ITEM 1. REPORTS TO STOCKHOLDERS
GREAT-WEST FUNDS, INC.
Great-West Ariel Mid Cap Value Fund (Initial Class and Class L)
Annual Report
December 31, 2013
This report and the financial statements attached are submitted for general information and are not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
Nothing herein is to be considered an offer of the sale of shares of the Fund. Such offering is made only by the prospectus of the Fund, which includes details as to offering price and other information.
Management Discussion
In 2013, the Great-West Ariel Mid Cap Value Fund (Initial Class shares) advanced 47.54%, significantly topping the Russell Midcap Index’s 34.76% return and the Russell Midcap Value Index’s rise of 33.46%.
Meanwhile, the larger-cap stocks tracked by the S&P 500 Index gained 32.39%. Investors entered 2013 a bit nervous and hesitant, but gradually became increasingly confident regarding stocks. We entered the year with higher expectations than the
crowd and had the Fund positioned to take advantage of the broadly pessimistic outlook. About 30% of our 2013 outperformance came from allocation to strong sectors, and 70% of it came from stock selection. An overweight to the consumer discretionary
sector and avoidance of the laggard utilities and materials & processing areas were key to our sector allocation advantage. Among sector allocations, only financial services proved a drag. That said, half of our stock-picking advantage
versus the benchmark came from financial services, with consumer discretionary and health care holdings also adding value. Our stock selection in the consumer staples and energy sectors proved mildly negative. As we enter 2014, although we remain
more cautious than a year ago, we are confident and optimistic. That is, sentiment has changed considerably—the anxiety lingering due to equity losses during the financial crisis has morphed into enthusiasm for stocks, given their very strong
returns since early 2009. We are independent thinkers rather than knee-jerk contrarians, however, so this shift does not automatically cause us to batten down the hatches. Our point of view remains: The slow, muted economic recovery is real and
ongoing. To date, it has not transformed into the strong growth that typically follows a recession, but we think it will eventually get there. Perhaps—we are not macroeconomic prognosticators—that will occur in 2014. In the meantime, we
continue to be highly active stock-pickers. The companies we choose to own appear to us to have bright futures, especially long-term but in the near-term as well.
The views and opinions in this report were current as of December 31, 2013 and are subject to change at any time. They are not guarantees of performance or investment results and should not be taken as
investment advice. Fund holdings are subject to change at any time. Fund returns are net of fees unless otherwise noted.
Growth of $10,000
This graph compares the value of a hypothetical $10,000 investment in the Fund over the past 10 fiscal year periods or since
inception (for funds lacking 10-year records) with the performance of the Fund’s benchmark index. Results include the reinvestment of all dividends and capital gains distributions. Past performance is no guarantee of future results. The graph
does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance does not include any fees or expenses of variable insurance contracts, individual retirement accounts
(“IRA(s)”), qualified retirement plans or college savings programs. If such fees and expenses were included, returns would be lower.
|
|
|
|
|
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Year
|
|
Fund (Initial Class)
|
|
Russell
Midcap Index
|
|
|
|
10,000.00
|
|
10,000.00
|
|
2004
|
|
11,228.00
|
|
12,022.00
|
|
2005
|
|
11,609.75
|
|
13,542.78
|
|
2006
|
|
12,925.14
|
|
15,609.41
|
|
2007
|
|
12,767.45
|
|
16,483.54
|
|
2008
|
|
7,611.95
|
|
9,649.46
|
|
2009
|
|
12,403.68
|
|
13,555.57
|
|
|
|
|
|
|
|
2010
|
|
14,827.53
|
|
17,009.52
|
|
2011
|
|
13,808.88
|
|
16,745.88
|
|
2012
|
|
16,598.27
|
|
19,639.56
|
|
2013
|
|
24,489.04
|
|
26,467.07
|
Note: Performance for the Class L shares may vary due to their differing fee structure. See returns table below.
Average Annual Total Returns for the Periods Ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
One Year
|
|
Five Years
|
|
Ten
Years/Since
Inception
|
|
Initial Class
|
|
47.54%
|
|
26.33%
|
|
9.37%
|
|
Class
L
|
|
—
|
|
—
|
|
2.03%*
|
*Since inception on December 20, 2013.
Results include the reinvestment of all dividends and capital gains distributions. Past performance is no guarantee of future results. The table
does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance does not include any fees or expenses of variable insurance contracts, IRAs, qualified retirement plans or
college savings programs. If such fees and expenses were included, returns would be lower.
Summary of Investments by Sector as of December 31,
2013
|
|
|
|
|
Sector
|
|
% of
Fund Investments
|
|
Communications
|
|
13.73%
|
|
Consumer,
Cyclical
|
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14.23%
|
|
Consumer, Non-cyclical
|
|
23.06%
|
|
Energy
|
|
1.52%
|
|
Financial
|
|
34.31%
|
|
Industrial
|
|
12.63%
|
|
Short Term Investments
|
|
0.52%
|
|
Total
|
|
100.00%
|
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (June 29, 2013 to December 31, 2013).
Actual Expenses
The first line of
the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to
estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by
the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below
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 you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs.
Therefore, the second line of the 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.
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|
|
Beginning
Account Value
(6/29/13)
|
|
Ending Account
Value
(12/31/2013 )
|
|
Expense Paid
During Period
(06/29/13-
12/31/2013 )
|
|
Initial Class
|
|
|
|
|
|
|
|
Actual
|
|
$1,000.00
|
|
$1,223.00
|
|
$6.22*
|
|
|
|
|
|
|
Hypothetical (5% return before expenses)
|
|
$1,000.00
|
|
$1,019.88
|
|
$5.66*
|
|
|
|
|
|
|
Class L
|
|
|
|
|
|
|
|
Actual
|
|
$1,000.00
|
|
$1,020.30
|
|
$0.40**
|
|
|
|
|
|
|
Hypothetical (5% return before expenses)
|
|
$1,000.00
|
|
$1,018.58
|
|
$6.96***
|
*Expenses are equal to the Fund’s annualized expense ratio of 1.10% for the Initial Class shares, multiplied
by the average account value over the period, multiplied by 186/365 days to reflect the one-half year period.
**Expenses are equal to
the Fund’s annualized expense ratio of 1.35% for Class L shares, multiplied by the average account value over the period, multiplied by 11/365 days to reflect the share class’s inception date of December 20, 2013 through
December 31, 2013.
***Expenses are equal to the Fund’s annualized expense ratio of 1.35% for Class L shares, multiplied by
the average account value over the period, multiplied by 186/365 days to reflect the one-half year period.
Performance does not include
any fees or expenses of variable insurance contracts, IRAs, qualified retirement plans or college savings programs, if applicable. If such fees or expenses were included, returns would be lower.
GREAT-WEST FUNDS, INC.
GREAT-WEST ARIEL MID CAP VALUE FUND
Schedule of Investments
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
Communications — 12.96%
|
|
|
|
|
|
|
|
|
|
59,600
|
|
CBS Corp Class B
|
|
$
|
|
|
|
|
3,798,904
|
|
|
90,300
|
|
Gannett Co Inc
|
|
|
|
|
|
|
2,671,074
|
|
|
257,575
|
|
Interpublic Group of Cos Inc
|
|
|
|
|
|
|
4,559,078
|
|
|
42,500
|
|
Omnicom Group Inc
|
|
|
|
|
|
|
3,160,725
|
|
|
41,000
|
|
Viacom Inc Class B
|
|
|
|
|
|
|
3,580,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,770,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer, Cyclical — 13.44%
|
|
|
|
|
|
|
|
|
|
58,300
|
|
Coach Inc
|
|
|
|
|
|
|
3,272,379
|
|
|
248,500
|
|
International Game Technology
|
|
|
|
|
|
|
4,512,760
|
|
|
90,400
|
|
International Speedway Corp Class A
|
|
|
|
|
|
|
3,208,296
|
|
|
19,800
|
|
Madison Square Garden Co Class A
(a)
|
|
|
|
|
|
|
1,140,084
|
|
|
67,900
|
|
Newell Rubbermaid Inc
|
|
|
|
|
|
|
2,200,639
|
|
|
55,000
|
|
Nordstrom Inc
|
|
|
|
|
|
|
3,399,000
|
|
|
7,400
|
|
Tiffany & Co
|
|
|
|
|
|
|
686,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,419,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer, Non-cyclical — 21.77%
|
|
|
|
|
|
|
|
|
|
47,800
|
|
Apollo Education Group Inc Class A
(a)
|
|
|
|
|
|
|
1,305,896
|
|
|
17,925
|
|
Bio-Rad Laboratories Inc Class A
(a)
|
|
|
|
|
|
|
2,215,709
|
|
|
37,100
|
|
DeVry Education Group Inc
|
|
|
|
|
|
|
1,317,050
|
|
|
110,700
|
|
Hospira Inc
(a)
|
|
|
|
|
|
|
4,569,696
|
|
|
19,300
|
|
JM Smucker Co
|
|
|
|
|
|
|
1,999,866
|
|
|
29,225
|
|
Sotheby’s
|
|
|
|
|
|
|
1,554,770
|
|
|
73,000
|
|
St Jude Medical Inc
|
|
|
|
|
|
|
4,522,350
|
|
|
26,600
|
|
Towers Watson & Co Class A
|
|
|
|
|
|
|
3,394,426
|
|
|
291,900
|
|
Western Union Co
|
|
|
|
|
|
|
5,035,275
|
|
|
42,100
|
|
Zimmer Holdings Inc
|
|
|
|
|
|
|
3,923,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,838,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy — 1.43%
|
|
|
|
|
|
|
|
|
|
41,500
|
|
Contango Oil & Gas Co
(a)
|
|
|
|
|
|
|
1,961,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial — 32.39%
|
|
|
|
|
|
|
|
|
|
68,100
|
|
Aflac Inc
|
|
|
|
|
|
|
4,549,080
|
|
|
82,100
|
|
Blackstone Group LP
|
|
|
|
|
|
|
2,586,150
|
|
|
56,150
|
|
CBRE Group Inc Class A
(a)
|
|
|
|
|
|
|
1,476,745
|
|
|
50,800
|
|
City National Corp
|
|
|
|
|
|
|
4,024,376
|
|
|
200,500
|
|
First American Financial Corp
|
|
|
|
|
|
|
5,654,100
|
|
|
67,200
|
|
Franklin Resources Inc
|
|
|
|
|
|
|
3,879,456
|
|
|
245,200
|
|
Janus Capital Group Inc
|
|
|
|
|
|
|
3,033,124
|
|
|
45,613
|
|
Jones Lang LaSalle Inc
|
|
|
|
|
|
|
4,670,315
|
|
|
93,600
|
|
KKR & Co LP
(b)
|
|
|
|
|
|
|
2,278,224
|
|
|
138,000
|
|
Lazard Ltd Class A
|
|
|
|
|
|
|
6,254,160
|
|
|
69,525
|
|
Northern Trust Corp
|
|
|
|
|
|
|
4,302,902
|
|
|
20,100
|
|
T Rowe Price Group Inc
|
|
|
|
|
|
|
1,683,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,392,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial — 11.93%
|
|
|
|
|
|
|
|
|
|
22,300
|
|
Bristow Group Inc
|
|
|
|
|
|
|
1,673,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
Fair Value
|
|
|
Industrial — (continued)
|
|
|
|
|
|
|
|
|
|
52,400
|
|
Illinois Tool Works Inc
|
|
$
|
|
|
|
|
4,405,792
|
|
|
28,500
|
|
Snap-on Inc
|
|
|
|
|
|
|
3,121,320
|
|
|
35,002
|
|
Stanley Black & Decker Inc
|
|
|
|
|
|
|
2,824,311
|
|
|
38,796
|
|
Thermo Fisher Scientific Inc
|
|
|
|
|
|
|
4,319,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,345,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMMON STOCK — 93.92%
(Cost $99,800,749)
|
|
$
|
|
|
|
|
128,727,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
|
|
|
|
|
|
|
|
|
|
SHORT TERM INVESTMENTS
|
|
|
|
|
|
|
|
|
|
Reverse Repurchase Agreements — 0.49%
|
|
|
|
|
|
|
|
|
|
$160,598
|
|
Undivided interest of 0.33% in a reverse repurchase agreement (principal amount/value $48,657,259 with a maturity value of $48,657,286)
with Merrill Lynch, Pierce, Fenner & Smith, 0.01%, dated 12/31/13 to be repurchased at $160,598 on 1/2/14 collateralized by various U.S. Government Agency securities, 1.36% - 7.00%, 6/1/17 - 9/1/44, with a value of $49,630,404.
(c)
|
|
$
|
|
|
|
|
160,598
|
|
|
|
|
|
|
|
160,598
|
|
Undivided interest of 0.52% in a reverse repurchase agreement (principal amount/value $30,782,806 with a maturity value of $30,782,840)
with Citigroup Global Markets Inc, 0.02%, dated 12/31/13 to be repurchased at $160,598 on 1/2/14 collateralized by U.S. Treasury securities and various U.S. Government Agency securities, 2.08% - 11.00%, 12/15/15 - 8/15/53, with a value of
$31,398,462.
(c)
|
|
|
|
|
|
|
160,598
|
|
|
|
|
|
|
|
160,598
|
|
Undivided interest of 0.67% in a reverse repurchase agreement (principal amount/value $24,085,016 with a maturity value of $24,085,043)
with HSBC Securities (USA) Inc, 0.02%, dated 12/31/13 to be repurchased at $160,598 on 1/2/14 collateralized by U.S. Treasury securities, 1.38% - 2.50%, 12/31/18 - 8/15/23, with a value of $24,566,974.
(c)
|
|
|
|
|
|
|
160,598
|
|
See Notes to Financial
Statements.
Annual Report - December 31, 2013
GREAT-WEST FUNDS, INC.
GREAT-WEST ARIEL MID CAP VALUE FUND
Schedule of Investments
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
|
|
|
|
|
Fair Value
|
|
|
Reverse Repurchase Agreements — (continued)
|
|
|
|
|
|
|
$ 160,598
|
|
Undivided interest of 3.03% in a reverse repurchase agreement (principal amount/value $5,295,266 with a maturity value of $5,295,266)
with JP Morgan Securities, 0.00%, dated 12/31/13 to be repurchased at $160,598 on 1/2/14 collateralized by Federal National Mortgage Association securities, 2.50% - 7.50%, 12/1/14 - 11/1/52, with a value of $5,401,298.
(c)(d)
|
|
$
|
|
|
|
|
160,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
|
|
|
|
|
Fair Value
|
|
|
Reverse Repurchase Agreements — (continued)
|
|
|
|
|
|
|
$ 33,808
|
|
Undivided interest of 1.89% in a reverse repurchase agreement (principal amount/value $1,793,212 with a maturity value of $1,793,212)
with RBC Capital Markets Corp, 0.00%, dated 12/31/13 to be repurchased at $33,808 on 1/2/14 collateralized by U.S. Treasury securities, 0.00% - 2.50%, 1/23/14 - 8/15/23, with a value of $1,829,077.
(c)(d)
|
|
$
|
|
|
|
|
33,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHORT TERM INVESTMENTS — 0.49% (Cost $676,200)
|
|
$
|
|
|
|
|
676,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTMENTS — 94.41%
(Cost $100,476,949)
|
|
$
|
|
|
|
|
129,403,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS & LIABILITIES, NET — 5.59%
|
|
$
|
|
|
|
|
7,657,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NET ASSETS — 100.00%
|
|
$
|
|
|
|
|
137,061,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Non-income producing security.
|
|
(b)
|
All or a portion of the security is on loan at December 31, 2013.
|
|
(c)
|
Collateral received for securities on loan.
|
|
(d)
|
The rate of the reverse repurchase agreement was less than 0.01%.
|
Security classes presented herein are not necessarily the same as those used
for determining the Fund’s compliance with its investment objectives and restrictions, as the Fund uses additional sub-classifications, which management defines by referring to one or more widely recognized market indexes or ratings group
indexes (unaudited).
See Notes to Financial
Statements.
Annual Report - December 31, 2013
GREAT-WEST FUNDS, INC.
Statement of Assets and Liabilities
As of December 31, 2013
|
|
|
|
|
|
|
|
|
Great-West Ariel
Mid Cap Value
Fund
|
|
|
ASSETS:
|
|
|
|
|
|
Investments in securities, fair value (including $662,400 of securities on loan)
(a)
|
|
|
$128,727,683
|
|
|
Reverse repurchase agreements, fair value
(b)
|
|
|
676,200
|
|
|
Cash
|
|
|
6,933,758
|
|
|
Subscriptions receivable
|
|
|
297,005
|
|
|
Receivable for investments sold
|
|
|
1,331,825
|
|
|
Dividends receivable
|
|
|
219,392
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
138,185,863
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
Payable to investment adviser
|
|
|
135,432
|
|
|
Payable upon return of securities loaned
|
|
|
676,200
|
|
|
Redemptions payable
|
|
|
312,677
|
|
|
Payable for distribution fees
|
|
|
179
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,124,488
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
$137,061,375
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS REPRESENTED BY:
|
|
|
|
|
|
Capital stock, $0.10 par value
|
|
|
$7,992,635
|
|
|
Paid-in capital in excess of par
|
|
|
134,720,840
|
|
|
Net unrealized appreciation on investments
|
|
|
28,926,934
|
|
|
Accumulated net realized gain on investments
|
|
|
(34,579,034
|
)
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
$137,061,375
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS BY CLASS
|
|
|
|
|
|
Initial Class
|
|
|
$136,215,751
|
|
|
|
|
|
|
|
|
Class L
|
|
|
$845,624
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL STOCK:
|
|
|
|
|
|
Authorized
|
|
|
|
|
|
Initial Class
|
|
|
100,000,000
|
|
|
Class L
|
|
|
35,000,000
|
|
|
Issued and Outstanding
|
|
|
|
|
|
Initial Class
|
|
|
79,842,858
|
|
|
Class L
|
|
|
83,482
|
|
|
|
|
|
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE:
|
|
|
|
|
|
Initial Class
|
|
|
$1.71
|
|
|
|
|
|
|
|
|
Class L
|
|
|
$10.13
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Cost of investments
|
|
|
$99,800,749
|
|
|
(b)
Cost of reverse repurchase agreements
|
|
|
$676,200
|
|
See Notes to Financial
Statements.
Annual Report - December 31, 2013
GREAT-WEST FUNDS, INC.
Statement of Operations
For the fiscal year ended December 31, 2013
|
|
|
|
|
|
|
|
|
Great-West Ariel
Mid Cap Value
Fund
|
|
|
|
|
|
INVESTMENT INCOME:
|
|
|
|
|
|
Interest
|
|
|
$172
|
|
|
Income from securities lending
|
|
|
1,054
|
|
|
Dividends
|
|
|
1,131,469
|
|
|
|
|
|
|
|
|
Total Income
|
|
|
1,132,695
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
Management fees
|
|
|
589,617
|
|
|
Audit fees
|
|
|
21,637
|
|
|
Bank and custodian fees
|
|
|
5,051
|
|
|
Distribution fees - Class L
|
|
|
68
|
|
|
Investment administration fees
|
|
|
108,266
|
|
|
Other
|
|
|
66,042
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
790,681
|
|
|
|
|
|
|
|
|
Less amount reimbursed by investment adviser
|
|
|
107,899
|
|
|
|
|
|
|
|
|
Net Expenses
|
|
|
682,782
|
|
|
|
|
|
|
|
|
|
|
|
NET INVESTMENT INCOME
|
|
|
449,913
|
|
|
|
|
|
|
|
|
|
|
|
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
|
|
|
|
|
|
Net realized gain on investments
|
|
|
9,560,622
|
|
|
Net change in unrealized appreciation on investments
|
|
|
20,806,116
|
|
|
|
|
|
|
|
|
Net Realized and Unrealized Gain on Investments
|
|
|
30,366,738
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
|
$30,816,651
|
|
|
|
|
|
|
|
See Notes to Financial
Statements.
Annual Report - December 31, 2013
GREAT-WEST FUNDS, INC.
Statement of Changes in Net Assets
For the fiscal years ended December 31, 2013 and 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
(a)
|
|
|
2012
|
|
|
Great-West Ariel Mid Cap Value Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATIONS:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
$449,913
|
|
|
|
$490,680
|
|
|
Net realized gain on investments
|
|
|
9,560,622
|
|
|
|
4,850,863
|
|
|
Net change in unrealized appreciation on investments
|
|
|
20,806,116
|
|
|
|
2,722,965
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from Operations
|
|
|
30,816,651
|
|
|
|
8,064,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISTRIBUTIONS TO SHAREHOLDERS:
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
|
|
|
|
|
|
|
Initial Class
|
|
|
(1,905,236
|
)
|
|
|
(489,108
|
)
|
|
Class L
|
|
|
(1,653
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,906,889
|
)
|
|
|
(489,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
From net realized gains
|
|
|
|
|
|
|
|
|
|
Initial Class
|
|
|
(4,744,832
|
)
|
|
|
(3,568,968
|
)
|
|
Class L
|
|
|
(4,316
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
From net realized gains
|
|
|
(4,749,148
|
)
|
|
|
(3,568,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Distributions
|
|
|
(6,656,037
|
)
|
|
|
(4,058,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS:
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
|
|
|
|
|
|
|
Initial Class
|
|
|
36,325,332
|
|
|
|
3,223,369
|
|
|
Class L
|
|
|
8,856
|
|
|
|
N/A
|
|
|
Shares issued in reinvestment of distributions
|
|
|
|
|
|
|
|
|
|
Initial Class
|
|
|
6,650,068
|
|
|
|
4,058,076
|
|
|
Class L
|
|
|
5,969
|
|
|
|
N/A
|
|
|
Shares issued in connection with fund acquisition
|
|
|
|
|
|
|
|
|
|
Initial Class
|
|
|
40,352,151
|
|
|
|
N/A
|
|
|
Class L
|
|
|
863,360
|
|
|
|
N/A
|
|
|
Shares redeemed
|
|
|
|
|
|
|
|
|
|
Initial Class
|
|
|
(14,489,598
|
)
|
|
|
(9,557,148
|
)
|
|
Class L
|
|
|
(43,540
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions
|
|
|
69,672,598
|
|
|
|
(2,275,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Increase in Net Assets
|
|
|
93,833,212
|
|
|
|
1,730,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS:
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
43,228,163
|
|
|
|
41,497,434
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
(b)
|
|
|
$137,061,375
|
|
|
|
$43,228,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS - SHARES:
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
|
|
|
|
|
|
|
Initial Class
|
|
|
27,147,505
|
|
|
|
2,536,587
|
|
|
Class L
|
|
|
873
|
|
|
|
N/A
|
|
|
Shares issued in reinvestment of distributions
|
|
|
|
|
|
|
|
|
|
Initial Class
|
|
|
4,012,986
|
|
|
|
3,344,048
|
|
|
Class L
|
|
|
592
|
|
|
|
N/A
|
|
|
Shares issued in connection with fund acquisition
|
|
|
|
|
|
|
|
|
|
Initial Class
|
|
|
23,210,985
|
|
|
|
N/A
|
|
|
Class L
|
|
|
86,336
|
|
|
|
N/A
|
|
|
Shares redeemed
|
|
|
|
|
|
|
|
|
|
Initial Class
|
|
|
(9,335,053
|
)
|
|
|
(7,517,355
|
)
|
|
Class L
|
|
|
(4,319
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease)
|
|
|
45,119,905
|
|
|
|
(1,636,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Class L inception date was December 20,
2013.
|
|
|
|
|
|
|
|
|
|
(b)
Including undistributed net investment
income:
|
|
|
$0
|
|
|
|
$50,111
|
|
See Notes to Financial
Statements.
Annual Report - December 31, 2013
GREAT-WEST FUNDS, INC.
Financial Highlights
Selected data for a share of capital stock of the Fund throughout the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended December 31,
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Great-West Ariel Mid Cap Value Fund - Initial Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSET VALUE, BEGINNING OF YEAR
|
|
|
$1.24
|
|
|
|
$1.14
|
|
|
|
$1.23
|
|
|
|
$1.03
|
|
|
|
$0.67
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.01
|
(a)
|
|
|
0.01
|
(a)
|
|
|
0.01
|
|
|
|
0.00
|
(b)
|
|
|
0.00
|
(b)
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
0.57
|
|
|
|
0.22
|
|
|
|
(0.09)
|
|
|
|
0.20
|
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total From Investment Operations
|
|
|
0.58
|
|
|
|
0.23
|
|
|
|
(0.08)
|
|
|
|
0.20
|
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS DISTRIBUTIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(0.04)
|
|
|
|
(0.02)
|
|
|
|
(0.01)
|
|
|
|
0.00
|
(b)
|
|
|
0.00
|
(b)
|
|
|
|
From net realized gains
|
|
|
(0.07)
|
|
|
|
(0.11)
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(0.05)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Distributions
|
|
|
(0.11)
|
|
|
|
(0.13)
|
|
|
|
(0.01)
|
|
|
|
0.00
|
|
|
|
(0.05)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSET VALUE, END OF YEAR
|
|
|
$1.71
|
|
|
|
$1.24
|
|
|
|
$1.14
|
|
|
|
$1.23
|
|
|
|
$1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL RETURN
(c)(d)
|
|
|
47.54%
|
|
|
|
20.20%
|
|
|
|
(6.87%)
|
|
|
|
19.54%
|
|
|
|
62.95%
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DATA AND RATIOS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (000)
|
|
|
$136,216
|
|
|
|
$43,228
|
|
|
|
$41,497
|
|
|
|
$48,464
|
|
|
|
$46,198
|
|
|
|
|
Ratio of expenses to average net assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before reimbursement
|
|
|
1.25%
|
|
|
|
1.31%
|
|
|
|
1.29%
|
|
|
|
1.32%
|
|
|
|
1.37%
|
|
|
|
|
After reimbursement
|
|
|
1.10%
|
|
|
|
1.10%
|
|
|
|
1.10%
|
|
|
|
1.10%
|
|
|
|
1.10%
|
|
|
|
|
Ratio of net investment income (loss) to average net assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before reimbursement
|
|
|
0.57%
|
|
|
|
0.94%
|
|
|
|
0.23%
|
|
|
|
(0.11%)
|
|
|
|
(0.12%)
|
|
|
|
|
After reimbursement
|
|
|
0.72%
|
|
|
|
1.15%
|
|
|
|
0.42%
|
|
|
|
0.11%
|
|
|
|
0.15%
|
|
|
|
|
Portfolio turnover rate
(e)
|
|
|
41%
|
|
|
|
26%
|
|
|
|
31%
|
|
|
|
24%
|
|
|
|
46%
|
|
|
|
|
(a)
|
Per share amounts are based upon average shares outstanding.
|
|
(b)
|
Amount was less than $0.01 per share.
|
|
(c)
|
Performance does not include any fees or expenses of variable insurance contracts, if applicable. If such fees or expenses were included, returns would be lower.
|
|
(d)
|
Performance shown net of expenses reimbursed. Without the expense reimbursement, the return shown would have been lower.
|
|
(e)
|
Portfolio turnover is calculated at the Fund level.
|
See Notes to Financial
Statements.
Annual Report - December 31, 2013
GREAT-WEST FUNDS, INC.
Financial Highlights
Selected data for a share of capital stock of the Fund throughout the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
2013
(a)
|
|
|
|
|
Great-West Ariel Mid Cap Value Fund - Class L
|
|
|
|
|
|
|
|
|
|
|
NET ASSET VALUE, BEGINNING OF YEAR
|
|
|
$10.00
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.00
|
(b)(c)
|
|
|
|
Net realized and unrealized gain
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
Total From Investment Operations
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS DISTRIBUTIONS:
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(0.02)
|
|
|
|
|
From net realized gains
|
|
|
(0.05)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Distributions
|
|
|
(0.07)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ASSET VALUE, END OF YEAR
|
|
|
$10.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL RETURN
(d)(e)
|
|
|
2.03%
|
(f)
|
|
|
|
|
|
|
|
SUPPLEMENTAL DATA AND RATIOS:
|
|
|
|
|
|
|
|
Net assets, end of year (000)
|
|
|
$846
|
|
|
|
|
Ratio of expenses to average net assets
|
|
|
|
|
|
|
|
Before reimbursement
|
|
|
45.42
|
(g)
|
|
|
|
After reimbursement
|
|
|
1.35
|
(g)
|
|
|
|
Ratio of net investment income (loss) to average net assets
|
|
|
|
|
|
|
|
Before reimbursement
|
|
|
(44.02)
|
(g)
|
|
|
|
After reimbursement
|
|
|
0.03
|
(g)
|
|
|
|
Portfolio turnover rate
(h)
|
|
|
41%
|
|
|
|
|
(a)
|
Class L inception date was December 20, 2013.
|
|
(b)
|
Per share amounts are based upon average shares outstanding.
|
|
(c)
|
Amount was less than $0.01 per share.
|
|
(d)
|
Performance does not include any fees or expenses of variable insurance contracts, if applicable. If such fees or expenses were included, returns would be lower.
|
|
(e)
|
Performance shown net of expenses reimbursed. Without the expense reimbursement, the return shown would have been lower.
|
|
(f)
|
Not annualized for periods less than one full year.
|
|
(h)
|
Portfolio turnover is calculated at the Fund level.
|
See Notes to Financial
Statements.
Annual Report - December 31, 2013
GREAT-WEST FUNDS, INC.
GREAT-WEST ARIEL MID CAP VALUE FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Great-West Funds, Inc. (Great-West Funds), a Maryland corporation, was organized on December 7, 1981 and is registered under the
Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. Great-West Funds presently consists of sixty-two funds. Interests in the Great-West Ariel Mid Cap Value Fund (the Fund) are included herein and are
represented by a separate class of beneficial interest of Great-West Funds. The investment objective of the Fund is to seek long-term capital appreciation. The Fund is diversified as defined in the 1940 Act. The Fund is available as an investment
option for insurance company separate accounts for certain variable annuity contracts and variable life insurance policies, to individual retirement account custodians or trustees, to plan sponsors of qualified retirement plans, to college savings
programs, and to asset allocation funds that are a series of Great-West Funds.
The Fund offers two share classes, referred to as
Initial Class and Class L shares. All shares of the Fund represent an equal pro rata interest in the net assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and
conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, expenses (other than those attributable to a specific class) and realized and unrealized gains and losses are allocated
daily to each class of shares based on the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against operations of that class.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies of the Fund.
Security Valuation
The Fund generally values its securities based on market prices determined
at the close of regular trading on the New York Stock Exchange (NYSE) on each day the NYSE is open for trading. The net asset value of each class of the Fund’s shares is determined by dividing the net assets attributable to each class of
shares of the Fund by the number of issued and outstanding shares of each class of the Fund on each valuation date.
For securities that
are traded on an exchange, the last sale price as of the close of business of the principal exchange will be used. If the closing price is not available, the current bid will be used. For securities that principally trade on the NASDAQ National
Market System, the NASDAQ official closing price will be used.
Short term securities purchased with less than 60
days remaining until maturity and all U.S. Treasury Bills are valued on the basis of amortized cost, which approximates fair value. Short term securities purchased with more than 60 days remaining until maturity are valued using
pricing services, or in the event a price is not available from a pricing service, may be priced using other methodologies approved by the Board of Directors, including model pricing or pricing on the basis of quotations from brokers or dealers, and
will continue to be priced until final maturity.
Foreign equity securities are generally valued using an adjusted systematic fair value
price from an independent pricing service. Foreign exchange rates are determined at a time that corresponds to the closing of the NYSE.
Independent pricing services are approved by the Board of Directors and are utilized for all investment types when available. In some instances valuations from independent pricing services are not available or do
not reflect events in the market between the time the market closed and the valuation time and therefore fair valuation procedures are implemented. The fair value for some securities may be obtained from pricing services or other pricing
sources. The inputs used by the pricing services are reviewed quarterly or when the pricing vendor issues updates to its pricing methodologies. Broker quotes are analyzed through an internal review process, which includes a review of known
market
Annual Report - December 31, 2013
conditions and other relevant data. Developments that might trigger fair value pricing could be natural disasters, government actions or fluctuations in domestic and foreign markets.
The following table provides examples of the inputs that are commonly used for valuing particular classes of securities. These classifications are
not exclusive, and any inputs may be used to value any other security class.
|
|
|
|
|
Class
|
|
Inputs
|
|
|
|
|
Equity Investments:
|
|
|
|
Domestic Common Stock
|
|
Exchange traded close or bid price.
|
|
|
|
|
Foreign Common Stock
|
|
Exchange traded close price, bids, evaluated bids, open
and close price of local exchange, exchange rates, fair
values based on significant market movement and various
index
data.
|
|
|
|
|
Short Term Investments
|
|
Maturity date, credit quality and interest rates.
|
The Fund classifies its valuations into three levels based upon the transparency of inputs to the valuation of the
Fund’s investments. The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. Classification is based on the lowest level of input significant to the fair value measurement. The
three levels are defined as follows:
Level 1 – Unadjusted quoted prices for identical securities in active markets.
Level 2 – Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly. These
may include quoted prices for similar assets in active markets.
Level 3 – Unobservable inputs to the extent observable inputs
are not available and may include prices obtained from single broker quotes. Unobservable inputs reflect the Fund’s own assumptions and would be based on the best information available under the circumstances.
As of December 31, 2013, the inputs used to value the Fund’s investments are detailed in the following table. More information regarding
the sector and industry classifications, as applicable, are included in the Schedule of Investments. The Fund recognizes transfers between levels as of the beginning of the reporting period. There were no transfers between Levels 1, 2 and 3 during
the year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
|
|
|
Level 2
|
|
|
|
|
|
Level 3
|
|
|
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Common Stock
|
|
$
|
|
|
|
|
122,473,523
|
|
|
$
|
|
|
|
|
—
|
|
|
$
|
|
|
|
|
—
|
|
|
$
|
|
|
|
|
122,473,523
|
|
|
Foreign Common Stock
|
|
|
|
|
|
|
6,254,160
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
6,254,160
|
|
|
Short Term Investments
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
676,200
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
676,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
|
|
|
|
128,727,683
|
|
|
$
|
|
|
|
|
676,200
|
|
|
$
|
|
|
|
|
0
|
|
|
$
|
|
|
|
|
129,403,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse Repurchase Agreements
The Fund may engage in reverse repurchase agreement transactions with institutions that the Fund’s investment adviser has determined are creditworthy. The Fund will purchase securities at a specified price
with an agreement to sell the securities to the same counterparty at a specified time, price and interest rate. The Fund’s custodian and/or securities lending agent receives delivery of the underlying securities collateralizing a reverse
repurchase agreement. Collateral is at least equal to the value of the repurchase obligation including interest. A reverse repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks
include possible delays or restrictions upon a Fund’s ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights.
Annual Report - December 31, 2013
The Fund, along with certain other funds of Great-West Funds, may invest in reverse repurchase
agreement transactions and/or hold reverse repurchase agreement positions as a form of securities lending collateral, that are jointly collateralized by various U.S. Government or U.S. Government Agency securities.
Dividends
Dividends from net investment
income of the Fund, if any, are declared and paid semi-annually. Income dividends are reinvested in additional shares at net asset value. Dividends from capital gains of the Fund, if any, are declared and reinvested at least annually in additional
shares at net asset value.
Security Transactions
Security transactions are accounted for on the date the security is purchased or sold (trade date). Realized gains and losses from investments sold are determined on the basis of the first-in, first-out method
(FIFO). Dividend income for the Fund is accrued as of the ex-dividend date and interest income, including amortization of discounts and premiums, is recorded daily.
Federal Income Taxes and Distributions to Shareholders
The Fund’s policy complies with
the requirements under Subchapter M of the Internal Revenue Code applicable to regulated investment companies and the Fund intends to distribute substantially all of its net taxable income and net capital gains, if any, each year. The Fund is not
subject to income taxes to the extent such distributions are made. Therefore, no federal income taxes or excise tax provision is required.
As of and during the year ended December 31, 2013, the Fund did not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits
as income tax expense in the Statement of Operations. During the year, the Fund did not incur any interest or penalties.
The Fund files
U.S. Federal and Colorado tax returns. The statute of limitations on the Fund’s U.S. Federal tax returns remain open for the fiscal years ended 2010 through 2013. The statute of limitations on the Fund’s Colorado tax returns remain open
for an additional year.
Net investment income (loss) and net realized gain (loss) for federal income tax purposes may differ from those
reported on the financial statements because of temporary and permanent book and tax basis differences. The differences may include but are not limited to the following: wash sales, distribution adjustments, adjustments for fund merger and
adjustments to the accounting treatment of partnerships. The differences have no impact on net assets or the results of operations. The character of dividends and distributions made during the fiscal year from net investment income and/or realized
gains may differ from their ultimate characterization for federal income tax purposes. In addition, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or
realized gain was recorded by the Fund.
For the year ended December 31, 2013, the Fund reclassified permanent book and tax
differences of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
Capital
|
|
|
Overdistributed
Net Investment
Income
|
|
|
Accumulated Net
Realized Gain on
Investments
|
|
|
|
|
$
|
38,336,376
|
|
|
$
|
1,406,865
|
|
|
$
|
(39,743,241
|
)
|
The tax character of distributions paid during the years ended December 31, 2013 and 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Distributions paid from:
|
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
1,793,547
|
|
|
$
|
489,108
|
|
|
Long-term capital gain
|
|
|
4,862,490
|
|
|
|
3,568,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,656,037
|
|
|
$
|
4,058,076
|
|
|
|
|
|
|
|
|
|
|
|
Annual Report - December 31, 2013
As of December 31, 2013, the components of distributable earnings on a tax basis were as follows:
|
|
|
|
|
|
|
Undistributed ordinary income
|
|
$
|
—
|
|
|
Undistributed capital gains
|
|
|
3,906,670
|
|
|
|
|
|
|
|
|
Net accumulated earnings
|
|
|
3,906,670
|
|
|
|
|
|
|
|
|
Net unrealized appreciation on investments
|
|
|
28,355,355
|
|
|
Capital loss carryforward
|
|
|
(37,914,125
|
)
|
|
Post-October losses
|
|
|
—
|
|
|
|
|
|
|
|
|
Tax composition of capital
|
|
$
|
(5,652,100
|
)
|
|
|
|
|
|
|
Under the Regulated Investment Company Modernization Act of 2010, net capital losses realized in taxable years
beginning after December 22, 2010 may be carried forward indefinitely, and the character of the losses is retained as short-term and/or long-term. For the year ended December 31, 2013, the Fund utilized $274,964 and had the following
unused capital loss carryforwards available for federal income tax purposes:
|
|
|
|
|
|
|
Pre-Enactment
|
|
|
Unused
|
|
Expiration Date
|
|
|
$ (29,367,575)
|
|
|
2016
|
|
|
$ (8,546,550)
|
|
|
2017
|
|
Application of Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (ASU) issued ASU No. 2011-11
“Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities”
(ASU No. 2011-11).
ASU No. 2011-11 requires an entity to enhance disclosures about financial and derivative instrument offsetting arrangements or similar arrangements to enable users of its financial statements to understand the effect of those arrangements on
its financial position. ASU No. 2011-11 is effective for interim or annual periods beginning on or after January 1, 2013. The Fund adopted ASU No. 2011-11 for its fiscal year beginning January 1, 2013. The adoption of
ASU No. 2011-11 did not have an impact on the Fund’s financial position or the results of its operations.
In January 2013,
the Financial Accounting Standards Board issued ASU No. 2013-01
“Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”
(ASU No. 2013-01). ASU No. 2013-01 clarifies
that the scope of ASU No. 2011-11 applies to derivatives, repurchase agreements, reverse repurchase agreements, securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting
arrangement or similar agreement. ASU No. 2013-01 was effective for fiscal years and interim periods within those years beginning on or after January 1, 2013. The Fund adopted ASU No. 2013-01 for its fiscal year beginning
January 1, 2013. The adoption of ASU No. 2013-01 did not have an impact on the Fund’s financial position or the results of its operations.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Great-West Funds has entered
into an investment advisory agreement with Great-West Capital Management, LLC (the Adviser), a wholly-owned subsidiary of Great-West Life & Annuity Insurance Company (GWL&A). As compensation for its services to Great-West Funds, the
Adviser receives monthly compensation at the annual rate of 0.95% of the average daily net assets of the Fund. However, the Adviser is required by contract to reimburse the Fund for any expenses which exceed an annual rate, including management
fees, of 1.10% of the average daily net assets of the Fund. Expenses incurred by Great-West Funds, which are not Fund specific, are allocated based on relative net assets or other appropriate allocation methods. The Adviser and Great-West Funds have
entered into a sub-advisory agreement with Ariel Investments, LLC. The Fund is not responsible for payment of the sub-advisory fees.
GWFS Equities, Inc. (the Distributor), is a wholly-owned subsidiary of GWL&A and the principal underwriter to distribute and market the
Fund. The Fund has entered into a plan of distribution which provides for compensation for distribution of Class L shares and for providing or arranging for the provision of services to Class L shareholders. The distribution plan provides
for a maximum fee equal to an annual rate of 0.25% of the average daily net assets of the Class L shares. The Distributor has agreed to voluntarily waive all 12b-1 fees attributable to Class L shares purchased by the Adviser
in
Annual Report - December 31, 2013
consideration for the Adviser providing initial capital to the Fund. The amount waived, if any, is reflected in the Statement of Operations.
Certain officers of Great-West Funds are also directors and/or officers of GWL&A or its subsidiaries. No officer or interested director of
Great-West Funds receives any compensation directly from Great-West Funds. The total compensation paid to the independent directors with respect to all sixty-two funds for which they serve as directors was $318,850 for the year ended
December 31, 2013.
3. PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 2013, the aggregate cost of purchases and proceeds from sales of investments (excluding all U.S. Government securities and short-term securities) were $67,872,810 and
$25,407,155, respectively. For the same period, there were no purchases or sales of long-term U.S. Government securities. The cost of purchases and proceeds from sales amounts listed above were reduced by $13,309,650 and $7,578,822, respectively to
account for the transactions that relate to the Fund’s acquisition.
4. UNREALIZED APPRECIATION (DEPRECIATION)
At December 31, 2013, the U.S. Federal income tax cost basis was $101,048,528. The Fund had gross appreciation of investments in which there
was an excess of value over tax cost of $29,412,003 and gross depreciation of investments in which there was an excess of tax cost over value of $1,056,648 resulting in net appreciation of $28,355,355.
5. SECURITIES LOANED
The Fund has
entered into a securities lending agreement with its custodian as securities lending agent. Under the terms of the agreement the Fund receives income, recorded monthly, after deductions of other amounts payable to the securities lending agent or to
the borrower from lending transactions. In exchange for such fees, the securities lending agent is authorized to loan securities on behalf of the Fund against receipt of cash collateral at least equal in value at all times to the value of the
securities loaned plus accrued interest. The Fund also continues to receive interest or dividends on the securities loaned. Cash collateral is invested in securities approved by the Board of Directors. The Fund bears the risk of any deficiency in
the amount of collateral available for return to a borrower due to a loss in an approved investment. As of December 31, 2013 the Fund had securities on loan valued at $662,400 and received collateral of $676,200 for such loan which was invested
in reverse repurchase agreements collateralized by U.S. Government or U.S. Government Agency securities. The reverse repurchase agreements can be jointly purchased with other lending agent clients and in the event of a default by the counterparty,
all lending agent clients would share ratably in the collateral. Additional information regarding the Fund’s securities on loan is included in the Schedule of Investments.
6. FUND ACQUISITION
On
December 20, 2013, the Fund acquired all the net assets of the Great-West Ariel Small Cap Value Fund (Target Fund) pursuant to an agreement and plan of reorganization approved by the Board of Directors. The purpose of this transaction was
to combine two funds with comparable objectives and strategies. The acquisition was accomplished by a tax-free exchange as detailed in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great-West Ariel Mid Cap Value Fund
|
|
|
|
|
Great-West Ariel Small Cap Value Fund (Target Fund)
|
|
|
|
|
|
|
|
Shares Issued
|
|
Net Assets
|
|
|
|
|
Shares Exchanged
|
|
|
Net Assets Exchanged
|
|
|
|
|
Combined Net Assets
Immediately following the
Reorganization
|
|
|
3,135,417
|
|
$
|
92,934,080
|
|
|
|
|
|
23,297,321
|
|
|
$
|
41,215,511
|
|
|
|
|
$
|
134,149,591
|
|
For financial statement purposes, assets received and shares issued by the Fund were recorded at fair value, and
the cost basis of the investments received from the Target Fund was carried forward to align ongoing reporting of the Fund’s realized and unrealized gain/loss amounts distributable to shareholders for tax purposes. As of December 20, 2013,
the investment fair value and unrealized appreciation of the Target Fund was $20,304,691 and $6,995,041, respectively. The unused capital loss carry forwards of the Target Fund, subject to limitations, for potential utilization is $38,189,089.
Annual Report - December 31, 2013
Assuming the acquisition had been completed January 1, 2013, the beginning of the annual
reporting period of the Fund, the Fund’s pro forma results of operations for the period ended December 31, 2013, are as follows.
|
|
|
|
|
|
|
Net Investment Income
|
|
$
|
470,951
|
|
|
Net Realized and Unrealized Gain on
Investments
|
|
|
41,258,696
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting
from Operations
|
|
$
|
41,729,646
|
|
|
|
|
|
|
|
Because the combined funds have been managed as a single integrated fund since the acquisition was completed, it is
not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since the close of business, December 20, 2013.
7. LEGAL PROCEEDINGS
Several
lawsuits have been filed relating to the Fund’s previous investments in Tribune Company in connection with Tribune Company’s Chapter 11 bankruptcy proceeding. The lawsuits stem from a leveraged buyout transaction by which Tribune Company
converted to a privately-held company in 2007. On December 7, 2010, Great-West Funds was named as a defendant and putative member of the proposed defendant class of shareholders in an adversary proceeding brought by The Official Committee of
Unsecured Creditors of Tribune Company in the U.S. Bankruptcy Court for the District of Delaware. On September 20, 2011, Great-West Funds was named as a defendant and a putative defendant class member in a lawsuit filed by the indenture
trustees of certain note holders of Tribune Company in the U.S. District Court for the District of Colorado. These lawsuits have been consolidated with others into actions pending in the U.S. District Court for the Southern District of New York and
the United States Court of Appeals for the Second Circuit. The plaintiffs in these lawsuits seek to recover amounts paid to Tribune shareholders in connection with the leveraged buyout, plus interest and attorneys’ fees and expenses.
Management cannot predict the outcome of these lawsuits. The lawsuits allege no misconduct by Great-West Funds or the Fund, and
Great-West Funds and the Fund intend to vigorously defend themselves in the lawsuits. If the lawsuits were to be decided or settled in a manner adverse to the Fund, the payment of such judgments or settlements could have a material adverse effect on
the Fund’s net asset value. The Fund received approximately $23,706,030 in proceeds from sales of Tribune Company shares made on the open market after the leveraged buyout was announced to the public.
8. TAX INFORMATION (unaudited)
Dividends paid by the Fund from net investment income and distributions of net realized short-term capital gains are, for federal income tax
purposes, taxable as ordinary income to shareholders. Of the ordinary income distributions declared for the year ended December 31, 2013, 81% qualifies for the dividend received deduction available to the Fund’s corporate shareholders.
Annual Report - December 31, 2013
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Great-West Funds, Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Great-West Ariel Mid Cap Value Fund (the Fund), one of the funds of Great-West Funds, Inc. as of
December 31, 2013, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform our audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of
December 31, 2013, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Great-West Ariel Mid Cap Value Fund as of
December 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Denver, Colorado
February 19, 2014
Fund Directors and Officers
Great-West Funds, Inc. (“Great- West Funds”) is organized under Maryland law, and is governed by the Board of Directors. The following
table provides information about each of the Directors and executive officers of Great-West Funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent Directors*
|
|
Name,
Address,
and Year of
Birth
|
|
Position(s)
Held with
Great-West
Funds
|
|
Term of
Office and
Length of
Time
Served
|
|
Principal
Occupation(s) During
Past 5 Years
|
|
Number of
Funds in Fund
Complex
Overseen by
Director
|
|
Other
Directorships
Held by
Director
|
|
Gail H.
Klapper
8515 East Orchard Road, Greenwood Village, CO
80111
1943
|
|
Independent Director
|
|
Since 2007
|
|
Managing Attorney, Klapper Law Firm; Member, The Colorado Forum; President, Ward Lake, Inc.; Manager, 6K Ranch,
LLC
|
|
62
|
|
Director, Guaranty Bancorp
|
|
Stephen G.
McConahey
8515 East Orchard
Road, Greenwood Village, CO 80111
1943
|
|
Independent Director
|
|
Since 2011
|
|
Chairman, SGM Capital, LLC; Partner, Iron Gate Capital, LLC; Director, The
IMA Financial
Group, Inc.
|
|
62
|
|
Director, Guaranty Bancorp
|
|
Sanford Zisman
8515 East Orchard Road, Greenwood Village, CO 80111
1939
|
|
Lead Independent Director
|
|
Since 1982
|
|
Attorney, Law Firm of Zisman, Ingraham & Mong, P.C.
|
|
62
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interested Directors**
|
|
Name,
Address,
and
Age
|
|
Position(s)
Held with
Great-West
Funds
|
|
Term of
Office and
Length
of
Time
Served
|
|
Principal
Occupation(s) During
Past 5
Years
|
|
Number of
Funds in Fund
Complex
Overseen by
Director
|
|
Other
Directorships
Held by
Director
|
|
Mitchell T.G. Graye
8515 East Orchard Road,
Greenwood
Village, CO 80111
1955
|
|
Chairman, President & Chief Executive Officer
|
|
Since 2000
(as Director)
Since 2008
(as Chairman)
Since 2008
(as President and Chief Executive Officer)
|
|
President and Chief Executive Officer, Great-West Life & Annuity Insurance Company, Great-West Life
& Annuity Insurance Company of New York, and GWL&A Financial, Inc.; President and Chief Executive Officer, U.S. Operations, The Great-West Life Assurance Company, The Canada Life Assurance Company, Crown Life Insurance Company, and London
Life Insurance Company
|
|
62
|
|
N/A
|
|
Charles P. Nelson
8515 East Orchard Road,
Greenwood Village, CO 80111
1961
|
|
Director
|
|
Since 2008
|
|
President, Retirement Services, Great-West Life & Annuity Insurance Company and Great-West Life
& Annuity Insurance Company of New York; Chairman and President, Advised Assets Group, LLC, EMJAY Corporation, and FASCore, LLC; Chairman, President and Chief Executive Officer, GWFS Equities, Inc.; Manager, Great-West Capital Management,
LLC
|
|
62
|
|
N/A
|
|
|
|
Officers
|
|
Name,
Address,
and
Age
|
|
Position(s)
Held with
Great-West
Funds
|
|
Term of
Office and
Length
of
Time
Served
|
|
Principal
Occupation(s) During
Past 5
Years
|
|
Number of
Funds in Fund
Complex
Overseen by
Director
|
|
Other
Directorships
Held by
Director
|
|
Beverly A. Byrne
8515 East Orchard Road,
Greenwood Village, CO 80111
|
|
Chief Legal Counsel & Chief Compliance Officer
|
|
Since 2004
(as Chief Compliance Officer)
Since 2011
(as Chief Legal Counsel)
|
|
Chief Compliance Officer, Chief Legal Counsel, Financial Services, Great-West Life & Annuity Insurance Company and Great-West Life & Annuity
Insurance Company of New York; Chief
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1955
|
|
|
|
|
|
Compliance Officer, U.S. Operations, The Great-West Life Assurance Company,
The Canada Life Assurance Company, Crown Life Insurance Company, and London Life Insurance Company; Secretary and Chief Compliance Officer, GWFS Equities, Inc.; Chief Compliance Officer, Advised Assets Group, LLC; Chief Legal Officer and Secretary,
FASCore, LLC; Chief Legal Counsel & Chief Compliance Officer, Great-West Capital Management, LLC; formerly, Secretary, Great-West Capital Management, LLC and Great-West Funds
|
|
|
|
|
|
John A. Clouthier
8515 East Orchard Road, Greenwood Village, CO 80111
1967
|
|
Assistant
Treasurer
|
|
Since 2007
|
|
Director, Fund Administration, Great-West Life & Annuity Insurance Company; Assistant Treasurer,
Great-West Capital Management, LLC
|
|
N/A
|
|
N/A
|
|
Ryan L. Logsdon
8515 East Orchard Road, Greenwood Village, CO 80111
1974
|
|
Assistant Vice President, Counsel & Secretary
|
|
Since 2010
|
|
Assistant Vice President & Counsel, Great-West Life & Annuity Insurance Company; Assistant Vice
President, Counsel & Secretary, Great-West Capital Management, LLC; formerly, Assistant Secretary, Great-West Capital Management, LLC and Great-West Funds
|
|
N/A
|
|
N/A
|
|
Mary C. Maiers
8515 East Orchard Road,
|
|
Chief Financial Officer & Treasurer
|
|
Since 2008 (as Treasurer)
Since 2011 (as Chief
|
|
Vice President, Investment Operations, Great-West Life & Annuity Insurance Company and Great-West Life & Annuity
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenwood Village, CO 80111
1967
|
|
|
|
Financial Officer)
|
|
Insurance Company of New York; Vice
President and Treasurer, GWFS Equities, Inc. and Great-West Trust Company, LLC; Chief Financial Officer & Treasurer, Great-West Capital Management, LLC; formerly Investment Operations Compliance Officer, Great-West Capital Management, LLC and
Great-West Funds
|
|
|
|
|
|
David G.
McLeod
8515 East Orchard Road, Greenwood Village, CO 80111
1962
|
|
Managing Director
|
|
Since 2012
|
|
Senior Vice President, Product Management, Great-West Life & Annuity
Insurance Company; Manager, Vice President and Managing Director, Advised Assets Group, LLC; Managing Director, Great-West Capital Management, LLC
|
|
N/A
|
|
N/A
|
|
Joel L.
Terwilliger
8515 East Orchard Road, Greenwood Village, CO 80111
1968
|
|
Assistant Chief Compliance Officer
|
|
Since 2011
|
|
Assistant Vice President and Associate Chief Compliance Officer, Great-West Life & Annuity Insurance Company;
Associate Chief Compliance Officer & Secretary, Advised Assets Group, LLC; Assistant Chief Compliance Officer, Great-West Capital Management, LLC
|
|
N/A
|
|
N/A
|
*A Director who is not an “interested person” of Great-West Funds (as defined in the Investment Company
Act of 1940, as amended) is referred to as an “Independent Director.”
**An “Interested Director” refers to a
Director who is an “interested person” of Great-West Funds (as defined in the Investment Company Act of 1940, as amended) by virtue of their affiliation with Great-West Capital Management, LLC, GWFS Equities, Inc. or their affiliates.
Additional information about Great-West Funds and its Directors is available in the Great-West Funds’ Statement of Additional
Information (“SAI”), which can be obtained free of charge upon request to: Secretary, Great-West Funds, Inc., 8525 East Orchard Road, Greenwood Village,
Colorado 80111; (866) 831-7129. The SAI is also available on the Fund’s web site at
http://www.greatwestfunds.com
.
Availability of Quarterly Portfolio
Schedule
Great-West Funds files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the
first and third quarters of each fiscal year on Form N-Q. Great-West Funds’ Forms N-Q are available on the Commission’s website at
http://www.sec.gov
, and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling
1-800-SEC-0330.
Availability of Proxy Voting Policies and Procedures
A description of the policies and
procedures that Great-West Funds uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-866-831-7129, and on the Securities and Exchange Commission’s website at
http://www.sec.gov
.
Availability of Proxy Voting Record
Information regarding how Great-West 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
1-866-831-7129, and on the Securities and Exchange Commission’s website at
http://www.sec.gov
.
Investment Advisory Contract Approval
The death of The Honorable Paul G. Desmarais on October 8, 2013 resulted in a change in the ultimate control of Power Corporation of Canada,
the ultimate parent company of Great-West Capital Management, LLC (“GWCM”), the Fund’s investment adviser. The voting securities of Power Corporation of Canada held directly or indirectly by Mr. Desmarais were transferred to The
Desmarais Family Residuary Trust, which was created on October 8, 2013 under the Last Will and Testament of Mr. Desmarais (the “Trust”). As a result, the Trust has voting control of Power Corporation of Canada.
The transfer of voting control over Power Corporation of Canada resulted in a change of control of GWCM and, therefore, constituted an
“assignment” of the investment advisory agreement between GWCM and Great-West Funds, Inc. (the “Company”) and the sub-advisory agreement among the Company, GWCM and Ariel Investments, LLC (the “Sub-Adviser”), within the
meaning of the Investment Company Act of 1940, as amended (the “1940 Act”). An investment advisory or sub-advisory agreement automatically terminates upon its “assignment” under the 1940 Act.
In order to avoid disruption of the investment management program of the Fund, the Board of Directors (the “Board”) of the Company,
including the Directors who are not interested persons of the Fund (the “Independent Directors”), at meetings held on October 16, 2013 and December 5, 2013, respectively, approved (i) an interim investment advisory agreement
(the “Interim Advisory Agreement”) between the Company and GWCM and an interim sub-advisory agreement (the “Interim Sub-Advisory Agreement”) with the Sub-Adviser (ii) a new investment advisory agreement (the “New
Advisory Agreement”) between the Company and GWCM and a new sub-advisory agreement (the “New Sub-Advisory Agreement”) with the Sub-Adviser. The same portfolio management team continues to manage the Fund’s portfolio and the
management fees, investment objectives, principal investment strategies and investment policies of the Fund remained the same.
The Interim Advisory Agreement became effective on October 8, 2013 and remains in effect for 150 days or until shareholders of the Fund
approve the New Advisory Agreement. The Interim Sub-Advisory Agreement became effective on October 8, 2013 and remained in effect until December 5, 2013 when the New Sub-Advisory Agreement took effect. Pursuant to the terms of an exemptive
order granted by the U.S. Securities and Exchange Commission, GWCM and the Company are permitted, under certain conditions and subject to the approval of the Board of the Company, to enter into new sub-advisory agreements with sub-advisers to the
Funds without obtaining shareholder approval.
In considering the approval of the New Advisory Agreement and the New Sub-Advisory
Agreement, the Board took into account certain information and materials relating to GWCM and the Sub-Adviser that the Board had received and considered in connection with the annual evaluation of the prior investment advisory agreement (the
“Prior Advisory Agreement”) between the Company and GWCM and the prior sub-advisory agreement (the “Prior Sub-Advisory Agreement”) with the Sub-Adviser at the in-person meetings held on March 21, 2013 and April 18,
2013. The Board, including the Independent Directors, at a meeting held on April 18, 2013 (the “Annual Meeting”), approved the continuation of the Prior Advisory Agreement between the Company and GWCM and the Prior Sub-Advisory
Agreement with the Sub-Adviser. At its December 5, 2013 meeting, the Board determined that the factors considered in connection with the Annual Meeting were applicable to its review of the New Advisory Agreement and the New Sub-Advisory
Agreement.