BulletShares® USD Corporate Bond Index, BulletShares® USD Corporate Bond 2014 Index, BulletShares® USD Corporate Bond 2015 Index, BulletShares® USD Corporate Bond 2016 Index, and BulletShares® USD Corporate Bond 2017 Index (the “Investment Grade Indices”).
Each Index is designed to represent the performance of a held-to-maturity portfolio of U.S. dollar-denominated investment-grade corporate bonds with effective maturities in the same calendar year. The effective maturity of an eligible corporate bond is determined by its actual maturity or, in the case of callable securities, the effective maturity of the security as determined in accordance with a rules-based methodology developed by Accretive.
Investment Grade Indices
Securities eligible for inclusion in each Index are U.S. dollar-denominated fixed-income securities of corporate issuers that meet the following criteria:
have at least $500 million of outstanding face value;
are rated investment grade by at least one Nationally Recognized Statistical Rating Organization (“NRSRO”);
are issued by companies domiciled in the U.S., Canada, Western Europe (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom) or Japan.
Each Index is limited to securities that pay fixed amounts of interest and the following types of securities are specifically excluded:
Rule 144A securities, private placements or retail bonds;
zero-coupon bonds and zero-coupon step-up bonds;
convertible securities and other bonds with equity-type features; and
inflation- and other index-linked bonds.
Each Index is constructed as follows:
At the beginning of each calendar year each Index undergoes an effective maturity reconstitution, where bonds in the universe of eligible securities are assigned to an Index based on their actual maturities or, in the case of callable bonds, effective maturities as determined by a proprietary, rules-based process.
Prior to July 1 of each Index’s target maturity year, each Index is rebalanced based on the market values of the Index’s constituents on a monthly basis. Additions to or removals from the universe of eligible securities are reflected in each monthly rebalancing.
Prior to July 1 of each Index’s target maturity year, proceeds of constituents that are called or mature between rebalances are reinvested in 13-week U.S. Treasury Bills until the next monthly rebalancing of the Index. The reinvested amount is reallocated on a pro rata basis across Index constituents at the next monthly rebalance.
Beginning on July 1 of an Index’s target maturity year:
The Index is calculated using a proprietary methodology that seeks to track the return of a held-to-maturity individual bond. In accordance with this methodology, the portfolio of bonds established in connection with the last monthly rebalancing of an Index prior to July 1 of its target maturity year will be fixed for the remainder of the life of the Index.
As bonds in an Index mature or are called and principal is returned, proceeds are re-invested in 13-week U.S. Treasury Bills until the termination of the Index. It is expected that each Index will consist largely, if not completely, of assets invested in such instruments when it terminates.
Decisions regarding additions to and removals from an Index are made by the Index Provider and are subject to periodic review by a policy steering committee known as the BulletShares® Index Committee.
RISKS AND OTHER CONSIDERATIONS
Investors should consider the following risk factors and special considerations associated with investing in the fund, which may cause you to lose money, including the entire principal amount that you invest.
Interest Rate Risk: As interest rates rise, the value of fixed-income securities held by the fund are likely to decrease. Securities with longer durations tend to be more sensitive to interest rate changes, making them more volatile than securities with shorter durations.
Credit/Default Risk: Issuers or guarantors of debt instruments or the counterparty to a repurchase agreement or loan of portfolio securities may be unable or unwilling to make timely interest and/or principal payments or otherwise honor its obligations. Debt instruments are subject to varying degrees of credit risk, which may be reflected in credit ratings. Securities issued by the U.S. government generally have less credit risk than debt securities of non-government issuers. However, securities issued by certain U.S. government agencies are not necessarily backed by the full faith and credit of the U.S. government. Credit rating downgrades and defaults (failure to make interest or principal payment) may potentially reduce the fund’s income and share price.
Asset Class Risk: The bonds in the fund’s portfolio may underperform the returns of other bonds or indexes that track other industries, markets, asset classes or sectors.
Call Risk/Prepayment Risk: During periods of falling interest rates, an issuer of a callable bond may exercise its right to pay principal on an obligation earlier than expected. This may result in the fund’s having to reinvest proceeds at lower interest rates, resulting in a decline in the fund’s income.
Extension Risk: An issuer may exercise its right to pay principal on an obligation later than expected. This may happen when there is a rise in interest rates. Under these circumstances, the value of the obligation will decrease and the fund’s performance may suffer from its inability to invest in higher yielding securities.
Income Risk: Falling interest rates may cause the fund’s income to decline.
Liquidity Risk: If the fund invests in illiquid securities or securities that become illiquid, fund returns may be reduced because the fund may be unable to sell the illiquid securities at an advantageous time or price.
Declining Yield Risk: During the final year of the fund’s operations, as the bonds held by the fund mature and the fund’s portfolio transitions to cash and cash equivalents, the fund’s yield will generally tend to move toward the yield of cash and cash equivalents and thus may be lower than the yields of the bonds previously held by the fund and/or prevailing yields for bonds in the market.
Fluctuation of Yield and Liquidation Amount Risk: The fund, unlike a direct investment in a bond that has a level coupon payment and a fixed payment at maturity, will make distributions of income that vary over time. Unlike a direct investment in bonds, the breakdown of returns between fund distributions and liquidation proceeds are not predictable at the time of your investment. For example, at times during the fund’s existence, it may make distributions at a greater (or lesser) rate than the coupon payments received on the fund’s portfolio, which will result in the fund returning a lesser (or greater) amount on liquidation than would otherwise be the case. The rate of fund distribution payments may adversely affect the tax characterization of your returns from an investment in the fund relative to a direct investment in corporate bonds. If the amount you receive as liquidation proceeds upon the fund’s termination is higher or lower than your cost basis, you may experience a gain or loss for tax purposes.
Financial Services Sector Risk: The financial services industries are subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition.
Concentration Risk: If the Index concentrates in an industry or group of industries the fund’s investments will be concentrated accordingly. In such event, the value of the fund’s shares may rise and fall more than the value of shares of a fund that invests in securities of companies in a broader range of industries. In addition the funds are subject to: Non-Correlation Risk, Replication Management Risk, Issuer-Specific Changes and Non-Diversified fund Risk.
The Fund’s Shares will change in value, and you could lose money by investing in the Fund. The Fund may not achieve its investment objective. An investment in the Fund has not been guaranteed, sponsored, recommended, or approved by the United States, or any agency, instrumentality or officer of the United States, has not been insured by the Federal Deposit Insurance Corporation (FDIC) and is not guaranteed by and is not otherwise an obligation of any bank or insured depository institution.
As with any investment, you should consider how your investment will be taxed. The tax information contained in the prospectus is provided as general information. Investors should consult their own tax professional about the tax consequences of an investment as Guggenheim Funds Distributors, LLC, does not offer tax advice.
The Fund will issue and redeem Shares at NAV only in a large specified number of Shares called a “Creation Unit” or multiples thereof. A Creation Unit consists of 150,000 Shares. The Fund generally issues and redeems Creation Units principally in-kind. Except when aggregated in Creation Units, the Shares are not redeemable securities of the Fund. Individual Shares of the Fund may only be purchased and sold in secondary market transactions through brokers. Shares of the Fund will be listed for trading on NYSE Arca, Inc. (“NYSE Arca”) and because Shares will trade at market prices rather than NAV, Shares of the Fund may trade at a price greater than or less than NAV.
Investors buying or selling ETF shares on the secondary market may incur brokerage costs and other transactional fees. Shares of ETFs may fluctuate in price due to daily changes in trading volume. At times, shares may not have a high volume of trading.
BulletShares®, BulletShares® USD Corporate Bond Index, and BulletShares® USD High Yield Corporate Bond Index are trademarks of Accretive Asset Management LLC and have been licensed for use by Guggenheim Investments. Accretive Asset Management, LLC is an affiliate of Guggenheim Investments.