Guggenheim Credit Allocation Fund GGM - Guggenheim Investments

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The Fund’s investmentsPreferred stockholders usually have no right to vote for corporate directors or on other matters. Shares of traditionalpreferred securities have a liquidation value that generally equals the original purchase price at the date of issuance.The market value of preferred securities may be affected by favorable and unfavorable changes impacting companiesin the utilities and financial services sectors, which are prominent issuers of preferred securities, and by actual andanticipated changes in tax laws, such as changes in corporate income tax rates or the “Dividends ReceivedDeduction.” Because the claim on an issuer’s earnings represented by traditional preferred securities may becomeonerous when interest rates fall below the rate payable on such securities, the issuer may redeem the securities. Thus,in declining interest rate environments in particular, the Fund’s holdings of higher rate-paying fixed rate preferredsecurities may be reduced and the Fund would be unable to acquire securities of comparable credit quality payingcomparable rates with the redemption proceeds.Trust preferred securities. Trust preferred securities are a comparatively new asset class. Trust preferred securities aretypically issued by corporations, generally in the form of interest-bearing notes with preferred securitiescharacteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests insubordinated debentures or similarly structured securities. The trust preferred securities market consists of both fixedand adjustable coupon rate securities that are either perpetual in nature or have stated maturity dates.Trust preferred securities are typically junior and fully subordinated liabilities of an issuer or the beneficiary of aguarantee that is junior and fully subordinated to the other liabilities of the guarantor. In addition, trust preferredsecurities typically permit an issuer to defer the payment of income for eighteen months or more without triggering anevent of default. Generally, the deferral period is five years or more. Because of their subordinated position in thecapital structure of an issuer, the ability to defer payments for extended periods of time without default consequencesto the issuer, and certain other features (such as restrictions on common dividend payments by the issuer or ultimateguarantor when full cumulative payments on the trust preferred securities have not been made), these trust preferredsecurities are often treated as close substitutes for traditional preferred securities, both by issuers and investors. Trustpreferred securities have many of the key characteristics of equity due to their subordinated position in an issuer’scapital structure and because their quality and value are heavily dependent on the profitability of the issuer rather thanon any legal claims to specific assets or cash flows.Trust preferred securities are typically issued with a final maturity date, although some are perpetual in nature. Incertain instances, a final maturity date may be extended and/or the final payment of principal may be deferred at theissuer’s option for a specified time without default. No redemption can typically take place unless all cumulativepayment obligations have been met, although issuers may be able to engage in open-market repurchases withoutregard to whether all payments have been paid.Many trust preferred securities are issued by trusts or other special purpose entities established by operatingcompanies and are not a direct obligation of an operating company. At the time the trust or special purpose entity sellssuch preferred securities to investors, it purchases debt of the operating company (with terms comparable to those ofthe trust or special purpose entity securities), which enables the operating company to deduct for tax purposes theinterest paid on the debt held by the trust or special purpose entity. The trust or special purpose entity is generallyrequired to be treated as transparent for U.S. federal income tax purposes such that the holders of the trust preferredsecurities are treated as owning beneficial interests in the underlying debt of the operating company. Accordingly,payments on the trust preferred securities are treated as interest rather than dividends for U.S. federal income taxpurposes and, as such, are not eligible for the Dividends Received Deduction. The trust or special purpose entity inturn would be a holder of the operating company’s debt and would have priority with respect to the operatingcompany’s earnings and profits over the operating company’s common shareholders, but would typically besubordinated to other classes of the operating company’s debt. Typically a preferred share has a rating that is slightlybelow that of its corresponding operating company’s senior debt securities.Convertible securitiesConvertible securities consist of bonds, debentures, notes, preferred stocks and other securities that entitle the holderto acquire common stock or other equity securities of the same or a different issuer. Convertible securities have34
The Fund’s investmentsgeneral characteristics similar to both debt and equity securities. A convertible security generally entitles the holder toreceive interest or preferred dividends paid or accrued until the convertible security matures or is redeemed, convertedor exchanged. Before conversion, convertible securities have characteristics similar to non-convertible debtobligations. Convertible securities rank senior to common stock in a corporation’s capital structure and, therefore,generally entail less risk than the corporation’s common stock, although the extent to which such risk is reduceddepends in large measure upon the degree to which the convertible security sells above its value as a debt obligation.A convertible security may be subject to redemption at the option of the issuer at a predetermined price. If aconvertible security held by the Fund is called for redemption, the Fund would be required to permit the issuer toredeem the security and convert it to underlying common stock, or would sell the convertible security to a third party,which may have an adverse effect on the Fund’s ability to achieve its investment objective. The price of a convertiblesecurity often reflects variations in the price of the underlying common stock in a way that non-convertible debt maynot. The value of a convertible security is a function of (i) its yield in comparison to the yields of other securities ofcomparable maturity and quality that do not have a conversion privilege and (ii) its worth if converted into theunderlying common stock.Mortgage-backed securitiesMBS are structured debt obligations collateralized by pools of commercial or residential mortgages. Pools ofmortgage loans and mortgage-backed loans such as mezzanine loans are assembled as securities for sale to investorsby various governmental, government-related and private organizations. MBS consist of complex instruments such ascollateralized mortgage obligations (“CMOs”), stripped MBS, mortgage pass-through securities, interests in realestate mortgage investment conduits (“REMICs”), real estate investment trusts (“REITs”) that invest the majority oftheir assets in real property mortgages and which generally derive income primarily from interest payments thereon,and other securities that provide exposure to mortgages.MBS in which the Fund may invest may have fixed, floating or variable interest rates, interest rates that change basedon multiples of changes in a specified index of interest rates or interest rates that change inversely to changes ininterest rates, or may not bear interest. The Fund may invest in RMBS and CMBS, issued by governmental entitiesand private issuers. The Fund may invest in subordinated MBS and residual interest in MBS. The Fund may invest insub-prime mortgages or MBS that are backed by sub-prime mortgages. Additional information regarding types ofMBS that the Fund may invest in are described below.RMBS. RMBS are securities the payments on which depend (except for rights or other assets designed to assure theservicing or timely distribution of proceeds to holders of such securities) primarily on the cash flow from residentialmortgage loans made to borrowers that are secured (on a first priority basis or second priority basis, subject topermitted liens, easements and other encumbrances) by residential real estate (one- to four-family properties), theproceeds of which are used to purchase real estate and purchase or construct dwellings thereon (or to refinanceindebtedness previously so used). Residential mortgage loans are obligations of the borrowers thereunder only and arenot typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan secured byresidential property is dependent upon the income or assets of the borrower. A number of factors, including a generaleconomic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability torepay its loans.Government agency securities. The principal U.S. Governmental guarantor of MBS is the Government NationalMortgage Association (“GNMA”), which is a wholly owned U.S. Government corporation. GNMA is authorized toguarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest onsecurities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks andmortgage bankers) and backed by pools of mortgages insured by the Federal Housing Administration (the “FHA”), orguaranteed by the Department of Veterans Affairs (the “VA”). MBS issued by GNMA include GNMA Mortgage Pass-Through Certificates (also known as “Ginnie Maes”).Government-related securities. Government-related guarantors (i.e., not backed by the full faith and credit of the U.S.Government) include the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage35
Page 4 and 5: Introducing GuggenheimCredit Alloca
Page 6 and 7: An Experienced Investment TeamGugge
Page 8 and 9: Risks and Considerations (continued
Page 14 and 15: (notes from cover page)(1) The Fund
Page 16: TABLE OF CONTENTSProspectus summary
Page 19 and 20: and their political subdivisions, a
Page 21 and 22: Leverage, so the fees paid to the A
Page 23 and 24: segments of the credit securities m
Page 25 and 26: Corporate bond riskThe market value
Page 27 and 28: interest on its portfolio holdings.
Page 29 and 30: loan to restructure the residential
Page 31 and 32: Emerging markets riskInvestments in
Page 33 and 34: larger companies, and may experienc
Page 35 and 36: layering. Investments in other inve
Page 37 and 38: income the Fund actually received,
Page 39 and 40: At any time after the date of this
Page 41 and 42: Summary of Fund expensesThe purpose
Page 43 and 44: The FundGuggenheim Credit Allocatio
Page 45 and 46: Investment objective and policiesba
Page 47 and 48: The Fund’s investmentsSenior Loan
Page 49: The Fund’s investmentspay interes
Page 53 and 54: The Fund’s investmentscause it to
Page 55 and 56: The Fund’s investmentsrisk of the
Page 57 and 58: The Fund’s investmentsRecovery an
Page 59 and 60: The Fund’s investmentsbe characte
Page 61 and 62: The Fund’s investmentstransaction
Page 63 and 64: The Fund’s investmentsFund has ea
Page 65 and 66: The Fund’s investmentsexpenses of
Page 67 and 68: Use of Financial LeverageREVERSE RE
Page 69 and 70: Use of Financial LeverageUnless and
Page 71 and 72: RisksMANAGEMENT RISKThe Fund is sub
Page 73 and 74: Risksderivative position. The Fund
Page 75 and 76: RisksNo active trading market may e
Page 77 and 78: RisksPREFERRED SECURITIES RISKThere
Page 79 and 80: Risksthan on those secured by loans
Page 81 and 82: Risksreduced investor demand for mo
Page 83 and 84: Riskscontain provisions that, in th
Page 85 and 86: Risksuse of leverage may result in
Page 87 and 88: Risksof the premium received) shoul
Page 89 and 90: Risksrecognized by the Fund from it
Page 91 and 92: RisksDERIVATIVES TRANSACTIONS RISKT
Page 93 and 94: Risksevents, such as a decline in t
Page 95 and 96: RisksREDENOMINATION RISKContinuing
Page 97 and 98: Riskssecurity during this period, a
Page 99 and 100: Management of the FundTRUSTEES AND
Page 101 and 102:
Management of the Fundand beverage
Page 103 and 104:
Distributionsmonthly period. As a r
Page 105 and 106:
Description of capital structureAny
Page 107 and 108:
Anti-takeover and other provisions
Page 109 and 110:
Tax matters(ii) The Fund must diver
Page 111 and 112:
Tax mattersThe Fund will send you i
Page 113 and 114:
UnderwritingThe Fund has agreed not
Page 115 and 116:
Independent registered public accou
Page 117 and 118:
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Guggenheim Credit Allocation Fund GGM - Guggenheim Investments

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