The Defined Outcome Trust: Large Cap Buffer 15 Portfolio, Series 3 ("Trust") seeks to provide target returns based on the price performance of shares of the SPDR® S&P 500® ETF Trust (the “Reference Asset”) with a buffer, subject to capped upside return. There is no assurance that the Trust will achieve its investment objective.
|Strategy Type||Buffer Investment|
|Gross Upside Cap||24.93%|
|Net Upside Cap – Standard Accounts||19.86%|
|Net Upside Cap – Fee Accounts||22.52%|
|Wrap Fee Price||N/A|
|Remaining Deferred Sales Charge||$0.0000|
|Rate Fee Based||-|
* The Historical Annual Dividend Distribution (HADD) per unit is as of the day prior to trust deposit and subject to change. The HADD per unit is the weighted average of the trailing twelve-month distributions paid by the securities included in the portfolio. The HADD rate is based on the HADD divided by the current offer price and recalculated daily. Both the HADD per unit and the rate shown are reduced to account for the effects of fees and expenses, which will be incurred when investing in the Trust. The HADD per unit and rate will vary due to certain factors that may include, but are not limited to, a change in the dividends paid by issuers, a change in Trust expenses or the sale or maturity of securities in the portfolio. There is no guarantee the issuers of the securities included in the Trust will declare dividends or distributions in the future. The HADD of the securities included in the Trust is for illustrative purposes only and is not indicative of the Trust’s distribution. Due to the negative economic impact across many industries caused by the recent COVID-19 outbreak, certain issuers of the securities included in the trust may elect to reduce the amount of, or cancel entirely, dividends and/or distributions paid in the future. As a result, the HADD figure will likely be higher, and in some cases significantly higher, than the actual distribution rate achieved by the trust.
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.
Principal Investment Strategy
The Trust’s strategy has been specifically designed to produce outcomes based upon the Reference Asset’s performance over the duration of the outcome period. The outcomes may only be realized if you hold units on the first day of the offering period and continue to hold them on the last day of the Trust’s existence (the “Mandatory Termination Date”), which will be on or about February 2, 2024. Excluding any estimated Trust fees and expenses (including sales fees), the range of intended possible returns is capped at a maximum return of 24.93% of the Reference Asset’s Initial RA Value (defined below), and the potential losses are buffered so that the first 15% of losses are not realized. As a result, excluding fees and expenses, the Trust is designed so that losses are limited to a maximum loss of 85% of the Initial RA Value. The maximum return and loss of the Reference Asset are based on the performance at the Option Expiration Date and are not an annualized rate of return. The annualized maximum return is 10.69% and 9.48% for a Fee Account and Standard Account (as defined under “Understanding Your Investment–How to Buy Units–Advisory and Fee Accounts”), respectively, after estimated Trust fees and expenses. There is no assurance the Trust will achieve its objective and investment in units of the Trust has the potential for the loss of some or all of your original investment. Unitholders who redeem units prior to the Trust’s Mandatory Termination Date may realize a loss on their investment even when the price of the Reference Asset is higher than the Initial RA Value.
The Trust seeks to achieve its objective by utilizing an investment strategy that involves (i) purchasing and writing “put” and “call” Flexible Exchange® Options entitling the Trust to purchase or sell shares of the Reference Asset (“FLEX Options”) scheduled to expire on January 31, 2024 (the “Option Expiration Date”); and (ii) holding cash to pay for fees and expenses of the Trust. Under normal circumstances, the Trust will invest at least 80% of the value of its assets in the economic equivalent of large-capitalization securities, as represented by FLEX Options that entitle the Trust to purchase or sell shares of the Reference Asset. On the Trust’s inception date, the Trust will deposit the exchange-traded FLEX Options and cash in the amounts set forth in the “Trust Portfolio.” The FLEX Options are European-style options, which means that they will be exercisable at the strike price only on the Option Expiration Date.
The Trust seeks to provide unitholders that hold their units over the entire outcome period with a return that is based upon the return of the Reference Asset minus estimated Trust fees and expenses, which include all sales fees. The return is based on the price performance of the Reference Asset as of an intraday price on the Trust’s inception date (the “Initial RA Value”) through the Option Expiration Date. The Trust is designed to provide a percentage return per unit based upon the percentage increase or decrease in the price of the Reference Asset relative to the Initial RA Value subject to applicable caps and buffers.
The potential returns received by unitholders that purchase their units on the inception date and hold them until the Mandatory Termination Date will be reduced by the estimated fees and expenses of the Trust, which include the applicable sales fees. For Fee Account and Standard Account Unitholders, those fees and expenses (including sales fees and excluding transaction costs and extraordinary expenses) are estimated to be at a maximum of 2.41% and 5.07%, respectively, for the life of the Trust. As a result, a unitholder’s returns and applicable caps and buffers will be impacted, whether the unitholder purchases units through a Fee Account or Standard Account. Accordingly, for units purchased on the inception date, estimated returns of the Trust (after estimated fees and expenses and excluding transaction costs and extraordinary expense) are capped at 22.52% and 19.86%, respectively, for Fee Account and Standard Account unitholders. These potential returns are equal to 10.69% and 9.48% annualized returns for Fee Accounts and Standard Accounts.
In addition, for both Fee Accounts and Standard Accounts, if the Reference Asset’s return over the outcome period is negative, the Trust is designed so that the potential losses are buffered whereby the first 15% of losses are not realized by the Trust. As a result, the Trust is designed so that: (i) if the return of the Reference Asset is between 0 and -15% over the outcome period, unitholders will receive a percentage return of 0% minus the fees and expenses of the Trust (including sales fees); or (ii) if the return of the Reference Asset is between -15% and -100% over the outcome period, unitholders will receive a percentage loss equal to the loss of the Reference Asset over the outcome period, adjusted by the 15% buffer, and minus the fees and expenses of the Trust (including sales fees).
Please note that if a unitholder redeems their units before the Mandatory Termination Date, that unitholder may not receive these targeted returns and may lose money even if the performance of the Reference Asset has increased. Additionally, please note that unitholders that purchase units at prices above the unit price at inception will have a maximum return that is less than the capped return over the life of the Trust and less than the maximum annualized return.
Market Scenario Illustrations
The Trust seeks to provide payouts net of all estimated Trust fees and expenses (including sales fees and excluding transaction costs and extraordinary expenses) based on the price performance of the Reference Asset for units purchased at the Trust’s inception date and held until the Mandatory Termination Date as follows:
The Trust may outperform the Reference Asset (minus the fees and expenses of the Trust) if the Reference Asset’s price has decreased by between 0% and -100% as of the Option Expiration Date. Alternatively, because of the Cap and applicable fees and expenses of the Trust, the Trust will underperform the Reference Asset if the Reference Asset’s price has increased as of the Option Expiration Date.
The potential returns provided above are based on a range of assumptions, including estimated expenses. Any returns will be negatively affected by any portfolio transaction fees and extraordinary expenses incurred by the Trust.
Assets Held by the Trust
The FLEX Options. The Trust’s portfolio holds FLEX Options referred to as the “Purchased Call Options,” “Purchased Put Options,” “Written Call Options” and “Written Put Options”. The Purchased Put Options and Purchased Call Options together constitute the “Purchased Options.” The Written Call Options and Written Put Options constitute the “Written Options.”
FLEX Options provide investors with the ability to customize assets and indices referenced by the options, exercise prices, exercise styles and expiration dates, while achieving price discovery in competitive, transparent auctions markets and avoiding the counterparty exposure of over-the-counter option positions. The FLEX Options are European-style options, which means that they will be exercisable at the strike price only on the Option Expiration Date. FLEX Options are standard listed option contracts available through national securities exchanges that are guaranteed for settlement by the Options Clearing Corporation (the “OCC”), a market clearinghouse. The FLEX Options are listed on the Chicago Board Options Exchange (the “CBOE”). The Trust is designed so that any amount owed by the Trust on the Written Options will be covered by payouts at expiration from the Purchased Options. The Trust receives premiums in exchange for the Written Options and pays premiums in exchange for the Purchased Options. The OCC and CBOE do not charge ongoing fees to writers or purchasers of the FLEX Options during their life for continuing to hold the option contracts. As a result, the Written Options will be fully covered and no additional collateral will be necessary during the life of the Trust.
The OCC guarantees performance by each of the counterparties to the FLEX Options, becoming the “buyer for every seller and the seller for every buyer,” thereby protecting clearing members and options traders from counterparty risk. Subject to determination by the Securities Committee of the OCC, adjustments may be made to the FLEX Options for certain events (collectively, “Corporate Actions”) specified in the OCC’s bylaws and rules such as: certain stock dividends or distributions, stock splits, reverse stock splits, rights offerings, distributions, reorganizations, recapitalizations, or reclassifications with respect to an underlying security, or a merger, consolidation, dissolution or liquidation of the issuer of the underlying security. According to the OCC’s by-laws, the nature and extent of any such adjustment is to be determined by the OCC’s Securities Committee, in light of the circumstances known to it at the time such determination is made, based on its judgment as to what is appropriate for the protection of investors and the public interest, taking into account such factors as fairness to holders and writers (or purchasers and sellers) of the affected options, the maintenance of a fair and orderly market in the affected options, consistency of interpretation and practice, efficiency of exercise settlement procedures, and the coordination with other clearing agencies of the clearance and settlement of transactions in the underlying interest.
The description and terms of the FLEX Options to be entered into with the OCC are set forth in the by-laws and rules of the OCC. Please see www.optionsclearing.com for more information. The OCC’s website is not considered part of this prospectus, nor is it incorporated by reference herein.
Call Options. A European-style call option is a contract that gives the owner the right but not the obligation to buy the underlying security at a specified price (its strike price) on the option expiration date. For the writer of a call option, the contract represents an obligation to sell the underlying security from the option owner if the option is exercised. A call option is likely to be exercised if it is in-the-money, i.e., the current market value of the underlying security is above the strike price. Conversely, it is likely to expire worthless if the call option is out-of-the-money, i.e., the current market value of the underlying security is below the strike price.
Put Options. A European-style put option is a contract that gives the owner the right but not the obligation to sell the underlying security at a specified price (its strike price) on the option expiration date. For the writer of a put option, the contract represents an obligation to buy the underlying security from the option owner if the option is exercised. A put option is likely to be exercised if it is in-the-money, i.e., the current market value of the underlying security is below the strike price. Conversely, it is likely to expire worthless if the put option is out-of-the-money, i.e., the current market value of the underlying security is above the strike price.
See “Hypothetical Option Expiration Examples” in the appendix of the prospectus for additional information.
The Reference Asset and The Index
The Reference Asset is an exchange-traded fund that trades on the NYSE Arca, Inc. stock exchange under the ticker symbol “SPY.” The Reference Asset seeks to track the investment results of the S&P 500® Index (the “Index”), which measures the performance of large-capitalization U.S. equity securities. The components of the Index, and the degree to which these components represent certain industries, may change over time. The Index is reconstituted on an as-needed basis. The Reference Asset seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the Index, with the weight of each stock in its portfolio substantially corresponding to the weight of such stock in the Index. Although the Reference Asset may fail to own certain securities of the Index at any particular time, the Reference Asset generally will be substantially invested in securities of the Index, which should result in a close correspondence between the performance of the Index and the performance of the Reference Asset.
The Reference Asset seeks to track the investment results of the Index before fees and expenses of the Reference Asset. The Sponsor has derived all information regarding the Reference Asset contained in this prospectus from the registration statement for the Reference Asset. Such information reflects the policies of, and is subject to change by, the Reference Asset’s Sponsor, PDR Services, LLC. Information concerning the Reference Asset filed with the SEC can be located by reference to SEC file number 811-06125 and 33-46080. The Sponsor has not undertaken any independent review or due diligence of the SEC filings by the issuer of the Reference Asset or any other publicly available information regarding such issuer. Information from outside sources is not incorporated by reference in, and should not be considered part of, this prospectus.
The summary information is not designed to be, and should not be interpreted as, an effort to present information regarding the financial prospects of any issuer or any trends, events or other factors that may have a positive or negative influence on those prospects or as an endorsement of any particular issuer or exchange-traded fund. The Trust is not Sponsored, endorsed, sold or promoted by SPDR® S&P 500® ETF Trust, PDR Services, LLC or S&P Dow Jones Indices LLC. SPDR® S&P 500® ETF Trust, PDR Services, LLC and S&P Dow Jones Indices LLC have not passed on the legality or suitability of, or the accuracy or adequacy of, descriptions and disclosures relating to the Trust or the FLEX Options. SPDR® S&P 500® ETF Trust, PDR Services, LLC and S&P Dow Jones Indices LLC make no representations or warranties, express or implied, regarding the advisability of investing in the Trust or the FLEX Options or results to be obtained by the Trust or the FLEX Options, unitholders or any other person or entity from use of the Reference Asset. SPDR® S&P 500® ETF Trust, PDR Services, LLC and S&P Dow Jones Indices LLC have no liability in connection with the management, administration, marketing or trading of the Trust or the FLEX Options.
Milliman Financial Risk Management LLC
Milliman Financial Risk Management LLC is a provider of financial risk management to the retirement savings industry. Milliman provides investment advisory, hedging and consulting services for over $173.5 billion in global assets (as of September 30, 2021).
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:
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 following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.
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