 
Noble Energy, Inc.   4,374    297,913 
Equities Corp.   2,993    268,712 
Cameron International Corp.*   3,776    224,785 
Southwestern Energy Co.*   5,609    220,602 
Seadrill Ltd.   4,671    191,885 
Concho Resources, Inc.*   1,340    144,720 
Kosmos Energy Ltd.*   12,134    135,658 
SM Energy Co.   1,519    126,244 
Total Energy        2,462,955 
           
Telecommunication Services - 0.1%          
Crown Castle International Corp.*   2,453    180,124 
Financials - 0.1%          
Progressive Corp.   6,436    175,510 
Materials - 0.1%          
Eastman Chemical Co.   2,147   173,263 
Total Common Stocks          
(Cost $36,577,380)        39,648,105 
           
EXCHANGE TRADED FUNDS†,4 - 5.8%          
Guggenheim BulletShares 2016          
High Yield Corporate Bond ETF   112,800    3,047,856 
Guggenheim BulletShares 2015          
High Yield Corporate Bond ETF   112,900    3,023,462 
Guggenheim BulletShares 2014          
High Yield Corporate Bond ETF   113,100    3,016,377 
Total Exchange Traded Funds          
(Cost $9,070,288)        9,087,695 
           
MUTUAL FUNDS†,5 - 3.4%          
Floating Rate Strategies Fund          
Institutional Class   102,024    2,729,155 
Macro Opportunities Fund          
Institutional Class   99,048    2,648,534 
Total Mutual Funds          
(Cost $5,510,691)        5,377,689 
           
SHORT TERM INVESTMENTS† - 9.2%          
Dreyfus Treasury Prime Cash          
Management Fund   14,394,863    14,394,863 
Total Short Term Investments          
(Cost $14,394,863)        14,394,863 

 

   Face     
   Amount     
ASSET BACKED SECURITIES†† - 24.1%          
Duane Street CLO IV Ltd.          
2007-4A, 0.47% due 11/14/211,2  $2,040,422    2,000,022 
HSI Asset Securitization          
Corporation Trust          
2007-WF1, 0.33% due 05/25/371   2,039,930    1,873,799 
JP Morgan Mortgage Acquisition Trust          
2006-CH2, 0.26% due 10/25/361   1,778,702    1,746,433 
Garrison Funding 2013-2 Ltd.          
2013-2A, 2.13% due 09/25/231,2   1,570,000    1,563,720 
JP Morgan Mortgage Acquisition Trust          
2007-CH3, 0.31% due 03/25/371   1,451,969    1,381,473 
Argent Securities Incorporated          
Asset-Backed Pass-Through          
Certificates Series          
2005-W3, 0.50% due 11/25/351   1,466,587    1,374,444 
Brentwood CLO Corp.          
2006-1A, 0.51% due 02/01/221,2   1,015,230    993,910 
2006-1A, 1.06% due 02/01/221,2   400,000    354,520 
Foothill CLO Ltd.          
2007-1A, 0.48% due 02/22/211,2   1,243,573    1,219,323 
Cornerstone CLO Ltd.          
2007-1A, 0.46% due 07/15/211,2   1,200,000    1,170,000 
Goldman Sachs Asset          
Management CLO plc          
2007-1A, 2.99% due 08/01/221,2   1,200,000    1,150,920 

 

60 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

  

 
 
Schedule of Investments (continued) December 31, 2013
Series J (STYLEPLUS–MID GROWTH SERIES)  

 

   Face     
   Amount   Value 
         
Salus CLO 2012-1 Ltd.          
2013-1AN, 2.49% due 03/05/211,2  $1,100,000   $1,100,000 
Cerberus Onshore II CLO LLC          
2014-1A, 2.94% due 10/15/231,2   850,000    842,520 
2014-1A, 2.24% due 10/15/231,2   250,000    250,200 
Halcyon Structured Asset Management          
Long Secured/Short          
Unsecured 2007-2 Ltd.          
2007-2A, 3.99% due 10/29/211,2   1,100,000    1,089,330 
NewStar Commercial Loan Trust          
2006-1A, 0.63% due 03/30/221,2   600,000    585,540 
2006-1A, 0.52% due 03/30/221,2   497,697    490,232 
N-Star REL CDO VIII Ltd.          
2006-8A, 0.46% due 02/01/411,2   1,171,936    1,068,220 
Aegis Asset Backed Securities Trust          
2005-3, 0.63% due 08/25/351   1,100,000    1,046,814 
Lehman XS Trust          
2007-9, 0.28% due 06/25/371   1,199,705    1,041,929 
Central Park CLO Ltd.          
2011-1A, 3.44% due 07/23/221,2   1,040,000    1,005,472 
Newcastle CDO Ltd.          
2007-9A, 0.42% due 05/25/52   937,152    915,222 
KKR Financial CLO 2007-1 Corp.          
2007-1A, 2.49% due 05/15/211,2   950,000    894,520 
Wells Fargo Home Equity Asset-Backed          
Securities 2006-2 Trust          
2006-3, 0.31% due 01/25/371   976,285    883,159 
Black Diamond CLO 2005-1          
Delaware Corp.          
2005-1A, 2.15% due 06/20/171,2   900,000    866,160 
West Coast Funding Ltd.          
2006-1A, 0.39% due 11/02/411,2   864,049    833,289 
GreenPoint Mortgage Funding Trust          
2005-HE4, 0.87% due 07/25/301   900,000    801,079 
FM Leveraged Capital Fund II          
2006-2A, 1.84% due 11/15/201,2   800,000    790,240 
GSC Group CDO Fund VIII Ltd.          
2007-8A, 0.62% due 04/17/211,2   850,000    787,525 
Popular ABS Mortgage Pass-Through Trust          
2005-A, 0.59% due 06/25/351   826,507    787,284 
Symphony CLO VII Ltd.          
2011-7A, 3.44% due 07/28/211,2   750,000    743,700 
Global Leveraged Capital Credit          
Opportunity Fund          
2006-1A, 0.54% due 12/20/181,2   702,822    694,810 
TICC CLO LLC          
2011-1A, 2.49% due 07/25/211,2   650,000    647,010 
Black Diamond CLO 2006-1 Luxembourg S.A.          
2007-1A, 0.63% due 04/29/191,2   700,000    638,680 
Northwoods Capital VII Ltd.          
2006-7A, 1.79% due 10/22/211,2   650,000    611,130 
California Republic Auto Receivables Trust          
2013-2, 1.23% due 03/15/19   600,000    599,549 
Ares XVI CLO Ltd.          
2011-16A, 3.54% due 05/17/211,2   500,000    497,500 
NewStar Commercial Loan Trust          
2007-1A, 1.54% due 09/30/221,2   500,000    459,200 
Golub Capital Partners Fundings Ltd.          
2007-1A, 0.49% due 03/15/221,2   444,445    436,578 
DIVCORE CLO Ltd.          
2013-1A B, 4.10% due 11/15/32   400,000    398,800 
ACS 2007-1 Pass Through Trust          
2007-1A, 0.48% due 06/14/371,2   412,880    383,978 
Accredited Mortgage Loan Trust          
2007-1, 0.29% due 02/25/371   318,219    294,110 
Race Point IV CLO Ltd.          
2007-4A, 0.99% due 08/01/211,2   300,000    282,300 
Riverside Park CLO Ltd.          
2011-1A, 3.00% due 09/27/211,2   250,000    250,000 
Legg Mason Real Estate CDO I Ltd.          
2006-1A, 0.45% due 03/25/381,2   125,933    124,195 
Total Asset Backed Securities          
(Cost $38,047,595)        37,968,839 
           
CORPORATE BONDS†† - 8.8%          
Financials - 3.5%          
Icahn Enterprises Limited Partnership /          
Icahn Enterprises Finance Corp.          
8.00% due 01/15/18   810,000    842,400 
7.75% due 01/15/16   420,000    428,400 
Ford Motor Credit Company LLC          
7.00% due 04/15/15   1,100,000    1,184,003 
Citigroup, Inc.          
1.20% due 07/25/161   1,020,000    1,030,600 
International Lease Finance Corp.          
2.19% due 06/15/161   730,000    733,650 
6.50% due 08/01/18   450,000    457,875 
Mack-Cali Realty, LP          
5.13% due 02/15/14   450,000    451,984 
WEA Finance LLC / WT Finance Aust Pty Ltd.          
5.75% due 09/02/152   310,000    334,374 
Emigrant Bancorp, Inc.          
6.25% due 06/15/142   260,000    263,491 
Total Financials        5,726,777 
           
Materials - 1.9%          
Glencore Funding LLC          
1.40% due 05/27/161,2   1,520,000    1,512,888 
Rio Tinto Finance USA plc          
1.08% due 06/17/161   1,050,000    1,057,450 
Anglo American Capital plc          
9.38% due 04/08/142   470,000    480,419 
Total Materials        3,050,757 
           
Telecommunication Services - 1.3%          
Level 3 Financing, Inc.          
3.85% due 01/15/181,2   1,120,000    1,127,000 
WPP Finance UK          
8.00% due 09/15/14   800,000    839,809 
Total Telecommunication Services        1,966,809 

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 61

 

 
 

 

Schedule of Investments (continued) December 31, 2013
Series J (STYLEPLUS–MID GROWTH SERIES)  

 

   Face     
   Amount   Value 
         
Energy - 1.2%          
Ras Laffan Liquefied Natural Gas          
Company Limited III          
5.83% due 09/30/162  $1,276,990   $1,356,802 
Petroleos Mexicanos          
2.27% due 07/18/181   450,000    463,500 
Total Energy        1,820,302 
           
Consumer Staples - 0.3%          
Harbinger Group, Inc.          
7.88% due 07/15/192   400,000    429,500 
           
Consumer Discretionary - 0.3%          
Vail Resorts, Inc.          
6.50% due 05/01/19   200,000    212,000 
Sabre, Inc.          
8.50% due 05/15/192   170,000    188,700 
Total Consumer Discretionary        400,700 
           
Information Technology - 0.2%          
iGATE Corp.          
9.00% due 05/01/16   230,000    244,375 
           
Industrials - 0.1%          
Victor Technologies Group, Inc.          
9.00% due 12/15/17   118,000    126,260 
Total Corporate Bonds          
(Cost $13,743,966)        13,765,480 
           
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 5.0%          
Boca Hotel Portfolio Trust          
2013-BOCA, 3.22%          
due 08/15/261,2   1,250,000    1,251,498 
Hilton USA Trust          
2013-HLF, 2.92% due 11/05/301,2   1,100,000    1,100,079 
SRERS-2011 Funding Ltd.          
2011-RS, 0.42% due 05/09/461,2   1,054,033    955,376 
Wachovia Bank Commercial Mortgage          
Trust Series 2007-WHALE 8          
2007-WHL8, 0.25% due 06/15/201,2   938,585    929,103 
COMM 2007-FL14 Mortgage Trust          
2007-FL14, 0.92% due 06/15/221,2   880,738    869,261 
Banc of America Merrill Lynch          
Commercial Mortgage, Inc.          
2005-6, 6.13% due 09/10/471,2   716,800    739,448 
HarborView Mortgage Loan Trust          
2006-12, 0.36% due 01/19/381   868,970    706,474 
Banc of America Large Loan Trust          
2007-BMB1, 1.27% due 08/15/291,2   650,000    644,914 
GCCFC Commercial Mortgage Trust          
2006-FL4A C, 0.40% due 11/05/21   650,000    640,395 
Total Collateralized Mortgage Obligations          
(Cost $7,790,977)        7,836,548 
           
SENIOR FLOATING RATE INTERESTS††,1 - 3.8%          
Industrials - 1.1%          
Travelport Holdings Ltd.          
6.25% due 06/26/19   1,253,700    1,284,002 
Thermasys Corp.          
5.26% due 05/03/19  536,625   527,679 
Total Industrials        1,811,681 
           
Financials - 1.0%          
National Financial Partners          
5.25% due 07/01/20   1,024,850    1,034,248 
Knight/Getco          
5.75% due 11/30/17   386,542    387,025 
First Data Corp.          
4.16% due 03/23/18   100,000    100,069 
Cunningham Lindsey U.S., Inc.          
5.00% due 12/10/19   99,248    99,124 
Total Financials        1,620,466 
           
Energy - 0.7%          
Pacific Drilling          
4.50% due 05/18/18   517,400    522,900 
Ocean Rig ASA          
5.50% due 07/15/16   498,750    505,194 
Total Energy        1,028,094 
           
Consumer Discretionary - 0.5%          
Pinnacle Entertainment, Inc.          
3.75% due 08/15/16   424,277    427,197 
Go Daddy Operating Company LLC          
4.00% due 12/16/18   166,939    166,974 
Sears Holdings Corp.          
5.50% due 06/30/18   160,000    160,878 
Total Consumer Discretionary        755,049 
           
Information Technology - 0.4%          
Blue Coat Systems, Inc.          
4.50% due 05/31/19   598,500    599,811 
           
Health Care - 0.1%          
Apria Healthcare Group, Inc.          
6.75% due 04/06/20   119,400    119,648 
Total Senior Floating Rate Interests          
(Cost $5,843,686)        5,934,749 
           
MUNICIPAL BONDS†† - 2.7%          
New York - 2.5%          
New York City Water & Sewer System          
Revenue Bonds          
0.30% due 06/15/331   2,130,000    2,130,000 
City of New York New York          
General Obligation Unlimited          
0.30% due 04/01/351   1,000,000    1,000,000 
0.30% due 11/01/261   850,000    850,000 
Total New York        3,980,000 
           
Michigan - 0.2%          
Michigan Finance Authority          
Revenue Notes          
4.38% due 08/20/14   230,000    232,399 
Total Municipal Bonds          
(Cost $4,210,000)        4,212,399 

 

62 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

  

 
 
Schedule of Investments (concluded) December 31, 2013
Series J (STYLEPLUS–MID GROWTH SERIES)  

 

   Face     
   Amount   Value 
         
U.S. TREASURY BILLS† - 1.3%          
U.S. Treasury Bill6          
due 02/20/14  $2,000,000   $1,999,938 
Total U.S. Treasury Bills          
(Cost $1,999,946)        1,999,938 
           
MORTGAGE BACKED SECURITIES†† - 0.8%          
Resource Capital Corporation          
CRE Notes 2013 Ltd.          
3.02% due 12/15/281,2   1,250,000    1,251,000 
Total Mortgage Backed Securities          
(Cost $1,250,000)        1,251,000 
           
COMMERCIAL PAPER†† - 10.0%          
Centrica plc          
0.22% due 01/03/14   1,300,000    1,299,984 
Diageo Capital plc          
0.09% due 01/02/14   1,200,000    1,199,997 
Tesco Treasury Services plc          
0.13% due 01/06/142   1,200,000    1,199,979 
Kellogg Co.          
0.12% due 01/08/14   1,200,000    1,199,973 
Northeast Utilities          
0.18% due 01/08/14   1,200,000    1,199,958 
Kinder Morgan Energy Partners, LP          
0.23% due 01/07/142   1,200,000    1,199,954 
VW Credit, Inc.          
0.22% due 01/13/142   1,200,000    1,199,912 
Ryder System, Inc.          
0.20% due 01/15/14   1,200,000    1,199,907 
FMC Technologies Inc.          
0.23% due 01/14/14   1,200,000    1,199,900 
BAT International Finance          
0.25% due 01/13/14   1,200,000    1,199,900 
Potomac Electric Power Co.          
0.25% due 01/13/14   1,200,000    1,199,900 
Nissan Motor Acceptance          
0.30% due 01/13/14   1,200,000    1,199,880 
CBS Corp.          
0.24% due 01/24/142   1,200,000    1,199,816 
Total Commercial Paper          
(Cost $15,699,060)        15,699,060 
Total Investments - 100.0%          
(Cost $154,138,452)       $157,176,365 
Other Assets & Liabilities, net - 0.0%        (45,444)
Total Net Assets - 100.0%       $157,130,921 

 

       Unrealized 
   Contracts   Gain 
EQUITY FUTURES CONTRACTS PURCHASED†          
March 2014 S&P MidCap 400 Index          
Mini Futures Contracts          
(Aggregate Value of          
Contracts $536,360)   4   $17,487 
March 2014 Russell 2000 Index          
Mini Futures Contracts          
(Aggregate Value of          
Contracts $232,120)   2    8,924 
March 2014 S&P 500 Index          
Mini Futures Contracts          
(Aggregate Value of          
Contracts $92,213)   1    3,192 
(Total Aggregate Value of Contracts $860,693)       $29,603 

 

   Units     
OTC EQUITY INDEX SWAP AGREEMENTS††          
Morgan Stanley Capital Services, Inc.          
February 2014 Russell MidCap Growth          
Index Swap, Terminating 02/03/143          
(Notional Value $116,699,458)   172,755   $— 

 

*Non-income producing security.
†Value determined based on Level 1 inputs — See Note 4.
††Value determined based on Level 2 inputs — See Note 4.
1Variable rate security. Rate indicated is rate effective at December 31, 2013.
2Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $43,058,258 (cost $43,097,055), or 27.4% of total net assets.
3Total Return based on Russell MidCap Growth Index +/- financing at a variable rate.
4Investment in a product that pays a management fee to a party related to the advisor.
5Affiliated funds.
6Zero coupon rate security.

plc — Public Limited Company

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 63

 

 
 

 

Series J (STYLEPLUS–MID GROWTH SERIES)
 
STATEMENT OF ASSETS
AND LIABILITIES

December 31, 2013

 

Assets:     
Investments in unaffiliated issuers, at value     
(cost $148,627,761)  $151,798,676 
Investments in affiliated issuers, at value     
(cost $5,510,691)   5,377,689 
Total investments     
(cost $154,138,452)   157,176,365 
Receivable for swap settlement   3,821,139 
Cash   362,271 
Segregated cash with broker   34,700 
Prepaid expenses   12,912 
Receivables:     
Interest   287,458 
Securities sold   210,525 
Dividends   112,430 
Fund shares sold   7,207 
Variation margin   3,278 
Foreign taxes reclaim   353 
Total assets   162,028,638 
Liabilities:     
Due to broker   3,357,730 
Payable for:     
Securities purchased   1,302,001 
Management fees   97,484 
Fund shares redeemed   85,691 
Fund accounting/administration fees   12,348 
Transfer agent/maintenance fees   3,612 
Directors’ fees*   1,607 
Miscellaneous   37,244 
Total liabilities   4,897,717 
Net assets  $157,130,921 
Net assets consist of:     
Paid in capital  $144,040,065 
Undistributed net investment income   249,176 
Accumulated net realized gain on investments   9,774,164 
Net unrealized appreciation on investments   3,067,516 
Net assets  $157,130,921 
Capital shares outstanding   3,616,702 
Net asset value per share  $43.45 

 

STATEMENT OF
OPERATIONS

Year Ended December 31, 2013

 

Investment Income:     
Dividends from securities of unaffiliated issuers  $781,235 
Interest   729,400 
Dividends from securities of affiliated issuers   179,071 
Total investment income   1,689,706 
      
Expenses:     
Management fees   1,099,486 
Transfer agent/maintenance fees   25,436 
Fund accounting/administration fees   139,267 
Printing expenses   76,196 
Directors’ fees*   15,467 
Custodian fees   11,854 
Tax expense   5 
Miscellaneous   72,819 
Total expenses   1,440,530 
Net investment income   249,176 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments in unaffiliated issuers   22,108,840 
Investments in affiliated issuers   2,536 
Swap agreements   20,377,425 
Futures contracts   96,531 
Net realized gain   42,585,332 
Net change in unrealized appreciation (depreciation) on:     
Investments in unaffiliated issuers   (3,619,687)
Investments in affiliated issuers   (133,002)
Futures contracts   29,603 
Net change in unrealized appreciation (depreciation)   (3,723,086)
Net realized and unrealized gain   38,862,246 
Net increase in net assets resulting from operations  $39,111,422 

 

*Relates to Directors not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.

 

64 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 

 
 

 

Series J (STYLEPLUS–MID GROWTH SERIES)
 
STATEMENTs OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment income  $249,176   $205,098 
Net realized gain on investments   42,585,332    18,104,274 
Net change in unrealized appreciation (depreciation) on investments   (3,723,086)   2,314,116 
Net increase in net assets resulting from operations   39,111,422    20,623,488 
           
Capital share transactions:          
Proceeds from sale of shares   5,825,753    10,267,365 
Cost of shares redeemed   (26,061,600)   (29,104,216)
Net decrease from capital share transactions   (20,235,847)   (18,836,851)
Net increase in net assets   18,875,575    1,786,637 
           
Net assets:          
Beginning of year   138,255,346    136,468,709 
End of year  $157,130,921   $138,255,346 
Undistributed net investment income at end of year  $249,176   $205,098 
           
Capital share activity:          
Shares sold   151,861    318,863 
Shares redeemed   (688,120)   (913,102)
Net decrease in shares   (536,259)   (594,239)

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 65

 

 
 

 

SERIES J (STYLEPLUS–MID GROWTH SERIES)
 
FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $33.29   $28.75   $30.05   $24.20   $16.81 
Income (loss) from investment operations:                         
Net investment income (loss)a   .06    .05    (.03)   (.02)   (.03)
Net gain (loss) on investments (realized and unrealized)   10.10    4.49    (1.27)   5.87    7.42 
Total from investment operations   10.16    4.54    (1.30)   5.85    7.39 
Net asset value, end of period  $43.45   $33.29   $28.75   $30.05   $24.20 
                          
Total Returnb   30.52%   15.79%   (4.33%)   24.17%   43.96%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $157,131   $138,255   $136,469   $169,388   $154,273 
Ratios to average net assets:                         
Net investment income (loss)   0.17%   0.14%   (0.10%)   (0.10%)   (0.13%)
Total expensesc   0.98%   0.95%   0.91%   0.91%   0.92%
Portfolio turnover rate   245%   150%   155%   130%   136%

 

aNet investment income (loss) per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
cDoes not include expenses of the underlying funds in which the Fund invests.

 

66 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Manager’S Commentary (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series M (Macro Opportunities Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chief Investment Officer; Anne B. Walsh, Senior Managing Director; Kevin H. Gundersen, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the abbreviated fiscal year ended December 31, 2013.

 

For the abbreviated fiscal year from the inception date of April 24, 2013, through December 31, 2013, the Series M returned 0.96%, compared with the 0.05% return of its benchmark, the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index.

 

The Fund seeks to provide total return, comprised of current income and capital appreciation. The Fund pursues its investment objective by investing in a wide range of fixed income and other debt and equity securities selected from a variety of sectors and credit qualities.

 

The Fund may engage in derivative transactions for speculative purposes to enhance total return, seek to hedge against fluctuations in securities prices, interest rates or currency rates, change the effective duration of its portfolio, manage certain investment risks and/or as a substitute for the purchase or sale of securities or currencies. Throughout the fiscal year, the Fund utilized a number of macro and derivative trades to take a position based on the Chief Investment Officer’s views on a certain segment of the market or to hedge against a change in interest rates, equity prices and improve diversification to lower portfolio correlation.

 

For the period, the Fund benefitted from positive performance in asset-backed securities (ABS)—primarily mezzanine collateralized loan obligations (CLOs) and commercial real estate collateralized debt obligations (CRE CDOs)—and high yield bonds and loans. While risk assets continued to outperform in 2013, the Fund was cautious to reduce risk to assets that were perceived as overvalued or overly sensitive to increases in interest rates. The Fund has been opportunistic by taking gains in lower yielding assets and redeploying proceeds into more attractive assets such as longer duration preferred debt. Additional contributors included macroeconomic themed trades including exposure to European equities through two ETFs as Europe continues its economic recovery and exposure to a basket of U.S. equities in the for-profit education sector. The Fund maintains a lower duration target; however, we will continue to look to opportunistically add fixed-rate assets during periods of interest rate volatility.

 

Detractors to performance for the period included a few higher duration assets such as fixed rate corporate bonds and preferred debt securities. Macroeconomic themed trades that intended to hedge against a decline in U.S. equity markets were a minor detractor to performance.

 

 

 

 

 

 

 

 

 

 

 

Performance displayed represents past performance, which is no guarantee of future results.

 

The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.

 

The Guggenheim Funds annual REPORT | 67

 

 
 

 

performance report and FUND PROFILE (Unaudited) December 31, 2013

 

SERIES M (MACRO OPPORTUNITIES SERIES)

OBJECTIVE: Seeks to provide total return, comprised of current income and capital appreciation.

 

Cumulative Fund Performance*,†

 

 

Annual Returns*

Period Ended December 31, 2013†

 

   Since Inception 
   (04/24/13) 
Series M (Macro Opportunities Series)   0.96%
Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index   0.05%

 

Ten Largest Holdings (% of Total Net Assets)
Federated U.S. Treasury Cash Reserve Fund   5.6%
West Coast Funding Ltd. — Class A1A   1.6%
N-Star Real Estate CDO IX Ltd.   1.6%
Nomura Resecuritization Trust 2012-1R — Class A   1.4%
Cedar Woods CRE CDO Ltd.   1.3%
SRERS-2011 Funding Ltd. — Class A1B1   1.3%
Vector Group Ltd.   1.2%
Travelport Holdings Ltd.   1.2%
Gramercy Real Estate CDO 2007-1 Ltd. — Class A1   1.1%
iShares MSCI Spain Capped ETF   1.1%
Top Ten Total   17.4%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

 

Inception Date: April 24, 2013

 

Portfolio Composition by Quality Rating**
Rating

Fixed Income Instruments     
AAA   0.9%
AA   2.9%
A   4.9%
BBB   19.0%
BB   15.7%
B   36.6%
CCC   9.9%
NR   0.9%
Other Instruments     
Short Term Investments   5.3%
Interest Rate Swap Agreements   3.0%
Exchange Traded Funds   2.1%
Preferred Stocks   1.9%
Currency Futures Swap Agreements   1.7%
Options Purchased   0.0%
Options Written   0.0%
Total Investments   104.8%

The chart above reflects percentages of the value of total investments.

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
**Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

68 | the GUGGENHEIM FUNDS annual report

 

 
 

 

Schedule of Investments December 31, 2013
Series M (MACRO OPPORTUNITIES SERIES)  

 

   Shares   Value 
         
PREFERRED STOCKS†† - 2.1%          
Aspen Insurance Holdings Ltd.          
5.95%†,1,2   10,000   $226,700 
Morgan Stanley          
7.13%†,1,2   8,000    209,120 
City National Corp.          
6.75%1,2   4,000    105,120 
Total Preferred Stocks          
(Cost $550,000)        540,940 
           
EXCHANGE TRADED FUNDS† - 2.2%          
iShares MSCI Spain Capped ETF   7,500    289,275 
SPDR EURO STOXX 50 ETF   6,700    282,740 
Total Exchange Traded Funds          
(Cost $500,258)        572,015 
           
SHORT TERM INVESTMENTS† - 5.6%          
Federated U.S. Treasury          
Cash Reserve Fund   1,470,593    1,470,593 
Total Short Term Investments          
(Cost $1,470,593)        1,470,593 

 

   Face     
   Amount     
CORPORATE BONDS†† - 35.1%          
Financials - 11.4%          
EPR Properties          
5.75% due 08/15/226  $250,000    254,887 
5.25% due 07/15/236   250,000    244,226 
Nationstar Mortgage LLC /          
Nationstar Capital Corp.          
6.50% due 06/01/22   250,000    234,375 
6.50% due 08/01/18   100,000    101,750 
ING US, Inc.          
5.65% due 05/15/531   250,000    243,125 
General Electric Capital Corp.          
5.25% due 06/29/491,2   250,000    235,000 
PNC Financial Services Group, Inc.          
4.85% due 05/29/491,2   250,000    223,875 
Fifth Third Bancorp          
5.10% due 12/31/491,2   250,000    221,249 
Bank of America Corp.          
5.20% due 12/29/491,2   250,000    220,000 
Bank of New York Mellon Corp.          
4.50% due 12/31/491,2   210,000    190,575 
Icahn Enterprises Limited Partnership /          
Icahn Enterprises Finance Corp.          
8.00% due 01/15/18   150,000    156,000 
Credit Suisse Group AG          
7.50% due 12/11/231,2,3   100,000    105,625 
Barclays plc          
8.25% due 12/15/181,2   100,000    103,250 
Emigrant Bancorp, Inc.          
6.25% due 06/15/143   100,000    101,343 
Opal Acquisition, Inc.          
8.88% due 12/15/213   100,000    99,500 
Jefferies LoanCore LLC /          
JLC Finance Corp.          
6.88% due 06/01/203  100,000   99,000 
Prosight Global Inc.          
7.50% due 11/20/205   100,000    98,510 
American Equity Investment Life          
Holding Co.          
6.63% due 07/15/21   50,000    52,250 
Total Financials        2,984,540 
           
Energy - 6.1%          
Pacific Drilling S.A.          
5.38% due 06/01/203,6   250,000    251,250 
Atlas Pipeline Partners Limited Partnership /          
Atlas Pipeline Finance Corp.          
4.75% due 11/15/213   250,000    228,750 
Gibson Energy, Inc.          
6.75% due 07/15/213   200,000    211,500 
Penn Virginia Resource Partners          
Limited Partnership / Penn Virginia          
Resource Finance Corporation II          
6.50% due 05/15/213   100,000    103,500 
8.38% due 06/01/20   50,000    55,125 
Legacy Reserves Limited Partnership /          
Legacy Reserves Finance Corp.          
6.63% due 12/01/213   150,000    145,125 
BreitBurn Energy Partners          
Limited Partnership / BreitBurn          
Finance Corp.          
7.88% due 04/15/22   100,000    104,000 
Bill Barrett Corp.          
7.00% due 10/15/22   100,000    103,750 
Memorial Production Partners          
Limited Partnership / Memorial          
Production Finance Corp.          
7.63% due 05/01/213   100,000    102,750 
Crestwood Midstream Partners          
Limited Partnership / Crestwood          
Midstream Finance Corp.          
6.13% due 03/01/223   100,000    102,500 
Atlas Energy Holdings          
Operating Company LLC / Atlas          
Resource Finance Corp.          
9.25% due 08/15/213   100,000    102,250 
Endeavor Energy Resources          
Limited Partnership / EER          
Finance, Inc.          
7.00% due 08/15/213   100,000    101,000 
Total Energy        1,611,500 
           
Materials - 3.7%          
TPC Group, Inc.          
8.75% due 12/15/203,6   250,000    265,625 
KGHM International Ltd.          
7.75% due 06/15/193   250,000    263,750 
Barrick Gold Corp.          
4.10% due 05/01/23   250,000    225,973 

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 69

  

 
 
Schedule of Investments (continued) December 31, 2013
Series M (MACRO OPPORTUNITIES SERIES)  

 

   Face     
   Amount   Value 
         
Pretium Packaging LLC /          
Pretium Finance, Inc.          
11.50% due 04/01/166  $200,000   $213,500 
Total Materials        968,848 
           
Consumer Staples - 3.2%          
Vector Group Ltd.          
7.75% due 02/15/216   300,000    317,250 
Harbinger Group, Inc.          
7.88% due 07/15/193   200,000    214,750 
Central Garden and Pet Co.          
8.25% due 03/01/186   200,000    194,500 
KeHE Distributors LLC /          
KeHE Finance Corp.          
7.63% due 08/15/213   100,000    106,000 
Total Consumer Staples        832,500 
           
Telecommunication Services - 3.0%          
Alcatel-Lucent USA, Inc.          
8.88% due 01/01/203   200,000    222,999 
6.75% due 11/15/203   200,000    207,750 
Sitel LLC / Sitel Finance Corp.          
11.00% due 08/01/173   125,000    133,438 
Expo Event Transco, Inc.          
9.00% due 06/15/213   125,000    127,188 
UPCB Finance VI Ltd.          
6.88% due 01/15/223   100,000    106,250 
Total Telecommunication Services        797,625 
           
Consumer Discretionary - 2.3%          
Seminole Hard Rock Entertainment          
Incorporated / Seminole Hard          
Rock International LLC          
5.88% due 05/15/213   250,000    245,625 
GRD Holdings III Corp.          
10.75% due 06/01/193   100,000    109,000 
CPG Merger Sub LLC          
8.00% due 10/01/213   100,000    104,000 
GLP Capital Limited Partnership /          
GLP Financing II, Inc.          
4.88% due 11/01/203   100,000    100,000 
MDC Partners, Inc.          
6.75% due 04/01/203   50,000    52,313 
Total Consumer Discretionary        610,938 
           
Industrials - 2.2%          
USG Corp.          
5.88% due 11/01/213   200,000    208,000 
ADT Corp.          
6.25% due 10/15/213   150,000    157,500 
Quality Distribution LLC / QD Capital Corp.          
9.88% due 11/01/18   100,000    110,750 
Marquette Transportation Company LLC /          
Marquette Transportation Finance Corp.          
10.88% due 01/15/17   95,000    100,225 
RR Donnelley & Sons Co.          
6.50% due 11/15/23   2,000    2,020 
Total Industrials        578,495 
           
Information Technology - 1.8%          
Audatex North America, Inc.          
6.00% due 06/15/213,6  250,000   261,875 
Eagle Midco, Inc.          
9.00% due 06/15/183   100,000    104,250 
IAC          
4.88% due 11/30/183   100,000    102,250 
Total Information Technology        468,375 
           
Utilities - 1.4%          
LBC Tank Terminals Holding          
Netherlands BV          
6.88% due 05/15/233   250,000    258,438 
NGL Energy Partners Limited          
Partnership / NGL Energy          
Finance Corp.          
6.88% due 10/15/213   100,000    102,500 
Total Utilities        360,938 
Total Corporate Bonds          
(Cost $9,345,073)        9,213,759 
           
ASSET BACKED SECURITIES†† - 25.3%          
Northwoods Capital VII Ltd.          
2006-7A, 3.74% due 10/22/211,3   250,000    232,825 
2006-7A, 1.79% due 10/22/211,3   200,000    188,040 
West Coast Funding Ltd.          
2006-1A, 0.39% due 11/02/411,3   427,830    412,599 
N-Star Real Estate CDO IX Ltd.          
0.51% due 02/01/415   450,745    409,772 
Cedar Woods CRE CDO Ltd.          
0.43% due 07/25/51   426,152    346,291 
Gramercy Real Estate CDO 2007-1 Ltd.          
2007-1A, 0.52% due 08/15/561,3   365,796    301,489 
GreenPoint Mortgage Funding Trust          
2005-HE4, 0.87% due 07/25/301   300,000    267,026 
NewStar Commercial Loan Trust 2006-1          
2006-1A, 0.93% due 03/30/221,3   275,000    263,505 
Structured Asset Securities Corporation          
Mortgage Loan Trust          
2006-OPT1, 0.42% due 04/25/361   300,000    255,918 
Salus CLO 2012-1 Ltd.          
2013-1AN, 6.99% due 03/05/211,3   250,000    249,950 
DIVCORE CLO Ltd.          
2013-1A B, 4.10% due 11/15/32   250,000    249,250 
Emerald Aviation Finance Ltd.          
2013-1, 6.35% due 10/15/383   247,396    248,930 
Garrison Funding 2013-2 Ltd.          
2013-2A, 4.98% due 09/25/231,3   250,000    248,750 
RAIT CRE CDO I Ltd.          
2006-1X, 0.50% due 11/20/461   308,758    248,550 
Newstar Commercial Loan          
Funding 2013-1 LLC          
2013-1A, 5.70% due 09/20/231,3   250,000    246,500 
Turbine Engines Securitization Ltd.          
6.38% due 12/13/483   250,000    242,900 

 

70 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

 

 
 

 

Schedule of Investments (continued) December 31, 2013
SERIES M (MACRO OPPORTUNITIES SERIES)  

 

   Face     
   Amount   Value 
         
Telos CLO Ltd.          
2013-3A, 4.49% due 01/17/241,3  $250,000   $241,650 
Acis CLO 2013-2 Ltd.          
4.11% due 10/14/221,3   250,000    238,750 
Cerberus Onshore II CLO LLC          
2014-1A, 4.24% due 10/15/231,3   250,000    238,575 
Jasper CLO Ltd.          
2005-1A, 1.14% due 08/01/171,3   250,000    232,558 
First Frankin Mortgage Loan Trust          
2006-FF1, 0.50% due 01/25/361   250,000    216,183 
New Century Home Equity          
Loan Trust Series          
2004-4, 0.96% due 02/25/351   102,164    92,623 
2005-1, 0.88% due 03/25/351   91,738    79,661 
GSAA Home Equity Trust          
2007-7, 0.43% due 07/25/371   189,315    160,735 
Lehman XS Trust          
2007-9, 0.28% due 06/25/371   152,740    132,653 
Park Place Securities Incorporated Series          
2005-WHQ2, 0.62% due 05/25/351   140,000    116,978 
CIT Mortgage Loan Trust          
2007-1, 1.61% due 10/25/371,3   125,000    108,558 
Genesis Funding Ltd.          
2006-1A, 0.41% due 12/19/321,3   102,316    92,596 
Wachovia Asset Securitization          
Issuance II LLC 2007-HE1 Trust          
2007-HE1, 0.30% due 07/25/371,3   90,780    76,709 
Newcastle CDO Ltd.          
2007-9A, 0.42% due 05/25/52   73,215    71,502 
Accredited Mortgage Loan Trust          
2007-1, 0.29% due 02/25/371   75,767    70,026 
Aircraft Certificate Owner Trust 2003          
2003-1A, 6.46% due 09/20/223,5   66,980    66,974 
Total Asset Backed Securities          
(Cost $6,666,062)        6,649,026 
           
SENIOR FLOATING RATE INTERESTS††,1 - 24.1%          
Industrials - 5.0%          
Travelport Holdings Ltd.          
6.25% due 06/26/19   298,500    305,715 
Emerald Expositions          
5.50% due 06/12/20   248,750    249,372 
Power Borrower, LLC          
8.25% due 11/06/20   125,000    122,500 
4.25% due 05/06/20   116,597    114,848 
Thermasys Corp.          
5.26% due 05/03/19   124,219    122,148 
Mitchell International, Inc.          
8.50% due 10/11/21   100,000    101,313 
MRC Global, Inc.          
5.00% due 11/08/19   99,750    100,997 
syncreon          
5.25% due 10/28/20   100,000    99,438 
NaNa Development Corp.          
8.00% due 03/15/18   85,000    85,850 
Total Industrials        1,302,181 
           
Consumer Discretionary - 4.9%          
Ollies Bargain Outlet          
5.26% due 09/28/19   248,744    249,989 
Lions Gate Entertainment Corp.          
5.00% due 07/18/20   200,000    200,500 
ValleyCrest Companies LLC          
5.50% due 06/13/19   199,000    199,746 
Horseshoe Baltimore          
8.25% due 07/02/20   125,000    128,985 
Fleetpride Corp.          
5.25% due 11/19/19   119,098    117,535 
Neiman Marcus Group, Inc.          
5.00% due 10/25/20   100,000    101,153 
Sears Holdings Corp.          
5.50% due 06/30/18   100,000    100,549 
NES Global Talent          
6.50% due 10/02/19   100,000    99,500 
Go Daddy Operating Company LLC          
4.00% due 12/16/18   98,734    98,755 
Total Consumer Discretionary        1,296,712 
           
Information Technology - 4.1%          
EIG Investors Corp.          
5.00% due 11/09/19   248,125    249,212 
Deltek, Inc.          
5.00% due 10/10/18   198,496    198,992 
SumTotal Systems          
6.28% due 11/16/18   140,744    138,633 
P2 Energy Solutions          
5.00% due 10/30/20   100,000    100,375 
Active Network, Inc., The          
5.50% due 11/13/20   100,000    100,375 
LANDesk Group, Inc.          
5.25% due 08/09/19   99,500    99,873 
Greenway Medical Technologies          
6.00% due 11/04/20   100,000    99,500 
Aspect Software, Inc.          
7.00% due 05/07/16   97,500    97,683 
Total Information Technology        1,084,643 
           
Financials - 3.6%          
First Data Corp.          
4.16% due 03/23/18   250,000    250,173 
American Stock Transfer & Trust          
5.75% due 06/26/20   199,000    199,747 
First Advantage Corp.          
6.25% due 02/28/19   149,250    148,971 
Magic Newco, LLC          
12.00% due 06/12/19   125,000    143,281 
National Financial Partners          
5.25% due 07/01/20   99,500    100,412 
HDV Holdings          
5.75% due 12/18/18   98,750    98,009 
Total Financials        940,593 

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 71

 

 
 

 

Schedule of Investments (continued) December 31, 2013
Series M (MACRO OPPORTUNITIES SERIES)  

 

   Face     
   Amount   Value 
           
Consumer Staples - 2.4%          
Arctic Glacier Holdings, Inc.          
6.00% due 05/10/19  $199,000   $199,000 
Grocery Outlet, Inc.          
5.50% due 12/17/18   198,610    198,984 
Performance Food Group          
6.25% due 11/14/19   124,375    124,945 
Reddy Ice Holdings, Inc.          
6.75% due 04/01/19   99,499    99,374 
Total Consumer Staples        622,303 
           
Telecommunication Services - 1.3%          
Avaya, Inc.          
8.00% due 03/31/18   247,830    251,114 
Mitel Networks Corp.          
7.00% due 02/27/19   89,474    89,474 
Total Telecommunication Services        340,588 
           
Health Care - 0.8%          
Learning Care Group (US), Inc.          
6.00% due 05/08/19   124,375    124,841 
Nextech Systems LLC          
6.00% due 10/28/18   100,000    98,000 
Total Health Care        222,841 
           
Energy - 0.8%          
Atlas Energy LP          
6.50% due 07/31/19   99,750    101,994 
Ocean Rig ASA          
5.50% due 07/15/16   99,750    101,039 
Total Energy        203,033 
           
Materials - 0.8%          
Oxbow Carbon          
8.00% due 01/18/20   100,000    101,688 
Royal Adhesives and Sealants          
5.50% due 07/31/18   99,183    99,927 
Total Materials        201,615 
           
Utilities - 0.4%          
Astoria Generating Company          
Acquisitions LLC          
8.50% due 10/26/17   97,500    100,425 
Total Senior Floating Rate Interests          
(Cost $6,256,990)        6,314,934 
           
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 10.6%          
Lehman XS Trust Series          
2006-16N, 0.35% due 11/25/461   293,484    233,717 
2005-7N, 0.43% due 12/25/351   249,423    228,813 
Nomura Resecuritization Trust          
2012-1R, 0.61% due 08/27/471,3   383,903    353,690 
SRERS-2011 Funding Ltd.          
2011-RS, 0.42% due 05/09/461,3   376,441    341,207 
IndyMac INDX Mortgage Loan Trust          
2006-AR4, 0.37% due 05/25/461   280,328    234,803 
COMM 2006-FL12 Mortgage Trust          
2006-FL12, 0.40% due 12/15/201,3   97,486    95,034 
2006-FL12, 0.46% due 12/15/201,3   64,991    63,342 
2006-FL12, 0.51% due 12/15/201,3   64,998    62,705 
American Home Mortgage Assets Trust          
2006-4, 0.35% due 10/25/461   339,614    218,413 
GreenPoint Mortgage Funding Trust          
2006-AR1, 0.45% due 02/25/361   262,697    208,820 
Bear Stearns Mortgage Funding Trust          
2007-AR5, 0.33% due 06/25/471   246,807    199,313 
Fannie Mae4          
2013-54, 3.00% due 06/25/43   114,140    88,521 
2013-52, 3.00% due 06/25/43   114,963    87,150 
Banc of America Merrill Lynch          
Commercial Mortgage, Inc.          
2005-6, 6.13% due 09/10/471,3   161,280    166,376 
Structured Asset Mortgage          
Investments II Trust          
2006-AR1, 0.39% due 02/25/361   133,847    101,206 
Wachovia Bank Commercial          
Mortgage Trust Series          
2007-WHALE 8          
2007-WHL8, 0.87% due 06/15/201,3   97,374    92,018 
Total Collateralized Mortgage Obligations          
(Cost $2,841,930)        2,775,128 
           
MUNICIPAL BONDS†† - 0.8%          
Michigan - 0.8%          
City of Detroit Michigan          
Water Supply System          
Revenue Revenue Bonds          
5.00% due 07/01/16   110,000    110,560 
Michigan Finance Authority          
Revenue Notes          
4.38% due 08/20/14   100,000    101,043 
Total Michigan        211,603 
Total Municipal Bonds          
(Cost $210,110)        211,603 
           
MORTGAGE BACKED SECURITIES†† - 0.3%          
Freddie Mac4          
2013-4204, 3.00% due 05/15/43   96,290    74,735 
Total Mortgage Backed Securities          
(Cost $93,641)        74,735 

 

72 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

  

 
 
Schedule of Investments (concluded) December 31, 2013
Series M (MACRO OPPORTUNITIES SERIES)  

 

   Contracts   Value 
         
OPTIONS PURCHASED† - 0.0%          
Call options on:          
iShares 20+ Year Treasury Bond          
ETF Expiring March 2014          
with strike price of $112.00   565   $4,520 
Total Options Purchased          
(Cost $29,380)        4,520 
Total Investments - 106.1%          
(Cost $27,964,037)       $27,827,253 
           
OPTIONS WRITTEN†† - 0.0%          
Call options on:          
iShares 20+ Year Treasury Bond          
ETF Expiring March 2014 with          
strike price of $118.00   565    (1,695)
Total Options Written          
(Premiums received $4,520)        (1,695)
Other Assets & Liabilities, net - (6.1)%        (1,575,968)
Total Net Assets - 100.0%       $26,249,590 

 

       Unrealized 
   Units   Gain 
         
OTC CURRENCY FUTURES SWAP AGREEMENTS††          
Bank of America          
March 2014 U.S. Dollar Index          
Futures Swap,          
Terminating 03/17/14          
(National Value $481,770)   6   $1,578 
           
OTC EQUITY INDEX SWAP AGREEMENTS††          
Bank of America          
February 2014 S&P 1500 Education          
Services Sub Industry Index Swap,          
Terminating 02/05/14          
(Notional Value $844,282)   15,966   $94,302 

 

centrally cleared INterest rate swap agreements††

 

                         Unrealized 
      Floating  Fixed   Maturity   Notional   Market   Appreciation/ 
Counterparty  Floating Rate  Rate Index  Rate   Date   Amount   Value   (Depreciation) 
Merrill Lynch  Receive  3-Month USD-LIBOR   2.70%   07/05/23   $50,000   $730   $730 
Merrill Lynch  Receive  3-Month USD-LIBOR   1.56%   07/05/18    850,000    (5,525)   (5,525)
                             $(4,795)

 

†Value determined based on Level 1 inputs — See Note 4.
††Value determined based on Level 2 inputs, unless otherwise noted — See Note 4.
1Variable rate security. Rate indicated is rate effective at December 31, 2013.
2Perpetual maturity.
3Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $10,313,824 (cost $10,230,884), or 39.3% of total net assets.
4On 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.
5Illiquid security.
6Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 14.

plc — Public Limited Company

REIT — Real Estate Investment Trust

 

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 73

 

 
 

 

Series M (MACRO OPPORTUNITIES SERIES)
 
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 2013

 

Assets:     
Investments, at value     
(cost $27,964,037)  $27,827,253 
Unrealized appreciation on swap agreements   96,610 
Cash   28,038 
Segregated cash with broker   17,179 
Prepaid expenses   2,014 
Receivables:     
Securities sold   321,900 
Interest   193,140 
Investment advisor   28,342 
Dividends   9,136 
Total assets   28,523,612 
Liabilities:     
Reverse Repurchase Agreements   1,637,100 
Unrealized depreciation on swap agreements   5,525 
Options written, at value (premiums received $4,520)   1,695 
Unfunded loan commitments, at value (commitment fees received $39)   36 
Payable for:     
Securities purchased   560,466 
Management fees   19,737 
Distribution and service fees   5,544 
Transfer agent/maintenance fees   2,123 
Fund accounting/administration fees   2,107 
Directors’ fees*   244 
Fund shares redeemed   51 
Miscellaneous   39,394 
Total liabilities   2,274,022 
Net assets  $26,249,590 
Net assets consist of:     
Paid in capital  $25,984,656 
Undistributed net investment income   453,620 
Accumulated net realized loss on investments   (145,815)
Net unrealized depreciation on investments   (42,871)
Net assets  $26,249,590 
Capital shares outstanding   1,039,906 
Net asset value per share  $25.24 

 

STATEMENT OF
OPERATIONS

Period Ended December 31, 2013**

 

Investment Income:     
Interest  $679,467 
Dividends   20,263 
Total investment income   699,730 
      
Expenses:     
Management fees   155,732 
Transfer agent/maintenance fees   17,208 
Distribution and service fees   43,753 
Fund accounting/administration fees   16,626 
Professional fees   35,196 
Legal fees   20,711 
Custodian fees   6,345 
Directors’ fees*   1,927 
Interest expense   1,552 
Miscellaneous   19,219 
Total expenses   318,269 
Less:     
Expenses waived by Advisor   (55,226)
Net expenses   263,043 
Net investment income   436,687 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   (159,022)
Swap agreements   25,286 
Options purchased   (9,600)
Net realized loss   (143,336)
Net change in unrealized appreciation (depreciation) on:     
Investments   (111,921)
Swap agreements   91,085 
Options purchased   (24,860)
Options written   2,825 
Net change in unrealized appreciation (depreciation)   (42,871)
Net realized and unrealized loss   (186,207)
Net increase in net assets resulting from operations  $250,480 

 

*Relates to Directors not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.
**Since commencement of operations: April 24, 2013.

 

74 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

  

 
 

 

Series M (MACRO OPPORTUNITIES SERIES) 
 
STATEMENT OF CHANGES IN NET ASSETS

   Period Ended 
   December 31, 
   2013a 
     
Increase (Decrease) In Net Assets From Operations:     
Net investment income  $436,687 
Net realized loss on investments   (143,336)
Net change in unrealized appreciation (depreciation) on investments   (42,871)
Net increase in net assets resulting from operations   250,480 
      
Capital share transactions:     
Proceeds from sale of shares   27,126,005 
Cost of shares redeemed   (1,126,895)
Net increase from capital share transactions   25,999,110 
Net increase in net assets   26,249,590 
      
Net assets:     
Beginning of period   — 
End of period  $26,249,590 
Undistributed net investment income at end of period  $453,620 
      
Capital share activity:     
Shares sold   1,085,488 
Shares redeemed   (45,582)
Net increase in shares   1,039,906 

 

aSince commencement of operations: April 24, 2013.

  

See Notes to Financial Statements. The GUGGENHEIM FUNDS annual report | 75

  

 
 

 

Series M (MACRO OPPORTUNITIES SERIES)
 
FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Period Ended 
   December 31, 
   2013c 
Per Share Data     
Net asset value, beginning of period  $25.00 
Income (loss) from investment operations:     
Net investment incomea   .42 
Net loss on investments (realized and unrealized)   (.18)
Total from investment operations   .24 
Net asset value, end of period  $25.24 
      
Total Returnb   0.96%
Ratios/Supplemental Data     
Net assets, end of period (in thousands)  $26,250 
Ratios to average net assets:     
Net investment income   2.48%
Total expensesd,e   1.80%
Net expensesd,e,f   1.49%
Portfolio turnover rate   49%

 

aNet investment income per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
cSince commencement of operations: April 24, 2013. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized.
dDue to limited length of Fund operations, ratios for this period may not be indicative of future performance.
eDoes not include expenses of the underlying funds in which the Fund invests.
fNet expense information reflects the expense ratios after expense waivers and may include extraordinary expenses. Excluding extraordinary expenses, the operating expense ratio for the period would be:

12/31/13 
 1.44%

 

76 | the GUGGENHEIM FUNDS annual report See Notes to Financial Statements.

  

 
 

 

Manager’S Commentary (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series N (Managed Asset Allocation Series) is managed by a team of seasoned professionals, including Michael P. Byrum, CFA, Portfolio Manager; Michael Dellapa, CFA, CAIA, Portfolio Manager; Ryan Harder, CFA, Portfolio Manager; and Matthew Wu, Ph.D., CFA, Portfolio Manager. In the following paragraphs, the team discusses changes to the Fund and performance of the Fund for the fiscal year ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series N (Managed Asset Allocation Series) rose 14.33%, underperforming its weighted benchmark that is 60% S&P® 500 Index and 40% Barclays U.S. Aggregate Bond Index, which returned 17.56%. The S&P 500® Index rose 32.39% over the year and the Barclays U.S. Aggregate Bond Index returned -2.02%.

 

The investment objective of the Fund is to seek to provide growth of capital and, secondarily, preservation of capital. The Fund pursues its objective by investing principally in equity, fixed income and money market assets through investing in a diversified portfolio of futures contracts and exchange-traded funds and other pooled investment vehicles that track major equity indexes and fixed income indexes.

 

Under normal market conditions, the Fund’s investments are expected to achieve a moderate allocation of equity, fixed income and money market assets in approximately the following amounts: (1) 60% of assets in equity securities, which may include stock of small capitalization U.S. companies, mid-capitalization U.S. companies, large capitalization U.S. companies and non-U.S. companies; (2) 35% of assets in fixed income securities, which may include short and long term corporate and government bonds; and (3) 5% of assets in cash. However, the Investment Manager intends to utilize dynamic asset allocation techniques that will allow rapid shifts between asset classes to attempt to exploit current market trends, and the Fund may invest fully in any asset class at any time.

 

PERFORMANCE REVIEW

 

The global economy ended 2013 on a firm footing and growth is broad-based across almost all main developed economies. All the major central banks are offering accommodative monetary policy. With this backdrop of growth, equity markets overcame such negative influences from expiration of payroll tax cuts, Cyprus bank insolvency crisis, and US government shutdown. The prospect of QE tapering by the Fed only brought short-term volatility as equity markets never had a 5% fall in the year, instead they gradually price in the information. However, QE tapering and strong macroeconomic numbers pushed up the treasury yields, with 10-year yield rising from less than 2% to 3% by year end.

 

Our dynamically managed tactical overlay was over cautious toward equity at the beginning of the year. It started to catch up gains later in the year, although it was not enough to cover up the loss made earlier. As the result, the SBL-N portfolio underperformed its composite benchmark for the year.

 

In this period, the best performing holdings were Russell 2000 futures, the S&P Mid Cap ETF and S&P 500 futures, while 10-year futures, the investment grade bond ETF and Barclays U.S. Aggregate ETF detracted the performance.

 

 

 

 

 

 

 

 

 

 

 

Performance displayed represents past performance, which is no guarantee of future results.

 

The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 77

  

 
 

 

PERFORMANCE REPORT AND FUND PROFILE (Unaudited) December 31, 2013

 

SERIES N (MANAGED ASSET ALLOCATION SERIES)

OBJECTIVE:   Seeks growth of capital and, secondarily, preservation of capital.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year  5 Year  10 Year
Series N (Managed Asset Allocation Series)   14.33%   12.61%   6.11%
Blended Index**   17.56%   12.71%   6.54%
S&P 500 Index   32.39%   17.94%   7.41%

 

Inception Date: June 1, 1995

 

Holdings (% of Total Net Assets)   
Dreyfus Treasury Prime Cash Management Fund   38.2%
iShares Core Total US Bond Market ETF   16.0%
SPDR S&P 500 ETF Trust   13.2%
Vanguard S&P 500 ETF   13.2%
iShares iBoxx $ Investment Grade Corporate Bond ETF   7.6%
iShares Core S&P Mid-Capital ETF   6.4%
iShares MSCI EAFE ETF   3.8%
iShares Core S&P 500 ETF   0.0%
Total   98.4%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments.

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The S&P 500 Index and the Barclays U.S. Aggregate Bond Index are unmanaged indices and, unlike the Fund, have no management fees or operating expenses to reduce their reported returns.
**The Blended Index is 60% S&P 500 Index and 40% Barclays U.S. Aggregate Bond Index.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

78 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

SCHEDULE OF INVESTMENTS December 31, 2013
SERIES N (MANAGED ASSET ALLOCATION SERIES)

 

   Shares   Value 
         
EXCHANGE TRADED FUNDS† - 60.2%          
iShares Core Total US Bond Market ETF   98,443   $10,477,287 
SPDR S&P 500 ETF Trust   46,804    8,643,295 
Vanguard S&P 500 ETF   50,892    8,608,382 
iShares iBoxx $ Investment Grade          
Corporate Bond ETF   43,517    4,970,077 
iShares Core S&P Mid-Capital ETF   31,102    4,162,692 
iShares MSCI EAFE ETF   37,530    2,516,762 
iShares Core S&P 500 ETF   2    371 
Total Exchange Traded Funds          
(Cost $33,433,858)        39,378,866 
           
SHORT TERM INVESTMENTS† - 38.2%          
Dreyfus Treasury Prime Cash          
Management Fund   24,974,975    24,974,975 
Total Short Term Investments          
(Cost $24,974,975)        24,974,975 
Total Investments - 98.4%          
(Cost $58,408,833)       $64,353,841 
Other Assets & Liabilities, net - 1.6%        1,020,991 
Total Net Assets - 100.0%       $65,374,832 
           
       Unrealized 
   Contracts   Gain (Loss) 
EQUITY FUTURES CONTRACTS PURCHASED†          
March 2014 MSCI EAFE Index Mini          
Futures Contracts          
(Aggregate Value of          

Contracts $8,151,500)

   85   $405,672 
March 2014 S&P 500 Index Mini          
Futures Contracts          
(Aggregate Value of          

Contracts $7,192,575)

   78    161,944 
March 2014 Russell 2000 Index Mini          
Futures Contracts          
(Aggregate Value of          

Contracts $3,017,560)

   26    159,063 
March 2014 FTSE 100 Index          
Futures Contracts††          
(Aggregate Value of          
Contracts $222,588)   2    9,096 
March 2014 SPI 200 Index          
Futures Contracts††          
(Aggregate Value of          
Contracts $119,214)   1    5,273 
January 2014 Hang Seng Index          
Futures Contracts††          
(Aggregate Value of          
Contracts $151,264)   1    3,612 
(Total Aggregate Value of Contracts $18,854,701)       $744,660 
           
CURRENCY FUTURES CONTRACTS PURCHASED†          
March 2014 British Pound          
Futures Contracts          
(Aggregate Value of          
Contracts $103,450)   1   $835 
March 2014 Australian Dollar          
Futures Contracts          
(Aggregate Value of          
Contracts $177,680)   2    (3,285)
(Total Aggregate Value of Contracts $281,130)       $(2,450)
           
INTEREST RATE FUTURES CONTRACTS PURCHASED†          
March 2014 U.S. Treasury 2 Year          
Note Futures Contracts          
(Aggregate Value of          
Contracts $6,155,188)   28   $(12,291)
March 2014 U.S. Treasury 10 Year          
Note Futures Contracts          
(Aggregate Value of          
Contracts $8,724,126)   71    (154,227)
(Total Aggregate Value of Contracts $14,879,314)       $(166,518)
           
CURRENCY FUTURES CONTRACTS SOLD SHORT†          
March 2014 Japanese Yen          
Futures Contracts          
(Aggregate Value of          
Contracts $237,550)   2   $3,780 
March 2014 Euro FX          
Futures Contracts          
(Aggregate Value of          
Contracts $171,975)   1    (246)
March 2014 Canadian Dollar          
Futures Contracts          
(Aggregate Value of          
Contracts $281,880)   3    (1,468)
(Total Aggregate Value of Contracts $691,405)       $2,066 
           
EQUITY FUTURES CONTRACTS SOLD SHORT†          
January 2014 CAC40 10 Euro Index          
Futures Contracts††           
(Aggregate Value of          
Contracts $118,629)   2   $(5,394)
March 2014 S&P/TSX 60 IX Index          
Futures Contracts††           
(Aggregate Value of          
Contracts $147,065)   1    (5,741)
March 2014 Nikkei 225 (CME) Index          
Futures Contracts          
(Aggregate Value of          
Contracts $164,050)   2    (6,007)
March 2014 DAX Index         
Futures Contracts††          
(Aggregate Value of          
Contracts $332,167)   1    (16,359)
(Total Aggregate Value of Contracts $761,911)       $(33,501)

 

†Value determined based on Level 1 inputs, unless otherwise noted — See Note 4.
††Value determined based on Level 2 inputs — See Note 4.

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 79

 

 
 

 

SERIES N (MANAGED ASSET ALLOCATION SERIES)

 

STATEMENT OF ASSETS
AND LIABILITIES
December 31, 2013

 

Assets:     
Investments, at value     
(cost $58,408,833)  $64,353,841 
Segregated cash with broker   1,051,182 
Prepaid expenses   1,725 
Cash   1,612 
Receivables:     
Dividends   81,706 
Variation margin   47,982 
Foreign taxes reclaim   7,063 
Fund shares sold   259 
Total assets   65,545,370 
Liabilities:     
Overdraft due to custodian foreign currency, at value (cost $1,054)   1,022 
Payable for:     
Fund shares redeemed   43,003 
Management fees   35,823 
Legal fees   22,537 
Fund accounting/administration fees   8,267 
Transfer agent/maintenance fees   5,577 
Directors’ fees*   1,194 
Miscellaneous   53,115 
Total liabilities   170,538 
Net assets  $65,374,832 
Net assets consist of:     
Paid in capital  $60,318,325 
Accumulated net investment loss   (194,717)
Accumulated net realized loss on investments   (1,238,260)
Net unrealized appreciation on investments   6,489,484 
Net assets  $65,374,832 
Capital shares outstanding   2,521,466 
Net asset value per share  $25.93 

 

STATEMENT OF
OPERATIONS
Year Ended December 31, 2013

 

Investment Income:     
Dividends (net of foreign withholding tax of $1,740)  $878,904 
Interest   639 
Total investment income   879,543 
      
Expenses:     
Management fees   412,995 
Transfer agent/maintenance fees   26,374 
Fund accounting/administration fees   95,307 
Legal fees   72,125 
Custodian fees   7,353 
Directors’ fees*   6,930 
Tax expense   598 
Miscellaneous   56,692 
Total expenses   678,374 
Net investment income   201,169 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   174,179 
Futures contracts   3,235,943 
Foreign currency   1,077 
Net realized gain   3,411,199 
Net change in unrealized appreciation (depreciation) on:     
Investments   4,525,144 
Futures contracts   383,271 
Foreign currency   183 
Net change in unrealized appreciation (depreciation)   4,908,598 
Net realized and unrealized gain   8,319,797 
Net increase in net assets resulting from operations  $8,520,966 

 

* Relates to Directors not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.

 

80 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES N (MANAGED ASSET ALLOCATION SERIES)
 
STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment income  $201,169   $455,380 
Net realized gain on investments   3,411,199    10,340,153 
Net change in unrealized appreciation (depreciation) on investments   4,908,598    (2,777,439)
Net increase in net assets resulting from operations   8,520,966    8,018,094 
           
Capital share transactions:          
Proceeds from sale of shares   5,341,219    3,496,605 
Cost of shares redeemed   (10,668,816)   (13,108,279)
Net decrease from capital share transactions   (5,327,597)   (9,611,674)
Net increase (decrease) in net assets   3,193,369    (1,593,580)
           
Net assets:          
Beginning of year   62,181,463    63,775,043 
End of year  $65,374,832   $62,181,463 
(Accumulated)/Undistributed net investment (loss)/income at end of year  $(194,717)  $214,734 
           
Capital share activity:          
Shares sold   221,536    160,776 
Shares redeemed   (441,361)   (604,361)
Net decrease in shares   (219,825)   (443,585)

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 81

 

 
 

 

SERIES N (MANAGED ASSET ALLOCATION SERIES)
 
FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $22.68   $20.02   $19.89   $17.99   $14.31 
Income (loss) from investment operations:                         
Net investment incomea   .08    .15    .28    .26    .27 
Net gain (loss) on investments (realized and unrealized)   3.17    2.51    (.15)   1.64    3.41 
Total from investment operations   3.25    2.66    .13    1.90    3.68 
Net asset value, end of period  $25.93   $22.68   $20.02   $19.89   $17.99 
                          
Total Returnb   14.33%   13.29%   0.65%   10.56%   25.63%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $65,375   $62,181   $63,775   $78,734   $79,432 
Ratios to average net assets:                         
Net investment income   0.32%   0.71%   1.40%   1.40%   1.71%
Total expensesc   1.07%   1.31%   1.56%   1.50%   1.66%
Portfolio turnover rate   3%   162%   44%   52%   46%

 

aNet investment income per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
cDoes not include expenses of the underlying funds in which the Fund invests.

 

82 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

MANAGER’S COMMENTARY (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series O (All Cap Value Series) is managed by a team of seasoned professionals led by James Schier, CFA, Portfolio Manager, and Mark A. Mitchell, CFA, Portfolio Manager. In the following paragraphs, they discuss performance of the Fund for the fiscal year ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series O (All Cap Value Series) returned 33.21%, while the benchmark, the Russell 3000® Value Index, returned 32.69%.

 

The strategy is to select securities of companies that appear undervalued by the overall market relative to assets, earnings, growth potential or cash flows. The investment approach is a defined and disciplined process with three key philosophical tenets that drive our investment decisions: a valuation focus, a long-term investment horizon and an opportunistic approach.

 

The portfolio’s performance for the period was helped by stock selection in the Financials, Energy and Consumer Discretionary sectors, and an underweight in the Utilities and Telecommunications Services sector.

 

The largest detractor from performance was stock selection in the Industrials sector, which was overweight relative to the benchmark. Stock selection in the Materials sector was also a detractor.

 

The holdings contributing most to portfolio performance over the period were oil giant Exxon Mobil Corp., and Cree, Inc., the LED lighting maker.

 

The main detractors were Coeur Mining, Inc., which underperformed due to the selloff in gold earlier in 2013; and McDermott International, Inc., which missed earnings early in 2013 and guided earnings down for other quarters and is no longer held in the portfolio.

 

Sector positioning in the Fund is mostly a result of stock selection decisions where the Fund believes it is finding the most attractive valuations or investment opportunities. The largest changes in positioning from a year ago were an increase in the Materials sector exposure and a decrease in the Industrials sector exposure.

 

Nonetheless, for the period the Fund had its largest overweight relative to the benchmark in Industrials, primarily in the engineering and construction industry. Opportunities appear attractive in investing in maintaining U.S. infrastructure and grids for distributing oil, gas and electricity.

 

The Fund was most underweight relative to the benchmark in Health Care and Utilities. In Health Care, the underweight was mostly in the large pharmaceuticals industry, which has been underperforming lately due to patent expirations and lack of reinvestment opportunities in new drug therapies. The Fund is overweight in the managed-care-provider industry, which was a boost to performance for the period. High valuations in the Utilities sector currently make this sector unattractive.

 

The Fund was also underweight relative to the benchmark in the Financials sector, the largest in both the Fund and the benchmark. This stance was a source of positive performance for the period, as was the Fund’s stock selection in the sector. The Fund continues to favor the insurance industry within Financials, and has no weighting in REITs, which make up a large part of the sector in the benchmark. The Fund’s underweight in REITs is because they appear expensive, prices having been driven up by yield-hungry investors searching for bond substitutes.

 

The slow-growth economy is making it more challenging to find investments with attractive growth prospects. While either a more powerful recovery or a significant market pullback could change this scenario, investors are currently finding it difficult to get paid for taking risk.

 

The Fund continues to focus on searching for companies it believes have good long-term fundamental prospects and attractive valuations that are likely to generate strong performance relative to the broader market, regardless of macroeconomic events.

 

 

 

 

 

 

 

 

 

 

 

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 | 83

 

 
 

 

PERFORMANCE REPORT AND FUND PROFILE (Unaudited) December 31, 2013

 

SERIES O (ALL CAP VALUE SERIES)

OBJECTIVE:  Seeks long-term growth of capital.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series O (All Cap Value Series)   33.21%   17.95%   7.38%
Russell 3000 Value Index   32.69%   16.75%   7.66%

  

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date: June 1, 1995

 

Ten Largest Holdings (% of Total Net Assets)    
Dreyfus Treasury Prime Cash     
Management Fund   4.1%
Computer Sciences Corp.   3.3%
Wells Fargo & Co.   3.0%
Chevron Corp.   2.6%
CVS Caremark Corp.   2.4%
JPMorgan Chase & Co.   2.3%
Dow Chemical Co.   2.3%
American International Group, Inc.   2.2%
Cameco Corp.   2.2%
Time Warner, Inc.   2.1%
Top Ten Total   26.5%

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 3000 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

84 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

SCHEDULE OF INVESTMENTS December 31, 2013
SERIES O (ALL CAP VALUE SERIES)

 

   Shares   Value 
         
COMMON STOCKS† - 95.8%          
           
FINANCIALS - 25.3%          
Wells Fargo & Co.   102,633   $4,659,538 
JPMorgan Chase & Co.   60,650    3,546,812 
American International Group, Inc.   67,292    3,435,257 
Hanover Insurance Group, Inc.   44,320    2,646,346 
Allstate Corp.   42,470    2,316,314 
Reinsurance Group of America,          
Inc. — Class A   26,545    2,054,849 
WR Berkley Corp.   41,850    1,815,872 
Aon plc   20,860    1,749,945 
American Financial Group, Inc.   23,270    1,343,144 
Berkshire Hathaway, Inc. — Class B*   10,360    1,228,282 
Citigroup, Inc.   23,260    1,212,079 
Bank of America Corp.   77,670    1,209,322 
Home Loan Servicing Solutions Ltd.   49,192    1,129,940 
Bank of New York Mellon Corp.   31,380    1,096,417 
CME Group, Inc. — Class A   12,920    1,013,703 
Franklin Resources, Inc.   15,090    871,146 
Endurance Specialty Holdings Ltd.   13,640    800,259 
U.S. Bancorp   17,567    709,707 
NASDAQ OMX Group, Inc.   15,540    618,492 
Huntington Bancshares, Inc.   61,170    590,290 
Alexandria Real Estate Equities, Inc.   8,170    519,776 
BioMed Realty Trust, Inc.   27,420    496,850 
Ocwen Financial Corp.*,1   8,660    480,197 
Employers Holdings, Inc.   14,620    462,723 
Wintrust Financial Corp.   8,780    404,934 
SVB Financial Group*   3,860    404,760 
First Niagara Financial Group, Inc.   35,659    378,699 
City National Corp.   4,550    360,451 
Zions Bancorporation   11,800    353,528 
FirstMerit Corp.   15,254    339,096 
First Midwest Bancorp, Inc.   18,845    330,353 
Alleghany Corp.*   643    257,174 
Redwood Trust, Inc.   97    1,879 
Total Financials        38,838,134 
           
ENERGY - 15.0%          
Chevron Corp.   31,700    3,959,647 
Cameco Corp.   165,150    3,430,166 
Apache Corp.   28,310    2,432,961 
Whiting Petroleum Corp.*   34,800    2,153,076 
Halliburton Co.   40,940    2,077,705 
Phillips 66   22,440    1,730,797 
ConocoPhillips   21,010    1,484,357 
Marathon Oil Corp.   34,900    1,231,970 
Exxon Mobil Corp.   11,020    1,115,224 
Superior Energy Services, Inc.*   31,580    840,344 
Suncor Energy, Inc.   23,040    807,552 
Oasis Petroleum, Inc.*   13,520    635,034 
Resolute Energy Corp.*   46,000    415,380 
Patterson-UTI Energy, Inc.   14,920    377,774 
C&J Energy Services, Inc.*   15,450    356,895 
Total Energy        23,048,882 
           
INDUSTRIALS - 13.3%          
Parker Hannifin Corp.   21,990    2,828,794 
Quanta Services, Inc.*   86,660    2,734,989 
United Technologies Corp.   23,750    2,702,750 
URS Corp.   49,860    2,642,081 
Republic Services, Inc. — Class A   77,100    2,559,720 
Covanta Holding Corp.   110,070    1,953,743 
Orbital Sciences Corp.*   48,821    1,137,529 
Navigant Consulting, Inc.*   58,500    1,123,200 
Aegion Corp. — Class A*   42,010    919,599 
Towers Watson & Co. — Class A   3,816    486,960 
General Cable Corp.   16,107    473,707 
ICF International, Inc.*   11,100    385,281 
United Stationers, Inc.   4,320    198,245 
AZZ, Inc.   3,900    190,554 
Saia, Inc.*   4,685    150,154 
Total Industrials        20,487,306 
           
INFORMATION TECHNOLOGY - 9.7%          
Computer Sciences Corp.   90,800    5,073,904 
Cisco Systems, Inc.   108,840    2,443,458 
TE Connectivity Ltd.   43,580    2,401,694 
IXYS Corp.   176,300    2,286,611 
RF Micro Devices, Inc.*   119,150    614,814 
NetApp, Inc.   13,970    574,726 
Maxwell Technologies, Inc.*   68,700    533,799 
Global Payments, Inc.   7,875    511,796 
Semtech Corp.*   17,140    433,299 
Total Information Technology        14,874,101 
           
CONSUMER STAPLES - 8.6%          
CVS Caremark Corp.   51,720    3,701,599 
Wal-Mart Stores, Inc.   31,750    2,498,408 
Bunge Ltd.   29,100    2,389,401 
Mondelez International, Inc. — Class A   53,700    1,895,610 
Kraft Foods Group, Inc.   17,900    965,168 
Hormel Foods Corp.   18,480    834,742 
Darling International, Inc.*   27,525    574,722 
Ingredion, Inc.   5,610    384,061 
Total Consumer Staples        13,243,711 
           
CONSUMER DISCRETIONARY - 7.1%          
Time Warner, Inc.   46,886    3,268,891 
Lowe’s Companies, Inc.   43,550    2,157,903 
DeVry Education Group, Inc.   28,700    1,018,850 
Brown Shoe Company, Inc.   29,722    836,377 
Kohl’s Corp.   9,790    555,583 
Gentex Corp.   14,970    493,860 
Scholastic Corp.   14,500    493,145 
Cabela’s, Inc.*   7,360    490,618 
Jack in the Box, Inc.*   9,290    464,686 
Jones Group, Inc.   29,473    440,916 
Guess?, Inc.   13,843    430,102 
Chico’s FAS, Inc.   16,870    317,831 
Total Consumer Discretionary        10,968,762 

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 85

 

 
 

 

SCHEDULE OF INVESTMENTS (concluded) December 31, 2013
SERIES O (ALL CAP VALUE SERIES)

 

   Shares   Value 
         
HEALTH CARE - 6.8%          
Aetna, Inc.   36,470   $2,501,478 
MEDNAX, Inc.*   35,000    1,868,300 
UnitedHealth Group, Inc.   19,390    1,460,067 
Teva Pharmaceutical Industries Ltd. ADR   29,810    1,194,785 
Covidien plc   10,690    727,989 
Pfizer, Inc.   23,470    718,886 
Kindred Healthcare, Inc.   29,594    584,185 
Hologic, Inc.*   24,443    546,301 
Alere, Inc.*   12,771    462,310 
Edwards Lifesciences Corp.*   4,020    264,355 
Universal Health Services, Inc.   Class B   1,480    120,265 
Mallinckrodt plc*   1,475    77,084 
Total Health Care        10,526,005 
           
MATERIALS - 6.7%          
Dow Chemical Co.   79,610    3,534,683 
Owens-Illinois, Inc.*   47,630    1,704,201 
Coeur Mining, Inc.*   123,200    1,336,720 
Sonoco Products Co.   29,900    1,247,428 
Zoltek Companies, Inc.*   30,900    517,575 
Potash Corporation of Saskatchewan, Inc.   13,530    445,949 
Landec Corp.*   36,480    442,138 
Olin Corp.   13,436    387,629 
Royal Gold, Inc.   5,860    269,970 
Allied Nevada Gold Corp.*   68,500    243,175 
Globe Specialty Metals, Inc.   6,587    118,632 
Total Materials        10,248,100 
           
UTILITIES - 2.9%          
Edison International   58,310    2,699,753 
Black Hills Corp.   13,950    732,515 
Great Plains Energy, Inc.   23,922    579,869 
MDU Resources Group, Inc.   13,819    422,170 
Total Utilities        4,434,307 
           
TELECOMMUNICATION SERVICES - 0.4%          
Windstream Holdings, Inc.   80,380   641,432 
Total Common Stocks          
(Cost $106,761,282)        147,310,740 
           
SHORT TERM INVESTMENTS† - 4.1%          
Dreyfus Treasury Prime Cash          
Management Fund   6,225,822    6,225,822 
Total Short Term Investments          
(Cost $6,225,822)        6,225,822 
Total investments - 99.9%          
(Cost $112,987,104)       $153,536,562 
           
   Contracts     
OPTIONS WRITTEN† - 0.0%          
Call options on:          
Ocwen Financial Corp. Expiring          
January 2014 with strike          
price of $60.00   86    (3,010)
Total Options Written          
(Premiums received $29,068)        (3,010)
Other Assets & Liabilities, net - 0.1%        168,043 
Total Net Assets - 100.0%       $153,701,595 

 

*Non-income producing security.
†Value determined based on Level 1 inputs — See Note 4.
1All or a portion of this security is pledged as collateral for open options written contracts at December 31, 2013.
ADR — American Depositary Receipt
plc — Public Limited Company

 

86 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES O (ALL CAP VALUE SERIES)
 
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 2013

 

Assets:     
Investments, at value     
(cost $112,987,104)  $153,536,562 
Prepaid expenses   3,878 
Receivables:     
Dividends   276,541 
Securities sold   61,489 
Fund shares sold   2,674 
Foreign taxes reclaim   2,604 
Total assets   153,883,748 
Liabilities:     
Options written, at value (premiums received $29,068)   3,010 
Overdraft due to custodian bank   1,860 
Payable for:     
Management fees   89,458 
Fund shares redeemed   30,366 
Fund accounting/administration fees   12,140 
Transfer agent/maintenance fees   4,572 
Directors’ fees*   1,029 
Securities purchased   53 
Miscellaneous   39,665 
Total liabilities   182,153 
Net assets  $153,701,595 
Net assets consist of:     
Paid in capital  $118,125,205 
Undistributed net investment income   1,168,649 
Accumulated net realized loss on investments   (6,167,775)
Net unrealized appreciation on investments   40,575,516 
Net assets  $153,701,595 
Capital shares outstanding   4,678,671 
Net asset value per share  $32.85 

 

STATEMENT OF
OPERATIONS
Year Ended December 31, 2013

 

Investment Income:     
Dividends (net of foreign withholding tax of $8,990)  $2,472,744 
Interest   241 
Total investment income   2,472,985 
      
Expenses:     
Management fees   1,008,879 
Transfer agent/maintenance fees   25,702 
Fund accounting/administration fees   136,917 
Directors’ fees*   14,630 
Custodian fees   11,257 
Tax expense   4 
Miscellaneous   106,369 
Total expenses   1,303,758 
Net investment income   1,169,227 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   13,561,132 
Options written   29,947 
Net realized gain   13,591,079 
Net change in unrealized appreciation (depreciation) on:     
Investments   25,900,185 
Options written   26,058 
Net change in unrealized appreciation (depreciation)   25,926,243 
Net realized and unrealized gain   39,517,322 
Net increase in net assets resulting from operations  $40,686,549 

 

* Relates to Directors 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 | 87

 

 
 

 

SERIES O (ALL CAP VALUE SERIES)
 
STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment income  $1,169,227   $1,256,228 
Net realized gain on investments   13,591,079    5,177,119 
Net change in unrealized appreciation (depreciation) on investments   25,926,243    13,473,366 
Net increase in net assets resulting from operations   40,686,549    19,906,713 
           
Capital share transactions:          
Proceeds from sale of shares   11,634,385    4,708,037 
Cost of shares redeemed   (28,853,446)   (32,174,771)
Net decrease from capital share transactions   (17,219,061)   (27,466,734)
Net increase (decrease) in net assets   23,467,488    (7,560,021)
           
Net assets:          
Beginning of year   130,234,107    137,794,128 
End of year  $153,701,595   $130,234,107 
Undistributed net investment income at end of year  $1,168,649   $1,256,228 
           
Capital share activity:          
Shares sold   399,098    203,910 
Shares redeemed   (1,001,349)   (1,377,712)
Net decrease in shares   (602,251)   (1,173,802)

 

88 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES O (ALL CAP VALUE SERIES)
 
FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $24.66   $21.35   $22.32   $19.14   $14.39 
Income (loss) from investment operations:                         
Net investment incomea   .24    .21    .15    .14    .16 
Net gain (loss) on investments (realized and unrealized)   7.95    3.10    (1.12)   3.04    4.59 
Total from investment operations   8.19    3.31    (.97)   3.18    4.75 
Net asset value, end of period  $32.85   $24.66   $21.35   $22.32   $19.14 
                          
Total Returnb   33.21%   15.50%   (4.35%)   16.61%   33.01%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $153,702   $130,234   $137,794   $165,722   $161,918 
Ratios to average net assets:                         
Net investment income   0.81%   0.91%   0.69%   0.68%   1.00%
Total expenses   0.90%   0.89%   0.86%   0.86%   0.87%
Net expensesc   0.90%   0.89%   0.86%   0.86%   0.85%
Portfolio turnover rate   22%   14%   19%   11%   19%

 

aNet investment income per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
cNet expense information reflects the expense ratios after expense waivers.

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 89

 

 
 

 

MANAGER’S COMMENTARY (Unaudited) December 31, 2013

 

To Our Shareholders

 

The Series P (High Yield Series) is managed by a team of seasoned professionals, including B. Scott Minerd, 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 12-month period ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series P (High Yield Series) returned 7.38%, compared with the 7.44% return of its benchmark, the Barclays U.S. Corporate High Yield Index.

 

High yield bonds posted their fifth consecutive year of positive returns in 2013. But Treasury-rate volatility mid-year spread into fixed-rate sectors and more than $11 billion was withdrawn from high-yield bond funds in June alone. Spreads widened over the summer, but then high-yield bonds posted four consecutive months of positive returns following the Fed decision not to taper QE in September, and spreads tightened by 60 basis points to close the year at 436 basis points, their tightest post-financial crisis level. Though spreads remain above historical lows, the same cannot be said for yields, which set a new record low of 5.1% in May 2013. Despite fund flow volatility, gross issuance in high-yield bonds totaled $340 billion, the second best issuance ever after $347 billion gross issuance in 2012.

 

Interest rate risk was the dominant focus of fixed income investors as positive economic momentum and dovish statements by the Federal Reserve (the “Fed”) led to rising interest rates. The yield on the 10-year Treasury note hit a two-year high of 3.0 percent to close 2013. The Fed’s decision to taper its bond purchases in December was largely driven by the strength of economic momentum as evidenced by a number of data releases in recent months. Risk markets responded positively as dovish Fed statements have continued to propel asset prices higher. While we believe that many risk assets are fully valued, credit assets have potential for continued spread compression in the near-term. It remains an optimal time to take prudent credit risk, though we are cautious with respect to aggressive pricing and weaker structures from issuers. High yield coupons should continue to serve as a cushion for leveraged credit performance, but investors may need to temper return expectations for 2014.

 

The Fund kept pace with its benchmark for the period, largely due to individual credit selection and its underweight stances relative to the benchmark in BB-rated bonds and longer-duration assets, which served the Fund particularly well during the summer volatility when rates rose sharply. Conversely, the underweight in longer-duration assets detracted from performance when rates fell in September.

 

In underweighting BB bonds, the Fund moved down the credit spectrum to purchase high yield bonds with higher yields but without a commensurate level of risk. The Fund also remained focused on a market sweet spot: middle-market issuers, tranches between $300 and $750 million. Issuers in this range are generally small but growing companies in newer, yet fundamentally sound, industries accounting for about 40% of the high yield market.

 

Another important factor in Fund performance for the period was increasing its allocation to bank loans, many of the loans in the single B category. This increased allocation is a defensive measure; as the credit cycle matures, the potential for interest rate volatility increases. When the market sells off, as it did in May, June and August, the allocation benefits performance. But the allocation can be a drag on performance when rates are falling or remain low. While we still like bank loans as an asset class, technical factors, such as the potential for lower demand from the CLO origination market and mutual fund flows, suggest that market events over the next few months should be monitored carefully.

 

 

 

 

 

 

 

 

 

 

 

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.

 

90 | The Guggenheim Funds annual REPORT

 

 
 

 

PERFORMANCE REPORT AND FUND PROFILE (Unaudited) December 31, 2013

 

SERIES P (HIGH YIELD SERIES)

OBJECTIVE:  Seeks high current income. Capital appreciation is a secondary objective.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series P (High Yield Series)   7.38%   19.71%   8.51%
Barclays U.S. Corporate High Yield Index   7.44%   18.93%   8.62%

 

Ten Largest Holdings (% of Total Net Assets)    
Dreyfus Treasury Prime Cash Management Fund   2.8%
TPC Group, Inc.   1.5%
Nationstar Mortgage LLC / Nationstar Capital Corp.   1.5%
MDC Partners, Inc.   1.5%
GRD Holdings III Corp.   1.5%
First Data Corp.   1.4%
Sabre, Inc.   1.3%
Checkers Drive-In Restaurants, Inc.   1.3%
Central Garden and Pet Co.   1.3%
BreitBurn Energy Partners Limited Partnership / BreitBurn Finance Corp.   1.3%
Top Ten Total   15.4%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date: August 5, 1996

 

Portfolio Composition by Quality Rating**
Rating
Fixed Income Instruments
AA   0.4%
BBB   4.5%
BB   25.5%
B   50.1%
CCC   14.7%
CC   0.1%
D   0.1%
NR   0.1%
Other Instruments     
Short Term Investments   2.6%
Preferred Stocks   1.0%
Common Stocks   0.9%
Warrants   0.0%
Total Investments   100.0%

 The chart above reflects percentages of the value of total investments.

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Barclays U.S. Corporate High Yield Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
**Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 91

 

 
 

 

SCHEDULE OF INVESTMENTS December 31, 2013
SERIES P (HIGH YIELD SERIES)

 

   Shares   Value 
         
COMMON STOCKS† - 1.0%          
           
ENERGY - 0.4%          
Stallion Oilfield Holdings Ltd.††   19,265   $443,095 
           
FINANCIALS - 0.3%          
CIT Group, Inc.   7,613    396,865 
Leucadia National Corp.   247    7,000 
Adelphia Recovery Trust*,†††,1   5,270    53 
Total Financials        403,918 
           
CONSUMER DISCRETIONARY - 0.3%          
Sonic Automotive, Inc. — Class A   15,103    369,721 
Aimia, Inc.   5    92 
MEDIQ, Inc.*,†††,1   92    1 
Total Consumer Discretionary        369,814 
           
CONSUMER STAPLES - 0.0%          
Crimson Wine Group Ltd.*   24    212 
           
INDUSTRIALS - 0.0%          
Delta Air Lines, Inc.   1    28 
Chorus Aviation, Inc.   3    11 
Total Industrials        39 
Total Common Stocks          
(Cost $837,375)        1,217,078 
           
PREFERRED STOCKS† - 1.1%          
Citigroup Capital XIII          
7.88% due 10/30/402   25,000    681,250 
Aspen Insurance Holdings Ltd.          
5.95% due 07/01/232,3   30,000    680,100 
U.S. Shipping Corp.*,††   24,529    12,265 
Total Preferred Stocks          
(Cost $2,000,000)        1,373,615 
           
WARRANTS††† - 0.0%          
Reader’s Digest Association, Inc.          
$1.00, 02/19/141   478    5 
Total Warrants          
(Cost $—)        5 
           
SHORT TERM INVESTMENTS† - 2.8%          
Dreyfus Treasury Prime Cash           
Management Fund   3,412,551    3,412,551 
Total Short Term Investments          
(Cost $3,412,551)        3,412,551 
           
   Face      
   Amount      
CORPORATE BONDS†† - 77.4%          
ENERGY - 14.9%          
BreitBurn Energy Partners Limited          
Partnership / BreitBurn Finance Corp.          
7.88% due 04/15/227  $1,550,000    1,611,999 
8.63% due 10/15/20   250,000    268,750 
Crestwood Midstream Partners          
Limited Partnership / Crestwood          
Midstream Finance Corp.          
7.75% due 04/01/197   1,200,000    1,302,000 
6.13% due 03/01/224   500,000    512,500 
Hiland Partners Limited Partnership /          
Hiland Partners Finance Corp.          
7.25% due 10/01/204   1,500,000    1,608,749 
Bill Barrett Corp.          
7.00% due 10/15/227   1,250,000    1,296,875 
7.63% due 10/01/19   200,000    215,000 
Gibson Energy, Inc.          
6.75% due 07/15/214   1,400,000    1,480,500 
Eagle Rock Energy Partners          
Limited Partnership / Eagle Rock          
Energy Finance Corp.          
8.38% due 06/01/19   1,215,000    1,324,350 
Legacy Reserves Limited Partnership /          
Legacy Reserves Finance Corp.          
6.63% due 12/01/214   725,000    701,438 
8.00% due 12/01/204   505,000    525,200 
Penn Virginia Resource Partners          
Limited Partnership / Penn Virginia          
Resource Finance Corp.          
8.25% due 04/15/18   1,100,000    1,166,000 
Endeavor Energy Resources Limited          
Partnership / EER Finance, Inc.          
7.00% due 08/15/214   1,150,000    1,161,500 
Atlas Energy Holdings Operating          
Company LLC / Atlas Resource          
Finance Corp.          
7.75% due 01/15/214   700,000    672,000 
9.25% due 08/15/214   250,000    255,625 
Midstates Petroleum Company          
Incorporated / Midstates           
Petroleum Co LLC          
10.75% due 10/01/20   700,000    761,250 
Memorial Production Partners          
Limited Partnership / Memorial          
Production Finance Corp.          
7.63% due 05/01/214   709,000    728,498 
SESI LLC          
7.13% due 12/15/21   500,000    557,500 
Ultra Petroleum Corp.          
5.75% due 12/15/184   450,000    462,375 
Unit Corp.          
6.63% due 05/15/21   400,000    422,000 
Rosetta Resources, Inc.          
5.88% due 06/01/22   350,000    347,375 
Pacific Drilling S.A.          
5.38% due 06/01/204   325,000    326,625 
SandRidge Energy, Inc.          
8.75% due 01/15/20   200,000    215,500 
Exterran Partners Limited          
Partnership / EXLP Finance Corp.          
6.00% due 04/01/214   175,000    173,688 

 

92 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SCHEDULE OF INVESTMENTS (continued) December 31, 2013
SERIES P (HIGH YIELD SERIES)  

 

   Face     
   Amount   Value 
         
Carrizo Oil & Gas, Inc.          
7.50% due 09/15/20  $150,000   $164,250 
IronGate Energy Services LLC          
11.00% due 07/01/184   125,000    121,250 
SemGroup, LP          
8.75% due 11/15/15†††,1,6   1,700,000    — 
Total Energy        18,382,797 
           
CONSUMER DISCRETIONARY - 13.6%          
MDC Partners, Inc.          
6.75% due 04/01/204   1,750,000    1,830,938 
GRD Holdings III Corp.          
10.75% due 06/01/194   1,650,000    1,798,499 
Sabre, Inc.          
8.50% due 05/15/194   1,500,000    1,664,999 
Checkers Drive-In Restaurants, Inc.          
11.00% due 12/01/171,4   1,500,000    1,657,500 
AmeriGas Finance LLC /          
AmeriGas Finance Corp.          
7.00% due 05/20/22   1,420,000    1,540,700 
Laureate Education, Inc.          
9.25% due 09/01/194   1,300,000    1,413,750 
Travelport LLC / Travelport Holdings, Inc.          
13.88% due 03/01/164   770,657    816,896 
Stanadyne Corp.          
10.00% due 08/15/14   785,000    761,450 
CPG Merger Sub LLC          
8.00% due 10/01/214   700,000    728,000 
INTCOMEX, Inc.          
13.25% due 12/15/14   720,000    699,300 
WMG Acquisition Corp.          
11.50% due 10/01/18   480,000    552,000 
Continental Airlines 2012-2 Class B          
Pass Through Trust          
5.50% due 10/29/20   500,000    515,000 
Vail Resorts, Inc.          
6.50% due 05/01/19   450,000    477,000 
DreamWorks Animation SKG, Inc.          
6.88% due 08/15/204   450,000    475,875 
GLP Capital Limited Partnership /          
GLP Financing II, Inc.          
4.88% due 11/01/204   400,000    400,000 
Cablevision Systems Corp.          
7.75% due 04/15/18   300,000    334,875 
Sirius XM Holdings, Inc.          
5.88% due 10/01/204   300,000    306,000 
Suburban Propane Partners          
Limited Partnership/Suburban          
Energy Finance Corp.          
7.50% due 10/01/18   253,000    271,343 
Snoqualmie Entertainment Authority          
9.13% due 02/01/154   265,000    262,350 
Stanadyne Holdings, Inc.          
11.99% due 02/15/155   225,000    140,625 
Gibson Brands, Inc.          
8.88% due 08/01/184   100,000    105,500 
Seminole Hard Rock Entertainment          
Incorporated / Seminole Hard Rock          
International LLC          
5.88% due 05/15/214   100,000    98,250 
Total Consumer Discretionary        16,850,850 
           
FINANCIALS - 10.3%          
Nationstar Mortgage LLC /          
Nationstar Capital Corp.          
6.50% due 08/01/18   1,800,000    1,831,500 
Icahn Enterprises Limited          
Partnership / Icahn Enterprises          
Finance Corp.          
6.00% due 08/01/204   950,000    978,500 
8.00% due 01/15/187   500,000    520,000 
Kennedy-Wilson, Inc.          
8.75% due 04/01/197   1,175,000    1,289,563 
Lancashire Holdings Ltd.          
5.70% due 10/01/224   1,260,000    1,272,322 
Opal Acquisition, Inc.          
8.88% due 12/15/214   1,250,000    1,243,750 
Wilton Re Finance LLC          
5.88% due 03/30/332,4   900,000    886,500 
Credit Acceptance Corp.          
9.13% due 02/01/17   800,000    840,000 
Ally Financial, Inc.          
2.75% due 01/30/17   800,000    803,000 
American Equity Investment Life          
Holding Co.          
6.63% due 07/15/21   700,000    731,500 
Nielsen Company Luxembourg SARL          
5.50% due 10/01/214   650,000    659,750 
Jefferies Finance LLC /          
JFIN Company-Issuer Corp.          
7.38% due 04/01/204   455,000    473,200 
Oxford Finance LLC / Oxford Finance          
Company-Issuer, Inc.          
7.25% due 01/15/184   400,000    421,000 
Majid AL Futtaim Holding          
7.12% due 12/31/49   300,000    303,063 
Jefferies LoanCore LLC /          
JLC Finance Corp.          
6.88% due 06/01/204   300,000    297,000 
Fidelity & Guaranty Life Holdings, Inc.          
6.38% due 04/01/214   225,000    236,250 
Total Financials        12,786,898 
           
INDUSTRIALS - 9.6%          
CEVA Group plc          
8.38% due 12/01/174,7   1,250,000    1,306,249 
Deutsche Raststatten          
6.75% due 12/30/20   900,000    1,292,008 
Reynolds Group Issuer Incorporated /          
Reynolds Group Issuer LLC /          
Reynolds Group Issuer Lu          
7.13% due 04/15/19   500,000    532,500 
6.88% due 02/15/21   400,000    431,000 

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 93

 

 
 

 

SCHEDULE OF INVESTMENTS (continued) December 31, 2013
SERIES P (HIGH YIELD SERIES)

 

   Face 
Amount/Shares		   Value 
         
Marquette Transportation Company          
LLC / Marquette Transportation          
Finance Corp.          
10.88% due 01/15/17  $860,000   $907,300 
Virgin Media Finance plc          
6.38% due 04/15/234   800,000    814,000 
ADT Corp.          
6.25% due 10/15/214   600,000    630,000 
Victor Technologies Group, Inc.          
9.00% due 12/15/17   569,000    608,830 
Jaguar Holding Company II /          
Jaguar Merger Sub, Inc.          
9.50% due 12/01/194   500,000    562,500 
Briggs & Stratton Corp.          
6.88% due 12/15/207   500,000    549,375 
Building Materials Corporation of America          
6.75% due 05/01/214   500,000    541,250 
Virgin Media Secured Finance plc          
6.50% due 01/15/18   500,000    518,125 
NCR Escrow Corp.          
6.38% due 12/15/234   250,000    255,312 
5.88% due 12/15/214   250,000    254,688 
Amsted Industries, Inc.          
8.13% due 03/15/184   450,000    474,188 
Checkers & Rally’s Restaurants, Inc.          
11.63% due 11/01/164   375,000    382,500 
Prestige Brands, Inc.          
5.38% due 12/15/214   350,000    353,500 
Level 3 Financing, Inc.          
6.13% due 01/15/214   300,000    303,000 
Darling Escrow Corp.          
5.38% due 01/15/224   300,000    302,250 
AmeriGas Finance LLC /           
AmeriGas Finance Corp.          
6.75% due 05/20/20   250,000    273,125 
USG Corp.          
5.88% due 11/01/214   200,000    208,000 
Audatex North America, Inc.          
6.13% due 11/01/234   200,000    206,000 
International Lease Finance Corp.          
8.25% due 12/15/20   100,000    117,000 
Travelport LLC          
11.88% due 09/01/16   100,000    101,500 
RR Donnelley & Sons Co.          
6.50% due 11/15/23   11,000    11,110 
Total Industrials        11,935,310 
           
INFORMATION TECHNOLOGY - 6.6%          
First Data Corp.          
8.75% due 01/15/224   1,625,000    1,734,688 
6.75% due 11/01/204   100,000    104,000 
Eagle Midco, Inc.          
9.00% due 06/15/184   1,250,000    1,303,125 
Aspect Software, Inc.          
10.63% due 05/15/17   1,040,000    1,047,800 
Audatex North America, Inc.          
6.00% due 06/15/214   1,000,000    1,047,500 
Activision Blizzard, Inc.          
5.63% due 09/15/214,7   969,000    1,002,915 
IAC          
4.88% due 11/30/184   500,000    511,250 
4.75% due 12/15/22   450,000    419,625 
Stratus Technologies Bermuda Limited /          
Stratus Technologies, Inc.          
12.00% due 03/29/15   561    561,000 
iGATE Corp.          
9.00% due 05/01/16   396,000    420,750 
Total Information Technology        8,152,653 
           
CONSUMER STAPLES - 5.8%          
Central Garden and Pet Co.          
8.25% due 03/01/18   1,700,000    1,653,250 
Vector Group Ltd.          
7.75% due 02/15/21   1,485,000    1,570,388 
Harbinger Group, Inc.          
7.88% due 07/15/194,7   1,250,000    1,342,188 
Bumble Bee Holdings, Inc.          
9.00% due 12/15/174   831,000    909,944 
KeHE Distributors LLC /           
KeHE Finance Corp.          
7.63% due 08/15/214   700,000    742,000 
Bumble Bee Holdco SCA          
9.63% due 03/15/184   600,000    633,000 
US Foods, Inc.          
8.50% due 06/30/19   350,000    383,250 
Total Consumer Staples        7,234,020 
           
TELECOMMUNICATION SERVICES - 5.4%          
Sitel LLC / Sitel Finance Corp.          
11.00% due 08/01/174   1,190,000    1,270,325 
Alcatel-Lucent USA, Inc.          
8.88% due 01/01/204   500,000    557,500 
6.75% due 11/15/204   400,000    415,500 
UPCB Finance V Ltd.          
7.25% due 11/15/214   800,000    868,000 
Zayo Group LLC / Zayo Capital, Inc.          
8.13% due 01/01/20   600,000    657,000 
DISH DBS Corp.          
6.75% due 06/01/21   600,000    636,000 
Expo Event Transco, Inc.          
9.00% due 06/15/214   575,000    585,063 
CyrusOne Limited Partnership /          
CyrusOne Finance Corp.          
6.38% due 11/15/22   500,000    517,500 
Unitymedia Hessen GmbH & Company KG /          
Unitymedia NRW GmbH          
5.50% due 01/15/234   500,000    485,000 
GXS Worldwide, Inc.          
9.75% due 06/15/15   400,000    413,000 
CommScope, Inc.          
8.25% due 01/15/194   224,000    245,560 
Total Telecommunication Services        6,650,448 
           
MATERIALS - 4.4%          
TPC Group, Inc.          
8.75% due 12/15/204   1,730,000    1,838,125 

 

94 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SCHEDULE OF INVESTMENTS (continued) December 31, 2013
SERIES P (HIGH YIELD SERIES)

 

   Face 
Amount		   Value 
         
KGHM International Ltd.          
7.75% due 06/15/194  $1,275,000   $1,345,125 
Steel Dynamics, Inc.          
7.63% due 03/15/20   900,000    976,500 
Pretium Packaging LLC / Pretium Finance, Inc.          
11.50% due 04/01/16   600,000    640,500 
Eldorado Gold Corp.          
6.13% due 12/15/204   465,000    447,563 
Mirabela Nickel Ltd.          
8.75% due 04/15/181,4   610,000    152,500 
3.50% due 03/28/141,4   111,305    111,305 
Total Materials        5,511,618 
           
Utilities - 3.8%          
Elwood Energy LLC          
8.16% due 07/05/26   1,090,250    1,169,293 
Atlas Pipeline Partners Limited          
Partnership / Atlas Pipeline          
Finance Corp.          
6.63% due 10/01/20   1,000,000    1,045,000 
LBC Tank Terminals Holding          
Netherlands BV          
6.88% due 05/15/234   850,000    878,688 
NGL Energy Partners Limited          
Partnership / NGL Energy          
Finance Corp.          
6.88% due 10/15/214   700,000    717,500 
Crestwood Midstream Partners          
Limited Partnership / Crestwood          
Midstream Finance Corp.          
6.00% due 12/15/20   600,000    618,000 
Midstates Petroleum Company          
Incorporated / Midstates          
Petroleum Co LLC          
9.25% due 06/01/21   300,000    313,500 
Total Utilities        4,741,981 
           
Health Care - 2.7%          
Catalent Pharma Solutions, Inc.          
7.88% due 10/15/18   1,250,000    1,271,875 
Valeant Pharmaceuticals International, Inc.          
5.63% due 12/01/214   700,000    703,500 
Symbion, Inc.          
8.00% due 06/15/16   550,000    583,000 
Valeant Pharmaceuticals International          
6.75% due 08/15/184   500,000    549,375 
Physio-Control International, Inc.          
9.88% due 01/15/194   200,000    224,000 
Total Health Care        3,331,750 
           
Real Estate - 0.3%          
DuPont Fabros Technology, LP          
5.88% due 09/15/21   400,000    413,000 
Total Corporate Bonds          
(Cost $93,906,136)        95,991,325 
           
SENIOR FLOATING RATE INTERESTS††,2 - 23.5%          
Consumer Discretionary - 5.2%          
GCA Services Group, Inc.          
9.25% due 11/01/20   1,200,000    1,214,256 
Steinway Musical Instruments, Inc.          
9.25% due 09/18/20   1,000,000    1,032,500 
IntraWest Holdings S.à r.l.          
5.50% due 11/26/20   700,000    706,125 
Lions Gate Entertainment Corp.          
5.00% due 07/18/20   700,000    701,750 
NES Global Talent          
6.50% due 10/02/19   700,000    696,500 
Fleetpride Corp.          
9.25% due 05/15/20   600,000    570,498 
Hilton Worldwide Holdings, Inc.          
3.75% due 10/26/20   560,526    564,730 
Transtar Industries, Inc.          
9.75% due 10/09/19   350,000    332,500 
Applied Systems, Inc.          
8.25% due 06/08/17   250,000    250,313 
Neiman Marcus Group, Inc.          
5.00% due 10/25/20   200,000    202,306 
Totes Isotoner Corp.          
7.25% due 07/07/17   181,166    181,507 
Total Consumer Discretionary        6,452,985 
           
Industrials - 4.6%          
Travelport Holdings Ltd.          
9.50% due 01/31/16   1,185,100    1,223,616 
6.25% due 06/26/19   298,201    305,408 
Mitchell International, Inc.          
8.50% due 10/11/21   1,350,000    1,367,727 
syncreon          
5.25% due 10/28/20   730,000    725,897 
SIRVA Worldwide, Inc.          
7.50% due 03/27/19   595,500    607,410 
US Shipping Corp.          
9.00% due 04/30/18   497,500    508,694 
Mast Global          
8.25% due 09/12/19†††,1   300,000    297,000 
Panolam Industries International, Inc.          
7.25% due 08/23/17   269,663    258,202 
Sutherland Global Services, Inc.          
7.25% due 03/06/19   240,625    240,023 
NaNa Development Corp.          
8.00% due 03/15/18   127,500    128,775 
Total Industrials        5,662,752 
           
Information Technology - 3.6%          
SumTotal Systems          
6.28% due 11/16/18   1,403,919    1,382,859 
Greenway Medical Technolgies          
9.25% due 11/04/21   500,000    502,500 
6.00% due 11/04/20   400,000    398,000 
Wall Street Systems          
9.25% due 10/25/20   750,000    755,625 
EIG Investors Corp.          
5.00% due 11/09/19   498,750    500,935 

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 95

 

 
 

 

SCHEDULE OF INVESTMENTS (concluded) December 31, 2013
SERIES P (HIGH YIELD SERIES)

 

   Face     
   Amount   Value 
         
Infor (US), Inc.          
3.75% due 06/03/20  $450,000   $448,970 
GlobalLogic Holdings, Inc.          
6.25% due 06/03/19   250,000    249,375 
P2 Energy Solutions          
5.00% due 10/30/20   220,000    220,825 
Total Information Technology        4,459,089 
           
FINANCIALS - 2.7%          
Cunningham Lindsey U.S., Inc.          
9.25% due 06/10/20   935,455    928,439 
Magic Newco, LLC          
12.00% due 06/12/19   700,000    802,375 
5.00% due 12/12/18   99,748    100,371 
Digital Insight          
8.75% due 08/01/20   370,000    377,400 
4.75% due 10/16/19   270,000    270,000 
Cetera Financial Group, Inc.          
6.50% due 08/07/19   496,875    502,465 
First Advantage Corp.          
6.25% due 02/28/19   298,500    297,942 
Knight/Getco          
5.75% due 11/30/17   87,850    87,960 
Total Financials        3,366,952 
           
TELECOMMUNICATION SERVICES - 2.2%          
Associated Partners, Inc.          
6.67% due 12/21/15†††,1   1,400,000    1,403,499 
Avaya, Inc.          
8.00% due 03/31/18   642,501    651,014 
Hemisphere Media Group, Inc.          
6.25% due 07/30/20   258,700    259,670 
Cumulus Media, Inc.          
4.25% due 12/18/20   250,000    251,250 
Cengage Learning Acquisitions, Inc.          
7.75% due 07/31/176   139,630    108,476 
Total Telecommunication Services        2,673,909 
           
CONSUMER STAPLES - 2.1%          
AdvancePierre Foods, Inc.          
9.50% due 10/10/17   1,550,000    1,488,000 
Reddy Ice Holdings, Inc.          
10.75% due 10/01/19   530,000    511,450 
CTI Foods Holding Co. LLC          
8.25% due 06/28/21   350,000    351,750 
Performance Food Group          
6.25% due 11/14/19   248,750    249,889 
Total Consumer Staples        2,601,089 
           
HEALTH CARE - 1.2%          
Apria Healthcare Group, Inc.          
6.75% due 04/06/20   621,875    623,169 
Nextech Systems LLC          
6.00% due 10/28/18   400,000    392,000 
Merge Healthcare, Inc.          
6.00% due 04/23/19   304,257    282,959 
Learning Care Group (US), Inc.          
6.00% due 05/08/19   248,750    249,683 
Total Health Care        1,547,811 
           
UTILITIES - 1.2%          
Astoria Generating Company           
Acquisitions LLC          
8.50% due 10/26/17   1,462,500    1,506,375 
           
ENERGY - 0.7%          
Panda Sherman          
9.00% due 09/14/18   650,000    666,250 
Rice Energy          
8.50% due 10/25/18   248,125    252,467 
Total Energy        918,717 
Total Senior Floating Rate Interests          
(Cost $28,820,554)        29,189,679 
           
ASSET BACKED SECURITIES†† - 0.4%          
Bristol Bay Funding Ltd.          
2004-1A, 1.24% due 02/01/162,4   483,374    480,087 
Total Asset Backed securities          
(Cost $478,736)        480,087 
Total Investments - 106.2%          
(Cost $129,455,352)       $131,664,340 
Other Assets & Liabilities, net - (6.2)%        (7,681,184)
Total Net Assets - 100.0%       $123,983,156 

 

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS††

 

          Settlement  Settlement   Value at   Net Unrealized 
Contracts to Sell   Currency  Counterparty  Date  Value   12/31/13   Depreciation 
 1,230,000   Euro  BNY Mellon  01/03/14  $1,230,300   $1,238,262   $(7,962)

 

*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.
1Illiquid security.
2Variable rate security. Rate indicated is rate effective at December 31, 2013.
3Perpetual maturity.
4Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $54,443,542 (cost $53,103,423), or 43.9% of total net assets.
5Security is a step up/step down bond. The coupon increases or decreases at regular intervals until the bond reaches full maturity.
6Security is in default of interest and/or principal obligations.
7Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 14.
plc — Public Limited Company
REIT — Real Estate Investment Trust

 

96 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES P (HIGH YIELD SERIES)

 

STATEMENT OF ASSETS
AND LIABILITIES
December 31, 2013

 

Assets:     
Investments, at value     
(cost $129,455,352)  $131,664,340 
Cash   129,339 
Prepaid expenses   9,273 
Receivables:     
Interest   2,051,094 
Securities sold   51,938 
Dividends   11,535 
Fund shares sold   8,322 
Total assets   133,925,841 
Liabilities:     
Reverse Repurchase Agreements   7,687,057 
Unrealized depreciation on forward foreign currency exchange contracts   7,962 
Payable for:     
Securities purchased   1,735,825 
Fund shares redeemed   351,762 
Management fees   80,120 
Fund accounting/administration fees   10,148 
Transfer agent/maintenance fees   3,450 
Directors’ fees*   879 
Miscellaneous   65,482 
Total liabilities   9,942,685 
Net assets  $123,983,156 
Net assets consist of:     
Paid in capital  $111,635,665 
Undistributed net investment income   9,702,576 
Accumulated net realized gain on investments   443,877 
Net unrealized appreciation on investments   2,201,038 
Net assets  $123,983,156 
Capital shares outstanding   3,755,295 
Net asset value per share  $33.02 

 

STATEMENT OF
OPERATIONS
Year Ended December 31, 2013

 

Investment Income:     
Interest  $9,331,505 
Dividends (net of foreign withholding tax of $1)   327,723 
Other income   8,943 
Total investment income   9,668,171 
      
Expenses:     
Management fees   913,602 
Transfer agent/maintenance fees   25,702 
Fund accounting/administration fees   115,721 
Printing expenses   73,618 
Custodian fees   40,810 
Directors’ fees*   12,846 
Short interest expense   5,923 
Tax expense   4 
Miscellaneous   118,821 
Total expenses   1,307,047 
Net investment income   8,361,124 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   526,652 
Foreign currency   (10,470)
Securities sold short   17,500 
Net realized gain   533,682 
Net change in unrealized appreciation (depreciation) on:     
Investments   292,699 
Foreign currency   (7,950)
Net change in unrealized appreciation (depreciation)   284,749 
Net realized and unrealized gain   818,431 
Net increase in net assets resulting from operations  $9,179,555 

 

* Relates to Directors 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 | 97

 

 
 

 

SERIES P (HIGH YIELD SERIES)
 
STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment income  $8,361,124   $8,959,071 
Net realized gain on investments   533,682    4,777,534 
Net change in unrealized appreciation (depreciation) on investments   284,749    3,950,334 
Net increase in net assets resulting from operations   9,179,555    17,686,939 
           
Capital share transactions:          
Proceeds from sale of shares   60,438,050    67,473,900 
Cost of shares redeemed   (83,887,297)   (65,064,117)
Net increase (decrease) from capital share transactions   (23,449,247)   2,409,783 
Net increase (decrease) in net assets   (14,269,692)   20,096,722 
           
Net assets:          
Beginning of year   138,252,848    118,156,126 
End of year  $123,983,156   $138,252,848 
Undistributed net investment income at end of year  $9,702,576   $10,720,118 
           
Capital share activity:          
Shares sold   1,885,864    2,354,539 
Shares redeemed   (2,627,041)   (2,272,280)
Net increase (decrease) in shares   (741,177)   82,259 

 

98 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES P (HIGH YIELD SERIES)
 
FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $30.75   $26.77   $26.78   $23.20   $13.37 
Income (loss) from investment operations:                         
Net investment incomea   2.20    2.01    2.00    2.02    1.89 
Net gain (loss) on investments (realized and unrealized)   .07    1.97    (2.01)   1.56    7.94 
Total from investment operations   2.27    3.98    (.01)   3.58    9.83 
Net asset value, end of period  $33.02   $30.75   $26.77   $26.78   $23.20 
                          
Total Returnb   7.38%   14.87%   (0.04%)   15.43%   73.52%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $123,983   $138,253   $118,156   $138,449   $139,132 
Ratios to average net assets:                         
Net investment income   6.86%   6.95%   7.34%   8.16%   10.24%
Total expenses   1.07%   0.95%   0.93%   0.94%   0.94%
Portfolio turnover rate   100%   95%   64%   56%   48%

 

aNet investment income per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 99

 

 
 

 

MANAGER’S COMMENTARY (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series Q (Small Cap Value Series) is managed by a team of seasoned professionals led by James Schier, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series Q (Small Cap Value Series) returned 36.79%, compared with the Russell 2000® Value Index, which returned 34.52%.

 

The strategy is to select securities of companies that appear undervalued by the overall market relative to assets, earnings, growth potential or cash flows. The investment approach is a defined and disciplined process with three key philosophical tenets that drive our investment decisions: a valuation focus, a long-term investment horizon and an opportunistic approach.

 

The portfolio’s performance for the period was helped most by stock selection in the Energy and Financials sectors. The largest detractor from performance was stock selection in the Materials and Consumer Discretionary sectors.

 

The holdings contributing most to portfolio performance over the period were Cree, Inc., a maker of LED lighting; and Goodrich Petroleum, the U.S. explorer and producer of oil and natural gas properties.

 

The largest detractors were two precious metals mining companies, Coeur Mining, Inc., and Allied Nevada Gold Corp., which underperformed due to the selloff in gold earlier in 2013.

 

Sector positioning in the Fund is largely a result of stock selection decisions where the Fund believes it is finding the most attractive investment opportunities. The largest changes in positioning from a year ago were an increase in the Financials sector exposure and a decrease in the Consumer Staples sector exposure.

 

The Fund had its largest overweight relative to the benchmark in Industrials, primarily in the engineering and construction industry. Investment opportunities appear attractive in maintaining U.S. infrastructure and grids for distributing oil, gas and electricity.

 

The Financials sector was the largest in both the Fund and the benchmark. However, the Fund is most underweight in this sector relative to its benchmark. This is mostly due to a zero weight in the REIT industry, which is a significant part of the Financials sector. REITs appear expensive, prices having been driven up by yield-hungry investors searching for bond substitutes. The Fund instead continues to favor the insurance industry, which is non-interest-sensitive, and the mortgage servicing industry.

 

The Fund continues to focus on searching for companies with good long-term fundamental prospects and attractive valuations that are more likely to generate strong performance relative to the broader market, regardless of macroeconomic events.

 

 

 

 

 

 

 

 

 

 

 

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.

 

100 | The Guggenheim Funds annual REPORT

 

 
 

 

PERFORMANCE REPORT AND FUND PROFILE (Unaudited) December 31, 2013

 

SERIES Q (SMALL CAP VALUE SERIES)

OBJECTIVE:  Seeks long-term capital appreciation.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series Q (Small Cap Value Series)   36.79%   24.27%   12.11%
Russell 2000 Value Index   34.52%   17.64%   8.61%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date: May 1, 2000

 

Ten Largest Holdings (% of Total Net Assets)    
Hanover Insurance Group, Inc.   4.0%
PMFG, Inc.   2.5%
Covanta Holding Corp.   2.5%
Reinsurance Group of America, Inc. — Class A   2.4%
Global Cash Access Holdings, Inc.   1.8%
Dreyfus Treasury Prime Cash Management Fund   1.8%
UGI Corp.   1.8%
Invacare Corp.   1.7%
Home Loan Servicing Solutions Ltd.   1.7%
Curtiss-Wright Corp.   1.7%
Top Ten Total   21.9%

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 2000 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

  THE GUGGENHEIM FUNDS ANNUAL REPORT | 101

 

 
 

 

SCHEDULE OF INVESTMENTS December 31, 2013
SERIES Q (SMALL CAP VALUE SERIES)

 

   Shares   Value 
         
COMMON STOCKS† - 97.5%          
           
INDUSTRIALS - 25.2%          
PMFG, Inc.*   387,847   $3,510,015 
Covanta Holding Corp.1   196,500    3,487,875 
Curtiss-Wright Corp.   37,120    2,309,977 
ABM Industries, Inc.   73,010    2,087,356 
ICF International, Inc.*   59,690    2,071,840 
Navigant Consulting, Inc.*   102,340    1,964,928 
Celadon Group, Inc.   97,759    1,904,345 
Powell Industries, Inc.   24,843    1,664,233 
Great Lakes Dredge & Dock Corp.*   180,083    1,656,764 
General Cable Corp.   55,605    1,635,343 
KEYW Holding Corp.*   119,772    1,609,736 
Sterling Construction Company, Inc.*   136,358    1,599,479 
Orbital Sciences Corp.*   67,621    1,575,569 
Energy Recovery, Inc.*   270,940    1,506,426 
Aegion Corp. — Class A*   66,688    1,459,800 
Dynamic Materials Corp.   61,136    1,329,097 
DigitalGlobe, Inc.*   17,977    739,754 
Rand Logistics, Inc.*   127,400    735,098 
Marten Transport Ltd.   34,888    704,389 
Global Power Equipment Group, Inc.   35,030    685,537 
Saia, Inc.*,1   19,660    630,103 
AZZ, Inc.   8,720    426,059 
Total Industrials        35,293,723 
           
FINANCIALS - 21.5%          
Hanover Insurance Group, Inc.   94,470    5,640,804 
Reinsurance Group of America,          
Inc. — Class A   42,575    3,295,731 
Home Loan Servicing Solutions Ltd.   102,810    2,361,546 
Endurance Specialty Holdings Ltd.   38,970    2,286,370 
Horace Mann Educators Corp.   66,160    2,086,686 
1st Source Corp.   54,280    1,733,704 
Safeguard Scientifics, Inc.*   76,600    1,538,894 
Campus Crest Communities, Inc.   137,770    1,296,416 
Ocwen Financial Corp.*,1   23,201    1,286,495 
Berkshire Hills Bancorp, Inc.   45,440    1,239,149 
Employers Holdings, Inc.   33,720    1,067,238 
AMERISAFE, Inc.   24,704    1,043,497 
BancFirst Corp.   18,507    1,037,502 
Solar Senior Capital Ltd.   49,174    895,950 
Navigators Group, Inc.*   13,420    847,607 
Lexington Realty Trust   77,080    786,987 
PrivateBancorp, Inc. — Class A   26,452    765,256 
Redwood Trust, Inc.   39,084    757,057 
Simmons First National Corp. —           
Class A   3,722    138,272 
Total Financials        30,105,161 
           
INFORMATION TECHNOLOGY - 14.1%          
Global Cash Access Holdings, Inc.*   254,110    2,538,558 
Insight Enterprises, Inc.*   85,149    1,933,734 
IXYS Corp.   126,240    1,637,332 
Maxwell Technologies, Inc.*   205,229    1,594,629 
Digi International, Inc.*   125,839    1,525,169 
Global Payments, Inc.   23,380    1,519,466 
RF Micro Devices, Inc.*   232,400    1,199,184 
Semtech Corp.*   43,970    1,111,562 
Newport Corp.*   59,450    1,074,262 
Spansion, Inc. — Class A*   75,380    1,047,028 
Carbonite, Inc.*   80,250    949,358 
Silicon Graphics International Corp.*   67,470    904,773 
Rubicon Technology, Inc.*   75,850    754,708 
Higher One Holdings, Inc.*   75,500    736,880 
Mercury Systems, Inc.*   58,760    643,422 
Multi-Fineline Electronix, Inc.*   40,480    562,267 
Total Information Technology        19,732,332 
           
CONSUMER DISCRETIONARY - 10.8%          
Brown Shoe Company, Inc.   79,540    2,238,257 
International Speedway Corp. — Class A   62,060    2,202,509 
DeVry Education Group, Inc.   49,650    1,762,575 
iRobot Corp.*   50,295    1,748,757 
Cabela’s, Inc.*   21,000    1,399,860 
Scholastic Corp.   33,764    1,148,314 
Guess?, Inc.   34,178    1,061,910 
Jones Group, Inc.   70,065    1,048,172 
Gentex Corp.   30,850    1,017,742 
Chico’s FAS, Inc.   49,260    928,058 
Stage Stores, Inc.   21,841    485,307 
Total Consumer Discretionary        15,041,461 
           
HEALTH CARE - 7.4%          
Invacare Corp.   101,950    2,366,259 
Emergent Biosolutions, Inc.*   87,240    2,005,648 
Greatbatch, Inc.*   44,591    1,972,705 
Kindred Healthcare, Inc.   59,290    1,170,385 
Tornier N.V.*   58,740    1,103,725 
Alere, Inc.*   27,045    979,029 
Discovery Laboratories, Inc.*   347,320    781,470 
Total Health Care        10,379,221 
           
ENERGY - 6.6%          
Resolute Energy Corp.*   240,990    2,176,139 
Clayton Williams Energy, Inc.*   25,227    2,067,353 
Oasis Petroleum, Inc.*   33,380    1,567,859 
Patterson-UTI Energy, Inc.   40,010    1,013,053 
Sanchez Energy Corp.*   33,250    814,958 
C&J Energy Services, Inc.*   32,430    749,133 
Energy XXI Bermuda Ltd.   26,620    720,337 
Emerald Oil, Inc.*   23,050    176,563 
Total Energy        9,285,395 
           
MATERIALS - 5.7%          
Zoltek Companies, Inc.*   123,060    2,061,256 
Coeur Mining, Inc.*   125,000    1,356,250 
Allied Nevada Gold Corp.*   344,730    1,223,791 
Landec Corp.*   98,054    1,188,414 
Olin Corp.   35,201    1,015,549 
Royal Gold, Inc.   15,580    717,771 
Globe Specialty Metals, Inc.   18,629    335,508 
Total Materials        7,898,539 

 

102 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SCHEDULE OF INVESTMENTS (concluded) December 31, 2013
SERIES Q (SMALL CAP VALUE SERIES)  

 

   Shares   Value 
         
UTILITIES - 5.4%          
UGI Corp.   59,140   $2,451,944 
Laclede Group, Inc.   40,110    1,826,609 
Black Hills Corp.   29,180    1,532,242 
South Jersey Industries, Inc.   19,650    1,099,614 
MDU Resources Group, Inc.   23,105    705,858 
Total Utilities        7,616,267 
           
CONSUMER STAPLES - 0.8%          
Darling International, Inc.*   51,346    1,072,104 
Total Common Stocks          
(Cost $99,615,485)        136,424,203 
           
CONVERTIBLE PREFERRED STOCKS††† - 0.0%          
Thermoenergy Corp.*,2,3   116,667    9,879 
Total Convertible Preferred Stocks          
(Cost $111,410)        9,879 
           
WARRANTS†† - 0.2%          
Horizon Pharma, Inc.          
$4.58, 09/20/17   98,150    317,025 
Total Warrants          
(Cost $—)        317,025 
           
SHORT TERM INVESTMENTS† - 1.8%          
Dreyfus Treasury Prime Cash          
Management Fund   2,474,271    2,474,271 
Total Short Term Investments          
(Cost $2,474,271)        2,474,271 

 

   Face     
   Amount     
         
CONVERTIBLE BONDS†† - 0.4%          
INDUSTRIALS - 0.4%          
DryShips, Inc.          
5.00% due 12/01/14  $600,000    606,375 
Total Convertible Bonds          
(Cost $546,597)        606,375 
Total Investments - 99.9%          
(Cost $102,747,763)       $139,831,753 

 

    Contracts      
OPTIONS WRITTEN† - 0.0%          
Call options on:          
Ocwen Financial Corp.          
Expiring January 2014           
with strike price of $60.00   116    (4,060)
Saia Inc.††          
Expiring March 2014           
with strike price of $35.00   162    (19,440)
Total Call options        (23,500)
Put options on:          
Covanta Holding Corp.          
Expiring March 2014           
with strike price of $17.50   168    (15,120)
Total Options Written          
(Premiums received $101,463)        (38,620)
Other Assets & Liabilities, net - 0.1%        149,883 
Total Net Assets - 100.0%       $139,943,016 

 

*Non-income producing security.
†Value determined based on Level 1 inputs, unless otherwise noted — See Note 4.

††Value determined based on Level 2 inputs — See Note 4.

1All or a portion of this security is pledged as collateral for open options written contracts at December 31, 2013.
2PIPE (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.
3Illiquid security.

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 103

 

 
 

 

SERIES Q (SMALL CAP VALUE SERIES)

 

STATEMENT OF ASSETS
AND LIABILITIES
December 31, 2013

 

Assets:     
Investments, at value     
(cost $102,747,763)  $139,831,753 
Prepaid expenses   3,422 
Receivables:     
Dividends   198,582 
Securities sold   140,448 
Fund shares sold   67,548 
Interest   2,555 
Total assets   140,244,308 
Liabilities:     
Options written, at value (premiums received $101,463)   38,620 
Overdraft due to custodian bank   20,808 
Payable for:     
Management fees   109,400 
Fund shares redeemed   82,288 
Fund accounting/administration fees   10,940 
Transfer agent/maintenance fees   4,404 
Directors’ fees*   349 
Miscellaneous   34,483 
Total liabilities   301,292 
Net assets  $139,943,016 
Net assets consist of:     
Paid in capital  $89,206,850 
Accumulated net investment loss   (309,867)
Accumulated net realized gain on investments   13,899,200 
Net unrealized appreciation on investments   37,146,833 
Net assets  $139,943,016 
Capital shares outstanding   2,667,420 
Net asset value per share  $52.46 

 

STATEMENT OF
OPERATIONS
Year Ended December 31, 2013

 

Investment Income:     
Dividends  $1,407,186 
Interest   80,483 
Total investment income   1,487,669 
      
Expenses:     
Management fees   1,194,350 
Transfer agent/maintenance fees   25,626 
Fund accounting/administration fees   119,433 
Directors’ fees*   12,304 
Custodian fees   10,667 
Tax expense   4 
Miscellaneous   95,570 
Total expenses   1,457,954 
Net investment income   29,715 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   13,974,069 
Options written   127,910 
Net realized gain   14,101,979 
Net change in unrealized appreciation (depreciation) on:     
Investments   24,908,882 
Options written   62,843 
Net change in unrealized appreciation (depreciation)   24,971,725 
Net realized and unrealized gain   39,073,704 
Net increase in net assets resulting from operations  $39,103,419 

 

* Relates to Directors not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.

 

104 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES Q (SMALL CAP VALUE SERIES)
 
STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment income (loss)  $29,715   $(216)
Net realized gain on investments   14,101,979    13,132,892 
Net change in unrealized appreciation (depreciation) on investments   24,971,725    6,581,360 
Net increase in net assets resulting from operations   39,103,419    19,714,036 
           
Capital share transactions:          
Proceeds from sale of shares   18,249,589    24,611,705 
Cost of shares redeemed   (28,811,632)   (40,510,807)
Net decrease from capital share transactions   (10,562,043)   (15,899,102)
Net increase in net assets   28,541,376    3,814,934 
           
Net assets:          
Beginning of year   111,401,640    107,586,706 
End of year  $139,943,016   $111,401,640 
(Accumulated)/Undistributed net investment (loss)/income at end of year  $(309,867)  $4,846 
           
Capital share activity:          
Shares sold   402,298    684,270 
Shares redeemed   (639,709)   (1,132,592)
Net decrease in shares   (237,411)   (448,322)

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 105

 

 
 

 

SERIES Q (SMALL CAP VALUE SERIES)
 
FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009e 
Per Share Data                         
Net asset value, beginning of period  $38.35   $32.09   $33.64   $27.60   $17.70 
Income (loss) from investment operations:                         
Net investment income (loss)a   0.01    (—)b   (.10)   (.06)   (.01)
Net gain (loss) on investments (realized and unrealized)   14.10    6.26    (1.45)   6.10    9.91 
Total from investment operations   14.11    6.26    (1.55)   6.04    9.90 
Net asset value, end of period  $52.46   $38.35   $32.09   $33.64   $27.60 
                          
Total Returnc   36.79%   19.51%   (4.61%)   21.88%   55.93%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $139,943   $111,402   $107,587   $126,827   $125,460 
Ratios to average net assets:                         
Net investment income (loss)   0.02%   (0.00%)d   (0.29%)   (0.22%)   (0.02%)
Total expenses   1.16%   1.15%   1.12%   1.12%   1.14%
Portfolio turnover rate   30%   44%   51%   38%   126%

 

aNet investment income (loss) per share was computed using average shares outstanding throughout the period.
bNet investment income is less than $0.01 per share.
cTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
dNet investment loss ratio is less than 0.01%.
eSecurity Investors, LLC became the advisor of Series Q effective February 9, 2009. Prior to February 9, 2009, Wells Capital Management, Inc. sub-advised the Series.

 

106 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

MANAGER’S COMMENTARY (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series V (Mid Cap Value Series) is managed by a team of seasoned professionals led by James Schier, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series V (Mid Cap Value Series) returned 33.32%, compared with the Russell 2500® Value Index, which returned 33.32%.

 

The strategy is to select securities of companies that appear undervalued by the overall market relative to assets, earnings, growth potential or cash flows. The investment approach is a defined and disciplined process with three key philosophical tenets that drive our investment decisions: a valuation focus, a long-term investment horizon and an opportunistic approach.

 

The portfolio’s performance for the period was helped most by stock selection in the Financials and Energy sectors. The largest detractor from performance was stock selection in the Materials and Industrials sectors.

 

The holdings contributing most to portfolio performance over the period were Cree, Inc., a maker of LED lighting; and Goodrich Petroleum, the U.S. explorer and producer of oil and natural gas properties.

 

The main detractors were two precious metals mining companies, Allied Nevada Gold Corp. and Coeur Mining, Inc., which underperformed due to the selloff in gold earlier in 2013.

 

Sector positioning in the Fund is largely a result of stock selection decisions where the Fund believes it is finding the most attractive investment opportunities. The largest changes in positioning from a year ago were an increase in the Financials sector exposure and a decrease in the Industrials sector exposure.

 

The Fund had its largest overweight relative to the benchmark in Industrials, primarily in the engineering and construction industry. Investment opportunities appear attractive in maintaining U.S. infrastructure and grids for distributing oil, gas and electricity.

 

The Financials sector was the largest in both the Fund and the benchmark. However, the Fund is most underweight in this sector relative to its benchmark. This is mostly due to a zero weight in the REIT industry, which is a significant part of the Financials sector. REITs appear expensive, prices having been driven up by yield-hungry investors searching for bond substitutes. The Fund instead continues to favor the insurance industry, which is non-interest-sensitive, and the mortgage servicing industry. After Financials, the Fund was most underweight relative to the benchmark in Utilities, where current high valuations make this sector unattractive.

 

The Fund continues to focus on searching for companies with good long-term fundamental prospects and attractive valuations that are more likely to generate strong performance relative to the broader market, regardless of macroeconomic events.

 

 

 

 

 

 

 

 

 

 

 

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 | 107

 

 
 

 

PERFORMANCE REPORT AND FUND PROFILE (Unaudited) December 31, 2013

 

SERIES V (MID CAP VALUE SERIES)

OBJECTIVE:  Seeks long-term growth of capital.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series V (Mid Cap Value Series)   33.32%   19.62%   11.68%
Russell 2500 Value Index   33.32%   19.61%   9.29%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date: May 1, 1997

 

Ten Largest Holdings (% of Total Net Assets)    
Hanover Insurance Group, Inc.   4.5%
Computer Sciences Corp.   3.6%
Owens-Illinois, Inc.   3.0%
Reinsurance Group of America, Inc. — Class A   2.6%
Covanta Holding Corp.   2.6%
Bunge Ltd.   2.4%
American Financial Group, Inc.   2.4%
Cameco Corp.   2.3%
Navigant Consulting, Inc.   2.2%
Quanta Services, Inc.   2.2%
Top Ten Total   27.8%

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 2500 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

108 | THE GUGGENHEIM FUNDS ANNUAL REPORT  

 

 
 

 

SCHEDULE OF INVESTMENTS December 31, 2013
SERIES V (MID CAP VALUE SERIES)

 

   Shares   Value 
         
COMMON STOCKS† - 98.1%          
           
FINANCIALS - 27.2%          
Hanover Insurance Group, Inc.   227,500   $13,584,024 
Reinsurance Group of America,          
Inc. — Class A   100,987    7,817,404 
American Financial Group, Inc.   123,690    7,139,387 
WR Berkley Corp.   147,080    6,381,801 
Northern Trust Corp.   78,400    4,852,176 
Endurance Specialty Holdings Ltd.   72,896    4,276,808 
Huntington Bancshares, Inc.   357,220    3,447,173 
Alexandria Real Estate Equities, Inc.   46,580    2,963,420 
Employers Holdings, Inc.   91,760    2,904,204 
Ocwen Financial Corp.*,1   51,871    2,876,247 
BioMed Realty Trust, Inc.   156,300    2,832,156 
Lexington Realty Trust   254,053    2,593,881 
Wintrust Financial Corp.   52,810    2,435,597 
Home Loan Servicing Solutions Ltd.   98,753    2,268,356 
SVB Financial Group*   21,020    2,204,157 
City National Corp.   24,780    1,963,072 
First Niagara Financial Group, Inc.   181,874    1,931,502 
Zions Bancorporation   64,180    1,922,833 
FirstMerit Corp.   83,015    1,845,423 
First Midwest Bancorp, Inc.   102,473    1,796,352 
Alleghany Corp.*   3,767    1,506,649 
Redwood Trust, Inc.   61,435    1,189,996 
Investors Real Estate Trust   133,340    1,144,057 
Campus Crest Communities, Inc.   59,950    564,130 
Total Financials        82,440,805 
           
INDUSTRIALS - 17.1%          
Covanta Holding Corp.1   438,080    7,775,920 
Navigant Consulting, Inc.*   347,040    6,663,168 
Quanta Services, Inc.*   207,260    6,541,126 
URS Corp.   116,500    6,173,335 
Orbital Sciences Corp.*   209,464    4,880,511 
Aegion Corp. — Class A*   200,700    4,393,323 
General Cable Corp.   125,549    3,692,396 
ICF International, Inc.*   88,000    3,054,480 
Towers Watson & Co. —           
Class A   18,451    2,354,532 
DigitalGlobe, Inc.*   53,813    2,214,405 
United Stationers, Inc.   34,800    1,596,972 
Saia, Inc.*,1   43,840    1,405,072 
AZZ, Inc.   19,570    956,190 
Thermoenergy Corp.*   905,961    26,273 
Total Industrials        51,727,703 
           
ENERGY - 10.0%          
Cameco Corp.   331,370    6,882,555 
Whiting Petroleum Corp.*   87,050    5,385,783 
Superior Energy Services, Inc.*   171,410    4,561,220 
Oasis Petroleum, Inc.*   75,550    3,548,584 
Resolute Energy Corp.*   254,600    2,299,038 
Patterson-UTI Energy, Inc.   87,830    2,223,856 
Sanchez Energy Corp.*   75,291    1,845,382 
C&J Energy Services, Inc.*   74,630    1,723,953 
Energy XXI Bermuda Ltd.   60,410    1,634,695 
Total Energy        30,105,066 
           
MATERIALS - 9.9%          
Owens-Illinois, Inc.*   256,010    9,160,037 
Sonoco Products Co.   134,490    5,610,923 
Zoltek Companies, Inc.*   214,990    3,601,083 
Coeur Mining, Inc.*   286,480    3,108,308 
Landec Corp.*   216,800    2,627,616 
Olin Corp.   78,846    2,274,707 
Royal Gold, Inc.   34,140    1,572,830 
Allied Nevada Gold Corp.*   367,720    1,305,406 
Globe Specialty Metals, Inc.   41,542    748,171 
Total Materials        30,009,081 
           
INFORMATION TECHNOLOGY - 9.7%          
Computer Sciences Corp.   192,100    10,734,548 
IXYS Corp.   488,690    6,338,309 
Global Payments, Inc.   58,780    3,820,112 
Maxwell Technologies, Inc.*   387,650    3,012,041 
RF Micro Devices, Inc.*   580,670    2,996,257 
Semtech Corp.*   98,410    2,487,805 
Total Information Technology        29,389,072 
           
CONSUMER DISCRETIONARY - 8.4%          
Brown Shoe Company, Inc.   177,271    4,988,406 
DeVry Education Group, Inc.   91,507    3,248,499 
Cabela’s, Inc.*   48,720    3,247,675 
Scholastic Corp.   78,384    2,665,840 
Jones Group, Inc.   175,439    2,624,567 
Guess?, Inc.   79,069    2,456,674 
Gentex Corp.   71,730    2,366,372 
Chico’s FAS, Inc.   110,940    2,090,110 
Jack in the Box, Inc.*   31,540    1,577,631 
HydroGen Corp.*,3   672,346    1 
Total Consumer Discretionary        25,265,775 
           
CONSUMER STAPLES - 5.9%          
Bunge Ltd.   87,810    7,210,078 
Hormel Foods Corp.   86,300    3,898,171 
Darling International, Inc.*   117,037    2,443,733 
Ingredion, Inc.   33,050    2,262,603 
JM Smucker Co.   18,080    1,873,450 
Total Consumer Staples        17,688,035 
           
UTILITIES - 5.3%          
Black Hills Corp.   84,250    4,423,968 
Great Plains Energy, Inc.   154,315    3,740,596 
UGI Corp.   79,029    3,276,542 
Pepco Holdings, Inc.   134,040    2,564,185 
MDU Resources Group, Inc.   63,731    1,946,982 
Total Utilities        15,952,273 
           
HEALTH CARE - 4.6%          
MEDNAX, Inc.*   63,270    3,377,353 
Kindred Healthcare, Inc.   160,530    3,168,862 
Hologic, Inc.*   125,474    2,804,344 

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 109

 

 
 

 

SCHEDULE OF INVESTMENTS (concluded) December 31, 2013
SERIES V (MID CAP VALUE SERIES)  

 

   Shares   Value 
         
Alere, Inc.*   61,986   $2,243,893 
Edwards Lifesciences Corp.*   23,450    1,542,072 
Universal Health Services, Inc. —           
Class B   9,150    743,529 
Total Health Care        13,880,053 
Total Common Stocks          
(Cost $220,491,562)        296,457,863 
           
CONVERTIBLE PREFERRED STOCKS††† - 0.0%          
Thermoenergy Corp.*,2,4   308,333    26,110 
Total Convertible Preferred Stocks          
(Cost $294,438)        26,110 
           
SHORT TERM INVESTMENTS†- 1.4%          
Dreyfus Treasury Prime Cash           
Management Fund   4,157,482    4,157,482 
Total Short Term Investments          
(Cost $4,157,482)        4,157,482 

 

   Face     
   Amount     
         
CONVERTIBLE BONDS†† - 0.5%          
INDUSTRIALS - 0.5%          
DryShips, Inc.          
5.00% due 12/01/14  $1,450,000   1,465,406 
Total Convertible Bonds          
(Cost $1,327,188)        1,465,406 
Total Investments - 100.0%          
(Cost $226,270,670)        302,106,861 
           

 

    Contracts      
OPTIONS WRITTEN† - 0.0%          
Call options on:          
Ocwen Financial Corp.          
Expiring January 2014          
with strike price of $60.00   259    (9,065)
Saia Inc.††          
Expiring March 2014           
with strike price of $35.00   362    (43,440)
Total Call options        (52,505)
Put options on:          
Covanta Holding Corp.          
Expiring March 2014           
with strike price of $17.50   384    (34,560)
Total Options Written          
(Premiums received $227,815)        (87,065)
Other Assets & Liabilities, net - 0.0%        146,193 
Total Net Assets - 100.0%       $302,165,989 

 

*Non-income producing security.
†Value determined based on Level 1 inputs, unless otherwise noted — See Note 4.

††Value determined based on Level 2 inputs — See Note 4.

1All or a portion of this security is pledged as collateral for open options written contracts at December 31, 2013.
2PIPE (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.
3Affiliated issuer — See Note 10.
4Illiquid security.

 

110 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES V (MID CAP VALUE SERIES)
 
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 2013

 

Assets:     
Investments in unaffiliated issuers, at value     
(cost $223,699,094)  $302,106,860 
Investments in affiliated issuers, at value     
(cost $2,571,576)   1 
Total investments     
(cost $226,270,670)   302,106,861 
Prepaid expenses   7,835 
Receivables:     
Dividends   529,143 
Securities sold   300,021 
Fund shares sold   7,340 
Interest   6,174 
Foreign taxes reclaim   2,979 
Total assets   302,960,353 
Liabilities:     
Overdraft due to custodian bank   33,638 
Options written, at value (premiums received $227,815)   87,065 
Payable for:     
Fund shares redeemed   190,910 
Management fees   189,131 
Fund accounting/administration fees   23,956 
Transfer agent/maintenance fees   3,964 
Directors’ fees*   997 
Securities purchased   348 
Miscellaneous   264,355 
Total liabilities   794,364 
Net assets  $302,165,989 
Net assets consist of:     
Paid in capital  $195,018,646 
Undistributed net investment income   1,496,196 
Accumulated net realized gain on investments   29,674,206 
Net unrealized appreciation on investments   75,976,941 
Net assets  $302,165,989 
Capital shares outstanding   3,620,518 
Net asset value per share  $83.46 

 

STATEMENT OF
OPERATIONS
Year Ended December 31, 2013

 

Investment Income:     
Dividends (net of foreign withholding tax of $13,861)  $3,813,860 
Interest   193,759 
Total investment income   4,007,619 
      
Expenses:     
Management fees   2,129,975 
Transfer agent/maintenance fees   25,588 
Fund accounting/administration fees   269,793 
Directors’ fees*   27,842 
Custodian fees   15,666 
Tax expense   8 
Miscellaneous   178,947 
Total expenses   2,647,819 
Net investment income   1,359,800 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   29,577,805 
Options written   129,114 
Net realized gain   29,706,919 
Net change in unrealized appreciation (depreciation) on:     
Investments in unaffiliated issuers   48,957,621 
Investments in affiliated issuers   (8,336)
Options written   140,750 
Net change in unrealized appreciation (depreciation)   49,090,035 
Net realized and unrealized gain   78,796,954 
Net increase in net assets resulting from operations  $80,156,754 

 

* Relates to Directors 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 | 111

 

 
 

 

SERIES V (MID CAP VALUE SERIES)
 
STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment income  $1,359,800   $1,085,462 
Net realized gain on investments   29,706,919    17,394,677 
Net change in unrealized appreciation (depreciation) on investments   49,090,035    21,887,847 
Net increase in net assets resulting from operations   80,156,754    40,367,986 
           
Capital share transactions:          
Proceeds from sale of shares   15,835,127    18,437,679 
Cost of shares redeemed   (43,631,962)   (59,619,776)
Net decrease from capital share transactions   (27,796,835)   (41,182,097)
Net increase (decrease) in net assets   52,359,919    (814,111)
           
Net assets:          
Beginning of year   249,806,070    250,620,181 
End of year  $302,165,989   $249,806,070 
Undistributed net investment income at end of year  $1,496,196   $1,085,462 
           
Capital share activity:          
Shares sold   217,418    310,203 
Shares redeemed   (587,402)   (1,008,533)
Net decrease in shares   (369,984)   (698,330)

 

112 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES V (MID CAP VALUE SERIES)
 
FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $62.60   $53.45   $57.78   $49.05   $34.08 
Income (loss) from investment operations:                         
Net investment incomea   .36    .25    .15    .39    .38 
Net gain (loss) on investments (realized and unrealized)   20.50    8.90    (4.48)   8.34    14.59 
Total from investment operations   20.86    9.15    (4.33)   8.73    14.97 
Net asset value, end of period  $83.46   $62.60   $53.45   $57.78   $49.05 
                          
Total Returnb   33.32%   17.12%   (7.49%)   17.80%   43.93%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $302,166   $249,806   $250,620   $316,418   $304,730 
Ratios to average net assets:                         
Net investment income   0.48%   0.43%   0.26%   0.75%   0.97%
Total expenses   0.93%   0.93%   0.90%   0.90%   0.91%
Portfolio turnover rate   22%   24%   28%   25%   29%

 

aNet investment income per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 113

 

 
 

 

MANAGER’S COMMENTARY (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series X (StylePlus—Small Growth Series, formerly Small Cap Growth Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chief Investment Officer; Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance and changes to the Fund that occurred during the fiscal year ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series X (StylePlus—Small Growth Series, formerly, Small Cap Growth Series) returned 41.34%, compared with the benchmark, the Russell 2000® Growth Index, which returned 43.30%.

 

The Fund’s Board of Directors approved the following changes, which became effective on April 30, 2013: a new Fund name, new principal investment strategies and new portfolio management team.

 

The Fund’s new investment objective is to seek long-term growth of capital in excess of that produced by the total return of the Russell 2000 Growth Index. The Fund seeks to add alpha above the target index by leveraging Guggenheim’s competencies in fixed and systematic stock selection. To accomplish this, the StylePlus strategy allocates to quantitative selection models when stock picking opportunities in the market are high. When stock selection opportunities are less attractive, the Fund invests in derivatives based on the target index, backed by a diversified portfolio of fixed income instruments. In this way, the Fund believes it will deliver the target index return plus an alpha component commensurate with the yield achieved on the active fixed income portfolio.

 

The Fund’s underperformance for the 12 months came predominantly during the four months it was being managed according to the legacy strategy. Specifically, from January 1, 2013, through April 30, 2013, the Fund underperformed the benchmark by about two percentage points, largely due to poor stock selection in the Information Technology and Health Care sectors. The Fund’s cash position was also a drag on performance. Good stock selection in the Consumer Discretionary sector was the main contributor to performance.

 

For the time the Fund was being managed according to the new strategy, the eight months from April 30, 2013 through September 30, 2013, the Fund performed slightly better than the benchmark. During much of this period, the Fund maintained an approximate allocation of 20% to systematic equity selection, 80% allocated to the passive equity position, which was maintained with swap agreements and futures contracts, and 55% allocated to fixed income investments (excluding short-term). Beginning in December 2013, due to a more favorable outlook for active stock selection, the equity sleeve was increased to 25%, with 74% allocated to the passive equity position.

 

The equity sleeve was additive over the period, delivering the strongest returns during the months of May, June and December.

 

The fixed income allocation also contributed to performance over the eight months, after detracting from performance during the substantial debt selloff that began at the end of May and lasted in to June. The swap agreements also contributed to performance.

 

Performance displayed represents past performance, which is no guarantee of future results.

 

The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.

 

114 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

PERFORMANCE REPORT AND FUND PROFILE (Unaudited) December 31, 2013

 

SERIES X (STYLEPLUS–SMALL GROWTH SERIES)

OBJECTIVE:  Seeks long-term growth of capital.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series X (StylePlus–Small Growth Series)   41.34%   22.15%   7.21%
Russell 2000 Growth Index   43.30%   22.58%   9.41%

 

Ten Largest Holdings (% of Total Net Assets)    
Dreyfus Treasury Prime Cash Management Fund   9.2%
Floating Rate Strategies Fund Institutional Class   1.9%
Macro Opportunities Fund Institutional Class   1.9%
Guggenheim BulletShares 2016 High Yield Corporate Bond ETF   1.9%
Guggenheim BulletShares 2015 High Yield Corporate Bond ETF   1.8%
Guggenheim BulletShares 2014 High Yield Corporate Bond ETF   1.8%
New York City Water & Sewer System Revenue Bonds   1.3%
Goldman Sachs Asset Management CLO plc — 2007-1A   1.2%
Duane Street CLO IV Ltd. — 2007-4A   1.2%
KKR Financial CLO 2007-1 Corp. — 2007-1A   1.2%
Top Ten Total   23.4%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date:  October 15, 1997

 

Portfolio Composition by Quality Rating**
Rating
Fixed Income Instruments
AAA   6.8%
AA   4.4%
A   8.9%
BBB   22.4%
BB   3.6%
B   4.0%
CCC   4.9%
NR   2.3%
Other Instruments     
Common Stocks   24.5%
Short Term Investments   9.2%
Exchange Traded Funds   5.5%
Mutual Funds   3.8%
Rights   0.0%
Total Investments   100.3%

The chart above reflects percentages of the value of total investments.

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 2000 Growth Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
**Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 115

 

 
 

 

SCHEDULE OF INVESTMENTS December 31, 2013
SERIES X (STYLEPLUS–SMALL GROWTH SERIES)

 

   Shares   Value 
         
COMMON STOCKS† - 24.5%          
           
HEALTH CARE - 6.5%          
Centene Corp.*   2,304   $135,821 
athenahealth, Inc.*   1,003    134,903 
Molina Healthcare, Inc.*   3,720    129,270 
MedAssets, Inc.*   5,887    116,739 
HealthSouth Corp.   3,092    103,025 
AMN Healthcare Services, Inc.*   6,813    100,150 
Medicines Co.*   2,585    99,833 
Team Health Holdings, Inc.*   1,936    88,185 
Owens & Minor, Inc.   2,331    85,221 
Prestige Brands Holdings, Inc.*   2,284    81,767 
PAREXEL International Corp.*   1,803    81,460 
NPS Pharmaceuticals, Inc.*   2,677    81,275 
Chemed Corp.   1,001    76,697 
HMS Holdings Corp.*   3,364    76,464 
Isis Pharmaceuticals, Inc.*   1,881    74,939 
STERIS Corp.   1,389    66,741 
Cepheid, Inc.*   1,209    56,484 
Align Technology, Inc.*   944    53,950 
Ensign Group, Inc.   1,077    47,679 
NuVasive, Inc.*   1,356    43,839 
Amsurg Corp. — Class A*   925    42,476 
West Pharmaceutical Services, Inc.   840    41,210 
Arena Pharmaceuticals, Inc.*   6,779    39,657 
Analogic Corp.   428    37,904 
HeartWare International, Inc.*   402    37,772 
Gentiva Health Services, Inc.*   2,979    36,969 
Nektar Therapeutics*   3,078    34,935 
Aegerion Pharmaceuticals, Inc.*   490    34,770 
Landauer, Inc.   634    33,355 
Alliance HealthCare Services, Inc.*   1,332    32,954 
Emeritus Corp.*   1,514    32,748 
Alnylam Pharmaceuticals, Inc.*   504    32,422 
Volcano Corp.*   1,482    32,382 
Celldex Therapeutics, Inc.*   1,318    31,909 
Exact Sciences Corp.*   2,686    31,399 
Infinity Pharmaceuticals, Inc.*   2,218    30,631 
PDL BioPharma, Inc.   3,626    30,603 
Opko Health, Inc.*   3,600    30,384 
ICU Medical, Inc.*   472    30,071 
Thoratec Corp.*   793    29,024 
Genomic Health, Inc.*   980    28,685 
Array BioPharma, Inc.*   5,640    28,256 
Vivus, Inc.*   3,110    28,239 
Quality Systems, Inc.   1,334    28,094 
Total Health Care        2,531,291 
           
INFORMATION TECHNOLOGY - 6.2%          
SunEdison, Inc.*   8,803    114,879 
ARRIS Group, Inc.*   4,342    105,792 
j2 Global, Inc.   2,053    102,670 
Take-Two Interactive Software, Inc.*   5,770    100,225 
Microsemi Corp.*   3,925    97,929 
Qlik Technologies, Inc.*   3,486    92,831 
SS&C Technologies Holdings, Inc.*   1,880    83,209 
PTC, Inc.*   2,337    82,706 
CSG Systems International, Inc.   2,598    76,382 
comScore, Inc.*   2,665    76,246 
ViaSat, Inc.*   1,201    75,243 
Guidewire Software, Inc.*   1,370    67,226 
RF Micro Devices, Inc.*   12,878    66,450 
Comverse, Inc.*   1,641    63,671 
Yelp, Inc. — Class A*   895    61,710 
Dealertrack Technologies, Inc.*   1,231    59,186 
CoStar Group, Inc.*   289    53,344 
Ciena Corp.*   2,212    52,933 
BroadSoft, Inc.*   1,922    52,547 
Zillow, Inc. — Class A*   641    52,389 
Cardtronics, Inc.*   1,154    50,141 
ACI Worldwide, Inc.*   758    49,270 
FEI Co.   536    47,897 
Aruba Networks, Inc.*   2,452    43,891 
Cabot Microelectronics Corp.*   907    41,450 
Belden, Inc.   569    40,086 
iGATE Corp.*   980    39,357 
Unisys Corp.*   1,133    38,035 
Trulia, Inc.*   1,036    36,540 
Silicon Image, Inc.*   5,887    36,205 
ValueClick, Inc.*   1,542    36,037 
RealD, Inc.*   4,186    35,748 
Infoblox, Inc.*   1,046    34,539 
Fair Isaac Corp.   546    34,311 
AVG Technologies N.V.*   1,978    34,041 
Blackbaud, Inc.   900    33,885 
Plantronics, Inc.   729    33,862 
Fusion-io, Inc.*   3,735    33,279 
Travelzoo, Inc.*   1,469    31,319 
Cavium, Inc.*   907    31,301 
Ultimate Software Group, Inc.*   196    30,031 
Ixia*   2,196    29,229 
InterDigital, Inc.   987    29,107 
Semtech Corp.*   1,136    28,718 
Total Information Technology        2,415,847 
           
INDUSTRIALS - 4.4%          
Swift Transportation Co. — Class A*   5,777    128,307 
Titan International, Inc.   6,840    122,982 
EnPro Industries, Inc.*   1,326    76,444 
Matson, Inc.   2,737    71,463 
Brink’s Co.   1,867    63,739 
Kaman Corp.   1,580    62,773 
USG Corp.*   2,168    61,528 
SkyWest, Inc.   3,855    57,170 
RPX Corp.*   3,238    54,723 
AZZ, Inc.   1,046    51,108 
MasTec, Inc.*   1,541    50,421 
Watsco, Inc.   516    49,567 
Albany International Corp. — Class A   1,315    47,248 
Tetra Tech, Inc.*   1,625    45,468 
Polypore International, Inc.*   1,163    45,241 
Standex International Corp.   647    40,683 
Mueller Water Products, Inc. — Class A   4,267    39,982 
Lindsay Corp.   482    39,886 
Corporate Executive Board Co.   515    39,876 

 

116 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SCHEDULE OF INVESTMENTS (continued) December 31, 2013
SERIES X (STYLEPLUS–SMALL GROWTH SERIES)  

 

   Shares   Value 
         
Acuity Brands, Inc.   359   $39,246 
Woodward, Inc.   852    38,860 
EnerSys, Inc.   535    37,498 
CIRCOR International, Inc.   462    37,320 
Herman Miller, Inc.   1,263    37,284 
Steelcase, Inc. — Class A   2,238    35,495 
West Corp.   1,354    34,811 
Moog, Inc. — Class A*   504    34,242 
Cubic Corp.   639    33,650 
Chart Industries, Inc.*   346    33,091 
Spirit Airlines, Inc.*   718    32,604 
Aircastle Ltd.   1,700    32,572 
Dycom Industries, Inc.*   1,154    32,070 
General Cable Corp.   1,086    31,939 
Applied Industrial Technologies, Inc.   615    30,190 
Acacia Research Corp.   2,035    29,589 
Total Industrials        1,699,070 
           
CONSUMER DISCRETIONARY - 3.1%          
Tenneco, Inc.*   2,081    117,722 
Dana Holding Corp.6   5,591    109,695 
Sinclair Broadcast Group, Inc. — Class A   2,261    80,786 
Sotheby’s   1,448    77,034 
Crocs, Inc.*   3,650    58,108 
CEC Entertainment, Inc.   1,300    57,564 
Bloomin’ Brands, Inc.*   2,239    53,758 
Iconix Brand Group, Inc.*   1,281    50,856 
DineEquity, Inc.   595    49,712 
Vail Resorts, Inc.   638    47,997 
Cracker Barrel Old Country Store, Inc.   343    37,754 
Cooper Tire & Rubber Co.   1,430    34,377 
Wolverine World Wide, Inc.   998    33,892 
National CineMedia, Inc.   1,687    33,673 
Restoration Hardware Holdings, Inc.*   490    32,977 
Buckle, Inc.   627    32,955 
Brown Shoe Company, Inc.   1,163    32,727 
Express, Inc.*   1,728    32,262 
Shutterfly, Inc.*   629    32,035 
Orbitz Worldwide, Inc.*   4,436    31,850 
ANN, Inc.*   866    31,661 
Ethan Allen Interiors, Inc.   1,040    31,637 
Hillenbrand, Inc.   1,065    31,332 
Brunswick Corp.   680    31,321 
Children’s Place Retail Stores, Inc.*   534    30,422 
Total Consumer Discretionary        1,194,107 
           
CONSUMER STAPLES - 2.8%          
Sanderson Farms, Inc.   1,659    119,997 
Elizabeth Arden, Inc.*   3,092    109,611 
Spectrum Brands Holdings, Inc.   1,374    96,936 
Rite Aid Corp.*   18,956    95,917 
Susser Holdings Corp.*   1,419    92,931 
TreeHouse Foods, Inc.*   1,212    83,532 
Casey’s General Stores, Inc.   1,112    78,118 
Pilgrim’s Pride Corp.*   4,756    77,285 
Vector Group Ltd.   4,475    73,256 
Pantry, Inc.*   3,253    54,585 
SUPERVALU, Inc.*   5,777    42,114 
Cal-Maine Foods, Inc.   618    37,222 
United Natural Foods, Inc.*   480    36,187 
Hain Celestial Group, Inc.*   362    32,862 
Coca-Cola Bottling Company Consolidated   439    32,130 
Total Consumer Staples        1,062,683 
           
ENERGY - 1.4%          
Western Refining, Inc.   1,309    55,514 
ION Geophysical Corp.*   16,514    54,496 
Kodiak Oil & Gas Corp.*   3,930    44,056 
CARBO Ceramics, Inc.   373    43,466 
Bill Barrett Corp.*   1,623    43,465 
Vaalco Energy, Inc.*   5,051    34,801 
Delek US Holdings, Inc.   999    34,376 
Goodrich Petroleum Corp.*   1,971    33,546 
SemGroup Corp. — Class A   509    33,202 
Clean Energy Fuels Corp.*   2,532    32,612 
Renewable Energy Group, Inc.*   2,776    31,813 
EXCO Resources, Inc.   5,922    31,446 
Rosetta Resources, Inc.*   647    31,082 
SEACOR Holdings, Inc.*   322    29,366 
Total Energy        533,241 
           
TELECOMMUNICATION SERVICES - 0.1%          
magicJack VocalTec Ltd.*   2,920    34,806 
Total Common Stocks          
(Cost $8,660,395)        9,471,045 
           
RIGHTS†† - 0.0%          
EXCO Resources Inc.          
Expires 01/09/14*   1,480    237 
Total Rights          
(Cost $460)        237 
           
EXCHANGE TRADED FUNDS†,5 - 5.5%          
Guggenheim BulletShares 2016          
High Yield Corporate Bond ETF   26,400    713,328 
Guggenheim BulletShares 2015          
High Yield Corporate Bond ETF   26,300    704,314 
Guggenheim BulletShares 2014          
High Yield Corporate Bond ETF   26,300    701,421 
Total Exchange Traded Funds          
(Cost $2,115,782)        2,119,063 
           
MUTUAL FUNDS†,4 - 3.8%          
Floating Rate Strategies Fund          
Institutional Class   27,651    739,678 
Macro Opportunities Fund          
Institutional Class   26,845    717,827 
Total Mutual Funds          
(Cost $1,493,552)        1,457,505 
           
SHORT TERM INVESTMENTS† - 9.2%          
Dreyfus Treasury Prime Cash          
Management Fund   3,550,089    3,550,089 
Total Short Term Investments          
(Cost $3,550,089)        3,550,089 

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 117

 

 
 

 

SCHEDULE OF INVESTMENTS (continued) December 31, 2013
SERIES X (STYLEPLUS–SMALL GROWTH SERIES)

 

   Face
Amount		   Value 
         
ASSET BACKED SECURITIES†† - 26.1%          
Brentwood CLO Corp.          
2006-1A, 0.51% due 02/01/221,2  $270,728   $265,043 
2006-1A, 1.06% due 02/01/221,2   250,000    221,575 
Goldman Sachs Asset Management CLO plc          
2007-1A, 2.99% due 08/01/221,2   500,000    479,549 
Duane Street CLO IV Ltd.          
2007-4A, 0.47% due 11/14/211,2   485,815    476,195 
KKR Financial CLO 2007-1 Corp.          
2007-1A, 2.49% due 05/15/211,2   500,000    470,799 
HSI Asset Securitization          
Corporation Trust          
2007-WF1, 0.33% due 05/25/371   489,583    449,712 
JP Morgan Mortgage          
Acquisition Trust          
2006-CH2, 0.26% due 10/25/361   423,501    415,817 
N-Star REL CDO VIII Ltd.          
2006-8A, 0.46% due 02/01/411,2   450,745    410,854 
Garrison Funding 2013-2 Ltd.          
2013-2A, 2.13% due 09/25/231,2   380,000    378,480 
NewStar Commercial Loan Trust 2006-1          
2006-1A, 0.63% due 03/30/221,2   250,000    243,975 
2006-1A, 0.52% due 03/30/221,2   113,759    112,053 
Argent Securities Incorporated Asset-Backed          
Pass-Through Certificates Series          
2005-W3, 0.50% due 11/25/351   366,647    343,612 
JP Morgan Mortgage          
Acquisition Trust          
2007-CH3, 0.31% due 03/25/371   341,640    325,052 
Foothill CLO Ltd.          
2007-1A, 0.48% due 02/22/211,2   298,457    292,638 
Salus CLO 2012-1 Ltd.          
2013-1AN, 2.49% due 03/05/211,2   270,000    270,000 
Central Park CLO Ltd.          
2011-1A, 3.44% due 07/23/221,2   260,000    251,368 
Lehman XS Trust 2007-9          
2007-9, 0.28% due 06/25/371   288,818    250,835 
DIVCORE CLO Ltd.          
2013-1A B, 4.10% due 11/15/32   250,000    249,250 
Newcastle CDO Ltd.          
2007-9A, 0.42% due 05/25/52   254,788    248,826 
Symphony CLO VII Ltd.          
2011-7A, 3.44% due 07/28/211,2   250,000    247,900 
Cerberus Onshore II CLO LLC          
2014-1A, 2.94% due 10/15/231,2   250,000    247,800 
Halcyon Structured Asset Management Long          
Secured/Short Unsecured 2007-2 Ltd.          
2007-2A, 3.99% due 10/29/211,2   250,000    247,575 
FM Leveraged Capital Fund II          
2006-2A, 1.84% due 11/15/201,2   250,000    246,950 
Cornerstone CLO Ltd.          
2007-1A, 0.46% due 07/15/211,2   250,000    243,750 
Black Diamond CLO 2005-1 Delaware Corp.          
2005-1A, 2.15% due 06/20/171,2   250,000    240,600 
Aegis Asset Backed Securities Trust          
2005-3, 0.63% due 08/25/351   250,000    237,912 
Race Point IV CLO Ltd.          
2007-4A, 0.99% due 08/01/211,2   250,000    235,250 
GSC Group CDO Fund VIII Ltd.          
2007-8A, 0.62% due 04/17/211,2   250,000    231,625 
Black Diamond CLO 2006-1 Luxembourg S.A.          
2007-1A, 0.63% due 04/29/191,2   250,000    228,100 
Wells Fargo Home Equity Asset-Backed          
Securities 2006-2 Trust          
2006-3, 0.31% due 01/25/371   232,449    210,276 
West Coast Funding Ltd.          
2006-1A, 0.39% due 11/02/411,2   209,721    202,255 
Popular ABS Mortgage          
Pass-Through Trust          
2005-A, 0.59% due 06/25/351   202,035    192,447 
GreenPoint Mortgage          
Funding Trust          
2005-HE4, 0.87% due 07/25/301   200,000    178,018 
Global Leveraged Capital          
Credit Opportunity Fund          
2006-1A, 0.54% due 12/20/181,2   175,706    173,703 
Northwoods Capital VII Ltd.          
2006-7A, 1.79% due 10/22/211,2   180,000    169,236 
California Republic Auto Receivables Trust          
2013-2, 1.23% due 03/15/19   150,000    149,887 
ACS 2007-1 Pass Through Trust          
2007-1A, 0.48% due 06/14/371,2   129,025    119,993 
Accredited Mortgage Loan Trust          
2007-1, 0.29% due 02/25/371   90,920    84,031 
Legg Mason Real Estate CDO I Ltd.          
2006-1A, 0.45% due 03/25/381,2   34,002    33,533 
Total Asset Backed Securities          
(Cost $10,106,506)        10,076,474 
           
CORPORATE BONDS†† - 9.0%          
FINANCIALS - 3.8%          
Ford Motor Credit Company LLC          
7.00% due 04/15/15   300,000    322,909 
Icahn Enterprises Limited Partnership /          
Icahn Enterprises Finance Corp.          
8.00% due 01/15/18   190,000    197,600 
7.75% due 01/15/16   120,000    122,400 
Citigroup, Inc.          
1.20% due 07/25/161   240,000    242,494 
International Lease Finance Corp.          
2.19% due 06/15/161   200,000    201,000 
Mack-Cali Realty, LP          
5.13% due 02/15/14   120,000    120,529 
Nationstar Mortgage LLC /          
Nationstar Capital Corp.          
6.50% due 08/01/18   100,000    101,750 

 

118 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SCHEDULE OF INVESTMENTS (continued) December 31, 2013
SERIES X (STYLEPLUS–SMALL GROWTH SERIES)

 

   Face     
   Amount   Value 
         
WEA Finance LLC /          
WT Finance Aust Pty Ltd.          
5.75% due 09/02/152  $90,000   $97,076 
Emigrant Bancorp, Inc.          
6.25% due 06/15/142   60,000    60,806 
Total Financials        1,466,564 
           
MATERIALS - 2.1%          
Glencore Funding LLC          
1.40% due 05/27/161,2   405,000    403,105 
Rio Tinto Finance USA plc          
1.08% due 06/17/161   280,000    281,986 
Anglo American Capital plc          
9.38% due 04/08/142   130,000    132,882 
Total Materials        817,973 
           
TELECOMMUNICATION SERVICES - 1.2%          
Level 3 Financing, Inc.          
3.85% due 01/15/181,2   280,000    281,750 
WPP Finance UK          
8.00% due 09/15/14   190,000    199,455 
Total Telecommunication Services        481,205 
           
ENERGY - 1.0%          
Ras Laffan Liquefied Natural Gas           
Company Limited III          
5.83% due 09/30/162   351,560    373,533 
           
CONSUMER STAPLES - 0.3%          
Harbinger Group, Inc.          
7.88% due 07/15/192   110,000    118,113 
           
CONSUMER DISCRETIONARY - 0.3%          
Sabre, Inc.          
8.50% due 05/15/192   50,000    55,500 
Vail Resorts, Inc.          
6.50% due 05/01/19   50,000    53,000 
Total Consumer Discretionary        108,500 
           
INFORMATION TECHNOLOGY - 0.2%          
iGATE Corp.          
9.00% due 05/01/16   65,000    69,063 
INDUSTRIALS - 0.1%          
Victor Technologies Group, Inc.          
9.00% due 12/15/17   30,000    32,100 
Total Corporate Bonds          
(Cost $3,465,594)        3,467,051 
           
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 5.4%        
SRERS-2011 Funding Ltd.          
2011-RS, 0.42% due 05/09/461,2   376,441    341,205 
Boca Hotel Portfolio Trust          
2013-BOCA, 3.22% due 08/15/261,2   300,000    300,359 
Hilton USA Trust          
2013-HLF, 2.92% due 11/05/301,2   300,000    300,022 
Wachovia Bank Commercial Mortgage          
Trust Series          
2007-WHL8, 0.25% due 06/15/201,2   227,812    225,511 
COMM Mortgage Trust          
2007-FL14, 0.92% due 06/15/221,2   210,611    207,867 
Banc of America Merrill Lynch           
Commercial Mortgage, Inc.          
2005-6, 6.13% due 09/10/471,2   179,200    184,862 
Banc of America Large          
Loan Trust          
2007-BMB1, 1.27% due 08/15/291,2   180,000    178,592 
GCCFC Commercial Mortgage Trust          
2006-FL4A C, 0.40% due 11/05/21   180,000    177,340 
HarborView Mortgage Loan Trust          
2006-12, 0.36% due 01/19/381   217,243    176,618 
Total Collateralized Mortgage Obligations          
(Cost $2,075,451)        2,092,376 
           
SENIOR FLOATING RATE INTERESTS††,1 - 4.1%          
FINANCIALS - 1.6%          
National Financial Partners          
5.25% due 07/01/20   278,600    281,155 
Cunningham Lindsey U.S., Inc.          
5.00% due 12/10/19   124,060    123,905 
First Data Corp.          
4.16% due 03/23/18   100,000    100,069 
Knight/Getco          
5.75% due 11/30/17   98,832    98,955 
Total Financials        604,084 
           
INDUSTRIALS - 0.9%          
Travelport Holdings Ltd.          
6.25% due 06/26/19   218,900    224,191 
Thermasys Corp.          
5.26% due 05/03/19   139,125    136,806 
Total Industrials        360,997 
           
CONSUMER DISCRETIONARY - 0.6%          
Pinnacle Entertainment, Inc.          
3.75% due 08/15/16   101,018    101,714 
Sears Holdings Corp.          
5.50% due 06/30/18   100,000    100,549 
Go Daddy Operating Company LLC          
4.00% due 12/16/18   35,091    35,098 
Total Consumer Discretionary        237,361 
           
INFORMATION TECHNOLOGY - 0.4%          
Blue Coat Systems, Inc.          
4.50% due 05/31/19   159,600    159,950 
           
ENERGY - 0.3%          
Pacific Drilling          
4.50% due 05/18/18   109,450    110,613 
           
HEALTH CARE - 0.3%          
Apria Healthcare Group, Inc.          
6.75% due 04/06/20   99,500    99,707 
Total Senior Floating Rate Interests          
(Cost $1,556,259)        1,572,712 

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 119

 

 
 

 

SCHEDULE OF INVESTMENTS (concluded) December 31, 2013  
SERIES X (STYLEPLUS–SMALL GROWTH SERIES)  

 

   Face     
   Amount   Value 
         
MUNICIPAL BONDS†† - 2.5%          
NEW YORK - 2.4%          
New York City Water & Sewer          
System Revenue Bonds          
0.30% due 06/15/331  $490,000   $490,000 
City of New York New York          
General Obligation Unlimited          
0.30% due 04/01/351   240,000    240,000 
0.30% due 11/01/261   200,000    200,000 
Total New York        930,000 
           
MICHIGAN - 0.1%          
Michigan Finance Authority          
Revenue Notes          
4.38% due 08/20/14   50,000    50,522 
Total Municipal Bonds          
(Cost $980,000)        980,522 
           
MORTGAGE BACKED SECURITIES†† - 0.8%          
Resource Capital Corporation          
CRE Notes 2013 Ltd.,          
3.02% due 12/15/281,2   300,000    300,240 
Total Mortgage Backed securities          
(Cost $300,000)        300,240 
           
COMMERCIAL PAPER†† - 9.4%          
Centrica plc          
0.22% due 01/03/14   325,000    324,995 
VW Credit, Inc.          
0.22% due 01/13/142   300,000    299,978 
Ryder System, Inc.          
0.20% due 01/15/14   300,000    299,977 
FMC Technologies Inc.          
0.23% due 01/14/14   300,000    299,975 
BAT International Finance          
0.25% due 01/13/14   300,000    299,975 
Nissan Motor Acceptance          
0.30% due 01/13/14   300,000    299,970 
CBS Corp.          
0.24% due 01/24/142   300,000    299,954 
Diageo Capital plc          
0.08% due 01/02/14   250,000    249,999 
Tesco Treasury Services plc          
0.13% due 01/06/142   250,000    249,995 
Kellogg Co.          
0.12% due 01/08/14   250,000    249,994 
Northeast Utilities          
0.18% due 01/08/14   250,000    249,991 
Kinder Morgan Energy Partners, LP          
0.23% due 01/07/142   250,000    249,990 
Potomac Electric Power Co.          
0.25% due 01/13/14   250,000    249,979 
Total Commercial Paper          
(Cost $3,624,772)        3,624,772 
Total investments - 100.3%          
(Cost $37,928,860)       $38,712,086 
Other Assets & Liabilities, net - (0.3)%        (126,528)
Total Net Assets - 100.0%       $38,585,558 

 

         Unrealized 
    Contracts    Gain 
EQUITY FUTURES CONTRACTS PURCHASED†          
March 2014 Russell 2000 Index          
Mini Futures Contracts          
(Aggregate Value of          
Contracts $348,180)   3   $13,385 
March 2014 NASDAQ-100 Index          
Mini Futures Contracts          
(Aggregate Value of          
Contracts $71,780)   1    2,376 
(Total Aggregate Value of          
Contracts $419,960)       $15,761 

 

    Units      
OTC EQUITY INDEX SWAP AGREEMENTS††          
Morgan Stanley Capital Services, Inc.          
February 2014 Russell 2000 Growth          
Index Swap, Terminating 02/03/143          
(Notional Value $28,299,758)   41,125   $— 

 

*Non-income producing security.
†Value determined based on Level 1 inputs — See Note 4.

††Value determined based on Level 2 inputs — See Note 4.

1Variable rate security. Rate indicated is rate effective at December 31, 2013.
2Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $11,402,139 (cost $11,418,209), or 29.6% of total net assets.
3Total Return based on Russell 2000 Growth Index +/- financing at a variable rate.
4Affiliated funds.
5Investment in a product that pays a management fee to a party related to the advisor.
6Illiquid security.
plc — Public Limited Company

 

120 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES X (STYLEPLUS–SMALL GROWTH SERIES)

 

STATEMENT OF ASSETS
AND LIABILITIES
December 31, 2013

 

Assets:     
Investments in unaffiliated issuers, at value     
(cost $36,435,308)  $37,254,581 
Investments in affiliated issuers, at value     
(cost $1,493,552)   1,457,505 
Total investments     
(cost $37,928,860)   38,712,086 
Receivable for swap settlement   881,403 
Segregated cash with broker   15,700 
Cash   10,535 
Prepaid expenses   3,244 
Receivables:     
Interest   72,725 
Fund shares sold   40,255 
Dividends   28,850 
Variation margin   1,665 
Total assets   39,766,463 
Liabilities:     
Due to broker   835,000 
Payable for:     
Securities purchased   247,493 
Fund shares redeemed   36,404 
Management fees   27,156 
Transfer agent/maintenance fees   4,399 
Fund accounting/administration fees   3,035 
Directors’ fees*   703 
Miscellaneous   26,715 
Total liabilities   1,180,905 
Net assets  $38,585,558 
Net assets consist of:     
Paid in capital  $31,496,382 
Accumulated net investment loss   (3,781)
Accumulated net realized gain on investments   6,293,970 
Net unrealized appreciation on investments   798,987 
Net assets  $38,585,558 
Capital shares outstanding   1,321,257 
Net asset value per share  $29.20 

 

STATEMENT OF
OPERATIONS
Year Ended December 31, 2013

 

Investment Income:     
Interest  $197,469 
Dividends from securities of unaffiliated issuers   124,812 
Dividends from securities of affiliated issuers   48,534 
Total investment income   370,815 
      
Expenses:     
Management fees   309,504 
Transfer agent/maintenance fees   25,626 
Fund accounting/administration fees   34,591 
Printing expenses   28,241 
Professional fees   22,795 
Custodian fees   4,863 
Directors’ fees*   3,390 
Tax expense   1 
Miscellaneous   18,282 
Total expenses   447,293 
Net investment loss   (76,478)
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments in unaffiliated issuers   6,995,748 
Investments in affiliated issuers   687 
Swap agreements   6,791,493 
Futures contracts   3,539 
Net realized gain   13,791,467 
Net change in unrealized appreciation (depreciation) on:     
Investments in unaffiliated issuers   (1,276,922)
Investments in affiliated issuers   (36,047)
Futures contracts   15,761 
Net change in unrealized appreciation (depreciation)   (1,297,208)
Net realized and unrealized gain   12,494,259 
Net increase in net assets resulting from operations  $12,417,781 

 

* Relates to Directors 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 | 121

 

 
 

 

SERIES X (STYLEPLUS–SMALL GROWTH SERIES)
 
STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment loss  $(76,478)  $(194,441)
Net realized gain on investments   13,791,467    4,568,903 
Net change in unrealized appreciation (depreciation) on investments   (1,297,208)   (544,759)
Net increase in net assets resulting from operations   12,417,781    3,829,703 
           
Capital share transactions:          
Proceeds from sale of shares   9,379,728    2,875,146 
Cost of shares redeemed   (15,249,191)   (10,378,761)
Net decrease from capital share transactions   (5,869,463)   (7,503,615)
Net increase (decrease) in net assets   6,548,318    (3,673,912)
           
Net assets:          
Beginning of year   32,037,240    35,711,152 
End of year  $38,585,558   $32,037,240 
Accumulated net investment loss at end of year  $(3,781)  $— 
           
Capital share activity:          
Shares sold   398,406    141,633 
Shares redeemed   (627,534)   (519,758)
Net decrease in shares   (229,128)   (378,125)

 

122 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES X (STYLEPLUS–SMALL GROWTH SERIES)

 

FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $20.66   $18.52   $18.89   $14.52   $10.74 
Income (loss) from investment operations:                         
Net investment lossa   (.05)   (.11)   (.12)   (.10)   (.04)
Net gain (loss) on investments (realized and unrealized)   8.59    2.25    (.25)   4.47    3.82 
Total from investment operations   8.54    2.14    (.37)   4.37    3.78 
Net asset value, end of period  $29.20   $20.66   $18.52   $18.89   $14.52 
                          
Total Returnb   41.34%   11.56%   (1.96%)   30.10%   35.20%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $38,586   $32,037   $35,711   $46,149   $35,396 
Ratios to average net assets:                         
Net investment loss   (0.21%)   (0.56%)   (0.63%)   (0.65%)   (0.30%)
Total expensesc   1.23%   1.14%   1.08%   1.09%   1.10%
Portfolio turnover rate   255%   72%   91%   88%   100%

 

aNet investment loss per share was computed using average shares outstanding throughout the period.
bTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
cDoes not include expenses of the underlying funds in which the Fund invests.

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 123

 

 
 

 

MANAGER’S COMMENTARY (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series Y (StylePlus—Large Growth Series, formerly Large Cap Concentrated Growth Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chief Investment Officer; Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance and changes to the Fund that occurred during the fiscal year ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series Y (StylePlus—Large Growth Series, formerly Large Cap Concentrated Growth Series) returned 28.27%, compared with benchmark, the Russell 1000® Growth Index, which gained 33.48%.

 

The Fund’s Board of Directors approved the following changes, which became effective on April 30, 2013: a new Fund name, new principal investment strategies and new portfolio management team.

 

The Fund’s new investment objective is to seek long-term growth of capital in excess of that produced by the total return of the Russell 1000 Growth Index. The Fund seeks to add alpha above the target index by leveraging Guggenheim’s competencies in fixed and systematic stock selection. To accomplish this, the StylePlus strategy allocates to quantitative selection models when stock picking opportunities in the market are high. When stock selection opportunities are less attractive, the Fund invests in derivatives based on the target index, backed by a diversified portfolio of fixed income instruments. In this way, the Fund believes it will deliver the target index return plus an alpha component commensurate with the yield achieved on the active fixed income portfolio.

 

The Fund’s underperformance for the 12 months came predominantly during the four months it was being managed according to the legacy strategy. Specifically, from January 1, 2013, through April 30, 2013, the Fund underperformed the benchmark by about five percentage points, largely due to poor stock selection in the Information Technology and Energy sectors. The Fund’s cash position was also a drag on performance. A sector overweight and stock selection in Consumer Discretionary contributed most to the Fund’s performance.

 

For the time the Fund was being managed according to the new strategy, the eight months from April 30, 2013 through September 30, 2013, the Fund performed slightly better than the benchmark. During much of this period, the Fund maintained an approximate allocation of 20% to systematic equity selection, 80% allocated to the passive equity position, which was maintained with swap agreements and futures contracts, and 51% allocated to fixed income investments (excluding short-term). Beginning in December 2013, due to a more favorable outlook for active stock selection, the equity sleeve was increased to 25%, with 75% allocated to the passive equity position.

 

The equity sleeve was additive over the period, delivering the strongest returns during the months of May, June and December.

 

The fixed income allocation also contributed to performance over the eight months, after detracting from performance during the substantial debt selloff that began at the end of May and lasted in to June. The swap agreements also contributed to performance.

 

 

 

 

 

 

 

 

 

 

 

Performance displayed represents past performance, which is no guarantee of future results.

 

The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.

 

124 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

PERFORMANCE REPORT AND FUND PROFILE (Unaudited) December 31, 2013

 

SERIES Y (STYLEPLUS–LARGE GROWTH SERIES)

OBJECTIVE:  Seeks long-term growth of capital.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series Y (StylePlus Large Growth Series)   28.27%   16.13%   5.28%
Russell 1000 Growth Index   33.48%   20.39%   7.83%

 

Ten Largest Holdings (% of Total Net Assets)    
Dreyfus Treasury Prime Cash Management Fund   8.6%
U.S. Treasury Bill   4.9%
Guggenheim BulletShares 2016 High Yield Corporate Bond ETF   2.0%
Guggenheim BulletShares 2014 High Yield Corporate Bond ETF   1.9%
Guggenheim BulletShares 2015 High Yield Corporate Bond ETF   1.9%
Floating Rate Strategies Fund Institutional Class   1.7%
Macro Opportunities Fund Institutional Class   1.7%
New York City Water & Sewer System Revenue Bonds   1.2%
Goldman Sachs Asset Management CLO plc — 2007-1A   1.2%
KKR Financial CLO 2007-1 Corp. — 2007-1A   1.2%
Top Ten Total   26.3%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

Inception Date:  May 3, 1999

 

Portfolio Composition by Quality Rating**
Rating
Fixed Income Instruments
AAA   10.9%
AA   4.0%
A   8.4%
BBB   21.0%
BB   3.3%
B   3.9%
CCC   4.4%
NR   1.8%
Other Instruments     
Common Stocks   24.8%
Short Term Investments   8.6%
Exchange Traded Funds   5.8%
Mutual Funds   3.4%
Total Investments   100.3%

The chart above reflects percentages of the value of total investments.

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 1000 Growth Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
**Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 125

 

 
 

 

 

SCHEDULE OF INVESTMENTS December 31, 2013
SERIES Y (STYLEPLUS–LARGE GROWTH SERIES)

 

   Shares   Value 
         
COMMON STOCKS† - 24.8%          
           
INFORMATION TECHNOLOGY - 7.4%          
Apple, Inc.   757   $424,761 
Microsoft Corp.   10,820    404,994 
International Business Machines Corp.   1,734    325,247 
Oracle Corp.   6,898    263,917 
Google, Inc. — Class A*   201    225,263 
QUALCOMM, Inc.   2,644    196,317 
Accenture plc — Class A   2,017    165,838 
Texas Instruments, Inc.   3,653    160,403 
EMC Corp.   5,743    144,436 
Automatic Data Processing, Inc.   1,194    96,487 
Intuit, Inc.   1,186    90,515 
Motorola Solutions, Inc.   1,254    84,645 
Intel Corp.   3,145    81,644 
Applied Materials, Inc.   3,954    69,946 
MasterCard, Inc. — Class A   65    54,305 
eBay, Inc.*   953    52,310 
Salesforce.com, Inc.*   919    50,720 
Cisco Systems, Inc.   1,992    44,720 
Visa, Inc. — Class A   143    31,843 
Facebook, Inc. — Class A*   574    31,375 
Total Information Technology        2,999,686 
           
INDUSTRIALS - 4.4%          
United Technologies Corp.   1,916    218,040 
United Parcel Service, Inc. — Class B   1,820    191,246 
Boeing Co.   1,240    169,248 
Emerson Electric Co.   2,095    147,027 
Union Pacific Corp.   857    143,975 
CSX Corp.   4,315    124,143 
Ingersoll-Rand plc   2,008    123,693 
Caterpillar, Inc.   1,318    119,688 
Waste Management, Inc.   2,421    108,630 
Lockheed Martin Corp.   690    102,575 
Delta Air Lines, Inc.   3,527    96,887 
Norfolk Southern Corp.   855    79,370 
Deere & Co.   779    71,146 
FedEx Corp.   299    42,987 
Fluor Corp.   402    32,277 
Total Industrials        1,770,932 
           
CONSUMER STAPLES - 4.1%          
PepsiCo, Inc.   3,047    252,717 
Wal-Mart Stores, Inc.   2,393    188,305 
Philip Morris International, Inc.   2,038    177,572 
Walgreen Co.   2,611    149,976 
Kimberly-Clark Corp.   1,347    140,708 
Kellogg Co.   1,996    121,896 
CVS Caremark Corp.   1,653    118,305 
General Mills, Inc.   2,240    111,798 
Coca-Cola Co.   2,332    96,335 
Lorillard, Inc.   1,555    78,807 
Archer-Daniels-Midland Co.   1,809    78,511 
Kroger Co.   1,886    74,554 
Altria Group, Inc.   1,483    56,932 
Total Consumer Staples        1,646,416 
           
CONSUMER DISCRETIONARY - 4.0%          
Comcast Corp. — Class A   4,762    247,457 
Target Corp.   2,232    141,219 
Lowe’s Companies, Inc.   2,818    139,632 
Viacom, Inc. — Class B   1,469    128,303 
Macy’s, Inc.   2,338    124,849 
CBS Corp. — Class B   1,789    114,031 
Ford Motor Co.   6,360    98,135 
Liberty Global plc — Class A*   984    87,566 
Home Depot, Inc.   1,035    85,222 
Starbucks Corp.   862    67,572 
McDonald’s Corp.   576    55,889 
The Gap, Inc.   1,380    53,930 
Amazon.com, Inc.*   129    51,444 
Time Warner Cable, Inc.   320    43,360 
Netflix, Inc.*   112    41,235 
DIRECTV*   558    38,552 
Walt Disney Co.   473    36,137 
Omnicom Group, Inc.   444    33,020 
DISH Network Corp. — Class A*   567    32,841 
Total Consumer Discretionary        1,620,394 
           
HEALTH CARE - 3.7%          
Amgen, Inc.   1,757    200,579 
Express Scripts Holding Co.*   2,329    163,589 
Johnson & Johnson   1,375    125,936 
Stryker Corp.   1,629    122,403 
Eli Lilly & Co.   2,309    117,759 
McKesson Corp.   705    113,787 
Becton Dickinson and Co.   989    109,275 
HCA Holdings, Inc.*   2,043    97,472 
Aetna, Inc.   1,359    93,214 
Cigna Corp.   1,003    87,742 
Baxter International, Inc.   1,202    83,599 
Bristol-Myers Squibb Co.   1,374    73,028 
Agilent Technologies, Inc.   948    54,216 
Actavis plc*   206    34,608 
Total Health Care        1,477,207 
           
ENERGY - 1.1%          
Anadarko Petroleum Corp.   1,344    106,606 
Baker Hughes, Inc.   1,892    104,552 
EOG Resources, Inc.   517    86,773 
Kinder Morgan, Inc.   1,509    54,324 
Halliburton Co.   990    50,243 
Schlumberger Ltd.   359    32,349 
Total Energy        434,847 
           
TELECOMMUNICATION SERVICES - 0.1%          
Verizon Communications, Inc.   989    48,599 
Total Common Stocks          
(Cost $9,358,992)        9,998,081 

 

126 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SCHEDULE OF INVESTMENTS (continued) December 31, 2013
SERIES Y (STYLEPLUS–LARGE GROWTH SERIES)

 

   Shares   Value 
         
EXCHANGE TRADED FUNDS†,6 - 5.8%          
Guggenheim BulletShares 2016          
High Yield Corporate Bond ETF   28,900   $780,878 
Guggenheim BulletShares 2014          
High Yield Corporate Bond ETF   29,100    776,097 
Guggenheim BulletShares 2015          
High Yield Corporate Bond ETF   28,800    771,264 
Total Exchange Traded Funds          
(Cost $2,325,897)        2,328,239 
           
MUTUAL FUNDS†,4 - 3.4%          
Floating Rate Strategies Fund          
Institutional Class   25,744    688,665 
Macro Opportunities Fund          
Institutional Class   24,993    668,322 
Total Mutual Funds          
(Cost $1,390,548)        1,356,987 
           
SHORT TERM INVESTMENTS† - 8.6%          
Dreyfus Treasury Prime Cash          
Management Fund   3,490,394    3,490,394 
Total Short Term Investments          
(Cost $3,490,394)        3,490,394 

 

   Face     
   Amount     
ASSET BACKED SECURITIES†† - 23.5%          
Goldman Sachs Asset Management CLO plc          
2007-1A, 2.99% due 08/01/221,2  $500,000    479,549 
KKR Financial CLO 2007-1 Corp.          
2007-1A, 2.49% due 05/15/211,2   500,000    470,799 
Brentwood CLO Corp.          
2006-1A, 0.51% due 02/01/221,2   248,167    242,956 
2006-1A, 1.06% due 02/01/221,2   250,000    221,575 
Duane Street CLO IV Ltd.          
2007-4A, 0.47% due 11/14/211,2   437,233    428,576 
HSI Asset Securitization Corporation          
Trust          
2007-WF1, 0.33% due 05/25/371   448,785    412,236 
N-Star REL CDO VIII Ltd.          
2006-8A, 0.46% due 02/01/411,2   450,745    410,854 
JP Morgan Mortgage Acquisition          
Trust          
2006-CH2, 0.26% due 10/25/361   381,151    374,236 
NewStar Commercial Loan Trust          
2006-1A, 0.63% due 03/30/221,2   250,000    243,975 
2006-1A, 0.52% due 03/30/221,2   113,759    112,053 
Garrison Funding 2013-2 Ltd.          
2013-2A, 2.13% due 09/25/231,2   340,000    338,640 
JP Morgan Mortgage Acquisition          
Trust          
2007-CH3, 0.31% due 03/25/371   341,640    325,052 
Argent Securities Incorporated Asset-Backed          
Pass-Through Certificates Series          
2005-W3, 0.50% due 11/25/351   325,908    305,432 
Foothill CLO Ltd.          
2007-1A, 0.48% due 02/22/211,2   268,612    263,374 
DIVCORE CLO Ltd. 2013-1A B,          
4.10% due 11/15/32   250,000    249,250 
Symphony CLO VII Ltd.          
2011-7A, 3.44% due 07/28/211,2   250,000    247,900 
Cerberus Onshore II CLO LLC          
2014-1A, 2.94% due 10/15/231,2   250,000    247,800 
Halcyon Structured Asset Management          
Long Secured/Short Unsecured 2007-2 Ltd.          
2007-2A, 3.99% due 10/29/211,2   250,000    247,575 
FM Leveraged Capital Fund II          
2006-2A, 1.84% due 11/15/201,2   250,000    246,950 
Cornerstone CLO Ltd.          
2007-1A, 0.46% due 07/15/211,2   250,000    243,750 
Central Park CLO Ltd.          
2011-1A, 3.44% due 07/23/221,2   250,000    241,700 
Black Diamond CLO 2005-1 Delaware Corp.          
2005-1A, 2.15% due 06/20/171,2   250,000    240,600 
Race Point IV CLO Ltd.          
2007-4A, 0.99% due 08/01/211,2   250,000    235,250 
GSC Group CDO Fund VIII Ltd.          
2007-8A, 0.62% due 04/17/211,2   250,000    231,625 
Salus CLO 2012-1 Ltd.          
2013-1AN, 2.49% due 03/05/211,2   230,000    230,000 
Newcastle CDO Ltd.          
2007-9A, 0.42% due 05/25/52   234,288    228,806 
Black Diamond CLO 2006-1 Luxembourg S.A.          
2007-1A, 0.63% due 04/29/191,2   250,000    228,100 
Lehman XS Trust          
2007-9, 0.28% due 06/25/371   261,047    226,716 
Aegis Asset Backed Securities Trust          
2005-3, 0.63% due 08/25/351   200,000    190,330 
Wells Fargo Home Equity Asset-Backed          
Securities 2006-2 Trust          
2006-3, 0.31% due 01/25/371   209,204    189,248 
West Coast Funding Ltd.          
2006-1A, 0.39% due 11/02/411,2   188,749    182,029 
GreenPoint Mortgage Funding          
Trust          
2005-HE4, 0.87% due 07/25/301   200,000    178,018 
Popular ABS Mortgage Pass-Through          
Trust 2005-A          
2005-A, 0.59% due 06/25/351   183,668    174,952 
Northwoods Capital VII Ltd.          
2006-7A, 1.79% due 10/22/211,2   160,000    150,432 
Global Leveraged Capital Credit          
Opportunity Fund          
2006-1A, 0.54% due 12/20/181,2   131,779    130,277 
ACS 2007-1 Pass Through Trust          
2007-1A, 0.48% due 06/14/371,2   129,025    119,993 
California Republic Auto Receivables Trust          
2013-2, 1.23% due 03/15/19   100,000    99,925 
Accredited Mortgage Loan Trust          
2007-1, 0.29% due 02/25/371   83,343    77,029 
Legg Mason Real Estate CDO I Ltd.          
2006-1A, 0.45% due 03/25/381,2   31,483    31,049 
Total Asset Backed Securities          
(Cost $9,528,110)        9,498,611 

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 127

 

 
 

 

SCHEDULE OF INVESTMENTS (continued) December 31, 2013
SERIES Y (STYLEPLUS–LARGE GROWTH SERIES)  

 

   Face     
   Amount   Value 
         
CORPORATE BONDS†† - 8.3%          
FINANCIALS - 3.5%          
Ford Motor Credit Company LLC          
7.00% due 04/15/15  $280,000   $301,382 
Icahn Enterprises Limited Partnership /          
Icahn Enterprises Finance Corp.          
8.00% due 01/15/18   180,000    187,200 
7.75% due 01/15/16   100,000    102,000 
Citigroup, Inc.          
1.20% due 07/25/161   260,000    262,702 
International Lease Finance Corp.          
2.19% due 06/15/161   190,000    190,950 
Mack-Cali Realty, LP          
5.13% due 02/15/14   110,000    110,485 
Nationstar Mortgage LLC /          
Nationstar Capital Corp.          
6.50% due 08/01/18   100,000    101,750 
WEA Finance LLC / WT Finance Aust Pty Ltd.          
5.75% due 09/02/152   80,000    86,290 
Emigrant Bancorp, Inc.          
6.25% due 06/15/142   60,000    60,806 
Total Financials        1,403,565 
           
MATERIALS - 1.9%          
Glencore Funding LLC          
1.40% due 05/27/161,2   380,000    378,222 
Rio Tinto Finance USA plc          
1.08% due 06/17/161   260,000    261,845 
Anglo American Capital plc          
9.38% due 04/08/142   120,000    122,660 
Total Materials        762,727 
           
ENERGY - 1.1%          
Ras Laffan Liquefied Natural Gas          
Company Limited III          
5.83% due 09/30/162   325,710    346,067 
Petroleos Mexicanos          
2.27% due 07/18/181   110,000    113,300 
Total Energy        459,367 
           
TELECOMMUNICATION SERVICES - 1.0%          
Level 3 Financing, Inc.          
3.85% due 01/15/181,2   250,000    251,562 
WPP Finance UK          
8.00% due 09/15/14   160,000    167,962 
Total Telecommunication Services        419,524 
           
CONSUMER STAPLES - 0.3%          
Harbinger Group, Inc.          
7.88% due 07/15/192   100,000    107,375 
           
CONSUMER DISCRETIONARY - 0.2%          
Vail Resorts, Inc.          
6.50% due 05/01/19   50,000    53,000 
Sabre, Inc.          
8.50% due 05/15/192   40,000    44,400 
Total Consumer Discretionary        97,400 
           
INFORMATION TECHNOLOGY - 0.2%          
iGATE Corp.          
9.00% due 05/01/16   60,000    63,750 
           
INDUSTRIALS - 0.1%          
Victor Technologies Group, Inc.          
9.00% due 12/15/17   28,000    29,960 
Total Corporate Bonds          
(Cost $3,338,276)        3,343,668 
           
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 4.6%          
SRERS-2011 Funding Ltd.          
2011-RS, 0.42% due 05/09/461,2   376,441    341,206 
Boca Hotel Portfolio Trust          
2013-BOCA, 3.22% due 08/15/261,2   250,000    250,300 
COMM 2007-FL14 Mortgage Trust          
2007-FL14, 0.92% due 06/15/221,2   210,611    207,867 
Hilton USA Trust          
2013-HLF, 2.92% due 11/05/301,2   200,000    200,014 
Wachovia Bank Commercial Mortgage          
Trust Series          
2007-WHL8, 0.25% due 06/15/201,2   200,474    198,449 
HarborView Mortgage Loan Trust          
2006-12, 0.36% due 01/19/381   217,243    176,618 
GCCFC Commercial Mortgage Trust          
2006-FL4A C, 0.40% due 11/05/21   170,000    167,488 
Banc of America Merrill Lynch          
Commercial Mortgage, Inc.          
2005-6, 6.13% due 09/10/471,2   161,280    166,376 
Banc of America Large Loan          
Trust          
2007-BMB1, 1.27% due 08/15/291,2   160,000    158,748 
Total Collateralized Mortgage Obligations          
(Cost $1,850,305)        1,867,066 
           
U.S. TREASURY BILLS† - 4.9%          
U.S. Treasury Bill          
due 02/20/145   2,000,000    1,999,938 
Total U.S. Treasury Bills          
(Cost $1,999,946)        1,999,938 
           
SENIOR FLOATING RATE INTERESTS††,1 - 4.1%          
FINANCIALS - 1.4%          
National Financial Partners          
5.25% due 07/01/20   258,700    261,073 
Cunningham Lindsey U.S., Inc.          
5.00% due 12/10/19   124,060    123,905 
First Data Corp.          
4.16% due 03/23/18   100,000    100,069 
Knight/Getco          
5.75% due 11/30/17   87,850    87,960 
Total Financials        573,007 
INDUSTRIALS - 0.8%          
Travelport Holdings Ltd.          
6.25% due 06/26/19   208,950    214,000 
Thermasys Corp.          
5.26% due 05/03/19   129,188    127,034 
Total Industrials        341,034 
ENERGY - 0.6%          
Ocean Rig ASA          
5.50% due 07/15/16   149,625    151,558 

 

128 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SCHEDULE OF INVESTMENTS (concluded) December 31, 2013
SERIES Y (STYLEPLUS–LARGE GROWTH SERIES)

 

   Face     
   Amount   Value 
         
Pacific Drilling          
4.50% due 05/18/18  $99,500   $100,558 
Total Energy        252,116 
           
CONSUMER DISCRETIONARY - 0.6%          
Pinnacle Entertainment, Inc.          
3.75% due 08/15/16   101,018    101,713 
Sears Holdings Corp.          
5.50% due 06/30/18   100,000    100,549 
Go Daddy Operating Company LLC          
4.00% due 12/16/18   19,343    19,347 
Total Consumer Discretionary        221,609 
           
INFORMATION TECHNOLOGY - 0.4%          
Blue Coat Systems, Inc.          
4.50% due 05/31/19   149,625    149,953 
           
HEALTH CARE - 0.3%          
Apria Healthcare Group, Inc.          
6.75% due 04/06/20   99,500    99,707 
Total Senior Floating Rate Interests          
(Cost $1,617,403)        1,637,426 
           
MUNICIPAL BONDS†† - 2.5%          
NEW YORK - 2.4%          
New York City Water & Sewer System          
Revenue Bonds          
0.30% due 06/15/331   510,000    510,000 
City of New York New York General          
Obligation Unlimited          
0.30% due 04/01/351   260,000    260,000 
0.30% due 11/01/261   210,000    210,000 
Total New York        980,000 
           
MICHIGAN - 0.1%          
Michigan Finance Authority Revenue Notes          
4.38% due 08/20/14   50,000    50,522 
Total Municipal Bonds          
(Cost $1,030,000)        1,030,522 
           
MORTGAGED BACKED SECURITIES†† - 0.8%          
Resource Capital Corporation          
CRE Notes 2013 Ltd.          
2013-CRE1, 3.02% due 12/15/281,2   250,000    250,200 
Total Mortgaged Backed Securities          
(Cost $250,000)        250,200 
           
COMMERCIAL PAPER†† - 9.2%          
Centrica plc          
0.22% due 01/03/14   325,000    324,994 
Diageo Capital plc          
0.09% due 01/02/14   300,000    299,999 
Tesco Treasury Services plc          
0.13% due 01/06/142   300,000    299,994 
Kellogg Co.          
0.12% due 01/08/14   300,000    299,992 
Northeast Utilities          
0.18% due 01/08/14   300,000    299,990 
Kinder Morgan Energy Partners, LP          
0.23% due 01/07/142   300,000    299,989 
FMC Technologies Inc.          
0.23% due 01/14/14   300,000    299,975 
Potomac Electric Power Co.          
0.25% due 01/13/14   300,000    299,975 
CBS Corp.          
0.24% due 01/24/142   300,000    299,954 
VW Credit, Inc.          
0.22% due 01/13/142   250,000    249,982 
Ryder System, Inc.          
0.20% due 01/15/14   250,000    249,981 
BAT International Finance          
0.25% due 01/13/14   250,000    249,979 
Nissan Motor Acceptance          
0.30% due 01/13/14   250,000    249,975 
Total Commercial Paper          
(Cost $3,724,779)        3,724,779 
Total Investments - 100.3%          
(Cost $39,904,650)       $40,525,911 
Other Assets & Liabilities, net - (0.3)%        (108,631)
Total Net Assets - 100.0%       $40,417,280 

 

       Unrealized 
   Contracts   Gain 
EQUITY FUTURES CONTRACTS PURCHASED†          
March 2014 S&P 500 Index          
Mini Futures Contracts          
(Aggregate Value of          
Contracts $368,850)   4   $12,767 
March 2014 NASDAQ-100 Index          
Mini Futures Contracts          
(Aggregate Value of          
Contracts $215,340)   3    7,128 
(Total Aggregate Value of Contracts $584,190)       $19,895 

 

   Units     
OTC EQUITY INDEX SWAP AGREEMENTS††          
Morgan Stanley Capital Services, Inc.          
February 2014 Russell 1000 Growth          
Index Swap, Terminating 02/03/143          
(Notional Value $29,799,717)   34,498   $— 

 

*Non-income producing security.
†Value determined based on Level 1 inputs — See Note 4.
††Value determined based on Level 2 inputs — See Note 4.
1Variable rate security. Rate indicated is rate effective at December 31, 2013.
2Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $10,787,842 (cost $10,803,934), or 26.7% of total net assets.
3Total Return based on Russell 1000 Growth Index +/- financing at a variable rate.
4Affiliated funds.
5Zero coupon rate security.
6Investment in a product that pays a management fee to a party related to the advisor.

plc — Public Limited Company

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 129

 

 
 

 

SERIES Y (STYLEPLUS–LARGE GROWTH SERIES)

 

STATEMENT OF ASSETS
AND LIABILITIES

December 31, 2013

 

Assets:     
Investments in unaffiliated issuers, at value     
(cost $38,514,102)  $39,168,924 
Investments in affiliated issuers, at value     
(cost $1,390,548)   1,356,987 
Total investments     
(cost $39,904,650)   40,525,911 
Receivable for swap settlement   907,335 
Segregated cash with broker   24,800 
Cash   11,771 
Prepaid expenses   3,187 
Receivables:     
Interest   70,216 
Dividends   33,430 
Variation margin   3,305 
Fund shares sold   836 
Total assets   41,580,791 
Liabilities:     
Due to broker   791,466 
Payable for:     
Securities purchased   247,493 
Fund shares redeemed   68,736 
Management fees   24,891 
Transfer agent/maintenance fees   4,406 
Fund accounting/administration fees   3,153 
Directors’ fees*   967 
Miscellaneous   22,399 
Total liabilities   1,163,511 
Net assets  $40,417,280 
Net assets consist of:     
Paid in capital  $37,595,766 
Undistributed net investment income   137,646 
Accumulated net realized gain on investments   2,042,712 
Net unrealized appreciation on investments   641,156 
Net assets  $40,417,280 
Capital shares outstanding   2,990,540 
Net asset value per share  $13.52 

 

STATEMENT OF
OPERATIONS
Year Ended December 31, 2013

 

Investment Income:     
Dividends from securities of unaffiliated issuers  $284,537 
Interest   191,599 
Dividends from securities of affiliated issuers   45,187 
Total investment income   521,323 
      
Expenses:     
Management fees   274,132 
Transfer agent/maintenance fees   25,626 
Fund accounting/administration fees   34,723 
Printing expenses   25,813 
Custodian fees   6,229 
Directors’ fees*   4,495 
Tax expense   1 
Miscellaneous   30,596 
Total expenses   401,615 
Net investment income   119,708 
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments in unaffiliated issuers   5,303,531 
Investments in affiliated issuers   640 
Swap agreements   4,746,974 
Futures contracts   54,458 
Net realized gain   10,105,603 
Net change in unrealized appreciation (depreciation) on:     
Investments in unaffiliated issuers   (1,197,396)
Investments in affiliated issuers   (33,561)
Futures contracts   19,895 
Net change in unrealized appreciation (depreciation)   (1,211,062)
Net realized and unrealized gain   8,894,541 
Net increase in net assets resulting from operations  $9,014,249 

 

* Relates to Directors not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.

 

130 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES Y (STYLEPLUS–LARGE GROWTH SERIES)

 

STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment income  $119,708   $242,457 
Net realized gain on investments   10,105,603    3,474,207 
Net change in unrealized appreciation (depreciation) on investments   (1,211,062)   225,235 
Net increase in net assets resulting from operations   9,014,249    3,941,899 
           
Capital share transactions:          
Proceeds from sale of shares   10,465,661    8,568,903 
Cost of shares redeemed   (15,306,317)   (14,397,614)
Net decrease from capital share transactions   (4,840,656)   (5,828,711)
Net increase (decrease) in net assets   4,173,593    (1,886,812)
           
Net assets:          
Beginning of year   36,243,687    38,130,499 
End of year  $40,417,280   $36,243,687 
Undistributed net investment income at end of year  $137,646   $242,457 
           
Capital share activity:          
Shares sold   864,085    814,296 
Shares redeemed   (1,310,714)   (1,382,567)
Net decrease in shares   (446,629)   (568,271)

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 131

 

 
 

 

SERIES Y (STYLEPLUS–LARGE GROWTH SERIES)

 

FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $10.54   $9.52   $9.95   $8.53   $6.40 
Income (loss) from investment operations:                         
Net investment incomeb   .04    .07    .02    .08    .03 
Net gain (loss) on investments (realized and unrealized)   2.94    .95    (.45)   1.34    2.10 
Total from investment operations   2.98    1.02    (.43)   1.42    2.13 
Net asset value, end of period  $13.52   $10.54   $9.52   $9.95   $8.53 
                          
Total Returna   28.27%   10.71%   (4.32%)   16.65%   33.28%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $40,417   $36,244   $38,130   $43,571   $41,338 
Ratios to average net assets:                         
Net investment income   0.33%   0.63%   0.20%   0.96%   0.37%
Total expensesc   1.10%   1.01%   0.98%   0.96%   1.00%
Portfolio turnover rate   247%   187%   153%   182%   151%

 

aTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
bNet investment income per share was computed using average shares outstanding throughout the period.
cDoes not include expenses of the underlying funds in which the Fund invests.

 

132 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

MANAGER’S COMMENTARY (Unaudited) December 31, 2013

 

To Our Shareholders:

 

The Series Z (Alpha Opportunity Series) is managed by a team of seasoned professionals, including Michael P. Byrum, CFA, Portfolio Manager; Michael Dellapa, CFA, CAIA, Portfolio Manager; and Ryan Harder, CFA, Portfolio Manager. In the following paragraphs, the team discusses changes to the Fund and performance of the Fund for the fiscal year ended December 31, 2013.

 

For the fiscal year ended December 31, 2013, the Series Z (Alpha Opportunity Series) gained 27.83%, compared with its benchmark, the S&P 500® Index, which gained 32.39%.

 

The Fund is closed to new investors because it remains subject to proceedings associated with the bankruptcy filing of Lehman Brothers, Inc., in 2008, which has made certain assets illiquid.

 

During the period, Mainstream Investment Advisors, LLC, the Fund sub-adviser for Domestic Long/Short Sub-Portfolio, resigned effective September 30, 2013. The Fund’s Board of Directors approved certain changes to the Fund’s investment program as a result of the resignation.

 

The first change was that the Fund’s current investment manager, Security Investors, LLC, an affiliate of Guggenheim Investments, assumed investment management responsibility for the Domestic Long/Short Sub-Portfolio as of September 30, 2013. Security Investors was already responsible for management of the other two Sub-Portfolios.

 

The second change was, in conjunction with the adviser change in the Domestic Long/Short Sub-Portfolio, new principal investment strategies.

 

The Fund’s strategies now are to pursue its objective by investing, under normal market conditions, approximately 37.5% of its total assets according to a long/short strategy with an emphasis on securities of non-U.S. issuers (the “Global Long/Short Sub-Portfolio”); approximately 37.5% of its total assets according to a long/short strategy with an emphasis on securities of domestic issuers (the “Domestic Long/Short Sub-Portfolio”); and 25% of its total assets in a portfolio of equity securities, equity derivatives and fixed income securities (the “Indexed Sub-Portfolio”) that is intended to closely track the performance of the S&P 500 Index.

 

Global Long/Short Sub-Portfolio

 

This sleeve has exposure to Lehman Brothers International Europe (LBIE) through a collateral account held by the Fund’s custodian that consists of short-sale proceeds and long positions in U.S. securities. While Guggenheim Investments seeks to resolve certain outstanding short-sale transactions with LBIE, the collateral remains illiquid.

 

Release of the collateral requires the consent of LBIE and Lehman Brothers, Inc., which is currently in bankruptcy. Due to the valuations assigned to the short positions, which are based on certain assumptions, resolution could ultimately result in the Fund’s realizing values that are materially different from those indicated in this report, which would materially affect the Fund’s net asset value. Guggenheim Investments is uncertain when the issues surrounding the collateral account will be resolved.

 

The long positions in U.S. securities contributed positive performance to the Fund over the past year.

 

Domestic Long/Short Sub-Portfolio

 

Effective September 30, 2013, Mainstream Investment Advisers, LLC was no longer sub-adviser to the domestic long/short strategy allocation.

 

During September 2013, Mainstream began to liquidate its allocation in anticipation of its resignation and completed the liquidation by the close of September 25. As the allocation was converted to cash, the new investment manager, Security Investors, LLC, began investing it in equity futures in order to gain exposure to the U.S. equity market.

 

The new Investment Manager’s strategy is to seek to respond to the dynamically changing economy by moving its investments among different industries and styles, making its allocation according to several measures of momentum. Companies associated with industries and/or styles demonstrating positive momentum are favored while those experiencing negative momentum are disfavored. The Fund may hold both long and short positions.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 133

 

 
 

 

MANAGERS’ COMMENTARY (Unaudited) (concluded) December 31, 2012

 

Equity positions are determined based on their associated industry and style momentum, risk characteristics and liquidity. The Fund invests in domestic equity securities, including small-, mid- and large-capitalization securities, such as U.S. traded common stocks and ADRs, but also may invest in derivative instruments which primarily consist of equity index swaps, futures contracts and options on securities, futures contracts and stock indices giving exposure to the U.S. markets.

 

The Fund may invest in derivatives to hedge or gain leveraged exposure to a particular sector, industry or company depending on market conditions.

 

The Fund also may enter into short sales of broad-based stock indices for hedging purposes in an effort to reduce the Fund’s risk or volatility.

 

While the Fund anticipates investing in these instruments to seek to achieve its investment objective, the extent of the Fund’s investment in these instruments may vary day to day depending on a number of different factors, including price, availability and general market conditions.

 

The Sub-Portfolio may focus its investments in a limited number of issuers, even though the Fund as a whole operates as a diversified fund.

 

For the part of the period during which Mainstream managed the allocation, it used a domestic long/short strategy which applied fundamental and technical methods of analysis to identify quality securities trading at attractive valuations. This strategy used a top-down perspective to formulate long-term themes and a bottom-up approach to identify individual securities.

 

Favorable stock selection in the Industrials and Energy sectors was offset by the hedged allocation (primarily cash, which averaged near 26% as the sub-adviser transitioned the portfolio to cash near the end of the period).

 

Indexed Sub-Portfolio

 

The investment manager for this portion of the portfolio seeks investment returns that are similar to those of the S&P 500 Index by primarily investing in equity derivatives, such as futures contracts, options on futures contracts and equity options. The results of derivatives use during the period were within expectations and contributed to the Fund’s performance.

 

The Fund primarily used S&P 500 e-mini futures for the portion of Fund assets that is intended to track the S&P 500 Index. Equity markets rallied strongly throughout the past 12 months in response to continued central bank accommodation. The S&P 500 Index reached an all-time high during the period.

 

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.

 

134 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

PERFORMANCE REPORT AND FUND PROFILE (Unaudited) December 31, 2013

 

SERIES Z (ALPHA OPPORTUNITY SERIES)

OBJECTIVE:  Seeks long-term growth of capital.

 

Cumulative Fund Performance*,†

 

 

Average Annual Returns*

Periods Ended December 31, 2013†

 

   1 Year   5 Year   10 Year 
Series Z (Alpha Opportunity Series)   27.83%   18.27%   9.29%
S&P 500 Index   32.39%   17.94%   7.41%

 

Holdings Diversification (Market Exposure as % of Net Assets)

 

 

**All of the short holdings were fair valued by the Valuation Committee at December 31, 2013 due to exposure to LBIE — See Note 12. The total market value of fair valued securities amounts to (46.6%) of total net assets.

 

Inception Date: July 7, 2003

 

Ten Largest Holdings (% of Total Net Assets)    
State Street   38.3%
Philip Morris International, Inc.   5.5%
Altria Group, Inc.   4.1%
Lockheed Martin Corp.   3.6%
Trinity Industries, Inc.   3.5%
ViroPharma, Inc.   3.1%
CA, Inc.   3.0%
AO Smith Corp.   2.9%
Johnson & Johnson   2.9%
TJX Companies, Inc.   2.9%
Top Ten Total   69.8%

 

*The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The S&P 500 Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return.
†Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 135

 

 
 

 

SCHEDULE OF INVESTMENTS December 31, 2013
SERIES Z (ALPHA OPPORTUNITY SERIES)

 

   Shares   Value 
         
COMMON STOCKS† - 75.1%          
           
INDUSTRIALS - 16.7%          
Lockheed Martin Corp.1,2   3,993   $593,599 
Trinity Industries, Inc.1,2   10,800    588,816 
AO Smith Corp.1,2   9,000    485,460 
Towers Watson & Co. — Class A1,2   2,400    306,264 
Joy Global, Inc.1,2   4,800    280,752 
Watts Water Technologies, Inc. —          
Class A1,2   3,000    185,611 
General Electric Co.1,2   4,500    126,135 
Northrop Grumman Corp.1,2   1,100    126,071 
Con-way, Inc.1,2   1,800    71,478 
Huntington Ingalls Industries, Inc.1,2   183    16,472 
Total Industrials        2,780,658 
           
HEALTH CARE - 15.4%          
ViroPharma, Inc.*,1,2   10,500    523,426 
Johnson & Johnson1,2   5,300    485,427 
Life Technologies Corp.*,1,2   3,000    227,400 
Amgen, Inc.1,2   1,900    216,903 
Forest Laboratories, Inc.*,1,2   3,600    216,108 
WellCare Health Plans, Inc.*,1,2   2,400    169,008 
AstraZeneca plc1,2   2,800    165,746 
GlaxoSmithKline plc1,2   5,500    146,779 
Baxter International, Inc.1,2   1,900    132,145 
Charles River Laboratories          
International, Inc.*,1,2   2,100    111,384 
Owens & Minor, Inc.1,2   2,800    102,368 
Kindred Healthcare, Inc.1,2   4,100    80,934 
Total Health Care        2,577,628 
           
CONSUMER DISCRETIONARY - 14.0%          
TJX Companies, Inc.1,2   7,600    484,348 
Ross Stores, Inc.1,2   4,600    344,678 
L Brands, Inc.1,2   5,400    333,990 
Walt Disney Co.1,2   4,322    330,201 
Family Dollar Stores, Inc.1,2   3,900    253,383 
The Gap, Inc.1,2   6,300    246,204 
Jack in the Box, Inc.*,1,2   4,200    210,084 
PVH Corp.1,2   900    122,418 
RadioShack Corp.*,1,2   5,500    14,300 
Total Consumer Discretionary        2,339,606 
           
CONSUMER STAPLES - 13.9%          
Philip Morris International, Inc.1,2   10,500    914,866 
Altria Group, Inc.1,2   17,800    683,342 
Herbalife Ltd.1,2   5,200    409,240 
Wal-Mart Stores, Inc.1,2   2,300    180,987 
Safeway, Inc.1,2   4,200    136,794 
Total Consumer Staples        2,325,229 
           
INFORMATION TECHNOLOGY - 6.5%          
CA, Inc.1,2   14,900    501,384 
Arrow Electronics, Inc.*,1,2   2,800    151,900 
Symantec Corp.1,2   6,300    148,554 
Avnet, Inc.1,2   3,200    141,152 
Harmonic, Inc.*,1,2   11,700    86,346 
Amkor Technology, Inc.*,1,2   9,800    60,074 
Total Information Technology        1,089,410 
           
FINANCIALS - 3.0%          
Amtrust Financial Services, Inc.1,2   7,623    249,196 
Endurance Specialty Holdings Ltd.1,2   3,200    187,744 
Genworth Financial, Inc. — Class A*,1,2   4,200    65,226 
Irish Bank Resolution          
Corporation Ltd.*,†††,3   16,638    — 
Total Financials        502,166 
           
TELECOMMUNICATION SERVICES - 2.4%          
AT&T, Inc.1,2   11,300    397,308 
           
ENERGY - 2.4%          
Anadarko Petroleum Corp.1,2   2,930    232,407 
ConocoPhillips1,2   1,500    105,975 
Phillips 661,2   750    57,848 
Total Energy        396,230 
           
UTILITIES - 0.8%          
Exelon Corp.1,2   5,022    137,553 
Total Common Stocks          
(Cost $7,940,553)        12,545,788 
           
SHORT TERM INVESTMENTS† - 0.1%          
State Street General Account          
U.S. Government Fund   23,239    23,239 
Total Short Term Investments          
(Cost $23,239)        23,239 

 

   Face     
   Amount     
REPURCHASE AGREEMENT††,4 - 38.4%          
State Street          
issued 12/31/13 at 0.00%          
due 01/02/14  $6,405,684    6,405,684 
Total Repurchase Agreement          
(Cost $6,405,684)        6,405,684 
Total Investments - 113.2%          
(Cost $14,369,476)       $18,974,711 

 

   Shares     
COMMON STOCKS SOLD SHORT - (46.6)%          
CONSUMER STAPLES - (0.6)%          
Monster Beverage Corp.*,†††,3,5   3,270    (96,825)
UTILITIES - (1.6)%          
Korea Electric Power Corp. ADR*,†††,3,5   19,460    (263,293)
TELECOMMUNICATION SERVICES - (1.8)%          
Clearwire Corp. — Class A*,†††,3,5   2,660    (30,138)
Global Crossing Ltd.*,†††,3,5   2,520    (40,244)
Leap Wireless International, Inc.*,†††,3,5   1,600    (69,440)

 

136 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SCHEDULE OF INVESTMENTS (continued) December 31, 2013
SERIES Z (ALPHA OPPORTUNITY SERIES)

 

   Shares   Value 
         
SBA Communications Corp. —          
Class A*,†††,3,5   2,600   $(74,854)
Savvis, Inc.*,†††,3,5   5,900    (86,966)
Total Telecommunication Services        (301,642)
           
MATERIALS - (2.7)%          
China National Building Material          
Company Ltd. — Class H†††,3,5   17,300    (23,432)
Anhui Conch Cement Company          
Ltd. — Class H†††,3,5   5,500    (24,761)
Shougang Fushan Resources          
Group Ltd.†††,3,5   70,000    (25,165)
Sino Gold Mining Ltd.*,†††,3,5   9,100    (37,425)
Turquoise Hill Resources Ltd.*,†††,3,5   4,780    (39,865)
Western Areas Ltd.†††,3,5   6,600    (47,325)
Zoltek Companies, Inc.*,†††,3,5   2,900    (52,867)
Silver Wheaton Corp.†††,3,5   6,500    (68,246)
Agnico Eagle Mines Ltd.†††,3,5   1,900    (125,612)
Total Materials        (444,698)
           
ENERGY - (2.7)%          
Aquila Resources Ltd.*,†††,3,5   2,860    (22,783)
Arrow Energy Holdings Pty Ltd.*,†††,3,5   9,500    (24,514)
Modec, Inc.†††,3,5   1,000    (25,772)
Sevan Marine ASA*,†††,3,5   6,300    (33,049)
Trican Well Service Ltd.†††,3,5   2,200    (37,448)
QGC Pty Ltd.*,†††,3,5   13,600    (52,898)
Rio Tinto Coal Mozambique*,†††,3,5   7,100    (54,029)
Imperial Energy Corporation plc*,†††,3,5   4,200    (83,657)
BPZ Resources, Inc.*,†††,3,5   6,000    (112,800)
Total Energy        (446,950)
           
INDUSTRIALS - (3.5)%          
China Communications Construction          
Company Ltd. — Class H†††,3,5   16,000    (16,571)
China Merchants Holdings International          
Company Ltd.†††,3,5   4,900    (17,461)
China National Materials Company          
Ltd. — Class H†††,3,5   37,600    (19,168)
Japan Steel Works Ltd.†††,3,5   1,600    (22,196)
Ausenco Ltd.†††,3,5   2,300    (24,817)
Toyo Tanso Company Ltd.†††,3,5   600    (32,408)
Ryanair Holdings plc*,†††,3,5   10,200    (38,219)
Meyer Burger Technology AG*,†††,3,5   200    (49,879)
USG Corp.*,†††,3,5   5,580    (160,258)
Beijing Capital International Airport          
Company Ltd. — Class H†††,3,5   232,000    (200,659)
Total Industrials        (581,636)
           
INFORMATION TECHNOLOGY - (4.0)%          
Varian Semiconductor Equipment          
Associates, Inc.*,†††,3,5   1,270    (33,299)
VeriSign, Inc.*,†††,3,5   1,300    (33,319)
Access Company Ltd.*,†††,3,5   18    (34,682)
Electronic Arts, Inc.*,†††,3,5   900    (36,720)
Intermec, Inc.*,†††,3,5   2,570    (50,937)
Baidu, Inc. ADR*,†††,3,5   200    (53,726)
Riverbed Technology, Inc.*,†††,3,5   4,100    (54,530)
Rambus, Inc.*,†††,3,5   3,680    (56,451)
Red Hat, Inc.*,†††,3,5   3,300    (58,905)
VMware, Inc. — Class A*,†††,3,5   2,500    (71,450)
Equinix, Inc.*,†††,3,5   1,000    (79,940)
Cree, Inc.*,†††,3,5   4,200    (115,332)
Total Information Technology        (679,291)
           
FINANCIALS - (7.4)%          
C C Land Holdings Ltd.†††,3,5   53,000    (14,782)
Franshion Properties China Ltd.†††,3,5   84,600    (23,552)
Mizuho Trust & Banking          
Company Ltd.*,†††,3,5   18,800    (26,216)
Aozora Bank Ltd.†††,3,5   17,300    (27,861)
Monex Group, Inc.†††,3,5   83    (29,140)
Mizuho Financial Group, Inc.†††,3,5   12,000    (49,593)
Aeon Mall Company Ltd.†††,3,5   1,900    (58,221)
PrivateBancorp, Inc. — Class A†††,3,5   2,400    (103,200)
Erste Group Bank AG†††,3,5   5,500    (337,971)
Wells Fargo & Co.†††,3,5   12,937    (565,622)
Total Financials        (1,236,158)
           
HEALTH CARE - (8.5)%          
Sepracor, Inc.*,†††,3,5   1,350    (23,625)
Exelixis, Inc.*,†††,3,5   4,700    (30,127)
Intuitive Surgical, Inc.*,†††,3,5   200    (56,100)
Zeltia S.A.*,†††,3,5   8,500    (57,969)
Savient Pharmaceuticals, Inc.*,†††,3,5   3,240    (64,282)
Sequenom, Inc.*,†††,3,5   3,140    (64,715)
Luminex Corp.*,†††,3,5   2,700    (68,823)
Auxilium Pharmaceuticals, Inc.*,†††,3,5   1,960    (72,167)
Vertex Pharmaceuticals, Inc.*,†††,3,5   2,700    (74,709)
Align Technology, Inc.*,†††,3,5   6,300    (76,860)
Acorda Therapeutics, Inc.*,†††,3,5   2,900    (77,575)
Intercell AG*,†††,3,5   2,000    (78,778)
Rigel Pharmaceuticals, Inc.*,†††,3,5   3,070    (78,838)
XenoPort, Inc.*,†††,3,5   1,790    (82,036)
Regeneron Pharmaceuticals, Inc.*,†††,3,5   3,810    (82,715)
AMAG Pharmaceuticals, Inc.*,†††,3,5   1,900    (82,954)
Basilea Pharmaceutica†††,3,5   500    (83,364)
Cepheid, Inc.*,†††,3,5   5,500    (84,700)
Alnylam Pharmaceuticals, Inc.*,†††,3,5   3,000    (88,230)
athenahealth, Inc.*,†††,3,5   2,700    (96,795)
Total Health Care        (1,425,362)
           
CONSUMER DISCRETIONARY - (13.8)%          
Tokyo Broadcasting System          
Holdings, Inc.†††,3,5   1,300    (21,836)
Genting Singapore plc†††,3,5   132,800    (43,724)
bwin Interactive Entertainment AG*,†††,3,5   1,700    (48,431)
Bwin.Party Digital          
Entertainment plc*,†††,3,5   16,200    (60,974)
Sky Deutschland AG*,†††,3,5   4,200    (68,951)
Focus Media Holding Ltd. ADR*,†††,3,5   2,500    (75,000)
Marui Group Company Ltd.†††,3,5   31,000    (233,861)
Pool Corp.†††,3,5   12,350    (305,663)

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 137

 

 
 

 

SCHEDULE OF INVESTMENTS (concluded) December 31, 2013
SERIES Z (ALPHA OPPORTUNITY SERIES)

 

   Shares   Value 
         
Electrolux AB†††,3,5   32,100   $(422,058)
Brisa Auto-Estradas de          
Portugal S.A.*,†††,3,5   47,200    (490,927)
Volkswagen AG†††,3,5   1,300    (539,374)
Total Consumer Discretionary        (2,310,799)
Total Common Stock Sold Short          
(Proceeds $7,620,060)        (7,786,654)
Total Securities Sold Short- (46.2)%          
(Proceeds $7,620,060)       $(7,786,654)
Other Assets & Liabilities, net - 33.0%        5,519,064 
Total Net Assets - 100.0%       $16,707,121 
           
EQUITY FUTURES CONTRACTS PURCHASED†          
March 2014 S&P 500 Index          
Mini Futures Contracts          
(Aggregate Value of          
Contracts $1,475,400)   16   $55,718 

 

*Non-income producing security.
†Value determined based on Level 1 inputs, unless otherwise noted — See Note 4.

††Value determined based on Level 2 inputs — See Note 4.

†††Value determined based on Level 3 inputs — See Note 4.
1All or a portion of this security is pledged as short security collateral at December 31, 2013.
2This security is deemed illiquid due to the Fund’s exposure to Lehman Brothers International Europe (“LBIE”) prime brokerage services. The total market value of illiquid securities is $12,545,788 (cost $7,940,553), or 75.1% of total net assets. The security was deemed liquid at the time of purchase.
3Illiquid security.
4Repurchase Agreement — See Note 5.
5This security was fair valued by the Valuation Committee at December 31, 2013. The total market value of fair valued securities amounts to $(7,786,654) (proceeds $7,620,060), or (46.6%) of total net assets.

ADR — American Depositary Receipt

plc — Public Limited Company

 

138 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES Z (ALPHA OPPORTUNITY SERIES)

 

STATEMENT OF ASSETS
AND LIABILITIES (Unaudited)
December 31, 2013

 

Assets:     
Investments, at value     
(cost $7,963,792)†  $12,569,027 
Repurchase agreements, at value     
(cost $6,405,684)   6,405,684 
Total investments     
(cost $14,369,476)   18,974,711 
Foreign currency, at value     
(cost $3,622,003)†   3,747,876 
Restricted cash†   2,025,019 
Segregated cash with broker   65,600 
Prepaid expenses   443 
Cash    77 
Receivables:     
Dividends   30,121 
Investment advisor   10,293 
Variation margin   7,640 
Total assets   24,861,780 
Liabilities:     
Securities sold short, at value     
(proceeds $7,620,060)†   7,786,654 
Accrued Lehman settlement costs†   299,670 
Payable for:     
Management fees   17,574 
Transfer agent/maintenance fees   4,423 
Fund accounting/administration fees   2,673 
Directors’ fees*   1,070 
Fund shares redeemed   322 
Miscellaneous   42,273 
Total liabilities   8,154,659 
Net assets  $16,707,121 
Net assets consist of:     
Paid in capital  $15,395,734 
Undistributed net investment income   62 
Accumulated net realized loss on investments   (2,918,798)
Net unrealized appreciation on investments   4,230,123 
Net assets  $16,707,121 
Capital shares outstanding   668,402 
Net asset value per share  $25.00 

 

STATEMENT OF
OPERATIONS (Unaudited)
Year Ended December 31, 2013

 

Investment Income:     
Dividends (net of foreign withholding tax of $1,708)  $283,195 
Interest   1,260 
Total investment income   284,455 
      
Expenses:     
Management fees   203,629 
Transfer agent/maintenance fees   25,626 
Fund accounting/administration fees   25,000 
Legal fees   111,749 
Custodian fees   57,324 
Prime broker interest expense   10,834 
Directors’ fees*   2,423 
Short sales dividend expense   2,194 
Miscellaneous   56,440 
Total expenses   495,219 
Less:     
Expenses waived by Advisor   (98,175)
Net expenses   397,044 
Net investment loss   (112,589)
      
Net Realized and Unrealized Gain (Loss):     
Net realized gain (loss) on:     
Investments   936,501 
Futures contracts   467,700 
Foreign currency   (846)
Securities sold short   (375,766)
Net realized gain   1,027,589 
Net change in unrealized appreciation (depreciation) on:     
Investments   3,466,097 
Securities sold short   (297,514)
Futures contracts   36,383 
Foreign currency   (125,781)
Net change in unrealized appreciation (depreciation)   3,079,185 
Net realized and unrealized gain   4,106,774 
Net increase in net assets resulting from operations  $3,994,185 

 

† All or a portion of this amount represents values related to Lehman Brothers International Europe prime brokerage services — See Note 12.

* Relates to Directors 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 | 139

 

 
 

 

SERIES Z (ALPHA OPPORTUNITY SERIES)

 

STATEMENTS OF CHANGES IN NET ASSETS

   Year Ended   Year Ended 
   December 31,   December 31, 
   2013   2012 
         
Increase (Decrease) In Net Assets From Operations:          
Net investment loss  $(112,589)  $(69,014)
Net realized gain on investments   1,027,589    1,806,623 
Net change in unrealized appreciation (depreciation) on investments   3,079,185    371,161 
Net increase from payments by affiliates   —    26,975 
Net increase in net assets resulting from operations   3,994,185    2,135,745 
           
Capital share transactions:          
Proceeds from sale of shares   —    — 
Cost of shares redeemed   (2,858,472)   (3,724,902)
Net decrease from capital share transactions   (2,858,472)   (3,724,902)
Net increase (decrease) in net assets   1,135,713    (1,589,157)
           
Net assets:          
Beginning of year   15,571,408    17,160,565 
End of year  $16,707,121   $15,571,408 
Undistributed net investment income at end of year  $62   $— 
           
Capital share activity:          
Shares sold   —    — 
Shares redeemed   (127,960)   (198,873)
Net decrease in shares   (127,960)   (198,873)

 

140 | THE GUGGENHEIM FUNDS ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS.

 

 
 

 

SERIES Z (ALPHA OPPORTUNITY SERIES)

 

FINANCIAL HIGHLIGHTS

 

This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.

 

   Year Ended   Year Ended   Year Ended   Year Ended   Year Ended 
   December 31,   December 31,   December 31,   December 31,   December 31, 
   2013   2012   2011   2010   2009 
Per Share Data                         
Net asset value, beginning of period  $19.55   $17.24   $16.98   $14.03   $10.76 
Income (loss) from investment operations:                         
Net investment lossb   (.15)   (.08)   (.12)   (.10)   (.06)
Net gain on investments (realized and unrealized)   5.60    2.36    .38    3.05    3.33 
Net increase from payments by affiliates   —    .03f   —    —    — 
Total from investment operations   5.45    2.31    .26    2.95    3.27 
Net asset value, end of period  $25.00   $19.55   $17.24   $16.98   $14.03 
                          
Total Returna   27.83%   13.40%f   1.77%   20.74%   30.39%
Ratios/Supplemental Data                         
Net assets, end of period (in thousands)  $16,707   $15,571   $17,161   $21,149   $22,633 
Ratios to average net assets:                         
Net investment loss   (0.69%)   (0.41%)   (0.66%)   (0.89%)   (0.52%)
Total expensesd   3.03%   2.22%   2.29%   2.27%   2.85%
Net expensesc,e   2.44%   2.22%   2.29%   2.07%   1.74%
Portfolio turnover rate   548%   720%   730%   768%   555%

 

aTotal return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of SBL Fund are available only through the purchase of such products.
bNet investment loss per share was computed using average shares outstanding throughout the period.
cNet expense information reflects the expense ratios after expense waivers, and may include interest or dividend expense.
dDoes not include expenses of the underlying funds in which the Fund invests.
eExcluding interest and dividend expense related to short sales, the operating expense ratios for the years ended December 31 would be:

2013   2012   2011   2010   2009 
 2.35%   2.06%   2.21%   1.90%   1.69%

fFor the year ended December 31, 2012, 0.17% of the Series total return consisted of a voluntary reimbursement by the advisor for losses incurred during fund trading. Excluding this item, total return would have been 13.23% for the Series.

 

SEE NOTES TO FINANCIAL STATEMENTS. THE GUGGENHEIM FUNDS ANNUAL REPORT | 141

 

 
 

 

NOTES TO FINANCIAL STATEMENTS

 

1. Organization and Significant Accounting Policies Organization

 

SBL Fund (the “Trust”), a Kansas business trust, is registered with the SEC under the Investment Company Act of 1940 (“1940 Act”), as a non-diversified, open-ended investment company of the series type. Each series, in effect, is representing a separate Fund (collectively the “Funds”). The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately. Security Benefit Life Insurance Company (“SBL”) and SBL’s affiliated life insurance company as well as unaffiliated life insurance companies purchase shares of the Funds for their variable annuity and variable life insurance separate accounts.

 

At December 31, 2013, the Trust consisted of sixteen separate Funds.

 

Guggenheim Investments (“GI”) provides advisory services to the Funds. Rydex Fund Services, LLC (“RFS”) acts as the transfer agent and provides administrative and accounting services to the Funds. Guggenheim Distributors, LLC (“GDL”) acts as principal underwriter to the Funds. GI, RFS and GDL are affiliated entities.

 

Prior to September 30, 2013, Mainstream Investment Advisers, LLC (“Mainstream”) acted as sub-adviser to Series Z (Alpha Opportunity Series). Pursuant to an investment sub-advisory agreement, Mainstream furnished investment advisory services, supervised and arranged for the purchase and sale of securities on behalf of a portion of the assets of Series Z and provided for the compilation and maintenance of records pertaining to such investment advisory services, subject to the control and supervision of the Fund’s Board of Directors and the Investment Manager. For such services, the Investment Manager paid Mainstream an annual fee equal to 1.45% of that portion of Series Z’s average daily net assets managed by Mainstream. Effective September 30, 2013, Mainstream resigned as sub-adviser to Series Z and the Investment Manager assumed all advisory obligations and responsibilities.

 

Significant Accounting Policies

 

The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.

 

A. Valuations of the Funds’ securities are supplied primarily by pricing services approved by the Board of Directors. The Trust’s officers, through the Valuation Committee under the general supervision of the Board of Directors, regularly review procedures used by, and valuations provided by, the pricing services.

 

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 such day, the security is valued at the closing bid price on such day.

 

Open-end investment companies (“Mutual Funds”) are valued at their net asset value per share (“NAV”) as of the close of business on the valuation date. Exchange Traded Funds (“ETFs”) and closed-end investment companies are valued at the last quoted sales price.

 

Debt securities with a maturity of greater than 60 days at acquisition are valued at prices that reflect broker/dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term debt securities with a maturity of 60 days or less at acquisition and repurchase agreements are valued at amortized cost, which approximates market value.

 

Listed options are valued at the Official Settlement Price listed by the exchange, usually as of 4:00 p.m. Long options are valued using the bid price and short options are valued using the ask price. In the event that a settlement price is not available, fair valuation is enacted. Over-the-counter options are valued using the average bid price (for long options), or average ask price (for short options) obtained from one or more security dealers.

 

Premiums received from options written are entered in the Fund’s accounting records as an asset and equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the option written. When an option written expires, or if a Fund enters into a closing purchase transaction, it realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was sold).

 

142 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

The senior floating rate interests (loans) in which certain Funds invest are not listed on any securities exchange or board of trade. Accordingly, determinations of the value of loans may be based on infrequent and dated trades. Typically loans are valued using information provided by an independent third party pricing service which uses broker quotes in a non-active market, or price derived from significant observable inputs and is also compared to broker quote (matrixed). If the pricing service cannot or does not provide a valuation for a particular loan or such valuation is deemed unreliable, such loan is fair valued by the Valuation Committee. In determining fair value, consideration is given to several factors, which may include, among others, one or more of the following: the fundamental business data relating to the issuer or borrower; an evaluation of the forces which influence the market in which these loans are purchased and sold; type of holding; financial statements of the borrower; cost at date of purchase; size of holding; credit worthiness and cash flow of issuer; information as to any transactions in, or offers for, the holding; price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies; coupon payments; quality, value and salability of collateral securing the loan; business prospects of the issuer/borrower, including any ability to obtain money or resources from a parent or affiliate; the portfolio manager’s and/or the market’s assessment of the borrower’s management; prospects for the borrower’s industry, and multiples (of earnings and/or cash flow) being paid for similar businesses in that industry; borrower’s competitive position within the industry; borrower’s ability to access additional liquidity through public and/or private markets; and other relevant factors.

 

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 index swap agreements entered into by a Fund is accounted for using the unrealized gain or loss on the agreements that is determined using the last quoted value of the index that the swap pertains to at the close of the NYSE, adjusted to include dividends accrued, and financing charges and/or interest associated with the swap agreements.

 

Interest rate swap agreements entered into by a Fund are accounted for using the unrealized gain or loss on the agreements that is determined using the spread priced off the previous day’s CME price.

 

The value of a forward foreign currency exchange contract is adjusted daily based on the applicable exchange rate of the underlying currency.

 

Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the NYSE. The values of foreign securities are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currency are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities such as World Equity Benchmark Securities. In addition, the Board of Directors has authorized the Valuation Committee and GI to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.

 

Investments for which market quotations are not readily available are fair valued as determined in good faith by GI under the direction of the Board of Directors using methods established or ratified by the Board of Directors. These methods include, but are not limited to: (i) obtaining general information as to how these securities and assets trade; (ii) in connection with futures contracts and options thereupon, and other derivative investments, obtaining information as to how (a) these contracts and other derivative investments trade in the futures or other derivative markets, respectively, and (b) the securities underlying these contracts and other derivative investments trade in the cash market; and (iii) obtaining other information and considerations, including current values in related markets.

 

B. Senior loans in which the Funds invest generally pay interest rates which are periodically adjusted by reference to a base short-term, floating rate plus a premium. These base lending rates are generally (I) the lending rate offered by one or more major European banks, such as the London Inter-Bank Offered Rate (LIBOR), (ii) the prime rate offered by one or more major United States banks, or (iii) the bank’s certificate of deposit rate. Senior floating rate interests often require prepayments from excess cash flows or permit the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. The interest rate indicated is the rate in effect at December 31, 2013.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 143

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

C. Securities 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 premium and accretion of discount, is accrued on a daily basis. Distributions received from investments in REITs are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distribution by the issuer. 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.

 

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. 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.

 

F. The Funds are required by the Internal Revenue Code to distribute substantially all income and capital gains to shareholders. Each year, the Funds determine whether to declare and pay actual dividends or whether to secure consent of its shareholders to report and deduct a consent dividend. A consent dividend is treated for tax purposes as a distribution to shareholders occurring on the last day of the Fund’s taxable year and a shareholder contribution to capital occurring on the same day. It is the Trust’s current practice to utilize the consent dividend procedures. The character of any distributions made from net investment income and net realized gains may differ from their ultimate characterization for income tax purposes.

 

G. 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. The Fund is exposed to market risk based on the amount, if any, that the market value of the security exceeds the market value of the securities in the segregated account.

 

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 treasury 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.

 

144 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

H. 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.

 

I. 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.

 

J. 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.

 

K. Expenses directly attributable to a Fund are charged directly to the Fund. Other expenses common to various funds within the fund complex are generally allocated amongst such funds on the basis of average net assets.

 

L. Under the fee arrangement with the custodian, the Funds may earn credits based on overnight custody cash balances. These credits are utilized to reduce related custodial expenses. The custodian fees disclosed in the Statement of Operations are before the reduction in expense from the related earnings credits, if any. For the year ended December 31, 2013, there were no earnings credits received.

 

The Funds may leave cash overnight in their cash account with the custodian, U.S. Bank. 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.

 

Segregated cash with broker is held as collateral for investments in derivative instruments such as futures contracts or swap agreements.

 

M. Under the Trust organizational documents, its Officers and Directors are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, throughout the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds and/ or their affiliates that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote.

 

2. Financial Instruments

 

As part of their investment strategy, the Funds utilize short sales and a variety of derivative instruments including futures, options, forwards and swap agreements. 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.

 

Series Z (Alpha Opportunity Series) may make short sales “against the box,” in which the Fund enters into a short sale of a security it owns. At no time will more than 15% of the value of the Fund’s net assets be in deposits on short sales against the box. When a Fund makes a short sale, the Fund does not immediately deliver the securities sold from its own account, or receive the proceeds from the sale. To complete the sale, the Fund must borrow the security (generally from the broker through which the short sale is made) in order to make delivery to the buyer. The Fund must replace the security borrowed by purchasing it at the market price at the time of replacement or delivering the security from its own portfolio. The Fund is said to have a “short position” in securities sold until it delivers them to the broker, at which time it receives the proceeds of the sale. Certain Funds may make short sales that are not “against the box,” which create opportunities to increase the Funds’ return but, at the same time, involve specific risk considerations and may be considered a speculative technique. Such short sales theoretically involve unlimited loss potential, as the market price of securities sold short may continually increase, although a Fund may mitigate such losses by replacing the securities sold short before the market price has increased significantly. Subsequent fluctuations in the market prices of securities sold, but not yet purchased, may require purchasing the securities at prices which differ from the market value reflected on the Statements of Assets and Liabilities. The Funds are liable for any dividends or interest payable on securities while those securities are in a short position. As collateral for its short positions, the Fund is required under the 1940 Act to maintain segregated assets consisting of cash, cash equivalents or liquid securities. These segregated assets are valued consistent with Note 1A and are required to be adjusted daily to reflect changes in the market value of the securities sold short.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 145

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

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 or an underlying fund’s use of futures contracts and related options, including (i) there may be an imperfect or no correlation between the changes in market value of the underlying asset and the prices of futures contracts; (ii) there may not be a liquid secondary market for a futures contract; (iii) trading restrictions or limitations may be imposed by an exchange; and (iv) government regulations may restrict trading in futures contracts. When investing in futures, there is minimal counterparty credit risk to the Fund because futures are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees against default. Cash deposits are shown as restricted cash on the Statement of Assets and Liabilities; securities held as collateral are noted on the Schedule of Investments.

 

An option on a security gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security (put option) or the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security (call option) at any time during the option period. The risk associated with purchasing options is limited to the premium originally paid. The risk in writing a call option is that a Fund may incur a loss if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there may be an imperfect correlation between the movement in prices of options and the underlying securities and a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or, for over-the-counter options, because of the counterparty’s inability to perform.

 

A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. A Fund utilizing OTC swaps bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. For Funds utilizing interest rate swaps, the exchange bears the risk of loss. Additionally, there is no guarantee that a Fund or an underlying fund could eliminate its exposure under an outstanding swap agreement by entering into an offsetting swap agreement with the same or another party.

 

StylePlus—Large Core Series, StylePlus—Mid Growth Series, StylePlus—Small Growth Series and StylePlus—Large Growth Series utilized derivatives to achieve leveraged exposure. The use of derivative instruments by a Fund to achieve leveraged exposure to the underlying index creates leveraging risk. The more a Fund invests in leveraged instruments, the more this leverage will magnify any losses on those investments. A Fund’s investment in these instruments generally requires a small investment relative to the amount of investment exposure assumed. As a result, such investments may give rise to losses that exceed the amount invested in those instruments. Since a Fund’s investment strategy involves consistently applied leverage, the value of the Fund’s shares will tend to increase or decrease more than the value of any increase or decrease in the underlying index. Leverage also will have the effect of magnifying tracking error.

 

In conjunction with the use of short sales, futures, options and swap agreements, the Funds are required to maintain collateral in various forms. The Funds use, where appropriate, depending on the financial instrument utilized and the broker involved, margin deposits at the broker, cash and/or securities segregated at the custodian bank, discount notes, or the repurchase agreements allocated to each Fund.

 

A forward foreign currency exchange contract is an agreement between two parties to exchange two designated currencies at a specific time in the future. The contracts can be used to hedge or manage exposure to foreign currency risks with portfolio investments or to gain exposure to foreign currencies.

 

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.

 

146 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

3. Fees and Other Transactions with Affiliates

 

Management fees are paid monthly to GI, based on the following annual rates.

 

   Management Fees 
   (as a % of net assets) 
Series A (StylePlus–Large Core Series)   0.75%
Series B (Large Cap Value Series)   0.65%
Series C (Money Market Series)   0.50%
Series D (World Equity Income Series)   0.70%
Series E (Total Return Bond Series)   0.75%
Series F (Floating Rate Strategies Series)   0.65%
Series J (StylePlus–Mid Growth Series)   0.75%
Series M (Macro Opportunities Series)   0.89%
Series N (Managed Asset Allocation Series)   0.65%
Series O (All Cap Value Series)   0.70%
Series P (High Yield Series)   0.75%
Series Q (Small Cap Value Series)   0.95%
Series V (Mid Cap Value Series)   0.75%
Series X (StylePlus–Small Growth Series)   0.85%
Series Y (StylePlus–Large Growth Series)   0.75%
Series Z (Alpha Opportunity Series)   1.25%

 

RFS also acts as the administrative agent for the Funds, and as such performs administrative functions and the bookkeeping, accounting and pricing functions for each Fund. For these services, RFS receives the following:

 

   Fund Accounting/ 
   Administrative Fees 
   (as a % of net assets)* 
Series A (StylePlus–Large Core Series)   0.095%
Series B (Large Cap Value Series)   0.095%
Series C (Money Market Series)   0.095%
Series D (World Equity Income Series)   0.150%
Series E (Total Return Bond Series)   0.095%
Series F (Floating Rate Strategies Series)   0.095%
Series J (StylePlus–Mid Growth Series)   0.095%
Series M (Macro Opportunities Series)   0.095%
Series N (Managed Asset Allocation Series)   0.150%
Series O (All Cap Value Series)   0.095%
Series P (High Yield Series)   0.095%
Series Q (Small Cap Value Series)   0.095%
Series V (Mid Cap Value Series)   0.095%
Series X (StylePlus–Small Growth Series)   0.095%
Series Y (StylePlus–Large Growth Series)   0.095%
Series Z (Alpha Opportunity Series)   0.150%

 

*The minimum annual charge for administrative fees is $25,000 for Series A, B, C, E, F, J, M, O, P, Q, V, X, Y and Z and $60,000 for Series D and N.

 

RFS is paid the following for providing transfer agent services to the Funds:

 

Annual charge per account $5.00 – $8.00
Transaction fee $0.60 – $1.10
Minimum annual charge per Fund† $25,000
Certain out-of-pocket charges Varies

 

†Not subject to Funds during first twelve months of operations.

 

Series F and Series M have adopted a Distribution and Shareholder Services Plan pursuant to Rule 12b-1 under the 1940 Act that allows those Series to pay distribution and shareholder services fees to GDL. The Series will pay distribution and shareholder services fees to GDL at an annual rate not to exceed 0.25% of average daily net assets. GDL may, in turn, pay all or a portion of the proceeds from the distribution and shareholder services fees to insurance companies or their affiliates and qualified plan administrators (“intermediaries”) for services they provide on behalf of the Series to current and prospective variable contract owners and qualified plan participants that invest in the Series through the intermediaries.

 

The investment advisory contracts for the following Funds provide that the total expenses be limited to a percentage of average net assets for each Fund, 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:

 

      Contract
  Limit Effective Date End Date
Series C (Money Market Series) 0.50% 08/22/2013 05/01/2014
Series E (Total Return Bond Series) 0.81% 11/30/2012 05/01/2014
Series F (Floating Rate Strategies Series) 1.15% 04/22/2013 05/01/2014
Series M (Macro Opportunities Series) 1.45% 04/22/2013 05/01/2014
Series O (All Cap Value Series) 1.00% 11/30/2012 05/01/2014
Series Z (Alpha Opportunity Series) 2.35% 11/30/2012 05/01/2014

 

GI is entitled to reimbursement by the Series for fees waived or expenses reimbursed during any of the previous 36 months, beginning on the date of the expense limitation agreement, if on any day the estimated operating expenses are less than the indicated percentages. At December 31, 2013, the amount of fees waived or expenses reimbursed that are subject to recoupment are presented in the following table:

 

   Expires   Expires   Expires   Fund 
Fund  2014   2015   2016   Total 
Series C (Money Market Series)  $—   $—   $54,066   $54,066 
Series E (Total Return Bond Series)   142,582    154,822    208,040    505,444 
Series F (Floating Rate Strategies Series)   —    —    48,535    48,535 
Series M (Macro Opportunities Series)   —    —    55,226    55,226 
Series O (All Cap Value Series)   —    —    —    — 
Series Z (Alpha Opportunity Series)   —    —    98,175    98,175 

 

For the year ended December 31, 2013, no amounts were recouped by GI.

 

Certain officers and directors of the Trust are also officers of GI, RFS and GDL.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 147

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

At December 31, 2013, Security Benefit Life Insurance Company, through its insurance company separate accounts, owned shares of the Funds, as follows:

 

   Percent of outstanding 
   shares owned 
Series A (StylePlus–Large Core Series)   100%
Series B (Large Cap Value Series)   100%
Series C (Money Market Series)   100%
Series D (World Equity Income Series)   99%
Series E (Total Return Bond Series)   98%
Series F (Floating Rate Strategies Series)   57%
Series J (StylePlus–Mid Growth Series)   99%
Series M (Macro Opportunities Series)   96%
Series N (Managed Asset Allocation Series)   98%
Series O (All Cap Value Series)   99%
Series P (High Yield Series)   93%
Series Q (Small Cap Value Series)   96%
Series V (Mid Cap Value Series)   98%
Series X (StylePlus–Small Growth Series)   98%
Series Y (StylePlus–Large Growth Series)   98%
Series Z (Alpha Opportunity Series)   100%

 

4. Fair Value Measurement

 

In accordance with U.S. GAAP, fair value is defined as the price that the 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. A three-tier hierarchy is utilized to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Funds’ investments. The inputs are summarized in the three broad levels listed below:

 

Level 1 — quoted prices in active markets for identical securities.

 

Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).

 

Level 3 — significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).

 

The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

148 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

The following table summarizes the inputs used to value the Funds’ net assets at December 31, 2013:

 

   Level 1   Level 1   Level 2   Level 2   Level 3     
   Investments   Other Financial   Investments   Other Financial   Investments     
   In Securities   Instruments*   In Securities   Instruments*   In Securities   Total 
Assets                              
Series A (StylePlus–Large Core Series)  $102,539,810   $—   $129,289,636   $—   $—   $231,829,446 
Series B (Large Cap Value Series)   283,334,675    —    —    —    —    283,334,675 
Series C (Money Market Series)   28,695,559    —    47,672,824    —    —    76,368,383 
Series D (World Equity Income Series)   192,706,303    —    —    —    —    192,706,303 
Series E (Total Return Bond Series)   12,259,610    —    90,741,861    142,820    —    103,144,291 
Series F (Floating Rate Strategies Series)   3,959,993    —    42,875,653    —    148,500    46,984,146 
Series J (StylePlus–Mid Growth Series)   70,508,290    29,603    86,668,075    —    —    157,205,968 
Series M (Macro Opportunities Series)   2,482,948    —    25,344,305    96,610    —    27,923,863 
Series N (Managed Asset Allocation Series)   64,353,841    731,294    —    17,981    —    65,103,116 
Series O (All Cap Value Series)   153,536,562    —    —    —    —    153,536,562 
Series P (High Yield Series)   5,547,830    —    124,415,952    —    1,700,558    131,664,340 
Series Q (Small Cap Value Series)   138,898,474    —    923,400    —    9,879    139,831,753 
Series V (Mid Cap Value Series)   300,615,345    —    1,465,406    —    26,110    302,106,861 
Series X (StylePlus–Small Growth Series)   16,597,702    15,761    22,114,384    —    —    38,727,847 
Series Y (StylePlus–Large Growth Series)   19,173,639    19,895    21,352,272    —    —    40,545,806 
Series Z (Alpha Opportunity Series)   12,569,027    55,718    6,405,684    —    —    19,030,429 
                               
Liabilities                              
Series E (Total Return Bond Series)  $—   $—   $—   $  59,120   $—   $59,120 
Series M (Macro Opportunities Series)   —    —    —    7,220    —    7,220 
Series N (Managed Asset Allocation Series)   —    177,524    —    27,494    —    205,018 
Series O (All Cap Value Series)   —    3,010    —    —    —    3,010 
Series P (High Yield Series)   —    —    —    7,962    —    7,962 
Series Q (Small Cap Value Series)   —    19,180    —    19,440    —    38,620 
Series V (Mid Cap Value Series)   —    43,625    —    43,440    —    87,065 
Series Z (Alpha Opportunity Series)   —    —    —    —    7,786,654    7,786,654 

 

*Other financial instruments may include written options, forward foreign currency exchange contracts, futures contracts and/or swaps, which are reported as unrealized gain/loss at period end.

 

Financial assets and liabilities categorized as Level 2 consist primarily of fixed income investments. Fixed income investments generally have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the Funds and others are willing to pay for an asset. Ask prices represent the lowest price that the Funds and others are willing to accept for an asset. For financial assets and liabilities whose inputs are based on bid-ask prices obtained from third party pricing services, fair value may not always be a predetermined point in the bid-ask range. The Funds’ policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets the Funds’ best estimate of fair value.

 

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:

 

   Category and  Ending Balance   Valuation  Unobservable   
Fund  Subcategory  at 12/31/13   Technique  Inputs  Input Value
   Investments, at value              
Series P (High Yield Series)  Senior Floating Rate Interests  $1,700,499   Market Comparable  EV/EBITDA multiple  3.5 - 21.5
           Companies      

 

The significant unobservable inputs used in the fair value measurement of the Fund’s senior floating rate securities are earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples, comparable public company enterprise values (“EV”) and underlying portfolio information. The Fund uses EBITDA multiples on public comparables applied to expected cash flows of the security. Significant increases or decreases in these inputs in isolation would result in a significantly lower or higher fair value measurement.

 

The remaining level 3 securities held by Series P (High Yield Series) were not considered significant to that Fund.

 

Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in the investment’s valuation changes. The Funds recognize transfers between the levels as of the beginning of the period. As of December 31, 2013, Series P (High Yield Series) had securities with a total value of $603,346 transfer from Level 3 to Level 2 due to changes in the securities valuation method. Series D (World Equity Income Series) had transfers between Level 1 and Level 2 due to utilizing international fair value pricing during the period. There were no other securities that transferred between levels.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 149

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

Summary of Fair Value Level 3 Activity

 

Following is a reconciliation of Level 3 assets and liabilities for which significant unobservable inputs were used to determine fair value for the year ended December 31, 2013:

 

LEVEL 3 – Fair value measurement using significant unobservable inputs

 

   Total 
Series P (High Yield Series)     
Assets:     
Beginning Balance  $603,405 
Transfer into Level 3   1,700,499 
Transfer out of Level 3   (603,346)
Ending Balance  $1,700,558 
      
Series Z (Alpha Opportunities Series) (See Note 12)     
Liabilities:     
Beginning Balance  $(7,786,654)
Ending Balance  $(7,786,654)

 

5. 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.

 

At December 31, 2013, the collateral for the repurchase agreements was as follows:

 

   Counterparty and      Repurchase            
Fund  Terms of Agreement  Face Value   Price   Collateral  Par Value   Fair Value 
SBL Z (Alpha Opportunity Series)  State Street            Freddie Mac          
   0.00%            2.00%          
   Due 01/02/14  $6,405,684   $6,405,684   01/30/23  $7,300,000   $6,538,194 

 

In the event of counterparty default, the Funds have the right to collect the collateral to offset losses incurred. There is potential loss to the Funds in the event the Funds are delayed or prevented from exercising their rights to dispose of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period while the Funds seek to assert their rights. The Funds’ investment advisor, acting under the supervision of the Board of Directors, 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.

 

6. Derivative Investment Holdings Categorized by Risk Exposure

 

U.S. GAAP requires disclosures to enable investors to better understand how and why the Funds use derivative instruments, how these derivative instruments are accounted for and their effects on the Funds’ financial position and results of operations.

 

Certain Funds utilized options to minimally hedge the Fund’s portfolio to increase returns, to maintain exposure to the equity markets, and create liquidity.

 

The following Funds utilized futures and swap agreements for the following purposes:

 

Fund Index Exposure Income Duration Speculation
Series A (StylePlus–Large Core Series) x      
Series J (StylePlus–Mid Growth Series) x      
Series M (Macro Opportunities Series) x x x x
Series N (Managed Asset Allocation Series) x     x
Series X (StylePlus–Small Growth Series) x      
Series Y (StylePlus–Large Growth Series) x      
Series Z (Alpha Opportunity Series) x      

 

150 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

The following table represents the notional amount of futures and swap agreements outstanding, as an approximate percentage of the Funds’ net assets on a daily basis.

 

   Approximate percentage of 
   Fund’s net assets on a daily basis 
Fund  Long   Short 
Series A (StylePlus–Large Core Series)   75%   — 
Series E (Total Return Bond Series)   20%   — 
Series J (StylePlus–Mid Growth Series)   75%   — 
Series M (Macro Opportunities Series)   10%   — 
Series N (Managed Asset Allocation Series)   55%   5%
Series X (StylePlus–Small Growth Series)   75%   — 
Series Y (StylePlus–Large Growth Series)   75%   — 
Series Z (Alpha Opportunity Series)   10%   — 

 

The following is a summary of the location of derivative investments on the Funds’ Statements of Assets and Liabilities as of December 31, 2013:

 

Derivative Investment Type Asset Derivatives Liability Derivatives
Equity/Interest Rate/Currency contracts Variation margin Options written, at value
  Investments, at value  
  Unrealized appreciation on swap agreements Unrealized depreciation on swap agreements
  Unrealized appreciation on forward Unrealized depreciation on forward
  foreign currency exchange contracts foreign currency exchange contracts

 

The following table sets forth the fair value of the Funds’ derivative investments categorized by primary risk exposure at December 31, 2013:

 

Asset Derivative Investments Value
                       Options   Options     
   Futures   Swaps   Swaps   Swaps   Futures   Purchased   Purchased   Total Value at 
   Equity   Equity   Interest Rate   Currency   Currency   Equity   Interest Rate   December 31, 
Fund  Contracts*   Contracts   Contracts   Contracts   Contracts*   Contracts   Contracts   2013 
Series E (Total Return Bond Series)  $—   $—   $142,820   $—   $—   $—   $—   $142,820 
Series J (StylePlus–Mid Growth Series)   29,603    —    —    —    —    —    —    29,603 
Series M (Macro Opportunities Series)   —    94,302    730    1,578    —    —    4,520    101,130 
Series N (Managed Asset Allocation Series)   744,660    —    —    —    4,615    —    —    749,275 
Series X (StylePlus–Small Growth Series)   15,761    —    —    —    —    —    —    15,761 
Series Y (StylePlus–Large Growth Series)   19,895    —    —    —    —    —    —    19,895 
Series Z (Alpha Opportunity Series)   55,718    —    —    —    —    —    —    55,718 

 

Liability Derivative Investments Value
                       Forward             
                       Foreign   Options   Options     
   Futures   Swaps   Swaps   Futures   Futures   Currency   Written   Written   Total Value at 
   Equity   Interest Rate   Currency   Currency   Interest Rate   Exchange   Equity   Interest Rate   December 31, 
Fund  Contracts*   Contracts   Contracts   Contracts*   Contracts*   Contracts   Contracts   Contracts   2013 
Series E (Total Return Bond Series)  $—   $59,120   $—   $—   $—   $—   $—   $—   $59,120 
Series M (Macro Opportunities Series)   —    5,525    —    —    —    —    —    1,695    7,220 
Series N (Managed Asset Allocation Series)   33,501    —    —    4,999    166,518    —    —    —    205,018 
Series O (All Cap Value Series)   —    —    —    —    —    —    3,010    —    3,010 
Series P (High Yield Series)   —    —    —    —    —    7,962    —    —    7,962 
Series Q (Small Cap Value Series)   —    —    —    —    —    —    38,620    —    38,620 
Series V (Mid Cap Value Series)   —    —    —    —    —    —    87,065    —    87,065 

 

*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 GUGGENHEIM FUNDS ANNUAL REPORT | 151

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

The following is a summary of the location of derivative investments on the Funds’ Statements of Operations for the year ended December 31, 2013:

 

Derivative Investment Type Location of Gain (Loss) on Derivatives
Equity/Interest Rate/Currency contracts Net realized gain (loss) on forward foreign currency exchange contracts
  Net change in unrealized appreciation (depreciation on forward foreign currency exchange contracts
  Net realized gain (loss) on futures contracts
  Net change in unrealized appreciation (depreciation) on futures contracts
  Net realized gain (loss) on options purchased
  Net change in unrealized appreciation (depreciation) on options purchased
  Net realized gain (loss) on options written
  Net change in unrealized appreciation (depreciation) on options written
  Net realized gain (loss) on swap agreements
  Net change in unrealized appreciation (depreciation) on swap agreements

 

The following is a summary of the Funds’ realized gain (loss) and change in unrealized appreciation (depreciation) on derivative investments recognized on the Statements of Operations categorized by primary risk exposure for the year ended December 31, 2013:

 

Realized Gain (Loss) on Derivative Investments Recognized on the Statements of Operations
                           Forward   Options   Options     
           Swaps           Futures   Foreign   Purchased/   Purchased/     
   Futures   Swaps   Interest   Swaps   Futures   Interest   Currency   Written   Written     
   Equity   Equity   Rate   Currency   Currency   Rate   Exchange   Equity   Interest Rate     
Fund  Contracts   Contracts   Contracts   Contracts   Contracts   Contracts   Contracts   Contracts   Contracts   Total 
Series A (StylePlus–Large Core Series)  $371,912   $26,517,485   $—   $—   $—   $—   $—   $     —   $—   $26,889,397 
Series E (Total Return Bond Series)   —    —    (7,274)   —    —    —    —    —    —    (7,274)
Series J (StylePlus–Mid Growth Series)   96,531    20,377,425    —    —    —    —    —    —    —    20,473,956 
Series M (Macro Opportunities Series)   —    —    27,814    (2,528)   —    —    —    —    (9,600)   15,686 
Series N (Managed Asset Allocation Series)   3,747,923    —    —    —    (178,952)   (333,028)   —    —    —    3,235,943 
Series O (All Cap Value Series)   —    —    —    —    —    —    —    29,947    —    29,947 
Series P (High Yield Series)   —    —    —    —    —    —    (1,265)   —    —    (1,265)
Series Q (Small Cap Value Series)   —    —    —    —    —    —    —    127,910    —    127,910 
Series V (Mid Cap Value Series)   —    —    —    —    —    —    —    129,114    —    129,114 
Series X (StylePlus–Small Growth Series)   3,539    6,791,493    —    —    —    —    —    —    —    6,795,032 
Series Y (StylePlus–Large Growth Series)   54,458    4,746,974    —    —    —    —    —    —    —    4,801,432 
Series Z (Alpha Opportunity Series)   467,700    —    —    —    —    —    —    —    —    467,700 

 

Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statements of Operations
                           Forward   Options   Options     
           Swaps               Foreign   Purchased/   Purchased/     
   Futures   Swaps   Interest   Swaps   Futures   Futures   Currencies   Written   Written     
   Equity   Equity   Rate   Currency   Currency   Interest Rate   Exchange   Equity   Interest Rate     
Fund  Contracts   Contracts   Contracts   Contracts   Contracts   Contracts   Contracts   Contracts   Contracts   Total 
Series E (Total Return Bond Series)  $—   $—   $83,700   $—   $—   $—   $—   $—   $—   $83,700 
Series J (StylePlus–Mid Growth Series)   29,603    —    —    —    —    —    —    —    —    29,603 
Series M (Macro Opportunities Series)   —    94,302    (4,795)   1,578    —    —    —    —    (22,035)   69,050 
Series N (Managed Asset Allocation Series)   453,983    —    —    —    1,140    (71,852)   —    —    —    383,271 
Series O (All Cap Value Series)   —    —    —    —    —    —    —    26,058    —    26,058 
Series P (High Yield Series)   —    —    —    —    —    —    (7,962)   —    —    (7,962)
Series Q (Small Cap Value Series)   —    —    —    —    —    —    —    62,843    —    62,843 
Series V (Mid Cap Value Series)   —    —    —    —    —    —    —    140,750    —    140,750 
Series X (StylePlus–Small Growth Series)   15,761    —    —    —    —    —    —    —    —    15,761 
Series Y (StylePlus–Large Growth Series)   19,895    —    —    —    —    —    —    —    —    19,895 
Series Z (Alpha Opportunity Series)   36,383    —    —    —    —    —    —    —    —    36,383 

 

7. Federal Income Tax Information

 

The Funds intend to comply with the provisions of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and 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.

 

152 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

Tax positions taken or expected to be taken in the course of preparing the Funds’ tax returns are evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management has analyzed the Funds’ tax positions taken, or to be taken, on Federal income tax returns for all open tax years, and has concluded that no provision for income tax is required in the Funds’ financial statements. The Fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed.

 

The RIC Modernization Act of 2010 was signed into law on December 22, 2010 and seeks to simplify some of the tax provisions applicable to regulated investment companies, the tax reporting to their shareholders and to improve the tax efficiency of certain fund structures. The greatest impact to the disclosure in the financial reports for the Funds was on the treatment of net capital losses, effective for tax years beginning after December 22, 2010.

 

One of the more prominent changes addresses capital loss carryforwards. Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss. As a result of this ordering rule, pre-enactment capital carryforwards may potentially expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.

 

Tax basis capital losses in excess of capital gains are carried forward to offset future net capital gains. For the year ended December 31, 2013, the following capital loss carryforward amounts expired, were used, or were permanently lost due to loss limitation rules in Section 382 of the Internal Revenue Code:

 

Fund  Amount 
Series A (StylePlus–Large Core Series)  $8,855,698 
Series B (Large Cap Value Series)   12,615,624 
Series D (World Equity Income Series)   20,160,998 
Series E (Total Return Bond Series)   4,045,469 
Series J (StylePlus–Mid Growth Series)   5,795,514 
Series N (Managed Asset Allocation Series)   2,942,348 
Series O (All Cap Value Series)   9,320,353 
Series X (StylePlus–Small Growth Series)   1,455,499 
Series Y (StylePlus–Large Growth Series)   1,598,274 
Series Z (Alpha Opportunity Series)   2,342,209 

 

During 2013, the Funds declared ordinary and long-term capital gain consent dividends, effective for the year ended December 31, 2012, as shown below:

 

   Ordinary   Long-Term     
   Income   Capital Gain   Total 
   Consent   Consent   Consent 
Fund  Dividends   Dividends   Dividends 
Series A (StylePlus–Large Core Series)  $1,952,226   $2,471,434   $4,423,660 
Series B (Large Cap Value Series)   3,229,551    —    3,229,551 
Series D (World Equity Income Series)   8,768,672    —    8,768,672 
Series E (Total Return Bond Series)   3,491,775    —    3,491,775 
Series J (StylePlus–Mid Growth Series)   205,098    12,523,200    12,728,298 
Series N (Managed Asset Allocation Series)   483,836    6,386,032    6,869,868 
Series O (All Cap Value Series)   1,256,228    —    1,256,228 
Series P (High Yield Series)   9,468,472    2,295,806    11,764,278 
Series Q (Small Cap Value Series)   425,400    13,279,921    13,705,321 
Series V (Mid Cap Value Series)   1,085,462    17,399,679    18,485,141 
Series X (StylePlus–Small Growth Series)   —    3,127,824    3,127,824 
Series Y (StylePlus–Large Growth Series)   242,457    1,219,245    1,461,702 
Series Z (Alpha Opportunity Series)   —    87,336    87,336 

 

Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 153

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

The tax character of distributable earnings/(accumulated losses) at December 31, 2013 was as follows:

 

   Undistributed   Undistributed   Net Unrealized   Capital Loss 
   Ordinary   Long-Term   Appreciation/   Carryforward 
Fund  Income   Capital Gain   Depreciation   and Other Losses 
Series A (StylePlus–Large Core Series)  $32,049,304   $29,186,762   $4,573,354   $(35,216,018)1
Series B (Large Cap Value Series)   2,824,543    18,148,077    81,838,120    (35,375,572)1
Series C (Money Market Series)   —    —    1,671    — 
Series D (World Equity Income Series)   5,046,941    —    7,332,989    (62,579,131)1
Series E (Total Return Bond Series)   5,070,905    —    (3,785,402)   (8,523,272)1
Series F (Floating Rate Strategies Series)   1,011,946    —    73,291    — 
Series J (StylePlus–Mid Growth Series)   30,401,590    5,563,131    3,025,435    (25,899,300)1
Series M (Macro Opportunities Series)   594,281    —    (163,075)   (166,272)1
Series N (Managed Asset Allocation Series)   120,031    961,653    5,622,042    (1,647,219)1
Series O (All Cap Value Series)   1,318,989    3,850,183    40,150,670    (9,743,452)1
Series P (High Yield Series)   10,064,590    142,710    2,140,191    — 
Series Q (Small Cap Value Series)   1,657,378    12,786,477    36,292,311    — 
Series V (Mid Cap Value Series)   2,030,694    29,302,295    75,814,354    — 
Series X (StylePlus–Small Growth Series)   8,922,477    3,253,287    735,406    (5,821,995)1
Series Y (StylePlus–Large Growth Series)   6,938,503    1,705,356    570,751    (6,393,097)1
Series Z (Alpha Opportunity Series)   —    228,520    4,207,682    (3,124,815)1

 

1A summary of the expiration of the aforementioned Capital Loss Carryforward is as follows:

 

   Expires in   Expires in   Expires in   Unlimited   Capital Loss 
Fund  2016   2017   2018   Short-Term   Long-Term   Carryforward 
Series A (StylePlus–Large Core Series)  $—   $(35,216,018)  $—   $—   $—   $(35,216,018)*
Series B (Large Cap Value Series)   (7,474,497)   (27,901,075)   —    —    —    (35,375,572)*
Series D (World Equity Income Series)   (43,071,596)   (15,850,751)   —    (1,400,308)   (2,256,476)   (62,579,131)*
Series E (Total Return Bond Series)        (8,163,116)   (360,156)   —    —    (8,523,272)*
Series J (StylePlus–Mid Growth Series)   (13,884,382)   (12,014,918)   —    —    —    (25,899,300)*
Series M (Macro Opportunities Series)   —    —    —    (152,481)   (13,791)   (166,272)
Series N (Managed Asset Allocation Series)   —    (1,647,219)   —    —    —    (1,647,219)*
Series O (All Cap Value Series)   —    (9,743,452)   —    —    —    (9,743,452)*
Series X (StylePlus–Small Growth Series)   (4,366,496)   (1,455,499)   —    —    —    (5,821,995)*
Series Y (StylePlus–Large Growth Series)   (4,794,823)   (1,598,274)   —    —    —    (6,393,097)*
Series Z (Alpha Opportunity Series)   (3,122,945)   —    —    —    —    (3,122,945)*

 

* In accordance with Section 382 of the Internal Revenue Code, a portion of certain fund losses are subject to an annual limitation. Note, this annual limitation is generally applicable to all of the capital loss carryforwards shown with respect to each Fund.

 

Net investment income and net realized gains (losses) may differ for financial statement and tax purposes because of temporary or permanent book/tax differences. These differences are primarily due to wash sales, and mark-to-market of passive foreign investment companies and futures contracts. Additional differences may result from the tax treatment of net investment losses and expired capital loss carryforwards. To the extent these differences are permanent, reclassifications are made to the appropriate equity accounts in the period that the differences arise. These reclassifications have no effect on net assets or NAV per share.

 

154 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

On the Statements of Assets and Liabilities the following adjustments were made for permanent book/tax differences:

 

       Undistributed   Accumulated 
   Paid In   Net Investment   Net Realized 
Fund  Capital   Income   Gain (Loss) 
Series A (StylePlus–Large Core Series)  $  4,423,660   $(1,978,654)  $  (2,445,006) 
Series B (Large Cap Value Series)   3,229,551    (3,229,551)   — 
Series C (Money Market Series)   (393,933)   395,179    (1,246)
Series D (World Equity Income Series)   8,768,672    (7,862,614)   (906,058)
Series E (Total Return Bond Series)   3,491,774    (3,301,820)   (189,954)
Series F (Floating Rate Strategies Series)   (18,745)   31,471    (12,726)
Series J (StylePlus–Mid Growth Series)   12,712,327    (205,098)   (12,507,229)
Series M (Macro Opportunities Series)   (14,454)   16,933    (2,479)
Series N (Managed Asset Allocation Series)   6,869,868    (610,620)   (6,259,248)
Series O (All Cap Value Series)   1,256,228    (1,256,806)   578 
Series P (High Yield Series)   11,764,279    (9,378,666)   (2,385,613)
Series Q (Small Cap Value Series)   13,701,348    (344,428)   (13,356,920)
Series V (Mid Cap Value Series)   18,340,107    (949,066)   (17,391,041)
Series X (StylePlus–Small Growth Series)   3,127,826    72,697    (3,200,523)
Series Y (StylePlus–Large Growth Series)   1,461,702    (224,519)   (1,237,183)
Series Z (Alpha Opportunity Series)   (29,778)   112,651    (82,873)

 

At December 31, 2013, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:

 

       Tax   Tax   Net 
   Tax   Unrealized   Unrealized   Unrealized 
Fund  Cost   Gain   Loss   Gain (Loss) 
Series A (StylePlus–Large Core Series)  $227,256,092   $5,574,855   $(1,001,501)  $4,573,354 
Series B (Large Cap Value Series)   201,496,555    87,237,997    (5,399,877)   81,838,120 
Series C (Money Market Series)   76,366,712    2,219    (548)   1,671 
Series D (World Equity Income Series)   185,378,045    12,292,784    (4,964,526)   7,328,258 
Series E (Total Return Bond Series)   106,870,573    748,327    (4,617,429)   (3,869,102)
Series F (Floating Rate Strategies Series)   46,910,862    291,220    (217,936)   73,284 
Series J (StylePlus–Mid Growth Series)   154,159,853    3,735,902    (719,390)   3,016,512 
Series M (Macro Opportunities Series)   28,104,698    288,313    (565,758)   (277,445)
Series N (Managed Asset Allocation Series)   58,726,320    6,328,280    (700,759)   5,627,521 
Series O (All Cap Value Series)   113,385,892    44,073,392    (3,922,722)   40,150,670 
Series P (High Yield Series)   129,524,161    3,775,516    (1,635,337)   2,140,179 
Series Q (Small Cap Value Series)   103,602,285    42,395,702    (6,166,234)   36,229,468 
Series V (Mid Cap Value Series)   226,433,257    90,284,362    (14,610,758)   75,673,604 
Series X (StylePlus–Small Growth Series)   37,976,679    1,022,015    (286,608)   735,407 
Series Y (StylePlus–Large Growth Series)   39,955,160    755,415    (184,664)   570,751 
Series Z (Alpha Opportunity Series)   14,336,199    5,172,149    (533,637)   4,638,512 

 

8. Other Liabilities

 

Series A (StylePlus–Large Core Series) and Series V (Mid Cap Value Series) each wrote put option contracts through Lehman Brothers, Inc. (“Lehman”) that were exercised prior to the option contracts expiration and prior to the bankruptcy filing by Lehman, during September 2008. However, these transactions have not settled and the securities have not been delivered to the Funds as of December 31, 2013.

 

Although the ultimate resolution of these transactions is uncertain, the Funds have recorded a liability on their respective books equal to the difference between the strike price on the put options and the market prices of the underlying security on the exercise date. The amount of liability recorded by the Funds as of December 31, 2013 was $18,615 for Series A (StylePlus–Large Core Series) and $205,716 for Series V (Mid Cap Value Series).

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 155

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

9. Securities Transactions

 

During the year ended December 31, 2013, purchases and sales of investment securities, excluding government and short-term investments, were as follows:

 

Fund  Purchases   Sales 
Series A (StylePlus–Large Core Series)  $414,408,965   $458,480,870 
Series B (Large Cap Value Series)   68,411,794    105,179,053 
Series C (Money Market Series)   —    29,035 
Series D (World Equity Income Series)   280,365,338    304,028,423 
Series E (Total Return Bond Series)   108,541,179    125,292,416 
Series F (Floating Rate Strategies Series)   58,242,200    16,318,613 
Series J (StylePlus–Mid Growth Series)   259,576,461    292,214,732 
Series M (Macro Opportunities Series)   34,579,637    9,222,535 
Series N (Managed Asset Allocation Series)   1,150,227    2,300,352 
Series O (All Cap Value Series)   30,534,439    51,303,746 
Series P (High Yield Series)   116,929,139    123,373,028 
Series Q (Small Cap Value Series)   37,299,129    49,261,491 
Series V (Mid Cap Value Series)   61,086,158    91,330,696 
Series X (StylePlus–Small Growth Series)   67,574,131    74,513,998 
Series Y (StylePlus–Large Growth Series)   66,495,327    75,861,439 
Series Z (Alpha Opportunity Series)   34,629,578    39,366,504 

 

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. Transactions during the year ended December 31, 2013 in which the portfolio company is an “affiliated person” are as follows:

 

      Value           Value   Shares   Investment   Realized 
Fund  Security  12/31/12   Additions   Reductions   12/31/13   12/31/13   Income   Gains 
Series A (StylePlus–Large Core Series)  Mutual Fund:                                   
   Floating Rate Strategies Fund Institutional Class  $—   $4,067,843   $—   $4,029,967    150,653   $127,609   $3,744 
   Macro Opportunities Fund Institutional Class   —    4,069,440    —    3,910,920    146,257    136,814    — 
Series J (StylePlus–Mid Growth Series)  Mutual Fund:                                   
   Floating Rate Strategies Fund Institutional Class   —    2,754,805    —    2,729,155    102,024    86,419    2,536 
   Macro Opportunities Fund Institutional Class   —    2,755,886    —    2,648,534    99,048    92,652    — 
Series V (Mid Cap Value Series)  Common Stock:                                   
   HydroGen Corp.   8,337    —    —    1    672,346    —    — 
Series X (StylePlus–Small Growth Series)  Mutual Fund:                                   
   Floating Rate Strategies Fund Institutional Class   —    746,630    —    739,678    27,651    23,422    687 
   Macro Opportunities Fund Institutional Class   —    746,922    —    717,827    26,845    25,112    — 
Series Y (StylePlus–Large Growth Series)  Mutual Fund:                                   
   Floating Rate Strategies Fund Institutional Class   —    695,138    —    688,665    25,744    21,807    640 
   Macro Opportunities Fund Institutional Class   —    695,410    —    668,322    24,993    23,380    — 

 

11. Options Written

 

Transactions in options written during the year ended December 31, 2013 were as follows:

 

Written Call Options

 

   Series M (Macro Opportunities Series)   Series O (All Cap Value Series)   Series Q (Small Cap Value Series)   Series V (Mid Cap Value Series) 
   Number of   Premium   Number of   Premium   Number of   Premium   Number of   Premium 
   contracts   amount   contracts   amount   contracts   amount   contracts   amount 
Balance at December 31, 2012   —   $—    —   $—    —   $—    —   $— 
Options Written   565    4,520    275    68,666    722    178,164    1,283    309,660 
Options terminated in closing purchase transactions   —    —    —    —    —    —    —    — 
Options expired   —    —    (67)   (14,606)   (298)   (69,396)   (312)   (61,842)
Options exercised   —    —    (122)   (24,992)   (146)   (29,845)   (350)   (71,524)
                                         
Balance at December 31, 2013   565   $4,520    86   $29,068    278   $78,923    621   $176,294 

 

156 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

 

Written Put Options

 

   Series M (Macro Opportunities Series)   Series O (All Cap Value Series)   Series Q (Small Cap Value Series)   Series V (Mid Cap Value Series) 
   Number of   Premium   Number of   Premium   Number of   Premium   Number of   Premium 
   contracts   amount   contracts   amount   contracts   amount   contracts   amount 
Balance at December 31, 2012   —   $—    —   $—    —   $—    —   $— 
Options Written   —    —    289    29,316    995    94,021    1,117    148,561 
Options terminated in closing purchase transactions   —    —    —    —    —    —    —    — 
Options expired   —    —    (52)   (15,342)   (607)   (58,513)   (228)   (67,272)
Options exercised   —    —    (237)   (13,974)   (220)   (12,968)   (505)   (29,768)
                                         
Balance at December 31, 2013   —   $—    —   $—    168   $22,540    384   $51,521 

 

12. Series Z

 

The Fund contracted with Lehman Brothers International Europe (“LBIE”) to provide prime brokerage services related to the Fund’s short selling. On September 15, 2008, LBIE was placed into administration and a third party administrator was named (the “Administrator”). The Fund’s exposure to LBIE consists of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for said short sales. Release of the collateral requires the consent of LBIE and Lehman Brothers Inc. (“LBI”), an entity that is subject to a liquidation proceeding. The Fund delivered a Notice of Termination of Loans to LBIE and the Administrator. The Fund has worked to resolve these issues with LBIE and the Administrator. As of December 31, 2013, included in the Statement of Assets and Liabilities are the value of restricted long positions of $12,545,788, cash collateral of $1,417,530, restricted cash representing the value of short sale proceeds of $4,355,365 and liabilities for short sales of $7,786,654, representing the value of securities sold short at the date the short sales were deemed by the Fund to have been terminated. If these short sales had not been terminated, the value of the liability related to these securities sold short would have been $10,670,064 as of December 31, 2013 resulting in a decrease in net assets of $2,883,410 or (17.3)%. Until such time as the liability for short sales is settled and all restrictions are removed by LBIE and LBI, the Fund cannot sell such restricted long positions and/or utilize the restricted cash balances to achieve the Fund’s investment objectives and/or meet Fund redemption or other Fund obligations. During the year ended December 31, 2013, the Fund accrued $299,670 of estimated settlement costs. Based on the ultimate terms of such settlement, the value assigned to these positions may ultimately differ from the fair valuations assigned to them by the Fund and there is no guaranty that the Fund will ultimately recover the full value of the assets that are subject to restrictions. Accordingly, a settlement could ultimately result in the Fund realizing values that are materially different from those indicated herein, which would materially impact the Fund’s net asset value. As of the close of business on October 3, 2008, and until further notice, the Fund is not accepting subscriptions for shares from either new or existing shareholders.

 

Effective as of August 1, 2011, Security Investors, LLC has agreed to purchase shares of the Fund from time to time to provide the Fund with liquidity if needed to meet redemptions. The intent of the agreement is to provide liquidity to the Fund in the event that shareholders seek to redeem shares of the Fund at a time that there are not sufficient unrestricted assets.

 

13. Loan Commitments

 

Pursuant to the terms of certain loan agreements, certain Funds held unfunded loan commitments as of December 31, 2013. The Funds are obligated to fund these loan commitments at the borrower’s discretion.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 157

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

 

The unfunded loan commitments as of December 31, 2013 were as follows:

 

Series F (Floating Rate Strategies Series)

 

Borrower  Maturity Date  Amount 
Darling International  04/01/14  $400,000 
Power Borrower LLC  05/06/20   15,694 
      $415,694 

 

Series M (Macro Opportunities Series)       
Borrower  Maturity Date  Amount 
Darling International  04/01/14  $125,000 
Power Borrower LLC  05/06/20   7,847 
      $132,847 

 

Series P (High Yield Series)       
Borrower  Maturity Date  Amount 
Darling International  04/01/14  $700,000 

 

14. Reverse Repurchase Agreements

 

Each of the Funds may enter into reverse repurchase agreements. Under a reverse repurchase agreement, a Fund sells securities and agrees to repurchase them at a particular price at a future date. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Fund’s obligation to repurchase the securities, and the Fund’s use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision.

 

For the period ended December 31, 2013, the following Funds entered into reverse repurchase agreements:

 

   Number of   Balance at   Average   Average 
Fund  Days Outstanding   December 31, 2013   balance outstanding   interest rate 
Series E (Total Return Bond Series)   252   $10,824,468   $7,296,071    0.83%
Series M (Macro Opportunities Series)   41    1,637,100    1,336,214    1.03%
Series P (High Yield Series)   49    7,687,057    4,134,071    1.07%

 

15. Line of Credit

 

On December 14, 2012, Series E (Total Return Bond Series) and Series P (High Yield Series) (the “Funds”) entered into an unlimited credit facility agreement with an approved counterparty whereby the counterparty has agreed to provide secured financing to the Funds and the Funds will provide pledged collateral to the counterparty. At December 31, 2013, there was $50,000,000 of credit facility. The Funds did not have any borrowings under this agreement as of or for the year ended December 31, 2013.

 

16. Legal Proceedings

Tribune Company

 

SBL Fund has been named as a defendant in the case entitled Marc S. Kirscher, as Litigation Trustee for the Tribune Litigation Trust v. FitzSimons, No. 12-2652 (S.D.N.Y.) (formerly Official Committee of Unsecured Creditors of Tribune Co. v. FitzSimons, Adv. Pro. No. 10-54010 (Bankr. D. Del.)) (the “FitzSimons” action), as a result of the ownership of shares in the Tribune Company (“Tribune”) in 2007 by certain series of the SBL Fund when Tribune effected a leveraged buyout transaction (“LBO”) by which Tribune converted to a privately-held company. The plaintiff has alleged that, in connection with the LBO, insiders and shareholders were paid for their Tribune stock using financing that the insiders knew would, and ultimately did, leave the Tribune insolvent. The plaintiff has asserted claims against certain insiders, shareholders, professional advisers, and others involved in the LBO, and is attempting to obtain from these individuals and entities the proceeds paid out in connection with the LBO.

 

SBL Fund also has been named as a defendant in one or more of a group of lawsuits filed by a group of Tribune creditors that allege state law constructive fraudulent conveyance claims against former Tribune shareholders (the “SLCFC actions”).

 

The FitzSimons action and the SLCFC actions have been consolidated with the majority of the other Tribune LBO-related lawsuits in a multidistrict litigation proceeding captioned In re Tribune Company Fraudulent Conveyance Litig., No. 11-md-2696 (S.D.N.Y.) (the “MDL Proceeding”).

 

158 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (continued)

 

On September 23, 2013, the District Court granted the defendants’ omnibus motion to dismiss the SLCFC actions, on the basis that the creditors lacked standing. On September 30, 2013, the creditors filed a notice of appeal of the September 23 order. On October 28, 2013, the defendants filed a joint notice of cross-appeal of that same order.

 

On November 20, 2013, the District Court ordered the parties in the FitzSimons action to meet and confer regarding a potential protocol for the briefing and argument of motions to dismiss to be filed in that action. On January 24, 2014, the Court extended the time for service of summonses and complaints in the FitzSimons action to February 28, 2014.

 

None of these lawsuits allege any wrongdoing on the part of SBL Fund. The following series of SBL Fund held shares of Tribune and tendered these shares as part of Tribune’s LBO: Series H (Enhanced Index Series), Series N (Managed Asset Allocation Series) and Series O (All Cap Value Series) (the “Funds”). The value of the proceeds received by the foregoing Funds was $158,950, $51,000 and $3,774,000, respectively. At this stage of the proceedings, SBL Fund is not able to make a reliable predication as to the outcome of these lawsuits or the effect, if any, on a Fund’s net asset value.

 

Lyondell Chemical Company

 

SBL Fund may be a putative member of the proposed defendant class in Weisfelner, as Trustee of the LB Creditor Trust, v. Reichman (In re Lyondell Chemical Co.), Adversary Proceeding No. 12-1570 (Bankr. S.D.N.Y.).

 

Similar to the claims made in the Tribune matter, the Weisfelner complaint seeks to have set aside and recovered as fraudulent transfers from former Lyondell Chemical Company (“Lyondell”) shareholders the consideration paid to them pursuant to the cash out merger of Lyondell shareholders in connection with the combination of Lyondell and Basell AF in 2007. Lyondell filed for bankruptcy in 2008.

 

This lawsuit initially was filed in New York Supreme Court, Case No. 653522/2011, on December 19, 2011. On April 25, 2012, it was removed to the United States District Court for the Southern District of New York, Case No. 12-3273, and on April 26, 2012, it was referred to the United States Bankruptcy Court for the Southern District of New York.

 

This lawsuit does not allege any wrongdoing on the part of SBL Fund. The following series of SBL Fund received cash proceeds from the cash out merger in the following amounts: Series N (Managed Asset Allocation Series) - $28,800. At this stage of the proceedings, SBL Fund is not able to make a reliable predication as to the outcome of this lawsuit or the effect, if any, on a Fund’s net asset value.

 

17. Offsetting

 

In the normal course of business, the Funds enter into transactions subject to enforceable master netting arrangements or other similar arrangements. Generally, the right to offset in those agreements allows the Funds to counteract the exposure to a specific counterparty with collateral received or delivered to that counterparty based on the terms of the arrangements. These arrangements provide for the right to liquidate upon the occurrence of an event of default, credit event upon merger or additional termination event.

 

In order to better define their contractual rights and to secure rights that will help the Funds mitigate their counterparty risk, the Funds may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with their derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between a Fund and a counterparty that governs OTC derivatives, including foreign exchange contracts, and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of a default (close-out netting) or similar event, including the bankruptcy or insolvency of the counterparty.

 

For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Funds and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Funds and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as segregated cash with broker/ receivable for variation margin, or payable for swap settlement/variation margin. Generally, the amount of collateral due from or to a counterparty must exceed a minimum transfer amount threshold (e.g., $300,000) before a transfer is required to be made. To the extent amounts due to the Funds from their counterparties are not fully collateralized, contractually or otherwise, the Funds bear the risk of loss from counterparty nonperformance. The Funds attempt to mitigate counterparty risk by only entering into agreements with counterparties that they believe to be of good standing and by monitoring the financial stability of those counterparties.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 159

 

 
 

 

NOTES TO FINANCIAL STATEMENTS (concluded)

 

For financial reporting purposes, the Funds do 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 Statements of Assets and Liabilities in conformity with U.S. GAAP.

 

                  Gross Amounts Not Offset     
                  in the Statements of Assets     
                  and Liabilities     
              Net Amount of Assets             
       Gross Amounts of   Gross Amounts Offset   Presented on the       Cash     
      Recognized   in the Statements of   Statements of Assets   Financial   Collateral   Net 
Fund  Instrument  Assets1   Assets and Liabilities   and Liabilities   Instruments   Received2   Amount 
Series M (Macro Opportunities Series)  Swap currency contracts  $1,578   $—   $1,578   $—   $—   $1,578 
   Swap equity contracts   94,302    —    94,302    —    —    94,302 
   Options interest rate contracts   4,520    —    4,520    —    —    4,520 
Total     $100,400   $—   $100,400   $  —   $—   $100,400 
                                  
Series X (StylePlus–Small Growth Series)  Swap equity contracts  $881,403   $—   $881,403   $  —   $—   $881,403 
Series Y (StylePlus–Large Growth Series)  Swap equity contracts  $907,335   $—   $907,335   $  —   $—   $907,335 

 

                  Gross Amounts Not Offset     
                  in the Statements of Assets     
                  and Liabilities     
              Net Amount of             
      Gross Amounts of   Gross Amounts Offset   Liabilities Presented       Cash     
      Recognized   in the Statements of   on the Statements of   Financial   Collateral   Net 
Fund  Instrument  Liabilities1   Assets and Liabilities   Assets and Liabilities   Instruments   Pledged2   Amount 
Series M (Macro Opportunities Series)  Options interest rate contracts  $1,695   $—   $1,695   $—   $—   $1,695 

 

1Exchange traded futures are excluded from these reported amounts.

2Excludes maintenance margin deposits held at the broker related to derivatives. These amounts are reflected as Segregated cash with broker on the Statements of Assets and Liabilities.

 

160 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Shareholders

of SBL Fund:

 

We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of SBL Fund (comprising, Series A—StylePlus-Large Core Series, Series B—Large Cap Value Series, Series C—Money Market Series, Series D—World Equity Income Series, Series E—Total Return Bond Series, Series F – Floating Rate Strategies Series, Series J—StylePlus-Mid Growth Series, Series M—Macro Opportunities Series, Series N— Managed Asset Allocation Series, Series O—All Cap Value Series, Series P—High Yield Series, Series Q—Small Cap Value Series, Series V—Mid Cap Value Series, Series X— StylePlus-Small Growth Series, Series Y—StylePlus-Large Growth Series and Series Z—Alpha Opportunity Series) (the “Funds”) as of December 31, 2013, and the related statements of operations, the statements of changes in net assets, and the financial highlights for each of the years or periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2013, by correspondence with the custodian, agent banks and brokers or by other appropriate auditing procedures where replies from agent banks or brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

 

As more fully discussed in Note 12 to the financial statements, Series Z–Alpha Opportunity Series has ongoing exposure to Lehman Brothers International Europe, which was placed into administration in September 2008. Significant uncertainly exists regarding the ultimate timing and manner of settlement of this exposure and the difference between amounts currently recorded and that which may ultimately be settled may be material.

 

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective portfolios constituting the SBL Fund at December 31, 2013, and the results of their operations, the changes in their net assets, and their financial highlights for each of the years or periods indicated therein, in conformity with U.S. generally accepted accounting principles.

 

 

 

McLean, Virginia

February 27, 2014

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 161

 

 
 

 

OTHER INFORMATION (Unaudited)

 

Tax Information

 

This information is being provided as required by the Internal Revenue Code. Amounts shown may differ from those elsewhere in the report because of differences in tax and financial reporting practice.

 

Of the ordinary income distributions paid during the year, the following funds had the corresponding percentages qualify for the dividends received deduction for corporations:

 

Fund  % Qualifying 
Series A (StylePlus–Large Core Series)   4.82%
Series B (Large Cap Value Series)   100.00%
Series D (World Equity Income Series)   19.79%
Series E (Total Return Bond Series)   0.27%
Series J (StylePlus–Mid Growth Series)   1.61%
Series M (Macro Opportunities Series)   1.75%
Series N (Managed Asset Allocation Series)   100.00%
Series O (All Cap Value Series)   100.00%
Series P (High Yield Series)   2.47%
Series Q (Small Cap Value Series)   56.23%
Series V (Mid Cap Value Series)   100.00%
Series X (StylePlus–Small Growth Series)   0.90%
Series Y (StylePlus–Large Growth Series)   2.91%

 

With respect to the taxable year ended December 31, 2013, 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:

 

   From long-term capital gains, 
Fund  subject to the 15% rate gains category: 
Series A (StylePlus–Large Core Series)  $      29,186,762 
Series B (Large Cap Value Series)   18,148,077 
Series J (StylePlus–Mid Growth Series)   5,563,131 
Series N (Managed Asset Allocation Series)   961,653 
Series O (All Cap Value Series)   3,850,183 
Series P (High Yield Series)   142,710 
Series Q (Small Cap Value Series)   12,786,477 
Series V (Mid Cap Value Series)   29,302,295 
Series X (StylePlus–Small Growth Series)   3,253,287 
Series Y (StylePlus–Large Growth Series)   1,705,356 
Series Z (Alpha Opportunity Series)   228,520 

 

Series D (World Equity Income Series) designates $727,264 of foreign tax paid and gross foreign sourced income earned of $4,853,419 for regular Federal income tax purposes.

 

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 1.800.820.0888. 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 1.800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.

 

162 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

OTHER INFORMATION (Unaudited) (continued)

 

At a special meeting of shareholders held on January 8, 2014, the shareholders of the Funds voted on whether to approve the election of nominees to the Board of Directors of each corporation. A description of the number of shares voted is as follows:

 

   For   Withhold   Total 
Randall C. Barnes   69,100,633    2,809,458    71,910,091 
Roman Friedrich III   68,817,726    3,092,365    71,910,091 
Robert B. Karn III   68,958,541    2,951,550    71,910,091 
Ronald A. Nyberg   69,128,618    2,781,473    71,910,091 
Ronald E. Toupin, Jr.   69,096,279    2,813,812    71,910,091 

 

At a special meeting of shareholders held on January 8, 2014, the shareholders of the Funds also voted on whether to approve the Funds from a Kansas Corporation into a Delaware Statutory Trust. A description of the number of shares voted is as follows:

 

Fund  Shares For   Shares Against   Shares Abstained 
Series A (StylePlus–Large Core Series)   6,905,073    283,578    37,400 
Series B (Large Cap Value Series)   7,248,889    159,643    167,051 
Series C (Money Market Series)   5,603,746    8,821    110,257 
Series D (World Equity Income Series)   15,173,441    542,493    520,329 
Series E (Total Return Bond Series)   6,017,580    79,107    254,406 
Series F (Floating Rate Strategies Series)   1,702,489    26,750    8,884 
Series J (StylePlus–Mid Growth Series)   3,470,204    44,591    123,224 
Series M (Macro Opportunities Series)   1,036,353    —    — 
Series N (Managed Asset Allocation Series)   2,462,572    1,192    77,360 
Series O (All Cap Value Series)   4,533,182    66,442    99,772 
Series P (High Yield Series)   3,758,838    18,268    57,999 
Series Q (Small Cap Value Series)   2,566,859    47,011    56,417 
Series V (Mid Cap Value Series)   3,393,814    70,858    205,071 
Series X (StylePlus–Small Growth Series)   1,191,113    32,339    106,284 
Series Y (StylePlus–Large Growth Series)   2,949,850    13,230    19,584 
Series Z (Alpha Opportunity Series)   610,627    4,825    42,277 

 

At a special meeting of shareholders held on January 8, 2014, the shareholders of the Funds also voted on whether to approve changes to the fundamental investment policies. A description of the number of shares voted is as follows:

 

Diversification

 

Fund  Shares For   Shares Against   Shares Abstained 
Series A (StylePlus–Large Core Series)   6,927,723    146,977    151,350 
Series B (Large Cap Value Series)   7,215,544    141,202    218,837 
Series C (Money Market Series)   5,599,767    12,800    110,257 
Series D (World Equity Income Series)   14,986,441    672,584    577,238 
Series E (Total Return Bond Series)   6,019,174    20,315    311,604 
Series F (Floating Rate Strategies Series)   1,702,489    26,750    8,884 
Series J (StylePlus–Mid Growth Series)   3,435,991    69,836    132,192 
Series M (Macro Opportunities Series)   1,036,353    —    — 
Series N (Managed Asset Allocation Series)   2,462,001    —    79,121 
Series O (All Cap Value Series)   4,491,335    75,033    133,028 
Series P (High Yield Series)   3,755,310    10,720    69,076 
Series Q (Small Cap Value Series)   2,555,165    44,652    70,470 
Series V (Mid Cap Value Series)   3,358,273    77,903    233,567 
Series X (StylePlus–Small Growth Series)   1,222,402    20,674    86,660 
Series Y (StylePlus–Large Growth Series)   2,961,493    16,433    4,738 
Series Z (Alpha Opportunity Series)   611,717    4,825    41,187 

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 163

 

 
 

 

OTHER INFORMATION (Unaudited) (continued)

 

Underwriting

 

Fund  Shares For   Shares Against   Shares Abstained 
Series A (StylePlus–Large Core Series)   6,921,617    153,604    150,830 
Series B (Large Cap Value Series)   7,194,618    147,328    233,637 
Series C (Money Market Series)   5,490,790    12,800    219,234 
Series D (World Equity Income Series)   14,985,537    673,857    576,870 
Series E (Total Return Bond Series)   5,914,437    34,173    402,483 
Series F (Floating Rate Strategies Series)   1,702,489    26,750    8,884 
Series J (StylePlus–Mid Growth Series)   3,420,822    86,649    130,548 
Series M (Macro Opportunities Series)   1,036,353    —    — 
Series N (Managed Asset Allocation Series)   2,459,787    —    81,336 
Series O (All Cap Value Series)   4,486,926    76,803    135,667 
Series P (High Yield Series)   3,754,328    10,720    70,058 
Series Q (Small Cap Value Series)   2,554,997    44,820    70,470 
Series V (Mid Cap Value Series)   3,337,780    94,542    237,421 
Series X (StylePlus–Small Growth Series)   1,183,303    58,139    88,295 
Series Y (StylePlus–Large Growth Series)   2,945,163    32,578    4,923 
Series Z (Alpha Opportunity Series)   611,717    4,825    41,187 

 

Industry Concentration

 

Fund  Shares For   Shares Against   Shares Abstained 
Series A (StylePlus–Large Core Series)   6,937,903    139,937    148,211 
Series B (Large Cap Value Series)   7,220,693    145,484    209,406 
Series C (Money Market Series)   5,478,650    15,167    229,007 
Series D (World Equity Income Series)   14,999,256    663,037    573,970 
Series E (Total Return Bond Series)   5,997,408    42,081    311,604 
Series F (Floating Rate Strategies Series)   1,702,489    26,750    8,884 
Series J (StylePlus–Mid Growth Series)   3,438,854    68,617    130,548 
Series M (Macro Opportunities Series)   1,036,353    —    — 
Series N (Managed Asset Allocation Series)   2,444,934    495    95,694 
Series O (All Cap Value Series)   4,457,932    81,568    159,895 
Series P (High Yield Series)   3,750,286    15,744    69,076 
Series Q (Small Cap Value Series)   2,545,777    54,040    70,470 
Series V (Mid Cap Value Series)   3,321,159    116,311    232,273 
Series X (StylePlus–Small Growth Series)   1,190,415    54,174    85,147 
Series Y (StylePlus–Large Growth Series)   2,961,032    19,303    2,329 
Series Z (Alpha Opportunity Series)   611,717    4,825    41,187 

 

Real Estate

 

Fund  Shares For   Shares Against   Shares Abstained 
Series A (StylePlus–Large Core Series)   6,933,385    143,928    148,738 
Series B (Large Cap Value Series)   7,218,069    156,595    200,919 
Series C (Money Market Series)   5,568,137    31,706    122,981 
Series D (World Equity Income Series)   14,940,750    721,543    573,970 
Series E (Total Return Bond Series)   5,994,368    45,120    311,604 
Series F (Floating Rate Strategies Series)   1,702,489    26,750    8,884 
Series J (StylePlus–Mid Growth Series)   3,414,029    93,442    130,548 
Series M (Macro Opportunities Series)   1,036,353    —    — 
Series N (Managed Asset Allocation Series)   2,430,928    26,164    84,030 
Series O (All Cap Value Series)   4,441,600    99,438    158,358 
Series P (High Yield Series)   3,749,575    16,455    69,076 
Series Q (Small Cap Value Series)   2,538,904    60,913    70,470 
Series V (Mid Cap Value Series)   3,313,844    121,212    234,688 
Series X (StylePlus–Small Growth Series)   1,186,450    58,139    85,147 
Series Y (StylePlus–Large Growth Series)   2,946,722    32,578    3,364 
Series Z (Alpha Opportunity Series)   610,261    6,281    41,187 

 

164 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

OTHER INFORMATION (Unaudited) (continued)

 

Commodities

 

Fund  Shares For   Shares Against   Shares Abstained 
Series A (StylePlus–Large Core Series)   6,913,573    163,392    149,086 
Series B (Large Cap Value Series)   7,220,063    145,321    210,199 
Series C (Money Market Series)   5,587,207    25,360    110,257 
Series D (World Equity Income Series)   14,942,023    720,270    573,970 
Series E (Total Return Bond Series)   5,995,733    41,026    314,334 
Series F (Floating Rate Strategies Series)   1,702,489    26,750    8,884 
Series J (StylePlus–Mid Growth Series)   3,406,266    100,503    131,250 
Series M (Macro Opportunities Series)   1,036,353    —    — 
Series N (Managed Asset Allocation Series)   2,447,283    11,312    82,527 
Series O (All Cap Value Series)   4,463,801    96,937    138,658 
Series P (High Yield Series)   3,747,051    15,730    72,325 
Series Q (Small Cap Value Series)   2,539,072    60,745    70,470 
Series V (Mid Cap Value Series)   3,341,327    94,716    233,699 
Series X (StylePlus–Small Growth Series)   1,187,148    57,441    85,147 
Series Y (StylePlus–Large Growth Series)   2,963,902    16,433    2,329 
Series Z (Alpha Opportunity Series)   610,261    6,281    41,187 

 

Loans

 

Fund  Shares For   Shares Against   Shares Abstained 
Series A (StylePlus–Large Core Series)   6,847,524    228,704    149,822 
Series B (Large Cap Value Series)   7,114,769    222,547    238,267 
Series C (Money Market Series)   5,355,354    141,708    225,762 
Series D (World Equity Income Series)   14,925,036    734,357    576,870 
Series E (Total Return Bond Series)   5,904,659    43,951    402,483 
Series F (Floating Rate Strategies Series)   1,702,489    26,750    8,884 
Series J (StylePlus–Mid Growth Series)   3,391,165    116,306    130,548 
Series M (Macro Opportunities Series)   1,036,353    —    — 
Series N (Managed Asset Allocation Series)   2,445,544    11,548    84,030 
Series O (All Cap Value Series)   4,454,528    104,015    140,853 
Series P (High Yield Series)   3,746,055    19,974    69,076 
Series Q (Small Cap Value Series)   2,539,072    60,745    70,470 
Series V (Mid Cap Value Series)   3,301,173    130,888    237,682 
Series X (StylePlus–Small Growth Series)   1,184,396    59,077    86,263 
Series Y (StylePlus–Large Growth Series)   2,944,589    34,710    3,364 
Series Z (Alpha Opportunity Series)   610,261    6,281    41,187 

 

Borrowing

 

Fund  Shares For   Shares Against   Shares Abstained 
Series A (StylePlus–Large Core Series)   6,871,260    205,902    148,889 
Series B (Large Cap Value Series)   7,171,852    169,200    234,531 
Series C (Money Market Series)   5,354,476    142,586    225,762 
Series D (World Equity Income Series)   14,982,808    679,484    573,970 
Series E (Total Return Bond Series)   5,907,894    40,716    402,483 
Series F (Floating Rate Strategies Series)   1,702,489    26,750    8,884 
Series J (StylePlus–Mid Growth Series)   3,400,342    107,129    130,548 
Series M (Macro Opportunities Series)   1,036,353    —    — 
Series N (Managed Asset Allocation Series)   2,446,039    11,053    84,030 
Series O (All Cap Value Series)   4,449,985    113,356    136,055 
Series P (High Yield Series)   3,745,905    20,124    69,076 
Series Q (Small Cap Value Series)   2,531,764    68,052    70,470 
Series V (Mid Cap Value Series)   3,286,379    146,798    236,566 
Series X (StylePlus–Small Growth Series)   1,185,512    59,077    85,147 
Series Y (StylePlus–Large Growth Series)   2,944,589    34,710    3,364 
Series Z (Alpha Opportunity Series)   610,261    6,281    41,187 

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 165

 

 
 

 

OTHER INFORMATION (Unaudited) (concluded)

 

Senior Securities

 

Fund  Shares For   Shares Against   Shares Abstained 
Series A (StylePlus–Large Core Series)   6,825,246    250,230    150,574 
Series B (Large Cap Value Series)   7,203,478    146,745    225,359 
Series C (Money Market Series)   5,585,708    26,119    110,998 
Series D (World Equity Income Series)   14,999,448    662,845    573,970 
Series E (Total Return Bond Series)   5,980,782    58,707    311,604 
Series F (Floating Rate Strategies Series)   1,702,489    26,750    8,884 
Series J (StylePlus–Mid Growth Series)   3,437,799    69,672    130,548 
Series M (Macro Opportunities Series)   1,036,353    —    — 
Series N (Managed Asset Allocation Series)   2,445,331    1,192    94,600 
Series O (All Cap Value Series)   4,483,122    82,631    133,642 
Series P (High Yield Series)   3,751,079    13,969    70,058 
Series Q (Small Cap Value Series)   2,547,857    51,959    70,470 
Series V (Mid Cap Value Series)   3,327,519    85,668    256,557 
Series X (StylePlus–Small Growth Series)   1,190,990    53,476    85,270 
Series Y (StylePlus–Large Growth Series)   2,946,221    30,485    5,958 
Series Z (Alpha Opportunity Series)   611,717    4,825    41,187 

 

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 1-800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 1.800.820.0888.

 

Office Locations

 

The offices of Guggenheim Investments can be found in the following locations:

 

330 Madison Avenue

10th Floor

New York, NY 10017

(Headquarters)

 

Four Irvington Centre

805 King Farm Boulevard

Suite 600

Rockville, MD 20850

 

9401 Indian Creek Parkway

40 Corporate Woods

Suite 850

Overland Park, KS 66210

 

166 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

INFORMATION ON BOARD OF DIRECTORS AND OFFICERS (Unaudited)

 

DIRECTORS

 

All Directors and Officers may be reached c/o Guggenheim Investments, 805 King Farm Blvd., Suite 600, Rockville, MD 20850

 

Name        
(Date of Birth)   Principal Occupations   Other Directorships
Year Elected***     During Past Five Years     Held by Director
         

Donald A. Chubb, Jr.**

(12-14-46)

1994

   Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. Realtors   None
         

Harry W. Craig, Jr.**

(05-11-39)

2004

  

Current: Chairman, CEO, & Director, The Craig Group, Inc.; Managing Member of Craig Family Investments, LLC

Previous: Prior to November 2009, Chairman, CEO, Secretary and Director, Martin Tractor Company

   None
         

Jerry B. Farley**

(09-20-46)

2005

   Current: President, Washburn University   Director, Westar Energy, Inc.
         

Penny A. Lumpkin**

(08-20-39)

1993

   Current: Partner, Vivian’s Gift Shop (Corporate Retail); Vice President, Palmer Companies, Inc. (Small Business and Shopping Center Development); PLB (Real Estate Equipment Leasing)   None
         

Maynard F. Oliverius**

(12-18-43)

1998

   Retired. Formerly, President and Chief Executive Officer, Stormont-Vail HealthCare until 2012   None
         

Donald C. Cacciapaglia*

(07-01-51)

2012 (President)

  

Current: Guggenheim Investments: President and Chief Administrative Officer from February 2010 to present

Previous: Channel Capital Group, Inc.; Chairman and CEO from April 2002 to February 2010

   None

 

*This Director is deemed to be an “interested person” of the Funds under the 1940 Act, as amended, by reason of his position with the Funds’ Investment Manager and/or the parent of the Investment Manager. This Director is also an officer of the funds.
**These Directors serve on the Fund’s joint audit committee, the purpose of which is to meet with the independent registered public accounting firm, to review the work of the independent registered public accounting firm, and to oversee the handling by Security Investors of the accounting and financial reporting functions for the Funds.
***Each Director oversees 32 portfolios in the fund complex (213 funds are overseen by Mr. Cacciapaglia) and serves until the next annual meeting, or until a successor has been duly elected and qualified.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 167

 

 
 

 

INFORMATION ON BOARD OF DIRECTORS AND OFFICERS (Unaudited) (concluded)

 

OFFICERS*

 

Name    
(Date of Birth)   Principal Occupations
Title – Year Elected     During Past Five Years
     

Elisabeth Miller

(06-06-68)

Chief Compliance Officer - 2012

  

Current: Chief Compliance Officer, Rydex Series Funds, Rydex ETF Trust, Rydex Dynamic Funds, and Rydex Variable Trust; Chief Compliance Officer, Security Equity Fund, Security Income Fund, Security Large Cap Value Fund, Security Mid Cap Growth Fund, and SBL Fund; Chief Compliance Officer, Security Investors, LLC; and Chief Compliance Officer, Guggenheim Distributors, LLC (f/k/a Rydex Distributors, LLC)

Previous: Senior Manager, Security Investors, LLC and Guggenheim Distributors, LLC (f/k/a Rydex Distributors, LLC) (2004–2009)

     

Nikolaos Bonos

(05-30-63)

Treasurer - 2010

  

Current: Senior Vice President, Security Investors, LLC; Chief Executive Officer & Manager, Rydex Specialized Products, LLC; Chief Executive Officer & President, Rydex Fund Services, LLC; Vice President, Rydex Holdings, LLC; Vice President & Treasurer, Rydex Series Funds; Rydex ETF Trust; Rydex Dynamic Funds; and Rydex Variable Trust; and Vice President, Security Benefit Asset Management Holdings, LLC

Previous: Senior Vice President, Security Global Investors, LLC (2010–2011); and Senior Vice President, Rydex Advisors, LLC (f/k/a PADCO Advisors, Inc.) and Rydex Advisors II, LLC (f/k/a PADCO Advisors II, Inc.)

     

Joseph M. Arruda

(09-05-66)

Assistant Treasurer - 2010

   Current: Vice President, Security Investors, LLC; Chief Financial Officer & Manager, Rydex Specialized Products, LLC; and Assistant Treasurer, Rydex Series Funds; Rydex Dynamic Funds; Rydex ETF Trust; and Rydex Variable Trust Previous: Vice President, Security Global Investors, LLC (2010–2011); and Vice President, Rydex Advisors, LLC (f/k/a PADCO Advisors, Inc.) and Rydex Advisors II, LLC (f/k/a PADCO Advisors II, Inc.) (2010)
     

Amy J. Lee

(06-05-61)

Vice President – 2007

Secretary – 1987

  

Current: Secretary and Senior Vice President, Security Investors, LLC (2004–present)

Previous: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004–2012)

     

Mark A. Mitchell

(08-24-64)

Vice President - 2003

  

Current: Portfolio Manager, Security Investors, LLC

Previous: Vice President and Portfolio Manager, Security Benefit Life Insurance Company (2003–2010)

     

James P. Schier

(12-28-57)

Vice President - 1998

  

Current: Senior Portfolio Manager, Security Investors, LLC

Previous: Vice President and Senior Portfolio Manager, Security Benefit Life Insurance Company (1998–2010)

 

* Officers serve until the next annual meeting or until a successor has been duly elected and qualified.

 

168 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited)

 

Rydex Funds, Guggenheim Funds, Rydex Investments, Guggenheim Distributors, LLC, Security Investors, LLC, Security Distributors, Inc. and Rydex Advisory Services (Collectively “Guggenheim Investments”).

 

Our Commitment to You

 

When you become a Guggenheim Investments investor, you entrust us with not only your hard-earned money but also with personal and financial information about you. We recognize that your relationship with us is based on trust and that you expect us to act responsibly and in your best interests. Because we have access to this private information about you, we hold ourselves to the highest standards in its safekeeping and use. This means, most importantly, that we do not sell client information to anyone—whether it is your personal information or if you are a current or former Guggenheim Investments client.

 

The Information We Collect About You

 

In the course of doing business with shareholders and investors, we collect nonpublic personal information about you. You typically provide personal information when you complete a Guggenheim Investments account application or when you request a transaction that involves Rydex and Guggenheim Investments funds or one of the Guggenheim Investments affiliated companies. “Nonpublic personal information” is personally identifiable private information about you. For example, it includes information regarding your name and address, Social Security or taxpayer identification number, assets, income, account balance, bank account information and investment activity (e.g., purchase and redemption history).

 

How We Handle Your Personal Information

 

As emphasized above, we do not sell information about current or former clients or their accounts to third parties. Nor do we share such information, except when necessary to complete transactions at your request or to make you aware of related investment products and services that we offer. Additional details about how we handle your personal information are provided below. To complete certain transactions or account changes that you direct, it may be necessary to provide identifying information to companies, individuals or groups that are not affiliated with Guggenheim Investments. For example, if you ask to transfer assets from another financial institution to Guggenheim Investments, we will need to provide certain information about you to that company to complete the transaction. To alert you to other Guggenheim Investments investment products and services, we may share your information within the Guggenheim Investments family of affiliated companies. This would include, for example, sharing your information within Guggenheim Investments so we can make you aware of new Rydex and Guggenheim Investments funds or the services offered through another Guggenheim Investments affiliated company. In certain instances, we may contract with nonaffiliated companies to perform services for us. Where necessary, we will disclose information we have about you to these third parties. In all such cases, we provide the third party with only the information necessary to carry out its assigned responsibilities and only for that purpose. And we require these third parties to treat your private information with the same high degree of confidentiality that we do. In certain instances, we may share information with other financial institutions regarding individuals and entities in response to the U.S.A. Patriot Act. Finally, we will release information about you if you direct us to do so, if we are compelled by law to do so or in other circumstances permitted by law.

 

Opt Out Provisions

 

We do not sell your personal information to anyone. The law allows you to “opt out” of only certain kinds of information sharing with third parties. The firm does not share personal information about you with any third parties that triggers this opt-out right. This means YOU ARE ALREADY OPTED OUT.

 

How We Protect Privacy Online

 

Our concern for the privacy of our shareholders also extends to those who use our web site, guggenheiminvestments.com. Our web site uses some of the most secure forms of online communication available, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These technologies provide a high level of security and privacy when you access your account information or initiate online transactions. The Guggenheim Investments web site offers customized features that require our use of “http cookies”— tiny pieces of information that we ask your browser to store. However, we make very limited use of these cookies. We only use cookies for session management and security features on the Guggenheim Investments web site. We do not use them to pull data from your hard drive, to learn your email address, or to view data in cookies created by other web sites. We will not share the information in our cookies or give others access to it. See the legal information area on our web site for more details about web site security and privacy features.

 

THE GUGGENHEIM FUNDS ANNUAL REPORT | 169

 

 
 

 

GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited) (concluded)

 

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.

 

170 | THE GUGGENHEIM FUNDS ANNUAL REPORT

 

 
 

 

 

This page intentionally left blank.

 

 
 

 

 

This page intentionally left blank.

 
 

 

 

This page intentionally left blank.

 

 
 

 

Item 2. Code of Ethics.

 

The registrant’s Board of Directors has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. No substantive amendments were approved or waivers were granted to the Code during the period covered by this report. The Code is filed as an exhibit to this Form N-CSR.

 

Item 3. Audit Committee Financial Expert.

 

The registrant's Board of Directors has determined that Jerry Farley, an "independent" Director 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 Directors in the absence of such designation or identification.

 

Item 4. Principal Accountant Fees and Services.

 

(a) Audit Fees. The aggregate Audit Fees billed by the registrant’s principal accountant, for the audit of the annual financial statements in connection with statutory and regulatory filings for the fiscal years ended December 31, 2013 and December 31, 2012 were $319,400 and $242,520, respectively.

 

(b) Audit-Related Fees. The aggregate Audit Related Fees billed by the registrant’s principal accountant for the fiscal years ended December 31, 2013 and December 31, 2012 were $0 and $10,297, respectively.

 

The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor to the registrant’s investment adviser (not including any sub-investment adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant (“Service Affiliates”) which required pre-approval by the Audit Committee which related to the review of the transfer agent function for the fiscal years ended December 31, 2013 and December 31, 2012 were $35,000 and $35,000, respectively.

 

(c) Tax Fees. The aggregate Tax Fees billed by the registrant’s principal accountant for professional services rendered for tax compliance, tax advice, and tax planning, including preparation of tax returns and distribution assistance, for the fiscal years ended December 31, 2013 and December 31, 2012 were $71,153 and $35,689, respectively.

 

(d) All Other Fees. The aggregate All Other Fees billed by the registrant’s principal accountant for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, for the fiscal years ended December 31, 2013 and December 31, 2012 were $0 and $0, respectively.

 

(e) Audit Committee Pre-Approval Policies and Procedures. The audit committee has adopted a policy whereby audit and non-audit services performed by the registrant’s principal accountant for the registrant, its investment advisor, and any entity controlling, controlled by, or under common control with the investment advisor that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such service is required between regularly scheduled audit committee meetings, the chairman of the audit committee, Penny Lumpkin, is authorized to pre-approve the service with full committee approval at the next scheduled meeting. There shall be no waivers of the pre-approval process. No services described in (b)-(d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

 

(f) Not applicable.

 

(g) Non-Audit Fees. The aggregate non-audit fees billed by the registrant’s accountant for the most recent fiscal year and the preceding fiscal year for services rendered to the registrant, the investment advisor, and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the registrant were $106,153 and $70,689, respectively. These aggregate fees were less than the aggregate fees billed for the same periods by the registrant’s principal accountant for audit services rendered to the registrant, the investment advisor, and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the registrant.

 

(h) Auditor Independence. All non-audit services rendered in (g) above were pre-approved by the registrant’s audit committee. As such, the audit committee has considered these services in maintaining the principal accountant’s independence.

 

 

Item 5. Audit Committee of Listed Registrants.

 

Not applicable.

 

Item 6. Investments.

 

Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this form.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

 

Not applicable.

 

Item 8. Portfolio Mangers of Closed-end Management Investment Companies

 

Not applicable

 
 

 

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

 

Not applicable.

 

Item 10. Submission of Matters to a Vote of Security Holders.

 

The registrant does not currently have in place procedures by which shareholders may recommend nominees to the registrant’s board.

 

There have been no changes to the procedures by which shareholders may recommend nominees to the registrant’s board.

 

Item 11. Controls and Procedures.

 

(a) The registrant’s President (principal executive officer) and Treasurer (principal financial officer) have evaluated the registrant’s disclosure controls and procedures within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective as of that date in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.

 

(b) The registrant’s principal executive officer and principal financial officer are aware of no change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

 

Item 12. Exhibits.

 

(a)(1) The registrant’s code of ethics pursuant to Item 2 of Form N-CSR is attached.

 

(a)(2) Separate certifications by the President (principal executive officer) and Treasurer (principal financial officer) of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)) are attached.

 

(b) A certification by the registrant’s President (principal executive officer) and Treasurer (principal financial officer) as required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)) is attached.

 

 
 

 

 

 

SIGNATURES

 



Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant) SBL Fund                                                                                          

 

By (Signature and Title)*   /s/ Donald C. Cacciapaglia                                    

 Donald C. Cacciapaglia, President

 

Date March 10, 2014

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)*   /s/ Donald C. Cacciapaglia                                    

 Donald C. Cacciapaglia, President

 

 

Date March 10, 2014

 

 

 

By (Signature and Title)*    /s/ Nikolaos Bonos                                                 

Nikolaos Bonos, Treasurer

 

Date March 10, 2014

 

* Print the name and title of each signing officer under his or her signature.