their removal from
the Underlying Index, or (iv) purchasing securities not included in the
Underlying Index in anticipation of their addition to the Underlying
Index.
Additional
information about the construction of the Fund's Underlying Index is set forth
below.
Nasdaq
BulletShares®
USD High Yield Corporate Bond 2030 Index
The Underlying
Index is designed to represent the performance of a held-to-maturity portfolio
of U.S. dollar-denominated high yield corporate bonds (commonly known as “junk
bonds”) with maturities or, in some cases, “effective maturities,” in 2030.
Certain bonds in which the Fund may invest may contain embedded issuer call
options. An embedded issuer call option means that the bond's issuer has the
right to redeem a bond prior to its designated maturity date. Accordingly, the
effective maturity date of a bond reflects an assessment of when that bond is
likely to be called by the issuer, or in the alternate, the bond's stated
maturity date (if it is not called by the issuer). With respect to establishing
the effective maturity of a bond, the effective maturity is the actual year of
maturity (i) if no embedded issuer call option exists for a bond; (ii) if a bond
contains an embedded issuer call option, with the first call date within 13
months of maturity and a par call price; and (iii) unless the yield to next call
date is less than the yield to maturity, in which case the bond’s effective
maturity is deemed to be the year of the next call date.
The
Index Provider compiles and maintains the Underlying Index. In selecting
components for inclusion in the Underlying Index, the Index Provider begins with
an investment universe of U.S. dollar-denominated bonds issued by companies
domiciled in the U.S., Canada, Western Europe (which the Index Provider defines,
as of the date of this prospectus to be: Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United Kingdom) or
Japan.
To
be eligible for inclusion in the Underlying Index, bonds must (i) be 2030 Bonds
(i.e., will mature or will have an effective maturity in the year
2030);
(ii)
pay a fixed amount of taxable interest; (iii) have a maximum credit rating of
BB+ from S&P, or Fitch, or a maximum rating of Ba1 from Moody’s; (iv) have a
minimum average credit rating (computed by calculating the simple average of a
bond’s ratings published by S&P, Fitch and Moody’s and then rounding down to
the nearest rating step) of CCC- from S&P, Fitch and Moody’s; and (v) have
at least $200 million in face value outstanding (existing bonds in the eligible
universe require $150 million in face value outstanding to remain
eligible).
The
eligible universe may include securities issued in accordance with Rule 144A under the
Securities Act.
Bond
types specifically excluded from the eligible universe are: Regulation S bonds,
Eurodollar bonds and EuroMTN bonds (which are all securities not registered with
the SEC), floating rate bonds, zero coupon bonds, convertible bonds, bonds with
warrants, inflation-linked bonds, corporate bonds guaranteed by an agency,
national or supranational government (including the Federal Deposit Insurance
Corporation (“FDIC”) or the FDIC's Temporary Liquidity Guarantee Program
(“TLGP”)), perpetual securities, securities for which the Underlying Index
calculation agent is unable to provide or is prohibited from providing an
evaluated price, and distressed bonds (defined as bonds whose yield to worst
ranks among the top 1% by market value among bonds passing all other eligibility
criteria and whose price, including interest that has accrued since the issue of
the most recent coupon payment, is below $80). Bonds defined as distressed will
be excluded for three monthly rebalances regardless of yield and price
changes.
Bonds
selected for inclusion in the Underlying Index are market value weighted, with a 5%
limit on individual issuers applied at each monthly rebalance prior to the final
maturing year of the Underlying Index. Prior to 2030, the Underlying Index is
rebalanced monthly, at which time: (i) new bonds that meet the eligibility and
maturity (or effective maturity) criteria
above are added to
the Underlying Index; (ii) existing bonds that no longer meet the eligibility
requirements are removed; and (iii) weights of the Underlying Index components
are reset to reflect current market value. If a bond is removed from the
Underlying Index during any rebalance due to changes in price, face value or
credit rating, such bond will be excluded for the next three monthly rebalances
(including the current rebalance) regardless of any further changes in price,
face value or credit rating.
The
Index Provider only reevaluates the effective maturity date of bonds
in the
investment universe semi-annually, as part of the June and December rebalances,
at which time, in addition to bonds being added or removed from the Underlying
Index pursuant to the eligibility screening described above, bonds also may be
added or removed from the Underlying Index due to any changes in actual or
effective maturity (i.e., they no longer meet the definition of a 2030 Bond),
subject to the Index Provider capping the amount of bonds being added or deleted
due to changing effective maturities to 20% of the Underlying Index’s total
market value (except as set forth below) following the process
below:
◾
For existing bonds
in the eligible universe, those whose effective maturities have changed are
grouped;
◾
Within that group,
the bonds are ranked by the percentage difference between yield to next call
date (“YTNC”) and yield to maturity (“YTM”) in descending
order;
◾
Starting from the
bond with the largest percentage difference between YTNC and YTM, add (or
remove) the bonds with newly-designated effective maturities, while recording
the market value of bonds moved out of and into the Underlying Index;
and
◾
If the Underlying
Index already has added (or removed) bonds representing 20% of the Underlying
Index’s market value, no further additions (or removals) of bonds with changing
effective dates are made.
For
the December reevaluation prior to the Underlying Index’s final year
of
maturity, the 20% limit will not apply for deletions. This, in turn, may result
in turnover greater than 20% for other maturity year underlying
indexes.
During
2030, the Underlying Index does not rebalance, although bonds whose effective
maturities have passed without being called may be removed from the Underlying
Index monthly. The Underlying Index treats market values of coupon payments,
matured and called proceeds (including any accrued interest paid in connection
with the redemption of the applicable bond) as received on the payment date and
invested in 13-week U.S. Treasury Bills until the next Underlying Index
rebalance, at which time they are reinvested in the bond components of the
Underlying Index and weighted accordingly. During 2030, such 13-week U.S.
Treasury Bill holdings are not reinvested in the Underlying Index’s other
components, and all reinvestments will remain in the U.S. Treasury Bill until
the termination of the Underlying Index. In the last two months of 2030, the
U.S. Treasury Bill that matures soonest after year end will be used for such
remaining reinvestments.
The
Fund is rebalanced in accordance with its Underlying Index.
Principal
Risks of Investing in the Fund
The following
provides additional information regarding certain of the principal risks
identified under “Principal Risks of Investing in the Fund” in the Fund's
“Summary Information” section. Any of the following risks may impact the Fund’s
NAV which could result in the Fund trading at a premium or discount to
NAV.
Market
Risk.
Securities in the Underlying Index are subject to market fluctuations, and the
Fund could lose money due to short-term market movements and over longer periods
during market downturns. You should anticipate that the value of the Shares will
decline, more or less, in correlation with any decline in value of the
securities in the Underlying Index. The value of a security may decline due to
general market conditions, economic trends or events that are not specifically
related to the issuer of the security or due to factors that affect a particular
industry or group of