|
|
|
|
|
|
|
Position(s)
|
Term
of Office
|
|
|
Name,
Address*
|
Held
with
|
and
Length of
|
Principal
Occupation(s)
|
|
and
Year of Birth
|
the
Trust
|
Time
Served**
|
During
Past Five Years
|
|
|
|
Officers
continued:
|
|
|
|
|
|
|
Bryan
Stone
|
Vice
|
Since
2014
|
Current:
Vice President, certain other funds in the Fund Complex (2014-present); Managing Director, Guggenheim Investments (2013-present).
|
|
(1979)
|
President
|
|
|
|
|
|
|
Former:
Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009).
|
|
John
L. Sullivan
|
Chief
|
Since
2010
|
Current:
Chief Financial Officer, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex (2010-present); Senior
|
|
(1955)
|
Financial
|
|
Managing
Director, Guggenheim Investments (2010-present).
|
|
|
Officer,
Chief
|
|
|
|
|
Accounting
|
|
Former:
Managing Director and Chief Compliance Officer, each of the funds in the Van Kampen Investments fund complex (2004-2010);
|
|
|
Officer
and
|
|
Managing
Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); Chief Financial
|
|
|
Treasurer
|
|
Officer
and Treasurer, Van Kampen Funds (1996-2004).
|
|
Jon
Szafran
|
Assistant
|
Since
2017
|
Current:
Vice President, Guggenheim Investments (2017-present); Assistant Treasurer, certain other funds in the Fund Complex (2017-present).
|
|
(1989)
|
Treasurer
|
|
|
|
|
|
|
Former:
Assistant Treasurer of Henderson Global Funds and Manager of US Fund Administration, Henderson Global Investors (North America)
|
|
|
|
|
Inc.
(“HGINA”), (2017); Senior Analyst of US Fund Administration, HGINA (2014–2017); Senior Associate of Fund Administration,
Cortland
|
|
|
|
|
Capital
Market Services, LLC (2013-2014); Experienced Associate, PricewaterhouseCoopers LLP (2012-2013).
|
|
*
|
The
business address of each officer is c/o Guggenheim Investments, 227 West Monroe Street, Chicago, Illinois 60606.
|
|
**
|
Each
officer serves an indefinite term, until his or her successor is duly elected and qualified.
|
80 l GBAB l GUGGENHEIM
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
APPROVAL OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE
|
|
|
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST (GBAB) (Unaudited)
|
May 31, 2021
|
Guggenheim Taxable Municipal Bond & Investment Grade Debt Trust
(the “Fund”) is a Delaware statutory trust that is registered as a diversified, closed-end management investment company under
the Investment Company Act of 1940, as amended (the “1940 Act”). Guggenheim Funds Investment Advisors, LLC (“GFIA”
or the “Adviser”), an indirect subsidiary of Guggenheim Partners, LLC, a privately-held, global investment and advisory firm
(“Guggenheim Partners”), serves as the Fund’s investment adviser and provides certain administrative and other services
pursuant to an investment advisory agreement between the Fund and GFIA (the “Investment Advisory Agreement”). (Guggenheim
Partners, GFIA, Guggenheim Partners Investment Management, LLC (“GPIM” or the “Sub-Adviser”) and their affiliates
may be referred to herein collectively as “Guggenheim.” “Guggenheim Investments” refers to the global asset management
and investment advisory division of Guggenheim Partners and includes GFIA, GPIM, Security Investors, LLC and other affiliated investment
management businesses of Guggenheim Partners.)
Under the terms of the Investment Advisory Agreement, GFIA is responsible
for overseeing the activities of GPIM, which performs portfolio management and related services for the Fund pursuant to an investment
sub-advisory agreement by and among the Fund, the Adviser and GPIM (the “Sub-Advisory Agreement” and together with the Investment
Advisory Agreement, the “Advisory Agreements”). Under the supervision and oversight of GFIA and the Board of Trustees of the
Fund (the “Board,” with the members of the Board referred to individually as the “Trustees”), GPIM provides a
continuous investment program for the Fund’s portfolio, provides investment research, and makes and executes recommendations for
the purchase and sale of securities for the Fund.
Each of the Advisory Agreements continues in effect from year to
year provided that such continuance is specifically approved at least annually by (i) the Board or a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund, and, in either event, (ii) the vote of a majority of the Trustees who are not “interested
person[s],” as defined by the 1940 Act, of the Fund (the “Independent Trustees”) casting votes in person at a meeting
called for such purpose.1 At meetings held by videoconference on April 20, 2021 (the “April Meeting”) and on May
26, 2021 (the “May Meeting”), the Contracts Review Committee of the Board (the “Committee”), consisting solely
of the Independent Trustees, met separately from Guggenheim to consider the proposed renewal of the Advisory Agreements in connection
with the Committee’s annual contract review schedule.
As part of its review process, the Committee was represented by
independent legal counsel to the Independent Trustees (“Independent Legal Counsel”), from whom the Independent Trustees received
separate legal advice and with whom they met separately. Independent Legal Counsel reviewed and discussed with the Committee various key
aspects of the Trustees’ legal responsibilities relating to the proposed renewal of the Advisory Agreements and other principal
contracts. The Committee took into account various materials received from Guggenheim and Independent Legal
|
1
|
|
On March 13, 2020, the Securities and Exchange Commission issued an exemptive order providing
relief to registered management investment companies from certain provisions of the 1940 Act in light of the outbreak of coronavirus
disease 2019 (COVID-19), including the in-person voting requirements under Section 15(c) of the 1940 Act with respect to approving or
renewing an investment advisory agreement, subject to certain conditions. The relief, initially provided for a limited period of time,
has been extended multiple times and was in effect as of May 26, 2021. The Board, including the Independent Trustees, relied on this
relief in voting to renew the Advisory Agreements at a meeting of the Board held by videoconference on May 26, 2021.
|
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 81
|
|
|
|
APPROVAL OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST (GBAB)
(Unaudited) continued
|
May 31, 2021
|
Counsel. The Committee also considered the variety of written materials,
reports and oral presentations the Board received throughout the year regarding performance and operating results of the Fund, and other
information relevant to its evaluation of the Advisory Agreements.
In connection with the contract review process, FUSE Research Network
LLC, an independent, third-party research provider, was engaged to prepare advisory contract renewal reports designed specifically to
help the Board fulfill its advisory contract renewal responsibilities. The objective of the reports is to present the subject funds’
relative position regarding fees, expenses and total return performance, with comparisons to a peer group of funds identified by Guggenheim,
based on a methodology reviewed by the Board. In addition, Guggenheim provided materials and data in response to formal requests for information
sent by Independent Legal Counsel on behalf of the Independent Trustees. Guggenheim also made a presentation at the April Meeting. Throughout
the process, the Committee asked questions of management and requested certain additional information, which Guggenheim provided (collectively
with the foregoing reports and materials, the “Contract Review Materials”). The Committee considered the Contract Review Materials
in the context of its accumulated experience in governing the Fund and other Guggenheim funds and weighed the factors and standards discussed
with Independent Legal Counsel.
Following an analysis and discussion of relevant factors, including
those identified below, and in the exercise of its business judgment, the Committee concluded that it was in the best interest of the
Fund to recommend that the Board approve the renewal of each of the Advisory Agreements for an additional annual term.
Investment Advisory Agreement
Nature, Extent and Quality of Services Provided by the Adviser:
With respect to the nature, extent and quality of services currently provided by the Adviser, the Committee noted that, although the
Adviser delegated certain portfolio management responsibilities to the Sub-Adviser, as affiliated companies, both the Adviser and Sub-Adviser
are part of the Guggenheim organization. Further, the Committee took into account Guggenheim’s explanation that investment advisory-related
services are provided by many Guggenheim employees under different related legal entities and thus, the services provided by the Adviser
on the one hand and the Sub-Adviser on the other, as well as the risks assumed by each party, cannot be ascribed to distinct legal entities.2
As a result, the Committee did not evaluate the services provided to the Fund under the Investment Advisory Agreement and Sub-Advisory
Agreement separately.
The Committee also considered the secondary market support services
provided by Guggenheim to the Fund and noted the materials describing the activities of Guggenheim’s dedicated Closed-End Fund Team,
including with respect to communication with financial advisors, data dissemination and relationship management. In addition, the Committee
considered the qualifications, experience and skills of key personnel performing services for the Fund, including those personnel providing
compliance and risk oversight, as well as the supervisors and reporting lines for such personnel. The Committee also considered other
information, including Guggenheim’s resources and related efforts
2 Consequently, except where the context indicates
otherwise, references to “Adviser” or “Sub-Adviser” should be understood as referring to Guggenheim Investments
generally and the services it provides under both Advisory Agreements.
82 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
APPROVAL OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB)
(Unaudited) continued
|
May 31, 2021
|
to retain, attract and motivate capable personnel to serve the
Fund. In evaluating Guggenheim’s resources and capabilities, the Committee considered Guggenheim’s commitment to focusing
on, and investing resources in support of, funds in the Guggenheim fund complex, including the Fund.
The Committee’s review of the services provided by Guggenheim
to the Fund included consideration of Guggenheim’s investment processes and resulting performance, portfolio oversight and risk
management, and the related regular quarterly reports and presentations received by the Board. The Committee took into account the risks
borne by Guggenheim in sponsoring and providing services to the Fund, including entrepreneurial, legal, regulatory and operational risks.
The Committee considered the resources dedicated by Guggenheim to compliance functions and the reporting made to the Board by Guggenheim
compliance personnel regarding Guggenheim’s adherence to regulatory requirements. The Committee also considered the regular reports
the Board receives from the Fund’s Chief Compliance Officer regarding compliance policies and procedures established pursuant to
Rule 38a-1 under the 1940 Act.
In connection with the Committee’s evaluation of the overall
package of services provided by Guggenheim, the Committee considered Guggenheim’s administrative services, including its role in
supervising, monitoring, coordinating and evaluating the various services provided by the fund administrator, custodian and other service
providers to the Fund. The Committee evaluated the Office of Chief Financial Officer (the “OCFO”), established to oversee
the fund administration, accounting and transfer agency services provided to funds in the Guggenheim fund complex, including the OCFO’s
resources, personnel and services provided.
With respect to Guggenheim’s resources and the ability of
the Adviser to carry out its responsibilities under the Investment Advisory Agreement, the Chief Financial Officer of Guggenheim Investments
reviewed with the Committee financial information concerning the holding company for Guggenheim Investments, Guggenheim Partners Investment
Management Holdings, LLC (“GPIMH”), and the various entities comprising Guggenheim Investments, and provided the audited consolidated
financial statements of GPIMH. (Thereafter, the Committee received the audited consolidated financial statements of GPIM.)
The Committee also considered the acceptability of the terms of
the Investment Advisory Agreement, including the scope of services required to be performed by the Adviser.
Based on the foregoing, and based on other information received
(both oral and written) at the April Meeting and the May Meeting, as well as other considerations, including the Committee’s knowledge
of how the Adviser performs its duties obtained through Board meetings, discussions and reports throughout the year, the Committee concluded
that the Adviser and its personnel were qualified to serve the Fund in such capacity and may reasonably be expected to continue to provide
a high quality of services under the Investment Advisory Agreement with respect to the Fund.
Investment Performance: The Fund commenced investment operations
on October 27, 2010 and its investment objective is to provide current income with a secondary objective of long-term capital appreciation.
The Committee received data showing, among other things, the Fund’s total return on a net asset value (“NAV”) and market
price basis for the ten-year, five-year, three-year, one-year and three-month periods ended December 31, 2020, as well as total return
based on NAV since inception. The Committee also received certain updated performance information as of March 31, 2021.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 83
|
|
|
|
APPROVAL OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB)
(Unaudited) continued
|
May 31, 2021
|
The Committee compared the Fund’s performance to a peer group
of closed-end funds identified by Guggenheim (the “peer group of funds”) and, for NAV returns, performance versus the Fund’s
benchmark for the same time periods. The Committee noted that the Adviser’s peer group selection methodology for the Fund starts
with the entire U.S.-listed taxable closed-end fund universe, and excludes funds that: (i) generally invest less than 50% in taxable municipals,
including “Build America Bonds” (“BABs”); and (ii) generally employ less than 20% financial leverage. The Committee
considered that the peer group of funds, with three constituent funds, including the Fund, is consistent with the peer group used for
purposes of the Fund’s quarterly performance reporting, but that the small size of the group limited the usefulness of the comparisons.
In addition, the Committee took into account Guggenheim’s
belief that there is no single optimal performance metric, nor is there a single optimal time period over which to evaluate performance
and that a thorough understanding of performance comes from analyzing measures of returns, risk and risk-adjusted returns, as well as
evaluating strategies both relative to their market benchmarks and to peer groups of competing strategies. Thus, the Committee also reviewed
and considered the additional performance and risk metrics provided by Guggenheim, including the Fund’s standard deviation, tracking
error, beta, Sharpe ratio, information ratio and alpha compared to the benchmark, with the Fund’s risk metrics ranked against its
peer group. In assessing the foregoing, the Committee considered Guggenheim’s statement that, as of January 31, 2021, the Fund has
outperformed its benchmark on a one-year and five-year basis and since inception, but has underperformed its benchmark modestly on a three-year
basis. The Committee also noted Guggenheim’s statement that, as of January 31, 2021, the Fund’s risk metrics have consistently
been superior to peers, reflecting the Fund’s lower duration and the diversification provided by the non-municipal bond portion
of the Fund’s portfolio.
The Committee also considered the Fund’s structure and form
of leverage, and, among other information related to leverage, the cost of the leverage and the aggregate leverage outstanding as of December
31, 2020, as well as net yield on leverage assets and net impact on common assets due to leverage for the one-year period ended December
31, 2020 and annualized for the three-year and since-inception periods ended December 31, 2020.
Based on the foregoing, and based on other information received
(both oral and written) at the April Meeting and the May Meeting, as well as other considerations, the Committee concluded that the Fund’s
performance was acceptable.
Comparative Fees, Costs of Services Provided and the Benefits
Realized by the Adviser from Its Relationship with the Fund: The Committee compared the Fund’s contractual advisory fee (which
includes the sub-advisory fee paid to the Sub-Adviser) calculated at average managed assets for the latest fiscal year,3 and
the Fund’s net effective management fee4 and total net expense ratio, in each case as a percentage of average net assets
for the latest fiscal year, to the peer group of funds and noted the Fund’s percentile rankings in this regard. The Committee also
reviewed the average and
|
3 Contractual advisory fee rankings represent the percentile ranking of the Fund’s contractual advisory fee relative to peers assuming
|
|
that the contractual advisory fee for each fund in the peer group is calculated on the basis of the Fund’s average managed assets.
|
|
4 The “net effective management fee” for the Fund represents the combined effective advisory fee and administration fee as a
|
|
percentage of average net assets for the latest fiscal year, after any waivers and/or reimbursements.
|
84 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
APPROVAL OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB)
(Unaudited) continued
|
May 31, 2021
|
median advisory fees (based on average net assets) and expense
ratios, including expense ratio components (e.g., transfer agency fees, administration fees and other operating expenses), of the peer
group of funds. In addition, the Committee considered information regarding Guggenheim’s process for evaluating the competitiveness
of the Fund’s fees and expenses, noting Guggenheim’s statement that evaluations seek to incorporate a variety of factors with
a general focus on ensuring fees and expenses: (i) are competitive; (ii) give consideration to resource support requirements; and (iii)
ensure the Fund is able to deliver on shareholder return expectations.
The Committee observed that, although the Fund’s contractual
advisory fee based on average managed assets was the highest of its peer group of funds, its net effective management fee on average net
assets was the lowest of its peer group of funds and its total net expense ratio (excluding interest expense) on average net assets was
the median of its peer group of funds. The Committee also noted that the peer group of funds consists of only three funds, including the
Fund and two peers from two large fund families, which limits its usefulness for comparison. In this connection, the Committee noted the
contractual advisory fee range of the peer group and considered Guggenheim’s statement that the Fund’s contractual advisory
fee of 0.60% is within 0.05% of the lowest contractual advisory fee of the peer group.
As part of its evaluation of the Fund’s advisory fee, the
Committee considered how such fee compared to the advisory fee charged by Guggenheim to one or more other clients that it manages pursuant
to similar investment strategies, noting that, in certain instances, Guggenheim charges a lower advisory fee to such other clients. In
this connection, the Committee considered, among other things, Guggenheim’s representations about the significant differences between
managing registered funds as compared to other types of accounts and differences between managing a closed-end fund as compared to an
open-end fund. The Committee also considered Guggenheim’s explanation that lower fees are charged in certain instances due to various
other factors, including the scope of contract, type of investors, differences in fee structure, applicable legal, governance and capital
structures, tax status and historical pricing reasons. In addition, the Committee took into account Guggenheim’s discussion of the
entrepreneurial, legal, regulatory and operational risks involved with the Fund as compared to other types of accounts. The Committee
concluded that the information it received demonstrated that the aggregate services provided to, and the specific circumstances of, the
Fund were sufficiently different from the services provided to, or the specific circumstances of, other clients, respectively, with similar
investment strategies and/or the risks borne by Guggenheim were sufficiently greater than those associated with managing other clients
with similar investment strategies to support the difference in fees.
With respect to the costs of services provided and benefits realized
by Guggenheim Investments from its relationship with the Fund, the Committee reviewed a profitability analysis and data from management
setting forth the average assets under management for the twelve months ended December 31, 2020, gross revenues received by Guggenheim
Investments, expenses allocated to the Fund, earnings and the operating margin/profitability rate, including variance information relative
to the foregoing amounts as of December 31, 2019. In addition, the Chief Financial Officer of Guggenheim Investments reviewed with, and
addressed questions from, the Committee concerning the expense allocation methodology employed in producing the profitability analysis.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 85
|
|
|
|
APPROVAL OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB)
(Unaudited) continued
|
May 31, 2021
|
In the course of its review of Guggenheim Investments’ profitability,
the Committee took into account the methods used by Guggenheim Investments to determine expenses and profit. The Committee considered
all of the foregoing, among other things, in evaluating the costs of services provided, the profitability to Guggenheim Investments and
the profitability rates presented.
The Committee also considered other benefits available to the Adviser
because of its relationship with the Fund and noted Guggenheim’s statement that it does not believe the Adviser derives any such
“fall-out” benefits. In this regard, the Committee noted Guggenheim’s statement that, although it does not consider
such benefits to be fall-out benefits, the Adviser may benefit from certain economies of scale and synergies, such as enhanced visibility
of the Adviser, enhanced leverage in fee negotiations and other synergies arising from offering a broad spectrum of products, including
the Fund.
Based on the foregoing, and based on other information received
(both oral and written) at the April Meeting and the May Meeting, as well as other considerations, the Committee concluded that the comparative
fees and the benefits realized by the Adviser from its relationship with the Fund were appropriate and that the Adviser’s profitability
from its relationship with the Fund was not unreasonable.
Economies of Scale: The Committee received and considered
information regarding whether there have been economies of scale with respect to the management of the Fund as the Fund’s assets
grow, whether the Fund has appropriately benefited from any economies of scale, and whether there is potential for realization of any
further economies of scale. The Committee considered whether economies of scale in the provision of services to the Fund were being passed
along to and shared with the shareholders. The Committee considered that advisory fee breakpoints generally are not relevant given the
structural nature of closed-end funds, which, though able to conduct additional share offerings periodically, do not continuously offer
new shares and thus, do not experience daily inflows and outflows of capital. In addition, the Committee took into account that given
the relative size of the Fund, Guggenheim does not believe breakpoints are appropriate at this time. The Committee also noted the additional
shares offered by the Fund through secondary offerings in the past and considered that to the extent the Fund’s assets increase
over time (whether through additional periodic offerings or internal growth from asset appreciation), the Fund and its shareholders should
realize economies of scale as certain expenses, such as fixed fund fees, become a smaller percentage of overall assets.
Based on the foregoing, and based on other information received
(both oral and written) at the April Meeting and the May Meeting, as well as other considerations, the Committee concluded that the Fund’s
advisory fee was reasonable.
Sub-Advisory Agreement
Nature, Extent and Quality of Services Provided by the Sub-Adviser:
As noted above, because both the Adviser and Sub-Adviser for the Fund—GFIA and GPIM, respectively—are part of Guggenheim
Investments and the services provided by the Adviser on the one hand and the Sub-Adviser on the other cannot be ascribed to distinct legal
entities, the Committee did not evaluate the services provided under the Investment Advisory Agreement and Sub-Advisory Agreement separately.
Therefore, the Committee considered the qualifications, experience and skills of the Fund’s portfolio
86 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
APPROVAL OF ADVISORY AGREEMENTS – GUGGENHEIM TAXABLE MUNICIPAL
BOND & INVESTMENT GRADE DEBT TRUST (GBAB)
(Unaudited) continued
|
May 31, 2021
|
management team in connection with the Committee’s evaluation
of Guggenheim’s investment professionals under the Investment Advisory Agreement.
With respect to Guggenheim’s resources and the Sub-Adviser’s
ability to carry out its responsibilities under the Sub-Advisory Agreement, as noted above, the Committee considered the financial condition
of GPIMH and the various entities comprising Guggenheim Investments.
The Committee also considered the acceptability of the terms of
the Sub-Advisory Agreement, including the scope of services required to be performed by the Sub-Adviser.
Investment Performance: The Committee considered the returns
of the Fund under its evaluation of the Investment Advisory Agreement.
Comparative Fees, Costs of Services Provided and the Benefits
Realized by the SubAdviser from Its Relationship with the Fund: The Committee considered that the Sub-Advisory Agreement is with an
affiliate of the Adviser, that the Adviser compensates the Sub-Adviser from its own fees so that the sub-advisory fee rate with respect
to the Fund does not impact the fees paid by the Fund and that the Sub-Adviser’s revenues were included in the calculation of Guggenheim
Investments’ profitability. Given its conclusion of the reasonableness of the advisory fee, the Committee concluded that the sub-advisory
fee rate for the Fund was reasonable.
Economies of Scale: The Committee recognized that, because
the Sub-Adviser’s fees are paid by the Adviser and not the Fund, the analysis of economies of scale was more appropriate in the
context of the Committee’s consideration of the Investment Advisory Agreement, which was separately considered. (See “Investment
Advisory Agreement – Economies of Scale” above.)
Overall Conclusions
The Committee concluded that the investment advisory fees are fair
and reasonable in light of the extent and quality of the services provided and other benefits received and that the continuation of each
Advisory Agreement is in the best interest of the Fund. In reaching this conclusion, no single factor was determinative or conclusive
and each Committee member, in the exercise of his or her well-informed business judgment, may afford different weights to different factors.
At the May Meeting, the Committee, constituting all of the Independent Trustees, recommended the renewal of each Advisory Agreement for
an additional annual term.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 87
|
|
|
|
DIVIDEND REINVESTMENT PLAN (Unaudited)
|
May 31, 2021
|
Unless the registered owner of common shares elects to receive
cash by contacting Computershare Trust Company, N.A. (the “Plan Administrator”), all dividends declared on common shares of
the Trust will be automatically reinvested by the Plan Administrator for shareholders in the Trust’s Dividend Reinvestment Plan
(the “Plan”), in additional common shares of the Trust. Participation in the Plan is completely voluntary and may be terminated
or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date;
otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Some
brokers may automatically elect to receive cash on your behalf and may re-invest that cash in additional common shares of the Trust for
you. If you wish for all dividends declared on your common shares of the Trust to be automatically reinvested pursuant to the Plan, please
contact your broker.
The Plan Administrator will open an account for each common shareholder
under the Plan in the same name in which such common shareholder’s common shares are registered. Whenever the Trust declares a dividend
or other distribution (together, a “Dividend”) payable in cash, nonparticipants in the Plan will receive cash and participants
in the Plan will receive the equivalent in common shares. The common shares will be acquired by the Plan Administrator for the participants’
accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares
from the Trust (“Newly Issued Common Shares”) or (ii) by purchase of outstanding common shares on the open market (“Open-Market
Purchases”) on the New York Stock Exchange or elsewhere. If, on the payment date for any Dividend, the closing market price plus
estimated brokerage commission per common share is equal to or greater than the net asset value per common share, the Plan Administrator
will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares
to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the net asset value
per common share on the payment date; provided that, if the net asset value is less than or equal to 95% of the closing market value on
the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per common share on the payment
date. If, on the payment date for any Dividend, the net asset value per common share is greater than the closing market value plus estimated
brokerage commission, the Plan Administrator will invest the Dividend amount in common shares acquired on behalf of the participants in
Open-Market Purchases.
If, before the Plan Administrator has completed its Open-Market
Purchases, the market price per common share exceeds the net asset value per common share, the average per common share purchase price
paid by the Plan Administrator may exceed the net asset value of the common shares, resulting in the acquisition of fewer common shares
than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with
respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market
Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator
may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at net
asset value per common share at the close of business on the Last Purchase Date provided that, if the net asset value is less than or
equal to 95% of the then current market price per common share; the dollar amount of the Dividend will be divided by 95% of the market
price on the payment date.
88 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
DIVIDEND REINVESTMENT PLAN (Unaudited) continued
|
May 31, 2021
|
The Plan Administrator maintains all shareholders’ accounts
in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax
records. Common shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant,
and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all
proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instruction of the
participants.
There will be no brokerage charges with respect to common shares
issued directly by the Trust. However, each participant will pay a pro rata share of brokerage commission incurred in connection with
Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants of any Federal, state or local income tax
that may be payable (or required to be withheld) on such Dividends.
The Trust reserves the right to amend or terminate the Plan. There
is no direct service charge to participants with regard to purchases in the Plan; however, the Trust reserves the right to amend the Plan
to include a service charge payable by the participants.
All correspondence or questions concerning the Plan should be directed
to the Plan Administrator, Computershare Trust Company, N.A., P.O. Box 30170 College Station, TX 77842-3170: Attention: Shareholder Services
Department, Phone Number: (866) 488-3559 or online at www.computershare.com/investor.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 89
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
CHANGES OCCURRING DURING THE
PRIOR FISCAL YEAR
The following information in this annual report is a summary
of certain changes during the most recent fiscal year. This information may not reflect all of the changes that have occurred since you
purchased shares of the Trust.
Recent Market Developments Risk
Periods of market volatility remain, and may continue to occur
in the future, in response to various political, social and economic events both within and outside of the United States. These conditions
have resulted in, and in many cases continue to result in, greater price volatility, less liquidity, widening credit spreads and a lack
of price transparency, with many securities remaining illiquid and of uncertain value. Such market conditions may adversely affect the
Trust, including by making valuation of some of the Trust’s securities uncertain and/or result in sudden and significant valuation
increases or declines in the Trust’s holdings. If there is a significant decline in the value of the Trust’s portfolio, this
may impact the asset coverage levels for the Trust’s outstanding leverage.
Risks resulting from any future debt or other economic crisis could
also have a detrimental impact on the global economic recovery, the financial condition of financial institutions and the Trust’s
business, financial condition and results of operation. Market and economic disruptions have affected, and may in the future affect, consumer
confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other
factors. To the extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors,
the Trust’s business, financial condition and results of operations could be significantly and adversely affected. Downgrades to
the credit ratings of major banks could result in increased borrowing costs for such banks and negatively affect the broader economy.
Moreover, Federal Reserve policy, including with respect to certain interest rates, may also adversely affect the value, volatility and
liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/or unfavorable economic conditions
could impair the Trust’s ability to achieve its investment objectives.
The outbreak of COVID-19 and the current recovery underway has
caused disruption to consumer demand and economic output and supply chains. There are still travel restrictions and quarantines, and adverse
impacts on local and global economies. As with other serious economic disruptions, governmental authorities and regulators are responding
to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing
new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates and higher inflation.
These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility
in securities and other financial markets, reduce market liquidity, continue to cause higher inflation, heighten investor uncertainty
and adversely affect the value of the Trust’s investments and the performance of the Trust.
PRINCIPAL INVESTMENT OBJECTIVE
The Trust’s investment objective is to provide current income
with a secondary objective of long-term capital appreciation. The Trust cannot assure investors that it will achieve its investment objectives.
The Trust’s investment objectives are considered fundamental and may not be changed without the approval of the holders of the Common
Shares (the “Common Shareholders”).
90 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
PRINCIPAL INVESTMENT STRATEGIES
The Trust seeks to achieve its investment objectives by investing
primarily in a diversified portfolio of taxable municipal securities, including Build America Bonds (“BABs”), and other investment
grade, income generating debt securities, including debt instruments issued by non-profit entities (such as entities related to healthcare,
higher education and housing), municipal conduits, project finance corporations, and tax-exempt municipal securities.
PORTFOLIO COMPOSITION
Under normal market conditions:
|
•
|
|
The Trust invests at least 80% of its net assets, plus the amount of any borrowings for investment
purposes, in taxable municipal securities, including BABs, and other investment grade, income generating debt securities, including debt
instruments issued by non-profit entities (such as entities related to healthcare, higher education and housing), municipal conduits,
project finance corporations, and tax-exempt municipal securities.
|
|
•
|
|
The Trust will not invest more than 25% of its Managed Assets in municipal securities of
any one state of origin.
|
|
•
|
|
The Trust will invest at least 50% of its Managed Assets in taxable municipal securities.
|
Credit Quality
Under normal market conditions, the Trust invests at least 80%
of its Managed Assets in securities that, at the time of investment, are investment grade quality. A security is considered investment
grade quality if, at the time of investment, it is rated within the four highest letter grades by at least one of the nationally recognized
statistical rating organizations (“NRSROs”) (that is Baa3 or better by Moody’s Investors Service, Inc. (“Moody’s”)
or BBB- or better by Standard & Poor’s Ratings Services (“S&P”) or Fitch Ratings (“Fitch”)) that
rate such security, even if it is rated lower by another, or if it is unrated by any NRSRO but judged to be of comparable quality by the
Adviser.
Under normal market conditions, the Trust may invest up to 20%
of its Managed Assets in securities that, at the time of investment, are rated below investment grade (that is below Baa3 by Moody’s
or below BBB- by S&P or Fitch) or are unrated by any NRSRO but judged to be of comparable quality by the Adviser. If NRSROs assign
different ratings to the same security, the Trust will use the highest rating for purposes of determining the security’s credit
quality. Securities of below investment grade quality are regarded as having predominately speculative characteristics with respect to
capacity to pay interest and repay principal, and are commonly referred to as “junk bonds.”
Duration Management Strategy
“Duration” is a measure of the price volatility of
a security as a result of changes in market rates of interest, based on the weighted average timing of a security’s expected principal
and interest payments. There is no limit on the remaining maturity or duration of any individual security in which the Trust may invest,
nor will the Trust’s portfolio be managed to any duration benchmark prior to taking into account the duration management strategy
discussed herein.
The Trust intends to employ investment and trading strategies to
seek to maintain the leverage-adjusted portfolio duration to generally less than 15 years. As of May 31, 2021, the Trust’s duration
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 91
v
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
was approximately 10.7 years. The Adviser may seek to manage the
duration of the Trust’s portfolio through the use of derivative instruments, including U.S. treasury swaps, credit default swaps,
total return swaps and futures contracts to reduce the overall volatility of the Trust’s portfolio to changes in market interest
rates. For example, the Adviser may seek to manage the overall duration through the combination of the sale of interest-rate swaps on
the long end of the yield curve (for example a transaction in which the Trust would pay a fixed interest rate on a 30 year swap transaction)
with the purchase of an interest-rate swap on the intermediate portion of the yield curve (for example a transaction in which the Trust
would receive a fixed interest rate on a ten year swap transaction). In addition, the Trust may invest in short-duration fixed-income
securities, which may help to decrease the overall duration of the Trust’s portfolio while also potentially adding incremental yield.
The Adviser may seek to manage the Trust’s duration in a flexible and opportunistic manner based primarily on then current market
conditions and interest rate levels. The Trust may incur costs in implementing the duration management strategy, but such strategy will
seek to reduce the volatility of the Trust’s portfolio. There can be no assurance that the Adviser’s duration management strategy
will be successful at any given time in managing the duration of the Trust’s portfolio or helping the Trust to achieve its investment
objectives.
Investment Funds
As an alternative to holding investments directly, the Trust may
also obtain investment exposure to securities in which it may invest directly by investing up to 20% of its Managed Assets in other investment
companies, including U.S. registered investment companies and/or other U.S. or foreign pooled investment vehicles (collectively, “Investment
Funds”). Investment Funds do not include structured finance investments, such as asset-backed securities (“ABS”). To
the extent that the Trust invests in Investment Funds that invest at least 80% of their total assets in taxable municipal securities and
other investment grade, income generating debt securities, including debt instruments issued by non-profit entities (such as entities
related to healthcare, higher education and housing), municipal conduits, project finance corporations, and tax-exempt municipal securities,
such investment will be counted for purposes of the Trust’s policy of investing at least 80% of its Managed Assets in taxable municipal
securities and other investment grade, income generating debt securities. Investments in other Investment Funds involve operating expenses
and fees at the Investment Funds level that are in addition to the expenses and fees borne by the Trust and are borne indirectly by Common
Shareholders.
Synthetic Investments
As an alternative to holding investments directly, the Trust may
also obtain investment exposure to investments in which the Trust may invest directly through the use of derivative instruments (including
swaps, options, forwards, notional principal contracts or customized derivative or financial instruments) to replicate, modify or replace
the economic attributes associated with an investment in which the Trust may invest directly. The Trust may be exposed to certain additional
risks should the Adviser use derivatives as a means to synthetically implement the Trust’s investment strategies, including counterparty
risk, lack of liquidity in such derivative instruments and additional expenses associated with using such derivative instruments. To the
extent that the Trust obtains indirect investment exposure to taxable municipal securities and other investment grade, income generating
debt securities, including debt instruments issued by non-profit entities (such as entities related to healthcare, higher education and
housing), municipal conduits, project finance
92 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
corporations, and tax-exempt municipal securities through the use
of the foregoing derivative instruments with economic characteristics similar to taxable municipal securities, such investments will be
counted for purposes of the Trust’s 80% investment policy. The Trust has not adopted any percentage limitation with respect to the
overall percentage of investment exposure to taxable municipal securities and other investment grade, income generating debt securities,
including debt instruments issued by non-profit entities (such as entities related to healthcare, higher education and housing), municipal
conduits, project finance corporations, and tax-exempt municipal securities that the Trust may obtain through the use of derivative instruments.
Strategic Transactions
In addition to those derivatives transactions utilized in connection
with the Trust’s duration management strategy, the Trust may, but is not required to, use various portfolio strategies, including
derivatives transactions involving interest rate and foreign currency transactions, swaps, options and futures (“Strategic Transactions”),
to earn income, facilitate portfolio management and mitigate risks. In the course of pursuing Strategic Transactions, the Trust may purchase
and sell exchange-listed and over-the-counter put and call options on securities, instruments or equity and fixed-income indices, purchase
and sell futures contracts and options thereon, and enter into swap, cap, floor or collar transactions. In addition, Strategic Transactions
may also include new techniques, instruments or strategies that are developed or permitted as regulatory changes occur. Successful use
of Strategic Transactions depends on the Adviser’s ability to predict correctly market movements, which cannot be assured. Losses
on Strategic Transactions may reduce the Trust’s net asset value and its ability to pay distributions if they are not offset by
gains on portfolio positions being hedged.
Structured Finance Investments
The Trust may invest in structured finance investments, which are
fixed income and other debt securities (“Income Securities”) typically issued by special purpose vehicles that hold income-producing
securities (e.g., mortgage loans, consumer debt payment obligations and other receivables) and other financial assets. Structured finance
investments are tailored, or packaged, to meet certain financial goals of investors. Typically, these investments provide investors with
capital protection, income generation and/or the opportunity to generate capital growth. The Sub-Adviser believes that structured finance
investments provide attractive risk-adjusted returns, frequent sector rotation opportunities and prospects for adding value through security
selection. Structured finance investments include:
Mortgage-Related Securities. Mortgage-related securities
are collateralized by pools of commercial or residential mortgages. Pools of mortgage loans are assembled as securities for sale to investors
by various governmental, government-related and private organizations. These securities may include complex instruments such as collateralized
mortgage obligations (“CMOs”), real estate investment trusts (“REITs”) (including debt and preferred stock issued
by REITs), and other real estate-related securities. The mortgage-related securities in which the Trust may invest include those with
fixed, floating or variable interest rates, those with interest rates that change based on multiples of changes in a specified index of
interest rates, and those with interest rates that change inversely to changes in interest rates, as well as those that do not bear interest.
The Trust may invest in residential and commercial mortgage-related securities issued by governmental entities and private issuers, including
subordinated mortgage-related securities. The underlying assets of certain
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 93
mortgage-related securities may be subject to prepayments, which
shorten the weighted average maturity and may lower the return of such securities.
Asset-Backed Securities. ABS are a form of structured
debt obligation. ABS are payment claims that are securitized in the form of negotiable paper that is issued by a financing company (generally
called a special purpose vehicle). Collateral assets brought into a pool according to specific diversification rules. A special purpose
vehicle is founded for the purpose of securitizing these payment claims and the assets of the special purpose vehicle are the diversified
pool of collateral assets. The special purpose vehicle issues marketable securities which are intended to represent a lower level of risk
than an underlying collateral asset individually, due to the diversification in the pool. The redemption of the securities issued by the
special purpose vehicle takes place out of the cash flow generated by the collected assets. A special purpose vehicle may issue multiple
securities with different priorities to the cash flows generated and the collateral assets. The collateral for ABS may include home equity
loans, automobile and credit card receivables, boat loans, computer leases, airplane leases, mobile home loans, recreational vehicle loans
and hospital account receivables. The Trust may invest in these and other types of ABS that may be developed in the future. There is the
possibility that recoveries on the underlying collateral may not, in some cases, be available to support payments on these securities.
Collateralized Debt Obligations. A collateralized
debt obligation (“CDO”) is an asset-backed security whose underlying collateral is typically a portfolio of bonds, bank loans,
other structured finance securities and/or synthetic instruments. Where the underlying collateral is a portfolio of bonds, a CDO is referred
to as a collateralized bond obligation (“CBO”). Where the underlying collateral is a portfolio of bank loans, a CDO is referred
to as a collateralized loan obligation (“CLO”). Investors in CLOs bear the credit risk of the underlying collateral.
Multiple tranches of securities are issued by the CLO, offering
investors various maturity and credit risk characteristics. Tranches are categorized as senior, mezzanine, and subordinated/equity, according
to their degree of risk. If there are defaults or the CLO’s collateral otherwise underperforms, scheduled payments to senior tranches
take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity
tranches. This prioritization of the cash flows from a pool of securities among the several tranches of the CLO is a key feature of the
CLO structure. If there are funds remaining after each tranche of debt receives its contractual interest rate and the CLO meets or exceeds
required collateral coverage levels (or other similar covenants), the remaining funds may be paid to the subordinated (or residual) tranche
(often referred to as the “equity” tranche). CLOs are subject to the same risk of prepayment described with respect to certain
mortgage-related and asset-backed securities.
The Trust may invest in senior, rated tranches as well as mezzanine
and subordinated tranches of CLOs. Investment in the subordinated tranche is subject to special risks. The subordinated tranche does not
receive ratings and is considered the riskiest portion of the capital structure of a CLO because it bears the bulk of defaults from the
loans in the CLO and serves to protect the other, more senior tranches from default in all but the most severe circumstances.
Risk-Linked Securities. Risk-linked securities (“RLS”)
are a form of derivative issued by insurance companies and insurance-related special purpose vehicles that apply securitization techniques
to
94 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
catastrophic property and casualty damages. RLS are typically debt
obligations for which the return of principal and the payment of interest are contingent on the non-occurrence of a pre-defined “trigger
event.” Depending on the specific terms and structure of the RLS, this trigger could be the result of a hurricane, earthquake or
some other catastrophic event.
Other Investment Practices
The Trust may engage in certain investment transactions described
herein. The Trust may enter into forward commitments for the purchase or sale of securities. The Trust may enter into transactions on
a “when issued” or “delayed delivery” basis, in excess of customary settlement periods for the type of security
involved. The Trust may lend portfolio securities to securities broker-dealers or financial institutions and enter into short sales and
repurchase agreements. The Trust may, without limitation, seek to obtain market exposure to the securities in which it primarily invests
by entering into a series of purchase and sale contracts or by using similar investment techniques (such as buy backs or dollar rolls).
These policies may be changed by the Board of Trustees of the Trust
(the “Board of Trustees”). If the Trust’s policy with respect to investing at least 80% of its Managed Assets in taxable
municipal securities and other investment grade, income generating debt securities, including debt instruments issued by non-profit entities
(such as entities related to healthcare, higher education and housing), municipal conduits, project finance corporations, and tax-exempt
municipal securities changes, the Trust will provide shareholders at least 60 days’ prior notice before implementation of the change.
USE OF LEVERAGE
The Trust may employ leverage through (i) the issuance of senior
securities representing indebtedness, including through borrowing from financial institutions or issuance of debt securities, including
notes or commercial paper (collectively, “Indebtedness”), (ii) engaging in reverse repurchase agreements, dollar rolls and
economically similar transactions, (iii) investments in inverse floating rate securities, which have the economic effect of leverage,
and (iv) the issuance of preferred shares (“Preferred Shares”) (collectively “Financial Leverage”).
The Trust may utilize leverage up to the limits imposed by the
Investment Company Act of 1940 (the “1940 Act”). Under the 1940 Act the Trust may not incur Indebtedness if, immediately after
incurring such Indebtedness, the Trust would have asset coverage (as defined in the 1940 Act) of less than 300% (i.e., for every dollar
of Indebtedness outstanding, the Trust is required to have at least three dollars of assets). Under the 1940 Act, the Trust may not issue
Preferred Shares if, immediately after issuance, the Trust would have asset coverage (as defined in the 1940 Act) of less than 200% (i.e.,
for every dollar of Preferred Shares outstanding, the Trust is required to have at least two dollars of assets). However, under current
market conditions, the Trust currently expects to utilize Financial Leverage through Indebtedness and/or reverse repurchase agreements,
such that the aggregate amount of Financial Leverage is not expected to exceed 331/3% of the Trust’s Managed Assets (including the
proceeds of such Financial Leverage) (or 50% of net assets). The Trust has entered a committed facility agreement with Société
Générale S.A., pursuant to which the Trust may borrow up to $100 million. As of May 31, 2021, there was approximately $97,359,544
in borrowings outstanding under the committed facility agreement, representing approximately 14.57% of the Trust’s Managed
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 95
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Assets as of such date, and there was approximately $98,177,663
in reverse repurchase agreements outstanding, representing approximately 14.69% of the Trust’s Managed Assets as of such date.
Although the use of Financial Leverage by the Trust may create
an opportunity for increased total return for the Common Shares, it also results in additional risks and can magnify the effect of any
losses. Financial Leverage involves risks and special considerations for shareholders, including the likelihood of greater volatility
of net asset value and market price of and dividends on the Common Share. To the extent the Trust increases its amount of Financial Leverage
outstanding, it will be more exposed to these risks. The cost of Financial Leverage, including the portion of the investment advisory
fee attributable to the assets purchased with the proceeds of Financial Leverage, is borne by Common Shareholders. To the extent the Trust
increases its amount of Financial Leverage outstanding, the Trust’s annual expenses as a percentage of net assets attributable to
Common Shares will increase.
With respect to leverage incurred through investments in reverse
repurchase agreements, dollar rolls and economically similar transactions, the Trust intends to earmark or segregate cash or liquid securities
in accordance with applicable interpretations of the staff of the Securities and Exchange Commission (the “SEC”). As a result
of such segregation, the Trust’s obligations under such transactions will not be considered indebtedness for purposes of the 1940
Act and the Trust’s use of leverage through reverse repurchase agreements, dollar rolls and economically similar transactions will
not be limited by the 1940 Act. However, the Trust’s use of leverage through reverse repurchase agreements, dollar rolls and economically
similar transactions will be included when calculating the Trust’s Financial Leverage and therefore will be limited by the Trust’s
maximum overall Financial Leverage levels approved by the Board of Trustees and may be further limited by the availability of cash or
liquid securities to earmark or segregate in connection with such transactions.
In addition, the Trust may engage in certain derivatives transactions
that have economic characteristics similar to leverage. To the extent the terms of such transactions obligate the Trust to make payments,
the Trust intends to earmark or segregate cash or liquid securities in an amount at least equal to the current value of the amount then
payable by the Trust under the terms of such transactions or otherwise cover such transactions in accordance with applicable interpretations
of the staff of the SEC. As a result of such segregation or cover, the Trust’s obligations under such transactions will not be considered
indebtedness for purposes of the 1940 Act and will not be included in calculating the aggregate amount of the Trust’s Financial
Leverage. To the extent that the Trust’s obligations under such transactions are not so segregated or covered, such obligations
may be considered “senior securities representing indebtedness” under the 1940 Act and therefore subject to the 300% asset
coverage requirement described above and other requirements of the 1940 Act.
The Adviser anticipates that the use of Financial Leverage may
result in higher total return to the Common Shareholders over time; however, there can be no assurance that the Adviser’s expectations
will be realized or that a leveraging strategy will be successful in any particular time period. Use of Financial Leverage creates an
opportunity for increased income and capital appreciation but, at the same time, creates special risks. The costs associated with the
issuance of Financial Leverage will be borne by Common Shareholders, which will result in a reduction of net asset value of the Common
Shares. The fee paid to the Adviser will be calculated on the basis of the Trust’s Managed Assets, including proceeds from Financial
Leverage, so the fees paid to the Adviser will be higher when Financial Leverage is utilized.
96 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Common Shareholders bear the portion of the investment advisory
fee attributable to the assets purchased with the proceeds of Financial Leverage, which means that Common Shareholders effectively bear
the entire advisory fee. The maximum level of and types of Financial Leverage used by the Trust will be approved by the Board of Trustees.
There can be no assurance that a leveraging strategy will be utilized or, if utilized, will be successful.
In October 2020, the SEC adopted a final rule related to the use
of derivatives, reverse repurchase agreements and certain other transactions by registered investment companies that will rescind and
withdraw the guidance of the SEC and its staff regarding asset segregation and cover transactions reflected in the Trust’s asset
segregation and cover practices discussed herein. The final rule requires the Trust to trade derivatives and other transactions that create
future payment or delivery obligations (except reverse repurchase agreements and similar financing transactions) subject to value-at-risk
(“VaR”) leverage limits and derivatives risk management program and reporting requirements. Generally, these requirements
apply unless a fund satisfies a “limited derivatives users” exception that is included in the final rule. Under the final
rule, when the Trust trades reverse repurchase agreements or similar financing transactions, including certain tender option bonds, it
needs to aggregate the amount of indebtedness associated with the reverse repurchase agreements or similar financing transactions with
the aggregate amount of any other senior securities representing indebtedness when calculating the fund’s asset coverage ratio as
discussed above or treat all such transactions as derivatives transactions. Reverse repurchase agreements or similar financing transactions
aggregated with other indebtedness do not need to be included in the calculation of whether a fund satisfies the limited derivatives users
exception, but for funds subject to the VaR testing requirement, reverse repurchase agreements and similar financing transactions must
be included for purposes of such testing whether treated as derivatives transactions or not. The SEC also provided guidance in connection
with the new rule regarding the use of securities lending collateral that may limit the Trust’s securities lending activities. Compliance
with these new requirements will be required after an eighteen-month transition period. Following the compliance date, these requirements
may limit the ability of a Trust to use derivatives and reverse repurchase agreements and similar financing transactions as part of its
investment strategies. These requirements may increase the cost of a Trust’s investments and cost of doing business, which could
adversely affect investors.
TEMPORARY DEFENSIVE INVESTMENTS
During periods in which the Adviser believes that changes in economic,
financial or political conditions make it advisable to maintain a temporary defensive posture (an Investments “temporary defensive
period”), or in order to keep the Trust’s cash fully invested, including the period during which the net proceeds of the offering
of Common Shares are being invested, the Trust may, without limitation, hold cash or invest its assets in money market instruments and
repurchase agreements in respect of those instruments. The Trust may not achieve its investment objectives during a temporary defensive
period or be able to sustain its historical distribution levels.
PRINCIPAL RISKS OF THE TRUST
Investment in the Trust involves special risk considerations, which
are summarized below. The Trust is designed as a long-term investment and not as a trading vehicle. The Trust is not intended to be a
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 97
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
complete investment program. The Trust’s performance and
the value of its investments will vary in response to changes in interest rates, inflation and other market factors.
Not a Complete Investment Program
An investment in the Common Shares of the Trust should not be considered
a complete investment program. The Trust is intended for long-term investors seeking current income and capital appreciation. The Trust
is not meant to provide a vehicle for those who wish to play short-term swings in the stock market. Each Common Shareholder should take
into account the Trust’s investment objectives as well as the Common Shareholder’s other investments when considering an investment
in the Trust. Before making an investment decision, a prospective investor should consider (i) the suitability of this investment with
respect to his or her investment objectives and personal situation and (ii) factors such as his or her personal net worth, income, age,
risk tolerance and liquidity needs.
Investment and Market Risk
An investment in the Trust is subject to investment risk, particularly
under current economic, financial, labor and health conditions, including the possible loss of the entire principal amount that you invest.
An investment in the Common Shares of the Trust represents an indirect investment in the securities owned by the Trust. The value of,
or income generated by, the investments held by the Trust are subject to the possibility of rapid and unpredictable fluctuation. These
movements may result from factors affecting individual companies, or from broader influences, including real or perceived changes in prevailing
interest rates, changes in inflation or expectations about inflation, investor confidence or economic, political, social or financial
market conditions, natural/environmental disasters, cyber attacks, terrorism, governmental or quasi-governmental actions, public health
emergencies (such as the spread of infectious diseases, pandemics and epidemics) and other similar events, that each of which may be temporary
or last for extended periods. For example, the risks of a borrower’s default or bankruptcy or non-payment of scheduled interest
or principal payments from senior floating rate interests held by the Trust are especially acute under these conditions. Furthermore,
interest rates and bond yields may fall as a result of types of events, including responses by governmental entities to such events, which
would magnify the Trust’s fixed-income instruments’ susceptibility to interest rate risk and diminish their yield and performance.
Moreover, the Trust’s investments in ABS are subject to many of the same risks that are applicable to investments in securities
generally, including interest rate risk, credit risk, foreign currency risk, below investment grade securities risk, financial leverage
risk, prepayment and regulatory risk, which would be elevated under the foregoing circumstances.
Different sectors, industries and security types may react differently
to such developments and, when the market performs well, there is no assurance that the Trust’s investments will increase in value
along with the broader markets. Volatility of financial markets, including potentially extreme volatility caused by the events described
above, can expose the Trust to greater market risk than normal, possibly resulting in greatly reduced liquidity. Moreover, changing economic,
political, social or financial market conditions in one country or geographic region could adversely affect the value, yield and return
of the investments held by the Trust in a different country or geographic region because of the increasingly interconnected global economies
and financial markets. The Adviser and Sub-Adviser potentially could be prevented from considering, managing and executing investment
decisions at an advantageous time or price or at all as a result of any domestic or global market or
98 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
other disruptions, particularly disruptions causing heightened
market volatility and reduced market liquidity, such as the current conditions, which have also resulted in impediments to the normal
functioning of workforces, including personnel and systems of the Trust’s service providers and market intermediaries.
At any point in time, your Common Shares may be worth less than
your original investment, including the reinvestment of Trust dividends and distributions.
Management Risk
The Trust is subject to management risk because it is an actively
managed portfolio. In acting as the Trust’s Adviser, responsible for management of the Trust’s portfolio securities, the Adviser
will apply investment techniques and risk analyses in making investment decisions for the Trust, but there can be no guarantee that these
will produce the desired results.
Municipal Securities Risk
The amount of public information available about municipal securities
is generally less than that for corporate equities or bonds, and the investment performance of the Trust’s municipal securities
investments may therefore be more dependent on the analytical abilities of the Adviser. The secondary market for municipal securities,
particularly below investment grade municipal securities, also tends to be less well-developed or liquid than many other securities markets,
which may adversely affect the Trust’s ability to sell such securities at prices approximating those at which the Trust may currently
value them.
In addition, many state and municipal governments that issue securities
are under significant economic and financial stress and may not be able to satisfy their obligations. The ability of municipal issuers
to make timely payments of interest and principal may be diminished during general economic downturns and as governmental cost burdens
are reallocated among federal, state and local governments. The taxing power of any governmental entity may be limited by provisions of
state constitutions or laws and an entity’s credit will depend on many factors, including the entity’s tax base, the extent
to which the entity relies on federal or state aid and other factors which are beyond the entity’s control. In addition, laws enacted
in the future by the U.S. Congress or state legislatures or referenda could extend the time for payment of principal and/or interest,
or impose other constraints on enforcement of such obligations or on the ability of municipalities to levy taxes. Issuers of municipal
securities might seek protection under bankruptcy laws. In the event of bankruptcy of such an issuer, holders of municipal securities
could experience delays in collecting principal and interest and such holders may not be able to collect all principal and interest to
which they are entitled. Legislative developments may result in changes to the laws relating to municipal bankruptcies, which may adversely
affect the Trust’s investments in municipal securities.
Debt Instruments Risk
The value of the Trust’s investments in debt instruments
(including bonds issued by non-profit entities, municipal conduits and project finance corporations) depends on the continuing ability
of the debt issuers to meet their obligations for the payment of interest and principal when due. The ability of debt issuers to make
timely payments of interest and principal can be affected by a variety of developments and changes in legal, political, economic and other
conditions. For example, litigation, legislation or other political events, local business or economic conditions or the
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 99
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
bankruptcy of an issuer could have a significant effect on the
ability of the issuer to make timely payments of principal and/or interest.
Investments in debt instruments present certain risks, including
credit, interest rate, liquidity and prepayment risks. Issuers that rely directly or indirectly on government funding mechanisms or nonprofit
statutes, may be negatively affected by actions of the government, including reductions in government spending, increases in tax rates,
and changes in fiscal policy.
The value of a debt instrument may decline for many reasons that
directly relate to the issuer, such as a change in the demand for the issuer’s goods or services, or a decline in the issuer’s
performance, earnings or assets. In addition, changes in the financial condition of an individual issuer can affect the overall market
for such instruments.
Municipal Conduit Bond Risk
Municipal conduit bonds, also referred to as private activity bonds
or industrial revenue bonds, are bonds issued by state and local governments or other entities for the purpose of financing the projects
of certain private enterprises. Unlike municipal bonds, municipal conduit bonds are not backed by the full faith, credit or general taxing
power of the issuing governmental entity. Rather, issuances of municipal conduit bonds are backed solely by revenues of the private enterprise
involved. Municipal conduit bonds are therefore subject to heightened credit risk, as the private enterprise involved can have a different
credit profile than the issuing governmental entity. Municipal conduit bonds may be negatively impacted by conditions affecting either
the general credit of the private enterprise or the project itself. Factors such as competitive pricing, construction delays, or lack
of demand for the project could cause project revenues to fall short of projections, and defaults could occur. Municipal conduit bonds
tend to have longer terms and thus are more susceptible to interest rate risk.
Corporate Bond Risk
The market value of a corporate bond may be affected by factors
directly related to the issuer, such as investors’ perceptions of the creditworthiness of the issuer, the issuer’s financial
performance, perceptions of the issuer in the market place, performance of management of the issuer, the issuer’s capital structure
and use of financial leverage and demand for the issuer’s goods and services. There is a risk that the issuers of corporate bonds
may not be able to meet their obligations on interest or principal payments at the time called for by an instrument. Corporate bonds of
below investment grade quality are often high risk and have speculative characteristics and may be particularly susceptible to adverse
issuer-specific developments.
Project Finance Risk
Project finance is a type of financing commonly used for infrastructure,
industry, and public service projects. In a project finance arrangement, the cash flow generated by the project is used to repay lenders
while the project’s assets, rights and interest are held as secondary collateral. Investors involved in project finance face heightened
technology risk, operational risk, and market risk because the cash flow generated by the project, rather than the revenues of the company
behind the project, will repay investors. In addition, because of the project-specific nature of such arrangements, the Trust face the
risk of loss of investment if the company behind the project determines not to complete it.
100 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Risks of Investing in Debt Issued by Non-Profit Institutions
Investing in debt issued by non-profit institutions, including
foundations, museums, cultural institutions, colleges, universities, hospitals and healthcare systems, involves different risks than investing
in municipal bonds. Many non-profit entities are tax-exempt under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the
“Code”) and risk losing their tax-exempt status if they do not comply with the requirements of that section. There is a risk
that Congress or the IRS could pass new laws or regulations changing the requirements for tax-exempt status, which could result in a non-profit
institution losing such status. Additionally, non-profit institutions that receive federal and state appropriations face the risk of a
decrease in or loss of such appropriations.
Hospitals and healthcare systems are highly regulated at the federal
and state levels and face burdensome state licensing requirements. There is a risk that a state could refuse to renew a hospital’s
license or that the passage of new laws or regulations, especially changes to Medicare or Medicaid reimbursement, could inhibit a hospital
from growing its revenues. Hospitals and healthcare systems also face risks related to increased competition from other health care providers;
increased costs of inpatient and outpatient care; and increased pressures from managed care organizations, insurers, and patients to cut
the costs of medical care.
There is a risk that non-profit institutions relying on philanthropy
and donations to maintain their operations will receive less funding during economic downturns, such as the economic crisis initially
caused by the COVID-19 pandemic. The crisis has placed unique pressures on hospitals and healthcare systems including decreased revenues
due to postponement or cancellation of elective surgeries, non-urgent admissions, clinic visits, and research visits; shortages of staff,
pharmaceuticals, medical equipment, beds, and blood; and increased levels of self-paying admissions and uncompensated care due to reduced
availability and affordability of health insurance. The crisis has also resulted in decreased revenues in higher education through decreased
enrollment; lower revenues from student tuition, room and board; increased financial need for students; and temporary closure of on-campus
research programs. In addition, the crisis pandemic has forced museums and cultural institutions to close, resulting in loss of revenues
from retail, concessions, parking operations and special events held at the facilities. The crisis has also led to layoffs and cost-cutting
measures among non-profits and museums, some of which may be forced out of business as a result of the pandemic.
Taxable Municipal Securities Risk.
While interest earned on municipal securities is generally not
subject to federal tax, any interest earned on taxable municipal securities is fully taxable at the federal level and may be subject to
tax at the state level. Additionally, litigation, legislation or other political events, local business or economic conditions or the
bankruptcy of the issuer could have a significant effect on the ability of an issuer of municipal securities to make payments of principal
and/or interest. Political changes and uncertainties in the municipal market related to taxation, legislative changes or the rights of
municipal security holders can significantly affect municipal securities. Because many securities are issued to finance similar projects,
especially those relating to education, health care, transportation and utilities, conditions in those sectors can affect the overall
municipal market. In addition, changes in the financial condition of an individual municipal issuer can affect the overall municipal market.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 101
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Build America Bonds Risk
BABs are a form of municipal financing. The BABs market is smaller
and less diverse than the broader municipal securities market. In addition, because the relevant provisions of the American Recovery and
Reinvestment Act of 2009 were not extended, bonds issued after December 31, 2010 cannot qualify as BABs. We do not currently know whether
Congress will renew the program to permit issuance of new BABs. As a result, the number of available BABs is limited, which may negatively
affect the value of the BABs. In addition, there can be no assurance that BABs will continue to be actively traded. It is difficult to
predict the extent to which a market for such bonds will continue, meaning that BABs may experience greater illiquidity than other municipal
obligations. Because issuers of direct payment BABs held in the Trust’s portfolio receive reimbursement from the U.S. Treasury with
respect to interest payments on bonds, there is a risk that those municipal issuers will not receive timely payment from the U.S. Treasury
and may remain obligated to pay the full interest due on direct payment BABs held by the Trust. Under the sequestration process under
the Budget Control Act of 2011, automatic spending cuts that became effective on March 1, 2013 reduced the federal subsidy for BABs and
other subsidized taxable municipal bonds. In addition, pursuant to the requirements of the Balanced Budget and Emergency Deficit Control
Act of 1985, as amended, refund payments issued to and refund offset transactions for BABS are subject to sequestration. The subsidy payments
were reduced by 6.6% in 2018, 6.2% in 2019, 5.9% in 2020 and 5.7% between 2021 and 2030. Furthermore, it is possible that a municipal
issuer may fail to comply with the requirements to receive the direct pay subsidy or that a future Congress may further reduce or terminate
the subsidy altogether. In addition, the Code contains a general offset rule (the “IRS Offset Rule”) which allows for the
possibility that subsidy payments to be received by issuers of BABs may be subject to offset against amounts owed by them to the federal
government. Moreover, the Internal Revenue Service (the “IRS”) may audit the agencies issuing BABs and such audits may, among
other things, examine the price at which BABs are initially sold to investors. If the IRS concludes that a BAB was mispriced based on
its audit, it could disallow all or a portion of the interest subsidy received by the issuer of the BAB. The IRS Offset Rule and the disallowance
of any interest subsidy as a result of an IRS audit could potentially adversely affect a BABs issuer’s credit rating, and adversely
affect the issuer’s ability to repay or refinance BABs. This, in turn, could adversely affect the ratings and value of the BABs
held by the Trust and the Trust’s net asset value. The IRS has withheld subsidies from several states and municipalities.
Income Risk
The income investors receive from the Trust is based in part on
the interest it earns from its investments in fixed-income and other debt securities (“Income Securities”), which can vary
widely over the short- and long-term. If prevailing market interest rates drop, investors’ income from the Trust could drop as well.
The Trust’s income could also be affected adversely when prevailing short-term interest rates increase and the Trust is utilizing
leverage, although this risk is mitigated to the extent the Trust invests in floating-rate obligations.
Income Securities Risk
In addition to the risks discussed above, Income Securities, including
high-yield bonds, are subject to certain risks, including:
102 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Issuer Risk. The value of Income Securities may decline
for a number of reasons which directly relate to the issuer, such as management performance, financial leverage, reduced demand for the
issuer’s goods and services, historical and projected earnings, and the value of its assets.
Spread Risk. Spread risk is the risk that the market
price can change due to broad based movements in spreads, which is particularly relevant in the current low spread environment.
Credit Risk. The Trust could lose money if the issuer
or guarantor of a debt instrument or a counterparty to a derivatives transaction or other transaction (such as a repurchase agreement
or a loan of portfolio securities or other instruments) is unable or unwilling, or perceived to be unable or unwilling, to pay interest
or repay principal on time or defaults. If an issuer fails to pay interest, the Trust’s income would likely be reduced, and if an
issuer fails to repay principal, the value of the instrument likely would fall and the Trust could lose money. This risk is especially
acute with respect to below investment grade debt instruments (commonly referred to as “high-yield” or “junk”
bonds) and unrated high risk debt instruments, whose issuers are particularly susceptible to fail to meet principal or interest obligations
under current conditions. Also, the issuer, guarantor or counterparty may suffer adverse changes in its financial condition or be adversely
affected by economic, political or social conditions that could lower the credit quality (or the market’s perception of the credit
quality) of the issuer or instrument, leading to greater volatility in the price of the instrument and in shares of the Trust. Although
credit quality may not accurately reflect the true credit risk of an instrument, a change in the credit quality rating of an instrument
or an issuer can have a rapid, adverse effect on the instrument’s liquidity and make it more difficult for the Trust to sell at
an advantageous price or time. The risk of the occurrence of these types of events is heightened under current conditions.
The degree of credit risk depends on the particular instrument
and the financial condition of the issuer, guarantor or counterparty, which are often reflected in its credit quality. Credit quality
is a measure of the issuer’s expected ability to make all required interest and principal payments in a timely manner. An issuer
with the highest credit rating has a very strong capacity with respect to making all payments. An issuer with the second-highest credit
rating has a strong capacity to make all payments, but the degree of safety is somewhat less. An issuer with the lowest credit quality
rating may be in default or have extremely poor prospects of making timely payment of interest and principal. Credit ratings assigned
by rating agencies are based on a number of factors and subjective judgments and therefore do not necessarily represent an issuer’s
actual financial condition or the volatility or liquidity of the security. Although higher-rated securities generally present lower credit
risk as compared to lower-rated or unrated securities, an issuer with a high credit rating may in fact be exposed to heightened levels
of credit or liquidity risk.
Interest Rate Risk. Fixed-income and other debt instruments
are subject to the possibility that interest rates could change (or are expected to change). Changes in interest rates, including changes
in reference rates used in fixed-income and other debt instruments (such as the London Interbank Offer Rate), may adversely affect the
Trust’s investments in these instruments, such as the value or liquidity of, and income generated by, the investments. In addition,
changes in interest rates, including rates that fall below zero, can have unpredictable effects on markets and can adversely affect the
Trust’s yield, income and performance.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 103
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
The value of a debt instrument with a longer duration will generally
be more sensitive to interest rate changes than a similar instrument with a shorter duration. Similarly, the longer the average duration
(whether positive or negative) of these instruments held by the Trust or to which the Trust is exposed (i.e., the longer the average portfolio
duration of the Trust), the more the Trust’s NAV will likely fluctuate in response to interest rate changes. Duration is a measure
used to determine the sensitivity of a security’s price to changes in interest rates that incorporates a security’s yield,
coupon, final maturity and call features, among other characteristics. For example, the NAV per share of a bond fund with an average duration
of eight years would be expected to fall approximately 8% if interest rates rose by one percentage point.
However, measures such as duration may not accurately reflect the
true interest rate sensitivity of instruments held by the Trust and, in turn, the Trust’s susceptibility to changes in interest
rates. Certain fixed-income and debt instruments are subject to the risk that the issuer may exercise its right to redeem (or call) the
instrument earlier than anticipated. Although an issuer may call an instrument for a variety of reasons, if an issuer does so during a
time of declining interest rates, the Trust might have to reinvest the proceeds in an investment offering a lower yield or other less
favorable features, and therefore might not benefit from any increase in value as a result of declining interest rates. Interest only
or principal only securities and inverse floaters are particularly sensitive to changes in interest rates, which may impact the income
generated by the security and other features of the security.
Adjustable rate securities also react to interest rate changes
in a similar manner as fixed-rate securities but generally to a lesser degree depending on the characteristics of the security, in particular
its reset terms (i.e., the index chosen, frequency of reset and reset caps or floors). During periods of rising interest rates, because
changes in interest rates on adjustable rate securities may lag behind changes in market rates, the value of such securities may decline
until their interest rates reset to market rates. These securities also may be subject to limits on the maximum increase in interest rates.
During periods of declining interest rates, because the interest rates on adjustable rate securities generally reset downward, their market
value is unlikely to rise to the same extent as the value of comparable fixed rate securities. These securities may not be subject to
limits on downward adjustments of interest rates.
During periods of rising interest rates, issuers of debt securities
or asset-backed securities may pay principal later or more slowly than expected, which may reduce the value of the Trust’s investment
in such securities and may prevent the Trust from receiving higher interest rates on proceeds reinvested in other instruments. During
periods of falling interest rates, issuers of debt securities or asset-backed securities may pay off debts more quickly or earlier than
expected, which could cause the Trust to be unable to recoup the full amount of its initial investment and/or cause the Trust to reinvest
in lower-yielding securities, thereby reducing the Trust’s yield or otherwise adversely impacting the Trust.
Certain debt instruments, such as instruments with a negative duration
or inverse instruments, are also subject to interest rate risk, although such instruments generally react differently to changes in interest
rates than instruments with positive durations. The Trust’s investments in these instruments also may be adversely affected by changes
in interest rates. For example, the value of instruments with negative durations, such as inverse floaters, generally decrease if interest
rates decline.
104 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
The Trust’s use of leverage will tend to increase common
share interest rate risk. The Trust may utilize certain strategies, including taking positions in futures or interest rate swaps, for
the purpose of reducing the interest rate sensitivity of credit securities held by the Trust and decreasing the Trust’s exposure
to interest rate risk. The Trust is not required to hedge its exposure to interest rate risk and may choose not to do so. In addition,
there is no assurance that any attempts by the Trust to reduce interest rate risk will be successful or that any hedges that the Trust
may establish will perfectly correlate with movements in interest rates.
Current Fixed-Income and Debt Market Conditions. Fixed-income
and debt market conditions are highly unpredictable and some parts of the market are subject to dislocations. In response to the crisis
initially caused by the outbreak of COVID-19, as with other serious economic disruptions, governmental authorities and regulators have
enacted or are enacting significant fiscal and monetary policy changes, including providing direct capital infusions into companies, creating
new monetary programs and lowering interest rates considerably. These actions present heightened risks to fixed-income and debt instruments,
and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed or are ineffective in achieving
their desired outcomes. In light of these actions and current conditions, interest rates and bond yields in the United States and many
other countries are at or near historic lows, and in some cases, such rates and yields are negative. The current very low or negative
interest rates are magnifying the Trust’s susceptibility to interest rate risk and diminishing yield and performance. In addition,
the current environment is exposing fixed-income and debt markets to significant volatility and reduced liquidity for Trust investments.
Reinvestment Risk. Reinvestment risk is the risk
that income from the Trust’s portfolio will decline if the Trust invests the proceeds from matured, traded or called Income Securities
at market interest rates that are below the Trust portfolio’s current earnings rate. A decline in income could affect the Common
Shares’ market price or the overall return of the Trust.
Prepayment Risk. Certain debt instruments, including
loans and mortgage- and other asset-backed securities, are subject to the risk that payments on principal may occur more quickly or earlier
than expected (or an investment is converted or redeemed prior to maturity). For example, an issuer may exercise its right to redeem outstanding
debt securities prior to their maturity (known as a “call”) or otherwise pay principal earlier than expected for a number
of reasons (e.g., declining interest rates, changes in credit spreads and improvements in the issuer’s credit quality). If an issuer
calls or “prepays” a security in which the Trust has invested, the Trust may not recoup the full amount of its initial investment
and may be required to reinvest in generally lower-yielding securities, securities with greater credit risks or securities with other,
less favorable features or terms than the security in which the Trust initially invested, thus potentially reducing the Trust’s
yield. Income Securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity.
Loans and mortgage- and other asset-backed securities are particularly subject to prepayment risk, and offer less potential for gains,
during periods of declining interest rates (or narrower spreads) as issuers of higher interest rate debt instruments pay off debts earlier
than expected. In addition, the Trust may lose any premiums paid to acquire the investment. Other factors, such as excess cash flows,
may also contribute to prepayment risk. Thus, changes in interest rates may cause volatility in the value of and income received from
these types of debt instruments.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 105
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Variable or floating rate investments may be less vulnerable to
prepayment risk. Most floating rate loans and fixed-income securities allow for prepayment of principal without penalty. Accordingly,
the potential for the value of a floating rate loan or security to increase in response to interest rate declines is limited. Corporate
loans or fixed-income securities purchased to replace a prepaid corporate loan or security may have lower yields than the yield on the
prepaid corporate loan or security.
Valuation of Certain Income Securities Risk. The
Sub-Adviser may use the fair value method to value investments if market quotations for them are not readily available or are deemed unreliable,
or if events occurring after the close of a securities market and before the Trust values its assets would materially affect net asset
value. Because the secondary markets for certain investments may be limited, they may be difficult to value. Where market quotations are
not readily available, valuation may require more research than for more liquid investments. In addition, elements of judgment may play
a greater role in valuation in such cases than for investments with a more active secondary market because there is less reliable objective
data available. A security that is fair valued may be valued at a price higher or lower than the value determined by other funds using
their own fair valuation procedures. Prices obtained by the Trust upon the sale of such securities may not equal the value at which the
Trust carried the investment on its books, which would adversely affect the net asset value of the Trust.
Duration Management Risk
The Trust’s managers expect to employ investment and trading
strategies to seek to maintain the leverage-adjusted duration of the Trust’s portfolio at generally less than 15 years. Such strategies
include, among others, security selection and the use of financial products. Financial products may include US treasury swaps, total return
swaps and futures contracts, among others. The Trust seeks to invest in instruments that provide the Trust with protection against interest
rate volatility while providing income to the Trust. Duration is a measure of a bond’s price sensitivity to changes in interest
rates, expressed in years. Duration is a weighted average of the times that interest payments and the final return of principal are received.
The weights are the amounts of the payments discounted by the yield to maturity of the bond.
Financial Leverage Risk
Although the use of Financial Leverage by the Trust may create
an opportunity for increased after-tax total return for the Common Shares, it also results in additional risks and can magnify the effect
of any losses. If the income and gains earned on securities purchased with Financial Leverage proceeds are greater than the cost of Financial
Leverage, the Trust’s return will be greater than if Financial Leverage had not been used. Conversely, if the income or gains from
the securities purchased with such proceeds does not cover the cost of Financial Leverage, the return to the Trust will be less than if
Financial Leverage had not been used. There can be no assurance that a leverage strategy will be successful during any period during which
it is employed.
Financial Leverage involves risks and special considerations for
shareholders, including the likelihood of greater volatility of net asset value, market price and dividends on the Common Shares than
a comparable portfolio without leverage; the risk that fluctuations in interest rates on borrowings and short-term debt or in the dividend
rates on any Financial Leverage that the Trust must pay will reduce the return to the Common Shareholders; and the effect of Financial
Leverage in a declining market, which is likely to cause a greater decline in the net asset value of the Common
106 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Shares than if the Trust were not leveraged, which may result in
a greater decline in the market price of the Common Shares.
It is also possible that the Trust will be required to sell assets,
possibly at a loss, in order to redeem or meet payment obligations on any leverage. Such a sale would reduce the Trust’s net asset
value and also make it difficult for the net asset value to recover. The Trust in its best judgment nevertheless may determine to continue
to use Financial Leverage if it expects that the benefits to the Trust’s shareholders of maintaining the leveraged position will
outweigh the current reduced return.
Certain types of Borrowings subject the Trust to covenants in credit
agreements relating to asset coverage and portfolio composition requirements. Certain Borrowings issued by the Trust also may subject
the Trust to certain restrictions on investments imposed by guidelines of one or more rating agencies, which may issue ratings for such
Borrowings. Such guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed
by the 1940 Act. It is not anticipated that these covenants or guidelines will impede the Adviser from managing the Trust’s portfolio
in accordance with the Trust’s investment objectives and policies.
Reverse repurchase agreements involve the risks that the interest
income earned on the investment of the proceeds will be less than the interest expense and Trust expenses associated with the repurchase
agreement, that the market value of the securities sold by the Trust may decline below the price at which the Trust is obligated to repurchase
such securities and that the securities may not be returned to the Trust. There is no assurance that reverse repurchase agreements can
be successfully employed. In connection with reverse repurchase agreements, the Trust will also be subject to counterparty risk with respect
to the purchaser of the securities. If the broker/dealer to whom the Trust sells securities becomes insolvent, the Trust’s right
to purchase or repurchase securities may be restricted.
Because the fees received by the Adviser are based on the Managed
Assets of the Trust (including the proceeds of any Financial Leverage), the Adviser has a financial incentive for the Trust to utilize
Financial Leverage, which may create a conflict of interest between the Adviser and the Common Shareholders. There can be no assurance
that a leveraging strategy will be successful during any period during which it is employed.
If the cost of leverage is no longer favorable, or if the Trust
is otherwise required to reduce its leverage, the Trust may not be able to maintain distributions on Common Shares at historical levels
and Common Shareholders will bear any costs associated with selling portfolio securities. The Trust may also be exposed to the risks associated
with Financial Leverage through its investments in Investment Funds.
Inflation/Deflation Risk
Inflation risk is the risk that the value of assets or income from
investments will be worth less in the future as inflation decreases the purchasing power and value of money. As inflation increases, the
real value of the Common Shares and distributions can decline. Inflation rates may change frequently and significantly as a result of
various factors, including unexpected shifts in the domestic or global economy and changes in monetary or economic policies (or expectations
that these policies may change), and the Trust’s investments may not keep pace with inflation, which would adversely affect the
Trust. This risk is significantly elevated compared to normal conditions because
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 107
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
of recent monetary policy measures and the current low interest
rate environment. In addition, during any periods of rising inflation, the dividend rates or borrowing costs associated with the Trust’s
use of Financial Leverage would likely increase, which would tend to further reduce returns to Common Shareholders. Deflation risk is
the risk that prices throughout the economy decline over time—the opposite of inflation. Deflation may have an adverse effect on
the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Trust’s
portfolio.
Insurance Risk
The Trust may purchase municipal securities that are secured by
insurance, bank credit agreements or escrow accounts. The credit quality of the companies that provide such credit enhancements will affect
the value of those securities. Certain significant providers of insurance for municipal securities have in the past incurred significant
losses as a result of exposure to sub-prime mortgages and other lower credit quality investments that experienced recent defaults or otherwise
suffered extreme credit deterioration. As a result, such losses reduced the insurers’ capital and called into question their continued
ability to perform their obligations under such insurance if they are called upon to do so in the future. While an insured municipal security
will typically be deemed to have the rating of its insurer, if the insurer of a municipal security suffers a downgrade in its credit rating
or the market discounts the value of the insurance provided by the insurer, the rating of the underlying municipal security will be more
relevant and the value of the municipal security would more closely, if not entirely, reflect such rating. In such a case, the value of
insurance associated with a municipal security would decline and may not add any value. The insurance feature of a municipal security
normally provides that it guarantees the full payment of principal and interest when due through the life of an insured obligation, but
does not guarantee the market value of the insured obligation or the net asset value of the Common Shares attributable to such insured
obligation.
Below Investment Grade Securities Risk
The Trust may invest in Income Securities rated below investment
grade or, if unrated, determined by the Adviser to be of comparable credit quality, which are commonly referred to as “high-yield”
or “junk” bonds. Investment in securities of below investment grade quality involves substantial risk of loss, the risk of
which is particularly acute under current conditions. Income Securities of below investment grade quality are predominantly speculative
with respect to the issuer’s capacity to pay interest and repay principal when due and therefore involve a greater risk of default
or decline in market value due to adverse economic and issuer-specific developments. Accordingly, the performance of the Trust and a shareholder’s
investment in the Trust may be adversely affected if an issuer is unable to pay interest and repay principal, either on time or at all.
Securities of below investment grade quality may involve a greater risk of default or decline in market value due to adverse economic
and issuer-specific developments. Issuers of below investment grade securities are not perceived to be as strong financially as those
with higher credit ratings. These issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers, which
may impair their ability to make interest and principal payments. Income Securities of below investment grade quality display increased
price sensitivity to changing interest rates and to a deteriorating economic environment. The market values, total return and yield for
securities of below investment grade quality tend to be more volatile than the market values, total return and yield for higher-quality
securities. Securities of below investment grade quality tend to be less liquid than investment grade
108 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
debt securities and therefore more difficult to value accurately
and sell at an advantageous price or time and may involve greater transactions costs and wider bid/ask spreads, than higher-quality securities.
To the extent that a secondary market does exist for certain below investment grade securities, the market for them may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement periods. Because of the substantial risks associated with
investments in below investment grade securities, you could have an increased risk of losing money on your investment in Common Shares,
both in the short-term and the long-term. To the extent that the Trust invests in securities that have not been rated by an NRSRO, the
Trust’s ability to achieve its investment objectives will be more dependent on the Adviser’s credit analysis than would be
the case when the Trust invests in rated securities.
Sector Risk
The Trust may invest a significant portion of its managed assets
in certain sectors which may subject the Trust to additional risk and variability. To the extent that the Trust focuses its managed assets
in the hospital and healthcare facilities sector, for example, the Trust will be subject to risks associated with such sector, including
adverse government regulation and reduction in reimbursement rates, as well as government approval of products and services and intense
competition. Securities issued with respect to special taxing districts will be subject to various risks, including real-estate development
related risks and taxpayer concentration risk. Further, the fees, special taxes or tax allocations and other revenues established to secure
the obligations of securities issued with respect to special taxing districts are generally limited as to the rate or amount that may
be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. Charter schools
and other private educational facilities are subject to various risks, including the reversal of legislation authorizing or funding charter
schools, the failure to renew or secure a charter, the failure of a funding entity to appropriate necessary funds and competition from
alternatives such as voucher programs. Issuers of municipal utility securities can be significantly affected by government regulation,
financing difficulties, supply and demand of services or fuel and natural resource conservation. The transportation sector, including
airports, airlines, ports and other transportation facilities, can be significantly affected by changes in the economy, fuel prices, maintenance,
labor relations, insurance costs and government regulation.
Short Sales Risk
The Trust may make short sales of securities. A short sale is a
transaction in which the Trust sells a security it does not own. If the price of the security sold short increases between the time of
the short sale and the time the Trust replaces the borrowed security, the Trust will incur a loss; conversely, if the price declines,
the Trust will realize a capital gain. Any gain will be decreased, and any loss will be increased, by the transaction costs incurred by
the Trust, including the costs associated with providing collateral to the broker-dealer (usually cash and liquid securities) and the
maintenance of collateral with its custodian. Although the Trust’s gain is limited to the price at which it sold the security short,
its potential loss is theoretically unlimited. The Trust may have to pay a premium to borrow the securities and must pay any dividends
or interest payable on the securities until they are replaced, which will be expenses of the Trust.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 109
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Special Risks Related to Certain Municipal Securities
The Trust may invest in municipal leases and certificates of participation
in such leases. Municipal leases and certificates of participation involve special risks not normally associated with general obligations
or revenue bonds. Leases and installment purchase or conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without
meeting the constitutional and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable
because of the inclusion in many leases or contracts of “non-appropriation” clauses that relieve the governmental issuer of
any obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. In addition, such leases or contracts may be subject to the temporary abatement of payments
in the event the governmental issuer is prevented from maintaining occupancy of the leased premises or utilizing the leased equipment.
Although the obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation
or foreclosure might prove difficult, time consuming and costly, and may result in a delay in recovering or the failure to fully recover
the Trust’s original investment. In the event of non-appropriation, the issuer would be in default and taking ownership of the assets
may be a remedy available to the Trust, although the Trust does not anticipate that such a remedy would normally be pursued. To the extent
that the Trust invests in unrated municipal leases or participates in such leases, the credit quality and risk of cancellation of such
unrated leases will be monitored on an ongoing basis. Certificates of participation, which represent interests in unmanaged pools of municipal
leases or installment contracts, involve the same risks as the underlying municipal leases. In addition, the Trust may be dependent upon
the municipal authority issuing the certificates of participation to exercise remedies with respect to the underlying securities. Certificates
of participation entail a risk of default or bankruptcy not only of the issuer of the underlying lease but also of the municipal agency
issuing the certificate of participation.
Structured Finance Investments Risk
The Trust’s structured finance investments may include residential
and commercial mortgage-related and other ABS issued by governmental entities and private issuers. While traditional fixed-income securities
typically pay a fixed rate of interest until maturity, when the entire principal amount is due, these investments represent an interest
in a pool of residential or commercial real estate or assets such as automobile loans, credit card receivables or student loans that have
been securitized and provide for monthly payments of interest and principal to the holder based from the cash flow of these assets. Holders
of structured finance investments bear risks of the underlying investments, index or reference obligation and are subject to counterparty
risk. The Trust may have the right to receive payments only from the structured product, and generally does not have direct rights against
the issuer or the entity that sold the assets to be securitized. While certain structured finance investments enable the investor to acquire
interests in a pool of securities without the brokerage and other expenses associated with directly holding the same securities, investors
in structured finance investments generally pay their share of the structured product’s administrative and other expenses. Although
it is difficult to predict whether the prices of indices and securities underlying structured finance investments will rise or fall, these
prices (and, therefore, the prices of structured finance investments) will be influenced by the same types of political and economic events
that affect issuers of securities and capital markets generally. If the issuer of a structured product uses shorter
110 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
term financing to purchase longer term securities, the issuer may
be forced to sell its securities at below market prices if it experiences difficulty in obtaining short-term financing, which may adversely
affect the value of the structured finance investment owned by the Trust.
The Trust may invest in structured finance products collateralized
by low grade or defaulted loans or securities. Investments in such structured finance products are subject to the risks associated with
below investment grade securities. Such securities are characterized by high risk. It is likely that an economic recession could severely
disrupt the market for such securities and may have an adverse impact on the value of such securities.
The Trust may invest in senior and subordinated classes issued
by structured finance vehicles. The payment of cash flows from the underlying assets to senior classes take precedence over those of subordinated
classes, and therefore subordinated classes are subject to greater risk. Furthermore, the leveraged nature of subordinated classes may
magnify the adverse impact on such class of changes in the value of the assets, changes in the distributions on the assets, defaults and
recoveries on the assets, capital gains and losses on the assets, prepayment on assets and availability, price and interest rates of assets.
Structured finance securities may be thinly traded or have a limited
trading market. Structured finance securities are typically privately offered and sold, and thus are not registered under the securities
laws. As a result, investments in structured finance securities may be characterized by the Trust as illiquid securities; however, an
active dealer market may exist which would allow such securities to be considered liquid in some circumstances.
Mortgage-Backed Securities Risk
Mortgage-backed securities (“MBS”) represent an interest
in a pool of mortgages. The risks associated with mortgage-backed securities include: (1) credit risk associated with the performance
of the underlying mortgage properties and of the borrowers owning these properties; (2) adverse changes in economic conditions and circumstances,
which are more likely to have an adverse impact on mortgage-backed securities secured by loans on certain types of commercial properties
than on those secured by loans on residential properties; (3) prepayment risk, which can lead to significant fluctuations in the value
of the mortgage-backed security; (4) loss of all or part of the premium, if any, paid; and (5) decline in the market value of the security,
whether resulting from changes in interest rates, prepayments on the underlying mortgage collateral or perceptions of the credit risk
associated with the underlying mortgage collateral. The value of mortgage-backed securities may be substantially dependent on the servicing
of the underlying pool of mortgages.
When market interest rates decline, more mortgages are refinanced
and the securities are paid off earlier than expected. Prepayments may also occur on a scheduled basis or due to foreclosure. When market
interest rates increase, the market values of mortgage-backed securities decline. At the same time, however, mortgage refinancings and
prepayments slow, which lengthens the effective maturities of these securities. As a result, the negative effect of the rate increase
on the market value of mortgage-backed securities is usually more pronounced than it is for other types of debt securities. In addition,
due to increased instability in the credit markets, the market for some mortgage-backed securities has experienced reduced liquidity and
greater volatility with respect to the value of such securities, making it more difficult to value such securities. The Trust may invest
in sub-prime mortgages or mortgage-backed securities that are backed by sub-prime mortgages.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 111
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Additional risks relating to investments in mortgage-backed securities
may arise because of the type of mortgage-backed securities in which the Trust invests, defined by the assets collateralizing the mortgage-backed
securities. For example, CMOs may have complex or highly variable prepayment terms, such as companion classes, interest only or principal
only payments, inverse floaters and residuals. These investments generally entail greater market, prepayment and liquidity risks than
other mortgage-backed securities, and may be more volatile or less liquid than other mortgage-backed securities. These risks are heightened
under the currently distressed economic, market, labor and public health conditions.
Moreover, the relationship between prepayments and interest rates
may give some high-yielding mortgage-related and asset-backed securities less potential for growth in value than conventional bonds with
comparable maturities. In addition, in periods of falling interest rates, the rate of prepayments tends to increase. During such periods,
the reinvestment of prepayment proceeds by the Trust will generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. Because of these and other reasons, mortgage-related and asset-backed securities’ total return and maturity
may be difficult to predict precisely. To the extent that the Trust purchases mortgage-related and asset-backed securities at a premium,
prepayments (which may be made without penalty) may result in loss of the Trust’s principal investment to the extent of premium
paid.
Mortgage-backed securities generally are classified as either CMBS
or RMBS, each of which are subject to certain specific risks.
Commercial Mortgage-Backed Securities Risk. The market for
CMBS developed more recently and, in terms of total outstanding principal amount of issues, is relatively small compared to the market
for residential single-family MBS. CMBS are subject to particular risks. CMBS are subject to risks associated with lack of standardized
terms, shorter maturities than residential mortgage loans and payment of all or substantially all of the principal only at maturity rather
than regular amortization of principal. In addition, commercial lending generally is viewed as exposing the lender to a greater risk of
loss than residential lending. Commercial lending typically involves larger loans to single borrowers or groups of related borrowers than
residential mortgage loans. In addition, the repayment of loans secured by income producing properties typically is dependent upon the
successful operation of the related real estate project and the cash flow generated therefrom. Net operating income of an income-producing
property can be affected by, among other things: tenant mix, success of tenant businesses, property management decisions, property location
and condition, competition from comparable types of properties, changes in laws that increase operating expense or limit rents that may
be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property,
changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate
values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating
expenses, change in governmental rules, regulations and fiscal policies, including environmental legislation, acts of God, terrorism,
social unrest and civil disturbances.
Consequently, adverse changes in economic conditions and circumstances
are more likely to have an adverse impact on MBS secured by loans on commercial properties than on those secured by loans on residential
properties. Economic downturns and other events that limit the activities of and demand for commercial retail and office spaces (such
as the current crisis) adversely impact the
112 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
value of such securities. Additional risks may be presented by
the type and use of a particular commercial property. Special risks are presented by hospitals, nursing homes, hospitality properties
and certain other property types. Commercial property values and net operating income are subject to volatility, which may result in net
operating income becoming insufficient to cover debt service on the related mortgage loan. The exercise of remedies and successful realization
of liquidation proceeds relating to CMBS may be highly dependent on the performance of the servicer or special servicer. There may be
a limited number of special servicers available, particularly those that do not have conflicts of interest.
Residential Mortgage-Backed Securities Risk. Credit-related
risk on RMBS arises from losses due to delinquencies and defaults by the borrowers in payments on the underlying mortgage loans and breaches
by originators and servicers of their obligations under the underlying documentation pursuant to which the RMBS are issued. The rate of
delinquencies and defaults on residential mortgage loans and the aggregate amount of the resulting losses will be affected by a number
of factors, including general economic conditions, particularly those in the area where the related mortgaged property is located, the
level of the borrower’s equity in the mortgaged property and the individual financial circumstances of the borrower. If a residential
mortgage loan is in default, foreclosure on the related residential property may be a lengthy and difficult process involving significant
legal and other expenses. The net proceeds obtained by the holder on a residential mortgage loan following the foreclosure on the related
property may be less than the total amount that remains due on the loan. The prospect of incurring a loss upon the foreclosure of the
related property may lead the holder of the residential mortgage loan to restructure the residential mortgage loan or otherwise delay
the foreclosure process. These risks are elevated given the current distressed economic, market, health and labor conditions, notably,
increased levels of unemployment, delays and delinquencies in payments of mortgage and rent obligations, and uncertainty regarding the
effects and extent of government intervention with respect to mortgage payments and other economic matters.
Sub-Prime Mortgage Market Risk. The residential mortgage
market in the United States has experienced difficulties that may adversely affect the performance and market value of certain mortgages
and mortgage-related securities. Delinquencies and losses on residential mortgage loans (especially sub-prime and second-line mortgage
loans) generally have increased recently and may continue to increase, and a decline in or flattening of housing values (as has recently
been experienced and may continue to be experienced in many housing markets) may exacerbate such delinquencies and losses. Borrowers with
adjustable rate mortgage loans are more sensitive to changes in interest rates, which affect their monthly mortgage payments, and may
be unable to secure replacement mortgages at comparably low interest rates. Also, a number of residential mortgage loan originators have
experienced serious financial difficulties or bankruptcy. Largely due to the foregoing, reduced investor demand for mortgage loans and
mortgage-related securities and increased investor yield requirements have caused limited liquidity in the secondary market for mortgage-related
securities, which can adversely affect the market value of mortgage-related securities. It is possible that such limited liquidity in
such secondary markets could continue or worsen. If the economy of the United States deteriorates further, the incidence of mortgage foreclosures,
especially sub-prime mortgages, may increase, which may adversely affect the value of any mortgage-backed securities owned by the Trust.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 113
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
The significance of the mortgage crisis and loan defaults in residential
mortgage loan sectors led to the enactment of numerous pieces of legislation relating to the mortgage and housing markets. These actions,
along with future legislation or regulation, may have significant impacts on the mortgage market generally and may result in a reduction
of available transactional opportunities for the Trust or an increase in the cost associated with such transactions and may adversely
impact the value of RMBS.
During the mortgage crisis, a number of originators and servicers
of residential and commercial mortgage loans, including some of the largest originators and servicers in the residential and commercial
mortgage loan market, experienced serious financial difficulties. Such difficulties may affect the performance of non-agency RMBS and
CMBS. There can be no assurance that originators and servicers of mortgage loans will not continue to experience serious financial difficulties
or experience such difficulties in the future, including becoming subject to bankruptcy or insolvency proceedings, or that underwriting
procedures and policies and protections against fraud will be sufficient in the future to prevent such financial difficulties or significant
levels of default or delinquency on mortgage loans.
Asset-Backed Securities Risk
In addition to the general risks associated with credit securities
discussed herein and the risks discussed under “Structured Finance Investments Risk,” ABS are subject to additional risks.
While traditional fixed-income securities typically pay a fixed rate of interest until maturity, when the entire principal amount is due,
an ABS represents an interest in a pool of assets, such as automobile loans, credit card receivables, unsecured consumer loans or student
loans, that has been securitized and provides for monthly payments of interest, at a fixed or floating rate, and principal from the cash
flow of these assets. This pool of assets (and any related assets of the issuing entity) is the only source of payment for the ABS. The
ability of an ABS issuer to make payments on the ABS, and the timing of such payments, is therefore dependent on collections on these
underlying assets. The recoveries on the underlying collateral may not, in some cases, be sufficient to support payments on these securities,
which may result in losses to investors in an ABS.
Generally, obligors may prepay the underlying assets in full or
in part at any time, subjecting the Trust to prepayment risk related to the ABS it holds. While the expected repayment streams on ABS
are determined by the contractual amortization schedules for the underlying assets, an investor’s yield to maturity on an ABS is
uncertain and may be reduced by the rate and speed of prepayments of the underlying assets, which may be influenced by a variety of economic,
social and other factors. Any prepayments, repurchases, purchases or liquidations of the underlying assets could shorten the average life
of the ABS to an extent that cannot be fully predicted. Some ABS may be structured to include a period of rapid amortization triggered
by events such as a significant rise in the default rate of the underlying collateral, a sharp drop in the credit enhancement level because
of credit losses on the underlying assets, a specified regulatory event or the bankruptcy of the originator. A rapid amortization event
will cause any revolving period to end earlier than expected and all collections on the underlying assets will be used to pay principal
to investors earlier than expected. In general, the senior most securities will be paid prior to any payments being made on the subordinated
securities, and if such payments are made earlier than expected, the Trust’s yield on such ABS may be negatively affected.
114 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
The collateral underlying ABS may constitute assets related to
a wide range of industries, such as credit card and automobile receivables or other assets derived from consumer, commercial or corporate
sectors, and these underlying assets may be secured or unsecured. The value of ABS held by the Trust also may be reduced because of actual
or perceived changes in the creditworthiness of the obligors on the underlying assets, the originators, the servicers, any financial institutions
providing credit support or hedging counterparties that are required to make payments on the ABS. Additionally, an obligor may seek protection
under debtor relief laws and therefore the debtor may be able to avoid or delay payments. Economic factors, including unemployment, interest
rates and the rate of inflation, may affect the rate of prepayments and defaults on the underlying receivables and may accelerate, delay
or reduce expected payments on an ABS. During recessions or periods of economic contraction, factors such as elevated unemployment, decreased
asset values or reductions in available credit may lead to increased delinquency and default rates on the underlying receivables.
In general, the value of the assets collateralizing an ABS will
exceed the principal amount of the ABS issued in a transaction. This excess value is generally referred to as “overcollateralization.”
The amount of overcollateralization varies based on the credit quality of the underlying collateral backing the ABS. In general, losses
on the assets underlying the ABS will reduce the amount of overcollateralization on the ABS and increase the risk to holders of the ABS.
Other forms of credit enhancement may be used, including letters of credit or monoline insurance policies. These forms of credit enhancement
are subject to risk if the party obligated to make payments on the letter of credit or insurance policy defaults on the obligation to
the ABS issuer.
Payments to holders of ABS may be subject to deferral. If the cash
flow generated by the underlying assets is insufficient to make all payments required on a payment date, such payments may be deferred
to the following payment date. If the cash flow remains insufficient to make payments on the ABS as a result of credit losses on the underlying
assets, there may be no recourse by the Trust for any shortfall.
CLO, CDO and CBO Risk
The Trust may invest in CDOs, CBOs and CLOs. A CDO is an ABS whose
underlying collateral is typically a portfolio of other structured finance debt securities or synthetic instruments issued by another
ABS vehicle. A CBO is an ABS whose underlying collateral is a portfolio of bonds. A CLO is an ABS whose underlying collateral is a portfolio
of bank loans.
In addition to the general risks associated with credit securities
discussed herein and the risks discussed under “Structured Finance Investments Risk” and “Asset Backed Securities Risk,”
CLOs, CDOs and CBOs are subject to additional risks. CLOs, CDOs and CBOs are subject to risks associated because of the involvement of
multiple transaction parties related to the underlying collateral and disruptions that may occur as a result of the restructuring or insolvency
of the underlying obligors, which are generally corporate obligors. Unlike a consumer obligor that is generally obligated to make payments
on the collateral backing an ABS, the obligor on the collateral backing a CLO, a CDO or a CBO may have more effective defenses or resources
to cause a delay in payment or restructure the underlying obligation. If an obligor is permitted to restructure its obligations, distributions
from collateral securities may not be adequate to make interest or other payments.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 115
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
The performance of CLOs, CDOs and CBOs depends primarily upon the
quality of the underlying assets and the level of credit support or enhancement in the structure and the relative priority of the interest
in the issuer of the CLO, CDO or CBO purchased by the Trust. In general, CLOs, CDOs and CBOs are actively managed by an asset manager
that is responsible for evaluating and acquiring the assets that will collateralize the CLO, CDO or CBO. The asset manager may have difficulty
in identifying assets that satisfy the eligibility criteria for the assets and may be restricted from trading the collateral. These criteria,
restrictions and requirements, while reducing the overall risk to the Trust, may limit the ability of the investment manager to maximize
returns on the CLOs, CDOs and CBOs if an opportunity is identified by the collateral manager. In addition, other parties involved in CLOs,
CDOs and CBOs, such as credit enhancement providers and investors in senior obligations of the CLO, CDO or CBO may have the right to control
the activities and discretion of the investment manager in a manner that is adverse to the interests of the Trust. A CLO, CDO or CBO generally
includes provisions that alter the priority of payments if performance metrics related to the underlying collateral, such as interest
coverage and minimum overcollateralization, are not met. These provisions may cause delays in payments on the securities or an increase
in prepayments depending on the relative priority of the securities owned by the Trust. The failure of a CLO, CDO or CBO to make timely
payments on a particular tranche may have an adverse effect on the liquidity and market value of such tranche.
The value of securities issued by CLOs, CDOs and CBOs also may
change because of changes in market value; changes in the market’s perception of the creditworthiness of the servicer of the assets,
the originator of an asset in the pool, or the financial institution or fund providing credit support or enhancement; loan performance
and prices; broader market sentiment, including expectations regarding future loan defaults, liquidity conditions and supply and demand
for structured products.
Risks Associated with RLS
RLS are a form of derivative issued by insurance companies and
insurance-related special purpose vehicles that apply securitization techniques to catastrophic property and casualty damages. Unlike
other insurable low-severity, high-probability events (such as auto collision coverage), the insurance risk of which can be diversified
by writing large numbers of similar policies, the holders of a typical RLS are exposed to the risks from high-severity, low-probability
events such as that posed by major earthquakes or hurricanes. RLS represent a method of reinsurance, by which insurance companies transfer
their own portfolio risk to other reinsurance companies and, in the case of RLS, to the capital markets. A typical RLS provides for income
and return of capital similar to other fixed-income investments, but involves full or partial default if losses resulting from a certain
catastrophe exceeded a predetermined amount. In essence, investors invest funds in RLS and if a catastrophe occurs that “triggers”
the RLS, investors may lose some or all of the capital invested. In the case of an event, the funds are paid to the bond sponsor—an
insurer, reinsurer or corporation—to cover losses. In return, the bond sponsors pay interest to investors for this catastrophe protection.
RLS can be structured to pay-off on three types of variables—insurance-industry catastrophe loss indices, insure-specific catastrophe
losses and parametric indices based on the physical characteristics of catastrophic events. Such variables are difficult to predict or
model, and the risk and potential return profiles of RLS may be difficult to assess. Catastrophe-related RLS have been in use since the
1990s, and the securitization and risk-transfer aspects of such RLS are beginning to be employed in other
116 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
insurance and risk-related areas. No active trading market may
exist for certain RLS, which may impair the ability of the Trust to realize full value in the event of the need to liquidate such assets.
Risks Associated with Structured Notes
Investments in structured notes involve risks associated with the
issuer of the note and the reference instrument. Where the Trust’s investments in structured notes are based upon the movement of
one or more factors, including currency exchange rates, interest rates, referenced bonds and stock indices, depending on the factor used
and the use of multipliers or deflators, changes in interest rates and movement of the factor may cause significant price fluctuations.
Additionally, changes in the reference instrument or security may cause the interest rate on the structured note to be reduced to zero,
and any further changes in the reference instrument may then reduce the principal amount payable on maturity. Structured notes may be
less liquid than other types of securities and more volatile than the reference instrument or security underlying the note.
Senior Loans Risk
The Trust may invest in senior secured floating rate Loans made
to corporations and other nongovernmental entities and issuers (“Senior Loans”). Senior Loans typically hold the most senior
position in the capital structure of the issuing entity, are typically secured with specific collateral and typically have a claim on
the assets and/or stock of the borrower that is senior to that held by subordinated debt holders and stockholders of the borrower. The
Trust’s investments in Senior Loans are typically below investment grade and are considered speculative because of the credit risk
of their issuers. The risks associated with Senior Loans of below investment grade quality are similar to the risks of other lower grade
Income Securities, although Senior Loans are typically senior in payment priority and secured on a senior priority basis in contrast to
subordinated and unsecured Income Securities. Senior Loans’ higher priority has historically resulted in generally higher recoveries
in the event of a corporate reorganization. In addition, because their interest payments are adjusted for changes in short-term interest
rates, investments in Senior Loans have less interest rate risk than certain other lower grade Income Securities, which may have fixed
interest rates. Further, transactions in Senior Loans typically settle on a delayed basis and may take longer than seven days to settle.
As a result the Trust may receive the proceeds from a sale of a Senior Loan on a delayed basis which may affect the Trust’s ability
to repay debt, to pay dividends, to pay expenses, or to take advantage of new investment opportunities.
Second Lien Loans Risk
The Trust may invest in “second lien” secured floating
rate loans made by public and private corporations and other non-governmental entities and issuers for a variety of purposes (“Second
Lien Loans”). Second Lien Loans are typically second in right of payment and/or second in right of priority with respect to collateral
remedies to one or more Senior Loans of the related borrower. Second Lien Loans are subject to the same risks associated with investment
in Senior Loans and other lower grade Income Securities. However, Second Lien Loans are second in right of payment and/or second in right
of priority with respect to collateral remedies to Senior Loans and therefore are subject to the additional risk that the cash flow of
the borrower and/or the value of any property securing the Loan may be insufficient to meet scheduled payments or otherwise be available
to repay the Loan after giving effect to payments in respect of a Senior Loan, including payments made with the proceeds of any property
securing the Loan and any senior secured obligations of the borrower.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 117
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Second Lien Loans are expected to have greater price volatility
and exposure to losses upon default than Senior Loans and may be less liquid. There is also a possibility that originators will not be
able to sell participations in Second Lien Loans, which would create greater credit risk exposure.
Subordinated Secured Loans Risk
Subordinated secured loans generally are subject to similar risks
as those associated with investment in Senior Loans, Second Lien Loans and below investment grade securities. However, such loans may
rank lower in right of payment than any outstanding Senior Loans, Second Lien Loans or other debt instruments with higher priority of
the borrower and therefore are subject to additional risk that the cash flow of the borrower and any property securing the loan may be
insufficient to meet scheduled payments and repayment of principal in the event of default or bankruptcy after giving effect to the higher
ranking secured obligations of the borrower. Subordinated secured loans are expected to have greater price volatility than Senior Loans
and Second Lien Loans and may be less liquid.
Unsecured Loans Risk
Unsecured loans generally are subject to similar risks as those
associated with investment in Senior Loans, Second Lien Loans, subordinated secured loans and below investment grade securities. However,
because unsecured loans have lower priority in right of payment to any higher ranking obligations of the borrower and are not backed by
a security interest in any specific collateral, they are subject to additional risk that the cash flow of the borrower and available assets
may be insufficient to meet scheduled payments and repayment of principal after giving effect to any higher ranking obligations of the
borrower. Unsecured loans are expected to have greater price volatility than Senior Loans, Second Lien Loans and subordinated secured
loans and may be less liquid.
Loans and Loan Participations and Assignments Risk
The Trust may invest in loans directly or through participations
or assignments. The Trust may purchase loans on a direct assignment basis from a participant in the original syndicate of lenders or from
subsequent assignees of such interests. The Trust may also purchase, without limitation, participations in loans. The purchaser of an
assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement
with respect to the debt obligation; however, the purchaser’s rights can be more restricted than those of the assigning institution,
and, in any event, the Trust may not be able to unilaterally enforce all rights and remedies under the loan and with regard to any associated
collateral. A participation typically results in a contractual relationship only with the institution participating out the interest,
not with the borrower. In purchasing participations, the Trust generally will have no right to enforce compliance by the borrower with
the terms of the loan agreement against the borrower, and the Trust may not directly benefit from the collateral supporting the debt obligation
in which it has purchased the participation. As a result, the Trust will be exposed to the credit risk of both the borrower and the institution
selling the participation. Further, in purchasing participations in lending syndicates, the Trust may not be able to conduct the same
due diligence on the borrower with respect to a Senior Loan that the Trust would otherwise conduct. In addition, as a holder of the participations,
the Trust may not have voting rights or inspection rights that the Trust would otherwise have if it were investing directly in the Senior
Loan, which may result in the Trust being exposed to greater credit or fraud risk with respect to the borrower or the Senior Loan. Lenders
selling a participation and other
118 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
persons inter-positioned between the lender and the Trust with
respect to a participation will likely conduct their principal business activities in the banking, finance and financial services industries.
Because the Trust may invest in participations, the Trust may be more susceptible to economic, political or regulatory occurrences affecting
such industries.
Certain of the loan participations or assignments acquired by the
Trust may involve unfunded commitments of the lenders, revolving credit facilities, delayed draw credit facilities or other investments
under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the Trust
would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan documentation. Such
an obligation may have the effect of requiring the Trust to increase its investment in a company at a time when it might not be desirable
to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid). These
commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational
metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loans and related investments
in the Trust’s portfolio.
Should a loan in which the Trust is invested be foreclosed on,
the Trust may become owner of the collateral and will be responsible for any costs and liabilities associated with owning the collateral.
If the collateral includes a pledge of equity interests in the borrower by its owners, the Trust may become the owner of equity in the
borrower and may be responsible for the borrower’s business operations and/or assets. The applicability of the securities laws is
subject to court interpretation of the nature of the loan and its characterization as a security. Accordingly, the Trust cannot be certain
of any protections it may be afforded under the securities or other laws against fraud or misrepresentation.
The Trust invests in or is exposed to loans and other similar debt
obligations that are sometimes referred to as “covenant-lite” loans or obligations, which are generally subject to more risk
than investments that contain traditional financial maintenance covenants and financial reporting requirements.
Convertible Securities Risk
Convertible securities, debt or preferred equity securities convertible
into, or exchangeable for, equity securities, are generally preferred stocks and other securities, including fixed-income securities and
warrants that are convertible into or exercisable for common stock. Convertible securities generally participate in the appreciation or
depreciation of the underlying stock into which they are convertible, but to a lesser degree and are subject to the risks associated with
debt and equity securities, including interest rate, market and issuer risks. For example, if market interest rates rise, the value of
a convertible security usually falls. Certain convertible securities may combine higher or lower current income with options and other
features. Warrants are options to buy a stated number of shares of common stock at a specified price anytime during the life of the warrants
(generally, two or more years). Convertible securities may be lower-rated securities subject to greater levels of credit risk. A convertible
security may be converted before it would otherwise be most appropriate, which may have an adverse effect on the Trust’s ability
to achieve its investment objective.
“Synthetic” convertible securities are selected based
on the similarity of their economic characteristics to those of a traditional convertible security due to the combination of separate
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 119
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
securities that possess the two principal characteristics of a
traditional convertible security, i.e., an income-producing security (“income-producing component”) and the right to acquire
an equity security (“convertible component”). The income-producing component is achieved by investing in non-convertible,
income-producing securities such as bonds, preferred stocks and money market instruments, which may be represented by derivative instruments.
The convertible component is achieved by investing in securities
or instruments such as warrants or options to buy common stock at a certain exercise price, or options on a stock index. A simple example
of a synthetic convertible security is the combination of a traditional corporate bond with a warrant to purchase equity securities of
the issuer of the bond. The income-producing and convertible components of a synthetic convertible security may be issued separately by
different issuers and at different times.
Liquidity Risk
The Trust may invest in municipal securities that are, at the time
of investment, illiquid. Illiquid securities are securities that cannot be disposed of within seven days in the ordinary course of business
at approximately the value that the Trust values the securities. Illiquid securities may trade at a discount from comparable, more liquid
securities and may be subject to wide fluctuations in market value. The Trust may be subject to significant delays in disposing of illiquid
securities. Accordingly, the Trust may be forced to sell these securities at less than fair market value or may not be able to sell them
when the Adviser believes it is desirable to do so. Illiquid securities also may entail registration expenses and other transaction costs
that are higher than those for liquid securities. Restricted securities (i.e., securities subject to legal or contractual restrictions
on resale) may be illiquid. However, some restricted securities (such as securities issued pursuant to Rule 144A under the Securities
Act of 1933, as amended (the “1933 Act”) and certain commercial paper) may be treated as liquid for these purposes. Inverse
floating-rate securities or the residual interest certificates of tender option bond trusts are not considered illiquid securities. Dislocations
in certain parts of markets are resulting in reduced liquidity for certain investments. It is uncertain when financial markets will improve.
Liquidity of financial markets may also be affected by government intervention.
Volatility Risk
The use of Financial Leverage by the Trust will cause the net asset
value, and possibly the market price, of the Trust’s Common Shares to fluctuate significantly in response to changes in interest
rates and other economic indicators. In addition, the Trust may invest up to 20% of its managed assets in below investment grade securities
(i.e., “junk bonds”), which may be less liquid and therefore more volatile than investment grade municipal securities. As
a result, the net asset value and market price of the Trust’s Common Shares will be more volatile than those of a closed-end investment
company that is not exposed to leverage or that does not invest in below investment grade securities. In a declining market, the use of
leverage may result in a greater decline in the net asset value of the Common Shares than if the Trust were not leveraged.
Inverse Floating-Rate Securities Risk
Under current market conditions, the Trust anticipates utilizing
Financial Leverage through Indebtedness and/or engaging in reverse repurchase agreements. However, the Trust also may utilize Financial
Leverage through investments in inverse floating-rate securities (sometimes
120 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
referred to as “inverse floaters”). Typically, inverse
floating-rate securities represent beneficial interests in a special purpose trust (sometimes called a “tender option bond trust”)
formed by a third party sponsor for the purpose of holding municipal bonds. Distributions on inverse floating-rate securities bear an
inverse relationship to short-term municipal bond interest rates. In general, income on inverse floating-rate securities will decrease,
or in the extreme be eliminated, when interest rates increase and increase when interest rates decrease. Investments in inverse floating-rate
securities may subject the Trust to the risks of reduced or eliminated interest payments and losses of principal. Short-term interest
rates are at historic lows and may be more likely to rise in the current market environment. Inverse floating-rate securities may increase
or decrease in value at a greater rate than the underlying interest rate, which effectively leverages the Trust’s investment. As
a result, the market value of such securities generally will be more volatile than that of fixed-rate securities. Inverse floating-rate
securities have varying degrees of liquidity based, among other things, upon the liquidity of the underlying securities deposited in a
special purpose trust. The Trust may invest in taxable inverse floating-rate securities, issued by special purpose trusts formed with
taxable municipal securities. The market for such inverse floating-rate securities issued by special purpose trusts formed with taxable
municipal securities is relatively new and undeveloped. Initially, there may be a limited number of counterparties, which may increase
the credit risks, counterparty risk and liquidity risk of investing in taxable inverse floating-rate securities. The leverage attributable
to such inverse floating-rate securities may be “called away” on relatively short notice and therefore may be less permanent
than more traditional forms of Financial Leverage. In certain circumstances, to the extent the Trust relies on inverse floating-rate securities
to achieve its desired effective leverage ratio the likelihood of an increase in the volatility of net asset value and market price of
the Common Shares may be greater. To the extent the Trust relies on inverse floating-rate securities to achieve its desired effective
leverage ratio, the Trust may be required to sell its inverse floating-rate securities at less than favorable prices, or liquidate other
Trust portfolio holdings in certain circumstances.
Sovereign Debt Risk
Investments in sovereign debt involve special risks. Foreign governmental
issuers of debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or
pay interest when due. In the event of default, there may be limited or no legal recourse in that, generally, remedies for defaults must
be pursued in the courts of the defaulting party. Political conditions, especially a sovereign entity’s willingness to meet the
terms of its debt obligations, are of considerable significance. The ability of a foreign sovereign issuer, especially an emerging market
country, to make timely payments on its debt obligations will also be strongly influenced by the sovereign issuer’s balance of payments,
including export performance, its access to international credit facilities and investments, fluctuations of interest rates and the extent
of its foreign reserves.
Strategic Transactions Risk
The Trust may engage in various portfolio strategies, including
derivatives transactions involving interest rate and foreign currency transactions, swaps, options and futures, for hedging and risk management
purposes and to enhance total return. The use of Strategic Transactions to enhance total return may be particularly speculative. Strategic
Transactions involve risks, including the imperfect correlation between the value of such instruments and the underlying assets, the possible
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 121
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
default of the other party to the transaction and illiquidity of
the derivative instruments. Furthermore, the Trust’s ability to successfully use Strategic Transactions depends on the Adviser’s
ability to predict pertinent market movements, which cannot be assured. The use of Strategic Transactions s may result in losses greater
than if they had not been used, may require the Trust to sell or purchase portfolio securities at inopportune times or for prices other
than current market values, may limit the amount of appreciation the Trust can realize on an investment or may cause the Trust to hold
a security that it might otherwise sell. Additionally, amounts paid by the Trust as premiums and cash or other assets held in margin accounts
with respect to Strategic Transactions are not otherwise available to the Trust for investment purposes.
Synthetic Investments Risk
The Trust may be exposed to certain additional risks to the extent
the Adviser uses derivatives as a means to synthetically implement the Trust’s investment strategies. If the Trust enters into a
derivative instrument whereby it agrees to receive the return of a security or financial instrument or a basket of securities or financial
instruments, it will typically contract to receive such returns for a predetermined period of time. During such period, the Trust may
not have the ability to increase or decrease its exposure. In addition, such customized derivative instruments will likely be highly illiquid,
and it is possible that the Trust will not be able to terminate such derivative instruments prior to their expiration date or that the
penalties associated with such a termination might impact the Trust’s performance in a material adverse manner. Furthermore, certain
derivative instruments contain provisions giving the counterparty the right to terminate the contract upon the occurrence of certain events.
If a termination were to occur, the Trust’s return could be adversely affected as it would lose the benefit of the indirect exposure
to the reference securities and it may incur significant termination expenses.
Counterparty Risk
The Trust will be subject to credit risk with respect to the counterparties
to the derivative contracts purchased by the Trust. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under
a derivative contract, the Trust may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy
or other reorganization proceedings, the risk of which is particularly acute under current conditions. The Trust may obtain only a limited
recovery or may obtain no recovery in such circumstances. If a counterparty’s credit becomes significantly impaired, multiple requests
for collateral posting in a short period of time could increase the risk that the Trust may not receive adequate collateral.
Securities Lending Risk
The Trust may lend its portfolio securities to banks or dealers
which meet the creditworthiness standards established by the Board of Trustees. Securities lending is subject to the risk that loaned
securities may not be available to the Trust on a timely basis and the Trust may therefore lose the opportunity to sell the securities
at a desirable price. Any loss in the market price of securities loaned by the Trust that occurs during the term of the loan would be
borne by the Trust and would adversely affect the Trust’s performance. Also, there may be delays in recovery, or no recovery, of
securities loaned or even a loss of rights in the collateral should the borrower of the securities fail financially while the loan is
outstanding.
122 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Investment Funds Risk
As an alternative to holding investments directly, the Trust may
also obtain investment exposure to securities in which it may invest directly by investing up to 20% of its Managed Assets in Investment
Funds. These investments include open-end funds, closed-end funds, exchange-traded funds and business development companies as well as
other pooled investment vehicles. Investments in Investment Funds present certain special considerations and risks not present in making
direct investments in securities in which the Trust may invest. Investments in Investment Funds subject the Trust to the risks affecting
such Investment Funds and involve operating expenses and fees that are in addition to the expenses and fees borne by the Trust. Such expenses
and fees attributable to the Trust’s investment in another Investment Fund are borne indirectly by Common Shareholders. Accordingly,
investment in such entities involves expense and fee layering. To the extent management fees of Investment Funds are based on total gross
assets, it may create an incentive for such entities’ managers to employ Financial Leverage, thereby adding additional expense and
increasing volatility and risk (including the Trust’s overall exposure to financial leverage risk). A performance-based fee arrangement
may create incentives for an adviser or manager to take greater investment risks in the hope of earning a higher profit participation.
Investments in Investment Funds frequently expose the Trust to an additional layer of Financial Leverage.
Market Discount Risk
Shares of closed-end management investment companies frequently
trade at a discount from their net asset value, which is a risk separate and distinct from the risk that the Trust’s net asset value
could decrease as a result of its investment activities. Although the value of the Trust’s net assets is generally considered by
market participants in determining whether to purchase or sell Common Shares, whether investors will realize gains or losses upon the
sale of Common Shares will depend entirely upon whether the market price of Common Shares at the time of sale is above or below the investor’s
purchase price for Common Shares.
The Trust’s net asset value will be reduced immediately following
an offering of the Common Shares due to the costs of such offering, which will be borne entirely by the Trust. The sale of Common Shares
by the Trust (or the perception that such sales may occur) may have an adverse effect on prices of Common Shares in the secondary market.
An increase in the number of Common Shares available may put downward pressure on the market price for Common Shares. The Trust may, from
time to time, seek the consent of Common Shareholders to permit the issuance and sale by the Trust of Common Shares at a price below the
Trust’s then current net asset value, subject to certain conditions, and such sales of Common Shares at price below net asset value,
if any, may increase downward pressure on the market price for Common Shares. These sales, if any, also might make it more difficult for
the Trust to sell additional Common Shares in the future at a time and price it deems appropriate.
Whether Common Shareholder will realize a gain or loss upon the
sale of Common Shares depends upon whether the market value of the Common Shares at the time of sale is above or below the price the Common
Shareholder paid, taking into account transaction costs for the Common Shares, and is not directly dependent upon the Trust’s net
asset value. Because the market price of Common Shares will be determined by factors such as net asset value, dividend and distribution
levels (which are dependent, in part, on expenses), supply of and demand for Common Shares, stability of dividends or distributions, trading
volume of Common Shares, general market and economic conditions and
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 123
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
other factors beyond the control of the Trust, the Trust cannot
predict whether Common Shares will trade at, below or above net asset value or at, below or above the public offering price for the Common
Shares. Common Shares of the Trust are designed primarily for long-term investors; investors in Common Shares should not view the Trust
as a vehicle for trading purposes.
Portfolio Turnover Risk
The Trust’s annual portfolio turnover rate may vary greatly
from year to year. Portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for the Trust.
A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne
by the Trust. High portfolio turnover may result in an increased realization of net short-term capital gains by the Trust which, when
distributed to Common Shareholders, will be taxable as ordinary income. Additionally, in a declining market, portfolio turnover may create
realized capital losses.
Additional Risks
For additional risks relating to investments in the Trust, including
“UK Departure from EU Risk,” “Redenomination Risk,” “LIBOR Risk,” “Recent Market Developments
Risk,” “Legislation and Regulation Risk,” “Geopolitical and Market Disruption Risk,” “Technology Risk”
and “Cyber Security Risk,” please see the “Risks” section in the Trust’s Prospectus.
ANTI-TAKEOVER PROVISIONS
The Trust’s Agreement and Declaration of Trust and the Trust’s
Bylaws include provisions that could limit the ability of other in the Trust’s entities or persons to acquire control of the Trust
or convert the Trust to an open-end fund. These provisions could have the effect of depriving the Common Shareholders of opportunities
to sell their Common Shares at a premium over the then-current market price of the Common Shares.
EFFECTS OF LEVERAGE
Assuming that the Trust’s total Financial Leverage represented
approximately 29.3% of the Trust’s Managed Assets (based on the Trust’s outstanding Financial Leverage of $195,537,207) and
interest costs to the Trust at a combined average annual rate of 0.79% (based on the Trust’s average annual leverage costs for the
fiscal year ended May 31, 2021) with respect to such Financial Leverage, then the incremental income generated by the Trust’s portfolio
(net of estimated expenses including expenses related to the Financial Leverage) must exceed approximately 1.20% to cover such interest
specifically related to the debt. These numbers are merely estimates used for illustration. Actual interest rates may vary frequently
and may be significantly higher or lower than the rate estimated above.
The following table is furnished pursuant to requirements of the
SEC. It is designed to illustrate the effect of leverage on Common Share total return, assuming investment portfolio total returns (comprised
of income, net expenses and changes in the value of investments held in the Trust’s portfolio) of -10%, -5%, 0%, 5% and 10%. These
assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of what the Trust’s investment
portfolio returns will be. The table further reflects the issuance of Financial Leverage representing approximately 29.3% of the Trust’s
Managed Assets. The table does not reflect any offering costs of Common Shares or Borrowings.
124 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
Common Share total return is composed of two elements—the
Common Share dividends paid by the Trust (the amount of which is largely determined by the Trust’s net investment income after paying
the carrying cost of Financial Leverage) and realized and unrealized gains or losses on the value of the securities the Trust owns. As
required by Securities and Exchange Commission rules, the table assumes that the Trust is more likely to suffer capital loss than to enjoy
capital appreciation. For example, to assume a total return of 0%, the Trust must assume that the net investment income it receives on
its investments is entirely offset by losses on the value of those investments. This table reflects the hypothetical performance of the
Trust’s portfolio and not the performance of the Trust’s Common Shares, the value of which will be determined by market and
other factors.
During the time in which the Trust is utilizing Financial Leverage,
the amount of the fees paid to the Adviser and the Sub-Adviser for investment advisory services will be higher than if the Trust did not
utilize Financial Leverage because the fees paid will be calculated based on the Trust’s Managed Assets which may create a conflict
of interest between the Adviser and the Sub-Adviser and the Common Shareholders. Because the Financial Leverage costs will be borne by
the Trust at a specified rate, only the Trust’s Common Shareholders will bear the cost of the Trust’s fees and expenses. The
Trust generally will not use Financial Leverage if the Adviser and the Sub-Adviser anticipate that such use would result in a lower return
to Common Shareholders for any significant amount of time.
|
|
|
|
|
|
|
|
Assumed portfolio total return (net of expenses)
|
(10.00%)
|
(5.00%)
|
0.00%
|
5.00%
|
10.00%
|
|
Common Share total return
|
(14.46%)
|
(7.39%)
|
(0.33%)
|
6.74%
|
13.81%
|
INTEREST RATE TRANSACTIONS
In connection with the Trust’s duration management strategy
and anticipated use of Financial Leverage, the Trust may enter into interest rate swap or cap transactions. Interest rate swaps involve
the Trust’s agreement with the swap counterparty to pay or receive a fixed-rate payment in exchange for a variable-rate payment.
An interest rate cap transaction would require the Trust to pay a premium to the cap counterparty and would entitle it, to the extent
that a specified variable-rate index exceeds a predetermined fixed rate, to receive payment from the counterparty of the difference based
on the notional amount.
In connection with the Trust’s duration management strategy,
the Trust may use interest rate swaps to reduce the overall duration of the portfolio. In connection with the Trust’s anticipated
leverage, the Trust may use interest rate swaps or caps to reduce or eliminate the risk that an increase in short-term interest rates
could have on Common Share net earnings as a result of Financial Leverage. For example, the Trust may agree to pay to the swap counterparty
a fixed-rate payment in exchange for the counterparty’s paying the Trust a variable-rate payment that is intended to approximate
all or a portion of the Trust’s variable-rate payment obligation on the Trust’s Financial Leverage.
The Trust will usually enter into swaps or caps on a net basis;
that is, the two payment streams will be netted out in a cash settlement on the payment date or dates specified in the instrument, with
the Trust’s receiving or paying, as the case may be, only the net amount of the two payments. The Trust intends to earmark or segregate
cash or liquid securities having a value at least equal to the Trust’s net payment obligations under any swap transaction, marked-to-market
daily. The Trust will treat such amounts as illiquid.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 125
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
The use of interest rate swaps and caps is a highly specialized
activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions.
Depending on the state of interest rates in general, the Trust’s use of interest rate instruments could enhance or harm the overall
performance of the Common Shares.
Interest rate swaps and caps do not involve the delivery of securities
or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount
of interest payments that the Trust is contractually obligated to make. The Trust will be subject to credit risk with respect to the counterparties
to interest rate transactions entered into by the Trust. If a counterparty becomes bankrupt or otherwise fails to perform its obligations
under a derivative contract, the Trust may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy
or other reorganization proceedings. The Trust may obtain only a limited recovery or may obtain no recovery in such circumstances. Depending
on whether the Trust would be entitled to receive net payments from the counterparty on the swap or cap, which in turn would depend on
the general state of short-term interest rates at that point in time, such default by a counterparty could negatively impact the performance
of the Common Shares.
Although this will not guarantee that the counterparty does not
default, the Trust will not enter into an interest rate swap or cap transaction with any counterparty that the Adviser believes does not
have the financial resources to honor its obligation under the interest rate swap or cap transaction. Further, the Adviser will regularly
monitor the financial stability of a counterparty to an interest rate swap or cap transaction in an effort to proactively protect the
Trust’s investments.
At the time the interest rate swap or cap transaction reaches its
scheduled termination date, there is a risk that the Trust will not be able to obtain a replacement transaction or that the terms of the
replacement will not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on the performance
of the Common Shares. The Trust may choose or be required to prepay Indebtedness. Such a prepayment would likely result in the Trust’s
seeking to terminate early all or a portion of any swap or cap transaction entered into in connection with the Trust’s use of Financial
Leverage. Such early termination of a swap could result in a termination payment by or to the Trust. An early termination of a cap could
result in a termination payment to the Trust. There may also be penalties associated with early termination.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Trust operates under the following restrictions that constitute
fundamental policies that, except as otherwise noted, cannot be changed without the affirmative vote of the holders of a majority of the
outstanding voting securities of the Trust voting together as a single class, which is defined by the 1940 Act as the lesser of (i) 67%
or more of the Trust’s voting securities present at a meeting, if the holders of more than 50% of the Trust’s outstanding
voting securities are present or represented by proxy; or (ii) more than 50% of the Trust’s outstanding voting securities. Except
as otherwise noted, all percentage limitations set forth below apply immediately after a purchase or initial investment and any subsequent
change in any applicable percentage resulting from market fluctuations does not require any action. These restrictions provide that the
Trust shall not:
1. Issue senior securities nor borrow money, except the Trust may
issue senior securities or borrow money to the extent permitted by applicable law.
126 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
2. Act as underwriter of another issuer’s securities, except
to the extent that the Trust may be deemed to be an underwriter within the meaning of the Securities Act, in connection with the purchase
and sale of portfolio securities.
3. Invest in any security if, as a result, 25% or more of the value
of the Trust’s total assets, taken at market value at the time of each investment, are in the securities of issuers in any particular
industry or group of related industries, except that this policy shall not apply to (i) securities issued or guaranteed by the U.S. Government
and its agencies and instrumentalities or (ii) securities issued by state and municipal governments or their political subdivisions (other
than those municipal securities backed only by the assets and revenues of non-governmental users with respect to which the Trust will
not invest 25% or more of the value of the Trust’s total assets in securities backed by the same source of revenue).
4. Purchase or sell real estate except that the Trust may: (a)
acquire or lease office space for its own use, (b) invest in securities of issuers that invest in real estate or interests therein or
that are engaged in or operate in the real estate industry, (c) invest in securities that are secured by real estate or interests therein,
(d) purchase and sell mortgage-related securities, (e) hold and sell real estate acquired by the Trust as a result of the ownership of
securities and (f) as otherwise permitted by applicable law.
5. Purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments; provided that this restriction shall not prohibit the Trust from purchasing or selling
options, futures contracts and related options thereon, forward contracts, swaps, caps, floors, collars and any other financial instruments
or from investing in securities or other instruments backed by physical commodities or as otherwise permitted by applicable law.
6. Make loans of money or property to any person, except (a) to
the extent that securities or interests in which the Trust may invest are considered to be loans, (b) through the loan of portfolio securities
in an amount up to 331/3% of the Trust’s total assets, (c) by engaging in repurchase agreements or (d) as may otherwise be permitted
by applicable law.
7. With respect to 75% of the value of the Trust’s total
assets, purchase any securities (other than obligations issued or guaranteed by the U.S. Government or by its agencies or instrumentalities),
if as a result more than 5% of the Trust’s total assets would then be invested in securities of a single issuer or if as a result
the Trust would hold more than 10% of the outstanding voting securities of any single issuer.
In addition to the foregoing fundamental investment policies, the
Trust is also subject to the following non-fundamental restrictions and policies, which may be changed by the board of trustees (the “Board”):
(a) In addition to the issuer diversification limits set forth
in investment restriction (7) above, under normal market conditions, the Trust will not purchase any securities (other than obligations
issued or guaranteed by the U.S. Government or by its agencies or instrumentalities), if as a result more than 15% of the Trust’s
total assets would then be invested in securities of a single issuer; provided, however, that such limitation shall not apply during the
period prior to the full investment of the proceeds of any offering completed by the Trust.
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 127
|
|
|
|
ADDITIONAL INFORMATION REGARDING THE GUGGENHEIM
|
|
|
TAXABLE MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST
|
|
|
(THE “TRUST”) (Unaudited) continued
|
May 31, 2021
|
For purposes of applying the limitation set forth in subparagraph
(3) above to securities that have a security interest or other collateral claim on specified underlying collateral (including asset-backed
securities and collateralized debt and loan obligations) the Trust will determine the industry classifications of such investments based
on the Sub-Adviser’s evaluation of the risks associated with the collateral underlying such investments.
For the purpose of applying the limitation set forth in subparagraphs
(7) and (a) above, a governmental issuer shall be deemed the single issuer of a security when its assets and revenues are separate from
other governmental entities and its securities are backed only by its assets and revenues. Similarly, in the case of a nongovernmental
issuer, if the security is backed only by the assets and revenues of the non-governmental issuer, then such non-governmental issuer would
be deemed to be the single issuer. Where a security is also backed by the enforceable obligation of a superior or unrelated governmental
or other entity (other than a bond insurer), it shall also be included in the computation of securities owned that are issued by such
governmental or other entity. Where a security is guaranteed by a governmental entity or some other facility, such as a bank guarantee
or letter of credit, such a guarantee or letter of credit would be considered a separate security and would be treated as an issue of
such government, other entity or bank. When a municipal security is insured by bond insurance, it shall not be considered a security that
is issued or guaranteed by the insurer; instead, the issuer of such municipal security will be determined in accordance with the principles
set forth above. The foregoing restrictions do not limit the percentage of the Trust’s assets that may be invested in municipal
securities insured by any given insurer.
128 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
|
|
|
|
TRUST INFORMATION
|
May 31, 2021
|
|
|
|
|
Board
of Trustees
|
Investment
Adviser
|
|
Randall
C. Barnes
|
Guggenheim
Funds Investment
|
|
Angela
Brock-Kyle
|
Advisors,
LLC
|
|
Amy
J. Lee*
|
Chicago,
IL
|
|
Thomas
F. Lydon, Jr.
|
|
|
Ronald
A. Nyberg
|
|
|
Sandra
G. Sponem
|
Investment
Sub-Adviser
|
|
Ronald
E. Toupin, Jr.,
|
Guggenheim
Partners Investment
|
|
Chairman
|
Management,
LLC
|
|
|
|
|
|
Santa
Monica, CA
|
|
*
Trustee is an “interested person” (as defined
|
|
in
Section 2(a)(19) of the 1940 Act)
|
Administrator
and Accounting Agent
|
|
(“Interested
Trustee”) of the Trust because of
|
MUFG
Investor Services (US), LLC
|
|
her
affiliation with Guggenheim Investments.
|
Rockville,
MD
|
|
|
|
|
|
Custodian
|
|
|
The
Bank of New York Mellon Corp.
|
|
Principal
Executive Officers
|
New
York, NY
|
|
Brian
E. Binder
|
|
|
President
and Chief Executive Officer
|
|
|
|
Legal
Counsel
|
|
Joanna
M. Catalucci
|
Dechert
LLP
|
|
Chief
Compliance Officer
|
Washington,
D.C.
|
|
|
|
|
Amy
J. Lee
|
Independent
Registered Public Accounting
|
|
Vice
President and Chief Legal Officer
|
Firm
|
|
|
Ernst
& Young LLP
|
|
Mark
E. Mathiasen
|
Tysons,
VA
|
|
Secretary
|
|
|
|
|
John
L. Sullivan
|
|
|
Chief
Financial Officer, Chief Accounting
|
|
|
Officer
and Treasurer
|
|
GBAB l GUGGENHEIM TAXABLE MUNICIPAL BOND
& INVESTMENT GRADE DEBT TRUST ANNUAL REPORT l 129
|
|
|
|
TRUST INFORMATION continued
|
May 31, 2021
|
Privacy Principles of Guggenheim Taxable Municipal Bond &
Investment Grade Debt Trust for Shareholders
The Trust is committed to maintaining the privacy of its shareholders
and to safeguarding its non-public personal information. The following information is provided to help you understand what personal information
the Trust collects, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, the Trust does not receive any non-public personal information
relating to its shareholders, although certain non-public personal information of its shareholders may become available to the Trust.
The Trust does not disclose any non-public personal information about its shareholders or former shareholders to anyone except as permitted
by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third party administrator).
The Trust restricts access to non-public personal information about
the shareholders to Guggenheim Funds Investment Advisors, LLC employees with a legitimate business need for the information. The Trust
maintains physical, electronic and procedural safeguards designed to protect the non-public personal information of its shareholders.
Questions concerning your shares of Guggenheim Taxable Municipal
Bond & Investment Grade Debt Trust?
|
•
|
|
If your shares are held in a Brokerage Account, contact your Broker.
|
|
•
|
|
If you have physical possession of your shares in certificate form, contact the Trust’s
Transfer Agent: Computershare Trust Company, N.A., P.O. Box 30170 College Station, TX 77842-3170; (866) 488-3559 or online at www.computershare.com/investor
|
This report is provided to shareholders of Guggenheim Taxable Municipal
Bond & Investment Grade Debt Trust for their information. It is not a Prospectus, circular or representation intended for use in the
purchase or sale of shares of the Trust or of any securities mentioned in this report.
Paper copies of the Trust’s annual and semi-annual shareholder
reports are not sent by mail, unless you specifically request paper copies of the reports. Instead, the reports are made available on
a website, and you are notified by mail each time a report is posted and provided with a website address to access the report.
You may elect to receive paper copies of all future shareholder
reports free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you
may receive paper copies of your shareholder reports; if you invest directly with the Trust, you may call Computershare at 1-866-488-3559.
Your election to receive reports in paper form may apply to all funds held in your account with your financial intermediary or, if you
invest directly, to all Guggenheim closed-end funds you hold.
A description of the Trust’s proxy voting policies and procedures
related to portfolio securities is available without charge, upon request, by calling the Trust at (888) 991-0091.
Information regarding how the Trust voted proxies for portfolio
securities, if applicable, during the most recent 12-month period ended June 30, is also available, without charge and upon request by
calling (888) 991-0091, by visiting the Trust’s website at guggenheiminvestments.com/gbab or by accessing the Trust’s Form
N-PX on the U.S. Securities and Exchange Commission’s (SEC) website at www.sec.gov.
The Trust files its complete schedule of portfolio holdings with
the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT, and for reporting periods ended
prior to August 31, 2019, on Form N-Q. The Trust’s Forms N-PORT and N-Q are available on the SEC website at www.sec.gov or at guggenheiminvestments.com/gbab.
Notice to Shareholders
Notice is hereby given in accordance with Section 23(c) of the
Investment Company Act of 1940, as amended, that the Trust from time to time may purchase shares of its common stock in the open market
or in private transactions.
130 l GBAB l GUGGENHEIM TAXABLE
MUNICIPAL BOND & INVESTMENT GRADE DEBT TRUST ANNUAL REPORT
This Page Intentionally Left Blank
ABOUT THE FUND MANAGERS
Guggenheim Partners Investment
Management, LLC
Guggenheim Partners Investment Management, LLC (“GPIM”)
is an indirect subsidiary of Guggenheim Partners, LLC, a diversified financial services firm. The firm provides capital markets services,
portfolio and risk management expertise, wealth management, and investment advisory services. Clients of Guggenheim Partners, LLC subsidiaries
are an elite mix of individuals, family offices, endowments, foundations, insurance companies and other institutions.
Investment Philosophy
GPIM’s investment philosophy is predicated upon the belief
that thorough research and independent thought are rewarded with performance that has the potential to outperform benchmark indices with
both lower volatility and lower correlation of returns over time as compared to such benchmark indices.
Investment Process
GPIM’s investment process is a collaborative effort between
various groups including the Portfolio Construction Group, which utilize proprietary portfolio construction and risk modeling tools to
determine allocation of assets among a variety of sectors, and its Sector Specialists, who are responsible for security selection within
these sectors and for implementing securities transactions, including the structuring of certain securities directly with the issuers
or with investment banks and dealers involved in the origination of such securities.
Guggenheim Funds Distributors, LLC
227 West Monroe Street
Chicago, IL 60606
Member FINRA/SIPC
(07/21)
CEF-GBAB-AR-0521
NOT FDIC-INSURED l NOT BANK-GUARANTEED
l MAY LOSE VALUE