As filed with the Securities and Exchange Commission on August 29, 2019
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 | ☒ | |||
Pre-Effective Amendment No. | ||||
Post-Effective Amendment No. 214 | ☒ | |||
and/or | ||||
REGISTRATION STATEMENT | ||||
UNDER | ||||
THE INVESTMENT COMPANY ACT OF 1940 | ☒ | |||
Amendment No. 216 | ☒ |
SPDR® SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
One Iron Street
Boston, Massachusetts 02210
(Address of Principal Executive Offices)
Registrants Telephone Number: (617) 664-1465
Sean OMalley, Esq.
Senior Vice President and Deputy General Counsel
c/o SSGA Funds Management, Inc.
One Iron Street
Boston, Massachusetts 02210
(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 October 31, 2019 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 SSGA Gender Diversity Index 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 U.S. companies that are leaders in advancing women through gender diversity on their boards of directors and in management. |
Management fees | [0.20]% |
Distribution and service (12b-1) fees | None |
Other expenses | [0.00]% |
Total annual Fund operating expenses | [0.20]% |
Year 1 | Year 3 | Year 5 | Year 10 |
$[20] | $[64] | $[113] | $[255] |
SPDR SSGA Gender Diversity Index
ETF
|
[ ]% |
SPDRSELFSTATPRO | The Trust's Investment Company Act Number is 811-08839. |
Investment Objective |
The SPDR Nuveen Bloomberg Barclays Municipal 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. municipal bond market and provides income that is exempt from federal income taxes. |
Management fees | [0.30]% |
Distribution and service (12b-1) fees | None |
Other expenses | [0.00]% |
Total annual Fund operating expenses | [0.30]% |
Less contractual fee waiver1 | [(0.07)]% |
Net annual Fund operating expenses | [0.23]% |
1 | [SSGA Funds Management, Inc. (the “Adviser”) has contractually agreed to waive a portion of its management fee and reimburse certain expenses, until October 31, 2020, so that the net annual Fund operating expenses, before application of any fees and expenses not paid by the Adviser pursuant to the Investment Advisory Agreement, if any, are limited to 0.23% of the Fund's average daily net assets. The contractual fee waiver does not provide for the recoupment by the Adviser of any fees the Adviser previously waived. The Adviser may continue the waiver and/or reimbursement from year to year, but there is no guarantee that the Adviser will do so and the waiver and/or reimbursement may be cancelled or modified at any time after October 31, 2020. This waiver and/or reimbursement may not be terminated prior to October 31, 2020 except with the approval of the Fund's Board of Trustees.] |
Year 1 | Year 3 | Year 5 | Year 10 |
$[24] | $[89] | $[162] | $[374] |
Investment Objective |
The SPDR Nuveen Bloomberg Barclays High Yield Municipal 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 municipal bond market and to provide income that is exempt from federal income taxes. |
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 |
$[36] | $[113] | $[197] | $[443] |
Investment Objective |
The SPDR ICE BofAML Broad 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 broad U.S. corporate high yield market. |
Management fees1 | [0.15]% |
Distribution and service (12b-1) fees | None |
Other expenses | [0.00]% |
Total annual Fund operating expenses1 | [0.15]% |
1 | The Fund's “Management fees” and “Total annual Fund operating expenses” have been restated to reflect a reduction in the Fund's “Management fees.” |
Year 1 | Year 3 | Year 5 | Year 10 |
$[15] | $[48] | $[85] | $[192] |
Fund Name | SPDR Nuveen Bloomberg Barclays Municipal Bond ETF | SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF | SPDR ICE BofAML Broad High Yield Bond ETF |
Below Investment-Grade Securities Risk | x | x | |
Call/Prepayment Risk | x | x | x |
Counterparty Risk | x | ||
Credit Risk | x | x | x |
Debt Securities Risk | x | x | x |
Derivatives Risk | x | ||
Swaps Risk | x | ||
Extension Risk | x | x | x |
Europe | x | ||
Fluctuation of Net Asset Value, Share Premiums and Discounts Risk | x | x | x |
Fund Name | SPDR Nuveen Bloomberg Barclays Municipal Bond ETF | SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF | SPDR ICE BofAML Broad High Yield Bond ETF |
Income Risk | x | x | x |
Indexing Strategy/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 |
Municipal Obligations Risk | x | x | |
Non-Diversification Risk | x | x | x |
Non-U.S. Securities Risk | x | ||
Political Risk | x | x | |
Private Activity Bonds Risk | x | ||
Reinvestment Risk | x | x | x |
Restricted Securities Risk | x | ||
Settlement Risk | x | ||
Tax Exemption Risk | x | x | |
Unconstrained Sector Risk | x | ||
Valuation Risk | x | x | x |
SPDR Nuveen Bloomberg Barclays Municipal Bond
ETF
|
[ ]%(1) |
SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond
ETF
|
[ ]% |
SPDR ICE BofAML Broad High Yield Bond
ETF
|
[ ]%(2) |
(1) | [The Adviser has contractually agreed to waive a portion of its management fee and reimburse certain expenses, until October 31, 2020, so that the net annual Fund operating expenses, before application of any fees and expenses not paid by the Adviser pursuant to the Investment Advisory Agreement, if any, of the SPDR Nuveen Bloomberg Barclays Municipal Bond ETF are limited to 0.23% of the Fund's average daily net assets before application of any extraordinary expenses or acquired fund fees and expenses. The contractual fee waiver does not provide for the recoupment by the Adviser of any fees the Adviser previously waived. The Adviser may continue the waiver from year to year, but there is no guarantee that the Adviser will do so and after October 31, 2020, any or all waivers may be cancelled or modified at any time. This waiver and/or reimbursement may not be terminated prior to October 31, 2020 except with the approval of the Fund's Board of Trustees.] |
(2) | [Effective April 1, 2019, the management fee of the Fund was reduced from 0.40% to 0.15% of the Fund's average daily net assets. Prior to the management fee reduction, the Adviser contractually agreed to waive a portion of its management fee and reimburse certain expenses so that the net annual Fund operating expenses, before application of any fees and expenses not paid by the Adviser pursuant to the Investment Advisory Agreement, if any, were limited to 0.30% of the Fund's average daily net assets before application of any extraordinary expenses or acquired fund fees and expenses. The contractual fee waiver did not provide for the recoupment by the Adviser of any fees the Adviser previously waived. On April 1, 2019, in connection with the management fee reduction, the contractual waiver was discontinued.] |
Portfolio Managers | Fund |
Timothy Ryan and Steven
Hlavin
|
Municipal Bond ETFs |
Bradley Sullivan, Michael Brunell and Kyle
Kelly
|
SPDR ICE BofAML Broad 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, 2019]
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, 2019], as may be revised from time to time. Each of the foregoing prospectuses may be referred to herein as a Prospectus.
EQUITY ETFs | TICKER | FIXED INCOME ETFs | TICKER | |||
SPDR RUSSELL 1000 YIELD FOCUS ETF |
ONEY |
SPDR BLOOMBERG BARCLAYS 1-3 MONTH
T-BILL ETF |
BIL | |||
SPDR RUSSELL 1000 MOMENTUM FOCUS ETF |
ONEO | SPDR BLOOMBERG BARCLAYS TIPS ETF | IPE | |||
SPDR RUSSELL 1000 LOW VOLATILITY FOCUS ETF |
ONEV | SPDR BLOOMBERG BARCLAYS 1-10 YEAR TIPS ETF | TIPX | |||
SPDR S&P® 500 BUYBACK ETF |
SPYB | SPDR PORTFOLIO SHORT TERM TREASURY ETF | SPTS | |||
SPDR PORTFOLIO S&P 500 GROWTH ETF |
SPYG | SPDR BLOOMBERG BARCLAYS INTERMEDIATE TERM TREASURY ETF | ITE | |||
SPDR PORTFOLIO S&P 500 VALUE ETF |
SPYV | SPDR PORTFOLIO LONG TERM TREASURY ETF | SPTL | |||
SPDR PORTFOLIO S&P 500 HIGH DIVIDEND ETF |
SPYD | SPDR PORTFOLIO SHORT TERM CORPORATE BOND ETF | SPSB | |||
SPDR S&P 500 FOSSIL FUEL RESERVES FREE ETF |
SPYX | SPDR PORTFOLIO INTERMEDIATE TERM CORPORATE BOND ETF | SPIB | |||
SPDR PORTFOLIO MID CAP ETF |
SPMD | SPDR PORTFOLIO LONG TERM CORPORATE BOND ETF | SPLB | |||
SPDR S&P 400 MID CAP GROWTH ETF |
MDYG | SPDR BLOOMBERG BARCLAYS CORPORATE BOND ETF | CBND | |||
SPDR S&P 400 MID CAP VALUE ETF |
MDYV | SPDR BLOOMBERG BARCLAYS CONVERTIBLE SECURITIES ETF | CWB | |||
SPDR S&P 600 SMALL CAP ETF |
SLY | SPDR BLOOMBERG BARCLAYS MORTGAGE BACKED BOND ETF | MBG | |||
SPDR S&P 600 SMALL CAP GROWTH ETF |
SLYG | SPDR PORTFOLIO AGGREGATE BOND ETF | SPAB | |||
SPDR S&P 600 SMALL CAP VALUE ETF |
SLYV | SPDR NUVEEN BLOOMBERG BARCLAYS MUNICIPAL BOND ETF | TFI | |||
SPDR GLOBAL DOW ETF |
DGT | SPDR NUVEEN BLOOMBERG BARCLAYS SHORT TERM MUNICIPAL BOND ETF | SHM | |||
SPDR DOW JONES REIT ETF |
RWR | SPDR NUVEEN BLOOMBERG BARCLAYS HIGH YIELD MUNICIPAL BOND ETF (formerly, SPDR NUVEEN S&P HIGH YIELD MUNICIPAL BOND ETF) | HYMB | |||
SPDR S&P BANK ETF |
KBE | SPDR FTSE INTERNATIONAL GOVERNMENT INFLATION-PROTECTED BOND ETF | WIP |
1
EQUITY ETFs | TICKER | FIXED INCOME ETFs | TICKER | |||
SPDR S&P CAPITAL MARKETS ETF |
KCE | SPDR BLOOMBERG BARCLAYS SHORT TERM INTERNATIONAL TREASURY BOND ETF | BWZ | |||
SPDR S&P INSURANCE ETF |
KIE | SPDR BLOOMBERG BARCLAYS INTERNATIONAL TREASURY BOND ETF | BWX | |||
SPDR S&P REGIONAL BANKING ETF |
KRE | SPDR BLOOMBERG BARCLAYS INTERNATIONAL CORPORATE BOND ETF | IBND | |||
SPDR NYSE TECHNOLOGY ETF |
XNTK | SPDR BLOOMBERG BARCLAYS EMERGING MARKETS LOCAL BOND ETF | EBND | |||
SPDR S&P DIVIDEND ETF |
SDY |
SPDR BLOOMBERG BARCLAYS HIGH YIELD BOND ETF |
JNK | |||
SPDR S&P AEROSPACE & DEFENSE ETF |
XAR | SPDR BLOOMBERG BARCLAYS SHORT TERM HIGH YIELD BOND ETF | SJNK | |||
SPDR S&P BIOTECH ETF |
XBI | SPDR BLOOMBERG BARCLAYS INVESTMENT GRADE FLOATING RATE ETF | FLRN | |||
SPDR S&P HEALTH CARE EQUIPMENT ETF |
XHE | SPDR ICE BOFAML BROAD HIGH YIELD BOND ETF (formerly, SPDR ICE BofAML CROSSOVER CORPORATE BOND ETF) | CJNK | |||
SPDR S&P HEALTH CARE SERVICES ETF |
XHS | |||||
SPDR S&P HOMEBUILDERS ETF |
XHB | |||||
SPDR S&P INTERNET ETF |
XWEB | |||||
SPDR S&P METALS & MINING ETF |
XME | |||||
SPDR S&P OIL & GAS EQUIPMENT & SERVICES ETF |
XES | |||||
SPDR S&P OIL & GAS EXPLORATION & PRODUCTION ETF |
XOP | |||||
SPDR S&P PHARMACEUTICALS ETF |
XPH | |||||
SPDR S&P RETAIL ETF |
XRT | |||||
SPDR S&P SEMICONDUCTOR ETF |
XSD | |||||
SPDR S&P SOFTWARE & SERVICES ETF |
XSW | |||||
SPDR S&P TECHNOLOGY HARDWARE ETF |
XTH | |||||
SPDR S&P TELECOM ETF |
XTL | |||||
SPDR S&P TRANSPORTATION ETF |
XTN | |||||
SPDR S&P 1500 VALUE TILT ETF |
VLU | |||||
SPDR S&P 1500 MOMENTUM TILT ETF |
MMTM | |||||
SPDR MSCI USA STRATEGICFACTORSSM ETF |
QUS |
2
EQUITY ETFs | TICKER | FIXED INCOME ETFs | TICKER | |||
SPDR WELLS FARGO® PREFERRED STOCK ETF |
PSK | |||||
SPDR FACTSET INNOVATIVE TECHNOLOGY ETF |
XITK |
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, 2019 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), One Iron Street, Boston, Massachusetts 02210, 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, 2019 are incorporated by reference into this SAI.
3
5 | ||||
5 | ||||
22 | ||||
29 | ||||
31 | ||||
31 | ||||
40 | ||||
58 | ||||
62 | ||||
63 | ||||
63 | ||||
71 | ||||
72 | ||||
73 | ||||
80 | ||||
81 | ||||
82 | ||||
91 | ||||
A-1 | ||||
B-1 | ||||
Appendix C Nuveen Asset Managements Proxy Voting Policies and Procedures |
C-1 | |||
D-1 |
4
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 Equity ETFs and 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 (SSGA FM or the Adviser) and certain funds are sub-advised by a sub-adviser as further described herein (each, a Sub-Adviser). To the extent that a reference in this SAI refers to the Adviser, such reference should also be read to refer to the Sub-Adviser where the context requires.
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 the specified number of Fund Shares as set forth in this SAI under Purchase and Redemption of Creation Units.
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 a Fund and, therefore, the securities may constitute a greater portion of the Funds portfolio. This may have an adverse effect on the Funds performance or subject the Funds Shares to greater price volatility than more diversified investment companies. [Each Fund seeks to track the performance of its respective Index. The composition of each Index may fluctuate between non-diversified and diversified solely due to changes in weightings of one or more Index components. As a result, a Funds diversification status also may fluctuate between non-diversified and diversified depending on the composition of, and to the same extent as, its respective Index. To the extent a Fund becomes diversified and subsequently returns to a non-diversified state due solely to changes in the composition of the respective Index, the Fund will not seek shareholder approval if and when the Fund shifts from diversified to non-diversified.]
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 (RIC) for purposes of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and to relieve the 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 the Fund will meet its investment objective.
5
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES
Asset-backed securities are securities backed by installment contracts, credit-card receivables or other assets. Commercial mortgage-backed securities are securities backed by commercial real estate properties. Both asset-backed and commercial mortgage-backed securities represent interests in pools of assets in which payments of both interest and principal on the securities are made on a regular basis. The payments are, in effect, passed through to the holder of the securities (net of any fees paid to the issuer or guarantor of the securities). The average life of asset-backed and commercial mortgage-backed securities varies with the maturities of the underlying instruments and, as a result of prepayments, can often be less than the original maturity of the assets underlying the securities. For this and other reasons, an asset-backed and commercial mortgage-backed securitys stated maturity may be shortened, and the securitys total return may be difficult to predict precisely.
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
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 STOCK
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 Fund Shares). 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 Fund will concentrate its investments in securities of issuers in the same industry as may be necessary to approximate the composition of the Funds underlying Index. The securities of issuers in particular industries may dominate the benchmark Index of a
6
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.
[CONSIDERATIONS REGARDING INVESTMENT IN MUNICIPAL SECURITIES ISSUED BY PUERTO RICO
Each Fund may invest in Puerto Rico municipal bonds and, therefore, may be impacted by political, economic, or regulatory developments that affect issuers in Puerto Rico and their ability to pay principal and interest on their obligations. Puerto Rico, the fourth largest of the Caribbean islands, is located approximately 1,000 miles southeast of Miami, Florida. Puerto Ricos constitutional status is that of a territory of the United States, and, pursuant to the territorial clause of the U.S. Constitution, the ultimate source of power over Puerto Rico is the U.S. Congress. Residents of Puerto Rico are citizens of the United States but do not vote in national elections.
Puerto Ricos economy, historically dominated by government and manufacturing employment, has been in recession since 2006, and since then total Gross National Product (GNP) Has fallen more than 14%. As of August 2018, the islands unemployment rate was 9.1%, well above the national average. Unemployment has improved marginally as the rate was over 15% for all of 2010 and 2011, but recent declines are partially attributed to a shrinking labor force, not job creation. High unemployment and weak job growth have contributed to historic outmigration of Puerto Rican residents, with more than 300,000 Puerto Ricans leaving for the U.S. mainland during the last decade. The Puerto Rican government estimates that an additional 14% of the population will leave by 2023, further depleting economic growth prospects.
Protracted economic decline and population losses have directly impacted Puerto Ricos tax base and operating budget. Puerto Ricos operating budget became structurally unbalanced during the recession and, as a result, the government began relying on deficit financing for annual operations. This borrowing led to a tremendous debt burden, which is very high in comparison to that of most states. Further, Puerto Rico issues debt under many different securities, but many of the security pledges are ultimately dependent on the islands general fund, creating interdependency between credits.
In 2014, Puerto Ricos then-Governor, Alejandro Garcĺa Padilla declared that Puerto Ricos debt is not payable and Puerto Rico would no longer borrow to address annual budget deficits. Debt restructuring legislation passed in mid-2014 aimed at restructuring public corporations was deemed unconstitutional by a federal court in February 2015 and again on appeal in July 2015. In response to the court ruling, the islands representative in Washington, D.C. introduced a bill allowing Puerto Ricos public corporations to be eligible for Chapter 9 bankruptcy filing, which was struck down in federal court and ultimately by the Supreme Court on June 13, 2016.
On June 30, 2016, the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) was signed into law, aimed at helping Puerto Rico restructure its debt. Among other things, PROMESA established the Financial and Oversight Management Board (FOMB) to oversee Puerto Ricos financial operations and provide a legal framework for debt restructuring. In May 2017, the FOMB commenced a formal restructuring proceeding for Puerto Ricos general obligation debt, as well as for Puerto Rico Sales Tax Financing Corporation (COFINA) bonds secured by a dedicated portion of sales and use taxes. On July 2, 2017, the Puerto Rico Electric Power Authority (PREPA) filed for bankruptcy protections under PROMESA for its $9 billion in bond debt and on July 31, 2018 a partial settlement with a portion of the PREPA bondholders was announced outlining a possible restructuring of such debt.
As required by PROMESA, in March 2017 Puerto Rico submitted its first fiscal plan to the FOMB, and has continued to submit numerous updates for the FOMBs review. The fiscal plans are required to provide estimates of revenues and expenditures, ensure funding for essential public services, provide adequate funding pensions, eliminate any structural deficits, provide for a sustainable debt burden, and improve fiscal governance, accountability and internal controls. The fiscal plans must also include a debt sustainability analysis and provide for capital investments necessary to promote economic growth. The numerous revisions to the fiscal plans may demonstrate uncertainty with respect to investments in Puerto Rican bonds. In addition, audited financial statements for the 2016 fiscal year have yet to be released, which leads to difficulty in fully understanding the extent of Puerto Ricos financial distress.
As of August 2018, Puerto Rico had over $120 billion in outstanding debt and unfunded pension obligations. Securities issued by Puerto Rico and its agencies have been the subject of multiple credit downgrades and each rating agency has continued to maintain a negative outlook on certain Puerto Rico issuers.
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In September 2017, Puerto Rico suffered an estimated $80 million damage from Hurricane Maria. This damage is predicted to cause a real decline to GNP of 7.4% in fiscal year 2018, which could further increase outmigration, cause potentially unsustainable operating conditions for the territorys manufacturers and lead to additional defaults on debt. In February 2018, the U.S. Congress approved a $16 billion aid package as part of a larger budget deal intended to promote Puerto Ricos recovery, and the latest fiscal plan projects that approximately $86.8 billion of disaster relief funding from public and private sources will be disbursed for the reconstruction effort. The extent to which these expectations are met and the timing for receipt of such assistance will greatly impact Puerto Ricos projected economic recovery. In 2019, Puerto Rico experienced political protests in response to allegations of misuse of the hurricane relief aid, leading to the resignation of Governor Ricardo Rossello and uncertainty regarding the territorys future leadership.]
[CONSIDERATIONS REGARDING INVESTMENT IN SECURITIES ISSUED BY GREECE
Recent geopolitical events in the European Union (EU), specifically in Greece, may disrupt securities markets and adversely affect global economies and markets. This may lead to increased short-term market volatility and may have adverse long-term effects on world economies and markets generally. Those events as well as other changes in Eurozone economic and political conditions could adversely affect individual issuers or related groups of issuers, securities markets, interest rates, credit ratings, inflation, investor sentiment, and other factors affecting the value of a Funds investments. Given the increasing interdependence among global economies and markets, conditions in one country, market, or region might adversely affect markets, issuers, and/or foreign exchange rates in other countries.
Such events could possibly lead to default, implementation of capital controls and a potential exit from the Eurozone. Each of these scenarios has potential implications to the markets and a Funds investments.
A default or debt restructuring by any European country, including Greece, would adversely impact holders of that countrys debt, and sellers of credit default swaps linked to that countrys creditworthiness (which may be located in other countries). These events may have an adverse effect on the value and exchange rate of the euro and may continue to significantly affect the economies of every country in Europe, including EU member countries that do not use the euro and non-EU member countries.
During its government debt crisis in 2015, Greeces ability to repay its sovereign debt was in question and the possibility of default was not unlikely. As part of a bailout program implemented by the International Monetary Fund and EU member countries, Greece was required to satisfy certain conditions, including imposition of austerity measures on its population. In August 2016, Greece exited its bailout program and is now on track to finance itself on the international markets, although the austerity measures remain. Although less likely since Greeces departure from the bailout program, it is still possible that Greece may exit the European Monetary Union, which would result in immediate devaluation of the Greek currency and potential for default. If this were to occur, Greece would face significant risks related to the process of full currency redenomination as well as the resulting instability of Europe in general, which would have a severe adverse effect on the value of securities held by a Fund.
If Greece opts to leave the Eurozone, the economic consequences could be severe for Greece and harmful to its trading partners and banks and others around the world that hold Greek debt. The impact of these actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far-reaching.]
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.
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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 Funds 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 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
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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.
Short Sales Against the Box. The Funds may engage in short sales against the box. In a short sale against the box, a 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.
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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.
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
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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.
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
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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
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.
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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.
ILLIQUID SECURITIES
Each Fund may invest in illiquid securities. A Fund may not acquire any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid securities. An illiquid security means any security that a Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. If illiquid securities exceed 15% of the Funds net assets, certain remedial actions will be taken as required by Rule 22e-4 under the 1940 Act and the Funds policies and procedures.
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 States. 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.
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. Efforts to recall such securities promptly may be unsuccessful, especially for foreign securities or thinly traded
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securities, and may involve expenses to a Fund. 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 high quality short-term instruments either directly on behalf of the lending Fund or through one or more joint accounts or funds, which may include those managed by the Adviser. A Fund could lose money due to a decline in the value of collateral provided for loaned securities or any investments made with cash collateral. Certain non-cash collateral or investments made with cash collateral may have a greater risk of loss than other non-cash collateral or investments.
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 provides the following services to the Funds in connection with the Funds securities lending activities: (i) locating borrowers among an approved list of prospective borrowers; (ii) causing the delivery of loaned securities from a Fund to borrowers; (iii) monitoring the value of loaned securities, the value of collateral received, and other lending parameters; (iv) seeking additional collateral, as necessary, from borrowers; (v) receiving and holding collateral from borrowers, and facilitating the investment and reinvestment of all or substantially all cash collateral in an investment vehicle designated by the Funds; (vi) returning collateral to borrowers; (vii) facilitating substitute dividend, interest, and other distribution payments to the Funds from borrowers; (viii) negotiating the terms of each loan of securities, including but not limited to the amount of any loan premium, and monitoring the terms of securities loan agreements with prospective borrowers for consistency with the requirements of the Funds Securities Lending Authorization Agreement; (ix) selecting securities, including amounts (percentages), to be loaned; (x) recordkeeping and accounting servicing; and (xi) arranging for return of loaned securities to the Fund in accordance with the terms of the Securities Lending Authorization Agreement. 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. If a securities lending counterparty were to default, a Fund would be subject to the risk of a possible delay in receiving collateral or in recovering the loaned securities, or to a possible loss of rights in the collateral. In the event a borrower does not return a Funds securities as agreed, the Fund may experience losses if the proceeds received from liquidating the collateral do not at least equal the value of the loaned security at the time the collateral is liquidated, plus the transaction costs incurred in purchasing replacement securities. 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. 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.
MORTGAGE PASS-THROUGH SECURITIES
The term U.S. agency mortgage pass-through security refers to a category of pass-through securities backed by pools of mortgages and issued by one of several U.S. government-sponsored enterprises: the Ginnie Mae, Fannie Mae or FHLMC. In the basic mortgage pass-through structure, mortgages with similar issuer, term and coupon characteristics are collected and aggregated into a pool
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consisting of multiple mortgage loans. The pool is assigned a CUSIP number and undivided interests in the pool are traded and sold as pass-through securities. The holder of the security is entitled to a pro rata share of principal and interest payments (including unscheduled prepayments) from the pool of mortgage loans.
An investment in a specific pool of pass-through securities requires an analysis of the specific prepayment risk of mortgages within the covered pool (since mortgagors typically have the option to prepay their loans). The level of prepayments on a pool of mortgage securities is difficult to predict and can impact the subsequent cash flows and value of the mortgage pool. In addition, when trading specific mortgage pools, precise execution, delivery and settlement arrangements must be negotiated for each transaction. These factors combine to make trading in mortgage pools somewhat cumbersome.
For the foregoing and other reasons, the SPDR Portfolio Aggregate Bond ETF and SPDR Bloomberg Barclays Mortgage Backed Bond ETF seek to obtain exposure to U.S. agency mortgage pass-through securities primarily through the use of to-be-announced or TBA transactions. TBA refers to a commonly used mechanism for the forward settlement of U.S. agency mortgage pass-through securities, and not to a separate type of mortgage-backed security. Most transactions in mortgage pass-through securities occur through the use of TBA transactions. TBA transactions generally are conducted in accordance with widely-accepted guidelines which establish commonly observed terms and conditions for execution, settlement and delivery. In a TBA transaction, the buyer and seller decide on general trade parameters, such as agency, settlement date, par amount, and price. The actual pools delivered generally are determined two days prior to settlement date. Each Fund intends to use TBA transactions in several ways. For example, each Fund expects that it will regularly enter into TBA agreements and roll over such agreements prior to the settlement date stipulated in such agreements. This type of TBA transaction is sometimes known as a TBA roll. In a TBA roll a Fund generally will sell the obligation to purchase the pools stipulated in the TBA agreement prior to the stipulated settlement date and will enter into a new TBA agreement for future delivery of pools of mortgage pass-through securities. In addition, a Fund may enter into TBA agreements and settle such transactions on the stipulated settlement date by accepting actual receipt or delivery of the pools of mortgage pass-through securities stipulated in the TBA agreement.
Default by or bankruptcy of a counterparty to a TBA transaction would expose a Fund to possible loss because of adverse market action, expenses or delays in connection with the purchase or sale of the pools of mortgage pass-through securities specified in the TBA transaction. To minimize this risk, a Fund will enter into TBA transactions only with established counterparties (such as major broker-dealers) and the Adviser will monitor the creditworthiness of such counterparties. In addition, a Fund may accept assignments of TBA transactions from Authorized Participants (as defined below) from time to time. A Funds use of TBA rolls may cause the Fund to experience higher portfolio turnover, higher transaction costs and to pay higher capital gain distributions to shareholders (which may be taxable) than the other Funds described herein.
The SPDR Portfolio Aggregate Bond ETF and SPDR Bloomberg Barclays Mortgage Backed Bond ETF intend to invest cash pending settlement of any TBA transactions in money market instruments, repurchase agreements, commercial paper (including asset-backed commercial paper) or other high-quality, liquid short-term instruments, which may include money market funds affiliated with the Adviser.
MUNICIPAL SECURITIES
Municipal securities are securities issued by states, municipalities and other political subdivisions, agencies, authorities and instrumentalities of states and multi-state agencies or authorities. Municipal securities share the attributes of debt/fixed income securities in general, but are generally issued by states, municipalities and other political subdivisions, agencies, authorities and instrumentalities of states and multi-state agencies or authorities. The municipal securities which the Funds may purchase include general obligation bonds and limited obligation bonds (or revenue bonds), including industrial development bonds issued pursuant to former federal tax law. General obligation bonds are obligations involving the credit of an issuer possessing taxing power and are payable from such issuers general revenues and not from any particular source. Limited obligation bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source. Tax-exempt industrial development bonds generally are also revenue bonds and thus are not payable from the issuers general revenues. The credit and quality of industrial development bonds are usually related to the credit of the corporate user of the facilities. Payment of interest on and repayment of principal of such bonds is the responsibility of the corporate user (and/or any guarantor).
Some longer-term municipal securities give the investor the right to put or sell the security at par (face value) within a specified number of days following the investors requestusually one to seven days. This demand feature enhances a securitys liquidity by shortening its effective maturity and enables it to trade at a price equal to or very close to par. If a demand feature terminates prior to being exercised, a Fund would hold the longer-term security, which could experience substantially more volatility.
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The market for municipal bonds may be less liquid than for taxable bonds. This means that it may be harder to buy and sell municipal securities, especially on short notice, than non-municipal securities. There may also be less information available on the financial condition of issuers of municipal securities than for public corporations. This means that it may be harder to buy and sell municipal securities, especially on short notice, and municipal securities may be more difficult for the Funds to value accurately than securities of public corporations. A Fund that invests a significant portion of its portfolio in municipal securities, such as the SPDR Nuveen Bloomberg Barclays Municipal Bond ETF, SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF and SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF (the Municipal Bond ETFs), may have greater exposure to liquidity risk than a fund that invests in non-municipal securities. In addition, the municipal securities market is generally characterized as a buy and hold investment strategy. As a result, the accessibility of municipal securities in the market is generally greater closer to the original date of issue of the securities and lessens as the securities move further away from such issuance date.
Municipal securities are subject to credit and market risk. Generally, prices of higher quality issues tend to fluctuate more with changes in market interest rates than prices of lower quality issues and prices of longer maturity issues tend to fluctuate more than prices of shorter maturity issues.
Prices and yields on municipal securities are dependent on a variety of factors, including general money-market conditions, the financial condition of the issuer, general conditions of the municipal security market, the size of a particular offering, the maturity of the obligation and the rating of the issue. A number of these factors, including the ratings of particular issues, are subject to change from time to time. Information about the financial condition of an issuer of municipal securities may not be as extensive as that which is made available by corporations whose securities are publicly traded. As a result, municipal securities may be more difficult to value than securities of public corporations.
Obligations of issuers of municipal securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. Congress or state legislatures may seek to extend the time for payment of principal or interest, or both, or to impose other constraints upon enforcement of such obligations. In addition, municipal securities are subject to the risk that their tax treatment could be changed by Congress or state legislatures, thereby affecting the value of outstanding municipal securities. There is also the possibility that as a result of litigation or other conditions, the power or ability of issuers to meet their obligations for the payment of interest and principal on their municipal securities may be materially affected or their obligations may be found to be invalid or unenforceable. Such litigation or conditions may from time to time have the effect of introducing uncertainties in the market for municipal securities or certain segments thereof, or of materially affecting the credit risk with respect to particular bonds. Adverse economic, business, legal or political developments might affect all or a substantial portion of a Funds municipal securities in the same manner.
Municipal Leases and Certificates of Participation. Also included within the general category of municipal securities described in the Municipal Bond ETFs Prospectus are municipal leases, certificates of participation in such lease obligations or installment purchase contract obligations (hereinafter collectively called Municipal Lease Obligations) of municipal authorities or entities. Although a Municipal Lease Obligation does not constitute a general obligation of the municipality for which the municipalitys taxing power is pledged, a Municipal Lease Obligation is ordinarily backed by the municipalitys covenant to budget for, appropriate and make the payments due under the Municipal Lease Obligation. However, certain Municipal Lease Obligations contain non-appropriation clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In the case of a non-appropriation lease, a Funds ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property, without recourse to the general credit of the lessee, and disposition or releasing of the property might prove difficult.
Municipal Insurance. A municipal security may be covered by insurance that guarantees the bonds scheduled payment of interest and repayment of principal. This type of insurance may be obtained by either (i) the issuer at the time the bond is issued (primary market insurance), or (ii) another party after the bond has been issued (secondary market insurance).
Both primary and secondary market insurance guarantee timely and scheduled repayment of all principal and payment of all interest on a municipal security in the event of default by the issuer, and cover a municipal security to its maturity, enhancing its credit quality and value.
Municipal security insurance does not insure against market fluctuations or fluctuations in a Funds share price. In addition, a municipal security insurance policy will not cover: (i) repayment of a municipal security before maturity (redemption), (ii) prepayment or payment of an acceleration premium (except for a mandatory sinking fund redemption) or any other provision of a bond indenture that advances the maturity of the bond, or (iii) nonpayment of principal or interest caused by negligence or bankruptcy of the paying agent. A mandatory sinking fund redemption may be a provision of a municipal security issue whereby part of the municipal security issue may be retired before maturity.
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Because a significant portion of the municipal securities issued and outstanding is insured by a small number of insurance companies, an event involving one or more of these insurance companies could have a significant adverse effect on the value of the securities insured by that insurance company and on the municipal markets as a whole.
Municipal Market Disruption Risk. The value of municipal securities may be affected by uncertainties in the municipal market related to legislation or litigation involving the taxation of municipal securities or the rights of municipal securities holders in the event of a bankruptcy. Proposals to restrict or eliminate the federal income tax exemption for interest on municipal securities are introduced before Congress from time to time. Proposals also may be introduced before state legislatures that would affect the state tax treatment of a municipal funds distributions. If such proposals were enacted, the availability of municipal securities and the value of a municipal funds holdings would be affected, and the Trustees would reevaluate a Municipal Bond ETFs investment objectives and policies. Municipal bankruptcies are relatively rare, and certain provisions of the U.S. Bankruptcy Code governing such bankruptcies are unclear and remain untested. Further, the application of state law to municipal issuers could produce varying results among the states or among municipal securities issuers within a state. These legal uncertainties could affect the municipal securities market generally, certain specific segments of the market, or the relative credit quality of particular securities. Any of these effects could have a significant impact on the prices of some or all of the municipal securities held by a Fund.
OTHER SHORT-TERM INSTRUMENTS
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 risk; 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 the Fund would be unable to acquire securities paying comparable rates with the redemption proceeds.
RATINGS
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An investment grade rating means the security or issuer is rated investment grade by Moodys, S&P, Fitch, Inc. (Fitch), 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 or applicable Sub-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 or Fitch 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 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[, or Appendix D for more information on the ratings of debt instruments].
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 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 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.
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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. 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.
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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. It is believed that the amendment puts Fannie Mae and Freddie Mac in a better position to service their debt because the companies no longer have to borrow from the U.S. Treasury to make fixed dividend payments. As part of the terms, Fannie Mae and Freddie Mac also will be required to reduce their investment portfolios at an annual rate of 15% instead of the previous 10%, which put each of them on track to cut their portfolios to a targeted $250 billion in 2018.
Fannie Mae and Freddie Mac are the subject of several continuing class action lawsuits and investigations by federal regulators over certain accounting, disclosure or corporate governance matters, which (along with any resulting financial restatements) may adversely affect the guaranteeing entities. Importantly, the future of the entities is in serious question as the U.S. government reportedly is considering multiple options, ranging from nationalization, privatization, consolidation, or abolishment of the entities.
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.
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VARIABLE AND FLOATING RATE SECURITIES
Variable rate securities are instruments issued or guaranteed by entities such as (1) US Government, or an agency or instrumentality thereof, (2) states, municipalities and other political subdivisions, agencies, authorities and instrumentalities or states and multi-state agencies or authorities (3) corporations, (4) financial institutions, (5) insurance companies or (6) trusts that have a rate of interest subject to adjustment at regular intervals but less frequently than annually. A variable rate security provides for the automatic establishment of a new interest rate on set dates. Variable rate obligations whose interest is readjusted no less frequently than annually will be deemed to have a maturity equal to the period remaining until the next readjustment of the interest rate. The Funds may also purchase floating rate securities. A floating rate security provides for the automatic adjustment of its interest rate whenever a specified interest rate changes. Interest rates on these securities are ordinarily tied to, and are a percentage of, a widely recognized interest rate, such as the yield on 90-day US Treasury bills or the prime rate of a specified bank. These rates may change as often as twice daily. Generally, changes in interest rates will have a smaller effect on the market value of variable and fixed rate floating rate securities than on the market value of comparable fixed rate fixed income obligations. Thus, investing in variable and fixed rate floating rate securities generally allows less opportunity for capital appreciation and depreciation than investing in comparable fixed rate fixed income securities.
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.
Holders of common stock incur more risk than holders of preferred stock 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 stock 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 stock which typically has a liquidation preference and which may have stated optional or mandatory redemption provisions, common stock has neither a fixed principal amount nor a maturity. Common stock values are subject to market fluctuations as long as the common stock remains outstanding.
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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.
CHINA BOND RISK
Certain Funds may invest in renminbi (RMB) denominated fixed income securities of Chinese issuers (China bonds). To the extent a Funds underlying Index includes China bonds, the Funds ability to achieve its investment objective is dependent on its continued access to such bonds. The Funds may invest in China bonds (i) through direct access to the China Interbank Bond Market (CIBM), (ii) through certain foreign institutional investors that have obtained a license and quota from the Chinese regulators, and (iii) through Bond Connect, a program that provides foreign investors with access to Chinas onshore bond market.
CIBM Direct Access Program Risks. The CIBM is an OTC market established in 1997, and accounts for more than 95% of outstanding bond values of the total trading volume in the Peoples Republic of China (the PRC). On CIBM, domestic institutional investors and certain foreign institutional investors can trade, on a one-to-one quote-driven basis, sovereign bonds, government bonds, corporate bonds, bond repo, bond lending, bills issued by the Peoples Bank of China (PBOC) and other financial debt instruments. Pursuant to the Announcement (2016) No. 3 issued by the PBOC on February 24, 2016, eligible foreign institutional investors can conduct trading on the CIBM under a program established by the PBOC (CIBM Direct Access Program) subject to other rules and regulations as promulgated by the PRC authorities. There is no trading quota limitation.
CIBM is regulated and supervised by the PBOC. The PBOC is responsible for, among others, promulgating the applicable CIBM listing, trading and operating rules, and supervising the market operators of CIBM. Bonds and bond-related derivatives are traded in the CIBM primarily through (i) independent bilateral negotiation on a transaction by transaction basis or (ii) through the click-and-deal trading model, whereby a party offers a quote in the market that can then be accepted by a counterparty (thus, clicking the deal). A click-and-deal quote may also be automatically matched with a price limit order. In addition, recently an anonymous click trading model has been implemented for certain bonds and bond-related derivatives whereby anonymous quotes offered in the market are automatically matched with counterparties based on timing and price. Once a transaction is agreed upon, the parties will, in accordance with the terms of the transaction, promptly send instructions for the delivery of bonds and funds. Parties are required to have sufficient bonds and funds for delivery on the agreed upon delivery date. China Central Depository & Clearing Co., Ltd (CCDC) or Shanghai Clearing House (SHCH) will deliver bonds according to the instructions sent by the parties. Funds clearing banks will handle the transfer and settlement of the payments of the bonds on behalf of the parties. The China Foreign Exchange Trading System is the unified trading platform for CIBM.
A Funds investments in China bonds through the CIBM Direct Access Program will be subject to a number of additional risks and restrictions that may affect the Funds investments and returns. Certain of these risks are discussed below.
The CIBM Direct Access Program is relatively new. Laws, rules, regulations, policies, notices, circulars or guidelines relating to the CIBM Direct Access Program as published or applied by the PBOC and other PRC authorities are relatively untested and are subject to change from time to time. There can be no assurance that the CIBM Direct Access Program will not be restricted, suspended or abolished. If such event occurs, a Funds ability to invest in the CIBM through the CIBM Direct Access Program will be adversely affected, and if the Fund is unable to adequately access the CIBM through other means, the Funds ability to achieve its investment objective will be adversely affected.
Under the prevailing PRC regulations, eligible foreign institutional investors who wish to invest directly in CIBM through the CIBM Direct Access Program may do so through an onshore settlement agent, who would be responsible for making the relevant filings and account opening with the relevant authorities. The Funds are therefore subject to the risk of default or errors on the part of such agent.
RQFII Investment Quota Risk. Investment companies, such as the Funds, are not currently within the types of entities that are eligible for a Renminbi Qualified Foreign Institutional Investor (RQFII) or Qualified Foreign Institutional Investor (QFII) license. Rather, each Fund may utilize all or a portion of the Advisers RQFII quota granted under RQFII regulations to invest in China bonds.
A Funds ability to utilize the Advisers RQFII quota may be limited or restricted in several ways and thus, adversely affect the Funds ability to achieve its investment objective. For example, the Adviser may allocate its RQFII quota among more than one investor, including the Funds. In such case, the Adviser will determine in its sole discretion the amount to be allocated for use by a Fund, and there can be no assurance that the Adviser will allocate a sufficient portion of its RQFII quota to a Fund to meet that Funds
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investment needs initially or over time. In addition, the RQFII regulations provide that the size of a RQFIIs quota may be reduced or cancelled by the State Administration of Foreign Exchange (SAFE) if the RQFII is unable to use its RQFII quota effectively within one year after the quota is granted. Once reduced or cancelled there can be no assurance the Adviser will be able to obtain future increases in its RQFII quota.
It is also possible that the Advisers RQFII status could be suspended or revoked. Pursuant to PRC and RQFII regulations, the SAFE is vested with the power to impose regulatory sanctions if the Adviser, in its capacity as RQFII, or the PRC custodian violates any provision of the RQFII regulations. Any such violations could result in the revocation of the Advisers RQFII license and/or quota or other regulatory sanctions and may adversely affect the portion of the Advisers RQFII quota allocated to a Fund. A Funds ability to utilize the Advisers RQFII quota could be adversely affected in such cases even if the violations arise out of activities unrelated to the Fund or the Funds use of a portion of the Advisers RQFII quota. The Adviser is also subject to regulation by certain Hong Kong regulatory authorities, including the Hong Kong Securities and Futures Commission. Regulatory matters arising from such regulation could also adversely affect the Advisers RQFII license and ability to provide advisory services, generally.
There can be no assurance that the Adviser will continue to maintain its RQFII status or be able to acquire additional RQFII quota. In the event the Adviser is unable to maintain its RQFII status or the RQFII quota allocated to a Fund has become inadequate, it may be necessary for the Fund to limit or suspend creations of Creation Units. In such event it is possible that the trading price of the Funds Shares on its Exchange will be at a significant premium to the NAV (which may also increase tracking error of the Fund). In extreme circumstances, a Fund may incur significant loss due to limited investment capabilities, or may not be able fully to implement or pursue its investment objectives or strategies, due to RQFII investment restrictions, illiquidity of the PRC securities markets, and delay or disruption in execution of trades or in settlement of trades.
Bond Connect Risks. The Mutual Bond Market Access between Mainland China and Hong Kong (Bond Connect) program is a new initiative established by PBOC, China Foreign Exchange Trade System & National Interbank Funding Centre (CFETS), CCDC, SHCH, and Hong Kong Exchanges and Clearing Limited (HKEx) and Central Moneymarkets Unit (CMU) of the Hong Kong Monetary Authority (HKMA) to facilitate investors investments between the Mainland China and Hong Kong bond markets through connection between the Mainland China and Hong Kong financial institutions.
Under the prevailing PRC regulations, eligible foreign investors are allowed to invest in the bonds available on the CIBM through the northbound trading of Bond Connect (Northbound Trading Link). There is currently no investment quota for the Northbound Trading Link. The Northbound Trading Link refers to the trading platform that is located outside of Mainland China and is connected to CFETS for eligible foreign investors to submit their trade requests for bonds circulated in the CIBM through Bond Connect. HKEx and CFETS work together with offshore electronic bond trading platforms to provide electronic trading services and platforms to allow direct trading between eligible foreign investors and approved onshore dealers in Mainland China through CFETS. Under the Northbound Trading Link, eligible foreign investors are required to appoint the CFETS or other institutions recognized by the PBOC as registration agents to apply for registration with the PBOC.
Pursuant to the prevailing regulations in Mainland China, the CMU, the offshore custody agent recognized by the HKMA, opens omnibus nominee accounts with the onshore custody agent recognized by the PBOC (i.e., the CCDC and SHCH). All bonds traded by eligible foreign investors will be registered in the name of the CMU, which will hold such bonds as a nominee owner.
Bond Connect is relatively new. Laws, rules, regulations, policies, notices, circulars or guidelines relating to Bond Connect as published or applied by any of the Bond Connect Authorities (as defined below) are relatively untested and are subject to change. Bond Connect Authorities refers to the exchanges, trading systems, settlement systems, governmental, regulatory or tax bodies which provide services and/or regulate Bond Connect and activities relating to Bond Connect, including, without limitation, the PBOC, the HKMA, the HKEx, the CFETS, the CMU, the CCDC and the SHCH and any other regulator, agency or authority with jurisdiction, authority or responsibility in respect of Bond Connect. There can be no assurance that Bond Connect will not be restricted, suspended or abolished. If such event occurs, a Funds ability to invest in the CIBM through Bond Connect may be adversely affected, and if the Fund is unable to adequately access the CIBM through other means, the Funds ability to achieve its investment objective may be adversely affected.
Under the prevailing Bond Connect regulations, eligible foreign investors who wish to participate in Bond Connect may do so through an offshore custody agent, registration agent or other third parties (as the case may be), who would be responsible for making the relevant filings and account opening with the relevant authorities. A Fund is therefore subject to the risk of default or errors on the part of such agents.
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Trading through Bond Connect is performed through newly developed trading platforms and operational systems. There is no assurance that such systems will function properly (in particular, under extreme market conditions) or will continue to be adapted to changes and developments in the market. In the event that the relevant systems fail to function properly, trading through Bond Connect may be disrupted. A Funds ability to trade through Bond Connect (and hence to pursue its investment strategy) may therefore be adversely affected. In addition, where a Fund invests in the CIBM through Bond Connect, it may be subject to risks of delays inherent in the order placing and/or settlement.
The CMU is the nominee holder of the bonds acquired by a Fund through Bond Connect. While Bond Connect Authorities have expressly stated that investors will enjoy the rights and interests of the bonds acquired through Bond Connect similar to investors in bond interests acquired through more traditional means in accordance with applicable laws, the exercise and the enforcement of beneficial ownership rights in such bonds in the Chinese courts has yet to be tested. As a result, for example, though the HKMA has stated otherwise in its Frequently Asked Questions relating to Bond Connect, it is possible that in the event that the nominee holder becomes insolvent, such bonds may be deemed to form part of the pool of assets of the nominee holder available for distribution to its creditors thereby subjugating the rights of a Fund.
Chinese Credit Rating Risks. China bonds will generally be rated by Chinese ratings agencies (and not by U.S. nationally recognized statistical ratings organizations (NRSROs)). The rating criteria and methodology used by Chinese rating agencies may be different from those adopted by NRSROs and international credit rating agencies. Therefore, such rating systems may not provide an equivalent standard for comparison with securities rated by NRSROs and international credit rating agencies.
Market Risks. A Fund investing in the CIBM will be subject to liquidity and volatility risks. Market volatility and potential lack of liquidity due to possible low trading volume of certain bonds in the CIBM may result in prices of certain bonds traded in the CIBM fluctuating significantly. The bid and offer spreads of the prices of such bonds may be large, and a Fund may therefore incur significant trading and realization costs and may even suffer losses when selling such investments. To the extent that a Fund transacts in the CIBM, the Fund may also be exposed to risks associated with settlement procedures and default of counterparties. The counterparty which has entered into a transaction with a Fund may default in its obligation to settle the transaction by failure to deliver relevant securities or to make payment.
General PRC-Related Risks
Economic, Political and Social Risks of the PRC. The economy of China, which has been in a state of transition from a planned economy to a more market oriented economy, differs from the economies of most developed countries in many respects, including the level of government involvement, its state of development, its growth rate, control of foreign exchange, protection of intellectual property rights and allocation of resources.
Although the majority of productive assets in China are still owned by the PRC government at various levels, in recent years, the PRC government has implemented economic reform measures emphasizing utilization of market forces in the development of the economy of China and a high level of management autonomy. The economy of China has experienced significant growth in the past several decades, but growth has been uneven both geographically and among various sectors of the economy, and no assurance can be given that such growth will continue. Economic growth has also been accompanied by periods of high inflation. The PRC government has implemented various measures from time to time to control inflation and restrain the rate of economic growth.
There can, however, be no assurance that the PRC government will continue to pursue such economic policies or, if it does, that those policies will continue to be successful. Any such adjustment and modification of those economic policies may have an adverse impact on the securities markets in the PRC as well as the portfolio securities of a Fund. Further, the PRC government may from time to time adopt corrective measures to control the growth of the PRC economy, which may also have an adverse impact on the capital growth and performance of a Fund. Political changes, social instability and adverse diplomatic developments in the PRC could result in the imposition of additional government restrictions, including expropriation of assets, confiscatory taxes, limits on repatriation, or nationalization of some or all of the property held by the underlying issuers of a Funds portfolio securities.
PRC Laws and Regulations Risk. The regulatory and legal framework for capital markets and companies in the PRC may not be as well developed as those of developed countries. PRC laws and regulations affecting securities markets are relatively new and evolving, and because of the limited volume of published cases and judicial interpretation and their non-binding nature, interpretation and enforcement of these regulations involve significant uncertainties. In addition, as the PRC legal system develops, no assurance can be given that changes in such laws and regulations or new laws, regulations or practices relating to transactions in Chinese securities will be promulgated, or that their interpretation or enforcement will not have a material adverse effect on a Funds portfolio securities.
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PRC Tax Risk. Uncertainties in PRC tax rules governing taxation of income and gains from investments in China bonds could result in unexpected tax liabilities for a Fund. A Funds investments in China bonds may cause the Fund to become subject to withholding and other taxes imposed by the PRC. The Ministry of Finance of the PRC and the State Administration of Taxation of the PRC issued Caishui No. 108 on November 7, 2018, which states that bond interests derived from investment in the China bond market (including through CIBM, a RQFII/QFII license or Bond Connect) by foreign investors will be temporarily exempt from withholding income tax and value added tax. The temporary exemption will remain in effect until November 6, 2021. If, in the future, China begins applying tax rules regarding the taxation of investment in China bonds by foreign investors, and/or begins collecting withholding and other taxes on interest derived by such investment, a Funds return might be adversely affected.
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(a)(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.
Certain affiliates of each Fund and the Adviser may purchase and resell or distribute Fund Shares pursuant to the registration statement of which this SAI is a part.
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 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 FM 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
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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.
ADDITIONAL STRATEGY INFORMATION
For purposes of the SPDR Portfolio Mid Cap ETF, the Adviser considers mid-capitalization securities to be those issued by companies with market capitalizations within the mid-cap range as determined by Morningstar Category Classifications, which currently generally ranges from $1 billion to $8 billion.
28
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 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. |
7. |
With respect to the Municipal Bond ETFs, invest, under normal circumstances, less than 80% of its assets, plus the amount of borrowings for investment purposes, in investments the income of which is exempt from federal income tax. |
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. |
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. |
3. |
With respect to the SPDR Bloomberg Barclays High Yield Bond ETF, SPDR Bloomberg Barclays Short Term High Yield Bond ETF and SPDR ICE BofAML Broad 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. |
4. |
With respect to the SPDR Portfolio Aggregate Bond ETF, SPDR Portfolio Short Term Corporate Bond ETF, SPDR Portfolio Intermediate Term Corporate Bond ETF, SPDR Portfolio Long Term Corporate Bond ETF, SPDR Bloomberg Barclays Corporate Bond ETF, SPDR ICE BofAML Broad High Yield Bond ETF, SPDR FTSE International Government Inflation-Protected Bond ETF, SPDR Bloomberg Barclays Emerging Markets Local Bond ETF and SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF, under normal circumstances, invest less than 80% of its net assets, plus the amount of borrowings for investment purposes, in debt securities. Prior to any change in a Funds 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 Portfolio Short Term Treasury ETF, SPDR Bloomberg Barclays Intermediate Term Treasury ETF and SPDR Portfolio Long Term Treasury ETF, under normal circumstances, invest less than 80% of its net assets, plus the amount |
1The SEC Staff considers concentration to involve more than 25% of a funds assets to be invested in an industry or group of industries.
29
of borrowings for investment purposes, in U.S. Treasury securities. Prior to any change in a Funds 80% investment policy, the Fund will provide shareholders with 60 days written notice. |
7. |
With respect to the SPDR Bloomberg Barclays International Treasury Bond ETF and SPDR Bloomberg Barclays Short Term International Treasury Bond ETF, under normal circumstances, invest less than 80% of its net assets, plus the amount of borrowings for investment purposes, in government bonds. Prior to any change in the Funds 80% investment policy, the Fund will provide shareholders with 60 days written notice. |
8. |
With respect to the SPDR Bloomberg Barclays TIPS ETF and SPDR Bloomberg Barclays 1-10 Year TIPS ETF, under normal circumstances, invest less than 80% of its net assets, plus the amount of borrowings for investment purposes, in inflation-indexed debt securities issued by the U.S. Treasury Department and backed by the full faith and credit of the U.S. Government. Prior to any change in the Funds 80% investment policy, the Fund will provide shareholders with 60 days written notice. |
9. |
With respect to the SPDR Bloomberg Barclays Mortgage Backed Bond ETF, invest, under normal circumstances, less than 80% of its net assets, plus the amount of borrowings for investment purposes, in mortgage backed bonds. Prior to any change in this 80% investment policy, the Fund will provide shareholders with 60 days written notice. For purposes of this policy, TBA Transactions are considered mortgage backed securities. |
10. |
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. |
11. |
With respect to the SPDR Bloomberg Barclays Investment Grade Floating Rate ETF, invest, under normal circumstances, less than 80% of its net assets, plus the amount of borrowings for investment purposes, in investment grade floating rate securities. Prior to any change in the Funds 80% investment policy, the Fund will provide shareholders with 60 days written notice. |
12. |
With respect to the SPDR Bloomberg Barclays International Corporate Bond ETF, SPDR Portfolio Short Term Corporate Bond ETF, SPDR Portfolio Intermediate Term Corporate Bond ETF, SPDR Portfolio Long Term Corporate Bond ETF, SPDR Bloomberg Barclays Corporate Bond ETF and SPDR ICE BofAML Broad High Yield Bond ETF, invest, under normal circumstances, less than 80% of its net assets, plus the amount of borrowings for investment purposes, in corporate bonds. Prior to any change in this 80% investment policy, the Fund will provide shareholders with 60 days written notice. |
13. |
With respect to SPDR Global Dow ETF and SPDR Portfolio Short Term Corporate Bond ETF, each Fund will not invest in securitized instruments (including asset-backed securities, mortgage-backed securities, or asset-backed commercial paper) or sweep excess cash into any non-governmental money market fund. |
14. |
With respect to the SPDR S&P 500 Fossil Fuel Reserves Free ETF, under normal circumstances invest less than 80% of its net assets, plus the amount of borrowings for investment purposes, in securities of companies that do not own fossil fuel reserves. Prior to any change in the Funds 80% investment policy, the Fund will provide shareholders with 60 days written notice. |
15. |
With respect to the SPDR S&P Technology Hardware ETF, under normal circumstances invest less than 80% of its net assets, plus the amount of borrowings for investment purposes, in securities of technology hardware companies. Prior to any change in the Funds 80% investment policy, the Fund will provide shareholders with 60 days written notice. |
16. |
With respect to the SPDR S&P Internet ETF, under normal circumstances invest less than 80% of its net assets, plus the amount of borrowings for investment purposes, in securities of internet companies. Prior to any change in the Funds 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 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).
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 the Funds total assets at the time of the loan, and (3) enter into reverse repurchase agreements. However, under normal circumstances any borrowings by a Fund will not exceed 10% of the Funds total assets. The 1940 Act generally prohibits funds from issuing senior securities, although it
30
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 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. 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 consider the suspension of trading in, and may initiate delisting proceedings of, the Shares of a Fund under any of the following circumstances: (i) if any of the continued listing requirements set forth in the Exchange rules are not continuously maintained; (ii) if the Exchange files separate proposals under Section 19(b) of the Securities Exchange Act of 1934, as amended, and any of the statements or representations regarding (a) the description of the Index, portfolio, or reference asset; (b) limitations on the Index or the Funds portfolio holdings or reference assets; or (c) the applicability of the Exchange listing rules specified in such proposals are not continuously maintained; (iii) if following the initial 12-month period beginning at the commencement of trading of the Fund, there are fewer than 50 record or beneficial owners of the Shares of the Fund; (iv) if the value of the Funds underlying index or portfolio of securities on which the Fund is based is no longer calculated or available; or (v) such other event shall occur or condition shall exist that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. If the Intraday Indicative Value of a Fund is not being disseminated as required by Exchange rules, the Exchange may halt trading during the day in which such interruption occurs. If the interruption persists past the trading day in which it occurred, the Exchange will halt trading in the Fund Shares. The Exchange will remove the Shares from listing and trading upon termination of a Fund. The Trust reserves the right to adjust the Fund 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.
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 or an investors equity interest in 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, Sub-Advisers, 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
31
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., a Sub-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 and, if applicable, Sub-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 and Sub-Adviser provide 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.
The Board is responsible for overseeing the nature, extent and quality of the services provided to the Funds by the Adviser and Sub-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 and Sub-Advisory Agreement with the Adviser and Sub-Adviser, respectively, the Board meets with the Adviser and Sub-Adviser to review such services. Among other things, the Board regularly considers the Advisers and Sub-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 and any Sub-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 and Sub-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 a Funds Adviser, Sub-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.
32
Trustees and Officers. There are seven members of the Board of Trustees, six 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.
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 One Iron Street Boston, MA 02210 1943 |
Independent Trustee, Chairman, Trustee Committee Chair |
Term: Unlimited Served: since September 2000 | Retired. | [ ] | None. | |||||
BONNY EUGENIA BOATMAN c/o SPDR Series Trust One Iron Street Boston, MA 02210 1950 |
Independent Trustee | Term: Unlimited Served: since April 2010 | Retired. | [ ] | None. | |||||
DWIGHT D. CHURCHILL c/o SPDR Series Trust One Iron Street Boston, MA 02210 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 One Iron Street Boston, MA 02210 1952 |
Independent Trustee, Audit Committee Chair |
Term: Unlimited Served: since April 2010 |
Self-employed consultant since 2009. |
[ ] | The Motley Fool Funds Trust (Trustee). |
33
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 |
|||||
CLARE S. RICHER c/o SPDR Series Trust One Iron Street Boston, MA 02210 1958 |
Independent Trustee |
Term: Unlimited Served: since July 2018 |
Chief Financial Officer, Putnam Investments LLC (December 2008 May 2017). | [ ] | Putnam Acquisition Financing Inc. (Director); Putnam Acquisition Financing LLC (Director); Putnam GP Inc. (Director); Putnam Investor Services, Inc. (Director); Putnam Investments Limited (Director); University of Notre Dame (Trustee). | |||||
SANDRA G. SPONEM c/o SPDR Series Trust One Iron Street Boston, MA 02210 1958 |
Independent Trustee |
Term: Unlimited Served: since July 2018 |
Chief Financial Officer, M.A. Mortenson Companies, Inc. (February 2007 April 2017). | [ ] | Guggenheim / Rydex Funds (Trustee). | |||||
INTERESTED TRUSTEE |
||||||||||
JAMES E. ROSS* SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 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. |
34
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. One Iron Street Boston, MA 02210 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. One Iron Street Boston, MA 02210 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. One Iron Street Boston, MA 02210 1969 |
Vice President |
Term: Unlimited Served: since February 2005 |
Managing Director, State Street Global Advisors (2005 -present).* | |||
SEAN OMALLEY SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 1969 |
Chief Legal Officer |
Term: Unlimited Served: since August 2019 |
Senior Vice President and Deputy General Counsel, State Street Global Advisors (November 2013 -Present). | |||
ANDREW DELORME SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 1975 |
Secretary |
Term: Unlimited Served: since August 2019 |
Vice President and Senior Counsel, State Street Global Advisors (April 2016 - present); Vice President and Counsel, State Street Global Advisors (August 2014 - March 2016). | |||
JAMES GOUNDREY SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 1977 |
Assistant Secretary |
Term: Unlimited Served: since August 2019 |
Vice President and Senior Counsel, State Street Global Advisors (April 2019-Present); Vice President and Counsel, State Street Global Advisors (August 2015-April 2019); Attorney, MFS Investment Management (March 2012-August 2015). | |||
KEVIN MORRIS SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 1982 |
Assistant Secretary |
Term: Unlimited Served: since August 2019 |
Vice President and Senior Counsel, State Street Global Advisors (April 2019-Present); Vice President and Counsel, State Street Global Advisors (January 2016-April 2019); Director, Asset Management Compliance, Fidelity Investments (June 2015-January 2016); Senior Compliance Advisor, Asset Management Compliance, Fidelity Investments (June 2012-June 2015). | |||
DAVID URMAN SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 1985 |
Assistant Secretary |
Term: Unlimited Served: since August 2019 |
Vice President and Senior Counsel, State Street Global Advisors (April 2019-Present); Vice President and Counsel, State Street Global Advisors (August 2015-April 2019); Associate, Ropes & Gray LLP (November 2012-August 2015). |
35
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 |
|||
BRUCE S. ROSENBERG SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 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. One Iron Street Boston, MA 02210 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. One Iron Street Boston, MA 02210 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 1966 |
Deputy Treasurer |
Term: Unlimited Served: since August 2017 |
Vice President at State Street Global Advisors (July 2016 - present); Deputy Treasurer of Elfun Funds (July 2016 - present); Treasurer of State Street Institutional Funds, State Street Variable Insurance Series Funds, Inc. and GE Retirement Savings Plan Funds (June 2011 - present); Treasurer of Elfun Funds (June 2011 - July 2016); Mutual Funds Controller of GE Asset Management Incorporated (April 2011 - July 2016); Senior Vice President at Citigroup (2008 - 2010); Vice President at JPMorgan (2005 - 2008). | |||
DANIEL FOLEY SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 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. One Iron Street Boston, MA 02210 1980 |
Assistant Treasurer |
Term: Unlimited Served: since May 2017 |
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (May 2015 - present); Officer, State Street Bank and Trust Company (March 2009 - May 2015). | |||
SUJATA UPRETI SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 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). |
36
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. One Iron Street Boston, MA 02210 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). |
* |
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 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 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 Ms. Richer should serve as Trustee because of the experience she gained serving as the Chief Financial Officer of a large financial services and investment management company, her knowledge of the financial services industry and her experience serving on the board of a major educational institution. Ms. Richer was appointed to serve as Trustee of the Trust in July 2018.
The Board has concluded that Ms. Sponem should serve as Trustee because of the experience she gained serving as the Chief Financial Officer of a large financial services company, her knowledge of the financial services industry and her experience serving on the board of another investment company. Ms. Sponem was appointed to serve as Trustee of the Trust in July 2018.
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).
37
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 Active Trust and SPDR Index Shares Funds (together with the Trust, the Trusts) pay, in the aggregate, each Independent Trustee an annual fee of $245,000 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 $60,000 and the Chairman of the Audit Committee receives an additional annual fee of $30,000. 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, 2019.
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
|
||||||||||
Frank Nesvet |
$ | [ | ] | N/A | N/A | $[ ] | ||||||||
Bonny Boatman |
$ | [ | ] | N/A | N/A | $[ ] | ||||||||
Dwight Churchill |
$ | [ | ] | N/A | N/A | $[ ] | ||||||||
David Kelly(2) |
$ | [ | ] | N/A | N/A | $[ ] | ||||||||
Clare Richer |
$ | [ | ] | N/A | N/A | $[ ] | ||||||||
Sandra Sponem |
$ | [ | ] | N/A | N/A | $[ ] | ||||||||
Carl Verboncoeur |
$ | [ | ] | N/A | N/A | $[ ] |
(1) |
The Fund Complex includes the Trust. |
(2) |
Effective August 22, 2018, Mr. Kelly resigned from his position as Trustee and no longer serves as a trustee to 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 five (5) times during the fiscal year ended June 30, 2019.
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, 2019.
38
OWNERSHIP OF FUND SHARES
As of December 31, 2018, neither the Independent Trustees nor their immediate family members owned beneficially or of record any securities in the Adviser, Sub-Advisers, Principal Underwriter or any person directly or indirectly controlling, controlled by, or under common control with the Adviser, Sub-Adviser or Principal Underwriter.
The following table shows, as of December 31, 2018, 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] | |||
Bonny Eugenia Boatman |
[None] | [None] | [None] | |||
Dwight D. Churchill |
[SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF] |
[Over $100,000] | [Over $100,000] | |||
Clare Richer |
[None] | [None] | [None] | |||
Sandra Sponem |
[SPDR Bloomberg Barclays High Yield Bond ETF] | [$50,001-$100,000] | [$50,000-$100,000] | |||
Carl G. Verboncoeur |
[SPDR S&P Dividend ETF] [SPDR S&P 600 Small Cap Value ETF] |
[$10,001 - $50,000] [$10,001 - $50,000] |
[$10,001 - $50,000] | |||
Interested Trustee: |
||||||
James E. Ross |
[SPDR Portfolio Large Cap] [SPDR S&P Biotech ETF] [SPDR S&P Dividend ETF] [SPDR Portfolio Small Cap ETF] [SPDR Portfolio Mid Cap ETF] [SPDR Dow Jones REIT ETF] [SPDR S&P 400 Mid Cap Growth ETF] [SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF] |
[Over $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] [Over $100,000] |
[Over $100,000] |
CODES OF ETHICS
The Trust, the Adviser (which includes applicable reporting personnel of the Distributor) and the Sub-Advisers each have adopted a Code of Ethics pursuant to Rule 17j-1 of the 1940 Act, which is designed to prevent affiliated persons of the Trust, the Adviser, the Sub-Advisers 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, other than the Municipal Bond ETFs, which are sub-advised by Nuveen Asset Management, LLC (Nuveen Asset Management), and the SPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local Bond ETF, for which it has delegated responsibility to their sub-adviser, State Street Global Advisors Limited (SSGA LTD). Each of the Trusts and the Advisers proxy voting policy is attached at the end of this SAI. SSGA LTDs proxy voting policy is substantially and materially the same as the Advisers proxy voting policy. 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.
39
PROXY VOTING POLICIESMunicipal Bond ETFs
The Municipal Bond ETFs invest their assets primarily in municipal bonds and cash management securities. On rare occasions a Fund may acquire, directly or through a special purpose vehicle, securities of a municipal bond issuer whose bonds the Fund already owns when such bonds have deteriorated or are expected shortly to deteriorate significantly in credit quality. The purpose of acquiring equity securities generally will be to seek to maximize the value of the existing holdings, prevent the credit deterioration or facilitate the liquidation or other workout of the distressed issuers credit problem. In the course of these activities, Nuveen Asset Management may pursue the Funds interests in a variety of ways, which may entail negotiating and executing consents, agreements and other arrangements, and otherwise influencing the management of the issuer. Nuveen Asset Management does not consider such activities proxy voting for purposes of Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended.
In the rare event that a municipal issuer were to issue a proxy or that a Fund were to receive a proxy issued by a cash management security, Nuveen Asset Management would either engage an independent third party to determine how the proxy should be voted or vote the proxy with the consent, or based on the instructions, of the Funds Board or its representative. A member of Nuveen Asset Managements legal department would oversee the administration of the voting, and ensure that records were maintained in accordance with Rule 206(4)-6, reports were filed with the SEC on Form N-PX, and the results provided to the Funds Board and made available to shareholders as required by applicable rules.
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 National Securities Clearing Corporation (NSCC). The basket represents one Creation Unit of a Fund. The Trust, the Adviser, the Sub-Advisers 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 oversight of the Board, is responsible for the investment management of each Fund. As of June 30, 2019, the Adviser managed approximately $[ ] billion in assets. The Advisers principal address is One Iron Street, Boston, Massachusetts 02210. The Adviser, a Massachusetts corporation, is a wholly-owned subsidiary of State Street Global Advisors, Inc., which is itself 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 oversight 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
40
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.
Under the Advisory Agreement, the Adviser performs certain oversight and supervisory functions with respect to Nuveen Asset Management and SSGA LTD as sub-advisers to their respective Funds, including: (i) conduct periodic analysis and review of the performance by Nuveen Asset Management and SSGA LTD of their obligations to their respective Funds and provide periodic reports to the Board regarding such performance; (ii) review any changes to Nuveen Asset Management and SSGA LTDs ownership, management, or personnel responsible for performing its obligations to their respective Funds; and make appropriate reports to the Board (iii) perform periodic due diligence meetings with representatives of Nuveen Asset Management and SSGA LTD; and (iv) assist the Board and management of the Trust, as applicable, concerning the initial approval, continued retention or replacement of Nuveen Asset Management and SSGA LTD as sub-advisers to their respective Funds.
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, 2019.
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. 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 |
FISCAL YEAR
ENDED JUNE 30, 2019 |
FISCAL YEAR
ENDED JUNE 30, 2018 |
FISCAL YEAR
ENDED JUNE 30, 2017 |
|||||||||
SPDR Russell 1000 Yield Focus ETF |
$ | [ | ] | $ | 804,344 | $ | 770,325 | |||||
SPDR Russell 1000 Momentum Focus ETF |
$ | [ | ] | $ | 1,083,435 | $ | 812,777 | |||||
SPDR Russell 1000 Low Volatility Focus ETF |
$ | [ | ] | $ | 906,702 | $ | 826,631 | |||||
SPDR S&P 500 Buyback ETF |
$ | [ | ] | $ | 43,531 | $ | 27,773 | |||||
SPDR Portfolio S&P 500 Growth ETF |
$ | [ | ] | $ | 885,816 | $ | 1,091,853 | |||||
SPDR Portfolio S&P 500 Value ETF |
$ | [ | ] | $ | 430,277 | $ | 464,797 | |||||
SPDR Portfolio S&P 500 High Dividend ETF |
$ | [ | ] | $ | 260,990 | $ | 112,198 | |||||
SPDR S&P 500 Fossil Fuel Reserves Free ETF(1) |
$ | [ | ] | $ | 550,795 | $ | 296,860 | |||||
SPDR Portfolio Mid Cap ETF |
$ | [ | ] | $ | 236,621 | $ | 145,378 | |||||
SPDR S&P 400 Mid Cap Growth ETF |
$ | [ | ] | $ | 1,550,163 | $ | 719,585 | |||||
SPDR S&P 400 Mid Cap Value ETF |
$ | [ | ] | $ | 1,067,022 | $ | 472,479 | |||||
SPDR S&P 600 Small Cap ETF |
$ | [ | ] | $ | 1,292,443 | $ | 940,692 | |||||
SPDR S&P 600 Small Cap Growth ETF |
$ | [ | ] | $ | 2,063,671 | $ | 1,540,725 | |||||
SPDR S&P 600 Small Cap Value ETF |
$ | [ | ] | $ | 1,705,859 | $ | 1,222,769 | |||||
SPDR Global Dow ETF(2) |
$ | [ | ] | $ | 467,945 | $ | 422,673 | |||||
SPDR Dow Jones REIT ETF |
$ | [ | ] | $ | 6,684,794 | $ | 8,482,929 | |||||
SPDR S&P Bank ETF |
$ | [ | ] | $ | 13,391,452 | $ | 10,030,790 | |||||
SPDR S&P Capital Markets ETF |
$ | [ | ] | $ | 479,096 | $ | 298,223 | |||||
SPDR S&P Insurance ETF |
$ | [ | ] | $ | 2,957,259 | $ | 2,853,108 | |||||
SPDR S&P Regional Banking ETF |
$ | [ | ] | $ | 15,218,198 | $ | 10,411,394 | |||||
SPDR NYSE Technology ETF |
$ | [ | ] | $ | 3,029,645 | $ | 2,099,497 | |||||
SPDR S&P Dividend ETF |
$ | [ | ] | $ | 55,156,768 | $ | 52,345,043 | |||||
SPDR S&P Aerospace & Defense ETF |
$ | [ | ] | $ | 3,785,360 | $ | 1,403,409 | |||||
SPDR S&P Biotech ETF |
$ | [ | ] | $ | 15,597,612 | $ | 9,526,978 | |||||
SPDR S&P Health Care Equipment ETF |
$ | [ | ] | $ | 749,676 | $ | 306,270 | |||||
SPDR S&P Health Care Services ETF |
$ | [ | ] | $ | 334,694 | $ | 464,904 | |||||
SPDR S&P Homebuilders ETF |
$ | [ | ] | $ | 3,494,977 | $ | 3,862,148 | |||||
SPDR S&P Internet ETF |
$ | [ | ] | $ | 21,602 | $ | 16,322 | |||||
SPDR S&P Metals & Mining ETF |
$ | [ | ] | $ | 2,983,848 | $ | 2,840,227 | |||||
SPDR S&P Oil & Gas Equipment & Services ETF |
$ | [ | ] | $ | 1,180,987 | $ | 984,138 | |||||
SPDR S&P Oil & Gas Exploration & Production ETF |
$ | [ | ] | $ | 8,537,605 | $ | 7,186,916 | |||||
SPDR S&P Pharmaceuticals ETF |
$ | [ | ] | $ | 1,377,399 | $ | 1,685,345 | |||||
SPDR S&P Retail ETF |
$ | [ | ] | $ | 1,482,838 | $ | 1,782,342 |
41
FUND |
FISCAL YEAR
ENDED JUNE 30, 2019 |
FISCAL YEAR
ENDED JUNE 30, 2018 |
FISCAL YEAR
ENDED JUNE 30, 2017 |
|||||||||
SPDR S&P Semiconductor ETF |
$ | [ | ] | $ | 1,158,100 | $ | 967,737 | |||||
SPDR S&P Software Services ETF |
$ | [ | ] | $ | 218,016 | $ | 184,704 | |||||
SPDR S&P Technology Hardware ETF |
$ | [ | ] | $ | 13,353 | $ | 17,199 | |||||
SPDR S&P Telecom ETF |
$ | [ | ] | $ | 313,851 | $ | 187,465 | |||||
SPDR S&P Transportation ETF |
$ | [ | ] | $ | 736,013 | $ | 758,218 | |||||
SPDR S&P 1500 Value Tilt ETF |
$ | [ | ] | $ | 15,864 | $ | 7,994 | |||||
SPDR S&P 1500 Momentum Tilt ETF |
$ | [ | ] | $ | 29,166 | $ | 20,478 | |||||
SPDR Wells Fargo Preferred Stock ETF |
$ | [ | ] | $ | 2,464,879 | $ | 2,401,089 | |||||
SPDR MSCI USA StrategicFactors ETF |
$ | [ | ] | $ | 119,136 | $ | 27,571 | |||||
SPDR FactSet Innovative Technology ETF |
$ | [ | ] | $ | 50,105 | $ | 43,108 | |||||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
$ | [ | ] | $ | 3,139,830 | $ | 2,240,899 | |||||
SPDR Bloomberg Barclays TIPS ETF |
$ | [ | ] | $ | 1,621,686 | $ | 1,227,190 | |||||
SPDR Bloomberg Barclays 1-10 Year TIPS ETF |
$ | [ | ] | $ | 268,895 | $ | 112,545 | |||||
SPDR Portfolio Short Term Treasury ETF |
$ | [ | ] | $ | 159,596 | $ | 145,799 | |||||
SPDR Bloomberg Barclays Intermediate Term Treasury ETF |
$ | [ | ] | $ | 649,184 | $ | 480,602 | |||||
SPDR Portfolio Long Term Treasury ETF |
$ | [ | ] | $ | 492,616 | $ | 485,764 | |||||
SPDR Portfolio Short Term Corporate Bond ETF(3) |
$ | [ | ] | $ | 2,927,734 | $ | 4,097,554 | |||||
SPDR Portfolio Intermediate Term Corporate Bond ETF |
$ | [ | ] | $ | 2,255,514 | $ | 2,015,670 | |||||
SPDR Portfolio Long Term Corporate Bond ETF |
$ | [ | ] | $ | 232,530 | $ | 243,942 | |||||
SPDR Bloomberg Barclays Corporate Bond ETF |
$ | [ | ] | $ | 34,131 | $ | 46,543 | |||||
SPDR Bloomberg Barclays Convertible Securities ETF |
$ | [ | ] | $ | 16,698,852 | $ | 12,378,236 | |||||
SPDR Bloomberg Barclays Mortgage Backed Bond ETF(4) |
$ | [ | ] | $ | 410,364 | $ | 606,746 | |||||
SPDR Portfolio Aggregate Bond ETF(5) |
$ | [ | ] | $ | 840,724 | $ | 970,399 | |||||
SPDR Nuveen Bloomberg Barclays Municipal Bond ETF(6) |
$ | [ | ] | $ | 7,662,297 | $ | 6,227,896 | |||||
SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF |
$ | [ | ] | $ | 7,182,123 | $ | 6,499,090 | |||||
SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF(7) |
$ | [ | ] | $ | 2,738,754 | $ | 2,682,871 | |||||
SPDR FTSE International Government Inflation-Protected Bond ETF |
$ | [ | ] | $ | 2,752,446 | $ | 2,745,232 | |||||
SPDR Bloomberg Barclays Short Term International Treasury Bond ETF |
$ | [ | ] | $ | 853,292 | $ | 635,441 | |||||
SPDR Bloomberg Barclays International Treasury Bond ETF |
$ | [ | ] | $ | 8,071,734 | $ | 7,434,721 | |||||
SPDR Bloomberg Barclays International Corporate Bond ETF |
$ | [ | ] | $ | 1,171,655 | $ | 748,510 | |||||
SPDR Bloomberg Barclays Emerging Markets Local Bond ETF(8) |
$ | [ | ] | $ | 1,736,088 | $ | 721,657 | |||||
SPDR Bloomberg Barclays High Yield Bond ETF |
$ | [ | ] | $ | 44,673,717 | $ | 47,185,386 | |||||
SPDR Bloomberg Barclays Short Term High Yield Bond ETF |
$ | [ | ] | $ | 16,635,585 | $ | 14,254,376 | |||||
SPDR Bloomberg Barclays Investment Grade Floating Rate ETF |
$ | [ | ] | $ | 2,862,199 | $ | 1,231,142 | |||||
SPDR ICE BofAML Broad High Yield Bond ETF (9) |
$ | [ | ] | $ | 226,429 | $ | 156,153 |
(1) |
For the fiscal years ended June 30, 2019, June 30, 2018 and June 30, 2017, the Adviser reimbursed the Fund in the amounts of $[ ], $110,159 and $59,372, respectively. |
(2) |
For the fiscal years ended June 30, 2017 and June 30, 2016 the Adviser reimbursed the Fund in the amount of $[] and $116, respectively. |
(3) |
For the fiscal years ended June 30, 2019, June 30, 2018 and June 30, 2017 the Adviser reimbursed the Fund in the amounts of $[ ], $[ ] and $9,118, respectively. |
(4) |
For the fiscal years ended June 30, 2019, June 30, 2018 and June 30, 2017, the Adviser reimbursed the Fund in the amounts of $[ ], $21,891 and $60,848, respectively. |
42
(5) |
For the fiscal years ended June 30, 2019, June 30, 2018 and June 30, 2017 the Adviser reimbursed the Fund in the amounts of $[ ], $[ ] and $333, respectively. |
(6) |
For the fiscal years ended June 30, 2019, June 30, 2018 and June 30, 2017, the Adviser reimbursed the Fund in the amounts of $[ ], $1,842,027 and $1,485,747, respectively. |
(7) |
For the fiscal years ended June 30, 2019, June 30, 2018 and June 30, 2017, the Adviser reimbursed the Fund in the amounts of $[ ], $287,823 and $276,519, respectively. |
(8) |
For the fiscal year ended June 30, 2019 and June 30, 2018 the Adviser reimbursed the Fund in the amount of $[ ] and $19,675, respectively. |
(9) |
For the fiscal years ended June 30, 2019, June 30, 2018 and June 30, 2017, the Adviser reimbursed the Fund in the amounts of $[ ], $59,334 and $39,482, respectively. |
From time to time, the Adviser may waive all or a portion of its fee. [The Adviser has contractually agreed to waive a portion of its management fee and/or reimburse expenses in an amount equal to any acquired fund fees and expenses (excluding holdings in acquired funds for cash management purposes, if any) for each Fund until October 31, 2020. Additionally, for certain Funds the Adviser has contractually agreed to waive a portion of its management fee and/or reimburse certain expenses, until October 31, 2020, so that the net annual Fund operating expenses, before application of any fees and expenses not paid by the Adviser pursuant to the Investment Advisory Agreement, if any, are limited to a percentage of a Funds average daily net assets, as indicated in the table below. Each contractual fee waiver and/or reimbursement does not provide for the recoupment by the Adviser of any fees the Adviser previously waived. The Adviser may continue each waiver and/or reimbursement from year to year, but there is no guarantee that the Adviser will do so and each waiver and/or reimbursement may be cancelled or modified at any time after October 31, 2020. Each waiver and/or reimbursement may not be terminated prior to October 31, 2020 except with the approval of the Funds Board of Trustees.]
Fund |
Expense Limitation
(as a % of average daily net assets) |
|
[SPDR S&P Fossil Fuel Reserves Free ETF] |
[0.20]% | |
[SPDR Nuveen Bloomberg Barclays Municipal Bond ETF] |
[0.23]% |
Pursuant to the Advisory Agreement between the Funds and the Adviser, the Adviser is authorized to engage one or more sub-advisers for the performance of any of the services contemplated to be rendered by the Adviser. The Adviser has engaged the following sub-advisers.
INVESTMENT SUB-ADVISER- Municipal Bond ETFs
The Adviser has retained Nuveen Asset Management as sub-adviser, to be responsible for the day to day management of the Municipal Bond ETFs investments, subject to supervision of the Adviser and the Board. The Adviser provides administrative, compliance and general management services to the Municipal Bond ETFs. Nuveen Asset Management offers advisory and investment management services to a broad range of mutual fund clients and has extensive experience in managing municipal securities. As of June 30, 2019, Nuveen Asset Management managed approximately $[] billion in assets. Nuveen Asset Managements principal business address is [333 West Wacker Drive, Chicago, Illinois 60606]. Nuveen Asset Management is a subsidiary of Nuveen Fund Advisors, LLC, which is a subsidiary of Nuveen, LLC (Nuveen).
Nuveen is the asset management division of Teachers Insurance and Annuity Association of America (TIAA). TIAA is a leading financial services provider that provides a wide range of financial solutions, including investing, banking, advice and education, and retirement services. TIAA was originally founded in 1918 by the Carnegie Foundation for the Advancement of Teaching.
In accordance with the Sub-Advisory Agreement between the Adviser and Nuveen Asset Management, the Adviser pays Nuveen Asset Management an annual investment sub-advisory fee equal to 45% of the advisory fees paid by the Municipal Bond ETFs to the Adviser after deducting the payments to fund service providers and fund expenses. For the past three fiscal years ended June 30, the Adviser paid the following amounts to Nuveen Asset Management for its services:
FUND |
2019 | 2018 | 2017 | |||||||||
SPDR Nuveen Bloomberg Barclays Municipal Bond ETF |
$ | [ | ] | $ | 2,010,608 | $ | 1,562,945 | |||||
SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF |
$ | [ | ] | $ | 2,535,230 | $ | 2,094,043 | |||||
SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF |
$ | [ | ] | $ | 950,780 | $ | 933,901 |
43
A discussion regarding the basis for the Boards approval of the Sub-Advisory Agreement is available in the Trusts Annual Report to Shareholders for the period ending June 30, 2019.
INVESTMENT SUB-ADVISERSPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local Bond ETF.
The Adviser has retained SSGA LTD, as sub-adviser, to be responsible for the day to day management of the SPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local Bond ETFs investments, subject to supervision of the Adviser and the Board. The Adviser provides administrative, compliance and general management services to the SPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local Bond ETF. Since 1990, SSGA LTD has been providing investment management services including managing indexed fixed income portfolios. As of June 30, 2019, SSGA LTD managed approximately $[ ] billion in assets. SSGA LTDs principal business address is [20 Churchill Place, Canary Wharf, London E14 5HJ, United Kingdom].
In accordance with the Sub-Advisory Agreement between the Adviser and SSGA LTD, the Adviser will pay SSGA LTD an annual investment sub-advisory fee equal to 40% of the advisory fees paid by the SPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local Bond ETF to the Adviser after deducting the payments to fund service providers and fund expenses. For the past three fiscal years ended June 30, the Adviser paid the following amounts to SSGA LTD for its services:
FUND* |
2019 | 2018 | 2017 | |||||||||
SPDR Bloomberg Barclays International Corporate Bond ETF |
$ | [ | ] | $ | 288,147 | $ | 192,157 | |||||
SPDR Bloomberg Barclays Emerging Markets Local Bond ETF |
$ | [ | ] | $ | 495,173 | $ | 128,354 |
A discussion regarding the basis for the Boards approval of the Sub-Advisory Agreement is available in the Trusts Annual Report to Shareholders for the period ended June 30, 2019.
PORTFOLIO MANAGERS
The Adviser manages the Funds, Nuveen Asset Management manages the Municipal Bond ETFs, and SSGA LTD manages the SPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local Bond ETF 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 Amy Cheng |
SPDR S&P Technology Hardware ETF | |
Michael Feehily, Karl Schneider and David Chin |
SPDR S&P 600 Small Cap Growth ETF SPDR S&P 600 Small Cap Value ETF |
|
Michael Feehily, Karl Schneider and John Law |
SPDR Russell 1000 Yield Focus ETF SPDR S&P 1500 Momentum Tilt ETF SPDR S&P 1500 Value Tilt ETF SPDR Portfolio S&P 500 High Dividend ETF SPDR MSCI USA StrategicFactors ETF |
|
Michael Feehily, Karl Schneider and Raymond Donofrio |
SPDR S&P Homebuilders ETF SPDR S&P Biotech ETF SPDR S&P Metals & Mining ETF SPDR S&P Insurance ETF SPDR S&P Internet ETF SPDR S&P Health Care Services ETF |
|
Michael Feehily, Karl Schneider and Michael Finocchi |
SPDR S&P Telecom ETF SPDR S&P Transportation ETF SPDR FactSet Innovative Technology ETF |
|
Michael Feehily, Karl Schneider and Ted Janowsky |
SPDR S&P Retail ETF |
|
Michael Feehily, Karl Schneider and Melissa Kapitulik |
SPDR S&P Software & Services ETF |
44
Portfolio Management Team |
Fund |
|
SPDR S&P Oil & Gas Equipment & Services ETF SPDR S&P Bank ETF |
||
Michael Feehily, Karl Schneider and Mark Krivitsky |
SPDR Portfolio S&P 500 Value ETF SPDR Portfolio S&P 500 Growth ETF SPDR Portfolio Mid Cap ETF SPDR S&P 600 Small Cap ETF |
|
Michael Feehily, Karl Schneider and Kathleen Morgan |
SPDR NYSE Technology ETF SPDR Global Dow ETF |
|
Michael Feehily, Karl Schneider and Kala ODonnell |
SPDR S&P Semiconductor ETF SPDR S&P Health Care Equipment ETF SPDR S&P Capital Markets ETF SPDR S&P Regional Banking ETF |
|
Michael Feehily, Karl Schneider and Emiliano Rabinovich |
SPDR Russell 1000 Momentum Focus ETF SPDR Russell 1000 Low Volatility Focus ETF SPDR S&P Dividend ETF |
|
Michael Feehily, Karl Schneider and Keith Richardson |
SPDR S&P Aerospace & Defense ETF SPDR S&P Pharmaceuticals ETF |
|
Michael Feehily, Karl Schneider and Amy Scofield |
SPDR Wells Fargo Preferred Stock ETF | |
Michael Feehily, Karl Schneider and Juan Acevedo |
SPDR S&P 400 Mid Cap Value ETF SPDR S&P 400 Mid Cap Growth ETF |
|
Michael Feehily, Karl Schneider and Daniel TenPas |
SPDR Dow Jones REIT ETF | |
Michael Feehily, Karl Schneider and John Law |
SPDR S&P 500 Fossil Fuel Reserves Free ETF SPDR S&P 500 Buyback ETF |
|
Michael Feehily, Karl Schneider and Olga Winner |
SPDR S&P Oil & Gas Exploration & Production ETF | |
Todd Bean and Sean Lussier |
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF | |
Cynthia Moy, James Kramer and Orhan Imer |
SPDR Bloomberg Barclays 1-10 Year TIPS ETF | |
SPDR Bloomberg Barclays TIPS ETF | ||
SPDR FTSE International Government Inflation-Protected Bond ETF | ||
Joanna Madden, Cynthia Moy and Orhan Imer |
SPDR Portfolio Short Term Treasury ETF | |
SPDR Bloomberg Barclays Intermediate Term Treasury ETF | ||
SPDR Portfolio Long Term Treasury ETF | ||
Joanna Madden, James Kramer and Orhan Imer |
SPDR Bloomberg Barclays International Treasury Bond ETF | |
SPDR Bloomberg Barclays Short Term International Treasury Bond ETF | ||
Marc DiCosimo, Michael Przygoda and Nicholas Fischer |
SPDR Bloomberg Barclays Mortgage Backed Bond ETF | |
SPDR Portfolio Aggregate Bond ETF | ||
Michael Brunell and Christopher DiStefano |
SPDR Bloomberg Barclays Convertible Securities ETF | |
Michael Brunell, Kyle Kelly and Christopher DiStefano |
SPDR Bloomberg Barclays Corporate Bond ETF | |
Michael Brunell, Kyle Kelly and Bradley Sullivan |
SPDR Bloomberg Barclays High Yield Bond ETF | |
SPDR Bloomberg Barclays Short Term High Yield Bond ETF | ||
SPDR ICE BofAML Broad High Yield Bond ETF | ||
Timothy T. Ryan and Steven M. Hlavin |
Municipal Bond ETFs | |
Kyle Kelly, Christopher DiStefano and Frank Miethe |
SPDR Portfolio Short Term Corporate Bond ETF | |
SPDR Portfolio Intermediate Term Corporate Bond ETF | ||
SPDR Portfolio Long Term Corporate Bond ETF |
45
SPDR Bloomberg Barclays Investment Grade Floating Rate ETF | ||
Richard Darby-Dowman, Paul Brown and Peter Spano | SPDR Bloomberg Barclays International Corporate Bond ETF | |
Abhishek Kumar, Peter Spano, Jonathan Camissar and Robert Golcher. | SPDR Bloomberg Barclays Emerging Markets Local Bond ETF |
All ETFs except Municipal Bond ETFs, SPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local 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, 2019
Portfolio Manager |
Registered
Investment Company Accounts |
Assets
Managed (billions)* |
Other
Pooled Investment Vehicle Accounts |
Assets
Managed (billions)* |
Other
Accounts |
Assets
Managed (billions)* |
Total
Assets Managed (billions) |
|||||||
Michael Feehily | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Karl Schneider | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Amy Cheng | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
David Chin | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Raymond Donofrio | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Michael Finocchi | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Ted Janowsky | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Melissa Kapitulik | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Mark Krivitsky | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
John Law | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Kathleen Morgan | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Kala ODonnell | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Emiliano Rabinovich | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Keith Richardson | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Amy Scofield | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Daniel TenPas | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Olga Winner | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Todd Bean | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Sean Lussier | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Michael Brunell | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Marc DiCosimo | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Christopher DiStefano | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Nicholas Fischer | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Orhan Imer | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Kyle Kelly | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
James Kramer | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Joanna Madden | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Frank Miethe | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Cynthia Moy | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Michael Przygoda | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Bradley Sullivan | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] | |||||||
Juan Acevedo | [ ] | $[ ] | [ ] | $[ ] | [ ] | $[ ] | $[ ] |
[* There are no performance-based fees associated with these accounts.]
[None of the portfolio managers listed above beneficially owned Shares as of June 30, 2019, except as noted in the table below:]
46
Portfolio Manager |
Fund |
Dollar Range of Trust
Shares Beneficially Owned |
||
Michael Feehily |
[ ] | $[ ] | ||
Olga Winner |
[ ] | $[ ] |
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.
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.
Incentive pool funding for most active investment teams is driven in part by the post-tax investment performance of fund(s) managed by the team versus the return levels of the benchmark index(es) of the fund(s) on a one-, three- and, in some cases, five-year basis. For most active investment teams, a material portion of incentive compensation for senior staff is deferred over a four-year period into the SSGA Long-Term Incentive (SSGA LTI) program. For these teams, The SSGA LTI program indexes the performance of these deferred awards against the post-tax investment performance of fund(s) managed by the team. This is intended to align our investment teams compensation with client interests, both through annual incentive compensation awards and through the long-term value of deferred awards in the SSGA LTI program.
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.
47
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 vest 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. |
|
Seeking to recognize and preserve the firms unique culture and team orientation. |
|
Providing all employees the opportunity to share in the success of SSGA. |
Municipal Bond ETFs. The following table lists the number and types of other accounts managed by each of the key professionals primarily involved in the day-to-day portfolio management for each Municipal Bond ETF 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, 2019:
Portfolio Manager |
Registered
Investment Company Accounts |
Assets
Managed (billions)* |
Other
Pooled Investment Vehicle Accounts |
Assets
Managed (billions)* |
Other
Accounts |
Assets
Managed (millions)* |
Total
Assets Managed (billions) |
|||||||||||||||||||||
Timothy T. Ryan |
[ | ] | $[ | ] | [ | ] | $[ | ] | [ | ] | $[ | ] | $[ | ] | ||||||||||||||
Steven M. Hlavin |
[ | ] | $[ | ] | [ | ] | $[ | ] | [ | ] | $[ | ] | $[ | ] |
* |
There are no performance-based fees associated with these accounts. |
The portfolio managers listed above did not beneficially own any interests of any Fund as of June 30, 2019.
Compensation. Portfolio manager compensation at Nuveen Asset Management consists primarily of base pay, an annual cash bonus and long-term incentive payments.
Base pay is determined based upon an analysis of the portfolio managers general performance, experience, and market levels of base pay for such position.
The portfolio managers are eligible for an annual cash bonus determined based on the particular portfolio managers investment performance, qualitative evaluation and financial performance of Nuveen Asset Management.
A portion of each portfolio managers annual cash bonus is based on a funds pre-tax investment performance, generally measured over the past one-, three- or five-year periods unless the portfolio managers tenure is shorter. Investment performance for each fund generally is determined by evaluating the funds performance relative to its benchmark(s) and/or Lipper industry peer group.
A portion of the cash bonus is based on a qualitative evaluation made by each portfolio managers supervisor taking into consideration a number of factors, including the portfolio managers team collaboration, expense management, support of personnel responsible for asset growth, and his or her compliance with Nuveen Asset Managements policies and procedures.
The final factor influencing a portfolio managers cash bonus is the financial performance of Nuveen Asset Management based on its operating earnings.
48
Certain key employees of Nuveen Asset Management, including certain portfolio managers, have received profits interests in Nuveen Asset Management which entitle their holders to participate in the firms growth over time.
Material Conflicts of Interest. Actual or apparent conflicts of interest may arise when a portfolio manager has day-to-day management responsibilities with respect to more than one account. More specifically, portfolio managers who manage multiple accounts are presented a number of potential conflicts, including, among others, those discussed below.
The management of multiple accounts may result in a portfolio manager devoting unequal time and attention to the management of each account. Nuveen Asset Management seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most accounts managed by a portfolio manager in a particular investment strategy are managed using the same investment models.
If a portfolio manager identifies a limited investment opportunity which may be suitable for more than one account, an account may not be able to take full advantage of that opportunity due to an allocation of filled purchase or sale orders across all eligible accounts. To deal with these situations, Nuveen Asset Management has adopted procedures for allocating limited opportunities across multiple accounts.
With respect to many of its clients accounts, Nuveen Asset Management determines which broker to use to execute transaction orders, consistent with its duty to seek best execution of the transaction. However, with respect to certain other accounts, Nuveen Asset Management may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Nuveen Asset Management may place separate, non-simultaneous, transactions for a Fund and other accounts which may temporarily affect the market price of the security or the execution of the transaction, or both, to the detriment of the Fund or the other accounts.
Some clients are subject to different regulations. As a consequence of this difference in regulatory requirements, some clients may not be permitted to engage in all the investment techniques or transactions or to engage in these transactions to the same extent as the other accounts managed by the portfolio manager. Finally, the appearance of a conflict of interest may arise where Nuveen Asset Management has an incentive, such as a performance-based management fee, which relates to the management of some accounts, with respect to which a portfolio manager has day-to-day management responsibilities.
Nuveen Asset Management has adopted certain compliance procedures which are designed to address these types of conflicts common among investment managers. However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.
SPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local Bond ETF. The following table lists the number and types of other accounts managed by each of the key professionals primarily involved in the day-to-day portfolio management for the SPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local Bond ETF 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, 2019:
Portfolio Manager |
Registered
Investment Company Accounts |
Assets
Managed (billions)* |
Other
Pooled Investment Vehicle Accounts |
Assets
Managed (billions)* |
Other
Accounts |
Assets
Managed (billions)* |
Total
Assets Managed (billions) |
|||||||||||||||||||||
Paul Brown |
[ | ] | $[ | ] | [ | ] | $[ | ] | [ | ] | $[ | ] | $[ | ] | ||||||||||||||
Richard Darby-Dowman |
[ | ] | $[ | ] | [ | ] | $[ | ] | [ | ] | $[ | ] | $[ | ] | ||||||||||||||
Abhishek Kumar |
[ | ] | $[ | ] | [ | ] | $[ | ] | [ | ] | $[ | ] | $[ | ] | ||||||||||||||
Peter Spano |
[ | ] | $[ | ] | [ | ] | $[ | ] | [ | ] | $[ | ] | $[ | ] | ||||||||||||||
Jonathan Camissar |
[ | ] | $[ | ] | [ | ] | $[ | ] | [ | ] | $[ | ] | $[ | ] | ||||||||||||||
Robert Golcher |
[ | ] | $[ | ] | [ | ] | $[ | ] | [ | ] | $[ | ] | $[ | ] |
[* There are no performance-based fees associated with these accounts.]
[The portfolio managers listed above did not beneficially own any interests of any Fund as of June 30, 2019.]
49
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.
Incentive pool funding for most active investment teams is driven in part by the post-tax investment performance of fund(s) managed by the team versus the return levels of the benchmark index(es) of the fund(s) on a one-, three- and, in some cases, five-year basis. For most active investment teams, a material portion of incentive compensation for senior staff is deferred over a four-year period into the SSGA Long-Term Incentive (SSGA LTI) program. For these teams, The SSGA LTI program indexes the performance of these deferred awards against the post-tax investment performance of fund(s) managed by the team. This is intended to align our investment teams compensation with client interests, both through annual incentive compensation awards and through the long-term value of deferred awards in the SSGA LTI program.
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 vest 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. |
|
Seeking to recognize and preserve the firms unique culture and team orientation. |
|
Providing all employees the opportunity to share in the success of SSGA. |
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 fund. 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. SSGA LTD 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 discipline, and do not, absent special circumstances, differentiate among the various accounts when allocating resources. Additionally, SSGA LTD and its advisory affiliates have processes and procedures for allocating investment opportunities among portfolios that are designed to provide a fair and equitable allocation.
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
50
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 Fund. 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 the 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. This conflict may be heightened if an account is subject to a performance-based fee. 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. SSGA LTD 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, SSGA LTD and its advisory affiliates have processes and procedures for allocating investment opportunities among portfolios that are designed to provide a fair and equitable allocation.
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), which were accrued daily and paid monthly by the Adviser out of its management fee.
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 Iron Street, Boston, Massachusetts 02210.
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 its services provided under the SSGA Administration agreement, SSGA FM, shall receive fees for the services, calculated based on the average aggregate net assets of the Trust and SIS, which are accrued daily and paid monthly out of its management fee.
As compensation for its services under the Sub-Administration Agreement, Custodian Agreement and Transfer Agency Agreement, State Street shall receive a fee for the services, calculated based on the average aggregate net assets of the Trust and SIS, which are accrued daily and paid monthly by the Adviser from its management fee. For each series of the Trust and SIS, an annual minimum fee applies. 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 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.
SECURITIES LENDING ACTIVITIES
51
The Trusts Board has approved each Funds participation in a securities lending program. Under the securities lending program, each Fund has retained State Street to serve as the securities lending agent.
For the fiscal year ended June 30, 2019, the income earned by each Fund as well as the fees and/or compensation paid by each Fund (in dollars) pursuant to the Master Amended and Restated Securities Lending Authorization Agreement among SPDR Series Trust, SPDR Index Shares Funds and SSGA Active Trust, each on behalf of its respective series, and State Street (the Securities Lending Authorization Agreement) were as follows:
Fees and/or compensation paid by the Fund for securities lending activities and
related services |
||||||||||||||||||||||||||||||||||||
Gross
income earned by the Fund from securities lending activities |
Fees paid
to State Street from a revenue split |
Fees paid for
any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in a revenue split |
Administrative
fees not included in a revenue split |
Indemnification
fees not included in a revenue split |
Rebate
(paid to borrower) |
Other fees
not included in a revenue split |
Aggregate
fees and/or compensation paid by the Fund for securities lending activities and related services |
Net income
from securities lending activities |
||||||||||||||||||||||||||||
SPDR Russell 1000 Yield Focus ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Russell 1000 Momentum Focus ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Russell 1000 Low Volatility Focus ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR S&P 500 Buyback ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Portfolio S&P 500 Growth ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Portfolio S&P 500 Value ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Portfolio S&P 500 High Dividend ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR S&P 500 Fossil Fuel Reserves Free ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Portfolio Mid Cap 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 |
|
$[
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]
|
|
$[
|
]
|
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$[
|
]
|
|
$[
|
]
|
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$[
|
]
|
|
$[
|
]
|
|
$[
|
]
|
|
$[
|
]
|
|
$[
|
]
|
52
Fees and/or compensation paid by the Fund for securities lending activities and
related services |
||||||||||||||||||||||||||||||||||||
Gross
income earned by the Fund from securities lending activities |
Fees paid
to State Street from a revenue split |
Fees paid for
any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in a revenue split |
Administrative
fees not included in a revenue split |
Indemnification
fees not included in a revenue split |
Rebate
(paid to borrower) |
Other fees
not included in a revenue split |
Aggregate
fees and/or compensation paid by the Fund for securities lending activities and related services |
Net income
from securities lending activities |
||||||||||||||||||||||||||||
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 ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR NYSE 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 Internet ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR S&P Metals & Mining ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR S&P Oil & Gas Equipment & Services ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] |
53
Fees and/or compensation paid by the Fund for securities lending activities and
related services |
||||||||||||||||||||||||||||||||||||
Gross
income earned by the Fund from securities lending activities |
Fees paid
to State Street from a revenue split |
Fees paid for
any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in a revenue split |
Administrative
fees not included in a revenue split |
Indemnification
fees not included in a revenue split |
Rebate
(paid to borrower) |
Other fees
not included in a revenue split |
Aggregate
fees and/or compensation paid by the Fund for securities lending activities and related services |
Net income
from securities lending activities |
||||||||||||||||||||||||||||
SPDR S&P Oil & Gas Exploration & Production ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR S&P Pharmaceuticals ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR S&P Retail ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR S&P Semiconductor ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ]7 | $[ | ] | ||||||||||||||||||
SPDR S&P Software Services ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR S&P Technology Hardware 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 Wells Fargo Preferred Stock ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR MSCI USA StrategicFactors ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR FactSet Innovative Technology ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] |
54
Fees and/or compensation paid by the Fund for securities lending activities and
related services |
||||||||||||||||||||||||||||||||||||
Gross
income earned by the Fund from securities lending activities |
Fees paid
to State Street from a revenue split |
Fees paid for
any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in a revenue split |
Administrative
fees not included in a revenue split |
Indemnification
fees not included in a revenue split |
Rebate
(paid to borrower) |
Other fees
not included in a revenue split |
Aggregate
fees and/or compensation paid by the Fund for securities lending activities and related services |
Net income
from securities lending activities |
||||||||||||||||||||||||||||
SPDR Bloomberg Barclays TIPS ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Bloomberg Barclays 1-10 Year TIPS ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Portfolio Short Term Treasury ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Bloomberg Barclays Intermediate Term Treasury ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Portfolio Long Term Treasury ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Portfolio Short Term Corporate Bond ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Portfolio Intermediate Term Corporate Bond ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Portfolio Long Term Corporate Bond ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Bloomberg Barclays Corporate Bond ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Bloomberg Barclays Convertible Securities ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Bloomberg Barclays Mortgage Backed Bond ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Portfolio Aggregate Bond ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] |
55
Fees and/or compensation paid by the Fund for securities lending activities and
related services |
||||||||||||||||||||||||||||||||||||
Gross
income earned by the Fund from securities lending activities |
Fees paid
to State Street from a revenue split |
Fees paid for
any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in a revenue split |
Administrative
fees not included in a revenue split |
Indemnification
fees not included in a revenue split |
Rebate
(paid to borrower) |
Other fees
not included in a revenue split |
Aggregate
fees and/or compensation paid by the Fund for securities lending activities and related services |
Net income
from securities lending activities |
||||||||||||||||||||||||||||
SPDR Nuveen Bloomberg Barclays Municipal Bond ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | ||||||||||||||||||
SPDR FTSE 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 |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] |
56
Fees and/or compensation paid by the Fund for securities lending activities and
related services |
||||||||||||||||||||||||||||||||||||
Gross
income earned by the Fund from securities lending activities |
Fees paid
to State Street from a revenue split |
Fees paid for
any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in a revenue split |
Administrative
fees not included in a revenue split |
Indemnification
fees not included in a revenue split |
Rebate
(paid to borrower) |
Other fees
not included in a revenue split |
Aggregate
fees and/or compensation paid by the Fund for securities lending activities and related services |
Net income
from securities lending activities |
||||||||||||||||||||||||||||
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 ICE BofAML Broad High Yield Bond ETF |
$[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] | $[ | ] |
For the fiscal year ended June 30, 2019, State Street, acting as agent of the Funds, provided the following services to the Funds in connection with the Funds securities lending activities: (i) locating borrowers among an approved list of prospective borrowers; (ii) causing the delivery of loaned securities from a Fund to borrowers; (iii) monitoring the value of loaned securities, the value of collateral received, and other lending parameters; (iv) seeking additional collateral, as necessary, from borrowers; (v) receiving and holding collateral from borrowers, and facilitating the investment and reinvestment of all or substantially all cash collateral in an investment vehicle designated by the Funds; (vi) returning collateral to borrowers; (vii) facilitating substitute dividend, interest, and other distribution payments to the Funds from borrowers; (viii) negotiating the terms of each loan of securities, including but not limited to the amount of any loan premium, and monitoring the terms of securities loan agreements with prospective borrowers for consistency with the requirements of the Funds Securities Lending Authorization Agreement; (ix) selecting securities, including amounts (percentages), to be loaned; (x) recordkeeping and accounting services; and (xi) arranging for return of loaned securities to the Fund in accordance with the terms of the Securities Lending Authorization Agreement.
THE DISTRIBUTOR
State Street Global Advisors Funds Distributors, LLC is the principal underwriter and Distributor of Shares. Its principal address is One Iron Street, Boston, Massachusetts 02210. 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, as amended (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
57
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 whereby they may make payments, other than for the educational programs and marketing activities described above, to Charles Schwab & Co., Inc. (Schwab), Pershing LLC (Pershing), RBC Capital Markets, LLC (RBC), TD Ameritrade, Inc. (TD Ameritrade), Morgan Stanley Wealth Management, LLC (MSWM), National Financial Services, LLC and Fidelity Brokerage Services, LLC (together, Fidelity). Pursuant to these arrangements, Schwab, Pershing, RBC, TD Ameritrade, MSWM and Fidelity have agreed to offer 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. These amounts, which may be significant, are paid by the Adviser and/or Distributor from their own resources and not from Fund assets. Payments to a broker-dealer or intermediary may create potential conflicts of interest between the broker dealer or intermediary and its clients. 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 continuation of the Distribution Agreement and any other related agreements is subject to annual approval of the Board, including by a majority of the Independent Trustees, as described above.
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.
All portfolio transactions are placed on behalf of the Funds by the Adviser. Purchases and sales of securities on a securities exchange are affected through brokers who charge a commission for their services. Ordinarily commissions are not charged on over the counter orders (e.g., fixed income securities) because the Funds pay a spread which is included in the cost of the security and represents the difference between the dealers quoted price at which it is willing to sell the security and the dealers quoted price at which it is willing to buy the security. When a Fund executes an over the counter order with an electronic communications network or an alternative trading system, a commission is charged because electronic communications networks and alternative trading systems execute such orders on an agency basis. Securities may be purchased from underwriters at prices that include underwriting fees.
58
In placing a portfolio transaction, the Adviser seeks to achieve best execution. The Advisers duty to seek best execution requires the Adviser to take reasonable steps to obtain for the client as favorable an overall result as possible for Fund portfolio transactions under the circumstances, taking into account various factors that are relevant to the particular transaction.
The Adviser refers to and selects from the list of approved trading counterparties maintained by the Advisers Credit Risk Management team. In selecting a trading counterparty for a particular trade, the Adviser seeks to weigh relevant factors including, but not limited to the following:
|
Prompt and reliable execution; |
|
The competitiveness of commission rates and spreads, if applicable; |
|
The financial strength, stability and/or reputation of the trading counterparty; |
|
The willingness and ability of the executing trading counterparty to execute transactions (and commit capital) of size in liquid and illiquid markets without disrupting the market for the security; |
|
Local laws, regulations or restrictions; |
|
The ability of the trading counterparty to maintain confidentiality; |
|
The availability and capability of execution venues, including electronic communications networks for trading and execution management systems made available to Adviser; |
|
Market share; |
|
Liquidity; |
|
Price; |
|
Execution related costs; |
|
History of execution of orders; |
|
Likelihood of execution and settlement; |
|
Order size and nature; |
|
Clearing and settlement capabilities, especially in high volatility market environments; |
|
Availability of lendable securities; |
|
Sophistication of the trading counterpartys trading capabilities and infrastructure/facilities; |
|
The operational efficiency with which transactions are processed and cleared, taking into account the order size and complexity; |
|
Speed and responsiveness to the Adviser; |
|
Access to secondary markets; |
|
Counterparty exposure; and |
|
Any other consideration the Adviser believes is relevant to the execution of the order. |
In selecting a trading counterparty, the price of the transaction and costs related to the execution of the transaction typically merit a high relative importance, depending on the circumstances. The Adviser does not necessarily select a trading counterparty based upon price and costs but may take other relevant factors into account if it believes that these are important in taking reasonable steps to obtain the best possible result for a Fund under the circumstances. Consequently, the Adviser may cause a client to pay a trading counterparty more than another trading counterparty might have charged for the same transaction in recognition of the value and quality of the brokerage services provided. The following matters may influence the relative importance that the Adviser places upon the relevant factors:
(i) The nature and characteristics of the order or transaction. For example, size of order, market impact of order, limits, or other instructions relating to the order;
(ii) The characteristics of the financial instrument(s) or other assets which are the subject of that order. For example, whether the order pertains to an equity, fixed income, derivative or convertible instrument;
(iii) The characteristics of the execution venues to which that order can be directed, if relevant. For example, availability and capabilities of electronic trading systems;
59
(iv) Whether the transaction is a delivery versus payment or over the counter transaction. The creditworthiness of the trading counterparty, the amount of existing exposure to a trading counterparty and trading counterparty settlement capabilities may be given a higher relative importance in the case of over the counter transactions; and
(v) Any other circumstances relevant the Adviser believes is relevant at the time.
The process by which trading counterparties are selected to effect transactions is designed to exclude consideration of the sales efforts conducted by broker-dealers in relation to the Funds.
The Adviser does not currently use the Funds assets in connection with third party soft dollar arrangements. While the Adviser does not currently use soft or commission dollars paid by the Funds for the purchase of third party research, the Adviser reserves the right to do so in the future.
Nuveen. Nuveen Asset Management is responsible for decisions to buy and sell securities for certain Funds, the negotiation of the prices to be paid or received for principal trades, and the allocation of its transactions among various dealer firms. Portfolio securities will normally be purchased directly from an underwriter in a new issue offering or in the over-the-counter secondary market from the principal dealers in such securities, unless it appears that a better price or execution may be obtained elsewhere. Portfolio securities will not be purchased from Nuveen Asset Management or its affiliates except in compliance with the 1940 Act.
Nuveen Asset Management expects that substantially all portfolio transactions will be effected on a principal (as opposed to an agency) basis and, accordingly, do not expect to pay significant amounts of brokerage commissions. Brokerage will not be allocated based on the sale of a Funds shares. Purchases from underwriters will include a commission or concession paid by the issuer to the underwriter, and purchases from dealers will include the spread between the bid and asked price. It is the policy of Nuveen Asset Management to seek the best execution under the circumstances of each trade. Nuveen Asset Management evaluates price as the primary consideration, with the financial condition, reputation and responsiveness of the dealer considered secondarily in determining best execution. Given the best execution obtainable, it may be Nuveen Asset Managements practice to select dealers that, in addition, furnish research information (primarily credit analyses of issuers and general economic reports) and statistical and other services to Nuveen Asset Management. It is not possible to place a dollar value on information and statistical and other services received from dealers. Since it is only supplementary to Nuveen Asset Managements own research efforts, the receipt of research information is not expected to reduce significantly Nuveen Asset Managements expenses. For certain secondary market transactions where the execution capability of two brokers is judged to be of substantially similar quality, Nuveen Asset Management may randomly select one of them. Nuveen Asset Management may manage other investment companies and investment accounts for other clients that have investment objectives similar to certain Funds. Subject to applicable laws and regulations, Nuveen Asset Management seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell securities by a Fund and another advisory account. In making such allocations the main factors to be considered will be the respective investment objectives, the relative size of the portfolio holdings of the same or comparable securities, the availability of cash for investment or need to raise cash, and the size of investment commitments generally held. While this procedure could have a detrimental effect on the price or amount of the securities (or, in the case of dispositions, the demand for securities) available to a Fund from time to time, Nuveen Asset Management believes that the benefits available will outweigh any disadvantage that may arise from exposure to simultaneous transactions.
The table below shows the aggregate dollar amount of brokerage commissions paid by the Equity ETFs and SPDR Bloomberg Barclays Convertible Securities ETF for the past three 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(1) |
FISCAL YEAR
ENDED JUNE 30, 2019 |
FISCAL YEAR
ENDED JUNE 30, 2018 |
FISCAL YEAR
ENDED JUNE 30, 2017 |
|||||||||
SPDR Russell 1000 Yield Focus ETF |
$ | [ | ] | $ | 14,524 | $ | 15,122 | |||||
SPDR Russell 1000 Momentum Focus ETF |
$ | [ | ] | $ | 49,494 | $ | 28,101 | |||||
SPDR Russell 1000 Low Volatility Focus ETF |
$ | [ | ] | $ | 8,217 | $ | 8,661 | |||||
SPDR S&P 500 Buyback ETF |
$ | [ | ] | $ | 848 | $ | 1,487 | |||||
SPDR Portfolio S&P 500 Growth ETF |
$ | [ | ] | $ | 14,936 | $ | 11,484 | |||||
SPDR Portfolio S&P 500 Value ETF |
$ | [ | ] | $ | 12,527 | $ | 6,475 |
60
FUND(1) |
FISCAL YEAR
ENDED JUNE 30, 2019 |
FISCAL YEAR
ENDED JUNE 30, 2018 |
FISCAL YEAR
ENDED JUNE 30, 2017 |
|||||||||
SPDR Portfolio S&P 500 High Dividend ETF | $ | [ | ] | $ | 15,764 | $ | 10,505 | |||||
SPDR S&P 500 Fossil Fuel Reserves Free ETF | $ | [ | ] | $ | 1,016 | $ | 631 | |||||
SPDR Portfolio Mid Cap ETF | $ | [ | ] | $ | 9,075 | $ | 8,648 | |||||
SPDR S&P 400 Mid Cap Growth ETF | $ | [ | ] | $ | 55,137 | $ | 31,050 | |||||
SPDR S&P 400 Mid Cap Value ETF | $ | [ | ] | $ | 53,317 | $ | 27,227 | |||||
SPDR S&P 600 Small Cap ETF | $ | [ | ] | $ | 33,247 | $ | 27,736 | |||||
SPDR S&P 600 Small Cap Growth ETF | $ | [ | ] | $ | 92,597 | $ | 95,323 | |||||
SPDR S&P 600 Small Cap Value ETF | $ | [ | ] | $ | 112,287 | $ | 87,657 | |||||
SPDR Global Dow ETF | $ | [ | ] | $ | 2,617 | $ | 2,958 | |||||
SPDR Dow Jones REIT ETF | $ | [ | ] | $ | 29,035 | $ | 52,317 | |||||
SPDR S&P Bank ETF | $ | [ | ] | $ | 152,585 | $ | 164,226 | |||||
SPDR S&P Capital Markets ETF | $ | [ | ] | $ | 4,125 | $ | 5,036 | |||||
SPDR S&P Insurance ETF | $ | [ | ] | $ | 29,429 | $ | 27,161 | |||||
SPDR S&P Regional Banking ETF | $ | [ | ] | $ | 220,069 | $ | 256,718 | |||||
SPDR NYSE Technology ETF | $ | [ | ] | $ | 21,055 | $ | 7,620 | |||||
SPDR S&P Dividend ETF | $ | [ | ] | $ | 368,763 | $ | 457,150 | |||||
SPDR S&P Aerospace & Defense ETF | $ | [ | ] | $ | 40,478 | $ | 20,474 | |||||
SPDR S&P Biotech ETF | $ | [ | ] | $ | 680,872 | $ | 423,515 | |||||
SPDR S&P Health Care Equipment ETF | $ | [ | ] | $ | 16,672 | $ | 5,624 | |||||
SPDR S&P Health Care Services ETF | $ | [ | ] | $ | 5,759 | $ | 8,426 | |||||
SPDR S&P Homebuilders ETF | $ | [ | ] | $ | 34,117 | $ | 31,531 | |||||
SPDR S&P Internet ETF | $ | [ | ] | $ | 1,068 | $ | 563 | |||||
SPDR S&P Metals & Mining ETF | $ | [ | ] | $ | 96,061 | $ | 172,243 | |||||
SPDR S&P Oil & Gas Equipment & Services ETF | $ | [ | ] | $ | 65,787 | $ | 43,005 | |||||
SPDR S&P Oil & Gas Exploration & Production ETF | $ | [ | ] | $ | 322,146 | $ | 223,839 | |||||
SPDR S&P Pharmaceuticals ETF | $ | [ | ] | $ | 39,310 | $ | 41,350 | |||||
SPDR S&P Retail ETF | $ | [ | ] | $ | 53,853 | $ | 45,004 | |||||
SPDR S&P Semiconductor ETF | $ | [ | ] | $ | 15,650 | $ | 20,230 | |||||
SPDR S&P Software & Services ETF | $ | [ | ] | $ | 3,769 | $ | 2,681 | |||||
SPDR S&P Technology Hardware ETF | $ | [ | ] | $ | 228 | $ | 397 | |||||
SPDR S&P Telecom ETF | $ | [ | ] | $ | 10,572 | $ | 13,105 | |||||
SPDR S&P Transportation ETF | $ | [ | ] | $ | 8,260 | $ | 9,394 | |||||
SPDR S&P 1500 Value Tilt ETF | $ | [ | ] | $ | 255 | $ | 165 | |||||
SPDR S&P 1500 Momentum Tilt ETF | $ | [ | ] | $ | 1,045 | $ | 1,131 | |||||
SPDR Wells Fargo Preferred Stock ETF | $ | [ | ] | $ | 59,135 | $ | 33,203 | |||||
SPDR MSCI USA StrategicFactors ETF | $ | [ | ] | $ | 2,276 | $ | 722 | |||||
SPDR FactSet Innovative Technology ETF | $ | [ | ] | $ | 693 | $ | 1,304 | |||||
SPDR Bloomberg Barclays Convertible Securities ETF |
$ | [ | ] | $ | 20,711 | $ | 3,525 |
Securities of Regular Broker-Dealers. 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, 2019.
[to be provided by subsequent amendment]
Portfolio Turnover. Portfolio turnover may vary from year to year, as well as within a year. The Funds may experience higher portfolio turnover when migrating to a different benchmark index. High turnover rates are likely to result in comparatively greater brokerage expenses or transaction costs. The overall reasonableness of brokerage commissions and transaction costs is evaluated by
61
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 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 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.
62
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 [October 4], 2019, 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 [October 4], 2019, 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 Funds.
[to be provided by subsequent amendment]
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, 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. Except as otherwise set forth in the table below, a Creation Unit of each Equity ETF consists of 50,000 Shares and a Creation Unit of each Fixed Income ETF consists of 100,000 Shares. The Creation Unit size for a Fund may change. Authorized Participants (as defined below) will be notified of such change.
Fund |
Creation Unit Size | |||
SPDR NYSE Technology ETF |
25,000 | |||
SPDR S&P 500 Buyback ETF |
25,000 | |||
SPDR Global Dow ETF |
25,000 | |||
SPDR S&P Capital Markets ETF |
25,000 | |||
SPDR S&P 1500 Momentum Tilt ETF |
25,000 | |||
SPDR Russell 1000 Yield Focus ETF |
10,000 | |||
SPDR Russell 1000 Momentum Focus ETF |
10,000 | |||
SPDR Russell 1000 Low Volatility Focus ETF |
10,000 | |||
SPDR S&P 500 Fossil Fuel Reserves Free ETF |
10,000 | |||
SPDR S&P Health Care Services ETF |
10,000 | |||
SPDR S&P Internet ETF |
10,000 | |||
SPDR S&P Software & Services ETF |
10,000 | |||
SPDR S&P Technology Hardware ETF |
10,000 | |||
SPDR S&P Transportation ETF |
10,000 | |||
SPDR S&P 1500 Value Tilt ETF |
10,000 | |||
SPDR MSCI USA StrategicFactors ETF |
10,000 | |||
SPDR FactSet Innovative Technology ETF |
10,000 | |||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
50,000 | |||
SPDR Bloomberg Barclays Corporate Bond ETF |
50,000 | |||
SPDR Bloomberg Barclays Short Term High Yield Bond ETF |
300,000 | |||
SPDR Bloomberg Barclays High Yield Bond ETF |
500,000 |
63
The principal consideration for creations and redemptions for each Equity ETF is in-kind, although this may be revised at any time without notice. The principal consideration for creations and redemptions for each Fixed Income ETF is set forth in the table below:
FUND |
CREATION* | REDEMPTION* | ||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays TIPS ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays 1-10 Year TIPS ETF |
In-Kind | In-Kind | ||
SPDR Portfolio Short Term Treasury ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays Intermediate Term Treasury ETF |
In-Kind | In-Kind | ||
SPDR Portfolio Long Term Treasury ETF |
In-Kind | In-Kind | ||
SPDR Portfolio Short Term Corporate Bond ETF |
In-Kind | In-Kind | ||
SPDR Portfolio Intermediate Term Corporate Bond ETF |
In-Kind | In-Kind | ||
SPDR Portfolio Long Term Corporate Bond ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays Corporate Bond ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays Convertible Securities ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays Mortgage Backed Bond ETF |
Cash | Cash | ||
SPDR Portfolio Aggregate Bond ETF |
In-Kind** | In-Kind** | ||
SPDR Nuveen Bloomberg Barclays Municipal Bond ETF |
Cash | In-Kind | ||
SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF |
Cash | In-Kind | ||
SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF |
Cash | In-Kind | ||
SPDR FTSE International Government Inflation-Protected Bond ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays Short Term International Treasury Bond ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays International Treasury Bond ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays International Corporate Bond ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays Emerging Markets Local Bond ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays High Yield Bond ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays Short Term High Yield Bond ETF |
In-Kind | In-Kind | ||
SPDR Bloomberg Barclays Investment Grade Floating Rate ETF |
In-Kind | In-Kind | ||
SPDR ICE BofAML Broad 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. |
** |
Cash is to be provided in lieu of TBA positions. |
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
64
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, 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.
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 (except the SPDR Bloomberg Barclays International Treasury Bond ETF and SPDR Bloomberg Barclays Short Term International Treasury Bond ETF), 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
65
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. 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 second Business Day (T+2) after the Order Placement Date. The Settlement Date for the SPDR Global Dow ETF, SPDR Bloomberg Barclays Emerging Markets Local Bond ETF and SPDR FTSE International Government Inflation-Protected Bond ETF is the third Business Day (T+3) after the Order Placement Date. The Settlement Date for the SPDR Bloomberg Barclays TIPS ETF is the first Business Day (T+1) after the Order Placement Date. 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 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 second Business Day following the day on which the purchase order is deemed received by the Distributor. Delivery of Creation Units will occur no later than the third Business Day following the day on which the purchase order is deemed received by the Distributor for the SPDR Global Dow ETF, SPDR Bloomberg Barclays Emerging Markets Local Bond ETF and SPDR FTSE International Government Inflation-Protected Bond ETF. Delivery of Creation Units for the SPDR Bloomberg Barclays TIPS ETF will occur no later than the first Business Day 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
66
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.
With respect to each Fund, the Custodian, through the NSCC, makes available 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 prior to the opening of business 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
67
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 two Business Days, or in the case of the SPDR Global Dow ETF, SPDR Bloomberg Barclays Emerging Markets Local Bond ETF and SPDR FTSE International Government Inflation-Protected Bond ETF within three Business Days, 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 two or three Business Days, as applicable, 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 the Business Day on which the redemption request was submitted, 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.
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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/or the applicable order form, certain Funds may require orders to be placed 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. The cut-off time to receive the trade dates net asset value will not precede the calculation of the net asset value of a Funds shares on the prior Business Day. 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 Russell 1000 Yield Focus ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Russell 1000 Momentum Focus ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Russell 1000 Low Volatility Focus ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR S&P 500 Buyback ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio S&P 500 Growth ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio S&P 500 Value ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio S&P 500 High Dividend ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR S&P 500 Fossil Fuel Reserves Free ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio Mid Cap 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 |
$ | [ | ] | $ | [ | ] |
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FUND |
TRANSACTION
FEE*, ** |
MAXIMUM
TRANSACTION FEE*, ** |
||||||
SPDR S&P Bank ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR S&P Capital Markets ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR S&P Insurance ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR S&P Regional Banking ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR NYSE 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 Internet 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 Technology Hardware 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 MSCI USA StrategicFactors ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Wells Fargo Preferred Stock ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR FactSet Innovative Technology ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Bloomberg Barclays TIPS ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Bloomberg Barclays 1-10 Year TIPS ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio Short Term Treasury ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Bloomberg Barclays Intermediate Term Treasury ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio Long Term Treasury ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio Short Term Corporate Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio Intermediate Term Corporate Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio Long Term Corporate Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Bloomberg Barclays Corporate Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Bloomberg Barclays Convertible Securities ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Bloomberg Barclays Mortgage Backed Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio Aggregate Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Nuveen Bloomberg Barclays Municipal Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR FTSE International Government Inflation-Protected Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Bloomberg Barclays Short Term International Treasury Bond ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Bloomberg Barclays International Treasury Bond ETF |
$ | [ | ] | $ | [ | ] |
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FUND |
TRANSACTION
FEE*, ** |
MAXIMUM
TRANSACTION FEE*, ** |
||||||
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 ICE BofAML Broad High Yield Bond ETF |
$ | [ | ] | $ | [ | ] |
* |
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.
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
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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 each Equity ETF (except SPDR MSCI USA StrategicFactorsSM ETF and SPDR Wells Fargo Preferred Stock ETF), but may vary significantly from period to period. Income dividend distributions, if any, for the SPDR MSCI USA StrategicFactorsSM ETF and SPDR Wells Fargo Preferred Stock ETF are generally distributed to shareholders semi-annually and monthly, respectively, 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 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 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.
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 a 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 a 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 five 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.
As discussed more fully below, each Fund intends to distribute substantially all of its net investment income and its capital gains for each taxable year.
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
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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.
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
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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 50% 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. 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%.
The Municipal Bond ETFs intend to satisfy certain conditions (including requirements as to the proportion of their assets invested in municipal securities) that will enable them to report distributions from the interest income generated by their investments in municipal securities as exempt-interest dividends. Shareholders receiving exempt-interest dividends will not be subject to regular federal income tax on the amount of such dividends, but (as discussed below) exempt-interest dividends may be taken into account in determining shareholders liability under the federal alternative minimum tax. Insurance proceeds received by the Fund under any insurance policies in respect of scheduled interest payments on defaulted municipal securities will generally be correspondingly excludable from federal gross income. In the case of non-appropriation by a political subdivision, however, there can be no assurance that payments made by the insurer representing interest on non-appropriation lease obligations will be excludable from gross income for federal income tax purposes.
Exempt-interest dividends paid by the Municipal Bond ETFs and attributable to interest earned on municipal securities issued by a state or its political subdivisions are generally exempt in the hands of a shareholder from income tax imposed by that state, but exempt-interest dividends attributable to interest on municipal securities issued by another state generally will not be exempt from such income tax.
Distributions by the Municipal Bond ETFs of net interest received from certain taxable temporary investments (such as certificates of deposit, commercial paper and obligations of the U.S. Government, its agencies and instrumentalities) and net short-term capital gains realized by a Municipal Bond ETF, if any, will be taxable to shareholders as ordinary income. If a Municipal Bond ETF purchases a municipal security at a market discount, any gain realized by the Municipal Bond ETF 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.
If you lend your Shares in a Municipal Bond ETF pursuant to a securities lending or similar arrangement, you may lose the ability to treat dividends paid by the Municipal Bond ETF while the Shares are held by the borrower as tax-exempt income. Interest on indebtedness incurred by a shareholder to purchase or carry Shares of the Municipal Bond ETFs will not be deductible for U.S. federal income tax purposes. If a shareholder receives exempt-interest dividends with respect to any share of a Municipal Bond ETF and if the share is held by the shareholder for six months or less, then any loss on the sale or exchange of the share may, to the extent of the exempt-interest dividends, be disallowed. In addition, the Internal Revenue Code may require a shareholder in a Municipal Bond ETF that receives exempt-interest dividends to treat as taxable income a portion of certain otherwise non-taxable social security and railroad retirement benefit payments. Furthermore, a portion of any exempt-interest dividend paid by a Municipal Bond ETF that represents income derived from certain revenue or private activity bonds held by a Municipal Bond ETF may not retain its tax-exempt status in the hands of a shareholder who is a substantial user of a facility financed by such bonds, or a related person thereof. Shareholders should consult their own tax advisers as to whether they are substantial users with respect to a facility or related to such users within the meaning of the Internal Revenue Code.
Federal tax law imposes an alternative minimum tax with respect to individuals. Interest on certain municipal securities that meet the definition of private activity bonds under the Internal Revenue Code is included as an item of tax preference in determining the
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amount of a taxpayers alternative minimum taxable income. To the extent that a Municipal Bond ETF receives income from private activity bonds, a portion of the dividends paid by it, although otherwise exempt from federal income tax, will be taxable to those shareholders subject to the alternative minimum tax regime. The Municipal Bond ETFs will annually supply shareholders with a report indicating the percentage of their income attributable to municipal securities required to be included in calculating the federal alternative minimum tax.
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).
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
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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 value of Shares could be reduced 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.
Certain investments made by a Fund may be treated as equity in passive foreign investment companies or PFICs for federal income tax purposes. In general, a passive foreign investment company is a foreign corporation (i) that receives at least 75% of its annual gross income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or (ii) where at least 50% of its assets (computed based on average fair market value) either produce or are held for the production of passive income. 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 a PFIC, 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. Under proposed Treasury Regulations, certain income derived by a Fund for a taxable year from a PFIC with respect to which the Fund has made a qualified electing fund election would generally constitute qualifying income only to the extent the PFIC makes distributions in respect of that income to the Fund for that taxable year. The Funds may limit and/or manage their holdings in PFICs to limit their tax liability or maximize their returns from these investments.
If a sufficient portion of the interests in a foreign issuer are held or deemed held by a Fund, independently or together with certain other U.S. persons, that issuer may be treated as a controlled foreign corporation (a CFC) with respect to the Fund, in which case the Fund will be required to take into account each year, as ordinary income, its share of certain portions of that issuers income, whether or not such amounts are distributed. A Fund may have to dispose of its portfolio securities (potentially resulting in the recognition of taxable gain or loss, and potentially under disadvantageous circumstances) to generate cash, or may have to borrow the
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cash, to meet its distribution requirements and avoid Fund-level taxes. Under proposed Treasury Regulations, certain income derived by a Fund from a CFC for a taxable year would generally constitute qualifying income only to the extent the CFC makes distributions in respect of that income to the Fund for that taxable year. In addition, some Fund gains on the disposition of interests in such an issuer may be treated as ordinary income. A Fund may limit and/or manage its holdings in issuers that could be treated as CFCs in order to limit its tax liability or maximize its after-tax return 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.
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.
Noncorporate taxpayers are generally eligible for a deduction of up to 20% of qualified REIT dividends. A Fund will not be able to claim such a deduction in respect of any REIT dividends it receives, and shareholders will not be able to claim such a deduction in respect of Fund dividends attributable to any REIT dividends.
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.
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Certain tax-exempt educational institutions will be subject to a 1.4% tax on net investment income. For these purposes, certain dividends and capital gain distributions, and certain gains from the disposition of fund shares (among other categories of income), are generally taken into account in computing a shareholders net investment income.
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.
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. 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 21%, 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 24%. 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
79
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).
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.
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.
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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 One Iron Street, Boston, Massachusetts 02210.
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.
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LOCAL MARKET HOLIDAY SCHEDULES
The Trust generally intends to effect deliveries of portfolio securities on a basis of T plus two Business Days (i.e., days on which the NYSE is open), or in the case of the SPDR Global Dow ETF, SPDR Bloomberg Barclays Emerging Markets Local Bond ETF and SPDR FTSE International Government Inflation-Protected Bond ETF on a basis of T plus three Business Days, in the relevant foreign market of the Fund. The ability of the Trust to effect in-kind redemptions within two or three Business Days, as applicable, 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 two or three Business Days, as applicable.
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 2019 (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:
Albania |
Argentina |
Australia |
Austria |
Bahrain |
||||
January 1, 2 | January 1 | January 1, 28 | January 1 | January 1 | ||||
March 14, 22 | March 4, 5 | April 19, 22, 25 | April 19, 22 | May 1 | ||||
April 22, 29 | April 18, 19 | June 10 | May 1 | June 4-6 | ||||
May 1 | May 1 | December 24-26, 31 | June 10 | August 11-13 | ||||
June 5 | June 20 | December 24-26, 31 | September 8, 9 | |||||
August 12 | August 19 | December 16, 17 | ||||||
September 5 | October 14 | |||||||
November 28, 29 | November 6, 18 | *The Bahraini market is | ||||||
December 9, 25 | December 25 | closed every Friday | ||||||
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Israel |
Italy |
Japan |
Jordan |
Kenya |
||||
March 21 | January 1 | January 1-3, 14 | May 1 | January 1 | ||||
April 21-25 | April 19, 22 | February 11 | June 4-6 | April 19, 22 | ||||
May 8, 9 | May 1 | March 21 | August 11-14 | May 1 | ||||
June 9 | August 15 | April 29 | December 25 | June 5 | ||||
August 11 | December 24-26, 31 | May 3, 6 | August 12 | |||||
September 29, 30 | July 15 | October 10, 21 | ||||||
October 1, 8, 9, 13-17, 20, 21 |
August 12 September 16, 23 October 14 |
* The Jordanian market is closed every Friday | December 12, 25, 26 | |||||
* The Israeli market is closed every Friday |
November 4 December 31 |
|||||||
Kuwait |
Latvia |
Lithuania |
Malawi |
Malaysia |
||||
January 1 | January 1 | January 1 | January 1, 15 | January 1, 21 | ||||
February 25, 26 | April 19, 22 | March 11 | March 4 | February 1, 4-6 | ||||
April 4 | May 1, 6, 30 | April 19, 22 | April 19, 22 | May 1, 20, 22 | ||||
June 5, 6 | June 24 | May 1, 30 | May 1, 14 | June 4-6 | ||||
August 11-13 | November 18 | June 24 | June 4 | August 12 | ||||
September 1 | December 24-26, 31 | November 1 | July 8 | September 2, 9, 16 | ||||
October 10 | December 24-26, 31 | October 15 | October 28 | |||||
December 25, 26 | December 25 | |||||||
*The Kuwaiti Market is closed every Friday |
||||||||
Mauritius |
Morocco |
Namibia |
New Zealand |
Nigeria |
||||
January 1, 2, 21 | January 1, 11 | January 1 | January 1, 2 | January 1 | ||||
February 1, 5 | May 1 | March 21 | February 6 | April 19, 22 | ||||
March 4, 12 | June 4, 5 | April 19, 22 | April 19, 22, 25 | May 1 | ||||
May 1 | July 30 | May 1, 30 | June 3 | June 4, 5, 12 | ||||
June 5 | August 12-14, 20, 21 | June 17 | October 28 | August 12 | ||||
September 3 | September 2, 6 | August 9, 26 | December 25, 26 | October 1 | ||||
November 1 | November 11, 12 | September 24 | December 25, 26 | |||||
December 25 | December 10, 16, 25, 26 | |||||||
The Netherlands |
Norway |
Oman |
Peru |
The Philippines |
||||
January 1 | January 1 | January 1 | January 1 | January 1 | ||||
April 19, 22 | April 17-19, 22 | April 3 | April 18, 19 | February 5, 25 | ||||
May 1 | May 1, 17, 30 | June 5, 6, 23 | May 1 | April 9, 18, 19 | ||||
December 24-26, 31 | June 10 | August 11-15 | July 29 | May 1 | ||||
December 24-26, 31 | September 1 | August 30 | June 12 | |||||
November 10, 18, 19 | October 8 | August 21, 26 | ||||||
November 1 | November 1 | |||||||
* The Omani market is closed every Friday | December 25 | December 24, 25, 30, 31 | ||||||
Portugal |
Puerto Rico |
Qatar |
Romania |
Russia |
||||
January 1 | January 1, 21 | January 1 | January 1, 2, 24 | January 1-4, 7, 8 | ||||
April 19, 22 | February 18 | February 12 | April 26, 29 | March 8 | ||||
May 1 | April 19 | March 3 | May 1 | May 1-3, 9, 10 | ||||
December 24-26, 31 | May 27 | June 4-6 | June 17 | June 12 | ||||
July 3, 4 | August 11-13 | August 15 | November 4 | |||||
September 2 | December 18 | December 25, 26 | ||||||
October 14 | ||||||||
November 11, 28, 29 | * The Qatari market is | |||||||
December 24, 25 | closed every Friday |
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Saudi Arabia |
Singapore |
South Africa |
South Korea |
Spain |
||||
June 6, 9, 10 | January 1 | January 1 | January 1 | January 1 | ||||
August 12-15 | February 5, 6 | March 21 | February 4-6 | April 19, 22 | ||||
September 23 | April 19 | April 19, 22 | March 1 | May 1 | ||||
* The Saudi Arabian market is closed every Friday |
May 1, 20 | May 1 | May 1, 6 | December 24-26, 31 | ||||
June 5 | June 17 | June 6 | ||||||
August 9, 12 | August 9 | August 15 | ||||||
October 28 | September 24 | September 12, 13 | ||||||
December 25 | December 16, 25, 26 | October 3, 9 | ||||||
December 25 | ||||||||
Sri Lanka |
Sweden |
Switzerland |
Taiwan |
Thailand |
||||
January 1, 15 | January 1 | January 1, 2 | January 1, 31 | January 1 | ||||
February 4, 19 | April 18, 19, 22, 30 | April 19, 22 | February 1, 4-8, 28 | February 19 | ||||
March 4, 20 | May 1, 29, 30 | May 1, 30 | March 1 | April 8, 15, 16 | ||||
April 12, 15, 19 | June 6, 21 | June 10 | April 4, 5 | May 1, 20 | ||||
May 1, 20 | November 1 | August 1 | May 1 | July 16, 29 | ||||
June 5 | December 24-26, 31 | December 24-26, 31 | June 7 | August 12 | ||||
July 16 | September 13 | October 14, 23 | ||||||
August 12, 14 | October 10, 11 | December 5, 10, 31 | ||||||
September 13 |
||||||||
November 11, 12 |
||||||||
December 11, 25 |
||||||||
Turkey |
Uganda |
Ukraine |
The United Arab Emirates |
The United States Bond
|
||||
January 1 | January 1 | January 1, 7 | January 1 | January 1 | ||||
April 23 | March 8 | March 8 | April 3 | February 18 | ||||
May 1 | April 19, 22 | April 29 | June 5, 6 | April 18*, 19 | ||||
June 4-7 | May 1 | May 1, 9 | August 11-14 | May 24*, 27 | ||||
July 15 | June 3, 26 | June 17, 28 | September 1 | July 3*, 4 | ||||
August 12-14, 30 | October 9 | October 15 | November 10 | September 2 | ||||
October 28, 29 | December 25, 26 | December 25 | December 2, 3 | October 14 | ||||
November 11, 28, 29* | ||||||||
December 24*, 25, 31* | ||||||||
* The United Arab Emirates market is closed every Friday | * The U.S. bond market has recommended early close | |||||||
Zambia |
Zimbabwe |
|||||||
January 1 | January 1 | |||||||
March 8, 12 | February 21 | |||||||
April 19, 22 | April 18, 19, 22 | |||||||
May 1 | May 1 | |||||||
July 1, 2 | August 12, 13 | |||||||
August 5 | December 23, 25, 26 | |||||||
October 18, 24 | ||||||||
December 25 |
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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 Fund. In the calendar year 2019 (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:
2019
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
Australia |
04/18/19 | 04/26/19 | 8 | |||
12/19/19 | 12/27/19 | 8 | ||||
12/20/19 | 12/30/19 | 10 | ||||
12/23/19 | 01/02/20 | 10 | ||||
12/27/19 | 01/03/20 | 7 | ||||
12/30/19 | 01/06/20 | 7 | ||||
Brazil |
02/27/19 | 03/07/19 | 8 | |||
02/28/19 | 03/08/19 | 8 | ||||
03/01/19 | 03/11/19 | 10 | ||||
Cyprus |
04/24/19 | 05/02/19 | 8 | |||
04/25/19 | 05/03/19 | 8 | ||||
Eswatini |
04/12/19 | 04/23/19 | 11 | |||
04/15/19 | 04/24/19 | 9 | ||||
04/16/19 | 04/26/19 | 10 | ||||
04/17/19 | 04/29/19 | 12 | ||||
04/18/19 | 04/30/19 | 12 | ||||
04/23/19 | 05/02/19 | 9 | ||||
04/24/19 | 05/03/19 | 9 | ||||
04/26/19 | 05/06/19 | 10 | ||||
04/29/19 | 05/07/19 | 8 | ||||
04/30/19 | 05/08/19 | 8 | ||||
05/23/19 | 05/31/19 | 8 | ||||
05/24/19 | 06/03/19 | 10 | ||||
05/27/19 | 06/04/19 | 8 | ||||
05/28/19 | 06/05/19 | 8 | ||||
05/29/19 | 06/06/19 | 8 | ||||
07/15/19 | 07/23/19 | 8 | ||||
07/16/19 | 07/24/19 | 8 | ||||
07/17/19 | 07/25/19 | 8 | ||||
07/18/19 | 07/26/19 | 8 | ||||
07/19/19 | 07/29/19 | 10 | ||||
08/26/19 | 09/03/19 | 8 | ||||
08/27/19 | 09/04/19 | 8 | ||||
08/28/19 | 09/05/19 | 8 | ||||
08/29/19 | 09/09/19 | 11 | ||||
08/30/19 | 09/10/19 | 11 | ||||
09/03/19 | 09/11/19 | 8 | ||||
09/04/19 | 09/12/19 | 8 | ||||
09/05/19 | 09/13/19 | 8 | ||||
12/18/19 | 12/27/19 | 9 | ||||
12/19/19 | 12/30/19 | 11 | ||||
12/20/19 | 12/31/19 | 11 | ||||
12/23/19 | 01/02/20 | 10 | ||||
12/24/19 | 01/03/20 | 10 |
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Hong Kong |
01/31/19 | 02/08/19 | 8 | |||
02/01/19 | 02/11/19 | 10 | ||||
Hungary |
12/20/19 | 12/30/19 | 10 | |||
12/23/19 | 12/31/19 | 8 | ||||
Indonesia |
05/29/19 | 06/10/19 | 12 | |||
05/31/19 | 06/11/19 | 11 | ||||
Israel |
04/18/19 | 04/28/19 | 10 | |||
10/10/19 | 10/22/19 | 12 | ||||
Japan |
12/26/19 | 01/06/20 | 11 | |||
12/27/19 | 01/07/20 | 11 | ||||
12/30/19 | 01/08/20 | 9 | ||||
Jordan |
08/07/19 | 08/15/19 | 8 | |||
08/08/19 | 08/18/19 | 10 | ||||
Kuwait |
08/06/19 | 08/14/19 | 8 | |||
08/07/19 | 08/15/19 | 8 | ||||
08/08/19 | 08/18/19 | 10 | ||||
Malawi |
01/08/19 | 01/16/19 | 8 | |||
01/09/19 | 01/17/19 | 8 | ||||
01/10/19 | 01/18/19 | 8 | ||||
01/11/19 | 01/21/19 | 10 | ||||
01/14/19 | 01/22/19 | 8 | ||||
02/25/19 | 03/05/19 | 8 | ||||
02/26/19 | 03/06/19 | 8 | ||||
02/27/19 | 03/07/19 | 8 | ||||
02/28/19 | 03/08/19 | 8 | ||||
03/01/19 | 03/11/19 | 10 | ||||
04/12/19 | 04/23/19 | 11 | ||||
04/15/19 | 04/24/19 | 9 | ||||
04/16/19 | 04/25/19 | 9 | ||||
04/17/19 | 04/26/19 | 9 | ||||
04/18/19 | 04/29/19 | 11 | ||||
04/24/19 | 05/02/19 | 8 | ||||
04/25/19 | 05/03/19 | 8 | ||||
04/26/19 | 05/06/19 | 10 | ||||
04/29/19 | 05/07/19 | 8 | ||||
04/30/19 | 05/08/19 | 8 | ||||
05/07/19 | 05/15/19 | 8 | ||||
05/08/19 | 05/16/19 | 8 | ||||
05/09/19 | 05/17/19 | 8 | ||||
05/10/19 | 05/20/19 | 10 | ||||
05/13/19 | 05/21/19 | 8 | ||||
05/28/19 | 06/05/19 | 8 | ||||
05/29/19 | 06/06/19 | 8 | ||||
05/30/19 | 06/07/19 | 8 | ||||
05/31/19 | 06/10/19 | 10 | ||||
06/03/19 | 06/11/19 | 8 | ||||
07/01/19 | 07/09/19 | 8 | ||||
07/02/19 | 07/10/19 | 8 | ||||
07/03/19 | 07/11/19 | 8 |
87
07/04/19 | 07/12/19 | 8 | ||||
07/05/19 | 07/15/19 | 10 | ||||
10/08/19 | 10/16/19 | 8 | ||||
10/09/19 | 10/17/19 | 8 | ||||
10/10/19 | 10/18/19 | 8 | ||||
10/11/19 | 10/21/19 | 10 | ||||
10/14/19 | 10/22/19 | 8 | ||||
12/18/19 | 12/27/19 | 9 | ||||
12/19/19 | 12/30/19 | 11 | ||||
12/20/19 | 12/31/19 | 11 | ||||
12/23/19 | 01/02/20 | 10 | ||||
12/24/19 | 01/03/20 | 10 | ||||
Malaysia |
01/29/19 | 02/07/19 | 9 | |||
01/30/19 | 02/08/19 | 9 | ||||
01/31/19 | 02/11/19 | 11 | ||||
05/30/19 | 06/07/19 | 8 | ||||
05/31/19 | 06/10/19 | 10 | ||||
06/03/19 | 06/11/19 | 8 | ||||
Morocco |
08/07/19 | 08/15/19 | 8 | |||
08/08/19 | 08/16/19 | 8 | ||||
08/09/19 | 08/19/19 | 10 | ||||
11/04/19 | 11/13/19 | 9 | ||||
11/05/19 | 11/14/19 | 9 | ||||
Namibia |
03/14/19 | 03/22/19 | 8 | |||
03/15/19 | 03/25/19 | 10 | ||||
03/18/19 | 03/26/19 | 8 | ||||
03/19/19 | 03/27/19 | 8 | ||||
03/20/19 | 03/28/19 | 8 | ||||
04/12/19 | 04/23/19 | 11 | ||||
04/15/19 | 04/24/19 | 9 | ||||
04/16/19 | 04/25/19 | 9 | ||||
04/17/19 | 04/26/19 | 9 | ||||
04/18/19 | 04/29/19 | 11 | ||||
04/24/19 | 05/02/19 | 8 | ||||
04/25/19 | 05/03/19 | 8 | ||||
04/26/19 | 05/06/19 | 10 | ||||
04/29/19 | 05/07/19 | 8 | ||||
04/30/19 | 05/08/19 | 8 | ||||
05/23/19 | 05/31/19 | 8 | ||||
05/24/19 | 06/03/19 | 10 | ||||
05/27/19 | 06/04/19 | 8 | ||||
05/28/19 | 06/05/19 | 8 | ||||
05/29/19 | 06/06/19 | 8 | ||||
06/10/19 | 06/18/19 | 8 | ||||
06/11/19 | 06/19/19 | 8 | ||||
06/12/19 | 06/20/19 | 8 | ||||
06/13/19 | 06/21/19 | 8 | ||||
06/14/19 | 06/24/19 | 10 | ||||
08/02/19 | 08/12/19 | 10 | ||||
08/05/19 | 08/13/19 | 8 | ||||
08/06/19 | 08/14/19 | 8 | ||||
08/07/19 | 08/15/19 | 8 | ||||
08/08/19 | 08/16/19 | 8 | ||||
08/19/19 | 08/27/19 | 8 |
88
08/20/19 | 08/28/19 | 8 | ||||
08/21/19 | 08/29/19 | 8 | ||||
08/22/19 | 08/30/19 | 8 | ||||
08/23/19 | 09/02/19 | 10 | ||||
09/17/19 | 09/25/19 | 8 | ||||
09/18/19 | 09/26/19 | 8 | ||||
09/19/19 | 09/27/19 | 8 | ||||
09/20/19 | 09/30/19 | 10 | ||||
09/23/19 | 10/01/19 | 8 | ||||
12/03/19 | 12/11/19 | 8 | ||||
12/04/19 | 12/12/19 | 8 | ||||
12/05/19 | 12/13/19 | 8 | ||||
12/06/19 | 12/17/19 | 11 | ||||
12/09/19 | 12/18/19 | 9 | ||||
12/11/19 | 12/19/19 | 8 | ||||
12/12/19 | 12/20/19 | 8 | ||||
12/13/19 | 12/23/19 | 10 | ||||
12/18/19 | 12/27/19 | 9 | ||||
12/19/19 | 12/30/19 | 11 | ||||
12/20/19 | 12/31/19 | 11 | ||||
12/23/19 | 01/02/20 | 10 | ||||
12/24/19 | 01/03/20 | 10 | ||||
New Zealand |
04/18/19 | 04/26/19 | 8 | |||
Norway |
04/15/19 | 04/23/19 | 8 | |||
04/16/19 | 04/24/19 | 8 | ||||
Oman |
08/06/19 | 08/18/19 | 12 | |||
08/07/19 | 08/19/19 | 12 | ||||
08/08/19 | 08/20/19 | 12 | ||||
Philippines |
12/23/19 | 01/02/20 | 10 | |||
12/26/19 | 01/03/20 | 8 | ||||
12/27/19 | 01/06/20 | 10 | ||||
Qatar |
05/30/19 | 06/09/19 | 10 | |||
06/02/19 | 06/10/19 | 8 | ||||
06/03/19 | 06/11/19 | 8 | ||||
08/06/19 | 08/14/19 | 8 | ||||
08/07/19 | 08/15/19 | 8 | ||||
08/08/19 | 08/18/19 | 10 | ||||
Russia |
04/26/19 | 05/06/19 | 10 | |||
04/29/19 | 05/07/19 | 8 | ||||
04/30/19 | 05/08/19 | 8 | ||||
Saudi Arabia |
08/08/19 | 08/18/19 | 10 | |||
08/11/19 | 08/19/19 | 8 | ||||
Taiwan |
01/29/19 | 02/11/19 | 13 | |||
01/30/19 | 02/12/19 | 13 | ||||
Turkey |
05/31/19 | 06/10/19 | 10 | |||
06/03/19 | 06/11/19 | 8 | ||||
United Arab Emirates |
08/07/19 | 08/15/19 | 8 | |||
08/08/19 | 08/18/19 | 10 |
89
Zimbabwe |
04/15/19 | 04/23/19 | 8 | |||
04/16/19 | 04/24/19 | 8 | ||||
04/17/19 | 04/25/19 | 8 | ||||
12/19/19 | 12/27/19 | 8 | ||||
12/20/19 | 12/30/19 | 10 |
* |
These worst-case redemption cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse) redemption cycles are possible. |
90
The financial statements and financial highlights of the Funds that were operating during the year ended June 30, 2019, 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.
91
[Trusts Proxy Voting Policies to be provided by subsequent amendment]
A-1
[SSGA FM Proxy Voting Policies to be provided by subsequent amendment]
B-1
[Nuveen Proxy Voting Policies to be provided by subsequent amendment]
C-1
[Ratings of Debt Instruments to be provided by subsequent amendment]
D-1
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, 2019]
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 prospectus dated [October 31, 2019], as may be revised from time to time (Prospectus).
ETF |
TICKER | |
SPDR Portfolio Total Stock Market ETF |
SPTM | |
SPDR Portfolio Large Cap ETF |
SPLG | |
SPDR Portfolio Small Cap ETF |
SPSM | |
SPDR SSGA US Large Cap Low Volatility Index ETF |
LGLV | |
SPDR SSGA US Small Cap Low Volatility Index ETF |
SMLV | |
SPDR SSGA Gender Diversity Index ETF |
SHE |
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, 2019 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), One Iron Street, Boston, Massachusetts 02210, 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, 2019 are incorporated by reference into this SAI.
1 | ||||
1 | ||||
10 | ||||
13 | ||||
14 | ||||
15 | ||||
25 | ||||
32 | ||||
35 | ||||
36 | ||||
36 | ||||
41 | ||||
42 | ||||
42 | ||||
48 | ||||
48 | ||||
49 | ||||
58 | ||||
A-1 | ||||
B-1 |
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 Portfolio Total Stock Market ETF, SPDR Portfolio Large Cap ETF, SPDR Portfolio Small Cap ETF, SPDR SSGA US Large Cap Low Volatility Index ETF, SPDR SSGA US Small Cap Low Volatility Index ETF and SPDR SSGA Gender Diversity 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, except that a Creation Unit of the SPDR SSGA Gender Diversity Index ETF consists of 25,000 Shares, and a Creation Unit of the SPDR SSGA US Large Cap Low Volatility Index ETF and SPDR SSGA US Small Cap Low Volatility Index ETF consists of 10,000 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 a Fund and, therefore, the securities may constitute a greater portion of the 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 (RIC) for purposes of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and to relieve the 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 the Fund will meet its investment objective.
COMMERCIAL PAPER
1
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 STOCK
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 its Fund Shares). 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 Fund will concentrate its investments in securities of issuers in the same industry as may be necessary to approximate the composition of the Funds underlying Index. 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.
2
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
3
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.
Short Sales Against the Box. The Funds may engage in short sales against the box. In a short sale against the box, a 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.
4
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.
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.
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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
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.
ILLIQUID SECURITIES
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Each Fund may invest in illiquid securities. A Fund may not acquire any illiquid investment if, immediately after the acquisition, the Fund would have invested more than 15% of its net assets in illiquid securities. An illiquid security means any security that a Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. If illiquid securities exceed 15% of the Funds net assets, certain remedial actions will be taken as required by Rule 22e-4 under the 1940 Act and the Funds policies and procedures.
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. Efforts to recall such securities promptly may be unsuccessful, especially for foreign securities or thinly traded securities, and may involve expenses to a Fund. 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 high quality short-term instruments either directly on behalf of the lending Fund or through one or more joint accounts or funds, which may include those managed by the Adviser. A Fund could lose money due to a decline in the value of collateral provided for loaned securities or any investments made with cash collateral. Certain non-cash collateral or investments made with cash collateral may have a greater risk of loss than other non-cash collateral or investments.
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 provides the following services to the Funds in connection with the Funds securities lending activities: (i) locating borrowers among an approved list of prospective borrowers; (ii) causing the delivery of loaned securities from a Fund to borrowers; (iii) monitoring the value of loaned securities, the value of collateral received, and other lending parameters; (iv) seeking additional collateral, as necessary, from borrowers; (v) receiving and holding collateral from borrowers, and facilitating the investment and reinvestment of all or substantially all cash collateral in an investment vehicle designated by the Funds; (vi) returning collateral to borrowers; (vii) facilitating substitute dividend, interest, and other distribution payments to the Funds from borrowers; (viii) negotiating the terms of each loan of securities, including but not limited to the amount of any loan premium, and monitoring the terms of securities loan agreements with prospective borrowers for consistency with the requirements of the Funds Securities Lending Authorization Agreement; (ix) selecting securities, including amounts (percentages), to be loaned; (x) recordkeeping and accounting servicing; and (xi) arranging for return of loaned securities to the Fund in accordance with the terms of the Securities Lending Authorization Agreement. 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
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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. If a securities lending counterparty were to default, a Fund would be subject to the risk of a possible delay in receiving collateral or in recovering the loaned securities, or to a possible loss of rights in the collateral. In the event a borrower does not return a Funds securities as agreed, the Fund may experience losses if the proceeds received from liquidating the collateral do not at least equal the value of the loaned security at the time the collateral is liquidated, plus the transaction costs incurred in purchasing replacement securities. 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. 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
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.
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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 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
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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.
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.
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
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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 stock 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 stock has 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(a)(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.
Certain affiliates of each Fund and the Adviser may purchase and resell or distribute Fund Shares pursuant to the registration statement of which this SAI is a part.
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
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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.
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
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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.
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;
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. |
13
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 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. Under normal circumstances, invest less than 80% of its total assets in securities that comprise its relevant Index.
3. With respect to the SPDR Portfolio Large Cap ETF, under normal circumstances invest less than 80% of its net assets, plus the amount of borrowings for investment purposes, in securities of large-capitalization companies. Prior to any change in the Funds 80% investment policy, the Fund will provide shareholders with 60 days written notice.
4. With respect to the SPDR Portfolio Small Cap ETF, under normal circumstances invest less than 80% of its net assets, plus the amount of borrowings for investment purposes, in securities of small-capitalization companies. Prior to any change in the Funds 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 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).
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 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.
14
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 consider the suspension of trading in, and may initiate delisting proceedings of, the Shares of a Fund under any of the following circumstances: (i) if any of the continued listing requirements set forth in the Exchange rules are not continuously maintained; (ii) if the Exchange files separate proposals under Section 19(b) of the Securities Exchange Act of 1934, as amended, and any of the statements or representations regarding (a) the description of the Index, portfolio, or reference asset; (b) limitations on the Index or the Funds portfolio holdings or reference assets; or (c) the applicability of the Exchange listing rules specified in such proposals are not continuously maintained; (iii) if following the initial 12-month period beginning at the commencement of trading of the Fund, there are fewer than 50 record or beneficial owners of the Shares of the Fund; (iv) if the value of the Funds underlying index or portfolio of securities on which the Fund is based is no longer calculated or available; or (v) such other event shall occur or condition shall exist that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. If the Intraday Indicative Value of a Fund is not being disseminated as required by Exchange rules, the Exchange may halt trading during the day in which such interruption occurs. If the interruption persists past the trading day in which it occurred, the Exchange will halt trading in the Fund Shares. The Exchange will remove the Shares from listing and trading upon termination of a Fund. The Trust reserves the right to adjust the Fund 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.
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 or an investors equity interest in 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, 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.
15
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 and any sub-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.
16
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 seven members of the Board of Trustees, six 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.
17
TRUSTEES
NAME, ADDRESS AND YEAR OF BIRTH |
POSITION(S)
WITH
|
TERM OF
|
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS |
NUMBER OF
|
OTHER DIRECTORSHIPS HELD BY TRUSTEE DURING THE PAST 5 YEARS |
|||||
INDEPENDENT TRUSTEES |
||||||||||
FRANK NESVET c/o SPDR Series Trust One Iron Street Boston, MA 02210 1943 |
Independent Trustee, Chairman, Trustee Committee Chair |
Term: Unlimited Served: since September 2000 |
Retired. | [ ] | None. | |||||
BONNY EUGENIA BOATMAN c/o SPDR Series Trust One Iron Street Boston, MA 02210- 1950 |
Independent Trustee |
Term: Unlimited Served: since April 2010 |
Retired. | [ ] | None. | |||||
DWIGHT D. CHURCHILL c/o SPDR Series Trust One Iron Street Boston, MA 02210 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 One Iron Street Boston, MA 02210 1952 |
Independent Trustee, Audit Committee Chair |
Term: Unlimited Served: since April 2010 |
Self-employed consultant since 2009. | [ ] | The Motley Fool Funds Trust (Trustee). | |||||
CLARE S. RICHER c/o SPDR Series Trust One Iron Street Boston, MA 02210 1958 |
Independent Trustee |
Term: Unlimited Served: since July 2018 |
Chief Financial Officer, Putnam Investments LLC (December 2008 May 2017). | [ ] | Putnam Acquisition Financing Inc. (Director); Putnam Acquisition Financing LLC (Director); Putnam GP Inc. (Director); Putnam Investor Services, Inc. (Director); Putnam Investments Limited (Director); University of Notre Dame (Trustee). | |||||
SANDRA G. SPONEM c/o SPDR Series Trust One Iron Street Boston, MA 02210 1958 |
Independent Trustee |
Term: Unlimited Served: since July 2018 |
Chief Financial Officer, M.A. Mortenson Companies, Inc. (February 2007 April 2017). | [ ] | Guggenheim / Rydex Funds (Trustee). |
18
INTERESTED TRUSTEE |
||||||||||
JAMES E. ROSS* SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 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. |
19
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. One Iron Street Boston, MA 02210 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. One Iron Street Boston, MA 02210 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. One Iron Street Boston, MA 02210 1969 |
Vice President |
Term: Unlimited Served: since February 2005 |
Managing Director, State Street Global Advisors (2005 - present).* | |||
SEAN OMALLEY SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 1969 |
Chief Legal Officer |
Term: Unlimited Served: since August 2019 |
Senior Vice President and Deputy General Counsel, State Street Global Advisors (November 2013-Present). | |||
ANDREW DELORME SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 1975 |
Secretary |
Term: Unlimited Served: since August 2019 |
Vice President and Senior Counsel, State Street Global Advisors (April 2016 - present); Vice President and Counsel, State Street Global Advisors (August 2014 - March 2016). | |||
JAMES GOUNDREY SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 1977 |
Assistant Secretary |
Term: Unlimited Served: since August 2019 |
Vice President and Senior Counsel, State Street Global Advisors (April 2019-Present); Vice President and Counsel, State Street Global Advisors (August 2015-April 2019); Attorney, MFS Investment Management (March 2012-August 2015). | |||
KEVIN MORRIS SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 1982 |
Assistant Secretary |
Term: Unlimited Served: since August 2019 |
Vice President and Senior Counsel, State Street Global Advisors (April 2019-Present); Vice President and Counsel, State Street Global Advisors (January 2016-April 2019); Director, Asset Management Compliance, Fidelity Investments (June 2015-January 2016); Senior Compliance Advisor, Asset Management Compliance, Fidelity Investments (June 2012-June 2015). |
20
NAME, ADDRESS AND YEAR OF BIRTH |
POSITION(S) WITH FUNDS |
TERM OF OFFICE AND LENGTH OF
TIME
|
PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS |
|||
DAVID URMAN SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 1985 |
Assistant Secretary |
Term: Unlimited Served: since August 2019 |
Vice President and Senior Counsel, State Street Global Advisors (April 2019-Present); Vice President and Counsel, State Street Global Advisors (August 2015-April 2019); Associate, Ropes & Gray LLP (November 2012-August 2015). | |||
BRUCE S. ROSENBERG SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 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. One Iron Street Boston, MA 02210 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. One Iron Street Boston, MA 02210 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 1966 |
Deputy Treasurer |
Term: Unlimited Served: since August 2017 |
Vice President at State Street Global Advisors (July 2016 present); Deputy Treasurer of Elfun Funds (July 2016 present); Treasurer of State Street Institutional Funds, State Street Variable Insurance Series Funds, Inc. and GE Retirement Savings Plan Funds (June 2011 present); Treasurer of Elfun Funds (June 2011 - July 2016); Mutual Funds Controller of GE Asset Management Incorporated (April 2011 - July 2016); Senior Vice President at Citigroup (2008 2010); Vice President at JPMorgan (2005 2008). | |||
DANIEL FOLEY SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 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. One Iron Street Boston, MA 02210 1980 |
Assistant Treasurer |
Term: Unlimited Served: since May 2017 |
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (May 2015 - present); Officer, State Street Bank and Trust Company (March 2009 - May 2015). | |||
SUJATA UPRETI SSGA Funds Management, Inc. One Iron Street Boston, MA 02210 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). |
21
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. One Iron Street Boston, MA 02210 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). |
* |
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 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 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 Ms. Richer should serve as Trustee because of the experience she gained serving as the Chief Financial Officer of a large financial services and investment management company, her knowledge of the financial services industry and her experience serving on the board of a major educational institution. Ms. Richer was appointed to serve as Trustee of the Trust in July 2018.
The Board has concluded that Ms. Sponem should serve as Trustee because of the experience she gained serving as the Chief Financial Officer of a large financial services company, her knowledge of the financial services industry and her experience serving on the board of another investment company. Ms. Sponem was appointed to serve as Trustee of the Trust in July 2018.
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 Active Trust and SPDR Index Shares Funds (together with the Trust, the Trusts) pay, in the aggregate, each Independent Trustee an annual fee of $245,000 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 $60,000 and the Chairman of the Audit Committee receives an additional annual fee of $30,000. 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, 2019.
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 |
$ | [ | ] | [ ] | [ ] | $ | [ | ] | ||||
Bonny Boatman |
$ | [ | ] | [ ] | [ ] | $ | [ | ] | ||||
Dwight Churchill |
$ | [ | ] | [ ] | [ ] | $ | [ | ] | ||||
David Kelly(2) |
$ | [ | ] | N/A | N/A | $ | [ | ] | ||||
Clare Richer |
$ | [ | ] | [ ] | [ ] | $ | [ | ] | ||||
Sandra Sponem |
$ | [ | ] | [ ] | [ ] | $ | [ | ] | ||||
Carl Verboncoeur |
$ | [ | ] | [ ] | [ ] | $ | [ | ] |
(1) |
The Fund Complex includes the Trust. |
(2) |
Effective August 22, 2018, Mr. Kelly resigned from his position as Trustee and no longer serves as a trustee to 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 five (5) times during the fiscal year ended June 30, 2019.
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, 2019.
23
OWNERSHIP OF FUND SHARES
As of December 31, 2018, neither the Independent Trustees nor their immediate family members owned beneficially or of record any securities in the Adviser, Principal Underwriter or any person directly or indirectly controlling, controlled by, or under common control with the Adviser or Principal Underwriter.
The following table shows, as of December 31, 2018, 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] | |||
Bonny Eugenia Boatman |
[None] | [None] | [None] | |||
Dwight D. Churchill |
[SPDR Nuveen Bloomberg Barclays
High Yield Municipal Bond ETF] |
[Over $100,000] | [Over $100,000] | |||
Clare Richer |
[None] | [None] | [None] | |||
Sandra Sponem |
[SPDR Bloomberg Barclays High
Yield Bond ETF] |
[$50,001-$100,000] | [$50,000-$100,000] | |||
Carl G. Verboncoeur |
[SPDR S&P Dividend ETF]
[SPDR S&P 600 Small Cap Value
|
[$10,001 - $50,000]
[$10,001 - $50,000] |
[$10,001 - $50,000] | |||
Interested Trustee: |
||||||
James Ross |
[SPDR Portfolio Large Cap]
[SPDR S&P Biotech ETF] [SPDR S&P Dividend ETF] [SPDR Portfolio Small Cap ETF] [SPDR Portfolio Mid Cap ETF] [SPDR Dow Jones REIT ETF]
[SPDR S&P 400 Mid Cap Growth
[SPDR Nuveen Bloomberg Barclays
|
[Over $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] [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 pursuant to Rule 17j-1 of the 1940 Act, 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. Each of the Trusts and 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.
24
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 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 oversight of the Board, is responsible for the investment management of each Fund. As of June 30, 2019, the Adviser managed approximately $[ ] billion in assets. The Advisers principal address is One Iron Street, Boston, Massachusetts 02210. The Adviser, a Massachusetts corporation, is a wholly-owned subsidiary of State Street Global Advisors Inc., which is itself 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.
On behalf of the SPDR SSGA Gender Diversity Index ETF (the Gender Diversity ETF), the Adviser and certain of its affiliates intend to make contributions to a charitable organization, which is tax-exempt under section 501(c)(3) of the Internal Revenue Code, developed to provide financial support to third party charitable organizations which seek to enhance gender equity through educational efforts. Charitable contributions from the Adviser and certain of its affiliates will be benchmarked to the assets under management of the Gender Diversity ETF. The charitable organization will seek to make donations to identified charitable organizations that support continuing educational efforts designed to mitigate gender inequality in corporate America, and will aim to engage with other organizations in an effort to increase the amount of philanthropic dollars available for such initiatives.
The charitable organization will not participate in, or have any influence on the day-to-day operations of, the Gender Diversity ETF or the Advisers management of the Gender Diversity ETF. These contributions are made annually, based on the Funds average assets during the calendar year, with the Adviser maintaining the option to increase the contribution in its sole discretion. The total amount of contributions made to such charitable organization for the calendar year ended December 31, 2018 was $[xx].
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 oversight 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, 2019.
25
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 has contractually agreed to waive a portion of its management fee and/or reimburse expenses in an amount equal to any acquired fund fees and expenses (excluding holdings in acquired funds for cash management purposes, if any) for each Fund until October 31, 2020. This waiver and/or reimbursement does not provide for the recoupment by the Adviser of any amounts waived or reimbursed. This waiver and/or reimbursement may not be terminated prior to October 31, 2020 except with the approval of the Funds Board of Trustees. 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 |
FISCAL YEAR
ENDED JUNE 30, 2019 |
FISCAL YEAR
ENDED JUNE 30, 2018 |
FISCAL YEAR
ENDED JUNE 30, 2017 |
|||||||||
SPDR Portfolio Total Stock Market ETF |
$ | [ | ] | $ | 416,469 | $ | 377,039 | |||||
SPDR Portfolio Large Cap ETF |
$ | [ | ] | $ | 230,975 | $ | 118,371 | |||||
SPDR Portfolio Small Cap ETF |
$ | [ | ] | $ | 338,867 | $ | 160,694 | |||||
SPDR SSGA US Large Cap Low Volatility Index ETF |
$ | [ | ] | $ | 111,530 | $ | 95,167 | |||||
SPDR SSGA US Small Cap Low Volatility Index ETF |
$ | [ | ] | $ | 257,769 | $ | 196,914 | |||||
SPDR SSGA Gender Diversity Index ETF |
$ | [ | ] | $ | 668,494 | $ | 573,889 | (1) |
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 Kathleen Morgan |
SPDR Portfolio Total Stock Market ETF | |
Michael Feehily, Karl Schneider and John Law |
SPDR Portfolio Large Cap ETF, SPDR SSGA US Small Cap Low Volatility Index ETF | |
Michael Feehily, Karl Schneider and Teddy Wong |
SPDR Portfolio Small Cap ETF | |
Michael Feehily, Karl Schneider and Juan Acevedo |
SPDR SSGA US Large Cap Low Volatility Index ETF | |
Lynn Blake, Melissa Kapitulik and Amy Cheng |
SPDR SSGA Gender Diversity Index 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.
26
Other Accounts Managed as of June 30, 2019:
Portfolio Manager |
Registered
Investment Company Accounts |
Assets
Managed (billions)* |
Other
Pooled Investment Vehicle Accounts |
Assets
Managed (billions)* |
Other
Accounts |
Assets
Managed (billions)* |
Total
Assets Managed (billions) |
|||||||||||||||||||||
Michael Feehily |
[ | ] | $ | [ ] | [ | ] | $ | [ ] | [ | ] | $ | [ ] | $ | [ ] | ||||||||||||||
Karl Schneider |
[ | ] | $ | [ ] | [ | ] | $ | [ ] | [ | ] | $ | [ ] | $ | [ ] | ||||||||||||||
Juan Acevedo |
[ | ] | $ | [ ] | [ | ] | $ | [ ] | [ | ] | $ | [ ] | $ | [ ] | ||||||||||||||
Lynn Blake |
[ | ] | $ | [ ] | [ | ] | $ | [ ] | [ | ] | $ | [ ] | $ | [ ] | ||||||||||||||
Amy Cheng |
[ | ] | $ | [ ] | [ | ] | $ | [ ] | [ | ] | $ | [ ] | $ | [ ] | ||||||||||||||
Melissa Kapitulik |
[ | ] | $ | [ ] | [ | ] | $ | [ ] | [ | ] | $ | [ ] | $ | [ ] | ||||||||||||||
John Law |
[ | ] | $ | [ ] | [ | ] | $ | [ ] | [ | ] | $ | [ ] | $ | [ ] | ||||||||||||||
Kathleen Morgan |
[ | ] | $ | [ ] | [ | ] | $ | [ ] | [ | ] | $ | [ ] | $ | [ ] | ||||||||||||||
Teddy Wong |
[ | ] | $ | [ ] | [ | ] | $ | [ ] | [ | ] | $ | [ ] | $ | [ ] |
[* |
There are no performance-based fees associated with these accounts.] |
[None of the portfolio managers listed above beneficially owned Shares as of June 30, 2019, except as noted in the table below:]
Portfolio Manager |
Fund |
Dollar Range of Trust
Shares Beneficially Owned |
||
Michael Feehily |
[ ] | $[ ] |
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.
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
27
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.
Incentive pool funding for most active investment teams is driven in part by the post-tax investment performance of fund(s) managed by the team versus the return levels of the benchmark index(es) of the fund(s) on a one-, three- and, in some cases, five-year basis. For most active investment teams, a material portion of incentive compensation for senior staff is deferred over a four-year period into the SSGA Long-Term Incentive (SSGA LTI) program. For these teams, The SSGA LTI program indexes the performance of these deferred awards against the post-tax investment performance of fund(s) managed by the team. This is intended to align our investment teams compensation with client interests, both through annual incentive compensation awards and through the long-term value of deferred awards in the SSGA LTI program.
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 vest 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. |
|
Seeking to recognize and preserve the firms unique culture and team orientation. |
|
Providing all employees the opportunity to share in the success of SSGA. |
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), which were accrued daily and paid monthly by the Adviser out of its management fee.
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.
28
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 its services provided under the SSGA Administration agreement, SSGA FM, shall receive fees for the services, calculated based on the average aggregate net assets of the Trust and SIS, which are accrued daily and paid monthly out of its management fee.
As compensation for its services under the Sub-Administration Agreement, Custodian Agreement and Transfer Agency Agreement, State Street shall receive a fee for the services, calculated based on the average aggregate net assets of the Trust and SIS, which are accrued daily and paid monthly by the Adviser from its management fee. For each series of the Trust and SIS, an annual minimum fee applies. 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 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.
29
SECURITIES LENDING ACTIVITIES
The Trusts Board has approved each Funds participation in a securities lending program. Under the securities lending program, each Fund has retained State Street to serve as the securities lending agent.
For the fiscal year ended June 30, 2019, the income earned by each Fund as well as the fees and/or compensation paid by each Fund (in dollars) pursuant to the Master Amended and Restated Securities Lending Authorization Agreement among SPDR Series Trust, SPDR Index Shares Funds and SSGA Active Trust, each on behalf of its respective series, and State Street (the Securities Lending Authorization Agreement) were as follows:
Fees and/or compensation paid by the Fund for securities lending activities and
related services |
||||||||||||||||||||||||||||||||||||
Gross
income earned by the Fund from securities lending activities |
Fees paid
to State Street from a revenue split |
Fees paid for
any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in a revenue split |
Administrative
fees not included in a revenue split |
Indemnification
fees not included in a revenue split |
Rebate
(paid to borrower) |
Other fees
not included in a revenue split |
Aggregate
fees and/or compensation paid by the Fund for securities lending activities and related services |
Net income
from securities lending activities |
||||||||||||||||||||||||||||
SPDR Portfolio Total Stock Market ETF |
$ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | |||||||||
SPDR Portfolio Large Cap ETF |
$ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | |||||||||
SPDR Portfolio Small Cap ETF |
$ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | |||||||||
SPDR SSGA US Large Cap Low Volatility Index ETF |
$ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | |||||||||
SPDR SSGA US Small Cap Low Volatility Index ETF |
$ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | |||||||||
SPDR SSGA Gender Diversity Index ETF |
$ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] | $ | [ | ] |
For the fiscal year ended June 30, 2019, State Street, acting as agent of the Funds, provided the following services to the Funds in connection with the Funds securities lending activities: (i) locating borrowers among an approved list of prospective borrowers; (ii)
30
causing the delivery of loaned securities from a Fund to borrowers; (iii) monitoring the value of loaned securities, the value of collateral received, and other lending parameters; (iv) seeking additional collateral, as necessary, from borrowers; (v) receiving and holding collateral from borrowers, and facilitating the investment and reinvestment of all or substantially all cash collateral in an investment vehicle designated by the Funds; (vi) returning collateral to borrowers; (vii) facilitating substitute dividend, interest, and other distribution payments to the Funds from borrowers; (viii) negotiating the terms of each loan of securities, including but not limited to the amount of any loan premium, and monitoring the terms of securities loan agreements with prospective borrowers for consistency with the requirements of the Funds Securities Lending Authorization Agreement; (ix) selecting securities, including amounts (percentages), to be loaned; (x) recordkeeping and accounting services; and (xi) arranging for return of loaned securities to a Fund in accordance with the terms of the Securities Lending Authorization Agreement.
THE DISTRIBUTOR
State Street Global Advisors Funds Distributors, LLC is the principal underwriter and Distributor of Shares. Its principal address is One Iron Street, Boston, Massachusetts 02210. 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 whereby they may make payments, other than for the educational programs and marketing activities described above, to Charles Schwab & Co., Inc. (Schwab), Pershing LLC (Pershing), RBC Capital Markets, LLC (RBC), TD Ameritrade, Inc. (TD Ameritrade), Morgan Stanley Wealth Management, LLC (MSWM), National Financial Services, LLC and Fidelity Brokerage Services, LLC (together, Fidelity). Pursuant to these arrangements, Schwab, Pershing, RBC, TD Ameritrade, MSWM and Fidelity have agreed to offer 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. These amounts, which may be significant, are paid by the Adviser and/or Distributor from their own resources and not from Fund assets. Payments to a broker-dealer or intermediary may create potential conflicts of interest between the broker dealer or intermediary and its clients. 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 continuation of the Distribution Agreement and any other related agreements is subject to annual approval of the Board, including by a majority of the Independent Trustees, as described above.
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).
31
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.
All portfolio transactions are placed on behalf of the Funds by the Adviser. Purchases and sales of securities on a securities exchange are affected through brokers who charge a commission for their services. Ordinarily commissions are not charged on over the counter orders (e.g., fixed income securities) because the Funds pay a spread which is included in the cost of the security and represents the difference between the dealers quoted price at which it is willing to sell the security and the dealers quoted price at which it is willing to buy the security. When a Fund executes an over the counter order with an electronic communications network or an alternative trading system, a commission is charged because electronic communications networks and alternative trading systems execute such orders on an agency basis. Securities may be purchased from underwriters at prices that include underwriting fees.
In placing a portfolio transaction, the Adviser seeks to achieve best execution. The Advisers duty to seek best execution requires the Adviser to take reasonable steps to obtain for the client as favorable an overall result as possible for Fund portfolio transactions under the circumstances, taking into account various factors that are relevant to the particular transaction.
The Adviser refers to and selects from the list of approved trading counterparties maintained by the Advisers Credit Risk Management team. In selecting a trading counterparty for a particular trade, the Adviser seeks to weigh relevant factors including, but not limited to the following:
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Prompt and reliable execution; |
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The competitiveness of commission rates and spreads, if applicable; |
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The financial strength, stability and/or reputation of the trading counterparty; |
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The willingness and ability of the executing trading counterparty to execute transactions (and commit capital) of size in liquid and illiquid markets without disrupting the market for the security; |
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Local laws, regulations or restrictions; |
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The ability of the trading counterparty to maintain confidentiality; |
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The availability and capability of execution venues, including electronic communications networks for trading and execution management systems made available to Adviser; |
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Market share; |
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Liquidity; |
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Price; |
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Execution related costs; |
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History of execution of orders; |
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Likelihood of execution and settlement; |
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Order size and nature; |
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Clearing and settlement capabilities, especially in high volatility market environments; |
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Availability of lendable securities; |
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Sophistication of the trading counterpartys trading capabilities and infrastructure/facilities; |
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The operational efficiency with which transactions are processed and cleared, taking into account the order size and complexity; |
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Speed and responsiveness to the Adviser; |
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Access to secondary markets; |
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Counterparty exposure; and |
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Any other consideration the Adviser believes is relevant to the execution of the order. |
In selecting a trading counterparty, the price of the transaction and costs related to the execution of the transaction typically merit a high relative importance, depending on the circumstances. The Adviser does not necessarily select a trading counterparty based upon price and costs but may take other relevant factors into account if it believes that these are important in taking reasonable steps to obtain the best possible result for a Fund under the circumstances. Consequently, the Adviser may cause a client to pay a trading counterparty more than another trading counterparty might have charged for the same transaction in recognition of the value and quality of the brokerage services provided. The following matters may influence the relative importance that the Adviser places upon the relevant factors:
(i) The nature and characteristics of the order or transaction. For example, size of order, market impact of order, limits, or other instructions relating to the order;
(ii) The characteristics of the financial instrument(s) or other assets which are the subject of that order. For example, whether the order pertains to an equity, fixed income, derivative or convertible instrument;
(iii) The characteristics of the execution venues to which that order can be directed, if relevant. For example, availability and capabilities of electronic trading systems;
(iv) Whether the transaction is a delivery versus payment or over the counter transaction. The creditworthiness of the trading counterparty, the amount of existing exposure to a trading counterparty and trading counterparty settlement capabilities may be given a higher relative importance in the case of over the counter transactions; and
(v) Any other circumstances relevant the Adviser believes is relevant at the time.
The process by which trading counterparties are selected to effect transactions is designed to exclude consideration of the sales efforts conducted by broker-dealers in relation to the Funds.
The Adviser does not currently use the Funds assets in connection with third party soft dollar arrangements. While the Adviser does not currently use soft or commission dollars paid by the Funds for the purchase of third party research, the Adviser reserves the right to do so in the future.
The table below shows the aggregate dollar amount of brokerage commissions paid by the Funds for the past three fiscal years ended June 30. [None of the brokerage commissions paid were paid to affiliated brokers.] 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, 2019 |
FISCAL YEAR
ENDED JUNE 30, 2018 |
FISCAL YEAR
ENDED JUNE 30, 2017 |
|||||||||
SPDR Portfolio Total Stock Market ETF |
$ | [ | ] | $ | 3,095 | $ | 2,224 | |||||
SPDR Portfolio Large Cap ETF |
$ | [ | ] | $ | 5,329 | $ | 654 | |||||
SPDR Portfolio Small Cap ETF |
$ | [ | ] | $ | 51,376 | $ | 67,521 | |||||
SPDR SSGA US Large Cap Low Volatility Index ETF |
$ | [ | ] | $ | 1,725 | $ | 57,814 | |||||
SPDR SSGA US Small Cap Low Volatility Index ETF |
$ | [ | ] | $ | 20,656 | $ | 83,422 | |||||
SPDR SSGA Gender Diversity Index ETF |
$ | [ | ] | $ | 12,929 | $ | 12,222 |
Securities of Regular Broker-Dealers. 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.
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Holdings in Securities of Regular Broker-Dealers as of June 30, 2019:
[to be provided by subsequent amendment]
Portfolio Turnover. 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 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.
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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 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 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.
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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 [October 4, 2019], 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 [October 4, 2019], 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 a 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 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 in-kind, although this 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
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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, 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 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
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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. 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 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 second Business Day 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 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
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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.
With respect to each Fund, the Custodian, through the NSCC, makes available 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 prior to the opening of business 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 two Business Days of the trade date. Due to the schedule of holidays in certain countries, however, the
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delivery of in-kind redemption proceeds may take longer than two Business Days, 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 the Business Day on which the redemption request was submitted, 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. 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 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. The cut-off time to receive the trade dates net asset value will not precede the calculation of the net asset value of a Funds shares on the prior Business Day. 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
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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 Portfolio Total Stock Market ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio Large Cap ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR Portfolio Small Cap ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR SSGA US Large Cap Low Volatility Index ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR SSGA US Small Cap Low Volatility Index ETF |
$ | [ | ] | $ | [ | ] | ||
SPDR SSGA Gender Diversity Index ETF |
$ | [ | ] | $ | [ | ] |
* |
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 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,
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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.
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 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 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,
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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 a 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 a 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 five 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.
As discussed more fully below, each Fund intends to distribute substantially all of its net investment income and its capital gains for each taxable year.
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.
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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, each 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 from 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.
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 by the Fund may be eligible for the 50% 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. 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
44
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).
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.
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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.
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.
Noncorporate taxpayers are generally eligible for a deduction of up to 20% of qualified REIT dividends. A Fund will not be able to claim such a deduction in respect of any REIT dividends it receives, and shareholders will not be able to claim such a deduction in respect of Fund dividends attributable to any REIT dividends.
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.
Certain tax-exempt educational institutions will be subject to a 1.4% tax on net investment income. For these purposes, certain dividends and capital gain distributions, and certain gains from the disposition of Shares (among other categories of income), are generally taken into account in computing a shareholders net investment income.
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.
46
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. 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 to21%, 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 24%. 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 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
47
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.
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 One Iron Street, Boston, Massachusetts 02210.
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.
48
LOCAL MARKET HOLIDAY SCHEDULES
The Trust generally intends to effect deliveries of portfolio securities on a basis of T plus two Business Days (i.e., days on which the NYSE is open) in the relevant foreign market of the Fund. The ability of the Trust to effect in-kind redemptions within two Business Days 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 two Business Days.
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 2019 (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:
49
50
51
Saudi Arabia |
Singapore |
South Africa |
South Korea |
Spain |
||||
June 6, 9, 10 | January 1 | January 1 | January 1 | January 1 | ||||
August 12-15 | February 5, 6 | March 21 | February 4-6 | April 19, 22 | ||||
September 23 | April 19 | April 19, 22 | March 1 | May 1 | ||||
* The Saudi Arabian market is closed every Friday |
May 1, 20 | May 1 | May 1, 6 | December 24-26, 31 | ||||
June 5 | June 17 | June 6 | ||||||
August 9, 12 | August 9 | August 15 | ||||||
October 28 | September 24 | September 12, 13 | ||||||
December 25 | December 16, 25, 26 | October 3, 9 | ||||||
December 25 | ||||||||
Sri Lanka |
Sweden |
Switzerland |
Taiwan |
Thailand |
||||
January 1, 15 | January 1 | January 1, 2 | January 1, 31 | January 1 | ||||
February 4, 19 | April 18, 19, 22, 30 | April 19, 22 | February 1, 4-8, 28 | February 19 | ||||
March 4, 20 | May 1, 29, 30 | May 1, 30 | March 1 | April 8, 15, 16 | ||||
April 12, 15, 19 | June 6, 21 | June 10 | April 4, 5 | May 1, 20 | ||||
May 1, 20 | November 1 | August 1 | May 1 | July 16, 29 | ||||
June 5 | December 24-26, 31 | December 24-26, 31 | June 7 | August 12 | ||||
July 16 | September 13 | October 14, 23 | ||||||
August 12, 14 | October 10, 11 | December 5, 10, 31 | ||||||
September 13 | ||||||||
November 11, 12 | ||||||||
December 11, 25 | ||||||||
Turkey |
Uganda |
Ukraine |
The United Arab Emirates |
The United States Bond
|
||||
January 1 | January 1 | January 1, 7 | January 1 | January 1 | ||||
April 23 | March 8 | March 8 | April 3 | February 18 | ||||
May 1 | April 19, 22 | April 29 | June 5, 6 | April 18*, 19 | ||||
June 4-7 | May 1 | May 1, 9 | August 11-14 | May 24*, 27 | ||||
July 15 | June 3, 26 | June 17, 28 | September 1 | July 3*, 4 | ||||
August 12-14, 30 | October 9 | October 15 | November 10 | September 2 | ||||
October 28, 29 | December 25, 26 | December 25 | December 2, 3 | October 14 | ||||
November 11, 28, 29* | ||||||||
December 24*, 25, 31* | ||||||||
* The United Arab Emirates market is closed every Friday | * The U.S. bond market has recommended early close | |||||||
Zambia |
Zimbabwe |
|||||||
January 1 | January 1 | |||||||
March 8, 12 | February 21 | |||||||
April 19, 22 | April 18, 19, 22 | |||||||
May 1 | May 1 | |||||||
July 1, 2 | August 12, 13 | |||||||
August 5 | December 23, 25, 26 | |||||||
October 18, 24 | ||||||||
December 25 |
52
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 Fund. In the calendar year 2019 (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:
2019
Country |
Trade
Date |
Settlement
Date |
Number of
Days to Settle |
|||
Australia |
04/18/19 | 04/26/19 | 8 | |||
12/19/19 | 12/27/19 | 8 | ||||
12/20/19 | 12/30/19 | 10 | ||||
12/23/19 | 01/02/20 | 10 | ||||
12/27/19 | 01/03/20 | 7 | ||||
12/30/19 | 01/06/20 | 7 | ||||
Brazil |
02/27/19 | 03/07/19 | 8 | |||
02/28/19 | 03/08/19 | 8 | ||||
03/01/19 | 03/11/19 | 10 | ||||
Cyprus |
04/24/19 | 05/02/19 | 8 | |||
04/25/19 | 05/03/19 | 8 | ||||
Eswatini |
04/12/19 | 04/23/19 | 11 | |||
04/15/19 | 04/24/19 | 9 | ||||
04/16/19 | 04/26/19 | 10 | ||||
04/17/19 | 04/29/19 | 12 | ||||
04/18/19 | 04/30/19 | 12 | ||||
04/23/19 | 05/02/19 | 9 | ||||
04/24/19 | 05/03/19 | 9 | ||||
04/26/19 | 05/06/19 | 10 | ||||
04/29/19 | 05/07/19 | 8 | ||||
04/30/19 | 05/08/19 | 8 | ||||
05/23/19 | 05/31/19 | 8 | ||||
05/24/19 | 06/03/19 | 10 | ||||
05/27/19 | 06/04/19 | 8 | ||||
05/28/19 | 06/05/19 | 8 | ||||
05/29/19 | 06/06/19 | 8 | ||||
07/15/19 | 07/23/19 | 8 | ||||
07/16/19 | 07/24/19 | 8 | ||||
07/17/19 | 07/25/19 | 8 | ||||
07/18/19 | 07/26/19 | 8 | ||||
07/19/19 | 07/29/19 | 10 | ||||
08/26/19 | 09/03/19 | 8 | ||||
08/27/19 | 09/04/19 | 8 | ||||
08/28/19 | 09/05/19 | 8 | ||||
08/29/19 | 09/09/19 | 11 | ||||
08/30/19 | 09/10/19 | 11 | ||||
09/03/19 | 09/11/19 | 8 | ||||
09/04/19 | 09/12/19 | 8 | ||||
09/05/19 | 09/13/19 | 8 | ||||
12/18/19 | 12/27/19 | 9 | ||||
12/19/19 | 12/30/19 | 11 | ||||
12/20/19 | 12/31/19 | 11 | ||||
12/23/19 | 01/02/20 | 10 | ||||
12/24/19 | 01/03/20 | 10 | ||||
Hong Kong |
01/31/19 | 02/08/19 | 8 | |||
02/01/19 | 02/11/19 | 10 | ||||
Hungary |
12/20/19 | 12/30/19 | 10 |
53
12/23/19 | 12/31/19 | 8 | ||||
Indonesia |
05/29/19 | 06/10/19 | 12 | |||
05/31/19 | 06/11/19 | 11 | ||||
Israel |
04/18/19 | 04/28/19 | 10 | |||
10/10/19 | 10/22/19 | 12 | ||||
Japan |
12/26/19 | 01/06/20 | 11 | |||
12/27/19 | 01/07/20 | 11 | ||||
12/30/19 | 01/08/20 | 9 | ||||
Jordan |
08/07/19 | 08/15/19 | 8 | |||
08/08/19 | 08/18/19 | 10 | ||||
Kuwait |
08/06/19 | 08/14/19 | 8 | |||
08/07/19 | 08/15/19 | 8 | ||||
08/08/19 | 08/18/19 | 10 | ||||
Malawi |
01/08/19 | 01/16/19 | 8 | |||
01/09/19 | 01/17/19 | 8 | ||||
01/10/19 | 01/18/19 | 8 | ||||
01/11/19 | 01/21/19 | 10 | ||||
01/14/19 | 01/22/19 | 8 | ||||
02/25/19 | 03/05/19 | 8 | ||||
02/26/19 | 03/06/19 | 8 | ||||
02/27/19 | 03/07/19 | 8 | ||||
02/28/19 | 03/08/19 | 8 | ||||
03/01/19 | 03/11/19 | 10 | ||||
04/12/19 | 04/23/19 | 11 | ||||
04/15/19 | 04/24/19 | 9 | ||||
04/16/19 | 04/25/19 | 9 | ||||
04/17/19 | 04/26/19 | 9 | ||||
04/18/19 | 04/29/19 | 11 | ||||
04/24/19 | 05/02/19 | 8 | ||||
04/25/19 | 05/03/19 | 8 | ||||
04/26/19 | 05/06/19 | 10 | ||||
04/29/19 | 05/07/19 | 8 | ||||
04/30/19 | 05/08/19 | 8 | ||||
05/07/19 | 05/15/19 | 8 | ||||
05/08/19 | 05/16/19 | 8 | ||||
05/09/19 | 05/17/19 | 8 | ||||
05/10/19 | 05/20/19 | 10 | ||||
05/13/19 | 05/21/19 | 8 | ||||
05/28/19 | 06/05/19 | 8 | ||||
05/29/19 | 06/06/19 | 8 | ||||
05/30/19 | 06/07/19 | 8 | ||||
05/31/19 | 06/10/19 | 10 | ||||
06/03/19 | 06/11/19 | 8 | ||||
07/01/19 | 07/09/19 | 8 | ||||
07/02/19 | 07/10/19 | 8 | ||||
07/03/19 | 07/11/19 | 8 | ||||
07/04/19 | 07/12/19 | 8 | ||||
07/05/19 | 07/15/19 | 10 | ||||
10/08/19 | 10/16/19 | 8 | ||||
10/09/19 | 10/17/19 | 8 | ||||
10/10/19 | 10/18/19 | 8 | ||||
10/11/19 | 10/21/19 | 10 | ||||
10/14/19 | 10/22/19 | 8 | ||||
12/18/19 | 12/27/19 | 9 | ||||
12/19/19 | 12/30/19 | 11 | ||||
12/20/19 | 12/31/19 | 11 | ||||
12/23/19 | 01/02/20 | 10 | ||||
12/24/19 | 01/03/20 | 10 |
54
Malaysia |
01/29/19 | 02/07/19 | 9 | |||
01/30/19 | 02/08/19 | 9 | ||||
01/31/19 | 02/11/19 | 11 | ||||
05/30/19 | 06/07/19 | 8 | ||||
05/31/19 | 06/10/19 | 10 | ||||
06/03/19 | 06/11/19 | 8 | ||||
Morocco |
08/07/19 | 08/15/19 | 8 | |||
08/08/19 | 08/16/19 | 8 | ||||
08/09/19 | 08/19/19 | 10 | ||||
11/04/19 | 11/13/19 | 9 | ||||
11/05/19 | 11/14/19 | 9 | ||||
Namibia |
03/14/19 | 03/22/19 | 8 | |||
03/15/19 | 03/25/19 | 10 | ||||
03/18/19 | 03/26/19 | 8 | ||||
03/19/19 | 03/27/19 | 8 | ||||
03/20/19 | 03/28/19 | 8 | ||||
04/12/19 | 04/23/19 | 11 | ||||
04/15/19 | 04/24/19 | 9 | ||||
04/16/19 | 04/25/19 | 9 | ||||
04/17/19 | 04/26/19 | 9 | ||||
04/18/19 | 04/29/19 | 11 | ||||
04/24/19 | 05/02/19 | 8 | ||||
04/25/19 | 05/03/19 | 8 | ||||
04/26/19 | 05/06/19 | 10 | ||||
04/29/19 | 05/07/19 | 8 | ||||
04/30/19 | 05/08/19 | 8 | ||||
05/23/19 | 05/31/19 | 8 | ||||
05/24/19 | 06/03/19 | 10 | ||||
05/27/19 | 06/04/19 | 8 | ||||
05/28/19 | 06/05/19 | 8 | ||||
05/29/19 | 06/06/19 | 8 | ||||
06/10/19 | 06/18/19 | 8 | ||||
06/11/19 | 06/19/19 | 8 | ||||
06/12/19 | 06/20/19 | 8 | ||||
06/13/19 | 06/21/19 | 8 | ||||
06/14/19 | 06/24/19 | 10 | ||||
08/02/19 | 08/12/19 | 10 | ||||
08/05/19 | 08/13/19 | 8 | ||||
08/06/19 | 08/14/19 | 8 | ||||
08/07/19 | 08/15/19 | 8 | ||||
08/08/19 | 08/16/19 | 8 | ||||
08/19/19 | 08/27/19 | 8 | ||||
08/20/19 | 08/28/19 | 8 | ||||
08/21/19 | 08/29/19 | 8 | ||||
08/22/19 | 08/30/19 | 8 | ||||
08/23/19 | 09/02/19 | 10 | ||||
09/17/19 | 09/25/19 | 8 | ||||
09/18/19 | 09/26/19 | 8 | ||||
09/19/19 | 09/27/19 | 8 | ||||
09/20/19 | 09/30/19 | 10 | ||||
09/23/19 | 10/01/19 | 8 | ||||
12/03/19 | 12/11/19 | 8 | ||||
12/04/19 | 12/12/19 | 8 | ||||
12/05/19 | 12/13/19 | 8 | ||||
12/06/19 | 12/17/19 | 11 | ||||
12/09/19 | 12/18/19 | 9 |
55
12/11/19 | 12/19/19 | 8 | ||||
12/12/19 | 12/20/19 | 8 | ||||
12/13/19 | 12/23/19 | 10 | ||||
12/18/19 | 12/27/19 | 9 | ||||
12/19/19 | 12/30/19 | 11 | ||||
12/20/19 | 12/31/19 | 11 | ||||
12/23/19 | 01/02/20 | 10 | ||||
12/24/19 | 01/03/20 | 10 | ||||
New Zealand |
04/18/19 | 04/26/19 | 8 | |||
Norway |
04/15/19 | 04/23/19 | 8 | |||
04/16/19 | 04/24/19 | 8 | ||||
Oman |
08/06/19 | 08/18/19 | 12 | |||
08/07/19 | 08/19/19 | 12 | ||||
08/08/19 | 08/20/19 | 12 | ||||
Philippines |
12/23/19 | 01/02/20 | 10 | |||
12/26/19 | 01/03/20 | 8 | ||||
12/27/19 | 01/06/20 | 10 | ||||
Qatar |
05/30/19 | 06/09/19 | 10 | |||
06/02/19 | 06/10/19 | 8 | ||||
06/03/19 | 06/11/19 | 8 | ||||
08/06/19 | 08/14/19 | 8 | ||||
08/07/19 | 08/15/19 | 8 | ||||
08/08/19 | 08/18/19 | 10 | ||||
Russia |
04/26/19 | 05/06/19 | 10 | |||
04/29/19 | 05/07/19 | 8 | ||||
04/30/19 | 05/08/19 | 8 | ||||
Saudi Arabia |
08/08/19 | 08/18/19 | 10 | |||
08/11/19 | 08/19/19 | 8 | ||||
Taiwan |
01/29/19 | 02/11/19 | 13 | |||
01/30/19 | 02/12/19 | 13 | ||||
Turkey |
05/31/19 | 06/10/19 | 10 | |||
06/03/19 | 06/11/19 | 8 | ||||
United Arab Emirates |
08/07/19 | 08/15/19 | 8 | |||
08/08/19 | 08/18/19 | 10 | ||||
Zimbabwe |
04/15/19 | 04/23/19 | 8 | |||
04/16/19 | 04/24/19 | 8 | ||||
04/17/19 | 04/25/19 | 8 | ||||
12/19/19 | 12/27/19 | 8 | ||||
12/20/19 | 12/30/19 | 10 |
* |
These worst-case redemption cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse) redemption cycles are possible. |
56
FINANCIAL STATEMENTS
The financial statements and financial highlights of the Funds for the fiscal year ended June 30, 2019, 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.
57
APPENDIX A
[Trusts Proxy Voting Policies to be provided by subsequent amendment]
A-1
APPENDIX B
[SSGA FM Proxy Voting Policies to be provided by subsequent amendment]
B-1
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 to be filed by amendment. | |
(d)(ii) | Fee Waiver Letter Agreement dated October 31, 2018 between the Trust and SSGA FM, with respect to the SPDR ICE BofAML Broad High Yield Bond ETF (formerly SPDR ICE BofAML Crossover Corporate Bond ETF), SPDR Nuveen Bloomberg Barclays Municipal Bond ETF and SPDR S&P 500 Fossil Fuel Reserves Free ETF, is incorporated herein by reference to Exhibit (d)(ii) of Post-Effective Amendment No. 211 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 29, 2018. | |
(d)(iii) | Sub-Advisory Agreement dated November 20, 2014 between SSGA FM and Nuveen Asset Management, LLC (NAM) is incorporated herein by reference to Exhibit (d)(vii) of Post-Effective Amendment No. 200 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on August 28, 2017. | |
(d)(iv) | Investment 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. |
1
(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 incorporated herein by reference to Exhibit (e)(i)(1) of Post-Effective Amendment No. 200 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on August 28, 2017. | |
(e)(i)(2) | Amended Annex I (Schedule of Series) to the Amended and Restated 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), dated October 22, 2018, to the Administration Agreement dated June 1, 2015 between the Trust and SSGA FM to be filed by amendment. | |
(h)(ii)(1) | Master 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. | |
(h)(ii)(2) | Amendment, dated June 29, 2018, to the Master 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)(2) of Post-Effective Amendment No. 211 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 29, 2018. | |
(h)(ii)(3) | Amendment to the Master Sub-Administration Agreement dated June 1, 2015 between SSGA FM and State Street Bank and Trust Company to be filed by amendment. | |
(h)(ii)(4) | Amended Schedule A (Schedule of Series), dated October 22, 2018, to the Master 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. |
2
(h)(iv) | Addendum, dated April 5, 2004, to the 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), dated October 22, 2018, 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)(1) | Master Amended and Restated Securities Lending Authorization Agreement dated January 6, 2017 between the Trust and State Street Bank and Trust Company is incorporated herein by reference to Exhibit (h)(viii)(1) of Post-Effective Amendment No. 209 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on August 29, 2018. | |
(h)(viii)(2) | First Amendment, dated April 12, 2019, to the 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. | |
(h)(viii)(3) | Second Amendment to the Master Amended and Restated Securities Lending Authorization Agreement dated January 6, 2017 between the Trust and State Street Bank and Trust Company to be filed by amendment. | |
(h)(viii)(4) | Third Amendment to the Master Amended and Restated Securities Lending Authorization Agreement dated January 6, 2017 between the Trust and State Street Bank and Trust Company to be filed by amendment. | |
(h)(viii)(5) | Amended Schedule B (Schedule of Series) to the Master Amended and Restated Securities Lending Authorization Agreement dated January 6, 2017 between the Trust and State Street Bank and Trust Company to be filed by amendment. | |
(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. | |
(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. | |
(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. | |
(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. |
3
(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. | |
(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 June 1, 2016. | |
(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. | |
(i)(viii) | Opinion and Consent of Morgan, Lewis & Bockius LLP is incorporated herein by reference to Exhibit (i) of Post-Effective Amendment No. 206 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on December 21, 2017. | |
(i)(ix) | Opinion and Consent of Morgan, Lewis & Bockius LLP is incorporated herein by reference to Exhibit (i)(ix) of Post-Effective Amendment No. 210 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 19, 2018. | |
(j) | Consent of independent registered public accountant 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 April 15, 2019 (which also applies to applicable reporting personnel of SSGA FD) is filed herewith. | |
(p)(iii) | Code of Ethics of NAM dated July 1, 2018 is incorporated herein by reference to Exhibit (p)(iii) of Post-Effective Amendment No. 211 to the Registrants Registration Statement on Form N-1A, as filed with the SEC on October 29, 2018. | |
(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. |
4
(q) | Power of Attorney for Mses. Boatman, Richer, Sponem and Needham and Messrs. Churchill, Nesvet, Ross, Verboncoeur and Rosenberg, dated August 22, 2019 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.
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.
5
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, as amended (the 1940 Act), so long as the interpretation of Sections 17(h) and 17(i) thereunder 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.
Item 31. |
Business And Other Connections of Investment Adviser |
Any other business, profession, vocation or employment of a substantial nature in which each director or principal officer of each investment adviser is or has been, at any time during the last two fiscal years, engaged for his or her own account or in the capacity of director, officer, employee, partner or trustee are as follows:
SSGA FM serves as the investment adviser for each series of the Trust. SSGA FM is a wholly-owned subsidiary of State Street Global Advisors, Inc., which is itself a wholly-owned subsidiary of State Street Corporation. SSGA FM and other advisory affiliates of State Street Corporation make up State Street Global Advisors (SSGA), the investment management arm of State Street Corporation. The principal address of SSGA FM is One Iron Street, Boston, Massachusetts 02210. SSGA FM is an investment adviser registered under the Investment Advisers Act of 1940.
Below is a list of the directors and principal executive officers of SSGA FM and their principal occupations. Unless otherwise noted, the address of each person listed is One Iron Street, Boston, Massachusetts 02210.
Name |
Principal Occupations |
|
James E. Ross | Chairman and Director of SSGA FM; Executive Vice President of SSGA | |
Ellen Needham | Director and President of SSGA FM; Senior Vice President/Senior Managing Director of SSGA | |
Barry Smith | Director of SSGA FM; Senior Vice President/Senior Managing Director of SSGA | |
Lori Heinel | Director of SSGA FM; Executive Vice President of SSGA | |
Steven Lipiner | Director of SSGA FM; Senior Vice President/Senior Managing Director and Chief Financial Officer of SSGA | |
Chris Baker | Chief Compliance Officer of SSGA FM; Managing Director and Chief Compliance Officer of SSGA; prior to February 2018, Managing Director and Senior Compliance Officer for Alternative Investment Solutions, Sector Solutions, and Global Marketing at State Street Corporation | |
Bo Trevino | Treasurer of SSGA FM; Vice President of SSGA | |
Sean OMalley, Esq. | Chief Legal Officer of SSGA FM; Senior Vice President/Senior Managing Director and Deputy General Counsel of SSGA | |
Ann Carpenter | Chief Operating Officer of SSGA FM; Managing Director of SSGA |
6
Name |
Principal Occupations |
|
Tim Corbett |
Chief Risk Officer of SSGA FM; Senior Vice President/Senior Managing Director of SSGA | |
Kathryn Sweeney |
CTA - Chief Marketing Officer of SSGA FM; Senior Vice President/Senior Managing Director of SSGA; prior to September 2017, Global ETF Product Manager and Head of U.S. ETF Trading at Goldman Sachs. | |
Andrew DeLorme, Esq. |
Clerk of SSGA FM; Vice President and Senior Counsel of SSGA | |
Dan Furman, Esq. |
Assistant Clerk of SSGA FM; Managing Director and Managing Counsel of SSGA | |
Leanne Dunn, Esq. |
Assistant Clerk of SSGA FM; Managing Director and Senior Counsel of SSGA | |
Mike Pastore, Esq. |
Assistant Clerk of SSGA FM; Managing Director and Senior Counsel of SSGA |
NAM serves as the investment sub-adviser for the SPDR Nuveen Bloomberg Barclays Municipal Bond ETF, SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF and SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF. SSGA LTD, an affiliate of SSGA FM, serves as the investment sub-adviser for the SPDR Bloomberg Barclays International Corporate Bond ETF and SPDR Bloomberg Barclays Emerging Markets Local Bond ETF.
NUVEEN ASSET MANAGEMENT, LLC:
Name | Status | |
Nuveen Fund Advisors, LLC |
Managing Member | |
William T. Huffman |
President | |
Stuart J. Cohen |
Managing Director and Head of Legal | |
Diane S. Meggs |
Chief Compliance Officer | |
Austin Penn Wachter |
Controller |
Item 32. |
Principal Underwriters |
(a) |
SSGA FD, One Iron Street, Boston, Massachusetts 02210, 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 | ||
Timothy Corbett |
Director | None | ||
Jeanne M. LaPorta |
Director | None |
7
NAME AND PRINCIPAL BUSINESS ADDRESS* |
POSITION AND OFFICES WITH UNDERWRITER |
POSITION AND OFFICES WITH THE TRUST |
||
Steven Lipiner |
Director | None | ||
Yeng F. Butler |
Director | None | ||
Ellen M. Needham |
Director | President | ||
John Tucker |
Director | None | ||
M. Patrick Donovan |
Chief Compliance Officer and Anti-Money Laundering Officer |
None | ||
David Maxham |
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 Iron Street, Boston, MA 02210. |
(c) Not applicable.
Item 33. |
Location Of Accounts and Records |
All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of SSGA FM and/or State Street Bank and Trust Company, with offices located at One Iron Street, Boston, Massachusetts 02210 and One Lincoln Street, Boston, Massachusetts 02111, respectively.
Item 34. |
Management Services |
Not applicable.
Item 35. |
Undertakings |
Not applicable.
8
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 29th day of August, 2019.
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 29, 2019 | ||
Bonny E. Boatman | ||||
/s/ Dwight D. Churchill* |
Trustee | August 29, 2019 | ||
Dwight D. Churchill | ||||
/s/ Frank Nesvet* |
Trustee | August 29, 2019 | ||
Frank Nesvet | ||||
/s/ Clare Richer* |
Trustee | August 29, 2019 | ||
Clare Richer | ||||
/s/ Sandra G. Sponem* |
Trustee | August 29, 2019 | ||
Sandra G. Sponem | ||||
/s/ Carl G. Verboncoeur* |
Trustee | August 29, 2019 | ||
Carl G. Verboncoeur | ||||
/s/ James E. Ross* |
Trustee | August 29, 2019 | ||
James E. Ross | ||||
/s/ Ellen M. Needham |
President and Principal Executive Officer | August 29, 2019 | ||
Ellen M. Needham |
||||
/s/ Bruce S. Rosenberg |
Treasurer and Principal Financial Officer | August 29, 2019 | ||
Bruce S. Rosenberg |
*By: |
/s/ Andrew DeLorme |
|
Andrew DeLorme | ||
As Attorney-in-Fact Pursuant to Power of Attorney |
EXHIBIT LIST
Item 28
(h)(viii)(2) | First Amendment to Master Amended and Restated Securities Lending Authorization Agreement | |
(p)(ii) | Code of Ethics of SSGA Funds Management, Inc. | |
(q) | Power of Attorney |
Exhibit (h)(viii)(2)
Execution Version
REDEMPTION AND PURCHASE REQUEST
And
FIRST AMENDMENT TO 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 OF THE AGREEMENT,
SEVERALLY AND NOT JOINTLY,
And
STATE STREET BANK AND TRUST COMPANY
This First Amendment (this Amendment) dated April 12, 2019 is 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 of the Agreement (defined below), severally and not jointly, each a registered management investment company organized and existing under the laws of Massachusetts (the Trust) and STATE STREET BANK AND TRUST COMPANY (State Street). The Trust, acting on behalf of each of its series, a Fund and collectively, the Funds.
Reference is made to the Securities Lending Authorization Agreement dated as of July 10, 2017, between the Funds and State Street (the Agreement).
WHEREAS, the Funds and State Street both desire to amend the Agreement as set forth in this Amendment;
NOW, THEREFORE, for value received, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties mutually agree to amend the Agreement as follows:
1. Redemption and Purchase Request. Each Fund hereby requests that, at on or about April 12, 2019 (such final date to be agreed by the parties), State Street (i) redeem (the Redemption) all units of the State Street Navigator Securities Lending Government Money Market Portfolio (Navigator Government) then owned by such Fund and subject to limitations set forth by the organizational and disclosure documents and Board of Directors of Navigator Government, and (ii) use the proceeds thereof to purchase (the Purchase) simultaneously for each Fund shares of the State Street Navigator Securities Lending Portfolio III (Portfolio III). Each Fund hereby agrees to (i) accept, in whole or in part, an in-kind distribution of assets from the Navigator Government in connection with the Redemption, such assets to be valued at their amortized cost value, and (ii) contribute in-kind to Portfolio III in connection with the Purchase all such assets received in-kind in the Redemption at the same value therefor. The Funds acknowledge and agree that each
Exhibit (h)(viii)(2)
Execution Version
Fund is obligated to pay all amounts due with respect to loans of securities by such Fund to borrowers (Borrowers) and State Street in connection with the Agreement, this Amendment, and the agreements between Borrowers and State Street (on behalf of its agency lending clients, including the Funds) that govern such loans to Borrowers.
2. Amendments.
a) |
Section 3. Section 3 of the Agreement is hereby deleted in its entirety and replaced with the following new Section 3; |
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 immediately following such Loan (a) the aggregate outstanding Loans for such Fund would be in excess of (a) forty percent (40%) of such Funds net asset value (which term excludes the value of Collateral received by the Fund in connection with outstanding Loans), or (b) such alternative limit established by the Fund and communicated in writing to, and acknowledged by, State Street; provided that at no time shall any lending limit exceed the regulatory limit of thirty-three and one-third percent (33 1/3%) of the Funds total asset value.
Furthermore, State Street will not make a Loan on behalf of a Fund if immediately following such Loan the aggregate outstanding loans of an individual security for such Fund would be in excess of ninety percent (90%) of such Funds aggregate holdings of such individual security or such alternative limit established by the Fund and communicated in writing to, and acknowledged by, State Street. 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.
The parties agree that 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
Exhibit (h)(viii)(2)
Execution Version
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.
The parties further agree that the Funds may terminate the Minimum Total Spread Test (for all, and not a portion of, the Funds listed on Schedule B hereto) by written amendment instruction from the Funds, communicated to and acknowledged in writing by, State Street. Following such Minimum Total Spread Test termination, the Funds may re-instate the Minimum Total Spread Test (for all, and not a portion of, the Funds listed on Schedule B hereto) by written amendment instruction from the Funds, communicated to and acknowledged in writing by, State Street. Notwithstanding anything in Section 26 of this Agreement, the parties agree that such written amendment instruction and acknowledgement may be delivered by email. The parties agree that all other changes to the Minimum Total Spread Test shall be made by formal written amendment pursuant to Section 26.
For purposes of the Minimum Total Spread Test:
Total Spread means, the difference between the yield of the State Street Navigator Securities Lending Portfolio III (Portfolio III) as reported by Portfolio III on the preceding day (or if no yield was reported on the preceding day, the last day a yield was reported), and the rate of the Rebate or Negative Rebate of a Loan, as the case may be. The Fund is aware that because the Minimum Total Spread Test is based off of the yield of Portfolio III 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 Portfolio III on the day the loan is actually made.
b) |
Section 13. The sixth paragraph of Section 13 is hereby deleted in its entirety and replaced with the following new paragraph; |
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 with cash Collateral of the State Street Navigator Securities Lending Portfolio III; (iii) its participation in State Streets securities lending program, including the investment of cash Collateral in the State Street Navigator Securities Lending Portfolio III, 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 Lending Portfolio III 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
Exhibit (h)(viii)(2)
Execution Version
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.
c) |
Schedule A of the Agreement is hereby modified by deleting the last two paragraphs in their entirety and replacing them with the following: |
Each Fund instructs State Street to invest cash Collateral in the State Street Navigator Securities Lending Portfolio III (Portfolio III). The management fees for investing in Portfolio III are as set forth in the Confidential Offering Memorandum dated April 11, 2019.
Cash Collateral including money received in respect of cash Collateral may be invested in Portfolio III by State Street. Daily distributions from Portfolio III may be reinvested into Portfolio III 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 Portfolio III pursuant to the Funds direction above due to the timing of delivery by Borrower or otherwise (including if Portfolio III 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 Portfolio III 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 Portfolio III is no longer available. In the event Portfolio III 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 Portfolio IIIs unavailability. The Fund hereby acknowledges that during the interim period between the unavailability of Portfolio III and the implementation of its modified direction, State Street may recall loans collateralized by cash Collateral in its sole discretion for the purpose of reducing on loan balances. Additionally, the Fund hereby acknowledges that during the interim period between the unavailability of Portfolio III and the implementation of its modified direction, standard reporting relating to cash Collateral may not be available to the Fund.
3. Miscellaneous. Except to the extent specifically amended by this Amendment, the provisions of the Agreement shall remain unmodified, and the Agreement is ratified and affirmed as being in full force and effect. This Amendment shall be construed in accordance with the laws of the Commonwealth of Massachusetts.
Exhibit (h)(viii)(2)
Execution Version
IN WITNESS WHEREOF, the parties hereto execute this Amendment as an instrument under seal by their duly authorized officers by affixing their signatures below.
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/ Francesco Squillacioti | ||
Name: Francesco Squillacioti |
||
Title: Senior Managing Director |
Exhibit (p)(ii)
State Street Global Advisors
Code of Ethics
Effective: April 15, 2019
Table of Contents | ||||
Overview | 3 | |||
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 | 15 | |||
Exempted Transactions | 15 | |||
Personal Trading Requirements Pre-Clearance | 16 | |||
Administration and Enforcement of the Code of Ethics | 19 | |||
Appendices | ||||
Appendix A Terms and Definitions | 20 | |||
Appendix B Beneficial Ownership of Accounts and Securities | 22 | |||
Appendix C Guide: Requirements by Security Types | 24 | |||
Appendix D Legal Entities and Locations | 26 | |||
Appendix E Country Specific Requirements | 28 | |||
Appendix F Contacts | 33 | |||
Appendix G Code of Ethics Reporting Requirements | 33 | |||
Appendix H Code of Ethics FAQs | 34 |
Information Classification: General | 2 |
State Street Global Advisors Code of Ethics
The Purpose of this Code of Ethics
State Street Global Advisors (the Firm) will not tolerate mis-use of information made available to us for the purpose of making investment decisions or providing advice to our clients. To do so would be a breach of trust that our clients place in us and may also breach securities laws.
What is the Code of Ethics?
The State Street Global Advisors Code of Ethics (the Code) is designed to promote compliance with regulations that apply to our business and to ensure Firm personnel meet expected standards of conduct. The Code is supplemental to the State Street Standard of Conduct, and Firm personnel are required to comply with both.
In certain countries outside the US, local laws, regulations or customs may impose additional requirements. Personnel located in countries outside the US must also refer to Appendix E for information on those additional requirements.
The Ethics Office administers this Code in coordination with State Street Global Advisors Chief Compliance Officer (CCO).
Who is subject to the Code of Ethics?
The Code of Ethics applies to you if: ✓ You are a full-time or part-time employee at State Street Global Advisors; ✓ You are a contingent worker at State Street Global Advisors and have been notified that you are subject to the Code of Ethics; ✓ You are an officer of the registered investment companies managed* by SSGA Funds Management, Inc. (SSGA FM) who is not employed by the Advisors, but is employed by another business unit with access to Firm data such as non-public information regarding any clients purchase or sale of securities, non-public information regarding any clients portfolio holdings, or non-public securities recommendations made to clients; or ✓ The Ethics Office has designated you as a person subject to the Code of Ethics.
For the purposes of the remainder of this document, those personnel who are subject the Code of Ethics will be called Covered Persons. |
Effective: April 15, 2019
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If you are a Covered Person, the requirements of this Code also apply to people related to you, such as spouses, domestic partners, minor children, financial dependents, including adult children and other relatives living in your household if they are financially dependent on you, as well as other persons designated as Covered Persons by the CCO or the Ethics Office, or their designee(s). |
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*This excludes registered investment companies for which SSGA FM serves as sub-adviser. Please see Appendix D for a list of entities included in the definition of Firm for purposes of this Code of Ethics. |
Information Classification: General | 3 |
Covered |
Persons Classifications |
As a Covered Person, you are either an Access Person, Investment Person, or Non-Access Person. Your classification is determined by your access to information. The Ethics Office will notify you of your classification. Your classification may change as your responsibilities and access to information change. It is your responsibility to notify the Ethics Office if your role or level of access to information changes.
Access Person Access Persons are those Covered Persons who:
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as part of their regular functions or duties have access to non-public information about a clients holdings, or a clients previous securities transactions; have access to non-public information about Firm portfolio holdings; or manage or are managed by employees who execute these functions; |
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are officers of the funds; or |
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have been designated as Access Persons by the Firms CCO or the Ethics Office. |
Investment Person Investment Persons are Covered Persons who are involved in or have access to the investment decision-making process, or who have access to information regarding pending securities transactions, or decisions to buy or sell securities on behalf of clients. Investment Persons include those Covered Persons who:
as part of their regular functions or duties, make investment recommendations or decisions on behalf of client portfolios; participate in making investment recommendations or decisions on behalf of client portfolios; are responsible for day-to-day management of a client or proprietary fund portfolio; have knowledge of or access to investment decisions under consideration for a client or proprietary fund portfolio; execute trades on behalf of client or proprietary fund portfolios; have access to information regarding pending trades; analyze and research securities on behalf of client or proprietary fund portfolios; have access to information regarding pending trade orders for any client or proprietary fund portfolio; have access to or knowledge of changes in investment recommendations; have access to mathematical models used by the Firm as basis for investment strategy for client or proprietary fund portfolios; or manage or are managed by employees who execute those functions; or other persons designated as Investment Persons by the Firms CCO or the Ethics Office. |
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Non-Access Persons are Covered Persons who are not categorized as Access Persons or Investment Persons.
Information Classification: General | 4 |
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
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Required Ensure compliance with the Code on the part of your spouse, domestic partner or other Covered Persons [p. 3] 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 confirmations to the Ethics Office [p. 8] Report any actual, attempted, or suspected violation of this policy as soon as you are aware of it [p. 7] Obtain pre-approval from the Ethics Office before participating in investment clubs and investment contests [p. 13] Contact the Ethics Office for any exemption to this Code of Ethics [p. 19] Understand if and how the State Street Securities Trading Policy applies to you [p. 14] Prohibited Do not misuse client or proprietary fund information, or State Street proprietary information for personal gain [p. 13] Do not trade excessively [p. 12] Do not sell securities short [p. 13] Do not trade options or futures on Covered Securities or engage in spread-betting [p. 13] Do not participate in Initial Public Offerings [p. 13]
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Access Persons
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Required Follow all above rules for Covered Persons Pre-Clear trades in Covered Securities [p. 16] Prohibited Do not sell or dispose of positions in Covered Securities for a profit that have been held for less than 60 days [p. 14] |
Investment Persons
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Required Follow all the above rules for Covered Persons and for Access Persons 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. 16] Portfolio Managers: 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] Research Analysts: Do not personally trade Covered Securities in proximity to a recommendation you have made or to which you have access (Research Analyst Waiting Period) [p. 17]. This Rule applies regardless of the direction of trade, nature of recommendation, or amount traded. |
Information Classification: General | 5 |
Information Classification: General | 6 |
Requirements of the Code
General Requirements
Applicable to All Covered Persons
001. 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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002. |
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 Speakup Line (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.
003. 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 employee conduct issue related to the Code may be grounds for action under the State Street Conduct Standards Policy. |
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Annual Certification (All Covered Persons)
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 employee conduct issue with the Code may be grounds for action under the State Street Conduct Standards Policy.
Information Classification: General | 7 |
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. Employees in other regions are encouraged to maintain accounts with Preferred Brokers where available. All Covered Persons must ensure the Ethics Office receives timely and accurate reporting from your broker.
004. |
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 the Firm must also be immediately disclosed in StarCompliance regardless of whether there is any activity in the account. Any Reportable Accounts and holdings that become newly associated with a Covered Person through marriage, gift, inheritance, or any other life event, must be disclosed within 30 days of the event.
005. |
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 Covered Securities within the Reportable Account). This applies to any Reportable Accounts (including Fully Managed Accounts) active during the Covered Persons employment or engagement with the Firm. Covered Persons must ensure that on a regular basis the Ethics Office or their designee(s) receives account statements (e.g. monthly, quarterly statements) listing all transactions for the reporting period. (See Section 007 Filing Quarterly Transaction Reports.)
The Covered Person can accomplish this one of two ways:
a. |
Maintain Reportable Accounts at Approved Brokers (or Preferred Brokers for employees based in non-US jurisdictions, where available). Approved Brokers and Preferred Brokers send electronic feeds to the Ethics Office; Covered Persons are not required to provide paper-based reporting for accounts with Approved Brokers or Preferred 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- Maintain Accounts with Approved Brokers.) |
Information Classification: General | 8 |
b. |
For accounts not on an electronic feed, the Covered Person must supply the Ethics Office with required duplicate documents. Please see Appendix E for regional requirements. |
006. |
Maintain Accounts with Approved Brokers (US Employees) or Preferred Brokers (Non-US employees) |
Unless an exemption applies, Covered Persons must maintain accounts with Approved Brokers or Preferred 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 and Preferred 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 US citizens and are working in the US 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 or Preferred 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.
Information Classification: General | 9 |
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.
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 |
No Reporting Required
● Checking and savings accounts holding only cash
● Government-subsidized pension saving products
● Pension Accounts established under the Hong Kong regulation or Singapore Regulation with no capacity to invest in Covered Securities
● Savings Plans within the course of company pension schemes which only allow unaffiliated open-end mutual funds
● Educational Savings Plans which only allow unaffiliated open-end mutual funds
● Other Registered Commingled Funds (such as IRC 529 Plans in the US)
When in doubt, contact the Ethics Office ethics@statestreet.com |
What are Covered Securities?
For a complete list of Covered Securities, see Appendix C. Some of the most common types are listed below.
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Stocks, including State Street Corp. (STT) |
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Exchange-traded funds (ETFs) |
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Exchange-traded notes (ETNs) |
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Open-ended mutual funds advised by the Firm |
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Municipal and Corporate bonds |
Information Classification: General | 10 |
Information Classification: General | 11 |
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.
007. |
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
a. |
Quarterly Transactions Report For Transactions in Covered Securities are reported on a standardized form in StarCompliance that identifies the date, security, price, volume, amount, and effecting broker of each Covered Security transaction. |
b. |
Quarterly Transactions Report For Newly Established Reportable Accounts reported in StarCompliance Holding ANY Securities (provided there were transactions during the quarter) include the broker dealer or bank with whom the reportable account is held, the date the account was opened, and the date the report was submitted to Ethics. |
c. |
Timing of Transactions Report: No later than 30 calendar days after the end of the calendar quarter |
d. |
Exception from Transactions Report Requirements |
a. |
Transactions effected pursuant to an Automatic Investment Plan as well as transactions in securities that are not Covered Securities, |
b. |
Transactions effected in accounts that are not Reportable accounts are not required to be included in the Quarterly Transaction Report (please see Appendix C), and |
c. |
Transactions effected in a previously-approved Fully Managed Account. |
e. |
Confirmation of Trades |
a. |
Employees must confirm their transactions in StarCompliance after execution and before or simultaneously with their quarterly transaction certification. |
b. |
If an electronic 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 electronic feeds were accurate by checking records in StarCompliance prior to completing a quarterly certification. |
f. |
State Street Employee Incentive Stock Awards |
a. |
STT employee incentive stock awards must be treated as Covered Securities. Employees receiving awards during a quarter should ensure any awards vested during the quarter are appropriately reflected in their holdings, and |
b. |
All employees must preclear any transactions in STT (note, STT employee incentive awards are not subject to the 60 day profit prohibition when they become vested). |
008. |
Excessive Trading |
Excessive trading may interfere with job performance or compromise the duty that the Firm owes to clients and consequently is not permitted. Levels of personal trading will be monitored by the Ethics Office and high levels of
Information Classification: General | 12 |
personal trading will be reported to senior management A pattern of excessive trading may lead to action under the State Street Conduct Standards Policy.
009. |
Futures, Options, Contracts for Difference, and Spread Betting |
Covered Persons are prohibited from buying or selling options and futures on Covered Securities (other than employee stock options). Covered Persons are also prohibited from engaging in Contracts for Difference (CFDs) and spread betting related to Covered Securities.
010. |
Shorting of Securities |
Covered Persons are prohibited from selling securities short.
011. |
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 a 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.
012. |
Private Transactions |
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 confirm the transaction in StarCompliance, verify the details on the next Quarterly Transaction Report, and report the holding on the Annual Holdings Report. If the transaction has already been loaded to the Covered Persons Transaction report, the Covered Person must confirm the transaction in the Quarterly Transacton Report.
Covered Persons may not invest in Private Transactions if the opportunity to invest 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, or if there are any other potential conflicts of interest with State Street business. In determining whether to grant approval for any investment for a Private Transaction, 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 the Firms clients, as well as whether the opportunity to invest 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 in France and Italy.
013. |
Investment Clubs and Investment Contests |
Covered Persons must obtain prior written approval from the Ethics Office before participating in an Investment Club. If approved, the brokerage account(s) of the Investment Club are subject to the Approved Broker, pre-clearance and reporting requirements of the Code. Sharing research or other proprietary information obtained through employment with State Street with Investment Club participants is prohibited.
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.
014. |
Use of the Advisors Proprietary Information |
The Advisors investment recommendations and other Proprietary Information are for the exclusive use of the Advisors and may not be used to inform employees personal investment decisions. Examples of Proprietary Information include but are not limited to:
Information Classification: General |
13 |
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Information about Firm or issuer business strategies, technologies, or ideas; |
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client or proprietary transactions; |
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changes to recommended portfolio weightings, portfolio composition, or target prices for any security; |
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actions to be taken on any corporate actions; |
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research produced by employees of the Firm that could influence client investment decisions, such as employees recommendations in Tamale and ArtPro; or |
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any other information that may reasonably be expected could influence an investors decision-making that has not been made public without violation of law or our policies. |
The definition of Proprietary Information does not include information that has been made public or comes from a service that broadly disseminates published information, such as Bloomberg. You should always assume that information is confidential, and treat it as such, unless it is clearly indicated otherwise. It is our responsibility to protect Proprietary Information and Confidential Information against unintentional, malicious, or unauthorized disclosure or misuse. Any pattern of personal trading suggesting misuse of proprietary information may be investigated. Any misuse or distribution of information that is proprietary, confidential, or non-public is prohibited.
Applicable to Access Persons and Investment Persons
015. |
Short-Term Trading |
All Access Persons and Investment Persons 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 employee conduct issue and may result in action under the State Street Conduct Standards Policy. Any profit amount shall be calculated by the Ethics Office or their designee(s), the calculation of which shall be binding.The following will not be matched with other purchases and sales for purposes of this provision:
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 that cannot be matched to another transaction effected by a Covered Person within 60 days; |
d. |
Involuntary actions such as vested employer stock awards, dividend reinvestments, or other corporate actions; |
e. |
Transactions executed in 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 of in advance. |
Applicable to Targeted Covered Personnel
016. |
State Street Securities |
Certain employees of the Firm are subject to the State Street Securities Trading Policy (SSTP). Employees are notified that they are subject to this Policy and they must comply with all notifications. Regardless of whether a Covered Person has received any notification under the SSTP, each Covered Person must ensure that they have reported any Reportable Account holding State Street securities, and that they have reported in StarCompliance any vested State Street shares acquired through an employee incentive award.
During certain trading windows, employees may be permitted to exercise Employee Incentive Awards without being subject to the blackout and open order rules. 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 State Street Global Advisors Inside Information/Information Barrier Policy and Procedure, as well as the Personal Trading in Securities section of the State Street Standard of Conduct.
Information Classification: General |
14 |
Pre-Clearance The Pre-Clearance requirement mitigates the risk of creating actual or perceived conflicts of interest with the trading activities made on behalf of Firm 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, or in which, your spouse or other Covered family member has an economic interest or control. (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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Exempted Transactions
Pre-clearance is not required for certain common transactions.
Automatic Investment Plans Prior Notification to Ethics Office Required Purchases or sales that are part of an Automatic Investment Plan where the investment decisions are non-discretionary after the initial selections by the account owner (although the initial selection requires pre-clearance). These include dividend reinvestment plans, payroll and employer contributions to retirement plans, transactions in Employee Stock Ownership Programs (ESOPs) and similar services. Initiation of an Automatic Investment Plan must be disclosed to the Ethics Office in advance.
Certain Exempt Covered Securities Transaction(s) in Covered Securities for which the Ethics Office has determined pre-clearance is not required (see Appendix C).
Discretionary Accounts (Fully Managed Accounts) Prior Approval from Ethics Office Required Subject to prior approval of the account from the Ethics Office, transactions made in a Discretionary Account. An account will not be deemed a Discretionary Account until the Ethics Office has approved the account as such.
Certain Educational Savings Plans Transactions in educational savings plans that only allow unaffiliated open-end mutual funds, unit-investment trusts, or other registered commingled products (such as IRC 529 Plans in the US).
Involuntary Transactions Involuntary purchases or sales such as mandatory tenders, dividend reinvestments, broker disposition of fractional shares, debt maturities. Voluntary tenders, transactions executed as a result of a margin call, and other non-mandatory corporate actions are to be pre-cleared, unless the timing of the action is outside the control of the Covered Person, or the Ethics Office has determined pre-clearance is not required for a particular voluntary transaction.
Gifts or Inheritance Covered Securities received via a gift or inheritance, although such Covered Securities must be reported in StarCompliance. Note that pre-clearance is required prior to giving or donating Covered Securities.
|
Information Classification: General |
15 |
Personal Trading Requirements Pre-Clearance
Applicable to Access Persons and Investment Persons
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 or they have beneficial ownership or control.
017. |
Pre-Clearance |
Access Persons and Investment Persons 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 Trade Request for the amount of shares to be transacted in StarCompliance. |
b. |
Pre-clearance is required for donations and/or gifts of securities made. |
Trade requests may be approved or denied at the discretion of the Ethics Office, In general, a transaction will be denied if the Covered Security is on any relevant Restricted List or if the Ethics Office has reason to believe that the Covered Person has access to relevant information concerning the security or the issuer that is intended for the sole purpose of the Firm or its clients. If the Covered Person has access to such information, it is the Covered Persons responsibility not to seek pre-clearance nor to trade in the security even if pre-clearance approval has been granted. For Investment Persons, a transaction may also be denied if the Covered Security is actively being purchased or sold for a client account or account of a Fund, or the Covered Security has been traded within seven days in a portfolio for which they have management discretion.
018. |
Restricted List |
To manage potential conflicts of interest, lists of issuers whose securities (including options and futures) may not be traded are integrated into the pre-clearance approval process. A security that you already own could be placed on a Restricted List at any time. If this happens, you may be unable to sell the security until it is removed from any Restricted List. Employees are not entitled to review any Restricted List.
The contents of any Restricted Lists shall be considered material non-public information and is subject to the considerations of the Inside Information/Information Barrier Policy and Procedure.
019. |
Pre-Clearance Approval |
Pre-clearance approval granted by the Ethics Office is valid only for the same business day the approval is granted and is ineffective on all dates where the relevant Exchange is not open for business . Make note of any expiration time and date displayed on any approved Trade Request. Because approvals are strictly time-limited, Good-till-cancelled orders are not permitted and certain stop-loss strategies may either be prohibited or ineffective. This is a result of the pre-clearance function relying upon point-in-time data in order to have any effect.
Applicable to Investment Persons
020. |
Open Order Rule |
Subject to the de minimis transaction threshold (Section 023-De Minimis Transactions), Investment Persons 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) for any client or proprietary
Information Classification: General |
16 |
fund portfolio until the order is executed or withdrawn (note: Executed trades are considered with regards to the Blackout Period, as outlined below).
021. |
Blackout Period for Portfolio Managers |
Subject to the de minimis transaction threshold described below, Investment Personsl may not buy or sell a Covered Security for seven calendar days before or after a transaction in the same or equivalent security for a client or proprietary fund portfolio with which they are associated. An employee is considered associated with a client or proprietary fund portfolio if they have ability to exercise, or direct, trades for the portfolio.
All Covered Persons are required to avoid placing their personal interest ahead of the interests of the clients of the Advisors. Portfolio Managers associated with portfolios with fundamental strategies must be particularly careful not to engage in personal trading that calls into question whether they have placed their interests ahead of the interest of their clients. Trading in securities personally in advance of similar trades made by the respective Portfolio may lead to questions about the Covered Persons priorities. In such cases, it will be incumbent upon the Covered Person to demonstrate that the clients priorities were not subordinated to their own priorities. Similarly, failing to trade in a security for a Portfolio because of a personal trade that has recently been made is also a subordination of client interest. Covered Persons with responsibility for portfolios with fundamental strategies finding themselves needing to violate the Blackout Period in order to avoid placing their personal interest ahead of the clients interest must inform the Ethics Office. Such violations are subject to action under the State Street Conduct Standards policy.
022. |
Waiting Period for Research Analysts |
Research Analysts with access to tools containing proprietary buy or sell recommendations, who receive internal communications regarding buy or sell recommendations, or participate in investment meetings where buy or sell recommendations are discussed, must refrain from trading in securities that are the subject of such recommendations for their personal account if it could reasonably be presumed that such information was relevant to an investment decision. Examples of recommendations that could reasonably be presumed to be relevant to investment decisions on behalf of client portfolios include but are not limited to buy or sell recommendations, internal analyst upgrades or downgrades related to an issuer, changes to recommended portfolio weightings, portfolio composition, or target prices for any security, or recommendations regarding corporate actions. Examples of information that are not presumed to be relevant to investment decisions include market analyses, economic updates, or financial updates regarding an issuer that do not also include a buy/sell recommendation or ratings analysis. Research Analysts who trade Covered Securities for their personal account in close proximity to proprietary investment recommendations regarding the same issuer should expect heightened monitoring of such trades. If there is a reason to question whether such trades were made on the basis of confidential or proprietary non-public information, it will be incumbent upon the Covered Person to demonstrate otherwise.
Please see Appendix E for additional regional requirements.
023. |
De Minimis Transactions |
De Minimis transactions are subject to the pre-clearance and reporting requirements of the Code; and must follow all holding period and Restricted List requirements of this Code. However, there is a limited exclusion applied for De Minimis transactions in that they are not subject to the Open Order Rule or the Blackout Rule as described above. This exclusion exists because of the breadth and frequency with which securities are being traded across all of the portfolios of the Firm, which would effectively prohibit almost all equity trading by Investment Persons.
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.
Information Classification: General | 17 |
De Minimis Transaction Examples: (All values are in US Dollars)
Status | Transaction(s) | Notes | ||
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 |
StarCompliance will calculate whether a transaction meets the De Minimis thresholds and will take this into account when determining whether to approve or deny a personal trade.
024. Additional Requirements for Fundamental Equity Investment Persons
Investment Personson Fundamental Equity Teams are required to obtain the respective Asset Class CIOs approval before transacting in single name equities and securities that can convert to single name equities for their personal accounts, including but not limited to transactions in stock, preferred stock, warrants, and any security convertible to an equity. This additional preapproval requirement includes the purchase of new positions and purchase of additional shares of existing positions, with the exception of dividend reinvestments and other involuntary corporate actions. With prior approval from the Ethics Office, exceptions from the additional preapproval requirement may be allowed for Fully Managed Accounts. Prior approval can also be requested to transact in securities directly through an employer stock plan or employer stock options, or in circumstances of hardship.
Pre-approvals provided by Asset-Class CIOs will be effected after a trade pre-clearance request has been approved in StarCompliance. Upon receipt of the StarCompliance approval email, the employee shall forward the approval to the appropriate CIO and cc GA_Compliance_CIO_CodeReview. The employee shall provide the Asset Class CIO with any relevant information regarding the trade request. The CIO will review the request and reply all when approving or denying the request. Employees may not trade if the request has been denied by Ethics via StarCompliance or by the CIO. Pre-approvals provided by Asset-Class CIOs expire at the same time and date noted on the StarCompliance pre-approval.
Information Classification: General | 18 |
Administration and Enforcement of the Code
The Code of Ethics is administered by the Ethics Office and reviewed and approved by State Street Global Advisors Global Compliance Committee. Violations of the Code are subject to consideration under the conduct standards framework and the State Street Conduct Standards Policy.
025. 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 US due to local employment practices it is necessary to modify this approach, then the offer letters will be revised in accordance with local law.
026. 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.
027. Review of Reports
The Ethics Office may review and monitor any reports filed by Covered Persons. Covered Persons and their supervisors may or may not be notified of the Ethics Offices review.
028. Violations and Sanctions
Any potential employee conduct issues related to the provisions of the Code may be investigated. If a determination is made that an employee conduct issue occurred, the issue will be addressed under the State Street Conduct Standards Policy. Material violations will be reported promptly to the respective Firm Committees, boards of trustees/managers of the Reportable Funds or relevant committees of the boards and, when relevant, impacted clients. Please see Appendix E for additional regional requirements.
029. 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.
030. Recordkeeping
The Ethics Office shall maintain records in accordance with the requirements set forth in applicable securities laws.1
1 In the US, recordkeeping 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.
Information Classification: General | 19 |
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 the Firm, including but not limited to consultants, contractors, and temporary help, as well as an employee of another business unit with access to Firm data such as non-public information regarding any clients purchase or sale of securities, non-public information regarding any clients portfolio holdings, or non-public securities recommendations made to clients (SSGS APAC, corporate functions, etc.);
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).
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 or 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.
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 Firm 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 an account Beneficially Owned by you or your Related Persons in which you or your Related Persons have ceded all direct control, influence, and approval, and have contractually assigned responsibility for the timing and nature of all trades and all day-to-day investment management decisions to an independent party. For the purpose of this
Information Classification: General | 20 |
Policy, the Ethics Office is required to approve in advance account arrangements qualifying as fully managed accounts.
Private Transaction means a securities offering that is executed outside of a recognized securities exchange. Examples of private transactions include private placements, co-operative investments in real estate, commingled investment vehicles such as hedge funds, investments in family owned or privately held businesses, private company shares, and Initial Coin or Token Offerings promoted by a Decentralized Autonomous Organization (DAO)2 where there is investment in a venture or project for expectation of profit. 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 in France and Italy.
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.
State Street Global Advisors Compliance Department means all global Firm 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 the Firm.
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.
2 A virtual organization embodied in computer code and executed on a distributed ledger of blockchain.
Information Classification: General | 21 |
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).
Information Classification: General | 22 |
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. |
|
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.
Information Classification: General | 23 |
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.
Information Classification: General | 24 |
Information Classification: General | 25 |
Appendix D
State Street Global Advisors Legal Entities and Locations
Entity
|
Country
|
|
Managed Pension Funds Limited
|
U.K. | |
SSGA Funds Management, Inc.
|
US | |
SSGA Ireland Unit Trust Management Limited
|
Ireland | |
SSGA Japan Holdings GK
|
Japan | |
SSGA Private Funds LLC
|
US | |
SSGA Singapore Limited Hong Kong Branch
|
Hong Kong | |
State Street Bank and Trust Company (Atlanta Representative Office)
|
US | |
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)
|
US | |
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.
|
US | |
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.
|
US | |
State Street Global Advisors, LTD
|
Canada | |
State Street Global Advisors, LTD - Rep Office - Toronto, Canada
|
Canada | |
State Street Global Advisors, Mauritius
|
Mauritius | |
State Street Unit Trust Management Limited
|
U.K. |
Information Classification: General | 26 |
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 employee conduct issue.
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, State Street Global Advisors Limited must take reasonable steps to ensure that any investment activities conducted by Covered Persons do not conflict with the firms 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 State Street Global Advisors France 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 State Street Global Advisors France
|
Provisions of the Internal Regulation, as updated on July 1, 2011 |
Information Classification: General | 28 |
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 State Street Global Advisors France 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 State Street Global Advisors France may carefully examine the facts and take corrective measures.
Covered Persons may identify themselves in order to allow State Street Global Advisors France 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 State Street Global Advisors France 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.
State Street Global Advisors France 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 employee conduct issues related to 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 State Street Global Advisors Frances Internal Regulation. If a determination is made that an employee conduct issue has occurred, the issue will be addressed under the State Street Conduct Standards Policy and enforcement actions, modified where necessary per Internal Regulation, may be imposed by the employer, State Street Global Advisors France. Material violations will be reported promptly to the respective Firm 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.
Information Classification: General | 29 |
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 State Street Global Advisors, 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 State Street Global Advisors France), or at the Labor Inspectorate located at State Street Global Advisors, 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.
Publicity and Entry into Force
This Code, which has been filed in France with the secretariat of the clerk of the Labor Court of State Street Global Advisors, 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 State Street Global Advisors France.
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 State Street Global Advisors Frances premises.
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.
Italy
At the date of this Code, the Firms Covered Persons are required in Italy to comply, in addition to the Code, with the following provisions:
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Laws and regulations
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Legislative Decree No. 58 of 24 February 1998, as amended (the Italian Financial Act), containing, inter alia, general provisions concerning investment services; |
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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; |
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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; |
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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.
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 the Firm, 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 employee conduct issue of an interest vital to the Firm 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 the Firm may carefully examine the facts and the Ethics Office may take corrective measures.
Covered Persons should identify themselves in order to allow the Firm 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 the Firm will not take any sanctions or retaliatory measures against a Covered Person for reporting suspected employee conduct issues 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.
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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 the Firm 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 the Firm and are to be considered in addition to the provisions contained in the disciplinary code in force within the Italian branch of the Firm.
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 employee conduct issue has occurred, a sanction may be imposed in accordance with the State Street Conduct Standards Policy and pursuant to the rules established by Italian Law and by the applicable national collective bargaining agreement.
As discussed in the State Street Conduct Standards Policy, 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.
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.
The Firm 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.
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.
All Countries
Personal Data
Refer to the Global Privacy and Personal Data Protection Standard (Standard) for the minimum requirements on how to handle and protect personal data in all jurisdictions in which State Street operates. Also reference the regional addenda to the Standard for any laws of a specific country that may require additional privacy or data protection measures.
Information Classification: General | 32 |
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)
Speak Up Line
https://secure.ethicspoint.com/domain/media/en/gui/55139/index.html
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).
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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 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. | |||
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 unless you have chosen to participate in the linked brokerage account option, in which case the linked brokerage account does need to be reported. 401(k) and other self-invested workplace pension accounts are reportable where you or your Covered Persons have investment discretion beyond that of allocating a monthly value to a specific risk profile or sector, or selecting from a limited number of pre-selected funds.
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 lineup 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:
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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. |
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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. |
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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.
I have an account with an Approved or Preferred 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 Trade Request in StarCompliance. Trade Requests: |
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Must be for the correct security, account, and trade direction (buy vs. sell). |
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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. |
(2) |
Are valid only for the day they are approved. Wait for the result (Approved or Denied) from Star before trading. Youll typically receive the result within seconds on screen and will receive an email with the results. Trade Request approvals are valid only for the day they are approved. Make note of the expiration time and date for any approved Trade Request. |
(3) |
Ensure your transactions are accurately reflected in Star. |
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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. |
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When you submit your Quarterly Transactions Report, it must accurately reflect all Reportable Transactions for the quarter. |
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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 Trade Request in StarCompliance. Trade Requests: |
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Must be for the correct security, account, and trade direction (buy vs. sell). |
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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. |
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Are valid only for the day they are approved. |
(2) |
Wait for the result (Approved or Denied) from Star before trading. Youll typically receive the result within seconds on screen and will receive an email with the results. Trade Request approvals are valid only for the day they are approved. Make note of any expiration time and date for any approved Trade Request. |
(3) |
Ensure your transactions are accurately reflected in Star. |
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You are required to do this on a quarterly basis (known as the Quarterly Transactions Report), but many people find it easier to use the StarCompliance Execute function after they trade. The StarCompliance User Guide provides step-by-step instructions. |
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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 M. Carpenter, Bruce S. Rosenberg, Chad C. Hallett, Arthur A. Jensen, Darlene Anderson-Vasquez, Daniel Foley, Sujata Upreti, Daniel G. Plourde, Sean OMalley, Esq., Andrew DeLorme, Esq., James E. Goundrey, Esq., Kevin Morris, Esq., David Urman, Esq., Timothy R. Collins, Esq., and Estefania Salomon, Esq., and each of them singly and with full powers of substitution and resubstitution, 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, and in any and all capacities indicated below, the Registration Statements on Form N-1A, and any and all amendments thereto, and all other documents, filed by each 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 each 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 each 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 each Trust concerning the filings and actions described herein. This Power of Attorney shall become invalid with respect to any Trustee or Officer of each Trust upon such Trustees retirement, resignation or removal as a Trustee or Officer of such Trust.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the 22nd day ofAugust, 2019.
SIGNATURE | TITLE | |
/s/ Bonny E. Boatman | Trustee | |
Bonny E. Boatman | ||
/s/ Dwight Churchill | Trustee | |
Dwight Churchill | ||
/s/ Frank Nesvet | Trustee | |
Frank Nesvet | ||
/s/ Clare Richer | Trustee | |
Clare Richer |
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/s/ Sandra G. Sponem | Trustee | |
Sandra G. Sponem | ||
/s/ Carl G. Verboncoeur | Trustee | |
Carl G. Verboncoeur | ||
/s/ James E. Ross | Trustee | |
James E. Ross | ||
/s/ Ellen M. Needham | President and Principal Executive Officer | |
Ellen M. Needham | ||
/s/ Bruce S. Rosenberg | Treasurer and Principal Financial Officer | |
Bruce S. Rosenberg |
2