Chapman and Cutler LLP
111 West Monroe Street
Chicago, Illinois 60603
February 8, 2019
Mr. Edward Bartz
Division of Investment Management
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re: Guggenheim Defined Portfolios, Series 1859
Core Four 60/40 Retirement Portfolio, Series 6
File Nos. 333-229076 and 811-03763
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Dear Mr. Bartz:
This letter responds to your comments given during a telephone conversation
with our office regarding the registration statement on Form S-6 for Guggenheim
Defined Portfolios, Series 1859, filed on December 28, 2018 with the Securities
and Exchange Commission (the "Commission"). The registration statement proposes
to offer the Core Four 60/40 Retirement Portfolio, Series 6 (the "Trust").
PROSPECTUS
Investment Summary -- Principal Investment Strategy -- Higher-Yielding
Income Sleeve -- Fixed Income ETF Security Selection
1. The "Fixed Income ETF Security Selection" section under the "Principal
Investment Strategy" section states that the Trust may invest in exchange-traded
funds that may invest in convertible securities. Please disclose whether these
exchange-traded funds will invest in contingent convertible securities. If so,
please disclose this in the principal investment strategies and provide the
corresponding risk disclosures.
Response: The exchange-traded funds held by the Trust do not hold
contingent convertible securities.
Investment Summary -- Principal Risks and Understanding Your Investment --
Investment Risks
2. The "Fixed Income ETF Security Selection" section under the "Principal
Investment Strategy" section states that the Trust may invest in exchange-traded
funds that may invest in convertible bonds, floating rate bonds and preferred
securities. Please provide the corresponding risks of investing in such
securities.
Response: The appropriate risks will be included in the final prospectus
based upon the Trust's portfolio. If the Trust invests significantly in
exchange-traded funds that invest substantially all of their assets in
convertible securities, the following disclosure will be included in the
"Principal Risks" section:
Certain ETFs held by the trust invest in convertible securities.
Convertible securities generally offer lower interest or dividend yields
than non-convertible fixed-income securities of similar credit quality
because of the potential for capital appreciation. The market values of
convertible securities tend to decline as interest rates increase and,
conversely, to increase as interest rates decline. However, a convertible
security's market value also tends to reflect the market price of the
common stock of the issuing company, particularly when that stock price is
greater than the convertible security's "conversion price." Convertible
securities fall below debt obligations of the same issuer in order of
preference or priority in the event of a liquidation and are typically
unrated or rated lower than such debt obligations.
If the Trust invests in exchange-traded funds that invest substantially all
of their assets in convertible securities, the following disclosure will be
included in the "Investment Risks" section:
Convertible securities risk. Certain ETFs held by your trust invest in
convertible securities. Convertible securities generally offer lower
interest or dividend yields than non-convertible fixed-income securities of
similar credit quality because of the potential for capital appreciation.
The market values of convertible securities tend to decline as interest
rates increase and, conversely, to increase as interest rates decline.
However, a convertible security's market value also tends to reflect the
market price of the common stock of the issuing company, particularly when
that stock price is greater than the convertible security's "conversion
price." The conversion price is defined as the predetermined price or
exchange ratio at which the convertible security can be converted or
exchanged for the underlying common stock. As the market price of the
underlying common stock declines below the conversion price, the price of
the convertible security tends to be increasingly influenced more by the
yield of the convertible security. Thus, it may not decline in price to the
same extent as the underlying common stock. In the event of a liquidation
of the issuing company, holders of convertible securities would be paid
before that company's common stockholders. Consequently, an issuer's
convertible securities generally entail less risk than its common stock.
However, convertible securities fall below debt obligations of the same
issuer in order of preference or priority in the event of a liquidation and
are typically un-rated or rated lower than such debt obligations.
Mandatory convertible securities are distinguished as a subset of
convertible securities because the conversion is not optional and the
conversion price at maturity is based solely upon the market price of the
underlying common stock, which may be significantly less than par or the
price (above or below par) paid. For these reasons, the risks associated
with investing in mandatory convertible securities most closely resemble
the risks inherent in common stocks. Mandatory convertible securities
customarily pay a higher coupon yield to compensate for the potential risk
of additional price volatility and loss upon conversion. Because the market
price of a mandatory convertible security increasingly corresponds to the
market price of its underlying common stock, as the convertible security
approaches its conversion date, there can be no assurance that the higher
coupon will compensate for a potential loss.
If the Trust invests significantly in exchange-traded funds that invest
substantially all of their assets in floating-rate securities, the following
disclosure will be included in the "Principal Risks" section:
Certain ETFs held by the trust invest in securities that are structured as
floating-rate instruments. The yield on these securities will generally
decline in a falling interest rate environment, causing the ETFs to
experience a reduction in the income they receive from these securities. A
sudden and significant increase in market interest rates may increase the
risk of payment defaults and cause a decline in the value of these
investments and the value of the ETFs held by the trust.
If the Trust invests in exchange-traded funds that invest substantially all
of their assets in floating-rate securities, the following disclosure will be
included in the "Investment Risks" section:
Floating-rate securities risk. Certain ETFs held by the trust invest in
securities that are structured as floating-rate instruments in which the
interest rate payable on the obligations fluctuates on a periodic basis
based upon changes in a base lending rate. As a result, the yield on these
securities will generally decline in a falling interest rate environment,
causing the ETFs to experience a reduction in the income they receive from
these securities. A sudden and significant increase in market interest
rates may increase the risk of payment defaults and cause a decline in the
value of these investments and the value of the ETFs held by the trust.
If the Trust invests significantly in exchange-traded funds that invest
substantially all of their assets in preferred securities, the following
disclosure will be included in the "Principal Risks" section:
Certain ETFs held by the trust invest in preferred stocks and hybrid
preferred securities. Preferred securities are typically subordinated to
bonds and other debt instruments in a company's capital structure in terms
of priority to corporate income and therefore will be subject to greater
risk than those debt instruments. In addition, preferred securities are
subject to other risks, such as having no or limited voting rights, being
subject to special redemption rights, changing tax treatments and possibly
being issued by companies in heavily regulated industries. Furthermore,
certain hybrid preferred securities often contain deferral features,
whereby the issuer may fail to make distributions without a default
occurring.
If the Trust invests in exchange-traded funds that invest substantially all
of their assets in preferred securities, the following disclosure will be
included in the "Investment Risks" section:
Preferred securities risk. Certain ETFs held by the trust invest in
preferred securities, including preferred stock and hybrid preferred
securities.
Similar to bonds, preferred stocks typically offer a fixed rate of return,
paid in the form of a dividend. Like common stock, most preferred stocks
are equity securities representing ownership in a company. Preferred stocks
are generally considered "senior equity securities" and preferred
stockholders enjoy preference over common stockholders with regard to
liquidations. For the prospect of a higher or stated yield, preferred
stockholders may forfeit or at least be limited in their voting rights.
Preferred stocks are generally traded on national stock exchanges.
Preferred securities are typically subordinated to bonds and other debt
instruments in a company's capital structure, in terms of priority in
liquidation and therefore will be subject to greater credit risk than those
debt instruments.
Generally, preferred securities may be subject to provisions that allow an
issuer, under certain conditions, to skip or defer distributions without
any adverse consequences to the issuer. If the trust owns a preferred
security that is deferring its distribution, the trust may be required to
report income for tax purposes although it has not yet received such
income. Certain of the preferred securities held by the trust are
"noncumulative." As a result, these securities will not distribute any
unpaid or omitted dividends from the prior year. If an issuer chooses not
to pay dividends in a given year, the trust will not have the right to
claim the unpaid dividends in the future.
Certain hybrid preferred securities are securities typically issued by
corporations, generally in the form of interest-bearing notes or preferred
securities, or by an affiliated business trust of a corporation, generally
in the form of beneficial interest in subordinated debentures issued by the
corporation. Hybrid preferred securities may possess varying combinations
of features of debt and preferred securities.
Tax or regulatory changes taken by the Internal Revenue Service may change
the tax characterization of the trust's preferred securities and, as a
result, may effect the value of your units.
3. The "Principal Investment Strategy" section states that the Trust may
invest real estate investment trusts. Please provide the corresponding risks of
investing in such securities.
Response: The appropriate risks will be included in the final prospectus
based upon the Trust's portfolio. If the Trust invests significantly in real
estate investment trusts and/or exchange-traded funds that invest substantially
all of their assets in real estate investment trusts, the following disclosure
will be included in the "Principal Risks" section:
The trust includes REITs and certain ETFs held by the trust may invest in
REITs. REITs may concentrate their investments in specific geographic areas
or in specific property types, such as, hotels, shopping malls, residential
complexes and office buildings. The value of the REITs and other real
estate securities and the ability of such securities to distribute income
may be adversely affected by several factors, including: rising interest
rates; changes in the global and local economic climate and real estate
conditions; perceptions of prospective tenants of the safety, convenience
and attractiveness of the properties; the ability of the owner to provide
adequate management, maintenance and insurance; the cost of complying with
the Americans with Disabilities Act; increased competition from new
properties; the impact of present or future environmental legislation and
compliance with environmental laws; changes in real estate taxes and other
operating expenses; adverse changes in governmental rules and fiscal
policies; adverse changes in zoning laws; declines in the value of real
estate; the downturn in the subprime mortgage lending market and the real
estate market in the United States; and other factors beyond the control of
the issuer of the security.
We appreciate your prompt attention to this registration statement. If you
have any questions or comments or would like to discuss our responses to your
questions, please feel free to contact the undersigned at (312) 845-3484.
Very truly yours,
CHAPMAN AND CUTLER LLP
By /s/ Morrison C. Warren
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Morrison C. Warren