The BulletShares High Yield Low Duration 2017-2020 Bond Ladder Portfolio of ETFs, Series 7 ("Trust") seeks to provide current income.
Past performance is no guarantee of future results. Investment returns and principal value will fluctuate with changes in market conditions. Investors' units, when redeemed, may be worth more or less than their original cost.
This information does not constitute an offer to sell or a solicitation of any offer to buy: nor shall there be any sale of these securities in any state where the offer, solicitation, or sale is not permitted.
Principal Investment Strategy
Under normal circumstances, the Trust will invest at least 80% of the value of its assets in shares of exchange-traded funds (“ETFs”) that invest substantially all of their assets in high-yield corporate bonds which have scheduled maturities from 2017 through 2020. The ETFs in which the Trust invests are Sponsored by or affiliated with Guggenheim Funds, the Sponsor of the Trust. The ETFs held by the Trust invest substantially all of their assets in high-yield corporate bonds and have scheduled maturities from 2017 through 2020. High-yield, below investment-grade securities or “junk” bonds are considered to be speculative and are subject to greater market and credit risks than investment-grade securities. Please see “Principal Risks” and “Investment Risks” for additional information concerning the risks associated with investing in ETFs that hold high-yield securities or “junk” bonds.
Each ETF will hold bonds with effective maturities for the same year as the ETF is scheduled to mature. The effective maturity of an eligible corporate bond is determined by its actual maturity or, in the case of callable securities, its redemption provisions. By investing in a portfolio of high-yield corporate bond ETFs that have a scheduled maturity, the Trust may provide unitholders with diversification across different issuers and relatively low overall duration exposure.
The Sponsor selects ETFs for the Trust that hold low duration securities. In general, low duration fixed-income securities may provide investors with lower interest rate sensitivity than longer duration securities. The duration of a bond is a measure of its price sensitivity to changes in interest rates based on the weighted average term to maturity of its interest and principal cash flows. The Sponsor has selected ETFs that hold securities that have average durations between 1.87 and 3.41 years as of September 30, 2015. As a result, the average duration of the ETFs in the Trust’s portfolio is 2.58 years. The Sponsor believes that each of the ETFs is a low duration instrument. By including ETFs that invest in low duration fixed-income securities, the Sponsor seeks to lower the overall volatility of the Trust portfolio in most interest rate environments.
The ETFs included in the portfolio may invest in U.S. dollar-denominated fixed-income securities issued by foreign companies, including companies located in emerging markets. See “Principal Risks” and “Investment Risks” for additional information concerning the risks associated with investing in securities of foreign issuers.
The ETFs held by the Trust are affiliated funds of the Sponsor and the Sponsor’s affiliate will receive management fees from the ETFs held in the Trust. An investment can be made in the ETFs held by the Trust without paying the sales fee, operating expenses and organization costs of the Trust.
When selecting the ETFs for the Trust, the Sponsor begins with a universe consisting of ETFs affiliated with Guggenheim Funds. From this starting universe of ETFs, the Sponsor has selected ETFs holding high-yield corporate bonds that have scheduled maturities from 2017 through 2020 to create a laddered bond ETF portfolio. The Trust will initially consist of a portfolio with an approximately equal weighting in each of the BulletShares® ETF bonds funds that are currently trading on the New York Stock Exchange on the initial date of deposit (the “Inception Date”). Except for the different maturity dates of the underlying high-yield corporate bonds, each of the ETFs utilizes a similar investment methodology. The Sponsor believes this may provide unitholders with a consistent management style approach while gaining exposure to a range of different maturities in the high-yield, corporate bond ETF space.
Laddered Portfolio Strategy
The Trust will invest in a laddered portfolio of ETFs that hold high-yield corporate bonds with maturities ranging from 2017 to 2020. A laddered portfolio is a portfolio that includes ETFs that hold bonds that are scheduled to mature in staggered intervals during the life of the portfolio. Laddering a portfolio can potentially offer investors some distinct advantages. A laddered maturity portfolio strategy is often used when investors are concerned about an anticipated rise in interest rates. Rather than locking their investments into a longer term maturity bond, an investor can ladder the maturities of their portfolio. This approach intends to provide these investors with the return of approximately equal amounts of the initial par value of the bonds in the Trust, over a set period, which in turn, would allow them to reinvest the returned amounts at the then current yields. Furthermore, a laddered portfolio of ETFs that hold bonds with short maturities could potentially provide lower interest rate sensitivity than a portfolio comprised of ETFs that hold all long-maturity bonds.
ETFs are investment pools that hold securities. ETFs provide an efficient and relatively simple way to invest in that they offer investors the opportunity to buy and sell an entire basket of securities with a single transaction throughout the trading day. ETFs are often built as an index fund, but trade like a stock on an exchange. ETFs generally offer advantages similar to those found in index funds such as low operating costs, performance designed to track an index, the potential for high tax efficiency and consistent investment strategies. Unlike conventional mutual funds, ETFs normally issue and redeem shares on a continuous basis at their net asset value in large specified blocks of shares, known as “creation units.” Market makers, large investors and institutions deal in creation units. The Trust will buy shares of the ETFs on the exchanges and will incur brokerage costs.
Risks and Other Considerations
As with all investments, you may lose some or all of your investment in the Trust. No assurance can be given that the Trust’s investment objective will be achieved. The Trust also might not perform as well as you expect. This can happen for reasons such as these:
• Securities prices can be volatile. The value of your investment may fall over time. Market value fluctuates in response to various factors. These can include stock market movements, purchases or sales of securities by the Trust, government policies, litigation, and changes in interest rates, inflation, the financial condition of the securities’ issuer or even perceptions of the issuer. Units of the Trust are not deposits of any bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
• The Trust invests in shares of ETFs. ETFs are investment pools that hold other securities. The ETFs in the Trust are usually passively-managed index funds that seek to replicate the performance or composition of a recognized securities index. ETFs are subject to various risks, including management’s ability to meet the fund’s investment objective. Shares of ETFs may trade at a discount from their net asset value in the secondary market. This risk is separate and distinct from the risk that the net asset value of the ETF shares may decrease. The amount of such discount from net asset value is subject to change from time to time in response to various factors. The underlying ETFs have management and operating expenses. Consequently, you will bear not only your share of your Trust’s expenses, but also the expenses of the underlying ETFs. By investing in ETFs, the Trust incurs greater expenses than you would incur if you invested directly in the ETFs.
• The ETFs are subject to annual fees and expenses, including a management fee. Unitholders of the Trust will bear these fees in addition to the fees and expenses of the Trust. See “Fees and Expenses” for additional information.
• The Trust invests in ETFs that are affiliated with Guggenheim Funds, the Sponsor of the Trust. In selecting among these ETFs, the Sponsor is subject to potential conflicts of interest because the Sponsor’s affiliate will receive management fees for the ETFs held by the Trust. However, the Sponsor seeks to meet the Trust’s investment objective by selecting ETFs that best satisfy the requirements of the security selection process.
• The Trust is subject to an ETF’s index correlation risk. To the extent that an underlying ETF is an index-tracking ETF, index correlation risk is the risk that the performance of an ETF will vary from the actual performance of the fund’s target index, known as “tracking error.” This can happen due to fund expenses, transaction costs, market impact, corporate actions (such as mergers and spin-offs) and timing variances.
• The ETFs held by the Trust invest in securities that are rated below investment-grade and are considered to be “junk” securities. Below investment-grade obligations are considered to be speculative and are subject to greater market and credit risks, and accordingly, the risk of non-payment or default is higher than with investment-grade securities. In addition, such securities may be more sensitive to interest rate changes and more likely to receive early returns of principal.
• Certain ETFs held by the Trust may invest in securities that are rated as investment-grade by only one rating agency. As a result, such split-rated securities may have more speculative characteristics and are subject to a greater risk of default than securities rated as investment-grade by more than one rating agency.
• The value of the fixed-income securities ETFs will generally fall if interest rates, in general, rise. Typically, fixed-income securities with longer periods before maturity are more sensitive to interest rate changes. In addition, the duration of a bond will also affect its price sensitivity to interest rate changes. For example, if a bond has a duration of 3 years and interest rates go up by 1%, it can be expected that the bond price will move down by 3%. The Trust may be subject to greater risk of rising interest rates than would normally be the case due to the current period of historically low rates.
• An ETF or an issuer of securities held by an ETF may be unwilling or unable to make principal payments and/or to declare distributions in the future, may call a security before its stated maturity, or may reduce the level of distributions declared. This may result in a reduction in the value of your units.
• The financial condition of an ETF or an issuer of securities held by an ETF may worsen, resulting in a reduction in the value of your units. This may occur at any point in time, including during the primary offering period.
• Economic conditions may lead to limited liquidity and greater volatility. The markets for fixed-income securities, such as those held by the ETFs, may experience periods of illiquidity and volatility. General market uncertainty and consequent repricing risk have led to market imbalances of sellers and buyers, which in turn have resulted in significant valuation uncertainties in a variety of fixed-income securities. These conditions resulted, and in many cases continue to result in, greater volatility, less liquidity, widening credit spreads and a lack of price transparency, with many debt securities remaining illiquid and of uncertain value. These market conditions may make valuation of some of the securities held by an ETF uncertain and/or result in sudden and significant valuation increases or declines in its holdings.
• Certain ETFs held by the Trust invest in foreign securities. Investment in foreign securities presents additional risk. Foreign risk is the risk that foreign securities will be more volatile than U.S. securities due to such factors as adverse economic, currency, political, social or regulatory developments in a country, including government seizure of assets, excessive taxation, limitations on the use or transfer of assets, the lack of liquidity or regulatory controls with respect to certain industries or differing legal and/or accounting standards.
• Certain ETFs held by the Trust may invest in securities issued by companies headquartered or incorporated in countries considered to be emerging markets. Emerging markets are generally defined as countries with low per capita income in the initial stages of their industrialization cycles. Risks of investing in developing or emerging countries include the possibility of investment and trading limitations, liquidity concerns, delays and disruptions in settlement transactions, political uncertainties and dependence on international trade and development assistance. Companies headquartered in emerging market countries may be exposed to greater volatility and market risk.
• The Sponsor does not actively manage the portfolio. The Trust will generally hold, and may, when creating additional units, continue to buy, the same securities even though a security’s outlook, market value or yield may have changed.
• Inflation may lead to a decrease in the value of assets or income from investments.
See “Investment Risks” in Part A of the prospectus and “Risk Factors” in Part B of the prospectus for additional information.
Please see the Trust prospectus for more complete risk information.
Unit Investment Trusts are fixed, not actively managed and should be considered as part of a long-term strategy. Investors should consider their ability to invest in successive portfolios, if available, at the applicable sales charge. UITs are subject to annual fund operating expenses in addition to the sales charge. Investors should consult an attorney or tax advisor regarding tax consequences associated with an investment from one series to the next, if available, and with the purchase or sale of units. Guggenheim Funds Distributors, LLC does not offer tax advice.
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.
Investing involves risk, including the possible loss of principal.
Guggenheim Investments represents the investment management business of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investments Advisors, LLC ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisors to the referenced funds.
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