As filed with the Securities and Exchange Commission on August 28, 2017
Securities Act File No. 333-57793
Investment Company Act of 1940 File No. 811-08839
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT | ||||
UNDER | ||||
THE SECURITIES ACT OF 1933 | ☒ | |||
Post-Effective Amendment No. 200 | ||||
And | ||||
REGISTRATION STATEMENT | ||||
UNDER | ||||
THE INVESTMENT COMPANY ACT OF 1940 | ☒ | |||
Amendment No. 202 |
SPDR ® SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
One Lincoln Street
Boston, Massachusetts 02111
(Address of Principal Executive Offices)
Registrants Telephone Number: (617) 664-7037
Joshua A. Weinberg, Esq.
Managing Director and Managing Counsel
SSGA Funds Management, Inc.
One Lincoln Street
Boston, Massachusetts 02111
(Name and Address of Agent for Service)
Copies to:
W. John McGuire, Esq.
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004
It is proposed that this filing will become effective:
☐ | immediately upon filing pursuant to Rule 485, paragraph (b) |
☐ | on pursuant to Rule 485, paragraph (b) |
☒ | 60 days after filing pursuant to Rule 485, paragraph (a)(1) |
☐ | on pursuant to Rule 485, paragraph (a)(1) |
☐ | 75 days after filing pursuant to Rule 485, paragraph (a)(2) |
☐ | on pursuant to Rule 485, paragraph (a)(2) |
☐ | this post-effective amendment designates a new effective date for a previously filed post-effective amendment. |
Investment Objective |
The SPDR NYSE Technology ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of an index that tracks the performance of publicly traded technology companies. |
Management fees | [0.35]% |
Distribution and service (12b-1) fees | None |
Other expenses | 0.00% |
Total annual Fund operating expenses | [0.35]% |
Year 1 | Year 3 | Year 5 | Year 10 |
$[ ] | $[ ] | $[ ] | $[ ] |
* | As of [ ], the Fund's Calendar Year-To-Date return was [ ]%. |
One
Year |
Five
Years |
Ten
Years |
|
Return Before Taxes | [ ]% | [ ]% | [ ]% |
Return After Taxes on Distributions | [ ]% | [ ]% | [ ]% |
Return After Taxes on Distributions and Sale of Fund Shares | [ ]% | [ ]% | [ ]% |
NYSE
Technology Index
(Index returns reflect no deduction for fees, expenses or taxes) |
[ ]% | [ ]% | [ ]% |
Morgan
Stanley Technology Index
(Index returns reflect no deduction for fees, expenses or taxes) |
[ ]% | [ ]% | [ ]% |
SPDR NYSE Technology ETF
|
[ ]% |
SPDRSERTREQ | The Trust's Investment Company Act Number is 811-08839. |
Investment Objective |
The SPDR SSGA US Large Cap Low Volatility Index ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of a large cap, low volatility index. |
Management fees | [0.12]% |
Distribution and service (12b-1) fees | None |
Other expenses | 0.00% |
Total annual Fund operating expenses | [0.12]% |
Year 1 | Year 3 | Year 5 | Year 10 |
$[ ] | $[ ] | $[ ] | $[ ] |
* | As of [ ], the Fund's Calendar Year-To-Date return was [ ]%. |
One
Year |
Since
Inception
(2/20/13) |
|
Return Before Taxes | [ ]% | [ ]% |
Return After Taxes on Distributions | [ ]% | [ ]% |
Return After Taxes on Distributions and Sale of Fund Shares | [ ]% | [ ]% |
SSGA
US Large Cap Low Volatility Index
(Index returns reflect no deduction for fees, expenses or taxes) |
[ ]% | [ ]% |
Russell
1000 Low Volatility Index
(Index returns reflect no deduction for fees, expenses or taxes) |
[ ]% | [ ]% |
Investment Objective |
The SPDR SSGA US Small Cap Low Volatility Index ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of a small cap, low volatility index. |
Management fees | [0.12]% |
Distribution and service (12b-1) fees | None |
Other expenses | 0.00% |
Total annual Fund operating expenses | [0.12]% |
Year 1 | Year 3 | Year 5 | Year 10 |
$[ ] | $[ ] | $[ ] | $[ ] |
* | As of [ ], the Fund's Calendar Year-To-Date return was [ ]%. |
One
Year |
Since
Inception
2/20/13 |
|
Return Before Taxes | [ ]% | [ ]% |
Return After Taxes on Distributions | [ ]% | [ ]% |
Return After Taxes on Distributions and Sale of Fund Shares | [ ]% | [ ]% |
SSGA
US Small Cap Low Volatility Index
(Index returns reflect no deduction for fees, expenses or taxes) |
[ ]% | [ ]% |
Russell
2000 Low Volatility Index
(Index returns reflect no deduction for fees, expenses or taxes) |
[ ]% | [ ]% |
Fund Name | SPDR SSGA US Large Cap Low Volatility Index ETF (formerly, SPDR Russell 1000 Low Volatility ETF) | SPDR SSGA US Small Cap Low Volatility Index ETF (formerly, SPDR Russell 2000 Low Volatility ETF) |
Equity Investing Risk | x | x |
Financial Sector Risk | x | x |
Index Tracking Risk | x | x |
Industrial Sector Risk | x | |
Large-Capitalization Securities Risk | x | |
Liquidity Risk | x | |
Low Volatility Risk | x | x |
Market Risk | x | x |
Non-Diversification Risk | x | x |
Passive Strategy/Index Risk | x | x |
Small-Capitalization Securities Risk | x | |
Unconstrained Sector Risk | x | x |
Valuation Risk | x |
SPDR SSGA US Large Cap Low Volatility Index
ETF
|
[0.12]% |
SPDR SSGA US Small Cap Low Volatility Index
ETF
|
[0.12]% |
Portfolio Managers | Fund |
Michael Feehily, Karl Schneider and Raymond
Donofrio
|
SPDR SSGA US Large Cap Low Volatility Index ETF |
Michael Feehily, Karl Schneider and Keith
Richardson
|
SPDR SSGA US Small Cap Low Volatility Index ETF |
SPDR4FDSTATPRO | The Trust's Investment Company Act Number is 811-08839. |
Investment Objective |
The SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of an index that tracks the 1-3 month sector of the United States Treasury Bill market. |
Management fees | [0.1345]% |
Distribution and service (12b-1) fees | None |
Other expenses | [0.0016]% |
Total annual Fund operating expenses | [0.1361]% |
Year 1 | Year 3 | Year 5 | Year 10 |
$[ ] | $[ ] | $[ ] | $[ ] |
* | As of [ ], the Fund's Calendar Year-To-Date return was [ ]%. |
One
Year |
Five
Years |
Since
Inception
(5/25/07) |
|
Return Before Taxes | [ ]% | [ ]% | [ ]% |
Return After Taxes on Distributions | [ ]% | [ ]% | [ ]% |
Return After Taxes on Distributions and Sale of Fund Shares | [ ]% | [ ]% | [ ]% |
Bloomberg
Barclays 1-3 Month U.S. Treasury Bill Index
(Index returns reflect no deduction for fees, expenses or taxes) |
[ ]% | [ ]% | [ ]% |
Investment Objective |
The SPDR Bloomberg Barclays Convertible Securities ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of an index that tracks United States convertible securities markets. |
Management fees | [0.40]% |
Distribution and service (12b-1) fees | None |
Other expenses | 0.00% |
Total annual Fund operating expenses | [0.40]% |
Year 1 | Year 3 | Year 5 | Year 10 |
$[ ] | $[ ] | $[ ] | $[ ] |
* | As of [ ], the Fund's Calendar Year-To-Date return was [ ]%. |
One
Year |
Five
Years |
Since
Inception
(4/14/09) |
|
Return Before Taxes | [ ]% | [ ]% | [ ]% |
Return After Taxes on Distributions | [ ]% | [ ]% | [ ]% |
Return After Taxes on Distributions and Sale of Fund Shares | [ ]% | [ ]% | [ ]% |
Bloomberg
Barclays U.S. Convertible Liquid Bond Index
(Index returns reflect no deduction for fees, expenses or taxes) |
[ ]% | [ ]% | [ ]% |
Investment Objective |
The SPDR Bloomberg Barclays High Yield Bond ETF (the “Fund”) seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of an index that tracks the U.S. high yield corporate bond market. |
Management fees | [0.40]% |
Distribution and service (12b-1) fees | None |
Other expenses | 0.00% |
Total annual Fund operating expenses | [0.40]% |
Year 1 | Year 3 | Year 5 | Year 10 |
$[ ] | $[ ] | $[ ] | $[ ] |
* | As of [ ], the Fund's Calendar Year-To-Date return was [ ]%. |
Fund Name | SPDR Bloomberg Barclays 1-3 Month T-Bill ETF | SPDR Bloomberg Barclays Convertible Securities ETF | SPDR Bloomberg Barclays High Yield Bond ETF |
Below Investment-Grade Securities Risk | x | ||
Call/Prepayment Risk | x | x | x |
Consumer Staples Sector Risk | x | ||
Convertible Securities Risk | x | ||
Counterparty Risk | x | ||
Credit Risk | x | x | x |
Debt Securities Risk | x | x | x |
Derivatives Risk | x | ||
Extension Risk | x | x | x |
Financial Sector Risk | x | ||
Income Risk | x | x | x |
Index Tracking Risk | x | x | x |
Industrial Sector Risk | x | ||
Interest Rate Risk | x | x | x |
Leveraging Risk | x | ||
Liquidity Risk | x | x | x |
Market Risk | x | x | x |
Non-Diversification Risk | x | x | x |
Non-U.S. Securities Risk | x | ||
Passive Strategy/Index Risk | x | x | x |
Portfolio Turnover Risk | [x] | ||
Preferred Securities Risk | x | ||
Reinvestment Risk | x | x | x |
Restricted Securities Risk | x | x | |
Settlement Risk | x | ||
Technology Sector Risk | x | ||
Unconstrained Sector Risk | x |
Fund Name | SPDR Bloomberg Barclays 1-3 Month T-Bill ETF | SPDR Bloomberg Barclays Convertible Securities ETF | SPDR Bloomberg Barclays High Yield Bond ETF |
U.S. Treasury Obligations Risk | x | ||
Utilities Sector Risk | x | ||
Valuation Risk | x | x | x |
SPDR Bloomberg Barclays 1-3 Month T-Bill
ETF
|
[ ] % |
SPDR Bloomberg Barclays Convertible Securities
ETF
|
[ ] % |
SPDR Bloomberg Barclays High Yield Bond
ETF
|
[ ] % |
SPDRSERTRFI | The Trust's Investment Company Act Number is 811-08839. |
SUBJECT TO COMPLETION. THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS
NOT COMPLETE AND MAY BE CHANGED. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SPDR ® SERIES TRUST (THE TRUST)
STATEMENT OF ADDITIONAL INFORMATION
[Dated October 31, 2017]
This Statement of Additional Information (SAI) is not a prospectus. With respect to each of the Trusts series listed below, this SAI should be read in conjunction with the prospectuses dated [October 31, 2017], as may be revised from time to time. Each of the foregoing prospectuses may be referred to herein as a Prospectus.
EQUITY ETF | TICKER | FIXED INCOME ETFs | TICKER | |||
SPDR NYSE TECHNOLOGY ETF (FORMERLY, SPDR MORGAN STANLEY TECHNOLOGY ETF) | [XXXX] | SPDR BLOOMBERG BARCLAYS 1-3 MONTH T-BILL ETF | BIL | |||
SPDR BLOOMBERG BARCLAYS CONVERTIBLE SECURITIES ETF | CWB | |||||
SPDR BLOOMBERG BARCLAYS HIGH YIELD BOND ETF | JNK |
Principal U.S. Listing Exchange for each ETF: NYSE Arca, Inc.
Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. Copies of the Prospectus and the Trusts Annual Reports to Shareholders dated June 30, 2017 may be obtained without charge by writing to State Street Global Advisors Funds Distributors, LLC, the Trusts principal underwriter (referred to herein as Distributor or Principal Underwriter), State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111, by visiting the Trusts website at https://www.spdrs.com or by calling 1-866-787-2257. The Reports of Independent Registered Public Accounting Firm, financial highlights and financial statements of the Funds included in the Trusts Annual Reports to Shareholders for the fiscal year ended June 30, 2017 are incorporated by reference into this SAI.
[SPDRSERIESSAI]
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TABLE OF CONTENTS
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GENERAL DESCRIPTION OF THE TRUST
The Trust is an open-end management investment company, registered under the Investment Company Act of 1940, as amended (the 1940 Act), consisting of multiple investment series, including the SPDR NYSE Technology ETF and the Fixed Income ETFs (each, a Fund and, collectively, the Funds). The Trust was organized as a Massachusetts business trust on June 12, 1998. The offering of each Funds shares (Shares) is registered under the Securities Act of 1933, as amended (the Securities Act). The investment objective of each Fund is to provide investment results that, before fees and expenses, correspond generally to the total return (or in the case of the Fixed Income ETFs, the price and yield performance) of a specified market index (each an Index and together the Indexes). SSGA Funds Management, Inc. serves as the investment adviser for each Fund (the Adviser).
Each Fund offers and issues Shares at their net asset value (sometimes referred to herein as NAV) only in aggregations of a specified number of Shares (each, a Creation Unit). Each Fund generally offers and issues Shares either in exchange for (i) a basket of securities included in its Index (Deposit Securities) together with the deposit of a specified cash payment (Cash Component) or (ii) a cash payment equal in value to the Deposit Securities (Deposit Cash) together with the Cash Component. The primary consideration accepted by a Fund ( i.e. , Deposit Securities or Deposit Cash) is set forth under Purchase and Redemption of Creation Units later in this SAI. The Trust reserves the right to permit or require the substitution of a cash in lieu amount to be added to the Cash Component to replace any Deposit Security and reserves the right to permit or require the substitution of Deposit Securities in lieu of Deposit Cash (subject to applicable legal requirements). The Shares have been approved for listing and secondary trading on a national securities exchange (the Exchange). The Shares will trade on the Exchange at market prices. These prices may differ from the Shares net asset values. The Shares are also redeemable only in Creation Unit aggregations, and generally in exchange either for (i) portfolio securities and a specified cash payment or (ii) cash (subject to applicable legal requirements). A Creation Unit of the SPDR NYSE Technology ETF consists of 25,000 Shares. A Creation Unit of each Fixed Income ETF consists of 100,000 Shares, except that a Creation Unit of the SPDR Bloomberg Barclays High Yield Bond ETF consists of 500,000 Shares.
Shares may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit with the Trust cash at least equal to a specified percentage of the market value of the missing Deposit Securities as set forth in the Participant Agreement (as defined below). See Purchase and Redemption of Creation Units. The Trust may impose a transaction fee for each creation or redemption. In all cases, such fees will be limited in accordance with the requirements of the U.S. Securities and Exchange Commission (SEC) applicable to management investment companies offering redeemable securities. In addition to the fixed creation or redemption transaction fee, an additional transaction fee of up to three times the fixed creation or redemption transaction fee and/or an additional variable charge may apply.
Each Fund may invest in the following types of investments, consistent with its investment strategies and objective. Please see a Funds Prospectus for additional information regarding its principal investment strategies.
DIVERSIFICATION STATUS
Each Fund is classified as a non-diversified investment company under the 1940 Act. A non-diversified classification means that a Fund is not limited by the 1940 Act with regard to the percentage of its assets that may be invested in the securities of a single issuer. This means that a Fund may invest a greater portion of its assets in the securities of a single issuer than a diversified fund. The securities of a particular issuer may constitute a greater portion of an Index of each Fund and, therefore, the securities may constitute a greater portion of a Funds portfolio. This may have an adverse effect on a Funds performance or subject a Funds Shares to greater price volatility than more diversified investment companies.
Although each Fund is non-diversified for purposes of the 1940 Act, each Fund intends to maintain the required level of diversification and otherwise conduct its operations so as to qualify as a regulated investment company for purposes of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and to relieve each Fund of any liability for federal income tax to the extent that its earnings are distributed to shareholders. Compliance with the diversification requirements of the Internal Revenue Code may severely limit the investment flexibility of a Fund and may make it less likely that a Fund will meet its investment objective.
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BONDS
A bond is an interest-bearing security issued by a company, governmental unit or, in some cases, a non-U.S. entity. The issuer of a bond has a contractual obligation to pay interest at a stated rate on specific dates and to repay principal (the bonds face value) periodically or on a specified maturity date; provided, however, a zero coupon bond pays no interest to its holder during its life. The value of a zero coupon bond to a Fund consists of the difference between such bonds face value at the time of maturity and the price for which it was acquired, which may be an amount significantly less than its face value (sometimes referred to as a deep discount price).
An issuer may have the right to redeem or call a bond before maturity, in which case the investor may have to reinvest the proceeds at lower market rates. Most bonds bear interest income at a coupon rate that is fixed for the life of the bond. The value of a fixed rate bond usually rises when market interest rates fall, and falls when market interest rates rise. Accordingly, a fixed rate bonds yield (income as a percent of the bonds current value) may differ from its coupon rate as its value rises or falls. Fixed rate bonds generally are also subject to inflation risk, which is the risk that the value of the bond or income from the bond will be worth less in the future as inflation decreases the value of money. This could mean that, as inflation increases, the real value of the assets of a Fund holding fixed rate bonds can decline, as can the value of the Funds distributions. Other types of bonds bear income at an interest rate that is adjusted periodically. Because of their adjustable interest rates, the value of floating-rate or variable-rate bonds fluctuates much less in response to market interest rate movements than the value of fixed rate bonds. A Fund may treat some of these bonds as having a shorter maturity for purposes of calculating the weighted average maturity of its investment portfolio. Bonds may be senior or subordinated obligations. Senior obligations generally have the first claim on a corporations earnings and assets and, in the event of liquidation, are paid before subordinated obligations. Bonds may be unsecured (backed only by the issuers general creditworthiness) or secured (also backed by specified collateral).
The investment return of corporate bonds reflects interest on the bond and changes in the market value of the bond. The market value of a corporate bond may be affected by the credit rating of the corporation, the corporations performance and perceptions of the corporation in the market place. There is a risk that the issuers of the securities may not be able to meet their obligations on interest or principal payments at the time called for by such a security.
COMMERCIAL PAPER
Each Fund may invest in commercial paper. Commercial paper consists of short-term, promissory notes issued by banks, corporations and other entities to finance short-term credit needs. These securities generally are discounted but sometimes may be interest bearing.
COMMON STOCKS
Risks inherent in investing in equity securities include the risk that the financial condition of issuers may become impaired or that the general condition of the stock market may deteriorate (either of which may cause a decrease in the value of a Funds portfolio securities and therefore a decrease in the value of Shares of the Fund). Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence and perceptions change. These investor perceptions are based on various and unpredictable factors, including expectations regarding government, economic, monetary and fiscal policies; inflation and interest rates; economic expansion or contraction; and global or regional political, economic or banking crises.
CONCENTRATION
Each Funds investments will generally be concentrated in a particular industry or group of industries to the extent that the Funds underlying Index is concentrated in a particular industry or group of industries. The securities of issuers in particular industries may dominate the benchmark Index of a Fund and consequently a Funds investment portfolio. This may adversely affect a Funds performance or subject its Shares to greater price volatility than that experienced by less concentrated investment companies. The Trusts general policy is to exclude securities of the U.S. government and its agencies or instrumentalities when measuring industry concentration.
In pursuing its objective, each Fund may hold the securities of a single issuer in an amount exceeding 10% of the market value of the outstanding securities of the issuer, subject to restrictions imposed by the Internal Revenue Code. In particular, as a Funds size grows and its assets increase, it will be more likely to hold more than 10% of the securities of a single issuer if the issuer has a relatively small public float as compared to other components in its benchmark Index.
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CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio. A convertible security may also be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. If a convertible security held by a Fund is called for redemption or conversion, the Fund could be required to tender it for redemption, convert it into the underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss than common stocks. Convertible securities generally provide yields higher than the underlying common stocks, but generally lower than comparable non-convertible securities. Because of this higher yield, convertible securities generally sell at a price above their conversion value, which is the current market value of the stock to be received upon conversion. The difference between this conversion value and the price of convertible securities will vary over time depending on changes in the value of the underlying common stocks and interest rates. When the underlying common stocks decline in value, convertible securities will tend not to decline to the same extent because of the interest or dividend payments and the repayment of principal at maturity for certain types of convertible securities. However, securities that are convertible other than at the option of the holder generally do not limit the potential for loss to the same extent as securities convertible at the option of the holder. When the underlying common stocks rise in value, the value of convertible securities may also be expected to increase. At the same time, however, the difference between the market value of convertible securities and their conversion value will narrow, which means that the value of convertible securities will generally not increase to the same extent as the value of the underlying common stocks. Because convertible securities may also be interest-rate sensitive, their value may increase as interest rates fall and decrease as interest rates rise. Convertible securities are also subject to credit risk, and are often lower-quality securities.
FOREIGN CURRENCY TRANSACTIONS
Each Fund may conduct foreign currency transactions on a spot ( i.e. , cash) or forward basis ( i.e. , by entering into forward contracts to purchase or sell foreign currencies). Although foreign exchange dealers generally do not charge a fee for such conversions, they do realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency at one rate, while offering a lesser rate of exchange should the counterparty desire to resell that currency to the dealer. Forward contracts are customized transactions that generally require a specific amount of a currency to be delivered at a specific exchange rate on a specific date or range of dates in the future although the Fund may also enter into non-deliverable currency forward contracts (NDFs) that contractually require the netting of the parties liabilities. Forwards, including NDFs, can have substantial price volatility. While foreign currency transactions on a spot and forward basis are exempt from the definition of swap under the Commodity Exchange Act (CEA), NDFs are not, and, thus, are subject to the jurisdiction of the Commodity Futures Trading Commission (CFTC). Forward contracts are generally traded in an interbank market directly between currency traders (usually large commercial banks) and their customers. The parties to a forward contract may agree to offset or terminate the contract before its maturity, or may hold the contract to maturity and complete the contemplated currency exchange. In the event that the parties to a forward contract agree to offset or terminate the contract before its maturity, the contract is no longer exempt from the definition of swap under the CEA and shall be treated as a swap. At the discretion of the Adviser, the Funds may enter into forward currency exchange contracts for hedging purposes to help reduce the risks and volatility caused by changes in foreign currency exchange rates, or to gain exposure to certain currencies in an effort to track the composition of the applicable Index. When used for hedging purposes, they tend to limit any potential gain that may be realized if the value of the Funds foreign holdings increases because of currency fluctuations.
FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS
Each Fund may invest up to 20% of its assets in derivatives, including exchange-traded futures on Treasuries or Eurodollars, U.S. exchange-traded or OTC put and call options contracts and exchange-traded or OTC swap transactions (including NDFs, interest rate swaps, total return swaps, excess return swaps, and credit default swaps). A Fund will segregate cash and/or appropriate liquid assets if required to do so by SEC or CFTC regulation or interpretation.
Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation is not yet fully known and may not be for some time. New regulations could adversely affect the value, availability and performance of certain derivative instruments, may make them more costly, and may limit or restrict their use by the Funds.
Futures contracts generally provide for the future sale by one party and purchase by another party of a specified commodity or security at a specified future time and at a specified price. Index futures contracts are settled daily with a payment by one party to the other of a cash amount based on the difference between the level of the index specified in the contract from one day to the next. A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the
5
difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract originally was written. Although the value of an index might be a function of the value of certain specified securities, physical delivery of these securities is not always made. A public market exists in futures contracts covering a number of indexes, as well as financial instruments, including, without limitation: U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S. Treasury bills; 90-day commercial paper; bank certificates of deposit; Eurodollar certificates of deposit; the Australian Dollar; the Canadian Dollar; the British Pound; the Japanese Yen; the Swiss Franc; the Mexican Peso; and certain multinational currencies, such as the Euro. It is expected that other futures contracts will be developed and traded in the future. Futures contracts are standardized as to maturity date and underlying instrument and are traded on futures exchanges.
The Funds may purchase and write (sell) call and put options on futures. Options on futures give the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price upon expiration of, or at any time during the period of, the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true.
A Fund is required to make a good faith margin deposit in cash or U.S. government securities (or other eligible collateral) with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying commodity or payment of the cash settlement amount) if it is not terminated prior to the specified delivery date. Brokers may establish deposit requirements which are higher than the exchange minimums. Futures contracts are customarily purchased and sold on margin deposits which may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy price changes, additional payments will be required. Conversely, change in the contract value may reduce the required margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. In such case, a Fund would expect to earn interest income on its margin deposits. Although some futures contracts call for making or taking delivery of the underlying commodity, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (involving the same exchange, underlying security or index and delivery month). If an offsetting purchase price is less than the original sale price, the Fund realizes a capital gain, or if it is more, the Fund realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Fund realizes a capital gain, or if it is less, the Fund realizes a capital loss. The transaction costs also must be included in these calculations.
Regulation Under the Commodity Exchange Act. Each Fund intends to use commodity interests, such as futures, swaps and options on futures in accordance with Rule 4.5 of the CEA. A Fund may use exchange-traded futures and options on futures, together with positions in cash and money market instruments, to simulate full investment in its underlying Index. Exchange-traded futures and options on futures contracts may not be currently available for an Index. Under such circumstances, the Adviser may seek to utilize other instruments that it believes to be correlated to the applicable Index components or a subset of the components. The Trust has filed a notice of eligibility for exclusion from the definition of the term commodity pool operator in accordance with Rule 4.5 so that it is not subject to registration or regulation as a commodity pool operator under the CEA.
Restrictions on Trading in Commodity Interests. With respect to the Funds, the Trust has claimed an exclusion from registration as a commodity pool operator under the CEA pursuant to CFTC Rule 4.5 and, therefore, is not subject to the registration and regulatory requirements of the CEA. Each Fund reserves the right to engage in transactions involving futures, options thereon and swaps to the extent allowed by the CFTC regulations in effect from time to time and in accordance with a Funds policies. Each Fund would take steps to prevent its futures positions from leveraging its securities holdings. When it has a long futures position, it will maintain with its custodian bank assets substantially identical to those underlying the contract or cash and equivalents (or a combination of the foregoing) having a value equal to the net obligation of the Fund under the contract (less the value of any margin deposits in connection with the position. When it has a short futures position, it will maintain with its custodian bank assets substantially identical to those underlying the contract or cash and equivalents (or a combination of the foregoing) having a value equal to the net obligation of the Fund under the contract (less the value of any margin deposits in connection with the position).
Options. A Fund may purchase and sell put and call options. Such options may relate to particular securities and may or may not be listed on a national securities exchange and issued by the Options Clearing Corporation. Options trading is a highly specialized activity that entails greater than ordinary investment risk. Options on particular securities may be more volatile than the underlying securities, and therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying securities themselves.
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Short Sales Against the Box. The Fund may engage in short sales against the box. In a short sale against the box, the Fund agrees to sell at a future date a security that it either contemporaneously owns or has the right to acquire at no extra cost. If the price of the security has declined at the time the Fund is required to deliver the security, the Fund will benefit from the difference in the price. If the price of the security has increased, the Fund will be required to pay the difference.
Swap Transactions. Each Fund may enter into swap transactions, including interest rate swap, credit default swap, NDF, and total return swap transactions. Swap transactions are contracts between parties in which one party agrees to make periodic payments to the other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make payments to the first party based on the return of a different specified rate, index or asset. Swap transactions will usually be done on a net basis, i.e., where the two parties make net payments with a Fund receiving or paying, as the case may be, only the net amount of the two payments. The net amount of the excess, if any, of a Funds obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of cash or equivalents having an aggregate value at least equal to the accrued excess is maintained by the Fund. Swaps may be used in conjunction with other instruments to offset interest rate, currency or other underlying risks. For example, interest rate swaps may be offset with caps, floors or collars. A cap is essentially a call option which places a limit on the amount of floating rate interest that must be paid on a certain principal amount. A floor is essentially a put option which places a limit on the minimum amount that would be paid on a certain principal amount. A collar is essentially a combination of a long cap and a short floor where the limits are set at different levels.
The use of swap transactions by a Fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the swap agreement. Swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index, but also of the swap itself, without the benefit of observing the performance of the swap under all the possible market conditions. Because some swap transactions have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the swap itself. Certain swaps have the potential for unlimited loss, regardless of the size of the initial investment.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) that was signed into law on July 21, 2010 created a new statutory framework that comprehensively regulated the over-the-counter (OTC) derivatives markets for the first time. Key Dodd-Frank Act provisions relating to OTC derivatives require rulemaking by the SEC and the CFTC, not all of which has been proposed or finalized as at the date of this SAI. Prior to the Dodd-Frank Act, the OTC derivatives markets were traditionally traded on a bilateral basis (so-called bilateral OTC transactions). Under the Dodd-Frank Act, certain OTC derivatives transactions are now required to be centrally cleared and traded on exchanges or electronic trading platforms called swap execution facilities (SEFs).
Bilateral OTC transactions differ from exchange-traded or cleared derivatives transactions in several respects. Bilateral OTC transactions are transacted directly with dealers and not with a clearing corporation. Without the availability of a clearing corporation, bilateral OTC transaction pricing is normally done by reference to information from market makers and/or available index data, which information is carefully monitored by the Adviser and verified in appropriate cases. As bilateral OTC transactions are entered into directly with a dealer, there is a risk of nonperformance by the dealer as a result of its insolvency or otherwise. Under recently-adopted regulations by the CFTC and federal banking regulators (Margin Rules), a Fund is required to post collateral (known as variation margin) to cover the mark-to-market exposure in respect of its uncleared swaps. The Margin Rules also mandate that collateral in the form of initial margin be posted to cover potential future exposure attributable to uncleared swap transactions. However, due to the compliance timeline within the Margin Rules, it is unlikely that the Funds will be required to comply with such initial margin requirements until March 1, 2020. In the event a Fund is required to post collateral in the form of initial margin or variation margin in respect of its uncleared swap transactions, all such collateral will be posted with a third party custodian pursuant to a triparty custody agreement between the Fund, its dealer counterparty and an unaffiliated custodian.
The requirement to execute certain OTC derivatives contracts on SEFs may offer certain advantages over traditional bilateral OTC trading, such as ease of execution, price transparency, increased liquidity and/or favorable pricing. However, SEF trading may make it more difficult and costly for a Fund to enter into highly tailored or customized transactions and may result in additional costs and risks. Market participants such as the Funds that execute derivatives contracts through a SEF, whether directly or through a broker intermediary, are required to submit to the jurisdiction of the SEF and comply with SEF and CFTC rules and regulations which impose, among other things disclosure and recordkeeping obligations. In addition, a Fund will generally incur SEF or broker intermediary fees when it trades on a SEF. A Fund may also be required to indemnify the SEF or broker intermediary for any losses or costs that may result from the Funds transactions on the SEF.
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Total Return Swaps. A Fund may enter into total return swap transactions for investment purposes. Total return swaps are transactions in which one party agrees to make periodic payments based on the change in market value of the underlying assets, which may include a specified security, basket of securities or security indexes during the specified period, in return for periodic payments based on a fixed or variable interest rate of the total return from other underlying assets. Total return swaps may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market, including in cases in which there may be disadvantages associated with direct ownership of a particular security. In a typical total return equity swap, payments made by a Fund or the counterparty are based on the total return of a particular reference asset or assets (such as an equity security, a combination of such securities, or an index). That is, one party agrees to pay another party the return on a stock, basket of stocks, or stock index in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of securities without actually purchasing those stocks. Total return swaps involve not only the risk associated with the investment in the underlying securities, but also the risk of the counterparty not fulfilling its obligations under the agreement.
Credit Default Swaps. A Fund may enter into credit default swap transactions for investment purposes. A credit default swap transaction may have as reference obligations one or more securities that are not currently held by the Fund. A Fund may be either the protection buyer or protection seller in the transaction. Credit default swaps may also be structured based on the debt of a basket of issuers, rather than a single issuer, and may be customized with respect to the default event that triggers purchase or other factors. As a protection seller, a Fund would generally receive an upfront payment or a fixed rate of income throughout the term of the swap, which typically is between six months and three years, provided that there is no credit event. If a credit event occurs, generally the protection seller must pay the protection buyer the full face amount of the reference obligations that may have little or no value. The notional value of the credit default swap will be used to segregate liquid assets for selling protection on credit default swaps. If a Fund were a protection buyer and no credit event occurred during the term of the swap, the Fund would recover nothing if the swap were held through its termination date. However, if a credit event occurred, the protection buyer may elect to receive the full notional value of the swap in exchange for an equal face amount of the reference obligation that may have little or no value. Where a Fund is the protection buyer, credit default swaps involve the risk that the seller may fail to satisfy its payment obligations to the Fund in the event of a default. The purchase of credit default swaps involves costs, which will reduce a Funds return. When a Fund buys credit default swaps it will segregate an amount at least equal to the amount of any accrued premium payment obligations including amounts for early terminations.
Currency Swaps. A Fund may enter into currency swap transactions for investment purposes. Currency swaps are similar to interest rate swaps, except that they involve multiple currencies. A Fund may enter into a currency swap when it has exposure to one currency and desires exposure to a different currency. Typically, the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the beginning of the contract and returned at the end of the contract. In addition to paying and receiving amounts at the beginning and end of the transaction, both sides will have to pay in full on a periodic basis based upon the currency they have borrowed. Change in foreign exchange rates and changes in interest rates, as described above, may negatively affect currency swaps.
Interest Rate Swaps. A Fund may enter into an interest rate swap in an effort to protect against declines in the value of fixed income securities held by the Fund. In such an instance, the Fund may agree to pay a fixed rate (multiplied by a notional amount) while a counterparty agrees to pay a floating rate (multiplied by the same notional amount). If interest rates rise, resulting in a diminution in the value of the Funds portfolio, the Fund would receive payments under the swap that would offset, in whole or in part, such diminution in value.
Options on Swaps. An option on a swap agreement, or a swaption, is a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms. In return, the purchaser pays a premium to the seller of the contract. The seller of the contract receives the premium and bears the risk of unfavorable changes on the underlying swap. A Fund may write (sell) and purchase put and call swaptions. A Fund may also enter into swaptions on either an asset-based or liability-based basis, depending on whether the Fund is hedging its assets or its liabilities. A Fund may write (sell) and purchase put and call swaptions to the same extent it may make use of standard options on securities or other instruments. A Fund may enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its holdings, as a duration management technique, to protect against an increase in the price of securities the Fund anticipates purchasing at a later date, or for any other purposes, such as for speculation to increase returns. Swaptions are generally subject to the same risks involved in a Funds use of options.
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Depending on the terms of the particular option agreement, a Fund will generally incur a greater degree of risk when it writes a swaption than it will incur when it purchases a swaption. When a Fund purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when a Fund writes a swaption, upon exercise of the option the Fund will become obligated according to the terms of the underlying agreement.
Certain additional risk factors related to derivatives are discussed below:
Derivatives Risk. Under recently adopted rules by the CFTC, transactions in some types of interest rate swaps and index credit default swaps on North American and European indices are required to be cleared. In addition, the CFTC may promulgate additional regulations that require clearing of other classes of swaps. In a cleared derivatives transaction (which includes commodities futures and cleared swaps transactions), a Funds counterparty is a clearing house (such as CME, ICE Clear Credit or LCH.Clearnet), rather than a bank or broker. Since each Fund is not a member of a clearing house and only members of a clearing house can participate directly in the clearing house, a Fund holds cleared derivatives through accounts at clearing members, who are futures commission merchants that are members of the clearing houses and who have the appropriate regulatory approvals to engage in cleared swap transactions. A Fund makes and receives payments owed under cleared derivatives transactions (including margin payments) through its accounts at clearing members. Clearing members guarantee performance of their clients obligations to the clearing house. In contrast to bilateral OTC transactions, clearing members generally can require termination of existing cleared derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions and to terminate transactions. Any such increase or termination could interfere with the ability of a Fund to pursue its investment strategy. Also, a Fund is subject to execution risk if it enters into a derivatives transaction that is required to be cleared (or that the Advisor expects to be cleared), and no clearing member is willing or able to clear the transaction on the Funds behalf. While the documentation in place between a Fund and their clearing members generally provides that the clearing members will accept for clearing all transactions submitted for clearing that are within credit limits specified by the clearing members in advance, the Fund could be subject to this execution risk if the Fund submits for clearing transactions that exceed such credit limits, if the clearing house does not accept the transactions for clearing, or if the clearing members do not comply with their agreement to clear such transactions. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of any increase in the value of the transaction after the time of the transaction. In addition, new regulations could, among other things, restrict a Funds ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund or increasing margin or capital requirements. If a Fund is not able to enter into a particular derivatives transaction, the Funds investment performance and risk profile could be adversely affected as a result.
Counterparty Risk. Counterparty risk with respect to OTC derivatives may be affected by new regulations promulgated by the CFTC and SEC affecting the derivatives market. As described under Derivatives Risk above, some derivatives transactions are required to be cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared derivatives position, rather than the credit risk of its original counterparty to the derivative transaction. Clearing members are required to segregate all funds received from customers with respect to cleared derivatives transactions from the clearing members proprietary assets. However, all funds and other property received by a clearing broker from its customers are generally held by the clearing broker on a commingled basis in an omnibus account, which may also invest those funds in certain instruments permitted under the applicable regulations. Also, the clearing member transfers to the clearing house the amount of margin required by the clearing house for cleared derivatives transactions, which amounts are generally held in the relevant omnibus account at the clearing house for all customers of the clearing member.
For commodities futures positions, the clearing house may use all of the collateral held in the clearing members omnibus account to meet a loss in that account, without regard to which customer in fact supplied that collateral. Accordingly, in addition to bearing the credit risk of its clearing member, each customer to a futures transaction also bears fellow customer risk from other customers of the clearing member. However, with respect to cleared swaps positions, recent regulations promulgated by the CFTC require that the clearing member notify the clearing house of the amount of initial margin provided by the clearing member to the clearing house that is attributable to each customer. Because margin in respect of cleared swaps must be earmarked for specific clearing member customers, the clearing house may not use the collateral of one customer to cover the obligations of another customer. However, if the clearing member does not provide accurate reporting, a Fund is subject to the risk that a clearing house will use the Funds assets held in an omnibus account at the clearing house to satisfy payment obligations of a defaulting customer of the clearing member to the clearing house. In addition, clearing members may generally choose to provide to the clearing house the net amount of variation margin required for cleared swaps for all of its customers in the aggregate, rather than the gross amount for each customer.
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FUTURE DEVELOPMENTS
A Fund may take advantage of opportunities in the area of options and futures contracts, options on futures contracts, warrants, swaps and any other investments which are not presently contemplated for use by the Fund or which are not currently available but which may be developed, to the extent such opportunities are both consistent with the Funds investment objective and legally permissible for the Fund. Before entering into such transactions or making any such investment, a Fund will provide appropriate disclosure.
HIGH YIELD SECURITIES
Investment in high yield securities generally provides greater income and increased opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility and credit risk. These high yield securities are regarded as predominantly speculative with respect to the issuers continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers of debt securities that are high yield may be more complex than for issuers of higher quality debt securities. In addition, high yield securities are often issued by smaller, less creditworthy companies or by highly leveraged (indebted) firms, but can also be issued by governments. Such issuers are generally less able than more financially stable issuers to make scheduled payments of interest and principal. The risks posed by securities issued under such circumstances are substantial.
Investing in high yield debt securities involves risks that are greater than the risks of investing in higher quality debt securities. These risks include: (i) changes in credit status, including weaker overall credit conditions of issuers and risks of default; (ii) industry, market and economic risk; and (iii) greater price variability and credit risks of certain high yield securities such as zero coupon and payment-in-kind securities. While these risks provide the opportunity for maximizing return over time, they may result in greater volatility of the value of the Fund than a fund that invests in higher-rated securities.
Furthermore, the value of high yield securities may be more susceptible to real or perceived adverse economic, company or industry conditions than is the case for higher quality securities. The market values of certain of these lower-rated and unrated debt securities tend to reflect individual issuer developments to a greater extent than do higher-rated securities which react primarily to fluctuations in the general level of interest rates, and tend to be more sensitive to economic conditions than are higher-rated securities. Adverse market, credit or economic conditions could make it difficult at certain times to sell certain high yield securities held by the Fund.
The secondary market on which high yield securities are traded may be less liquid than the market for higher grade securities. Less liquidity in the secondary trading market could adversely affect the price at which a Fund could sell a high yield security, and could adversely affect the daily net asset value per share of a Fund. When secondary markets for high yield securities are less liquid than the market for higher grade securities, it may be more difficult to value the securities because there is less reliable, objective data available. However, an Index seeks to include primarily high yield securities that the Index provider believes have greater liquidity than the broader high yield securities market as a whole.
The use of credit ratings as a principal method of selecting high yield securities can involve certain risks. For example, credit ratings evaluate the safety of principal and interest payments, not the market value risk of high yield securities. Also, credit rating agencies may fail to change credit ratings in a timely fashion to reflect events since the security was last rated.
INFLATION-PROTECTED OBLIGATIONS
Each Fund may invest in inflation-protected public obligations, commonly known as TIPS, of the U.S. Treasury, as well as TIPS of major governments and emerging market countries, excluding the United Sates. TIPS are a type of security issued by a government that are designed to provide inflation protection to investors. TIPS are income-generating instruments whose interest and principal payments are adjusted for inflationa sustained increase in prices that erodes the purchasing power of money. The inflation adjustment, which is typically applied monthly to the principal of the bond, follows a designated inflation index, such as the Consumer Price Index. A fixed coupon rate is applied to the inflation-adjusted principal so that as inflation rises or falls, both the principal value and the interest payments will increase or decrease. This can provide investors with a hedge against inflation, as it helps preserve the purchasing power of an investment. Because of this inflation adjustment feature, inflation-protected bonds typically have lower yields than conventional fixed-rate bonds.
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INVESTMENT COMPANIES
Each Fund may invest in the securities of other investment companies, including affiliated funds and money market funds, subject to applicable limitations under Section 12(d)(1) of the 1940 Act. Pursuant to Section 12(d)(1), a Fund may invest in the securities of another investment company (the acquired company) provided that the Fund, immediately after such purchase or acquisition, does not own in the aggregate: (i) more than 3% of the total outstanding voting stock of the acquired company; (ii) securities issued by the acquired company having an aggregate value in excess of 5% of the value of the total assets of the Fund; or (iii) securities issued by the acquired company and all other investment companies (other than Treasury stock of the Fund) having an aggregate value in excess of 10% of the value of the total assets of the Fund. To the extent allowed by law, regulation, a Funds investment restrictions and the Trusts exemptive relief, a Fund may invest its assets in securities of investment companies that are affiliated funds and/or money market funds in excess of the limits discussed above.
If a Fund invests in and, thus, is a shareholder of, another investment company, the Funds shareholders will indirectly bear the Funds proportionate share of the fees and expenses paid by such other investment company, including advisory fees, in addition to both the management fees payable directly by the Fund to the Funds own investment adviser and the other expenses that the Fund bears directly in connection with the Funds own operations.
LENDING PORTFOLIO SECURITIES
Each Fund may lend portfolio securities to certain creditworthy borrowers in U.S. and non-U.S. markets in an amount not to exceed 40% of the value of its net assets. The borrowers provide collateral that is marked to market daily in an amount at least equal to the current market value of the securities loaned. A Fund may terminate a loan at any time and obtain the securities loaned. A Fund receives the value of any interest or cash or non-cash distributions paid on the loaned securities. A Fund cannot vote proxies for securities on loan, but may recall loans to vote proxies if a material issue affecting the Funds economic interest in the investment is to be voted upon. Distributions received on loaned securities in lieu of dividend payments ( i.e., substitute payments) would not be considered qualified dividend income.
With respect to loans that are collateralized by cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. A Fund is compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the borrower. In the case of collateral other than cash, a Fund is compensated by a fee paid by the borrower equal to a percentage of the market value of the loaned securities. Any cash collateral may be reinvested in certain short-term instruments either directly on behalf of the lending Fund or through one or more joint accounts or money market funds, which may include those managed by the Adviser.
A Fund may pay a portion of the interest or fees earned from securities lending to a borrower as described above, and to one or more securities lending agents approved by the Board of Trustees of the Trust (the Board) who administer the lending program for the Funds in accordance with guidelines approved by the Board. In such capacity, the lending agent causes the delivery of loaned securities from a Fund to borrowers, arranges for the return of loaned securities to the Fund at the termination of a loan, requests deposit of collateral, monitors the daily value of the loaned securities and collateral, requests that borrowers add to the collateral when required by the loan agreements, and provides recordkeeping and accounting services necessary for the operation of the program. State Street Bank and Trust Company (State Street), an affiliate of the Trust, has been approved by the Board to serve as securities lending agent for a Fund and the Trust has entered into an agreement with State Street for such services. Among other matters, the Trust has agreed to indemnify State Street for certain liabilities. State Street has received an order of exemption from the SEC under Sections 17(a) and 12(d)(1) under the 1940 Act to serve as the lending agent for affiliated investment companies such as the Trust and to invest the cash collateral received from loan transactions to be invested in an affiliated cash collateral fund.
Securities lending involves exposure to certain risks, including operational risk ( i.e. , the risk of losses resulting from problems in the settlement and accounting processespecially so in certain international markets such as Taiwan), gap risk ( i.e. , the risk of a mismatch between the return on cash collateral reinvestments and the fees a Fund has agreed to pay a borrower), risk of loss of collateral, credit, legal, counterparty and market risk. Although State Street has agreed to provide a Fund with indemnification in the event of a borrower default, a Fund is still exposed to the risk of losses in the event a borrower does not return a Funds securities as agreed. For example, delays in recovery of lent securities may cause a Fund to lose the opportunity to sell the securities at a desirable price.
LEVERAGING
While the Funds do not anticipate doing so, a Fund may borrow money in an amount greater than 5% of the value of the Funds total assets. However, under normal circumstances, a Fund will not borrow money from a bank in an amount greater than 10% of the value of the Funds total assets. Borrowing for investment purposes is one form of leverage. Leveraging investments, by purchasing securities with borrowed money, is a speculative technique that increases investment risk, but also increases investment opportunity.
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Because substantially all of a Funds assets will fluctuate in value, whereas the interest obligations on borrowings may be fixed, the NAV of a Fund will increase more when such Funds portfolio assets increase in value and decrease more when the Funds portfolio assets decrease in value than would otherwise be the case. Moreover, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the returns on the borrowed funds.
OTHER SHORT-TERM INSTRUMENTS
In addition to repurchase agreements, each Fund may invest in short-term instruments, including money market instruments, (including money market funds advised by the Adviser), cash and cash equivalents, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that may include but are not limited to: (i) shares of money market funds (including those advised by the Adviser); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (CDs), bankers acceptances, fixed time deposits and other obligations of U.S. and foreign banks (including foreign branches) and similar institutions; (iv) commercial paper rated at the date of purchase Prime-1 by Moodys Investors Service (Moodys) or A-1 by Standard & Poors (S&P), or if unrated, of comparable quality as determined by the Adviser; (v) non-convertible corporate debt securities ( e.g. , bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that present minimal credit risks; and (vi) short-term U.S. dollar-denominated obligations of foreign banks (including U.S. branches) that, in the opinion of the Adviser, are of comparable quality to obligations of U.S. banks which may be purchased by a Fund. Any of these instruments may be purchased on a current or a forward-settled basis. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with international transactions. Money market instruments also include shares of money market funds. The SEC and other government agencies continue to review the regulation of money market funds. The SEC has adopted changes to the rules that govern money market funds, and compliance with many of these amendments was required in October 2016. Legislative developments may also affect money market funds. These changes and developments may affect the investment strategies, performance, yield, operating expenses and continued viability of a money market fund.
PREFERRED SECURITIES
Preferred securities pay fixed or adjustable rate dividends to investors, and have preference over common stock in the payment of dividends and the liquidation of a companys assets. This means that a company must pay dividends on preferred stock before paying any dividends on its common stock. In order to be payable, distributions on preferred securities must be declared by the issuers board of directors. Income payments on typical preferred securities currently outstanding are cumulative, causing dividends and distributions to accrue even if not declared by the board of directors or otherwise made payable. There is no assurance that dividends or distributions on the preferred securities in which a Fund invests will be declared or otherwise made payable.
The market value of preferred securities may be affected by favorable and unfavorable changes impacting companies in the utilities and financial services sectors, which are prominent issuers of preferred securities, and by actual and anticipated changes in tax laws.
Because the claim on an issuers earnings represented by preferred securities may become onerous when interest rates fall below the rate payable on such securities, the issuer may redeem the securities. Thus, in declining interest rate environments in particular, a Funds holdings of higher rate-paying fixed rate preferred securities may be reduced and a Fund would be unable to acquire securities paying comparable rates with the redemption proceeds.
RATINGS
An investment-grade rating means the security or issuer is rated investment-grade by Moodys, S&P, Fitch, Inc., Dominion Bond Rating Service Limited, or another credit rating agency designated as a nationally recognized statistical rating organization by the SEC, or is unrated but considered to be of equivalent quality by the Adviser.
Subsequent to purchase by a Fund, a rated security may cease to be rated or its investment-grade rating may be reduced below an investment-grade rating. Bonds rated lower than Baa3 by Moodys or BBB- by S&P are below investment-grade quality and are obligations of issuers that are considered predominantly speculative with respect to the issuers capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the possibility of issuer default and bankruptcy and increased market price volatility. Such securities (lower rated securities) are commonly referred to as
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junk bonds and are subject to a substantial degree of credit risk. Lower rated securities are often issued by smaller, less creditworthy companies or by highly leveraged (indebted) firms, which are generally less able than more financially stable firms to make scheduled payments of interest and principal. The risks posed by securities issued under such circumstances are substantial. Bonds rated below investment-grade tend to be less marketable than higher-quality bonds because the market for them is less broad. The market for unrated bonds is even narrower. See HIGH YIELD SECURITIES above for more information relating to the risks associated with investing in lower rated securities.
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements with commercial banks, brokers or dealers to generate income from its excess cash balances and to invest securities lending cash collateral. A repurchase agreement is an agreement under which a Fund acquires a financial instrument ( e.g. , a security issued by the U.S. government or an agency thereof, a bankers acceptance or a certificate of deposit) from a seller, subject to resale to the seller at an agreed upon price and date (normally, the next Business Dayas defined below). A repurchase agreement may be considered a loan collateralized by securities. The resale price reflects an agreed upon interest rate effective for the period the instrument is held by a Fund and is unrelated to the interest rate on the underlying instrument.
In these repurchase agreement transactions, the securities acquired by a Fund (including accrued interest earned thereon) must have a total value in excess of the value of the repurchase agreement and are held by the Custodian until repurchased. No more than an aggregate of 15% of a Funds net assets will be invested in illiquid securities, including repurchase agreements having maturities longer than seven days and securities subject to legal or contractual restrictions on resale, or for which there are no readily available market quotations.
The use of repurchase agreements involves certain risks. For example, if the other party to the agreement defaults on its obligation to repurchase the underlying security at a time when the value of the security has declined, a Fund may incur a loss upon disposition of the security. If the other party to the agreement becomes insolvent and subject to liquidation or reorganization under the U.S. Bankruptcy Code or other laws, a court may determine that the underlying security is collateral for a loan by a Fund not within the control of the Fund and, therefore, the Fund may not be able to substantiate its interest in the underlying security and may be deemed an unsecured creditor of the other party to the agreement.
RESTRICTED SECURITIES
Restricted Securities are securities that are not registered under the Securities Act, but which can be offered and sold to qualified institutional buyers under Rule 144A under the Securities Act. Institutional markets for restricted securities have developed as a result of the promulgation of Rule 144A under the Securities Act, which provides a safe harbor from Securities Act registration requirements for qualifying sales to institutional investors. When Rule 144A restricted securities present an attractive investment opportunity and meet other selection criteria, a Fund may make such investments whether or not such securities are illiquid depending on the market that exists for the particular security. The Board has delegated the responsibility for determining the liquidity of Rule 144A restricted securities that a Fund may invest in to the Adviser. In reaching liquidity decisions, the Adviser may consider the following factors: the frequency of trades and quotes for the security; the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; dealer undertakings to make a market in the security; and the nature of the security and the nature of the marketplace in which it trades ( e.g. , the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer).
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements, which involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing. The securities purchased with the funds obtained from the agreement and securities collateralizing the agreement will have maturity dates no later than the repayment date. Generally the effect of such transactions is that a Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases a Fund is able to keep some of the interest income associated with those securities. Such transactions are only advantageous if a Fund has an opportunity to earn a greater rate of interest on the cash derived from these transactions than the interest cost of obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and a Fund intends to use the reverse repurchase technique only when the Adviser believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any interim increase or decrease in the value of a Funds assets. A Funds exposure to reverse repurchase agreements will be covered by securities having a value equal to or greater than such commitments.
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Under the 1940 Act, reverse repurchase agreements are considered borrowings. Although there is no percentage limit on Fund assets that can be used in connection with reverse repurchase agreements, the Funds do not expect to engage, under normal circumstances, in reverse repurchase agreements with respect to more than 10% of their respective total assets.
SOVEREIGN DEBT OBLIGATIONS
Sovereign debt obligations are issued or guaranteed by foreign governments or their agencies. Sovereign debt may be in the form of conventional securities or other types of debt instruments such as loans or loan participations. Governmental entities responsible for repayment of the debt may be unable or unwilling to repay principal and pay interest when due, and may require renegotiation or reschedule of debt payments. In addition, prospects for repayment of principal and payment of interest may depend on political as well as economic factors. Although some sovereign debt, such as Brady Bonds, is collateralized by U.S. Government securities, repayment of principal and payment of interest is not guaranteed by the U.S. Government.
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are a type of bond. U.S. Government obligations include securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities.
One type of U.S. Government obligation, U.S. Treasury obligations, are backed by the full faith and credit of the U.S. Treasury and differ only in their interest rates, maturities, and times of issuance. U.S. Treasury bills have initial maturities of one-year or less; U.S. Treasury notes have initial maturities of one to ten years; and U.S. Treasury bonds generally have initial maturities of greater than ten years.
Other U.S. Government obligations are issued or guaranteed by agencies or instrumentalities of the U.S. Government including, but not limited to, Federal National Mortgage Association (Fannie Mae), the Government National Mortgage Association (Ginnie Mae), the Small Business Administration, the Federal Farm Credit Administration, the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal Home Loan Banks (FHLB), Banks for Cooperatives (including the Central Bank for Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority, the Export-Import Bank of the United States, the Commodity Credit Corporation, the Federal Financing Bank, the Student Loan Marketing Association, the National Credit Union Administration and the Federal Agricultural Mortgage Corporation (Farmer Mac). Some obligations issued or guaranteed by U.S. Government agencies and instrumentalities, including, for example, Ginnie Mae pass-through certificates, are supported by the full faith and credit of the U.S. Treasury. Other obligations issued by or guaranteed by federal agencies, such as those securities issued by Fannie Mae, are supported by the discretionary authority of the U.S. Government to purchase certain obligations of the federal agency, while other obligations issued by or guaranteed by federal agencies, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the U.S. Treasury. While the U.S. Government provides financial support to such U.S. Government-sponsored federal agencies, no assurance can be given that the U.S. Government will always do so, since the U.S. Government is not so obligated by law.
In September 2008, the U.S. Treasury announced a federal takeover of Fannie Mae and Freddie Mac, placing the two federal instrumentalities in conservatorship. Under the terms of the takeover, the U.S. Treasury agreed to acquire $1 billion of senior preferred stock of each instrumentality and obtained warrants for the purchase of common stock of each instrumentality. Under these Senior Preferred Stock Purchase Agreements (SPAs), the U.S. Treasury has pledged to provide a limited amount of capital per instrumentality as needed, including the contribution of cash capital to the instrumentalities in the event their liabilities exceed their assets. In May 2009, the U.S. Treasury increased its maximum commitment to each instrumentality under the SPAs from $100 billion to $200 billion per instrumentality. In December 2009, the U.S. Treasury amended the SPAs to provide Fannie Mae and Freddie Mac with some additional flexibility to meet the requirement to reduce their mortgage portfolios. Also in December 2009, the U.S. Treasury further amended the SPAs to allow the cap on the U.S. Treasurys funding commitment to increase as necessary to accommodate any cumulative reduction in Fannie Maes and Freddie Macs net worth through the end of 2012. On August 17, 2012, the U.S. Treasury announced that it was again amending the Agreement to terminate the requirement that Fannie Mae and Freddie Mac each pay a 10% dividend annually on all amounts received under the funding commitment. Instead, they will transfer to the U.S. Treasury on a quarterly basis all profits earned during a quarter that exceed a capital reserve amount of $3 billion. The U.S. Treasury stated that the purpose of the change was to wind down Freddie Mac and Fannie Mae and to benefit taxpayers. At the start of 2013, the unlimited support the U.S. Treasury extended to the two companies expiredFannie Maes bailout is now capped at $125 billion and Freddie Mac has a limit of $149 billion. In August 2013, President Obama announced his proposal to shut down Freddie Mac and Fannie Mae as part of a plan to overhaul the U.S.s mortgage finance system. Until further action is taken, the actions of the U.S. Treasury are intended to ensure that Fannie Mae and Freddie Mac maintain a positive net worth and meet their financial obligations, preventing mandatory triggering of receivership. No assurance can be given that the U.S. Treasury initiatives will be successful.
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U.S. REGISTERED SECURITIES OF FOREIGN ISSUERS
Investing in U.S. registered, dollar-denominated, securities issued by non-U.S. issuers involves some risks and considerations not typically associated with investing in U.S. companies. These include differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S. investments in foreign countries, and potential restrictions of the flow of international capital. Foreign companies may be subject to less governmental regulation than U.S. issuers. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payment positions.
A Funds investment in common stock of foreign corporations may also be in the form of American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) and European Depositary Receipts (EDRs) (collectively Depositary Receipts). Depositary Receipts are receipts, typically issued by a bank or trust company, which evidence ownership of underlying securities issued by a foreign corporation. For ADRs, the depository is typically a U.S. financial institution and the underlying securities are issued by a foreign issuer. For other Depositary Receipts, the depository may be a foreign or a U.S. entity, and the underlying securities may have a foreign or a U.S. issuer. Depositary Receipts will not necessarily be denominated in the same currency as their underlying securities. Generally, ADRs, in registered form, are designed for use in the U.S. securities markets, and EDRs, in bearer form, are designated for use in European securities markets. GDRs are tradable both in the United States and in Europe and are designed for use throughout the world. A Fund may invest in unsponsored Depositary Receipts. The issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United States, and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the Depositary Receipts.
VARIABLE RATE DEMAND OBLIGATIONS
Variable rate demand obligations (VRDOs) are short-term tax exempt fixed income instruments whose yield is reset on a periodic basis. VRDO securities tend to be issued with long maturities of up to 30 or 40 years; however, they are considered short-term instruments because they include a put feature which coincides with the periodic yield reset. For example, a VRDO whose yield resets weekly will have a put feature that is exercisable upon seven days notice. VRDOs are put back to a bank or other entity that serves as a liquidity provider, who then tries to resell the VRDOs or, if unable to resell, holds them in its own inventory. VRDOs are generally supported by either a Letter of Credit or a Stand-by Bond Purchase Agreement to provide credit enhancement.
SPECIAL CONSIDERATIONS AND RISKS
A discussion of the risks associated with an investment in each Fund is contained in the Prospectus. The discussion below supplements, and should be read in conjunction with, the Prospectus.
GENERAL
Investment in a Fund should be made with an understanding that the value of a Funds portfolio securities may fluctuate in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of securities generally and other factors.
An investment in a Fund should also be made with an understanding of the risks inherent in an investment in securities, including the risk that the financial condition of issuers may become impaired or that the general condition of the securities markets may deteriorate (either of which may cause a decrease in the value of the portfolio securities and thus in the value of Shares). Securities are susceptible to general market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic and banking crises. Securities of issuers traded on exchanges may be suspended on certain exchanges by the issuers themselves, by an exchange or by government authorities. The likelihood of such suspensions may be higher for securities of issuers in emerging or less-developed market countries than in countries with more developed markets. Trading suspensions may be applied from time to time to the securities of individual issuers for reasons specific to that issuer, or may be applied broadly by exchanges or governmental authorities in response to market events. Suspensions may last for significant periods of time, during which trading in the securities and instruments that reference the securities, such as participatory notes (or P-notes) or other derivative instruments, may be halted.
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Holders of common stocks incur more risk than holders of preferred stocks and debt obligations because common stockholders, as owners of the issuer, have generally inferior rights to receive payments from the issuer in comparison with the rights of creditors of, or holders of debt obligations or preferred stocks issued by, the issuer. Further, unlike debt securities which typically have a stated principal amount payable at maturity (whose value, however, will be subject to market fluctuations prior thereto), or preferred stocks which typically have a liquidation preference and which may have stated optional or mandatory redemption provisions, common stocks have neither a fixed principal amount nor a maturity. Common stock values are subject to market fluctuations as long as the common stock remains outstanding.
The principal trading market for some of the securities in an Index may be in the over-the-counter market. The existence of a liquid trading market for certain securities may depend on whether dealers will make a market in such securities. There can be no assurance that a market will be made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of a Funds Shares will be adversely affected if trading markets for a Funds portfolio securities are limited or absent or if bid/ask spreads are wide.
CONFLICTS OF INTEREST RISK
An investment in a Fund may be subject to a number of actual or potential conflicts of interest. For example, the Adviser or its affiliates may provide services to a Fund, such as securities lending agency services, custodial, administrative, bookkeeping, and accounting services, transfer agency and shareholder servicing, securities brokerage services, and other services for which the Fund would compensate the Adviser and/or such affiliates. A Fund may invest in other pooled investment vehicles sponsored, managed, or otherwise affiliated with the Adviser. There is no assurance that the rates at which a Fund pays fees or expenses to the Adviser or its affiliates, or the terms on which it enters into transactions with the Adviser or its affiliates, will be the most favorable available in the market generally or as favorable as the rates the Adviser makes available to other clients. Because of its financial interest, the Adviser may have an incentive to enter into transactions or arrangements on behalf of a Fund with itself or its affiliates in circumstances where it might not have done so in the absence of that interest.
CONTINUOUS OFFERING
The method by which Creation Units of Shares are created and traded may raise certain issues under applicable securities laws. Because new Creation Units of Shares are issued and sold by the Trust on an ongoing basis, at any point a distribution, as such term is used in the Securities Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent Shares, and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not underwriters but are effecting transactions in Shares, whether or not participating in the distribution of Shares, are generally required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus-delivery obligation with respect to Shares of a Fund are reminded that under Securities Act Rule 153, a prospectus-delivery obligation under Section 5(b)(2) of the Securities Act owed to an exchange member in connection with a sale on the Exchange is satisfied by the fact that a Funds Prospectus is available at the Exchange upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on an exchange.
COUNTERPARTY RISK
Counterparty risk with respect to derivatives has been and may continue to be affected by new rules and regulations affecting the derivatives market. Some derivatives transactions are required to be centrally cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared position, rather than the credit risk of its original counterparty to the derivatives transaction. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted, what effect the insolvency proceeding would have on any recovery by a Fund, and what impact an insolvency of a clearing house would have on the financial system more generally.
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FUTURES AND OPTIONS TRANSACTIONS
There can be no assurance that a liquid secondary market will exist for any particular futures contract or option at any specific time. Thus, it may not be possible to close a futures or options position. In the event of adverse price movements, a Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if a Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, a Fund may be required to make delivery of the instruments underlying futures contracts it has sold.
Each Fund will minimize the risk that it will be unable to close out a futures or options contract by only entering into futures and options for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts or uncovered call options in some strategies ( e.g. , selling uncovered index futures contracts) is potentially unlimited. The Funds do not plan to use futures and options contracts, when available, in this manner. The risk of a futures position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. A Fund, however, may utilize futures and options contracts in a manner designed to limit its risk exposure to that which is comparable to what it would have incurred through direct investment in securities.
Utilization of futures transactions by a Fund involves the risk of imperfect or even negative correlation to its benchmark Index if the index underlying the futures contracts differs from the benchmark Index or if the futures contracts do not track the benchmark Index as expected. There is also the risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker with whom a Fund has an open position in the futures contract or option.
Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous days settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses.
RISKS OF SWAP AGREEMENTS
Swap agreements are subject to the risk that the swap counterparty will default on its obligations. If such a default occurs, a Fund will have contractual remedies pursuant to the agreements related to the transaction, but such remedies may be subject to bankruptcy and insolvency laws which could affect the Funds rights as a creditor.
The use of interest-rate and index swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. The use of a swap requires an understanding not only of the referenced asset, reference rate or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible market conditions. These transactions generally do not involve the delivery of securities or other underlying assets or principal.
The absence of a regulated execution facility or contract market and lack of liquidity for swap transactions has led, in some instances, to difficulties in trading and valuation, especially in the event of market disruptions. Under recently adopted rules and regulations, transactions in some types of swaps are required to be centrally cleared. In a cleared derivatives transaction, a Funds counterparty to the transaction is a central derivatives clearing organization, or clearing house, rather than a bank or broker. Because each Fund is not a member of a clearing house, and only members of a clearing house can participate directly in the clearing house, the Fund holds cleared derivatives through accounts at clearing members. In cleared derivatives transactions, a Fund will make payments (including margin payments) to and receive payments from a clearing house through its accounts at clearing members. Clearing members guarantee performance of their clients obligations to the clearing house. Centrally cleared derivative arrangements may be less favorable to a Fund than bilateral (non-cleared) arrangements. For example, a Fund may be required to provide greater amounts of margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in contrast to bilateral derivatives transactions, in some cases following a period of notice to a Fund, a clearing member generally can require termination of existing cleared derivatives transactions at any time or an increase in margin requirements above the margin that the clearing member required
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at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate transactions at any time. A Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or which SSGA expects to be cleared), and no clearing member is willing or able to clear the transaction on the Funds behalf. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the value of the transaction and loss of hedging protection. In addition, the documentation governing the relationship between a Fund and clearing members is drafted by the clearing members and generally is less favorable to the Fund than typical bilateral derivatives documentation.
These clearing rules and other new rules and regulations could, among other things, restrict a Funds ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund, increasing margin or capital requirements, or otherwise limiting liquidity or increasing transaction costs. These regulations are new and evolving, so their potential impact on a Fund and the financial system are not yet known.
Because they are two party contracts that may be subject to contractual restrictions on transferability and termination and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid and subject to a Funds limitation on investments in illiquid securities. To the extent that a swap is not liquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. Like most other investments, swap agreements are subject to the risk that the market value of the instrument will change in a way detrimental to a Funds interest.
If a Fund uses a swap as a hedge against, or as a substitute for, a portfolio investment, the Fund will be exposed to the risk that the swap will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the Fund. While hedging strategies involving swap instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other Fund investments. Many swaps are complex and often valued subjectively.
TAX RISKS
As with any investment, you should consider how your investment in Shares of a Fund will be taxed. The tax information in the Prospectus and this SAI is provided as general information. You should consult your own tax professional about the tax consequences of an investment in Shares of a Fund.
Unless your investment in Shares is made through a tax-exempt entity or tax-advantaged retirement account, such as an individual retirement account, you need to be aware of the possible tax consequences when a Fund makes distributions or you sell Shares.
The Trust has adopted the following investment restrictions as fundamental policies with respect to each Fund. These restrictions cannot be changed without the approval of the holders of a majority of a Funds outstanding voting securities. For purposes of the 1940 Act, a majority of the outstanding voting securities of a Fund means the vote, at an annual or a special meeting of the security holders of the Trust, of the lesser of (1) 67% or more of the voting securities of the Fund present at such meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy, or (2) more than 50% of the outstanding voting securities of the Fund. Except with the approval of a majority of the outstanding voting securities, each Fund may not:
1. Concentrate its investments in securities of issuers in the same industry, except as may be necessary to approximate the composition of the Funds underlying Index; 1
2. Make loans to another person except as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund;
3. Issue senior securities or borrow money except as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund;
1 | The SEC Staff considers concentration to involve more than 25% of a funds assets to be invested in an industry or group of industries. |
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4. Invest directly in real estate unless the real estate is acquired as a result of ownership of securities or other instruments. This restriction shall not preclude the Fund from investing in companies that deal in real estate or in instruments that are backed or secured by real estate;
5. Act as an underwriter of another issuers securities, except to the extent the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933 in connection with the Funds purchase and sale of portfolio securities; or
6. Invest in commodities except as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund.
In addition to the investment restrictions adopted as fundamental policies as set forth above, each Fund observes the following restrictions, which may be changed by the Board without a shareholder vote. Each Fund will not:
1. Invest in the securities of a company for the purpose of exercising management or control, provided that the Trust may vote the investment securities owned by the Fund in accordance with its views;
2. Hold illiquid assets in excess of 15% of its net assets. An illiquid asset is any asset which may not be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the Fund has valued the investment; or
3. With respect to each Fund, under normal circumstances, invest less than 80% of its total assets in securities that comprise its relevant Index. Securities that have economic characteristics substantially identical to the economic characteristics of the securities that comprise the Index are included within this 80% investment policy for Fixed Income ETFs.
4. With respect to the SPDR Bloomberg Barclays High Yield Bond ETF, invest, under normal circumstances, less than 80% of its net assets, plus the amount of borrowings for investment purposes, in bonds that are rated below investment-grade. Prior to any change in this 80% investment policy, the Fund will provide shareholders with 60 days written notice.
5. With respect to the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF, under normal circumstances, invest less than 80% of its net assets, plus the amount of borrowings for investment purposes, in U.S. Treasury bills. Prior to any change in the Funds 80% investment policy, the Fund will provide shareholders with 60 days written notice.
6. With respect to the SPDR Bloomberg Barclays Convertible Securities ETF, invest, under normal circumstances, less than 80% of its net assets, plus the amount of borrowings for investment purposes, in convertible securities. Prior to any change in this 80% investment policy, the fund will provide shareholders with 60 days written notice.
The Funds define the foregoing terms in accordance with the definition of such terms per the applicable Index. If a percentage limitation is adhered to at the time of investment or contract, a later increase or decrease in percentage resulting from any change in value or total or net assets will not result in a violation of such restriction, except that the percentage limitations with respect to the borrowing of money and illiquid securities will be observed continuously. With respect to the limitation on borrowing, in the event that a subsequent change in net assets or other circumstances cause a Fund to exceed its limitation, the Fund will take steps to bring the aggregate amount of borrowing back within the limitations within three days thereafter (not including Sundays and holidays). With respect to the limitation on illiquid securities, in the event that a subsequent change in net assets or other circumstances cause a Fund to exceed its limitation, the Fund will take steps to bring the aggregate amount of illiquid instruments back within the limitations as soon as reasonably practicable.
The 1940 Act currently permits each Fund to loan up to 33 1/3% of its total assets. With respect to borrowing, the 1940 Act presently allows each Fund to: (1) borrow from any bank (including pledging, mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total assets, (2) borrow money for temporary purposes in an amount not exceeding 5% of the value of a Funds total assets at the time of the loan, and (3) enter into reverse repurchase agreements. However, under normal circumstances any borrowings by the Fund will not exceed 10% of the Funds total assets. The 1940 Act generally prohibits funds from issuing senior securities, although it does not treat certain transactions as senior securities, such as certain borrowings, short sales, reverse repurchase agreements, firm commitment agreements and standby commitments, with appropriate earmarking or segregation of assets to cover such obligation. With respect to investments in commodities, the 1940 Act presently permits the Funds to invest in commodities in accordance with investment policies contained in its prospectus and SAI. Any such investment shall also comply with the CEA and the rules and regulations thereunder. The 1940 Act does not directly restrict an investment companys ability to invest in real estate, but does require that every investment company have the fundamental investment policy governing such investments. The Funds will not purchase or sell real estate, except that a Fund may invest in companies that deal in real estate (including real estate investment trusts (REITs)) or in instruments that are backed or secured by real estate.
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A discussion of exchange listing and trading matters associated with an investment in a Fund is contained in the Prospectus under PURCHASE AND SALE INFORMATION and ADDITIONAL PURCHASE AND SALE INFORMATION. The discussion below supplements, and should be read in conjunction with, such sections of the Prospectus.
The Shares of each Fund are approved for listing and trading on the Exchange, subject to notice of issuance. The Shares trade on the Exchange at prices that may differ to some degree from their net asset value. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of Shares of a Fund will continue to be met.
The Exchange may, but is not required to, remove the Shares of a Fund from listing if: (1) following the initial twelve-month period beginning upon the commencement of trading of the Fund, there are fewer than 50 beneficial holders of the Shares for 30 or more consecutive trading days; (2) the value of its underlying Index or portfolio of securities on which the Fund is based is no longer calculated or available; (3) the indicative optimized portfolio value (IOPV) of the Fund is no longer calculated or available; or (4) such other event shall occur or condition exists that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. In addition, the Exchange will remove the Shares from listing and trading upon termination of the Trust or a Fund.
The Trust reserves the right to adjust the Share price of a Fund in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Fund.
As in the case of other publicly traded securities, brokers commissions on transactions will be based on negotiated commission rates at customary levels.
The base and trading currencies of each Fund is the U.S. dollar. The base currency is the currency in which a Funds net asset value per Share is calculated and the trading currency is the currency in which Shares of a Fund are listed and traded on the Exchange.
The following information supplements and should be read in conjunction with the section in the Prospectus entitled MANAGEMENT.
Board Responsibilities. The management and affairs of the Trust and its series, including the Funds described in this SAI, are overseen by the Trustees. The Board has approved contracts, as described in this SAI, under which certain companies provide essential management services to the Trust.
Like most mutual funds, the day-to-day business of the Trust, including the management of risk, is performed by third party service providers, such as the Adviser, Distributor, Administrator, and Sub-Administrator. The Trustees are responsible for overseeing the Trusts service providers and, thus, have oversight responsibility with respect to risk management performed by those service providers. Risk management seeks to identify and address risks, i.e ., events or circumstances that could have material adverse effects on the business, operations, shareholder services, investment performance or reputation of the Funds. The Funds and their service providers employ a variety of processes, procedures and controls to identify various of those possible events or circumstances, to lessen the probability of their occurrence and/or to mitigate the effects of such events or circumstances if they do occur. Each service provider is responsible for one or more discrete aspects of the Trusts business ( e.g. , the Adviser is responsible for the day-to-day management of a Funds portfolio investments) and, consequently, for managing the risks associated with that business. The Board has emphasized to the Funds service providers the importance of maintaining vigorous risk management.
The Trustees role in risk oversight begins before the inception of a Fund, at which time the Funds Adviser presents the Board with information concerning the investment objectives, strategies and risks of the Fund, as well as proposed investment limitations for the Fund. Additionally, the Funds Adviser provides the Board with an overview of, among other things, their investment philosophies, brokerage practices and compliance infrastructures. Thereafter, the Board continues its oversight function as various personnel, including the Trusts Chief Compliance Officer, as well as personnel of the Adviser and other service providers, such as the Funds independent accountants, make periodic reports to the Audit Committee or to the Board with respect to various aspects of risk management. The Board and the Audit Committee oversee efforts by management and service providers to manage risks to which a Fund may be exposed.
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The Board is responsible for overseeing the nature, extent and quality of the services provided to the Funds by the Adviser and receives information about those services at its regular meetings. In addition, on an annual basis, in connection with its consideration of whether to renew the Investment Advisory Agreement with the Adviser, the Board meets with the Adviser to review such services. Among other things, the Board regularly considers the Advisers adherence to the Funds investment restrictions and compliance with various Fund policies and procedures and with applicable securities regulations. The Board also reviews information about each Funds investments.
The Trusts Chief Compliance Officer reports regularly to the Board to review and discuss compliance issues. At least annually, the Trusts Chief Compliance Officer provides the Board with a report reviewing the adequacy and effectiveness of the Trusts policies and procedures and those of its service providers, including the Adviser. The report addresses the operation of the policies and procedures of the Trust and each service provider since the date of the last report; any material changes to the policies and procedures since the date of the last report; any recommendations for material changes to the policies and procedures; and any material compliance matters since the date of the last report.
The Board receives reports from the Funds service providers regarding operational risks and risks related to the valuation and liquidity of portfolio securities. Regular reports are made to the Board concerning investments for which market quotations are not readily available. Annually, the independent registered public accounting firm reviews with the Audit Committee its audit of each Funds financial statements, focusing on major areas of risk encountered by the Funds and noting any significant deficiencies or material weaknesses in the Funds internal controls. Additionally, in connection with its oversight function, the Board oversees Fund managements implementation of disclosure controls and procedures, which are designed to ensure that information required to be disclosed by the Trust in its periodic reports with the SEC are recorded, processed, summarized, and reported within the required time periods. The Board also oversees the Trusts internal controls over financial reporting, which comprise policies and procedures designed to provide reasonable assurance regarding the reliability of the Trusts financial reporting and the preparation of the Trusts financial statements.
From their review of these reports and discussions with the Adviser, the Chief Compliance Officer, the independent registered public accounting firm and other service providers, the Board and the Audit Committee learn in detail about the material risks of the Funds, thereby facilitating a dialogue about how management and service providers identify and mitigate those risks.
The Board recognizes that not all risks that may affect a Fund can be identified and/or quantified, that it may not be practical or cost-effective to eliminate or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve a Funds goals, and that the processes, procedures and controls employed to address certain risks may be limited in their effectiveness. Moreover, reports received by the Trustees as to risk management matters are typically summaries of the relevant information. Most of the Funds investment management and business affairs are carried out by or through the Funds Adviser and other service providers, each of which has an independent interest in risk management but whose policies and the methods by which one or more risk management functions are carried out may differ from the Funds and each others in the setting of priorities, the resources available or the effectiveness of relevant controls. As a result of the foregoing and other factors, the Boards ability to monitor and manage risk, as a practical matter, is subject to limitations.
Trustees and Officers. There are six members of the Board of Trustees, five of whom are not interested persons of the Trust, as that term is defined in the 1940 Act (Independent Trustees). Frank Nesvet, an Independent Trustee, serves as Chairman of the Board. The Board has determined its leadership structure is appropriate given the specific characteristics and circumstances of the Trust. The Board made this determination in consideration of, among other things, the fact that the Independent Trustees constitute a super-majority (greater than 75%) of the Board, the fact that the chairperson of each Committee of the Board is an Independent Trustee, the amount of assets under management in the Trust, and the number of funds (and classes of shares) overseen by the Board. The Board also believes that its leadership structure facilitates the orderly and efficient flow of information to the Independent Trustees from fund management.
The Board of Trustees has two standing committees: the Audit Committee and Trustee Committee. The Audit Committee and Trustee Committee are each chaired by an Independent Trustee and composed of all of the Independent Trustees.
Set forth below are the names, year of birth, position with the Trust, length of term of office, and the principal occupations during the last five years and other directorships held of each of the persons currently serving as a Trustee or Officer of the Trust.
21
TRUSTEES
NAME, ADDRESS AND YEAR OF BIRTH |
POSITION(S)
WITH FUNDS |
TERM OF
OFFICE AND LENGTH OF TIME SERVED |
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS |
NUMBER OF
PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE |
OTHER DIRECTORSHIPS HELD BY TRUSTEE DURING THE PAST 5 YEARS |
|||||||||||
INDEPENDENT TRUSTEES |
||||||||||||||||
FRANK NESVET c/o SPDR Series Trust State Street Financial Center One Lincoln Street Boston, MA 02111-2900 1943 |
|
Independent
Trustee,
Chairman,
|
|
|
Term:
Unlimited Served: since September 2000 |
|
Retired. |
[ ] |
None. |
|||||||
DAVID M. KELLY c/o SPDR Series Trust State Street Financial Center One Lincoln Street Boston, MA 02111-2900 1938 |
|
Independent
Trustee |
|
|
Term:
Unlimited Served: since September 2000 |
|
Retired. |
[ ] | Chicago Stock Exchange (Former Director, retired); Penson Worldwide Inc. (Former Director, retired). | |||||||
BONNY EUGENIA BOATMAN c/o SPDR Series Trust State Street Financial Center One Lincoln Street Boston, MA 02111-2900 1950 |
|
Independent
Trustee |
|
|
Term:
Unlimited Served: since April 2010 |
|
Retired. |
[ ] | None. | |||||||
DWIGHT D. CHURCHILL c/o SPDR Series Trust State Street Financial Center One Lincoln Street Boston, MA 02111-2900 1953 |
|
Independent
Trustee |
|
|
Term:
Unlimited Served: since April 2010 |
|
Self-employed consultant since 2010; CEO and President, CFA Institute (June 2014-January 2015). |
[ ] | Affiliated Managers Group, Inc. (Director). | |||||||
CARL G. VERBONCOEUR c/o SPDR Series Trust State Street Financial Center One Lincoln Street Boston, MA 02111-2900 1952 |
|
Independent
Trustee, Audit Committee Chair |
|
|
Term:
Unlimited Served: since April 2010 |
|
Self-employed consultant since 2009. |
[ ] | The Motley Fool Funds Trust (Trustee). |
22
NAME, ADDRESS AND YEAR OF BIRTH |
POSITION(S)
WITH FUNDS |
TERM OF
OFFICE AND LENGTH OF TIME SERVED |
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS |
NUMBER OF
PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE |
OTHER DIRECTORSHIPS HELD BY TRUSTEE DURING THE PAST 5 YEARS |
|||||||||||
INTERESTED TRUSTEE |
||||||||||||||||
JAMES E. ROSS* SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1965 |
|
Interested
Trustee |
|
|
Term:
Unlimited Served as Trustee: since April 2010 |
|
Chairman and Director, SSGA Funds Management, Inc. (2005-present); Executive Vice President, State Street Global Advisors (2012-present); Chief Executive Officer and Director, State Street Global Advisors Funds Distributors, LLC (May 2017 present); Director, State Street Global Markets, LLC (2013 - April 2017); President, SSGA Funds Management, Inc. (2005 2012); Principal, State Street Global Advisors (2000-2005). | [ ] | SSGA SPDR ETFs Europe I plc (Director) (November 2016 - present); SSGA SPDR ETFs Europe II plc (Director) (November 2016 - present). |
| For the purpose of determining the number of portfolios overseen by the Trustees, Fund Complex comprises registered investment companies for which SSGA Funds Management, Inc. serves as investment adviser. |
* | Mr. Ross is an Interested Trustee because of his employment with the Adviser and ownership interest in an affiliate of the Adviser. Mr. Ross previously served as an Interested Trustee from November 2005 to December 2009. |
OFFICERS
NAME, ADDRESS AND YEAR OF BIRTH |
POSITION(S)
WITH FUNDS |
TERM OF OFFICE AND LENGTH OF TIME SERVED |
PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS |
|||
ELLEN M. NEEDHAM SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1967 |
President |
Term: Unlimited Served: since October 2012 |
President and Director, SSGA Funds Management, Inc. (2001 - present)*; Senior Managing Director, State Street Global Advisors (1992 - present)*; Director, State Street Global Advisors Funds Distributors, LLC (May 2017 - present). | |||
ANN M. CARPENTER SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1966 |
Vice President;
Deputy Treasurer |
Term: Unlimited Served: since August 2012 (with respect to Vice President); Unlimited Served: since February 2016 (with respect to Deputy Treasurer) |
Chief Operating Officer, SSGA Funds Management, Inc. (2005 - Present)*; Managing Director, State Street Global Advisors (2005 - present).* | |||
MICHAEL P. RILEY SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1969 |
Vice
President |
Term: Unlimited Served: since February 2005 |
Managing Director, State Street Global Advisors (2005 - present).* |
23
NAME, ADDRESS AND YEAR OF BIRTH |
POSITION(S)
WITH FUNDS |
TERM OF OFFICE AND LENGTH OF TIME SERVED |
PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS |
|||
JOSHUA A. WEINBERG SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1978 |
Chief Legal
Officer |
Term: Unlimited Served: since February 2015 |
Vice President and Managing Counsel, State Street Global Advisors (2011 -present); Clerk, SSGA Funds Management, Inc. (2013-present); Associate, Financial Services Group, Dechert LLP (2006 - 2011). | |||
[ ] State Street Bank and Trust Company One Hundred Summer Street, SUM0703 Boston, MA 02111 [ ] |
Secretary |
Term: Unlimited Served: since August 2017 |
[ ]* | |||
PATRICIA A. MORISETTE State Street Bank and Trust Company One Hundred Summer Street, SUM 0703 Boston, MA 02111 1973 |
Assistant
Secretary |
Term: Unlimited Served: since February 2015 |
Vice President and Counsel, State Street Bank and Trust Company (2014 - present); Assistant Vice President and Counsel, John Hancock Financial Services (2011 - 2013); Independent legal consultant (2009 -2011); Associate, Bingham McCutchen LLP (2003 - 2009).* ,. ** | |||
BRUCE S. ROSENBERG SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1961 |
Treasurer |
Term: Unlimited Served: since February 2016 |
Managing Director, State Street Global Advisors and SSGA Funds Management, Inc. (July 2015 present); Director, Credit Suisse (April 2008 - July 2015). | |||
CHAD C. HALLETT SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1969 |
Deputy
Treasurer |
Term: Unlimited Served: since February 2016 |
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (November 2014 - present); Vice President, State Street Bank and Trust Company (2001 - November 2014).* | |||
DARLENE ANDERSON-VASQUEZ SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1968 |
Deputy
Treasurer |
Term: Unlimited Served: since November 2016 |
Managing Director, State Street Global Advisors and SSGA Funds Management, Inc. (May 2016 - present); Senior Vice President, John Hancock Investments (September 2007 - May 2016).* | |||
ARTHUR A. JENSEN SSGA Funds Management, Inc. 1600 Summer Street Stamford, CT 06905 [1967] |
Deputy
Treasurer |
Term: Unlimited Served: since August 2017 |
Vice President at State Street Global Advisors since July 2016; Deputy Treasurer of Elfun Funds since July 2016; Treasurer of State Street Institutional Funds, State Street Variable Insurance Series Funds, Inc. and GE Retirement Savings Plan Funds since June 2011; Treasurer of Elfun Funds from June 2011 to July 2016; Mutual Funds Controller of GE Asset Management Incorporated from April 2011 to July 2016; Senior Vice President at Citigroup from 2008 to 2010; and Vice President at JPMorgan from 2005 to 2008. |
24
NAME, ADDRESS AND YEAR OF BIRTH |
POSITION(S)
WITH FUNDS |
TERM OF OFFICE AND LENGTH OF TIME SERVED |
PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS |
|||
DANIEL FOLEY SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1972 |
Assistant
Treasurer |
Term: Unlimited Served: since February 2016 |
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (April 2007 - present).* | |||
DANIEL G. PLOURDE SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1980 |
Assistant
Treasurer |
Term: Unlimited Served: since May 2017 |
Assistant Vice President, SSGA Funds Management, Inc. (May 2015 - present); Officer, State Street Bank and Trust Company (March 2009 - May 2015). | |||
SUJATA UPRETI SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1974 |
Assistant
Treasurer |
Term: Unlimited Served: since February 2016 |
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (May 2015 present); Assistant Director, Cambridge Associates, LLC (July 2014 - January 2015); Vice President, Bank of New York Mellon (July 2012 -August 2013); Manager, PricewaterhouseCoopers, LLP (September 2003 - July 2012). | |||
BRIAN HARRIS SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1973 |
Chief
Compliance Officer;
Anti-Money
Officer; Code
|
Term: Unlimited Served: since November 2013 |
Managing Director, State Street Global Advisors and SSGA Funds Management, Inc. (June 2013 - present)*; Senior Vice President and Global Head of Investment Compliance, BofA Global Capital Management (2010 - 2013). |
* | Served in various capacities and/or with various affiliated entities during noted time period. |
** | Served in various capacities and/or with unaffiliated mutual funds or closed-end funds for which State Street Bank and Trust Company or its affiliates act as a provider of services during the noted time period. |
Individual Trustee Qualifications
The Board has concluded that each of the Trustees should serve on the Board because of his or her ability to review and understand information about the Funds provided to him or her by management, to identify and request other information he or she may deem relevant to the performance of his or her duties, to question management and other service providers regarding material factors bearing on the management and administration of the Funds, and to exercise his or her business judgment in a manner that serves the best interests of each Funds shareholders. The Board has concluded that each of the Trustees should serve as a Trustee based on his or her own experience, qualifications, attributes and skills as described below.
The Board has concluded that Mr. Nesvet should serve as Trustee because of the experience he has gained serving as the Chief Executive Officer of a financial services consulting company, serving on the boards of other investment companies, and serving as chief financial officer of a major financial services company; his knowledge of the financial services industry, and the experience he has gained serving as Trustee of the Trust since 2000.
25
The Board has concluded that Mr. Kelly should serve as Trustee because of the experience he gained serving as the President and Chief Executive Officer of the National Securities Clearing Corporation, his previous directorship experience, and the experience he has gained serving as Trustee of the Trust since 2000.
The Board has concluded that Ms. Boatman should serve as Trustee because of the experience she gained serving as Managing Director of the primary investment division of one of the nations leading financial institutions and her knowledge of the financial services industry. Ms. Boatman was elected to serve as Trustee of the Trust in April 2010.
The Board has concluded that Mr. Churchill should serve as Trustee because of the experience he gained serving as the Chief Executive Officer and President of the CFA Institute, serving as the Head of the Fixed Income Division of one of the nations leading mutual fund companies and provider of financial services and his knowledge of the financial services industry. Mr. Churchill was elected to serve as Trustee of the Trust in April 2010.
The Board has concluded that Mr. Verboncoeur should serve as Trustee because of the experience he gained serving as the Chief Executive Officer of a large financial services and investment management company, his knowledge of the financial services industry and his experience serving on the boards of other investment companies. Mr. Verboncoeur was elected to serve as Trustee of the Trust in April 2010.
The Board has concluded that Mr. Ross should serve as Trustee because of the experience he has gained in his various roles with the Adviser, his knowledge of the financial services industry, and the experience he has gained serving as Trustee of the Trust since 2005 (Mr. Ross did not serve as Trustee from December 2009 until April 2010).
In its periodic assessment of the effectiveness of the Board, the Board considers the complementary individual skills and experience of the individual Trustees primarily in the broader context of the Boards overall composition so that the Board, as a body, possesses the appropriate (and appropriately diverse) skills and experience to oversee the business of the Funds.
REMUNERATION OF THE TRUSTEES AND OFFICERS
No officer, director or employee of the Adviser, its parent or subsidiaries receives any compensation from the Trust for serving as an officer or Trustee of the Trust. The Trust, SSGA Master Trust, SSGA Active Trust and SPDR Index Shares Funds (together with the Trust, the Trusts) pay, in the aggregate, each Independent Trustee an annual fee of $230,000 plus $10,000 per in-person meeting attended and $1,250 for each telephonic or video conference meeting attended. The Chairman of the Board receives an additional annual fee of $50,000 and the Chairman of the Audit Committee receives an additional annual fee of $20,000. Prior to July 1, 2017, each Independent Trustee received an annual fee of $210,000 plus $10,000 per in-person meeting attended and $1,250 for each telephonic or video conference meeting attended. The Chairman of the Board received an additional annual fee of $50,000 and the Chairman of the Audit Committee received an additional annual fee of $20,000. The Trust also reimburses each Independent Trustee for travel and other out-of-pocket expenses incurred by him/her in connection with attending such meetings and in connection with attending industry seminars and meetings. Trustee fees are allocated between the Trusts and each of their respective series in such a manner as deemed equitable, taking into consideration the relative net assets of the series.
The table below shows the compensation that the Independent Trustees received during the Trusts fiscal year ended June 30, 2017.
NAME OF INDEPENDENT TRUSTEE |
AGGREGATE
COMPENSATION FROM THE TRUST |
PENSION OR
RETIREMENT BENEFITS ACCRUED AS PART OF TRUST EXPENSES |
ESTIMATED
ANNUAL BENEFITS UPON RETIREMENT |
TOTAL
COMPENSATION FROM THE TRUST AND FUND COMPLEX PAID TO TRUSTEES(1) |
||||||||||||
Frank Nesvet |
$ | [ | ] | N/A | N/A | $ | [ | ] | ||||||||
Bonny Boatman |
$ | [ | ] | N/A | N/A | $ | [ | ] | ||||||||
Dwight Churchill |
$ | [ | ] | N/A | N/A | $ | [ | ] | ||||||||
David M. Kelly |
$ | [ | ] | N/A | N/A | $ | [ | ] | ||||||||
Carl Verboncoeur |
$ | [ | ] | N/A | N/A | $ | [ | ] |
(1) | The Fund Complex includes the Trust. |
26
STANDING COMMITTEES
Audit Committee. The Board has an Audit Committee consisting of all Independent Trustees. Mr. Verboncoeur serves as Chairman. The Audit Committee meets with the Trusts independent auditors to review and approve the scope and results of their professional services; to review the procedures for evaluating the adequacy of the Trusts accounting controls; to consider the range of audit fees; and to make recommendations to the Board regarding the engagement of the Trusts independent auditors. The Audit Committee met [four (4)] times during the fiscal year ended June 30, 2017.
Trustee Committee. The Board has established a Trustee Committee consisting of all Independent Trustees. Mr. Nesvet serves as Chairman. The responsibilities of the Trustee Committee are to: 1) nominate Independent Trustees; 2) review on a periodic basis the governance structures and procedures of the Funds; 3) review proposed resolutions and conflicts of interest that may arise in the business of the Funds and may have an impact on the investors of the Funds; 4) select any independent counsel of the independent trustees as well as make determinations as to that counsels independence; 5) review matters that are referred to the Committee by the Chief Legal Officer or other counsel to the Trust; and 6) provide general oversight of the Funds on behalf of the investors of the Funds. The Trustee Committee does not have specific procedures in place with respect to the consideration of nominees recommended by security holders, but may consider such nominees in the event that one is recommended. The Trustee Committee met [four (4)] times during the fiscal year ended June 30, 2017.
OWNERSHIP OF FUND SHARES
[As of December 31, 2016, neither the Independent Trustees nor their immediate family members owned beneficially or of record any securities in the Adviser, Principal Underwriter or any person controlling, controlled by, or under common control with the Adviser or Principal Underwriter.]
[The following table shows, as of December 31, 2016, the amount of equity securities beneficially owned by the Trustees in the Trust.]
Name of Trustee |
Fund |
Dollar Range of
Equity Securities in the Trust |
Aggregate Dollar Range of
Equity Securities in All Funds Overseen by Trustee in Family of Investment Companies |
|||||||
Independent Trustees: |
||||||||||
Frank Nesvet |
None | None | None | |||||||
David M. Kelly |
None | None | None | |||||||
Bonny Eugenia Boatman |
None | None | None | |||||||
Dwight D. Churchill |
None | None | None | |||||||
Carl G. Verboncoeur |
SPDR S&P Dividend ETF | $10,001 - $50,000 | $10,001 - $50,000 |
27
Name of Trustee |
Fund |
Dollar Range of Equity Securities in the Trust |
Aggregate Dollar Range of Equity Securities in All Funds Overseen by Trustee in Family of Investment Companies |
|||
Interested Trustee: |
||||||
James Ross |
SPDR S&P Metals & Mining ETF SPDR S&P 1000 ETF SPDR Large Cap Market ETF SPDR S&P Biotech ETF SPDR S&P Dividend ETF SPDR S&P 600 Small Cap Growth ETF SPDR S&P 400 Mid Cap Growth ETF SPDR Dow Jones REIT ETF SPDR Bloomberg Barclays Short Term High Yield Bond ETF SPDR Bloomberg Barclays High Yield Bond ETF SPDR Bloomberg Barclays International Corporate Bond ETF SPDR Bloomberg Barclays Short Term High Yield Bond ETF SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF SPDR Nuveen S&P High Yield Municipal Bond ETF SPDR Bloomberg Barclays 1-3 Month T-Bill ETF SPDR Bloomberg Barclays Short Term Corporate Bond ETF SPDR Bloomberg Barclays Investment Grade Floating Rate ETF |
$1 to $10,000 $10,001 - $50,000 $50,001 - $100,000 $10,001 - $50,000 $10,001 - $50,000 $10,001 - $50,000 $10,001 - $50,000 $10,001 - $50,000 $10,001 - $50,000 $10,001 - $50,000 $10,001 - $50,000 $10,001 - $50,000 Over $100,000 Over $100,000 $10,001 - $50,000 Over $100,000 Over $100,000 |
Over $100,000 |
CODES OF ETHICS
The Trust and the Adviser (which includes applicable reporting personnel of the Distributor) each have adopted a code of ethics as required by applicable law, which is designed to prevent affiliated persons of the Trust, the Adviser and the Distributor from engaging in deceptive, manipulative or fraudulent activities in connection with securities held or to be acquired by the Funds (which may also be held by persons subject to the codes of ethics). Each Code of Ethics permits personnel, subject to that Code of Ethics, to invest in securities for their personal investment accounts, subject to certain limitations, including securities that may be purchased or held by the Funds.
There can be no assurance that the codes of ethics will be effective in preventing such activities. Each code of ethics, filed as exhibits to this registration statement, may be examined at the office of the SEC in Washington, D.C. or on the Internet at the SECs website at https://www.sec.gov.
PROXY VOTING POLICIES
The Board believes that the voting of proxies on securities held by each Fund is an important element of the overall investment process. As such, the Board has delegated the responsibility to vote such proxies to the Adviser for all Funds. The Advisers proxy voting policy is attached at the end of this SAI. Information regarding how a Fund voted proxies relating to its portfolio securities during the most recent twelve-month period ended June 30 is available: (1) without charge by calling 1-866-787-2257; (2) on the Funds website at www.spdrs.com; and (3) on the SECs website at https://www.sec.gov.
DISCLOSURE OF PORTFOLIO HOLDINGS POLICY
The Trust has adopted a policy regarding the disclosure of information about the Trusts portfolio holdings. The Board must approve all material amendments to this policy. The Funds portfolio holdings are publicly disseminated each day a Fund is open for business through financial reporting and news services including publicly accessible Internet web sites. In addition, a basket composition file, which includes the security names and share quantities to deliver in exchange for Shares, together with estimates and actual cash
28
components, is publicly disseminated daily prior to the opening of the Exchange via the National Securities Clearing Corporation (NSCC). The basket represents one Creation Unit of a Fund. The Trust, the Adviser or State Street will not disseminate non-public information concerning the Trust, except information may be made available prior to its public availability: (i) to a party for a legitimate business purpose related to the day-to-day operations of the Funds including (a) a service provider, (b) the stock exchanges upon which an ETF is listed, (c) the NSCC, (d) the Depository Trust Company, and (e) financial data/research companies such as Morningstar, Bloomberg L.P., and Reuters, or (ii) to any other party for a legitimate business or regulatory purpose, upon waiver or exception, with the consent of an applicable Trust officer.
THE INVESTMENT ADVISER
SSGA FM acts as investment adviser to the Trust and, subject to the supervision of the Board, is responsible for the investment management of each Fund. As of June 30, 2017, the Adviser managed approximately $[ ] billion in assets. The Advisers principal address is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111. The Adviser, a Massachusetts corporation, is a wholly owned subsidiary of State Street Corporation, a publicly held financial holding company. State Street Global Advisors (SSGA), consisting of the Adviser and other investment advisory affiliates of State Street Corporation, is the investment management arm of State Street Corporation.
The Adviser serves as investment adviser to each Fund pursuant to an investment advisory agreement (Investment Advisory Agreement) between the Trust and the Adviser. The Investment Advisory Agreement, with respect to each Fund, continues in effect for two years from its effective date, and thereafter is subject to annual approval by (1) the Board or (2) vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, provided that in either event such continuance also is approved by a majority of the Board who are not interested persons (as defined in the 1940 Act) of the Trust by a vote cast in person at a meeting called for the purpose of voting on such approval. The Investment Advisory Agreement with respect to each Fund is terminable without penalty, on 60 days notice, by the Board or by a vote of the holders of a majority (as defined in the 1940 Act) of a Funds outstanding voting securities. The Investment Advisory Agreement is also terminable upon 60 days notice by the Adviser and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
Under the Investment Advisory Agreement, the Adviser, subject to the supervision of the Board and in conformity with the stated investment policies of each Fund, manages the investment of each Funds assets. The Adviser is responsible for placing purchase and sale orders and providing continuous supervision of the investment portfolio of each Fund. Pursuant to the Investment Advisory Agreement, the Adviser is not liable for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its obligations and duties.
A discussion regarding the basis for the Boards approval of the Investment Advisory Agreement regarding the Funds is available in the Trusts Annual Report to Shareholders for the period ended June 30, 2017.
For the services provided to the Funds under the Investment Advisory Agreement, each Fund pays the Adviser monthly fees based on a percentage of each Funds average daily net assets as set forth in each Funds Prospectus. From time to time, the Adviser may waive all or a portion of its fee. The Adviser pays all expenses of each Fund other than the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustees counsel fees), acquired fund fees and expenses, litigation expenses and other extraordinary expenses.
For the past three fiscal years ended June 30, the Funds paid the following amounts to the Adviser:
FUND |
2017 | 2016 | 2015 | |||||||||
SPDR NYSE Technology ETF |
$ | [ | ] | $ | 1,589,193 | $ | 1,232,827 | |||||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
$ | [ | ] | $ | 3,125,392 | $ | 1,690,004 | |||||
SPDR Bloomberg Barclays Convertible Securities ETF |
$ | [ | ] | $ | 10,103,078 | $ | 11,696,202 | |||||
SPDR Bloomberg Barclays High Yield Bond ETF |
$ | [ | ] | $ | 42,736,212 | $ | 40,619,269 |
29
PORTFOLIO MANAGERS
The Adviser manages the Funds using a team of investment professionals. The professionals primarily responsible for the day-to-day portfolio management of each Fund are:
Portfolio Management Team |
Fund |
|
Michael Feehily, Karl Schneider and Juan Acevedo |
SPDR NYSE Technology ETF |
|
Todd Bean, Sean Lussier and Jeff St. Peters |
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
|
Michael Brunell and Christopher DiStefano |
SPDR Bloomberg Barclays Convertible Securities ETF |
|
Michael Brunell, Kyle Kelly and Bradley J. Sullivan |
SPDR Bloomberg Barclays High Yield Bond ETF |
The following table lists the number and types of accounts managed by each of the key professionals involved in the day-to-day portfolio management for each Fund and assets under management in those accounts. The total number of accounts and assets have been allocated to each respective manager. Therefore, some accounts and assets have been counted twice.
Other Accounts Managed as of June 30, 2017
Portfolio Manager |
Registered
Investment Company Accounts |
Assets
Managed (billions) * |
Pooled
Investment Vehicle Accounts |
Assets
Managed (billions) * |
Other
Accounts |
Assets
Managed (billions) * |
Total
Assets Managed (billions) * |
|||||||||||||||||||||
Michael Feehily |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Karl Schneider |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Juan Acevedo |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Todd Bean |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Sean Lussier |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Jeff St. Peters |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Michael Brunell |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Christopher DiStefano |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Kyle Kelly |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Bradley J. Sullivan |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] |
* | There are no performance fees associated with these accounts. |
The following table lists the dollar range of Shares beneficially owned by portfolio managers listed above as of June 30, 2017:
Portfolio Manager |
Fund |
Dollar Range of Trust
Shares Beneficially Owned |
||||||
Michael Feehily |
[ | ] | [ | ] | ||||
Karl Schneider |
[ | ] | [ | ] | ||||
Juan Acevedo |
[ | ] | [ | ] | ||||
Todd Bean |
[ | ] | [ | ] | ||||
Sean Lussier |
[ | ] | [ | ] | ||||
Jeff St. Peters |
[ | ] | [ | ] | ||||
Michael Brunell |
[ | ] | [ | ] | ||||
Christopher DiStefano |
[ | ] | [ | ] | ||||
Kyle Kelly |
[ | ] | [ | ] | ||||
Bradley J. Sullivan |
[ | ] | [ | ] |
A portfolio manager that has responsibility for managing more than one account may be subject to potential conflicts of interest because he or she is responsible for other accounts in addition to the Funds. Those conflicts could include preferential treatment of one account over others in terms of: (a) the portfolio managers execution of different investment strategies for various accounts; or (b) the allocation of resources or of investment opportunities. The Adviser has adopted policies and procedures designed to address these
30
potential material conflicts. For instance, portfolio managers are normally responsible for all accounts within a certain investment discipline, and do not, absent special circumstances, differentiate among the various accounts when allocating resources. Additionally, the Adviser, and its advisory affiliates have processes and procedures for allocating investment opportunities among portfolios that are designed to provide a fair and equitable allocation among the portfolio managers accounts with the same strategy.
Portfolio managers may manage numerous accounts for multiple clients. These accounts may include registered investment companies, other types of pooled accounts ( e.g. , collective investment funds), and separate accounts ( i.e. , accounts managed on behalf of individuals or public or private institutions). Portfolio managers make investment decisions for each account based on the investment objectives and policies and other relevant investment considerations applicable to that portfolio. A potential conflict of interest may arise as a result of the portfolio managers responsibility for multiple accounts with similar investment guidelines. Under these circumstances, a potential investment may be suitable for more than one of the portfolio managers accounts, but the quantity of the investment available for purchase is less than the aggregate amount the accounts would ideally devote to the opportunity. Similar conflicts may arise when multiple accounts seek to dispose of the same investment. The portfolio managers may also manage accounts whose objectives and policies differ from that of the Funds. These differences may be such that under certain circumstances, trading activity appropriate for one account managed by the portfolio manager may have adverse consequences for another account managed by the portfolio manager. For example, an account may sell a significant position in a security, which could cause the market price of that security to decrease, while a Fund maintained its position in that security.
A potential conflict may arise when the portfolio managers are responsible for accounts that have different advisory feesthe difference in fees could create an incentive for the portfolio manager to favor one account over another, for example, in terms of access to investment opportunities. Another potential conflict may arise when the portfolio manager has an investment in one or more accounts that participate in transactions with other accounts. His or her investment(s) may create an incentive for the portfolio manager to favor one account over another. The Adviser has adopted policies and procedures reasonably designed to address these potential material conflicts. For instance, portfolio managers are normally responsible for all accounts within a certain investment discipline, and do not, absent special circumstances, differentiate among the various accounts when allocating resources. Additionally, the Adviser and its advisory affiliates have processes and procedures for allocating investment opportunities among portfolios that are designed to provide a fair and equitable allocation.
SSGAs culture is complemented and reinforced by a total rewards strategy that is based on a pay for performance philosophy which seeks to offer a competitive pay mix of base salary, benefits, cash incentives and deferred compensation.
Salary is based on a number of factors, including external benchmarking data and market trends, State Street performance, SSGA performance, and individual overall performance. SSGAs Global Human Resources department regularly participates in compensation surveys in order to provide SSGA with market-based compensation information that helps support individual pay decisions.
Additionally, subject to State Street and SSGA business results, State Street allocates an incentive pool to SSGA to reward its employees. The size of the incentive pool for most business units is based on the firms overall profitability and other factors, including performance against risk-related goals. For most SSGA investment teams, SSGA recognizes and rewards performance by linking annual incentive decisions for investment teams to the firms or business units profitability and business unit investment performance over a multi-year period.
For the passive equity investment team, incentive pool funding is driven in part by the post-tax 1 and 3-year tracking error of the funds managed by the team against the benchmark indexes of the funds.
The discretionary allocation of the incentive pool to the business units within SSGA is influenced by market-based compensation data, as well as the overall performance of each business unit. Individual compensation decisions are made by the employees manager, in conjunction with the senior management of the employees business unit. These decisions are based on the overall performance of the employee and, as mentioned above, on the performance of the firm and business unit. Depending on the job level, a portion of the annual incentive may be awarded in deferred compensation, which may include cash and/or deferred stock awards (State Street stock), which typically vests over a four-year period. This helps to retain staff and further aligns SSGA employees interests with SSGA clients and shareholders long-term interests.
SSGA recognizes and rewards outstanding performance by:
| Promoting employee ownership to connect employees directly to the companys success. |
| Using rewards to reinforce mission, vision, values and business strategy. |
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| Seeking to recognize and preserve the firms unique culture and team orientation. |
| Providing all employees the opportunity to share in the success of SSGA. |
For Global Equity Beta Solutions Group, incentive pool funding is influenced by 1 and 3-year tracking error.
THE ADMINISTRATOR, SUB-ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Administrator . SSGA FM serves as the administrator to each series of the Trust, pursuant to an Administration Agreement dated June 1, 2015 (the SSGA Administration Agreement). Pursuant to the SSGA Administration Agreement, SSGA FM is obligated to continuously provide business management services to the Trust and its series and will generally, subject to the general oversight of the Trustees and except as otherwise provided in the SSGA Administration Agreement, manage all of the business and affairs of the Trust.
Sub-Administrator, Custodian and Transfer Agent . Prior to June 1, 2015, State Street served as the Trusts administrator, pursuant to an Administration Agreement dated September 22, 2000 (the SSB Administration Agreement). As compensation for its services under the SSB Administration Agreement, State Street received a fee for its services, calculated based on the average aggregate net assets of the Trust and SPDR Index Shares Funds (SIS), of 0.0225% on the first $12.5 billion and 0.0075% thereafter.
State Street serves as the sub-administrator to each series of the Trust, pursuant to a Sub-Administration Agreement dated June 1, 2015 (the Sub-Administration Agreement). Under the Sub-Administration Agreement, State Street is obligated to provide certain sub-administrative services to the Trust and its series. State Street is a wholly owned subsidiary of State Street Corporation, a publicly held financial holding company, and is affiliated with the Adviser. State Streets mailing address is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111.
State Street also serves as Custodian for the Trusts series pursuant to a custodian agreement (Custodian Agreement). As Custodian, State Street holds Fund assets, calculates the net asset value of the Shares and calculates net income and realized capital gains or losses. State Street and the Trust will comply with the self-custodian provisions of Rule 17f-2 under the 1940 Act.
State Street also serves as Transfer Agent for each series of the Trust pursuant to a transfer agency agreement (Transfer Agency Agreement).
Compensation. As compensation for their services provided under the SSGA Administration and Sub-Administration agreements, SSGA FM and State Street, respectively, shall receive fees for the services, calculated based on the average aggregate net assets of the Trust and SPDR Index Shares Funds, of 0.0225% on the first $12.5 billion and 0.0075% thereafter.
As compensation for its services under the Custodian Agreement and Transfer Agency Agreement, State Street shall receive a fee for its services, calculated based on the average aggregate net assets of the Trust and SPDR Index Shares Funds. Pursuant to the Custody Agreement, State Street shall receive 0.0025% on the first $50 billion, 0.0020% on the next $50 billion and 0.0010% thereafter. In addition, under the Custody Agreement State Street shall be entitled to fees for fund accounting services and shall receive 0.0150% for the first $12.5 billion and 0.0025% thereafter. State Street shall also be entitled to specialized custody, ETF accounting services and transfer agency fees and shall receive 0.0050% on the first $12.5 billion and 0.0030% thereafter. For each series of the Trust, a $110,000 annual minimum fee applies. The greater of the minimum fee or the asset based fee will be charged. In addition, State Street shall receive global safekeeping and transaction fees, which are calculated on a per-country basis, in-kind creation (purchase) and redemption transaction fees (as described below) and revenue on certain cash balances. State Street may be reimbursed by the series of the Trust for its out-of-pocket expenses. The Investment Advisory Agreement provides that the Adviser will pay certain operating expenses of the Trust, including the fees due to State Street under the Custodian Agreement and the Transfer Agency Agreement.
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THE DISTRIBUTOR
State Street Global Advisors Funds Distributors, LLC is the principal underwriter and Distributor of Shares. Prior to May 1, 2017, State Street Global Advisors Funds Distributors, LLC was known as State Street Global Markets, LLC. Its principal address is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111. Investor information can be obtained by calling 1-866-787-2257. The Distributor has entered into a distribution agreement (Distribution Agreement) with the Trust pursuant to which it distributes Shares of each Fund. The Distribution Agreement will continue for two years from its effective date and is renewable annually thereafter. Shares will be continuously offered for sale by the Trust through the Distributor only in Creation Units, as described in the Prospectus and below under PURCHASE AND REDEMPTION OF CREATION UNITS. Shares in less than Creation Units are not distributed by the Distributor. The Distributor will deliver the Prospectus to persons purchasing Creation Units and will maintain records of both orders placed with it and confirmations of acceptance furnished by it. The Distributor is a broker-dealer registered under the Securities Exchange Act of 1934 (the Exchange Act) and a member of the Financial Industry Regulatory Authority (FINRA). The Distributor has no role in determining the investment policies of the Trust or which securities are to be purchased or sold by the Trust. An affiliate of the Distributor may assist Authorized Participants (as defined below) in assembling shares to purchase Creation Units or upon redemption, for which it may receive commissions or other fees from such Authorized Participants. An affiliate of the Distributor also receives compensation from State Street for providing on-line creation and redemption functionality to Authorized Participants through its Fund Connect application.
The Adviser or Distributor, or an affiliate of the Adviser or Distributor, may directly or indirectly make cash payments to certain broker-dealers for participating in activities that are designed to make registered representatives and other professionals more knowledgeable about exchange traded products, including the SPDR funds, or for other activities, such as participation in marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems. As of the date of this SAI, the Adviser and/or Distributor had arrangements to make payments, other than for the educational programs and marketing activities described above, only to Charles Schwab & Co., Inc. (Schwab), Pershing LLC (Pershing) and RBC Capital Markets, LLC (RBC). Pursuant to these arrangements, Schwab, Pershing and RBC have agreed to promote certain SPDR funds to their customers and not to charge certain of their customers any commissions when those customers purchase or sell shares of certain SPDR funds. Payments to a broker-dealer or intermediary may create potential conflicts of interest between the broker-dealer or intermediary and its clients. These amounts, which may be significant, are paid by the Adviser and/or Distributor from their own resources and not from Fund assets. In addition, the Adviser or Distributor, or an affiliate of the Adviser or Distributor, as well as an index provider that is not affiliated with the Adviser or Distributor, may also reimburse expenses or make payments from their own assets to other persons in consideration of services or other activities that they believe may benefit the SPDR business or facilitate investment in SPDR funds.
The Distribution Agreement provides that it may be terminated at any time, without the payment of any penalty, as to a Fund: (i) by vote of a majority of the Independent Trustees or (ii) by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, on at least 60 days written notice to the Distributor. The Distribution Agreement is also terminable upon 60 days notice by the Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The allocation among the Trusts series of fees and expenses payable under the Distribution Agreement will be made pro rata in accordance with the daily net assets of the respective series.
The Distributor may also enter into agreements with securities dealers (Soliciting Dealers) who will solicit purchases of Creation Unit aggregations of Shares. Such Soliciting Dealers may also be Participating Parties (as defined in the Book Entry Only System section below) and/or DTC Participants (as defined below).
Pursuant to the Distribution Agreement, the Trust has agreed to indemnify the Distributor, and may indemnify Soliciting Dealers and Authorized Participants (as described below) entering into agreements with the Distributor, for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its obligations and duties under the Distribution Agreement or other agreement, as applicable.
INDEX PROVIDER AND OTHER PERSONS
An unaffiliated index provider may make payments from its own assets to other persons in consideration for services provided or other activities that may facilitate investment in SPDR funds.
33
The policy of the Trust regarding purchases and sales of securities for each Fund is that primary consideration will be given to obtaining the most favorable prices and efficient executions of transactions. Consistent with this policy, when securities transactions are effected on a stock exchange, the Trusts policy is to pay commissions which are considered fair and reasonable without necessarily determining that the lowest possible commissions are paid in all circumstances. The Trust believes that a requirement always to seek the lowest possible commission cost could impede effective portfolio management and preclude a Fund and the Adviser from obtaining a high quality of brokerage and research services. In seeking to determine the reasonableness of brokerage commissions paid in any transaction, the Adviser relies upon its experience and knowledge regarding commissions generally charged by various brokers and on its judgment in evaluating the brokerage and research services received from the broker effecting the transaction. Such determinations are necessarily subjective and imprecise, as in most cases an exact dollar value for those services is not ascertainable. The Trust has adopted policies and procedures that prohibit the consideration of sales of a Funds Shares as a factor in the selection of a broker or dealer to execute its portfolio transactions.
In selecting a broker/dealer for each specific transaction, the Adviser chooses the broker/dealer deemed most capable of providing the services necessary to obtain the most favorable execution and does not take the sale of Shares into account. The Adviser considers the full range of brokerage services applicable to a particular transaction that may be considered when making this judgment, which may include, but is not limited to: liquidity, price, commission, timing, aggregated trades, capable floor brokers or traders, competent block trading coverage, ability to position, capital strength and stability, reliable and accurate communications and settlement processing, use of automation, knowledge of other buyers or sellers, arbitrage skills, administrative ability, underwriting and provision of information on a particular security or market in which the transaction is to occur. The specific criteria will vary depending upon the nature of the transaction, the market in which it is executed, and the extent to which it is possible to select from among multiple broker/dealers. The Adviser will also use electronic crossing networks when appropriate.
The Adviser does not currently use the Funds assets for, or participate in, third party soft dollar arrangements, although the Adviser may receive proprietary research from various full service brokers, the cost of which is bundled with the cost of the brokers execution services. The Adviser does not pay up for the value of any such proprietary research. The Adviser may aggregate trades with clients of SSGA, whose commission dollars may be used to generate soft dollar credits for SSGA. Although the Advisers clients commissions are not used for third party soft dollars, the Advisers and SSGAs clients may benefit from the soft dollar products/services received by SSGA.
The Adviser assumes general supervision over placing orders on behalf of the Trust for the purchase or sale of portfolio securities. If purchases or sales of portfolio securities of the Trust and one or more other investment companies or clients supervised by the Adviser are considered at or about the same time, transactions in such securities are allocated among the several investment companies and clients in a manner deemed equitable and consistent with its fiduciary obligations to all by the Adviser. In some cases, this procedure could have a detrimental effect on the price or volume of the security so far as the Trust is concerned. However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate lower brokerage commissions will be beneficial to the Trust. The primary consideration is prompt execution of orders at the most favorable net price.
The Funds will not deal with affiliates in principal transactions unless permitted by exemptive order or applicable rule or regulation.
34
[The table below shows the aggregate dollar amount of brokerage commissions paid by the SPDR NYSE Technology ETF and SPDR Bloomberg Barclays Convertible Securities ETF for the fiscal years ended June 30. [None of the brokerage commissions paid were paid to affiliated brokers and the Fixed Income ETFs (except SPDR Bloomberg Barclays Convertible Securities ETF) did not pay any brokerage commissions.] Brokerage commissions paid by a Fund may be substantially different from year to year for multiple reasons, including market volatility and the demand for a particular Fund.
FUND |
2017 | 2016 | 2015 | |||||||||
SPDR NYSE Technology ETF |
$ | [ | ] | $ | 21,022 | $ | 9,245 | |||||
SPDR Bloomberg Barclays Convertible Securities ETF |
$ | [ | ] | $ | 5,359 | $ | 2,250 |
Securities of Regular Broker-Dealer. Each Fund is required to identify any securities of its regular brokers and dealers (as such term is defined in the 1940 Act) which it may hold at the close of its most recent fiscal year. Regular brokers or dealers of the Trust are the ten brokers or dealers that, during the most recent fiscal year: (i) received the greatest dollar amounts of brokerage commissions from the Trusts portfolio transactions; (ii) engaged as principal in the largest dollar amounts of portfolio transactions of the Trust; or (iii) sold the largest dollar amounts of the Trusts shares.
Holdings in Securities of Regular Broker-Dealers as of June 30, 2017.
[To be provided by subsequent amendment]
Portfolio turnover may vary from year to year, as well as within a year. High turnover rates are likely to result in comparatively greater brokerage expenses or transaction costs. [The portfolio turnover rate for each Fund is expected to be lower than 100%, except with respect to the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF, which may experience significantly higher turnover.] The Funds may also experience higher portfolio turnover when migrating to a different benchmark index. The overall reasonableness of brokerage commissions and transaction costs is evaluated by the Adviser based upon its knowledge of available information as to the general level of commissions and transaction costs paid by other institutional investors for comparable services.
The following information supplements and should be read in conjunction with the section in the Prospectus entitled ADDITIONAL PURCHASE AND SALE INFORMATION.
The Depository Trust Company (DTC) acts as securities depositary for the Shares. Shares of each Fund are represented by securities registered in the name of DTC or its nominee, Cede & Co., and deposited with, or on behalf of, DTC. Except in the limited circumstance provided below, certificates will not be issued for Shares.
DTC, a limited-purpose trust company, was created to hold securities of its participants (the DTC Participants) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (NYSE) and the FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (the Indirect Participants).
Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as Beneficial Owners) is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of Shares.
Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Trust and DTC, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of the Shares of each Fund held by each DTC Participant. The Trust, either directly or through a third
35
party service, shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant. The Trust, either directly or through a third party service, shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant and/or third party service a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants accounts with payments in amounts proportionate to their respective beneficial interests in Shares of a Fund as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a street name, and will be the responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Although the Funds do not have information concerning their beneficial ownership held in the names of DTC Participants, as of [ ], the names, addresses and percentage ownership of each DTC Participant that owned of record 5% or more of the outstanding Shares of the Funds were as follows:
[To be provided by subsequent amendment]
An Authorized Participant (as defined below) may hold of record more than 25% of the outstanding Shares of a Fund. From time to time, Authorized Participants may be a beneficial and/or legal owner of a Fund, may be affiliated with an index provider, may be deemed to have control of the applicable Fund and/or may be able to affect the outcome of matters presented for a vote of the shareholders of the Fund. Authorized Participants may execute an irrevocable proxy granting the Distributor or another affiliate of State Street (the Agent) power to vote or abstain from voting such Authorized Participants beneficially or legally owned Shares of a Fund. In such cases, the Agent shall mirror vote (or abstain from voting) such Shares in the same proportion as all other beneficial owners of the Fund.
As of [ ], to the knowledge of the Trust, the following persons held of record or beneficially through one or more accounts 25% or more of the outstanding shares of the Fund.
[To be provided by subsequent amendment]
[The Trustees and Officers of the Trust, as a group, own less than 1% of the Trusts voting securities as of the date of this SAI.]
PURCHASE AND REDEMPTION OF CREATION UNITS
Each Fund issues and redeems its Shares on a continuous basis, at net asset value, only in a large specified number of Shares called a Creation Unit, either principally in-kind for securities included in the relevant Index or in cash for the value of such securities. The
36
value of each Fund is determined once each business day, except with respect to the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF, the value of which is determined twice each business day, as described under Determination of Net Asset Value. The Creation Unit size for a Fund may change. Authorized Participants (as defined below) will be notified of such change. The principal consideration for creations and redemptions for each ETF is set forth in the table below:
FUND |
CREATION* | REDEMPTION* | ||
SPDR NYSE Technology ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays Convertible Securities ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays High Yield Bond ETF |
In-Kind | In-Kind |
* | May be revised at any time without notice. Funds that effect redemptions principally for cash, rather than primarily in-kind, may be less tax efficient than investments in conventional ETFs. |
PURCHASE (CREATION). The Trust issues and sells Shares of each Fund only: in Creation Units on a continuous basis through the Principal Underwriter, without a sales load (but subject to transaction fees), at their NAV per share next determined after receipt of an order, on any Business Day (as defined below), in proper form pursuant to the terms of the Authorized Participant Agreement (Participant Agreement). A Business Day with respect to a Fund is, generally, any day on which the NYSE is open for business, although Fixed Income ETFs will also not be open for orders on Veterans Day and Columbus Day.
FUND DEPOSIT. The consideration for purchase of a Creation Unit of a Fund generally consists of either (i) the in-kind deposit of a designated portfolio of securities (the Deposit Securities) per each Creation Unit, constituting a substantial replication, or a portfolio sampling representation, of the securities included in the relevant Funds benchmark Index and the Cash Component (defined below), computed as described below or (ii) the cash value of the Deposit Securities (Deposit Cash) and the Cash Component, computed as described below. When accepting purchases of Creation Units for cash, a Fund may incur additional costs associated with the acquisition of Deposit Securities that would otherwise be provided by an in-kind purchaser.
Together, the Deposit Securities or Deposit Cash, as applicable, and the Cash Component constitute the Fund Deposit, which represents the minimum initial and subsequent investment amount for a Creation Unit of a Fund. The Cash Component, which may include a Dividend Equivalent Payment, is an amount equal to the difference between the net asset value of the Shares (per Creation Unit) and the market value of the Deposit Securities or Deposit Cash, as applicable. The Dividend Equivalent Payment enables a Fund to make a complete distribution of dividends on the day preceding the next dividend payment date, and is an amount equal, on a per Creation Unit basis, to the dividends on all the portfolio securities of the Fund (Dividend Securities) with ex-dividend dates within the accumulation period for such distribution (the Accumulation Period), net of expenses and liabilities for such period, as if all of the Dividend Securities had been held by the Fund for the entire Accumulation Period. The Accumulation Period begins on the ex-dividend date for each Fund and ends on the day preceding the next ex-dividend date. If the Cash Component is a positive number ( i.e. , the net asset value per Creation Unit exceeds the market value of the Deposit Securities or Deposit Cash, as applicable), the Cash Component shall be such positive amount. If the Cash Component is a negative number ( i.e. , the net asset value per Creation Unit is less than the market value of the Deposit Securities or Deposit Cash, as applicable), the Cash Component shall be such negative amount and the creator will be entitled to receive cash in an amount equal to the Cash Component. The Cash Component serves the function of compensating for any differences between the net asset value per Creation Unit and the market value of the Deposit Securities or Deposit Cash, as applicable. Computation of the Cash Component excludes any stamp duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Securities, if applicable, which shall be the sole responsibility of the Authorized Participant (as defined below).
The Custodian, through NSCC, makes available on each Business Day, immediately prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern time), the list of the names and the required number of shares of each Deposit Security or the required amount of Deposit Cash, as applicable, to be included in the current Fund Deposit (based on information at the end of the previous Business Day) for a Fund. Such Fund Deposit is subject to any applicable adjustments as described below, in order to effect purchases of Creation Units of a Fund until such time as the next-announced composition of the Deposit Securities or the required amount of Deposit Cash, as applicable, is made available.
The identity and number of shares of the Deposit Securities or the amount of Deposit Cash, as applicable, required for a Fund Deposit for each Fund changes as rebalancing adjustments, interest payments and corporate action events are reflected from time to time by the Adviser with a view to the investment objective of the Fund. Information regarding the Fund Deposit necessary for the purchase of a Creation Unit is made available to Authorized Participants and other market participants seeking to transact in Creation Unit aggregations. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the component securities of a Funds Index.
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The Trust intends to require the substitution of an amount of cash (i.e., a cash in lieu amount) to replace any Deposit Security that is a TBA transaction. The amount of cash contributed will be equivalent to the price of the TBA transaction listed as a Deposit Security. As noted above, the Trust reserves the right to permit or require the substitution of Deposit Cash to replace any Deposit Security, which shall be added to the Cash Component, including, without limitation, in situations where the Deposit Security: (i) may not be available in sufficient quantity for delivery, (ii) may not be eligible for transfer through the systems of DTC for corporate securities and municipal securities or the Federal Reserve System for U.S. Treasury securities; (iii) may not be eligible for trading by an Authorized Participant (as defined below) or the investor for which it is acting; (iv) would be restricted under the securities laws or where the delivery of the Deposit Security to the Authorized Participant would result in the disposition of the Deposit Security by the Authorized Participant becoming restricted under the securities laws, or (v) in certain other situations (collectively, non-standard orders). The Trust also reserves the right to: (i) permit or require the substitution of Deposit Securities in lieu of Deposit Cash; and (ii) include or remove Deposit Securities from the basket in anticipation of index rebalancing changes. The adjustments described above will reflect changes, known to the Adviser on the date of announcement to be in effect by the time of delivery of the Fund Deposit, in the composition of the subject Index being tracked by the relevant Fund or resulting from certain corporate actions.
PROCEDURES FOR PURCHASE OF CREATION UNITS. To be eligible to place orders with the Principal Underwriter, as facilitated via the Transfer Agent, to purchase a Creation Unit of a Fund, an entity must be (i) a Participating Party, i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the NSCC (the Clearing Process), a clearing agency that is registered with the SEC; or (ii) a DTC Participant (see BOOK ENTRY ONLY SYSTEM), and, with respect to the Fixed Income ETFs must have the ability to clear through the Federal Reserve System. In addition, each Participating Party or DTC Participant (each, an Authorized Participant) must execute a Participant Agreement that has been agreed to by the Principal Underwriter and the Transfer Agent, and that has been accepted by the Trust, with respect to purchases and redemptions of Creation Units. Each Authorized Participant will agree, pursuant to the terms of a Participant Agreement, on behalf of itself or any investor on whose behalf it will act, to certain conditions, including that it will pay to the Trust, an amount of cash sufficient to pay the Cash Component together with the creation transaction fee (described below) and any other applicable fees, taxes and additional variable charge.
All orders to purchase Shares directly from a Fund, including non-standard orders, must be placed for one or more Creation Units and in the manner and by the time set forth in the Participant Agreement and/or the applicable order form. The date on which an order to purchase Creation Units (or an order to redeem Creation Units, as set forth below) is received and accepted is referred to as the Order Placement Date.
An Authorized Participant may require an investor to make certain representations or enter into agreements with respect to the order (e.g., to provide for payments of cash, when required). Investors should be aware that their particular broker may not have executed a Participant Agreement and that, therefore, orders to purchase Shares directly from a Fund in Creation Units have to be placed by the investors broker through an Authorized Participant that has executed a Participant Agreement. In such cases there may be additional charges to such investor. At any given time, there may be only a limited number of broker-dealers that have executed a Participant Agreement and only a small number of such Authorized Participants may have international capabilities.
On days when the Exchange or the bond markets close earlier than normal, a Fund may require orders to create Creation Units to be placed earlier in the day. In addition, if a market or markets on which a Funds investments are primarily traded is closed, the Fund will also generally not accept orders on such day(s). Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement and in accordance with the applicable order form. Those placing orders through an Authorized Participant should allow sufficient time to permit proper submission of the purchase order by the cut-off time on such Business Day. Economic or market disruptions or changes, or telephone or other communication failure may impede the ability to reach the Distributor or an Authorized Participant.
Fund Deposits must be delivered by an Authorized Participant through the Federal Reserve System (for cash and U.S. government securities), or through DTC (for corporate securities and municipal securities), through a subcustody agent (for foreign securities) and/or through such other arrangements allowed by the Trust or its agents. With respect to foreign Deposit Securities, the Custodian shall cause the subcustodian of a Fund to maintain an account into which the Authorized Participant shall deliver, on behalf of itself or the party on whose behalf it is acting, such Deposit Securities. Foreign Deposit Securities must be delivered to an account maintained at the applicable local subcustodian. The Fund Deposit transfer must be ordered by the Authorized Participant in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities or Deposit Cash, as applicable, to the account of a Fund or its agents by no later than the Settlement Date. The Settlement Date for a Fund is generally the third Business Day (T+3) after the Order Placement Date. Effective September 5, 2017, consistent with the SECs adoption of a rule amendment shortening the standard settlement cycle for most broker-dealer transactions, the Settlement Date for a Fund will generally be the second Business Day (T+2) after the Order Placement Date. Both before and after September 5, 2017, the Settlement Date for the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF is the same day (T+0) as the Order Placement Date for orders placed
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prior to 12:00 p.m. Eastern time; orders placed after 12:00 p.m. Eastern time will have a Settlement Date of the first Business Day (T+1) following the Order Placement Date. All questions as to the number of Deposit Securities or Deposit Cash to be delivered, as applicable, and the validity, form and eligibility (including time of receipt) for the deposit of any tendered securities or cash, as applicable, will be determined by the Trust, whose determination shall be final and binding. The amount of cash represented by the Cash Component must be transferred directly to the Custodian through the Federal Reserve Bank wire transfer system in a timely manner so as to be received by the Custodian no later than the Settlement Date. If the Cash Component and the Deposit Securities or Deposit Cash, as applicable, are not received in a timely manner by the Settlement Date, the creation order may be cancelled. Upon written notice to the Distributor, such canceled order may be resubmitted the following Business Day using a Fund Deposit as newly constituted to reflect the then current NAV of the Fund. The delivery of Creation Units so created generally will occur no later than the third Business Day (second Business Day for orders dated on or after September 5, 2017) following the day on which the purchase order is deemed received by the Distributor. Delivery of Creation Units for the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF will occur on the same day for orders placed before 12:00 p.m. Eastern time, and the following business day for order placed after 12:00 p.m. Eastern time.
The order shall be deemed to be received on the Business Day on which the order is placed provided that the order is placed in proper form prior to the applicable cut-off time and the federal funds in the appropriate amount are deposited by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions), with the Custodian on the Settlement Date. If the order is not placed in proper form as required, or federal funds in the appropriate amount are not received by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions) on the Settlement Date, then the order may be deemed to be rejected and the Authorized Participant shall be liable to the Fund for losses, if any, resulting therefrom. A creation request is considered to be in proper form if all procedures set forth in the Participant Agreement, order form and this SAI are properly followed.
ISSUANCE OF A CREATION UNIT. Except as provided herein, Creation Units will not be issued until the transfer of good title to the Trust of the Deposit Securities or payment of Deposit Cash, as applicable, and the payment of the Cash Component have been completed. When the subcustodian has confirmed to the Custodian that the required Deposit Securities (or the cash value thereof) have been delivered to the account of the relevant subcustodian or subcustodians, the Principal Underwriter and the Adviser shall be notified of such delivery, and the Trust will issue and cause the delivery of the Creation Units.
In instances where the Trust accepts Deposit Securities for the purchase of a Creation Unit, the Creation Unit may be purchased in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities as described below. In these circumstances, the initial deposit will have a value greater than the net asset value of the Shares on the date the order is placed in proper form since in addition to available Deposit Securities, cash must be deposited in an amount equal to the sum of (i) the Cash Component, plus (ii) an additional amount of cash equal to a percentage of the market value as set forth in the Participant Agreement, of the undelivered Deposit Securities (the Additional Cash Deposit), which shall be maintained in a general non-interest bearing collateral account. An additional amount of cash shall be required to be deposited with the Trust, pending delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to the applicable percentage, as set forth in the Participant Agreement, of the daily marked to market value of the missing Deposit Securities. The Trust may use such Additional Cash Deposit to buy the missing Deposit Securities at any time. Authorized Participants will be liable to the Trust for all costs, expenses, dividends, income and taxes associated with missing Deposit Securities, including the costs incurred by the Trust in connection with any such purchases. These costs will be deemed to include the amount by which the actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the day the purchase order was deemed received by the Principal Underwriter plus the brokerage and related transaction costs associated with such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit Securities have been properly received by the Custodian or purchased by the Trust and deposited into the Trust. In addition, a transaction fee as set forth below under Creation Transaction Fees will be charged in all cases and an additional variable charge may also be applied. The delivery of Creation Units so created generally will occur no later than the Settlement Date.
ACCEPTANCE OF ORDERS OF CREATION UNITS. The Trust reserves the absolute right to reject an order for Creation Units transmitted in respect of a Fund at its discretion, including, without limitation, if (a) the order is not in proper form; (b) the Deposit Securities or Deposit Cash, as applicable, delivered by the Participant are not as disseminated through the facilities of the NSCC for that date by the Custodian; (c) the investor(s), upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares of the Fund; (d) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (e) the acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance of the Fund Deposit would otherwise, in the discretion of the Trust or the Adviser, have an adverse effect on the Trust or the rights of beneficial owners; (g) the acceptance or receipt of the order for a Creation Unit would, in the opinion of counsel to the Trust, be unlawful; or (h) in the event that circumstances outside the control of the Trust, the Custodian, the Transfer Agent and/or the Adviser make it for all practical purposes not feasible to process orders for Creation Units. Examples of such circumstances include acts of God or public service or utility problems such as fires, floods, extreme weather conditions and power outages resulting in telephone, telecopy and computer failures;
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market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the Trust, the Principal Underwriter, the Custodian, the Transfer Agent, DTC, NSCC, Federal Reserve System, or any other participant in the creation process, and other extraordinary events. The Trust or its agents shall communicate to the Authorized Participant its rejection of an order. The Trust, the Transfer Agent, the Custodian and the Principal Underwriter are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall either of them incur any liability for the failure to give any such notification. The Trust, the Transfer Agent, the Custodian and the Principal Underwriter shall not be liable for the rejection of any purchase order for Creation Units.
All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trusts determination shall be final and binding.
REDEMPTION. Shares may be redeemed only in Creation Units at their net asset value next determined after receipt of a redemption request in proper form by a Fund through the Transfer Agent and only on a Business Day. EXCEPT UPON LIQUIDATION OF A FUND, THE TRUST WILL NOT REDEEM SHARES IN AMOUNTS LESS THAN CREATION UNITS. Investors must accumulate enough Shares in the secondary market to constitute a Creation Unit in order to have such Shares redeemed by the Trust. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation Unit. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Shares to constitute a redeemable Creation Unit.
With respect to each Fund, the Custodian, through the NSCC, makes available immediately prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern time) on each Business Day, the list of the names and share quantities of each Funds portfolio securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day (Fund Securities). Fund Securities received on redemption may not be identical to Deposit Securities.
Redemption proceeds for a Creation Unit are paid either in-kind or in cash or a combination thereof, as determined by the Trust. With respect to in-kind redemptions of a Fund, redemption proceeds for a Creation Unit will consist of Fund Securitiesas announced by the Custodian on the Business Day of the request for redemption received in proper form plus cash in an amount equal to the difference between the net asset value of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities (the Cash Redemption Amount), less a fixed redemption transaction fee and any applicable additional variable charge as set forth below. In the event that the Fund Securities have a value greater than the net asset value of the Shares, a compensating cash payment equal to the differential is required to be made by or through an Authorized Participant by the redeeming shareholder. Notwithstanding the foregoing: (i) the Trust will substitute a cash in lieu amount to replace any Fund Security that is a TBA transaction and the amount of cash paid out in such cases will be equivalent to the value of the TBA transaction listed as a Fund Security and (ii) at the Trusts discretion, an Authorized Participant may receive the corresponding cash value of the securities in lieu of the in-kind securities value representing one or more Fund Securities.
PROCEDURES FOR REDEMPTION OF CREATION UNITS. After the Trust has deemed an order for redemption received, the Trust will initiate procedures to transfer the requisite Fund Securities and the Cash Redemption Amount to the Authorized Participant by the Settlement Date. With respect to in-kind redemptions of a Fund, the calculation of the value of the Fund Securities and the Cash Redemption Amount to be delivered upon redemption will be made by the Custodian according to the procedures set forth under Determination of Net Asset Value, computed on the Business Day on which a redemption order is deemed received by the Trust. Therefore, if a redemption order in proper form is submitted to the Principal Underwriter by a DTC Participant by the specified time on the Order Placement Date, and the requisite number of Shares of a Fund are delivered to the Custodian prior to 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions) on the Settlement Date, then the value of the Fund Securities and the Cash Redemption Amount to be delivered will be determined by the Custodian on such Order Placement Date. If the requisite number of Shares of the Fund are not delivered by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions) on the Settlement Date, the Fund will not release the underlying securities for delivery unless collateral is posted in such percentage amount of missing Shares as set forth in the Participant Agreement (marked to market daily).
With respect to in kind redemptions of a Fund, in connection with taking delivery of shares of Fund Securities upon redemption of Creation Units, an Authorized Participant must maintain appropriate custody arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the Fund Securities are customarily traded (or such other arrangements as allowed by the Trust or its agents), to which account such Fund Securities will be delivered. Deliveries of redemption proceeds generally will be made within three Business Days (two Business Days for orders dated on or after September 5, 2017) of the trade date. Due to the schedule of holidays in certain countries, however, the delivery of in-kind redemption proceeds may take longer than three Business Days (two Business Days for orders dated on or after September 5, 2017) after the day on which the redemption request is received in proper form. The section below entitled Local Market Holiday Schedules identifies the instances where more than seven
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days would be needed to deliver redemption proceeds. Pursuant to an order of the SEC, in respect of each Fund, the Trust will make delivery of in-kind redemption proceeds within the number of days stated in the Local Market Holidays section to be the maximum number of days necessary to deliver redemption proceeds. If the Authorized Participant has not made appropriate arrangements to take delivery of the Fund Securities in the applicable foreign jurisdiction and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Fund Securities in such jurisdiction, the Trust may, in its discretion, exercise its option to redeem such Shares in cash, and the Authorized Participant will be required to receive its redemption proceeds in cash.
If it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Fund Securities, the Trust may in its discretion exercise its option to redeem such Shares in cash, and the redeeming investor will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash that a Fund may, in its sole discretion, permit. In either case, the investor will receive a cash payment equal to the NAV of its Shares based on the NAV of Shares of the relevant Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee and additional charge for requested cash redemptions specified above, to offset the Trusts brokerage and other transaction costs associated with the disposition of Fund Securities). A Fund may also, in its sole discretion, upon request of a shareholder, provide such redeemer a portfolio of securities that differs from the exact composition of the Fund Securities but does not differ in net asset value.
An Authorized Participant submitting a redemption request is deemed to represent to the Trust that, as of the close of that Business Day, it (or its client) will own (within the meaning of Rule 200 of Regulation SHO) or has arranged to borrow for delivery to the Trust on or prior to the settlement date of the redemption request, the requisite number of Shares of the relevant Fund to be redeemed as a Creation Unit. In either case, the Authorized Participant is deemed to acknowledge that: (i) it (or its client) has full legal authority and legal right to tender for redemption the requisite number of Shares of the applicable Fund and to receive the entire proceeds of the redemption; and (ii) if such Shares submitted for redemption have been loaned or pledged to another party or are the subject of a repurchase agreement, securities lending agreement or any other arrangement affecting legal or beneficial ownership of such Shares being tendered, there are no restrictions precluding the tender and delivery of such Shares (including borrowed shares, if any) for redemption, free and clear of liens, on the redemption settlement date. The Trust reserves the right to verify these representations at its discretion, but will typically require verification with respect to a redemption request from a Fund in connection with higher levels of redemption activity and/or short interest in the Fund. If the Authorized Participant, upon receipt of a verification request, does not provide sufficient verification of its representations as determined by the Trust, the redemption request will not be considered to have been received in proper form and may be rejected by the Trust.
Redemptions of Shares for Fund Securities will be subject to compliance with applicable federal and state securities laws and each Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Trust could not lawfully deliver specific Fund Securities upon redemptions or could not do so without first registering the Fund Securities under such laws. An Authorized Participant or an investor for which it is acting subject to a legal restriction with respect to a particular security included in the Fund Securities applicable to the redemption of Creation Units may be paid an equivalent amount of cash. The Authorized Participant may request the redeeming investor of the Shares to complete an order form or to enter into agreements with respect to such matters as compensating cash payment. Further, an Authorized Participant that is not a qualified institutional buyer, (QIB) as such term is defined under Rule 144A of the Securities Act, will not be able to receive Fund Securities that are restricted securities eligible for resale under Rule 144A. An Authorized Participant may be required by the Trust to provide a written confirmation with respect to QIB status in order to receive Fund Securities.
The right of redemption may be suspended or the date of payment postponed with respect to a Fund (1) for any period during which the Exchange is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the Exchange is suspended or restricted; (3) for any period during which an emergency exists as a result of which disposal of the Shares of the Fund or determination of the NAV of the Shares is not reasonably practicable; or (4) in such other circumstance as is permitted by the SEC.
REQUIRED EARLY ACCEPTANCE OF ORDERS FOR CERTAIN INTERNATIONAL FUNDS. Notwithstanding the foregoing, as described in the Participant Agreement and the applicable order form, certain Funds may require orders to be placed up to one or more Business Days prior to the trade date, as described in the Participant Agreement or the applicable order form, in order to receive the trade dates net asset value. Orders to purchase Shares of such Funds that are submitted on the Business Day immediately preceding a holiday or a day (other than a weekend) that the equity markets in the relevant foreign market are closed may not be accepted. Authorized Participants may be notified that the cut-off time for an order may be earlier on a particular Business Day, as described in the Participant Agreement and the applicable order form.
CREATION AND REDEMPTION TRANSACTION FEES. A transaction fee, as set forth in the table below, is imposed for the transfer and other transaction costs associated with the purchase or redemption of Creation Units, as applicable. Authorized Participants will be required to pay a fixed creation transaction fee and/or a fixed redemption transaction fee, as applicable, on a given day regardless of the number of Creation Units created or redeemed on that day. A Fund may adjust the transaction fee from time to
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time. An additional charge or a variable charge (discussed below) will be applied to certain creation and redemption transactions, including non-standard orders and whole or partial cash purchases or redemptions. With respect to creation orders, Authorized Participants are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Trust and with respect to redemption orders, Authorized Participants are responsible for the costs of transferring the Fund Securities from the Trust to their account or on their order. Investors who use the services of a broker or other such intermediary may also be charged a fee for such services.
Creation and Redemption Transaction Fees:
FUND |
TRANSACTION
FEE*, ** |
MAXIMUM
TRANSACTION FEE*, ** |
||||||
SPDR NYSE Technology ETF |
$ | 500 | $ | 2,000 | ||||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
$ | 250 | $ | 1,000 | ||||
SPDR Bloomberg Barclays Convertible Securities ETF |
$ | 500 | $ | 2,000 | ||||
SPDR Bloomberg Barclays High Yield Bond ETF |
$ | 500 | $ | 2,000 |
* | From time to time, a Fund may waive all or a portion of its applicable transaction fee(s). An additional charge of up to three (3) times the standard transaction fee may be charged to the extent a transaction is outside of the clearing process. |
** | In addition to the transaction fees listed above, the Funds may charge an additional variable fee for creations and redemptions in cash to offset brokerage and impact expenses associated with the cash transaction. The variable transaction fee will be calculated based on historical transaction cost data and the Advisers view of current market conditions; however, the actual variable fee charged for a given transaction may be lower or higher than the trading expenses incurred by a Fund with respect to that transaction. |
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with the sections in the applicable Prospectus entitled PURCHASE AND SALE INFORMATION and ADDITIONAL PURCHASE AND SALE INFORMATION.
Net asset value per Share for each Fund is computed by dividing the value of the net assets of the Fund (i.e., the value of its total assets less total liabilities) by the total number of Shares outstanding. Expenses and fees, including the management fees, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of each Fund other than the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF is calculated by State Street and determined once daily as of the close of the regular trading session on the NYSE (ordinarily 4:00 p.m. Eastern time) on each day that such exchange is open. With respect to the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF, the Funds net asset value is calculated and determined twice daily on each day the NYSE is open at the following times: (i) 12:00 p.m. Eastern time; and (ii) at the close of the regular trading session on the NYSE. Fixed-income assets are generally valued as of the announced closing time for trading in fixed-income instruments in a particular market or exchange. Creation/redemption order cut-off times may be earlier on any day that the Securities Industry and Financial Markets Association (or applicable exchange or market on which a Funds investments are traded) announces an early closing time. Any assets or liabilities denominated in currencies other than the U.S. dollar are converted into U.S. dollars at market rates on the date of valuation (generally as of 4:00 p.m. London time) as quoted by one or more sources.
In calculating a Funds net asset value per Share, the Funds investments are generally valued using market valuations. A market valuation generally means a valuation (i) obtained from an exchange, a pricing service, or a major market maker (or dealer), (ii) based on a price quotation or other equivalent indication of value supplied by an exchange, a pricing service, or a major market maker (or dealer) or (iii) based on amortized cost. A Fund relies on a third-party service provider for assistance with the daily calculation of the Funds NAV. The third-party service provider, in turn, relies on other parties for certain pricing data and other inputs used in the calculation of the Funds NAV. Therefore, a Fund is subject to certain operational risks associated with reliance on its service provider and that service providers sources of pricing and other data. NAV calculation may be adversely affected by operational risks arising from factors such as errors or failures in systems and technology. Such errors or failures may result in inaccurately calculated NAVs, delays in the calculation of NAVs and/or the inability to calculate NAV over extended time periods. A Fund may be unable to recover any losses associated with such failures. In the case of shares of other funds that are not traded on an exchange, a market valuation means such funds published net asset value per share. The Adviser may use various pricing services, or discontinue the use of any pricing service, as approved by the Board from time to time. A price obtained from a pricing service based on such pricing services valuation matrix may be considered a market valuation.
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In the event that current market valuations are not readily available or are deemed unreliable, the Trusts procedures require the Oversight Committee to determine a securitys fair value if a market price is not readily available. In determining such value the Oversight Committee may consider, among other things, (i) price comparisons among multiple sources, (ii) a review of corporate actions and news events, and (iii) a review of relevant financial indicators ( e.g. , movement in interest rates, market indices, and prices from each Funds Index Provider). In these cases, the Funds net asset value may reflect certain portfolio securities fair values rather than their market prices. The fair value of a portfolio instrument is generally the price which a Fund might reasonably expect to receive upon its current sale in an orderly market between market participants. Ascertaining fair value requires a determination of the amount that an arms-length buyer, under the circumstances, would currently pay for the portfolio instrument. Fair value pricing involves subjective judgments and it is possible that the fair value determination for a security is materially different than the value that could be realized upon the sale of the security. In addition, fair value pricing could result in a difference between the prices used to calculate a Funds net asset value and the prices used by the Funds benchmark Index. This may result in a difference between the Funds performance and the performance of the applicable Funds benchmark Index. With respect to securities that are primarily listed on foreign exchanges, the value of a Funds portfolio securities may change on days when you will not be able to purchase or sell your Shares.
The following information supplements and should be read in conjunction with the section in each Prospectus entitled DISTRIBUTIONS.
GENERAL POLICIES
Dividends from net investment income, if any, are generally declared and paid monthly by each Fixed Income ETF and quarterly for the SPDR NYSE Technology ETF but may vary significantly from period to period. Distributions of net realized securities gains, if any, generally are declared and paid once a year, but the Trust may make distributions on a more frequent basis for a Fund to improve index tracking or to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the 1940 Act.
Dividends and other distributions on Shares are distributed, as described below, on a pro rata basis to Beneficial Owners of such Shares. Dividend payments are made through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received from the Trust.
Management of the Trust reserves the right to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve a Funds eligibility for treatment as a regulated investment company (RIC) under the Internal Revenue Code or to avoid imposition of income or excise taxes at the Fund level.
DIVIDEND REINVESTMENT
Broker dealers, at their own discretion, may offer a dividend reinvestment service under which Shares are purchased in the secondary market at current market prices. Investors should consult their broker dealer for further information regarding any dividend reinvestment service offered by such broker dealer.
The following is a summary of certain federal income tax considerations generally affecting the Funds and their shareholders that supplements the discussions in the Prospectuses. No attempt is made to present a comprehensive explanation of the federal, state, local or foreign tax treatment of the Funds or their shareholders, and the discussion here and in each Prospectus is not intended to be a substitute for careful tax planning.
The following general discussion of certain federal income tax consequences is based on the Internal Revenue Code and the regulations issued thereunder as in effect on the date of this SAI. New legislation, as well as administrative changes or court decisions, may significantly change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein.
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The following information should be read in conjunction with the section in the Prospectuses entitled ADDITIONAL TAX INFORMATION.
TAXATION OF THE FUNDS. Each Fund is treated as a separate corporation for federal income tax purposes. A Fund therefore is considered to be a separate entity in determining its treatment under the rules for RICs described herein and in the Prospectuses. Losses in one series of the Trust do not offset gains in any other series of the Trust and the requirements (other than certain organizational requirements) for qualifying for treatment as a RIC are determined at the Fund level rather than at the Trust level. Each Fund has elected or will elect and intends to qualify each year to be treated as a separate RIC under Subchapter M of the Internal Revenue Code. As such, each Fund should not be subject to federal income tax on its net investment income and capital gains, if any, to the extent that it timely distributes such income and capital gains to its shareholders. In order to qualify for treatment as a RIC, a Fund must distribute annually to its shareholders at least the sum of 90% of its taxable net investment income (generally including the excess of net short-term capital gains over net long-term capital losses) and 90% of its net tax exempt interest income, if any (the Distribution Requirement) and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of the Funds gross income each taxable year must be derived from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly traded partnerships (the Qualifying Income Requirement); and (ii) at the end of each quarter of the Funds taxable year, its assets must be diversified so that (a) at least 50% of the market value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited, in respect to any one issuer, to an amount not greater in value than 5% of the value of the Funds total assets and to not more than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its total assets is invested in the securities (other than U.S. government securities or securities of other RICs) of any one issuer, the securities (other than securities of other RICs) of two or more issuers that it controls and that are engaged in the same, similar, or related trades or businesses, or the securities of one or more qualified publicly traded partnerships (the Diversification Requirement).
If a Fund fails to satisfy the Qualifying Income Requirement or the Diversification Requirement in any taxable year, the Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures of the Diversification Requirement where the Fund corrects the failure within a specified period of time. In order to be eligible for the relief provisions with respect to a failure to meet the Diversification Requirement, a Fund may be required to dispose of certain assets. If these relief provisions were not available to a Fund and it were to fail to qualify for treatment as a RIC for a taxable year, all of its taxable income would be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and its distributions (including capital gains distributions) generally would be taxable as ordinary income dividends to its shareholders, subject to the dividends-received deduction for corporate shareholders and the lower tax rates on qualified dividend income received by noncorporate shareholders. To requalify for treatment as a RIC in a subsequent taxable year, the Fund would be required to satisfy the RIC qualification requirements for that year and to distribute any earnings and profits from any year in which the Fund failed to qualify for tax treatment as a RIC. If a Fund failed to qualify as a RIC for a period greater than two taxable years, it would generally be required to pay a Fund-level tax on certain net built-in gains recognized with respect to certain of its assets upon a disposition of such assets within ten years of qualifying as a RIC in a subsequent year. The Board reserves the right not to maintain the qualification of a Fund for treatment as a RIC if it determines such course of action to be beneficial to shareholders.
If a Fund meets the Distribution Requirement but retains some or all of its income or gains, it will be subject to federal income tax to the extent any such income or gains are not distributed. A Fund may designate certain amounts retained as undistributed net capital gain in a notice to its shareholders, who (i) will be required to include in income for U.S. federal income tax purposes, as long-term capital gain, their proportionate shares of the undistributed amount so designated, (ii) will be entitled to credit their proportionate shares of the income tax paid by the Fund on that undistributed amount against their federal income tax liabilities and to claim refunds to the extent such credits exceed their liabilities and (iii) will be entitled to increase their tax basis, for federal income tax purposes, in their Shares by an amount equal to the excess of the amount of undistributed net capital gain included in their respective income over their respective income tax credits. If a Fund failed to satisfy the Distribution Requirement for any taxable year, it would be taxed as a regular corporation, with consequences generally similar to those described in the preceding paragraph.
Given the concentration of certain of the Indexes in a relatively small number of securities, it may not be possible for certain Funds to fully implement sampling methodologies while satisfying the Diversification Requirement. A Funds efforts to satisfy the Diversification Requirement may affect the Funds execution of its investment strategy and may cause the Funds return to deviate from that of the applicable Index, and the Funds efforts to track the applicable Index may cause it inadvertently to fail to satisfy the Diversification Requirement.
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A Fund will be subject to a 4% excise tax on certain undistributed income if it does not distribute to its shareholders in each calendar year an amount at least equal to 98% of its ordinary income for the calendar year plus 98.2% of its capital gain net income for the twelve months ended October 31 of such year, subject to an increase for any shortfall in the prior years distribution. Each Fund intends to declare and distribute dividends and distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax.
A Fund may elect to treat part or all of any qualified late year loss as if it had been incurred in the succeeding taxable year in determining the Funds taxable income, net capital gain, net short-term capital gain, and earnings and profits. The effect of this election is to treat any such qualified late year loss as if it had been incurred in the succeeding taxable year in characterizing Fund distributions for any calendar year. A qualified late year loss generally includes net capital loss, net long-term capital loss, or net short-term capital loss incurred after October 31 of the current taxable year (commonly referred to as post-October losses) and certain other late-year losses.
Capital losses in excess of capital gains (net capital losses) are not permitted to be deducted against a RICs net investment income. Instead, for U.S. federal income tax purposes, potentially subject to certain limitations, a Fund may carry a net capital loss from any taxable year forward to offset its capital gains in future years. A Fund is permitted to carry forward a net capital loss to offset its capital gains, if any, in years following the year of the loss. A Fund is permitted to carryforward indefinitely a net capital loss form any taxable year that began after December 22, 2010. A Fund is permitted to carry forward a net capital loss from any taxable year that began on or before December 22, 2010 to offset its capital gains, if any, for up to eight years following the year of the loss. A Funds carryforwards of losses from taxable years that began after December 22, 2010 must be fully utilized before the Fund may utilize carryforwards of losses from taxable years that began on or before December 22, 2010. To the extent subsequent capital gains are offset by such losses, they will not result in U.S. federal income tax liability to the Fund and may not be distributed as capital gains to its shareholders. Generally, the Funds may not carry forward any losses other than net capital losses.
TAXATION OF SHAREHOLDERSDISTRIBUTIONS. Each Fund intends to distribute annually to its shareholders substantially all of its investment company taxable income (computed without regard to the deduction for dividends paid), its net tax-exempt income, if any, and any net capital gain (net recognized long-term capital gains in excess of net recognized short-term capital losses, taking into account any capital loss carryforwards). Each Fund will report to shareholders annually the amounts of dividends paid from ordinary income, the amount of distributions of net capital gain, the portion of dividends which may qualify for the dividends-received deduction, the portion of dividends which may qualify for treatment as qualified dividend income, and the amount of exempt-interest dividends, if any.
Subject to certain limitations, dividends reported by a Fund as qualified dividend income will be taxable to noncorporate shareholders at rates of up to 20%. Dividends may be reported by a Fund as qualified dividend income if they are attributable to qualified dividend income received by the Fund. Qualified dividend income includes, in general, subject to certain holding period requirements and other requirements, dividend income from certain U.S. and foreign corporations. Subject to certain limitations, eligible foreign corporations include those incorporated in possessions of the United States, those incorporated in certain countries with comprehensive tax treaties with the United States and other foreign corporations if the stock with respect to which the dividends are paid is tradable on an established securities market in the United States. A dividend generally will not be treated as qualified dividend income to the extent that (i) the shareholder has not held the stock on which the dividend was paid for more than 60 days during the 121-day period that begins on the date that is 60 days before the date on which the stock becomes ex-dividend with respect to such dividend or, in the case of certain preferred stock, for more than 90 days during the 181-day period beginning 90 days before such date, (ii) the shareholder is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to substantially similar or related property, or (iii) the shareholder elects to treat such dividend as investment income under section 163(d)(4)(B) of the Internal Revenue Code. The holding period requirements described in this paragraph apply to shareholders investments in the Funds and to the Funds investments in underlying dividend-paying stocks. Dividends received by a Fund from a REIT or another RIC may be treated as qualified dividend income generally only to the extent the dividend distributions are attributable to qualified dividend income received by such REIT or RIC. It is expected that dividends received by a Fund from a REIT and distributed by that Fund to a shareholder generally will be taxable to the shareholder as ordinary income. If 95% or more of a Funds gross income (calculated without taking into account net capital gain derived from sales or other dispositions of stock or securities) consists of qualified dividend income, that Fund may report all distributions of such income as qualified dividend income.
Certain dividends received by a Fund from U.S. corporations (generally, dividends received in respect of any share of stock (1) with a tax holding period of at least 46 days during the 91-day period beginning on the date that is 45 days before the date on which the stock becomes ex-dividend as to that dividend and (2) that is held in an unleveraged position) when distributed and appropriately so reported by the Fund may be eligible for the 70% dividends-received deduction generally available to corporations under the Internal Revenue Code. In order to qualify for the deduction, corporate shareholders must meet the minimum holding period requirement stated above with respect to their Shares, taking into account any holding period reductions from certain hedging or other transactions or positions
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that diminish their risk of loss with respect to their Shares, and, if they borrow to acquire or otherwise incur debt attributable to Shares, they may be denied a portion of the dividends-received deduction with respect to those Shares. The entire dividend, including the otherwise deductible amount, will be included in determining the excess, if any, of a corporations adjusted current earnings over its alternative minimum taxable income, which may increase a corporations alternative minimum tax liability. Any corporate shareholder should consult its tax adviser regarding the possibility that its tax basis in its Shares may be reduced, for U.S. federal income tax purposes, by reason of extraordinary dividends received with respect to the Shares and, to the extent such basis would be reduced below zero, current recognition of income may be required.
Distributions from a Funds net short-term capital gains will generally be taxable to shareholders as ordinary income. Distributions from a Funds net capital gain will be taxable to shareholders at long-term capital gains rates, regardless of how long shareholders have held their Shares. Long-term capital gains are generally taxed to noncorporate shareholders at rates of up to 20%.
Although dividends generally will be treated as distributed when paid, any dividend declared by a Fund in October, November or December and payable to shareholders of record in such a month that is paid during the following January will be treated for U.S. federal income tax purposes as received by shareholders on December 31 of the calendar year in which it was declared.
If a Funds distributions exceed its earnings and profits, all or a portion of the distributions made in the taxable year may be treated as a return of capital to shareholders. A return of capital distribution generally will not be taxable but will reduce the shareholders cost basis and result in a higher capital gain or lower capital loss when the Shares on which the distribution was received are sold. After a shareholders basis in the Shares has been reduced to zero, distributions in excess of earnings and profits will be treated as gain from the sale of the shareholders Shares.
Distributions that are reinvested in additional Shares of a Fund through the means of a dividend reinvestment service, if offered by your broker-dealer, will nevertheless be taxable dividends to the same extent as if such dividends had been received in cash.
A 3.8% Medicare contribution tax generally applies to all or a portion of the net investment income of a shareholder who is an individual and not a nonresident alien for federal income tax purposes and who has adjusted gross income (subject to certain adjustments) that exceeds a threshold amount ($250,000 if married filing jointly or if considered a surviving spouse for federal income tax purposes, $125,000 if married filing separately, and $200,000 in other cases). This 3.8% tax also applies to all or a portion of the undistributed net investment income of certain shareholders that are estates and trusts. For these purposes, interest, dividends and certain capital gains (generally including capital gain distributions and capital gains realized on the sale of Shares) are generally taken into account in computing a shareholders net investment income, but exempt-interest dividends generally are not taken into account. Distributions of ordinary income and capital gains may also be subject to foreign, state and local taxes depending on a shareholders circumstances.
TAXATION OF SHAREHOLDERSSALE OF SHARES. In general, a sale of Shares results in capital gain or loss, and for individual shareholders, is taxable at a federal rate dependent upon the length of time the Shares were held. A sale of Shares held for a period of one year or less at the time of such sale will, for tax purposes, generally result in short-term capital gains or losses, and a sale of those held for more than one year will generally result in long-term capital gains or losses. Long-term capital gains are generally taxed to non-corporate shareholders at rates of up to 20%.
Gain or loss on the sale of Shares is measured by the difference between the amount received and the adjusted tax basis of the Shares. Shareholders should keep records of investments made (including Shares acquired through reinvestment of dividends and distributions) so they can compute the tax basis of their Shares. It may not be advantageous from a tax perspective for shareholders to sell or redeem Shares of a Municipal Bond ETF after tax-exempt income has accrued but before the record date for the exempt-interest dividend representing the distribution of such income. Because such accrued tax-exempt income is included in the net asset value per share, such a sale or redemption could result in treatment of the portion of the sales or redemption proceeds equal to the accrued tax-exempt interest as taxable gain (to the extent the sale or redemption price exceeds the shareholders tax basis in the Municipal Bond ETF Shares disposed of) rather than tax-exempt interest.
A loss realized on a sale of Shares may be disallowed if substantially identical Shares are acquired (whether through the reinvestment of dividends or otherwise) within a sixty-one (61) day period beginning thirty (30) days before and ending thirty (30) days after the date that the Shares are disposed of. In such a case, the basis of the Shares acquired must be adjusted to reflect the disallowed loss. Any loss upon the sale of Shares held for six (6) months or less will be disallowed to the extent of exempt-interest dividends paid on such Shares, and any amount of the loss that exceeds the amount disallowed will be treated as long-term capital loss to the extent of any amounts treated as distributions to the shareholder of long-term capital gain (including any amounts credited to the shareholder as undistributed capital gains).
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COST BASIS REPORTING. The cost basis of Shares acquired by purchase will generally be based on the amount paid for the Shares and then may be subsequently adjusted for other applicable transactions as required by the Internal Revenue Code. The difference between the selling price and the cost basis of Shares generally determines the amount of the capital gain or loss realized on the sale or exchange of Shares. Contact the broker through whom you purchased your Shares to obtain information with respect to the available cost basis reporting methods and elections for your account.
TAXATION OF FUND INVESTMENTS. Dividends and interest received by a Fund on foreign securities may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If a Fund meets certain requirements, which include a requirement that more than 50% of the value of the Funds total assets at the close of its respective taxable year consist of certain foreign securities (generally including foreign government securities), then the Fund should be eligible to file an election with the IRS that may enable its shareholders, in effect, to receive either the benefit of a foreign tax credit, or a tax deduction, with respect to certain foreign and U.S. possessions income taxes paid by the Fund, subject to certain limitations. If at least 50% of a Funds total assets at the close of each quarter of a taxable year consists of interests in other RICs (including money market funds and ETFs that are taxable as RICs), the Fund may make the same election and pass through to its shareholders their pro rata shares of qualified foreign taxes paid by those other RICs and passed through to the Fund for that taxable year. Pursuant to this election, a Fund would treat the applicable foreign taxes as dividends paid to its shareholders. Each such shareholder would be required to include a proportionate share of those taxes in gross income as income received from a foreign source and must treat the amount so included as if the shareholder had paid the foreign tax directly. The shareholder may then either deduct the taxes deemed paid by him or her in computing his or her taxable income or, alternatively, use the foregoing information in calculating any foreign tax credit the shareholder may be entitled to use against such shareholders federal income tax. If a Fund makes this election, the Fund will report annually to its shareholders the respective amounts per share of the Funds income from sources within, and taxes paid to, foreign countries and U.S. possessions. No deduction for such taxes will be permitted to individuals in computing their alternative minimum tax liability. If a Fund does not make this election, the Fund will be entitled to claim a deduction for certain foreign taxes incurred by the Fund. Under certain circumstances, if a Fund receives a refund of foreign taxes paid in respect of a prior year, the Funds shareholders could incur a loss, or any foreign tax credits or deductions passed through to shareholders in respect of the Funds foreign taxes for the current year could be reduced.
Certain of the Funds investments may be subject to complex provisions of the Internal Revenue Code (including provisions relating to hedging transactions, straddles, integrated transactions, foreign currency contracts, forward foreign currency contracts, and notional principal contracts) that, among other things, could affect the character of gains and losses realized by the Funds (e.g., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and defer losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also may require a Fund to mark-to-market certain types of positions in its portfolio (i.e., treat them as if they were closed out) which may cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the RIC distribution requirements for avoiding income and excise taxes. The Funds intend to monitor their transactions, intend to make appropriate tax elections, and intend to make appropriate entries in their books and records in order to mitigate the effect of these rules and preserve the Funds qualification for treatment as RICs.
If a Fund acquires any equity interest (under Treasury regulations that may be promulgated in the future, generally including not only stock but also an option to acquire stock such as is inherent in a convertible bond) in certain foreign corporations (i) that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or (ii) where at least 50% of the corporations assets (computed based on average fair market value) either produce or are held for the production of passive income (passive foreign investment companies or PFICs), the Fund could be subject to U.S. federal income tax and nondeductible interest charges on excess distributions received from such companies or on gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. A qualified electing fund election or a mark to market election may be available that would ameliorate these adverse tax consequences, but such elections could require the applicable Fund to recognize taxable income or gain (subject to the distribution requirements applicable to RICs, as described above) without the concurrent receipt of cash. In order to satisfy the distribution requirements and avoid a tax at the Fund level, a Fund may be required to liquidate portfolio securities that it might otherwise have continued to hold, potentially resulting in additional taxable gain or loss to the Fund. Gains from the sale of stock of PFICs may also be treated as ordinary income. In order for a Fund to make a qualified electing fund election with respect to a PFIC, the PFIC would have to agree to provide certain tax information to the Fund on an annual basis, which it might not agree to do. The Funds may limit and/or manage their holdings in PFICs to limit their tax liability or maximize their returns from these investments.
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Each Fund is required for federal income tax purposes to mark-to-market and recognize as income for each taxable year its net unrealized gains and losses on certain futures contracts as of the end of the year as well as those actually realized during the year. Gain or loss from futures and options contracts on broad-based indexes required to be marked to market will be 60% long-term and 40% short-term capital gain or loss. Application of this rule may alter the timing and character of distributions to shareholders. A Fund may be required to defer the recognition of losses on futures contracts, options contracts and swaps to the extent of any unrecognized gains on offsetting positions held by the Fund. It is anticipated that certain net gain realized from the closing out of futures or options contracts will be considered gain from the sale of securities and therefore will be qualifying income for purposes of the Qualifying Income Requirement.
Investments by a Fund in zero coupon or other discount securities will result in income to the Fund equal to a portion of the excess face value of the securities over their issue price (the original issue discount or OID) each year that the securities are held, even though the Fund may receive no cash interest payments or may receive cash interest payments that are less than the income recognized for tax purposes. In other circumstances, whether pursuant to the terms of a security or as a result of other factors outside the control of the Fund, a Fund may recognize income without receiving a commensurate amount of cash. Such income is included in determining the amount of income that a Fund must distribute to maintain its eligibility for treatment as a RIC and to avoid the payment of federal income tax, including the nondeductible 4% excise tax described above.
Any market discount recognized on a market discount bond is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below redemption value, or below adjusted issue price if issued with original issue discount. Absent an election by a Fund to include the market discount in income as it accrues, gain on the Funds disposition of such an obligation will be treated as ordinary income rather than capital gain to the extent of the accrued market discount. If a Municipal Bond ETF purchases a municipal security at a market discount, any gain realized by such Fund upon sale or redemption of the municipal security will be treated as taxable interest income to the extent of the market discount, and any gain realized in excess of the market discount will be treated as capital gains. Where the income required to be recognized as a result of the OID and/or market discount rules is not matched by a corresponding cash receipt by a Fund, the Fund may be required to borrow money or dispose of securities to enable the Fund to make distributions to its shareholders in order to qualify for treatment as a RIC and eliminate taxes at the Fund level.
Special rules apply if a Fund holds inflation-indexed bonds, such as Treasury Inflation-Protected Securities (TIPS). Generally, all stated interest on inflation-indexed bonds is taken into income by a Fund under its regular method of accounting for interest income. The amount of any positive inflation adjustment for a taxable year, which results from an increase in the inflation-adjusted principal amount of the bond, is treated as OID. The amount of a Funds OID in a taxable year with respect to a bond will increase a Funds taxable income for such year without a corresponding receipt of cash, until the bond matures. As a result, the Fund may need to use other sources of cash to satisfy its distribution requirements for the applicable year. The amount of any negative inflation adjustments, which result from a decrease in the inflation-adjusted principal amount of the bond, first reduces the amount of interest (including stated interest, OID, and market discount, if any) otherwise includable in the Funds taxable income with respect to the bond for the taxable year; any remaining negative adjustments will be either treated as ordinary loss or, in certain circumstances, carried forward to reduce the amount of interest income taken into account with respect to the bond in future taxable years.
TAX-EXEMPT SHAREHOLDERS. Certain tax-exempt shareholders, including qualified pension plans, individual retirement accounts, salary deferral arrangements, 401(k) plans, and other tax-exempt entities, generally are exempt from federal income taxation except with respect to their unrelated business taxable income (UBTI). Under current law, a Fund generally serves to block UBTI from being realized by its tax-exempt shareholders. However, notwithstanding the foregoing, tax-exempt shareholders could realize UBTI by virtue of their investment in a Fund where, for example, (i) the Fund invests in REITs that hold residual interests in real estate mortgage investment conduits (REMICs) or (ii) Shares constitute debt-financed property in the hands of the tax-exempt shareholders within the meaning of section 514(b) of the Internal Revenue Code. Charitable remainder trusts are subject to special rules and should consult their tax advisors. There are no restrictions preventing a Fund from holding investments in REITs that hold residual interests in REMICs, and a Fund may do so. The IRS has issued guidance with respect to these issues and prospective shareholders, especially charitable remainder trusts, are strongly encouraged to consult with their tax advisors regarding these issues.
FOREIGN SHAREHOLDERS. Dividends, other than capital gains dividends and exempt-interest dividends, short-term capital gain dividends and interest-related dividends (described below), paid by a Fund to shareholders who are nonresident aliens or foreign entities will be subject to a 30% United States withholding tax unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law to the extent derived from investment income and short-term capital gain or unless such income is effectively connected with a U.S. trade or business carried on through a permanent establishment in the United States. Nonresident shareholders are urged to consult their own tax advisors concerning the applicability of the United States withholding tax and the proper withholding form(s) to be submitted to a Fund. A non-U.S. shareholder who fails to provide an appropriate IRS Form W-8 may be subject to backup withholding at the appropriate rate.
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Dividends reported by a Fund as (i) interest-related dividends, to the extent such dividends are derived from the Funds qualified net interest income, or (ii) short-term capital gain dividends, to the extent such dividends are derived from the Funds qualified short-term gain, are generally exempt from this 30% withholding tax. Qualified net interest income is a Funds net income derived from U.S.-source interest and original issue discount, subject to certain exceptions and limitations. Qualified short-term gain generally means the excess of a Funds net short-term capital gain for the taxable year over its net long-term capital loss, if any. In the case of Shares held through an intermediary, the intermediary may withhold even if the Fund reports the payment as an interest-related dividend or as a short-term capital gain dividend. Non-U.S. shareholders should contact their intermediaries with respect to the application of these rules to their accounts.
Unless certain non-U.S. entities that hold Shares comply with IRS requirements that will generally require them to report information regarding U.S. persons investing in, or holding accounts with, such entities, a 30% withholding tax may apply to Fund distributions (other than exempt-interest dividends) payable to such entities and, after December 31, 2018, redemptions and certain capital gain dividends payable to such entities. A non-U.S. shareholder may be exempt from the withholding described in this paragraph under an applicable intergovernmental agreement between the U.S. and a foreign government, provided that the shareholder and the applicable foreign government comply with the terms of such agreement.
Non-U.S. persons are subject to U.S. tax on disposition of a United States real property interest (a USRPI). Gain on such a disposition is sometimes referred to as FIRPTA gain. The Internal Revenue Code provides a look-through rule for distributions of FIRPTA gain if certain requirements are met. If the look-through rule applies, certain distributions attributable to income received by a Fund from REITs may be treated as gain from the disposition of a USRPI, causing distributions to be subject to U.S. withholding tax at rates of up to 35%, and requiring non-U.S. investors to file nonresident U.S. income tax returns. Also, gain may be subject to a 30% branch profits tax in the hands of a non-U.S. shareholder that is treated as a corporation for federal income tax purposes. Under certain circumstances, Shares may qualify as USRPIs, which could result in 15% withholding on certain distributions and gross redemption proceeds paid to certain non-U.S. investors.
BACKUP WITHHOLDING. A Fund will be required in certain cases to withhold (as backup withholding) on amounts (including exempt-interest dividends) payable to any shareholder who (1) has provided the Fund either an incorrect tax identification number or no number at all, (2) is subject to backup withholding by the IRS for failure to properly report payments of interest or dividends, (3) has failed to certify to the Fund that such shareholder is not subject to backup withholding, or (4) has not certified that such shareholder is a U.S. person (including a U.S. resident alien). The backup withholding rate is 28%. Backup withholding will not be applied to payments that have been subject to the 30% withholding tax on shareholders who are neither citizens nor permanent residents of the U.S.
CREATION UNITS. An Authorized Participant who exchanges securities for Creation Units generally will recognize a gain or a loss. The gain or loss will be equal to the difference between the market value of the Creation Units at the time and the sum of the exchangers aggregate basis in the securities surrendered plus the amount of cash paid for such Creation Units. A person who redeems Creation Units will generally recognize a gain or loss equal to the difference between the exchangers basis in the Creation Units and the sum of the aggregate market value of any securities received plus the amount of any cash received for such Creation Units. The IRS, however, may assert that a loss realized upon an exchange of securities for Creation Units cannot be deducted currently under the rules governing wash sales, or on the basis that there has been no significant change in economic position.
Any gain or loss realized upon a creation of Creation Units will be treated as capital gain or loss if the Authorized Participant holds the securities exchanged therefor as capital assets, and otherwise will be ordinary income or loss. Similarly, any gain or loss realized upon a redemption of Creation Units will be treated as capital gain or loss if the Authorized Participant holds the Shares comprising the Creation Units as capital assets, and otherwise will be ordinary income or loss. Any capital gain or loss realized upon the creation of Creation Units will generally be treated as long-term capital gain or loss if the securities exchanged for such Creation Units have been held for more than one year, and otherwise will be short-term capital gain or loss. Any capital gain or loss realized upon the redemption of Creation Units will generally be treated as long-term capital gain or loss if the Shares comprising the Creation Units have been held for more than one year, and otherwise, will generally be short-term capital gain or loss. Any capital loss realized upon a redemption of Creation Units held for six (6) months or less will be disallowed to the extent of exempt-interest dividends paid with respect to the Creation Units, and to the extent not disallowed will be treated as a long-term capital loss to the extent of any amounts treated as distributions to the applicable Authorized Participant of long-term capital gains with respect to the Creation Units (including any amounts credited to the Authorized Participant as undistributed capital gains).
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A Fund has the right to reject an order for Creation Units if the purchaser (or a group of purchasers) would, upon obtaining the Shares so ordered, own 80% or more of the outstanding shares of the Fund and if, pursuant to section 351 of the Internal Revenue Code, the Fund would have a basis in any deposit securities different from the market value of such securities on the date of deposit. A Fund also has the right to require information necessary to determine beneficial Share ownership for purposes of the 80% determination. If a Fund does issue Creation Units to a purchaser (or a group of purchasers) that would, upon obtaining the Shares so ordered, own 80% or more of the outstanding shares of the Fund, the purchaser (or a group of purchasers) may not recognize gain or loss upon the exchange of securities for Creation Units.
Persons purchasing or redeeming Creation Units should consult their own tax advisors with respect to the tax treatment of any creation or redemption transaction.
CERTAIN POTENTIAL TAX REPORTING REQUIREMENTS. Under promulgated Treasury regulations, if a shareholder recognizes a loss on disposition of a Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder (or certain greater amounts over a combination of years), the shareholder must file with the IRS a disclosure statement on IRS Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. A shareholder who fails to make the required disclosure to the IRS may be subject to adverse tax consequences, including significant penalties. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
The foregoing discussion is a summary only and is not intended as a substitute for careful tax planning. Purchasers of Shares should consult their own tax advisors as to the tax consequences of investing in such Shares, including under state, local and other tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date hereof. Changes in applicable authority could materially affect the conclusions discussed above, and such changes often occur.
STATE TAX MATTERS. The discussion of state and local tax treatment is based on the assumptions that the Funds will qualify for treatment under Subchapter M of the Internal Revenue Code as RICs, that they will satisfy the conditions which will cause distributions to qualify as exempt-interest dividends to shareholders when distributed as intended, and that each Fund will distribute all interest and dividends it receives to its shareholders. The tax discussion summarizes general state and local tax laws which are currently in effect and which are subject to change by legislative, judicial or administrative action; any such changes may be retroactive with respect to the applicable Funds transactions. Investors should consult a tax advisor for more detailed information about state and local taxes to which they may be subject.
Many states grant tax-free status to dividends paid to you from interest earned on direct obligations of the U.S. government, subject in some states to minimum investment requirements that must be met by the Fund. Investment in Government National Mortgage Association (Ginnie Mae) or Federal National Mortgage Association (Fannie Mae) securities, bankers acceptances, commercial paper, and repurchase agreements collateralized by U.S. government securities do not generally qualify for such tax-free treatment. The rules on exclusion of this income are different for corporate shareholders.
INVESTMENT BY AN UNDERTAKING FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES
The Adviser has reviewed the investment characteristics and limitations of each Fund and believes that, as of [ ] each Fund (other than [ ]) qualifies as an undertaking for collective investment (UCI) for purposes of the Luxembourg law of 17 December 2010. However, an Undertaking for Collective Investment in Transferable Securities should consult its own counsel regarding the qualification of a Fund as a UCI before investing in the Fund.
50
CAPITAL STOCK AND SHAREHOLDER REPORTS
Each Fund issues Shares of beneficial interest, par value $.01 per Share. The Board may designate additional funds.
Each Share issued by the Trust has a pro rata interest in the assets of the corresponding series of the Trust. Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each Share is entitled to participate equally in dividends and distributions declared by the Board with respect to each Fund, and in the net distributable assets of each Fund on liquidation.
Each Share has one vote with respect to matters upon which a shareholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder. Shares of all series of the Trust (Funds) vote together as a single class except that if the matter being voted on affects only a particular fund it will be voted on only by that fund and if a matter affects a particular fund differently from other Funds, that fund will vote separately on such matter. Under Massachusetts law, the Trust is not required to hold an annual meeting of shareholders unless required to do so under the 1940 Act. The policy of the Trust is not to hold an annual meeting of shareholders unless required to do so under the 1940 Act. All Shares of the Trust (regardless of the fund) have noncumulative voting rights for the election of Trustees. Under Massachusetts law, Trustees of the Trust may be removed by vote of the shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable as partners for obligations of the Trust. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust, requires that Trust obligations include such disclaimer, and provides for indemnification and reimbursement of expenses out of the Trusts property for any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations. Given the above limitations on shareholder personal liability, and the nature of each Funds assets and operations, the risk to shareholders of personal liability is believed to be remote.
Shareholder inquiries may be made by writing to the Trust, c/o the Distributor, State Street Global Advisors Funds Distributors, LLC at State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111.
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Morgan, Lewis & Bockius LLP, 1111 Pennsylvania Avenue NW, Washington, DC 20004, serves as counsel to the Trust. [ ], serves as the independent registered public accounting firm for the Trust. [ ] performs annual audits of the Funds financial statements and provides other audit, tax and related services.
LOCAL MARKET HOLIDAY SCHEDULES
The Trust generally intends to effect deliveries of portfolio securities on a basis of T plus three Business Days ( i.e. , days on which the NYSE is open) (T plus two Business Days for orders dated on or after September 5, 2017) in the relevant foreign market of a Fund. The ability of the Trust to effect in-kind redemptions within three Business Days (two Business Days for orders dated on or after September 5, 2017) of receipt of a redemption request is subject, among other things, to the condition that, within the time period from the date of the request to the date of delivery of the securities, there are no days that are local market holidays on the relevant Business Days. For every occurrence of one or more intervening holidays in the local market that are not holidays observed in the United States, the redemption settlement cycle may be extended by the number of such intervening local holidays. In addition to holidays, other unforeseeable closings in a foreign market due to emergencies may also prevent the Trust from delivering securities within three Business Days (two Business Days for orders dated on or after September 5, 2017).
The securities delivery cycles currently practicable for transferring portfolio securities to redeeming investors, coupled with local market holiday schedules, may require a delivery process longer than the standard settlement period. In certain circumstances during the calendar year, the settlement period may be greater than seven calendar days. Such periods are listed in the table below, as are instances where more than seven days will be needed to deliver redemption proceeds. Since certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption proceeds in any given year may exceed the maximum number of days listed in the table below. The proclamation of new holidays, the treatment by market participants of certain days as informal holidays ( e.g. , days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery practices, could affect the information set forth herein at some time in the future and longer (worse) redemption periods are possible.
51
Listed below are the dates in calendar year 2017 in which the regular holidays in non-U.S. markets may impact Fund settlement. This list is based on information available to the Funds. The list may not be accurate or complete and is subject to change:
Albania |
Argentina |
Australia |
Austria |
Bahrain* |
||||
January 2 | February 27-28 | January 2, 26 | January 6 | January 1 | ||||
March 14, 22 | March 24 | March 6, 13 | April 14, 17 | May 1 | ||||
April 17 | April 13-14 | April 14, 17-18, 25 | May 1, 25 | June 25-27 | ||||
May 1 | May 1, 25 | May 1 | June 5, 15 | September 3, 21 | ||||
June 26 | June 20 | June 5, 12 | August 15 | November 30 | ||||
September 1 | August 21 | August 7-8 | October 26 | December 17 | ||||
October 19 | October 9 | September 25, 29 | November 1, 8 | |||||
November 28-29 | November 6, 27 | October 2 | December 25-26 | |||||
December 8, 25 | December 8, 25 | November 7 | ||||||
December 25-26 |
* Market closed every Friday |
|||||||
Bangladesh* |
Belgium |
Benin |
Bermuda |
Bosnia and Herzegovina |
||||
February 21 |
April 14, 17 |
April 17 |
January 2 |
January 2, 6 |
||||
March 26 |
May 1 |
May 1, 25 |
April 14 |
March 1 |
||||
May 1, 10 |
December 25-26 |
June 5, 21, 26 |
May 24 |
April 17 |
||||
June 25-27 |
August 7, 15 |
June 19 |
May 1-2 |
|||||
August 14-15 |
September 1 |
August 3-4 |
June 26 |
|||||
September 3 |
November 1, 15 |
September 4 |
September 1 |
|||||
October 1 |
December 1, 25 |
November 13 |
||||||
December 25, 31 |
December 25-26 |
|||||||
* Market closed every Friday |
||||||||
Botswana |
Brazil |
Bulgaria |
Burkina Faso |
Canada |
||||
January 2-3 | January 25 | January 2 | April 17 | January 2-3 | ||||
April 14, 17 | February 27-28 | March 3 | May 1, 25 | February 13, 20 | ||||
May 1, 25 | March 1 | April 14-17 | June 5, 21, 26 | April 14 | ||||
July 17-18 | April 14, 21 | May 1, 24 | August 7, 15 | May 22 | ||||
October 2 | May 1 | September 6, 22 | September 1 | June 26 | ||||
December 25-26 | June 15 | December 25-26 | November 1, 15 | July 3 | ||||
September 7 | December 1, 25 | August 7 | ||||||
October 12 | September 4 | |||||||
November 2, 15, 20 | October 9 | |||||||
December 25 | November 13 | |||||||
December 25-26 | ||||||||
The Cayman Islands |
Chile |
China |
Colombia |
Croatia |
||||
January 2, 23 | January 2 | January 2, 27, 30-31 | January 9 | January 6 | ||||
March 1 | April 14 | February 1-2 | March 20 | April 14, 17 | ||||
April 14, 17 | May 1 | April 3-4 | April 13-14 | May 1 | ||||
May 15 | June 26 | May 1, 29-30 | May 1, 29 | June 15, 22 | ||||
June 19 | August 15 | October 2-6 | June 19, 26 | August 15 | ||||
July 3 | September 18-19 | July 3, 20 | November 1 | |||||
November 13 | October 9, 27 | August 7, 21 | December 25-26 | |||||
December 25-26 | November 1 | October 16 | ||||||
December 8, 25 | November 6, 13 | |||||||
December 8, 25 |
52
Costa Rica |
Cyprus |
The Czech Republic |
Denmark |
Egypt* |
||||
April 11, 13-14 | January 6 | April 14, 17 | April 13-14, 17 | January 1, 25 | ||||
May 1 | February 27 | May 1, 8 | May 12, 25-26 | April 16-17, 25 | ||||
July 25 | April 14, 17-18 | July 5- 6 | June 5 | May 1 | ||||
August 2, 15 | May 1 | September 28 | December 25-26 | June 25-26 | ||||
September 15 | June 5 | November 17 | July 23 | |||||
October 16 | August 15 | December 25-26 | August 31 | |||||
December 25 | December 25-26 | September 21 | ||||||
November 30 | ||||||||
* Market closed every Friday |
||||||||
Estonia |
Finland |
France |
Georgia |
Germany |
||||
February 23-24 | January 6 | April 14, 17 | January 2, 19 | April 14, 17 | ||||
April 14, 17 | April 13-14, 17 | May 1 | March 3, 8 | May 1 | ||||
May 1, 25 | May 1, 25 | December 25-26 | April 14, 17 | June 5 | ||||
June 22-23 | December 6, 25-26 | May 9, 12, 26 | October 3, 31 | |||||
December 25-26 | August 28 | December 25-26 | ||||||
November 23 | ||||||||
Ghana |
Greece |
Guinea-Bissau |
Hong Kong |
Hungary |
||||
January 2 | January 6 | April 17 | January 2, 27, 30-31 | March 15 | ||||
March 6 | February 27 | May 1, 25 | April 4, 14, 17 | April 14, 17 | ||||
April 14, 17 | April 14, 17 | June 5, 21, 26 | May 1, 3, 30 | May 1 | ||||
May 1, 25 | May 1 | August 7, 15 | October 2, 5 | June 5 | ||||
June 26 | June 5 | September 1 | December 25-26 | October 23 | ||||
July 7 | August 15 | November 1, 15 | November 1 | |||||
September 13, 21 | December 25-26 | December 1, 25 | December 25-26 | |||||
December 25-26 | ||||||||
Iceland |
India |
Indonesia |
Ireland |
Israel* |
||||
April 13-14, 17, 20 | January 26 | January 2 | January 2 | March 12 | ||||
May 1, 25 | February 24 | March 28 | March 17 | April 10-13, 16-17 | ||||
June 5 | March 13, 28 | April 14, 24 | April 14, 17 | May 1-2, 30-31 | ||||
August 7 | April 4, 14 | May 1, 11, 25 | May 1 | August 1 | ||||
December 25-26 | May 1, 10 | June 1, 26-30 | June 5 | September 20-21 | ||||
June 26 | August 17 | August 7 | October 4-5, 8-12 | |||||
August 15,17, 25 | September 1, 21 | October 30 | ||||||
October 2, 19-20 December 1, 25 | December 1, 25-26 | December 22, 25-26, 29 |
* Market closed every Friday |
|||||
Italy |
Ivory Coast |
Jamaica |
Japan |
Jordan* |
||||
April 14, 17 | April 17 | January 2 | January 2-3, 9 | January 1 | ||||
May 1 | May 1, 25 | March 1 | March 20 | May 1, 25 | ||||
August 15 | June 5, 21, 26 | April 14, 17 | May 3-5 | June 25-28 | ||||
December 25-26 | August 7, 15 | May 23 | July 17 | August 31 | ||||
September 1 | August 1, 7 | August 11 | September 3-4, 21 | |||||
November 1, 15 | October 16 | September 18 | November 30 | |||||
December 1, 25 | December 25-26 | October 9 | December 25 | |||||
November 3, 23 | ||||||||
* Market closed every Friday |
53
Kazakhstan |
Kenya |
Kuwait* |
Latvia |
Lebanon |
||||
January 2-3 | January 2 | January 1 | April 13-14, 17 | January 2, 6 | ||||
March 8, 21-23 | April 14, 17 | February 26 | May 1, 4-5, 25 | February 9, 14 | ||||
May 1, May 8-9 | May 1 | April 24 | June 22-23 | April 14, 17, 25 | ||||
July 6 | June 1, 27 | June 25-27 | November 17, 20 | May 1, 25 | ||||
August 30 | October 20 | August 31 | December 25-26 | June 26-27 | ||||
September 1 | December 12, 25-26 | September 3, 21 | August 15 | |||||
December 1, 18-19 | September 1, 21 | |||||||
November 22 | ||||||||
December 1, 25 | ||||||||
* Market closed every Friday |
||||||||
Lithuania |
Luxembourg |
Malawi |
Malaysia |
Mali |
||||
February 16 | April 14, 17 | January 2, 16 | January 2, 27, 30 | April 17 | ||||
April 14, 17 | May 1 | March 3 | February 1, 9 | May 1, 25 | ||||
May 1, 25 | December 25-26 | April 14, 17 | May 1, 10 | June 5, 21, 26 | ||||
July 6 | May 1, 15 | June 12, 26-27 | August 7, 15 | |||||
August 15 | June 26 | August 31 | September 1 | |||||
November 1 | July 6 | September 1, 21 | November 1, 15 | |||||
December 25-26 | December 25-26 | October 18 | December 1, 25 | |||||
December 1, 25 | ||||||||
Mauritius |
Mexico |
Morocco |
Namibia |
The Netherlands |
||||
January 2 | February 6 | January 11 | January 2 | April 14, 17 | ||||
February 1, 9, 24 | March 20 | May 1 | March 21 | May 1 | ||||
March 29 | April 13-14 | June 26 | April 14, 17, 27 | December 25-26 | ||||
May 1 | May 1 | August 14, 21 | May 1, 4, 25 | |||||
June 26 | November 2, 20 | September 1, 22 | June 16 | |||||
October 19 | December 12, 25 | November 6 | August 9 | |||||
November 1-2 | September 25 | |||||||
December 25 | December 11, 25-27 | |||||||
New Zealand |
Niger |
Nigeria |
Norway |
Oman* |
||||
January 2-3 | April 17 | January 2 | April 12-14, 17 | April 24 | ||||
February 6 | May 1, 25 | April 14, 17 | May 1, 17, 25 | June 26 | ||||
April 14, 17, 25 | June 5, 21, 26 | May 1, 29 | June 5 | July 23 | ||||
June 5 | September 1 | June 26-27 | December 25-26 | November 19 | ||||
October 23 | November 1, 15 | September 1 | ||||||
December 25-26 | December 1, 25 |
October 2 December 1, 25-26 |
* Market closed every Friday |
54
55
Tanzania |
Thailand |
Togo |
Tunisia |
Turkey |
||||
January 12 | January 2-3 | April 17 | March 20 | May 1, 19 | ||||
April 7, 14, 17, 26 | February 13 | May 1, 25 | May 1 | June 26-27 | ||||
May 1 | April 6, 13-14 | June 5, 21, 26 | June 26 | August 30-31 | ||||
July 7, 26-27 | May 1, 5, 10 | August 7, 15 | July 25 | September 1, 4 | ||||
August 8 | July 10 | September 1 | September 1, 21 | |||||
September 1 | August 14 | November 1, 15 | December 1 | |||||
December 15, 25-26 | October 23 | December 1, 25 | ||||||
December 5, 11 | ||||||||
Uganda |
Ukraine |
The United Arab Emirates* |
The United Kingdom |
The United States Bond
|
||||
January 2, 26 | January 2-3, 9 | January 1 | January 2 | January 2, 16 | ||||
February 16 | March 8 | April 24 | April 14, 17 | February 20 | ||||
March 8 | April 17 | June 25-26 | May 1, 29 | April 13*- 14 | ||||
April 14, 17 | May 1-2, 9 | August 31 | August 28 | May 26*, 29 | ||||
May 1 | June 5, 28 | September 21 | December 22, 25-26, 29 | July 3*- 4 | ||||
June 9, 26 | August 24 | November 30 | September 4 | |||||
July 7 | October 16 | December 3 | October 9 | |||||
September 13 | November 23-24* | |||||||
October 9 | December 22*, 25, 29* | |||||||
November 30 | ||||||||
December 25-26 |
* Market closed every Friday |
* The U.S. bond market has recommended early close. |
||||||
Uruguay |
Venezuela |
Vietnam |
Zambia |
Zimbabwe |
||||
January 6 | January 9 | January 2, 26-27, 30-31 | January 2 | January 2 | ||||
February 27-28 | February 27-28 | February 1 | March 8, 13 | April 14, 17-18 | ||||
April 13-14, 17 | April 13-14, 19 | April 6 | April 14, 17 | May 1, 25 | ||||
May 1, 22 | May 1, 29 | May 1-2 | May 1, 25 | August 14-15 | ||||
June 19 | June 19 | September 4 | July 3-4 | December 22, 25-26 | ||||
July 18 | July 3, 5, 24 | August 7 | ||||||
August 25 | August 14 | October 18, 24 | ||||||
October 16 | September 11 | December 25 | ||||||
November 2 | October 12 | |||||||
December 25 | November 6 | |||||||
December 11, 25 |
Redemptions. The longest redemption cycle for a Fund is a function of the longest redemption cycle among the countries whose securities comprise the Funds. In calendar year 2017, the dates of regular holidays affecting the following securities markets present the worst-case redemption cycles* for a Fund as follows:
2017
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
Australia | 04/11/17 | 04/19/17 | 8 | |||
04/12/17 | 04/20/17 | 8 | ||||
04/13/17 | 04/21/17 | 8 | ||||
Bangladesh | 06/20/17 | 06/28/17 | 8 | |||
06/21/17 | 06/29/17 | 8 | ||||
06/22/17 | 07/02/17 | 10 |
56
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
Brazil | 02/22/17 | 03/02/17 | 8 | |||
02/23/17 | 03/03/17 | 8 | ||||
02/24/17 | 03/06/17 | 11 | ||||
China | 01/24/17 | 02/03/17 | 10 | |||
01/25/17 | 02/06/17 | 12 | ||||
01/26/17 | 02/07/17 | 12 | ||||
09/27/17 | 10/09/17 | 12 | ||||
09/28/17 | 10/10/17 | 12 | ||||
09/29/17 | 10/11/17 | 12 | ||||
Costa Rica | 04/07/17 | 04/17/17 | 10 | |||
04/10/17 | 04/18/17 | 8 | ||||
Indonesia | 06/21/17 | 07/03/17 | 12 | |||
06/22/17 | 07/04/17 | 12 | ||||
06/23/17 | 07/05/17 | 12 | ||||
Israel | 04/06/17 | 04/18/17 | 12 | |||
04/09/17 | 04/19/17 | 10 | ||||
10/02/17 | 10/15/17 | 13 | ||||
10/03/17 | 10/16/17 | 13 | ||||
Japan | 04/28/17 | 05/08/17 | 10 | |||
05/01/17 | 05/09/17 | 8 | ||||
05/02/17 | 05/10/17 | 8 | ||||
Jordan | 06/21/17 | 06/29/17 | 8 | |||
06/22/17 | 07/02/17 | 10 | ||||
Malawi | 01/09/17 | 01/17/17 | 8 | |||
01/10/17 | 01/18/17 | 8 | ||||
01/11/17 | 01/19/17 | 8 | ||||
01/12/17 | 01/20/17 | 8 | ||||
01/13/17 | 01/23/17 | 10 | ||||
02/24/17 | 03/06/17 | 10 | ||||
02/27/17 | 03/07/17 | 8 | ||||
02/28/17 | 03/08/17 | 8 | ||||
03/01/17 | 03/09/17 | 8 | ||||
03/02/17 | 03/10/17 | 8 | ||||
04/07/17 | 04/18/17 | 11 | ||||
04/10/17 | 04/19/17 | 9 | ||||
04/11/17 | 04/20/17 | 9 | ||||
04/12/17 | 04/21/17 | 9 | ||||
04/13/17 | 04/24/17 | 11 | ||||
04/24/17 | 05/02/17 | 8 | ||||
04/25/17 | 05/03/17 | 8 |
57
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
04/26/17 | 05/04/17 | 8 | ||||
04/27/17 | 05/05/17 | 8 | ||||
04/28/17 | 05/08/17 | 10 | ||||
05/08/17 | 05/16/17 | 8 | ||||
05/09/17 | 05/17/17 | 8 | ||||
05/10/17 | 05/18/17 | 8 | ||||
05/11/17 | 05/19/17 | 8 | ||||
05/12/17 | 05/22/17 | 10 | ||||
06/19/17 | 06/27/17 | 8 | ||||
06/20/17 | 06/28/17 | 8 | ||||
06/21/17 | 06/29/17 | 8 | ||||
06/22/17 | 06/30/17 | 8 | ||||
06/23/17 | 07/03/17 | 10 | ||||
06/29/17 | 07/07/17 | 8 | ||||
06/30/17 | 07/10/17 | 8 | ||||
07/03/17 | 07/11/17 | 8 | ||||
07/04/17 | 07/12/17 | 8 | ||||
07/05/17 | 07/13/17 | 8 | ||||
12/18/17 | 12/27/17 | 9 | ||||
12/19/17 | 12/28/17 | 9 | ||||
12/20/17 | 12/29/17 | 9 | ||||
12/21/17 | 01/02/18 | 12 | ||||
12/22/17 | 01/03/18 | 12 | ||||
Malaysia | 01/24/17 | 02/01/17 | 8 | |||
01/25/17 | 02/02/17 | 8 | ||||
01/26/17 | 02/03/17 | 8 | ||||
Namibia | 03/14/17 | 03/22/17 | 8 | |||
03/15/17 | 03/23/17 | 8 | ||||
03/16/17 | 03/24/17 | 8 | ||||
03/17/17 | 03/27/17 | 10 | ||||
03/20/17 | 03/28/17 | 8 | ||||
04/07/17 | 04/18/17 | 11 | ||||
04/10/17 | 04/19/17 | 9 | ||||
04/11/17 | 04/20/17 | 9 | ||||
04/12/17 | 04/21/17 | 9 | ||||
04/13/17 | 04/24/17 | 11 | ||||
04/20/17 | 04/28/17 | 8 | ||||
04/21/17 | 05/01/17 | 10 | ||||
04/24/17 | 05/02/17 | 8 | ||||
04/25/17 | 05/05/17 | 10 | ||||
04/26/17 | 05/08/17 | 12 | ||||
04/28/17 | 05/09/17 | 11 |
58
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
05/02/17 | 05/10/17 | 8 | ||||
05/03/17 | 05/11/17 | 8 | ||||
05/18/17 | 05/26/17 | 8 | ||||
05/19/17 | 05/29/17 | 10 | ||||
05/22/17 | 05/30/17 | 8 | ||||
05/23/17 | 05/31/17 | 8 | ||||
05/24/17 | 06/01/17 | 8 | ||||
06/09/17 | 06/19/17 | 10 | ||||
06/12/17 | 06/20/17 | 8 | ||||
06/13/17 | 06/21/17 | 8 | ||||
06/14/17 | 06/22/17 | 8 | ||||
06/15/17 | 06/23/17 | 8 | ||||
08/02/17 | 08/10/17 | 8 | ||||
08/03/17 | 08/11/17 | 8 | ||||
08/04/17 | 08/14/17 | 10 | ||||
08/07/17 | 08/15/17 | 8 | ||||
08/08/17 | 08/16/17 | 8 | ||||
09/18/17 | 09/26/17 | 8 | ||||
09/19/17 | 09/27/17 | 8 | ||||
09/20/17 | 09/28/17 | 8 | ||||
09/21/17 | 09/29/17 | 8 | ||||
09/22/17 | 10/02/17 | 10 | ||||
12/04/17 | 12/12/17 | 8 | ||||
12/05/17 | 12/13/17 | 8 | ||||
12/06/17 | 12/14/17 | 8 | ||||
12/07/17 | 12/15/17 | 8 | ||||
12/08/17 | 12/18/17 | 10 | ||||
12/18/17 | 12/28/17 | 10 | ||||
12/19/17 | 12/29/17 | 10 | ||||
12/20/17 | 01/02/20 | 13 | ||||
12/21/17 | 01/03/18 | 13 | ||||
12/22/17 | 01/04/18 | 13 | ||||
Norway | 04/10/17 | 04/18/17 | 8 | |||
04/11/17 | 04/19/17 | 8 | ||||
Qatar | 06/20/17 | 06/28/17 | 8 | |||
06/21/17 | 06/29/17 | 8 | ||||
06/22/17 | 06/30/17 | 8 | ||||
Saudi Arabia | 06/24/17 | 07/02/17 | 8 | |||
06/25/17 | 07/03/17 | 8 | ||||
South Africa | 03/14/17 | 03/22/17 | 8 | |||
03/15/17 | 03/23/17 | 8 | ||||
03/16/17 | 03/24/17 | 8 |
59
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
03/17/17 | 03/27/17 | 10 | ||||
03/20/17 | 03/28/17 | 8 | ||||
04/07/17 | 04/18/17 | 11 | ||||
04/10/17 | 04/19/17 | 9 | ||||
04/11/17 | 04/20/17 | 9 | ||||
04/12/17 | 04/21/17 | 9 | ||||
04/13/17 | 04/24/17 | 11 | ||||
04/20/17 | 04/28/17 | 8 | ||||
04/21/17 | 05/02/17 | 11 | ||||
04/24/17 | 05/03/17 | 9 | ||||
04/25/17 | 05/04/17 | 9 | ||||
04/26/17 | 05/05/17 | 9 | ||||
04/28/17 | 05/08/17 | 10 | ||||
06/09/17 | 06/19/17 | 10 | ||||
06/12/17 | 06/20/17 | 8 | ||||
06/13/17 | 06/21/17 | 8 | ||||
06/14/17 | 06/22/17 | 8 | ||||
06/15/17 | 06/23/17 | 8 | ||||
08/02/17 | 08/10/17 | 8 | ||||
08/03/17 | 08/11/17 | 8 | ||||
08/04/17 | 08/14/17 | 10 | ||||
08/07/17 | 08/15/17 | 8 | ||||
08/08/17 | 08/16/17 | 8 | ||||
09/18/17 | 09/26/17 | 8 | ||||
09/19/17 | 09/27/17 | 8 | ||||
09/20/17 | 09/28/17 | 8 | ||||
09/21/17 | 09/29/17 | 8 | ||||
09/22/17 | 10/02/17 | 10 | ||||
12/18/17 | 12/27/17 | 9 | ||||
12/19/17 | 12/28/17 | 9 | ||||
12/20/17 | 12/29/17 | 9 | ||||
12/21/17 | 01/03/18 | 13 | ||||
12/22/17 | 01/04/18 | 13 | ||||
South Korea | 09/29/17 | 10/10/17 | 11 | |||
10/02/17 | 10/11/17 | 9 | ||||
Sri Lanka | 04/07/17 | 04/17/17 | 10 | |||
Swaziland | 04/07/17 | 04/18/17 | 11 | |||
04/10/17 | 04/20/17 | 10 | ||||
04/11/17 | 04/21/17 | 10 | ||||
04/12/17 | 04/24/17 | 12 | ||||
04/13/17 | 04/26/17 | 13 |
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Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
04/18/17 | 04/27/17 | 9 | ||||
04/20/17 | 04/28/17 | 8 | ||||
04/21/17 | 05/02/17 | 11 | ||||
04/24/17 | 05/03/17 | 9 | ||||
04/26/17 | 05/04/17 | 8 | ||||
04/27/17 | 05/08/17 | 11 | ||||
04/28/17 | 05/09/17 | 11 | ||||
05/02/17 | 05/10/17 | 8 | ||||
05/03/17 | 05/11/17 | 8 | ||||
05/04/17 | 05/12/17 | 8 | ||||
08/30/17 | 09/07/17 | 8 | ||||
08/31/17 | 09/08/17 | 8 | ||||
09/01/17 | 09/11/17 | 10 | ||||
09/04/17 | 09/12/17 | 8 | ||||
09/05/17 | 09/13/17 | 8 | ||||
12/18/17 | 12/27/17 | 9 | ||||
12/19/17 | 12/28/17 | 9 | ||||
12/20/17 | 12/29/17 | 9 | ||||
12/21/17 | 01/02/18 | 12 | ||||
12/22/17 | 01/03/18 | 12 | ||||
Taiwan | 01/23/17 | 02/02/17 | 10 | |||
01/24/17 | 02/03/17 | 10 | ||||
Turkey | 08/28/17 | 09/05/17 | 8 | |||
08/29/17 | 09/06/17 | 8 | ||||
Uganda | 01/19/17 | 01/27/17 | 8 | |||
01/20/17 | 01/30/17 | 10 | ||||
01/23/17 | 02/01/17 | 9 | ||||
01/24/17 | 02/02/17 | 9 | ||||
01/25/17 | 02/03/17 | 9 | ||||
02/9/17 | 02/17/17 | 8 | ||||
02/10/17 | 02/18/17 | 8 | ||||
02/13/17 | 02/21/17 | 8 | ||||
02/14/17 | 02/22/17 | 8 | ||||
02/15/17 | 02/23/17 | 8 | ||||
03/01/17 | 03/09/17 | 8 | ||||
03/02/17 | 03/10/17 | 8 | ||||
03/03/17 | 03/13/17 | 10 | ||||
03/06/17 | 03/14/17 | 8 | ||||
03/07/17 | 03/15/17 | 8 | ||||
04/07/17 | 04/18/17 | 11 | ||||
04/10/17 | 04/19/17 | 9 | ||||
04/11/17 | 04/20/17 | 9 | ||||
04/12/17 | 04/21/17 | 9 |
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Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
04/13/17 | 04/24/17 | 11 | ||||
04/24/17 | 05/02/17 | 8 | ||||
04/25/17 | 05/03/17 | 8 | ||||
04/26/17 | 05/04/17 | 8 | ||||
04/27/17 | 05/05/17 | 8 | ||||
04/28/17 | 05/08/17 | 10 | ||||
06/02/17 | 06/12/17 | 10 | ||||
06/05/17 | 06/13/17 | 8 | ||||
06/06/17 | 06/14/17 | 8 | ||||
06/07/17 | 06/15/17 | 8 | ||||
06/08/17 | 06/16/17 | 8 | ||||
06/19/17 | 06/27/17 | 8 | ||||
06/20/17 | 06/28/17 | 8 | ||||
06/21/17 | 06/29/17 | 8 | ||||
06/22/17 | 06/30/17 | 8 | ||||
06/23/17 | 07/03/17 | 10 | ||||
06/30/17 | 07/10/17 | 10 | ||||
07/03/17 | 07/11/17 | 8 | ||||
07/04/17 | 07/12/17 | 8 | ||||
07/05/17 | 07/13/17 | 8 | ||||
07/06/17 | 07/14/17 | 8 | ||||
09/06/17 | 09/14/17 | 8 | ||||
09/07/17 | 09/15/17 | 8 | ||||
09/08/17 | 09/18/17 | 10 | ||||
09/11/17 | 09/19/17 | 8 | ||||
09/12/17 | 09/20/17 | 8 | ||||
10/02/17 | 10/10/17 | 8 | ||||
10/03/17 | 10/11/17 | 8 | ||||
10/04/17 | 10/12/17 | 8 | ||||
10/05/17 | 10/13/17 | 8 | ||||
10/06/17 | 10/16/17 | 10 | ||||
11/23/17 | 12/01/17 | 8 | ||||
11/24/17 | 12/04/17 | 10 | ||||
11/27/17 | 12/05/17 | 8 | ||||
11/28/17 | 12/06/17 | 8 | ||||
11/29/17 | 12/07/17 | 8 | ||||
12/18/17 | 12/27/17 | 9 | ||||
12/19/17 | 12/28/17 | 9 | ||||
12/20/17 | 12/29/17 | 9 | ||||
12/21/17 | 01/02/18 | 12 | ||||
12/22/17 | 01/03/18 | 12 |
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Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
Uruguay | 04/10/17 | 04/18/17 | 8 | |||
04/11/17 | 04/19/17 | 8 | ||||
04/12/17 | 04/20/17 | 8 | ||||
Vietnam | 01/23/17 | 02/02/17 | 10 | |||
01/24/17 | 02/03/17 | 10 | ||||
01/25/17 | 02/06/17 | 12 | ||||
Zimbabwe | 04/07/17 | 04/19/17 | 12 | |||
04/10/17 | 04/20/17 | 10 | ||||
04/11/17 | 04/21/17 | 10 | ||||
04/12/17 | 04/24/17 | 12 | ||||
04/13/17 | 04/25/17 | 12 | ||||
04/24/17 | 05/02/17 | 8 | ||||
04/25/17 | 05/03/17 | 8 | ||||
04/26/17 | 05/04/17 | 8 | ||||
04/27/17 | 05/05/17 | 8 | ||||
04/28/17 | 05/08/17 | 10 | ||||
05/18/17 | 05/26/17 | 8 | ||||
05/19/17 | 05/29/17 | 10 | ||||
05/22/17 | 05/30/17 | 8 | ||||
05/23/17 | 05/31/17 | 8 | ||||
05/24/17 | 06/01/17 | 8 | ||||
08/07/17 | 08/16/17 | 9 | ||||
08/08/17 | 08/17/17 | 9 | ||||
08/09/17 | 08/18/17 | 9 | ||||
08/10/17 | 08/21/17 | 11 | ||||
08/11/17 | 08/22/17 | 11 | ||||
12/15/17 | 12/27/17 | 12 | ||||
12/18/17 | 12/28/17 | 10 | ||||
12/19/17 | 12/29/17 | 10 | ||||
12/20/17 | 01/02/18 | 13 | ||||
12/21/17 | 01/03/18 | 13 |
* | These worst-case redemption cycles are based on information regarding regular holidays. Based on changes in holidays, longer (worse) redemption cycles are possible. |
The financial statements and financial highlights of the Funds that were operating during the year ended June 30, 2017, along with the Reports of [ ], the Trusts Independent Registered Public Accounting Firm, included in the Trusts Annual Reports to Shareholders on Form N-CSR under the 1940 Act, are incorporated by reference into this Statement of Additional Information.
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March 2017
FM Global Proxy Voting and Engagement Principles
SSGA Funds Management, Inc. (SSGA FM), one of the industrys largest institutional asset managers, is the investment management arm of State Street Bank and Trust Company, a wholly owned subsidiary of State Street Corporation, a leading provider of financial services to institutional investors. As an investment manager, SSGA FM has discretionary proxy voting authority over most of its client accounts, and SSGA FM votes these proxies in the manner that we believe will most likely protect and promote the long-term economic value of client investments as described in the SSGA FM Global Proxy Voting and Engagement Principles.
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SSGA FM maintains Proxy Voting and Engagement Guidelines for select markets, including: the US, the EU, the UK, Australia, New Zealand, emerging markets and Japan. International markets that do not have specific guidelines are reviewed and voted consistent with our Global Proxy Voting and Engagement Principles; however, SSGA FM also endeavors to show sensitivity to local market practices when voting in these various markets.
SSGA FMs Approach to Proxy Voting and Issuer Engagement
At SSGA FM, we take our fiduciary duties as an asset manager very seriously. We have a dedicated team of corporate governance professionals who help us carry out our duties as a responsible investor. These duties include engaging with companies, developing and enhancing in-house corporate governance guidelines, analyzing corporate governance issues on a case-by-case basis at the company level, and exercising our voting rightsall to maximize shareholder value.
SSGA FMs Global Proxy Voting and Engagement Principles (the Principles) may take different perspectives on common governance issues that vary from one market to another and, likewise, engagement activity may take different forms in order to best achieve long-term engagement goals. We believe that proxy voting and engagement with portfolio companies is often the most direct and productive way shareholders can exercise their ownership rights, and taken together, we view these tools to be an integral part of the overall investment process.
We believe engagement and voting activity have a direct relationship. As a result, the integration of our engagement activities, while leveraging the exercise of our voting rights, provides a meaningful shareholder tool that we believe protects and enhances the long-term economic value of the holdings in our client accounts. SSGA FM maximizes its voting power and engagement by maintaining a centralized proxy voting and active ownership process covering all holdings, regardless of strategy. Despite the different investment views and objectives across SSGA FM, depending on the product or strategy, the fiduciary responsibilities of share ownership and voting for which SSGA FM has voting discretion are carried out with a single voice and objective.
The Principles support governance structures that we believe add to, or maximize shareholder value at the companies held in our clients portfolios. SSGA FM conducts issuer specific engagements with companies to discuss our principles, including sustainability related risks. In addition, we encourage issuers to find ways of increasing the amount of direct communication board members have with shareholders. We believe direct communication with executive board members and independent non-executive directors is critical to helping companies understand shareholder concerns. Conversely, where appropriate, we conduct collaborative engagement activities with multiple shareholders and communicate with company representatives about common concerns.
In conducting our engagements, SSGA FM also evaluates the various factors that play into the corporate governance framework of a country, including but not limited to, the macroeconomic conditions and broader political system, the quality of regulatory oversight, the enforcement of property and shareholder rights and the independence of the judiciary. SSGA FM understands that regulatory requirements and investor expectations relating to governance practices and engagement activities differ from country-to-country. As a result, SSGA FM engages with issuers, regulators, or both, depending on the market. SSGA FM also is a member of various investor associations that seek to address broader corporate governance related policy at the country level as well as issuer specific concerns at a company level.
To help mitigate company specific risk, the SSGA Asset Stewardship team may collaborate with members of the active investment teams to engage with companies on corporate governance issues and address any specific concerns, or to get more information regarding shareholder items that are to be voted on at upcoming shareholder meetings. Outside of proxy voting season, SSGA FM conducts issuer specific engagements with companies covering various corporate governance and sustainability related topics.
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The SSGA Asset Stewardship Team uses a blend of quantitative and qualitative research and data to support screens to help identify issuers where active engagement may be necessary to protect and promote shareholder value. Issuer engagement may also be event driven, focusing on issuer specific corporate governance, sustainability concerns or wider industry related trends. SSGA FM also gives consideration to the size of our total position of the issuer in question and/or the potential negative governance, performance profile, and circumstance at hand. As a result, SSGA FM believes issuer engagement can take many forms and be triggered under numerous circumstances. The following methods represent how SSGA FM defines engagement methods:
Active
SSGA FM uses screening tools designed to capture a mix of company specific data including governance and sustainability profiles to help us focus our voting and engagement activity.
SSGA FM will actively seek direct dialogue with the board and management of companies we have identified through our screening processes. Such engagements may lead to further monitoring to ensure the company improves its governance or sustainability practices. In these cases, the engagement process represents the most meaningful opportunity for SSGA FM to protect long-term shareholder value from excessive risk due to poor governance and sustainability practices.
Reactive
Reactive engagement is initiated by the issuers. SSGA FM routinely discusses specific voting issues and items with the issuer community. Reactive engagement is an opportunity to address not only voting items, but also a wide range of governance and sustainability issues.
SSGA FM has established an engagement protocol that further describes our approach to issuer engagement.
Measurement
Assessing the effectiveness of our issuer engagement process is often difficult. To limit the subjectivity of measuring our success we actively seek issuer feedback and monitor the actions issuers take post-engagement to identify tangible changes. By doing so, we are able to establish indicators to gauge how issuers respond to our concerns and to what degree these responses satisfy our requests. It is also important to note that successful engagement activity can be measured over differing time periods depending on the facts and circumstances involved. Engagements can last as short as a single meeting or span multiple years.
Depending on the issue and whether the engagement activity is reactive, recurring, or active, engagement with issuers can take the form of written communication, conference calls, or face-to-face meetings. SSGA FM believes active engagement is best conducted directly with company management or board members. Collaborative engagement, where multiple shareholders communicate with company representatives, can serve as a potential forum for issues that are not identified by SSGA FM as requiring active engagement, such as shareholder conference calls.
Proxy Voting Procedure
Oversight
The SSGA Asset Stewardship Team is responsible for developing and implementing the Proxy Voting and Engagement Guidelines (the Guidelines), case-by-case voting items, issuer engagement activities, and research and analysis of governance-related issues. The implementation of the Guidelines is overseen by the SSGA Global Proxy Review Committee (SSGA PRC), a committee of investment, compliance and legal professionals, who provide guidance on proxy issues as described in greater detail below. Oversight of the proxy voting process is ultimately the responsibility of the SSGA Investment Committee. The SSGA Investment Committee reviews and approves amendments to the Guidelines. The SSGA PRC reports to the SSGA Investment Committee, and may refer certain significant proxy items to that committee.
Proxy Voting Process
In order to facilitate SSGA FMs proxy voting process, SSGA FM retains Institutional Shareholder Services Inc. (ISS), a firm with expertise in proxy voting and corporate governance. SSGA FM utilizes ISSs services in three ways: (1) as SSGA FMs proxy voting agent (providing SSGA FM with vote execution and administration services); (2) for applying the Guidelines; and (3) as providers of research and analysis relating to general corporate governance issues and specific proxy items.
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The SSGA Asset Stewardship Team reviews the Guidelines with ISS on an annual basis or on a case-by-case basis as needed. On most routine proxy voting items (e.g., ratification of auditors), ISS will affect the proxy votes in accordance with the Guidelines.
In other cases, the Asset Stewardship Team will evaluate the proxy solicitation to determine how to vote based on facts and circumstances, consistent with the Principles, and the accompanying Guidelines, that seek to maximize the value of our client accounts.
In some instances, the Asset Stewardship Team may refer significant issues to the SSGA PRC for a determination of the proxy vote. In addition, in determining whether to refer a proxy vote to the SSGA PRC, the Asset Stewardship Team will consider whether a material conflict of interest exists between the interests of our client and those of SSGA FM or its affiliates (as explained in greater detail in our Conflict of Interest Policy).
SSGA FM votes in all markets where it is feasible; however, SSGA FM may refrain from voting meetings when power of attorney documentation is required, where voting will have a material impact on our ability to trade the security, where issuer-specific special documentation is required, or where various market or issuer certifications are required. SSGA FM is unable to vote proxies when certain custodians, used by our clients, do not offer proxy voting in a jurisdiction, or when they charge a meeting specific fee in excess of the typical custody service agreement.
Conflict of Interest
See SSGAs standalone Conflicts of Interest Policy.
Proxy Voting and Engagement Principles
Directors and Boards
The election of directors is one of the most important fiduciary duties SSGA FM performs as a shareholder. SSGA FM believes that well-governed companies can protect and pursue shareholder interests better and withstand the challenges of an uncertain economic environment. As such, SSGA FM seeks to vote director elections in a way which we, as a fiduciary, believe will maximize the long-term value of each portfolios holdings.
Principally, a board acts on behalf of shareholders by protecting their interests and preserving their rights. This concept establishes the standard by which board and director performance is measured. To achieve this fundamental principle, the role of the board, in SSGA FMs view, is to carry out its responsibilities in the best long-term interest of the company and its shareholders. An independent and effective board oversees management, provides guidance on strategic matters, selects the CEO and other senior executives, creates a succession plan for the board and management, provides risk oversight and assesses the performance of the CEO and management. In contrast, management implements the business and capital allocation strategies and runs the companys day-to-day operations. As part of SSGA FMs engagement process, SSGA FM routinely discusses the importance of these responsibilities with the boards of issuers.
SSGA FM believes the quality of a board is a measure of director independence, director succession planning, board diversity, evaluations and refreshment and company governance practices. In voting to elect nominees, SSGA FM considers many factors. SSGA FM believes independent directors are crucial to good corporate governance and help management establish sound corporate governance policies and practices. A sufficiently independent board will effectively monitor management, maintain appropriate governance practices and perform oversight functions necessary to protect shareholder interests. SSGA FM also believes the right mix of skills, independence, diversity and qualifications among directors provides boards with the knowledge and direct experience to deal with risks and operating structures that are often unique and complex from one industry to another.
Accounting and Audit Related Issues
SSGA FM believes audit committees are critical and necessary as part of the boards risk oversight role. The audit committee is responsible for setting out an internal audit function to provide robust audit and internal control systems designed to effectively manage potential and emerging risks to the companys operations and strategy. SSGA FM believes audit committees should have independent directors as members, and SSGA FM will hold the members of the audit committee responsible for overseeing the management of the audit function.
The disclosure and availability of reliable financial statements in a timely manner is imperative for the investment process. As a result, board oversight of the internal controls and the independence of the audit process are essential if investors are to rely on financial statements. Also, it is important for the audit committee to appoint external auditors who are independent from management as we expect auditors to provide assurance as of a companys financial condition.
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Capital Structure, Reorganization and Mergers
The ability to raise capital is critical for companies to carry out strategy, grow and achieve returns above their cost of capital. The approval of capital raising activities is fundamental to a shareholders ability to monitor the amounts of proceeds and to ensure capital is deployed efficiently. Altering the capital structure of a company is a critical decision for boards and in making such a critical decision, SSGA FM believes the company should have a well explained business rationale that is consistent with corporate strategy and not overly dilutive to its shareholders.
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation.
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Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In evaluating mergers and acquisitions, SSGA FM considers the adequacy of the consideration and the impact of the corporate governance provisions to shareholders. In all cases, SSGA FM uses its discretion in order to maximize shareholder value.
Occasionally, companies add anti-takeover provisions that reduce the chances of a potential acquirer making an offer, or reducing the likelihood of a successful offer. SSGA FM does not support proposals that reduce shareholders rights, entrench management or reduce the likelihood of shareholders right to vote on reasonable offers.
Compensation
SSGA FM considers the boards responsibility to include setting the appropriate level of executive compensation. Despite the differences among the types of plans and the awards possible, there is a simple underlying philosophy that guides SSGA FMs analysis of executive compensation; SSGA FM believes that there should be a direct relationship between executive compensation and company performance over the long-term.
Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration reports, SSGA FM considers factors such as adequate disclosure of different remuneration elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long-term and short-term incentives, alignment of pay structures with shareholder interests, as well as with corporate strategy and performance. SSGA FM may oppose remuneration reports where pay seems misaligned with shareholders interests. SSGA FM may also consider executive compensation practices when re-electing members of the remuneration committee.
SSGA FM recognizes that compensation policies and practices are unique from market to market; often with significant differences between the level of disclosures, the amount and forms of compensation paid, and the ability of shareholders to approve executive compensation practices. As a result, our ability to assess the appropriateness of executive compensation is often dependent on market practices and laws.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. Environmental and social factors may not only have an impact on the reputation of companies but may also represent significant operational risks and costs to business. Well-developed environmental and social management systems can generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. In our view, companies that manage all risks and consider opportunities related to environmental and social issues are able to adapt faster to changes and appear to be better placed to achieve sustainable competitive advantage in the long-term. Similarly, companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change, which could be the result of anything from regulation and litigation, physical threats (severe weather, climate change), economic trends to shifts in consumer behavior.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to demonstrate how sustainability fits into operations and business activities. SSGA FMs team of analysts evaluates these risks and shareholder proposals relating to them on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on a company, its industry, operations, and geographic footprint. SSGA FM may also take action against the re-election of board members if we have serious concerns over ESG practices and the company has not been responsive to shareholder requests to amend them.
General/Routine
Although SSGA FM does not seek involvement in the day-to-day operations of an organization, SSGA FM recognizes the need for conscientious oversight and input into management decisions that may affect a companys value. SSGA FM supports proposals that encourage economically advantageous corporate practices and governance, while leaving decisions that are deemed to be routine or constitute ordinary business to management and the board of directors.
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Fixed Income Stewardship
The two elements of SSGA FMs fixed income stewardship program are:
Proxy Voting:
While matters that come up for a vote at bondholder meetings vary by jurisdiction, examples of common proxy voting resolutions at bondholder meetings include:
| Approving amendments to debt covenants and/or terms of issuance; |
| Authorizing procedural matters such as filing of required documents/other formalities; |
| Approving debt restructuring plans; |
| Abstaining from challenging the bankruptcy trustees; |
| Authorizing repurchase of issued debt security; |
| Approving the placement of unissued debt securities under the control of directors; and, |
| Approve spin-off/absorption proposals. |
Given the nature of the items that come up for vote at bondholder meetings, SSGA FM takes a case-by-case approach to voting bondholder resolutions. Where necessary, SSGA FM will engage with issuers on voting matters prior to arriving at voting decisions. All voting decisions will be made in the best interest of our clients.
Issuer Engagement:
SSGA FM recognizes that debt holders have limited leverage with companies on a day-to-day basis. However, we believe that given the size of our holdings in corporate debt, SSGA FM can meaningfully influence ESG practices of companies through issuer engagement. Our guidelines for engagement with fixed income issuers broadly follow the engagement guidelines for our equity holdings as described above.
Securities on Loan
For funds where SSGA FM acts as trustee, SSGA FM may recall securities in instances where SSGA FM believes that a particular vote will have a material impact on the fund(s). Several factors shape this process. First, SSGA FM must receive notice of the vote in sufficient time to recall the shares on or before the record date. In many cases, SSGA FM does not receive timely notice, and is unable to recall the shares on or before the record date. Second, SSGA FM, exercising its discretion, may recall shares if it believes the benefit of voting shares will outweigh the foregone lending income. This determination requires SSGA FM, with the information available at the time, to form judgments about events or outcomes that are difficult to quantify. Given past experience in this area, however, we believe that the recall of securities will rarely provide an economic benefit that outweighs the cost of the foregone lending income.
Reporting
Any client who wishes to receive information on how its proxies were voted should contact its SSGA FM relationship manager.
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ssga.com
State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 420121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. State Street Global Advisors Italy, Sede Secondaria di Milano, Via dei Bossi, 4 20121 Milan, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
INST-7615 0317Exp. Date: 03/31/2018
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March 2017
Managing Conflicts of Interest Arising From SSGAS Proxy Voting and Engagement Activity
State Street Corporation has a comprehensive standalone Conflicts of Interest Policy and other policies that address a range of conflicts of interests identified by our parent company. In addition, SSGA maintains a conflicts register that identifies key conflicts and describes systems in place to mitigate the conflicts. This policy is designed to act in conjunction with related policies and practices employed by other groups within the organization. Further, they complement those policies and practices by providing specific guidance on managing the conflicts of interests that may arise through SSGAs proxy voting activities.
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Managing Conflicts of Interest Related to Proxy Voting
SSGA has policies and procedures designed to prevent undue influence on SSGAs voting activities that may arise from relationships between proxy issuers or companies and State Street Corporation (STT) SSGA, SSGA affiliates, SSGA Funds or SSGA Fund affiliates.
Protocols designed to help mitigate potential conflicts of interest include:
| Providing sole voting discretion to members of SSGAs Asset Stewardship team. Members of the Asset Stewardship team may from time to time discuss views on proxy voting matters, company performance, strategy etc. with other STT or SSGA employees including portfolio managers, senior executives and relationship managers. However, final voting decisions are made solely by the corporate governance team, in a manner that is consistent with the best interests of all clients, taking into account various perspectives on risks and opportunities with a view of maximizing the value of client assets; |
| Exercising a singular vote decision for each ballot item regardless of SSGAs investment strategy; |
| Prohibiting members of SSGAs Asset Stewardship team from disclosing SSGAs voting decision to any individual not affiliated with the proxy voting process prior to the meeting or date of written consent, as the case may be; |
| Mandatory disclosure by members of the SSGAs Asset Stewardship team, Global Proxy Review Committee (PRC) and Investment Committee (IC) of any personal conflict of interest (e.g., familial relationship with company management, serves as a director on the board of a listed company) to the Head of the Asset Stewardship team. Members are required to recuse themselves from any engagement or proxy voting activities related to the conflict; |
| In certain instances, client accounts and/or SSGA pooled funds, where SSGA acts as trustee, may hold shares in STT or other SSGA affiliated entities, such as mutual funds affiliated with SSGA Funds Management, Inc. In general, SSGA will outsource any voting decision relating to a shareholder meeting of STT or other SSGA affiliated entities to independent outside third parties. Delegated third parties exercise vote decisions based upon SSGAs in-house policies; and |
| Reporting of voting policy overrides, if any, to the PRC on a quarterly basis. |
In general, we do not believe matters that fall within the Guidelines and are voted consistently with the Guidelines present any potential conflicts, since the vote on the matter has effectively been determined without reference to the soliciting entity. However, where matters do not fall within the Guidelines or where we believe that voting in accordance with the Guidelines is unwarranted, we conduct an additional review to determine whether there is a conflict of interest. In circumstances where a conflict has been identified and either: (i) the matter does not fall clearly within the Guidelines; or (ii) SSGA determines that voting in accordance with such policies or guidance is not in the best interests of its clients, the Head of SSGAs Asset Stewardship team will determine whether a Material Relationship exists. If so, the matter is referred to the SSGA PRC. The SSGA PRC then reviews the matter and determines whether a conflict of interest exists, and if so, how to best resolve such conflict. For example, the SSGA PRC may (i) determine that the proxy vote does not give rise to a conflict due to the issues presented, (ii) refer the matter to the SSGA Investment Committee for further evaluation or (iii) retain an independent fiduciary to determine the appropriate vote.
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Managing Conflicts of Interest Arising From SSGAS Proxy Voting and Engagement Activity
ssga.com
For Public Use
State Street Global Advisors Worldwide Entities
Australia : State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium : State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada : State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai : State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France : State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany : State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. T: +49 (0)89 55878 100. F: +49 (0)89 55878 440. Hong Kong : State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland : State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy : State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968 - R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan : State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands : State Street Global Advisors Netherlands, Adam Smith Building, Thomas Malthusstraat 1-3, 1066 JR Amsterdam, Netherlands. T: +31 (0)20 7181701. State Street Global Advisors Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore : State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland : State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom : State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States : State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
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March 2017
FM Proxy Voting and Engagement Guidelines
United States
SSGA Funds Management, Inc.s (SSGA FM)US Proxy Voting and Engagement Guidelines outline our expectations of companies listed on stock exchanges in the US. These guidelines complement and should be read in conjunction with SSGA FMs Global Proxy Voting and Engagement Principles, which provide a detailed explanation of SSGA FMs approach to voting and engaging with companies and SSGAs Conflicts of Interest Policy.
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SSGA FMs US Proxy Voting and Engagement Guidelines address areas including board structure, director tenure, audit related issues, capital structure, executive compensation, environmental, social and other governance related issues. Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and overseeing executive management, to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
When voting and engaging with companies in global markets, SSGA FM considers market specific nuances in the manner that we believe will most likely protect and promote the long-term economic value of client investments. SSGA FM expects companies to observe the relevant laws and regulations of their respective markets as well as country specific best practice guidelines and corporate governance codes. When we feel that a countrys regulatory requirements do not address some of the key philosophical principles that SSGA FM believes are fundamental to its global voting guidelines, we may hold companies in such markets to our global standards.
In its analysis and research into corporate governance issues in the US, SSGA FM expects all companies to act in a transparent manner and provide detailed disclosure on board profiles, related-party transactions, executive compensation and other governance issues that impact shareholders long-term interests.
SSGA FMs Proxy Voting and Engagement Philosophy
In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals with expertise in corporate governance and company law, remuneration, accounting as well as environmental and social issues. SSGA FM has established robust corporate governance principles and practices that are backed with extensive analytical expertise to understand the complexities of the corporate governance landscape. SSGA FM engages with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagements to address significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
The team works alongside members of SSGA FMs active investment teams; collaborating on issuer engagements and providing input on company specific fundamentals. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in the US.
SSGA FM is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with the UK Stewardship Code and the Investor Stewardship Principles. We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practices, where applicable and consistent with our fiduciary duty.
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. SSGA FM views board quality as a measure of director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering various factors including board quality, general market practice and availability of information on director skills and expertise. In principle, SSGA FM believes independent directors are crucial to good corporate governance and help management establish sound corporate governance policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests. Further, SSGA FM expects boards of Russell 3000 listed companies to have at least one female board member.
Director related proposals at US companies include issues submitted to shareholders that deal with the composition of the board or with members of a corporations board of directors. In deciding which director nominee to support, SSGA FM considers numerous factors.
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Director Elections
SSGA FMs director election policy focuses on companies governance profile to identify if a company demonstrates appropriate governance practices or if it exhibits negative governance practices. Factors SSGA FM considers when evaluating governance practices include, but are not limited to the following:
| Shareholder rights; |
| Board independence; and |
| Board structure. |
If a company demonstrates appropriate governance practices, SSGA FM believes a director should be classified as independent based on the relevant listing standards or local market practice standards. In such cases, the composition of the key oversight committees of a board should meet the minimum standards of independence. Accordingly, SSGA FM will vote against a nominee at a company with appropriate governance practices if the director is classified as non-independent under relevant listing standards or local market practice AND serves on a key committee of the board (compensation, audit, nominating or committees required to be fully independent by local market standards).
Conversely, if a company demonstrates negative governance practices, SSGA FM believes the classification standards for director independence should be elevated. In such circumstances, we will evaluate all director nominees based on the following classification standards:
| Is the nominee an employee of or related to an employee of the issuer or its auditor; |
| Does the nominee provide professional services to the issuer; |
| Has the nominee attended an appropriate number of board meetings; or |
| Has the nominee received non-board related compensation from the issuer. |
Where companies demonstrate negative governance practices, these stricter standards will apply not only to directors who are a member of a key committee but to all directors on the board as market practice permits. Accordingly, SSGA FM will vote against a nominee (with the exception of the CEO) where the board has inappropriate governance practices and is considered not independent based on the above independence criteria.
Additionally, SSGA FM may withhold votes from directors based on the following:
| When overall average board tenure is excessive and/or individual director tenure is excessive. In assessing excessive tenure, SSGA FM gives consideration to factors such as the preponderance of long tenured directors, board refreshment practices, and classified board structures; |
| When directors attend less than 75% of board meetings without appropriate explanation or providing reason for their failure to meet the attendance threshold; |
| CEOs of a public company who sit on more than three public company boards; |
| Director nominees who sit on more than six public company boards; |
| Directors of companies that have not been responsive to a shareholder proposal which received a majority shareholder support at the last annual or special meeting; consideration maybe given if management submits the proposal(s) on the ballot as a binding management proposal, recommending shareholders vote for the particular proposal(s); |
| Directors of companies have unilaterally adopted/ amended company bylaws that negatively impact SSGA FMs shareholder rights (such as fee-shifting, forum selection and exclusion service bylaws) without putting such amendments to a shareholder vote; |
| Compensation committee members where there is a weak relationship between executive pay and performance over a five-year period; |
| Audit committee members if non-audit fees exceed 50% of total fees paid to the auditors; and |
| Directors who appear to have been remiss in their duties. |
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Director Related Proposals
SSGA FM generally votes for the following director related proposals:
| Discharge of board members duties, in the absence of pending litigation, regulatory investigation, charges of fraud or other indications of significant concern; |
| Proposals to restore shareholders ability to remove directors with or without cause; |
| Proposals that permit shareholders to elect directors to fill board vacancies; and |
| Shareholder proposals seeking disclosure regarding the company, board, or compensation committees use of compensation consultants, such as company name, business relationship(s) and fees paid. |
SSGA FM generally votes against the following director related proposals:
| Requirements that candidates for directorships own large amounts of stock before being eligible to be elected; |
| Proposals that relate to the transaction of other business as properly comes before the meeting, which extend blank check powers to those acting as proxy; and |
| Proposals requiring two candidates per board seat. |
Majority Voting
SSGA FM will generally support a majority vote standard based on votes cast for the election of directors.
SSGA FM will generally vote to support amendments to by-laws that would require simple majority of voting shares (i.e. shares cast) to pass or repeal certain provisions.
Annual Elections
SSGA FM generally supports the establishment of annual elections of the board of directors. Consideration is given to the overall level of board independence and the independence of the key committees as well as whether there is a shareholders rights plan.
Cumulative Voting
SSGA FM does not support cumulative voting structures for the election of directors.
Separation Chair/CEO
SSGA FM analyzes proposals for the separation of Chair/CEO on a case-by-case basis taking into consideration numerous factors, including but not limited to, the appointment of and role played by a lead director, a companys performance and the overall governance structure of the company.
Proxy Access
In general, SSGA FM believes that proxy access is a fundamental right and an accountability mechanism for all long-term shareholders. SSGA FM will consider proposals relating to Proxy Access on a case-by-case basis. SSGA FM will support shareholder proposals that set parameters to empower long-term shareholders while providing management the flexibility to design a process that is appropriate for the companys circumstances.
SSGA FM will review the terms of all other proposals and will support those proposals that have been introduced in the spirit of enhancing shareholder rights.
Considerations include but are not limited to the following:
| The ownership thresholds and holding duration proposed in the resolution; |
| The binding nature of the proposal; |
| The number of directors that shareholders may be able to nominate each year; |
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| Company governance structure; |
| Shareholder rights; and |
| Board performance. |
Age/Term Limits
Generally, SSGA FM will vote against age and term limits unless the company is found to have poor board refreshment and director succession practices and has a preponderance of non-executive directors with excessively long tenures serving on the board.
Approve Remuneration of Directors
Generally, SSGA FM will support directors compensation, provided the amounts are not excessive relative to other issuers in the market or industry. In making our determination, we review whether the compensation is overly dilutive to existing shareholders.
Indemnification
Generally, SSGA FM supports proposals to limit directors liability and/or expand indemnification and liability protection if he or she has not acted in bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Classified Boards
SSGA FM generally supports annual elections for the board of directors.
Confidential Voting
SSGA FM will support confidential voting.
Board Size
SSGA FM will support proposals seeking to fix the board size or designate a range for the board size and will vote against proposals that give management the ability to alter the size of the board outside of a specified range without shareholder approval.
Audit Related Issues
Ratifying Auditors and Approving Auditor Compensation
SSGA FM supports the approval of auditors and auditor compensation provided that the issuer has properly disclosed audit and non-audit fees relative to market practice and the audit fees are not deemed excessive. SSGA FM deems audit fees to be excessive if the non-audit fees for the prior year constituted 50% or more of the total fees paid to the auditor. SSGA FM will support the disclosure of auditor and consulting relationships when the same or related entities are conducting both activities and will support the establishment of a selection committee responsible for the final approval of significant management consultant contract awards where existing firms are already acting in an auditing function.
In circumstances where other fees include fees related to initial public offerings, bankruptcy emergence, and spin-offs, and the company makes public disclosure of the amount and nature of those fees which are determined to be an exception to the standard non-audit fee category, then such fees may be excluded from the non-audit fees considered in determining the ratio of non-audit to audit/audit-related fees/tax compliance and preparation for purposes of determining whether non-audit fees are excessive.
SSGA FM will support the discharge of auditors and requirements that auditors attend the annual meeting of shareholders. 1
Capital Related Issues
Capital structure proposals include requests by management for approval of amendments to the certificate of incorporation that will alter the capital structure of the company.
The most common request is for an increase in the number of authorized shares of common stock, usually in conjunction with a stock split or dividend. Typically, requests that are not unreasonably dilutive or enhance the rights of common shareholders are supported.
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In considering authorized share proposals, the typical threshold for approval is 100% over current authorized shares. However, the threshold may be increased if the company offers a specific need or purpose (merger, stock splits, growth purposes, etc.). All proposals are evaluated on a case-by-case basis taking into account the companys specific financial situation.
Increase in Authorized Common Shares
In general, SSGA FM supports share increases for general corporate purposes up to 100% of current authorized stock.
SSGA FM supports increases for specific corporate purposes up to 100% of the specific need plus 50% of current authorized common stock for US firms.
When applying the thresholds, SSGA FM will also consider the nature of the specific need, such as mergers and acquisitions and stock splits.
Increase in Authorized Preferred Shares
SSGA FM votes on a case-by-case basis on proposals to increase the number of preferred shares.
Generally, SSGA FM will vote for the authorization of preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable.
SSGA FM will support proposals to create declawed blank check preferred stock (stock that cannot be used as a takeover defense). However, SSGA FM will vote against proposals to increase the number of blank check preferred stock authorized for issuance when no shares have been issued or reserved for a specific purpose.
Unequal Voting Rights
SSGA FM will not support proposals authorizing the creation of new classes of common stock with superior voting rights and will vote against new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights. In addition, SSGA FM will not support capitalization changes that add blank check classes of stock (i.e. classes of stock with undefined voting rights) or classes that dilute the voting interests of existing shareholders.
However, SSGA FM will support capitalization changes that eliminate other classes of stock and/or unequal voting rights.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation.
Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported.
In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
SSGA FM will generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock, especially in some non-US markets; |
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| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
AntiTakeover Issues
Typically, these are proposals relating to requests by management to amend the certificate of incorporation or by-laws to add or delete a provision that is deemed to have an anti-takeover effect. The majority of these proposals deal with managements attempt to add some provision that makes a hostile takeover more difficult or will protect incumbent management in the event of a change in control of the company.
Proposals that reduce shareholders rights or have the effect of entrenching incumbent management will not be supported.
Proposals that enhance the right of shareholders to make their own choices as to the desirability of a merger or other proposal are supported.
Shareholder Rights Plans
SSGA FM will support mandates requiring shareholder approval of a shareholder rights plans (poison pill) and repeals of various anti-takeover related provisions.
In general, SSGA FM will vote against the adoption or renewal of a US issuers shareholder rights plan (poison pill).
SSGA FM will vote for an amendment to a shareholder rights plan (poison pill) where the terms of the new plans are more favorable to shareholders ability to accept unsolicited offers (i.e. if one of the following conditions are met: (i) minimum trigger, flip-in or flip-over of 20%, (ii) maximum term of three years, (iii) no dead hand, slow hand, no hand or similar feature that limits the ability of a future board to redeem the pill, and (iv) inclusion of a shareholder redemption feature (qualifying offer clause), permitting ten percent of the shares to call a special meeting or seek a written consent to vote on rescinding the pill if the board refuses to redeem the pill 90 days after a qualifying offer is announced).
Special Meetings
SSGA FM will vote for shareholder proposals related to special meetings at companies that do not provide shareholders the right to call for a special meeting in their by-laws if:
| The company also does not allow shareholders to act by written consent; or |
| The company allows shareholders to act by written consent but the ownership threshold for acting by written consent is set above 25% of outstanding shares. |
SSGA FM will vote for shareholder proposals related to special meetings at companies that give shareholders (with a minimum 10% ownership threshold) the right to call for a special meeting in their bylaws if:
| The current ownership threshold to call for a special meeting is above 25% of outstanding shares. |
SSGA FM will vote for management proposals related to special meetings.
Written Consent
SSGA FM will vote for shareholder proposals on written consent at companies if:
| The company does not have provisions in their by-laws giving shareholders the right to call for a special meeting; or |
| The company allows shareholders the right to call for a special meeting but the current ownership threshold to call for a special meeting is above 25% of outstanding shares; and |
| The company has a poor governance profile. |
SSGA FM will vote management proposals on written consent on a case-by-case basis.
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SuperMajority
SSGA FM will generally vote against amendments to by-laws requiring super-majority shareholder votes to pass or repeal certain provisions. SSGA FM will vote for the reduction or elimination of super-majority vote requirements, unless management of the issuer was concurrently seeking to or had previously made such a reduction or elimination.
Remuneration Issues
Despite the differences among the types of plans and the awards possible there is a simple underlying philosophy that guides the analysis of all compensation plans; namely, are the terms of the plan designed to provide an incentive for executives and/or employees to align their interests with those of the shareholders and thus work toward enhancing shareholder value. Plans which benefit participants only when the shareholders also benefit are those most likely to be supported.
Advisory Vote on Executive Compensation and Frequency
SSGA FM believes executive compensation plays a critical role in aligning executives interest with shareholders, attracting, retaining and incentivizing key talent, and ensuring positive correlation between the performance achieved by management and the benefits derived by shareholders. SSGA FM supports management proposals on executive compensation where there is a strong relationship between executive pay and performance over a five-year period. SSGA FM seeks adequate disclosure of different compensation elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long term and short term incentives, alignment of pay structures with shareholder interests as well as with corporate strategy and performance. Further, shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance on an annual basis.
Employee Equity Award Plans
SSGA FM considers numerous criteria when examining equity award proposals. Generally, SSGA FM does not vote against plans for lack of performance or vesting criteria. Rather, the main criteria that will result in a vote against an equity award plan are:
Excessive voting power dilution To assess the dilutive effect, we divide the number of shares required to fully fund the proposed plan, the number of authorized but unissued shares and the issued but unexercised shares by the fully diluted share count. SSGA FM reviews that number in light of certain factors, including the industry of the issuer.
Historical option grants Excessive historical option grants over the past three years. Plans that provide for historical grant patterns of greater than five to eight percent are generally not supported.
Repricing SSGA FM will vote against any plan where repricing is expressly permitted. If a company has a history of repricing underwater options, the plan will not be supported.
Other criteria include the following:
| Number of participants or eligible employees; |
| The variety of awards possible; and |
| The period of time covered by the plan. |
There are numerous factors that we view as negative, and together, may result in a vote against a proposal:
| Grants to individuals or very small groups of participants; |
| Gun-jumping grants which anticipate shareholder approval of a plan or amendment; |
| The power of the board to exchange underwater options without shareholder approval; this pertains to the ability of a company to reprice options, not the actual act of repricing described above; |
| Below market rate loans to officers to exercise their options; |
| The ability to grant options at less than fair market value; |
| Acceleration of vesting automatically upon a change in control; and |
| Excessive compensation (i.e. compensation plans which are deemed by SSGA FM to be overly dilutive). |
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Share Repurchases If a company makes a clear connection between a share repurchase program and its intent to offset dilution created from option plans and the company fully discloses the amount of shares being repurchased, the voting dilution calculation may be adjusted to account for the impact of the buy back.
Companies who do not (i) clearly state the intentions of any proposed share buy-back plan or (ii) disclose a definitive number of the shares to be bought back, (iii) specify the range of premium/discount to market price at which a company can repurchase shares and, (iv) disclose the time frame during which the shares will be bought back, will not have any such repurchase plan factored into the dilution calculation.
162(m) Plan Amendments If a plan would not normally meet the SSGA FM criteria described above, but is primarily being amended to add specific performance criteria to be used with awards designed to qualify for performance-based exception from the tax deductibility limitations of Section 162(m) of the Internal Revenue Code, then SSGA FM will support the proposal to amend the plan.
Employee Stock Option Plans
SSGA FM generally votes for stock purchase plans with an exercise price of not less than 85% of fair market value. However, SSGA FM takes market practice into consideration.
Compensation Related Items
SSGA FM will generally support the following proposals:
| Expansions to reporting of financial or compensation-related information, within reason; and |
| Proposals requiring the disclosure of executive retirement benefits if the issuer does not have an independent compensation committee. |
SSGA FM will generally vote against the following proposals:
| Retirement bonuses for non-executive directors and auditors. |
Miscellaneous/Routine Items
SSGA FM generally supports the following miscellaneous/routine governance items:
| Reimbursement of all appropriate proxy solicitation expenses associated with the election when voting in conjunction with support of a dissident slate; |
| Opting-out of business combination provision; |
| Proposals that remove restrictions on the right of shareholders to act independently of management; |
| Liquidation of the company if the company will file for bankruptcy if the proposal is not approved; |
| Shareholder proposals to put option repricings to a shareholder vote; |
| General updating of, or corrective amendments to charter and by-laws not otherwise specifically addressed herein, unless such amendments would reasonably be expected to diminish shareholder rights (e.g. extension of directors term limits, amending shareholder vote requirement to amend the charter documents, insufficient information provided as to the reason behind the amendment); |
| Change in corporation name; |
| Mandates that amendments to by-laws or charters have shareholder approval; |
| Management proposals to change the date, time, and/or location of the annual meeting unless the proposed change is unreasonable; |
| Repeals, prohibitions or adoption of anti-greenmail provisions; |
| Management proposals to implement a reverse stock split when the number of authorized shares will be proportionately reduced and proposals to implement a reverse stock split to avoid delisting; and |
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| Exclusive forum provisions. |
SSGA FM generally does not support the following miscellaneous/ routine governance items:
| Proposals asking companies to adopt full tenure holding periods for their executives; |
| Reincorporation to a location that we believe has more negative attributes than its current location of incorporation; |
| Shareholder proposals to change the date, time, and/or location of the annual meeting unless the current scheduling or location is unreasonable; |
| Proposals to approve other business when it appears as a voting item; |
| Proposals giving the board exclusive authority to amend the by-laws; and |
| Proposals to reduce quorum requirements for shareholder meetings below a majority of the shares outstanding unless there are compelling reasons to support the proposal. |
Environmental and Social Issues
As a fiduciary, we consider the financial and economic implications of environmental and social issues first and foremost. Environmental and social factors not only can have an impact on the reputation of companies; they may also represent significant operational risks and costs to business.
Well-developed environmental and social management systems can also generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. In our view, companies that manage all risks and consider opportunities related to environmental and social issues are able to adapt faster to changes and appear to be better placed to achieve sustainable competitive advantage in the long-term. Similarly, companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change, which could result in anything from regulation and litigation, physical threats (severe weather, climate change), economic trends as well as shifts in consumer behavior.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks on an issuer-by-issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint.
1 | Common for non-US issuers; request from the issuer to discharge from liability the directors or auditors with respect to actions taken by them during the previous year. |
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State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 420121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
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FM Proxy Voting and Engagement Guidelines
Australia and New Zealand
SSGA Funds Management, Inc.s (SSGA FM) Australia & New Zealand Proxy Voting and Engagement Guidelines outline our expectations of companies listed on stock exchanges in Australia and New Zealand. These guidelines complement and should be read in conjunction with SSGA FMs Global Proxy Voting and Engagement Principles which provide a detailed explanation of SSGA FMs approach to voting and engaging with companies, and SSGAs Conflict of Interest Policy.
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SSGA FMs Australia and New Zealand Proxy Voting and Engagement Guidelines address areas including board structure, audit related issues, capital structure, remuneration, environmental, social and other governance related issues. Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and overseeing executive management to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
When voting and engaging with companies in global markets, SSGA FM considers market specific nuances in the manner that we believe will best protect and promote the long-term economic value of client investments. SSGA FM expects companies to observe the relevant laws and regulations of their respective markets as well as country specific best practice guidelines and corporate governance codes. When we feel that a countrys regulatory requirements do not address some of the key philosophical principles that SSGA FM believes are fundamental to its global voting guidelines, we may hold companies in such markets to our global standards.
In its analysis and research into corporate governance issues in Australia and New Zealand, SSGA FM expects all companies at a minimum to comply with the ASX Corporate Governance Principles. Companies should provide detailed explanations under the Principles comply or explain approach, especially where they fail to meet requirements and why any such non-compliance would serve shareholders long-term interests. On some governance matters, such as composition of audit committees, we hold Australian companies to our global standards requiring all directors on the committee to be independent of management.
SSGA FMs Proxy Voting and Engagement Philosophy
In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals with expertise in corporate governance and company law, remuneration, accounting as well as environmental and social issues. SSGA FM has established robust corporate governance principles and practices that are backed with extensive analytical expertise to understand the complexities of the corporate governance landscape. SSGA FM engages with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
The team works alongside members of SSGA FMs active fundamental and Asia-Pacific (APAC) investment teams; collaborating on issuer engagement and providing input on company specific fundamentals. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in the region.
SSGA FM is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with the UK Stewardship Code. We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practice, where applicable and consistent with our fiduciary duty.
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. SSGA FM views board quality as a measure of director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering various factors including board quality, general market practice and availability of information on director skills and expertise. In principle, SSGA FM believes independent directors are crucial to good corporate governance and help management establish sound ESG policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests. SSGA FM expects boards of ASX-300 and New Zealand listed companies to be comprised of at least a majority of independent directors. Further, SSGA FM expects boards of ASX-300 listed companies to have at least one female board member. At all other Australian listed companies, SSGA FM expects boards to be comprised of at least one-third independent directors.
SSGA FMs broad criteria for director independence in Australia and New Zealand companies include factors such as:
| Participation in related-party transactions and other business relations with the company; |
| Employment history with company; |
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| Relations with controlling shareholders; and |
| Family ties with any of the companys advisers, directors or senior employees. |
When considering the election or re-election of a director, SSGA FM also considers the number of outside board director-ships a non-executive and an executive may undertake as well as attendance at board meetings. In addition, SSGA FM monitors other factors that may influence the independence of a non-executive director, such as performance related pay, cross-directorships, significant shareholdings and tenure. SSGA FM supports the annual election of directors and encourages Australian and New Zealand companies to adopt this practice.
While SSGA FM is generally supportive of having the roles of chairman and CEO separated in the Australia and New Zealand markets, SSGA FM assesses the division of responsibilities between chairman and CEO on a case-by-case basis, giving consideration to factors such as company specific circumstances, overall level of independence on the board and general corporate governance standards in the company. Similarly, SSGA FM will monitor for circumstances where a combined chairman/CEO is appointed or where a former CEO becomes chairman.
SSGA FM may also consider factors such as board performance and directors who appear to be remiss in the performance of their oversight responsibilities when considering their suitability for reappointment (e.g. fraud, criminal wrongdoing and breach of fiduciary responsibilities).
SSGA FM believes companies should have committees for audit, remuneration and nomination oversight. The audit committee is responsible for monitoring the integrity of the financial statements of the company, appointing external auditors, monitoring their qualifications and independence as well their effectiveness and resource levels. Australian Corporate Governance Principles requires ASX listed companies to have an audit committee of at least three members all of whom are non-executive directors and a majority of whom are independent directors. It also requires that the committee be chaired by an independent director who is not the chair of the board. SSGA FM holds Australian and New Zealand companies to its global standards for developed financial markets, by requiring that all members of the audit committee be independent directors.
In its analysis of boards, SSGA FM considers whether board members have adequate skills to provide effective oversight of corporate strategy, operations and risks, including environmental and social issues. Boards should also have a regular evaluation process in place to assess the effectiveness of the board and the skills of board members to address issues such as emerging risks, changes to corporate strategy and diversification of operations and geographic footprint. The nomination committee is responsible for evaluating and keeping under review the balance of skills, knowledge and experience of the board and ensuring that adequate succession plans are in place for directors and the CEO. SSGA FM may vote against the re-election of members of the nomination committee if, over time, the board has failed to address concerns over board structure or succession.
Executive pay is another important aspect of corporate governance. SSGA FM believes that executive pay should be determined by the board of directors and SSGA FM expects companies to have in place remuneration committees to provide independent oversight over executive pay. Australian Corporate Governance Principles requires ASX listed companies to have a remuneration committee of at least three members all of whom are non-executive directors and a majority of whom are independent directors. Since Australia has a non-binding vote on pay with a two-strike rule requiring a board spill in the event of a second strike, SSGA FM believes that the vote provides investors a mechanism to address concerns it may have on the quality of oversight provided by the board on remuneration issues. Accordingly SSGA FM voting guidelines accommodate local market practice.
Indemnification and limitations on liability
Generally, SSGA FM supports proposals to limit directors liability and/or expand indemnification and liability protection up to the limit provided by law, if he or she has not acted in bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Audit Related Issues
Companies should have robust internal audit and internal control systems designed for effective management of any potential and emerging risks to company operations and strategy. The responsibility of setting out an internal audit function lies with the audit committee, which should have as members independent non-executive directors.
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Appointment of External Auditors
SSGA FM believes that a companys auditor is an essential feature of an effective and transparent system of external supervision and shareholders should be given the opportunity to vote on their appointment or to re-appoint at the annual meeting. When appointing external auditors and approving audit fees, SSGA FM will take into consideration the level of detail in company disclosures and will generally not support such resolutions if adequate breakdown is not provided and if non-audit fees are more than 50% of audit fees. In addition, SSGA FM may vote against members of the audit committee if we have concerns with audit related issues or if the level of non-audit fees to audit fees is significant. In certain circumstances, SSGA FM may consider auditor tenure when evaluating the audit process.
Shareholder Rights and Capital Related Issues
Share Issuances
The ability to raise capital is critical for companies to carry out strategy, grow, and achieve returns above their cost of capital. The approval of capital raising activities is fundamental to shareholders ability to monitor the amounts of proceeds and to ensure capital is deployed efficiently. SSGA FM supports capital increases that have sound business reasons and are not excessive relative to a companys existing capital base.
Pre-emption rights are a fundamental right for shareholders to protect their investment in a company. Where companies seek to issue new shares without pre-emption rights, SSGA FM may vote against if such authorities are greater than 20% of the issued share capital. SSGA FM may also vote against resolutions seeking authority to issue capital with pre-emption rights if the aggregate amount allowed seems excessive and is not justified by the board. Generally, we are against capital issuance proposals greater than 100% of the issued share capital when the proceeds are not intended for specific purpose.
Share Repurchase Programs
SSGA FM generally supports a proposal to repurchase shares, unless the issuer does not clearly state the business purpose for the program, a definitive number of shares to be repurchased, and the time frame for the repurchase. SSGA FM may vote against share repurchase requests that allow share repurchases during a takeover period.
Dividends
SSGA FM generally supports dividend payouts that constitute 30% or more of net income. SSGA FM may vote against the dividend payouts if the dividend payout ratio has been consistently below 30% without adequate explanation; or, the payout is excessive given the companys financial position. Particular attention will be paid where the payment may damage the companys long-term financial health.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation. Proposals that are in the best interests of shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported. SSGA FM will generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
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SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
Anti-Takeover Measures
SSGA FM opposes anti-takeover defenses, such as authorities for the board, when subject to a hostile takeover, to issue warrants convertible into shares to existing shareholders.
Remuneration
Executive Pay
There is a simple underlying philosophy that guides SSGA FMs analysis of executive paythere should be a direct relationship between remuneration and company performance over the long-term. Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration reports, SSGA FM considers factors such as adequate disclosure of different remuneration elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long term and short term incentives, alignment of pay structures with shareholder interests as well as with corporate strategy and performance. SSGA FM may oppose remuneration reports where there seems to be a misalignment between pay and shareholders interests and where incentive policies and schemes have a re-test option or feature. SSGA FM may also vote against the re-election of members of the remuneration committee if we have serious concerns over remuneration practices and the company has not been responsive to shareholder pressure to review its approach.
Equity Incentive Plans
SSGA FM may not support proposals on equity-based incentive plans where insufficient information is provided on matters such as grant limits, performance metrics, performance and vesting periods and overall dilution. SSGA FM does not generally support options under such plans being issued at a discount to market price or plans that allow for re-testing of performance metrics.
Non-Executive Director Pay
Authorities seeking shareholder approval for non-executive directors fees are generally not controversial. SSGA FM generally supports resolutions regarding directors fees unless disclosure is poor and we are unable to determine whether they are excessive relative to fees paid by other companies in the same country or industry. SSGA FM will evaluate on a company-by-company basis any non-cash or performance related pay to non-executive directors.
Risk Management
SSGA FM believes that risk management is a key function of the board, which is responsible for setting the overall risk appetite of a company and for providing oversight on the risk management process established by senior executives at a company. SSGA FM allows boards discretion over how they provide oversight in this area. However, SSGA FM expects companies to disclose how the board provides oversight on its risk management system and to identify key risks facing the company. Boards should also review existing and emerging risks as they can change with a changing political and economic landscape, or as companies diversify or expand their operations into new areas.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. In this regard, SSGA FM supports environmental and social related items that we believe would protect or enhance shareholder value. Environmental and social factors not only can have an impact on the reputation of companies; they may also represent significant operational risks and costs to business. Well-developed environmental and social management systems can also generate efficiencies and enhance productivity, both of which impact shareholder value in the longterm.
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SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. In our view, companies that manage all risks and consider opportunities related to environmental and social issues are able to adapt faster to changes and appear to be better placed to achieve sustainable competitive advantage in the long-term. Similarly, companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change, which could result in anything from regulation and litigation, physical threats (severe weather, climate change), economic trends as well as shifts in consumer behavior.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks and shareholder proposals relating to them on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint. SSGA FM may also take action against the re-election of members of the board if we have serious concerns over ESG practices and the company has not been responsive to shareholder concerns.
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ssga.com
State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy : State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968 - R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
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March 2017
FM Proxy Voting and Engagement Guidelines
Europe
SSGA Funds Management, Inc.s, (SSGA FM) European Proxy Voting and Engagement Guidelines cover different corporate governance frameworks and practices in European markets excluding the United Kingdom and Ireland. These guidelines complement and should be read in conjunction with SSGA FMs overarching Global Proxy Voting and Engagement Principles which provide a detailed explanation of SSGA FMs approach to voting and engaging with companies and SSGAs Conflicts of Interest Policy.
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SSGA FMs Proxy Voting and Engagement Guidelines in European markets address areas including board structure, audit related issues, capital structure, remuneration, environmental, social and other governance related issues. Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and, overseeing executive management to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
When voting and engaging with companies in European markets, SSGA FM considers market specific nuances in the manner that we believe will most likely protect and promote the long-term economic value of client investments. SSGA FM expects companies to observe the relevant laws and regulations of their respective markets as well as country specific best practice guidelines and corporate governance codes. When we feel that a countrys regulatory requirements do not address some of the key philosophical principles that SSGA FM believes are fundamental to its global voting guidelines, we may hold companies in such markets to our global standards.
In its analysis and research in to corporate governance issues in European companies, SSGA FM also considers guidance issued by the European Commission. Companies should provide detailed explanations under diverse comply or explain approaches, especially where they fail to meet requirements and why any such non-compliance would serve shareholders long-term interests.
SSGA FMs Proxy Voting and Engagement Philosophy
In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals with expertise in corporate governance and company law, remuneration, accounting as well as environmental and social issues. SSGA FM has established robust corporate governance principles and practices that are backed with extensive analytical expertise to understand the complexities of the corporate governance landscape. SSGA FM engages with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
The team works alongside members of SSGA FMs active fundamental and EMEA investment teams; collaborating on issuer engagement and providing input on company specific fundamentals. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in European markets.
SSGA FM is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with the UK Stewardship Code. We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practice, where applicable and consistent with our fiduciary duty.
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. SSGA FM votes for the election/reelection of directors on a case-by-case basis after considering various factors including general market practice and availability of information on director skills and expertise. In principle, SSGA FM believes independent directors are crucial to good corporate governance and help management establish sound corporate governance policies and practices.
A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests.
SSGA FMs broad criteria for director independence in European companies include factors such as:
| Participation in relatedparty transactions and other business relations with the company; |
| Employment history with company; |
| Relations with controlling shareholders; |
| Family ties with any of the companys advisers, directors or senior employees; |
| Employee and government representatives; and |
| Overall average board tenure and individual director tenure at issuers with classified and de-classified boards, respectively. |
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While, overall board independence requirements and board structures differ from market to market, SSGA FM considers voting against directors it deems nonindependent if overall board independence is below one third or overall independence is below fifty-percent after excluding employee-representatives and/or directors elected in accordance with local laws who are not elected by shareholders. SSGA FM also assesses the division of responsibilities between chairman and CEO on a casebycase basis, giving consideration to factors such as overall level of independence on the board and general corporate governance standards in the company. SSGA FM may support a proposal to discharge the board, if a company fails to meet adequate governance standards or board level independence.
When considering the election or re-election of a non-executive director, SSGA FM also considers the number of outside board directorships a non-executive can undertake, attendance at board meetings, and cross-directorships. In addition, SSGA FM may vote against the election of a director whose biographical disclosures are insufficient to assess his or her role on the board and/or independence.
Although we generally are in favor of the annual election of directors, we recognize that director terms vary considerably in different European markets. SSGA FM may vote against article/by-law changes that seek to extend director terms. In addition, in certain markets, SSGA FM may vote against directors if their director terms extend beyond four years.
SSGA FM believes companies should have relevant board level committees for audit, remuneration and nomination oversight. The audit committee is responsible for monitoring the integrity of the financial statements of the company, appointing external auditors, monitoring their qualifications and independence as well their effectiveness and resource levels. Similarly, executive pay is an important aspect of corporate governance, and it should be determined by the board of directors. SSGA FM expects companies to have in place remuneration committees to provide independent oversight over executive pay. SSGA FM may vote against nominees who are executive members of audit or remuneration committees.
In its analysis of boards, SSGA FM considers whether board members have adequate skills to provide effective oversight of corporate strategy, operations and risks, including environmental and social issues. Boards should also have a regular evaluation process in place to assess the effectiveness of the board and the skills of board members to address issues such as emerging risks, changes to corporate strategy and diversification of operations and geographic footprint.
In certain European markets it is not uncommon for the election of directors to be presented in a single slate. In these cases, where executives serve on the audit or the remuneration committees, SSGA FM may vote against the entire slate.
SSGA FM may also consider factors such as board performance and directors who appear to be remiss in the performance of their oversight responsibilities (e.g. fraud, criminal wrongdoing and breach of fiduciary responsibilities).
Indemnification and Limitations on Liability
Generally, SSGA FM supports proposals to limit directors liability and/or expand indemnification and liability protection up to the limit provided by law, if he or she has not acted in bad faith, with gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Audit Related Issues
Companies should have robust internal audit and internal control systems designed for effective management of any potential and emerging risks to company operations and strategy. The responsibility of setting out an internal audit function lies with the audit committee, which should have as members independent non-executive directors.
Appointment of External Auditors
SSGA FM believes that a companys auditor is an essential feature of an effective and transparent system of external supervision and shareholders should be given the opportunity to vote on their appointment or to re-appoint at the annual meeting. When appointing external auditors and approving audit fees, SSGA FM will take into consideration the level of detail in company disclosures and will generally not support such resolutions if adequate breakdown is not provided and if non-audit fees are more than 50% of audit fees. In addition, SSGA FM may vote against members of the audit committee if we have concerns with audit related issues or if the level of non-audit fees to audit fees is significant. In certain circumstances, SSGA FM may consider auditor tenure when evaluating the audit process.
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Limit Legal Liability of External Auditors
SSGA FM generally opposes limiting the legal liability of audit firms as we believe this could create a negative impact on the quality of the audit function.
Shareholder Rights and Capital Related Issues
In some European markets, differential voting rights continue to exist. SSGA FM supports the one share one vote policy and favors a share structure where all shares have equal voting rights. SSGA FM believes pre-emption rights should be introduced for shareholders in order to provide adequate protection from being overly diluted from the issuance of new shares or convertible securities to third parties or a small number of select shareholders.
Unequal Voting Rights
SSGA FM generally opposes proposals authorizing the creation of new classes of common stock with superior voting rights and will generally oppose new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights. In addition, SSGA FM will not support capitalization changes that add classes of stock with undefined voting rights or classes that may dilute the voting interests of existing shareholders. SSGA FM supports proposals to abolish voting caps and capitalization changes that eliminate other classes of stock and/or unequal voting rights.
Increase in Authorized Capital
The ability to raise capital is critical for companies to carry out strategy, grow, and achieve returns above their cost of capital. The approval of capital raising activities is fundamental to shareholders ability to monitor the amounts of proceeds and to ensure capital is deployed efficiently. SSGA FM supports capital increases that have sound business reasons and are not excessive relative to a companys existing capital base.
Pre-emption rights are a fundamental right for shareholders to protect their investment in a company. Where companies seek to issue new shares whilst dis-applying pre-emption rights, SSGA FM may vote against if such authorities are greater than 20% of the issued share capital. SSGA FM may also vote against resolutions seeking authority to issue capital with pre-emption rights if the aggregate amount allowed seems excessive and is not justified by the board. Generally, we are against capital issuance proposals greater than 100% of the issued share capital when the proceeds are not intended for a specific purpose.
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Share Repurchase Programs
SSGA FM generally supports a proposal to repurchase shares, other than if the issuer does not clearly state the business purpose for the program, a definitive number of shares to be repurchased, specify the range of premium/discount to market price at which a company can repurchase shares, and the time frame for the repurchase. SSGA FM may vote against share re-purchase requests that allow share re-purchases during a takeover period.
Dividends
SSGA FM generally supports dividend payouts that constitute 30% or more of net income. SSGA FM may vote against the dividend payouts if the dividend payout ratio has been consistently below 30% without adequate explanation; or, the payout is excessive given the companys financial position. Particular attention will be paid where the payment may damage the companys long-term financial health.
Related Party Transactions
Certain companies in European markets have a controlled ownership structure and have complex cross-shareholdings between subsidiaries and parent companies (related companies). Such structures may result in the prevalence of related-party transactions between the company and its various stakeholders such as directors and management, subsidiaries and shareholders. In markets where shareholders are required to approve such transactions, SSGA FM expects companies to provide details of the transaction, such as the nature, value and purpose of such a transaction. It also encourages independent directors to ratify such transactions. Further, SSGA FM encourages companies to describe the level of independent board oversight and the approval process, including details of any independent valuations provided by financial advisors on related-party transactions.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation. Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
SSGA FM will generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
AntiTakeover Measures
European markets have diverse regulations concerning the use of share issuances as takeover defenses with legal restrictions lacking in some markets. SSGA FM supports a one-share, one-vote policy, for example, given that dual-class capital structures entrench certain shareholders and management, insulating them from possible takeovers. SSGA FM opposes unlimited share issuance authorizations as they may be used as anti-takeover devices, and they have the potential for substantial voting and earnings dilution. SSGA FM also monitors the duration of authorities to issue shares and whether there are restrictions and caps on multiple issuance authorities during the specified time periods. SSGA FM opposes anti-takeover defenses such as authorities for the board, when subject to a hostile takeover, to issue warrants convertible into shares to existing shareholders.
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Remuneration
Executive Pay
Despite the differences among the types of plans and awards possible, there is a simple underlying philosophy that guides SSGA FMs analysis of executive paythere should be a direct relationship between remuneration and company performance over the longterm.
Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration reports, SSGA FM considers factors such as adequate disclosure of different remuneration elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long-term and short-term incentives, alignment of pay structures with shareholder interests as well as with corporate strategy and performance. SSGA FM may oppose remuneration reports where pay seems misaligned with shareholders interests. SSGA FM may also vote against the re-election of members of the remuneration committee if we have serious concerns over remuneration practices and the company has not been responsive to shareholder pressure to review its approach.
Equity Incentive Plans
SSGA FM may not support proposals on equity-based incentive plans where insufficient information is provided on matters such as grant limits, performance metrics, performance and vesting periods and overall dilution. SSGA FM does not generally support options under such plans being issued at a discount to market price or plans that allow for re-testing of performance metrics.
NonExecutive Director Pay
In European markets, authorities seeking shareholder approval for non-executive directors fees are generally not controversial. SSGA FM generally supports resolutions regarding directors fees unless disclosure is poor and we are unable to determine whether they are excessive relative to fees paid by other companies in the same country or industry. SSGA FM will evaluate on a company-by-company basis any non-cash or performance related pay to non-executive directors.
Risk Management
SSGA FM believes that risk management is a key function of the board, which is responsible for setting the overall risk appetite of a company and for providing oversight on the risk management process established by senior executives at a company. SSGA FM allows boards discretion over how they provide oversight in this area. However, SSGA FM expects companies to disclose how the board provides oversight on its risk management system and to identify key risks facing the company. Boards should also review existing and emerging risks as they can change with a changing political and economic landscape, or as companies diversify or expand their operations into new areas.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. In this regard, SSGA FM supports environmental and social related items that we believe would protect or enhance shareholder value. Environmental and social factors not only can have an impact on the reputation of companies; they may also represent significant operational risks and costs to business. Well-developed environmental and social management systems can also generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. In our view, companies that manage all risks and consider opportunities related to environmental and social issues are able to adapt faster to changes and appear to be better placed to achieve sustainable competitive advantage in the long-term. Similarly, companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change, which could result in anything from regulation and litigation, physical threats (severe weather, climate change), economic trends as well as shifts in consumer behavior.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks and shareholder proposals relating to them on an
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issuer by issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint. SSGA FM may also take action against the re-election of members of the board if we have serious concerns over ESG practices and the company has not been responsive to shareholder pressure.
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Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy : State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968 - R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
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March 2017
FM Proxy Voting and Engagement Guidelines
Rest of the World
SSGA Funds Management, Inc.s (SSGA FM) Rest of the World Proxy Voting and Engagement Guidelines cover different corporate governance frameworks and practices in international markets not covered under specific country/regional policies. These guidelines complement and should be read in conjunction with SSGA FMs overarching Global Proxy Voting and Engagement Principles which provides a detailed explanation of SSGA FMs approach to voting and engaging with companies, and SSGAs Conflicts of Interest Policy.
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At SSGA FM, we recognize that countries in international markets not covered under specific country/regional policies are disparate in their corporate governance frameworks and practices. Concurrent with developing a company specific voting and engagement program, SSGA FM also evaluates the various factors that play into the corporate governance framework of a country. These factors include but are not limited to: (i) the macroeconomic conditions and broader political system in a country; (ii) quality of regulatory oversight, enforcement of property and shareholder rights; and (iii) the independence of judiciary. While emerging market countries tend to pose broad common governance issues across all markets, such as concentrated ownership, poor disclosure of financial and related-party transactions, and weak enforcement of rules and regulation, SSGA FMs proxy voting guidelines are designed to identify and address specific governance concerns in each market.
SSGA FMs Proxy Voting and Engagement Philosophy in Emerging Markets
SSGA FMs approach to proxy voting and issuer engagement in emerging markets is designed to increase the value of our investments through the mitigation of governance risks. Since the overall quality of the corporate governance framework in an emerging market country drives the level of governance risks investors assign to a country, improving the macro governance framework in a country may help reduce governance risks, in turn, increasing the overall value of SSGA FMs holdings over time. Therefore, in order to improve the overall governance framework and practices in a country, members of our proxy voting and engagement team endeavor to visit emerging market countries and meet with representatives from regulatory agencies and stock markets to highlight potential concerns with the macro governance framework of a country. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in emerging markets. To help mitigate company specific risk, the Asset Stewardship Team works alongside members of the active fundamental and emerging market teams to engage with emerging market companies on governance issues and address any specific concerns or to get more information regarding shareholder items that are to be voted on at upcoming shareholder meetings. This integrated approach to engagement drives SSGA FMs proxy voting and engagement philosophy in emerging markets.
SSGA FMs proxy voting guidelines in emerging markets addresses six broad areas:
| Directors and Boards; |
| Accounting and Audit Related Issues; |
| Shareholder Rights and Capital Related Issues; |
| Remuneration; |
| Environmental and Social Issues; and |
| General/Routine Issues. |
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. However, several factors such as low overall independence level requirements by market regulators, poor biographical disclosure of director profiles, prevalence of related-party transactions and the general resistance from controlling shareholders to increase board independence renders the election of directors as one of the most important fiduciary duties SSGA FM performs in emerging market companies.
SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering various factors including general market practice and availability of information on director skills and expertise. SSGA FM expects companies to meet minimum overall board independence standards as defined in a corporate governance code or market practice. Therefore, in several countries, SSGA FM will vote against select non-independent directors if overall board independence levels do not meet market standards.
SSGA FMs broad criteria for director independence in emerging market companies include factors such as:
| Participation in related-party transactions; |
| Employment history with company; |
| Relations with controlling shareholders and other employees; and |
| Attendance levels. |
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In some countries, market practice calls for the establishment of a board level audit committee. In such cases, SSGA FM believes companies should have an audit committee that is responsible for monitoring the integrity of the financial statements of the company, appointing external auditors, monitoring their qualifications and independence as well as their effectiveness and resource levels. Based on our desire to enhance the quality of financial and accounting oversight provided by independent directors, SSGA FM expects that listed companies have an audit committee that is constituted of a majority of independent directors.
Audit Related Issues
The disclosure and availability of reliable financial statements in a timely manner is imperative for the investment process. As a result, board oversight of internal controls and the independence of the audit process are essential if investors are to rely on financial statements. SSGA FM believes that audit committees provide the necessary oversight on the selection and appointment of auditors, a companys internal controls and accounting policies, and the overall audit process. In emerging markets, SSGA FM encourages boards to appoint an audit committee composed of a majority of independent auditors.
Appointment of External Auditors
SSGA FM believes that a companys auditor is an essential feature of an effective and transparent system of external supervision and shareholders should be given the opportunity to vote on their appointment or re-appointment at the annual meeting. SSGA FM believes that it is imperative for audit committees to select outside auditors who are independent from management.
Shareholder Rights and Capital Related Issues
SSGA FM believes that changes to a companys capital structure such as changes in authorized share capital, share repurchase and debt issuances are critical decisions made by the board. SSGA FM believes the company should have a well explained business rationale that is consistent with corporate strategy and should not overly dilute its shareholders.
Related Party Transactions
Most companies in emerging markets have a controlled ownership structure that often include complex cross-shareholdings between subsidiaries and parent companies (related companies). As a result, there is a high prevalence of related-party transactions between the company and its various stakeholders such as directors and management. In addition, inter-group loan and loan guarantees provided to related companies are some of the other related-party transactions that increase the risk profile of companies. In markets where shareholders are required to approve such transactions, SSGA FM expects companies to provide details of the transaction, such as the nature, value and purpose of such a transaction. It also encourages independent directors to ratify such transactions. Further, SSGA FM encourages companies to describe the level of independent board oversight and the approval process, including details of any independent valuations provided by financial advisors on related-party transactions.
Share Repurchase Programs
With regard to share repurchase programs, SSGA FM expects companies to clearly state the business purpose for the program and a definitive number of shares to be repurchased.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation. Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
SSGA FM evaluates mergers and structural reorganizations on a case-by-case basis. SSGA FM will generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
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| Offers in which the secondary market price is substantially lower than the net asset value. |
SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
SSGA FM will actively seek direct dialogue with the board and management of companies we have identified through our screening processes. Such engagements may lead to further monitoring to ensure the company improves its governance or sustainability practices. In these cases, the engagement process represents the most meaningful opportunity for SSGA FM to protect long-term shareholder value from excessive risk due to poor governance and sustainability practices.
Remuneration
SSGA FM considers it to be the boards responsibility to set appropriate levels of executive remuneration. Despite the differences among the types of plans and the awards possible, there is a simple underlying philosophy that guides SSGA FMs analysis of executive remuneration; there should be a direct relationship between executive compensation and company performance over the long term. In emerging markets we encourage companies to disclose information on senior executive remuneration.
With regard to director remuneration, SSGA FM supports director pay provided the amounts are not excessive relative to other issuers in the market or industry and are not overly dilutive to existing shareholders.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. In this regard, SSGA FM supports environmental and social related items that we believe would protect or enhance shareholder value. Environmental and social factors can not only have an impact on the reputation of companies; they may also represent significant operational risks and costs to business. Well-developed environmental and social management systems generate efficiencies and enhance productivity, both of which impact shareholder value in the longterm.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. Companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change. In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint.
In emerging markets, shareholders seldom vote on environmental and social issues. Therefore, SSGA FM addresses a companys approach to identifying and managing environmental and social risks stemming for various aspects of its operations in its one-on-one engagement with companies.
General/Routine Issues
Some of the other issues that are routinely voted on in emerging markets include approving the allocation of income and accepting financial statements and statutory reports. For these voting items, SSGA FMs policies consider several factors including historical dividend payouts, pending litigation, governmental investigations, charges of fraud or other indication of significant concerns.
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For Public Use
State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. T: +49 (0)89 55878 100. F: +49 (0)89 55878 440. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy : State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Adam Smith Building, Thomas Malthusstraat 1-3, 1066 JR Amsterdam, Netherlands. T: +31 (0)20 7181701. State Street Global Advisors Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D, regulated by the Monetary Authority of Singapore) Telephone: +65 6826-7555 Facsimile: +65 6826-7501 Web: www.SSGA.com. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
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The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA express written consent.
© 2017 State Street Corporation. All Rights Reserved.
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FM Proxy Voting and Engagement Guidelines
Japan
SSGA Funds Management, Inc.s, (SSGA FM) Japan Proxy Voting and Engagement Guidelines complement and should be read in conjunction with SSGA FMs overarching Global Proxy Voting and Engagement Guidelines, which provide a detailed explanation of SSGA FMs approach to voting and engaging with companies, and SSGAs Conflicts of Interest Policy.
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SSGA FMs Proxy Voting and Engagement Guidelines in Japan address areas including: board structure, audit related issues, capital structure, remuneration, environmental, social and other governance related issues. Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and, overseeing executive management to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
When voting and engaging with companies in Japan, SSGA FM takes into consideration the unique aspects of Japanese corporate governance structures. We recognize that under Japanese corporate law, companies may choose between two structures of corporate governance: the statutory auditor system or the committee structure. Most Japanese boards predominantly consist of executives and non-independent outsiders affiliated through commercial relationships or cross-shareholdings. Nonetheless, when evaluating companies, SSGA FM expects Japanese companies to address conflicts of interest, risk management and demonstrate an effective process for monitoring management. In its analysis and research into corporate governance issues in Japanese companies, SSGA FM also considers guidance issued by the Corporate Law Subcommittee of the Legislative Council within the Ministry of Justice as well as private study groups.
SSGA FMs Proxy Voting and Engagement Philosophy
In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals with expertise in corporate governance and company law, remuneration, and environmental and social issues. SSGA FM has established robust corporate governance principles and practices that are backed with extensive analytical expertise to understand the complexities of the corporate governance landscape. SSGA FM engages with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
The team works alongside members of SSGA FMs active investment teams; collaborating on issuer engagement and providing input on company specific fundamentals. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in Japan.
SSGA FM is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with Japans Stewardship Code and Corporate Governance Code. We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practices, where applicable and consistent with our fiduciary duty.
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering various factors including general market practice.
Japanese companies have the option of having a traditional board of directors with statutory auditors, a board with a committee structure, or a hybrid board with board level audit committee. SSGA FM will generally support companies that seek shareholder approval to adopt a committee or hybrid board structure.
Most Japanese issuers prefer the traditional statutory auditor structure. Statutory auditors act in a quasi-compliance role as they are not involved in strategic decision-making nor are they part of the formal management decision process. Statutory auditors attend board meetings but do not have voting rights at the board; however, they have the right to seek an injunction and conduct broad investigations of unlawful behavior in the companys operations.
SSGA FM will support the election of statutory auditors, unless the outside statutory auditor nominee is regarded as non-independent based on SSGA FM criteria, the outside statutory auditor has attended less than 75 percent of meetings of the board of directors or board of statutory auditors during the year under review, or the statutory auditor has been remiss in the performance of their oversight responsibilities (fraud, criminal wrong-doing and breach of fiduciary responsibilities).
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For companies with a statutory auditor structure there is no legal requirement that boards have outside directors, however, SSGA FM believes there should be a transparent process of independent and external monitoring of management on behalf of shareholders.
| SSGA FM believes that non-controlled Japanese companies should appoint at least two outside directors, otherwise, SSGA FM will oppose the top executive who is responsible for the director nomination process; and |
| For controlled companies with a statutory auditor structure, SSGA FM will oppose the top executive, if the board does not have at least two independent directors. |
For companies with a committee structure or a hybrid board structure, SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering general market practice, as well as the independence of the nominee. SSGA FM also takes into consideration the overall independence level of the committees. In determining director independence, SSGA FM considers the following factors:
| Participation in related-party transactions and other business relations with the company; |
| Past employment with the company; |
| Provides professional services to the company; and |
| Family ties with the company. |
Regardless of board structure, SSGA FM may oppose the election of a director for the following reasons:
| Failure to attend board meetings; or |
| In instances of egregious actions related to a directors service on the board. |
Indemnification and Limitations on Liability
Generally, SSGA FM supports proposals to limit directors and statutory auditors liability and/or expand indemnification and liability protection up to the limit provided by law, if he or she has not acted in bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. SSGA FM believes limitations and indemnification are necessary to attract and retain qualified directors.
Audit Related Items
SSGA FM believes that a companys auditor is an essential feature of an effective and transparent system of external supervision and shareholders should have the opportunity to vote on their appointment at the annual meeting.
Ratifying External Auditors
SSGA FM will generally support the appointment of external auditors unless the external auditor is perceived as being non-independent and there are concerns about the accounts presented and the audit procedures followed.
Limit Legal Liability of External Auditors
SSGA FM generally opposes limiting the legal liability of audit firms as we believe this could create a negative impact on the quality of the audit function.
Capital Structure, Reorganization and Mergers
SSGA FM supports the one share one vote policy and favors a share structure where all shares have equal voting rights. SSGA FM supports proposals to abolish voting caps or multiple voting rights and will oppose measures to introduce these types of restrictions on shareholder rights.
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SSGA FM believes pre-emption rights should be introduced for shareholders in order to provide adequate protection from being overly diluted from the issuance of new shares or convertible securities to third parties or a small number of select shareholders.
Unequal Voting Rights
SSGA FM generally opposes proposals authorizing the creation of new classes of common stock with superior voting rights and will generally oppose new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights. In addition, SSGA FM will not support capitalization changes that add classes of stock with undefined voting rights or classes that may dilute the voting interests of existing shareholders.
However, SSGA FM will support capitalization changes that eliminate other classes of stock and/or unequal voting rights.
Increase in Authorized Capital
SSGA FM generally supports increases in authorized capital where the company provides an adequate explanation for the use of shares. In the absence of an adequate explanation, SSGA FM may oppose the request if the increase in authorized capital exceeds 100 percent of the currently authorized capital. Where share issuance requests exceed our standard threshold, SSGA FM will consider the nature of the specific need, such as mergers and acquisitions and stock splits.
Dividends
SSGA FM generally supports dividend payouts that constitute 30 percent or more of net income. SSGA FM may vote against the dividend payouts if the dividend payout ratio has been consistently below 30 percent without adequate explanation; or, the payout is excessive given the companys financial position. Particular attention will be paid where the payment may damage the companys longterm financial health.
Share Repurchase Programs
Companies are allowed under Japanese Corporate Law to amend their articles to authorize the repurchase of shares at the boards discretion. SSGA FM will oppose an amendment to articles allowing the repurchase of shares at the boards discretion. SSGA FM believes the company should seek shareholder approval for a share repurchase program at each years AGM, providing shareholders the right to evaluate the purpose of the repurchase.
SSGA FM generally supports a proposal to repurchase shares, other than if the issuer does not clearly state the business purpose for the program, a definitive number of shares to be repurchased, and the time frame for the repurchase. SSGA FM may vote against share repurchase requests that allow share repurchases during a takeover period.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation. Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
SSGA FM evaluates mergers and structural reorganizations on a case-by-case basis. SSGA FM will generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
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Anti-Takeover Measures
In general, SSGA FM believes that adoption of poison pills that have been structured to protect management and to prevent takeover bids from succeeding is not in shareholders interest. A shareholder rights plan may lead to management entrenchment and discourage legitimate tender offers and acquisitions. Even if the premium paid to companies with a shareholder rights plan is higher than that offered to unprotected firms, a companys chances of receiving a takeover offer in the first place may be reduced by the presence of a shareholder rights plan.
Proposals that reduce shareholders rights or have the effect of entrenching incumbent management will not be supported.
Proposals that enhance the right of shareholders to make their own choices as to the desirability of a merger or other proposal are supported.
Shareholder Rights Plans
In evaluating the adoption or renewal of a Japanese issuers shareholder rights plans ( poison pill) SSGA FM considers the following conditions: (i) release of proxy circular with details of the proposal with adequate notice in advance of meeting, (ii) minimum trigger, flip-in or flip-over of 20 percent, (iii) maximum term of three years, (iv) sufficient number of independent directors, (v) presence of an independent committee, (vi) no other protective entrenchment features.
In evaluating an amendment to a shareholder rights plan (poison pill), in addition to the conditions above, SSGA FM will also evaluate and consider supporting proposals where the terms of the new plans are more favorable to shareholders ability to accept unsolicited offers.
Compensation
In Japan, excessive compensation is rarely an issue. Rather, the problem is the lack of connection between pay and performance. Fixed salaries and cash retirement bonuses tend to comprise a significant portion of the compensation structure while performance-based pay is generally a small portion of the total pay. SSGA FM, where possible, seeks to encourage the use of performance based compensation in Japan as an incentive for executives and as a way to align interests with shareholders.
Approve Adjustment to Aggregate Compensation Ceiling for Directors
Remuneration for directors is generally reasonable. Typically, each company sets the director compensation parameters as an aggregate thereby limiting the total pay to all directors. When requesting a change, a company must disclose the last time the ceiling was adjusted and management provides the rationale for the ceiling increase. SSGA FM will generally support proposed increases to the ceiling if the company discloses the rationale for the increase. SSGA FM may oppose proposals to increase the ceiling if there has been corporate malfeasance or sustained poor performance.
Approve Annual Bonuses for Directors/Statutory Auditors
In Japan, since there are no legal requirements that mandate companies to seek shareholder approval before awarding a bonus, SSGA FM believes that existing shareholder approval of the bonus should be considered best practice. As a result, SSGA FM supports management proposals on executive compensation where there is a strong relationship between executive pay and performance over a five-year period.
Approve Retirement Bonuses for Directors/ Statutory Auditors
Retirement bonuses make up a sizeable portion of directors and auditors lifetime compensation and are based on board tenure. While many companies in Japan have abolished this practice, there remain many proposals seeking shareholder approval for the total amounts paid to directors and statutory auditors as a whole. In general, SSGA FM supports these payments unless the recipient is an outsider or in instances where the amount is not disclosed.
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Approve Stock Plan
Most option plans in Japan are conservative, particularly at large companies. Japan corporate law requires companies to disclose the monetary value of the stock options for directors and/or statutory auditors. Some companies do not disclose the maximum number of options that can be issued per year and shareholders are unable to evaluate the dilution impact. In this case, SSGA FM cannot calculate the dilution level and, therefore, SSGA FM may oppose such plans for poor disclosure. SSGA FM also opposes plans that allow for the repricing of the exercise price.
Deep Discount Options
As Japanese companies move away from the retirement bonus system, deep discount options plans have become more popular. Typically, the exercise price is set at JPY 1 per share. SSGA FM evaluates deep discount options using the same criteria used to evaluate stock options as well as considering the vesting period.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. In this regard, SSGA FM supports environmental and social related items that we believe would protect or enhance shareholder value. Environmental and social factors can not only have an impact on the reputation of companies; they may also represent significant operational risks and costs to business. Well-developed environmental and social management systems generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. Companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint.
Miscellaneous/Routine Items
Expansion of Business Activities
Japanese companies articles of incorporation strictly define the types of businesses in which a company is permitted to engage. In general, SSGA FM views proposals to expand and diversify the companys business activities as routine and non-contentious. SSGA FM will monitor instances where there has been an inappropriate acquisition and diversification away from the companys main area of competence, which resulted in a decrease of shareholder value.
More Information
Any client who wishes to receive information on how its proxies were voted should contact its SSGA FM relationship manager.
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ssga.com
State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
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FM Proxy Voting and Engagement Guidelines
United Kingdom and Ireland
SSGA Funds Management, Inc.s (SSGA FM), UK and Ireland Proxy Voting and Engagement Guidelines outline our expectations of companies listed on stock exchanges in the United Kingdom and Ireland. These guidelines complement and should be read in conjunction with SSGA FMs Global Proxy Voting and Engagement Principles, which provide a detailed explanation of SSGA FMs approach to voting and engaging with companies and SSGAs Conflicts of Interest Policy.
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SSGA FMs UK Proxy Voting and Engagement Guidelines address areas including board structure, audit related issues, capital structure, remuneration, environmental, social and other governance related issues. Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy, overseeing executive management to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
When voting and engaging with companies in global markets, SSGA FM considers market specific nuances in the manner that we believe will most likely protect and promote the long-term economic value of client investments. SSGA FM expects companies to observe the relevant laws and regulations of their respective markets as well as country specific best practice guidelines and corporate governance codes. When we feel that a countrys regulatory requirements do not address some of the key philosophical principles that SSGA FM believes are fundamental to its global voting guidelines, we may hold companies in such markets to our global standards.
In its analysis and research into corporate governance issues in the UK and Ireland, SSGA FM expects all companies, regardless of domicile, that obtain a primary listing on the London Stock Exchange or the Irish Stock Exchange to comply with the UK Corporate Governance Code. Companies should provide detailed explanations under the Codes comply or explain approach, especially where they fail to meet requirements and why any such non-compliance would serve shareholders long-term interests.
SSGA FMs Proxy Voting and Engagement Philosophy
In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals with expertise in corporate governance and company law, remuneration, accounting as well as environmental and social issues. SSGA FM has established robust corporate governance principles and practices that are backed with extensive analytical expertise to understand the complexities of the corporate governance landscape. SSGA FM engages with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
The team works alongside members of SSGA FMs active fundamental and EMEA investment teams; collaborating on issuer engagement and providing input on company specific fundamentals. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in the UK and European markets.
SSGA FM is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with the UK Stewardship Code. We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practice, where applicable and consistent with our fiduciary duty.
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. SSGA FM views board quality as a measure of director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering various factors including board quality, general market practice and availability of information on director skills and expertise. In principle, SSGA FM believes independent directors are crucial to good corporate governance and help management establish sound corporate governance policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests. Further, SSGA FM expects boards of FTSE-350 listed companies to have at least one female board member.
A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests.
SSGA FMs broad criteria for director independence in UK companies include factors such as:
| Participation in related-party transactions and other business relations with the company; |
| Employment history with company; |
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| Excessive tenure and a preponderance of long-tenured directors: |
| Relations with controlling shareholders; |
| Family ties with any of the companys advisers, directors or senior employees; and |
| If the company classifies the director as non-independent. |
When considering the election or re-election of a director, SSGA FM also considers the number of outside board directorships a non-executive and an executive may undertake as well as attendance at board meetings. In addition, SSGA FM monitors other factors that may influence the independence of a non-executive director, such as performance related pay, cross-directorships and significant shareholdings. SSGA FM supports the annual election of directors.
While SSGA FM is generally supportive of having the roles of chairman and CEO separated in the UK market, SSGA FM assesses the division of responsibilities between chairman and CEO on a case-by-case basis, giving consideration to factors such as the companys specific circumstances, overall level of independence on the board and general corporate governance standards in the company. Similarly, SSGA FM will monitor for circumstances where a combined chairman/CEO is appointed or where a former CEO becomes chairman.
SSGA FM may also consider factors such as board performance and directors who appear to be remiss in the performance of their oversight responsibilities when considering their suitability for reappointment (e.g. fraud, criminal wrongdoing and breach of fiduciary responsibilities).
SSGA FM believes companies should have committees for audit, remuneration and nomination oversight. The audit committee is responsible for monitoring the integrity of the financial statements of the company, appointing external auditors, monitoring their qualifications and independence as well their effectiveness and resource levels. Similarly, executive pay is an important aspect of corporate governance, and it should be determined by the board of directors . SSGA FM expects companies to have in place remuneration committees to provide independent oversight over executive pay. SSGA FM will vote against nominees who are executive members of audit or remuneration committees.
In its analysis of boards, SSGA FM considers whether board members have adequate skills to provide effective oversight of corporate strategy, operations and risks, including environmental and social issues. Boards should also have a regular evaluation process in place to assess the effectiveness of the board and the skills of board members to address issues such as emerging risks, changes to corporate strategy and diversification of operations and geographic footprint. The nomination committee is responsible for evaluating and keeping under review the balance of skills, knowledge and experience of the board and ensuring that adequate succession plans are in place for directors and the CEO. SSGA FM may vote against the re-election of members of the nomination committee if, over time, the board has failed to address concerns over board structure or succession.
Indemnification and Limitations on Liability
Generally, SSGA FM supports proposals to limit directors liability and/or expand indemnification and liability protection up to the limit provided by law, if he or she has not acted in bad faith, with gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Audit Related Issues
Companies should have robust internal audit and internal control systems designed for effective management of any potential and emerging risks to company operations and strategy. The responsibility of setting out an internal audit function lies with the audit committee, which should have as members independent non-executive directors.
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Appointment of External Auditors
SSGA FM believes that a companys auditor is an essential feature of an effective and transparent system of external supervision and shareholders should be given the opportunity to vote on their appointment or to re-appoint at the annual meeting. When appointing external auditors and approving audit fees, SSGA FM will take into consideration the level of detail in company disclosures and will generally not support such resolutions if an adequate breakdown is not provided and if non-audit fees are more than 50% of audit fees. In addition, SSGA FM may vote against members of the audit committee if we have concerns with audit related issues or if the level of non-audit fees to audit fees is significant. In certain circumstances, SSGA FM may consider auditor tenure when evaluating the audit process.
Limit Legal Liability of External Auditors
SSGA FM generally opposes limiting the legal liability of audit firms as we believe this could create a negative impact on the quality of the audit function.
Shareholder Rights and Capital Related Issues
Share Issuances
The ability to raise capital is critical for companies to carry out strategy, grow, and achieve returns above their cost of capital. The approval of capital raising activities is fundamental to shareholders ability to monitor the amounts of proceeds and to ensure capital is deployed efficiently. SSGA FM supports capital increases that have sound business reasons and are not excessive relative to a companys existing capital base.
Pre-emption rights are a fundamental right for shareholders to protect their investment in a company. Where companies seek to issue new shares whilst dis-applying pre-emption rights, SSGA FM may vote against if such authorities are greater than 20% of the issued share capital. SSGA FM may also vote against resolutions seeking authority to issue capital with pre-emption rights if the aggregate amount allowed seems excessive and is not justified by the board. Generally, we are against capital issuance proposals greater than 100% of the issued share capital when the proceeds are not intended for a specific purpose.
Share Repurchase Programs
SSGA FM generally supports a proposal to repurchase shares, other than if the issuer does not clearly state the business purpose for the program, a definitive number of shares to be repurchased, specify the range of premium/discount to market price at which a company can repurchase shares, and the time-frame for the repurchase. SSGA FM may vote against share re-purchase requests that allow share re-purchases during a takeover period.
Dividends
SSGA FM generally supports dividend payouts that constitute 30% or more of net income. SSGA FM may vote against the dividend payouts if the dividend payout ratio has been consistently below 30% without adequate explanation; or, the payout is excessive given the companys financial position. Particular attention will be paid where the payment may damage the companys long term financial health.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation. Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
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SSGA FM will generally support transactions that maximize share-holder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
Anti-Takeover Measures
SSGA FM opposes anti-takeover defenses such as authorities for the board when subject to a hostile takeover to issue warrants convertible into shares to existing shareholders.
Remuneration
Executive Pay
Despite the differences among the types of plans and awards possible, there is a simple underlying philosophy that guides SSGA FMs analysis of executive paythere should be a direct relationship between remuneration and company performance over the long term.
Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration policies and reports, SSGA FM considers factors such as adequate disclosure of different remuneration elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long-term and short-term incentives, alignment of pay structures with shareholder interests as well as with corporate strategy and performance. SSGA FM may oppose remuneration reports where pay seems misaligned with shareholders interests. SSGA FM may also vote against the re-election of members of the remuneration committee if we have serious concerns over remuneration practices and the company has not been responsive to shareholder pressure.
Equity Incentive Plans
SSGA FM may not support proposals on equity-based incentive plans where insufficient information is provided on matters such as grant limits, performance metrics, performance and vesting periods and overall dilution. SSGA FM does not generally support options under such plans being issued at a discount to market price or plans that allow for re-testing of performance metrics.
Non-Executive Director Pay
Authorities seeking shareholder approval for non-executive directors fees are generally not controversial. SSGA FM generally supports resolutions regarding directors fees unless disclosure is poor and we are unable to determine whether they are excessive relative to fees paid by other companies in the same country or industry. SSGA FM will evaluate on a company- by-company basis any non-cash or performance related pay to non-executive directors.
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Risk Management
SSGA FM believes that risk management is a key function of the board, which is responsible for setting the overall risk appetite of a company and for providing oversight on the risk management process established by senior executives at a company. SSGA FM allows boards discretion over how they provide oversight in this area. However, SSGA FM expects companies to disclose how the board provides oversight on its risk management system and to identify key risks facing the company. Boards should also review existing and emerging risks as they can change with a changing political and economic landscape, or as companies diversify or expand their operations into new areas.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. In this regard, SSGA FM supports environmental and social related items that we believe would protect or enhance shareholder value. Environmental and social factors not only can have an impact on the reputation of companies; they may also represent significant operational risks and costs to business. Well-developed environmental and social management systems can also generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. In our view, companies that manage all risks and consider opportunities related to environmental and social issues are able to adapt faster to changes and appear to be better placed to achieve sustainable competitive advantage in the long-term. Similarly, companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change, which could result in anything from regulation and litigation, physical threats (severe weather, climate change), economic trends as well as shifts in consumer behavior.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks and shareholder proposals relating to them on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint. SSGA FM may also take action against the re-election of members of the board if we have serious concerns over ESG practices and the company has not been responsive to shareholder concerns.
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State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy : State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
©2017 State Street Corporation. All Rights Reserved.
INST-7619 0317 Exp. Date: 03/31/2018
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SUBJECT TO COMPLETION. THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS
NOT COMPLETE AND MAY BE CHANGED. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SPDR ® SERIES TRUST (THE TRUST)
STATEMENT OF ADDITIONAL INFORMATION
[October 31, 2017]
This Statement of Additional Information (SAI) is not a prospectus. With respect to the Trusts series listed below, this SAI should be read in conjunction with the prospectus dated [October 31, 2017], as may be revised from time to time (Prospectus).
ETF |
TICKER | |||
SPDR SSGA US Large Cap Low Volatility Index ETF (formerly, SPDR Russell 1000 Low Volatility ETF) |
LGLV | |||
SPDR SSGA US Small Cap Low Volatility Index ETF (formerly, SPDR Russell 2000 Low Volatility ETF) |
SMLV |
Principal U.S. Listing Exchange for each ETF: NYSE Arca, Inc.
Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. Copies of the Prospectus and the Trusts Annual Reports to Shareholders dated June 30, 2017 may be obtained without charge by writing to State Street Global Advisors Funds Distributors, LLC, the Trusts principal underwriter (referred to herein as Distributor or Principal Underwriter), State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111, by visiting the Trusts website at https://www.spdrs.com or by calling 1-866-787-2257. The Reports of Independent Registered Public Accounting Firm, financial highlights and financial statements of the Funds included in the Trusts Annual Reports to Shareholders for the fiscal year ended June 30, 2017 are incorporated by reference into this SAI.
[SAI]
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GENERAL DESCRIPTION OF THE TRUST
The Trust is an open-end management investment company, registered under the Investment Company Act of 1940, as amended (the 1940 Act), consisting of multiple investment series, including the SPDR SSGA US Large Cap Low Volatility Index ETF and SPDR SSGA US Small Cap Low Volatility Index ETF (each, a Fund and, collectively, the Funds). The Trust was organized as a Massachusetts business trust on June 12, 1998. The offering of each Funds shares (Shares) is registered under the Securities Act of 1933, as amended (the Securities Act). The investment objective of each Fund is to provide investment results that, before fees and expenses, correspond generally to the total return of a specified market index (each, an Index). SSGA Funds Management, Inc. serves as the investment adviser for each Fund (the Adviser).
Each Fund offers and issues Shares at their net asset value (sometimes referred to herein as NAV) only in aggregations of a specified number of Shares (each, a Creation Unit). Each Fund generally offers and issues Shares either in exchange for (i) a basket of securities included in its Index (Deposit Securities) together with the deposit of a specified cash payment (Cash Component) or (ii) a cash payment equal in value to the Deposit Securities (Deposit Cash) together with the Cash Component. The primary consideration accepted by a Fund ( i.e. , Deposit Securities or Deposit Cash) is set forth under Purchase and Redemption of Creation Units later in this SAI. The Trust reserves the right to permit or require the substitution of a cash in lieu amount to be added to the Cash Component to replace any Deposit Security and reserves the right to permit or require the substitution of Deposit Securities in lieu of Deposit Cash (subject to applicable legal requirements). The Shares have been approved for listing and secondary trading on a national securities exchange (the Exchange). The Shares will trade on the Exchange at market prices. These prices may differ from the Shares net asset values. The Shares are also redeemable only in Creation Unit aggregations, and generally in exchange either for (i) portfolio securities and a specified cash payment or (ii) cash (subject to applicable legal requirements). A Creation Unit of each Fund consists of 50,000 Shares.
Shares may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit with the Trust cash at least equal to a specified percentage of the market value of the missing Deposit Securities, as set forth in the Participant Agreement (as defined below). See Purchase and Redemption of Creation Units. The Trust may impose a transaction fee for each creation or redemption. In all cases, such fees will be limited in accordance with the requirements of the U.S. Securities and Exchange Commission (SEC) applicable to management investment companies offering redeemable securities. In addition to the fixed creation or redemption transaction fee, an additional transaction fee of up to three times the fixed creation or redemption transaction fee and/or an additional variable charge may apply.
Each Fund may invest in the following types of investments, consistent with its investment strategies and objective. Please see the Funds Prospectus for additional information regarding its principal investment strategies.
DIVERSIFICATION STATUS
Each Fund is classified as a non-diversified investment company under the 1940 Act. A non-diversified classification means that a Fund is not limited by the 1940 Act with regard to the percentage of its assets that may be invested in the securities of a single issuer. This means that a Fund may invest a greater portion of its assets in the securities of a single issuer than a diversified fund. The securities of a particular issuer may constitute a greater portion of an Index of each Fund and, therefore, the securities may constitute a greater portion of a Funds portfolio. This may have an adverse effect on a Funds performance or subject a Funds Shares to greater price volatility than more diversified investment companies.
Although each Fund is non-diversified for purposes of the 1940 Act, each Fund intends to maintain the required level of diversification and otherwise conduct its operations so as to qualify as a regulated investment company for purposes of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and to relieve each Fund of any liability for federal income tax to the extent that its earnings are distributed to shareholders. Compliance with the diversification requirements of the Internal Revenue Code may severely limit the investment flexibility of a Fund and may make it less likely that a Fund will meet its investment objective.
COMMERCIAL PAPER
Commercial paper consists of short-term, promissory notes issued by banks, corporations and other entities to finance short-term credit needs. These securities generally are discounted but sometimes may be interest bearing.
3
COMMON STOCKS
Risks inherent in investing in equity securities include the risk that the financial condition of issuers may become impaired or that the general condition of the stock market may deteriorate (either of which may cause a decrease in the value of a Funds portfolio securities and therefore a decrease in the value of Shares of the Fund). Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence and perceptions change. These investor perceptions are based on various and unpredictable factors, including expectations regarding government, economic, monetary and fiscal policies; inflation and interest rates; economic expansion or contraction; and global or regional political, economic or banking crises.
CONCENTRATION
Each Funds investments will generally be concentrated in a particular industry or group of industries to the extent that the Funds underlying Index is concentrated in a particular industry or group of industries. The securities of issuers in particular industries may dominate the benchmark Index of a Fund and consequently the Funds investment portfolio. This may adversely affect a Funds performance or subject its Shares to greater price volatility than that experienced by less concentrated investment companies. The Trusts general policy is to exclude securities of the U.S. government and its agencies or instrumentalities when measuring industry concentration.
In pursuing its objective, each Fund may hold the securities of a single issuer in an amount exceeding 10% of the market value of the outstanding securities of the issuer, subject to restrictions imposed by the Internal Revenue Code. In particular, as a Funds size grows and its assets increase, it will be more likely to hold more than 10% of the securities of a single issuer if the issuer has a relatively small public float as compared to other components in its benchmark Index.
CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio. A convertible security may also be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. If a convertible security held by a Fund is called for redemption or conversion, the Fund could be required to tender it for redemption, convert it into the underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss than common stocks. Convertible securities generally provide yields higher than the underlying common stocks, but generally lower than comparable non-convertible securities. Because of this higher yield, convertible securities generally sell at a price above their conversion value, which is the current market value of the stock to be received upon conversion. The difference between this conversion value and the price of convertible securities will vary over time depending on changes in the value of the underlying common stocks and interest rates. When the underlying common stocks decline in value, convertible securities will tend not to decline to the same extent because of the interest or dividend payments and the repayment of principal at maturity for certain types of convertible securities. However, securities that are convertible other than at the option of the holder generally do not limit the potential for loss to the same extent as securities convertible at the option of the holder. When the underlying common stocks rise in value, the value of convertible securities may also be expected to increase. At the same time, however, the difference between the market value of convertible securities and their conversion value will narrow, which means that the value of convertible securities will generally not increase to the same extent as the value of the underlying common stocks. Because convertible securities may also be interest-rate sensitive, their value may increase as interest rates fall and decrease as interest rates rise. Convertible securities are also subject to credit risk, and are often lower-quality securities.
FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS
Each Fund may invest up to 20% of its assets in derivatives, including exchange-traded futures on Treasuries or Eurodollars, U.S. exchange-traded or OTC put and call options contracts and exchange-traded or OTC swap transactions (including NDFs, interest rate swaps, total return swaps, excess return swaps, and credit default swaps). A Fund will segregate cash and/or appropriate liquid assets if required to do so by SEC or CFTC regulation or interpretation.
Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation is not yet fully known and may not be for some time. New regulations could adversely affect the value, availability and performance of certain derivative instruments, may make them more costly, and may limit or restrict their use by the Funds.
4
Futures contracts generally provide for the future sale by one party and purchase by another party of a specified commodity or security at a specified future time and at a specified price. Index futures contracts are settled daily with a payment by one party to the other of a cash amount based on the difference between the level of the index specified in the contract from one day to the next. A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract originally was written. Although the value of an index might be a function of the value of certain specified securities, physical delivery of these securities is not always made. A public market exists in futures contracts covering a number of indexes, as well as financial instruments, including, without limitation: U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S. Treasury bills; 90-day commercial paper; bank certificates of deposit; Eurodollar certificates of deposit; the Australian Dollar; the Canadian Dollar; the British Pound; the Japanese Yen; the Swiss Franc; the Mexican Peso; and certain multinational currencies, such as the Euro. It is expected that other futures contracts will be developed and traded in the future. Futures contracts are standardized as to maturity date and underlying instrument and are traded on futures exchanges.
The Funds may purchase and write (sell) call and put options on futures. Options on futures give the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price upon expiration of, or at any time during the period of, the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true.
A Fund is required to make a good faith margin deposit in cash or U.S. government securities (or other eligible collateral) with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying commodity or payment of the cash settlement amount) if it is not terminated prior to the specified delivery date. Brokers may establish deposit requirements which are higher than the exchange minimums. Futures contracts are customarily purchased and sold on margin deposits which may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy price changes, additional payments will be required. Conversely, change in the contract value may reduce the required margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. In such case, a Fund would expect to earn interest income on its margin deposits. Although some futures contracts call for making or taking delivery of the underlying commodity, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (involving the same exchange, underlying security or index and delivery month). If an offsetting purchase price is less than the original sale price, the Fund realizes a capital gain, or if it is more, the Fund realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Fund realizes a capital gain, or if it is less, the Fund realizes a capital loss. The transaction costs also must be included in these calculations.
Regulation Under the Commodity Exchange Act . Each Fund intends to use commodity interests, such as futures, swaps and options on futures in accordance with Rule 4.5 of the Commodity Exchange Act (CEA). A Fund may use exchange-traded futures and options on futures, together with positions in cash and money market instruments, to simulate full investment in its underlying Index. Exchange-traded futures and options on futures contracts may not be currently available for an Index. Under such circumstances, the Adviser may seek to utilize other instruments that it believes to be correlated to the applicable Index components or a subset of the components. The Trust has filed a notice of eligibility for exclusion from the definition of the term commodity pool operator in accordance with Rule 4.5 so that it is not subject to registration or regulation as a commodity pool operator under the CEA.
Restrictions on Trading in Commodity Interests . With respect to the Funds, the Trust has claimed an exclusion from registration as a commodity pool operator under the CEA pursuant to CFTC Rule 4.5 and, therefore, is not subject to the registration and regulatory requirements of the CEA. Each Fund reserves the right to engage in transactions involving futures, options thereon and swaps to the extent allowed by the CFTC regulations in effect from time to time and in accordance with a Funds policies. Each Fund would take steps to prevent its futures positions from leveraging its securities holdings. When it has a long futures position, it will maintain with its custodian bank assets substantially identical to those underlying the contract or cash and equivalents (or a combination of the foregoing) having a value equal to the net obligation of the Fund under the contract (less the value of any margin deposits in connection with the position. When it has a short futures position, it will maintain with its custodian bank assets substantially identical to those underlying the contract or cash and equivalents (or a combination of the foregoing) having a value equal to the net obligation of the Fund under the contract (less the value of any margin deposits in connection with the position).
Options . A Fund may purchase and sell put and call options. Such options may relate to particular securities and may or may not be listed on a national securities exchange and issued by the Options Clearing Corporation. Options trading is a highly specialized activity that entails greater than ordinary investment risk. Options on particular securities may be more volatile than the underlying securities, and therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying securities themselves.
5
Short Sales Against the Box . The Fund may engage in short sales against the box. In a short sale against the box, the Fund agrees to sell at a future date a security that it either contemporaneously owns or has the right to acquire at no extra cost. If the price of the security has declined at the time the Fund is required to deliver the security, the Fund will benefit from the difference in the price. If the price of the security has increased, the Fund will be required to pay the difference.
Swap Transactions . Each Fund may enter into swap transactions, including interest rate swap, credit default swap, NDF, and total return swap transactions. Swap transactions are contracts between parties in which one party agrees to make periodic payments to the other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make payments to the first party based on the return of a different specified rate, index or asset. Swap transactions will usually be done on a net basis, i.e., where the two parties make net payments with a Fund receiving or paying, as the case may be, only the net amount of the two payments. The net amount of the excess, if any, of a Funds obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of cash or equivalents having an aggregate value at least equal to the accrued excess is maintained by the Fund. Swaps may be used in conjunction with other instruments to offset interest rate, currency or other underlying risks. For example, interest rate swaps may be offset with caps, floors or collars. A cap is essentially a call option which places a limit on the amount of floating rate interest that must be paid on a certain principal amount. A floor is essentially a put option which places a limit on the minimum amount that would be paid on a certain principal amount. A collar is essentially a combination of a long cap and a short floor where the limits are set at different levels.
The use of swap transactions by a Fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the swap agreement. Swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index, but also of the swap itself, without the benefit of observing the performance of the swap under all the possible market conditions. Because some swap transactions have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the swap itself. Certain swaps have the potential for unlimited loss, regardless of the size of the initial investment.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) that was signed into law on July 21, 2010 created a new statutory framework that comprehensively regulated the over-the-counter (OTC) derivatives markets for the first time. Key Dodd-Frank Act provisions relating to OTC derivatives require rulemaking by the SEC and the CFTC, not all of which has been proposed or finalized as at the date of this SAI. Prior to the Dodd-Frank Act, the OTC derivatives markets were traditionally traded on a bilateral basis (so-called bilateral OTC transactions). Under the Dodd-Frank Act, certain OTC derivatives transactions are now required to be centrally cleared and traded on exchanges or electronic trading platforms called swap execution facilities (SEFs).
Bilateral OTC transactions differ from exchange-traded or cleared derivatives transactions in several respects. Bilateral OTC transactions are transacted directly with dealers and not with a clearing corporation. Without the availability of a clearing corporation, bilateral OTC transaction pricing is normally done by reference to information from market makers and/or available index data, which information is carefully monitored by the Adviser and verified in appropriate cases. As bilateral OTC transactions are entered into directly with a dealer, there is a risk of nonperformance by the dealer as a result of its insolvency or otherwise. Under recently-adopted regulations by the CFTC and federal banking regulators (Margin Rules), a Fund is required to post collateral (known as variation margin) to cover the mark-to-market exposure in respect of its uncleared swaps. The Margin Rules also mandate that collateral in the form of initial margin be posted to cover potential future exposure attributable to uncleared swap transactions. However, due to the compliance timeline within the Margin Rules, it is unlikely that the Funds will be required to comply with such initial margin requirements until March 1, 2020. In the event a Fund is required to post collateral in the form of initial margin or variation margin in respect of its uncleared swap transactions, all such collateral will be posted with a third party custodian pursuant to a triparty custody agreement between the Fund, its dealer counterparty and an unaffiliated custodian.
The requirement to execute certain OTC derivatives contracts on SEFs may offer certain advantages over traditional bilateral OTC trading, such as ease of execution, price transparency, increased liquidity and/or favorable pricing. However, SEF trading may make it more difficult and costly for a Fund to enter into highly tailored or customized transactions and may result in additional costs and risks. Market participants such as the Funds that execute derivatives contracts through a SEF, whether directly or through a broker intermediary, are required to submit to the jurisdiction of the SEF and comply with SEF and CFTC rules and regulations which impose, among other things disclosure and recordkeeping obligations. In addition, a Fund will generally incur SEF or broker intermediary fees when it trades on a SEF. A Fund may also be required to indemnify the SEF or broker intermediary for any losses or costs that may result from the Funds transactions on the SEF.
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Total Return Swaps . A Fund may enter into total return swap transactions for investment purposes. Total return swaps are transactions in which one party agrees to make periodic payments based on the change in market value of the underlying assets, which may include a specified security, basket of securities or security indexes during the specified period, in return for periodic payments based on a fixed or variable interest rate of the total return from other underlying assets. Total return swaps may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market, including in cases in which there may be disadvantages associated with direct ownership of a particular security. In a typical total return equity swap, payments made by a Fund or the counterparty are based on the total return of a particular reference asset or assets (such as an equity security, a combination of such securities, or an index). That is, one party agrees to pay another party the return on a stock, basket of stocks, or stock index in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of securities without actually purchasing those stocks. Total return swaps involve not only the risk associated with the investment in the underlying securities, but also the risk of the counterparty not fulfilling its obligations under the agreement.
Credit Default Swaps . A Fund may enter into credit default swap transactions for investment purposes. A credit default swap transaction may have as reference obligations one or more securities that are not currently held by the Fund. A Fund may be either the protection buyer or protection seller in the transaction. Credit default swaps may also be structured based on the debt of a basket of issuers, rather than a single issuer, and may be customized with respect to the default event that triggers purchase or other factors. As a protection seller, a Fund would generally receive an upfront payment or a fixed rate of income throughout the term of the swap, which typically is between six months and three years, provided that there is no credit event. If a credit event occurs, generally the protection seller must pay the protection buyer the full face amount of the reference obligations that may have little or no value. The notional value of the credit default swap will be used to segregate liquid assets for selling protection on credit default swaps. If a Fund were a protection buyer and no credit event occurred during the term of the swap, the Fund would recover nothing if the swap were held through its termination date. However, if a credit event occurred, the protection buyer may elect to receive the full notional value of the swap in exchange for an equal face amount of the reference obligation that may have little or no value. Where a Fund is the protection buyer, credit default swaps involve the risk that the seller may fail to satisfy its payment obligations to the Fund in the event of a default. The purchase of credit default swaps involves costs, which will reduce a Funds return. When a Fund buys credit default swaps it will segregate an amount at least equal to the amount of any accrued premium payment obligations including amounts for early terminations.
Currency Swaps . A Fund may enter into currency swap transactions for investment purposes. Currency swaps are similar to interest rate swaps, except that they involve multiple currencies. A Fund may enter into a currency swap when it has exposure to one currency and desires exposure to a different currency. Typically, the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the beginning of the contract and returned at the end of the contract. In addition to paying and receiving amounts at the beginning and end of the transaction, both sides will have to pay in full on a periodic basis based upon the currency they have borrowed. Change in foreign exchange rates and changes in interest rates, as described above, may negatively affect currency swaps.
Interest Rate Swaps . A Fund may enter into an interest rate swap in an effort to protect against declines in the value of fixed income securities held by the Fund. In such an instance, the Fund may agree to pay a fixed rate (multiplied by a notional amount) while a counterparty agrees to pay a floating rate (multiplied by the same notional amount). If interest rates rise, resulting in a diminution in the value of the Funds portfolio, the Fund would receive payments under the swap that would offset, in whole or in part, such diminution in value.
Options on Swaps . An option on a swap agreement, or a swaption, is a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms. In return, the purchaser pays a premium to the seller of the contract. The seller of the contract receives the premium and bears the risk of unfavorable changes on the underlying swap. A Fund may write (sell) and purchase put and call swaptions. A Fund may also enter into swaptions on either an asset-based or liability-based basis, depending on whether the Fund is hedging its assets or its liabilities. A Fund may write (sell) and purchase put and call swaptions to the same extent it may make use of standard options on securities or other instruments. A Fund may enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its holdings, as a duration management technique, to protect against an increase in the price of securities the Fund anticipates purchasing at a later date, or for any other purposes, such as for speculation to increase returns. Swaptions are generally subject to the same risks involved in a Funds use of options.
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Depending on the terms of the particular option agreement, a Fund will generally incur a greater degree of risk when it writes a swaption than it will incur when it purchases a swaption. When a Fund purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when a Fund writes a swaption, upon exercise of the option the Fund will become obligated according to the terms of the underlying agreement.
Certain additional risk factors related to derivatives are discussed below:
Derivatives Risk . Under recently adopted rules by the CFTC, transactions in some types of interest rate swaps and index credit default swaps on North American and European indices are required to be cleared. In addition, the CFTC may promulgate additional regulations that require clearing of other classes of swaps. In a cleared derivatives transaction (which includes commodities futures and cleared swaps transactions), a Funds counterparty is a clearing house (such as CME, ICE Clear Credit or LCH.Clearnet), rather than a bank or broker. Since each Fund is not a member of a clearing house and only members of a clearing house can participate directly in the clearing house, a Fund holds cleared derivatives through accounts at clearing members, who are futures commission merchants that are members of the clearing houses and who have the appropriate regulatory approvals to engage in cleared swap transactions. A Fund makes and receives payments owed under cleared derivatives transactions (including margin payments) through its accounts at clearing members. Clearing members guarantee performance of their clients obligations to the clearing house. In contrast to bilateral OTC transactions, clearing members generally can require termination of existing cleared derivatives transactions at any time and increases in margin above the margin that it required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions and to terminate transactions. Any such increase or termination could interfere with the ability of a Fund to pursue its investment strategy. Also, a Fund is subject to execution risk if it enters into a derivatives transaction that is required to be cleared (or that the Advisor expects to be cleared), and no clearing member is willing or able to clear the transaction on the Funds behalf. While the documentation in place between a Fund and their clearing members generally provides that the clearing members will accept for clearing all transactions submitted for clearing that are within credit limits specified by the clearing members in advance, the Fund could be subject to this execution risk if the Fund submits for clearing transactions that exceed such credit limits, if the clearing house does not accept the transactions for clearing, or if the clearing members do not comply with their agreement to clear such transactions. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of any increase in the value of the transaction after the time of the transaction. In addition, new regulations could, among other things, restrict a Funds ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund or increasing margin or capital requirements. If a Fund is not able to enter into a particular derivatives transaction, the Funds investment performance and risk profile could be adversely affected as a result.
Counterparty Risk . Counterparty risk with respect to OTC derivatives may be affected by new regulations promulgated by the CFTC and SEC affecting the derivatives market. As described under Derivatives Risk above, some derivatives transactions are required to be cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared derivatives position, rather than the credit risk of its original counterparty to the derivative transaction. Clearing members are required to segregate all funds received from customers with respect to cleared derivatives transactions from the clearing members proprietary assets. However, all funds and other property received by a clearing broker from its customers are generally held by the clearing broker on a commingled basis in an omnibus account, which may also invest those funds in certain instruments permitted under the applicable regulations. Also, the clearing member transfers to the clearing house the amount of margin required by the clearing house for cleared derivatives transactions, which amounts are generally held in the relevant omnibus account at the clearing house for all customers of the clearing member.
For commodities futures positions, the clearing house may use all of the collateral held in the clearing members omnibus account to meet a loss in that account, without regard to which customer in fact supplied that collateral. Accordingly, in addition to bearing the credit risk of its clearing member, each customer to a futures transaction also bears fellow customer risk from other customers of the clearing member. However, with respect to cleared swaps positions, recent regulations promulgated by the CFTC require that the clearing member notify the clearing house of the amount of initial margin provided by the clearing member to the clearing house that is attributable to each customer. Because margin in respect of cleared swaps must be earmarked for specific clearing member customers, the clearing house may not use the collateral of one customer to cover the obligations of another customer. However, if the clearing member does not provide accurate reporting, a Fund is subject to the risk that a clearing house will use the Funds assets held in an omnibus account at the clearing house to satisfy payment obligations of a defaulting customer of the clearing member to the clearing house. In addition, clearing members may generally choose to provide to the clearing house the net amount of variation margin required for cleared swaps for all of its customers in the aggregate, rather than the gross amount for each customer.
FUTURE DEVELOPMENTS
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A Fund may take advantage of opportunities in the area of options and futures contracts, options on futures contracts, warrants, swaps and any other investments which are not presently contemplated for use by the Fund or which are not currently available but which may be developed, to the extent such opportunities are both consistent with the Funds investment objective and legally permissible for the Fund. Before entering into such transactions or making any such investment, a Fund will provide appropriate disclosure.
INVESTMENT COMPANIES
Each Fund may invest in the securities of other investment companies, including affiliated funds and money market funds, subject to applicable limitations under Section 12(d)(1) of the 1940 Act. Pursuant to Section 12(d)(1), a Fund may invest in the securities of another investment company (the acquired company) provided that the Fund, immediately after such purchase or acquisition, does not own in the aggregate: (i) more than 3% of the total outstanding voting stock of the acquired company; (ii) securities issued by the acquired company having an aggregate value in excess of 5% of the value of the total assets of the Fund; or (iii) securities issued by the acquired company and all other investment companies (other than Treasury stock of the Fund) having an aggregate value in excess of 10% of the value of the total assets of the Fund. To the extent allowed by law, regulation, a Funds investment restrictions and the Trusts exemptive relief, a Fund may invest its assets in securities of investment companies that are affiliated funds and/or money market funds in excess of the limits discussed above.
If a Fund invests in and, thus, is a shareholder of, another investment company, the Funds shareholders will indirectly bear the Funds proportionate share of the fees and expenses paid by such other investment company, including advisory fees, in addition to both the management fees payable directly by the Fund to the Funds own investment adviser and the other expenses that the Fund bears directly in connection with the Funds own operations.
LENDING PORTFOLIO SECURITIES
Each Fund may lend portfolio securities to certain creditworthy borrowers in U.S. and non-U.S. markets in an amount not to exceed 40% of the value of its net assets. The borrowers provide collateral that is marked to market daily in an amount at least equal to the current market value of the securities loaned. A Fund may terminate a loan at any time and obtain the securities loaned. A Fund receives the value of any interest or cash or non-cash distributions paid on the loaned securities. A Fund cannot vote proxies for securities on loan, but may recall loans to vote proxies if a material issue affecting the Funds economic interest in the investment is to be voted upon. Distributions received on loaned securities in lieu of dividend payments ( i.e., substitute payments) would not be considered qualified dividend income.
With respect to loans that are collateralized by cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. A Fund is compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the borrower. In the case of collateral other than cash, a Fund is compensated by a fee paid by the borrower equal to a percentage of the market value of the loaned securities. Any cash collateral may be reinvested in certain short-term instruments either directly on behalf of the lending Fund or through one or more joint accounts or money market funds, which may include those managed by the Adviser.
A Fund may pay a portion of the interest or fees earned from securities lending to a borrower as described above, and to one or
more securities lending agents approved by the Board of Trustees of the Trust (the Board) who administer the lending program for the Funds in accordance with guidelines approved by the Board. In such capacity, the lending agent causes
the delivery of loaned securities from a Fund to borrowers, arranges for the return of loaned securities to the Fund at the termination of a loan, requests deposit of collateral, monitors the daily value of the loaned securities and collateral,
requests that borrowers add to the collateral when required by the loan agreements, and provides recordkeeping and accounting services necessary for the operation of the program. State Street Bank and Trust Company (State Street), an
affiliate of the Trust, has been approved by the Board to serve as securities lending agent for a Fund and the Trust has entered into an agreement with State Street for such services. Among other matters, the Trust has agreed to indemnify State
Street for certain liabilities. State Street has received an order of exemption from the SEC under Sections 17(a) and
12(d)(1) under the 1940 Act to serve as the lending agent for affiliated investment companies such as the Trust and to
invest the cash collateral received from loan transactions to be invested in an affiliated cash collateral fund.
Securities lending involves exposure to certain risks, including operational risk ( i.e. , the risk of losses resulting from problems in the settlement and accounting process especially so in certain international markets such as Taiwan), gap risk ( i.e. , the risk of a mismatch between the return on cash collateral reinvestments and the fees a Fund has agreed to pay a borrower), risk of loss of collateral, credit, legal, counterparty and market risk. Although State Street has agreed to provide a Fund with indemnification in the event of a borrower default, a Fund is still exposed to the risk of losses in the event a borrower does not return a Funds securities as agreed. For example, delays in recovery of lent securities may cause a Fund to lose the opportunity to sell the securities at a desirable price.
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LEVERAGING
While the Funds do not anticipate doing so, a Fund may borrow money in an amount greater than 5% of the value of the Funds total assets. However, under normal circumstances, a Fund will not borrow money from a bank in an amount greater than 10% of the value of the Funds total assets. Borrowing for investment purposes is one form of leverage. Leveraging investments, by purchasing securities with borrowed money, is a speculative technique that increases investment risk, but also increases investment opportunity. Because substantially all of a Funds assets will fluctuate in value, whereas the interest obligations on borrowings may be fixed, the NAV of a Fund will increase more when the Funds portfolio assets increase in value and decrease more when the Funds portfolio assets decrease in value than would otherwise be the case. Moreover, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the returns on the borrowed funds.
OTHER SHORT-TERM INSTRUMENTS
In addition to repurchase agreements, each Fund may invest in short-term instruments, including money market instruments, (including money market funds advised by the Adviser), cash and cash equivalents, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that may include but are not limited to: (i) shares of money market funds (including those advised by the Adviser); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (CDs), bankers acceptances, fixed time deposits and other obligations of U.S. and foreign banks (including foreign branches) and similar institutions; (iv) commercial paper rated at the date of purchase Prime-1 by Moodys Investors Service (Moodys) or A-1 by Standard & Poors (S&P), or if unrated, of comparable quality as determined by the Adviser; (v) non-convertible corporate debt securities ( e.g. , bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that present minimal credit risks; and (vi) short-term U.S. dollar-denominated obligations of foreign banks (including U.S. branches) that, in the opinion of the Adviser, are of comparable quality to obligations of U.S. banks which may be purchased by a Fund. Any of these instruments may be purchased on a current or a forward-settled basis. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with international transactions. Money market instruments also include shares of money market funds. The SEC and other government agencies continue to review the regulation of money market funds. The SEC has adopted changes to the rules that govern money market funds, and compliance with many of these amendments was required in October 2016. Legislative developments may also affect money market funds. These changes and developments may affect the investment strategies, performance, yield, operating expenses and continued viability of a money market fund.
PREFERRED SECURITIES
Preferred securities pay fixed or adjustable rate dividends to investors, and have preference over common stock in the payment of dividends and the liquidation of a companys assets. This means that a company must pay dividends on preferred stock before paying any dividends on its common stock. In order to be payable, distributions on preferred securities must be declared by the issuers board of directors. Income payments on typical preferred securities currently outstanding are cumulative, causing dividends and distributions to accrue even if not declared by the board of directors or otherwise made payable. There is no assurance that dividends or distributions on the preferred securities in which a Fund invests will be declared or otherwise made payable.
The market value of preferred securities may be affected by favorable and unfavorable changes impacting companies in the utilities and financial services sectors, which are prominent issuers of preferred securities, and by actual and anticipated changes in tax laws.
Because the claim on an issuers earnings represented by preferred securities may become onerous when interest rates fall below the rate payable on such securities, the issuer may redeem the securities. Thus, in declining interest rate environments in particular, a Funds holdings of higher rate-paying fixed rate preferred securities may be reduced and a Fund would be unable to acquire securities paying comparable rates with the redemption proceeds.
REAL ESTATE INVESTMENT TRUSTS (REITs)
REITs pool investors funds for investment primarily in income producing real estate or real estate loans or interests. A REIT is not taxed on income distributed to shareholders if it complies with several requirements relating to its organization, ownership, assets, and income and a requirement that it distribute to its shareholders at least 90% of its taxable income (other than net capital gains) for each taxable year. REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs, which invest the majority of their assets directly in real property, derive their income primarily from rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs, which invest the majority of their assets in real estate mortgages, derive their income primarily from interest payments. Hybrid REITs combine the characteristics of both Equity REITs and Mortgage REITs. The Funds will not invest in real estate directly, but only in securities issued by real estate companies. However, the
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Funds may be subject to risks similar to those associated with the direct ownership of real estate (in addition to securities markets risks) to the extent they invest in the securities of companies in the real estate industry. These include declines in the value of real estate, risks related to general and local economic conditions, dependency on management skill, heavy cash flow dependency, possible lack of availability of mortgage funds, overbuilding, extended vacancies of properties, increased competition, increases in property taxes and operating expenses, changes in zoning laws, losses due to costs resulting from the clean-up of environmental problems, liability to third parties for damages resulting from environmental problems, casualty or condemnation losses, limitations on rents, changes in neighborhood values, the appeal of properties to tenants and changes in interest rates. Investments in REITs may subject Fund shareholders to duplicate management and administrative fees.
In addition to these risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality of any credit extended. Further, Equity and Mortgage REITs are dependent upon management skills and generally may not be diversified. Equity and Mortgage REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation. In addition, Equity and Mortgage REITs could possibly fail to qualify for the beneficial tax treatment available to REITs under the Internal Revenue Code, or to maintain their exemptions from registration under the 1940 Act. The above factors may also adversely affect a borrowers or a lessees ability to meet its obligations to the REIT. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting investments.
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements with commercial banks, brokers or dealers to generate income from its excess cash balances and to invest securities lending cash collateral. A repurchase agreement is an agreement under which a Fund acquires a financial instrument ( e.g. , a security issued by the U.S. government or an agency thereof, a bankers acceptance or a certificate of deposit) from a seller, subject to resale to the seller at an agreed upon price and date (normally, the next Business Day as defined below). A repurchase agreement may be considered a loan collateralized by securities. The resale price reflects an agreed upon interest rate effective for the period the instrument is held by a Fund and is unrelated to the interest rate on the underlying instrument.
In these repurchase agreement transactions, the securities acquired by a Fund (including accrued interest earned thereon) must have a total value in excess of the value of the repurchase agreement and are held by the Custodian until repurchased. No more than an aggregate of 15% of a Funds net assets will be invested in illiquid securities, including repurchase agreements having maturities longer than seven days and securities subject to legal or contractual restrictions on resale, or for which there are no readily available market quotations.
The use of repurchase agreements involves certain risks. For example, if the other party to the agreement defaults on its obligation to repurchase the underlying security at a time when the value of the security has declined, a Fund may incur a loss upon disposition of the security. If the other party to the agreement becomes insolvent and subject to liquidation or reorganization under the U.S. Bankruptcy Code or other laws, a court may determine that the underlying security is collateral for a loan by a Fund not within the control of the Fund and, therefore, the Fund may not be able to substantiate its interest in the underlying security and may be deemed an unsecured creditor of the other party to the agreement.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements, which involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing. The securities purchased with the funds obtained from the agreement and securities collateralizing the agreement will have maturity dates no later than the repayment date. Generally the effect of such transactions is that a Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases a Fund is able to keep some of the interest income associated with those securities. Such transactions are only advantageous if a Fund has an opportunity to earn a greater rate of interest on the cash derived from these transactions than the interest cost of obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and a Fund intends to use the reverse repurchase technique only when the Adviser believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any interim increase or decrease in the value of a Funds assets. A Funds exposure to reverse repurchase agreements will be covered by securities having a value equal to or greater than such commitments. Under the 1940 Act, reverse repurchase agreements are considered borrowings. Although there is no percentage limit on Fund assets that can be used in connection with reverse repurchase agreements, the Funds do not expect to engage, under normal circumstances, in reverse repurchase agreements with respect to more than 10% of their respective total assets.
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U.S. REGISTERED SECURITIES OF FOREIGN ISSUERS
Investing in U.S. registered, dollar-denominated, securities issued by non-U.S. issuers involves some risks and considerations not typically associated with investing in U.S. companies. These include differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S. investments in foreign countries, and potential restrictions of the flow of international capital. Foreign companies may be subject to less governmental regulation than U.S. issuers. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payment positions.
A Funds investment in common stock of foreign corporations may also be in the form of American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) and European Depositary Receipts (EDRs) (collectively Depositary Receipts). Depositary Receipts are receipts, typically issued by a bank or trust company, which evidence ownership of underlying securities issued by a foreign corporation. For ADRs, the depository is typically a U.S. financial institution and the underlying securities are issued by a foreign issuer. For other Depositary Receipts, the depository may be a foreign or a U.S. entity, and the underlying securities may have a foreign or a U.S. issuer. Depositary Receipts will not necessarily be denominated in the same currency as their underlying securities. Generally, ADRs, in registered form, are designed for use in the U.S. securities market, and EDRs, in bearer form, are designated for use in European securities markets. GDRs are tradable both in the United States and in Europe and are designed for use throughout the world. The Fund may invest in unsponsored Depositary Receipts. The issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United States, and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the Depositary Receipts.
SPECIAL CONSIDERATIONS AND RISKS
A discussion of the risks associated with an investment in each Fund is contained in the Prospectus. The discussion below supplements, and should be read in conjunction with, the Prospectus.
GENERAL
Investment in a Fund should be made with an understanding that the value of a Funds portfolio securities may fluctuate in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of securities generally and other factors.
An investment in a Fund should also be made with an understanding of the risks inherent in an investment in securities, including the risk that the financial condition of issuers may become impaired or that the general condition of the securities markets may deteriorate (either of which may cause a decrease in the value of the portfolio securities and thus in the value of Shares). Securities are susceptible to general market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic and banking crises. Securities of issuers traded on exchanges may be suspended on certain exchanges by the issuers themselves, by an exchange or by government authorities. The likelihood of such suspensions may be higher for securities of issuers in emerging or less-developed market countries than in countries with more developed markets. Trading suspensions may be applied from time to time to the securities of individual issuers for reasons specific to that issuer, or may be applied broadly by exchanges or governmental authorities in response to market events. Suspensions may last for significant periods of time, during which trading in the securities and instruments that reference the securities, such as participatory notes (or P-notes) or other derivative instruments, may be halted.
Holders of common stocks incur more risk than holders of preferred stocks and debt obligations because common stockholders, as owners of the issuer, have generally inferior rights to receive payments from the issuer in comparison with the rights of creditors of, or holders of debt obligations or preferred stocks issued by, the issuer. Further, unlike debt securities which typically have a stated principal amount payable at maturity (whose value, however, will be subject to market fluctuations prior thereto), or preferred stocks which typically have a liquidation preference and which may have stated optional or mandatory redemption provisions, common stocks have neither a fixed principal amount nor a maturity. Common stock values are subject to market fluctuations as long as the common stock remains outstanding.
The principal trading market for some of the securities in an Index may be in the over-the-counter market. The existence of a liquid trading market for certain securities may depend on whether dealers will make a market in such securities. There can be no assurance that a market will be made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of a Funds Shares will be adversely affected if trading markets for a Funds portfolio securities are limited or absent or if bid/ask spreads are wide.
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CONFLICTS OF INTEREST RISK
An investment in a Fund may be subject to a number of actual or potential conflicts of interest. For example, the Adviser or its affiliates may provide services to a Fund, such as securities lending agency services, custodial, administrative, bookkeeping, and accounting services, transfer agency and shareholder servicing, securities brokerage services, and other services for which the Fund would compensate the Adviser and/or such affiliates. A Fund may invest in other pooled investment vehicles sponsored, managed, or otherwise affiliated with the Adviser. There is no assurance that the rates at which a Fund pays fees or expenses to the Adviser or its affiliates, or the terms on which it enters into transactions with the Adviser or its affiliates, will be the most favorable available in the market generally or as favorable as the rates the Adviser makes available to other clients. Because of its financial interest, the Adviser may have an incentive to enter into transactions or arrangements on behalf of a Fund with itself or its affiliates in circumstances where it might not have done so in the absence of that interest.
CONTINUOUS OFFERING
The method by which Creation Units of Shares are created and traded may raise certain issues under applicable securities laws. Because new Creation Units of Shares are issued and sold by the Trust on an ongoing basis, at any point a distribution, as such term is used in the Securities Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent Shares, and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not underwriters but are effecting transactions in Shares, whether or not participating in the distribution of Shares, are generally required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus-delivery obligation with respect to Shares of a Fund are reminded that under Securities Act Rule 153, a prospectus-delivery obligation under Section 5(b)(2) of the Securities Act owed to an exchange member in connection with a sale on the Exchange is satisfied by the fact that a Funds Prospectus is available at the Exchange upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on an exchange.
COUNTERPARTY RISK
Counterparty risk with respect to derivatives has been and may continue to be affected by new rules and regulations affecting the derivatives market. Some derivatives transactions are required to be centrally cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared position, rather than the credit risk of its original counterparty to the derivatives transaction. Credit risk of market participants with respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted, what effect the insolvency proceeding would have on any recovery by a Fund, and what impact an insolvency of a clearing house would have on the financial system more generally.
FUTURES AND OPTIONS TRANSACTIONS
There can be no assurance that a liquid secondary market will exist for any particular futures contract or option at any specific time. Thus, it may not be possible to close a futures or options position. In the event of adverse price movements, a Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if a Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, a Fund may be required to make delivery of the instruments underlying futures contracts it has sold.
Each Fund will minimize the risk that it will be unable to close out a futures or options contract by only entering into futures and options for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts or uncovered call options in some strategies ( e.g. , selling uncovered index futures contracts) is potentially unlimited. The Funds do not plan to use futures and options contracts, when available, in this manner. The risk of a futures position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. A Fund, however, may utilize futures and options contracts in a manner designed to limit its risk exposure to that which is comparable to what it would have incurred through direct investment in securities.
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Utilization of futures transactions by a Fund involves the risk of imperfect or even negative correlation to its benchmark Index if the index underlying the futures contracts differs from the benchmark Index or if the futures contracts do not track the benchmark Index as expected. There is also the risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker with whom a Fund has an open position in the futures contract or option.
Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous days settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses.
RISKS OF SWAP AGREEMENTS
Swap agreements are subject to the risk that the swap counterparty will default on its obligations. If such a default occurs, a Fund will have contractual remedies pursuant to the agreements related to the transaction, but such remedies may be subject to bankruptcy and insolvency laws which could affect the Funds rights as a creditor.
The use of interest-rate and index swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. The use of a swap requires an understanding not only of the referenced asset, reference rate or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible market conditions. These transactions generally do not involve the delivery of securities or other underlying assets or principal.
The absence of a regulated execution facility or contract market and lack of liquidity for swap transactions has led, in some instances, to difficulties in trading and valuation, especially in the event of market disruptions. Under recently adopted rules and regulations, transactions in some types of swaps are required to be centrally cleared. In a cleared derivatives transaction, a Funds counterparty to the transaction is a central derivatives clearing organization, or clearing house, rather than a bank or broker. Because each Fund is not a member of a clearing house, and only members of a clearing house can participate directly in the clearing house, the Fund holds cleared derivatives through accounts at clearing members. In cleared derivatives transactions, a Fund will make payments (including margin payments) to and receive payments from a clearing house through its accounts at clearing members. Clearing members guarantee performance of their clients obligations to the clearing house. Centrally cleared derivative arrangements may be less favorable to a Fund than bilateral (non-cleared) arrangements. For example, a Fund may be required to provide greater amounts of margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in contrast to bilateral derivatives transactions, in some cases following a period of notice to a Fund, a clearing member generally can require termination of existing cleared derivatives transactions at any time or an increase in margin requirements above the margin that the clearing member required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate transactions at any time. A Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or which SSGA expects to be cleared), and no clearing member is willing or able to clear the transaction on the Funds behalf. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the value of the transaction and loss of hedging protection. In addition, the documentation governing the relationship between a Fund and clearing members is drafted by the clearing members and generally is less favorable to the Fund than typical bilateral derivatives documentation.
These clearing rules and other new rules and regulations could, among other things, restrict a Funds ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund, increasing margin or capital requirements, or otherwise limiting liquidity or increasing transaction costs. These regulations are new and evolving, so their potential impact on a Fund and the financial system are not yet known.
Because they are two party contracts that may be subject to contractual restrictions on transferability and termination and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid and subject to a Funds limitation on investments in illiquid securities. To the extent that a swap is not liquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. Like most other investments, swap agreements are subject to the risk that the market value of the instrument will change in a way detrimental to a Funds interest.
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If a Fund uses a swap as a hedge against, or as a substitute for, a portfolio investment, the Fund will be exposed to the risk that the swap will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the Fund. While hedging strategies involving swap instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other Fund investments. Many swaps are complex and often valued subjectively.
TAX RISKS
As with any investment, you should consider how your investment in Shares of a Fund will be taxed. The tax information in the Prospectus and this SAI is provided as general information. You should consult your own tax professional about the tax consequences of an investment in Shares of a Fund.
Unless your investment in Shares is made through a tax-exempt entity or tax-advantaged retirement account, such as an individual retirement account, you need to be aware of the possible tax consequences when a Fund makes distributions or you sell Shares.
The Trust has adopted the following investment restrictions as fundamental policies with respect to each Fund. These restrictions cannot be changed without the approval of the holders of a majority of a Funds outstanding voting securities. For purposes of the 1940 Act, a majority of the outstanding voting securities of a Fund means the vote, at an annual or a special meeting of the security holders of the Trust, of the lesser of (1) 67% or more of the voting securities of the Fund present at such meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy, or (2) more than 50% of the outstanding voting securities of the Fund. Except with the approval of a majority of the outstanding voting securities, each Fund may not:
1. Concentrate its investments in securities of issuers in the same industry, except as may be necessary to approximate the composition of the Funds underlying Index; 1
2. Make loans to another person except as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund;
3. Issue senior securities or borrow money except as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund;
4. Invest directly in real estate unless the real estate is acquired as a result of ownership of securities or other instruments. This restriction shall not preclude the Fund from investing in companies that deal in real estate or in instruments that are backed or secured by real estate;
5. Act as an underwriter of another issuers securities, except to the extent the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933 in connection with the Funds purchase and sale of portfolio securities; or
6. Invest in commodities except as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund.
In addition to the investment restrictions adopted as fundamental policies as set forth above, each Fund observes the following restrictions, which may be changed by the Board without a shareholder vote. Each Fund will not:
1. Invest in the securities of a company for the purpose of exercising management or control, provided that the Trust may vote the investment securities owned by the Fund in accordance with its views;
2. Hold illiquid assets in excess of 15% of its net assets. An illiquid asset is any asset which may not be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the Fund has valued the investment; and
3. Under normal circumstances, invest less than 80% of its total assets in securities that comprise its relevant Index.
The Funds define the foregoing terms in accordance with the definition of such terms per the applicable Index. If a percentage limitation is adhered to at the time of investment or contract, a later increase or decrease in percentage resulting from any change in value or total or net assets will not result in a violation of such restriction, except that the percentage limitations with respect to the borrowing of money and illiquid securities will be observed continuously. With respect to the limitation on borrowing, in the event that a subsequent change in net assets or other circumstances cause a Fund to exceed its limitation, the Fund will take steps to bring the aggregate amount of borrowing back within the limitations within three days thereafter (not including Sundays and holidays). With
1 |
The SEC Staff considers concentration to involve more than 25% of a funds assets to be invested in an industry or group of industries. |
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respect to the limitation on illiquid securities, in the event that a subsequent change in net assets or other circumstances cause a Fund to exceed its limitation, the Fund will take steps to bring the aggregate amount of illiquid instruments back within the limitations as soon as reasonably practicable.
The 1940 Act currently permits each Fund to loan up to 33 1/3% of its total assets. With respect to borrowing, the 1940 Act presently allows each Fund to: (1) borrow from any bank (including pledging, mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total assets, (2) borrow money for temporary purposes in an amount not exceeding 5% of the value of a Funds total assets at the time of the loan, and (3) enter into reverse repurchase agreements. However, under normal circumstances any borrowings by the Fund will not exceed 10% of the Funds total assets. The 1940 Act generally prohibits funds from issuing senior securities, although it does not treat certain transactions as senior securities, such as certain borrowings, short sales, reverse repurchase agreements, firm commitment agreements and standby commitments, with appropriate earmarking or segregation of assets to cover such obligation. With respect to investments in commodities, the 1940 Act presently permits the Funds to invest in commodities in accordance with investment policies contained in its prospectus and SAI. Any such investment shall also comply with the CEA and the rules and regulations thereunder. The 1940 Act does not directly restrict an investment companys ability to invest in real estate, but does require that every investment company have the fundamental investment policy governing such investments. The Funds will not purchase or sell real estate, except that a Fund may invest in companies that deal in real estate (including real estate investment trusts (REITs)) or in instruments that are backed or secured by real estate.
A discussion of exchange listing and trading matters associated with an investment in a Fund is contained in the Prospectus under PURCHASE AND SALE INFORMATION and ADDITIONAL PURCHASE AND SALE INFORMATION. The discussion below supplements, and should be read in conjunction with, such sections of the Prospectus.
The Shares of each Fund are approved for listing and trading on the Exchange, subject to notice of issuance. The Shares trade on the Exchange at prices that may differ to some degree from their net asset value. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of Shares of a Fund will continue to be met.
The Exchange may, but is not required to, remove the Shares of a Fund from listing if: (1) following the initial twelve-month period beginning upon the commencement of trading of the Fund, there are fewer than 50 beneficial holders of the Shares for 30 or more consecutive trading days; (2) the value of its underlying Index or portfolio of securities on which the Fund is based is no longer calculated or available; (3) the indicative optimized portfolio value (IOPV) of the Fund is no longer calculated or available; or (4) such other event shall occur or condition exists that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. In addition, the Exchange will remove the Shares from listing and trading upon termination of the Trust or a Fund.
The Trust reserves the right to adjust the Share price of a Fund in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of a Fund.
As in the case of other publicly traded securities, brokers commissions on transactions will be based on negotiated commission rates at customary levels.
The base and trading currencies of each Fund is the U.S. dollar. The base currency is the currency in which a Funds net asset value per Share is calculated and the trading currency is the currency in which Shares of a Fund are listed and traded on the Exchange.
The following information supplements and should be read in conjunction with the section in the Prospectus entitled MANAGEMENT.
Board Responsibilities. The management and affairs of the Trust and its series, including the Funds described in this SAI, are overseen by the Trustees. The Board has approved contracts, as described in this SAI, under which certain companies provide essential management services to the Trust.
Like most mutual funds, the day-to-day business of the Trust, including the management of risk, is performed by third party service providers, such as the Adviser, Distributor, Administrator and Sub-Administrator. The Trustees are responsible for overseeing the Trusts service providers and, thus, have oversight responsibility with respect to risk management performed by those service providers. Risk management seeks to identify and address risks, i.e. , events or circumstances that could have material adverse effects
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on the business, operations, shareholder services, investment performance or reputation of the Funds. The Funds and their service providers employ a variety of processes, procedures and controls to identify various of those possible events or circumstances, to lessen the probability of their occurrence and/or to mitigate the effects of such events or circumstances if they do occur. Each service provider is responsible for one or more discrete aspects of the Trusts business ( e.g. , the Adviser is responsible for the day-to-day management of a Funds portfolio investments) and, consequently, for managing the risks associated with that business. The Board has emphasized to the Funds service providers the importance of maintaining vigorous risk management.
The Trustees role in risk oversight begins before the inception of a Fund, at which time the Funds Adviser presents the Board with information concerning the investment objectives, strategies and risks of the Fund, as well as proposed investment limitations for the Fund. Additionally, the Funds Adviser provides the Board with an overview of, among other things, its investment philosophies, brokerage practices and compliance infrastructures. Thereafter, the Board continues its oversight function as various personnel, including the Trusts Chief Compliance Officer, as well as personnel of the Adviser and other service providers, such as the Funds independent accountants, make periodic reports to the Audit Committee or to the Board with respect to various aspects of risk management. The Board and the Audit Committee oversee efforts by management and service providers to manage risks to which a Fund may be exposed.
The Board is responsible for overseeing the nature, extent and quality of the services provided to the Funds by the Adviser and receives information about those services at its regular meetings. In addition, on an annual basis, in connection with its consideration of whether to renew the Investment Advisory Agreement with the Adviser, the Board meets with the Adviser to review such services. Among other things, the Board regularly considers the Advisers adherence to the Funds investment restrictions and compliance with various Fund policies and procedures and with applicable securities regulations. The Board also reviews information about each Funds investments.
The Trusts Chief Compliance Officer reports regularly to the Board to review and discuss compliance issues. At least annually, the Trusts Chief Compliance Officer provides the Board with a report reviewing the adequacy and effectiveness of the Trusts policies and procedures and those of its service providers, including the Adviser . The report addresses the operation of the policies and procedures of the Trust and each service provider since the date of the last report; any material changes to the policies and procedures since the date of the last report; any recommendations for material changes to the policies and procedures; and any material compliance matters since the date of the last report.
The Board receives reports from the Funds service providers regarding operational risks and risks related to the valuation and liquidity of portfolio securities. Regular reports are made to the Board concerning investments for which market quotations are not readily available. Annually, the independent registered public accounting firm reviews with the Audit Committee its audit of each Funds financial statements, focusing on major areas of risk encountered by the Fund and noting any significant deficiencies or material weaknesses in the Funds internal controls. Additionally, in connection with its oversight function, the Board oversees Fund managements implementation of disclosure controls and procedures, which are designed to ensure that information required to be disclosed by the Trust in its periodic reports with the SEC are recorded, processed, summarized, and reported within the required time periods. The Board also oversees the Trusts internal controls over financial reporting, which comprise policies and procedures designed to provide reasonable assurance regarding the reliability of the Trusts financial reporting and the preparation of the Trusts financial statements.
From their review of these reports and discussions with the Adviser, the Chief Compliance Officer, the independent registered public accounting firm and other service providers, the Board and the Audit Committee learn in detail about the material risks of the Funds, thereby facilitating a dialogue about how management and service providers identify and mitigate those risks.
The Board recognizes that not all risks that may affect a Fund can be identified and/or quantified, that it may not be practical or cost-effective to eliminate or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve a Funds goals, and that the processes, procedures and controls employed to address certain risks may be limited in their effectiveness. Moreover, reports received by the Trustees as to risk management matters are typically summaries of the relevant information. Most of the Funds investment management and business affairs are carried out by or through the Funds Adviser and other service providers, each of which has an independent interest in risk management but whose policies and the methods by which one or more risk management functions are carried out may differ from the Funds and each others in the setting of priorities, the resources available or the effectiveness of relevant controls. As a result of the foregoing and other factors, the Boards ability to monitor and manage risk, as a practical matter, is subject to limitations.
Trustees and Officers. There are six members of the Board of Trustees, five of whom are not interested persons of the Trust, as that term is defined in the 1940 Act (Independent Trustees). Frank Nesvet, an Independent Trustee, serves as Chairman of the Board. The Board has determined its leadership structure is appropriate given the specific characteristics and circumstances of the Trust. The Board made this determination in consideration of, among other things, the fact that the Independent Trustees constitute a super-
17
majority (greater than 75%) of the Board, the fact that the chairperson of each Committee of the Board is an Independent Trustee, the amount of assets under management in the Trust, and the number of funds (and classes of shares) overseen by the Board. The Board also believes that its leadership structure facilitates the orderly and efficient flow of information to the Independent Trustees from fund management.
The Board of Trustees has two standing committees: the Audit Committee and Trustee Committee. The Audit Committee and Trustee Committee are each chaired by an Independent Trustee and composed of all of the Independent Trustees.
Set forth below are the names, year of birth, position with the Trust, length of term of office, and the principal occupations during the last five years and other directorships held of each of the persons currently serving as a Trustee or Officer of the Trust.
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TRUSTEES
| For the purpose of determining the number of portfolios overseen by the Trustees, Fund Complex comprises registered investment companies for which SSGA Funds Management, Inc. serves as investment adviser. |
* | Mr. Ross is an Interested Trustee because of his employment with the Adviser and ownership interest in an affiliate of the Adviser. Mr. Ross previously served as an Interested Trustee from November 2005 to December 2009. |
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OFFICERS
NAME, ADDRESS AND YEAR OF BIRTH |
POSITION(S) WITH FUNDS |
TERM OF OFFICE AND LENGTH OF TIME SERVED |
PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS |
|||
ELLEN M. NEEDHAM SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1967 |
President |
Term: Unlimited Served: since October 2012 |
President and Director, SSGA Funds Management, Inc. (2001 - present)*; Senior Managing Director, State Street Global Advisors (1992 - present)*; Director, State Street Global Advisors Funds Distributors, LLC (May 2017 - present). | |||
ANN M. CARPENTER SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1966 |
Vice President; Deputy Treasurer |
Term: Unlimited Served: since August 2012 (with respect to Vice President); Unlimited Served: since February 2016 (with respect to Deputy Treasurer) |
Chief Operating Officer, SSGA Funds Management, Inc. (2005 - Present)*; Managing Director, State Street Global Advisors (2005 - present).* | |||
MICHAEL P. RILEY SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1969 |
Vice President |
Term: Unlimited Served: since February 2005 |
Managing Director, State Street Global Advisors (2005 - present).* | |||
JOSHUA A. WEINBERG SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1978 |
Chief Legal Officer |
Term: Unlimited Served: since February 2015 |
Vice President and Managing Counsel, State Street Global Advisors (2011-present); Clerk, SSGA Funds Management, Inc. (2013-present); Associate, Financial Services Group, Dechert LLP (2006-2011). | |||
[ ] State Street Bank and Trust Company One Hundred Summer Street, SUM0703 Boston, MA 02111 [ ] |
Secretary |
Term: Unlimited Served: since August 2017 |
[ ]* |
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NAME, ADDRESS AND YEAR OF BIRTH |
POSITION(S) WITH FUNDS |
TERM OF OFFICE AND LENGTH OF TIME SERVED |
PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS |
|||
PATRICIA A. MORISETTE State Street Bank and Trust Company One Hundred Summer Street, SUM 0703 Boston, MA 02111 1973 |
Assistant Secretary |
Term: Unlimited Served: since February 2015 |
Vice President and Counsel, State Street Bank and Trust Company (2014-present); Assistant Vice President and Counsel, John Hancock Financial Services (2011-2013); Independent legal consultant (2009-2011); Associate, Bingham McCutchen LLP (2003-2009).* ,. ** | |||
BRUCE S. ROSENBERG SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1961 |
Treasurer |
Term: Unlimited Served: since February 2016 |
Managing Director, State Street Global Advisors and SSGA Funds Management, Inc. (July 2015 present); Director, Credit Suisse (April 2008 - July 2015). | |||
CHAD C. HALLETT SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1969 |
Deputy Treasurer |
Term: Unlimited Served: since February 2016 |
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (November 2014 - present); Vice President, State Street Bank and Trust Company (2001-November 2014).* | |||
DARLENE ANDERSON-VASQUEZ SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1968 |
Deputy Treasurer |
Term: Unlimited Served: since November 2016 |
Managing Director, State Street Global Advisors and SSGA Funds Management, Inc. (May 2016 - present); Senior Vice President, John Hancock Investments (September 2007 - May 2016). | |||
ARTHUR A. JENSEN SSGA Funds Management, Inc. 1600 Summer Street Stamford, CT 06905 [1967] |
Deputy Treasurer |
Term: Unlimited Served: since August 2017 |
Vice President at State Street Global Advisors since July 2016; Deputy Treasurer of Elfun Funds since July 2016; Treasurer of State Street Institutional Funds, State Street Variable Insurance Series Funds, Inc. and GE Retirement Savings Plan Funds since June 2011; Treasurer of Elfun Funds from June 2011 to July 2016; Mutual Funds Controller of GE Asset Management Incorporated from April 2011 to July 2016; Senior Vice President at Citigroup from 2008 to 2010; and Vice President at JPMorgan from 2005 to 2008. | |||
DANIEL FOLEY SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1972 |
Assistant Treasurer |
Term: Unlimited Served: since February 2016 |
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (April 2007 - present).* | |||
DANIEL G. PLOURDE SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1980 |
Assistant Treasurer |
Term: Unlimited Served: since May 2017 |
Assistant Vice President, SSGA Funds Management, Inc. (May 2015 - present); Officer, State Street Bank and Trust Company (March 2009 - May 2015). | |||
SUJATA UPRETI SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1974 |
Assistant Treasurer |
Term: Unlimited Served: since February 2016 |
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (May 2015 present); Assistant Director, Cambridge Associates, LLC (July 2014-January 2015); Vice President, Bank of New York Mellon (July 2012-August 2013); Manager, PricewaterhouseCoopers, LLP (September 2003-July 2012). |
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NAME, ADDRESS AND YEAR OF BIRTH |
POSITION(S) WITH FUNDS |
TERM OF OFFICE AND LENGTH OF TIME SERVED |
PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS |
|||
BRIAN HARRIS SSGA Funds Management, Inc. State Street Financial Center One Lincoln Street Boston, MA 02111 1973 |
Chief Compliance Officer; Anti-Money Laundering Officer; Code of Ethics Compliance Officer |
Term: Unlimited Served: since November 2013 |
Managing Director, State Street Global Advisors and SSGA Funds Management, Inc. (June 2013 - present)*; Senior Vice President and Global Head of Investment Compliance, BofA Global Capital Management (2010-2013); Director of Compliance, AARP Financial Inc. (2008-2010). |
* | Served in various capacities and/or with various affiliated entities during noted time period. |
** | Served in various capacities and/or with unaffiliated mutual funds or closed-end funds for which State Street Bank and Trust Company or its affiliates act as a provider of services during the noted time period. |
Individual Trustee Qualifications
The Board has concluded that each of the Trustees should serve on the Board because of his or her ability to review and understand information about the Funds provided to him or her by management, to identify and request other information he or she may deem relevant to the performance of his or her duties, to question management and other service providers regarding material factors bearing on the management and administration of the Funds, and to exercise his or her business judgment in a manner that serves the best interests of each Funds shareholders. The Board has concluded that each of the Trustees should serve as a Trustee based on his or her own experience, qualifications, attributes and skills as described below.
The Board has concluded that Mr. Nesvet should serve as Trustee because of the experience he has gained serving as the Chief Executive Officer of a financial services consulting company, serving on the boards of other investment companies, and serving as chief financial officer of a major financial services company; his knowledge of the financial services industry, and the experience he has gained serving as Trustee of the Trust since 2000.
The Board has concluded that Mr. Kelly should serve as Trustee because of the experience he gained serving as the President and Chief Executive Officer of the National Securities Clearing Corporation (NSCC), his previous directorship experience, and the experience he has gained serving as Trustee of the Trust since 2000.
The Board has concluded that Ms. Boatman should serve as Trustee because of the experience she gained serving as Managing Director of the primary investment division of one of the nations leading financial institutions and her knowledge of the financial services industry. Ms. Boatman was elected to serve as Trustee of the Trust in April 2010.
The Board has concluded that Mr. Churchill should serve as Trustee because of the experience he gained serving as the Chief Executive Officer and President of the CFA Institute, serving as the Head of the Fixed Income Division of one of the nations leading mutual fund companies and provider of financial services and his knowledge of the financial services industry. Mr. Churchill was elected to serve as Trustee of the Trust in April 2010.
The Board has concluded that Mr. Verboncoeur should serve as Trustee because of the experience he gained serving as the Chief Executive Officer of a large financial services and investment management company, his knowledge of the financial services industry and his experience serving on the boards of other investment companies. Mr. Verboncoeur was elected to serve as Trustee of the Trust in April 2010.
The Board has concluded that Mr. Ross should serve as Trustee because of the experience he has gained in his various roles with the Adviser, his knowledge of the financial services industry, and the experience he has gained serving as Trustee of the Trust since 2005 (Mr. Ross did not serve as Trustee from December 2009 until April 2010).
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In its periodic assessment of the effectiveness of the Board, the Board considers the complementary individual skills and experience of the individual Trustees primarily in the broader context of the Boards overall composition so that the Board, as a body, possesses the appropriate (and appropriately diverse) skills and experience to oversee the business of the Funds.
REMUNERATION OF THE TRUSTEES AND OFFICERS
No officer, director or employee of the Adviser, its parent or subsidiaries receives any compensation from the Trust for serving as an officer or Trustee of the Trust. The Trust, SSGA Master Trust, SSGA Active Trust and SPDR Index Shares Funds (together with the Trust, the Trusts) pay, in the aggregate, each Independent Trustee an annual fee of $230,000 plus $10,000 per in-person meeting attended and $1,250 for each telephonic or video conference meeting attended. The Chairman of the Board receives an additional annual fee of $50,000 and the Chairman of the Audit Committee receives an additional annual fee of $20,000. Prior to July 1, 2017, each Independent Trustee received an annual fee of $210,000 plus $10,000 per in-person meeting attended and $1,250 for each telephonic or video conference meeting attended. The Chairman of the Board received an additional annual fee of $50,000 and the Chairman of the Audit Committee received an additional annual fee of $20,000. The Trust also reimburses each Independent Trustee for travel and other out-of-pocket expenses incurred by him/her in connection with attending such meetings and in connection with attending industry seminars and meetings. Trustee fees are allocated between the Trusts and each of their respective series in such a manner as deemed equitable, taking into consideration the relative net assets of the series.
The table below shows the compensation that the Independent Trustees received during the Trusts fiscal year ended June 30, 2017.
NAME OF INDEPENDENT TRUSTEE |
AGGREGATE
COMPENSATION FROM THE TRUST |
PENSION OR
RETIREMENT BENEFITS ACCRUED AS PART OF TRUST EXPENSES |
ESTIMATED
ANNUAL BENEFITS UPON RETIREMENT |
TOTAL
COMPENSATION FROM THE TRUST AND FUND COMPLEX PAID TO TRUSTEES(1) |
||||||||
Frank Nesvet |
$ | [ | ] | N/A | N/A | $ | [ | ] | ||||
Bonny Boatman |
$ | [ | ] | N/A | N/A | $ | [ | ] | ||||
Dwight Churchill |
$ | [ | ] | N/A | N/A | $ | [ | ] | ||||
David M. Kelly |
$ | [ | ] | N/A | N/A | $ | [ | ] | ||||
Carl Verboncoeur |
$ | [ | ] | N/A | N/A | $ | [ | ] |
(1) | The Fund Complex includes the Trust. |
STANDING COMMITTEES
Audit Committee. The Board has an Audit Committee consisting of all Independent Trustees. Mr. Verboncoeur serves as Chairman. The Audit Committee meets with the Trusts independent auditors to review and approve the scope and results of their professional services; to review the procedures for evaluating the adequacy of the Trusts accounting controls; to consider the range of audit fees; and to make recommendations to the Board regarding the engagement of the Trusts independent auditors. The Audit Committee met [four (4)] times during the fiscal year ended June 30, 2017.
Trustee Committee. The Board has established a Trustee Committee consisting of all Independent Trustees. Mr. Nesvet serves as Chairman. The responsibilities of the Trustee Committee are to: 1) nominate Independent Trustees; 2) review on a periodic basis the governance structures and procedures of the Funds; 3) review proposed resolutions and conflicts of interest that may arise in the business of the Funds and may have an impact on the investors of the Funds; 4) select any independent counsel of the independent trustees as well as make determinations as to that counsels independence; 5) review matters that are referred to the Committee by the Chief Legal Officer or other counsel to the Trust; and 6) provide general oversight of the Funds on behalf of the investors of the Funds. The Trustee Committee does not have specific procedures in place with respect to the consideration of nominees recommended by security holders, but may consider such nominees in the event that one is recommended. The Trustee Committee met [four (4)] times during the fiscal year ended June 30, 2017.
OWNERSHIP OF FUND SHARES
[As of December 31, 2016, neither the Independent Trustees nor their immediate family members owned beneficially or of record any securities in the Adviser, Principal Underwriter or any person controlling, controlled by, or under common control with the Adviser or Principal Underwriter. ]
[The following table shows, as of December 31, 2016, the amount of equity securities beneficially owned by the Trustees in the Trust.]
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Name of Trustee |
Fund |
Dollar Range of
|
Aggregate Dollar
|
|||
Independent Trustees: |
||||||
Frank Nesvet |
None | None | None | |||
David M. Kelly |
None | None | None | |||
Bonny Eugenia Boatman |
None | None | None | |||
Dwight D. Churchill |
None | None | None | |||
Carl G. Verboncoeur |
SPDR S&P Dividend ETF | $10,001 - $50,000 | $10,001 to $50,000 | |||
Interested Trustee: |
||||||
James Ross |
SPDR S&P Metals & Mining ETF | $1 to $10,000 | Over $100,000 | |||
SPDR S&P 1000 ETF | $10,001 - $50,000 | |||||
SPDR Russell 1000 ETF | $50,001 - $100,000 | |||||
SPDR S&P Biotech ETF | $10,001 - $50,000 | |||||
SPDR S&P Dividend ETF | $10,001 - $50,000 | |||||
SPDR S&P 600 Small Cap Growth ETF | $10,001 - $50,000 | |||||
SPDR S&P 400 Mid Cap Growth ETF | $10,001 - $50,000 | |||||
SPDR Dow Jones REIT ETF | $10,001 - $50,000 | |||||
SPDR Bloomberg Barclays Short Term High Yield Bond ETF | $10,001 - $50,000 | |||||
SPDR Bloomberg Barclays High Yield Bond ETF | $10,001 - $50,000 | |||||
SPDR Bloomberg Barclays International Corporate Bond ETF | $10,001 - $50,000 | |||||
SPDR Bloomberg Barclays Short Term High Yield Bond ETF | $10,001 - $50,000 | |||||
SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF | Over $100,000 | |||||
SPDR Nuveen S&P High Yield Municipal Bond ETF | Over $100,000 | |||||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF | $10,001 - $50,000 | |||||
SPDR Bloomberg Barclays Short Term Corporate Bond ETF | Over $100,000 | |||||
SPDR Bloomberg Barclays Investment Grade Floating Rate ETF | Over $100,000 |
CODES OF ETHICS
The Trust and the Adviser (which includes applicable reporting personnel of the Distributor) each have adopted a code of ethics as required by applicable law, which is designed to prevent affiliated persons of the Trust, the Adviser and the Distributor from engaging in deceptive, manipulative or fraudulent activities in connection with securities held or to be acquired by the Funds (which may also be held by persons subject to the codes of ethics). Each Code of Ethics permits personnel, subject to that Code of Ethics, to invest in securities for their personal investment accounts, subject to certain limitations, including securities that may be purchased or held by the Funds.
There can be no assurance that the codes of ethics will be effective in preventing such activities. Each code of ethics, filed as exhibits to this registration statement, may be examined at the office of the SEC in Washington, D.C. or on the Internet at the SECs website at https://www.sec.gov.
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PROXY VOTING POLICIES
The Board believes that the voting of proxies on securities held by each Fund is an important element of the overall investment process. As such, the Board has delegated the responsibility to vote such proxies to the Adviser for all Funds. The Advisers proxy voting policy is attached at the end of this SAI. Information regarding how a Fund voted proxies relating to its portfolio securities during the most recent twelve-month period ended June 30 is available: (1) without charge by calling 1-866-787-2257; (2) on the Funds website at https://www.spdrs.com; and (3) on the SECs website at https:// www.sec.gov.
DISCLOSURE OF PORTFOLIO HOLDINGS POLICY
The Trust has adopted a policy regarding the disclosure of information about the Trusts portfolio holdings. The Board must approve all material amendments to this policy. The Funds portfolio holdings are publicly disseminated each day a Fund is open for business through financial reporting and news services including publicly accessible Internet web sites. In addition, a basket composition file, which includes the security names and share quantities to deliver in exchange for Shares, together with estimates and actual cash components, is publicly disseminated daily prior to the opening of the Exchange via the NSCC. The basket represents one Creation Unit of a Fund. The Trust, the Adviser or State Street will not disseminate non-public information concerning the Trust, except information may be made available prior to its public availability: (i) to a party for a legitimate business purpose related to the day-to-day operations of the Funds, including (a) a service provider, (b) the stock exchanges upon which an ETF is listed, (c) the NSCC, (d) the Depository Trust Company, and (e) financial data/research companies such as Morningstar, Bloomberg L.P., and Reuters, or (ii) to any other party for a legitimate business or regulatory purpose, upon waiver or exception, with the consent of an applicable Trust officer.
THE INVESTMENT ADVISER
SSGA FM acts as investment adviser to the Trust and, subject to the supervision of the Board, is responsible for the investment management of each Fund. As of June 30, 2017, the Adviser managed approximately $[ ] billion in assets. The Advisers principal address is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111. The Adviser, a Massachusetts corporation, is a wholly owned subsidiary of State Street Corporation, a publicly held financial holding company. State Street Global Advisors (SSGA), consisting of the Adviser and other investment advisory affiliates of State Street Corporation, is the investment management arm of State Street Corporation.
The Adviser serves as investment adviser to each Fund pursuant to an investment advisory agreement (Investment Advisory Agreement) between the Trust and the Adviser. The Investment Advisory Agreement, with respect to each Fund, continues in effect for two years from its effective date, and thereafter is subject to annual approval by (1) the Board or (2) vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, provided that in either event such continuance also is approved by a majority of the Board who are not interested persons (as defined in the 1940 Act) of the Trust by a vote cast in person at a meeting called for the purpose of voting on such approval. The Investment Advisory Agreement with respect to each Fund is terminable without penalty, on 60 days notice, by the Board or by a vote of the holders of a majority (as defined in the 1940 Act) of a Funds outstanding voting securities. The Investment Advisory Agreement is also terminable upon 60 days notice by the Adviser and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
Under the Investment Advisory Agreement, the Adviser, subject to the supervision of the Board and in conformity with the stated investment policies of each Fund, manages the investment of each Funds assets. The Adviser is responsible for placing purchase and sale orders and providing continuous supervision of the investment portfolio of each Fund. Pursuant to the Investment Advisory Agreement, the Adviser is not liable for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its obligations and duties.
A discussion regarding the basis for the Boards approval of the Investment Advisory Agreement regarding the Funds is available in the Trusts Annual Report to Shareholders for the period ended June 30, 2017.
For the services provided to the Funds under the Investment Advisory Agreement, each Fund pays the Adviser monthly fees based on a percentage of each Funds average daily net assets as set forth in each Funds Prospectus. From time to time, the Adviser may waive all or a portion of its fee. The Adviser pays all expenses of each Fund other than the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustees counsel fees), acquired fund fees and expenses, litigation expenses and other extraordinary expenses.
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For the past three fiscal years ended June 30, the Funds paid the following amounts to the Adviser:
FUND |
FISCAL YEAR
ENDED JUNE 30, 2017 |
FISCAL YEAR
ENDED JUNE 30, 2016 |
FISCAL YEAR
ENDED JUNE 30, 2015 |
|||||||||
SPDR SSGA US Large Cap Low Volatility Index ETF |
$ | [ | ] | $ | 45,289 | $ | 28,204 | |||||
SPDR SSGA US Small Cap Low Volatility Index ETF |
$ | [ | ] | $ | 50,913 | $ | 39,078 |
PORTFOLIO MANAGERS
The Adviser manages the Funds using a team of investment professionals. The professionals primarily responsible for the day-to-day portfolio management of each Fund are:
Fund | Portfolio Managers | |
SPDR SSGA US Large Cap Low Volatility Index ETF |
Michael Feehily, Karl Schneider and Raymond Donofrio |
|
SPDR SSGA US Small Cap Low Volatility Index ETF |
Michael Feehily, Karl Schneider and Keith Richardson |
The following table lists the number and types of accounts managed by each of the key professionals involved in the day-to-day portfolio management for each Fund and assets under management in those accounts. The total number of accounts and assets have been allocated to each respective manager. Therefore, some accounts and assets have been counted twice.
Other Accounts Managed as of June 30, 2017: [PRDM PLEASE PROVIDE]
Portfolio Manager |
Registered
Investment Company Accounts* |
Assets
Managed (billions) |
Pooled
Investment Vehicle Accounts* |
Assets
Managed (billions) |
Other
Accounts* |
Assets
Managed (billions) |
Total
Assets Managed (billions) |
|||||||||||||||||||||
Mike Feehily |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Karl Schneider |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Raymond Donofrio |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] | ||||||||||
Keith Richardson |
[ | ] | $ | [ | ] | [ | ] | $ | [ | ] | [ | ] | $ | [ | ] | $ | [ | ] |
* | There are no performance fees associated with these accounts. |
The following table lists the dollar range of Shares beneficially owned by portfolio managers listed above as of June 30, 2017:
[PRDM PLEASE CONFIRM]
Portfolio Manager |
Fund |
Dollar Range of Trust Shares
Beneficially Owned |
||
Mike Feehily |
None | None | ||
Karl Schneider |
None | None | ||
Raymond Donofrio |
[ ] | [ ] | ||
Keith Richardson |
None | None |
A portfolio manager that has responsibility for managing more than one account may be subject to potential conflicts of interest because he or she is responsible for other accounts in addition to the Funds. Those conflicts could include preferential treatment of one account over others in terms of: (a) the portfolio managers execution of different investment strategies for various accounts or (b) the allocation of resources or of investment opportunities. The Adviser has adopted policies and procedures designed to address these potential material conflicts. For instance, portfolio managers are normally responsible for all accounts within a certain investment
26
discipline, and do not, absent special circumstances, differentiate among the various accounts when allocating resources. Additionally, the Adviser and its advisory affiliates have processes and procedures for allocating investment opportunities among portfolios that are designed to provide a fair and equitable allocation among the portfolio managers accounts with the same strategy.
Portfolio managers may manage numerous accounts for multiple clients. These accounts may include registered investment companies, other types of pooled accounts ( e.g. , collective investment funds), and separate accounts ( i.e. , accounts managed on behalf of individuals or public or private institutions). Portfolio managers make investment decisions for each account based on the investment objectives and policies and other relevant investment considerations applicable to that portfolio. A potential conflict of interest may arise as a result of the portfolio managers responsibility for multiple accounts with similar investment guidelines. Under these circumstances, a potential investment may be suitable for more than one of the portfolio managers accounts, but the quantity of the investment available for purchase is less than the aggregate amount the accounts would ideally devote to the opportunity. Similar conflicts may arise when multiple accounts seek to dispose of the same investment. The portfolio managers may also manage accounts whose objectives and policies differ from that of the Funds. These differences may be such that under certain circumstances, trading activity appropriate for one account managed by the portfolio manager may have adverse consequences for another account managed by the portfolio manager. For example, an account may sell a significant position in a security, which could cause the market price of that security to decrease, while a Fund maintained its position in that security.
A potential conflict may arise when portfolio managers are responsible for accounts that have different advisory feesthe difference in fees could create an incentive for the portfolio manager to favor one account over another, for example, in terms of access to investment opportunities. Another potential conflict may arise when the portfolio manager has an investment in one or more accounts that participate in transactions with other accounts. His or her investment(s) may create an incentive for the portfolio manager to favor one account over another. The Adviser has adopted policies and procedures reasonably designed to address these potential material conflicts. For instance, portfolio managers are normally responsible for all accounts within a certain investment discipline, and do not, absent special circumstances, differentiate among the various accounts when allocating resources. Additionally, the Adviser and its advisory affiliates have processes and procedures for allocating investment opportunities among portfolios that are designed to provide a fair and equitable allocation.
SSGAs culture is complemented and reinforced by a total rewards strategy that is based on a pay for performance philosophy which seeks to offer a competitive pay mix of base salary, benefits, cash incentives and deferred compensation.
Salary is based on a number of factors, including external benchmarking data and market trends, State Street performance, SSGA performance, and individual overall performance. SSGAs Global Human Resources department regularly participates in compensation surveys in order to provide SSGA with market-based compensation information that helps support individual pay decisions.
Additionally, subject to State Street and SSGA business results, State Street allocates an incentive pool to SSGA to reward its employees. The size of the incentive pool for most business units is based on the firms overall profitability and other factors, including performance against risk-related goals. For most SSGA investment teams, SSGA recognizes and rewards performance by linking annual incentive decisions for investment teams to the firms or business units profitability and business unit investment performance over a multi-year period.
For the passive equity investment team, incentive pool funding is driven in part by the post-tax 1 and 3-year tracking error of the funds managed by the team against the benchmark indexes of the funds.
The discretionary allocation of the incentive pool to the business units within SSGA is influenced by market-based compensation data, as well as the overall performance of each business unit. Individual compensation decisions are made by the employees manager, in conjunction with the senior management of the employees business unit. These decisions are based on the overall performance of the employee and, as mentioned above, on the performance of the firm and business unit. Depending on the job level, a portion of the annual incentive may be awarded in deferred compensation, which may include cash and/or deferred stock awards (State Street stock), which typically vests over a four-year period. This helps to retain staff and further aligns SSGA employees interests with SSGA clients and shareholders long-term interests.
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SSGA recognizes and rewards outstanding performance by:
| Promoting employee ownership to connect employees directly to the companys success. |
| Using rewards to reinforce mission, vision, values and business strategy. |
| Seeking to recognize and preserve the firms unique culture and team orientation. |
| Providing all employees the opportunity to share in the success of SSGA. |
For Global Equity Beta Solutions Group, incentive pool funding is influenced by 1 and 3-year tracking error.
THE ADMINISTRATOR, SUB-ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Administrator. SSGA FM serves as the administrator to each series of the Trust, pursuant to an Administration Agreement dated June 1, 2015 (the SSGA Administration Agreement). Pursuant to the SSGA Administration Agreement, SSGA FM is obligated to continuously provide business management services to the Trust and its series and will generally, subject to the general oversight of the Trustees and except as otherwise provided in the SSGA Administration Agreement, manage all of the business and affairs of the Trust.
Sub-Administrator, Custodian and Transfer Agent . Prior to June 1, 2015, State Street served as the Trusts administrator, pursuant to an Administration Agreement dated September 22, 2000 (the SSB Administration Agreement). As compensation for its services under the SSB Administration Agreement, State Street received a fee for its services, calculated based on the average aggregate net assets of the Trust and SPDR Index Shares Funds, of 0.0225% on the first $12.5 billion and 0.0075% thereafter.
State Street serves as the sub-administrator to each series of the Trust, pursuant to a Sub-Administration Agreement dated June 1, 2015 (the Sub-Administration Agreement). Under the Sub-Administration Agreement, State Street is obligated to provide certain sub-administrative services to the Trust and its series. State Street is a wholly owned subsidiary of State Street Corporation, a publicly held financial holding company, and is affiliated with the Adviser. State Streets mailing address is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111.
State Street also serves as Custodian for the Trusts series pursuant to a custodian agreement (Custodian Agreement). As Custodian, State Street holds Fund assets, calculates the net asset value of the Shares and calculates net income and realized capital gains or losses. State Street and the Trust will comply with the self-custodian provisions of Rule 17f-2 under the 1940 Act.
State Street also serves as Transfer Agent for each series of the Trust pursuant to a transfer agency agreement (Transfer Agency Agreement).
Compensation. As compensation for their services provided under the SSGA Administration and Sub-Administration agreements, SSGA FM and State Street, respectively, shall receive fees for the services, calculated based on the average aggregate net assets of the Trust and SPDR Index Shares Funds, of 0.0225% on the first $12.5 billion and 0.0075% thereafter.
As compensation for its services under the Custodian Agreement and Transfer Agency Agreement, State Street shall receive a fee for its services, calculated based on the average aggregate net assets of the Trust and SPDR Index Shares Funds. Pursuant to the Custody Agreement, State Street shall receive 0.0025% on the first $50 billion, 0.0020% on the next $50 billion and 0.0010% thereafter. In addition, under the Custody Agreement State Street shall be entitled to fees for fund accounting services and shall receive 0.0150% for the first $12.5 billion and 0.0025% thereafter. State Street shall also be entitled to specialized custody, ETF accounting services and transfer agency fees and shall receive 0.0050% on the first $12.5 billion and 0.0030% thereafter. For each series of the Trust, a $110,000 annual minimum fee applies. The greater of the minimum fee or the asset based fee will be charged. In addition, State Street shall receive global safekeeping and transaction fees, which are calculated on a per-country basis, in-kind creation (purchase) and redemption transaction fees (as described below) and revenue on certain cash balances. State Street may be reimbursed by the series of the Trust for its out-of-pocket expenses. The Investment Advisory Agreement provides that the Adviser will pay certain operating expenses of the Trust, including the fees due to State Street under the Custodian Agreement and the Transfer Agency Agreement.
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THE DISTRIBUTOR
State Street Global Advisors Funds Distributors, LLC is the principal underwriter and Distributor of Shares. Prior to May 1, 2017, State Street Global Advisors Funds Distributors, LLC was known as State Street Global Markets, LLC. Its principal address is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111. Investor information can be obtained by calling 1-866-787-2257. The Distributor has entered into a distribution agreement (Distribution Agreement) with the Trust pursuant to which it distributes Shares of each Fund. The Distribution Agreement will continue for two years from its effective date and is renewable annually thereafter. Shares will be continuously offered for sale by the Trust through the Distributor only in Creation Units, as described in the Prospectus and below under Purchase and Redemption Of Creation Units. Shares in less than Creation Units are not distributed by the Distributor. The Distributor will deliver the Prospectus to persons purchasing Creation Units and will maintain records of both orders placed with it and confirmations of acceptance furnished by it. The Distributor is a broker-dealer registered under the Securities Exchange Act of 1934 (the Exchange Act) and a member of the Financial Industry Regulatory Authority (FINRA). The Distributor has no role in determining the investment policies of the Trust or which securities are to be purchased or sold by the Trust. An affiliate of the Distributor may assist Authorized Participants (as defined below) in assembling shares to purchase Creation Units or upon redemption, for which it may receive commissions or other fees from such Authorized Participants. An affiliate of the Distributor also receives compensation from State Street for providing on-line creation and redemption functionality to Authorized Participants through its Fund Connect application.
The Adviser or Distributor, or an affiliate of the Adviser or Distributor, may directly or indirectly make cash payments to certain broker-dealers for participating in activities that are designed to make registered representatives and other professionals more knowledgeable about exchange traded products, including the SPDR funds, or for other activities, such as participation in marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems. As of the date of this SAI, the Adviser and/or Distributor had arrangements to make payments, other than for the educational programs and marketing activities described above, only to Charles Schwab & Co., Inc. (Schwab), Pershing LLC (Pershing) and RBC Capital Markets, LLC (RBC). Pursuant to these arrangements, Schwab, Pershing and RBC have agreed to promote certain SPDR funds to their customers and not to charge certain of their customers any commissions when those customers purchase or sell shares of certain SPDR funds. Payments to a broker-dealer or intermediary may create potential conflicts of interest between the broker-dealer or intermediary and its clients. These amounts, which may be significant, are paid by the Adviser and/or Distributor from their own resources and not from Fund assets. In addition, the Adviser or Distributor, or an affiliate of the Adviser or Distributor, as well as an index provider that is not affiliated with the Adviser or Distributor, may also reimburse expenses or make payments from their own assets to other persons in consideration of services or other activities that they believe may benefit the SPDR business or facilitate investment in SPDR funds.
29
The Distribution Agreement provides that it may be terminated at any time, without the payment of any penalty, as to a Fund: (i) by vote of a majority of the Independent Trustees or (ii) by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, on at least 60 days written notice to the Distributor. The Distribution Agreement is also terminable upon 60 days notice by the Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The allocation among the Trusts series of fees and expenses payable under the Distribution Agreement will be made pro rata in accordance with the daily net assets of the respective series.
The Distributor may also enter into agreements with securities dealers (Soliciting Dealers) who will solicit purchases of Creation Unit aggregations of Shares. Such Soliciting Dealers may also be Participating Parties (as defined in the Book Entry Only System section below) and/or DTC Participants (as defined below).
Pursuant to the Distribution Agreement, the Trust has agreed to indemnify the Distributor, and may indemnify Soliciting Dealers and Authorized Participants (as described below) entering into agreements with the Distributor, for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its obligations and duties under the Distribution Agreement or other agreement, as applicable.
INDEX PROVIDER AND OTHER PERSONS
An unaffiliated index provider may make payments from its own assets to other persons in consideration for services provided or other activities that may facilitate investment in SPDR funds.
The policy of the Trust regarding purchases and sales of securities for each Fund is that primary consideration will be given to obtaining the most favorable prices and efficient executions of transactions. Consistent with this policy, when securities transactions are effected on a stock exchange, the Trusts policy is to pay commissions which are considered fair and reasonable without necessarily determining that the lowest possible commissions are paid in all circumstances. The Trust believes that a requirement always to seek the lowest possible commission cost could impede effective portfolio management and preclude a Fund and the Adviser from obtaining a high quality of brokerage and research services. In seeking to determine the reasonableness of brokerage commissions paid in any transaction, the Adviser relies upon its experience and knowledge regarding commissions generally charged by various brokers and on its judgment in evaluating the brokerage and research services received from the broker effecting the transaction. Such determinations are necessarily subjective and imprecise, as in most cases an exact dollar value for those services is not ascertainable. The Trust has adopted policies and procedures that prohibit the consideration of sales of a Funds Shares as a factor in the selection of a broker or dealer to execute its portfolio transactions.
In selecting a broker/dealer for each specific transaction, the Adviser chooses the broker/dealer deemed most capable of providing the services necessary to obtain the most favorable execution and does not take the sale of Shares into account. The Adviser considers the full range of brokerage services applicable to a particular transaction that may be considered when making this judgment, which may include, but is not limited to: liquidity, price, commission, timing, aggregated trades, capable floor brokers or traders, competent block trading coverage, ability to position, capital strength and stability, reliable and accurate communications and settlement processing, use of automation, knowledge of other buyers or sellers, arbitrage skills, administrative ability, underwriting and provision of information on a particular security or market in which the transaction is to occur. The specific criteria will vary depending upon the nature of the transaction, the market in which it is executed, and the extent to which it is possible to select from among multiple broker/dealers. The Adviser will also use electronic crossing networks when appropriate.
The Adviser does not currently use the Funds assets for, or participate in, third party soft dollar arrangements, although the Adviser may receive proprietary research from various full service brokers, the cost of which is bundled with the cost of the brokers execution services. The Adviser does not pay up for the value of any such proprietary research. The Adviser may aggregate trades with clients of SSGA, whose commission dollars may be used to generate soft dollar credits for SSGA. Although the Advisers clients commissions are not used for third party soft dollars, the Advisers and SSGAs clients may benefit from the soft dollar products/services received by SSGA.
The Adviser assumes general supervision over placing orders on behalf of the Trust for the purchase or sale of portfolio securities. If purchases or sales of portfolio securities of the Trust and one or more other investment companies or clients supervised by the Adviser are considered at or about the same time, transactions in such securities are allocated among the several investment companies and clients in a manner deemed equitable and consistent with its fiduciary obligations to all by the Adviser. In some cases, this procedure
30
could have a detrimental effect on the price or volume of the security so far as the Trust is concerned. However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate lower brokerage commissions will be beneficial to the Trust. The primary consideration is prompt execution of orders at the most favorable net price.
The Funds will not deal with affiliates in principal transactions unless permitted by exemptive order or applicable rule or regulation.
The table below shows the aggregate dollar amount of brokerage commissions paid by the Funds for the past three fiscal years ended June 30. Brokerage commissions paid by a Fund may be substantially different from year to year for multiple reasons, including market volatility and the demand for a particular Fund.
PORTFOLIO |
FISCAL YEAR
ENDED JUNE 30, 2017 |
FISCAL YEAR
ENDED JUNE 30, 2016 |
FISCAL YEAR
ENDED JUNE 30, 2015 |
|||||||||
SPDR SSGA US Large Cap Low Volatility Index ETF |
$ | [ | ] | $ | 3,271 | $ | 827 | |||||
SPDR SSGA US Small Cap Low Volatility Index ETF |
$ | [ | ] | $ | 6,348 | $ | 943 |
Securities of Regular Broker-Dealer. Each Fund is required to identify any securities of its regular brokers and dealers (as such term is defined in the 1940 Act) which it may hold at the close of its most recent fiscal year. Regular brokers or dealers of the Trust are the ten brokers or dealers that, during the most recent fiscal year: (i) received the greatest dollar amounts of brokerage commissions from the Trusts portfolio transactions; (ii) engaged as principal in the largest dollar amounts of portfolio transactions of the Trust; or (iii) sold the largest dollar amounts of the Trusts shares.
Holdings in Securities of Regular Broker-Dealers as of June 30, 2017:
[To be updated by subsequent amendment]
Portfolio turnover may vary from year to year, as well as within a year. High turnover rates are likely to result in comparatively greater brokerage expenses or transaction costs. [The portfolio turnover rate for each Fund is expected to be under 100%.] The overall reasonableness of brokerage commissions and transaction costs is evaluated by the Adviser based upon its knowledge of available information as to the general level of commissions and transaction costs paid by other institutional investors for comparable services.
The following information supplements and should be read in conjunction with the section in the Prospectus entitled ADDITIONAL PURCHASE AND SALE INFORMATION.
The Depository Trust Company (DTC) acts as securities depositary for the Shares. Shares of each Fund are represented by securities registered in the name of DTC or its nominee, Cede & Co., and deposited with, or on behalf of, DTC. Except in the limited circumstance provided below, certificates will not be issued for Shares.
DTC, a limited-purpose trust company, was created to hold securities of its participants (the DTC Participants) and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (NYSE) and the FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (the Indirect Participants).
Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as Beneficial Owners) is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of Shares.
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Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Trust and DTC, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of the Shares of each Fund held by each DTC Participant. The Trust, either directly or through a third party service, shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant. The Trust, either directly or through a third party service, shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant and/or third party service a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants accounts with payments in amounts proportionate to their respective beneficial interests in Shares of a Fund as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a street name, and will be the responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Although the Funds do not have information concerning their beneficial ownership held in the names of DTC Participants, as of [ ], 2017, the names, addresses and percentage ownership of each DTC Participant that owned of record 5% or more of the outstanding Shares of the Funds were as follows:
[To be updated by subsequent amendment]
An Authorized Participant (as defined below) may hold of record more than 25% of the outstanding Shares of a Fund. From time to time, Authorized Participants may be a beneficial and/or legal owner of a Fund, may be affiliated with an index provider, may be deemed to have control of the applicable Fund and/or may be able to affect the outcome of matters presented for a vote of the shareholders of the Fund. Authorized Participants may execute an irrevocable proxy granting the Distributor or another affiliate of State Street (the Agent) power to vote or abstain from voting such Authorized Participants beneficially or legally owned Shares of a Fund. In such cases, the Agent shall mirror vote (or abstain from voting) such Shares in the same proportion as all other beneficial owners of the Fund.
As of October [ ], 2017, to the knowledge of the Trust, the following persons held of record or beneficially through one or more accounts 25% or more of the outstanding shares of the Fund.
[To be updated by subsequent amendment]
[The Trustees and Officers of the Trust, as a group, own less than 1% of the Trusts voting securities as of the date of this SAI.]
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PURCHASE AND REDEMPTION OF CREATION UNITS
Each Fund issues and redeems its Shares on a continuous basis, at net asset value, only in a large specified number of Shares called a Creation Unit, either principally in-kind for securities included in the relevant Index or in cash for the value of such securities. The value of each Fund is determined once each business day, as described under Determination of Net Asset Value. The Creation Unit size for a Fund may change. Authorized Participants (as defined below) will be notified of such change. The principal consideration for creations and redemptions for each Fund is set forth in the table below:
FUND |
CREATION* | REDEMPTION* | ||||||
SPDR SSGA US Large Cap Low Volatility Index ETF |
In-Kind | In-Kind | ||||||
SPDR SSGA US Small Cap Low Volatility Index ETF |
In-Kind | In-Kind |
* | May be revised at any time without notice. |
PURCHASE (CREATION). The Trust issues and sells Shares of each Fund only: in Creation Units on a continuous basis through the Principal Underwriter, without a sales load (but subject to transaction fees), at their NAV per share next determined after receipt of an order, on any Business Day (as defined below), in proper form pursuant to the terms of the Authorized Participant Agreement (Participant Agreement). A Business Day with respect to a Fund is, generally, any day on which the NYSE is open for business.
FUND DEPOSIT. The consideration for purchase of a Creation Unit of a Fund generally consists of either (i) the in-kind deposit of a designated portfolio of securities (the Deposit Securities) per each Creation Unit constituting a substantial replication, or a portfolio sampling representation, of the securities included in the relevant Funds benchmark Index and the Cash Component (defined below), computed as described below or (ii) the cash value of the Deposit Securities (Deposit Cash) and Cash Component, computed as described below. When accepting purchases of Creation Units for cash, a Fund may incur additional costs associated with the acquisition of Deposit Securities that would otherwise be provided by an in-kind purchaser.
Together, the Deposit Securities or Deposit Cash, as applicable, and the Cash Component constitute the Fund Deposit, which represents the minimum initial and subsequent investment amount for a Creation Unit of a Fund. The Cash Component which may include a Dividend Equivalent Payment, is an amount equal to the difference between the net asset value of the Shares (per Creation Unit) and the market value of the Deposit Securities or Deposit Cash, as applicable. The Dividend Equivalent Payment enables a Fund to make a complete distribution of dividends on the day preceding the next dividend payment date, and is an amount equal, on a per Creation Unit basis, to the dividends on all the portfolio securities of the Fund (Dividend Securities) with ex-dividend dates within the accumulation period for such distribution (the Accumulation Period), net of expenses and liabilities for such period, as if all of the Dividend Securities had been held by the Fund for the entire Accumulation Period. The Accumulation Period begins on the ex-dividend date for each Fund and ends on the day preceding the next ex-dividend date. If the Cash Component is a positive number ( i.e. , the net asset value per Creation Unit exceeds the market value of the Deposit Securities or Deposit Cash, as applicable), the Cash Component shall be such positive amount. If the Cash Component is a negative number ( i.e. , the net asset value per Creation Unit is less than the market value of the Deposit Securities or Deposit Cash, as applicable), the Cash Component shall be such negative amount and the creator will be entitled to receive cash in an amount equal to the Cash Component. The Cash Component serves the function of compensating for any differences between the net asset value per Creation Unit and the market value of the Deposit Securities or Deposit Cash, as applicable. Computation of the Cash Component excludes any stamp duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Securities, if applicable, which shall be the sole responsibility of the Authorized Participant (as defined below).
The Custodian, through NSCC, makes available on each Business Day, immediately prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern time), the list of the names and the required number of shares of each Deposit Security or the required amount of Deposit Cash, as applicable, to be included in the current Fund Deposit (based on information at the end of the previous Business Day) for a Fund. Such Fund Deposit is subject to any applicable adjustments as described below, in order to effect purchases of Creation Units of a Fund until such time as the next-announced composition of the Deposit Securities or the required amount of Deposit Cash, as applicable, is made available.
The identity and number of shares of the Deposit Securities or the amount of Deposit Cash, as applicable, required for a Fund Deposit for a Fund changes as rebalancing adjustments, interest payments and corporate action events are reflected from time to time by the Adviser with a view to the investment objective of the Fund. Information regarding the Fund Deposit necessary for the purchase of a Creation Unit is made available to Authorized Participants and other market participants seeking to transact in Creation Unit aggregations. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the component securities of a Funds Index.
As noted above, the Trust reserves the right to permit or require the substitution of Deposit Cash to replace any Deposit Security, which shall be added to the Cash Component, including, without limitation, in situations where the Deposit Security: (i) may not be available in sufficient quantity for delivery, (ii) may not be eligible for transfer through the systems of DTC for corporate securities and municipal securities or the Federal Reserve System for U.S. Treasury securities; (iii) may not be eligible for trading by an Authorized Participant (as defined below) or the investor for which it is acting; (iv) would be restricted under the securities laws or where the delivery of the Deposit Security to the Authorized Participant would result in the disposition of the Deposit Security by the
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Authorized Participant becoming restricted under the securities laws, or (v) in certain other situations (collectively, non-standard orders). The Trust also reserves the right to: (i) permit or require the substitution of Deposit Securities in lieu of Deposit Cash; and (ii) include or remove Deposit Securities from the basket in anticipation of index rebalancing changes. The adjustments described above will reflect changes, known to the Adviser on the date of announcement to be in effect by the time of delivery of the Fund Deposit, in the composition of the subject Index being tracked by the relevant Fund or resulting from certain corporate actions.
PROCEDURES FOR PURCHASE OF CREATION UNITS. To be eligible to place orders with the Principal Underwriter, as facilitated via the Transfer Agent, to purchase a Creation Unit of a Fund, an entity must be (i) a Participating Party, i.e. , a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the NSCC (the Clearing Process), a clearing agency that is registered with the SEC; or (ii) a DTC Participant (see BOOK ENTRY ONLY SYSTEM). In addition, each Participating Party or DTC Participant (each, an Authorized Participant) must execute a Participant Agreement that has been agreed to by the Principal Underwriter and the Transfer Agent, and that has been accepted by the Trust, with respect to purchases and redemptions of Creation Units. Each Authorized Participant will agree, pursuant to the terms of a Participant Agreement, on behalf of itself or any investor on whose behalf it will act, to certain conditions, including that it will pay to the Trust, an amount of cash sufficient to pay the Cash Component together with the creation transaction fee (described below) and any other applicable fees, taxes and additional variable charge.
All orders to purchase Shares directly from a Fund, including non-standard orders, must be placed for one or more Creation Units and in the manner and by the time set forth in the Participant Agreement and/or the applicable order form. The date on which an order to purchase Creation Units (or an order to redeem Creation Units, as set forth below) is received and accepted is referred to as the Order Placement Date.
An Authorized Participant may require an investor to make certain representations or enter into agreements with respect to the order ( e.g. , to provide for payments of cash, when required). Investors should be aware that their particular broker may not have executed a Participant Agreement and that, therefore, orders to purchase Shares directly from a Fund in Creation Units have to be placed by the investors broker through an Authorized Participant that has executed a Participant Agreement. In such cases there may be additional charges to such investor. At any given time, there may be only a limited number of broker-dealers that have executed a Participant Agreement and only a small number of such Authorized Participants may have international capabilities.
On days when the Exchange or the bond markets close earlier than normal, a Fund may require orders to create Creation Units to be placed earlier in the day. In addition, if a market or markets on which a Funds investments are primarily traded is closed, the Fund will also generally not accept orders on such day(s). Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement and in accordance with the applicable order form. Those placing orders through an Authorized Participant should allow sufficient time to permit proper submission of the purchase order by the cut-off time on such Business Day. Economic or market disruptions or changes, or telephone or other communication failure may impede the ability to reach the Distributor or an Authorized Participant.
Fund Deposits must be delivered by an Authorized Participant through the Federal Reserve System (for cash and U.S. government securities), or through DTC (for corporate securities and municipal securities), through a subcustody agent (for foreign securities) and/or through such other arrangements allowed by the Trust or its agents. With respect to foreign Deposit Securities, the Custodian shall cause the subcustodian of a Fund to maintain an account into which the Authorized Participant shall deliver, on behalf of itself or the party on whose behalf it is acting, such Deposit Securities. Foreign Deposit Securities must be delivered to an account maintained at the applicable local subcustodian. The Fund Deposit transfer must be ordered by the Authorized Participant in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities or Deposit Cash, as applicable, to the account of a Fund or its agents by no later than the Settlement Date. The Settlement Date for a Fund is generally the third Business Day after the Order Placement Date. Effective September 5, 2017, consistent with the SECs adoption of a rule amendment shortening the standard settlement cycle for most broker-dealer transactions, the Settlement Date for a Fund will generally be the second Business Day (T+2) after the Order Placement Date. All questions as to the number of Deposit Securities or Deposit Cash to be delivered, as applicable, and the validity, form and eligibility (including time of receipt) for the deposit of any tendered securities or cash, as applicable, will be determined by the Trust, whose determination shall be final and binding. The amount of cash represented by the Cash Component must be transferred directly to the Custodian through the Federal Reserve Bank wire transfer system in a timely manner so as to be received by the Custodian no later than the Settlement Date. If the Cash Component and the Deposit Securities or Deposit Cash, as applicable, are not received in a timely manner by the Settlement Date, the creation order may be cancelled. Upon written notice to the Distributor, such canceled order may be resubmitted the following Business Day using a Fund Deposit as newly constituted to reflect the then current NAV of the Fund. The delivery of Creation Units so created generally will occur no later than the third Business Day (second Business Day for orders dated on or after September 5, 2017) following the day on which the purchase order is deemed received by the Distributor.
The order shall be deemed to be received on the Business Day on which the order is placed provided that the order is placed in proper form prior to the applicable cut-off time and the federal funds in the appropriate amount are deposited by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions), with the Custodian on the Settlement Date. If the order is not placed in proper form as
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required, or federal funds in the appropriate amount are not received by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions) on the Settlement Date, then the order may be deemed to be rejected and the Authorized Participant shall be liable to the Fund for losses, if any, resulting therefrom. A creation request is considered to be in proper form if all procedures set forth in the Participant Agreement, order form and this SAI are properly followed.
ISSUANCE OF A CREATION UNIT. Except as provided herein, Creation Units will not be issued until the transfer of good title to the Trust of the Deposit Securities or payment of Deposit Cash, as applicable, and the payment of the Cash Component have been completed. When the subcustodian has confirmed to the Custodian that the required Deposit Securities (or the cash value thereof) have been delivered to the account of the relevant subcustodian or subcustodians, the Principal Underwriter and the Adviser shall be notified of such delivery, and the Trust will issue and cause the delivery of the Creation Units.
In instances where the Trust accepts Deposit Securities for the purchase of a Creation Unit, the Creation Unit may be purchased in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities as described below. In these circumstances, the initial deposit will have a value greater than the net asset value of the Shares on the date the order is placed in proper form since in addition to available Deposit Securities, cash must be deposited in an amount equal to the sum of (i) the Cash Component, plus (ii) an additional amount of cash equal to a percentage of the market value as set forth in the Participant Agreement, of the undelivered Deposit Securities (the Additional Cash Deposit), which shall be maintained in a general non-interest bearing collateral account. An additional amount of cash shall be required to be deposited with the Trust, pending delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to the applicable percentage, as set forth in the Participant Agreement, of the daily marked to market value of the missing Deposit Securities. The Trust may use such Additional Cash Deposit to buy the missing Deposit Securities at any time. Authorized Participants will be liable to the Trust for all costs, expenses, dividends, income and taxes associated with missing Deposit Securities, including the costs incurred by the Trust in connection with any such purchases. These costs will be deemed to include the amount by which the actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the day the purchase order was deemed received by the Principal Underwriter plus the brokerage and related transaction costs associated with such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit Securities have been properly received by the Custodian or purchased by the Trust and deposited into the Trust. In addition, a transaction fee as set forth below under Creation Transaction Fees will be charged in all cases and an additional variable charge may also be applied. The delivery of Creation Units so created generally will occur no later than the Settlement Date.
ACCEPTANCE OF ORDERS OF CREATION UNITS. The Trust reserves the absolute right to reject an order for Creation Units transmitted in respect of a Fund at its discretion, including, without limitation, if (a) the order is not in proper form; (b) the Deposit Securities or Deposit Cash, as applicable, delivered by the Participant are not as disseminated through the facilities of the NSCC for that date by the Custodian; (c) the investor(s), upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares of the Fund; (d) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (e) the acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance of the Fund Deposit would otherwise, in the discretion of the Trust or the Adviser, have an adverse effect on the Trust or the rights of beneficial owners; (g) the acceptance or receipt of the order for a Creation Unit would, in the opinion of counsel to the Trust, be unlawful; or (h) in the event that circumstances outside the control of the Trust, the Custodian, the Transfer Agent and/or the Adviser make it for all practical purposes not feasible to process orders for Creation Units. Examples of such circumstances include acts of God or public service or utility problems such as fires, floods, extreme weather conditions and power outages resulting in telephone, telecopy and computer failures; market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the Trust, the Principal Underwriter, the Custodian, the Transfer Agent, DTC, NSCC, Federal Reserve System, or any other participant in the creation process, and other extraordinary events. The Trust or its agents shall communicate to the Authorized Participant its rejection of an order. The Trust, the Transfer Agent, the Custodian and the Principal Underwriter are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall either of them incur any liability for the failure to give any such notification. The Trust, the Transfer Agent, the Custodian and the Principal Underwriter shall not be liable for the rejection of any purchase order for Creation Units.
All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trusts determination shall be final and binding.
REDEMPTION. Shares may be redeemed only in Creation Units at their net asset value next determined after receipt of a redemption request in proper form by a Fund through the Transfer Agent and only on a Business Day. EXCEPT UPON LIQUIDATION OF A FUND, THE TRUST WILL NOT REDEEM SHARES IN AMOUNTS LESS THAN CREATION UNITS. Investors must accumulate enough Shares in the secondary market to constitute a Creation Unit in order to have such Shares redeemed by the Trust. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation Unit. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Shares to constitute a redeemable Creation Unit.
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With respect to each Fund, the Custodian, through the NSCC, makes available immediately prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern time) on each Business Day, the list of the names and share quantities of each Funds portfolio securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day (Fund Securities). Fund Securities received on redemption may not be identical to Deposit Securities.
Redemption proceeds for a Creation Unit are paid either in-kind or in cash, or a combination thereof, as determined by the Trust. With respect to in-kind redemptions of a Fund, redemption proceeds for a Creation Unit will consist of Fund Securities as announced by the Custodian on the Business Day of the request for redemption received in proper form plus cash in an amount equal to the difference between the net asset value of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities (the Cash Redemption Amount), less a fixed redemption transaction fee and any applicable additional variable charge as set forth below. In the event that the Fund Securities have a value greater than the net asset value of the Shares, a compensating cash payment equal to the differential is required to be made by or through an Authorized Participant by the redeeming shareholder. Notwithstanding the foregoing, the Trusts discretion, an Authorized Participant may receive the corresponding cash value of the securities in lieu of the in-kind securities value representing one or more Fund Securities.
PROCEDURES FOR REDEMPTION OF CREATION UNITS. After the Trust has deemed an order for redemption received, the Trust will initiate procedures to transfer the requisite Fund Securities and the Cash Redemption Amount to the Authorized Participant by the Settlement Date. With respect to in-kind redemptions of a Fund, the calculation of the value of the Fund Securities and the Cash Redemption Amount to be delivered upon redemption will be made by the Custodian according to the procedures set forth under Determination of Net Asset Value, computed on the Business Day on which a redemption order is deemed received by the Trust. Therefore, if a redemption order in proper form is submitted to the Principal Underwriter by a DTC Participant by the specified time on the Order Placement Date, and the requisite number of Shares of a Fund are delivered to the Custodian prior to 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions) on the Settlement Date, then the value of the Fund Securities and the Cash Redemption Amount to be delivered will be determined by the Custodian on such Order Placement Date. If the requisite number of Shares of the Fund are not delivered by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions) on the Settlement Date, the Fund will not release the underlying securities for delivery unless collateral is posted in such percentage amount of missing Shares as set forth in the Participant Agreement (marked to market daily).
With respect to in kind redemptions of a Fund, in connection with taking delivery of shares of Fund Securities upon redemption of Creation Units, an Authorized Participant must maintain appropriate custody arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the Fund Securities are customarily traded (or such other arrangements as allowed by the Trust or its agents), to which account such Fund Securities will be delivered. Deliveries of redemption proceeds generally will be made within three Business Days (two Business Days for orders dated on or after September 5, 2017) of the trade date. Due to the schedule of holidays in certain countries, however, the delivery of in-kind redemption proceeds may take longer than three Business Days (two Business Days for orders dated on or after September 5, 2017) after the day on which the redemption request is received in proper form. The section below entitled Local Market Holiday Schedules identifies the instances where more than seven days would be needed to deliver redemption proceeds. Pursuant to an order of the SEC, in respect of each Fund, the Trust will make delivery of in-kind redemption proceeds within the number of days stated in the Local Market Holidays section to be the maximum number of days necessary to deliver redemption proceeds. If the Authorized Participant has not made appropriate arrangements to take delivery of the Fund Securities in the applicable foreign jurisdiction and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Fund Securities in such jurisdiction, the Trust may, in its discretion, exercise its option to redeem such Shares in cash, and the Authorized Participant will be required to receive its redemption proceeds in cash.
If it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Fund Securities, the Trust may in its discretion exercise its option to redeem such Shares in cash, and the redeeming investor will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash that a Fund may, in its sole discretion, permit. In either case, the investor will receive a cash payment equal to the NAV of its Shares based on the NAV of Shares of the relevant Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee and additional charge for requested cash redemptions specified above, to offset the Trusts brokerage and other transaction costs associated with the disposition of Fund Securities). A Fund may also, in its sole discretion, upon request of a shareholder, provide such redeemer a portfolio of securities that differs from the exact composition of the Fund Securities but does not differ in net asset value.
An Authorized Participant submitting a redemption request is deemed to represent to the Trust that, as of the close of that Business Day, it (or its client) will own (within the meaning of Rule 200 of Regulation SHO) or has arranged to borrow for delivery to the Trust on or prior to the settlement date of the redemption request, the requisite number of Shares of the relevant Fund to be redeemed as a Creation Unit. In either case, the Authorized Participant is deemed to acknowledge that: (i) it (or its client) has full legal authority and legal right to tender for redemption the requisite number of Shares of the applicable Fund and to receive the entire proceeds of the redemption; and (ii) if such Shares submitted for redemption have been loaned or pledged to another party or are the subject of a
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repurchase agreement, securities lending agreement or any other arrangement affecting legal or beneficial ownership of such Shares being tendered, there are no restrictions precluding the tender and delivery of such Shares (including borrowed shares, if any) for redemption, free and clear of liens, on the redemption settlement date. The Trust reserves the right to verify these representations at its discretion, but will typically require verification with respect to a redemption request from a Fund in connection with higher levels of redemption activity and/or short interest in the Fund. If the Authorized Participant, upon receipt of a verification request, does not provide sufficient verification of its representations as determined by the Trust, the redemption request will not be considered to have been received in proper form and may be rejected by the Trust.
Redemptions of Shares for Fund Securities will be subject to compliance with applicable federal and state securities laws and each Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Trust could not lawfully deliver specific Fund Securities upon redemptions or could not do so without first registering the Fund Securities under such laws. An Authorized Participant or an investor for which it is acting subject to a legal restriction with respect to a particular security included in the Fund Securities applicable to the redemption of Creation Units may be paid an equivalent amount of cash. The Authorized Participant may request the redeeming investor of the Shares to complete an order form or to enter into agreements with respect to such matters as compensating cash payment. Further, an Authorized Participant that is not a qualified institutional buyer, (QIB) as such term is defined under Rule 144A of the Securities Act, will not be able to receive Fund Securities that are restricted securities eligible for resale under Rule 144A. An Authorized Participant may be required by the Trust to provide a written confirmation with respect to QIB status in order to receive Fund Securities.
The right of redemption may be suspended or the date of payment postponed with respect to a Fund (1) for any period during which the Exchange is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the Exchange is suspended or restricted; (3) for any period during which an emergency exists as a result of which disposal of the Shares of the Fund or determination of the NAV of the Shares is not reasonably practicable; or (4) in such other circumstance as is permitted by the SEC.
REQUIRED EARLY ACCEPTANCE OF ORDERS. Notwithstanding the foregoing, as described in the Participant Agreement and/or applicable order form, certain series of the Trust may require orders to be placed up to one or more Business Days prior to the trade date, as described in the Participant Agreement or the applicable order form, in order to receive the trade dates net asset value. Orders to purchase shares of such funds that are submitted on the Business Day immediately preceding a holiday or a day (other than a weekend) that the equity markets in the relevant foreign market are closed may not be accepted. Authorized Participants may be notified that the cut-off time for an order may be earlier on a particular Business Day, as described in the Participant Agreement and the applicable order form.
CREATION AND REDEMPTION TRANSACTION FEES. A transaction fee, as set forth in the table below, is imposed for the transfer and other transaction costs associated with the purchase or redemption of Creation Units, as applicable. Authorized Participants will be required to pay a fixed creation transaction fee and/or a fixed redemption transaction fee, as applicable, on a given day regardless of the number of Creation Units created or redeemed on that day. A Fund may adjust the transaction fee from time to time. An additional charge or a variable charge (discussed below) will be applied to certain creation and redemption transactions, including non-standard orders and whole or partial cash purchases or redemptions. With respect to creation orders, Authorized Participants are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Trust and with respect to redemption orders, Authorized Participants are responsible for the costs of transferring the Fund Securities from the Trust to their account or on their order. Investors who use the services of a broker or other such intermediary may also be charged a fee for such services.
Creation and Redemption Transaction Fees:
FUND |
TRANSACTION
FEE*, ** |
MAXIMUM
TRANSACTION FEE*, ** |
||||||
SPDR SSGA US Large Cap Low Volatility Index ETF |
$ | 250 | $ | 1,000 | ||||
SPDR SSGA US Small Cap Low Volatility Index ETF |
$ | 300 | $ | 1,200 |
* | From time to time, a Fund may waive all or a portion of its applicable transaction fee(s). An additional charge of up to three (3) times the standard transaction fee may be charged to the extent a transaction is outside of the clearing process. |
** | In addition to the transaction fees listed above, the Funds may charge an additional variable fee for creations and redemptions in cash to offset brokerage and impact expenses associated with the cash transaction. The variable transaction fee will be calculated based on historical transaction cost data and the Advisers view of current market conditions; however, the actual variable fee charged for a given transaction may be lower or higher than the trading expenses incurred by a Fund with respect to that transaction. |
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DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with the sections in the Prospectus entitled PURCHASE AND SALE INFORMATION and ADDITIONAL PURCHASE AND SALE INFORMATION.
Net asset value per Share for each Fund is computed by dividing the value of the net assets of the Fund ( i.e. , the value of its total assets less total liabilities) by the total number of Shares outstanding. Expenses and fees, including the management fees, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of each Fund is calculated by State Street and determined once daily as of the close of the regular trading session on the NYSE (ordinarily 4:00 p.m. Eastern time) on each day that such exchange is open. Fixed-income assets are generally valued as of the announced closing time for trading in fixed-income instruments in a particular market or exchange. Creation/redemption order cut-off times may be earlier on any day that the Securities Industry and Financial Markets Association (or applicable exchange or market on which a Funds investments are traded) announces an early closing time. Any assets or liabilities denominated in currencies other than the U.S. dollar are converted into U.S. dollars at market rates on the date of valuation (generally as of 4:00 p.m. London time) as quoted by one or more sources.
In calculating a Funds net asset value per Share, the Funds investments are generally valued using market valuations. A market valuation generally means a valuation (i) obtained from an exchange, a pricing service, or a major market maker (or dealer), (ii) based on a price quotation or other equivalent indication of value supplied by an exchange, a pricing service, or a major market maker (or dealer) or (iii) based on amortized cost. A Fund relies on a third-party service provider for assistance with the daily calculation of the Funds NAV. The third-party service provider, in turn, relies on other parties for certain pricing data and other inputs used in the calculation of the Funds NAV. Therefore, a Fund is subject to certain operational risks associated with reliance on its service provider and that service providers sources of pricing and other data. NAV calculation may be adversely affected by operational risks arising from factors such as errors or failures in systems and technology. Such errors or failures may result in inaccurately calculated NAVs, delays in the calculation of NAVs and/or the inability to calculate NAV over extended time periods. A Fund may be unable to recover any losses associated with such failures. In the case of shares of other funds that are not traded on an exchange, a market valuation means such funds published net asset value per share. The Adviser may use various pricing services, or discontinue the use of any pricing service, as approved by the Board from time to time. A price obtained from a pricing service based on such pricing services valuation matrix may be considered a market valuation.
In the event that current market valuations are not readily available or are deemed unreliable, the Trusts procedures require the Oversight Committee to determine a securitys fair value if a market price is not readily available. In determining such value the Oversight Committee may consider, among other things, (i) price comparisons among multiple sources, (ii) a review of corporate actions and news events, and (iii) a review of relevant financial indicators ( e.g. , movement in interest rates, market indices, and prices from each Funds Index Provider). In these cases, the Funds net asset value may reflect certain portfolio securities fair values rather than their market prices. The fair value of a portfolio instrument is generally the price which a Fund might reasonably expect to receive upon its current sale in an orderly market between market participants. Ascertaining fair value requires a determination of the amount that an arms-length buyer, under the circumstances, would currently pay for the portfolio instrument. Fair value pricing involves subjective judgments and it is possible that the fair value determination for a security is materially different than the value that could be realized upon the sale of the security. In addition, fair value pricing could result in a difference between the prices used to calculate a Funds net asset value and the prices used by the Funds benchmark Index. This may result in a difference between the Funds performance and the performance of the applicable Funds benchmark Index. With respect to securities that are primarily listed on foreign exchanges, the value of a Funds portfolio securities may change on days when you will not be able to purchase or sell your Shares.
The following information supplements and should be read in conjunction with the section in the Prospectus entitled DISTRIBUTIONS.
GENERAL POLICIES
Dividends from net investment income, if any, are generally declared and paid quarterly by each Fund, but may vary significantly from period to period. Distributions of net realized securities gains, if any, generally are declared and paid once a year, but the Trust may make distributions on a more frequent basis for a Fund to improve index tracking or to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the 1940 Act.
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Dividends and other distributions on Shares are distributed, as described below, on a pro rata basis to Beneficial Owners of such Shares. Dividend payments are made through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received from the Trust.
Management of the Trust reserves the right to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve a Funds eligibility for treatment as a regulated investment company (RIC) under the Internal Revenue Code or to avoid imposition of income or excise taxes at the Fund level.
DIVIDEND REINVESTMENT
Broker dealers, at their own discretion, may offer a dividend reinvestment service under which Shares are purchased in the secondary market at current market prices. Investors should consult their broker dealer for further information regarding any dividend reinvestment service offered by such broker dealer.
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The following is a summary of certain federal income tax considerations generally affecting the Funds and their shareholders that supplements the discussions in the Prospectus. No attempt is made to present a comprehensive explanation of the federal, state, local or foreign tax treatment of the Funds or their shareholders, and the discussion here and in the Prospectus is not intended to be a substitute for careful tax planning.
The following general discussion of certain federal income tax consequences is based on the Internal Revenue Code and the regulations issued thereunder as in effect on the date of this SAI. New legislation, as well as administrative changes or court decisions, may significantly change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein.
The following information should be read in conjunction with the section in the Prospectus entitled ADDITIONAL TAX INFORMATION.
TAXATION OF THE FUNDS. Each Fund is treated as a separate corporation for federal income tax purposes. A Fund therefore is considered to be a separate entity in determining its treatment under the rules for RICs described herein and in the Prospectus. Losses in one series of the Trust do not offset gains in any other series of the Trust and the requirements (other than certain organizational requirements) for qualifying for treatment as a RIC are determined at the Fund level rather than at the Trust level. Each Fund has elected or will elect and intends to qualify each year to be treated as a separate RIC under Subchapter M of the Internal Revenue Code. As such, each Fund should not be subject to federal income tax on its net investment income and capital gains, if any, to the extent that it timely distributes such income and capital gains to its shareholders. In order to qualify for treatment as a RIC, a Fund must distribute annually to its shareholders at least the sum of 90% of its taxable net investment income (generally including the excess of net short-term capital gains over net long-term capital losses) and 90% of its net tax exempt interest income, if any (the Distribution Requirement) and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of the Funds gross income each taxable year must be derived from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly traded partnerships (the Qualifying Income Requirement); and (ii) at the end of each quarter of the Funds taxable year, its assets must be diversified so that (a) at least 50% of the market value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited, in respect to any one issuer, to an amount not greater in value than 5% of the value of the Funds total assets and to not more than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its total assets is invested in the securities (other than U.S. government securities or securities of other RICs) of any one issuer, the securities (other than securities of other RICs) of two or more issuers that it controls and that are engaged in the same, similar, or related trades or businesses, or the securities of one or more qualified publicly traded partnerships (the Diversification Requirement).
If a Fund fails to satisfy the Qualifying Income Requirement or the Diversification Requirement in any taxable year, the Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures of the Diversification Requirement where the Fund corrects the failure within a specified period of time. In order to be eligible for the relief provisions with respect to a failure to meet the Diversification Requirement, a Fund may be required to dispose of certain assets. If these relief provisions were not available to a Fund and it were to fail to qualify for treatment as a RIC for a taxable year, all of its taxable income would be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and its distributions (including capital gains distributions) generally would be taxable as ordinary income dividends to its shareholders, subject to the dividends-received deduction for corporate shareholders and the lower tax rates on qualified dividend income received by noncorporate shareholders. To requalify for treatment as a RIC in a subsequent taxable year, the Fund would be required to satisfy the RIC qualification requirements for that year and to distribute any earnings and profits from any year in which the Fund failed to qualify for tax treatment as a RIC. If a Fund failed to qualify as a RIC for a period greater than two taxable years, it would generally be required to pay a Fund-level tax on certain net built-in gains recognized with respect to certain of its assets upon a disposition of such assets within ten years of qualifying as a RIC in a subsequent year. The Board reserves the right not to maintain the qualification of a Fund for treatment as a RIC if it determines such course of action to be beneficial to shareholders.
[Each Fund intends to distribute substantially all of its net investment income and its capital gains for each taxable year.]
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If a Fund meets the Distribution Requirement but retains some or all of its income or gains, it will be subject to federal income tax to the extent any such income or gains are not distributed. A Fund may designate certain amounts retained as undistributed net capital gain in a notice to its shareholders, who (i) will be required to include in income for U.S. federal income tax purposes, as long-term capital gain, their proportionate shares of the undistributed amount so designated, (ii) will be entitled to credit their proportionate shares of the income tax paid by the Fund on that undistributed amount against their federal income tax liabilities and to claim refunds to the extent such credits exceed their liabilities and (iii) will be entitled to increase their tax basis, for federal income tax purposes, in their Shares by an amount equal to the excess of the amount of undistributed net capital gain included in their respective income over their respective income tax credits. If a Fund failed to satisfy the Distribution Requirement for any taxable year, it would be taxed as a regular corporation, with consequences generally similar to those described in the preceding paragraph.
A Fund will be subject to a 4% excise tax on certain undistributed income if it does not distribute to its shareholders in each calendar year an amount at least equal to 98% of its ordinary income for the calendar year plus 98.2% of its capital gain net income for the twelve months ended October 31 of such year, subject to an increase for any shortfall in the prior years distribution. Each Fund intends to declare and distribute dividends and distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax.
A Fund may elect to treat part or all of any qualified late year loss as if it had been incurred in the succeeding taxable year in determining the Funds taxable income, net capital gain, net short-term capital gain, and earnings and profits. The effect of this election is to treat any such qualified late year loss as if it had been incurred in the succeeding taxable year in characterizing Fund distributions for any calendar year. A qualified late year loss generally includes net capital loss, net long-term capital loss, or net short-term capital loss incurred after October 31 of the current taxable year (commonly referred to as post-October losses) and certain other late-year losses.
Capital losses in excess of capital gains (net capital losses) are not permitted to be deducted against a RICs net investment income. Instead, for U.S. federal income tax purposes, potentially subject to certain limitations, a Fund may carry a net capital loss from any taxable year forward indefinitely to offset its capital gains, if any, in years following the year of the loss. To the extent subsequent capital gains are offset by such losses, they will not result in U.S. federal income tax liability to the Fund and may not be distributed as capital gains to its shareholders. Generally, the Funds may not carry forward any losses other than net capital losses.
TAXATION OF SHAREHOLDERSDISTRIBUTIONS. Each Fund intends to distribute annually to its shareholders substantially all of its investment company taxable income (computed without regard to the deduction for dividends paid), its net tax-exempt income, if any, and any net capital gain (net recognized long-term capital gains in excess of net recognized short-term capital losses, taking into account any capital loss carryforwards). Each Fund will report to shareholders annually the amounts of dividends paid from ordinary income, the amount of distributions of net capital gain, the portion of dividends which may qualify for the dividends-received deduction, the portion of dividends which may qualify for treatment as qualified dividend income.
Subject to certain limitations, dividends reported by a Fund as qualified dividend income will be taxable to noncorporate shareholders at rates of up to 20%. Dividends may be reported by a Fund as qualified dividend income if they are attributable to qualified dividend income received by the Fund. Qualified dividend income includes, in general, subject to certain holding period requirements and other requirements, dividend income from certain U.S. and foreign corporations. Subject to certain limitations, eligible foreign corporations include those incorporated in possessions of the United States, those incorporated in certain countries with comprehensive tax treaties with the United States and other foreign corporations if the stock with respect to which the dividends are paid is tradable on an established securities market in the United States. A dividend generally will not be treated as qualified dividend income to the extent that (i) the shareholder has not held the stock on which the dividend was paid for more than 60 days during the 121-day period that begins on the date that is 60 days before the date on which the stock becomes ex-dividend with respect to such dividend or, in the case of certain preferred stock, for more than 90 days during the 181-day period beginning 90 days before such date, (ii) the shareholder is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to substantially similar or related property, or (iii) the shareholder elects to treat such dividend as investment income under section 163(d)(4)(B) of the Internal Revenue Code. The holding period requirements described in this paragraph apply to the shareholders investments in the Funds and to the Funds investments in underlying dividend-paying stocks. Dividends received by a Fund from a REIT or another RIC may be treated as qualified dividend income generally only to the extent the dividend distributions are attributable to qualified dividend income received by such REIT or RIC. It is expected that any dividends received by a Fund from a REIT and distributed by that Fund to a shareholder generally will be taxable to the shareholder as ordinary income. If 95% or more of a Funds gross income (calculated without taking into account net capital gain derived from sales or other dispositions of stock or securities) consists of qualified dividend income, that Fund may report all distributions of such income as qualified dividend income.
Certain dividends received by a Fund from U.S. corporations (generally, dividends received in respect of any share of stock (1) with a tax holding period of at least 46 days during the 91-day period beginning on the date that is 45 days before the date on which the stock becomes ex-dividend as to that dividend and (2) that is held in an unleveraged position) when distributed and appropriately so reported
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by the Fund may be eligible for the 70% dividends-received deduction generally available to corporations under the Internal Revenue Code. In order to qualify for the deduction, corporate shareholders must meet the minimum holding period requirement stated above with respect to their Shares, taking into account any holding period reductions from certain hedging or other transactions or positions that diminish their risk of loss with respect to their Shares, and, if they borrow to acquire or otherwise incur debt attributable to Shares, they may be denied a portion of the dividends-received deduction with respect to those Shares. The entire dividend, including the otherwise deductible amount, will be included in determining the excess, if any, of a corporations adjusted current earnings over its alternative minimum taxable income, which may increase a corporations alternative minimum tax liability. Any corporate shareholder should consult its tax adviser regarding the possibility that its tax basis in its Shares may be reduced, for U.S. federal income tax purposes, by reason of extraordinary dividends received with respect to the Shares and, to the extent such basis would be reduced below zero, current recognition of income may be required.
Distributions from a Funds net short-term capital gains will generally be taxable to shareholders as ordinary income. Distributions from a Funds net capital gain will be taxable to shareholders at long-term capital gains rates, regardless of how long shareholders have held their Shares. Long-term capital gains are generally taxed to noncorporate shareholders at rates of up to 20%.
Although dividends generally will be treated as distributed when paid, any dividend declared by a Fund in October, November or December and payable to shareholders of record in such a month that is paid during the following January will be treated for U.S. federal income tax purposes as received by shareholders on December 31 of the calendar year in which it was declared.
If a Funds distributions exceed its earnings and profits, all or a portion of the distributions made in the taxable year may be treated as a return of capital to shareholders. A return of capital distribution generally will not be taxable but will reduce the shareholders cost basis and result in a higher capital gain or lower capital loss when the Shares on which the distribution was received are sold. After a shareholders basis in the Shares has been reduced to zero, distributions in excess of earnings and profits will be treated as gain from the sale of the shareholders Shares.
Distributions that are reinvested in additional Shares of a Fund through the means of a dividend reinvestment service, if offered by your broker-dealer, will nevertheless be taxable dividends to the same extent as if such dividends had been received in cash.
A 3.8% Medicare contribution tax generally applies to all or a portion of the net investment income of a shareholder who is an individual and not a nonresident alien for federal income tax purposes and who has adjusted gross income (subject to certain adjustments) that exceeds a threshold amount ($250,000 if married filing jointly or if considered a surviving spouse for federal income tax purposes, $125,000 if married filing separately, and $200,000 in other cases). This 3.8% tax also applies to all or a portion of the undistributed net investment income of certain shareholders that are estates and trusts. For these purposes, interest, dividends, and certain capital gains (generally including capital gain distributions and capital gains realized on the sale of Shares) are generally taken into account in computing a shareholders net investment income.
Distributions of ordinary income and capital gains may also be subject to foreign, state and local taxes depending on a shareholders circumstances.
TAXATION OF SHAREHOLDERS SALE OF SHARES. In general, a sale of Shares results in capital gain or loss, and for individual shareholders, is taxable at a federal rate dependent upon the length of time the Shares were held. A sale of Shares held for a period of one year or less at the time of such sale will, for tax purposes, generally result in short-term capital gains or losses, and a sale of those held for more than one year will generally result in long-term capital gains or losses. Long-term capital gains are generally taxed to noncorporate shareholders at rates of up to 20%.
Gain or loss on the sale of Shares is measured by the difference between the amount received and the adjusted tax basis of the Shares. Shareholders should keep records of investments made (including Shares acquired through reinvestment of dividends and distributions) so they can compute the tax basis of their Shares.
A loss realized on a sale of Shares may be disallowed if substantially identical Shares are acquired (whether through the reinvestment of dividends or otherwise) within a sixty-one (61) day period beginning thirty (30) days before and ending thirty (30) days after the date that the Shares are disposed of. In such a case, the basis of the Shares acquired must be adjusted to reflect the disallowed loss. Any loss upon the sale of Shares held for six (6) months or less is treated as long-term capital loss to the extent of any amounts treated as distributions to the shareholder of long-term capital gain (including any amounts credited to the shareholder as undistributed capital gains).
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COST BASIS REPORTING. The cost basis of Shares acquired by purchase will generally be based on the amount paid for the Shares and then may be subsequently adjusted for other applicable transactions as required by the Internal Revenue Code. The difference between the selling price and the cost basis of Shares generally determines the amount of the capital gain or loss realized on the sale or exchange of Shares. Contact the broker through whom you purchased your Shares to obtain information with respect to the available cost basis reporting methods and elections for your account.
TAXATION OF FUND INVESTMENTS. Dividends and interest received by a Fund on foreign securities may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. [The Fund does not expect to satisfy the requirements for passing through to its shareholders any share of any foreign taxes paid by the Fund, with the result that shareholders will not include such taxes in their gross incomes and will not be entitled to a tax deduction or credit for such taxes on their own returns.]
Certain of the Funds investments may be subject to complex provisions of the Internal Revenue Code (including provisions relating to hedging transactions, straddles, integrated transactions, foreign currency contracts, forward foreign currency contracts, and notional principal contracts) that, among other things, may affect the character of gains and losses realized by the Funds (e.g., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and defer losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also may require a Fund to mark-to-market certain types of positions in its portfolio (i.e., treat them as if they were closed out) which may cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the RIC distribution requirements for avoiding income and excise taxes. The Funds intend to monitor their transactions, intend to make appropriate tax elections, and intend to make appropriate entries in their books and records in order to mitigate the effect of these rules and preserve the Funds qualification for treatment as RICs.
If a Fund acquires any equity interest (under Treasury regulations that may be promulgated in the future, generally including not only stock but also an option to acquire stock such as is inherent in a convertible bond) in certain foreign corporations (i) that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or (ii) where at least 50% of the corporations assets (computed based on average fair market value) either produce or are held for the production of passive income (passive foreign investment companies or PFICs), the Fund could be subject to U.S. federal income tax and nondeductible interest charges on excess distributions received from such companies or on gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. A qualified electing fund election or a mark to market election may be available that would ameliorate these adverse tax consequences, but such elections could require the applicable Fund to recognize taxable income or gain (subject to the distribution requirements applicable to RICs, as described above) without the concurrent receipt of cash. In order to satisfy the distribution requirements and avoid a tax at the Fund level, a Fund may be required to liquidate portfolio securities that it might otherwise have continued to hold, potentially resulting in additional taxable gain or loss to the Fund. Gains from the sale of stock of PFICs may also be treated as ordinary income. In order for a Fund to make a qualified electing fund election with respect to a PFIC, the PFIC would have to agree to provide certain tax information to the Fund on an annual basis, which it might not agree to do. The Funds may limit and/or manage their holdings in PFICs to limit their tax liability or maximize their returns from these investments.
Each Fund is required for federal income tax purposes to mark-to-market and recognize as income for each taxable year its net unrealized gains and losses on certain futures contracts as of the end of the year as well as those actually realized during the year. Gain or loss from futures and options contracts on broad-based indexes required to be marked to market will be 60% long-term and 40% short-term capital gain or loss. Application of this rule may alter the timing and character of distributions to shareholders. A Fund may be required to defer the recognition of losses on futures contracts, options contracts and swaps to the extent of any unrecognized gains on offsetting positions held by the Fund. It is anticipated that certain net gain realized from the closing out of futures or options contracts will be considered gain from the sale of securities and therefore will be qualifying income for purposes of the Qualifying Income Requirement.
TAX-EXEMPT SHAREHOLDERS. Certain tax-exempt shareholders, including qualified pension plans, individual retirement accounts, salary deferral arrangements, 401(k) plans, and other tax-exempt entities, generally are exempt from federal income taxation except with respect to their unrelated business taxable income (UBTI). Under current law, a Fund generally serves to block UBTI from being realized by its tax-exempt shareholders. However, notwithstanding the foregoing, tax-exempt shareholders could realize UBTI by virtue of their investment in a Fund where, for example, (i) the Fund invests in REITs that hold residual interests in real estate mortgage investment conduits (REMICs) or (ii) Shares constitute debt-financed property in the hands of the tax-exempt shareholders within the meaning of section 514(b) of the Internal Revenue Code. Charitable remainder trusts are subject to special rules and should consult their tax advisors. There are no restrictions preventing the Fund from holding investments in REITs that hold residual interests in REMICs, and a Fund may do so. The Internal Revenue Service (the IRS) has issued guidance with respect to these issues and prospective shareholders, especially charitable remainder trusts, are strongly encouraged to consult with their tax advisors regarding these issues.
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FOREIGN SHAREHOLDERS. Dividends, other than capital gains dividends, short-term capital gain dividends and interest-related dividends (described below), paid by a Fund to shareholders who are nonresident aliens or foreign entities will be subject to a 30% United States withholding tax unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law to the extent derived from investment income and short-term capital gain or unless such income is effectively connected with a U.S. trade or business carried on through a permanent establishment in the United States. Nonresident shareholders are urged to consult their own tax advisors concerning the applicability of the United States withholding tax and the proper withholding form(s) to be submitted to a Fund. A non-U.S. shareholder who fails to provide an appropriate IRS Form W-8 may be subject to backup withholding at the appropriate rate.
Dividends reported by a Fund as (i) interest-related dividends, to the extent such dividends are derived from the Funds qualified net interest income, or (ii) short-term capital gain dividends, to the extent such dividends are derived from the Funds qualified short-term gain, are generally exempt from this 30% withholding tax. Qualified net interest income is a Funds net income derived from U.S. source interest and original issue discount, subject to certain exceptions and limitations. Qualified short-term gain generally means the excess of a Funds net short-term capital gain for the taxable year over its net long-term capital loss, if any. In the case of Shares held through an intermediary, the intermediary may withhold even if the Fund reports the payment as an interest-related dividend or as a short-term capital gain dividend. Non-U.S. shareholders should contact their intermediaries with respect to the application of these rules to their accounts.
Unless certain non-U.S. entities that hold Shares comply with IRS requirements that will generally require them to report information regarding U.S. persons investing in, or holding accounts with, such entities, a 30% withholding tax may apply to Fund distributions payable to such entities and, after December 31, 2018, redemptions and certain capital gain dividends payable to such entities. A non-U.S. shareholder may be exempt from the withholding described in this paragraph under an applicable intergovernmental agreement between the U.S. and a foreign government, provided that the shareholder and the applicable foreign government comply with the terms of such agreement.
Non-U.S. persons are subject to U.S. tax on disposition of a United States real property interest (a USRPI). Gain on such a disposition is sometimes referred to as FIRPTA gain. The Internal Revenue Code provides a look-through rule for distributions of FIRPTA gain if certain requirements are met. If the look-through rule applies, certain distributions attributable to income received by a Fund from REITs may be treated as gain from the disposition of a USRPI, causing distributions to be subject to U.S. withholding tax at rates of up to 35%, and requiring non-U.S. investors to file nonresident U.S. income tax returns. Also, gain may be subject to a 30% branch profits tax in the hands of a non-U.S. shareholder that is treated as a corporation for federal income tax purposes. Under certain circumstances, Shares may qualify as USRPIs, which could result in 15% withholding on certain distributions and gross redemption proceeds paid to certain non-U.S. investors.
BACKUP WITHHOLDING. A Fund will be required in certain cases to withhold (as backup withholding) on amounts payable to any shareholder who (1) has provided the Fund either an incorrect tax identification number or no number at all, (2) is subject to backup withholding by the IRS for failure to properly report payments of interest or dividends, (3) has failed to certify to the Fund that such shareholder is not subject to backup withholding, or (4) has not certified that such shareholder is a U.S. person (including a U.S. resident alien). The backup withholding rate is 28%. Backup withholding will not be applied to payments that have been subject to the 30% withholding tax on shareholders who are neither citizens nor permanent residents of the U.S.
CREATION UNITS. An Authorized Participant who exchanges securities for Creation Units generally will recognize a gain or a loss. The gain or loss will be equal to the difference between the market value of the Creation Units at the time and the sum of the exchangers aggregate basis in the securities surrendered plus the amount of cash paid for such Creation Units. A person who redeems Creation Units will generally recognize a gain or loss equal to the difference between the exchangers basis in the Creation Units and the sum of the aggregate market value of any securities received plus the amount of any cash received for such Creation Units. The IRS, however, may assert that a loss realized upon an exchange of securities for Creation Units cannot be deducted currently under the rules governing wash sales, or on the basis that there has been no significant change in economic position.
Any gain or loss realized upon a creation of Creation Units will be treated as capital gain or loss if the Authorized Participant holds the securities exchanged therefor as capital assets, and otherwise will be ordinary income or loss. Similarly, any gain or loss realized upon a redemption of Creation Units will be treated as capital gain or loss if the Authorized Participant holds the Shares comprising the Creation Units as capital assets, and otherwise will be ordinary income or loss. Any capital gain or loss realized upon the creation of Creation Units will generally be treated as long-term capital gain or loss if the securities exchanged for such Creation Units have been held for more than one year, and otherwise will be short-term capital gain or loss. Any capital gain or loss realized upon the redemption of Creation Units will generally be treated as long-term capital gain or loss if the Shares comprising the Creation Units have been held for more than one year, and otherwise, will generally be short-term capital gain or loss. Any capital loss realized upon
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a redemption of Creation Units held for six (6) months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions to the applicable Authorized Participant of long-term capital gains with respect to the Creation Units (including any amounts credited to the Authorized Participant as undistributed capital gains).
A Fund has the right to reject an order for Creation Units if the purchaser (or a group of purchasers) would, upon obtaining the Shares so ordered, own 80% or more of the outstanding shares of the Fund and if, pursuant to section 351 of the Internal Revenue Code, the Fund would have a basis in any deposit securities different from the market value of such securities on the date of deposit. A Fund also has the right to require information necessary to determine beneficial Share ownership for purposes of the 80% determination. If a Fund does issue Creation Units to a purchaser (or a group of purchasers) that would, upon obtaining the Shares so ordered, own 80% or more of the outstanding shares of the Fund, the purchaser (or a group of purchasers) may not recognize gain or loss upon the exchange of securities for Creation Units.
Persons purchasing or redeeming Creation Units should consult their own tax advisors with respect to the tax treatment of any creation or redemption transaction.
CERTAIN POTENTIAL TAX REPORTING REQUIREMENTS. Under promulgated Treasury regulations, if a shareholder recognizes a loss on disposition of a Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder (or certain greater amounts over a combination of years), the shareholder must file with the IRS a disclosure statement on IRS Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. A shareholder who fails to make the required disclosure to the IRS may be subject to adverse tax consequences, including significant penalties. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
The foregoing discussion is a summary only and is not intended as a substitute for careful tax planning. Purchasers of Shares should consult their own tax advisors as to the tax consequences of investing in such Shares, including under state, local and other tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date hereof. Changes in applicable authority could materially affect the conclusions discussed above, and such changes often occur.
INVESTMENT BY AN UNDERTAKING FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES
The Adviser has reviewed the investment characteristics and limitations of each Fund and believes that, as of [ ], [each Fund] qualifies as an undertaking for collective investment (UCI) for purposes of the Luxembourg law of 17 December 2010. However, an Undertaking for Collective Investment in Transferable Securities should consult its own counsel regarding the qualification of a Fund as a UCI before investing in the Fund.
CAPITAL STOCK AND SHAREHOLDER REPORTS
Each Fund issues Shares of beneficial interest, par value $.01 per Share. The Board may designate additional funds.
Each Share issued by the Trust has a pro rata interest in the assets of the corresponding series of the Trust. Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each Share is entitled to participate equally in dividends and distributions declared by the Board with respect to each Fund, and in the net distributable assets of each Fund on liquidation.
Each Share has one vote with respect to matters upon which a shareholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder. Shares of all series of the Trust (Funds) vote together as a single class except that if the matter being voted on affects only a particular fund it will be voted on only by that fund and if a matter affects a particular fund differently from other Funds, that fund will vote separately on such matter. Under Massachusetts law, the Trust is not required to hold an annual meeting of shareholders unless required to do so under the 1940 Act. The policy of the Trust is not to hold an annual meeting of shareholders unless required to do so under the 1940 Act. All Shares of the Trust (regardless of the fund) have noncumulative voting rights for the election of Trustees. Under Massachusetts law, Trustees of the Trust may be removed by vote of the shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable as partners for obligations of the Trust. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust, requires that Trust obligations include such disclaimer, and provides for indemnification and reimbursement of expenses out of the Trusts property for any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations. Given the above limitations on shareholder personal liability, and the nature of each Funds assets and operations, the risk to shareholders of personal liability is believed to be remote.
45
Shareholder inquiries may be made by writing to the Trust, c/o the Distributor, State Street Global Advisors Funds Distributors, LLC at State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111.
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Morgan, Lewis & Bockius LLP, 1111 Pennsylvania Avenue, NW, Washington, DC 20004, serves as counsel to the Trust. [ ] serves as the independent registered public accounting firm of the Trust. [ ] performs annual audits of the Funds financial statements and provides other audit, tax and related services.
46
LOCAL MARKET HOLIDAY SCHEDULES
The Trust generally intends to effect deliveries of portfolio securities on a basis of T plus three Business Days ( i.e. , days on which the NYSE is open) (T plus two Business Days for orders dated on or after September 5, 2017) in the relevant foreign market of a Fund. The ability of the Trust to effect in-kind redemptions within three Business Days (two Business Days for orders dated on or after September 5, 2017) of receipt of a redemption request is subject, among other things, to the condition that, within the time period from the date of the request to the date of delivery of the securities, there are no days that are local market holidays on the relevant Business Days. For every occurrence of one or more intervening holidays in the local market that are not holidays observed in the United States, the redemption settlement cycle may be extended by the number of such intervening local holidays. In addition to holidays, other unforeseeable closings in a foreign market due to emergencies may also prevent the Trust from delivering securities within three Business Days (two Business Days for orders dated on or after September 5, 2017).
The securities delivery cycles currently practicable for transferring portfolio securities to redeeming investors, coupled with local market holiday schedules, may require a delivery process longer than the standard settlement period. In certain circumstances during the calendar year, the settlement period may be greater than seven calendar days. Such periods are listed in the table below, as are instances where more than seven days will be needed to deliver redemption proceeds. Since certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption proceeds in any given year may exceed the maximum number of days listed in the table below. The proclamation of new holidays, the treatment by market participants of certain days as informal holidays ( e.g. , days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery practices, could affect the information set forth herein at some time in the future and longer (worse) redemption periods are possible.
Listed below are the dates in calendar year 2017 (the only year for which holidays are known at the time of this SAI filing) in which the regular holidays in non-U.S. markets may impact Fund settlement. This list is based on information available to the Funds. The list may not be accurate or complete and is subject to change:
47
Botswana |
Brazil |
Bulgaria |
Burkina Faso |
Canada |
||||
January 2-3 | January 25 | January 2 | April 17 | January 2-3 | ||||
April 14, 17 | February 27-28 | March 3 | May 1, 25 | February 13, 20 | ||||
May 1, 25 | March 1 | April 14-17 | June 5, 21, 26 | April 14 | ||||
July 17-18 | April 14, 21 | May 1, 24 | August 7, 15 | May 22 | ||||
October 2 | May 1 | September 6, 22 | September 1 | June 26 | ||||
December 25-26 | June 15 | December 25-26 | November 1, 15 | July 3 | ||||
September 7 | December 1, 25 | August 7 | ||||||
October 12 | September 4 | |||||||
November 2, 15, 20 | October 9 | |||||||
December 25 | November 13 | |||||||
December 25-26 | ||||||||
The Cayman Islands |
Chile |
China |
Colombia |
Croatia |
||||
January 2, 23 | January 2 | January 2, 27, 30-31 | January 9 | January 6 | ||||
March 1 | April 14 | February 1-2 | March 20 | April 14, 17 | ||||
April 14, 17 | May 1 | April 3-4 | April 13-14 | May 1 | ||||
May 15 | June 26 | May 1, 29-30 | May 1, 29 | June 15, 22 | ||||
June 19 | August 15 | October 2-6 | June 19, 26 | August 15 | ||||
July 3 | September 18-19 | July 3, 20 | November 1 | |||||
November 13 | October 9, 27 | August 7, 21 | December 25-26 | |||||
December 25-26 | November 1 | October 16 | ||||||
December 8, 25 | November 6, 13 | |||||||
December 8, 25 | ||||||||
Costa Rica |
Cyprus |
The Czech Republic |
Denmark |
Egypt* |
||||
April 11, 13-14 | January 6 | April 14, 17 | April 13-14, 17 | January 1, 25 | ||||
May 1 | February 27 | May 1, 8 | May 12, 25-26 | April 16-17, 25 | ||||
July 25 | April 14, 17-18 | July 5- 6 | June 5 | May 1 | ||||
August 2, 15 | May 1 | September 28 | December 25-26 | June 25-26 | ||||
September 15 | June 5 | November 17 | July 23 | |||||
October 16 | August 15 | December 25-26 | August 31 | |||||
December 25 | December 25-26 | September 21 | ||||||
November 30 | ||||||||
* Market closed every Friday |
||||||||
Estonia |
Finland |
France |
Georgia |
Germany |
||||
February 23-24 | January 6 | April 14, 17 | January 2, 19 | April 14, 17 | ||||
April 14, 17 | April 13-14, 17 | May 1 | March 3, 8 | May 1 | ||||
May 1, 25 | May 1, 25 | December 25-26 | April 14, 17 | June 5 | ||||
June 22-23 | December 6, 25-26 | May 9, 12, 26 | October 3, 31 | |||||
December 25-26 | August 28 | December 25-26 | ||||||
November 23 | ||||||||
Ghana |
Greece |
Guinea-Bissau |
Hong Kong |
Hungary |
||||
January 2 | January 6 | April 17 | January 2, 27, 30-31 | March 15 | ||||
March 6 | February 27 | May 1, 25 | April 4, 14, 17 | April 14, 17 | ||||
April 14, 17 | April 14, 17 | June 5, 21, 26 | May 1, 3, 30 | May 1 | ||||
May 1, 25 | May 1 | August 7, 15 | October 2, 5 | June 5 | ||||
June 26 | June 5 | September 1 | December 25-26 | October 23 | ||||
July 7 | August 15 | November 1, 15 | November 1 | |||||
September 13, 21 | December 25-26 | December 1, 25 | December 25-26 | |||||
December 25-26 |
48
Iceland |
India |
Indonesia |
Ireland |
Israel* |
||||
April 13-14, 17, 20 | January 26 | January 2 | January 2 | March 12 | ||||
May 1, 25 | February 24 | March 28 | March 17 | April 10-13, 16-17 | ||||
June 5 | March 13, 28 | April 14, 24 | April 14, 17 | May 1-2, 30-31 | ||||
August 7 | April 4, 14 | May 1, 11, 25 | May 1 | August 1 | ||||
December 25-26 | May 1, 10 | June 1, 26-30 | June 5 | September 20-21 | ||||
June 26 | August 17 | August 7 | October 4-5, 8-12 | |||||
August 15, 17, 25 | September 1, 21 | October 30 | ||||||
October 2, 19-20 | December 1, 25-26 | December 22, 25-26, 29 |
* Market closed every Friday |
|||||
December 1, 25 | ||||||||
Italy |
Ivory Coast |
Jamaica |
Japan |
Jordan* |
||||
April 14, 17 | April 17 | January 2 | January 2-3, 9 | January 1 | ||||
May 1 | May 1, 25 | March 1 | March 20 | May 1, 25 | ||||
August 15 | June 5, 21, 26 | April 14, 17 | May 3-5 | June 25-28 | ||||
December 25-26 | August 7, 15 | May 23 | July 17 | August 31 | ||||
September 1 | August 1, 7 | August 11 | September 3-4, 21 | |||||
November 1, 15 | October 16 | September 18 | November 30 | |||||
December 1, 25 | December 25-26 | October 9 | December 25 | |||||
November 3, 23 | ||||||||
* Market closed every Friday |
||||||||
Kazakhstan |
Kenya |
Kuwait* |
Latvia |
Lebanon |
||||
January 2-3 | January 2 | January 1 | April 13-14, 17 | January 2, 6 | ||||
March 8, 21-23 | April 14, 17 | February 26 | May 1, 4-5, 25 | February 9, 14 | ||||
May 1, May 8-9 | May 1 | April 24 | June 22-23 | April 14, 17, 25 | ||||
July 6 | June 1, 27 | June 25-27 | November 17, 20 | May 1, 25 | ||||
August 30 | October 20 | August 31 | December 25-26 | June 26-27 | ||||
September 1 | December 12, 25-26 | September 3, 21 | August 15 | |||||
December 1, 18-19 | September 1, 21 | |||||||
November 22 | ||||||||
December 1, 25 | ||||||||
* Market closed every Friday |
||||||||
Lithuania |
Luxembourg |
Malawi |
Malaysia |
Mali |
||||
February 16 |
April 14, 17 |
January 2, 16 |
January 2, 27, 30 |
April 17 |
||||
April 14, 17 |
May 1 |
March 3 |
February 1, 9 |
May 1, 25 |
||||
May 1, 25 |
December 25-26 |
April 14, 17 |
May 1, 10 |
June 5, 21, 26 |
||||
July 6 |
May 1, 15 |
June 12, 26-27 |
August 7, 15 |
|||||
August 15 |
June 26 |
August 31 |
September 1 |
|||||
November 1 |
July 6 |
September 1, 21 |
November 1, 15 |
|||||
December 25-26 |
December 25-26 |
October 18 |
December 1, 25 |
|||||
December 1, 25 |
||||||||
Mauritius |
Mexico |
Morocco |
Namibia |
The Netherlands |
||||
January 2 |
February 6 |
January 11 |
January 2 |
April 14, 17 |
||||
February 1, 9, 24 |
March 20 |
May 1 |
March 21 |
May 1 |
||||
March 29 |
April 13-14 |
June 26 |
April 14, 17, 27 |
December 25-26 |
||||
May 1 |
May 1 |
August 14, 21 |
May 1, 4, 25 |
|||||
June 26 |
November 2, 20 |
September 1, 22 |
June 16 |
|||||
October 19 |
December 12, 25 |
November 6 |
August 9 |
|||||
November 1-2 |
September 25 |
|||||||
December 25 |
December 11, 25-27 |
49
50
Srpska |
Swaziland |
Sweden |
Switzerland |
Taiwan |
||||
January 2, 6, 9 | January 2 | January 5-6 | January 2 | January 2, 25-27, 30-31 | ||||
April 14, 17 | April 14, 17, 19, 25 | April 13-14, 17 | April 14, 17 | February 1, 27-28 | ||||
May 1-2, 9 | May 1, 5 | May 1, 24-25 | May 1, 25 | April 3-4 | ||||
November 21 | September 6 | June 6, 23 | June 5 | May 1, 29-30 | ||||
December 25-26 | November 3 | August 1 | October 4, 9-10 | |||||
December 25-26 | December 25-26 | |||||||
Tanzania |
Thailand |
Togo |
Tunisia |
Turkey |
||||
January 12 | January 2-3 | April 17 | March 20 | May 1, 19 | ||||
April 7, 14, 17, 26 | February 13 | May 1, 25 | May 1 | June 26-27 | ||||
May 1 | April 6, 13-14 | June 5, 21, 26 | June 26 | August 30-31 | ||||
July 7, 26-27 | May 1, 5, 10 | August 7, 15 | July 25 | September 1, 4 | ||||
August 8 | July 10 | September 1 | September 1, 21 | |||||
September 1 | August 14 | November 1, 15 | December 1 | |||||
December 15, 25-26 | October 23 | December 1, 25 | ||||||
December 5, 11 | ||||||||
Uganda |
Ukraine |
The United Arab Emirates* |
The United Kingdom |
The United States Bond
|
||||
January 2, 26 | January 2-3, 9 | January 1 | January 2 | January 2, 16 | ||||
February 16 | March 8 | April 24 | April 14, 17 | February 20 | ||||
March 8 | April 17 | June 25-26 | May 1, 29 | April 13*- 14 | ||||
April 14, 17 | May 1-2, 9 | August 31 | August 28 | May 26*, 29 | ||||
May 1 | June 5, 28 | September 21 | December 22, 25-26, 29 | July 3*- 4 | ||||
June 9, 26 | August 24 | November 30 | September 4 | |||||
July 7 | October 16 | December 3 | October 9 | |||||
September 13 | November 23-24* | |||||||
October 9 | December 22*, 25, 29* | |||||||
November 30 | ||||||||
December 25-26 |
* Market closed every Friday |
* The U.S. bond market has recommended early close. |
||||||
Uruguay |
Venezuela |
Vietnam |
Zambia |
Zimbabwe |
||||
January 6 | January 9 | January 2, 26-27, 30-31 | January 2 | January 2 | ||||
February 27-28 | February 27-28 | February 1 | March 8, 13 | April 14, 17-18 | ||||
April 13-14, 17 | April 13-14, 19 | April 6 | April 14, 17 | May 1, 25 | ||||
May 1, 22 | May 1, 29 | May 1-2 | May 1, 25 | August 14-15 | ||||
June 19 | June 19 | September 4 | July 3-4 | December 22, 25-26 | ||||
July 18 | July 3, 5, 24 | August 7 | ||||||
August 25 | August 14 | October 18, 24 | ||||||
October 16 | September 11 | December 25 | ||||||
November 2 | October 12 | |||||||
December 25 | November 6 | |||||||
December 11, 25 |
51
Redemptions. The longest redemption cycle for a Fund is a function of the longest redemption cycle among the countries and regions whose securities comprise the Funds. In the calendar year 2017 (the only year for which holidays are known at the time of this SAI filing), the dates of regular holidays affecting the following securities markets present the worst-case redemption cycles* for a Fund as follows:
2017 | ||||||
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
Australia |
04/11/17 | 04/19/17 | 8 | |||
04/12/17 | 04/20/17 | 8 | ||||
04/13/17 | 04/21/17 | 8 | ||||
Bangladesh |
06/20/17 | 06/28/17 | 8 | |||
06/21/17 | 06/29/17 | 8 | ||||
06/22/17 | 07/02/17 | 10 | ||||
Brazil |
02/22/17 | 03/02/17 | 8 | |||
02/23/17 | 03/03/17 | 8 | ||||
02/24/17 | 03/06/17 | 11 | ||||
China |
01/24/17 | 02/03/17 | 10 | |||
01/25/17 | 02/06/17 | 12 | ||||
01/26/17 | 02/07/17 | 12 | ||||
09/27/17 | 10/09/17 | 12 | ||||
09/28/17 | 10/10/17 | 12 | ||||
09/29/17 | 10/11/17 | 12 | ||||
Costa Rica |
04/07/17 | 04/17/17 | 10 | |||
04/10/17 | 04/18/17 | 8 | ||||
Indonesia |
06/21/17 | 07/03/17 | 12 | |||
06/22/17 | 07/04/17 | 12 | ||||
06/23/17 | 07/05/17 | 12 | ||||
Israel |
04/06/17 | 04/18/17 | 12 | |||
04/09/17 | 04/19/17 | 10 | ||||
10/02/17 | 10/15/17 | 13 | ||||
10/03/17 | 10/16/17 | 13 | ||||
Japan |
04/28/17 | 05/08/17 | 10 | |||
05/01/17 | 05/09/17 | 8 | ||||
05/02/17 | 05/10/17 | 8 | ||||
Jordan |
06/21/17 | 06/29/17 | 8 | |||
06/22/17 | 07/02/17 | 10 | ||||
Malawi |
01/09/17 | 01/17/17 | 8 | |||
01/10/17 | 01/18/17 | 8 | ||||
01/11/17 | 01/19/17 | 8 |
52
2017 | ||||||
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
01/12/17 | 01/20/17 | 8 | ||||
01/13/17 | 01/23/17 | 10 | ||||
02/24/17 | 03/06/17 | 10 | ||||
02/27/17 | 03/07/17 | 8 | ||||
02/28/17 | 03/08/17 | 8 | ||||
03/01/17 | 03/09/17 | 8 | ||||
03/02/17 | 03/10/17 | 8 | ||||
04/07/17 | 04/18/17 | 11 | ||||
04/10/17 | 04/19/17 | 9 | ||||
04/11/17 | 04/20/17 | 9 | ||||
04/12/17 | 04/21/17 | 9 | ||||
04/13/17 | 04/24/17 | 11 | ||||
04/24/17 | 05/02/17 | 8 | ||||
04/25/17 | 05/03/17 | 8 | ||||
04/26/17 | 05/04/17 | 8 | ||||
04/27/17 | 05/05/17 | 8 | ||||
04/28/17 | 05/08/17 | 10 | ||||
05/08/17 | 05/16/17 | 8 | ||||
05/09/17 | 05/17/17 | 8 | ||||
05/10/17 | 05/18/17 | 8 | ||||
05/11/17 | 05/19/17 | 8 | ||||
05/12/17 | 05/22/17 | 10 | ||||
06/19/17 | 06/27/17 | 8 | ||||
06/20/17 | 06/28/17 | 8 | ||||
06/21/17 | 06/29/17 | 8 | ||||
06/22/17 | 06/30/17 | 8 | ||||
06/23/17 | 07/03/17 | 10 | ||||
06/29/17 | 07/07/17 | 8 | ||||
06/30/17 | 07/10/17 | 8 | ||||
07/03/17 | 07/11/17 | 8 | ||||
07/04/17 | 07/12/17 | 8 | ||||
07/05/17 | 07/13/17 | 8 | ||||
12/18/17 | 12/27/17 | 9 | ||||
12/19/17 | 12/28/17 | 9 | ||||
12/20/17 | 12/29/17 | 9 | ||||
12/21/17 | 01/02/18 | 12 | ||||
12/22/17 | 01/03/18 | 12 | ||||
Malaysia |
01/24/17 | 02/01/17 | 8 | |||
01/25/17 | 02/02/17 | 8 | ||||
01/26/17 | 02/03/17 | 8 | ||||
Namibia |
03/14/17 | 03/22/17 | 8 | |||
03/15/17 | 03/23/17 | 8 | ||||
03/16/17 | 03/24/17 | 8 | ||||
03/17/17 | 03/27/17 | 10 |
53
2017 | ||||||
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
03/20/17 | 03/28/17 | 8 | ||||
04/07/17 | 04/18/17 | 11 | ||||
04/10/17 | 04/19/17 | 9 | ||||
04/11/17 | 04/20/17 | 9 | ||||
04/12/17 | 04/21/17 | 9 | ||||
04/13/17 | 04/24/17 | 11 | ||||
04/20/17 | 04/28/17 | 8 | ||||
04/21/17 | 05/01/17 | 10 | ||||
04/24/17 | 05/02/17 | 8 | ||||
04/25/17 | 05/05/17 | 10 | ||||
04/26/17 | 05/08/17 | 12 | ||||
04/28/17 | 05/09/17 | 11 | ||||
05/02/17 | 05/10/17 | 8 | ||||
05/03/17 | 05/11/17 | 8 | ||||
05/18/17 | 05/26/17 | 8 | ||||
05/19/17 | 05/29/17 | 10 | ||||
05/22/17 | 05/30/17 | 8 | ||||
05/23/17 | 05/31/17 | 8 | ||||
05/24/17 | 06/01/17 | 8 | ||||
06/09/17 | 06/19/17 | 10 | ||||
06/12/17 | 06/20/17 | 8 | ||||
06/13/17 | 06/21/17 | 8 | ||||
06/14/17 | 06/22/17 | 8 | ||||
06/15/17 | 06/23/17 | 8 | ||||
08/02/17 | 08/10/17 | 8 | ||||
08/03/17 | 08/11/17 | 8 | ||||
08/04/17 | 08/14/17 | 10 | ||||
08/07/17 | 08/15/17 | 8 | ||||
08/08/17 | 08/16/17 | 8 | ||||
09/18/17 | 09/26/17 | 8 | ||||
09/19/17 | 09/27/17 | 8 | ||||
09/20/17 | 09/28/17 | 8 | ||||
09/21/17 | 09/29/17 | 8 | ||||
09/22/17 | 10/02/17 | 10 | ||||
12/04/17 | 12/12/17 | 8 | ||||
12/05/17 | 12/13/17 | 8 | ||||
12/06/17 | 12/14/17 | 8 | ||||
12/07/17 | 12/15/17 | 8 | ||||
12/08/17 | 12/18/17 | 10 | ||||
12/18/17 | 12/28/17 | 10 | ||||
12/19/17 | 12/29/17 | 10 | ||||
12/20/17 | 01/02/20 | 13 | ||||
12/21/17 | 01/03/18 | 13 | ||||
12/22/17 | 01/04/18 | 13 |
54
2017 | ||||||
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
Norway |
04/10/17 | 04/18/17 | 8 | |||
04/11/17 | 04/19/17 | 8 | ||||
Qatar |
06/20/17 | 06/28/17 | 8 | |||
06/21/17 | 06/29/17 | 8 | ||||
06/22/17 | 06/30/17 | 8 | ||||
Saudi Arabia |
06/24/17 | 07/02/17 | 8 | |||
06/25/17 | 07/03/17 | 8 | ||||
South Africa |
03/14/17 | 03/22/17 | 8 | |||
03/15/17 | 03/23/17 | 8 | ||||
03/16/17 | 03/24/17 | 8 | ||||
03/17/17 | 03/27/17 | 10 | ||||
03/20/17 | 03/28/17 | 8 | ||||
04/07/17 | 04/18/17 | 11 | ||||
04/10/17 | 04/19/17 | 9 | ||||
04/11/17 | 04/20/17 | 9 | ||||
04/12/17 | 04/21/17 | 9 | ||||
04/13/17 | 04/24/17 | 11 | ||||
04/20/17 | 04/28/17 | 8 | ||||
04/21/17 | 05/02/17 | 11 | ||||
04/24/17 | 05/03/17 | 9 | ||||
04/25/17 | 05/04/17 | 9 | ||||
04/26/17 | 05/05/17 | 9 | ||||
04/28/17 | 05/08/17 | 10 | ||||
06/09/17 | 06/19/17 | 10 | ||||
06/12/17 | 06/20/17 | 8 | ||||
06/13/17 | 06/21/17 | 8 | ||||
06/14/17 | 06/22/17 | 8 | ||||
06/15/17 | 06/23/17 | 8 | ||||
08/02/17 | 08/10/17 | 8 | ||||
08/03/17 | 08/11/17 | 8 | ||||
08/04/17 | 08/14/17 | 10 | ||||
08/07/17 | 08/15/17 | 8 | ||||
08/08/17 | 08/16/17 | 8 | ||||
09/18/17 | 09/26/17 | 8 | ||||
09/19/17 | 09/27/17 | 8 | ||||
09/20/17 | 09/28/17 | 8 | ||||
09/21/17 | 09/29/17 | 8 | ||||
09/22/17 | 10/02/17 | 10 | ||||
12/18/17 | 12/27/17 | 9 | ||||
12/19/17 | 12/28/17 | 9 | ||||
12/20/17 | 12/29/17 | 9 | ||||
12/21/17 | 01/03/18 | 13 | ||||
12/22/17 | 01/04/18 | 13 |
55
2017 | ||||||
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
South Korea |
09/29/17 | 10/10/17 | 11 | |||
10/02/17 | 10/11/17 | 9 | ||||
Sri Lanka |
04/07/17 | 04/17/17 | 10 | |||
Swaziland |
04/07/17 | 04/18/17 | 11 | |||
04/10/17 | 04/20/17 | 10 | ||||
04/11/17 | 04/21/17 | 10 | ||||
04/12/17 | 04/24/17 | 12 | ||||
04/13/17 | 04/26/17 | 13 | ||||
04/18/17 | 04/27/17 | 9 | ||||
04/20/17 | 04/28/17 | 8 | ||||
04/21/17 | 05/02/17 | 11 | ||||
04/24/17 | 05/03/17 | 9 | ||||
04/26/17 | 05/04/17 | 8 | ||||
04/27/17 | 05/08/17 | 11 | ||||
04/28/17 | 05/09/17 | 11 | ||||
05/02/17 | 05/10/17 | 8 | ||||
05/03/17 | 05/11/17 | 8 | ||||
05/04/17 | 05/12/17 | 8 | ||||
08/30/17 | 09/07/17 | 8 | ||||
08/31/17 | 09/08/17 | 8 | ||||
09/01/17 | 09/11/17 | 10 | ||||
09/04/17 | 09/12/17 | 8 | ||||
09/05/17 | 09/13/17 | 8 | ||||
12/18/17 | 12/27/17 | 9 | ||||
12/19/17 | 12/28/17 | 9 | ||||
12/20/17 | 12/29/17 | 9 | ||||
12/21/17 | 01/02/18 | 12 | ||||
12/22/17 | 01/03/18 | 12 | ||||
Taiwan |
01/23/17 | 02/02/17 | 10 | |||
01/24/17 | 02/03/17 | 10 | ||||
Turkey |
08/28/17 | 09/05/17 | 8 | |||
08/29/17 | 09/06/17 | 8 | ||||
Uganda |
01/19/17 | 01/27/17 | 8 | |||
01/20/17 | 01/30/17 | 10 | ||||
01/23/17 | 02/01/17 | 9 | ||||
01/24/17 | 02/02/17 | 9 | ||||
01/25/17 | 02/03/17 | 9 | ||||
02/9/17 | 02/17/17 | 8 |
56
2017 | ||||||
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
02/10/17 | 02/18/17 | 8 | ||||
02/13/17 | 02/21/17 | 8 | ||||
02/14/17 | 02/22/17 | 8 | ||||
02/15/17 | 02/23/17 | 8 | ||||
03/01/17 | 03/09/17 | 8 | ||||
03/02/17 | 03/10/17 | 8 | ||||
03/03/17 | 03/13/17 | 10 | ||||
03/06/17 | 03/14/17 | 8 | ||||
03/07/17 | 03/15/17 | 8 | ||||
04/07/17 | 04/18/17 | 11 | ||||
04/10/17 | 04/19/17 | 9 | ||||
04/11/17 | 04/20/17 | 9 | ||||
04/12/17 | 04/21/17 | 9 | ||||
04/13/17 | 04/24/17 | 11 | ||||
04/24/17 | 05/02/17 | 8 | ||||
04/25/17 | 05/03/17 | 8 | ||||
04/26/17 | 05/04/17 | 8 | ||||
04/27/17 | 05/05/17 | 8 | ||||
04/28/17 | 05/08/17 | 10 | ||||
06/02/17 | 06/12/17 | 10 | ||||
06/05/17 | 06/13/17 | 8 | ||||
06/06/17 | 06/14/17 | 8 | ||||
06/07/17 | 06/15/17 | 8 | ||||
06/08/17 | 06/16/17 | 8 | ||||
06/19/17 | 06/27/17 | 8 | ||||
06/20/17 | 06/28/17 | 8 | ||||
06/21/17 | 06/29/17 | 8 | ||||
06/22/17 | 06/30/17 | 8 | ||||
06/23/17 | 07/03/17 | 10 | ||||
06/30/17 | 07/10/17 | 10 | ||||
07/03/17 | 07/11/17 | 8 | ||||
07/04/17 | 07/12/17 | 8 | ||||
07/05/17 | 07/13/17 | 8 | ||||
07/06/17 | 07/14/17 | 8 | ||||
09/06/17 | 09/14/17 | 8 | ||||
09/07/17 | 09/15/17 | 8 | ||||
09/08/17 | 09/18/17 | 10 | ||||
09/11/17 | 09/19/17 | 8 | ||||
09/12/17 | 09/20/17 | 8 | ||||
10/02/17 | 10/10/17 | 8 | ||||
10/03/17 | 10/11/17 | 8 | ||||
10/04/17 | 10/12/17 | 8 | ||||
10/05/17 | 10/13/17 | 8 | ||||
10/06/17 | 10/16/17 | 10 | ||||
11/23/17 | 12/01/17 | 8 |
57
2017 | ||||||
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
11/24/17 | 12/04/17 | 10 | ||||
11/27/17 | 12/05/17 | 8 | ||||
11/28/17 | 12/06/17 | 8 | ||||
11/29/17 | 12/07/17 | 8 | ||||
12/18/17 | 12/27/17 | 9 | ||||
12/19/17 | 12/28/17 | 9 | ||||
12/20/17 | 12/29/17 | 9 | ||||
12/21/17 | 01/02/18 | 12 | ||||
12/22/17 | 01/03/18 | 12 | ||||
Uruguay |
04/10/17 | 04/18/17 | 8 | |||
04/11/17 | 04/19/17 | 8 | ||||
04/12/17 | 04/20/17 | 8 | ||||
Vietnam |
01/23/17 | 02/02/17 | 10 | |||
01/24/17 | 02/03/17 | 10 | ||||
01/25/17 | 02/06/17 | 12 | ||||
Zimbabwe |
04/07/17 | 04/19/17 | 12 | |||
04/10/17 | 04/20/17 | 10 | ||||
04/11/17 | 04/21/17 | 10 | ||||
04/12/17 | 04/24/17 | 12 | ||||
04/13/17 | 04/25/17 | 12 | ||||
04/24/17 | 05/02/17 | 8 | ||||
04/25/17 | 05/03/17 | 8 | ||||
04/26/17 | 05/04/17 | 8 | ||||
04/27/17 | 05/05/17 | 8 | ||||
04/28/17 | 05/08/17 | 10 | ||||
05/18/17 | 05/26/17 | 8 | ||||
05/19/17 | 05/29/17 | 10 | ||||
05/22/17 | 05/30/17 | 8 | ||||
05/23/17 | 05/31/17 | 8 | ||||
05/24/17 | 06/01/17 | 8 | ||||
08/07/17 | 08/16/17 | 9 | ||||
08/08/17 | 08/17/17 | 9 | ||||
08/09/17 | 08/18/17 | 9 | ||||
08/10/17 | 08/21/17 | 11 | ||||
08/11/17 | 08/22/17 | 11 | ||||
12/15/17 | 12/27/17 | 12 | ||||
12/18/17 | 12/28/17 | 10 | ||||
12/19/17 | 12/29/17 | 10 | ||||
12/20/17 | 01/02/18 | 13 | ||||
12/21/17 | 01/03/18 | 13 |
* | These worst-case redemption cycles are based on information regarding regular holidays. Based on changes in holidays, longer (worse) redemption cycles are possible. |
58
The financial statements and financial highlights of the Funds for the fiscal year ended June 30, 2017, along with the Reports of [ ], the Trusts Independent Registered Public Accounting Firm, included in the Trusts Annual Reports to Shareholders on Form N-CSR under the 1940 Act, are incorporated by reference into this Statement of Additional Information.
59
March 2017
FM Global Proxy Voting and Engagement Principles
SSGA Funds Management, Inc. (SSGA FM), one of the industrys largest institutional asset managers, is the investment management arm of State Street Bank and Trust Company, a wholly owned subsidiary of State Street Corporation, a leading provider of financial services to institutional investors. As an investment manager, SSGA FM has discretionary proxy voting authority over most of its client accounts, and SSGA FM votes these proxies in the manner that we believe will most likely protect and promote the long-term economic value of client investments as described in the SSGA FM Global Proxy Voting and Engagement Principles.
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SSGA FM maintains Proxy Voting and Engagement Guidelines for select markets, including: the US, the EU, the UK, Australia, New Zealand, emerging markets and Japan. International markets that do not have specific guidelines are reviewed and voted consistent with our Global Proxy Voting and Engagement Principles; however, SSGA FM also endeavors to show sensitivity to local market practices when voting in these various markets.
SSGA FMs Approach to Proxy Voting and Issuer Engagement
At SSGA FM, we take our fiduciary duties as an asset manager very seriously. We have a dedicated team of corporate governance professionals who help us carry out our duties as a responsible investor. These duties include engaging with companies, developing and enhancing in-house corporate governance guidelines, analyzing corporate governance issues on a case-by-case basis at the company level, and exercising our voting rightsall to maximize shareholder value.
SSGA FMs Global Proxy Voting and Engagement Principles (the Principles) may take different perspectives on common governance issues that vary from one market to another and, likewise, engagement activity may take different forms in order to best achieve long-term engagement goals. We believe that proxy voting and engagement with portfolio companies is often the most direct and productive way shareholders can exercise their ownership rights, and taken together, we view these tools to be an integral part of the overall investment process.
We believe engagement and voting activity have a direct relationship. As a result, the integration of our engagement activities, while leveraging the exercise of our voting rights, provides a meaningful shareholder tool that we believe protects and enhances the long-term economic value of the holdings in our client accounts. SSGA FM maximizes its voting power and engagement by maintaining a centralized proxy voting and active ownership process covering all holdings, regardless of strategy. Despite the different investment views and objectives across SSGA FM, depending on the product or strategy, the fiduciary responsibilities of share ownership and voting for which SSGA FM has voting discretion are carried out with a single voice and objective.
The Principles support governance structures that we believe add to, or maximize shareholder value at the companies held in our clients portfolios. SSGA FM conducts issuer specific engagements with companies to discuss our principles, including sustainability related risks. In addition, we encourage issuers to find ways of increasing the amount of direct communication board members have with shareholders. We believe direct communication with executive board members and independent non-executive directors is critical to helping companies understand shareholder concerns. Conversely, where appropriate, we conduct collaborative engagement activities with multiple shareholders and communicate with company representatives about common concerns.
In conducting our engagements, SSGA FM also evaluates the various factors that play into the corporate governance framework of a country, including but not limited to, the macroeconomic conditions and broader political system, the quality of regulatory oversight, the enforcement of property and shareholder rights and the independence of the judiciary. SSGA FM understands that regulatory requirements and investor expectations relating to governance practices and engagement activities differ from country-to-country. As a result, SSGA FM engages with issuers, regulators, or both, depending on the market. SSGA FM also is a member of various investor associations that seek to address broader corporate governance related policy at the country level as well as issuer specific concerns at a company level.
To help mitigate company specific risk, the SSGA Asset Stewardship team may collaborate with members of the active investment teams to engage with companies on corporate governance issues and address any specific concerns, or to get more information regarding shareholder items that are to be voted on at upcoming shareholder meetings. Outside of proxy voting season, SSGA FM conducts issuer specific engagements with companies covering various corporate governance and sustainability related topics.
The SSGA Asset Stewardship Team uses a blend of quantitative and qualitative research and data to support screens to help identify issuers where active engagement may be necessary to protect and promote shareholder value. Issuer engagement may also be event driven, focusing on issuer specific corporate governance, sustainability concerns or wider industry related trends. SSGA FM also gives consideration to the size of our total position of the issuer in question and/or the potential negative governance, performance profile, and circumstance at hand. As a result, SSGA FM believes issuer engagement can take many forms and be triggered under numerous circumstances. The following methods represent how SSGA FM defines engagement methods:
Active
SSGA FM uses screening tools designed to capture a mix of company specific data including governance and sustainability profiles to help us focus our voting and engagement activity.
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SSGA FM will actively seek direct dialogue with the board and management of companies we have identified through our screening processes. Such engagements may lead to further monitoring to ensure the company improves its governance or sustainability practices. In these cases, the engagement process represents the most meaningful opportunity for SSGA FM to protect long-term shareholder value from excessive risk due to poor governance and sustainability practices.
Reactive
Reactive engagement is initiated by the issuers. SSGA FM routinely discusses specific voting issues and items with the issuer community. Reactive engagement is an opportunity to address not only voting items, but also a wide range of governance and sustainability issues.
SSGA FM has established an engagement protocol that further describes our approach to issuer engagement.
Measurement
Assessing the effectiveness of our issuer engagement process is often difficult. To limit the subjectivity of measuring our success we actively seek issuer feedback and monitor the actions issuers take post-engagement to identify tangible changes. By doing so, we are able to establish indicators to gauge how issuers respond to our concerns and to what degree these responses satisfy our requests. It is also important to note that successful engagement activity can be measured over differing time periods depending on the facts and circumstances involved. Engagements can last as short as a single meeting or span multiple years.
Depending on the issue and whether the engagement activity is reactive, recurring, or active, engagement with issuers can take the form of written communication, conference calls, or face-to-face meetings. SSGA FM believes active engagement is best conducted directly with company management or board members. Collaborative engagement, where multiple shareholders communicate with company representatives, can serve as a potential forum for issues that are not identified by SSGA FM as requiring active engagement, such as shareholder conference calls.
Proxy Voting Procedure
Oversight
The SSGA Asset Stewardship Team is responsible for developing and implementing the Proxy Voting and Engagement Guidelines (the Guidelines), case-by-case voting items, issuer engagement activities, and research and analysis of governance-related issues. The implementation of the Guidelines is overseen by the SSGA Global Proxy Review Committee (SSGA PRC), a committee of investment, compliance and legal professionals, who provide guidance on proxy issues as described in greater detail below. Oversight of the proxy voting process is ultimately the responsibility of the SSGA Investment Committee. The SSGA Investment Committee reviews and approves amendments to the Guidelines. The SSGA PRC reports to the SSGA Investment Committee, and may refer certain significant proxy items to that committee.
Proxy Voting Process
In order to facilitate SSGA FMs proxy voting process, SSGA FM retains Institutional Shareholder Services Inc. (ISS), a firm with expertise in proxy voting and corporate governance. SSGA FM utilizes ISSs services in three ways: (1) as SSGA FMs proxy voting agent (providing SSGA FM with vote execution and administration services); (2) for applying the Guidelines; and (3) as providers of research and analysis relating to general corporate governance issues and specific proxy items.
The SSGA Asset Stewardship Team reviews the Guidelines with ISS on an annual basis or on a case-by-case basis as needed. On most routine proxy voting items (e.g., ratification of auditors), ISS will affect the proxy votes in accordance with the Guidelines.
In other cases, the Asset Stewardship Team will evaluate the proxy solicitation to determine how to vote based on facts and circumstances, consistent with the Principles, and the accompanying Guidelines, that seek to maximize the value of our client accounts.
In some instances, the Asset Stewardship Team may refer significant issues to the SSGA PRC for a determination of the proxy vote. In addition, in determining whether to refer a proxy vote to the SSGA PRC, the Asset Stewardship Team will consider whether a material conflict of interest exists between the interests of our client and those of SSGA FM or its affiliates (as explained in greater detail in our Conflict of Interest Policy).
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SSGA FM votes in all markets where it is feasible; however, SSGA FM may refrain from voting meetings when power of attorney documentation is required, where voting will have a material impact on our ability to trade the security, where issuer-specific special documentation is required, or where various market or issuer certifications are required. SSGA FM is unable to vote proxies when certain custodians, used by our clients, do not offer proxy voting in a jurisdiction, or when they charge a meeting specific fee in excess of the typical custody service agreement.
Conflict of Interest
See SSGAs standalone Conflicts of Interest Policy.
Proxy Voting and Engagement Principles
Directors and Boards
The election of directors is one of the most important fiduciary duties SSGA FM performs as a shareholder. SSGA FM believes that well-governed companies can protect and pursue shareholder interests better and withstand the challenges of an uncertain economic environment. As such, SSGA FM seeks to vote director elections in a way which we, as a fiduciary, believe will maximize the long-term value of each portfolios holdings.
Principally, a board acts on behalf of shareholders by protecting their interests and preserving their rights. This concept establishes the standard by which board and director performance is measured. To achieve this fundamental principle, the role of the board, in SSGA FMs view, is to carry out its responsibilities in the best long-term interest of the company and its shareholders. An independent and effective board oversees management, provides guidance on strategic matters, selects the CEO and other senior executives, creates a succession plan for the board and management, provides risk oversight and assesses the performance of the CEO and management. In contrast, management implements the business and capital allocation strategies and runs the companys day-to-day operations. As part of SSGA FMs engagement process, SSGA FM routinely discusses the importance of these responsibilities with the boards of issuers.
SSGA FM believes the quality of a board is a measure of director independence, director succession planning, board diversity, evaluations and refreshment and company governance practices. In voting to elect nominees, SSGA FM considers many factors. SSGA FM believes independent directors are crucial to good corporate governance and help management establish sound corporate governance policies and practices. A sufficiently independent board will effectively monitor management, maintain appropriate governance practices and perform oversight functions necessary to protect shareholder interests. SSGA FM also believes the right mix of skills, independence, diversity and qualifications among directors provides boards with the knowledge and direct experience to deal with risks and operating structures that are often unique and complex from one industry to another.
Accounting and Audit Related Issues
SSGA FM believes audit committees are critical and necessary as part of the boards risk oversight role. The audit committee is responsible for setting out an internal audit function to provide robust audit and internal control systems designed to effectively manage potential and emerging risks to the companys operations and strategy. SSGA FM believes audit committees should have independent directors as members, and SSGA FM will hold the members of the audit committee responsible for overseeing the management of the audit function.
The disclosure and availability of reliable financial statements in a timely manner is imperative for the investment process. As a result, board oversight of the internal controls and the independence of the audit process are essential if investors are to rely on financial statements. Also, it is important for the audit committee to appoint external auditors who are independent from management as we expect auditors to provide assurance as of a companys financial condition.
Capital Structure, Reorganization and Mergers
The ability to raise capital is critical for companies to carry out strategy, grow and achieve returns above their cost of capital. The approval of capital raising activities is fundamental to a shareholders ability to monitor the amounts of proceeds and to ensure capital is deployed efficiently. Altering the capital structure of a company is a critical decision for boards and in making such a critical decision, SSGA FM believes the company should have a well explained business rationale that is consistent with corporate strategy and not overly dilutive to its shareholders.
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation.
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Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In evaluating mergers and acquisitions, SSGA FM considers the adequacy of the consideration and the impact of the corporate governance provisions to shareholders. In all cases, SSGA FM uses its discretion in order to maximize shareholder value.
Occasionally, companies add anti-takeover provisions that reduce the chances of a potential acquirer making an offer, or reducing the likelihood of a successful offer. SSGA FM does not support proposals that reduce shareholders rights, entrench management or reduce the likelihood of shareholders right to vote on reasonable offers.
Compensation
SSGA FM considers the boards responsibility to include setting the appropriate level of executive compensation. Despite the differences among the types of plans and the awards possible, there is a simple underlying philosophy that guides SSGA FMs analysis of executive compensation; SSGA FM believes that there should be a direct relationship between executive compensation and company performance over the long-term.
Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration reports, SSGA FM considers factors such as adequate disclosure of different remuneration elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long-term and short-term incentives, alignment of pay structures with shareholder interests, as well as with corporate strategy and performance. SSGA FM may oppose remuneration reports where pay seems misaligned with shareholders interests. SSGA FM may also consider executive compensation practices when re-electing members of the remuneration committee.
SSGA FM recognizes that compensation policies and practices are unique from market to market; often with significant differences between the level of disclosures, the amount and forms of compensation paid, and the ability of shareholders to approve executive compensation practices. As a result, our ability to assess the appropriateness of executive compensation is often dependent on market practices and laws.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. Environmental and social factors may not only have an impact on the reputation of companies but may also represent significant operational risks and costs to business. Well-developed environmental and social management systems can generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. In our view, companies that manage all risks and consider opportunities related to environmental and social issues are able to adapt faster to changes and appear to be better placed to achieve sustainable competitive advantage in the long-term. Similarly, companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change, which could be the result of anything from regulation and litigation, physical threats (severe weather, climate change), economic trends to shifts in consumer behavior.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to demonstrate how sustainability fits into operations and business activities. SSGA FMs team of analysts evaluates these risks and shareholder proposals relating to them on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on a company, its industry, operations, and geographic footprint. SSGA FM may also take action against the re-election of board members if we have serious concerns over ESG practices and the company has not been responsive to shareholder requests to amend them.
General/Routine
Although SSGA FM does not seek involvement in the day-to-day operations of an organization, SSGA FM recognizes the need for conscientious oversight and input into management decisions that may affect a companys value. SSGA FM supports proposals that encourage economically advantageous corporate practices and governance, while leaving decisions that are deemed to be routine or constitute ordinary business to management and the board of directors.
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Fixed Income Stewardship
The two elements of SSGA FMs fixed income stewardship program are:
Proxy Voting:
While matters that come up for a vote at bondholder meetings vary by jurisdiction, examples of common proxy voting resolutions at bondholder meetings include:
| Approving amendments to debt covenants and/or terms of issuance; |
| Authorizing procedural matters such as filing of required documents/other formalities; |
| Approving debt restructuring plans; |
| Abstaining from challenging the bankruptcy trustees; |
| Authorizing repurchase of issued debt security; |
| Approving the placement of unissued debt securities under the control of directors; and, |
| Approve spin-off/absorption proposals. |
Given the nature of the items that come up for vote at bondholder meetings, SSGA FM takes a case-by-case approach to voting bondholder resolutions. Where necessary, SSGA FM will engage with issuers on voting matters prior to arriving at voting decisions. All voting decisions will be made in the best interest of our clients.
Issuer Engagement:
SSGA FM recognizes that debt holders have limited leverage with companies on a day-to-day basis. However, we believe that given the size of our holdings in corporate debt, SSGA FM can meaningfully influence ESG practices of companies through issuer engagement. Our guidelines for engagement with fixed income issuers broadly follow the engagement guidelines for our equity holdings as described above.
Securities on Loan
For funds where SSGA FM acts as trustee, SSGA FM may recall securities in instances where SSGA FM believes that a particular vote will have a material impact on the fund(s). Several factors shape this process. First, SSGA FM must receive notice of the vote in sufficient time to recall the shares on or before the record date. In many cases, SSGA FM does not receive timely notice, and is unable to recall the shares on or before the record date. Second, SSGA FM, exercising its discretion, may recall shares if it believes the benefit of voting shares will outweigh the foregone lending income. This determination requires SSGA FM, with the information available at the time, to form judgments about events or outcomes that are difficult to quantify. Given past experience in this area, however, we believe that the recall of securities will rarely provide an economic benefit that outweighs the cost of the foregone lending income.
Reporting
Any client who wishes to receive information on how its proxies were voted should contact its SSGA FM relationship manager.
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ssga.com
State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 420121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. State Street Global Advisors Italy, Sede Secondaria di Milano, Via dei Bossi, 4 20121 Milan, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
INST-7615 0317 Exp. Date: 03/31/2018
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March 2017
Managing Conflicts of Interest Arising From SSGAS Proxy Voting and Engagement Activity
State Street Corporation has a comprehensive standalone Conflicts of Interest Policy and other policies that address a range of conflicts of interests identified by our parent company. In addition, SSGA maintains a conflicts register that identifies key conflicts and describes systems in place to mitigate the conflicts. This policy is designed to act in conjunction with related policies and practices employed by other groups within the organization. Further, they complement those policies and practices by providing specific guidance on managing the conflicts of interests that may arise through SSGAs proxy voting activities.
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Managing Conflicts of Interest Related to Proxy Voting
SSGA has policies and procedures designed to prevent undue influence on SSGAs voting activities that may arise from relationships between proxy issuers or companies and State Street Corporation (STT) SSGA, SSGA affiliates, SSGA Funds or SSGA Fund affiliates.
Protocols designed to help mitigate potential conflicts of interest include:
| Providing sole voting discretion to members of SSGAs Asset Stewardship team. Members of the Asset Stewardship team may from time to time discuss views on proxy voting matters, company performance, strategy etc. with other STT or SSGA employees including portfolio managers, senior executives and relationship managers. However, final voting decisions are made solely by the corporate governance team, in a manner that is consistent with the best interests of all clients, taking into account various perspectives on risks and opportunities with a view of maximizing the value of client assets; |
| Exercising a singular vote decision for each ballot item regardless of SSGAs investment strategy; |
| Prohibiting members of SSGAs Asset Stewardship team from disclosing SSGAs voting decision to any individual not affiliated with the proxy voting process prior to the meeting or date of written consent, as the case may be; |
| Mandatory disclosure by members of the SSGAs Asset Stewardship team, Global Proxy Review Committee (PRC) and Investment Committee (IC) of any personal conflict of interest (e.g., familial relationship with company management, serves as a director on the board of a listed company) to the Head of the Asset Stewardship team. Members are required to recuse themselves from any engagement or proxy voting activities related to the conflict; |
| In certain instances, client accounts and/or SSGA pooled funds, where SSGA acts as trustee, may hold shares in STT or other SSGA affiliated entities, such as mutual funds affiliated with SSGA Funds Management, Inc. In general, SSGA will outsource any voting decision relating to a shareholder meeting of STT or other SSGA affiliated entities to independent outside third parties. Delegated third parties exercise vote decisions based upon SSGAs in-house policies; and |
| Reporting of voting policy overrides, if any, to the PRC on a quarterly basis. |
In general, we do not believe matters that fall within the Guidelines and are voted consistently with the Guidelines present any potential conflicts, since the vote on the matter has effectively been determined without reference to the soliciting entity. However, where matters do not fall within the Guidelines or where we believe that voting in accordance with the Guidelines is unwarranted, we conduct an additional review to determine whether there is a conflict of interest. In circumstances where a conflict has been identified and either: (i) the matter does not fall clearly within the Guidelines; or (ii) SSGA determines that voting in accordance with such policies or guidance is not in the best interests of its clients, the Head of SSGAs Asset Stewardship team will determine whether a Material Relationship exists. If so, the matter is referred to the SSGA PRC. The SSGA PRC then reviews the matter and determines whether a conflict of interest exists, and if so, how to best resolve such conflict. For example, the SSGA PRC may (i) determine that the proxy vote does not give rise to a conflict due to the issues presented, (ii) refer the matter to the SSGA Investment Committee for further evaluation or (iii) retain an independent fiduciary to determine the appropriate vote.
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Managing Conflicts of Interest Arising From SSGAS Proxy Voting and Engagement Activity
ssga.com
For Public Use
State Street Global Advisors Worldwide Entities
Australia : State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium : State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada : State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai : State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France : State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany : State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. T: +49 (0)89 55878 100. F: +49 (0)89 55878 440. Hong Kong : State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland : State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy : State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968 - R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan : State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands : State Street Global Advisors Netherlands, Adam Smith Building, Thomas Malthusstraat 1-3, 1066 JR Amsterdam, Netherlands. T: +31 (0)20 7181701. State Street Global Advisors Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore : State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland : State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom : State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States : State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
ID9008-INST-7553 0317 Exp. Date: 03/31/2018
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March 2017
FM Proxy Voting and Engagement Guidelines
United States
SSGA Funds Management, Inc.s (SSGA FM)US Proxy Voting and Engagement Guidelines outline our expectations of companies listed on stock exchanges in the US. These guidelines complement and should be read in conjunction with SSGA FMs Global Proxy Voting and Engagement Principles, which provide a detailed explanation of SSGA FMs approach to voting and engaging with companies and SSGAs Conflicts of Interest Policy.
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SSGA FMs US Proxy Voting and Engagement Guidelines address areas including board structure, director tenure, audit related issues, capital structure, executive compensation, environmental, social and other governance related issues. Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and overseeing executive management, to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
When voting and engaging with companies in global markets, SSGA FM considers market specific nuances in the manner that we believe will most likely protect and promote the long-term economic value of client investments. SSGA FM expects companies to observe the relevant laws and regulations of their respective markets as well as country specific best practice guidelines and corporate governance codes. When we feel that a countrys regulatory requirements do not address some of the key philosophical principles that SSGA FM believes are fundamental to its global voting guidelines, we may hold companies in such markets to our global standards.
In its analysis and research into corporate governance issues in the US, SSGA FM expects all companies to act in a transparent manner and provide detailed disclosure on board profiles, related-party transactions, executive compensation and other governance issues that impact shareholders long-term interests.
SSGA FMs Proxy Voting and Engagement Philosophy
In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals with expertise in corporate governance and company law, remuneration, accounting as well as environmental and social issues. SSGA FM has established robust corporate governance principles and practices that are backed with extensive analytical expertise to understand the complexities of the corporate governance landscape. SSGA FM engages with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagements to address significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
The team works alongside members of SSGA FMs active investment teams; collaborating on issuer engagements and providing input on company specific fundamentals. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in the US.
SSGA FM is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with the UK Stewardship Code and the Investor Stewardship Principles. We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practices, where applicable and consistent with our fiduciary duty.
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. SSGA FM views board quality as a measure of director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering various factors including board quality, general market practice and availability of information on director skills and expertise. In principle, SSGA FM believes independent directors are crucial to good corporate governance and help management establish sound corporate governance policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests. Further, SSGA FM expects boards of Russell 3000 listed companies to have at least one female board member.
Director related proposals at US companies include issues submitted to shareholders that deal with the composition of the board or with members of a corporations board of directors. In deciding which director nominee to support, SSGA FM considers numerous factors.
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Director Elections
SSGA FMs director election policy focuses on companies governance profile to identify if a company demonstrates appropriate governance practices or if it exhibits negative governance practices. Factors SSGA FM considers when evaluating governance practices include, but are not limited to the following:
| Shareholder rights; |
| Board independence; and |
| Board structure. |
If a company demonstrates appropriate governance practices, SSGA FM believes a director should be classified as independent based on the relevant listing standards or local market practice standards. In such cases, the composition of the key oversight committees of a board should meet the minimum standards of independence. Accordingly, SSGA FM will vote against a nominee at a company with appropriate governance practices if the director is classified as non-independent under relevant listing standards or local market practice AND serves on a key committee of the board (compensation, audit, nominating or committees required to be fully independent by local market standards).
Conversely, if a company demonstrates negative governance practices, SSGA FM believes the classification standards for director independence should be elevated. In such circumstances, we will evaluate all director nominees based on the following classification standards:
| Is the nominee an employee of or related to an employee of the issuer or its auditor; |
| Does the nominee provide professional services to the issuer; |
| Has the nominee attended an appropriate number of board meetings; or |
| Has the nominee received non-board related compensation from the issuer. |
Where companies demonstrate negative governance practices, these stricter standards will apply not only to directors who are a member of a key committee but to all directors on the board as market practice permits. Accordingly, SSGA FM will vote against a nominee (with the exception of the CEO) where the board has inappropriate governance practices and is considered not independent based on the above independence criteria.
Additionally, SSGA FM may withhold votes from directors based on the following:
| When overall average board tenure is excessive and/or individual director tenure is excessive. In assessing excessive tenure, SSGA FM gives consideration to factors such as the preponderance of long tenured directors, board refreshment practices, and classified board structures; |
| When directors attend less than 75% of board meetings without appropriate explanation or providing reason for their failure to meet the attendance threshold; |
| CEOs of a public company who sit on more than three public company boards; |
| Director nominees who sit on more than six public company boards; |
| Directors of companies that have not been responsive to a shareholder proposal which received a majority shareholder support at the last annual or special meeting; consideration maybe given if management submits the proposal(s) on the ballot as a binding management proposal, recommending shareholders vote for the particular proposal(s); |
| Directors of companies have unilaterally adopted/ amended company bylaws that negatively impact SSGA FMs shareholder rights (such as fee-shifting, forum selection and exclusion service bylaws) without putting such amendments to a shareholder vote; |
| Compensation committee members where there is a weak relationship between executive pay and performance over a five-year period; |
| Audit committee members if non-audit fees exceed 50% of total fees paid to the auditors; and |
| Directors who appear to have been remiss in their duties. |
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Director Related Proposals
SSGA FM generally votes for the following director related proposals:
| Discharge of board members duties, in the absence of pending litigation, regulatory investigation, charges of fraud or other indications of significant concern; |
| Proposals to restore shareholders ability to remove directors with or without cause; |
| Proposals that permit shareholders to elect directors to fill board vacancies; and |
| Shareholder proposals seeking disclosure regarding the company, board, or compensation committees use of compensation consultants, such as company name, business relationship(s) and fees paid. |
SSGA FM generally votes against the following director related proposals:
| Requirements that candidates for directorships own large amounts of stock before being eligible to be elected; |
| Proposals that relate to the transaction of other business as properly comes before the meeting, which extend blank check powers to those acting as proxy; and |
| Proposals requiring two candidates per board seat. |
Majority Voting
SSGA FM will generally support a majority vote standard based on votes cast for the election of directors.
SSGA FM will generally vote to support amendments to by-laws that would require simple majority of voting shares (i.e. shares cast) to pass or repeal certain provisions.
Annual Elections
SSGA FM generally supports the establishment of annual elections of the board of directors. Consideration is given to the overall level of board independence and the independence of the key committees as well as whether there is a shareholders rights plan.
Cumulative Voting
SSGA FM does not support cumulative voting structures for the election of directors.
Separation Chair/CEO
SSGA FM analyzes proposals for the separation of Chair/CEO on a case-by-case basis taking into consideration numerous factors, including but not limited to, the appointment of and role played by a lead director, a companys performance and the overall governance structure of the company.
Proxy Access
In general, SSGA FM believes that proxy access is a fundamental right and an accountability mechanism for all long-term shareholders. SSGA FM will consider proposals relating to Proxy Access on a case-by-case basis. SSGA FM will support shareholder proposals that set parameters to empower long-term shareholders while providing management the flexibility to design a process that is appropriate for the companys circumstances.
SSGA FM will review the terms of all other proposals and will support those proposals that have been introduced in the spirit of enhancing shareholder rights.
Considerations include but are not limited to the following:
| The ownership thresholds and holding duration proposed in the resolution; |
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| The binding nature of the proposal; |
| The number of directors that shareholders may be able to nominate each year; |
| Company governance structure; |
| Shareholder rights; and |
| Board performance. |
Age/Term Limits
Generally, SSGA FM will vote against age and term limits unless the company is found to have poor board refreshment and director succession practices and has a preponderance of non-executive directors with excessively long tenures serving on the board.
Approve Remuneration of Directors
Generally, SSGA FM will support directors compensation, provided the amounts are not excessive relative to other issuers in the market or industry. In making our determination, we review whether the compensation is overly dilutive to existing shareholders.
Indemnification
Generally, SSGA FM supports proposals to limit directors liability and/or expand indemnification and liability protection if he or she has not acted in bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Classified Boards
SSGA FM generally supports annual elections for the board of directors.
Confidential Voting
SSGA FM will support confidential voting.
Board Size
SSGA FM will support proposals seeking to fix the board size or designate a range for the board size and will vote against proposals that give management the ability to alter the size of the board outside of a specified range without shareholder approval.
Audit Related Issues
Ratifying Auditors and Approving Auditor Compensation
SSGA FM supports the approval of auditors and auditor compensation provided that the issuer has properly disclosed audit and non-audit fees relative to market practice and the audit fees are not deemed excessive. SSGA FM deems audit fees to be excessive if the non-audit fees for the prior year constituted 50% or more of the total fees paid to the auditor. SSGA FM will support the disclosure of auditor and consulting relationships when the same or related entities are conducting both activities and will support the establishment of a selection committee responsible for the final approval of significant management consultant contract awards where existing firms are already acting in an auditing function.
In circumstances where other fees include fees related to initial public offerings, bankruptcy emergence, and spin-offs, and the company makes public disclosure of the amount and nature of those fees which are determined to be an exception to the standard non-audit fee category, then such fees may be excluded from the non-audit fees considered in determining the ratio of non-audit to audit/audit-related fees/tax compliance and preparation for purposes of determining whether non-audit fees are excessive.
SSGA FM will support the discharge of auditors and requirements that auditors attend the annual meeting of shareholders. 1
Capital Related Issues
Capital structure proposals include requests by management for approval of amendments to the certificate of incorporation that will alter the capital structure of the company.
The most common request is for an increase in the number of authorized shares of common stock, usually in conjunction with a stock split or dividend. Typically, requests that are not unreasonably dilutive or enhance the rights of common shareholders are supported. In considering authorized share proposals, the typical threshold for approval is 100% over current authorized shares. However, the threshold may be increased if the company offers a specific need or purpose (merger, stock splits, growth purposes, etc.). All proposals are evaluated on a case-by-case basis taking into account the companys specific financial situation.
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Increase in Authorized Common Shares
In general, SSGA FM supports share increases for general corporate purposes up to 100% of current authorized stock.
SSGA FM supports increases for specific corporate purposes up to 100% of the specific need plus 50% of current authorized common stock for US firms.
When applying the thresholds, SSGA FM will also consider the nature of the specific need, such as mergers and acquisitions and stock splits.
Increase in Authorized Preferred Shares
SSGA FM votes on a case-by-case basis on proposals to increase the number of preferred shares.
Generally, SSGA FM will vote for the authorization of preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable.
SSGA FM will support proposals to create declawed blank check preferred stock (stock that cannot be used as a takeover defense). However, SSGA FM will vote against proposals to increase the number of blank check preferred stock authorized for issuance when no shares have been issued or reserved for a specific purpose.
Unequal Voting Rights
SSGA FM will not support proposals authorizing the creation of new classes of common stock with superior voting rights and will vote against new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights. In addition, SSGA FM will not support capitalization changes that add blank check classes of stock (i.e. classes of stock with undefined voting rights) or classes that dilute the voting interests of existing shareholders.
However, SSGA FM will support capitalization changes that eliminate other classes of stock and/or unequal voting rights.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation.
Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported.
In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
SSGA FM will generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
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SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock, especially in some non-US markets; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
AntiTakeover Issues
Typically, these are proposals relating to requests by management to amend the certificate of incorporation or by-laws to add or delete a provision that is deemed to have an anti-takeover effect. The majority of these proposals deal with managements attempt to add some provision that makes a hostile takeover more difficult or will protect incumbent management in the event of a change in control of the company.
Proposals that reduce shareholders rights or have the effect of entrenching incumbent management will not be supported.
Proposals that enhance the right of shareholders to make their own choices as to the desirability of a merger or other proposal are supported.
Shareholder Rights Plans
SSGA FM will support mandates requiring shareholder approval of a shareholder rights plans (poison pill) and repeals of various anti-takeover related provisions.
In general, SSGA FM will vote against the adoption or renewal of a US issuers shareholder rights plan (poison pill).
SSGA FM will vote for an amendment to a shareholder rights plan (poison pill) where the terms of the new plans are more favorable to shareholders ability to accept unsolicited offers (i.e. if one of the following conditions are met: (i) minimum trigger, flip-in or flip-over of 20%, (ii) maximum term of three years, (iii) no dead hand, slow hand, no hand or similar feature that limits the ability of a future board to redeem the pill, and (iv) inclusion of a shareholder redemption feature (qualifying offer clause), permitting ten percent of the shares to call a special meeting or seek a written consent to vote on rescinding the pill if the board refuses to redeem the pill 90 days after a qualifying offer is announced).
Special Meetings
SSGA FM will vote for shareholder proposals related to special meetings at companies that do not provide shareholders the right to call for a special meeting in their by-laws if:
| The company also does not allow shareholders to act by written consent; or |
| The company allows shareholders to act by written consent but the ownership threshold for acting by written consent is set above 25% of outstanding shares. |
SSGA FM will vote for shareholder proposals related to special meetings at companies that give shareholders (with a minimum 10% ownership threshold) the right to call for a special meeting in their bylaws if:
| The current ownership threshold to call for a special meeting is above 25% of outstanding shares. |
SSGA FM will vote for management proposals related to special meetings.
Written Consent
SSGA FM will vote for shareholder proposals on written consent at companies if:
| The company does not have provisions in their by-laws giving shareholders the right to call for a special meeting; or |
| The company allows shareholders the right to call for a special meeting but the current ownership threshold to call for a special meeting is above 25% of outstanding shares; and |
| The company has a poor governance profile. |
SSGA FM will vote management proposals on written consent on a case-by-case basis.
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SuperMajority
SSGA FM will generally vote against amendments to by-laws requiring super-majority shareholder votes to pass or repeal certain provisions. SSGA FM will vote for the reduction or elimination of super-majority vote requirements, unless management of the issuer was concurrently seeking to or had previously made such a reduction or elimination.
Remuneration Issues
Despite the differences among the types of plans and the awards possible there is a simple underlying philosophy that guides the analysis of all compensation plans; namely, are the terms of the plan designed to provide an incentive for executives and/or employees to align their interests with those of the shareholders and thus work toward enhancing shareholder value. Plans which benefit participants only when the shareholders also benefit are those most likely to be supported.
Advisory Vote on Executive Compensation and Frequency
SSGA FM believes executive compensation plays a critical role in aligning executives interest with shareholders, attracting, retaining and incentivizing key talent, and ensuring positive correlation between the performance achieved by management and the benefits derived by shareholders. SSGA FM supports management proposals on executive compensation where there is a strong relationship between executive pay and performance over a five-year period. SSGA FM seeks adequate disclosure of different compensation elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long term and short term incentives, alignment of pay structures with shareholder interests as well as with corporate strategy and performance. Further, shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance on an annual basis.
Employee Equity Award Plans
SSGA FM considers numerous criteria when examining equity award proposals. Generally, SSGA FM does not vote against plans for lack of performance or vesting criteria. Rather, the main criteria that will result in a vote against an equity award plan are:
Excessive voting power dilution To assess the dilutive effect, we divide the number of shares required to fully fund the proposed plan, the number of authorized but unissued shares and the issued but unexercised shares by the fully diluted share count. SSGA FM reviews that number in light of certain factors, including the industry of the issuer.
Historical option grants Excessive historical option grants over the past three years. Plans that provide for historical grant patterns of greater than five to eight percent are generally not supported.
Repricing SSGA FM will vote against any plan where repricing is expressly permitted. If a company has a history of repricing underwater options, the plan will not be supported.
Other criteria include the following:
| Number of participants or eligible employees; |
| The variety of awards possible; and |
| The period of time covered by the plan. |
There are numerous factors that we view as negative, and together, may result in a vote against a proposal:
| Grants to individuals or very small groups of participants; |
| Gun-jumping grants which anticipate shareholder approval of a plan or amendment; |
| The power of the board to exchange underwater options without shareholder approval; this pertains to the ability of a company to reprice options, not the actual act of repricing described above; |
| Below market rate loans to officers to exercise their options; |
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| The ability to grant options at less than fair market value; |
| Acceleration of vesting automatically upon a change in control; and |
| Excessive compensation (i.e. compensation plans which are deemed by SSGA FM to be overly dilutive). |
Share Repurchases If a company makes a clear connection between a share repurchase program and its intent to offset dilution created from option plans and the company fully discloses the amount of shares being repurchased, the voting dilution calculation may be adjusted to account for the impact of the buy back.
Companies who do not (i) clearly state the intentions of any proposed share buy-back plan or (ii) disclose a definitive number of the shares to be bought back, (iii) specify the range of premium/discount to market price at which a company can repurchase shares and, (iv) disclose the time frame during which the shares will be bought back, will not have any such repurchase plan factored into the dilution calculation.
162(m) Plan Amendments If a plan would not normally meet the SSGA FM criteria described above, but is primarily being amended to add specific performance criteria to be used with awards designed to qualify for performance-based exception from the tax deductibility limitations of Section 162(m) of the Internal Revenue Code, then SSGA FM will support the proposal to amend the plan.
Employee Stock Option Plans
SSGA FM generally votes for stock purchase plans with an exercise price of not less than 85% of fair market value. However, SSGA FM takes market practice into consideration.
Compensation Related Items
SSGA FM will generally support the following proposals:
| Expansions to reporting of financial or compensation-related information, within reason; and |
| Proposals requiring the disclosure of executive retirement benefits if the issuer does not have an independent compensation committee. |
SSGA FM will generally vote against the following proposals:
| Retirement bonuses for non-executive directors and auditors. |
Miscellaneous/Routine Items
SSGA FM generally supports the following miscellaneous/routine governance items:
| Reimbursement of all appropriate proxy solicitation expenses associated with the election when voting in conjunction with support of a dissident slate; |
| Opting-out of business combination provision; |
| Proposals that remove restrictions on the right of shareholders to act independently of management; |
| Liquidation of the company if the company will file for bankruptcy if the proposal is not approved; |
| Shareholder proposals to put option repricings to a shareholder vote; |
| General updating of, or corrective amendments to charter and by-laws not otherwise specifically addressed herein, unless such amendments would reasonably be expected to diminish shareholder rights (e.g. extension of directors term limits, amending shareholder vote requirement to amend the charter documents, insufficient information provided as to the reason behind the amendment); |
| Change in corporation name; |
| Mandates that amendments to by-laws or charters have shareholder approval; |
| Management proposals to change the date, time, and/or location of the annual meeting unless the proposed change is unreasonable; |
| Repeals, prohibitions or adoption of anti-greenmail provisions; |
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| Management proposals to implement a reverse stock split when the number of authorized shares will be proportionately reduced and proposals to implement a reverse stock split to avoid delisting; and |
| Exclusive forum provisions. |
SSGA FM generally does not support the following miscellaneous/ routine governance items:
| Proposals asking companies to adopt full tenure holding periods for their executives; |
| Reincorporation to a location that we believe has more negative attributes than its current location of incorporation; |
| Shareholder proposals to change the date, time, and/or location of the annual meeting unless the current scheduling or location is unreasonable; |
| Proposals to approve other business when it appears as a voting item; |
| Proposals giving the board exclusive authority to amend the by-laws; and |
| Proposals to reduce quorum requirements for shareholder meetings below a majority of the shares outstanding unless there are compelling reasons to support the proposal. |
Environmental and Social Issues
As a fiduciary, we consider the financial and economic implications of environmental and social issues first and foremost. Environmental and social factors not only can have an impact on the reputation of companies; they may also represent significant operational risks and costs to business.
Well-developed environmental and social management systems can also generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. In our view, companies that manage all risks and consider opportunities related to environmental and social issues are able to adapt faster to changes and appear to be better placed to achieve sustainable competitive advantage in the long-term. Similarly, companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change, which could result in anything from regulation and litigation, physical threats (severe weather, climate change), economic trends as well as shifts in consumer behavior.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks on an issuer-by-issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint.
1 | Common for non-US issuers; request from the issuer to discharge from liability the directors or auditors with respect to actions taken by them during the previous year. |
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ssga.com
State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 420121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
INST-7620 Exp. Date: 03/31/2018
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March 2017
FM Proxy Voting and Engagement Guidelines
Australia and New Zealand
SSGA Funds Management, Inc.s (SSGA FM) Australia & New Zealand Proxy Voting and Engagement Guidelines outline our expectations of companies listed on stock exchanges in Australia and New Zealand. These guidelines complement and should be read in conjunction with SSGA FMs Global Proxy Voting and Engagement Principles which provide a detailed explanation of SSGA FMs approach to voting and engaging with companies, and SSGAs Conflict of Interest Policy.
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SSGA FMs Australia and New Zealand Proxy Voting and Engagement Guidelines address areas including board structure, audit related issues, capital structure, remuneration, environmental, social and other governance related issues. Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and overseeing executive management to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
When voting and engaging with companies in global markets, SSGA FM considers market specific nuances in the manner that we believe will best protect and promote the long-term economic value of client investments. SSGA FM expects companies to observe the relevant laws and regulations of their respective markets as well as country specific best practice guidelines and corporate governance codes. When we feel that a countrys regulatory requirements do not address some of the key philosophical principles that SSGA FM believes are fundamental to its global voting guidelines, we may hold companies in such markets to our global standards.
In its analysis and research into corporate governance issues in Australia and New Zealand, SSGA FM expects all companies at a minimum to comply with the ASX Corporate Governance Principles. Companies should provide detailed explanations under the Principles comply or explain approach, especially where they fail to meet requirements and why any such non-compliance would serve shareholders long-term interests. On some governance matters, such as composition of audit committees, we hold Australian companies to our global standards requiring all directors on the committee to be independent of management.
SSGA FMs Proxy Voting and Engagement Philosophy
In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals with expertise in corporate governance and company law, remuneration, accounting as well as environmental and social issues. SSGA FM has established robust corporate governance principles and practices that are backed with extensive analytical expertise to understand the complexities of the corporate governance landscape. SSGA FM engages with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
The team works alongside members of SSGA FMs active fundamental and Asia-Pacific (APAC) investment teams; collaborating on issuer engagement and providing input on company specific fundamentals. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in the region.
SSGA FM is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with the UK Stewardship Code. We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practice, where applicable and consistent with our fiduciary duty.
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. SSGA FM views board quality as a measure of director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering various factors including board quality, general market practice and availability of information on director skills and expertise. In principle, SSGA FM believes independent directors are crucial to good corporate governance and help management establish sound ESG policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests. SSGA FM expects boards of ASX-300 and New Zealand listed companies to be comprised of at least a majority of independent directors. Further, SSGA FM expects boards of ASX-300 listed companies to have at least one female board member. At all other Australian listed companies, SSGA FM expects boards to be comprised of at least one-third independent directors.
SSGA FMs broad criteria for director independence in Australia and New Zealand companies include factors such as:
| Participation in related-party transactions and other business relations with the company; |
| Employment history with company; |
| Relations with controlling shareholders; and |
| Family ties with any of the companys advisers, directors or senior employees. |
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When considering the election or re-election of a director, SSGA FM also considers the number of outside board director-ships a non-executive and an executive may undertake as well as attendance at board meetings. In addition, SSGA FM monitors other factors that may influence the independence of a non-executive director, such as performance related pay, cross-directorships, significant shareholdings and tenure. SSGA FM supports the annual election of directors and encourages Australian and New Zealand companies to adopt this practice.
While SSGA FM is generally supportive of having the roles of chairman and CEO separated in the Australia and New Zealand markets, SSGA FM assesses the division of responsibilities between chairman and CEO on a case-by-case basis, giving consideration to factors such as company specific circumstances, overall level of independence on the board and general corporate governance standards in the company. Similarly, SSGA FM will monitor for circumstances where a combined chairman/CEO is appointed or where a former CEO becomes chairman.
SSGA FM may also consider factors such as board performance and directors who appear to be remiss in the performance of their oversight responsibilities when considering their suitability for reappointment (e.g. fraud, criminal wrongdoing and breach of fiduciary responsibilities).
SSGA FM believes companies should have committees for audit, remuneration and nomination oversight. The audit committee is responsible for monitoring the integrity of the financial statements of the company, appointing external auditors, monitoring their qualifications and independence as well their effectiveness and resource levels. Australian Corporate Governance Principles requires ASX listed companies to have an audit committee of at least three members all of whom are non-executive directors and a majority of whom are independent directors. It also requires that the committee be chaired by an independent director who is not the chair of the board. SSGA FM holds Australian and New Zealand companies to its global standards for developed financial markets, by requiring that all members of the audit committee be independent directors.
In its analysis of boards, SSGA FM considers whether board members have adequate skills to provide effective oversight of corporate strategy, operations and risks, including environmental and social issues. Boards should also have a regular evaluation process in place to assess the effectiveness of the board and the skills of board members to address issues such as emerging risks, changes to corporate strategy and diversification of operations and geographic footprint. The nomination committee is responsible for evaluating and keeping under review the balance of skills, knowledge and experience of the board and ensuring that adequate succession plans are in place for directors and the CEO. SSGA FM may vote against the re-election of members of the nomination committee if, over time, the board has failed to address concerns over board structure or succession.
Executive pay is another important aspect of corporate governance. SSGA FM believes that executive pay should be determined by the board of directors and SSGA FM expects companies to have in place remuneration committees to provide independent oversight over executive pay. Australian Corporate Governance Principles requires ASX listed companies to have a remuneration committee of at least three members all of whom are non-executive directors and a majority of whom are independent directors. Since Australia has a non-binding vote on pay with a two-strike rule requiring a board spill in the event of a second strike, SSGA FM believes that the vote provides investors a mechanism to address concerns it may have on the quality of oversight provided by the board on remuneration issues. Accordingly SSGA FM voting guidelines accommodate local market practice.
Indemnification and limitations on liability
Generally, SSGA FM supports proposals to limit directors liability and/or expand indemnification and liability protection up to the limit provided by law, if he or she has not acted in bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Audit Related Issues
Companies should have robust internal audit and internal control systems designed for effective management of any potential and emerging risks to company operations and strategy. The responsibility of setting out an internal audit function lies with the audit committee, which should have as members independent non-executive directors.
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Appointment of External Auditors
SSGA FM believes that a companys auditor is an essential feature of an effective and transparent system of external supervision and shareholders should be given the opportunity to vote on their appointment or to re-appoint at the annual meeting. When appointing external auditors and approving audit fees, SSGA FM will take into consideration the level of detail in company disclosures and will generally not support such resolutions if adequate breakdown is not provided and if non-audit fees are more than 50% of audit fees. In addition, SSGA FM may vote against members of the audit committee if we have concerns with audit related issues or if the level of non-audit fees to audit fees is significant. In certain circumstances, SSGA FM may consider auditor tenure when evaluating the audit process.
Shareholder Rights and Capital Related Issues
Share Issuances
The ability to raise capital is critical for companies to carry out strategy, grow, and achieve returns above their cost of capital. The approval of capital raising activities is fundamental to shareholders ability to monitor the amounts of proceeds and to ensure capital is deployed efficiently. SSGA FM supports capital increases that have sound business reasons and are not excessive relative to a companys existing capital base.
Pre-emption rights are a fundamental right for shareholders to protect their investment in a company. Where companies seek to issue new shares without pre-emption rights, SSGA FM may vote against if such authorities are greater than 20% of the issued share capital. SSGA FM may also vote against resolutions seeking authority to issue capital with pre-emption rights if the aggregate amount allowed seems excessive and is not justified by the board. Generally, we are against capital issuance proposals greater than 100% of the issued share capital when the proceeds are not intended for specific purpose.
Share Repurchase Programs
SSGA FM generally supports a proposal to repurchase shares, unless the issuer does not clearly state the business purpose for the program, a definitive number of shares to be repurchased, and the time frame for the repurchase. SSGA FM may vote against share repurchase requests that allow share repurchases during a takeover period.
Dividends
SSGA FM generally supports dividend payouts that constitute 30% or more of net income. SSGA FM may vote against the dividend payouts if the dividend payout ratio has been consistently below 30% without adequate explanation; or, the payout is excessive given the companys financial position. Particular attention will be paid where the payment may damage the companys long-term financial health.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation. Proposals that are in the best interests of shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported. SSGA FM will generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
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SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
Anti-Takeover Measures
SSGA FM opposes anti-takeover defenses, such as authorities for the board, when subject to a hostile takeover, to issue warrants convertible into shares to existing shareholders.
Remuneration
Executive Pay
There is a simple underlying philosophy that guides SSGA FMs analysis of executive paythere should be a direct relationship between remuneration and company performance over the long-term. Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration reports, SSGA FM considers factors such as adequate disclosure of different remuneration elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long term and short term incentives, alignment of pay structures with shareholder interests as well as with corporate strategy and performance. SSGA FM may oppose remuneration reports where there seems to be a misalignment between pay and shareholders interests and where incentive policies and schemes have a re-test option or feature. SSGA FM may also vote against the re-election of members of the remuneration committee if we have serious concerns over remuneration practices and the company has not been responsive to shareholder pressure to review its approach.
Equity Incentive Plans
SSGA FM may not support proposals on equity-based incentive plans where insufficient information is provided on matters such as grant limits, performance metrics, performance and vesting periods and overall dilution. SSGA FM does not generally support options under such plans being issued at a discount to market price or plans that allow for re-testing of performance metrics.
Non-Executive Director Pay
Authorities seeking shareholder approval for non-executive directors fees are generally not controversial. SSGA FM generally supports resolutions regarding directors fees unless disclosure is poor and we are unable to determine whether they are excessive relative to fees paid by other companies in the same country or industry. SSGA FM will evaluate on a company-by-company basis any non-cash or performance related pay to non-executive directors.
Risk Management
SSGA FM believes that risk management is a key function of the board, which is responsible for setting the overall risk appetite of a company and for providing oversight on the risk management process established by senior executives at a company. SSGA FM allows boards discretion over how they provide oversight in this area. However, SSGA FM expects companies to disclose how the board provides oversight on its risk management system and to identify key risks facing the company. Boards should also review existing and emerging risks as they can change with a changing political and economic landscape, or as companies diversify or expand their operations into new areas.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. In this regard, SSGA FM supports environmental and social related items that we believe would protect or enhance shareholder value. Environmental and social factors not only can have an impact on the reputation of companies; they may also represent significant operational risks and costs to business. Well-developed environmental and social management systems can also generate efficiencies and enhance productivity, both of which impact shareholder value in the longterm.
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SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. In our view, companies that manage all risks and consider opportunities related to environmental and social issues are able to adapt faster to changes and appear to be better placed to achieve sustainable competitive advantage in the long-term. Similarly, companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change, which could result in anything from regulation and litigation, physical threats (severe weather, climate change), economic trends as well as shifts in consumer behavior.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks and shareholder proposals relating to them on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint. SSGA FM may also take action against the re-election of members of the board if we have serious concerns over ESG practices and the company has not been responsive to shareholder concerns.
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ssga.com
State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy : State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968 - R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
INST-7616 0317 Exp. Date: 03/31/2018
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March 2017
FM Proxy Voting and Engagement Guidelines
Europe
SSGA Funds Management, Inc.s, (SSGA FM) European Proxy Voting and Engagement Guidelines cover different corporate governance frameworks and practices in European markets excluding the United Kingdom and Ireland. These guidelines complement and should be read in conjunction with SSGA FMs overarching Global Proxy Voting and Engagement Principles which provide a detailed explanation of SSGA FMs approach to voting and engaging with companies and SSGAs Conflicts of Interest Policy.
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SSGA FMs Proxy Voting and Engagement Guidelines in European markets address areas including board structure, audit related issues, capital structure, remuneration, environmental, social and other governance related issues. Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and, overseeing executive management to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
When voting and engaging with companies in European markets, SSGA FM considers market specific nuances in the manner that we believe will most likely protect and promote the long-term economic value of client investments. SSGA FM expects companies to observe the relevant laws and regulations of their respective markets as well as country specific best practice guidelines and corporate governance codes. When we feel that a countrys regulatory requirements do not address some of the key philosophical principles that SSGA FM believes are fundamental to its global voting guidelines, we may hold companies in such markets to our global standards.
In its analysis and research in to corporate governance issues in European companies, SSGA FM also considers guidance issued by the European Commission. Companies should provide detailed explanations under diverse comply or explain approaches, especially where they fail to meet requirements and why any such non-compliance would serve shareholders long-term interests.
SSGA FMs Proxy Voting and Engagement Philosophy
In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals with expertise in corporate governance and company law, remuneration, accounting as well as environmental and social issues. SSGA FM has established robust corporate governance principles and practices that are backed with extensive analytical expertise to understand the complexities of the corporate governance landscape. SSGA FM engages with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
The team works alongside members of SSGA FMs active fundamental and EMEA investment teams; collaborating on issuer engagement and providing input on company specific fundamentals. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in European markets.
SSGA FM is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with the UK Stewardship Code. We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practice, where applicable and consistent with our fiduciary duty.
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. SSGA FM votes for the election/reelection of directors on a case-by-case basis after considering various factors including general market practice and availability of information on director skills and expertise. In principle, SSGA FM believes independent directors are crucial to good corporate governance and help management establish sound corporate governance policies and practices.
A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests.
SSGA FMs broad criteria for director independence in European companies include factors such as:
| Participation in relatedparty transactions and other business relations with the company; |
| Employment history with company; |
| Relations with controlling shareholders; |
| Family ties with any of the companys advisers, directors or senior employees; |
| Employee and government representatives; and |
| Overall average board tenure and individual director tenure at issuers with classified and de-classified boards, respectively. |
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While, overall board independence requirements and board structures differ from market to market, SSGA FM considers voting against directors it deems nonindependent if overall board independence is below one third or overall independence is below fifty-percent after excluding employee-representatives and/or directors elected in accordance with local laws who are not elected by shareholders. SSGA FM also assesses the division of responsibilities between chairman and CEO on a casebycase basis, giving consideration to factors such as overall level of independence on the board and general corporate governance standards in the company. SSGA FM may support a proposal to discharge the board, if a company fails to meet adequate governance standards or board level independence.
When considering the election or re-election of a non-executive director, SSGA FM also considers the number of outside board directorships a non-executive can undertake, attendance at board meetings, and cross-directorships. In addition, SSGA FM may vote against the election of a director whose biographical disclosures are insufficient to assess his or her role on the board and/or independence.
Although we generally are in favor of the annual election of directors, we recognize that director terms vary considerably in different European markets. SSGA FM may vote against article/by-law changes that seek to extend director terms. In addition, in certain markets, SSGA FM may vote against directors if their director terms extend beyond four years.
SSGA FM believes companies should have relevant board level committees for audit, remuneration and nomination oversight. The audit committee is responsible for monitoring the integrity of the financial statements of the company, appointing external auditors, monitoring their qualifications and independence as well their effectiveness and resource levels. Similarly, executive pay is an important aspect of corporate governance, and it should be determined by the board of directors. SSGA FM expects companies to have in place remuneration committees to provide independent oversight over executive pay. SSGA FM may vote against nominees who are executive members of audit or remuneration committees.
In its analysis of boards, SSGA FM considers whether board members have adequate skills to provide effective oversight of corporate strategy, operations and risks, including environmental and social issues. Boards should also have a regular evaluation process in place to assess the effectiveness of the board and the skills of board members to address issues such as emerging risks, changes to corporate strategy and diversification of operations and geographic footprint.
In certain European markets it is not uncommon for the election of directors to be presented in a single slate. In these cases, where executives serve on the audit or the remuneration committees, SSGA FM may vote against the entire slate.
SSGA FM may also consider factors such as board performance and directors who appear to be remiss in the performance of their oversight responsibilities (e.g. fraud, criminal wrongdoing and breach of fiduciary responsibilities).
Indemnification and Limitations on Liability
Generally, SSGA FM supports proposals to limit directors liability and/or expand indemnification and liability protection up to the limit provided by law, if he or she has not acted in bad faith, with gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Audit Related Issues
Companies should have robust internal audit and internal control systems designed for effective management of any potential and emerging risks to company operations and strategy. The responsibility of setting out an internal audit function lies with the audit committee, which should have as members independent non-executive directors.
Appointment of External Auditors
SSGA FM believes that a companys auditor is an essential feature of an effective and transparent system of external supervision and shareholders should be given the opportunity to vote on their appointment or to re-appoint at the annual meeting. When appointing external auditors and approving audit fees, SSGA FM will take into consideration the level of detail in company disclosures and will generally not support such resolutions if adequate breakdown is not provided and if non-audit fees are more than 50% of audit fees. In addition, SSGA FM may vote against members of the audit committee if we have concerns with audit related issues or if the level of non-audit fees to audit fees is significant. In certain circumstances, SSGA FM may consider auditor tenure when evaluating the audit process.
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Limit Legal Liability of External Auditors
SSGA FM generally opposes limiting the legal liability of audit firms as we believe this could create a negative impact on the quality of the audit function.
Shareholder Rights and Capital Related Issues
In some European markets, differential voting rights continue to exist. SSGA FM supports the one share one vote policy and favors a share structure where all shares have equal voting rights. SSGA FM believes pre-emption rights should be introduced for shareholders in order to provide adequate protection from being overly diluted from the issuance of new shares or convertible securities to third parties or a small number of select shareholders.
Unequal Voting Rights
SSGA FM generally opposes proposals authorizing the creation of new classes of common stock with superior voting rights and will generally oppose new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights. In addition, SSGA FM will not support capitalization changes that add classes of stock with undefined voting rights or classes that may dilute the voting interests of existing shareholders. SSGA FM supports proposals to abolish voting caps and capitalization changes that eliminate other classes of stock and/or unequal voting rights.
Increase in Authorized Capital
The ability to raise capital is critical for companies to carry out strategy, grow, and achieve returns above their cost of capital. The approval of capital raising activities is fundamental to shareholders ability to monitor the amounts of proceeds and to ensure capital is deployed efficiently. SSGA FM supports capital increases that have sound business reasons and are not excessive relative to a companys existing capital base.
Pre-emption rights are a fundamental right for shareholders to protect their investment in a company. Where companies seek to issue new shares whilst dis-applying pre-emption rights, SSGA FM may vote against if such authorities are greater than 20% of the issued share capital. SSGA FM may also vote against resolutions seeking authority to issue capital with pre-emption rights if the aggregate amount allowed seems excessive and is not justified by the board. Generally, we are against capital issuance proposals greater than 100% of the issued share capital when the proceeds are not intended for a specific purpose.
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Share Repurchase Programs
SSGA FM generally supports a proposal to repurchase shares, other than if the issuer does not clearly state the business purpose for the program, a definitive number of shares to be repurchased, specify the range of premium/discount to market price at which a company can repurchase shares, and the time frame for the repurchase. SSGA FM may vote against share re-purchase requests that allow share re-purchases during a takeover period.
Dividends
SSGA FM generally supports dividend payouts that constitute 30% or more of net income. SSGA FM may vote against the dividend payouts if the dividend payout ratio has been consistently below 30% without adequate explanation; or, the payout is excessive given the companys financial position. Particular attention will be paid where the payment may damage the companys long-term financial health.
Related Party Transactions
Certain companies in European markets have a controlled ownership structure and have complex cross-shareholdings between subsidiaries and parent companies (related companies). Such structures may result in the prevalence of related-party transactions between the company and its various stakeholders such as directors and management, subsidiaries and shareholders. In markets where shareholders are required to approve such transactions, SSGA FM expects companies to provide details of the transaction, such as the nature, value and purpose of such a transaction. It also encourages independent directors to ratify such transactions. Further, SSGA FM encourages companies to describe the level of independent board oversight and the approval process, including details of any independent valuations provided by financial advisors on related-party transactions.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation. Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
SSGA FM will generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
AntiTakeover Measures
European markets have diverse regulations concerning the use of share issuances as takeover defenses with legal restrictions lacking in some markets. SSGA FM supports a one-share, one-vote policy, for example, given that dual-class capital structures entrench certain shareholders and management, insulating them from possible takeovers. SSGA FM opposes unlimited share issuance authorizations as they may be used as anti-takeover devices, and they have the potential for substantial voting and earnings dilution. SSGA FM also monitors the duration of authorities to issue shares and whether there are restrictions and caps on multiple issuance authorities during the specified time periods. SSGA FM opposes anti-takeover defenses such as authorities for the board, when subject to a hostile takeover, to issue warrants convertible into shares to existing shareholders.
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Remuneration
Executive Pay
Despite the differences among the types of plans and awards possible, there is a simple underlying philosophy that guides SSGA FMs analysis of executive paythere should be a direct relationship between remuneration and company performance over the longterm.
Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration reports, SSGA FM considers factors such as adequate disclosure of different remuneration elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long-term and short-term incentives, alignment of pay structures with shareholder interests as well as with corporate strategy and performance. SSGA FM may oppose remuneration reports where pay seems misaligned with shareholders interests. SSGA FM may also vote against the re-election of members of the remuneration committee if we have serious concerns over remuneration practices and the company has not been responsive to shareholder pressure to review its approach.
Equity Incentive Plans
SSGA FM may not support proposals on equity-based incentive plans where insufficient information is provided on matters such as grant limits, performance metrics, performance and vesting periods and overall dilution. SSGA FM does not generally support options under such plans being issued at a discount to market price or plans that allow for re-testing of performance metrics.
NonExecutive Director Pay
In European markets, authorities seeking shareholder approval for non-executive directors fees are generally not controversial. SSGA FM generally supports resolutions regarding directors fees unless disclosure is poor and we are unable to determine whether they are excessive relative to fees paid by other companies in the same country or industry. SSGA FM will evaluate on a company-by-company basis any non-cash or performance related pay to non-executive directors.
Risk Management
SSGA FM believes that risk management is a key function of the board, which is responsible for setting the overall risk appetite of a company and for providing oversight on the risk management process established by senior executives at a company. SSGA FM allows boards discretion over how they provide oversight in this area. However, SSGA FM expects companies to disclose how the board provides oversight on its risk management system and to identify key risks facing the company. Boards should also review existing and emerging risks as they can change with a changing political and economic landscape, or as companies diversify or expand their operations into new areas.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. In this regard, SSGA FM supports environmental and social related items that we believe would protect or enhance shareholder value. Environmental and social factors not only can have an impact on the reputation of companies; they may also represent significant operational risks and costs to business. Well-developed environmental and social management systems can also generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. In our view, companies that manage all risks and consider opportunities related to environmental and social issues are able to adapt faster to changes and appear to be better placed to achieve sustainable competitive advantage in the long-term. Similarly, companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change, which could result in anything from regulation and litigation, physical threats (severe weather, climate change), economic trends as well as shifts in consumer behavior.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks and shareholder proposals relating to them on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint. SSGA FM may also take action against the re-election of members of the board if we have serious concerns over ESG practices and the company has not been responsive to shareholder pressure.
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ssga.com
State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy : State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968 - R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
INST-7617 0317 Exp. Date: 03/31/2018
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March 2017
FM Proxy Voting and Engagement Guidelines
Rest of the World
SSGA Funds Management, Inc.s (SSGA FM) Rest of the World Proxy Voting and Engagement Guidelines cover different corporate governance frameworks and practices in international markets not covered under specific country/regional policies. These guidelines complement and should be read in conjunction with SSGA FMs overarching Global Proxy Voting and Engagement Principles which provides a detailed explanation of SSGA FMs approach to voting and engaging with companies, and SSGAs Conflicts of Interest Policy.
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At SSGA FM, we recognize that countries in international markets not covered under specific country/regional policies are disparate in their corporate governance frameworks and practices. Concurrent with developing a company specific voting and engagement program, SSGA FM also evaluates the various factors that play into the corporate governance framework of a country. These factors include but are not limited to: (i) the macroeconomic conditions and broader political system in a country; (ii) quality of regulatory oversight, enforcement of property and shareholder rights; and (iii) the independence of judiciary. While emerging market countries tend to pose broad common governance issues across all markets, such as concentrated ownership, poor disclosure of financial and related-party transactions, and weak enforcement of rules and regulation, SSGA FMs proxy voting guidelines are designed to identify and address specific governance concerns in each market.
SSGA FMs Proxy Voting and Engagement Philosophy in Emerging Markets
SSGA FMs approach to proxy voting and issuer engagement in emerging markets is designed to increase the value of our investments through the mitigation of governance risks. Since the overall quality of the corporate governance framework in an emerging market country drives the level of governance risks investors assign to a country, improving the macro governance framework in a country may help reduce governance risks, in turn, increasing the overall value of SSGA FMs holdings over time. Therefore, in order to improve the overall governance framework and practices in a country, members of our proxy voting and engagement team endeavor to visit emerging market countries and meet with representatives from regulatory agencies and stock markets to highlight potential concerns with the macro governance framework of a country. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in emerging markets. To help mitigate company specific risk, the Asset Stewardship Team works alongside members of the active fundamental and emerging market teams to engage with emerging market companies on governance issues and address any specific concerns or to get more information regarding shareholder items that are to be voted on at upcoming shareholder meetings. This integrated approach to engagement drives SSGA FMs proxy voting and engagement philosophy in emerging markets.
SSGA FMs proxy voting guidelines in emerging markets addresses six broad areas:
| Directors and Boards; |
| Accounting and Audit Related Issues; |
| Shareholder Rights and Capital Related Issues; |
| Remuneration; |
| Environmental and Social Issues; and |
| General/Routine Issues. |
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. However, several factors such as low overall independence level requirements by market regulators, poor biographical disclosure of director profiles, prevalence of related-party transactions and the general resistance from controlling shareholders to increase board independence renders the election of directors as one of the most important fiduciary duties SSGA FM performs in emerging market companies.
SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering various factors including general market practice and availability of information on director skills and expertise. SSGA FM expects companies to meet minimum overall board independence standards as defined in a corporate governance code or market practice. Therefore, in several countries, SSGA FM will vote against select non-independent directors if overall board independence levels do not meet market standards.
SSGA FMs broad criteria for director independence in emerging market companies include factors such as:
| Participation in related-party transactions; |
| Employment history with company; |
| Relations with controlling shareholders and other employees; and |
| Attendance levels. |
In some countries, market practice calls for the establishment of a board level audit committee. In such cases, SSGA FM believes companies should have an audit committee that is responsible for monitoring the integrity of the financial statements of the company,
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appointing external auditors, monitoring their qualifications and independence as well as their effectiveness and resource levels. Based on our desire to enhance the quality of financial and accounting oversight provided by independent directors, SSGA FM expects that listed companies have an audit committee that is constituted of a majority of independent directors.
Audit Related Issues
The disclosure and availability of reliable financial statements in a timely manner is imperative for the investment process. As a result, board oversight of internal controls and the independence of the audit process are essential if investors are to rely on financial statements. SSGA FM believes that audit committees provide the necessary oversight on the selection and appointment of auditors, a companys internal controls and accounting policies, and the overall audit process. In emerging markets, SSGA FM encourages boards to appoint an audit committee composed of a majority of independent auditors.
Appointment of External Auditors
SSGA FM believes that a companys auditor is an essential feature of an effective and transparent system of external supervision and shareholders should be given the opportunity to vote on their appointment or re-appointment at the annual meeting. SSGA FM believes that it is imperative for audit committees to select outside auditors who are independent from management.
Shareholder Rights and Capital Related Issues
SSGA FM believes that changes to a companys capital structure such as changes in authorized share capital, share repurchase and debt issuances are critical decisions made by the board. SSGA FM believes the company should have a well explained business rationale that is consistent with corporate strategy and should not overly dilute its shareholders.
Related Party Transactions
Most companies in emerging markets have a controlled ownership structure that often include complex cross-shareholdings between subsidiaries and parent companies (related companies). As a result, there is a high prevalence of related-party transactions between the company and its various stakeholders such as directors and management. In addition, inter-group loan and loan guarantees provided to related companies are some of the other related-party transactions that increase the risk profile of companies. In markets where shareholders are required to approve such transactions, SSGA FM expects companies to provide details of the transaction, such as the nature, value and purpose of such a transaction. It also encourages independent directors to ratify such transactions. Further, SSGA FM encourages companies to describe the level of independent board oversight and the approval process, including details of any independent valuations provided by financial advisors on related-party transactions.
Share Repurchase Programs
With regard to share repurchase programs, SSGA FM expects companies to clearly state the business purpose for the program and a definitive number of shares to be repurchased.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation. Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
SSGA FM evaluates mergers and structural reorganizations on a case-by-case basis. SSGA FM will generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
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SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
SSGA FM will actively seek direct dialogue with the board and management of companies we have identified through our screening processes. Such engagements may lead to further monitoring to ensure the company improves its governance or sustainability practices. In these cases, the engagement process represents the most meaningful opportunity for SSGA FM to protect long-term shareholder value from excessive risk due to poor governance and sustainability practices.
Remuneration
SSGA FM considers it to be the boards responsibility to set appropriate levels of executive remuneration. Despite the differences among the types of plans and the awards possible, there is a simple underlying philosophy that guides SSGA FMs analysis of executive remuneration; there should be a direct relationship between executive compensation and company performance over the long term. In emerging markets we encourage companies to disclose information on senior executive remuneration.
With regard to director remuneration, SSGA FM supports director pay provided the amounts are not excessive relative to other issuers in the market or industry and are not overly dilutive to existing shareholders.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. In this regard, SSGA FM supports environmental and social related items that we believe would protect or enhance shareholder value. Environmental and social factors can not only have an impact on the reputation of companies; they may also represent significant operational risks and costs to business. Well-developed environmental and social management systems generate efficiencies and enhance productivity, both of which impact shareholder value in the longterm.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. Companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change. In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint.
In emerging markets, shareholders seldom vote on environmental and social issues. Therefore, SSGA FM addresses a companys approach to identifying and managing environmental and social risks stemming for various aspects of its operations in its one-on-one engagement with companies.
General/Routine Issues
Some of the other issues that are routinely voted on in emerging markets include approving the allocation of income and accepting financial statements and statutory reports. For these voting items, SSGA FMs policies consider several factors including historical dividend payouts, pending litigation, governmental investigations, charges of fraud or other indication of significant concerns.
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ssga.com
For Public Use
State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. T: +49 (0)89 55878 100. F: +49 (0)89 55878 440. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy : State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Adam Smith Building, Thomas Malthusstraat 1-3, 1066 JR Amsterdam, Netherlands. T: +31 (0)20 7181701. State Street Global Advisors Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D, regulated by the Monetary Authority of Singapore) Telephone: +65 6826-7555 Facsimile: +65 6826-7501 Web: www.SSGA.com. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA express written consent.
© 2017 State Street Corporation. All Rights Reserved.
INST-7621 0317 Exp. Date: 03/31/2018
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March 2017
FM Proxy Voting and Engagement Guidelines
Japan
SSGA Funds Management, Inc.s, (SSGA FM) Japan Proxy Voting and Engagement Guidelines complement and should be read in conjunction with SSGA FMs overarching Global Proxy Voting and Engagement Guidelines, which provide a detailed explanation of SSGA FMs approach to voting and engaging with companies, and SSGAs Conflicts of Interest Policy.
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SSGA FMs Proxy Voting and Engagement Guidelines in Japan address areas including: board structure, audit related issues, capital structure, remuneration, environmental, social and other governance related issues. Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and, overseeing executive management to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
When voting and engaging with companies in Japan, SSGA FM takes into consideration the unique aspects of Japanese corporate governance structures. We recognize that under Japanese corporate law, companies may choose between two structures of corporate governance: the statutory auditor system or the committee structure. Most Japanese boards predominantly consist of executives and non-independent outsiders affiliated through commercial relationships or cross-shareholdings. Nonetheless, when evaluating companies, SSGA FM expects Japanese companies to address conflicts of interest, risk management and demonstrate an effective process for monitoring management. In its analysis and research into corporate governance issues in Japanese companies, SSGA FM also considers guidance issued by the Corporate Law Subcommittee of the Legislative Council within the Ministry of Justice as well as private study groups.
SSGA FMs Proxy Voting and Engagement Philosophy
In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals with expertise in corporate governance and company law, remuneration, and environmental and social issues. SSGA FM has established robust corporate governance principles and practices that are backed with extensive analytical expertise to understand the complexities of the corporate governance landscape. SSGA FM engages with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
The team works alongside members of SSGA FMs active investment teams; collaborating on issuer engagement and providing input on company specific fundamentals. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in Japan.
SSGA FM is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with Japans Stewardship Code and Corporate Governance Code. We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practices, where applicable and consistent with our fiduciary duty.
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering various factors including general market practice.
Japanese companies have the option of having a traditional board of directors with statutory auditors, a board with a committee structure, or a hybrid board with board level audit committee. SSGA FM will generally support companies that seek shareholder approval to adopt a committee or hybrid board structure.
Most Japanese issuers prefer the traditional statutory auditor structure. Statutory auditors act in a quasi-compliance role as they are not involved in strategic decision-making nor are they part of the formal management decision process. Statutory auditors attend board meetings but do not have voting rights at the board; however, they have the right to seek an injunction and conduct broad investigations of unlawful behavior in the companys operations.
SSGA FM will support the election of statutory auditors, unless the outside statutory auditor nominee is regarded as non-independent based on SSGA FM criteria, the outside statutory auditor has attended less than 75 percent of meetings of the board of directors or board of statutory auditors during the year under review, or the statutory auditor has been remiss in the performance of their oversight responsibilities (fraud, criminal wrong-doing and breach of fiduciary responsibilities).
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For companies with a statutory auditor structure there is no legal requirement that boards have outside directors, however, SSGA FM believes there should be a transparent process of independent and external monitoring of management on behalf of shareholders.
| SSGA FM believes that non-controlled Japanese companies should appoint at least two outside directors, otherwise, SSGA FM will oppose the top executive who is responsible for the director nomination process; and |
| For controlled companies with a statutory auditor structure, SSGA FM will oppose the top executive, if the board does not have at least two independent directors. |
For companies with a committee structure or a hybrid board structure, SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering general market practice, as well as the independence of the nominee. SSGA FM also takes into consideration the overall independence level of the committees. In determining director independence, SSGA FM considers the following factors:
| Participation in related-party transactions and other business relations with the company; |
| Past employment with the company; |
| Provides professional services to the company; and |
| Family ties with the company. |
Regardless of board structure, SSGA FM may oppose the election of a director for the following reasons:
| Failure to attend board meetings; or |
| In instances of egregious actions related to a directors service on the board. |
Indemnification and Limitations on Liability
Generally, SSGA FM supports proposals to limit directors and statutory auditors liability and/or expand indemnification and liability protection up to the limit provided by law, if he or she has not acted in bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. SSGA FM believes limitations and indemnification are necessary to attract and retain qualified directors.
Audit Related Items
SSGA FM believes that a companys auditor is an essential feature of an effective and transparent system of external supervision and shareholders should have the opportunity to vote on their appointment at the annual meeting.
Ratifying External Auditors
SSGA FM will generally support the appointment of external auditors unless the external auditor is perceived as being non-independent and there are concerns about the accounts presented and the audit procedures followed.
Limit Legal Liability of External Auditors
SSGA FM generally opposes limiting the legal liability of audit firms as we believe this could create a negative impact on the quality of the audit function.
Capital Structure, Reorganization and Mergers
SSGA FM supports the one share one vote policy and favors a share structure where all shares have equal voting rights. SSGA FM supports proposals to abolish voting caps or multiple voting rights and will oppose measures to introduce these types of restrictions on shareholder rights.
SSGA FM believes pre-emption rights should be introduced for shareholders in order to provide adequate protection from being overly diluted from the issuance of new shares or convertible securities to third parties or a small number of select shareholders.
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Unequal Voting Rights
SSGA FM generally opposes proposals authorizing the creation of new classes of common stock with superior voting rights and will generally oppose new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights. In addition, SSGA FM will not support capitalization changes that add classes of stock with undefined voting rights or classes that may dilute the voting interests of existing shareholders.
However, SSGA FM will support capitalization changes that eliminate other classes of stock and/or unequal voting rights.
Increase in Authorized Capital
SSGA FM generally supports increases in authorized capital where the company provides an adequate explanation for the use of shares. In the absence of an adequate explanation, SSGA FM may oppose the request if the increase in authorized capital exceeds 100 percent of the currently authorized capital. Where share issuance requests exceed our standard threshold, SSGA FM will consider the nature of the specific need, such as mergers and acquisitions and stock splits.
Dividends
SSGA FM generally supports dividend payouts that constitute 30 percent or more of net income. SSGA FM may vote against the dividend payouts if the dividend payout ratio has been consistently below 30 percent without adequate explanation; or, the payout is excessive given the companys financial position. Particular attention will be paid where the payment may damage the companys longterm financial health.
Share Repurchase Programs
Companies are allowed under Japanese Corporate Law to amend their articles to authorize the repurchase of shares at the boards discretion. SSGA FM will oppose an amendment to articles allowing the repurchase of shares at the boards discretion. SSGA FM believes the company should seek shareholder approval for a share repurchase program at each years AGM, providing shareholders the right to evaluate the purpose of the repurchase.
SSGA FM generally supports a proposal to repurchase shares, other than if the issuer does not clearly state the business purpose for the program, a definitive number of shares to be repurchased, and the time frame for the repurchase. SSGA FM may vote against share repurchase requests that allow share repurchases during a takeover period.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation. Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
SSGA FM evaluates mergers and structural reorganizations on a case-by-case basis. SSGA FM will generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
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Anti-Takeover Measures
In general, SSGA FM believes that adoption of poison pills that have been structured to protect management and to prevent takeover bids from succeeding is not in shareholders interest. A shareholder rights plan may lead to management entrenchment and discourage legitimate tender offers and acquisitions. Even if the premium paid to companies with a shareholder rights plan is higher than that offered to unprotected firms, a companys chances of receiving a takeover offer in the first place may be reduced by the presence of a shareholder rights plan.
Proposals that reduce shareholders rights or have the effect of entrenching incumbent management will not be supported.
Proposals that enhance the right of shareholders to make their own choices as to the desirability of a merger or other proposal are supported.
Shareholder Rights Plans
In evaluating the adoption or renewal of a Japanese issuers shareholder rights plans ( poison pill) SSGA FM considers the following conditions: (i) release of proxy circular with details of the proposal with adequate notice in advance of meeting, (ii) minimum trigger, flip-in or flip-over of 20 percent, (iii) maximum term of three years, (iv) sufficient number of independent directors, (v) presence of an independent committee, (vi) no other protective entrenchment features.
In evaluating an amendment to a shareholder rights plan (poison pill), in addition to the conditions above, SSGA FM will also evaluate and consider supporting proposals where the terms of the new plans are more favorable to shareholders ability to accept unsolicited offers.
Compensation
In Japan, excessive compensation is rarely an issue. Rather, the problem is the lack of connection between pay and performance. Fixed salaries and cash retirement bonuses tend to comprise a significant portion of the compensation structure while performance-based pay is generally a small portion of the total pay. SSGA FM, where possible, seeks to encourage the use of performance based compensation in Japan as an incentive for executives and as a way to align interests with shareholders.
Approve Adjustment to Aggregate Compensation Ceiling for Directors
Remuneration for directors is generally reasonable. Typically, each company sets the director compensation parameters as an aggregate thereby limiting the total pay to all directors. When requesting a change, a company must disclose the last time the ceiling was adjusted and management provides the rationale for the ceiling increase. SSGA FM will generally support proposed increases to the ceiling if the company discloses the rationale for the increase. SSGA FM may oppose proposals to increase the ceiling if there has been corporate malfeasance or sustained poor performance.
Approve Annual Bonuses for Directors/Statutory Auditors
In Japan, since there are no legal requirements that mandate companies to seek shareholder approval before awarding a bonus, SSGA FM believes that existing shareholder approval of the bonus should be considered best practice. As a result, SSGA FM supports management proposals on executive compensation where there is a strong relationship between executive pay and performance over a five-year period.
Approve Retirement Bonuses for Directors/ Statutory Auditors
Retirement bonuses make up a sizeable portion of directors and auditors lifetime compensation and are based on board tenure. While many companies in Japan have abolished this practice, there remain many proposals seeking shareholder approval for the total amounts paid to directors and statutory auditors as a whole. In general, SSGA FM supports these payments unless the recipient is an outsider or in instances where the amount is not disclosed.
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Approve Stock Plan
Most option plans in Japan are conservative, particularly at large companies. Japan corporate law requires companies to disclose the monetary value of the stock options for directors and/or statutory auditors. Some companies do not disclose the maximum number of options that can be issued per year and shareholders are unable to evaluate the dilution impact. In this case, SSGA FM cannot calculate the dilution level and, therefore, SSGA FM may oppose such plans for poor disclosure. SSGA FM also opposes plans that allow for the repricing of the exercise price.
Deep Discount Options
As Japanese companies move away from the retirement bonus system, deep discount options plans have become more popular. Typically, the exercise price is set at JPY 1 per share. SSGA FM evaluates deep discount options using the same criteria used to evaluate stock options as well as considering the vesting period.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. In this regard, SSGA FM supports environmental and social related items that we believe would protect or enhance shareholder value. Environmental and social factors can not only have an impact on the reputation of companies; they may also represent significant operational risks and costs to business. Well-developed environmental and social management systems generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. Companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint.
Miscellaneous/Routine Items
Expansion of Business Activities
Japanese companies articles of incorporation strictly define the types of businesses in which a company is permitted to engage. In general, SSGA FM views proposals to expand and diversify the companys business activities as routine and non-contentious. SSGA FM will monitor instances where there has been an inappropriate acquisition and diversification away from the companys main area of competence, which resulted in a decrease of shareholder value.
More Information
Any client who wishes to receive information on how its proxies were voted should contact its SSGA FM relationship manager.
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State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
INST-7618 0317 Exp. Date: 03/31/2018
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March 2017
FM Proxy Voting and Engagement Guidelines
United Kingdom and Ireland
SSGA Funds Management, Inc.s (SSGA FM), UK and Ireland Proxy Voting and Engagement Guidelines outline our expectations of companies listed on stock exchanges in the United Kingdom and Ireland. These guidelines complement and should be read in conjunction with SSGA FMs Global Proxy Voting and Engagement Principles, which provide a detailed explanation of SSGA FMs approach to voting and engaging with companies and SSGAs Conflicts of Interest Policy.
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SSGA FMs UK Proxy Voting and Engagement Guidelines address areas including board structure, audit related issues, capital structure, remuneration, environmental, social and other governance related issues. Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy, overseeing executive management to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
When voting and engaging with companies in global markets, SSGA FM considers market specific nuances in the manner that we believe will most likely protect and promote the long-term economic value of client investments. SSGA FM expects companies to observe the relevant laws and regulations of their respective markets as well as country specific best practice guidelines and corporate governance codes. When we feel that a countrys regulatory requirements do not address some of the key philosophical principles that SSGA FM believes are fundamental to its global voting guidelines, we may hold companies in such markets to our global standards.
In its analysis and research into corporate governance issues in the UK and Ireland, SSGA FM expects all companies, regardless of domicile, that obtain a primary listing on the London Stock Exchange or the Irish Stock Exchange to comply with the UK Corporate Governance Code. Companies should provide detailed explanations under the Codes comply or explain approach, especially where they fail to meet requirements and why any such non-compliance would serve shareholders long-term interests.
SSGA FMs Proxy Voting and Engagement Philosophy
In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals with expertise in corporate governance and company law, remuneration, accounting as well as environmental and social issues. SSGA FM has established robust corporate governance principles and practices that are backed with extensive analytical expertise to understand the complexities of the corporate governance landscape. SSGA FM engages with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
The team works alongside members of SSGA FMs active fundamental and EMEA investment teams; collaborating on issuer engagement and providing input on company specific fundamentals. SSGA FM is also a member of various investor associations that seek to address broader corporate governance related policy issues in the UK and European markets.
SSGA FM is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with the UK Stewardship Code. We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practice, where applicable and consistent with our fiduciary duty.
Directors and Boards
SSGA FM believes that a well constituted board of directors, with a good balance of skills, expertise and independence, provides the foundations for a well governed company. SSGA FM views board quality as a measure of director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. SSGA FM votes for the election/re-election of directors on a case-by-case basis after considering various factors including board quality, general market practice and availability of information on director skills and expertise. In principle, SSGA FM believes independent directors are crucial to good corporate governance and help management establish sound corporate governance policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests. Further, SSGA FM expects boards of FTSE-350 listed companies to have at least one female board member.
A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests.
SSGA FMs broad criteria for director independence in UK companies include factors such as:
| Participation in related-party transactions and other business relations with the company; |
| Employment history with company; |
| Excessive tenure and a preponderance of long-tenured directors: |
| Relations with controlling shareholders; |
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| Family ties with any of the companys advisers, directors or senior employees; and |
| If the company classifies the director as non-independent. |
When considering the election or re-election of a director, SSGA FM also considers the number of outside board directorships a non-executive and an executive may undertake as well as attendance at board meetings. In addition, SSGA FM monitors other factors that may influence the independence of a non-executive director, such as performance related pay, cross-directorships and significant shareholdings. SSGA FM supports the annual election of directors.
While SSGA FM is generally supportive of having the roles of chairman and CEO separated in the UK market, SSGA FM assesses the division of responsibilities between chairman and CEO on a case-by-case basis, giving consideration to factors such as the companys specific circumstances, overall level of independence on the board and general corporate governance standards in the company. Similarly, SSGA FM will monitor for circumstances where a combined chairman/CEO is appointed or where a former CEO becomes chairman.
SSGA FM may also consider factors such as board performance and directors who appear to be remiss in the performance of their oversight responsibilities when considering their suitability for reappointment (e.g. fraud, criminal wrongdoing and breach of fiduciary responsibilities).
SSGA FM believes companies should have committees for audit, remuneration and nomination oversight. The audit committee is responsible for monitoring the integrity of the financial statements of the company, appointing external auditors, monitoring their qualifications and independence as well their effectiveness and resource levels. Similarly, executive pay is an important aspect of corporate governance, and it should be determined by the board of directors . SSGA FM expects companies to have in place remuneration committees to provide independent oversight over executive pay. SSGA FM will vote against nominees who are executive members of audit or remuneration committees.
In its analysis of boards, SSGA FM considers whether board members have adequate skills to provide effective oversight of corporate strategy, operations and risks, including environmental and social issues. Boards should also have a regular evaluation process in place to assess the effectiveness of the board and the skills of board members to address issues such as emerging risks, changes to corporate strategy and diversification of operations and geographic footprint. The nomination committee is responsible for evaluating and keeping under review the balance of skills, knowledge and experience of the board and ensuring that adequate succession plans are in place for directors and the CEO. SSGA FM may vote against the re-election of members of the nomination committee if, over time, the board has failed to address concerns over board structure or succession.
Indemnification and Limitations on Liability
Generally, SSGA FM supports proposals to limit directors liability and/or expand indemnification and liability protection up to the limit provided by law, if he or she has not acted in bad faith, with gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Audit Related Issues
Companies should have robust internal audit and internal control systems designed for effective management of any potential and emerging risks to company operations and strategy. The responsibility of setting out an internal audit function lies with the audit committee, which should have as members independent non-executive directors.
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Appointment of External Auditors
SSGA FM believes that a companys auditor is an essential feature of an effective and transparent system of external supervision and shareholders should be given the opportunity to vote on their appointment or to re-appoint at the annual meeting. When appointing external auditors and approving audit fees, SSGA FM will take into consideration the level of detail in company disclosures and will generally not support such resolutions if an adequate breakdown is not provided and if non-audit fees are more than 50% of audit fees. In addition, SSGA FM may vote against members of the audit committee if we have concerns with audit related issues or if the level of non-audit fees to audit fees is significant. In certain circumstances, SSGA FM may consider auditor tenure when evaluating the audit process.
Limit Legal Liability of External Auditors
SSGA FM generally opposes limiting the legal liability of audit firms as we believe this could create a negative impact on the quality of the audit function.
Shareholder Rights and Capital Related Issues
Share Issuances
The ability to raise capital is critical for companies to carry out strategy, grow, and achieve returns above their cost of capital. The approval of capital raising activities is fundamental to shareholders ability to monitor the amounts of proceeds and to ensure capital is deployed efficiently. SSGA FM supports capital increases that have sound business reasons and are not excessive relative to a companys existing capital base.
Pre-emption rights are a fundamental right for shareholders to protect their investment in a company. Where companies seek to issue new shares whilst dis-applying pre-emption rights, SSGA FM may vote against if such authorities are greater than 20% of the issued share capital. SSGA FM may also vote against resolutions seeking authority to issue capital with pre-emption rights if the aggregate amount allowed seems excessive and is not justified by the board. Generally, we are against capital issuance proposals greater than 100% of the issued share capital when the proceeds are not intended for a specific purpose.
Share Repurchase Programs
SSGA FM generally supports a proposal to repurchase shares, other than if the issuer does not clearly state the business purpose for the program, a definitive number of shares to be repurchased, specify the range of premium/discount to market price at which a company can repurchase shares, and the time-frame for the repurchase. SSGA FM may vote against share re-purchase requests that allow share re-purchases during a takeover period.
Dividends
SSGA FM generally supports dividend payouts that constitute 30% or more of net income. SSGA FM may vote against the dividend payouts if the dividend payout ratio has been consistently below 30% without adequate explanation; or, the payout is excessive given the companys financial position. Particular attention will be paid where the payment may damage the companys long term financial health.
Mergers and Acquisitions
Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation. Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
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SSGA FM will generally support transactions that maximize share-holder value. Some of the considerations include, but are not limited to the following:
| Offer premium; |
| Strategic rationale; |
| Board oversight of the process for the recommended transaction, including, director and/or management conflicts of interest; |
| Offers made at a premium and where there are no other higher bidders; and |
| Offers in which the secondary market price is substantially lower than the net asset value. |
SSGA FM may vote against a transaction considering the following:
| Offers with potentially damaging consequences for minority shareholders because of illiquid stock; |
| Offers where we believe there is a reasonable prospect for an enhanced bid or other bidders; and |
| At the time of voting, the current market price of the security exceeds the bid price. |
Anti-Takeover Measures
SSGA FM opposes anti-takeover defenses such as authorities for the board when subject to a hostile takeover to issue warrants convertible into shares to existing shareholders.
Remuneration
Executive Pay
Despite the differences among the types of plans and awards possible, there is a simple underlying philosophy that guides SSGA FMs analysis of executive paythere should be a direct relationship between remuneration and company performance over the long term.
Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration policies and reports, SSGA FM considers factors such as adequate disclosure of different remuneration elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long-term and short-term incentives, alignment of pay structures with shareholder interests as well as with corporate strategy and performance. SSGA FM may oppose remuneration reports where pay seems misaligned with shareholders interests. SSGA FM may also vote against the re-election of members of the remuneration committee if we have serious concerns over remuneration practices and the company has not been responsive to shareholder pressure.
Equity Incentive Plans
SSGA FM may not support proposals on equity-based incentive plans where insufficient information is provided on matters such as grant limits, performance metrics, performance and vesting periods and overall dilution. SSGA FM does not generally support options under such plans being issued at a discount to market price or plans that allow for re-testing of performance metrics.
Non-Executive Director Pay
Authorities seeking shareholder approval for non-executive directors fees are generally not controversial. SSGA FM generally supports resolutions regarding directors fees unless disclosure is poor and we are unable to determine whether they are excessive relative to fees paid by other companies in the same country or industry. SSGA FM will evaluate on a company- by-company basis any non-cash or performance related pay to non-executive directors.
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Risk Management
SSGA FM believes that risk management is a key function of the board, which is responsible for setting the overall risk appetite of a company and for providing oversight on the risk management process established by senior executives at a company. SSGA FM allows boards discretion over how they provide oversight in this area. However, SSGA FM expects companies to disclose how the board provides oversight on its risk management system and to identify key risks facing the company. Boards should also review existing and emerging risks as they can change with a changing political and economic landscape, or as companies diversify or expand their operations into new areas.
Environmental and Social Issues
As a fiduciary, SSGA FM considers the financial and economic implications of environmental and social issues first and foremost. In this regard, SSGA FM supports environmental and social related items that we believe would protect or enhance shareholder value. Environmental and social factors not only can have an impact on the reputation of companies; they may also represent significant operational risks and costs to business. Well-developed environmental and social management systems can also generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term.
SSGA FM encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. In our view, companies that manage all risks and consider opportunities related to environmental and social issues are able to adapt faster to changes and appear to be better placed to achieve sustainable competitive advantage in the long-term. Similarly, companies with good risk management systems, which include environmental and social policies, have a stronger position relative to their peers to manage risk and change, which could result in anything from regulation and litigation, physical threats (severe weather, climate change), economic trends as well as shifts in consumer behavior.
In their public reporting, we expect companies to disclose information on relevant management tools and material environmental and social performance metrics. We support efforts by companies to try to demonstrate how sustainability fits into overall strategy, operations and business activities. SSGA FMs team of analysts evaluates these risks and shareholder proposals relating to them on an issuer by issuer basis; understanding that environmental and social risks can vary widely depending on company industry, its operations, and geographic footprint. SSGA FM may also take action against the re-election of members of the board if we have serious concerns over ESG practices and the company has not been responsive to shareholder concerns.
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State Street Global Advisors Worldwide Entities
Australia: State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services Licence (AFSL Number 238276). Registered Office: Level 17, 420 George Street, Sydney, NSW 2000, Australia. T: +612 9240 7600. F: +612 9240 7611. Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: +32 2 663 2036, F: +32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Canada: State Street Global Advisors, Ltd., 770 Sherbrooke Street West, Suite 1200 Montreal, Quebec, H3A 1G1, T: +514 282 2400 and 30 Adelaide Street East Suite 500, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Bank and Trust Company (Representative Office), Boulevard Plaza 1, 17th Floor, Office 1703 Near Dubai Mall & Burj Khalifa, P.O Box 26838, Dubai, United Arab Emirates. T: +971 (0)4 4372800. F: +971 (0)4 4372818. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: 412 052 680. Registered Office: Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. Telephone +49 (0)89-55878-400. Facsimile +49 (0)89-55878-440. www.ssga.com. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103 0288. F: +852 2103 0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: 145221. Member of the Irish Association of Investment Managers. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy : State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA ), with a capital of GBP 71650000.00, and whose registered office is at 20 Churchill Place, London E14 5HJ. State Street Global Advisors Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 06353340968R.E.A. 1887090 and VAT number 06353340968 and whose office is at Via dei Bossi, 4 - 20121 Milano, Italy Telephone: 39 02 32066 100 Facsimile: 39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., 9-7-1 Akasaka, Minato-ku, Tokyo 107-6239. T: +813 4530 7380. Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345). Japan Investment Advisers Association, Investment Trusts Association Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. Telephone: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Registered Number: 200002719D). T: +65 6826 7500. F: +65 6826 7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. Telephone +41 (0)44 245 70 00. Facsimile Fax: +41 (0)44 245 70 16. www.ssga.com. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: 2509928. VAT Number: 5776591 81. Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: +020 3395 6000. F: +020 3395 6350. United States: State Street Global Advisors, One Lincoln Street, Boston, MA 02111-2900. T: +617 786 3000.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGAs express written consent.
© 2017 State Street Corporation. All Rights Reserved.
INST-7619 0317 Exp. Date: 03/31/2018
A-54
PART C
OTHER INFORMATION
Item 28. | Exhibits |
(a)(i) | First Amended and Restated Declaration of Trust of StreetTracks (SM) Series Trust (now, SPDR ® Series Trust) (the Trust or the Registrant) dated June 9, 1998, as amended September 6, 2000, is incorporated herein by reference to Exhibit (a)(ii) of Pre-Effective Amendment No. 3 to the Registrants Registration Statement on Form N-1A, as filed with the U.S. Securities and Exchange Commission (the SEC) on September 25, 2000. | |
(a)(ii) | Amendment No. 1, dated August 1, 2007, to the Registrants First Amended and Restated Declaration of Trust, dated June 9, 1998, as amended September 6, 2000, is incorporated herein by reference to Exhibit (a)(ii) of Post-Effective Amendment No. 23 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on August 10, 2007. | |
(b) | Registrants Amended and Restated By-Laws, dated November 12, 2015, are incorporated herein by reference to Exhibit (b) of Post-Effective Amendment No. 152 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on November 23, 2015. | |
(c) | Global Certificates of Beneficial Interest, evidencing shares of Beneficial Interest, $.01 par value, are incorporated herein by reference to Exhibit (c) of Pre-Effective Amendment No. 3 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on September 25, 2000. | |
(d)(i)(1) | Amended and Restated Investment Advisory Agreement, dated September 1, 2003, between the Trust and SSGA Funds Management, Inc. (SSGA FM) is incorporated herein by reference to Exhibit (d)(1) of Post-Effective Amendment No. 4 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 28, 2003. | |
(d)(i)(2) | Revised Exhibit A (Schedule of Series) to the Amended and Restated Investment Advisory Agreement, dated September 1, 2003, between the Trust and SSGA FM is filed herewith. | |
(d)(ii) | Fee Waiver Letter Agreement dated, June 18, 2012, between the Trust and SSGA FM, with respect to the SPDR BofA Merrill Lynch Crossover Corporate Bond ETF, is incorporated herein by reference to Exhibit (d)(iii) of Post-Effective Amendment No. 86 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on June 18, 2012. | |
(d)(iii) | Fee Waiver Letter Agreement, dated October 14, 2011, between the Trust and SSGA FM, with respect to the SPDR Nuveen S&P High Yield Municipal Bond ETF, is incorporated herein by reference to Exhibit (d)(iii) of Post-Effective Amendment No. 73 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 28, 2011. | |
(d)(iv) | Fee Waiver Letter Agreement, dated October 23, 2007, between the Trust and SSGA FM, with respect to the SPDR Bloomberg Barclays Aggregate Bond ETF (formerly, the SPDR Barclays Aggregate Bond ETF), is incorporated herein by reference to Exhibit (d)(iv) of Post-Effective Amendment No. 28 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 26, 2007. |
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(d)(v) | Fee Waiver Letter Agreement, dated October 27, 2010, between the Trust and SSGA FM, with respect to the SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (formerly, the SPDR Nuveen Barclays Municipal Bond ETF), is incorporated herein by reference to Exhibit (d)(v) of Post-Effective Amendment No. 52 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 28, 2010. | |
(d)(vi) | Fee Waiver Letter Agreement, dated November 24, 2015, between the Trust and SSGA FM, with respect to the SPDR S&P 500 Fossil Fuel Reserves Free ETF (formerly, the SPDR S&P 500 Fossil Fuel Free ETF), is incorporated herein by reference to Exhibit (d)(vi) of Post-Effective Amendment No. 153 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on November 25, 2015. | |
(d)(vii) | Sub-Advisory Agreement dated November 20, 2014 between SSGA FM and Nuveen Asset Management (NAM) is filed herewith. | |
(d)(viii) | Sub-Advisory Agreement, dated May 19, 2010, between SSGA FM and State Street Global Advisors LTD (SSGA LTD) is incorporated herein by reference to Exhibit (d)(x) of Post-Effective Amendment No. 50 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on May 19, 2010. | |
(e)(i)(1) | Amended and Restated Distribution Agreement, dated May 1, 2017, between the Trust and State Street Global Advisors Funds Distributors, LLC (SSGA FD) is filed herewith. | |
(e)(i)(2) | Amended Annex I (Schedule of Series) to the Distribution Agreement dated May 1, 2017 between the Trust and SSGA FD, to be filed by amendment. | |
(f) | Not applicable. | |
(g)(i) | Custodian Agreement, dated September 22, 2000, between the Trust and State Street Bank and Trust Company is incorporated herein by reference to Exhibit (g) of Pre-Effective Amendment No. 3 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on September 25, 2000. | |
(g)(ii) | Amendment, dated October 14, 2005, to the Custodian Agreement, dated September 22, 2000, between the Trust and State Street Bank and Trust Company is incorporated herein by reference to Exhibit (g)(iv) of Post-Effective Amendment No. 13 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 28, 2005. | |
(g)(iii) | Amended Schedule of Series to the Custodian Agreement, dated September 22, 2000, between the Trust and State Street Bank and Trust Company, to be filed by amendment. | |
(h)(i)(1) | Administration Agreement, dated June 1, 2015, between the Trust and SSGA FM is incorporated herein by reference to Exhibit (h)(i)(1) of Post-Effective Amendment No. 146 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 28, 2015. | |
(h)(i)(2) | Amended Schedule A (Schedule of Series) to the Administration Agreement, dated June 1, 2015, between the Trust and SSGA FM is filed herewith. | |
(h)(ii)(1) | Sub-Administration Agreement, dated June 1, 2015, between SSGA FM and State Street Bank and Trust Company is incorporated herein by reference to Exhibit (h)(ii)(1) of Post-Effective Amendment No. 146 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 28, 2015. |
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(h)(ii)(2) | Amended Schedule A (Schedule of Series) to the Sub-Administration Agreement, dated June 1, 2015, between SSGA FM and State Street Bank and Trust Company, to be filed by amendment. | |
(h)(iii) | Transfer Agency and Service Agreement, dated September 22, 2000, between the Trust and State Street Bank and Trust Company is incorporated herein by reference to Exhibit (h)(ii) of Pre-Effective Amendment No. 3 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on September 25, 2000. | |
(h)(iv) | Addendum, dated April 5, 2004, to Transfer Agency and Service Agreement, dated September 22, 2000, between the Trust and State Street Bank and Trust Company is incorporated herein by reference to Exhibit (h)(iii) of Post-Effective Amendment No. 13 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 28, 2005. | |
(h)(v) | Amended Annex A (Schedule of Series) to the Transfer Agency and Service Agreement, dated September 22, 2000, between the Trust and State Street Bank and Trust Company, to be filed by amendment. | |
(h)(vi) | Form of Participant Agreement is incorporated herein by reference to Exhibit (h)(iv) of Post-Effective Amendment No. 43 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on August 26, 2009. | |
(h)(vii) | Form of Investor Services Agreement is incorporated herein by reference to Exhibit (h)(iv) of Pre-Effective Amendment No. 3 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on September 25, 2000. | |
(h)(viii) | Master Amended and Restated Securities Lending Authorization Agreement, dated January 6, 2017, between the Trust and State Street Bank and Trust Company is filed herewith. | |
(i)(i) | Opinion and Consent of Morgan, Lewis & Bockius LLP is incorporated herein by reference to Exhibit (i) of Post-Effective Amendment No. 146 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 28, 2015 (Accession Number: 0001193125-15-356460). | |
(i)(ii) | Opinion and Consent of Morgan, Lewis & Bockius LLP is incorporated herein by reference to Exhibit (i) of Post-Effective Amendment No. 152 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on November 23, 2015 (Accession Number: 0001193125-15-385427). | |
(i)(iii) | Opinion and Consent of Morgan, Lewis & Bockius LLP is incorporated herein by reference to Exhibit (i) of Post-Effective Amendment No. 153 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on November 25, 2015 (Accession Number: 0001193125-15-387394). | |
(i)(iv) | Opinion and Consent of Morgan, Lewis & Bockius LLP is incorporated herein by reference to Exhibit (i) of Post-Effective Amendment No. 164 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on January 12, 2016 (Accession Number: 0001193125-16-428032). | |
(i)(v) | Opinion and Consent of Morgan, Lewis & Bockius LLP is incorporated herein by reference to Exhibit (i) of Post-Effective Amendment No. 172 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on March 4, 2016 (Accession Number: 0001193125-16-492935). |
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(i)(vi) | Opinion and Consent of Morgan, Lewis & Bockius LLP is incorporated herein by reference to Exhibit (i) of Post-Effective Amendment No. 183 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on May 31, 2016 (Accession Number: 0001193125-16-608807). | |
(i)(vii) | Opinion and Consent of Morgan, Lewis & Bockius LLP is incorporated herein by reference to Exhibit (i) of Post-Effective Amendment No. 187 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on June 24, 2016 (Accession Number: 0001193125-16-631639). | |
(j) | Consent of independent registered public accounting firm to be filed by amendment. | |
(k) | Not applicable. | |
(l) | Subscription Agreement, dated September 22, 2000, between the Trust and State Street Capital Markets, LLC is incorporated herein by reference to Exhibit (l) of Pre-Effective Amendment No. 3 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on September 25, 2000. | |
(m) | Not applicable. | |
(n) | Not applicable. | |
(p)(i) | Registrants Revised Code of Ethics, as adopted November 15, 2004 and revised February 23, 2010, is incorporated herein by reference to Exhibit (p)(i) of Post-Effective Amendment No. 47 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on March 5, 2010. | |
(p)(ii) | Code of Ethics of SSGA FM, dated November 1, 2016 (which also applies to applicable reporting personnel of SSGA FD) is filed herewith. | |
(p)(iii) | Code of Ethics of NAM is incorporated herein by reference to Exhibit (p)(iv) of Post-Effective Amendment No. 97 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on May 29, 2013. | |
(p)(iv) | Code of Ethics of SSGA LTD is incorporated herein by reference to Exhibit (p)(v) of Post-Effective Amendment No. 50 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on May 19, 2010. | |
(p)(v) | Code of Ethics for the Independent Trustees, dated November 12, 2015, is incorporated herein by reference to Exhibit (p)(v) of Post-Effective Amendment No. 159 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on December 17, 2015. | |
(q) | Power of Attorney for Mses. Boatman and Needham and Messrs. Churchill, Kelly, Nesvet, Ross, Verboncoeur and Rosenberg, dated August 23, 2017, is filed herewith. |
Item 29. | Persons Controlled By or Under Common Control With Registrant |
The Board of Trustees of the Trust is the same as the Boards of Trustees of SPDR Index Shares Funds, SSGA Master Trust and SSGA Active Trust. In addition, the officers of the Trust are substantially identical to the officers of SPDR Index Shares Funds, SSGA Master Trust and SSGA Active Trust. Additionally, the Trusts investment adviser, SSGA FM, also serves as investment adviser to each series of SPDR Index Shares Funds, SSGA Master Trust and SSGA Active Trust. Nonetheless, the Trust takes the position that it is not under common control with other trusts because the power residing in the respective boards and officers arises as the result of an official position with the respective trusts.
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Additionally, see the Control Persons and Principal Holders of Securities section of the Statement of Additional Information for a list of shareholders who own more than 5% of a specific funds outstanding shares and such information is incorporated by reference to this Item.
Item 30. | Indemnification |
Pursuant to Section 5.3 of the Registrants Amended and Restated Declaration of Trust and under Section 4.9 of the Registrants By-Laws, the Trust will indemnify any person who is, or has been, a Trustee, officer, employee or agent of the Trust against all expenses reasonably incurred or paid by him/her in connection with any claim, action, suit or proceeding in which he/she becomes involved as a party or otherwise by virtue of his/her being or having been a Trustee, officer, employee or agent and against amounts paid or incurred by him/her in the settlement thereof, if he/she acted in good faith and in a manner he/she reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his/her conduct was unlawful. In addition, indemnification is permitted only if it is determined that the actions in question did not render him/her liable by reason of willful misfeasance, bad faith or gross negligence in the performance of his/her duties or by reason of reckless disregard of his/her obligations and duties to the Registrant. The Registrant may also advance money for litigation expenses provided that Trustees, officers, employees and/or agents give their undertakings to repay the Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrants Amended and Restated Declaration of Trust, no Trustee, officer, employee or agent of the Registrant shall be liable for any action or failure to act, except in the case of willful misfeasance, bad faith or gross negligence or reckless disregard of duties to the Registrant. Pursuant to paragraph 9 of the Registrants Investment Advisory Agreement, the Adviser shall not be liable for any action or failure to act, except in the case of willful misfeasance, bad faith or gross negligence or reckless disregard of duties to the Registrant.
Insofar as indemnification for liability arising under the Securities Act of 1933 (the Act) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions of Rule 484 under the Act, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification provision of its By-Laws in a manner consistent with Release 11330 of the SEC under the Investment Company Act of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such Act remains in effect.
The Registrant maintains insurance on behalf of any person who is or was a Trustee, officer, employee or agent of the Registrant, or who is or was serving at the request of the Registrant as a trustee, director, officer, employee or agent of another trust or corporation, against any liability asserted against him/her and incurred by him/her or arising out of his/her position. However, in no event will the Registrant maintain insurance to indemnify any such person for any act for which the Registrant itself is not permitted to indemnify him/her.
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Item 31. | Business And Other Connections of Investment Adviser |
SSGA FM serves as the investment adviser for each series of the Trust. NAM serves as investment adviser or manager to the SPDR Nuveen Bloomberg Barclays Municipal Bond ETF, SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF and SPDR Nuveen S&P High Yield Municipal Bond ETF. SSGA LTD serves as the sub-investment manager for the SPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local Bond ETF.
See Management in the Prospectus and Management of the Trust in the Statement of Additional Information for information regarding the business of SSGA FM, NAM and SSGA LTD. Information as to the directors and officers of SSGA FM, NAM and SSGA LTD is included in their applicable Form ADV filed with the SEC and incorporated herein by reference thereto.
Item 32. | Principal Underwriters |
(a) | SSGA FD, State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111, serves as the Trusts principal underwriter and also serves as the principal underwriter for the following investment companies: SPDR Index Shares Funds, SSGA Active Trust, State Street Institutional Investment Trust, SSGA Funds, State Street Institutional Funds, State Street Variable Insurance Series Funds, Inc., Elfun Diversified Fund, Elfun Tax Exempt Income Fund, Elfun Income Fund, Elfun International Equity Fund, Elfun Government Money Market Fund and Elfun Trusts. |
(b) | To the best of the Trusts knowledge, the directors and executive officers of SSGA FD are as follows: |
NAME AND PRINCIPAL BUSINESS ADDRESS* |
POSITION AND OFFICES WITH UNDERWRITER |
POSITION AND OFFICES WITH THE TRUST |
||
James E. Ross |
Chief Executive Officer and Director |
Trustee | ||
Gregory B. Hartch |
Director | None | ||
Nicholas M. Good |
Director | None | ||
Jeanne M. LaPorta |
Director | None | ||
Steven Lipiner |
Director | None | ||
Katherine S. McKinley |
Director | None | ||
Ellen M. Needham |
Director | President | ||
M. Patrick Donovan |
Chief Compliance Officer and Anti-Money Laundering Officer |
None | ||
Christopher P. Jensen |
Chief Financial Officer | None | ||
Sean P. OMalley, Esq. |
Chief Legal Officer | None |
* | The principal business address for each of the above directors and executive officers is One Lincoln Street, Boston, MA 02111. |
(c) | Not applicable. |
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Item 33. | Location Of Accounts and Records |
All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are maintained at the offices of SSGA FM and/or State Street Bank and Trust Company, each with offices located at One Lincoln Street, Boston, Massachusetts 02111.
Item 34. | Management Services |
Not applicable.
Item 35. | Undertakings |
Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, SPDR ® Series Trust, the Registrant, has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunder duly authorized, in the City of Boston and the Commonwealth of Massachusetts on the 28 th day of August, 2017.
SPDR SERIES TRUST | ||
By: |
/s/ Ellen M. Needham |
|
Ellen M. Needham | ||
President |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated:
SIGNATURES | TITLE | DATE | ||
/s/ Bonny E. Boatman* |
Trustee | August 28, 2017 | ||
Bonny E. Boatman | ||||
/s/ Dwight D. Churchill* |
Trustee | August 28, 2017 | ||
Dwight D. Churchill | ||||
/s/ David M. Kelly* |
Trustee | August 28, 2017 | ||
David M. Kelly | ||||
/s/ Frank Nesvet* |
Trustee | August 28, 2017 | ||
Frank Nesvet | ||||
/s/ Carl G. Verboncoeur* |
Trustee | August 28, 2017 | ||
Carl G. Verboncoeur | ||||
/s/ James E. Ross* |
Trustee | August 28, 2017 | ||
James E. Ross | ||||
/s/ Ellen M. Needham Ellen M. Needham |
President and Principal Executive Officer | August 28, 2017 | ||
/s/ Bruce S. Rosenberg Bruce S. Rosenberg |
Treasurer and Principal Financial Officer | August 28, 2017 |
*By: |
/s/ Jesse D. Hallee |
|
Jesse D. Hallee | ||
As Attorney-in-Fact Pursuant to Power of Attorney |
EXHIBIT LIST
Item 28
(d)(i)(2) | Revised Exhibit A to the Amended and Restated Investment Advisory Agreement | |
(d)(vii) | Sub-Advisory Agreement between SSGA Funds Management, Inc. and Nuveen Asset Management | |
(e)(i)(1) | Amended and Restated Distribution Agreement | |
(h)(i)(2) | Amended Schedule A to the Administration Agreement | |
(h)(viii) | Master Amended and Restated Securities Lending Authorization Agreement | |
(p)(ii) | Code of Ethics of SSGA Funds Management, Inc. | |
(q) | Power of Attorney |
Exhibit (d)(i)(2)
EXHIBIT A
To the Amended and Restated Investment Advisory Agreement
Between SSGA Funds Management, Inc. and SPDR ® Series Trust
As consideration for the Advisers services to each of the following Funds, the Adviser shall receive from each Fund a unitary fee, accrued daily at the rate of 1/365th of the applicable fee rate and payable monthly on the first business day of each month, of the following annual percentages of the Funds average daily net assets during the month. The Adviser will pay all of the expenses of each Fund of the Trust except for the advisory fee, amounts payable pursuant to any plan adopted in accordance with Rule 12b-1, brokerage expenses, taxes, interest, fees and expenses of the Independent Trustees (including any Trustees counsel fees), acquired fund fees and expenses, litigation expenses and other extraordinary expenses.
Fund |
Annual % of average
daily net assets |
|||
SPDR Russell 3000 ® ETF |
0.10 | % | ||
SPDR Russell 1000 ® ETF |
0.10 | % | ||
SPDR S&P ® 500 Growth ETF |
0.15 | % | ||
SPDR S&P 500 Value ETF |
0.15 | % | ||
SPDR S&P ® 1000 ETF |
0.10 | % | ||
SPDR S&P 400 Mid Cap Growth ETF |
0.15 | % | ||
SPDR S&P 400 Mid Cap Value ETF |
0.15 | % | ||
SPDR S&P 600 Small Cap ETF |
0.15 | % | ||
SPDR S&P 600 Small Cap Growth ETF |
0.15 | % | ||
SPDR S&P 600 Small Cap Value ETF |
0.15 | % | ||
SPDR Global Dow ETF |
0.50 | % | ||
SPDR Dow Jones REIT ETF |
0.25 | % | ||
SPDR S&P Bank ETF |
0.35 | % | ||
SPDR S&P Capital Markets ETF |
0.35 | % | ||
SPDR S&P Insurance ETF |
0.35 | % | ||
SPDR Morgan Stanley Technology ETF |
0.35 | % | ||
SPDR S&P Dividend ETF |
0.35 | % | ||
SPDR S&P Aerospace & Defense ETF |
0.35 | % | ||
SPDR S&P Biotech ETF |
0.35 | % | ||
SPDR S&P Health Care Equipment ETF |
0.35 | % | ||
SPDR S&P Health Care Services ETF |
0.35 | % | ||
SPDR S&P Homebuilders ETF |
0.35 | % | ||
SPDR S&P Metals & Mining ETF |
0.35 | % | ||
SPDR S&P Oil & Gas Equipment & Services ETF |
0.35 | % | ||
SPDR S&P Oil & Gas Exploration & Production ETF |
0.35 | % | ||
SPDR S&P Pharmaceuticals ETF |
0.35 | % | ||
SPDR S&P Retail ETF |
0.35 | % | ||
SPDR S&P Semiconductor ETF |
0.35 | % | ||
SPDR S&P Software & Services ETF |
0.35 | % | ||
SPDR S&P Telecom ETF |
0.35 | % | ||
SPDR S&P Transportation ETF |
0.35 | % | ||
SPDR S&P Regional Banking ETF |
0.35 | % | ||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
0.1345 | % | ||
SPDR Bloomberg Barclays Intermediate Term Treasury ETF |
0.10 | % |
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SPDR Bloomberg Barclays Long Term Treasury ETF |
0.10 | % | ||
SPDR Bloomberg Barclays TIPS ETF |
0.15 | % | ||
SPDR Bloomberg Barclays Aggregate Bond ETF |
0.08 | % | ||
SPDR Nuveen Bloomberg Barclays Municipal Bond ETF |
0.30 | % | ||
SPDR Bloomberg Barclays International Treasury Bond ETF |
0.50 | % | ||
SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF |
0.20 | % | ||
SPDR Bloomberg Barclays High Yield Bond ETF |
0.40 | % | ||
SPDR Citi International Government Inflation-Protected Bond ETF |
0.50 | % | ||
SPDR Bloomberg Barclays Short Term International Treasury Bond ETF |
0.35 | % | ||
SPDR Bloomberg Barclays Intermediate Term Corporate Bond ETF |
0.12 | % | ||
SPDR Bloomberg Barclays Long Term Corporate Bond ETF |
0.12 | % | ||
SPDR Bloomberg Barclays Convertible Securities ETF |
0.40 | % | ||
SPDR Bloomberg Barclays Mortgage Backed Bond ETF |
0.20 | % | ||
SPDR Wells Fargo Preferred Stock ETF |
0.45 | % | ||
SPDR Bloomberg Barclays Short Term Corporate Bond ETF |
0.12 | % | ||
SPDR Bloomberg Barclays International Corporate Bond ETF |
0.50 | % | ||
SPDR Bloomberg Barclays Emerging Markets Local Bond ETF |
0.50 | % | ||
SPDR Bloomberg Barclays Issuer Scored Corporate Bond ETF |
0.16 | % | ||
SPDR Nuveen S&P High Yield Municipal Bond ETF |
0.50 | % | ||
SPDR Bloomberg Barclays Short Term Treasury ETF |
0.10 | % | ||
SPDR Bloomberg Barclays Investment Grade Floating Rate ETF |
0.15 | % | ||
SPDR Bloomberg Barclays Short Term High Yield Bond ETF |
0.40 | % | ||
SPDR BofA Merrill Lynch Crossover Corporate Bond ETF |
0.40 | % | ||
SPDR S&P Value Tilt ETF |
0.12 | % | ||
SPDR S&P 1500 Momentum Tilt ETF |
0.12 | % | ||
SPDR SSGA US Large Cap Low Volatility Index ETF |
0.12 | % | ||
SPDR SSGA US Small Cap Low Volatility Index ETF |
0.12 | % | ||
SPDR Bloomberg Barclays 1-10 Year TIPS ETF |
0.15 | % | ||
SPDR Russell 2000 ETF |
0.10 | % | ||
SPDR S&P 500 Buyback ETF |
0.35 | % | ||
SPDR MSCI USA StrategicFactors ETF |
0.15 | % | ||
SPDR S&P 500 High Dividend ETF |
0.12 | % | ||
SPDR S&P 500 Fossil Fuel Reserves Free ETF |
0.25 | % | ||
SPDR Russell 1000 Yield Focus ETF |
0.20 | % | ||
SPDR Russell 1000 Momentum Focus ETF |
0.20 | % | ||
SPDR Russell 1000 Low Volatility Focus ETF |
0.20 | % | ||
SPDR FactSet Innovative Technology ETF |
0.45 | % | ||
SPDR SSGA Gender Diversity Index ETF |
0.20 | % | ||
SPDR S&P Technology Hardware ETF |
0.35 | % | ||
SPDR S&P Internet ETF |
0.35 | % |
2
Exhibit (d)(i)(2)
As consideration for the Advisers services to the following Fund, the Adviser shall receive from the Fund a unitary fee, accrued daily at the rate of 1/365th of the applicable fee rate and payable monthly on the first business day of each month, of the following annual percentages of the Funds average daily net assets during the month. The unitary fee to be paid shall be reduced by any acquired fund fees and expenses attributable to the Funds investments in other investment companies. The Adviser will pay all of the expenses of the Fund except for the advisory fee, amounts payable pursuant to any plan adopted in accordance with Rule 12b-1, brokerage expenses, taxes, interest, fees and expenses of the Independent Trustees (including any Trustees counsel fees), litigation expenses and other extraordinary expenses.
Fund |
Annual % of average
daily net assets |
|||
SPDR Dorsey Wright ® Fixed Income Allocation ETF |
0.60 | % |
Dated: July 31, 2017
3
Exhibit (d)(vii)
S UB -A DVISORY A GREEMENT
AGREEMENT, dated as of November 20, 2014, by and between SSgA Funds Management, Inc., a Massachusetts corporation (the Adviser ), and Nuveen Asset Management, LLC, Delaware limited liability company (the Sub-Adviser ).
WHEREAS, the Adviser is registered as an investment adviser under the Investment Advisers Act of 1940, as amended ( Advisers Act );
WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated July 1, 2004 with the SPDR Series Trust ( Trust ) an investment company registered under the Investment Company Act of 1940, as amended ( Investment Company Act );
WHEREAS, the Sub-Adviser is registered as an investment adviser under the Advisers Act;
WHEREAS, the Board of Trustees of the Trust (the Board ) and the Adviser desire to retain the Sub-Adviser to render investment advisory and other services to the portfolio(s) specified in Appendix A hereto, each a series of the Trust (each a Fund and collectively, the Funds ), in the manner and on the terms hereinafter set forth;
WHEREAS, the Adviser has the authority under the Investment Advisory Agreement with the Trust to select sub-advisers for each Fund of the Trust; and
WHEREAS, the Sub-Adviser is willing to furnish such services to the Adviser and each Fund;
NOW, THEREFORE, the Adviser and the Sub-Adviser agree as follows:
1. | APPOINTMENT OF THE SUB-ADVISER |
(a) The Adviser hereby appoints the Sub-Adviser to act as an investment adviser for each Fund, subject to the supervision and oversight of the Adviser and the Board, and in accordance with the terms and conditions of this Agreement. The Sub-Adviser accepts such appointment and agrees to render the services herein set forth, for the compensation specified in Appendix A hereto.
(b) In the event that the Trust establishes one or more series in addition to the Funds with respect to which the Adviser desires to retain the Sub-Adviser to render investment advisory services hereunder, the Adviser shall so notify the Sub-Adviser in writing, indicating the advisory fee to be payable to the Sub-Adviser with respect to each additional Fund. If the Sub-Adviser is willing to render such services, it shall so notify the Adviser in writing, whereupon each such additional Fund shall become a Fund hereunder. In such event, a writing signed by both the Adviser and the Sub-Adviser shall be annexed hereto as a part hereof indicating that each such additional Fund has become a Fund hereunder and reflecting the agreed-upon fee schedule for each such additional Fund.
2. | SERVICES TO BE RENDERED BY THE SUB-ADVISER |
(a) Subject to the supervision of the Adviser and the Board and consistent with its fiduciary duties to each Fund, the Sub-Adviser shall manage the investment operations and determine the composition of the assets assigned to the Sub-Adviser by the Adviser (portfolio) of each Fund, including the purchase, retention and disposition of the securities and other instruments held by the Fund, in accordance with such Funds investment objective and policies as stated in the then-current prospectus ( Prospectus ) and Statement of Additional Information ( SAI ) for such Fund contained in the Trusts Registration Statement on Form N-1A (the Registration Statement ), as such Prospectus and SAI are amended or supplemented from time to time. As part of the services it will provide hereunder, the Sub-Adviser shall:
(i) provide supervision of each Funds investments, furnish a continuous investment program for the Funds, determine from time to time what investments or securities will be purchased, retained or sold by the Funds, and what portion of the assets will be invested or held uninvested as cash;
(ii) maintain books and records with respect to the Trusts securities transactions and keep the Board and the Adviser fully informed on an ongoing basis as agreed by the Adviser and the Sub-Adviser of all material facts
Exhibit (d)(vii)
concerning the investment and reinvestment of the assets in the Funds, the Sub-Adviser and its key investment personnel and operations providing services with respect to the Fund; make regular and periodic special written reports of such additional information concerning the same as may reasonably be requested from time to time by the Adviser or the Board, and the Sub-Adviser will attend meetings with the Adviser and/or the Trustees, as reasonably requested, to discuss the foregoing;
(iii) in accordance with procedures and methods established by the Board, which may be amended from time to time, provide assistance in determining the fair value of all securities and other investments/assets in the Funds, as necessary, and use reasonable efforts to arrange for the provision of valuation information or a price(s) from a party(ies) independent of the Sub-Adviser for each security or other investment/asset in the Fund for which market prices are not readily available, it being understood that the Sub-Adviser shall not be responsible for determining the value of any such security;
(iv) provide any and all material composite performance information, records and supporting documentation about accounts the Sub-Adviser manages, if appropriate, which are relevant to the Fund and that have investment objectives, policies, and strategies substantially similar to those employed by the Sub-Adviser in managing the Fund that may be reasonably necessary, under applicable laws, to allow the Fund or its agent to present information concerning the Sub-Advisers prior performance in the Trusts Prospectus and SAI (as hereinafter defined) and any permissible reports and materials prepared by the Fund or its agent;
(v) cooperate with and provide reasonable assistance to the Adviser, the Trusts administrator, the Trusts custodian and foreign custodians, the Trusts transfer agent and pricing agents and all other agents and representatives of the Trust that the Adviser and Sub-Adviser shall agree, and the Adviser upon request from such person, shall keep all such persons fully informed as to such matters as they may reasonably deem necessary to the performance of their obligations to the Trust and the Adviser, provide prompt responses to reasonable requests made by such persons and maintain any appropriate interfaces with each so as to promote the efficient exchange of information; and
(vi) the Sub-Adviser shall initially determine and make such modifications to the identity and number of shares of the Deposit Securities and the Fund Securities required for a Fund Deposit or Redemption for each Fund as may be necessary as a result of rebalancing adjustments and corporate action events (and may give directions to the Trusts Custodian with respect to such designation) (capitalized terms have the meaning set forth in the Funds prospectus).
(b) In furnishing services hereunder, the Sub-Adviser shall be subject to, and shall perform its responsibilities in accordance with the following: (i) the Trusts Agreement and Declaration of Trust, as the same may be hereafter modified and/or amended from time to time ( Trust Declaration ); (ii) the By-Laws of the Trust, as the same may be hereafter modified and/or amended from time to time ( By-Laws ); (iii) the Prospectus and SAI of the Trust filed with the Securities and Exchange Commission ( SEC ) and delivered to the Sub-Adviser, as the same may be hereafter modified, amended and/or supplemented; (iv) the Investment Company Act, the Advisers Act, the applicable provisions of the Internal Revenue Code of 1986, as amended, and the Commodities Exchange Act and the rules under each, and all other federal and state laws or regulations applicable to the Trust and the Fund(s); (v) the terms and conditions of exemptive and no-action relief granted to the Trust as amended from time to time; (vi) the Trusts policies and procedures adopted from time to time by the Board; and (vii) the written instructions of the Adviser. Prior to the commencement of the Sub-Advisers services hereunder, the Adviser shall provide the Sub-Adviser with current copies of the Trust Declaration, By-Laws, Prospectus and SAI and other relevant policies and procedures adopted by the Board and by applicable exemptive and no action relief. The Adviser undertakes to provide the Sub-Adviser with copies or other written notice of any amendments, modifications or supplements to any such above-mentioned document.
(c) In furnishing services hereunder, the Sub-Adviser will not consult with any other investment adviser to (i) the Fund, (ii) any other Fund of the Trust or (iii) any other investment company under common control with the Trust concerning transactions of the Fund in securities or other assets. (This shall not be deemed to prohibit the Sub-Adviser from consulting with any of its affiliated persons concerning transactions in securities or other assets. This also shall not be deemed to prohibit the Sub-Adviser from consulting with any of the other covered advisers concerning compliance with paragraphs (a) and (b) of Rule 12d3-1 under the Investment Company Act.)
Exhibit (d)(vii)
(d) The Sub-Adviser, at its expense, will furnish: (i) all necessary facilities and personnel, including salaries, expenses and fees of any personnel required for the Sub-Adviser to faithfully perform its duties under this Agreement; and (ii) administrative facilities, including bookkeeping, and all equipment necessary for the efficient conduct of the Sub-Advisers duties under this Agreement.
(e) The Sub-Adviser will select brokers and dealers to effect all portfolio transactions subject to the conditions set forth herein which may include brokers and dealers affiliated with the Sub-Adviser if and as permitted by applicable law. The Sub-Adviser will place all necessary orders with brokers, dealers, or issuers, and will negotiate brokerage commissions, if applicable. The Sub-Adviser is directed at all times to seek to execute transactions for each Fund (i) in accordance with any written policies, practices or procedures that may be established by the Board or the Adviser from time to time and which have been provided to the Sub-Adviser or (ii) as described in the Trusts Prospectus and SAI. In placing any orders for the purchase or sale of investments for each Fund, in the name of the Fund or its nominees, the Sub-Adviser shall seek to achieve for the Fund best execution, considering all of the circumstances, and shall maintain records adequate to demonstrate compliance with this requirement. In no instance will portfolio securities be purchased from or sold to the Sub-Adviser, or any affiliated person thereof, except in accordance with the Investment Company Act, the Advisers Act and the rules under each, and all other federal and state laws or regulations applicable to the Trust and the Fund.
(f) Subject to the appropriate policies and procedures approved by the Board, the Sub-Adviser may, to the extent consistent with the safe harbor set forth in Section 28(e) of the Securities Exchange Act of 1934, as amended ( Exchange Act ), cause each Fund to pay a broker or dealer that provides brokerage or research services to the Adviser, the Sub-Adviser or the Fund an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Sub-Adviser determines, in good faith, that such amount of commission is reasonable in relationship to the value of such brokerage or research services provided viewed in terms of that particular transaction or the Sub-Advisers overall responsibilities to the Fund or its other advisory clients. To the extent consistent with Section 28(e) and the Board, the Sub-Adviser shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of such action. Subject to seeking best execution, the Board or the Adviser may authorize, but not require, the Sub-Adviser to effect transactions in portfolio securities through broker-dealers in a manner that will help generate resources to pay the cost of certain expenses that the Trust is required to pay or for which the Trust is required to arrange payment.
(g) On occasions when the Sub-Adviser deems the purchase or sale of a security to be in the best interest of the Fund(s) as well as other clients of the Sub-Adviser and its affiliates, the Sub-Adviser to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be purchased or sold to attempt to obtain a more favorable price or lower brokerage commissions and efficient execution. Allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Sub-Adviser in the manner which the Sub-Adviser considers to be the most equitable and consistent with its fiduciary obligations to each Fund and to its other clients over time. The Adviser agrees that the Sub-Adviser and its affiliates may give advice and take action in the performance of their duties with respect to any of their other clients that may differ from advice given, or the timing or nature of actions taken, with respect to the Fund. The Adviser also acknowledges that the Sub-Adviser and its affiliates are fiduciaries to other entities, some of which have the same or similar investment objectives (and will hold the same or similar investments) as the Fund, and that the Sub-Adviser will carry out its duties hereunder together with its duties under such relationships. Nothing in this Agreement shall be deemed to confer upon the Sub-Adviser any obligation to purchase or to sell or to recommend for purchase or sale for the Fund any investment that the Sub-Adviser, its affiliates, officers or employees may purchase or sell for its or their own account or for the account of any client, if in the sole and absolute discretion of the Sub-Adviser it is for any reason impractical or undesirable to take such action or make such recommendation for the Fund.
(h) The Sub-Adviser will maintain all accounts, books and records with respect to each Fund as are required of an investment adviser of a registered investment company pursuant to the Investment Company Act and Advisers Act and the rules thereunder and shall file with the SEC all forms pursuant to Section 13 of the Exchange Act, with respect to its duties as are set forth herein.
(i) The Sub-Adviser will, unless and until otherwise directed by the Adviser or the Board and consistent with seeking the best interests of each Fund, exercise (or not exercise in its discretion) all rights of security holders with
Exhibit (d)(vii)
respect to securities held by each Fund, including, but not limited to: voting proxies, converting, tendering, exchanging or redeeming securities; acting as a claimant in class action litigation (including litigation with respect to securities previously held); and exercising rights in the context of a bankruptcy or other reorganization. Unless the Adviser or the Board gives written instructions to the contrary, the Sub-Adviser shall vote all proxies solicited by or with respect to the issuers of securities in which assets of the Fund may be invested in accordance with the Sub-Advisers proxy voting guidelines, a copy of which has been provided to the Adviser.
3. | COMPENSATION OF THE ADVISER |
The Adviser shall pay the Sub-Adviser an advisory fee with respect to each Fund as specified in Appendix A to this Agreement.
4. | LIABILITY AND INDEMNIFICATION |
(a) Except as may otherwise be provided by the Investment Company Act or any other federal securities law, neither the Sub-Adviser nor any of its officers, members or employees (its Affiliates ) shall be liable for any losses, claims, damages, liabilities or litigation (including legal and other expenses) incurred or suffered by the Adviser or the Trust as a result of any error of judgment or mistake of law by the Sub-Adviser or its Affiliates with respect to each Fund, except that nothing in this Agreement shall operate or purport to operate in any way to exculpate, waive or limit the liability of the Sub-Adviser for, and the Sub-Adviser shall indemnify and hold harmless the Trust, the Adviser, all affiliated persons thereof (within the meaning of Section 2(a)(3) of the Investment Company Act) and all controlling persons (as described in Section 15 of the Securities Act of 1933, as amended ( 1933 Act )) (collectively, Adviser Indemnitees ) against any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses) to which any of the Adviser Indemnitees may become subject under the 1933 Act, the Investment Company Act, the Advisers Act, or under any other statute, or common law or otherwise arising out of or based on (i) any willful misconduct, bad faith, reckless disregard or gross negligence of the Sub-Adviser in the performance of any of its duties or obligations hereunder or (ii) any untrue statement of a material fact relating to the Sub-Adviser contained in the Prospectus and SAI, proxy materials, reports, advertisements, sales literature, or other materials pertaining to the Fund or the omission to state therein a material fact known to the Sub-Adviser which was required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Adviser or the Trust by the Sub-Adviser Indemnitees (as defined below) expressly for use therein and provided that the Adviser gave the Sub-Adviser a reasonable advance opportunity to review and comment on all such Fund materials that relate to the Sub-Adviser.
(b) Except as may otherwise be provided by the Investment Company Act or any other federal securities law, the Adviser and the Trust shall not be liable for any losses, claims, damages, liabilities or litigation (including legal and other expenses) incurred or suffered by the Sub-Adviser as a result of any error of judgment or mistake of law by the Adviser with respect to each Fund, except that nothing in this Agreement shall operate or purport to operate in any way to exculpate, waive or limit the liability of the Adviser for, and the Adviser shall indemnify and hold harmless the Sub-Adviser, all affiliated persons thereof (within the meaning of Section 2(a)(3) of the Investment Company Act) and all controlling persons (as described in Section 15 of the 1933 Act) (collectively, Sub-Adviser Indemnitees ) against any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses) to which any of the Sub-Adviser Indemnitees may become subject under the 1933 Act, the Investment Company Act, the Advisers Act, or under any other statute, at common law or otherwise arising out of or based on (i) any willful misconduct, bad faith, reckless disregard or gross negligence of the Adviser in the performance of any of its duties or obligations hereunder or (ii) any untrue statement of a material fact contained in the Prospectus and SAI, proxy materials, reports, advertisements, sales literature, or other materials pertaining to the Fund(s) or the omission to state therein a material fact known to the Adviser that was required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon information furnished to the Adviser or the Trust by the Sub-Adviser Indemnitees expressly for use therein and provided that the Adviser gave the Sub-Adviser a reasonable advance opportunity to review and comment on all such Fund materials that relate to the Sub-Adviser.
Exhibit (d)(vii)
5. | REPRESENTATIONS OF THE ADVISER |
The Adviser represents, warrants and agrees that:
(a) The Adviser has been duly authorized by the Board to delegate to the Sub-Adviser the provision of investment services to each Fund as contemplated hereby.
(b) The Adviser (i) is registered as an investment adviser under the Advisers Act and will continue to be so registered for so long as this Agreement remains in effect; (ii) is not prohibited by the Investment Company Act, the Advisers Act or other law, regulation or order from performing the services contemplated by this Agreement; (iii) to the best of its knowledge, has met and will seek to continue to meet for so long as this Agreement is in effect, any other applicable federal or state requirements, or the applicable requirements of any regulatory or industry self-regulatory agency necessary to be met in order to perform the services contemplated by this Agreement; and (iv) will promptly notify the Sub-Adviser of the occurrence of any event that would disqualify the Adviser from serving as investment manager of an investment company pursuant to Section 9(a) of the Investment Company Act or otherwise. The Adviser will also promptly notify the Sub-Adviser if it is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, regulatory agency, involving the affairs of the Fund(s), provided, however, that routine regulatory examinations shall not be required to be reported by this provision.
6. | REPRESENTATIONS OF THE SUB-ADVISER |
The Sub-Adviser represents, warrants and agrees as follows:
(a) The Sub-Adviser (i) is registered as an investment adviser under the Advisers Act and will continue to be so registered (or shall qualify for an exemption from registration) for so long as this Agreement remains in effect; (ii) is not prohibited by the Investment Company Act, the Advisers Act or other law, regulation or order from performing the services contemplated by this Agreement; (iii) to the best of its knowledge, has met and will seek to continue to meet, for so long as this Agreement remains in effect, any other applicable federal or state requirements, or the applicable requirements of any regulatory or industry self-regulatory agency necessary to be met in order to perform the services contemplated by this Agreement; (iv) has the authority to enter into and perform the services contemplated by this Agreement; and (v) will promptly notify the Adviser of the occurrence of any event that would substantially impair the Sub-Advisers ability to fulfill its commitment under this Agreement or disqualify the Sub-Adviser from serving as an investment adviser of an investment company pursuant to Section 9(a) of the Investment Company Act or otherwise. The Sub-Adviser will also promptly notify each Fund and the Adviser if it is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, involving the affairs of the Fund(s), provided, however, that routine regulatory examinations shall not be required to be reported by this provision.
(b) The Sub-Adviser has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the Investment Company Act and Rule 204A-1 under the Advisers Act and will provide the Adviser and the Board with a copy of such code of ethics, together with evidence of its adoption. Within forty-five days of the end of the last calendar quarter of each year that this Agreement is in effect, and as otherwise requested, the president, Chief Operating Officer, compliance officer or a vice-president of the Sub-Adviser shall certify to the Adviser that the Sub-Adviser has complied with the requirements of Rule 17j-1 and Rule 204A-1 during the previous year and that there has been no material violation of the Sub-Advisers code of ethics or, if such a material violation has occurred, that appropriate action was taken in response to such violation. Upon the written request of the Adviser, the Sub-Adviser shall permit the Adviser, its employees or its agents to examine the reports required to be made to the Sub-Adviser by Rule 17j-1(c)(1) and Rule 204A-1(b) and all other records relevant to the Sub-Advisers code of ethics but only to the extent such reports and/or records relate to the provision of services hereunder.
(c) The Sub-Adviser has adopted and implemented and will maintain (a) in accordance with Rule 206(4)-7 under the Advisers Act, policies and procedures reasonably designed to prevent violation by the Sub-Adviser and its supervised persons (as such term is defined by the Advisers Act) of the Advisers Act and the rules thereunder; and (b) to the extent that the Sub-Advisers activities or services could affect the Fund(s), policies and procedures reasonably designed to prevent violation of the federal securities laws (as such term is defined in Rule 38a-1 under the Investment Company Act) by the Fund(s) and the Sub-Adviser.
Exhibit (d)(vii)
(d) The Sub-Adviser has provided the Trust and the Adviser with a copy of its Form ADV, which as of the date of this Agreement is its Form ADV as most recently filed with the SEC and promptly will furnish a copy of all material amendments to the Trust and the Adviser at least annually. Such amendments shall reflect those material changes in the Sub-Advisers organizational structure, professional staff or other significant developments affecting the Sub-Advisers services hereunder, which are required by the Advisers Act.
(e) The Sub-Adviser will notify the Trust and the Adviser of any assignment of this Agreement or change of control of the Sub-Adviser, as applicable, and any changes in the key personnel who are either the portfolio manager(s) of the Fund(s) or senior management of the Sub-Adviser with management responsibilities relating to the services hereunder, in each case prior to or promptly after, such change. The Sub-Adviser agrees to bear all reasonable expenses of the Trust, if any, arising out of an assignment or change in control of the Sub-Adviser.
(f) The Sub-Adviser will notify the Adviser immediately upon detection of (a) any material failure to manage the Fund(s) in accordance with the Fund(s) stated investment objectives and policies or any applicable law; or (b) any material breach of any of the Fund(s) or the Sub-Advisers policies, guidelines or procedures related to the Fund(s).
(g) The Sub-Adviser agrees to maintain an appropriate level of errors and omissions or professional liability insurance coverage.
(h) The Sub-Adviser agrees that neither it, nor any of its affiliates, will knowingly in any way refer directly or indirectly to its relationship with the Trust, the Fund(s), the Adviser or any of their respective affiliates in offering, marketing or other promotional materials without the express written consent of the Adviser, except as required by rule, regulation or upon the request of a governmental authority. However, the Sub-Adviser may use the performance of the Fund in its composite performance. Notwithstanding the foregoing, nothing in this Agreement shall be interpreted to prevent the Sub-Adviser from referring to the names of the Fund(s) managed by the Sub-Adviser, currently intended to be named as SPDR ® Nuveen [Index Name] ETF.
7. | NON-EXCLUSIVITY |
The services of the Sub-Adviser to the Adviser, the Fund(s) and the Trust are not to be deemed to be exclusive, and the Sub-Adviser shall be free to render investment advisory or other services to others and to engage in other activities, provided the Sub-Adviser furnishes in its Form ADV adequate disclosure of possible conflicts of interest and implements procedures designed to mitigate or eliminate such conflicts. It is understood and agreed that the directors, officers, and employees of the Sub-Adviser are not prohibited from engaging in any other business activity or from rendering services to any other person, or from serving as partners, officers, directors, trustees, or employees of any other firm or corporation.
8. | SUPPLEMENTAL ARRANGEMENTS |
The Sub-Adviser may from time to time employ or associate itself with any person it believes to be particularly suited to assist it in providing the services to be performed by such Sub-Adviser hereunder, provided that no such person shall perform any services with respect to the Fund(s) that would constitute an assignment or require a written advisory agreement pursuant to the Investment Company Act. Any compensation payable to such persons shall be the sole responsibility of the Sub-Adviser, and neither the Adviser nor the Trust shall have any obligations with respect thereto or otherwise arising under the Agreement.
9. | REGULATION |
Each party agrees to provide reasonable cooperation to the other party in furtherance of this Agreement, including without limitation providing relevant information, reports, or other materials pursuant to a request or requirement of regulatory and administrative bodies having jurisdiction the party seeking such cooperation.
Exhibit (d)(vii)
10. | RECORDS |
The records relating to the services provided under this Agreement shall be the property of the Trust and shall be under its control; however, the Trust shall furnish to the Sub-Adviser such records and permit it to retain such records (either in original or in duplicate form) as it shall reasonably require in order to carry out its business. In the event of the termination of this Agreement, such other records shall promptly be returned to the Trust by the Sub-Adviser free from any claim or retention of rights therein, provided that the Sub-Adviser may retain any such records that are required by law or regulation or reasonably required in order to carry out its business. The Sub-Adviser shall keep confidential any information obtained in connection with its duties hereunder and is either identified as confidential or by its nature or means of receipt would be considered confidential and disclose such information only if the Trust has authorized such disclosure or if such disclosure is expressly required or requested by applicable federal or state regulatory authorities, or otherwise required by law.
11. | DURATION OF AGREEMENT |
This Agreement shall become effective upon the date first above written, provided that this Agreement shall not take effect unless it has first been approved: (i) by a vote of a majority of those trustees of the Trust who are not interested persons (as defined in the Investment Company Act) of any party to this Agreement ( Independent Trustees ), cast in person at a meeting called for the purpose of voting on such approval, and (ii) by vote of a majority of the Funds outstanding securities. This Agreement shall continue in effect for a period more than two years from the date of its execution only so long as such continuance is specifically approved at least annually by the Board provided that in such event such continuance shall also be approved by the vote of a majority of the Independent Trustees cast in person at a meeting called for the purpose of voting on such approval.
12. | ASSIGNMENT AND TERMINATION OF AGREEMENT |
This Agreement may be terminated at any time, without the payment of any penalty by the Adviser or the Sub-Adviser on sixty (60) days written notice to the other party. This Agreement will automatically terminate, without the payment of any penalty, (i) in the event of its assignment (as defined in the Investment Company Act), or (ii) in the event the Investment Management Agreement between the Adviser and the Trust is assigned (as defined in the Investment Company Act) or terminates for any other reason. This Agreement will also terminate upon written notice to the other party that the other party is in material breach of this Agreement, unless the other party in material breach of this Agreement cures such breach to the reasonable satisfaction of the party alleging the breach within thirty (30) days after written notice.
Notwithstanding the foregoing, no assignment shall be deemed to result from any changes in the directors, officers or employees of such Sub-Adviser except as may be provided to the contrary in the Investment Company Act or the rules or regulations thereunder.
13. | AMENDMENTS TO THE AGREEMENT |
Except to the extent permitted by the Investment Company Act or the rules or regulations thereunder or pursuant to no-action relief granted by the SEC Staff or exemptive relief granted by the SEC, this Agreement may be amended by the parties only if such amendment, if material, is specifically approved by the vote of a majority of the outstanding voting securities of a Fund and by the vote of a majority of the Independent Trustees cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval shall be effective with respect to the Fund if a majority of the outstanding voting securities of the Fund vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of any other Fund affected by the amendment or all the Funds of the Trust.
Any change, waiver, discharge or termination of a provision of this Agreement, whether or not such change is deemed to be material, may be made only by an instrument in writing signed by both the Adviser and the Sub-Adviser.
14. | ENTIRE AGREEMENT |
This Agreement contains the entire understanding and agreement of the parties with respect to each Fund.
Exhibit (d)(vii)
This Agreement may be executed in two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute one and the same document.
15. | HEADINGS |
The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof.
16. | NOTICES |
All notices required to be given pursuant to this Agreement shall be delivered or mailed to the address listed below of each applicable party in person or by registered or certified mail or a private mail or delivery service providing the sender with notice of receipt or such other address as specified in a notice duly given to the other parties. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph.
For: |
Trust Christopher Madden, Secretary State Street Bank and Trust Company Four Copley Place, CPH0326 Boston, MA 02116 |
|
For: |
SSgA Funds Management, Inc. Attn: Chief Compliance Officer State Street Financial Center 1 Lincoln Street Boston, MA 02111 |
|
For: |
Nuveen Asset Management, LLC 333 West Wacker Drive Chicago IL 60606 Attn: Legal Department |
17. | SEVERABILITY |
Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein.
18. | TRUST AND SHAREHOLDER LIABILITY |
The Adviser and the Sub-Adviser are hereby expressly put on notice of the limitation of shareholder liability as set forth in the Trust Declaration and agree that obligations assumed by the Trust pursuant to this Agreement shall be limited in all cases to the Trust and its assets, and if the liability relates to one or more series, the obligations hereunder shall be limited to the respective assets of the Fund. The Adviser and the Sub-Adviser further agree that they shall not seek satisfaction of any such obligation from the shareholders or any individual shareholder of the Fund(s), nor from the Trustees or any individual Trustee of the Trust.
19. | GOVERNING LAW |
The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Massachusetts. To the extent that the laws of the Commonwealth of Massachusetts, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control.
20. | INTERPRETATION |
Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Investment Company Act shall be resolved by reference to such term or
Exhibit (d)(vii)
provision of the Investment Company Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the SEC validly issued pursuant to the Investment Company Act. Specifically, the terms vote of a majority of the outstanding voting securities, interested persons, assignment, and affiliated persons, as used herein shall have the meanings assigned to them by Section 2(a) of the Investment Company Act. In addition, where the effect of a requirement of the Investment Company Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the SEC, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
21. | RIGHTS OF FUND |
The Trust is hereby expressly made a third-party beneficiary of this Agreement and shall have the full right to enforce any and all provisions of this Agreement for its benefit and to proceed directly against the Sub-Adviser for any breach of any provision of this Agreement or for any loss, damage, claim, liability arising due to any act or omission on the part of the Sub-Adviser to the same extent as if the Fund itself were a party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first mentioned above.
NUVEEN ASSET MANAGEMENT, LLC
By: |
/s/ Charles R. Manzoni, Jr. |
|||
Name: Charles R. Manzoni, Jr. | ||||
Title: COO & General Counsel |
SSgA FUNDS MANAGEMENT, INC.
By: |
/s/ Ellen M. Needham |
|||
Name: Ellen M. Needham | ||||
Title: President |
Exhibit (e)(i)(1)
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
Amended and Restated Distribution Agreement made this 1st day of May, 2017, by and between SPDR Series Trust, a Massachusetts business trust (the Trust), and State Street Global Advisors Funds Distributors, LLC (the Distributor).
WHEREAS, the Trust is a registered open-end management investment company organized as a series trust offering a number of portfolios of securities (each a Fund and collectively the Funds), having filed with the Securities and Exchange Commission (the Commission) a registration statement on Form N-1A (1933 Act File No. 333-57793; 1940 Act File No. 811-08839) under the Securities Act of 1933, as amended (the 1933 Act), and the Investment Company Act of 1940, as amended;
WHEREAS, the Trust intends to create and redeem shares of beneficial interest, par value $.01 per Share (the Shares) of each Fund on a continuous basis at their net asset value only in aggregations constituting a Creation Unit, as such term is defined in the Registration Statement;
WHEREAS, the Shares of each Fund will be listed on a national securities exchange (Listing Exchange) and traded under the symbols set forth in Annex I hereto;
WHEREAS, the Trust desires to retain the Distributor to act as the distributor with respect to the issuance and distribution of Creation Units of Shares of each Fund, hold itself available to receive and process orders for such Creation Units in the manner set forth in the Trusts Prospectus, and to enter into arrangements with broker-dealers who may solicit purchases of Shares and with broker-dealers and others to provide for servicing of shareholder accounts and for distribution assistance, including broker-dealer and shareholder support;
WHEREAS, the Board of Trustees of the Trust has adopted a plan of distribution (each a 12b-1 Plan) pursuant to Rule 12b-1 under the 1940 Act with respect to certain Funds and may make payments to the Distributor pursuant to such 12b-1 Plans, subject to and in accordance with the terms and conditions thereof and any related agreements;
WHEREAS, the Distributor is a registered broker-dealer under the Securities Exchange Act of 1934, as amended (the 1934 Act) and a member of the Financial Industry Regulatory Authority (the FINRA);
WHEREAS, the Distributor desires to provide such services to the Trust;
WHEREAS, State Street Global Markets, LLC has changed its name to State Street Global Advisors Funds Distributors, LLC; and
WHEREAS, the Trust desires to amend and restate the Distribution Agreement dated September 22, 2000 in its entirety by adopting this Amended and Restated Distribution Agreement.
NOW, THEREFORE, in consideration of the mutual promises and undertakings herein contained, the parties agree as follows:
1. Appointment . The Trust hereby appoints the Distributor as the exclusive distributor for Creation Unit aggregations of Shares of each Fund listed in Annex I hereto, as may be amended by the parties from time to time, on the terms and for the period set forth in this Agreement and subject to the registration requirements of the 1933 Act and of the laws governing the sale of securities in the various states, and the Distributor hereby accepts such appointment and agrees to act in such capacity hereunder.
Exhibit (e)(i)(1)
2. Definitions . Wherever they are used herein, the following terms have the following respective meanings:
a. 1940 Act means the Investment Company Act of 1940 and the rules and regulations thereunder as amended from time to time;
b. Prospectus means the Prospectus and Statement of Additional Information constituting parts of the Registration Statement of the Trust under the 1933 Act and the 1940 Act as such Prospectus and Statement of Additional Information may be amended or supplemented and filed with the Commission from time to time;
c. Registration Statement means the registration statement most recently filed from time to time by the Trust with the Commission and effective under the 1933 Act and the 1940 Act, as such registration statement is amended by any amendments thereto at the time in effect;
d. All capitalized terms used but not defined in this Agreement shall have the meanings ascribed to such terms in the Registration Statement and the Prospectus.
3. Duties of the Distributor .
(a) The Trust grants to the Distributor the exclusive right to receive all orders for purchases of Creation Units of each Fund from Participating Parties or DTC Participants which have executed a Participant Agreement (Authorized Participants) and to transmit such orders to the Trust in accordance with the Registration Statement and Prospectus; provided, however, that nothing herein shall affect or limit the right and ability of the Trust to accept Deposit Securities and related Cash Components through or outside the Clearing Process, and as provided in and in accordance with the Registration Statement and Prospectus. The Trust acknowledges that the Distributor shall not be obligated to accept any certain number of orders for Creation Units and nothing herein shall prevent the Distributor from entering into like distribution arrangements with other investment companies.
(b) The Distributor agrees to act as agent of the Trust with respect to the continuous distribution of Creation Units of each Fund as set forth in the Registration Statement and in accordance with the provisions thereof. The Distributor further agrees as follows: (a) at the request of the Trust, the Distributor shall enter into Participant Agreements between and among Authorized Participants, the Distributor and the Transfer Agent in accordance with the Registration Statement and Prospectus and in the form attached hereto as Exhibit A; (b) the Distributor shall generate and transmit confirmations of Creation Unit purchase order acceptances to the purchaser; (c) the Distributor shall deliver copies of the prospectus, included in the Registration Statement, to purchasers of such Creation Units and upon request the Statement of Additional Information; and (d) the Distributor shall maintain telephonic, facsimile and/or access to direct computer communications links with the Transfer Agent.
(c) (i) The Distributor agrees to use all reasonable efforts, consistent with its other business, to facilitate the purchase of Creation Units through Authorized Participants in accordance with the procedures set forth in the Prospectus and the Participant Agreement.
(ii) The Distributor shall, when it deems necessary and at its own expense, execute the following agreements in the forms and as approved by the Board of Trustees of the Trust, providing for activities which the Distributor deems reasonable and appropriate and which are primarily intended to
Exhibit (e)(i)(1)
result in the sale of such Creation Units: (A) selected or soliciting dealer agreements (Soliciting Dealer Agreements) with registered broker-dealers and other eligible entities providing for the purchase of Creation Units of Shares of the Funds and related promotional activities, and (B) investor services agreements (Investor Services Agreements) with broker-dealers or other financial institutions providing for broker-dealer, investor and stockholder support, account maintenance and educational and promotional services relating to the Shares and facilitation through broker-dealers and other persons of communications with beneficial owners of Shares. Pursuant to this Agreement, the Soliciting Dealer Agreements and the Investor Services Agreements, the Distributor shall facilitate the coordination of the performance of any marketing and promotional services, including advertising; the development and implementation of any marketing plan; and clearing and filing all advertising, sales, marketing and promotional materials of the Funds with the FINRA as provided below.
(d) The Distributor agrees to administer the Distribution and Service Plan on behalf of the Trust. The Distributor shall, at its own expense, set up and maintain a system of recording payments for fees and reimbursement of expenses disseminated pursuant to this Agreement and any other related agreements under the Funds Rule 12b-1 Plans and shall, pursuant to the 1940 Act, report such payment activity under the Distribution and Service Plan to the Trust at least quarterly.
(e) The Distributor shall provide toll-free lines, by way of the relevant Listing Exchanges product hotline for direct investor and shareholder use between the hours of 9:30 a.m. and 4:00 p.m. Eastern time on each day such Listing Exchange is open for business, with appropriate FINRA licensed order taking and distribution services staff.
(f) All activities by the Distributor and its agents and employees which are primarily intended to result in the sale of Creation Units shall comply with the Registration Statement and Prospectus, the instructions of the Board of Trustees of the Trust and all applicable laws, rules and regulations including, without limitation, all rules and regulations made or adopted pursuant to the 1940 Act by the Commission or any securities association registered under the 1934 Act, including the FINRA and the relevant Listing Exchange.
(g) Except as otherwise noted in the Registration Statement and Prospectus, the offering price for all Creation Units of Shares will be the aggregate net asset value of the Shares per Creation Unit of the relevant Fund, as determined in the manner described in the Registration Statement and Prospectus.
(h) If and whenever the determination of net asset value is suspended and until such suspension is terminated, no further orders for Creation Units will be processed by the Distributor except such unconditional orders as may have been placed with the Distributor before it had knowledge of the suspension. In addition, the Trust reserves the right to suspend sales and Distributors authority to process orders for Creation Units on behalf of the Trust, upon due notice to the Distributor, if, in the judgment of the Trust, it is in the best interests of the Trust to do so. Suspension will continue for such period as may be determined by the Trust.
(i) The Distributor is not authorized by the Trust to give any information or to make any representations other than those contained in the Registration Statement or Prospectus or contained in shareholder reports or other material that may be prepared by or on behalf of the Trust for the Distributors use. The Distributor shall be entitled to rely on and shall not be responsible in any way for information provided to it by the Trust and its respective service providers and shall not be liable or responsible for the errors and omissions of such service providers, provided that the foregoing shall not be construed to protect the Distributor against any liability to the Trust or the Trusts shareholders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement.
Exhibit (e)(i)(1)
(j) The Board of Trustees shall approve the form of any Soliciting Dealer Agreement or Investor Services Agreement to be entered into by the Distributor.
(k) At the request of the Trust, the Distributor shall enter into agreements in the form specified by the Trust (each a Participant Agreement) with participants in the system for book-entry of The Depository Trust Company and the NSCC as described in the Prospectus.
(l) The Distributor shall ensure that all direct requests for Prospectuses and Statements of Additional of Information are fulfilled. In addition, the Distributor shall arrange to provide the relevant Listing Exchange (and any other stock exchange on which the Shares may be listed) with copies of Prospectuses to be provided to purchasers in the secondary market. The Distributor will generally make it known in the brokerage community that prospectuses and statements of additional information are available, including by (i) advising the relevant Listing Exchange on behalf of its member firms of the same, (ii) making such disclosure in all marketing and advertising materials prepared and/or filed by the Distributor with the FINRA, and (iii) as may otherwise be required by the Commission.
(m) The Distributor agrees to make available, at the Trusts request a member of its staff to attend Board meetings of the Trust in order to provide information with regard to the ongoing distribution process and for such other purposes as may be requested by the Board of Trustees of the Trust.
(n) Review all sales and marketing materials for compliance with applicable laws and conditions of any applicable Exemptive order, and file such materials when necessary or appropriate.
(o) The Distributor is authorized to and may employ or associate with such person or persons as the Distributor may deem desirable to assist it in performing its duties under this Agreement; provided, however, that the compensation of such person or persons shall be paid by the Distributor and that the Distributor shall be as fully responsible to the Trust for the acts and omissions of any such person or persons as it is for its own acts and omissions.
4. Duties of the Trust .
(a) The Trust agrees to issue Creation Unit aggregations of Shares of each Fund and to request The Depository Trust Company to record on its books the ownership of such Shares in accordance with the book-entry system procedures described in the Prospectus in such amounts as the Distributor has requested through the Transfer Agent in writing or other means of data transmission, as promptly as practicable after receipt by the Trust of the requisite Deposit Securities and Cash Component (together with any fees) and acceptance of such order, upon the terms described in the Registration Statement. The Trust may reject any order for Creation Units or stop all receipts of such orders at any time upon reasonable notice to the Distributor, in accordance with the provisions of the Prospectus.
(b) The Trust agrees that it will take all action necessary to register an indefinite number of Shares under the 1933 Act. The Trust will make available to the Distributor such number of copies of its then currently effective Prospectus, or any supplement, as the Distributor require to meet its obligations hereunder or as it may otherwise reasonably request. The Trust will furnish to the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the distribution of Creation Units. The Trust shall keep the Distributor informed of the jurisdictions in which Shares of the Trust are authorized for sale and shall promptly notify the Distributor of any change in this information. The Distributor shall not be liable for damages resulting from the sale of Shares in authorized jurisdictions where the Distributor had no information from the Trust that such sale or sales were unauthorized at the time of such sale or sales.
Exhibit (e)(i)(1)
(c) The Trust represents to the Distributor that the Registration Statement and Prospectus filed by the Trust with the Commission with respect to the Trust have been prepared in conformity with the requirements of the 1933 Act, the 1940 Act and the rules and regulations of the Commission thereunder. The Trust will notify the Distributor promptly of any amendment to the Registration Statement or supplement to the Prospectus and any stop order suspending the effectiveness of the Registration Statement.
5. Fees and Expenses .
(a) The Trust will, with respect to each Fund, pay to the Distributor all fees and expenses pursuant to the terms of the Distribution and Service Plan in effect for each respective Fund.
(b) The Distributor will bear the following costs and expenses relating to the distribution of Creation Units of the Funds: (a) the costs of processing and maintaining records of creations of Creation Units; (b) the costs of maintaining the records required of a broker-dealer registered under the 1934 Act; (c) the expenses of maintaining its registration or qualification as a dealer or broker under federal or state laws; (d) the expenses incurred by the Distributor in connection with normal (non-expedited) FINRA filing fees; and (e) all other expenses incurred in connection with the distribution services contemplated herein, except as specifically provided in this Agreement.
(c) The Distributor shall pay, from the fees received by it from the Funds pursuant to the Rule 12b-1 Plans, all fees and make reimbursement of expenses, pursuant to and in accordance with any and all Soliciting Dealer and/or Investor Services Agreements, as approved by the Board of Trustees of the Trust, as set forth in Section 3 of this Agreement. Further, the Distributor will pay, from the fees received by it from the Funds pursuant to the Rule 12b-1 Plans, all fees with respect to expedited FINRA filing fees.
6. Indemnification .
(a) The Trust agrees to indemnify and hold harmless the Distributor and any soliciting dealer that enters into a Soliciting Dealer Agreement with the Distributor, which provides for such indemnification, in the form approved by the Board of Trustees (each an Indemnified Dealer) and each of the directors, officers, agents and employees and any person who controls the Distributor or the Indemnified Dealer within the meaning of Section 15 of the 1933 Act (any of the Distributor, any Indemnified Dealer, their officers, agents, employees and directors or such control persons, for purposes of this paragraph, an Indemnitee) against any loss, liability, claim, damages or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damages or expense and reasonable counsel fees incurred in connection therewith) arising out of or based upon an allegation or the claim that the Registration Statement, Prospectus, shareholder reports or other information filed or made public by the Trust (as from time to time amended) included an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein (and in the case of the Prospectus, in light of the circumstances under which they were made) not misleading under the 1933 Act, or any other statute or the common law. However, the Trust does not agree to indemnify the Distributor or hold it harmless to the extent that the statement or omission was made in reliance upon, and in conformity with information furnished to the Trust by or on behalf of the Distributor. The Trust will also not indemnify any Indemnitee with respect to any untrue statement or omission made in the Registration Statement or Prospectus that is subsequently corrected in such document (or an amendment thereof or supplement thereto) if a copy of the Prospectus (or such
Exhibit (e)(i)(1)
amendment or supplement) was not sent or given to the person asserting any such loss, liability, claim, damage or expense at or before the written confirmation to such person in any case where such delivery is required by the 1933 Act and the Trust had notified the Distributor of the amendment or supplement prior to the sending of the confirmation. In no case (i) is the indemnity of the Trust in favor of any Indemnitee to be deemed to protect the Indemnitee against any liability to the Trust or its shareholders to which the Indemnitee would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement, or (ii) is the Trust to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against any Indemnitee unless the Indemnitee shall have notified the Trust in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon Indemnitee (or after Indemnitee shall have received notice of service on any designated agent). However, failure to notify the Trust of any claim shall not relieve the Trust from any liability which it may have to any Indemnitee against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Trust shall be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any claims, but if the Trust elects to assume the defense, the defense shall be conducted by counsel chosen by it and satisfactory to Indemnitee, defendant or defendants in the suit. In the event the Trust elects to assume the defense of any suit and retain counsel, Indemnitee, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them. If the Trust does not elect to assume the defense of any suit, it will reimburse the Indemnitee, defendant or defendants in the suit, for the reasonable fees and expenses of any counsel retained by them. The Trust agrees to notify the Distributor and any Indemnified Dealer promptly of the commencement of any litigation or proceedings against it or any of its officers or trustees in connection with the issuance or sale of any of the Creation Units or the Shares.
(b) The Distributor agrees to indemnify and hold harmless the Trust and each of its Trustees and officers and any person who controls the Trust within the meaning of Section 15 of the 1933 Act (for purposes of this paragraph, the Trust and each of its Trustees and officers and its controlling persons are collectively referred to as the Trust Affiliates) against any loss, liability, claim, damages or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damages or expense and reasonable counsel fees incurred in connection therewith) which the Trust Affiliate may incur under the 1933 Act or any other statute or common law, but only to the extent that such loss, liability, claim, damages or expense shall arise out of or be based upon (i) the allegation of any wrongful act of the Distributor or any of its employees or (ii) allegation that the Registration Statement, Prospectus, shareholder reports or other information filed or made public by the Trust (as from time to time amended) included an untrue statement of a material fact or omitted to state a material fact required to be stated or necessary in order to make the statements not misleading, insofar as the statement or omission was made in reliance upon, and in conformity with written information furnished to the Trust by or on behalf of the Distributor. In no case (i) is the indemnity of the Distributor in favor of any Trust Affiliate to be deemed to protect any Trust Affiliate against any liability to the Trust or its security holders to which such Trust Affiliate would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement, or (ii) is the Distributor to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against any Trust Affiliate unless the Trust Affiliate shall have notified the Distributor in writing of the claim within a reasonable time after the summons or the first written notification giving information of the nature of the claim shall have been served upon the Trust Affiliate (or after the Trust Affiliate shall have received notice of service on any designated agent). However, failure to notify the Distributor of any claim shall not relieve the Distributor from any liability which it may have to the Trust Affiliate against whom the action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Distributor shall be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce the
Exhibit (e)(i)(1)
claim, but if the Distributor elects to assume the defense, the defense shall be conducted by counsel chosen by it and satisfactory to the Trust, its officers and Board and to any controlling person or persons, defendant or defendants in the suit. In the event that Distributor elects to assume the defense of any suit and retain counsel, the Trust or controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them. If the Distributor does not elect to assume the defense of any suit, it will reimburse the Trust, its officers and Board or controlling person or persons, defendant or defendants in the suit, for the reasonable fees and expenses of any counsel retained by them. The Distributor agrees to notify the Trust promptly of the commencement of any litigation or proceedings against it in connection with the issuance and sale of any of the shares.
(c) No indemnified party shall settle any claim against it for which it intends to seek indemnification from the indemnifying party, under the terms of section 6(a) or 6(b) above, without the prior written notice to and consent from the indemnifying party, which consent shall not be unreasonably withheld. No indemnified or indemnifying party shall settle any claim unless the settlement contains a full release of liability with respect to the other party in respect of such action. This section 6 shall survive the termination of this Agreement.
7. Representations .
(a) The Distributor represents and warrants that (i) it is duly organized as a Delaware Limited Liability Corporation and is and at all times will remain duly authorized and licensed to carry out its services as contemplated herein; (ii) the execution, delivery and performance of this Agreement are within its power and have been duly authorized by all necessary action; and (iii) its entering into this Agreement or providing the services contemplated hereby does not conflict with or constitute a default or require a consent under or breach of any provision of any agreement or document to which the Distributor is a party or by which it is bound and (iv) it is registered as a broker-dealer under the 1934 Act and is a member of the FINRA.
(b) The Trust represents and warrants that (i) it is duly organized as a Massachusetts business trust and is and at all times will remain duly authorized to carry out its obligations as contemplated herein; (ii) it is registered as an investment company under the 1940 Act; (iii) the execution, delivery and performance of this Agreement are within its power and have been duly authorized by all necessary action; and (iv) its entering into this Agreement does not conflict with or constitute a default or require a consent under or breach of any provision of any agreement or document to which the Trust is a party or by which it is bound.
8. Duration, Termination and Amendment .
(a) This Agreement shall be effective on May 1, 2017, and unless terminated as provided herein, shall continue for two years from its effective date, and thereafter from year to year, provided such continuance is approved annually by the vote of a majority of the Board of Trustees, and by the vote of those Trustees who are not interested persons of the Trust (the Independent Trustees) and, if a plan under Rule 12b-1 under the 1940 Act is in effect, by the vote of those Trustees who are not interested persons of the Trust and who are not parties to such plan or this Agreement and have no financial interest in the operation of such plan or in any agreements related to such plan, cast in person at a meeting called for the purpose of voting on the approval. This Agreement may be terminated at any time, without the payment of any penalty, as to each Fund (i) by vote of a majority of the Independent Trustees or (ii) by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, on at least sixty (60) days prior written notice to the Distributor. In addition, this Agreement may be terminated at any time by the Distributor upon at least sixty (60) days prior written notice to the Trust. This Agreement shall automatically terminate in the event of its assignment. As used in this paragraph, the terms assignment and interested persons shall have the respective meanings specified in the 1940 Act.
Exhibit (e)(i)(1)
(b) During such period as the Distributor receives compensation pursuant to the 12b-1 Plans, and this Agreement constitutes a 12b-1 Plan related agreement, (i) any material amendment to this Agreement requires the approval provided for in paragraph (a) with respect to annual renewals of this Agreement, and (ii) any amendment that materially increases the amount to be spent for distribution services requires the additional approval of the majority of the Trusts outstanding voting securities (as defined in the 1940 Act) of each affected Fund; and (iii) the selection and nomination of those Trustees who are not interested persons (as defined in the 1940 Act) of the Trust shall be committed to the discretion of the Trustees of the Trust who are not such interested persons of the Trust;
(c) No provision of this Agreement may be changed, waived, discharged or terminated except by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought;
(d) This Agreement supersedes any and all oral or written agreements heretofore made relating to the subject matter hereof, including the Distribution Agreement between the Trust and State Street Global Markets, LLC effective, September 22, 2000, and contains the entire understanding and agreement of the parties with respect to the subject matter hereof.
9. Notice . Any notice or other communication authorized or required by this Agreement to be given to either party shall be in writing and deemed to have been given when delivered in person or by confirmed electronic mail, facsimile, or posted by certified mail, return receipt requested, to the following address (or such other address as a party may specify by written notice to the other):
If to the Distributor:
Attn.: James E. Ross
Address: One Lincoln Street, Boston, MA 02111
Email: James_Ross@ssga.com
Phone: 617-664-2043
If to the Trust:
Attn.: Ellen Needham
Address: One Lincoln Street, Boston, MA 02111
Email: Ellen_Needham@ssga.com
Phone: 617-664-6252
10. Limitation of Liability . The Distributor is expressly put on notice of the limitation of shareholder liability as set forth in the Declaration of Trust of the Trust and agrees that the obligations assumed by the Trust under this contract shall be limited in all cases to the Trust and its assets. The Distributor shall not seek satisfaction of any such obligation from the shareholders or any shareholder of the Trust, nor shall the Distributor seek satisfaction of any such obligation from the Trustees or any individual Trustee of the Trust. The Distributor understands that the rights and obligations of each series of shares of the Trust under the Declaration of Trust are separate and distinct from those of any and all other series.
11. Choice of Law . This Agreement shall be governed by, and construed in accordance with, the laws of The Commonwealth of Massachusetts, without giving effect to the choice of laws provisions thereof.
12. Counterparties . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Exhibit (e)(i)(1)
13. Severability . If any provisions of this Agreement shall be held or made invalid, in whole or in part, then the other provisions of this Agreement shall remain in force. Invalid provisions shall, in accordance with this Agreements intent and purpose, be amended, to the extent legally possible, by valid provisions in order to effectuate the intended results of the invalid provisions.
14. Insurance . The Distributor will maintain at its expense an errors and omissions insurance policy which covers services by the Distributor hereunder.
15. Segregation of Fees and Expenses . Amounts paid by each Fund to the Distributor under its 12b-1 Plan either for distribution related services or shareholder services shall not be used to pay for the distribution of Shares of, or shareholder servicing in respect of, any other Fund. However, fees under the 12b-1 Plan attributable to the Trust as a whole shall be allocated to each Fund according to the method adopted by the Trusts Board of Trustees. Fees attributable to the Trust as a whole shall include any amounts payable under the 12b-1 Plans to the Distributor for its services rendered hereunder. The Distributors allocation of such 12b-1 Plan fees shall be subject to review by the Trusts Board of Trustees.
16. Limitation of Liability . The Amended and Restated Declaration of Trust dated September 6, 2000, as amended, establishing the Trust, which is hereby referred to and a copy of which is on file with the Secretary of The Commonwealth of Massachusetts, provides that the name SPDR ® Series Trust means the Trustees from time to time serving (as Trustees but not personally) under such Declaration of Trust. It is expressly acknowledged and agreed that the obligations of the Trust hereunder shall not be binding upon any of the shareholders, Trustees, officers, employees or agents of the Trust, personally, but shall bind only the trust property of the Trust, as provided in its Declaration of Trust. The execution and delivery of this Agreement have been authorized by the Trustees of the Trust and signed by an officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust as provided in its Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first set forth above.
SPDR® SERIES TRUST | ||||
By: |
/s/ Ellen Needham |
|||
Name: | Ellen Needham | |||
Title: | President | |||
STATE STREET GLOBAL ADVISORS FUNDS DISTRIBUTORS, LLC | ||||
By: |
/s/ James E. Ross |
|||
Name: | James E. Ross | |||
Title: | Chief Executive Officer |
Exhibit (e)(i)(1)
Annex I
To the Distribution Agreement by and between
SPDR Series Trust and State Street Global Advisors Funds Distributors, LLC
ETF |
Trading Symbol |
Listing Exchange |
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SPDR Russell 3000 ® ETF |
THRK |
NYSE Arca, Inc. |
||
SPDR Russell 1000 ® ETF |
ONEK |
NYSE Arca, Inc. |
||
SPDR S&P 500 Growth ETF |
SPYG |
NYSE Arca, Inc. |
||
SPDR S&P 500 Value ETF |
SPYV |
NYSE Arca, Inc. |
||
SPDR S&P 1000 ETF |
SMD |
NYSE Arca, Inc. |
||
SPDR S&P 400 Mid Cap Growth ETF |
MDYG |
NYSE Arca, Inc. |
||
SPDR S&P 400 Mid Cap Value ETF |
MDYV |
NYSE Arca, Inc. |
||
SPDR S&P 600 Small Cap ETF |
SLY |
NYSE Arca, Inc. |
||
SPDR S&P 600 Small Cap Growth ETF |
SLYG |
NYSE Arca, Inc. |
||
SPDR S&P 600 Small Cap Value ETF |
SLYV |
NYSE Arca, Inc. |
||
SPDR Global Dow ETF |
DGT |
NYSE Arca, Inc. |
||
SPDR Dow Jones REIT ETF |
RWR |
NYSE Arca, Inc. |
||
SPDR S&P® Bank ETF |
KBE |
NYSE Arca, Inc. |
||
SPDR S&P Capital Markets ETF |
KCE |
NYSE Arca, Inc. |
||
SPDR S&P Insurance ETF |
KIE |
NYSE Arca, Inc. |
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SPDR Morgan Stanley Technology ETF |
MTK |
NYSE Arca, Inc. |
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SPDR S&P Dividend ETF |
SDY |
NYSE Arca, Inc. |
||
SPDR S&P Aerospace & Defense ETF |
XAR |
NYSE Arca, Inc. |
||
SPDR S&P Biotech ETF |
XBI |
NYSE Arca, Inc. |
||
SPDR S&P Health Care Equipment ETF |
XHE |
NYSE Arca, Inc. |
||
SPDR S&P Health Care Services ETF |
XHS |
NYSE Arca, Inc. |
||
SPDR S&P Homebuilders ETF |
XHB |
NYSE Arca, Inc. |
||
SPDR S&P Metals & Mining ETF |
XME |
NYSE Arca, Inc. |
||
SPDR S&P Oil & Gas Equipment & Services ETF |
XES |
NYSE Arca, Inc. |
||
SPDR S&P Oil & Gas Exploration & Production ETF |
XOP |
NYSE Arca, Inc. |
||
SPDR S&P Pharmaceuticals ETF |
XPH |
NYSE Arca, Inc. |
||
SPDR S&P Retail ETF |
XRT |
NYSE Arca, Inc. |
||
SPDR S&P Semiconductor ETF |
XSD |
NYSE Arca, Inc. |
||
SPDR S&P Software & Services ETF |
XSW |
NYSE Arca, Inc. |
||
SPDR S&P Telecom ETF |
XTL |
NYSE Arca, Inc. |
||
SPDR S&P Transportation ETF |
XTN |
NYSE Arca, Inc. |
||
SPDR S&P Regional Banking (SM) ETF |
KRE |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
BIL |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Intermediate Term Treasury ETF |
ITE |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Long Term Treasury ETF |
TLO |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays TIPS ETF |
IPE |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Aggregate Bond ETF |
BNDS |
NYSE Arca, Inc. |
||
SPDR Nuveen Bloomberg Barclays Municipal Bond ETF |
TFI |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays International Treasury Bond ETF |
BWX |
NYSE Arca, Inc. |
||
SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF |
SHM |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays High Yield Bond ETF |
JNK |
NYSE Arca, Inc. |
||
SPDR Citi International Government Inflation-Protected Bond ETF |
WIP |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Short Term International Treasury Bond ETF |
BWZ |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Intermediate Term Corporate Bond ETF |
ITR |
NYSE Arca, Inc. |
Exhibit (e)(i)(1)
SPDR Bloomberg Barclays Long Term Corporate Bond ETF |
LWC |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Convertible Securities ETF |
CWB |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Mortgage Backed Bond ETF |
MBG |
NYSE Arca, Inc. |
||
SPDR Wells Fargo Preferred Stock ETF |
PSK |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Short Term Corporate Bond ETF |
SCPB |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays International Corporate Bond ETF |
IBND |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Emerging Markets Local Bond ETF |
EBND |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Issuer Scored Corporate Bond ETF |
CBND |
NYSE Arca, Inc. |
||
SPDR Nuveen S&P High Yield Municipal Bond ETF |
HYMB |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Short Term Treasury ETF |
SST |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Investment Grade Floating Rate ETF |
FLRN |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays Short Term High Yield Bond ETF |
SJNK |
NYSE Arca, Inc. |
||
SPDR BofA Merrill Lynch Crossover Corporate Bond ETF |
CJNK |
NYSE Arca, Inc. |
||
SPDR S&P 1500 Value Tilt ETF |
VLU |
NYSE Arca, Inc. |
||
SPDR S&P 1500 Momentum Tilt ETF |
MMTM |
NYSE Arca, Inc. |
||
SPDR SSGA US Large Cap Low Volatility Index ETF |
LGLV |
NYSE Arca, Inc. |
||
SPDR SSGA US Small Cap Low Volatility Index ETF |
SMLV |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays 1-10 Year TIPS ETF |
TIPX |
NYSE Arca, Inc. |
||
SPDR Russell 2000® ETF |
TWOK |
NYSE Arca, Inc. |
||
SPDR Bloomberg Barclays 0-5 Year TIPS ETF |
SIPE |
NYSE Arca, Inc. |
||
SPDR S&P 500 Buyback ETF |
SPYB |
NYSE Arca, Inc. |
||
SPDR MSCI USA StrategicFactors ETF |
QUS |
NYSE Arca, Inc. |
||
SPDR S&P 500 High Dividend ETF |
SPYD |
NYSE Arca, Inc. |
||
SPDR S&P 500 Fossil Fuel Reserves Free ETF |
SPYX |
NYSE Arca, Inc. |
||
SPDR Russell 1000 Yield Focus ETF |
ONEY |
NYSE Arca, Inc. |
||
SPDR Russell 1000 Momentum Focus ETF |
ONEO |
NYSE Arca, Inc. |
||
SPDR Russell 1000 Low Volatility Focus ETF |
ONEV |
NYSE Arca, Inc. |
||
SPDR FactSet Innovative Technology ETF |
XITK |
NYSE Arca, Inc. |
||
SPDR SSGA Gender Diversity Index ETF |
SHE |
NYSE Arca, Inc. |
||
SPDR Dorsey Wright Fixed Income Allocation ETF |
DWFI |
NASDAQ Stock Market LLC | ||
SPDR S&P Technology Hardware ETF |
XTH |
NYSE Arca, Inc. |
||
SPDR S&P Internet ETF |
XWEB |
NYSE Arca, Inc. |
||
Effective With SEC, But Not Operational | ||||
SPDR S&P Commercial Paper ETF |
CPZ |
|||
SPDR S&P Agency Bond ETF |
||||
SPDR Bloomberg Barclays Corporate Bond ETF |
||||
SPDR Bloomberg Barclays Corporate Industrial Bond ETF |
||||
SPDR Bloomberg Barclays Corporate Financial Bond ETF |
||||
SPDR Bloomberg Barclays Corporate Utilities Bond ETF |
||||
SPDR Bloomberg Barclays CMBS ETF |
||||
SPDR Bloomberg Barclays Global Convertible Securities ETF |
GCWB |
|||
SPDR Bloomberg Barclays Breakeven Inflation ETF |
||||
SPDR S&P Commercial Paper ex-Financials ETF |
||||
SPDR S&P Food & Beverage ETF |
Exhibit (h)(i)(2)
ADMINISTRATION AGREEMENT
SCHEDULE A
Listing of Funds
SPDR Series Trust
OPERATIONAL ETFS
SPDR Russell 3000 ETF
SPDR Russell 1000 ETF
SPDR Russell 2000 ETF
SPDR S&P 500 Growth ETF
SPDR S&P 500 Value ETF
SPDR S&P ® 1000 ETF
SPDR S&P 400 Mid Cap Growth ETF
SPDR S&P 400 Mid Cap Value ETF
SPDR S&P 600 Small Cap ETF
SPDR S&P 600 Small Cap Growth ETF
SPDR S&P 600 Small Cap Value ETF
SPDR Global Dow ETF
SPDR Dow Jones REIT ETF
SPDR S&P Bank ETF
SPDR S&P Capital Markets ETF
SPDR S&P Insurance ETF
SPDR S&P Regional Banking SM ETF
SPDR Morgan Stanley Technology ETF
SPDR S&P Dividend ETF
SPDR S&P Aerospace & Defense ETF
SPDR S&P Biotech ETF
SPDR S&P Health Care Equipment ETF
SPDR S&P Health Care Services ETF
SPDR S&P Homebuilders ETF
SPDR S&P Metals & Mining ETF
SPDR S&P Oil & Gas Equipment & Services ETF
SPDR S&P Oil & Gas Exploration & Production ETF
SPDR S&P Pharmaceuticals ETF
SPDR S&P Retail ETF
SPDR S&P Semiconductor ETF
SPDR S&P Software & Services ETF
SPDR S&P Telecom ETF
SPDR S&P Transportation ETF
SPDR S&P 1500 Value Tilt ETF
SPDR S&P 1500 Momentum Tilt ETF
SPDR SSGA US Large Cap Low Volatility Index ETF
SPDR SSGA US Small Cap Low Volatility Index ETF
SPDR Wells Fargo Preferred Stock ETF
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF
SPDR Bloomberg Barclays TIPS ETF
SPDR Bloomberg Barclays 1-10 Year TIPS ETF
SPDR Bloomberg Barclays Short Term Treasury ETF
SPDR Bloomberg Barclays Intermediate Term Treasury ETF
SPDR Bloomberg Barclays Long Term Treasury ETF
SPDR Bloomberg Barclays Short Term Corporate Bond ETF
SPDR Bloomberg Barclays Intermediate Term Corporate Bond ETF
SPDR Bloomberg Barclays Long Term Corporate Bond ETF
SPDR Bloomberg Barclays Issuer Scored Corporate Bond ETF
SPDR Bloomberg Barclays Convertible Securities ETF
SPDR Bloomberg Barclays Mortgage Backed Bond ETF
SPDR Bloomberg Barclays Aggregate Bond ETF
SPDR Nuveen Bloomberg Barclays Municipal Bond ETF
SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF
SPDR Nuveen S&P High Yield Municipal Bond ETF
SPDR Citi International Government Inflation-Protected Bond ETF
SPDR Bloomberg Barclays Short Term International Treasury Bond ETF
SPDR Bloomberg Barclays International Treasury Bond ETF
SPDR Bloomberg Barclays International Corporate Bond ETF
SPDR Bloomberg Barclays Emerging Markets Local Bond ETF
SPDR Bloomberg Barclays High Yield Bond ETF
SPDR Bloomberg Barclays Short Term High Yield Bond ETF
SPDR Bloomberg Barclays Investment Grade Floating Rate ETF
SPDR BofA Merrill Lynch Crossover Corporate Bond ETF
SPDR S&P 500 Buyback ETF
SPDR MSCI USA StrategicFactors ETF
SPDR S&P 500 High Dividend ETF
SPDR S&P 500 Fossil Fuel Reserves Free ETF
SPDR Russell 1000 Yield Focus ETF
SPDR Russell 1000 Momentum Focus ETF
SPDR Russell 1000 Low Volatility Focus ETF
SPDR FactSet Innovative Technology ETF
SPDR SSGA Gender Diversity Index ETF
SPDR Dorsey Wright Fixed Income Allocation ETF
SPDR S&P Technology Hardware ETF
SPDR S&P Internet ETF
SHELF ETFS
SPDR S&P Food & Beverage ETF
SPDR S&P Commercial Paper ETF
SPDR S&P Agency Bond ETF
SPDR Bloomberg Barclays Corporate Bond ETF
SPDR Bloomberg Barclays Corporate Industrial Bond ETF
SPDR Bloomberg Barclays Corporate Financial Bond ETF
SPDR Bloomberg Barclays Corporate Utilities Bond ETF
SPDR Bloomberg Barclays CMBS ETF
Exhibit (h)(i)(2)
SPDR Bloomberg Barclays Global Convertible Securities ETF
SPDR Bloomberg Barclays Breakeven Inflation ETF
SPDR S&P Commercial Paper ex-Financials ETF
[REDACTED]
As of July 31, 2017
Exhibit (h)(viii)
Execution Version
MASTER AMENDED AND RESTATED
SECURITIES LENDING AUTHORIZATION AGREEMENT
Among
SPDR SERIES TRUST, SPDR INDEX SHARES, SSGA ACTIVE TRUST, and SSGA MASTER TRUST
EACH ON BEHALF OF EACH OF ITS RESPECTIVE SERIES
AS LISTED ON SCHEDULE B,
SEVERALLY AND NOT JOINTLY,
and
STATE STREET BANK AND TRUST COMPANY
Execution Version
TABLE OF CONTENTS
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DISTRIBUTIONS ON AND VOTING RIGHTS WITH RESPECT TO LOANED SECURITIES |
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Execution Version
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27. |
CLIENT NOTIFICATION OF LIMITATION OF LIABILITY OF TRUSTEES AND SHAREHOLDERS |
20 |
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Execution Version
EXHIBITS AND SCHEDULES
SCHEDULE A (Schedule of Fees)
SCHEDULE B (Funds)
SCHEDULE C (Acceptable Forms of Collateral)
SCHEDULE D (Schedule of Approved Borrowers)
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Execution Version
MASTER AMENDED AND RESTATED
SECURITIES LENDING AUTHORIZATION AGREEMENT
Agreement dated the day of , 2017 among SPDR SERIES TRUST, SPDR INDEX SHARES, SSGA ACTIVE TRUST, and SSGA MASTER TRUST, each an open-end management investment company, organized as a Massachusetts business trust, on behalf of each of its respective series as listed on Schedule B , severally and not jointly, each a registered management investment company organized and existing under the laws of Massachusetts (each, a Trust), and STATE STREET BANK AND TRUST COMPANY acting either directly or through the State Street Affiliates (defined below) (collectively State Street), setting forth the terms and conditions under which State Street is authorized to act on behalf of the Trust with respect to the lending of certain securities of the Trust held by State Street as agent, trustee or custodian.
This Agreement shall be deemed for all purposes to constitute a separate and discrete agreement between State Street and each of the series of each Trust as listed on Schedule B to this Agreement (such Trust acting on behalf of each of its series, a Fund and collectively, the Funds) as it may be amended by the parties, and no series of shares of a Trust shall be responsible or liable for any of the obligations of any other series of such Trust or of any other Trust under this Agreement or otherwise, notwithstanding anything to the contrary contained herein.
NOW, THEREFORE, in consideration of the mutual promises and of the mutual covenants contained herein, each of the parties hereto does hereby covenant and agree as follows:
1. Definitions . For the purposes hereof:
(a) Authorized Representative means any individual designated by a Fund in a written notice to State Street as authorized to act on behalf of such Fund with respect to any of the transactions contemplated by this Agreement, and all individuals so designated shall remain authorized representatives until State Street receives a notice revoking such designation.
(b) Available Securities means the securities of the Funds that are available for Loans pursuant to Section 3.
(c) Borrower means any of the entities to which Available Securities may be loaned under a Securities Loan Agreement, as described in Section 4.
(d) Collateral means collateral delivered by a Borrower to secure its obligations under a Securities Loan Agreement.
(e) Fee Income means fee income received from a Borrower, including Negative Rebates paid by a Borrower in connection with Loans, premiums in connection with non-cash Collateral and fees in connection with fee for holds or other arrangements.
(f) Government Portfolio means the State Street Navigator Securities Lending Government Money Market Portfolio.
(g) Investment Manager when used in any provision, means the person or entity that has discretionary authority over the investment of the Available Securities to which the provision applies.
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Execution Version
(h) Loan means a loan of Available Securities to a Borrower made under a Securities Loan Agreement.
(i) Loaned Security shall mean any security which is delivered as a Loan under a Securities Loan Agreement; provided that, if any new or different security shall be exchanged for any Loaned Security by recapitalization, merger, consolidation, or other corporate action, such new or different security shall, effective upon such exchange, be deemed to become a Loaned Security in substitution for the former Loaned Security for which such exchange was made.
(j) Minimum Total Spread Test has the meaning set forth in Section 3.
(k) Market Value of a security means the market value of such security (including, in the case of a Loaned Security that is a debt security, the accrued interest on such security) as determined by the independent pricing service designated by State Street, or such other independent sources as may be selected by State Street on a reasonable basis.
(l) Negative Rebate means fees paid by a Borrower for the use of certain securities despite having posted cash Collateral.
(m) Net Investment Income means income (including interest, dividends and realized capital gains) distributed in respect of the investment of cash Collateral, net of applicable fees, charges and expenses, which, in the case of investment of Collateral in a registered fund would be charged prior to distribution.
(n) Obligations means any and all liabilities and obligations of the Fund to State Street arising under or in respect of this Agreement, whether mature or unmatured, contingent or otherwise, including any obligation of the Fund to pay State Street or to reimburse State Street for any credit, advance, overdraft or other indebtedness of the Fund to State Street.
(o) Rebate means the fee paid to a Borrower for the use of cash Collateral.
(p) Replacement Securities means securities of the same issuer, class and denomination as Loaned Securities.
(q) Securities Loan Agreement means the agreement between a Borrower and State Street (on behalf of each of the Funds) that governs Loans, as described in Section 5.
(r) State Street Affiliates means any entity that directly or indirectly through one or more intermediaries, controls State Street or that is controlled by or is under common control with State Street.
(s) Total Spread has the meaning set forth in Section 3.
2. Appointment of State Street .
Each Fund hereby appoints and authorizes State Street as its agent to lend Available Securities to Borrowers in accordance with the terms of this Agreement. State Street shall have the responsibility and authority to do or cause to be done all acts State Street shall determine to be desirable, necessary, or appropriate to implement and administer this securities lending program. Each Fund agrees that State
6
Execution Version
Street is acting as a fully disclosed agent and not as principal in connection with the securities lending program. State Street may take action as agent of the Fund on an undisclosed or a disclosed basis. State Street is also hereby authorized to request a third party bank to undertake certain custodial functions in connection with holding of the Collateral provided by a Borrower pursuant to the terms hereof. In connection therewith, State Street may instruct such third party bank to establish and maintain a Borrowers account and a State Street account wherein all Collateral, including cash, shall be maintained by such bank (as applicable) in accordance with the terms of a form of custodial arrangement which shall also be consistent with the terms hereof.
Each Fund also appoints and authorizes State Street as its agent, to enter into fee for holds arrangements with respect to certain Available Securities. State Street will, in return for a fee from the Borrower, hold and reserve certain Available Securities and refrain from lending such Available Securities to any third party without the Borrowers permission, provided , however, that the fee for holds arrangements shall not restrict or otherwise affect the Funds ownership rights (including the ability to sell such Available Securities at any time deemed appropriate by the Fund) with regard to the Available Securities.
All of the Funds securities held by State Street as trustee or custodian shall be subject to this securities lending program and constitute Available Securities hereunder, except those securities which the Fund or the Investment Manager specifically identifies herein or in notices to State Street as not being Available Securities. In the absence of any such identification herein or other notices identifying specific securities as not being Available Securities, State Street shall have no authority or responsibility for determining whether any of the Funds securities should be excluded from the securities lending program.
State Street will not make a Loan on behalf of a Fund if as a result of such Loan the aggregate outstanding Loans for such Fund would be in excess of twenty-five percent (25%) of such Funds total asset value, or such alternative limit established by the Fund and communicated in writing to, and acknowledged by, State Street. The parties hereto acknowledge and agree that no such future communication by the Fund shall increase the lending limit above the regulatory limit of thirty-three and on-third percent (33 1/3%). Should the applicable law, or any alternative limit established by the Fund with respect to the maximum percentage of a Funds assets that the Fund may have on-loan change, an Authorized Representative of the Fund or the Investment Manager shall so notify State Street and such alternative limit will become effective when receipt of the Funds notification is acknowledged by State Street. This test will be applied based on asset valuations made available to State Street at the close of business on the immediately prior day.
At the initiation of each Loan collateralized with cash Collateral, the Total Spread must be equal to or greater than twenty-five (25) basis points (the Minimum Total Spread Test). For the avoidance of doubt, loans may have a Total Spread that is lower than twenty-five (25) basis points during the term of the loan so long as the loan satisfied the Minimum Total Spread Test at initiation. There will be no Minimum Total Spread Test applied to Loans collateralized with non-cash Collateral.
7
Execution Version
For purposes of the Minimum Total Spread Test:
Total Spread means, the difference between the yield of the Government Portfolio as reported by the Government Portfolio on the preceding day (or if no yield was reported on the preceding day, the last day a yield was reported), and the Rebate rate. The Fund is aware that because the Minimum Total Spread Test is based off of the yield of the Government Portfolio on the preceding day there may be instances where there are more loans made or fewer loans made than would have otherwise been made in each case if the Minimum Total Spread Test was based off of the yield of the Government Portfolio on the day the loan is actually made.
The Available Securities may be loaned to any Borrower identified on Schedule D , the Schedule of Approved Borrowers, as such schedule may be modified from time to time by State Street and the Fund as stated herein. In no event may Available Securities be loaned to any Borrower who is an affiliate of State Street, whether or not such Borrower is listed on Schedule D . State Street shall provide the Funds with a list of current Borrowers that State Street has selected, and shall update such list monthly except where such list remains unchanged from the previous month. Except for any potential Borrowers with respect to whom a Fund notifies State Street in writing that the Borrower is unacceptable, the updated list shall become the amended Schedule D . Any Borrowers deleted from State Streets list of current Borrowers shall automatically be deleted at the same time from Schedule D .
State Street shall not be responsible for any statements, representations, warranties or covenants made by any Borrower in connection with any Loan or for any Borrowers performance of or failure to perform the terms of any Loan under the applicable Securities Loan Agreement or any related agreement, including the failure to make any required payments, except as otherwise expressly provided herein.
5. Securities Loan Agreements . Each Fund authorizes State Street to enter into one or more Securities Loan Agreements with such Borrowers as may be selected by State Street from Schedule D. Each Securities Loan Agreement shall have such terms and conditions as State Street may negotiate with the Borrower; provided, however, that the terms and conditions of Loans thereunder respecting Available Securities of the Funds shall be consistent with the terms hereof and that, unless agreed otherwise by a Fund, each such Securities Loan Agreement shall have such terms and conditions as are necessary to cause any Loan thereunder to be treated as a transaction to which section 1058 of the Internal Revenue Code of 1986, as amended (the Code) applies and to cause any payments with respect to such Loans to constitute payments with respect to securities loans as defined in section 512(a)(5) of the Code. Certain terms of individual Loans, including the Rebate to be paid to the Borrower for the use of cash Collateral, shall be negotiated at the time a Loan is made.
6. Loans of Available Securities .
State Street shall be responsible for determining whether any Loans of Available Securities shall be made and for negotiating and establishing the terms of each such Loan. State Street shall have the authority to terminate any Loan in its discretion, at any time and without prior notice to the Fund. In the event of a default (within the meaning of the applicable Securities Loan Agreement) by a Borrower on any Loan State Street shall be fully protected in acting in any manner it deems reasonable and appropriate. Upon notice to State Street, the Fund has the right to direct State Street to initiate action to terminate any Loan made under this Agreement.
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Execution Version
Each Fund acknowledges that State Street administers securities lending programs for other clients of State Street. State Street will allocate securities lending opportunities among its clients, using reasonable and equitable methods, as described in the State Street Agency Securities Lending Program Description of Risks and Conflicts of Interest, established by State Street from time to time. State Street does not represent or warrant that any amount or percentage of the Funds Available Securities will in fact be loaned to Borrowers. Each Fund agrees that it shall have no claim against State Street and State Street shall have no liability arising from, based on, or relating to, loans made for other clients, or loan opportunities refused hereunder, whether or not State Street has made fewer or more loans for any other client, and whether or not any loan for another client, or the opportunity refused, could have resulted in loans made under this Agreement.
Each Fund also acknowledges that, under the applicable Securities Loan Agreements, the Borrowers will not be required to return Loaned Securities immediately upon receipt of notice from State Street terminating the applicable Loan, but instead will be required to return such Loaned Securities within such period of time following such notice as is specified in the applicable Securities Loan Agreement, and in no event later than the earlier to occur of (a) the end of the customary settlement period for such securities; or (b) except as otherwise agreed, the close of the fifth business day (meaning a day that the relevant market is open for trading and clearing) for the relevant market (or markets), following the day on which Borrower receives notice of said termination. Upon receiving a notice from the Fund or the Investment Manager that Available Securities which have been loaned to a Borrower should no longer be considered Available Securities (whether because of the sale of such securities or otherwise), State Street shall use its reasonable efforts to notify promptly thereafter the Borrower which has borrowed such securities that the Loan of such Available Securities is terminated and that such Available Securities are to be returned within the time specified by the applicable Securities Loan Agreement and in no event later than the earlier of (a) the end of the customary settlement period for such securities; or (b) except as otherwise agreed the close of the fifth business day (meaning a day that the relevant market is open for trading and clearing) for the relevant market (or markets), following the day on which Borrower receives notice of said termination.
7. Distributions on and Voting Rights with Respect to Loaned Securities .
Except as provided in the next sentence, all substitute interest, dividends, and other distributions paid with respect to Loaned Securities shall be credited to the Funds account on the date such amounts are delivered by the Borrower to State Street. Any non-cash distribution on Loaned Securities which is in the nature of a stock split or a stock dividend shall be added to the Loan (and shall be considered to constitute Loaned Securities) as of the date such non-cash distribution is received by the Borrower; provided that the Fund or Investment Manager may, by giving State Street ten (10) business days notice prior to the date of such non-cash distribution, direct State Street to request that the Borrower deliver such non-cash distribution to State Street, pursuant to the applicable Securities Loan Agreement, in which case State Street shall credit such non-cash distribution to the Funds account on the date it is delivered to State Street.
Each Fund acknowledges that it will not be entitled to participate in any dividend reinvestment program or to vote with respect to Available Securities that are on loan on the applicable record date for such Available Securities. Notwithstanding the foregoing, each Fund reserves the right to recall Loans to vote proxies if a material event affecting the investment, as determined by the Fund or its Investment Manager, is to occur. In such event, the Fund shall instruct State Street, at least ten (10) business days prior to the record date established for determining the identity of stockholders entitled to vote the Loan Securities, to terminate the Loan of the Loan Securities. State Street shall use reasonable efforts to terminate the Loan at least five (5) business days prior to the record date.
9
Execution Version
Each Fund also acknowledges that any payments of distributions from Borrower to the Fund are in substitution for the interest or dividend accrued or paid in respect of Loaned Securities and that the tax and accounting treatment of such payment may differ from the tax and accounting treatment of such interest or dividend.
If an installment, call or rights issue becomes payable on or in respect of any Loaned Securities, State Street shall use all reasonable endeavors to ensure that any timely instructions from the Fund or its Investment Manager are complied with, but State Street shall not be required to make any payment unless the Fund has first provided State Street with funds to make such payment.
Each Fund acknowledges and agrees that, with respect to a dividend paid during the Loan term by a company that is a resident of France, the Fund will not be entitled to receive, either from the French company or the Borrower, any additional dividends (sometimes referred to as complementary coupons) declared and payable by such company that are equivalent to a refund of any prepayment of French tax (equalization tax or precompte) or an additional tax credit adjustment (credit dimpot).
Each Fund further acknowledges and agrees that the Fund will be required to accept cash in lieu of fractional shares in all instances in which an issuer does not issue fractional shares.
(a) Receipt of Collateral . Each Fund hereby authorizes State Street (or a third party bank as described in Section 2 above) to receive and to hold, on the Funds behalf, Collateral from Borrowers to secure the obligations of Borrowers with respect to any Loan of Available Securities made on behalf of the Fund pursuant to the Securities Loan Agreements. All investments of cash Collateral shall be for the account and at the risk of the Fund. Concurrently with or prior to the delivery of the Loaned Securities to the Borrower under any Loan, State Street shall receive from the Borrower Collateral in any of the forms listed on Schedule C . Said Schedule may be amended from time to time by State Street and the Fund.
(b) Marking to Market . The initial Collateral received shall have (depending on the nature of the Loaned Securities and the Collateral received) a value of 102% or 105% of the Market Value of the Loaned Securities, or such other value, but not less than 102% of the Market Value of the Loaned Securities, as may be applicable in the jurisdiction in which such Loaned Securities are customarily traded.
Pursuant to the terms of the applicable Securities Loan Agreement, State Street shall, in accordance with State Streets reasonable and customary practices, mark Loaned Securities and Collateral to their Market Value each business day based upon the Market Value of the Collateral and the Loaned Securities at the close of business employing the most recently available pricing information, and ensure that each applicable Securities Loan Agreement shall require each Borrower to deliver additional Collateral (for Collateral comprised of a letter of credit, an additional or replacement letter of credit) to State Street as follows:
In the case of Loans from a Fund to a Borrower of (i) US equity securities or (ii) US corporate debt securities, the Borrower will in each case be required to deliver additional Collateral in the event that the Market Value of the Collateral in respect of such Loans is less than one hundred and two percent (102%) of the Market Value of the Loaned Securities, and such additional Collateral together with all Collateral previously delivered in respect of such Loans shall have a Market Value of not less than one hundred and two percent (102%) of the Market Value of the Loaned Securities.
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Unless market practice otherwise permits, in the case of Loans from a Fund to a Borrower of non-US equity securities, the Borrower will be required to deliver additional Collateral in the event that the Market Value of the Collateral in respect of such Loans is less than one hundred and five percent (105%) of the Market Value of the Loaned Securities, and such additional Collateral together with all Collateral previously delivered in respect of such Loans shall have a Market Value of not less than one hundred and five percent (105%) of the Market Value of the Loaned Securities; provided, however, that, notwithstanding any contrary market practice that would permit the collateralization of Loans of non-US equity securities below one hundred and five percent (105%), no Loans of non-US equity securities shall be collateralized at a level below one hundred percent (100%) without requiring the Borrower to deliver additional Collateral such that any additional Collateral together with all Collateral previously delivered in respect of such Loans shall have a Market Value of not less than one hundred percent (100%) of the Market Value of the Loaned Securities.
In the case of Loans from a Fund to a Borrower of (i) US government securities (including securities issued by US agencies or instrumentalities), (ii) sovereign debt issued by non-US governments, or (iii) non-US corporate debt securities the Borrower will in each case be required to deliver additional Collateral in the event that the Market Value of the Collateral in respect of such Loans is less than one hundred percent (100%) of the Market Value of the Loaned Securities, and such additional Collateral together with all Collateral previously delivered in respect of such Loans shall have a Market Value of not less than one hundred and two percent (102%) of the Market Value of the Loaned Securities.
(c) Return of Collateral . The Collateral shall be returned to Borrower at the termination of the Loan upon the return of the Loaned Securities by Borrower to State Street in accordance with the applicable Securities Loan Agreement.
(d) Limitations . State Street shall invest cash Collateral in accordance with any directions, including any limitations established by the Trusts and set forth on Schedule A . State Street does not assume any market or investment risk of loss with respect to the investment of cash Collateral. If the value of the cash Collateral so invested is insufficient to return any and all other amounts due to such Borrower pursuant to the Securities Loan Agreement, the relevant Fund shall be responsible for such shortfall as set forth in Section 9.
9. Investment of Cash Collateral and Compensation.
(a) Investment of Cash Collateral. To the extent that a Loan is secured by cash Collateral, such cash Collateral, including money received with respect to the investment of the same, or upon the maturity, sale, or liquidation of any such investments, shall be invested by State Street, subject to the directions referred to in Section 8(d) above. State Street does not assume any market or investment risk of loss associated with any investment or change of investment in any such investments, including any cash Collateral investment vehicle designated on Schedule A.
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(b) Cash Collateral Investments Not Guaranteed . Each Fund acknowledges that interests in such mutual funds, securities lending trusts and other collective investment funds, to which State Street and/or one or more of the State Street Affiliates provide services are not guaranteed or insured by State Street or any of the State Street Affiliates or by the Federal Deposit Insurance Corporation or any government agency.
(c) Net Investment Income and Fee Income . The sum of Net Investment Income and Fee Income shall be allocated on a monthly basis among the Borrower, State Street, and the Fund, as follows: (a) a portion of such income shall be paid to the Borrower in accordance with the agreement negotiated between the Borrower and State Street; (b) the balance, if any, shall be split between State Street, as compensation for its services in connection with this securities lending program, and the Fund and such income shall be credited to the Funds account, in accordance with the fee split set forth on Schedule A .
In the event that, for a given monthly period, the sum of Net Investment Income and Fee Income does not equal or exceed the amount due the Borrower (the Rebate fee for the use of cash Collateral) in accordance with the agreement between Borrower and State Street, State Street and the Fund shall, in accordance with the fee split set forth on Schedule A, share the amount equal to the difference between such sum and the amounts to be paid to the Borrower pursuant to the Securities Loan Agreement. The Fund shall be solely responsible for any and all amounts due to Borrowers under the applicable Securities Loan Agreements, including, but not limited to (i) the payment to the Borrower of the Rebate fee, subject to State Streets obligations in the immediately preceding sentence, (ii) the return to the Borrower, on termination of the loan and based on mark-to-market valuations, of Collateral pledged or otherwise posted by the Borrower with respect to any Loan, (iii) payment to the Borrower of interest, dividends and distributions on non-cash Collateral, (iv) any taxes imposed on a Loan for which the Fund is responsible by law, rule or regulation, and (v) any amounts erroneously credited to the Funds custody account and which are due and owing to either State Street or the Borrower.
(d) Loan Premiums . To the extent that a Loan is secured by non-cash Collateral, the Borrower shall be required to pay a loan premium, the amount of which shall be negotiated by State Street.
(e) Advances . State Street may, but is not obligated to, advance funds required to be paid by the Fund pursuant to Securities Loan Agreement or this Agreement. Each Fund hereby agrees that it shall reimburse State Street for any and all funds advanced by State Street on behalf of the Fund as a consequence of the Funds obligations hereunder, including the Funds obligation to return cash Collateral to the Borrower and to pay any fees due the Borrower, all as provided in Section 8 hereof or this Section 9.
(f) Right to Debit or Set Off . State Street may at any time charge or debit (i) any account of the Fund maintained by State Street in any capacity or (ii) any account of the Fund maintained on behalf of State Street in any capacity, (or set off any amounts otherwise payable or creditable to any such account described in subsections (i) and (ii)), and may sell or otherwise liquidate investments made with cash Collateral, to pay any amounts due to a Borrower under a Securities Loan Agreement or any Obligations of the Fund. The Fund acknowledges that whenever State Street exercises its rights under this Paragraph (f) with respect to Obligations of the Fund, State Street is acting in a principal capacity on its own behalf and not on behalf of the Fund.
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10. Fee Disclosure . The fees associated with the investment of cash Collateral in funds maintained or advised by State Street are disclosed on Schedule A hereto. Said fees may be changed from time to time by State Street upon notice to the Funds, in accordance with the governing documents of the applicable trust. An annual report with respect to such funds is available to the Funds, at no expense, upon request.
11. Recordkeeping and Reports . State Street will establish and maintain such records as are reasonably necessary to account for Loans that are made and the income derived therefrom. State Streets records shall be presumed to reflect accurately any instructions, directions or other communications regardless of how communicated, sent or delivered from any Authorized Representative. On a monthly basis, State Street will provide the Funds with a statement describing the Loans made, and the income derived from the Loans, during the period covered by such statement, Each party to this Agreement shall comply with the reasonable requests of the other for information necessary to the requesters performance of its duties in connection with this securities lending program.
Each Fund hereby agrees to participate in data aggregation services which provide securities lending market analysis, provided however, that State Street is only authorized to provide information relating to the Funds lending program, including Available Securities and Loaned Securities, (i) on an anonymous basis for aggregation into the database, (ii) if the identity of the Fund as owner of the securities is in no way identifiable, and (iii) the aggregator agrees to treat all information provided to it confidentially and to use such information solely for the purposes of providing the data aggregation service. If the Fund elects not to continue to participate in any such service at any time, State Street shall cease providing the Funds information to the aggregation service within five (5) business days of written notification to that effect from the Fund.
12. Standard of Care and Indemnification.
(a) State Street shall use reasonable care in the performance of its duties hereunder consistent with that exercised by banks generally in the performance of duties arising from acting as agent for clients in securities lending transactions.
(b) Each Fund shall indemnify State Street and hold State Street harmless from any loss or liability (including without limitation, the reasonable fees and disbursements of counsel) incurred by State Street in rendering services hereunder or in connection with any breach of the terms of this Agreement by such Fund, except such loss or liability which results from State Streets failure to exercise the standard of care required by this Section 12. Nothing in this Section shall derogate from the indemnities provided by State Street in Section 14.
(c) Notwithstanding any express provision to the contrary herein, State Street shall not be liable for any indirect, consequential, incidental, special or exemplary damages, even if State Street has been apprised of the likelihood of such damages occurring.
(d) Each Fund acknowledges that in the event that its participation in securities lending generates income for the Fund, State Street may be required to withhold tax or may claim such tax from the Fund as is appropriate in accordance with applicable law.
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(e) State Street, in determining the Market Value of Securities, including without limitation, Collateral, may rely upon any recognized pricing service and shall not be liable for any errors made by such service.
13. Representations and Warranties .
Each party hereto represents and warrants that (a) it has and will have the legal right, power and authority to execute and deliver this Agreement, to enter into the transactions contemplated hereby, and to perform its obligations hereunder; (b) it has taken all necessary action to authorize such execution, delivery, and performance; (c) this Agreement constitutes a legal, valid, and binding obligation enforceable against it; and (d) the execution, delivery, and performance by it of this Agreement will at all times comply with all applicable laws and regulations.
Each Fund represents and warrants that (a) it has made its own determination as to the tax and accounting treatment of any dividends, remuneration or other funds received hereunder; and (b) it is the legal and beneficial owner of (or exercises complete investment discretion over) all Available Securities free and clear of all liens, claims, security interests and encumbrances and no such security has been sold, and that it is entitled to receive all distributions made by the issuer with respect to Loaned Securities.
Each Fund further represents and warrants that it will immediately notify State Street orally and by written notice, of the relevant details of any corporate actions, private consent offers/agreements and/or any other off-market arrangements that may require the recall and/or restriction of a security from lending activity. Such written notice shall be delivered sufficiently in advance so as to: (a) provide State Street with reasonable time to notify Borrowers of any instructions necessary to comply with the terms of the corporate actions, private consent offers/agreements and/or other off-market arrangements, and (b) provide such Borrowers with reasonable time to comply with such instructions.
The person executing this Agreement on behalf of each Fund represents that he or she has the authority to execute this Agreement on behalf of such Fund.
Each Fund represents and warrants that it is (i) a qualified investor within the meaning of Section 3(a)(54)(A) of the Securities Exchange Act of 1934, as amended; or (ii) an employee benefit plan that owns and invests on a discretionary basis not less than US $25,000,000 in investments. Each Fund agrees to notify State Street immediately of any changes in the information set forth in this subparagraph of this Section 13.
Each Fund hereby represents to State Street that: (i) its policies and objectives generally permit it to engage in securities lending transactions; (ii) its policies permit it to purchase shares of the State Street Navigator Securities Lending Trust with cash Collateral; (iii) its participation in State Streets securities lending program, including the investment of cash Collateral in the Government Portfolio, and the existing series thereof has been approved by a majority of the trustees that are not interested persons within the meaning of section 2(a)(19) of the Investment Company Act of 1940, as amended, of the Fund and such trustees will evaluate the securities lending program no less frequently than annually to determine that the investment of cash Collateral in the State Street Navigator Securities
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Lending Trust, including any series thereof, is in the Funds best interest; (iv) its prospectus provides appropriate disclosure concerning its securities lending activity; and (v) that the trustees have obtained competing quotes with respect to lending agent fees from at least three independent lending agents or a report of an independent consultant to assist the trustees in determining that the fees for State Streets services hereunder are fair and reasonable in light of the usual and customary charges imposed by others for services of the same nature and quality.
Each Fund hereby further represents that it is not subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA) with respect to this Agreement and the Available Securities; that it qualifies as an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act of 1933, as amended; and that the taxpayer identification number and corresponding tax year-end are as set forth on Schedule B.
Each Fund hereby further represents and warrants that it has received and reviewed the State Street Agency Securities Lending Program Description of Risks and Conflicts of Interest and, with respect to each investment vehicle set forth on Schedule A hereto, it has received and reviewed, as of the date of this Agreement, the disclosure memorandum, confidential offering memorandum or equivalent offering document of each such investment vehicle.
14. Borrower Default Indemnification.
(a) If at the time of a default (within the meaning of the applicable Securities Loan Agreement) by a Borrower with respect to a Loan, some or all of the Loaned Securities under such Loan have not been returned by the Borrower, and subject to the terms of this Agreement, State Street shall indemnify the Fund against the failure of the Borrower as follows. State Street shall purchase a number of Replacement Securities equal to the number of such unreturned Loaned Securities, to the extent that such Replacement Securities are available on the open market. Such Replacement Securities shall be purchased by applying the proceeds of the Collateral with respect to such Loan to the purchase of such Replacement Securities. Subject to the Funds obligations with respect to assume market and investment risk of loss associated with any investment of Collateral and/or a Funds obligations pursuant to Sections 9(a), 9(b), and 9(c) hereof, if and to the extent that such proceeds are insufficient or the Collateral is unavailable, the purchase of such Replacement Securities shall be made at State Streets expense.
(b) If State Street is unable to purchase Replacement Securities pursuant to Paragraph 14(a) hereof, State Street shall credit to the Funds relevant account an amount equal to the Market Value of the unreturned Loaned Securities for which Replacement Securities are not so purchased, determined as of (i) the last day the Collateral continues to be successfully marked to market by the Borrower against the unreturned Loaned Securities; or (ii) the next business day following the day referred to in (i) above, if higher.
(c) In addition to making the purchases or credits required by Paragraphs (a) and (b) hereof, State Street shall credit to the Funds relevant account the value of all distributions on the Loaned Securities (not otherwise credited to the Funds accounts with State Street), for record dates which occur before the date that State Street purchases Replacement Securities pursuant to Paragraph (a) or credits the Funds relevant account pursuant to Paragraph (b).
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(d) Any credits required under Paragraphs (b) and (c) hereof shall be made by application of the proceeds of the Collateral, if any, that remains after the purchase of Replacement Securities pursuant to Paragraph (a). If and to the extent that the Collateral is unavailable or the value of the proceeds of the remaining Collateral is less than the value of the sum of the credits required to be made under Paragraphs (b) and (c), such credits shall be made at State Streets expense.
(e) If after application of Paragraphs (a) through (d) hereof, additional Collateral remains or any previously unavailable Collateral becomes available or any additional amounts owed by the Borrower with respect to such Loan are received from the Borrower, State Street shall apply the proceeds of such Collateral or such additional amounts first to reimburse itself for any amounts expended by State Street pursuant to Paragraphs (a) through (d) above, and then to credit to the Funds account all other amounts owed by the Borrower to the Fund with respect to such Loan under the applicable Securities Loan Agreement.
(f) In the event that State Street is required to make any payment and/or incur any loss or expense under this Section, State Street shall, to the extent of such payment, loss, or expense, be subrogated to, and succeed to, all of the rights of the Fund against the Borrower under the applicable Securities Loan Agreement. The Fund will, at the request of State Street, execute and deliver to State Street any confirmatory assignment or other instrument that State Street determines to be necessary or advisable to enable State Street to enforce any right to which State Street is subrogated.
15. Continuing Agreement and Termination . It is the intention of the parties hereto that this Agreement shall constitute a continuing agreement in every respect and shall apply to each and every Loan, whether now existing or hereafter made. Any Fund and State Street may each at any time terminate this Agreement with respect to such Fund upon five (5) business days written notice to the other to that effect, The only effects of any such termination of this Agreement will be that (a) following such termination, no further Loans shall be made hereunder by State Street on behalf of such Funds, and (b) State Street shall, within a reasonable time after termination of this Agreement, terminate any and all outstanding Loans with respect to such Fund. The provisions hereof shall continue in full force and effect in all other respects until all Loans have been terminated and all obligations satisfied as herein provided. State Street does not assume any market or investment risk of loss associated with the Funds change in cash Collateral investment vehicles or termination of, or change in, its participation in this securities lending program and the corresponding liquidation of cash Collateral investments.
16. Notices . Except as otherwise specifically provided herein, notices under this Agreement shall be in writing. A notice shall be sufficient if sent to the party entitled to receive such notice by email, facsimile transmission, or prepaid overnight delivery service, or for termination of this Agreement only, by certified or registered mail, and addressed as shown below. Facsimile and email notices shall be sufficient only if receipt is acknowledged by the party to which such notice is communicated at the numbers and email addresses shown below.
If to the Funds:
SSGA FUNDS
STATE STREET INSTITUTIONAL INVESTMENT TRUST
STATE STREET MASTER FUNDS
c/o SSGA Funds Management, Inc.
One Lincoln Street, SFC/25
Boston, Massachusetts 02111
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Attn: Ellen Needham
Tel: (617)664-6252
Fax: (617)664-2669
If to State Street:
State Street Bank and Trust Company
Securities Finance
State Street Financial Center
One Lincoln Street
Boston, Massachusetts 02111-2900
Attn: Legal Department, 4 th Floor
Fax: (617) 946-0046
SFLegal@StateStreet.com
or to such other addresses as any party may furnish to the other parties by written notice under this section.
Whenever this Agreement permits or requires any Fund to give notice to, direct, or provide information to State Street, such notice, direction, or information shall be provided to State Street on the Funds behalf by any individual designated for such purpose by the Fund in a written notice to State Street. This Agreement shall be considered such a designation of the person executing the Agreement on the Funds behalf. After State Streets receipt of such a notice of designation and until its receipt of a notice revoking such designation, State Street shall be fully protected in relying upon the notices, directions, and information given by such designee.
17. Securities Investors Protection Act of 1970 Notice . EACH FUND IS HEREBY ADVISED AND ACKNOWLEDGES THAT THE PROVISIONS OF THE SECURITIES INVESTOR PROTECTION ACT OF 1970 MAY NOT PROTECT THE FUND WITH RESPECT TO THE LOAN OF SECURITIES HEREUNDER AND THAT, THEREFORE, THE COLLATERAL DELIVERED TO THE FUND MAY CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF THE BROKERS OR DEALERS OBLIGATION IN THE EVENT THE BROKER OR DEALER FAILS TO RETURN THE SECURITIES.
18. Authorized Representatives . Each Fund authorizes State Street to accept and to act on any instructions or other communications, regardless of how sent or delivered, from any Authorized Representative. Each Fund shall be fully responsible for all acts of any Authorized Representative, even if that person exceeds his or her authority, and in no event shall State Street be liable to any Fund or any other third party for any losses or damages arising out of or relating to any act State Street takes or fails to take in connection with any such instructions or other communications.
19. Agents . State Street may use such agents, including but not limited to, such regulated clearing agents, securities depositaries, nominees, sub-custodians, third party custodians and State Street Affiliates, as State Street deems appropriate to carry out its duties under this Agreement. To the extent the State Street Affiliates act as State Streets agent hereunder, State Street agrees to be responsible for the acts and omissions of such State Street Affiliates as though performed by State Street directly. Each Fund agrees that State Streets sole liability for the acts or omissions of any other agent shall be limited to liability arising from State Streets failure to use reasonable care in the selection of such agent.
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20. Force Majeure . State Street shall not be responsible for any losses, costs or damages suffered by a Fund resulting directly or indirectly from war, riot, revolution, terrorism, acts of government or other causes beyond the reasonable control or apprehension of State Street.
21. Taxation . Each Fund acknowledges that, with respect to payments of distributions from Borrower, the Fund will generally not be entitled to any credits, including foreign tax credits, for any income tax that would normally be withheld at source on actual distributions of income made by the issuer of the Loaned Securities.
Each Fund acknowledges that, unless otherwise agreed, payments of distributions from Borrower will be determined by reference to Applicable Law as of the date of each payment and no adjustment will be made to amounts paid by Borrower as a result of any retroactive change in Applicable Law that is announced or enacted after the date of the relevant payment or any decision of a court of competent jurisdiction which is made after the date of the relevant payment (other than where such decision results from an action taken with respect to this Agreement or amounts paid or payable under this Agreement).
Each Fund further acknowledges that any taxes required to be withheld at source from Fee Income shall be deducted from the amount credited to the Funds securities lending account.
22. Miscellaneous . This Agreement supersedes any other agreement between the parties (including any previously executed Securities Lending Authorization Agreements with State Street, as applicable) or any representations made by one party to the other, whether oral or in writing, concerning Loans of Available Securities by State Street on behalf of the Funds. This Agreement shall not be assigned by either State Street or any Fund without the prior written consent of the other party. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, representatives, successors, and assigns. This Agreement shall be governed and construed in accordance with the laws of The Commonwealth of Massachusetts. Each Fund hereby irrevocably submits to the jurisdiction of any Massachusetts state or Federal court sitting in The Commonwealth of Massachusetts in any action or proceeding arising out of or related to this Agreement and hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Massachusetts state or Federal court except that this provision shall not preclude any party from removing any action to Federal court. Each Fund hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. Each Fund hereby irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Fund at its address specified in Section 16 hereof. Each Fund agrees that a final judgment in any such action or proceeding, all appeals having been taken or the time period for such appeals having expired, shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The provisions of this Agreement are severable and the invalidity or unenforceability of any provision hereof shall not affect any other provision of this Agreement. If in the construction of this Agreement any court should deem any provision to be invalid because of scope or duration, then such court shall forthwith reduce such scope or duration to that which is appropriate and enforce this Agreement in its modified scope or duration.
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23. Confidentiality . All information provided under this Agreement by a party (the Disclosing Party) to the other party (the Receiving Party) regarding the Disclosing Partys business and operations shall be treated as confidential. Subject to Section 24 below, all confidential information provided under this Agreement by Disclosing Party shall be used, including disclosure to third parties, by the Receiving Party, or its agents or service providers, solely for the purpose of performing or receiving the services and discharging the Receiving Partys other obligations under the Agreement or managing the business of the Receiving Party and its affiliates, including financial and operational management and reporting, risk management, legal and regulatory compliance and client service management. The foregoing shall not be applicable to any information (a) that is publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement, (b) that is independently derived by the Receiving Party without the use of any information provided by the Disclosing Party in connection with this Agreement, (c) that is disclosed to comply with any legal or regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, (d) that is disclosed as required by operation of law or regulation, or that is disclosed as required to comply with the requirements of any market infrastructure that the Disclosing Party or its agents direct State Street or State Street Affiliates to employ with respect to a Fund (or which is required in connection with the holding or settlement of instruments included in the assets subject to this Agreement), or (e) where the party seeking to disclose has received the prior written consent of the party providing the information, which consent shall not be unreasonably withheld .
(a) In connection with the provision of the services and the discharge of its other obligations under this Agreement, State Street and/or State Street Affiliates may collect and store information regarding the Fund and share such information with State Street and/or State Street Affiliates, agents and service providers in order and to the extent reasonably necessary (i) to carry out the provision of services contemplated under this Agreement and other agreements between the Fund and State Street or any State Street Affiliate and (ii) to carry out management of its businesses, including, but not limited to, financial and operational management and reporting, risk management, legal and regulatory compliance and client service management.
(b) Subject to paragraph (c) below, State Street and/or State Street Affiliates (except those State Street Affiliates or business divisions principally engaged in the business of asset management) may use any data or other information (Data) obtained by such entities in the performance of their services under this Agreement or any other agreement between the Fund and State Street or a State Street Affiliate, including Data regarding transactions and portfolio holdings relating to the Fund, and publish, sell, distribute or otherwise commercialize the Data; provided that, unless the Fund otherwise consents, Data is combined or aggregated with information relating to (i) other customers of State Street and/or State Street Affiliates or (ii) information derived from other sources, in each case such that any published information will be displayed in a manner designed to prevent attribution to or identification of such Data with the Fund. The Fund agrees that State Street and/or State Street Affiliates (i) may seek to profit and realize economic benefit from the commercialization and use of the Data, (ii) shall be entitled to retain all such benefit as compensation for services under this Agreement or such other agreement.
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(c) Except as expressly contemplated by this Agreement, nothing in this Section 24 shall limit the confidentiality and data-protection obligations of State Street and State Street Affiliates under this Agreement and applicable law. State Street and/or State Street Affiliates shall cause State Street and/or any State Street Affiliate, agent or service provider to which it has disclosed Data pursuant to this Section 23 to comply at all times with confidentiality and data-protection obligations as if it were a party to this Agreement.
25. Counterparts. The Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one (1) instrument.
26. Modification . This Agreement shall not be modified except by an instrument in writing signed by the parties hereto.
27. Client Notification of Limitation of Liability of Trustees and Shareholders . The Declaration of Trust of each Trust, as amended from time to time, establishing such Trust, which is hereby referred to and a copy of which is on file with the Secretary of The Commonwealth of Massachusetts, provides that the name of such Trust, as stated herein, means the trustees from time to time serving (as trustees, but not personally) under said Declaration of Trust. Notice is hereby given that nothing in this Agreement shall be construed as binding upon any of the shareholders, trustees, officers, employees, members or agents of such Trust, personally, but shall bind only the assets and property of such Trust.
[ Remainder of the Page Intentionally Left Blank. ]
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IN WITNESS WHEREOF, each of the parties has caused their duly authorized officer(s) to execute this Agreement, effective as of the first date set forth above.
SPDR SERIES TRUST, | ||
on behalf of each of its respective series as listed on Schedule B, severally and not jointly | ||
By: |
/s/ Ellen M. Needham |
|
Name: Ellen M. Needham | ||
Title: President | ||
SPDR INDEX SHARES | ||
on behalf of each of its respective series as listed on Schedule B, severally and not jointly | ||
By: |
/s/ Ellen M. Needham |
|
Name: Ellen M. Needham | ||
Title: President | ||
SSGA ACTIVE TRUST, | ||
on behalf of each of its respective series as listed on Schedule B, severally and not jointly | ||
By: |
/s/ Ellen M. Needham |
|
Name: Ellen M. Needham | ||
Title: President | ||
SSGA MASTER TRUST, | ||
on behalf of each of its respective series as listed on Schedule B, severally and not jointly | ||
By: |
/s/ Ellen M. Needham |
|
Name: Ellen M. Needham | ||
Title: President | ||
STATE STREET BANK AND TRUST COMPANY | ||
By: |
/s/ James F. McDonald |
|
Name: James F. McDonald | ||
Title: Senior Managing Director |
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Schedule A
This Schedule is attached to and made part of the Master Amended and Restated Securities Lending Authorization Agreement, dated the day of , 2017 among SPDR SERIES TRUST, SPDR INDEX SHARES, SSGA ACTIVE TRUST, and SSGA MASTER TRUST, EACH ON BEHALF OF EACH OF ITS RESPECTIVE SERIES AS LISTED ON SCHEDULE B, SEVERALLY AND NOT JOINTLY (the Funds), and STATE STREET BANK AND TRUST COMPANY acting either directly or through the State Street Affiliates (collectively, State Street).
Schedule of Fees
- Eighty-five percent (85%) payable to the Fund, and
- Fifteen percent (15%) payable to State Street.
-
Each Fund instructs State Street to invest cash Collateral in the State Street Navigator Securities Lending Government Money Market Portfolio (the Government Portfolio). The management fees for investing in the Government Portfolio are as set forth in the Confidential Offering Memorandum dated October 18, 2016 (the Government COM).
Cash Collateral including money received in respect of cash Collateral may be invested in the Government Portfolio by State Street. Daily distributions from the Government Portfolio may be reinvested into the Government Portfolio until redeemed each month to pay amounts due by the Funds hereunder. Such reinvested earnings may be held in an omnibus account until redeemed monthly. In addition, to the extent that cash Collateral cannot be promptly invested in the Government Portfolio pursuant to the Funds direction above due to the timing of delivery by Borrower or otherwise (including if the Government Portfolio is not available for any reason), the Fund hereby directs State Street to hold such cash Collateral in a demand deposit account or similar account (which, in each case, may or may not earn interest) until such cash Collateral can be invested in the Government Portfolio pursuant to the Funds direction above or pursuant to a modified direction provided by the Fund in writing and agreed to by State Street if the Government Portfolio is no longer available. In the event the Government Portfolio is no longer available for any reason, the Fund covenants and agrees to promptly provide State Street with a modified direction, and in no event later than five (5) business days from the date of the Fund becoming aware of the Government Portfolios unavailability. The Fund hereby acknowledges that during the interim period between the unavailability of the Government Portfolio and the implementation of its modified direction, State Street may recall loans collateralized by cash Collateral in its sole discretion for the purpose
22
Execution Version
of reducing on loan balances. Additionally, the Fund hereby acknowledges that during the interim period between the unavailability of the Government Portfolio and the implementation of its modified direction, standard reporting relating to cash Collateral may not be available to the Fund.
23
Execution Version
Schedule B
This Schedule is attached to and made part of the Master Amended and Restated Securities Lending Authorization Agreement, dated the day of , 2017 among SPDR SERIES TRUST, SPDR INDEX SHARES, SSGA ACTIVE TRUST, and SSGA MASTER TRUST, EACH ON BEHALF OF EACH OF ITS RESPECTIVE SERIES AS LISTED ON SCHEDULE B, SEVERALLY AND NOT JOINTLY (the Funds), and STATE STREET BANK AND TRUST COMPANY acting either directly or through the State Street Affiliates (collectively, State Street).
Portfolio Name |
Taxpayer
Identification Number |
Fund
Code |
Tax
Year-End |
|||||||||
SPDR Index Shares Funds |
||||||||||||
SPDR Dow Jones Global Real Estate ETF |
26-1947861 | J711 | 26-1947861 | |||||||||
SPDR Dow Jones International Real Estate ETF |
13-4332931 | J738 | 13-4332931 | |||||||||
SPDR MSCI ACWI ex-US ETF |
83-0463548 | J710 | 83-0463548 | |||||||||
SPDR MSCI ACWI IMI ETF |
45-4222947 | LQ15 | 45-4222947 | |||||||||
SPDR MSCI ACWI Low Carbon Target ETF |
47-1978173 | LQ79 | 47-1978173 | |||||||||
SPDR MSCI Australia StrategicFactors ETF |
46-5233834 | LQ44 | 46-5233834 | |||||||||
SPDR MSCI Canada StrategicFactors ETF |
46-5256000 | LQ45 | 46-5256000 | |||||||||
SPDR MSCI China A Shares IMI ETF |
47-1688506 | LQ77 | 47-1688506 | |||||||||
SPDR MSCI EAFE StrategicFactors ETF |
46-4902097 | LQ41 | 46-4902097 | |||||||||
SPDR MSCI EAFE Fossil Fuel Reserves Free ETF |
81-1349516 | LQ39 | 81-1349516 | |||||||||
SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF |
81-1357491 | LQ40 | 81-1357491 | |||||||||
SPDR MSCI Emerging Markets StrategicFactors ETF |
46-4936268 | LQ42 | 46-4936268 | |||||||||
SPDR MSCI Germany StrategicFactors ETF |
46-5280853 | LQ46 | 46-5280853 | |||||||||
SPDR MSCI Japan StrategicFactors ETF |
46-5283004 | LQ47 | 46-5283004 | |||||||||
SPDR MSCI Spain StrategicFactors ETF |
46-5339792 | LQ48 | 46-5339792 | |||||||||
SPDR MSCI United Kingdom StrategicFactors ETF |
46-5358447 | LQ49 | 46-5358447 | |||||||||
SPDR MSCI World StrategicFactors ETF |
46-4964850 | LQ43 | 46-4964850 | |||||||||
SPDR S&P China ETF |
83-0463564 | J729 | 83-0463564 | |||||||||
SPDR S&P Emerging Asia Pacific ETF |
83-0463567 | J728 | 83-0463567 | |||||||||
SPDR S&P Emerging Europe ETF |
83-0463559 | J727 | 83-0463559 | |||||||||
SPDR S&P Emerging Latin America ETF |
83-0463558 | J725 | 83-0463558 | |||||||||
SPDR S&P Emerging Markets Dividend ETF |
27-3918993 | J735 | 27-3918993 | |||||||||
SPDR S&P Emerging Markets ETF |
83-0463563 | J724 | 83-0463563 | |||||||||
SPDR S&P Emerging Markets Small Cap ETF |
26-1702217 | J734 | 26-1702217 | |||||||||
SPDR S&P Emerging Middle East & Africa ETF |
83-0463556 | J726 | 83-0463556 | |||||||||
SPDR S&P Global Dividend ETF |
46-2434271 | J7A1 | 46-2434271 | |||||||||
SPDR S&P Global Infrastructure ETF |
83-0463550 | J719 | 83-0463550 | |||||||||
SPDR S&P Global Natural Resources ETF |
27-2999449 | J716 | 27-2999449 | |||||||||
SPDR S&P International Consumer Discretionary Sector ETF |
26-2524091 | J740 | 26-2524091 | |||||||||
SPDR S&P International Consumer Staples Sector ETF |
26-2524153 | J741 | 26-2524153 | |||||||||
SPDR S&P International Dividend Currency Hedged ETF |
47-4552530 | ZU3F | 47-4552530 |
24
Execution Version
SPDR S&P International Dividend ETF |
26-1445966 | J715 | 26-1445966 | |||
SPDR S&P International Energy Sector ETF |
26-2524202 | J742 | 26-2524202 | |||
SPDR S&P International Financial Sector ETF |
26-2524256 | J743 | 26-2524256 | |||
SPDR S&P International Health Care Sector ETF |
26-2524307 | J744 | 26-2524307 | |||
SPDR S&P International Industrial Sector ETF |
26-2524364 | J745 | 26-2524364 | |||
SPDR S&P International Materials Sector ETF |
26-2524430 | J746 | 26-2524430 | |||
SPDR S&P International Small Cap ETF |
83-0463552 | J730 | 83-0463552 | |||
SPDR S&P International Technology Sector ETF |
26-2524483 | J747 | 26-2524483 | |||
SPDR S&P International Telecommunications Sector ETF |
26-2524556 | J748 | 26-2524556 | |||
SPDR S&P International Utilities Sector ETF |
26-2524613 | J749 | 26-2524613 | |||
SPDR S&P North American Natural Resources ETF |
47-5479210 | J739 | 47-5479210 | |||
SPDR S&P Russia ETF |
26-2998458 | J776 | 26-2998458 | |||
SPDR S&P World ex-US ETF |
83-0463554 | J720 | 83-0463554 | |||
SPDR EURO STOXX 50 ETF |
04-3669927 | ZU3B | 04-3669927 | |||
SPDR EURO STOXX 50 Currency Hedged ETF |
47-3979120 | ZU3E | 47-3979120 | |||
SPDR EURO STOXX Small Cap ETF |
46-5124368 | ZU3D | 46-5124368 | |||
SPDR STOXX Europe 50 ETF |
42-1537593 | ZU3A | 42-1537593 | |||
SPDR Series Trust |
||||||
SPDR Bloomberg Barclays 0-5 Year TIPS ETF |
46-2495284 | J9OH | 46-2495284 | |||
SPDR Bloomberg Barclays 1-10 Year TIPS ETF |
46-2542481 | J9OI | 46-2542481 | |||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
20-8599062 | J9HA | 20-8599062 | |||
SPDR Bloomberg Barclays Aggregate Bond ETF |
20-8600831 | J9HN | 20-8600831 | |||
SPDR Bloomberg Barclays Convertible Securities ETF |
26-2655273 | J9HW | 26-2655273 | |||
SPDR Bloomberg Barclays Emerging Markets Local Bond ETF |
26-2520460 | J9HR | 26-2520460 | |||
SPDR Bloomberg Barclays High Yield Bond ETF |
26-1226059 | J9HM | 26-1226059 | |||
SPDR Bloomberg Barclays Intermediate Term Corporate Bond ETF |
26-2655153 | J9HU | 26-2655153 | |||
SPDR Bloomberg Barclays Intermediate Term Treasury ETF |
20-8600499 | J9HD | 20-8600499 | |||
SPDR Bloomberg Barclays International Corporate Bond ETF |
27-2228681 | J9OA | 27-2228681 | |||
SPDR Bloomberg Barclays International Treasury Bond ETF |
26-0497008 | J9HO | 26-0497008 | |||
SPDR Bloomberg Barclays Investment Grade Floating Rate ETF |
45-3712800 | J9OD | 45-3712800 | |||
SPDR Bloomberg Barclays Issuer Scored Corporate Bond ETF |
27-4824014 | J9OB | 27-4824014 | |||
SPDR Bloomberg Barclays Long Term Corporate Bond ETF |
26-2655232 | J9HV | 26-2655232 | |||
SPDR Bloomberg Barclays Long Term Treasury ETF |
20-8600546 | J9HE | 20-8600546 | |||
SPDR Bloomberg Barclays Mortgage Backed Bond ETF |
26-2655105 | J9HS | 26-2655105 | |||
SPDR Bloomberg Barclays Short Term Corporate Bond ETF |
20-8600692 | J9LA | 20-8600692 | |||
SPDR Bloomberg Barclays Short Term High Yield Bond ETF |
45-4350099 | J9OG | 45-4350099 |
25
Execution Version
SPDR Bloomberg Barclays Short Term International Treasury Bond ETF |
26-3267006 | J9HY | 26-3267006 | |||
SPDR Bloomberg Barclays Short Term Treasury ETF |
45-3712964 | J9OE | 45-3712964 | |||
SPDR Bloomberg Barclays TIPS ETF |
20-8600606 | J9HF | 20-8600606 | |||
SPDR Nuveen Bloomberg Barclays Municipal Bond ETF |
20-8600784 | J9HQ | 20-8600784 | |||
SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF |
26-0748494 | J9HB | 26-0748494 | |||
SPDR BofA Merrill Lynch Crossover Corporate Bond ETF |
45-5017557 | J9OM | 45-5017557 | |||
SPDR Citi International Government Inflation-Protected Bond ETF |
26-0497085 | J9HP | 26-0497085 | |||
SPDR Dorsey Wright Fixed Income Allocation ETF |
81-2437898 | J9RI | 81-2437898 | |||
SPDR Dow Jones REIT ETF |
04-3526665 | J926 | 04-3526665 | |||
SPDR FactSet Innovative Technology ETF |
47-5603985 | J9RE | 47-5603985 | |||
SPDR Global Dow ETF |
04-3526673 | J927 | 04-3526673 | |||
SPDR Morgan Stanley Technology ETF |
04-3526664 | J920 | 04-3526664 | |||
SPDR MSCI USA StrategicFactors ETF |
47-3408480 | LQUS | 47-3408480 | |||
SPDR Russell 1000 ETF |
14-1937147 | J9AB | 14-1937147 | |||
SPDR SSGA US Large Cap Low Volatility Index ETF |
46-1722218 | J512 | 46-1722218 | |||
SPDR Russell 1000 Low Volatility Focus ETF |
47-5505972 | J9RD | 47-5505972 | |||
SPDR Russell 1000 Momentum Focus ETF |
47-5483648 | J9RB | 47-5483648 | |||
SPDR Russell 1000 Yield Focus ETF |
47-5471138 | J9RA | 47-5471138 | |||
SPDR Russell 2000 ETF |
46-2903740 | J514 | 46-2903740 | |||
SPDR SSGA US Small Cap Low Volatility Index ETF |
46-1733810 | J513 | 46-1733810 | |||
SPDR Russell 3000 ETF |
04-3526697 | J928 | 04-3526697 | |||
SPDR Nuveen S&P High Yield Municipal Bond ETF |
27-2121189 | J9LB | 27-2121189 | |||
SPDR S&P 1000 ETF |
14-1937148 | J9AF | 14-1937148 | |||
SPDR S&P 1500 Momentum Tilt ETF |
46-0902576 | J511 | 46-0902576 | |||
SPDR S&P 1500 Value Tilt ETF |
45-2783091 | J510 | 45-2783091 | |||
SPDR S&P 400 Mid Cap Growth ETF |
14-1937151 | J9AM | 14-1937151 | |||
SPDR S&P 400 Mid Cap Value ETF |
14-1937150 | J9AI | 14-1937150 | |||
SPDR S&P 500 Buyback ETF |
47-2541106 | J904 | 47-2541106 | |||
SPDR S&P 500 Fossil Fuel Reserves Free ETF |
47-5471690 | J9SA | 47-5471690 | |||
SPDR S&P 500 Growth ETF |
04-3526701 | J924 | 04-3526701 | |||
SPDR S&P 500 High Dividend ETF |
47-5121472 | J515 | 47-5121472 | |||
SPDR S&P 500 Value ETF |
04-3526672 | J925 | 04-3526672 | |||
SPDR S&P 600 Small Cap ETF |
14-1937152 | J9AP | 14-1937152 | |||
SPDR S&P 600 Small Cap Growth ETF |
04-3526668 | J922 | 04-3526668 | |||
SPDR S&P 600 Small Cap Value ETF |
04-3526667 | J923 | 04-3526667 | |||
SPDR S&P Aerospace & Defense ETF |
65-1276061 | J937 | 65-1276061 | |||
SPDR S&P Bank ETF |
14-1937154 | J9AS | 14-1937154 | |||
SPDR S&P Biotech ETF |
76-0808148 | J931 | 76-0808148 | |||
SPDR S&P Capital Markets ETF |
14-1937158 | J9BA | 14-1937158 | |||
SPDR S&P Dividend ETF |
14-1937159 | J9BF | 14-1937159 | |||
SPDR S&P Health Care Equipment ETF |
65-1276069 | J938 | 65-1276069 | |||
SPDR S&P Health Care Services ETF |
65-1276072 | J939 | 65-1276072 | |||
SPDR S&P Homebuilders ETF |
76-0808150 | J930 | 76-0808150 |
26
Execution Version
SPDR S&P Insurance ETF |
14-1937157 | J9AW | 14-1937157 | |||
SPDR S&P Internet ETF |
81-2589565 | J9RL | 81-2589565 | |||
SPDR S&P Metals & Mining ETF |
56-2576727 | J949 | 56-2576727 | |||
SPDR S&P Oil & Gas Equipment & Services ETF |
56-2576785 | J941 | 56-2576785 | |||
SPDR S&P Oil & Gas Exploration & Production ETF |
56-2576784 | J942 | 56-2576784 | |||
SPDR S&P Pharmaceuticals ETF |
56-2576781 | J943 | 56-2576781 | |||
SPDR S&P Regional Banking ETF |
56-2576775 | J947 | 56-2576775 | |||
SPDR S&P Retail ETF |
56-2576776 | J944 | 56-2576776 | |||
SPDR S&P Semiconductor ETF |
76-0808151 | J932 | 76-0808151 | |||
SPDR S&P Software & Services ETF |
65-1276067 | J940 | 65-1276067 | |||
SPDR S&P Technology Hardware ETF |
81-2602869 | J9RJ | 81-2602869 | |||
SPDR S&P Telecom ETF |
65-1276076 | J945 | 65-1276076 | |||
SPDR S&P Transportation ETF |
65-1276077 | J946 | 65-1276077 | |||
SPDR SSGA Gender Diversity Index ETF |
81-0963585 | J9RF | 81-0963585 | |||
SPDR Wells Fargo Preferred Stock ETF |
27-0295512 | J934 | 27-0295512 | |||
SSGA Active Trust |
||||||
SPDR Blackstone / GSO Senior Loan ETF |
45-2721271 | SMFU | 45-2721271 | |||
SPDR DoubleLine Emerging Markets Fixed Income ETF |
81-1186084 | J9RG | 81-1186084 | |||
SPDR DoubleLine Short Duration Total Return Tactical ETF |
81-1194648 | J9RH | 81-1194648 | |||
SPDR DoubleLine Total Return Tactical ETF |
47-2823360 | MFD2 | 47-2823360 | |||
SPDR MFS Systematic Core Equity ETF |
46-4227987 | MFB2 | 46-4227987 | |||
SPDR MFS Systematic Growth Equity ETF |
46-4238154 | SMF5 | 46-4238154 | |||
SPDR MFS Systematic Value Equity ETF |
46-4251165 | SMF8 | 46-4251165 | |||
SPDR SSGA Global Allocation ETF |
45-4502574 | SMFN | 45-4502574 | |||
SPDR SSGA Income Allocation ETF |
45-2461781 | SMFG | 45-2461781 | |||
SPDR SSGA Multi-Asset Real Return ETF |
45-2461680 | SMFB | 45-2461680 | |||
SPDR SSGA Ultra Short Term Bond ETF |
46-3369981 | SMFJ | 46-3369981 | |||
SSGA Master Trust |
||||||
Blackstone / GSO Senior Loan ETF |
46-2311818 | SMFS | 46-2311818 | |||
State Street DoubleLine Total Return Tactical ETF |
47-3116424 | MFD1 | 47-3116424 | |||
SSGA MFS Systematic Core Equity ETF |
46-4354144 | MFB1 | 46-4354144 | |||
SSGA MFS Systematic Growth Equity ETF |
46-4377427 | SMF4 | 46-4377427 | |||
SSGA MFS Systematic Value Equity ETF |
46-4377427 | SMF4 | 46-4377427 | |||
SSGA Global Allocation ETF |
45-4972001 | SMFM | 45-4972001 | |||
SSGA Income Allocation ETF |
45-4971930 | SMFE | 45-4971930 | |||
SSGA Multi-Asset Real Return ETF |
45-4971883 | SMFA | 45-4971883 | |||
SSGA Ultra Short Term Bond ETF |
46-3793307 | SMFI | 46-3793307 |
27
Execution Version
Schedule C
This Schedule is attached to and made part of the Master Amended and Restated Securities Lending Authorization Agreement, dated the day of , 2017 among SPDR SERIES TRUST, SPDR INDEX SHARES, SSGA ACTIVE TRUST, and SSGA MASTER TRUST, EACH ON BEHALF OF EACH OF ITS RESPECTIVE SERIES AS LISTED ON SCHEDULE B, SEVERALLY AND NOT JOINTLY (the Funds), and STATE STREET BANK AND TRUST COMPANY acting either directly or through the State Street Affiliates (collectively, State Street).
Acceptable Forms of Collateral
- Cash (U.S. and foreign currency);
- Securities issued or guaranteed by the United States government or its agencies or instrumentalities; and
- Such other Collateral as the parties may agree to in writing from time to time.
28
Execution Version
Schedule D
This Schedule is attached to and made part of the Master Amended and Restated Securities Lending Authorization Agreement, dated the day of , 2017 among SPDR SERIES TRUST, SPDR INDEX SHARES, SSGA ACTIVE TRUST, and SSGA MASTER TRUST, EACH ON BEHALF OF EACH OF ITS RESPECTIVE SERIES AS LISTED ON SCHEDULE B, SEVERALLY AND NOT JOINTLY (the Funds), and STATE STREET BANK AND TRUST COMPANY acting either directly or through the State Street Affiliates (collectively, State Street).
Schedule of Borrowers
ABN AMRO Bank N.V. |
Australia and New Zealand Banking Group Ltd. |
Bank of Montreal |
Barclays Bank Plc |
Barclays Capital Inc. |
Barclays Capital Securities Limited |
BMO Capital Markets Corp |
BMO Capital Markets Limited |
BMO Nesbitt Burns Inc. |
BNP Paribas Arbitrage SNC BNP Paribas (London Branch) |
BNP Paribas Prime Brokerage Inc. |
BNP Paribas SA |
BNP Paribas Securities Corporation |
Citigroup Global Markets Australia Pty Ltd |
Citigroup Global Markets Inc. |
Citigroup Global Markets Limited |
Commonwealth Bank of Australia |
Credit Suisse Equities (Australia) Limited |
Credit Suisse Securities (Europe) Limited |
Credit Suisse Securities (USA) LLC |
Goldman Sachs & Co. |
Goldman Sachs International |
HSBC Bank plc |
HSBC Securities (USA) Inc. |
ING Bank N.V. ING Bank N.V. (London Branch) |
ING Financial Markets LLC |
JP Morgan Securities Australia Limited |
JP Morgan Securities LLC |
JP Morgan Securities PLC |
Lloyds Bank PLC |
29
Execution Version
MacQuarie Bank Ltd. |
MacQuarie Bank Ltd. (London Branch) |
Merrill Lynch Canada Inc. |
Merrill Lynch Equities (Australia) Limited |
Merrill Lynch International |
Merrill Lynch, Pierce, Fenner & Smith, Inc. |
Mitsubishi UFJ Securities (USA) Inc. |
Mitsubishi UFJ Securities International plc |
Morgan Stanley & Co. International plc |
Morgan Stanley & Co. LLC |
National Australia Bank Ltd. |
National Bank Financial Inc. |
National Bank of Canada |
Nomura International PLC |
Nomura Securities International Inc. |
RBC Capital Markets, LLC |
RBC Dominion Securities Inc. |
RBC Europe Limited |
RBS Securities Inc. |
Royal Bank of Canada |
Royal Bank of Canada (Sydney Branch) |
Royal Bank of Scotland Plc |
Scotia Capital (USA) Inc. |
SG Americas Securities, LLC |
SG Option Europe SA |
Skandinaviska Enskilda Banken Societe Generale (Canada Branch) |
Societe Generale SA |
Societe Generale SA (London Branch) |
Societe Generale SA (New York Branch) |
Standard Chartered Bank |
TD Securities (USA) LLC |
TD Securities Inc. |
Toronto-Dominion Bank |
UBS AG |
UBS AG (London Branch) |
UBS AG (Sydney Branch) |
UBS Limited |
UBS Securities LLC |
Wells Fargo Bank National Association |
Wells Fargo Clearing Services, LLC Wells Fargo Securities, LLC |
Westpac Banking Corporation |
30
Exhibit (p)(ii)
State Street Global Advisors Code of Ethics
Effective: November 1, 2016
State Street Global Advisors Code of Ethics
Table of Contents
Overview |
||||
Covered Person Classifications |
4 | |||
Code of Ethics Rule Summary |
5 | |||
Statement of General Fiduciary Principles |
6 | |||
Related Policies and Procedures |
6 | |||
General Requirements |
7 | |||
Personal Trading Requirements Accounts and Holdings |
8 | |||
Reportable Accounts Guide |
10 | |||
Personal Trading Requirements Transactions |
12 | |||
Pre-Clearance Guide | Exempted Transactions |
15 | |||
Personal Trading Requirements Pre-Clearance |
16 | |||
Administration and Enforcement of the Code of Ethics |
18 | |||
Appendices |
||||
Appendix A Terms and Definitions |
19 | |||
Appendix B Beneficial Ownership of Accounts and Securities |
21 | |||
Appendix C Guide: Requirements by Security Types |
23 | |||
Appendix D SSGA Legal Entities and Locations |
25 | |||
Appendix E Country Specific Requirements |
27 | |||
Appendix F Contacts |
33 | |||
Appendix G Code of Ethics Reporting Requirements |
34 | |||
Appendix H Code of Ethics FAQs |
35 |
ssga.com |
2 |
State Street Global Advisors Code of Ethics
State Street Global Advisors Code of Ethics
Effective: November 1, 2016
* | This excludes registered investment companies for which SSGA FM serves as sub-adviser. |
ssga.com |
3 |
State Street Global Advisors Code of Ethics
Covered Persons Classifications
As a Covered Person, you are part of one of three different groups. The groups are: Access Person, Investment Personnel, and Non-Access Person. Your group classification is determined based on your role at SSGA. The Ethics Office will notify you of your classification. Your classification may change as your role within SSGA changes. It is your responsibility to notify the Ethics Office if your role changes.
Access Person is the group to which most Covered Persons are classified. Access Persons are those Covered Persons who:
| as part of their regular functions or duties have access to nonpublic information about a clients holdings, or a clients decision to purchase or sell securities; have access to nonpublic information about SSGA portfolio holdings; or manage or are managed by employees who execute these functions; |
| are officers of the funds; or |
| have been designated as Access Persons by SSGAs CCO, the Ethics Office or their designee(s). |
Investment Personnel are Covered Persons who are responsible for a component of the management of investments for our clients. Investment Personnel are those Covered Persons who:
| as part of their regular functions or duties, make investment recommendations or decisions; participate in making investment recommendations or decisions; are responsible for day-to-day management of a portfolio; have knowledge of investment decisions under consideration; execute trades; analyze and research securities; or manage or are managed by employees who execute those functions; or |
| other persons designated as Investment Personnel by SSGAs CCO, the Ethics Office or their designee(s). |
Non-Access Persons are Covered Persons who are not categorized as Access Persons or Investment Personnel.
ssga.com |
4 |
State Street Global Advisors Code of Ethics
Code of Ethics Rule Summary
Refer to the list below to understand which rules apply to you based on your Covered Person Classification. Read the full text of the Code of Ethics to fully understand the requirements and prohibitions, as well as any exceptions to these rules.
All Covered Persons
Required
| Ensure compliance with the Code on the part of your spouse, domestic partner or other covered persons |
| Comply with applicable securities laws [p. 7] |
| Acknowledge the Code of Ethics when you become a Covered Person and annually thereafter [p. 7] |
| Report accounts and holdings when you become a Covered Person and annually thereafter [p. 7] |
| Report or confirm transactions quarterly [p. 12] |
| Maintain accounts at Approved Brokers if required in your region [p. 9] |
| Provide duplicate statements and confirms to Ethics Office [p. 8] |
| Report any actual, attempted, or suspected violation of this policy as soon as you are aware of it [p. 7] |
| Contact the Ethics Office for any exemption or exception to this Code of Ethics |
| Understand if and how the State Street Securities Trading Policy applies to you [p. 14] |
Prohibited
| Do not trade excessively [p. 12] |
| Do not sell securities short [p. 13] |
| Do not trade options or futures or engage in spread-betting [p. 13] |
| Do not participate in Initial Public Offerings [p. 13] |
| Do not participate in investment clubs and investment contests without Ethics Office approval [p. 13] |
Access Persons (Including all rules above)
Required
| Pre-Clear trades in Covered Securities [p. 16] |
Prohibited
| Do not sell or dispose of positions in Covered Securities that have been held for less than 60 days [p. 14] |
| Do not personally trade Covered Securities when there is a pending order on the Aladdin system for a client portfolio or fund for the same or similar security (Open Order Rule for Legacy GE Asset Management) [p. 17] |
Investment Professionals (Including all rules above)
Prohibited
| Do not personally trade Covered Securities when there is an open order on any trading desk for a client portfolio or fund for the same or similar security (Open Order Rule) [p. 17] |
| Do not personally trade Covered Securities within seven days (before or after) of a trade in the same or equivalent security in a client portfolio to which you are associated (Blackout Period) [p. 17] |
ssga.com |
5 |
State Street Global Advisors Code of Ethics
ssga.com |
6 |
State Street Global Advisors Code of Ethics
Requirements of the Code
General Requirements
Applicable to All Covered Persons
1. Comply with Applicable Securities Laws
As a Covered Person, you must comply with securities laws and firm-wide policies and procedures, including this Code of Ethics. Securities laws include the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes-Oxley Act of 2002, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the SEC under these statutes, the Bank Secrecy Act and rules adopted there under by the SEC or the Department of the Treasury. Covered Persons outside the US may be subject to additional country-specific requirements and securities laws, which are included in Appendix E. |
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2. | Report Violations |
Covered Persons are required to promptly report any violation of the Code, whether their own or another individuals, to the Ethics Office. Alternatively, you may contact the Senior Compliance Officer in your region, the CCO, or, to report anonymously, The Network (see Appendix F. for contact information).
Nothing in the Code is intended to or should be understood to prohibit or otherwise discourage certain disclosures of confidential information protected by whistleblower laws to appropriate government authorities. State Street will not tolerate any discipline or other retaliation against employees who properly make such legally-protected disclosures.
This language does not apply to Covered Persons in France and Italy. Please see Appendix E.
3. Certify Receipt and Compliance with the Code
Initial Certification (New Covered Person)
Within 10 calendar days of becoming subject to the Code, each new Covered Person must certify in writing that they (i) have read, understand, and will comply with the Code, (ii) will promptly report violations or possible violations, and (iii) recognize that an instance of non-compliance with the Code may be grounds for action under the State Street Compliance Enforcement Procedure - Global . |
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Annual Certification (All Covered Persons)
Within 30 calendar days following calendar year end, each Covered Person is required to certify annually in writing that they (i) have read and understand the Code, (ii) have complied with the Code during the course of their association with the Advisor; (iii) will continue to comply with the Code in the future; (iv) will promptly report violations or possible violations (iv) recognize that an instance of non-compliance with the Code may be grounds for action under the State Street Compliance Enforcement Procedure Global.
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State Street Global Advisors Code of Ethics
Personal Trading Requirements Accounts and Holdings
Applicable to All Covered Persons
You must disclose all Reportable Accounts (as defined on page 10) when you become a Covered Person and continue to make accurate and timely account and holding reports. If you are an employee in the US, you must maintain your account(s) with an Approved Broker. All Covered Persons must ensure the Ethics Office receives timely and accurate reporting from your broker.
4. | File Initial and Annual Holding Reports |
Covered Persons must file initial and annual holdings reports (Holdings Reports) in StarCompliance as follows:
a. | Content of Holdings Reports |
i. | The name of any broker, dealer or bank with whom the Covered Person maintained a Reportable Account. Please note that all Reportable Accounts (see page 10) must be reported in StarCompliance. |
ii. | The title, number of shares and principal amount of each Covered Security. |
b. | Timing of Holdings Reports |
i. | Initial Report No later than 10 calendar days after becoming a Covered Person. The information must be current as of a date no more than 45 days prior to the date the Covered Person became an Access Person, Investment Person, or Non-Access Person. |
ii. | Annual Report Annually, within 30 calendar days following calendar year end and the information must be current as of a date no more than 45 calendar days prior to the date the report is submitted. |
c. | Exceptions from Holdings Report Requirements |
i. | Holdings in securities which are not Covered Securities are not required to be included in Holdings Reports (please see Appendix C.). |
Any Reportable Accounts opened during the Covered Persons employment or engagement with SSGA must also be immediately disclosed in StarCompliance regardless of whether there is any activity in the account. Any Reportable Accounts newly associated with a Covered Person, through marriage, gift, inheritance, or any other life event, must be disclosed within 30 days of the event.
5. | Provide Duplicate Statements and Confirms |
Each Covered Person is responsible for ensuring the Ethics Office receives timely reporting for their Reportable Accounts holdings, (as well as timely reporting for transactions of Cover Securities within the Reportable Account). This applies to any Reportable Accounts (including Fully Managed Accounts) active during the Covered Persons employment or engagement with SSGA. Covered Persons must ensure that on a regular basis the Ethics Office or their designee(s) receives:
a. | A trade confirmation summarizing each transaction; and |
b. | Account statements (e.g. monthly, quarterly statements) |
The Covered Person can accomplish this one of three ways:
a. | Request that their broker-dealer, trust account manager, or other entity through which they have a Reportable Account (collectively, Brokers for purposes of this section), sends statements and trade confirmations (in paper and/or electronic form) directly to the Ethics Office. |
b. | Maintain Reportable Accounts at Approved Brokers when possible. Approved Brokers send electronic feeds to the Ethics Office; Covered Persons are not required to provide paper-based reporting for accounts with Approved Brokers. However, it is the responsibility of the Covered Person to verify the accuracy of these feeds through Quarterly Transaction Reports and Annual Holdings Reports. Employees in the US, with limited exceptions, are required to maintain their accounts at Approved Brokers. (See Section 006.) |
c. | For accounts not on an electronic feed, the Covered Person must supply the Ethics Office or their designee(s) with required duplicate documents. Please see Appendix E. for regional requirements. |
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State Street Global Advisors Code of Ethics
6. | Maintain Accounts with Approved Brokers (US Employees only) |
Covered Persons must maintain accounts with Approved Brokers if required in their region. Please refer here: Link to Broker List, Guidance and FAQs for regional requirements and for a list of Approved Brokers. The Approved Brokers provide both the holdings and transaction activity in each account through an electronic feed into StarCompliance.
The categorical exemptions to the Approved Broker requirement are:
a. | Accounts approved by the Ethics Office as Fully Managed Accounts (also known as Discretionary Accounts. See Appendix A.) |
b. | Accounts that are part of a former employers retirement plan (such as a 401(k)); or accounts that are part of a spouses or other Covered family members retirement plan at their employer. |
c. | Employees who are not U.S. citizens and are working in the U.S. on an ex-pat assignment or whose status is non-permanent resident. |
d. | Securities held in physical form. |
e. | Securities restricted from transfer. |
f. | Accounts held by employees, or any Covered Persons, in countries outside the region where they are currently assigned, which are not eligible for transfer to an Approved Broker in that region. |
To apply for an exception to maintain an account outside of an Approved Broker, contact the Ethics Office at ethics@statestreet.com .
Please see Appendix E. for additional regional requirements.
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State Street Global Advisors Code of Ethics
Reportable Accounts Guide
To determine whether an account is a Reportable Account, determine who owns or benefits from the account and what types of investments the account can hold. If you have a beneficial interest in an account and the account can hold Covered Securities, it is likely a reportable account.
What is a Beneficially Owned Account?
A Beneficially Owned Account is:
An account where the Covered Person enjoys the benefits of ownership (even if title is held in another name); and/or
An account where the Covered Person either directly or indirectly, has investment control or the power to vote or influence the transaction decisions of the account.
An account under direct or indirect influence or control of the Covered Person.
Generally, an individual is considered to be a beneficial owner of accounts or securities when the individual has or shares direct or indirect pecuniary interest in the accounts or securities. Pecuniary interest means that an individual has the ability to profit, directly or indirectly, or share in any profit from a transaction. Indirect pecuniary interest extends to, but is not limited to:
Accounts and securities held by immediate family members sharing the same household;
Securities held in trust (certain restrictions may apply, see Appendix C. for more details); and
A right to acquire Covered Securities through the exercise or conversion of any derivative security, whether or not presently exercisable
What are Covered Securities?
For a complete list of Covered Securities, see Appendix C. Some of the most common types are listed below.
Stocks, including State Street Corp. (STT)
Exchange-traded funds (ETFs)
Exchange-traded notes (ETNs)
Open-ended mutual funds advised by SSGA
Municipal and Corporate bonds |
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State Street Global Advisors Code of Ethics
Do I Have to Report this Account?
Common Reportable Account Types
The list of account types below is not all-inclusive. Consult the Ethics Office if you have questions about whether an account is a Reportable Account.
Brokerage Account
All brokerage accounts are reportable, including but not limited to retirement, non-retirement accounts, IRAs, RRSPs, UTMA and UGMA accounts. For further definition see Appendix A.
Employee Incentive Awards Deposit Account Provided by SSGA
Accounts which are provided to employees into which their Employee Incentive Awards are deposited are reportable
Employee Stock Ownership and Purchase Plans (ESOPs/ESPPs) |
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*Employer-sponsored Retirement Plans that invest/hold Covered Securities
Employer-sponsored retirement plans and accounts globally in which the employee/participant invests in or transacts in Covered Securities are reportable. Please see Appendix H. Code of Ethics FAQs for further clarification on Reportable Retirement Plans.
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State Street Global Advisors Code of Ethics
Personal Trading Requirements Transactions
Applicable to All Covered Persons
The Code of Ethics requires quarterly reporting of all Covered Transactions and imposes restrictions on certain types of transactions.
7. | Filing Quarterly Transaction Reports |
Each Covered Person is required to submit a quarterly transaction report for and certify to transactions during the calendar quarter in all Covered Securities. Each Covered Person shall also certify that the Reportable Accounts listed in the transaction report are the only Reportable Accounts in which Covered Securities were traded during the quarter for their direct or indirect benefit. For the purposes of this report, transactions in Covered Securities that are effected in Automatic Investment Plans or accounts approved by the Ethics Office as Fully Managed Accounts need not be reported.
Covered Persons must file quarterly transaction reports (Transaction Reports) in StarCompliance as follows:
a. | Content of Quarterly Transactions Report For Transactions in Covered Securities |
i. | The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each Covered Security involved; |
ii. | The nature of the transaction, (i.e., purchase, sale, or any other type of acquisition or disposition); |
iii. | The price of the Covered Security at which the transaction was effected; |
iv. | The name of the broker, dealer or bank with or through which the transaction was effected; and |
v. | The date the report was submitted by the Covered Person. |
b. | Content of Quarterly Transactions Report For Newly Established Reportable Accounts Holding ANY Securities |
i. | The name of the broker, dealer, or bank with whom the Covered Person established the account; |
ii. | The date the account was established; and |
iii. | The date the report was submitted by the Covered Person. |
c. | Timing of Transactions Report |
i. | No later than 30 calendar days after the end of the calendar quarter. |
d. | Exception from Transactions Report Requirements |
i. | Transactions effected pursuant to an Automatic Investment Plan as well as transactions in securities which are not Covered Securities, and transactions effected in accounts which are not Reportable accounts, are not required to be included in the Quarterly Transaction Report (please see Appendix C.). |
e. | Confirmation of Trades |
i. | Employees must confirm their transactions in StarCompliance after execution and before or simultaneously with their quarterly transaction certification. |
ii. | If an auto-feed has been set up for broker account (e.g. Fidelity account), the trading data will flow automatically to StarCompliance overnight, however, it is still the employees responsibility to maintain accurate data in StarCompliance and it is best practice to check whether auto-feeds were accurate by checking records in StarCompliance prior to quarterly certification. |
8. | Excessive Trading |
Excessive or inappropriate trading that interferes with job performance or compromises the duty that the Advisors owe to their clients will not be permitted. An unusually high level of personal trading is strongly discouraged and may be monitored by the Ethics Office and reported to the Executive Management Group (EMG) for review. A pattern of excessive trading may lead to action under the State Street Compliance Enforcement Procedure - Global.
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State Street Global Advisors Code of Ethics
9. | Futures, Options, Contracts for Difference, and Spread Betting |
Covered Persons are prohibited from buying or selling options and futures (other than employee stock options). Covered Persons are also prohibited from engaging in Contracts for Difference (CFDs) and spread betting.
10. | Shorting of Securities |
Covered Persons are prohibited from selling securities short.
11. | Initial Public Offerings |
Covered Persons are prohibited from acquiring securities through an allocation by an underwriter of an initial public offering (IPO). An exception may be considered for situations where the spouse/domestic partner/partner of an Covered Person (PACs) is eligible to acquire shares in an IPO of his/her employer with prior written disclosure to and written approval from the Ethics Office.
12. | Private Placements |
Covered Persons must obtain prior written approval from the Ethics Office before participating in a Private Placement or any other private securities transaction. To request prior approval, Covered Persons must provide the Ethics Office with a completed Private Placement Request form which is available on StarCompliance.
If the request is approved, the Covered Person must report the transaction on the next Quarterly Transaction Report and report the holding on the Annual Holdings Report.
Covered Persons may not invest in Private Placements if the opportunity to invest in that Private Placement could be considered a favor or gift designed to influence the Covered Persons judgment in the performance of his/her job duties or as compensation for services rendered to the issuer. In determining whether to grant prior written approval for any investment in a private placement, the Ethics Office will consider, among other things, whether it would be possible (and appropriate) to reserve that investment opportunity for one or more of Advisors clients, as well as whether the opportunity to invest in the Private Placement has been offered to the Covered Person as a gift, or as compensation for services rendered.
See Appendix A. for definition and Appendix E. for further regional definitions.
13. | Investment Clubs and Investment Contests |
Covered Persons must obtain prior written approval from the Ethics Office before participating in an Investment Club. The brokerage account(s) of the Investment Club are subject to the pre-clearance and reporting requirements of the Code. Participation in an Investment Club with other State Street employees may be subject to additional review.
Covered Persons are prohibited from direct or indirect participation in an investment contest. These prohibitions extend to the direct or indirect acceptance of payment or offers of payments of compensation, gifts, prizes, or winnings as a result of participation in such activities.
14. | Use of the Advisors Proprietary Information |
The Advisors investment recommendations and other proprietary information are for the exclusive use of the Advisors clients. Covered Persons should not use the Advisors proprietary information for personal benefit. Any pattern of personal trading suggesting use of the Advisors proprietary information will be investigated. Any misuse or distribution in contravention of the Advisors policies regarding confidentiality, proprietary information or the State Street Standard of Conduct is prohibited.
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State Street Global Advisors Code of Ethics
Applicable to Access Persons and Investment Personnel
15. | Short-Term Trading |
All Access Persons and Investment Personnel are prohibited from profiting from the purchase and sale (or sale and purchase) of the same or equivalent Covered Security within sixty (60) calendar days. Transactions that result in a profit will be considered an instance of non-compliance and result in action under the State Street Compliance Enforcement Procedure - Global . Any profit amount shall be calculated by the Ethics Office or their designee(s), the calculation of which shall be binding. This provision does not apply to:
a. | Transactions in securities that are not Covered Securities such as money market funds (see Appendix C.); |
b. | Transactions in ETFs, except certain actively-managed SSGA ETFs (see Appendix C.); |
c. | Securities received as a gift or inheritance; |
d. | Involuntary actions such as vested employer stock awards, dividend reinvestments, or other corporate actions; |
e. | Transactions executed in Discretionary Accounts (also known as Fully Managed Accounts) that have been approved by the Ethics Office; or |
f. | Transactions effected through an Automatic Investment Plan, the details of which the Ethics Office has been notified in advance. |
Applicable to Targeted Covered Personnel
16. | State Street Securities |
Certain employees of the Advisors are subject to the State Street Securities Trading Policy as administered by the State Street Corporate Legal Department. Employees are notified that they are subject to this Policy and they must comply until notified otherwise.
During certain trading windows, employees may be permitted to exercise Employee Incentive Awards without being subject to the blackout and open order rule. However, these transactions remain subject to the pre-clearance and reporting requirements of the Code at all times. Employees will be notified when a trading window commences and terminates. During this period, all employees remain subject to the SSGA Inside Information Policy, as well as the Personal Trading in Securities section of the State Street Standard of Conduct.
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State Street Global Advisors Code of Ethics
Pre-Clearance
The Pre-Clearance requirement mitigates the risk of Covered Persons creating actual or perceived conflicts of interest with the trading activities made on behalf of SSGA clients. With limited exceptions, pre-clearance approval is required before you make any personal trades of Covered Securities.
It applies to all your Reportable Accounts, including those belonging to your spouse or other Covered family member. (See Appendix B.)
It applies to transactions in most types of securities, including transactions in State Street Corp. stock (STT). (See Appendix C.)
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State Street Global Advisors Code of Ethics
Personal Trading Requirements Pre-Clearance
Applicable to Access Persons and Investment Personnel
You are required to receive pre-clearance approval before trading in any Covered Security, with limited exceptions. This applies to transactions made by your spouse, other Covered family member and/or in any other accounts in which you have beneficial ownership.
17. | Pre-Clearance |
Access Persons and Investment Personnel must request and receive pre-clearance approval prior to effecting a personal transaction in all Covered Securities (see Appendix C).
a. | All pre-clearance requests must be made by submitting a PTAF for the amount of shares to be transacted in StarCompliance. |
b. | Pre-clearance is required for donations and/or gifts of securities made. |
18. Restricted List
To manage potential conflicts of interest, a list of issuers whose securities (including options and futures) may not be traded is integrated into the pre-clearance approval process. A security that you already own could be placed on the Restricted List at any time. If this happens, you will be unable to sell the security until it is removed from the Restricted List.
The contents of the Restricted List shall be considered inside information and is subject to the considerations of the Inside Information Policy.
19. Pre-Clearance Approval
Pre-clearance approval granted by the Ethics Office is valid for the same business day the approval is granted. Good-till-cancelled orders are not permitted. |
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20. | De Minimis Exception |
Transactions effected pursuant to the de minimis exception remain subject to the pre-clearance and reporting requirements of the Code; however, they are automatically pre-approved due to their size. A de minimis transaction is a personal trade that meets one of the following conditions: A single transaction in a security with a value equal to or less than US $5,000 (or the local country equivalent) or multiple transactions in a security within a five business day window that have an aggregate value equal to or less than US $5,000.
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State Street Global Advisors Code of Ethics
De Minimis Transaction Examples:
All values are in US Dollar.
Status |
Transaction(s) |
Notes |
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De minimis | Day One: Buy $5,000 of ABC, Inc. | No subsequent transactions in five business days | ||
De minimis |
Day One: Sell $1,000 of XYZ Corp. Day Two: Sell $3,000 of XYZ Corp. Day Four: Sell $800 of XYZ Corp. |
Within five business days, less than $5,000 worth of XYZ Corp. is sold; all transactions in the aggregate is under the de minimis threshold | ||
NOT de minimis |
Day One: Buy $4,500 of PQR, Inc. Day Three: Buy $1,000 of PQR, Inc. |
Day Three transaction is not considered de minimis, as it brings the total for the five business day window over $5,000 | ||
NOT de minimis |
Day One: Sell $1,000 of Acme Corp. Day Two: Sell $3,000 of Acme Corp. Day Three: Sell $1,500 of Acme Corp. |
Day Three transaction is not considered de minimis, as it brings the total for the five business day window over $5,000 |
21. | Open Order Rule for Legacy GE Asset Management Systems |
All Covered Persons with access to information about open orders on Aladdin are prohibited from trading a Covered Security on any day that the Advisers have a pending buy or sell order in the same Covered Security placed through Aladdin.
Applicable to Investment Personnel
22. | Open Order Rule |
Subject to the de minimis exception, Investment Personnel may not trade in a Covered Security, with the exception of ETFs, on any day that the Advisors, globally, have a pending buy or sell order in the same Covered Security on any of the trading desk(s) (excluding the Aladdin trading desk, which Open Order Rule is covered above for certain Access Persons) for any fund or client account until the order is executed or withdrawn (note: Executed trades are considered with regards to the Blackout Period, as outlined below).
23. | Blackout Period |
Subject to the de minimis exception, Investment Personnel may not buy or sell a Covered Security for seven calendar days before or after a transaction in the same or equivalent security in a client portfolio with which they are associated. Blackout Period and determination will be automatically assessed through submission of a Pre-Trade Authorization Form in StarCompliance.
For fundamental strategies, if a Portfolio Manager receives pre-clearance approval to trade a Covered Security that requires pre-clearance in his or her Reportable Account, and subsequently determines that it is appropriate to trade the same or equivalent security in his or her client portfolio, the Portfolio Manager must contact the Ethics Office prior to executing any trades for his or her Reportable Account and/or client portfolio.
Please see Appendix E. for additional regional requirements.
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State Street Global Advisors Code of Ethics
Administration and Enforcement of the Code of Ethics
The Code of Ethics is administered by the Ethics Office and reviewed and approved by SSGAs Global Compliance Committee. Violations of the Code are subject to the State Street Compliance Enforcement Procedure Global.
24. | Distribution of the Code |
Each new Covered Person will be given a copy of the Code. Each new employees offer letter will include a statement advising the individual that he/she will be subject to the Code if he/she accepts the offer or employment. If, outside the U.S. due to local employment practices it is necessary to modify this approach, then the offer letters will be revised in accordance with local law.
25. | Applicability of the Code of Ethics Provisions |
The Ethics Office, or its designee(s), has the discretion to determine that the provisions of the Code do not apply to a specific transaction or activity and may exempt any transaction from one or more trading prohibitions. The Ethics Office, or its designee(s), will review applicable facts and circumstances of such situations, such as specific legal requirements, contractual obligations or financial hardship. Any Covered Person who would like such consideration must submit a request in writing to the Ethics Office. Further, all granted exemptions must be in writing.
26. | Review of Reports |
The Ethics Office will review and monitor the reports filed by Covered Persons. Covered Persons and their supervisors may or may not be notified of the Ethics Offices review.
27. | Violations and Sanctions |
Any potential instances of non-compliance with the provisions of the Code will be investigated by the Ethics Office. If a determination is made that an instance of non-compliance occurred, the issue will be addressed under the State Street Compliance Enforcement Procedure - Global . Material violations will be reported promptly to the respective SSGA Committees, boards of trustees/managers of the Reportable Funds or relevant committees of the boards and impacted clients. Please see Appendix E. for additional regional requirements.
28. | Amendments and Committee Procedures |
As set forth in its charter, the Global Compliance Committee (the Committee) will review and approve the Code, including appendices and exhibits, and any amendments thereto. The Committee may, from time to time, amend the Code and any appendices and exhibits to the Code to reflect updated business practice or changes in applicable law and regulation. The Committee, or its designee, shall submit material amendments to the EMG for approval. In addition, the Committee, or its designee, shall submit any material amendments to this Code to the respective boards of trustees/managers of the Reportable Funds, or their designee(s), for ratification no later than six months after adoption of the material change.
29. | Recordkeeping |
The Ethics Office shall maintain code of ethics records in accordance with the requirements set forth in applicable securities laws. 1
1 | In the U.S., record keeping requirements for code of ethics are set forth in Rule 17j-1 of the Investment Company Act of 1940 and Rule 204-2 of the Investment Advisers Act of 1940. |
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State Street Global Advisors Code of Ethics
Appendix A
Terms and Definitions
These definitions are designed to help you, as a Covered Person, understand and apply the Code. These definitions are integral and a proper comprehension of them is necessary to comply with the Code.
Please contact the Ethics Office (ethics@statestreet.com) if you have any questions.
Covered Person employees of the Advisors, including full-time and part-time, exempt and non-exempt employees (where applicable); officers of the Funds who are not employed by the Advisors; and other such persons as designated by the Ethics Office. Covered Person also includes certain designated contingent workers engaged at SSGA, including but not limited to consultants, contractors, and temporary help. Covered Persons are subject to the provisions of this Code.
The personal trading requirements of the Code also apply to related persons of Covered Persons, such as spouses, domestic partners, minor children, adult children and other relatives living in the Covered Persons household, as well as other persons designated as a Covered Person by the CCO or the Ethics Office, or their designee(s).
Access Persons are those Covered Persons, who,
i. | in connection with their regular functions or duties, (i) have access to nonpublic information regarding any of the Advisors clients purchase or sale of securities; (ii) have access to nonpublic information regarding the portfolio holdings of any of the Advisors clients; and (iii) other persons designated as Access Persons by SSGAs CCO, the Ethics Office or their designee(s); or |
ii. | are officers of the Funds. |
Investment Personnel are those Covered Persons, who,
i. | in connection with their regular functions or duties, make investment recommendations or decisions; participate in making investment recommendations or decisions; are responsible for day-to-day management of a portfolio; have knowledge of investment decisions under consideration; execute trades; analyze and research securities; |
ii. | manage or are managed by employees meeting the criteria in (i) above; and |
iii. | other persons designated as Investment Personnel by SSGAs CCO, the Ethics Office or their designee(s). |
Non-Access Persons are Covered Persons who are not categorized as Access Persons or Investment Personnel.
Automatic Investment Plan means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. This includes a dividend reinvestment plan and some payroll or employer contributions to retirement plans.
Brokerage Account means an account with a financial institution in which the account owner can hold and trade a wide variety of securities and exercises brokerage capabilities. Covered Persons should contact their financial institution(s) to verify whether or not their account(s) can hold Covered Securities.
Covered Securities are those securities subject to certain provisions of the Code. See Appendix C - Guide: Requirements by Security Types.
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State Street Global Advisors Code of Ethics
Contract for Difference (CFD) a financial derivative, a contract between two parties typically described as buyer and seller, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. If the difference is negative, then the buyer pays instead to the seller. CFD allows investors to take advantage of prices moving up (long positions) or prices moving down (short positions) on underlying financial instruments and are often used to speculate on those markets.
Employees Incentive Awards means SSGA Performance Equity Plan (PEP) Awards in State Street Corporation (STT) stock, Deferred Stock Awards (DSAs), Restricted Stock Awards (RSAs), STT stock options which are granted to employees, and any other awards that are convertible into or otherwise based on STT common stock.
Fully Managed Account (also known as Discretionary Account) means a Beneficially Owned Account in which the individual has ceded all direct control, influence and approval, and has contractually assigned responsibility for the timing and nature of all trades and all day-to-day investment management decisions to an independent party. An account is not considered to be a Fully Managed Account until the Ethics Office has formally approved the account as such.
Private Placement means a securities offering that is exempt from registration as a public security. Private placements include certain co-operative investments in real estate, commingled investment vehicles such as hedge funds, investments in family owned or privately held businesses and private company shares. Time-shares and cooperative investments in real estate used as a primary or secondary residence are not considered to be private placements. Please see Appendix E for regional definitions of Private Placement.
Reportable Fund means any commingled investment vehicle (except money market funds), or Exchange Traded Note (ETN) for which the Advisors act as investment advisor, sub-advisor, principal underwriter, or marketing agent.
Selling Short is the practice of selling a stock that is not currently owned, while simultaneously borrowing the shares from a lending party and delivering the borrowed shares to the buyer.
SSGA Compliance Department means all global SSGA compliance staff, including those in local offices, in charge of ensuring compliance with the laws and regulations in force worldwide and who report up to the Global Chief Compliance Officer of SSGA.
Spread Betting is any of various types of wagering, such as on sports, financial instruments or house prices for example, on the outcome of an event where the pay-off is based on the accuracy of the wager, rather than a simple win or lose outcome. As an example, spread betting on a stock allows the investor to speculate on the price movement of the stock.
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State Street Global Advisors Code of Ethics
Appendix B
Beneficial Ownership of Accounts and Securities
A Beneficially Owned Account is:
| An account where the Covered Person enjoys the benefits of ownership (even if title is held in another name); and/or |
| An account where the Covered Person either directly or indirectly, has investment control or the power to vote or influence the transaction decisions of the account. |
The Codes provisions apply to accounts beneficially owned by the Covered Person, as well as accounts under direct or indirect influence or control of the Covered Person.
Generally, an individual is considered to be a beneficial owner of accounts or securities when the individual has or shares direct or indirect pecuniary interest in the accounts or securities. Pecuniary interest means that an individual has the ability to profit, directly or indirectly, or share in any profit from a transaction. Indirect pecuniary interest extends to, but is not limited to:
| Accounts and securities held by immediate family members sharing the same household; |
| Securities held in trust (certain restrictions may apply); and |
| A right to acquire Covered Securities through the exercise or conversion of any derivative security, whether or not presently exercisable |
Practical Application
If an adult child is living with his or her parents: If the child is living in the parents house, but does not financially support the parent, the parents accounts and securities are not beneficially owned by the child. If the child works for the Advisors and does not financially support the parents, accounts and securities owned by the parents are not subject to the Code, with the exception of UGMA/UTMA, or similar types of accounts, which are legally owned by the child. If one or both parents work for the Advisors, and the child is supported by the parent(s), the childs accounts and securities are subject to the Code because the parent(s) is a beneficial owner of the childs accounts and securities.
Co-habitation (domestic partnership or PACS): Accounts where the Covered Person is a joint owner, or listed as a beneficiary, are subject to the Code. If the Covered Person contributes to the maintenance of the household and the financial support of the partner, the partners accounts and securities are beneficially owned by the Covered Person and are therefore subject to the Code.
Co-habitation (roommate): Generally, roommates are presumed to be temporary and have no beneficial interest in one anothers accounts and securities.
UGMA/UTMA and similar types of accounts: If the Covered Person or the Covered Persons spouse or other Covered family member is the custodian for a minor child, the account is beneficially owned by the Covered Person. If someone other than the Covered Person, or the Covered Persons spouse or other Covered family member, is the custodian for the Covered Persons minor child, the account is not beneficially owned by the Covered Person. If a Covered Person is the minor/beneficiary of the account, the account is a Reportable Account.
Transfer on Death accounts (TOD accounts): TOD accounts where the Covered Person receives the interest of the account upon death of the account owner are not beneficially owned by the Covered Person until the account transfer occurs (this particular account registration is not common).
Trusts
| If the Covered Person is the trustee for an account where the beneficiaries are not immediate family members, the position should be reviewed in light of outside business activity reporting requirements and generally will be subject to a case-by-case review for Code applicability. |
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| If the Covered Person is a beneficiary and does not share investment control with a trustee, the Covered Person is not a beneficial owner until the Trust assets are distributed. |
| If a Covered Person is a beneficiary and can make investment decisions without consultation with a trustee, the trust is beneficially owned by the Covered Person. |
| If the Covered Person is a trustee and a beneficiary, the trust is beneficially owned by the Covered Person. |
| If the Covered Person is a trustee, and a family member is beneficiary, then the account is beneficially owned by the Covered Person. |
| If the Covered Person is a settler of a revocable trust, the trust is beneficially owned by the Covered Person. |
| If the Covered Persons spouse/domestic partner is trustee and beneficiary, a case-by-case review will be performed to determine applicability of the Code. |
College age children: If a Covered Person has a child in college and still claims the child as a dependent for tax purposes, the Covered Person is a beneficial owner of the childs accounts and securities.
Powers of Attorney: If a Covered Person has been granted durable or conditional power of attorney over an account, the Covered Person is not the beneficial owner of the account until such time as the power of attorney is exercised. If a Covered Person has been granted full power of attorney over an account, the account is a Reportable Account. Beneficial ownership runs until revocation/termination of the power of attorney.
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Appendix C
Guide: Requirements by Security Types
This list is not all inclusive and may be updated from time to time. Contact the Ethics Office for additional guidance as needed.
Security Type |
Covered Security? |
Pre-clear? |
Short-Term Profit Prohibition? |
|||||||||||
Equities |
||||||||||||||
Equity securities (publicly traded) | Yes | Yes | Yes | |||||||||||
State Street stock (STT) | Yes | Yes | Yes | |||||||||||
Funds |
||||||||||||||
Exchange-traded funds (ETFs) and exchange-traded notes (ETNs) | Yes | Yes | No* | |||||||||||
REITs (publicly traded real estate investment trusts) | Yes | Yes | Yes | |||||||||||
Money market mutual funds | No | No | No | |||||||||||
Open-end mutual funds, UCITs, SICAVs, unlisted managed investment schemes not advised or sub-advised by SSGA | No | No | No | |||||||||||
Open-end mutual funds advised and sub-advised by SSGA (except SSGA Money Market funds) | Yes | Yes | Yes** | |||||||||||
All closed-end mutual funds (also known as investment trusts in U.K. and listed investment companies in Australia) | Yes | Yes | Yes | |||||||||||
Venture Capital Trusts (VCTs) | Yes | Yes | Yes | |||||||||||
Bonds |
||||||||||||||
Corporate bonds (including high yield bonds) | Yes | Yes | Yes | |||||||||||
Municipa l bonds (including high yield bonds) | Yes | Yes | Yes |
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Security Type |
Covered Security? |
Pre-clear? |
Short-Term Profit Prohibition? |
|||
Bonds (continued) |
||||||
U.S. Treasury securities and other direct obligations backed by the full faith and credit of the U.S. Government or other sovereign government or supranational agencies | No | No | No | |||
US Agency securities, such as FHLMC and FNMA, and other debt obligations not backed by the full faith and credit of the US Government or other sovereign government or supranational agencies | Yes | Yes | Yes | |||
Other |
||||||
Money market instruments: High quality short-term debt instruments, cash, bankers acceptances, certificates of deposit (CDs), commercial paper, repurchase agreements | No | No | No | |||
Transactions in Employer Stock Ownership Programs (ESOPs) and automatic investments in programs where the investment decisions are non-discretionary after the initial selections by the account owner | Yes | Yes* | Yes | |||
Hedge Funds and other Private Placements | Yes | Yes* | Yes | |||
Fixed insurance products | No | No | No | |||
Educational Savings Plans (such as IRC Section 529 plans) which only allow unaffiliated collective investment schemes | No | No | No | |||
Voluntary rights, warrants or tender offers | Yes | Yes | Yes | |||
Company Stock Options received from State Street or a former employer | Yes | Yes | Yes | |||
Options (other than Company Stock Options received from employer) | Not permitted under the Code | |||||
Futures | Not permitted under the Code | |||||
Contract for Difference (CFD) and Spread Bets | Not permitted under the Code |
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Appendix D
SSGA Legal Entities and Locations
Entity |
Country |
|
Global Macro Fund, LP | Cayman Islands | |
Managed Pension Funds Limited | U.K. | |
SSGA Funds Management, Inc. | U.S. | |
SSGA Ireland Unit Trust Management Limited | Ireland | |
SSGA Japan Holdings GK | Japan | |
SSGA Private Funds LLC | U.S. | |
SSGA Singapore Limited Hong Kong Branch | Hong Kong | |
State Street Bank and Trust Company (Atlanta Representative Office) | U.S. | |
State Street Bank and Trust Company (Dubai Rep. Office) | United Arab Emirates | |
State Street Bank and Trust Company (San Francisco, CA Rep. Office - SSGA, SSGM) | U.S. | |
State Street Global Advisors (Asia) Limited | Hong Kong | |
State Street Global Advisors (Japan) Co., LTD | Japan | |
State Street Global Advisors AG | Switzerland | |
State Street Global Advisors Australia Services Limited | Australia | |
State Street Global Advisors France, S.A. | France | |
State Street Global Advisors GMBH | Germany | |
State Street Global Advisors Holdings Limited | U.K. | |
State Street Global Advisors International Holdings Inc. | U.S. | |
State Street Global Advisors Ireland Limited | Ireland | |
State Street Global Advisors Limited | U.K. | |
State Street Global Advisors Limited - Amsterdam Branch | Netherlands | |
State Street Global Advisors Limited - Belgium Branch | Belgium | |
State Street Global Advisors Limited - Italy Branch | Italy | |
State Street Global Advisors Luxembourg Management S.A.R.L. | Luxembourg | |
State Street Global Advisors Singapore Limited | Singapore | |
State Street Global Advisors, Asia Limited - Rep Office - Seoul, Korea | Korea | |
State Street Global Advisors, Asia Limited - Rep Office - Taiwan | Taiwan | |
State Street Global Advisors, Australia, Limited | Australia | |
State Street Global Advisors, Cayman | Cayman Islands | |
State Street Global Advisors, Inc. | U.S. | |
State Street Global Advisors, LTD | Canada | |
State Street Global Advisors, LTD - Rep Office - Toronto, Canada | Canada |
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Entity |
Country |
|
State Street Global Advisors, Mauritius | Mauritius | |
State Street Unit Trust Management Limited | U.K. | |
Windwise Seeding Fund SPC, LTD | Cayman Islands | |
State Street Bank and Trust Company (Chicago, IL Rep. Office) | U.S. |
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Appendix E
Country Specific Requirements
Australia
Additional Blackout Period
From time to time the Responsible Entity (RE) of the Australian domiciled Exchange Traded Funds (ETFs) may determine certain Covered Persons could be in possession of material, non-public information relating to one or more ETFs for which State Street Global Advisors, Australia, Limited is the investment advisor, and request a blackout period covering the securities be implemented, whether due to consideration of Australian Securities Exchange listing rules, the insider trading provisions of the Corporations Act 2001 or similar. Typically this may occur during the two weeks prior to the public announcement of income distributions for an ETF.
Upon receipt of a request from the RE, the Ethics Office, or their designee, will review the request and may initiate a blackout period over the relevant ETFs on such terms as are deemed appropriate. Covered Persons to whom a blackout period applies will be advised of the commencement, duration and other specifics of any such blackout period. Any trading in contravention of the blackout period will be treated as an instance of non-compliance with this Code.
United Kingdom
The U.K. Financial Conduct Authority (FCA) rules on personal account dealing are contained in the FCA Conduct of Business Sourcebook (COBS).
Under COBS, any of the Advisors based in the U.K. must take reasonable steps to ensure that any investment activities conducted by Covered Persons do not conflict with the Advisors duties to its customers. In ensuring this is, and continues to be, the case, the Advisors must ensure they have in place processes and procedures which enable them to identify and record any Covered Person transactions and permission to continue with any transaction is only given where the requirements of COBS are met.
France
At the date of this Code, Covered Persons of SSGAF are required in France to comply, in addition to the Code, with the following provisions:
Laws and Regulations
| The Monetary and Financial Code, and in the particular the rules of good conduct provided in Articles L.533-10 of the Monetary and Financial Code; |
| The General Regulation of the Financial Markets Authority, and in particular the organizational and good conduct rules provided in Book III of this Regulation; |
| Instructions, recommendations and decisions issued as the case may be by the French Markets Authority. |
Policies and Procedures Issued Locally by SSGAF
| Provisions of the Internal Regulation, as updated on July 1, 2011 |
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Further, as indicated in the Code, certain sections of the Code are not applicable in France, or are applicable in a modified version set forth below. References are to section headings used in the Code.
Private Placement
In France, a Private Placement means a securities offering that is exempt from registration or which is not subject to the obligation to publish a prospectus under certain relevant provisions of French law and regulation and/or similar laws of jurisdictions outside of France (if you are unsure whether the securities are issued in a private placement, you must consult with the Ethics Office). In France, the rules relating to Private Placements are set forth in Articles L.411-2 and D.411-1 et seq. of the Monetary and Financial Code.
Discretionary Account
In France, the requirements of the Code shall not apply to personal transactions entered into under a Discretionary Account management service where there is no prior communication in connection with the transaction between the portfolio manager and the Covered Person.
Reporting Violations
If a Covered Person in France has reason to believe that a violation of law or regulations relating to internal control procedures in the financial, accounting, banking or anti-corruption areas or that a violation of an interest vital to SSGAF or of the physical or moral integrity of its Covered Persons has been committed, he/she is encouraged to notify the Ethics Office so that SSGAF may carefully examine the facts and take corrective measures.
Covered Persons may identify themselves in order to allow SSGAF to obtain a complete report on the relevant facts as rapidly as possible. Nonetheless, if circumstances require, Covered Persons may communicate the facts anonymously.
The information furnished to the company by a Covered Person believing in good faith that his/her action is necessary to protect SSGAF from illegal or inappropriate behavior will be treated in a strictly confidential and secure manner to the extent allowed by law. Any person reporting violations, as identified within the framework of the procedure, will have a right to access, obtain further information, and if applicable, object to and correct the data regarding him/her.
SSGAF will not take any sanctions or retaliatory measures against a Covered Person for reporting suspected violations in good faith. Failure to report will not give rise to any consequences for Covered Persons. However, an abusive use of the reporting procedure may in certain cases expose a Covered Person to sanctions.
Violations and Sanctions
Any potential instances of non-compliance with the provisions of the Code or related policies by Covered Persons in France will be investigated by the Ethics Office. Covered Persons are invited to review the list of misconduct which may, among other violations, give rise to the disciplinary sanctions contemplated by SSGAFs Internal Regulation. If a determination is made that an instance of non-compliance has occurred, the issue will be addressed under the State Street Compliance Enforcement Procedure - Global and enforcement actions, modified where necessary per Internal Regulation, may be imposed by the employer, SSGAF. Material violations will be reported promptly to the respective SSGA Committees, boards of trustees/managers of the Reportable Funds or relevant committees of the boards and related clients.
In France, all sanctions will be notified in writing to the employee concerned, indicating the grounds for the sanction.
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Prior to any sanction affecting the duties, career, remuneration or presence of the employee, the following procedure will be implemented:
| The employee will be convened to a prior meeting within the two-month period described in Article L.1332-4 of the Labor Code, by registered letter or by hand delivery against receipt. |
| This letter will state the purpose for the convocation and will indicate the date, place and time of the meeting, as well as the possibility for the employee to be assisted by a person of his/her choice from a list which can be consulted at the town hall of SSGA, Defense Plaza, 23-25 rue Delariviere-Lefoullon, 92064 Paris La Defense Cedex and/or the town hall of the employees domicile (if the employees domicile is located in the same department as the offices of SSGAF), or at the Labor Inspectorate located at SSGA, Defense Plaza, 23-25 rue Delariviere-Lefoullon, 92064 Paris La Defense Cedex. |
| A preliminary meeting will be held during which the facts relating to the employees alleged misconduct will be presented to the employee and to the person assisting the employee and at which the employees explanations will be obtained. |
| As the case may be depending on the explanations given, a sanction letter will be sent by registered post, return receipt requested, at the earliest one full day and at the latest one month after the meeting. This letter should set forth the grounds for the sanction. |
When the behavior of an employee renders such actions indispensable, conservatory measures may be taken prior to implementing the procedure described above. No sanction may be taken until the procedure has been completed.
Personal Data
In France, data obtained in the context of the administration and enforcement of the Code will be processed in compliance with the Computers and Personal Freedom Act of January 6, 1978, as modified by the Law of August 6, 2004. Pursuant to this law, Covered Persons have access, rectification and objection rights in regard to the data relating to them. They may exercise these rights by contacting the SSGAF Compliance Department. The Ethics Office will be notified of any Covered Persons who invoke the objection rights to provide broker statements to their local Compliance Department.
Certain recipients of personal data are located outside of the EU, in particular the following recipients: SSGA Compliance, Boston, MA, and StarCompliance Software, Inc., Rockville, MD, United States of America. The following data will be communicated to such recipients: Covered Persons name, business phone number, business email address, name of brokerage firm, account number, name and amount of securities held in brokerage account. StarCompliance Software, Inc. has obtained and maintains a US-EU Safe Harbor Certification with respect to data protection. The transmission of data to recipients located outside of the EU will be made for the purpose of implementing and coordinating the rules contemplated by this Code.
Publicity and Entry into Force
This Code, which has been filed in France with the secretariat of the clerk of the Labor Court of SSGA, Defense Plaza, 23-25 rue Delariviere-Lefoullon, 92064 Paris La Defense Cedex and posted in compliance with the provisions of Articles R.1321-1 and R.1321-2 of the Labor Code, entered into force on December 1, 2009.
It will be provided to all Covered Persons and other relevant persons at the time of hire or arrival on the premises of SSGAF.
Material modifications and additions to these internal rules shall be subject to the same consultation, communication and publicity procedures.
The Code has been previously submitted to the Labor Inspectorate, and is displayed on SSGAFs premises.
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Germany
The German rules on personal account dealing are contained in the Securities Trading Act and specified in more detail by the BaFin circular 4/2010 (WA) MaComp Minimum Requirements for the Compliance Function and Additional Requirements Governing Rules of Conduct, Organisation and Transparency pursuant to Sections 31 et seq. of the Securities Trading Act (Wertpapierhandelsgesetz - WpHG) for Investment Services Enterprises.
Personal Data
In Germany, data obtained in the context of the administration and enforcement of the Code will be processed in compliance with the Bundesdatenschutzgesetz (BDSG). In particular, Sec. 32 BDSG applies in this context (data collection, processing and use for employment-related purposes). According to Sec. 32 (1) clause 1 BDSG, the employer is entitled to collect, process or use data as long as this is required in the context of the working relationship. As the monitoring of personal transactions is a regulatory requirement applicable for SSGA with regard to all relevant employees, it is also required in the course of the maintenance of the working relationship and thereby permissible from a data privacy perspective.
Switzerland
Personal Data
In Switzerland, personal data may only be processed lawfully. Its processing must be carried out in good faith and must be proportionate. Personal data may only be processed for the purpose indicated at the time of collection, that is evident from the circumstances, or that is provided for by law. The collection of personal data and in particular the purpose of its processing must be evident to the data subject. If the consent of the data subject is required for the processing of personal data, such consent is valid only if given voluntarily on the provision of adequate information. Additionally, consent must be given expressly in the case of processing of sensitive personal data or personality profiles.
Italy
At the date of this Code, SSGAs Covered Persons are required in Italy to comply, in addition to the Code, with the following provisions:
Laws and regulations
| Legislative Decree No. 58 of 24 February 1998, as amended (the Italian Financial Act), containing, inter alia, general provisions concerning investment services; |
| Legislative Decree No. 231 of 21 November 2007, as amended (the Anti-money Laundering Act), containing, inter alia, the duty to identify each client and subsequently record his data, as well as to keep a unified electronic archive and to notify any suspect transactions; |
| Regulation No.16190 of 29 October 2007, adopted by CONSOB (the Intermediaries Regulation), with reference to the investment services and the financial activities carried out in Italy; |
| Instructions containing information duties and statistical reporting requirements, recommendations and decisions issued as the case may be by any Italian supervisory authorities, including CONSOB and the Bank of Italy. |
Further, as indicated in the Code, certain sections of the Code are not applicable in Italy, or are applicable in a modified version set forth below. References are to section headings used in the Code.
Statement of General Fiduciary Principles
Please note that in Italy, the Code does not necessarily apply to transactions of family members or persons in a similar relationship to you. Rather, the Code applies to your personal transactions and related activities, and any transactions of which you are a direct or indirect beneficiary.
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Covered Person
In Italy, a Covered Person includes employees of the Advisors, including full-time and part-time, exempt and non-exempt employees (where applicable), and other such persons as designated by the Ethics Office. Covered Person also includes certain designated contingent workers engaged at SSGA, including but not limited to consultants, contractors, and temporary help. Covered Persons are subject to the provisions of this Code. Persons related to an employee or a contingent worker, such as spouses, children and other relatives living in the employees or the contingent workers household are not covered by the Code, except to the extent the employee or the contingent worker is a direct or indirect beneficiary of transactions entered into by such persons.
Private Placement
In Italy, a Private Placement means a securities offering that is exempt from registration or which is not subject to the obligation to publish a prospectus under certain relevant provisions of Italian law and regulation and/or similar laws of jurisdictions outside of Italy (if you are unsure whether the securities are issued in a private placement, you must consult with the Ethics Office). In Italy, the rules relating to Private Placements are set forth in Article 100 of the Italian Financial Act, as implemented by CONSOB.
Reporting Violations
If a Covered Person in Italy has reason to believe that a violation of law or regulations relating to internal control procedures in the financial, accounting, banking or anti-corruption areas or that an instance of non-compliance of an interest vital to SSGA or of the physical or moral integrity of its Covered Persons has been committed, he/she is encouraged to notify the Ethics Office so that SSGA may carefully examine the facts and the Ethics Office may take corrective measures.
Covered Persons should identify themselves in order to allow SSGA to obtain a complete report on the relevant facts as rapidly as possible. Nonetheless, if circumstances require, Covered Persons may communicate the facts anonymously.
The Italian branch of SSGA will not take any sanctions or retaliatory measures against a Covered Person for reporting suspected instances of non-compliance in good faith. Failure to report will not give rise to any consequences for employees. However, an abusive use of the reporting procedure may in certain cases expose a Covered Person to sanctions.
Certification of Receipt and Compliance with the Code
With reference to Italy, further to the provisions set forth under the Code, the following shall apply: the Code is displayed on the premises of the Italian branch of SSGA and constitutes an integral part of its disciplinary code.
Violations and Sanctions
The requirements of this Code have a binding value vis-à-vis the Covered Persons of the Italian branch of SSGA and are to be considered in addition to the provisions contained in the disciplinary code in force within the Italian branch of SSGA.
Any potential violation of the provisions of the Code or related policies by Covered Persons in Italy will be investigated by the Ethics Office. Violations of the Code are reported to the EMG. If a determination is made that an instance of non-compliance has occurred, a sanction may be imposed in accordance with the State Street Compliance Enforcement Procedure - Global and pursuant to the rules established by Italian Law and by the applicable national collective bargaining agreement.
As discussed in the State Street Compliance Enforcement Procedure- Global, enforcement shall be differentiated and graduated based on the seriousness of the individual breaches, taking into consideration the objective circumstances, the intentionality, the existence of justifications, the recidivism and the possible repetition of the conducts concerned.
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Enforcement may also apply to any supervisor who directs or approves such actions, or has knowledge of them and does not promptly correct them. Conduct which violates this Code may also violate laws and therefore subject the offending Covered Person to civil and criminal liabilities as well.
SSGA may also be subject to prosecution and fines for the conduct of its employees. Reimbursement of losses of damages deriving from any breach of this Code will be requested to the employees according to the procedures set forth by the applicable national collective bargaining agreement.
In Italy, prior to inflict to employee any sanction deriving from possible violations of this Code, the specific disciplinary procedure provided for by Law. No. 300/1970 (the so called Workers Statute) shall be implemented. In particular, the Ethics Office shall notify in writing to the employee concerned the facts relating to the alleged misconduct and shall ask the employee concerned to furnish his/her justifications within 5 days from the receipt of such disciplinary letter.
The disciplinary sanction, if any, shall be adopted following the 5-days term granted to the employee to render his/her justifications. The disciplinary sanctions shall be proportional to the employees behaviour in breach.
Personal Data
In Italy the personal data of the Covered Persons shall be processed in compliance with Legislative Decree n. 196 of 30 June 2003, concerning personal data protection.
Pursuant to Covered Persons have access, rectification and objection rights in regard to the data relating to them. They may exercise these rights by contacting the Ethics Office. The Ethics Office will be notified of any Covered Persons who invoke the objection rights to provide broker statements to their local Compliance Department.
Certain recipients of personal data are located outside of the EU, in particular the following recipients: SSGA Compliance, Boston, MA, and StarCompliance Software, Inc., Rockville, MD, United States of America. The following data will be communicated to such recipients: Covered Persons name, business phone number, business email address, name of brokerage firm, account number, name and amount of securities held in brokerage account. StarCompliance Software, Inc. has obtained and maintains a US-EU Safe Harbor Certification with respect to data protection. The transmission of data to recipients located outside of the EU will be made for the purpose of implementing and coordinating the rules contemplated by this Code.
Japan
Holding Period
Covered Persons in Japan are subject to a minimum holding period of 6 months regardless of whether a transaction would result in the Covered Person realizing a loss or profit. (Section V. B. Short - Term Trading) This requirement applies to equities, equity warrants, convertible bonds and other equity related products, and does not apply to ETFs, mutual funds, and non-convertible bonds.
Japanese Broker
If a Covered Person in Japan intends to deal with a Japanese broker (JSDA member only) for equities, equity warrants, convertible bonds and other equity related products, the Covered Person must obtain a special certification (Jibadashi-syoumei) from SSGA Japan compliance.
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Appendix F
Contacts
Questions or Concerns about Policies or Situations:
The Ethics Office ( ethics@statestreet.com )
Actual or Possible Violations of Policy:
The Ethics Office ( ethics@statestreet.com )
The Network (Confidential)
333 Research Court, Norcross, GA 30092 USA
US and Canada | 1 888 736 9833 | |
Austria | 0 80 200 288 then 1 888 736 9833 | |
Australia | 1 800 08 7428 | |
Belgium | 0800 7 5651 | |
Cayman Islands | 1 888 736 9833 | |
China |
Telecom South: 10 800 110 0731 China Netcom Group: 10 800 711 0788 |
|
France | 0800 91 2790 | |
Germany | 0800 180 8934 | |
Hong Kong | 800 90 3272 | |
India | 000 800 100 1389 | |
Japan |
KDD: 00531 11 4442 Cable & Wireless IDC: 0066 33 801143 Softbank Telecom: 0066 33 112661 NTT: 0034 800 900131 |
|
South Korea | 00798 11 002 1599 | |
Luxembourg | 800 2 7148 | |
Netherlands | 0800 022 7427 | |
Poland | 0 0 800 111 1730 | |
Singapore | 800 110 1607 | |
South Africa | 0800 981 281 | |
Switzerland | 0800 89 6872 | |
Taiwan | 00801 10 4147 | |
UAE | 0 800 121 then 1 888 736 9833 | |
UK | 0808 234 4889 |
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Appendix G
Code of Ethics Reporting Requirements
Report |
Frequency |
Requirements |
Notes |
|||
Initial Holdings Report | Once; completed after becoming Covered Person | Disclose all Reportable Accounts and Holdings in StarCompliance (See Page 8) | Remember to set up duplicate statements and confirmations from your broker, if necessary (See 005. Duplicate Statements and Confirms on Page 8). | |||
Annual Holdings Report | Annually in January | Ensure all holdings in Covered Securities (See Appendix C) are correctly reflected in StarCompliance. This includes holdings in accounts resulting from involuntary transactions that have occurred and transactions in Covered Securities that are affected in Automatic Investment Plans or accounts approved by the Ethics Office as Fully Managed Accounts. | You are responsible for ensuring the data in this report is accurate. If you hold an account at a Approved Broker and holdings data is fed to StarCompliance (See 006. Maintain Accounts with Approved Brokers), you must still review the data on the report for accuracy. | |||
Quarterly Transaction Report | Quarterly |
Ensure all Reportable Transactions for the quarter are correctly reflected in StarCompliance.
Transactions in accounts previously approved by the Ethics Office as Fully Managed Accounts or Automatic Investment Plans are not Reportable Transactions. |
You are responsible for ensuring the data in this report is accurate. If you hold an account at an Approved Broker and holdings data is fed to StarCompliance (See 006. Maintain Accounts with Approved Brokers), you must still review the data on the report for accuracy. | |||
Ad Hoc Holdings Report |
Ad hoc
Marriage, new children, inheritance, and financial planning activities may cause accounts and holdings to be opened or associated to you. |
Disclose any newly opened or newly associated Reportable Accounts and Holdings in StarCompliance within 30 days of opening or association. | Remember to set up Duplicate Statements and Confirms (See 005. Duplicate Statements and Confirms on Page 8). |
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Appendix H
Code of Ethics FAQs
The Ethics Office has additional FAQ and How-To documents related to using Star and completing required reporting (e.g., Initial and Annual Holdings Reports) available on StarCompliance.
I work in the United States. Do I have to report my State Street 401(k)?
No, you are not required to disclose your State Street 401(k) at this time.
However, if you have activated the Brokerage Link feature for your 401(k), you must report that account and ensure that all transactions and holdings are reflected accurately in Quarterly Transaction Reports and Annual Holdings Reports, respectively.
My spouse (or I) has a company- or government-sponsored retirement plan (such as a 401(k) in the US, or a superannuation plan in Australia). How do I determine what accounts, holdings, and transactions must be disclosed and pre-cleared?
Due to the wide variety of plans available globally, its important to check with the Ethics Office if you have any questions about how this applies to you.
Accounts
If the account or plan currently holds Covered Securities (see Appendix C), you must disclose the account.
Retirement plans usually have a line up of available investments from which the account owner can choose; if there is a Covered Security in the line up of available investments, but you do not currently invest in Covered Securities, you are not required to disclose the account. If at any point, your retirement plan invests in Covered Securities, you must disclose the account, the holdings in Covered Securities, and the Transactions in Covered Securities, as described below.
Holdings
You must disclose any holdings in Covered Securities (see Appendix C).
Transactions
Usually , transactions in a retirement plan you are actively participating in fall under the Automatic Investment Plan definition (see Appendix A) and are treated as such. However, you must pre-clear and disclose any transactions over which you exercised discretion. For example, the following types of transactions must be pre-cleared and disclosed:
| A change in future investment allocations in Covered Securities, such as increasing your automatic payroll investment in Security XYX from 15% to 20%. Note: only the initial change must be pre-cleared and reported. |
| Re-allocating your existing holdings in Covered Securities, such as changing your portfolio from 50% Security XYZ and 50% Security ABC to 75% Security XYZ and 25% Security ABC. |
If you or your Covered Person are automatically enrolled in a plan with default investment percentages (e.g., 7% of salary) and investment options, any transactions made as a result of your automatic enrollment are not subject to disclosure or pre-clearance.
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State Street Global Advisors Code of Ethics
I have an account with an Approved Broker which feeds my transactions to Star. Can you tell me what I have to do with regards to pre-clearance and reporting whenever I make personal trades?
In order to ensure your trades are properly pre-cleared and reported, make sure that you:
(1) | Pre-clear the trade by submitting a PTAF in Star. PTAFs: |
| Must be for the correct security, account, and trade direction (buy vs. sell). |
| Must be for at least the amount of shares that you plan on trading. You may always trade fewer shares than you were approved for, but you may not trade more . |
| Are valid only for the day they are approved. |
(2) | Wait for the result (Approved or Denied) from Star before trading. Youll receive the result within seconds on screen and will receive an email with the results. PTAFs are valid only for the day they are approved. |
(3) | Ensure your transactions are accurately reflected in Star. |
| You are required to do this on a quarterly basis (known as the Quarterly Transactions Report), but many people find it easier to compare their transactions in Star with their brokers records (e.g., a statement or trade confirmations) more frequently. |
| When you submit your Quarterly Transactions Report, it must accurately reflect all Reportable Transactions for the quarter. |
| The Approved Broker feeds are tools to help keep accurate records in Star; you are responsible for the accuracy of the data in your Code of Ethics reports. |
My account is not with an Approved Broker. Can you tell me what I have to do with regards to pre-clearance and reporting whenever I make personal trades?
In order to ensure your trades are properly pre-cleared and reported, make sure that you:
(1) | Pre-clear the trade by submitting a PTAF in Star. PTAFs: |
| Must be for the correct security, account, and trade direction (buy vs. sell). |
| Must be for at least the amount of shares that you plan on trading. You may always trade fewer shares than you were approved for, but you may not trade more . |
| Are valid only for the day they are approved. |
(2) | Wait for the result (Approved or Denied) from Star before trading. Youll receive the result within seconds on screen and will receive an email with the results. PTAFs are valid only for the day they are approved. |
(3) | Ensure your transactions are accurately reflected in Star. |
| You are required to do this on a quarterly basis (known as the Quarterly Transactions Report), but many people find it easier to use Stars Execute function after they trade. |
1. | From the Trade Requests screen in Star, select the trade you made. |
2. | Click on the Execute button at the top of the screen. |
3. | Correct any details (such as number of shares traded and market price) and click Execute at the top of the screen. |
| When you submit your Quarterly Transactions Report, it must accurately reflect all Reportable Transactions for the quarter. |
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Exhibit (q)
SSGA MASTER TRUST
SSGA ACTIVE TRUST
SPDR SERIES TRUST AND
SPDR INDEX SHARES FUNDS
POWER OF ATTORNEY
Each of the undersigned Trustees and Officers of SSGA Master Trust, SSGA Active Trust, SPDR ® Series Trust, and SPDR ® Index Shares Funds (the Trusts) hereby constitutes and appoints Ann Carpenter, Chad Hallett, Arthur Jensen, Darlene Anderson-Vasquez, Daniel Foley, Sujata Upreti, Daniel Plourde, Jesse D. Hallee, Esq., Patricia A. Morisette, Esq., and Joshua Weinberg, Esq., each of them with full powers of substitution, as his or her true and lawful attorney-in-fact and agent to execute in his or her name and on his or her behalf in any and all capacities the Registration Statements on Form N-1A, and any and all amendments thereto, and all other documents, filed by the Trust or its affiliates with the Securities and Exchange Commission (the SEC) under the Investment Company Act of 1940, as amended, and (as applicable) the Securities Act of 1933, as amended, and any and all instruments which such attorneys and agents, or any of them, deem necessary or advisable to enable the Trust or its affiliates to comply with such Acts, the rules, regulations and requirements of the SEC, the securities, Blue Sky and/or corporate/trust laws of any state or other jurisdiction, the Commodities Future Trading Commission, and the regulatory authorities of any foreign jurisdiction, including all documents necessary to ensure the Trust has insurance and fidelity bond coverage, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC and such other jurisdictions, and the undersigned hereby ratifies and confirms as his or her own act and deed any and all acts that such attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Any one of such attorneys and agents has, and may exercise, all of the powers hereby conferred. The undersigned hereby revokes any Powers of Attorney previously granted with respect to the Trust concerning the filings and actions described herein.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the 23 rd day of August, 2017.
SIGNATURE | TITLE | |||
/s/Bonny E. Boatman Bonny E. Boatman |
Trustee |
|||
/s/Dwight Churchill Dwight Churchill |
Trustee |
|||
/s/David M. Kelly David M. Kelly |
Trustee |
|||
/s/Frank Nesvet Frank Nesvet |
Trustee |
|||
/s/Carl G. Verboncoeur Carl G. Verboncoeur |
Trustee |
1
Exhibit (q)
/s/James E. Ross James E. Ross |
Trustee |
|||
/s/Ellen M. Needham Ellen M. Needham |
President and Principal Executive Officer |
|||
/s/Bruce Rosenberg Bruce Rosenberg |
Treasurer and Principal Financial Officer |
2