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Investment Company Act file number
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811-21455
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Guggenheim Enhanced Equity Strategy Fund
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(Exact name of registrant as specified in charter)
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2455 Corporate West Drive, Lisle, IL 60532
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(Address of principal executive offices)
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(Zip code)
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Amy J. Lee
2455 Corporate West Drive, Lisle, IL 60532
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(Name and address of agent for service)
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GGE Guggenheim Enhanced Equity Strategy Fund
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Portfolio of Investments
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January 31, 2013 (unaudited)
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Number
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of Shares
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Description
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Value
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Long-Term Investments - 125.5%
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Exchange Traded Funds - 125.4%
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120,800
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Consumer Discretionary Select Sector SPDR Fund(a)
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$6,055,704
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350,000
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Financial Select Sector SPDR Fund(a)
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6,083,000
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143,100
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Health Care Select Sector SPDR Fund(a)
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6,140,421
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152,200
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Industrial Select Sector SPDR Fund(a)
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6,100,176
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89,400
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iShares Dow Jones US Real Estate Index Fund(a)
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6,013,938
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272,000
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iShares Russell 2000 Index Fund(a)
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24,376,640
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213,500
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PowerShares QQQ Trust Series 1(a)
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14,281,015
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159,600
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SPDR Dow Jones Industrial Average ETF Trust(a)
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22,090,236
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162,300
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SPDR S&P 500 ETF Trust(a)
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24,296,310
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169,600
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Utilities Select Sector SPDR Fund(a)
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6,203,968
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(Cost $117,774,777)
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121,641,408
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Limited Partnership - 0.1%
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400,000
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Kodiak Funding, LP(b) (c)
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$32,092
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(Cost $3,464,000)
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Total Long-Term Investments - 125.5%
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(Cost $121,238,777)
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121,673,500
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Short-Term Investments - 0.5%
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Money Market Fund - 0.5%
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512,321
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Dreyfus Treasury Prime Cash Management Institutional Shares
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512,321
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(Cost $512,321)
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Total Investments - 126.0%
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(Cost $121,751,098)
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122,185,821
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Other Assets in excess of Liabilities - 0.2%
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216,452
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Total Value of Options Written - (2.0%) (Premiums received $1,145,886)
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(1,905,988)
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Borrowings - (24.2% of Net Assets or 19.2% of Total Investments)
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(23,500,000)
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Net Assets - 100.0%
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$ 96,996,285
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LP - Limited Partnership
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S&P - Standard & Poor's
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(a)
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All of these securities represent cover for outstanding options written. All of these securities have been physically segregated as collateral for borrowings outstanding.
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(b)
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Security is valued in accordance with Fair Valuation procedures established in good faith by management and approved by the Board of Trustees. The total market value of such securities is $32,092 which represents 0.1% of Net Assets.
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(c )
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Illiquid security.
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Country Breakdown
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% of Long-Term Investments
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United States
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100%
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See previously submitted notes to financial statements for the year ended October 31, 2012.
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Contracts (100 shares per contract)
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Call Options Written (d)
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Expiration
Month
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Exercise
Price
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Market Value
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1,208
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Consumer Discretionary Select Sector SPDR Fund
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February 2013
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$50.00
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$(83,956)
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3,500
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Financial Select Sector SPDR Fund
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February 2013
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17.00
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(159,250)
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1,431
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Health Care Select Sector SPDR Fund
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February 2013
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42.00
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(155,979)
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1,522
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Industrial Select Sector SPDR Fund
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February 2013
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40.00
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(77,622)
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894
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iShares Dow Jones US Real Estate Index Fund
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February 2013
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67.00
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(62,133)
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2,720
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iShares Russell 2000 Index Fund
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February 2013
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88.00
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(613,360)
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2,135
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PowerShares QQQ Trust Series 1
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February 2013
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68.00
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(59,780)
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1,596
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SPDR Dow Jones Industrial Average ETF Trust
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February 2013
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138.00
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(240,996)
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1,623
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SPDR S&P 500 ETF Trust
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February 2013
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149.00
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(337,584)
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1,696
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Utilities Select Sector SPDR Fund
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February 2013
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36.00
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(115,328)
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Total Value of Call Options Written
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(Premiums received $1,145,886)
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$(1,905,988)
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(d)
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Non-income producing security. |
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At January 31, 2013, the cost and related gross unrealized appreciation and depreciation on investments for tax purposes are as follows:
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Cost of Investments for Tax Purposes
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Gross Tax Unrealized Appreciation
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Gross Tax Unrealized Depreciation
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Net Tax Unrealized Appreciation on Investments
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$ 120,691,775
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4,925,954
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(3,431,908)
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$ 1,494,046
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The Fund values equity securities at the last reported sale price on the principal exchange or in the principal over-the-counter (“OTC”) market in which such securities are traded, as of the close of regular trading on the New York Stock Exchange (“NYSE”) on the day the securities are being valued or, if there are no sales, at the mean between the last available bid and ask prices on that day. Securities traded on NASDAQ are valued at the NASDAQ Official Closing Price. Debt securities are valued by independent pricing services or dealers using the mean of the closing bid and asked prices for such securities or, if such prices are not available, at prices for securities of comparable maturity, quality and type. Exchange traded options are valued at the mean between the bid and asked prices on the principal exchange on which they are traded. The Fund values money market funds at net asset value. Short-term securities with maturities of 60 days or less at time of purchase are valued at amortized cost, which approximates market value.
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For those securities where quotations or prices are not available, the valuations are determined in accordance with procedures established in good faith by management and approved by the Board of Trustees. Valuations in accordance with these procedures are intended to reflect each security’s (or asset’s) “fair value”. Fair value is the amount that the Fund might reasonably expect to receive for the security (or asset) upon its current sale. Each such determination should be based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to: (i) the type of security, (ii) the initial cost of the security, (iii) the existence of any contractual restrictions on the security’s disposition, (iv) the price and extent of public trading in similar securities of the issuer or of comparable companies, (v) quotations or evaluated prices from broker-dealers and/or pricing services, (vi) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange traded securities), (vii) an analysis of the company’s financial statements, and (viii) an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold (e.g. the existence of pending merger activity, public offerings or tender offers that might affect the value of the security).
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There are three different categories for valuations. Level 1 valuations are those based upon quoted prices in active markets. Level 2 valuations are those based upon quoted prices in inactive markets or based upon significant observable inputs (e.g. yield curves; benchmark interest rates; indices). Level 3 valuations are those based upon unobservable inputs (e.g. discounted cash flow analysis; non-market based methods used to determine fair valuation).
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The Fund values Level 1 securities using readily available market quotations in active markets. Money Market Funds are valued at Net Asset Value. The Fund values Level 2 fixed income securities using independent pricing providers who employ matrix pricing models utilizing market prices, broker quotes and prices of securities with comparable maturities and qualities. The Fund values Level 2 equity securities using independent pricing providers who employ models using various observable market inputs. The fair value estimate for the Level 3 security is determined in accordance with the Fund’s valuation procedures described above.
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The following table represents the Fund's investments carried by caption and by level within the fair value hierarchy as of January 31, 2013:
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Description
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Level 1
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Level 2
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Level 3
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Total
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(value in $000s)
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Assets:
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Exchange Traded Funds
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$ 121,642
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$ -
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$ -
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$ 121,642
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Limited Partnership
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-
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-
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32
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32
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Money Market Fund
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512
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-
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-
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512
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Total
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$ 122,154
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$ -
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$ 32
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$ 122,186
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Liabilities:
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Call Options Written
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$ 1,906
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$ -
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$ -
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$ 1,906
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Total
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$ 1,906
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$ -
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$ -
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$ 1,906
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During the three months ended January 31, 2013, there were no transfers between levels.
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The valuation process involved for Kodiak Funding, LP (“Kodiak”) is completed on a monthly basis and is designed to subject the Level 3 valuation to an appropriate level of oversight and review. Kodiak is a finite-life partnership with a liquidation deadline of December 2020 which owns a portfolio of Collateralized Debt Obligation (“CDO”) securities and also management contracts for CDO vehicles. Given the absence of an active market in the limited partnership interests in Kodiak, the Fund has adopted a valuation model which values the investment by discounting anticipated distributions for the remaining life of the vehicle. If an active market in the limited partnership interests in Kodiak develops, the value of Kodiak could significantly increase or decrease.
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The following table presents the activity for the Fund’s investments measured at fair value using significant unobservable inputs (Level 3 valuations) for the quarter ended January 31, 2013.
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Level 3 holdings
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Securities
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Beginning Balance at October 31, 2012
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$ 33
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Change in Unrealized Gain/(Loss)
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3
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Return of Capital
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(4)
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Ending Balance at January 31, 2013
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$ 32
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(a)
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The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) as of a date within 90 days of the filing date of this report and have concluded, based on such evaluation, 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 on this Form N-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
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(b)
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There was no change in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the registrant’s last fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting.
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Guggenheim Enhanced Equity Strategy Fund
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By:
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/s/ Donald C. Cacciapaglia |
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Date:
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March 19, 2013 |
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By:
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/s/ Donald C. Cacciapaglia |
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Date:
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March 19, 2013 |
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By:
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/s/ John Sullivan |
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Date:
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March 19, 2013 |