As filed with the Securities and Exchange Commission on August 8, 2008
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 / X /
Post-Effective Amendment No. 34 / X /
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 36 / X /
SPDR(R) SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
One Lincoln Street
Boston, Massachusetts 02111
(Address of Principal Executive Offices)
Registrant's Telephone Number: (866) 787-2257
Ryan M. Louvar, Esq.
State Street Bank and Trust Company
One Lincoln Street/CPH0316
Boston, Massachusetts 02111
(Name and Address of Agent for Service)
Copies to:
W. John McGuire, Esq.
Morgan, Lewis and Bockius LLP
1111 Pennsylvania Ave., NW
Washington, DC 20004
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485, paragraph (b)
[ ] on _________________ pursuant to Rule 485, paragraph (b)
[ ] 60 days after filing pursuant to Rule 485, paragraph (a)(1)
[ ] on _________________ pursuant to Rule 485, paragraph (a)(1)
[X] 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.
SUBJECT TO COMPLETION. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS 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(R) SERIES TRUST
PROSPECTUS
SPDR(R) LEHMAN SHORT TERM INTERNATIONAL TREASURY BOND ETF
______ __, 2008
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES IN THE FUND ARE NOT
GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
AGENCY OF THE U.S. GOVERNMENT, NOR ARE SHARES DEPOSITS OR OBLIGATIONS OF ANY
BANK. SUCH SHARES IN THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE LOSS OF
PRINCIPAL.
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THIS PAGE IS INTENTIONALLY LEFT BLANK.
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TABLE OF CONTENTS
OVERVIEW OF THE FUND............................................... 4
Who Should Invest?.............................................. 4
Principal Strategies of the Fund................................ 4
Principal Risks of the Fund..................................... 6
DESCRIPTION OF THE FUND............................................ 7
PERFORMANCE BAR CHART AND TABLE.................................... 9
FEES AND EXPENSES.................................................. 10
Example......................................................... 11
Creation Transaction Fee and Redemption Transaction Fee......... 12
ADDITIONAL INDEX INFORMATION....................................... 13
ADDITIONAL INVESTMENT STRATEGIES, RISKS AND OTHER CONSIDERATIONS... 13
Additional Investment Strategies................................ 13
Additional Risks................................................ 14
Other Considerations............................................ 15
MANAGEMENT......................................................... 15
INDEX/TRADEMARK LICENSES/DISCLAIMERS............................... 16
DETERMINATION OF NET ASSET VALUE................................... 17
BUYING AND SELLING THE FUND........................................ 17
PURCHASE AND REDEMPTION OF CREATION UNITS.......................... 17
DISTRIBUTIONS...................................................... 19
PORTFOLIO HOLDINGS................................................. 20
TAX MATTERS........................................................ 21
GENERAL INFORMATION................................................ 23
FINANCIAL HIGHLIGHTS............................................... 24
WHERE TO LEARN MORE ABOUT THE FUND................................. 25
Back Cover
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3
OVERVIEW OF THE FUND
The investment portfolio, SPDR Lehman Short Term International Treasury
Bond ETF (the "Fund"), offered by this Prospectus as described herein is a
series of SPDR Series Trust (the "Trust").
The Fund, using an "indexing" investment approach, seeks to replicate as
closely as possible, before fees and expenses, the price and yield performance
of the Lehman Brothers 1-3 Year Global Treasury ex-US Capped Index (the
"Index"). For more information regarding the Index, please refer to the
"Additional Index Information" section of this Prospectus. SSgA Funds
Management, Inc. (the "Adviser") serves as investment adviser to the Fund.
The shares of the Fund (the "Shares") are listed on a national securities
exchange (the "Exchange"). The Shares trade on the Exchange at market prices
that may differ to some degree from the Shares' net asset values. The 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," generally in
exchange for cash or, at the Fund's discretion, in-kind for securities included
in its Index. Except when aggregated in Creation Units, the Shares are not
redeemable securities of the Fund.
WHO SHOULD INVEST?
The Fund is designed for investors who seek a relatively low-cost "passive"
approach for investing in a portfolio of securities as represented in the Fund's
Index. The Fund may be suitable for long-term investment in the market or sector
represented in the Index. Shares of the Fund may also be used as an asset
allocation tool or as a speculative trading instrument. Unlike many conventional
mutual funds, which are only bought and sold at closing net asset values, the
Fund's Shares are listed on the Exchange and trade in a secondary market on an
intraday basis and can be created and redeemed in Creation Units at the Fund's
next calculated daily net asset value.
PRINCIPAL STRATEGIES OF THE FUND
The Adviser seeks a correlation of 0.95 or better between the Fund's
performance and the performance of the Index; however, a number of factors may
affect the Fund's ability to achieve a high correlation with its Index,
including the degree to which the Fund utilizes a sampling methodology (as
described below). There can be no guarantee that the Fund will achieve a high
degree of correlation. A correlation of 1.00 would represent perfect
correlation.
The Adviser will utilize a sampling methodology in seeking to achieve the
Fund's investment objective. Sampling means that the Adviser uses quantitative
analysis to select securities that represent a sample of securities in the Index
that has a similar investment profile as the Index in terms of key risk factors,
performance attributes and other characteristics. These include industry
weightings, market capitalization and other financial characteristics of
securities. The quantity of holdings in the Fund will be based on a number of
factors, including asset size of the Fund. The Adviser generally expects the
Fund to hold less than the total number of securities in the Index, but reserves
the right to hold as many securities as it believes necessary to achieve the
Fund's investment objective.
In addition, from time to time, securities are added to or removed from the
Index. The Adviser may sell securities that are represented in the Index, or
purchase securities that are not yet represented in the Index, in anticipation
of their removal from or addition to the Index. Further, the Adviser may choose
to overweight securities in the Index, purchase or sell securities not in the
Index, or utilize various combinations of other available investment techniques,
in seeking to track the Index.
The Adviser will normally invest at least 80% of the Fund's total assets in
fixed-income securities that comprise the Index or in fixed-income securities
that the Adviser has determined have economic characteristics that are
substantially identical to the characteristics of the securities that comprise
the Index. For purposes of this policy, the term "assets" means net assets plus
the amount of borrowings for investment purposes. The Fund will provide
shareholders with at least 60 days notice prior to any material change in this
80% investment policy or the Index. This percentage limitation applies at the
time of investment. The Fund may also invest its other assets in securities not
included in its benchmark Index, but which the Adviser believes will help the
Fund track the Index, as well as in certain futures, options, swap contracts and
other derivatives, cash and cash equivalents or money market instruments, such
as repurchase agreements and money market funds (including affiliated money
market funds). The Fund will generally concentrate its investments (i.e., hold
25% or more of its total assets) in a particular industry or sector to
approximately the same extent that the Index is so concentrated. For purposes of
this limitation, securities of the U.S. government (including its agencies and
instrumentalities), repurchase agreements collateralized by U.S. government
securities and securities of state or municipal governments and their
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political subdivisions are not considered to be issued by members of any
industry. The Fund is non-diversified and, as a result, may invest a larger
percentage of its assets in securities of a single issuer than that of a
diversified fund.
The Fund has adopted a non-fundamental investment policy to invest at least
80% of its assets in investments suggested by its name. For purposes of this
policy, the term "assets" means net assets plus the amount of borrowings for
investment purposes. This percentage limitation applies at the time of
investment. The Fund will provide shareholders with at least 60 days notice
prior to any material change in this 80% policy. The Board of Trustees of the
Trust (the "Board") may change the Fund's investment strategy, Index and other
policies without shareholder approval, except as otherwise indicated. The Board
may also change the Fund's investment objective without shareholder approval.
5
PRINCIPAL RISKS OF THE FUND
THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY
INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN
THE FUND IS NOT A DEPOSIT WITH A BANK AND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
SAMPLING
INDEX INTEREST
INDEX MARKET TRACKING MANAGEMENT NON-DIVERSIFIED INCOME RATE CREDIT CALL DERIVATIVES ISSUER
RISK RISK RISK RISK RISK RISK RISK RISK RISK RISK RISK
----- ------ -------- ---------- --------------- ------ -------- ------ ---- ----------- ------
SPDR LEHMAN SHORT TERM [X] [X] [X] [X] [X] [X] [X] [X] [X] [X] [X]
INTERNATIONAL
TREASURY BOND ETF
FOREIGN EMERGING
CONCENTRATION SECURITIES MARKET
RISK RISK RISK
------------- ---------- --------
SPDR LEHMAN SHORT TERM [X] [X] [X]
INTERNATIONAL
TREASURY BOND ETF
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6
DESCRIPTION OF THE FUND
SPDR LEHMAN SHORT TERM INTERNATIONAL TREASURY BOND ETF
(SYMBOL: [_])
Investment Objective. The Fund's investment objective is to provide
investment results that, before fees and expenses, correspond generally to the
price and yield performance of an index that measures the short-term (1-3 year
remaining maturity) fixed rate, investment grade debt issued by foreign
governments of developed countries. There is no assurance the Fund will achieve
its investment objective.
Principal Investment Strategies. The Fund uses a passive management
strategy designed to track the price and yield performance of the Lehman
Brothers 1-3 Year Global Treasury ex-US Capped Index. The Index measures the
performance of fixed-rate local currency sovereign debt of investment-grade
countries outside the United States that have remaining maturities of one to
three years. As of [_______ __], 2008 there were [__] issues from 20 countries
denominated in 12 currencies included in the Index and the average dollar
weighted maturity of the issues was [____] years.
The Fund does not intend to purchase all of the securities in its Index,
but rather will utilize a "sampling" methodology in seeking to achieve the
Fund's objective. The quantity of holdings in the Fund will be based on a number
of factors, including asset size of the Fund. The Adviser generally expects the
Fund to hold less than the total number of securities in its Index, but reserves
the right to hold as many securities as it believes necessary to achieve the
Fund's investment objective.
Principal Risks. The Fund is subject to the following risks, as identified in
PRINCIPAL RISKS OF THE FUND under "Overview of the Fund" above. Also see
ADDITIONAL RISKS under "Additional Investment Strategies, Risks and Other
Considerations."
INDEX RISK: Unlike many investment companies, the Fund is not actively
"managed." Therefore, the Fund would not sell a fixed-income security because
the security's issuer was in financial trouble unless that security is removed
from the Index. The Fund may not perform the same as the Index due to tracking
error.
MARKET RISK: An investment in the Fund involves risks similar to those of
investing in any fund of short-term fixed-income securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in bond prices. You should
anticipate that the value of the Shares will decline, more or less, in
correlation with any decline in value of the Index. The values of fixed-income
securities could decline generally or could underperform other investments.
Different types of fixed-income securities tend to go through cycles of
out-performance and under-performance in comparison to the general securities
markets.
SAMPLING INDEX TRACKING RISK: The Fund's return may not match or achieve a high
degree of correlation with the return of the Index for a number of reasons. For
example, the Fund incurs a number of operating expenses not applicable to the
Index, and also incurs costs in buying and selling securities, especially when
rebalancing the Fund's securities holdings to reflect changes in the composition
of the Index, or representative sample of the Index. The Fund may not be fully
invested at times, either as a result of cash flows into the Fund or reserves of
cash held by the Fund to meet redemptions and pay expenses. Because the Fund
will utilize a sampling approach and may hold futures or other derivative
positions, its return may not correlate as well with the return on the Index, as
would be the case if the Fund purchased all of the fixed-income securities in
the Index.
MANAGEMENT RISK: Because the Fund may not fully replicate its Index and may hold
less than the total number of securities in its Index, the Fund is subject to
management risk. This is the risk that the Adviser's security selection process,
which is subject to a number of constraints, may not produce the intended
results.
NON-DIVERSIFIED RISK: The Fund is non-diversified and, as a result, may have
greater exposure to volatility than other funds. Because a non-diversified fund
may invest a larger percentage of its assets in securities of a single issuer
than that of a diversified fund, the performance of that issuer can have a
substantial impact on the Fund's share price. The Fund intends to maintain the
required level of diversification so as to qualify as a "regulated investment
company" for purposes of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), in order to avoid liability for federal income tax to
the extent that its earnings are distributed to shareholders. Compliance with
diversification requirements of the Internal Revenue Code could limit the
investment flexibility of the Fund.
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INCOME RISK: The Fund's income may decline due to falling interest rates. During
a period of falling interest rates, income is generally higher for short term
bond funds, moderate for intermediate term bond funds and low for long term bond
funds. Therefore, investors should expect the Fund's monthly income to fluctuate
accordingly.
INTEREST RATE RISK: Interest rate risk is the risk that the securities in the
Fund's portfolio will decline in value because of increases in market interest
rates. Debt securities with longer durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations. See discussion of "Additional Index
Information" below regarding the duration of securities in the Index.
CREDIT RISK: The Fund could lose money if the foreign government is unable to
meet its principal obligations in a timely manner, or if negative perceptions of
the issuer's ability to make such payments will cause the price of the bond to
decline. The Fund generally will be subject to more credit risk than funds that
invest primarily in bonds issued by U.S. government agencies and
instrumentalities.
CALL RISK: The Fund may invest in callable bonds, and such foreign governments
may "call" or repay securities with higher coupon or interest rates before the
security's maturity date. If interest rates are falling, the Fund may have to
reinvest the unanticipated proceeds at lower interest rates, resulting in a
decline in the Fund's income.
DERIVATIVES RISK: A derivative is a financial contract the value of which
depends on, or is derived from, the value of an underlying asset such as a
security or an index. The Fund may invest in futures contracts and other
derivatives. Compared to conventional securities, derivatives can be more
sensitive to changes in interest rates or to sudden fluctuations in market
prices and thus the Fund's losses may be greater if it invests in derivatives
than if it invests only in conventional securities.
ISSUER RISK: There may be economic or political changes that impact the ability
of issuers to repay principal and to make interest payments on securities.
Changes to the financial condition or credit rating of issuers may also
adversely affect the value of the Fund's securities.
CONCENTRATION RISK: The Fund's assets will generally be concentrated in an
industry or group of industries to the extent that the Fund's Index concentrates
in a particular industry or group of industries. By concentrating its assets in
a single industry or group of industries, the Fund is subject to the risk that
economic, political or other conditions that have a negative effect on that
industry or group of industries will negatively impact the Fund to a greater
extent than if the Fund's assets were invested in a wider variety of industries.
FOREIGN SECURITIES RISK: Foreign securities involve special risks and costs.
Investment in foreign securities may involve higher costs than investment in
U.S. securities, including higher transaction and custody costs as well as the
imposition of additional taxes by foreign governments. Foreign investments may
also involve risks associated with the level of currency exchange rates, less
complete financial information about the issuers, less market liquidity, more
market volatility and political instability. Future political and economic
developments, the possible imposition of withholding taxes on dividend income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or freezes on the convertibility of currency,
or the adoption of other governmental restrictions might adversely affect an
investment in foreign securities. Changes to the financial condition or credit
rating of foreign issuers may also adversely affect the value of the Fund's debt
securities. Additionally, foreign issuers may be subject to less stringent
regulation, and to different accounting, auditing and recordkeeping
requirements.
Currency Risk. Because the Fund's net asset value is determined on the
basis of U.S. dollars, the Fund may lose money if the local currency of a
foreign market depreciates against the U.S. dollar, even if the local
currency value of the Fund's holdings goes up.
Political and Economic Risk. The Fund invests in sovereign debt securities,
which are generally riskier than debt securities issued by the U.S.
government, its agencies and instrumentalities. As a result, the Fund is
subject to foreign political and economic risk not associated with U.S.
investments, meaning that political events (civil unrest, national
elections, changes in political conditions and foreign relations,
imposition of exchange controls and repatriation restrictions), social and
economic events (labor strikes, rising inflation) and natural disasters
occurring in a country where the Fund invests could cause the Fund's
investments in that country to experience gains or losses. The Fund also
could be unable to enforce its ownership rights or pursue legal remedies in
countries where it invests.
Foreign Market and Trading Risk. The trading markets for many foreign
securities are not as active as U.S. markets and may have less governmental
regulation and oversight. Foreign markets also may have clearance and
settlement procedures that make it
8
difficult for the Fund to buy and sell securities. These factors could
result in a loss to the Fund by causing the Fund to be unable to dispose of
an investment or to miss an attractive investment opportunity, or by
causing Fund assets to be uninvested for some period of time.
EMERGING MARKETS RISK: Some foreign markets in which the Fund may invest are
considered to be emerging markets. Investment in these emerging markets subjects
the Fund to a greater risk of loss than investments in a developed market. This
is due to, among other things, greater market volatility, lower trading volume,
political and economic instability, high levels of inflation, deflation or
currency devaluation, greater risk of market shut down, and more governmental
limitations on foreign investment policy than those typically found in a
developed market. These economies are less developed and can be overly reliant
on particular industries and more vulnerable to changes in international trade,
trade barriers and other protectionist or retaliatory measures. High levels of
debt tend to make emerging economies heavily reliant on foreign capital and
vulnerable to capital flight and the volatility of emerging markets may be
heightened by the actions of a few major investors. Some governments exercise
substantial influence over the private economic sector and the social and
political uncertainties that exist for many developing countries is significant.
In adverse social and political circumstances, governments have been involved in
policies of expropriation, confiscatory taxation, nationalism, intervention in
the securities markets and trade settlement, and imposition of foreign
investment restrictions and exchange controls, and these could be repeated in
the future. In certain emerging markets, investments may be subject to
heightened risks with regard to ownership and custody of securities. For
example, security ownership may be evidenced by entries in the books of a
company or its registrar, which may not be independent of the issuer, instead of
through a central registration system and without effective government
supervision. Particularly with respect to the Fund's investment in actual
foreign securities, the possibility of fraud, negligence, undue influence being
exerted by the issuer or refusal to recognize ownership exists could, along with
other factors, result in the registration of the Fund's shareholding being
completely lost and cause the Fund to suffer an investment loss. For these and
other reasons, investments in emerging markets are often considered speculative.
PERFORMANCE
BAR CHART AND TABLE
The Fund is new and has not yet completed a full calendar year of
investment operations and therefore does not have any performance history. Once
the Fund has completed a full calendar year of operations, a bar chart and table
will be included that will provide some indication of the risks of investing in
the Fund by showing the variability of the Fund's returns based on net assets
and comparing the Fund's performance to its Index, which is a broad based
securities index.
9
FEES AND EXPENSES
This table describes the estimated fees and expenses that you may pay if
you buy and hold Shares of the Fund. (1)
SHAREHOLDER FEES
(fees paid directly from your investment, but see "Purchase and Redemption of
Creation Units" for a discussion of Creation and Redemption Transaction Fees).. [_]%
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from the Fund's assets)(2)
Management Fees................................................................ [_]
Distribution and Service (12b-1) Fees(3)....................................... [_]%
Other Expenses(4)(5)........................................................... [_]%
TOTAL ANNUAL FUND OPERATING EXPENSES.............................................. [_]%
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(1) You will incur customary brokerage commissions when buying and selling
Shares of the Fund.
(2) Expressed as a percentage of average daily net assets.
(3) The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to
which payments of up to 0.25% of average daily net assets may be made,
however, the Board has determined that no such payments will be made during
the next 12 months of operation. Any forgone 12b-1 fees during the next 12
months will not be recoverable during any subsequent period.
(4) The Trust's Investment Advisory Agreement provides that the Adviser will
pay the operating expenses of the Trust, except for the management fees,
distribution fees pursuant to a Distribution and Service (12b-1) Plan, if
any, brokerage, taxes, interest, fees and expenses of the Independent
Trustees (including any Trustee's counsel fees), litigation expenses,
acquired fund fees and expenses and other extraordinary expenses. "Other
Expenses" are therefore estimated to be less than 0.01% for the fiscal year
ending June 30, 2009.
(5) The Fund had not commenced operations as of the date of this Prospectus.
"Other Expenses" (and therefore "Total Annual Fund Operating Expenses") are
estimates based on the anticipated expenses that are expected to be
incurred for the fiscal year ending June 30, 2009.
10
EXAMPLE
This example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other funds. The Fund creates and redeems
Shares in Creation Units. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT
REDEEMABLE. An investor purchasing a Creation Unit would pay the following
expenses on a $10,000 investment, assuming a 5% annual return and that the
Fund's operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE
PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR
ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUND ONLY IN
CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR
ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED
FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
1 3
YEAR YEARS
---- -----
($) ($)
SPDR Lehman Short Term International Treasury Bond ETF... [_] [_]
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11
CREATION TRANSACTION FEE AND REDEMPTION TRANSACTION FEE
The Fund issues and redeems shares at net asset value only in large blocks
of 200,000 Shares or other aggregations thereof called Creation Units.
Generally, only institutions or large investors purchase or redeem Creation
Units. A standard transaction fee is charged to each purchase or redemption of
Creation Units as set forth in the table later in this Prospectus under
"Purchase and Redemption of Creation Units." The transaction fee is a single
charge and will be the same regardless of the number of Creation Units purchased
or redeemed on the same day. An additional variable charge to compensate for
brokerage and market impact expenses may be applied to each creation and
redemption transaction. The maximum additional variable charge for cash
redemptions and subscriptions will be a percentage of the value of the Deposit
Securities (defined below), which will [not exceed] [2.00%]. Investors who hold
Creation Units will also pay the annual Fund operating expenses described under
"Fees and Expenses" earlier in this Prospectus.
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ADDITIONAL INDEX INFORMATION
INDEX PROVIDER DESCRIPTION
Lehman Brothers serves the financial needs of corporations, governments and
municipalities, institutional clients, and high net worth individuals worldwide.
Founded in 1850, Lehman Brothers maintains leadership positions in equity and
fixed-income sales, trading and research, investment banking, private investment
management, asset management and private equity. The firm is headquartered in
New York, with regional headquarters in London and Tokyo, and operates in a
network of offices around the world.
Since its creation in 1973, the Lehman Brothers Global Family of Indices has
expanded to provide comprehensive performance and risk measurements for all
major bond markets. As global investors have increasingly focused on total
returns, the firm's bond indices have grown to become essential tools for
investors to gauge the performance of their portfolios and for issuers to gauge
their cost of capital. Lehman Brothers' Global Fixed-income Research covers the
full range of economic, quantitative, strategic, credit, relative value, index
and portfolio analyses. The group consists of more than 300 professionals based
in the United States, the U.K., Japan and Hong Kong. Lehman Brothers is one of
the world's leading producers of bond market indices.
LEHMAN BROTHERS 1-3 YEAR GLOBAL TREASURY EX-US CAPPED INDEX
The Index includes government bonds issued by investment-grade countries outside
the United States, in local currencies, that have remaining maturities of one to
three years and are rated investment grade (Baa3/BBB-/BBB- or higher using the
middle rating of Moody's Investor Service, Inc., Standard & Poor's, and Fitch
Inc., respectively). Each of the component securities in the Index is a
constituent of the Lehman Global Treasury ex-US Index, screened such that the
following countries are included: Australia, Austria, Belgium, Canada, Denmark,
France, Germany, Greece, Italy, Japan, Korea, Mexico, Netherlands, Poland, South
Africa, Spain, Sweden, Taiwan, and United Kingdom. In addition, the securities
in the Index must be fixed-rate and have certain minimum amounts outstanding,
depending upon the currency in which the bonds are denominated. As of [_], the
modified adjusted duration of securities in the Index was [_] years. The Index
is calculated by Lehman Brothers using a modified "market capitalization"
methodology. This design ensures that each constituent country within the Index
is represented in a proportion consistent with its percentage with respect to
the total market capitalization of the Index. Component securities in each
constituent country are represented in a proportion consistent with their
percentage relative to the other component securities in the constituent
country. Under certain conditions, however, the par amount of a component
security within the Index may be adjusted to conform to Internal Revenue Code
requirements. See "Construction and Maintenance Standards for the Index" under
"GENERAL DESCRIPTION OF THE TRUST" in the Statement of Additional Information.
The securities in the Index are updated monthly, on the last business day of
each month.
ADDITIONAL INVESTMENT STRATEGIES, RISKS AND
OTHER CONSIDERATIONS
ADDITIONAL INVESTMENT STRATEGIES
The Fund may invest its remaining assets in money market instruments,
including repurchase agreements, or funds that invest exclusively in money
market instruments, including affiliated money market funds (subject to
applicable limitations under the Investment Company Act of 1940, as amended (the
"1940 Act")); convertible securities; variable rate demand notes (VRDNs); tax
exempt commercial paper; structured notes (notes on which the amount of
principal repayment and interest payments are based on the movement of one or
more specified factors such as the movement of a particular security or index),
swaps and in options and futures contracts. Swaps, options and futures
contracts, convertible securities and structured notes may be used by the Fund
in seeking performance that corresponds to the Index and in managing cash flows.
The Fund will not take temporary defensive positions. The Adviser anticipates
that, under normal circumstances, it may take approximately five business days
for additions and deletions to the Index to be reflected in the portfolio
composition of the Fund.
Borrowing Money. The Fund may borrow money from a bank up to a limit of 10%
of the value of its assets, but only for temporary or emergency purposes.
Lending Securities. The Fund may lend its portfolio securities in an amount
not to exceed one-third (33 1/3%) of the value of its total assets via a
securities lending program through State Street Bank and Trust Company ("State
Street") to brokers, dealers and other financial institutions desiring to borrow
securities to complete transactions and for other purposes. A securities lending
program allows the Fund to receive a portion of the income generated by lending
its securities and investing the respective collateral. The Fund
13
will receive collateral for each loaned security which is marked to market each
trading day. In the securities lending program, the borrower generally has the
right to vote the loaned securities, however the Fund may call loans to vote
proxies if a material issue affecting the investment is to be voted upon. Such
loans may be terminated at any time by the Fund.
Forward Currency Exchange Contracts. The Fund 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. Foreign
currency exchange contracts will be used at the discretion of the Adviser, and
the Fund is not required to hedge its foreign currency positions. A forward
currency contract is an obligation to exchange one currency for another on a
future date at a specified exchange rate. Forward currency contracts are
privately negotiated transactions, and can have substantial price volatility.
When used for hedging purposes, they tend to limit any potential gain that may
be realized if the value of the Fund's foreign holdings increases because of
currency fluctuations.
ADDITIONAL RISKS
Trading Issues. Although Shares are listed for trading on the Exchange,
there can be no assurance that an active trading market for such Shares will
develop or be maintained. Trading in Shares on the Exchange may be halted due to
market conditions or for reasons that, in the view of the Exchange, make trading
in Shares inadvisable. In addition, trading in Shares on the Exchange is subject
to trading halts caused by extraordinary market volatility pursuant to Exchange
"circuit breaker" rules. There can be no assurance that the requirements of the
Exchange necessary to maintain the listing of the Fund will continue to be met
or will remain unchanged.
Fluctuation of Net Asset Value. The net asset value of the Shares will
generally fluctuate with changes in the market value of the Fund's securities
holdings. The market prices of Shares will generally fluctuate in accordance
with changes in the Fund's net asset value and supply and demand of Shares on
the Exchange. It cannot be predicted whether Shares will trade below, at or
above their net asset value. Price differences may be due, in large part, to the
fact that supply and demand forces at work in the secondary trading market for
Shares will be closely related to, but not identical to, the same forces
influencing the prices of the securities of the Index trading individually or in
the aggregate at any point in time. However, given that Shares can be created
and redeemed in Creation Units (unlike shares of many closed-end funds, which
frequently trade at appreciable discounts from, and sometimes at premiums to,
their net asset value), the Adviser believes that large discounts or premiums to
the net asset value of Shares should not be sustained. While the
creation/redemption feature is designed to make it likely that Shares normally
will trade close to the Fund's net asset value, disruptions to creations and
redemptions may result in trading prices that differ significantly from the
Fund's net asset value.
Lending of Securities. Although the Fund will receive collateral in
connection with all loans of its securities holdings, the Fund would be exposed
to a risk of loss should a borrower default on its obligation to return the
borrowed securities (e.g., the loaned securities may have appreciated beyond the
value of the collateral held by the Fund). In addition, the Fund will bear the
risk of loss of any cash collateral that it may invest.
Continuous Offering. The method by which Creation Units are purchased and
traded may raise certain issues under applicable securities laws. Because new
Creation Units are issued and sold by the Fund on an ongoing basis, at any point
a "distribution," as such term is used in the Securities Act of 1933, as amended
(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 principal
underwriter, breaks them down into individual 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 categorization as
an underwriter.
Broker-dealer firms should also note that dealers who are not
"underwriters" but are effecting transactions in Shares, whether or not
participating in the distribution of Shares, are generally required to deliver a
prospectus. This is because the prospectus delivery exemption in Section 4(3) of
the Securities Act is not available with respect to such transactions as a
result of Section 24(d) of the 1940 Act. The Trust, however, has received
exemptive relief from Section 4(3) of the Securities Act. Dealers who are not
underwriters are exempt from the prospectus delivery obligations, subject to
certain terms and conditions which have been set forth in a Securities and
Exchange Commission ("SEC") exemptive order issued to the Trust.
14
OTHER CONSIDERATIONS
Distribution and Service Plan. The Fund has adopted a Distribution and
Service Plan under Rule 12b-1 of the 1940 Act pursuant to which payments of up
to 0.25% of average daily net assets may be made for the sale and distribution
of its Shares. No payments pursuant to the Distribution and Service Plan will be
made for at least the next twelve (12) months of operation. Because these fees
would be paid out of the Fund's assets on an on-going basis, if payments are
made in the future, these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
MANAGEMENT
Adviser. SSgA Funds Management, Inc. ("SSgA FM") serves as the Adviser to
the Fund and, subject to the supervision of the Board, is responsible for the
investment management of the Fund. The Adviser provides an investment management
program for the Fund and manages the investment of the Fund's assets. The
Adviser and other affiliates of State Street Corporation make up State Street
Global Advisors ("SSgA"), the investment management arm of State Street
Corporation. As of [________], 2008, the Adviser managed approximately $[____]
billion in assets. As of [________], 2008, SSgA managed approximately $[____]
trillion in assets. The Adviser's principal business address is State Street
Financial Center, One Lincoln Street, Boston, Massachusetts 02111.
For the services provided to the Fund under the Investment Advisory
Agreement, the Fund expects to pay the Adviser the annual fee based on a
percentage of the Fund's average daily net assets as set forth below.
SPDR Lehman Short Term International Treasury Bond ETF... [____]%
|
From time to time, the Adviser may waive all or a portion of its fee. The
Adviser pays all expenses of the Fund other than the management fee,
distribution fee pursuant to the Fund's Distribution and Service Plan, if any,
brokerage, taxes, interest, fees and expenses of the Independent Trustees
(including any Trustee's counsel fees), litigation expenses and other
extraordinary expenses.
A discussion regarding the Board's consideration of the Investment Advisory
Agreement will be provided in the Trust's Semi-Annual Report to Shareholders for
the period ended December 31, 2008.
Portfolio Managers. The Adviser manages the Fund using a team of investment
professionals. The team approach is used to create an environment that
encourages the flow of investment ideas. The portfolio managers within each team
work together in a cohesive manner to develop and enhance techniques that drive
the investment process for the respective investment strategy. This approach
requires portfolio managers to share a variety of responsibilities including
investment strategy and analysis while retaining responsibility for the
implementation of the strategy within any particular portfolio. The approach
also enables the team to draw upon the resources of other groups within SSgA.
Each portfolio management team is overseen by the SSgA Investment Committee.
Key professionals primarily involved in the day-to-day portfolio management
of the Fund include:
MICHAEL BRUNELL
Michael Brunell is a Principal of SSgA, a Principal of SSgA FM, and is a
member of the Passive Fixed Income portfolio management group. Previously, Mr.
Brunell was responsible for managing the U.S. Bond Operation group. He has been
working in the investment management field since joining SSgA in 1997. Prior to
joining the Fixed Income group, Mr. Brunell spent three years in the Mutual
Funds Custody division of State Street Corporation working on the accounting
side of various domestic and international equity and bond portfolios. Mr.
Brunell received a Bachelor of Science degree in Business Administration from
Saint Michael's College and an MSF from Boston College in May of 2004. He is
also a CFA Level II candidate.
JOHN KIRBY
John Kirby is a Vice President of SSgA, a Principal of SSgA FM, and head of
the firm's Fixed Income Index team. He has managed the group since 1999 and
portfolios within the group since 1997. In addition to portfolio management, Mr.
Kirby's responsibilities include risk management and product development. He has
been working in the investment management field since 1983 and has more than 15
years of experience in the fixed income markets. Mr. Kirby holds a Bachelor's
Degree from Boston College and an MBA from the Sawyer School of Management at
Suffolk University. He served as a member of a municipal retirement board for
ten years and currently serves on the SSgA Fiduciary Advisory Committee and is a
member of the Lehman Brothers Index Advisory Council.
ELYA SCHWARTZMAN
Elya Schwartzman is a Vice President of SSgA, a Principal of SSgA FM, and
is a member of the Passive Fixed Income portfolio management group. Previously,
Mr. Schwartzman spent ten years as an analyst and portfolio manager in the
Active Credit group, covering a broad group of industry sectors in both
investment grade and speculative grade markets. He has been working in the Fixed
Income field since 1996. Prior to joining SSgA in 1999, Mr. Schwartzman was a
high yield analyst and helped to launch
15
the high yield department at Baring Asset Management. At Baring, he was
responsible for evaluating the firm's overall high yield strategy as well as
analyzing companies. Mr. Schwartzman also spent four years at DRI/McGraw-Hill as
a research economist, where he ran econometric models and authored articles
covering the U.S. economy and the U.S. steel industry. Mr. Schwartzman holds a
Bachelor's degree in Economics from Trinity College (CT) and an MBA from the
Sloan School of Management at MIT, specializing in Quantitative Finance.
Additional information about the portfolio managers' compensation, other
accounts managed by the portfolio managers, and the portfolio managers'
ownership of securities in the Fund is available in the Fund's SAI.
Administrator, Custodian and Transfer Agent. State Street, part of State
Street Corporation, is the Administrator for the Fund, the Custodian for the
Fund's assets and serves as Transfer Agent to the Fund.
Lending Agent. State Street is the securities lending agent for the Trust.
For its services, the lending agent would typically receive a portion of the net
investment income, if any, earned on the collateral for the securities loaned.
Distributor. State Street Global Markets, LLC, part of State Street
Corporation, is the Distributor of the Fund's Shares. The Distributor will not
distribute Shares in less than Creation Units, and it does not maintain a
secondary market in the Shares. The Distributor may enter into selected dealer
agreements with other broker-dealers or other qualified financial institutions
for the sale of Creation Units of Shares.
INDEX/TRADEMARK LICENSES/DISCLAIMERS
LEHMAN BROTHERS INDEX
The Adviser ("Licensee") acknowledges and expressly agrees that the Fund is
not sponsored, endorsed, sold or promoted by Lehman Brothers ("Licensor"), and
that Licensor makes no warranty, express or implied, as to the results to be
obtained by any person or entity from the use of the Index, any opening,
intra-day or closing value therefore, or any data included therein or relating
thereto, in connection with the trading of the Fund based thereon or for any
other purpose. Licensor's only relationship to the Licensee with respect to the
Fund is the licensing of certain trademarks and trade names of Licensor and the
Licensor Index that are determined, composed and calculated by Licensor without
regard to Licensee or the Fund. Licensor has no obligation to take the needs of
Licensee or the owners of the Fund into consideration in determining, composing
or calculating the Licensor Index. Licensor is not responsible for and has not
participated in any determination or calculation made with respect to issuance
of the Fund. Licensor has no obligation or liability in connection with the
listing, trading, marketing or administration of the Fund.
LICENSOR DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX,
OR ANY OPENING, INTRA-DAY OR CLOSING VALUE THEREFOR, OR ANY DATA INCLUDED
THEREIN OR RELATED THERETO. LICENSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS
TO RESULTS TO BE OBTAINED BY OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE INDEX, ANY OPENING, INTRA-DAY OR CLOSING VALUE THEREFOR, ANY
DATA INCLUDED THEREIN OR RELATING THERETO, OR THE FUND BASED THEREON, IN
CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. LICENSOR
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE INDEX, ANY OPENING, INTRA-DAY OR CLOSING VALUE THEREFOR, ANY DATA
INCLUDED THEREIN OR RELATING THERETO, OR THE FUND BASED THEREON. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL LICENSOR HAVE ANY LIABILITY FOR
ANY DAMAGES, CLAIMS, LOSSES (INCLUDING ANY INDIRECT OR CONSEQUENTIAL LOSSES),
EXPENSES OR DELAYS, WHETHER DIRECT OR INDIRECT, FORESEEN OR UNFORESEEN, SUFFERED
BY ANY PERSON ARISING OUT OF ANY CIRCUMSTANCE OR OCCURRENCE RELATING TO THE
PERSON'S USE OF THE INDEX, ANY OPENING, INTRA-DAY OR CLOSING VALUE THEREFOR, ANY
DATA INCLUDED THEREIN OR RELATING THERETO, OR THE FUND BASED THEREON, OR ARISING
OUT OF ANY ERRORS OR DELAYS IN CALCULATING OR DISSEMINATING THE INDEX.
SPDR TRADEMARK
The "SPDR" trademark is used under license from The McGraw-Hill Companies,
Inc. No financial product offered by the Trust, or its affiliates is sponsored,
endorsed, sold or promoted by The McGraw-Hill Companies, Inc. ("McGraw-Hill").
McGraw-Hill makes
16
no representation or warranty, express or implied, to the owners of any
financial product or any member of the public regarding the advisability of
investing in securities generally or in financial products particularly or the
ability of the index on which financial products are based to track general
stock market performance. McGraw-Hill is not responsible for and has not
participated in any determination or calculation made with respect to issuance
or redemption of financial products. McGraw-Hill has no obligation or liability
in connection with the administration, marketing or trading of financial
products.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL McGRAW-HILL HAVE
ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING, BUT NOT LIMITED TO, LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
DETERMINATION OF NET ASSET VALUE
Net asset value per Share for the 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 its total number of Shares outstanding. Expenses and fees,
including the management and distribution fees, if any, are accrued daily and
taken into account for purposes of determining net asset value. The net asset
value of the Fund is calculated by the Fund's Custodian and determined each
business day, normally at the close of regular trading of the New York Stock
Exchange ("NYSE") (ordinarily 4:00 p.m., New York time) ("Closing Time"). Any
assets or liabilities denominated in currencies other than the U.S. dollar are
converted into U.S. dollars at the current market rates on the date of valuation
as quoted by one or more sources.
The value of the Fund's portfolio securities is based on the market price
of the securities, which generally means a valuation obtained from an exchange
or other market (or based on a price quotation or other equivalent indication of
value supplied by an exchange or other market) or a valuation obtained from an
independent pricing service. U.S. fixed-income securities may be valued as of
the announced closing time for trading in fixed-income instruments on any day
that the Securities Industry and Financial Markets Association announces an
early closing time. If a security's market price is not readily available or
does not otherwise accurately reflect the fair value of the security, the
security will be valued by another method that the Board believes will better
reflect fair value in accordance with the Trust's valuation policies and
procedures. The Board has delegated the process of valuing securities for which
market quotations are not readily available or do not otherwise accurately
reflect the fair value of the security to the Pricing and Investment Committee
(the "Committee"). The Committee, subject to oversight by the Board, may use
fair value pricing in a variety of circumstances, including but not limited to,
situations when the value of a security in the Fund's portfolio has been
materially affected by events occurring after the close of the market on which
the security is principally traded (such as in the case of a corporate action or
other news that may materially affect the price of the security) or trading in a
security has been suspended or halted. Accordingly, the Fund's net asset value
may reflect certain portfolio securities' fair values rather than their market
prices.
Fair value pricing involves subjective judgments and it is possible that a
fair value determination for a security will materially differ from 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 the
Fund's net asset value and the prices used by the Fund's benchmark Index. This
may result in a difference between the Fund's performance and the performance of
the Fund's benchmark Index. With respect to securities that are primarily listed
on foreign exchanges, the value of the Fund's portfolio securities may change on
days when you will not be able to purchase or sell your Shares.
BUYING AND SELLING THE FUND
The Shares are listed for secondary trading on the Exchange. If you buy or
sell Shares in the secondary market, you may incur customary brokerage
commissions and charges and may pay some or all of the spread between the bid
and the offered price in the secondary market on each leg of a round trip
(purchase and sale) transaction. The Shares will trade on the Exchange at prices
that may differ to varying degrees from the daily net asset value of the Shares.
Given, however, that Shares can be issued and redeemed daily in Creation Units,
the Adviser believes that large discounts and premiums to net asset value should
not be sustained for very long.
PURCHASE AND REDEMPTION OF CREATION UNITS
The Fund issues Shares and redeems Shares only in Creation Units (200,000
Shares per Creation Unit) at net asset value on a continuous basis every day
except weekends and the following holidays: New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day. The net asset value of the Fund is determined once each business
day, normally at the Closing
17
Time. The Creation Unit size for the Fund may change. Authorized Participants
will be notified of such change as far in advance as possible.
The Fund does not impose any restrictions on the frequency of purchases and
redemptions. When considering that no restriction or policy was necessary, the
Board evaluated the risks posed by market timing activities, such as whether
frequent purchases and redemptions would interfere with the efficient
implementation of the Fund's investment strategy, or whether they would cause
the Fund to experience increased transaction costs. The Board considered that,
unlike traditional mutual funds, Fund Shares are issued and redeemed only in
large quantities of Shares known as Creation Units available only from the Fund
directly, and that most trading in the Fund occurs on the Exchange at prevailing
market prices, and does not involve the Fund directly. Given this structure, the
Board determined that it is unlikely that (a) market timing would be attempted
by the Fund's shareholders or (b) any attempts to market time the Fund by
shareholders would result in negative impact to the Fund or its shareholders.
Investors such as market-makers, large investors and institutions may wish
to deal in Creation Units directly with the Fund. Set forth below is a brief
description of the procedures applicable to creation and redemption of Creation
Units. For more detailed information, see "Purchase and Redemption of Creation
Units" in the SAI.
Creation. Creation Units of the Fund generally will be sold for cash only,
calculated based on the Fund's net asset value per Share, multiplied by the
number of Shares comprising a Creation Unit, plus a fixed transaction fee and an
additional variable charge, as discussed below. Alternatively, on an infrequent
basis and at the Fund's discretion, an investor may provide a designated
portfolio of securities that are intended to represent all or a portion of the
value of a basket of the securities included in the Index (the "Deposit
Securities") plus a Cash Component (as defined below). The corresponding cash
value, and a list of the names and the number of Shares of the Deposit
Securities is made available by the Custodian through the facilities of the
National Securities Clearing Corporation ("NSCC") immediately prior to the
opening of business on the Exchange. The "Cash Component" represents the
difference between the net asset value of a Creation Unit and the market value
of the Deposit Securities. To purchase a Creation Unit with cash, an investor
must pay the cash equivalent of the Deposit Securities it would otherwise be
required to provide through an in-kind purchase. When accepting purchases of
Creation Units for cash, the Fund may incur additional costs associated with the
acquisition of Deposit Securities that would otherwise be provided by an in-kind
purchaser.
Orders to create must be placed in proper form by or through a participant
of the Depository Trust Company that has the ability to clear through the
Federal Reserve System ("DTC Participant" or "Authorized Participant") and that
has entered into an agreement with the Distributor and the Transfer Agent,
subject to acceptance of the agreement by the Trust, with respect to creations
and redemptions of Creation Units ("Participant Agreement"). The Distributor
maintains a list of the names of Participants that have signed a Participant
Agreement.
The Participant Agreement sets forth the time(s) associated with order
placement and other terms and conditions associated with placing an order. Due
to the rebalancing of the Index or other reasons beyond the Trust's control,
Authorized Participants may be notified that the cut-off time for an order may
be earlier on a particular business day. Such notification will be made as far
in advance as possible.
A fixed transaction fee, in the amount set forth in the table under
"Creation and Redemption Transaction Fees" later in this Prospectus, is
applicable to each creation transaction regardless of the number of Creation
Units created in the transaction. An additional variable charge to compensate
for brokerage and market impact expenses may be applied to each creation
transaction. The price of each Creation Unit will equal the aggregate daily net
asset value per Share, plus the Cash Component, the transaction fees and any
additional variable charge described later in this Prospectus and, if
applicable, any transfer taxes. Purchasers of Shares in Creation Units are
responsible for payment of the costs of transferring any Deposit Securities to a
Fund, if applicable.
At the Fund's discretion, an Authorized Participant may deliver in-kind
fixed-income securities in lieu of the cash value representing one or more
Deposit Securities. Purchasers of Shares in Creation Units are responsible for
payment of the costs of transferring any Deposit Securities to the Fund. The
Fund intends to comply with the federal securities laws in accepting securities
for deposits. This means that Deposit Securities will be sold in transactions
that would be exempt from registration under the Securities Act.
Shares may be issued in advance of receipt of Deposit Securities or cash
representing such Deposit Securities, as the case may be, subject to various
conditions set forth in the Participant Agreement, including a requirement to
maintain on deposit with the Trust cash at least equal to the specified
percentage, as set forth in the Participant Agreement, of the market value of
the missing Deposit
18
Securities. See "Purchase and Redemption of Creation Units" in the SAI.
Redemption. The Custodian makes available immediately prior to the opening
of business on the Exchange, through the facilities of the NSCC, the cash value
of and the list of the names and the number of Shares of the Fund's portfolio
securities ("Fund Securities") that will be applicable that day to redemption
requests in proper form. The redemption proceeds will consist of cash or, at the
Fund's discretion, Fund Securities, plus cash in an amount equal to the
difference between the net asset value of the Shares being redeemed as next
determined after receipt by the Transfer Agent of a redemption request in proper
form, and the value of the Fund Securities (the "Cash Redemption Amount"), less
the applicable transaction fee and, if applicable, any transfer taxes. Should
the Fund Securities have a value greater than the net asset value of the Shares,
a compensating cash payment to the Fund equal to the differential will be
required to be arranged for by, or on behalf of, the redeeming shareholder by
the Authorized Participant, as the case may be. For more detail, see "Purchase
and Redemption of Creation Units" in the SAI.
Orders to redeem Creation Units of the Fund may only be effected by or
through an Authorized Participant at the time(s) and in accordance with the
other terms and conditions set forth in the Participant Agreement. Due to the
rebalancing of the Index or other reasons beyond the Trust's control, Authorized
Participants may be notified that the cut-off time for an order may be earlier
on a particular business day. Such notification will be made as far in advance
as possible.
A fixed transaction fee, in the amount set forth in the table under
"Creation and Redemption Transaction Fees" later in this Prospectus, is
applicable to each redemption transaction regardless of the number of Creation
Units redeemed in the transaction. An additional variable charge to compensate
for brokerage and market impact expenses may be applied to each redemption
transaction.
Legal Restrictions on Transactions in Certain Fixed-income Securities
(Redemption). The Fund intends to comply with the federal securities laws in
satisfying redemptions with redemption securities. This means that the
securities used to satisfy redemption requests will be sold in transactions that
would be exempt from registration under the Securities Act. Further, an
Authorized Participant that is not a "qualified institutional buyer," 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 investor subject to a legal restriction with respect to a
particular security included in the Fund securities applicable to the redemption
of a Creation Unit may be paid an equivalent amount of cash at the Fund's
discretion.
Creation and Redemption Transaction Fee:
TRANSACTION
FUND FEE*, **
---- -----------
SPDR Lehman Short Term International Treasury Bond ETF... $[_____]
|
* From time to time, the Fund may waive all or a portion of its applicable
transaction fee.
** An additional variable charge to compensate for brokerage and market impact
expenses may be applied to each creation and redemption transaction. The
maximum additional variable charge will be a percentage of the value of the
Deposit Securities, which will [not exceed][2.00%].
DISTRIBUTIONS
Dividends and Capital Gains. As a Fund shareholder, you are entitled to
your share of the Fund's income and net realized gains on its investments. The
Fund pays out substantially all of its net earnings to its shareholders as
"distributions."
The Fund typically earns interest from debt securities. These amounts, net
of expenses and taxes (if applicable), are passed along to Fund shareholders as
"income dividend distributions." The Fund realizes capital gains or losses
whenever it sells securities. Net long-term capital gains are distributed to
shareholders as "capital gain distributions."
Income dividend distributions, if any, are generally distributed to
shareholders monthly, but may vary significantly from month to month. Net
capital gains are distributed at least annually. Dividends may be declared and
paid more frequently to improve Index tracking or to comply with the
distribution requirements of the Internal Revenue Code.
Distributions in cash may be reinvested automatically in additional whole
Shares only if the broker through whom you purchased
19
Shares makes such option available. Dividends which are reinvested will
nevertheless be taxable to the same extent as if such dividends had not been
reinvested.
PORTFOLIO HOLDINGS
A description of the Trust's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the SAI.
20
TAX MATTERS
As with any investment, you should consider how your Fund investment will
be taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Fund.
Unless your investment in the Fund is through a tax-exempt entity or tax
deferred retirement account, such as a 401(k) plan, you need to be aware of the
possible tax consequences when:
- The Fund makes distributions;
- You sell Shares listed on the Exchange; and
- You create or redeem Creation Units.
Taxes on Distributions. Distributions from the Fund's net investment income
(other than qualified dividend income and net tax-exempt income), including any
net short-term capital gains, if any, and distributions of income from
securities lending, are taxable to you as ordinary income. In general, your
distributions (other than tax-exempt interest dividends) are subject to federal
income tax when they are paid, whether you take them in cash or reinvest them in
the Fund. The Fund will distribute any net investment income monthly, and any
net realized long-term or short-term capital gains annually. The Fund may also
pay a special distribution at the end of the calendar year to comply with
federal tax requirements. In general, your distributions are subject to federal
income tax when they are paid, whether you take them in cash or reinvest them in
the Fund. The income dividends and short-term capital gains distributions you
receive from the Fund will be taxed as either ordinary income or qualified
dividend income. Dividends that are designated as qualified dividend income are
eligible for the reduced maximum rate to individuals of 15% (lower rates apply
to individuals in lower tax brackets) to the extent that the Fund receives
qualified dividend income and subject to certain limitations. Long-term capital
gains distributions will result from gains on the sale or exchange of capital
assets held by the Fund for more than one year. Any long-term capital gains
distributions you receive from the Fund are taxable as long-term capital gain
regardless of how long you have owned your Shares. Long-term capital gains are
currently taxed at a maximum of 15%. Absent further legislation, the maximum 15%
tax rate on qualified dividend income and long-term capital gains will cease to
apply to taxable years beginning after December 31, 2010.
The extent to which the Fund redeems Creation Units in cash may result in
more capital gains being recognized by the Fund as compared to exchange traded
funds that redeem Creation Units in-kind.
If you lend your Fund Shares pursuant to securities lending arrangements
you may lose the ability to treat Fund dividends (paid while the shares are held
by the borrower) as tax-exempt income or as qualified dividends. Consult your
financial intermediary or tax advisor.
Exempt-interest dividends from the Fund are taken into account in
determining the taxable portion of any Social Security or railroad retirement
benefits that you receive.
Distributions paid in January, but declared by the Fund in October,
November or December of the previous year may be taxable to you in the previous
year. The Fund will inform you of the amount of your ordinary income dividends,
qualified dividend income and capital gain distributions shortly after the close
of each calendar year.
Distributions in excess of the Fund's current and accumulated earnings and
profits are treated as a tax-free return of capital to the extent of your basis
in the Shares, and as capital gain thereafter. A distribution will reduce the
Fund's net asset value per Share and may be taxable to you as ordinary income or
capital gain even though, from an investment standpoint, the distribution may
constitute a return of capital.
Original Issue Discount. Investments by the 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
receives no cash interest payments. In other circumstances, whether pursuant to
the terms of a security or as a result of other factors outside the control of
the Fund, the Fund may recognize income without receiving a commensurate amount
of cash. Such income is included in determining the amount of income that the
Fund must distribute to maintain its status as a RIC and to avoid the payment of
federal income tax, including the nondeductible 4% excise tax. Because such
income may not be matched by a corresponding cash distribution to the Fund, the
Fund may be required to borrow money or dispose of other securities to be able
to make distributions to its shareholders.
21
Special rules apply if the Fund holds inflation-indexed bonds. Generally,
all stated interest on such bonds is recorded as income by the Fund under its
regular method of accounting for interest income. The amount of positive
inflation adjustment, which results in an increase in the inflation-adjusted
principal amount of the bond, is treated as OID. The OID is included in the
Fund's gross income ratably during the period ending with the maturity of the
bond, under the general OID inclusion rules. The amount of the Fund's OID in a
taxable year with respect to a bond will increase the Fund's 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
distributions for such year. The amount of negative inflation adjustments, which
results in a decrease in the inflation-adjusted principal amount of the bond,
reduces the amount of interest (including stated interest, OID, and market
discount, if any) otherwise includible in the Fund's income with respect to the
bond for the taxable year.
Market Discount. Any market discount recognized on a 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 adjusted issue price if issued with
original issue discount. Absent an election by the Fund to include the market
discount in income as it accrues, gain on the Fund's disposition of such an
obligation will be treated as ordinary income rather than capital gain to the
extent of the accrued market discount.
Foreign Income Taxes. Investment income received by the Fund from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which may entitle the Fund to a reduced rate of such taxes or
exemption from taxes on such income. It is impossible to determine the effective
rate of foreign tax for the Fund in advance since the amount of the assets to be
invested within various countries is not known. If more than 50% of the total
assets of the Fund at the close of its taxable year consist of foreign stocks or
securities, the Fund may "pass through" to you certain foreign income taxes
(including withholding taxes) paid by the Fund. This means that you will be
considered to have received as an additional dividend your share of such foreign
taxes, but you may be entitled to either a corresponding tax deduction in
calculating your taxable income, or, subject to certain limitations, a credit in
calculating your federal income tax.
Derivatives and Other Complex Securities. The Fund may invest in complex
securities. These investments may be subject to numerous special and complex
rules. These rules could affect whether gains and losses recognized by the Fund
are treated as ordinary income or capital gain, accelerate the recognition of
income to the Fund and/or defer the Fund's ability to recognize losses. In turn,
these rules may affect the amount, timing or character of the income distributed
to you by the Fund.
Non-U.S. Investors. If you are not a citizen or permanent resident of the
United States, the Fund's ordinary income dividends will generally be subject to
a 30% U.S. withholding tax, unless a lower treaty rate applies or unless such
income is effectively connected with a U.S. trade or business. The Fund may,
under certain circumstances, designate all or a portion of a dividend as an
"interest-related dividend" that if received by a nonresident alien or foreign
entity generally would be exempt from the 30% U.S. withholding tax, provided
that certain other requirements are met. The Fund may also, under certain
circumstances, designate all or a portion of a dividend as a "short-term capital
gain dividend" which if received by a nonresident alien or foreign entity
generally would be exempt from the 30% U.S. withholding tax, unless the foreign
person is a nonresident alien individual present in the United States for a
period or periods aggregating 183 days or more during the taxable year. The
provisions contained in the legislation relating to dividends to foreign persons
would apply to dividends with respect to taxable years of the Fund beginning
after December 31, 2004 and before January 1, 2008.
Taxes on Exchange-Listed Share Sales. Currently, any capital gain or loss
realized upon a sale of Shares is generally treated as long-term capital gain or
loss if the Shares have been held for more than one year and as short-term
capital gain or loss if the Shares have been held for one year or less, except
that any capital loss on the sale of Shares held for six months or less is
treated as long-term capital loss to the extent that capital gain dividends were
paid with respect to such Shares.
Taxes on Creations and Redemptions of Creation Units. A person who
exchanges securities for Creation Units generally will recognize a gain or loss.
The gain or loss will be equal to the difference between the market value of the
Creation Units at the time and the exchanger's aggregate basis in the securities
surrendered and the Cash Component paid. A person who exchanges Creation Units
for securities will generally recognize a gain or loss equal to the difference
between the exchanger's basis in the Creation Units and the aggregate market
value of the securities received and the Cash Redemption Amount. The Internal
Revenue Service, 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. Persons exchanging securities should consult their
own tax advisor with respect to whether wash sale rules apply and when a loss
might be deductible.
Under current federal tax laws, any capital gain or loss realized upon a
redemption of Creation Units is generally treated as long-
22
term capital gain or loss if the Shares have been held for more than one year
and as a short-term capital gain or loss if the Shares have been held for one
year or less.
If you create or redeem Creation Units, you will be sent a confirmation
statement showing how many Shares you purchased or sold and at what price.
Backup Withholding. The Fund will be required in certain cases to withhold
at applicable withholding rates and remit to the United States Treasury the
amount withheld on amounts payable to any shareholder who (1) has provided the
Fund either an incorrect tax identification number or no number at all, (2) who
is subject to backup withholding by the Internal Revenue Service for failure to
properly report payments of interest or dividends, (3) who 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 foregoing discussion summarizes some of the consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. Consult your personal tax advisor about the potential tax
consequences of an investment in the Fund under all applicable tax laws.
GENERAL INFORMATION
The Trust was organized as a Massachusetts business trust on June 12, 1998.
If shareholders of the Fund are required to vote on any matters, shareholders
are entitled to one vote for each Share they own. Annual meetings of
shareholders will not be held except as required by the 1940 Act and other
applicable law. See the SAI for more information concerning the Trust's form of
organization.
For purposes of the 1940 Act, Shares of the Trust are issued by the Fund
and the acquisition of Shares by investment companies is subject to the
restrictions of section 12(d)(1) of the 1940 Act. The Trust has received
exemptive relief from Section 12(d)(1) to allow registered investment companies
to invest in the Fund beyond the limits set forth in Section 12(d)(1), subject
to certain terms and conditions as set forth in an SEC exemptive order issued to
the Trust, including that such investment companies enter into an agreement with
the Trust.
From time to time, the Fund may advertise yield and total return figures.
Yield is a historical measure of dividend income, and total return is a measure
of past dividend income (assuming that it has been reinvested) plus capital
appreciation. Neither yield nor total return should be used to predict the
future performance of the Fund.
Morgan Lewis & Bockius LLP serves as counsel to the Trust, including the
Fund. [___] serves as the independent registered public accounting firm and will
audit the Fund's financial statements annually.
23
FINANCIAL HIGHLIGHTS
The Fund had not commenced operations prior to the date of this Prospectus
and therefore does not have financial information.
24
WHERE TO LEARN MORE ABOUT THE FUND
This Prospectus does not contain all the information included in the
Registration Statement filed with the SEC with respect to the Fund's Shares. An
SAI and the annual and semi-annual reports to shareholders, each of which have
been or will be filed with the SEC, provide more information about the Fund. In
the annual report, when available, you will find a discussion of the market
conditions and investment strategies that significantly affected the Fund's
performance during the Fund's last fiscal year. The SAI is incorporated herein
by reference (i.e., it is legally part of this Prospectus). These materials may
be obtained without charge, upon request, by writing to the Distributor, State
Street Global Markets, LLC, State Street Financial Center, One Lincoln Street,
Boston, Massachusetts 02111, by visiting the Fund's website at www.SPDRETFs.com
or by calling the following number:
INVESTOR INFORMATION: 1-866-787-2257
The Registration Statement, including this Prospectus, the SAI, and the
exhibits as well as any shareholder reports may be reviewed and copied at the
SEC's Public Reference Room (100 F Street NE, Washington D.C. 20549) or on the
EDGAR Database on the SEC's website (http://www.sec.gov). Information on the
operation of the public reference room may be obtained by calling the SEC at
1-202-942-8090. You may get copies of this and other information after paying a
duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov, or by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.
Shareholder inquiries may be directed to the Fund in writing to State
Street Global Markets, LLC, State Street Financial Center, One Lincoln Street,
Boston, Massachusetts 02111 or by calling the Investor Information number listed
above.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER OF THE FUND'S SHARES, AND, IF GIVEN OR MADE, THE INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR THE FUND. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF SHARES
SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
DEALERS EFFECTING TRANSACTIONS IN THE FUND'S SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, ARE GENERALLY REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO ANY OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS.
The Trust's Investment Company Act Number is 811-08839.
25
SUBJECT TO COMPLETION. THE INFORMATION IN THIS STATEMENT OF ADDITIONAL
INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. 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(R) SERIES TRUST (THE "TRUST")
STATEMENT OF ADDITIONAL INFORMATION
Dated _______ __, 2008
This Statement of Additional Information ("SAI") is not a prospectus. With
respect to the Trust's series portfolio listed below, this SAI should be read in
conjunction with the prospectus dated _________ __, 2008 (the "Prospectus"), as
it may be revised from time to time.
SPDR(R) Lehman Short Term International Treasury Bond ETF
The Fund discussed in this SAI had not commenced operations as of June 30, 2008
and therefore did not have any financial information to report for the Trust's
June 30, 2008 fiscal year end.
Capitalized terms used herein that are not defined have the same meaning as in
the Prospectus, unless otherwise noted. Copies of the Prospectus may be obtained
without charge by writing to State Street Global Markets, LLC, the Trust's
principal underwriter (referred to herein as "Distributor" or "Principal
Underwriter"), State Street Financial Center, One Lincoln Street, Boston,
Massachusetts 02111.
1
TABLE OF CONTENTS
General Description of the Trust.......................................... 3
Additional Index Information.............................................. 3
Investment Policies....................................................... 4
Special Considerations and Risks.......................................... 9
Investment Restrictions................................................... 11
Exchange Listing and Trading.............................................. 13
Management of the Trust................................................... 13
Brokerage Transactions.................................................... 21
Book Entry Only System.................................................... 22
Purchase and Redemption of Creation Units................................. 23
Determination of Net Asset Value.......................................... 28
Dividends and Distributions............................................... 29
Taxes..................................................................... 29
Capital Stock and Shareholder Reports..................................... 33
Counsel and Independent Registered Public Accounting Firm................. 33
Local Market Holiday Schedules............................................ 33
Appendix A - Proxy Voting Policies and Procedures......................... 35
|
2
GENERAL DESCRIPTION OF THE TRUST
The Trust is an open-end management investment company. As of the date of this
SAI, the Trust consists of ([_]) investment series. This SAI relates to the
SPDR(R) Lehman Short Term International Treasury Bond ETF (the "Fund"). The
Trust was organized as a Massachusetts business trust on June 12, 1998. The
Trust is an open-end management investment company, registered under the
Investment Company Act of 1940, as amended (the "1940 Act") and the offering of
the Fund's shares is registered under the Securities Act of 1933, as amended
(the "Securities Act"). The shares of the Fund are referred to herein as
"Shares." The investment objective of the Fund is to provide investment results
that, before fees and expenses, correspond generally to the price and yield
performance of a specified market index (the "Index"). SSgA Funds Management,
Inc. (the "Adviser") manages the Fund.
The Fund offers and issues Shares at their net asset value only in aggregations
of a specified number of Shares (each, a "Creation Unit").(1) The Fund generally
offers and issues Shares in exchange only for a cash payment equal in value to a
basket of securities included in the Index ("Deposit Cash") together with a
specified cash payment ("Cash Component"), as described in more detail below.
The Trust reserves the right to permit or require the substitution of a basket
of securities included in the Index ("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, generally for cash only (subject
to applicable legal requirements). A Creation Unit of the Fund consists of
200,000 Shares.
With respect to the Fund, the Trust will accept offers to purchase or redeem
Creation Units generally for cash only (subject to applicable legal
requirements); however, the Trust reserves the right to accept in kind
securities in lieu of cash at its discretion, although it has no current
intention of doing so. 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 and redemption. In all
cases, such fee will be limited in accordance with the requirements of the
Securities and Exchange Commission (the "SEC") applicable to management
investment companies offering redeemable securities. In addition to the fixed
Creation or Redemption Transaction Fee, an additional variable charge (which
will not exceed [2.00%] of the value of the Deposit Securities) may apply.
ADDITIONAL INDEX INFORMATION
Additional Information with respect to the Lehman Brothers 1-3 Year Global
Treasury Ex-US Capped Index
Each of the component securities in the Index is a component of the Lehman
Global Treasury Ex-US Index, screened such that the following countries are
included: Australia, Austria, Belgium, Canada, Denmark, France, Germany, Greece,
Italy, Japan, Mexico, Netherlands, Poland, South Africa, Spain, Sweden, Taiwan,
United Kingdom (the "Constituent Countries").
The Index is calculated by the Lehman Brothers Index Group using a modified
"market capitalization" methodology. This design ensures that each Constituent
Country within the Index is represented in a proportion consistent with its
percentage with respect to the total market capitalization of the Index.
Component Securities in each constituent country are represented in a proportion
consistent with its percentage relative to the other component securities in its
constituent country. Under certain conditions, however, the par amount of a
component security within the Index may be adjusted to conform to Internal
Revenue Code requirements.
CONSTRUCTION AND MAINTENANCE STANDARDS FOR THE INDEX
The Index is weighted based on the total market capitalization represented by
the aggregate Component Securities within the Lehman Global Treasury ex-US
Index, subject to the following asset diversification requirements: (i) the
market capitalization-based weighted value of any single Constituent Country
measured on the last day of a calendar month may not exceed 24.99% of the total
value of the Index; and (ii) with respect to 50% of the total value of the
Index, the market capitalization-based weighted value of the Constituent
Countries must be diversified so that no single Constituent Country measured on
the last day of a calendar month represents more than 4.99% of the total value
of the Index. The modified Constituent Country weight calculated above is then
applied to the individual securities of each country.
(1) Except that under the "Dividend Reinvestment Service" described herein,
however, Shares may be created in less than a Creation Unit and upon
termination of the Fund, Shares may be redeemed in less than a Creation
Unit.
3
Rebalancing the Index to meet the asset diversification requirements will be the
responsibility of the Lehman Brothers Index Group ("LBIG"). Each month, the
percentage of each Constituent Country (or Constituent Countries) represented in
the Index will be reduced and the market capitalization-based weighted value of
such Constituent Country (or Constituent Countries) will be redistributed across
the Constituent Countries so that they meet the value limits set forth above in
accordance with the following methodology: First, each Constituent Country that
exceeds 24% of the total value of the Index will be reduced to 23% of the total
value of the Index and the aggregate amount by which all Constituent Countries
exceed 24% will be redistributed equally across the remaining Constituent
Countries that represent less than 23% of the total value of the Index. If as a
result of this redistribution, another Constituent Country then exceeds 24%, the
redistribution will be repeated as necessary. Second, with respect to the 50% of
the value of the Index accounted for by the lowest weighted Constituent
Countries, each Constituent Country that exceeds 4.8% of the total value of the
Index will be reduced to 4.6% and the aggregate amount by which all Constituent
Countries exceed 4.8% will be distributed equally across all remaining
Constituent Countries that represent less than 4.6% of the total value of the
Index. If as a result of this redistribution another Constituent Country that
did not previously exceed 4.8% of the Index value then exceeds 4.8%, the
redistribution will be repeated as necessary until at least 50% of the value of
the Index is accounted for by Constituent Countries representing no more than
4.8% of the total value of the Index. Third, the weight of each Constituent
Country's Component Securities will be adjusted to reflect the Component
Securities' weight in the Index relative to other Component Securities of the
same country by applying the same percentage adjustment as applied to its
country.
If necessary, this reallocation process may take place more than once per
calendar month to insure that the Index and the Fund portfolio based upon it
conform to the requirements for qualification of the Fund as a regulated
investment company.
INVESTMENT POLICIES
DIVERSIFICATION
The Fund is classified as a non-diversified investment company under the 1940
Act. A "non-diversified" classification means that the 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. The securities of a particular issuer may
constitute a greater portion of an Index of the Fund and, therefore, the
securities may constitute a greater portion of the Fund's portfolio. This may
have an adverse effect on the Fund's performance or subject the Fund's Shares to
greater price volatility than more diversified investment companies.
Although the Fund is non-diversified for purposes of the 1940 Act, the Fund
intends to maintain the required level of diversification and otherwise conduct
its operations so as to qualify as a "regulated investment company" for purposes
of the Internal Revenue Code, 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 severely limits the investment flexibility of the Fund and makes it
less likely that the Fund will meet its investment objectives.
CONCENTRATION
In addition, the Fund may concentrate its investments in a particular industry
or group of industries, as described in the Prospectus. The securities of
issuers in particular industries may dominate the benchmark Index of the Fund
and consequently the Fund's investment portfolio. This may adversely affect the
Fund's performance or subject its shares to greater price volatility than that
experienced by less concentrated investment companies.
In pursuing its objective, the 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 the Fund's 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.
BONDS
The Fund invests a substantial portion of its assets in 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
bond's face value) periodically or on a specified maturity date.
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
4
rate bond usually rises when market interest rates fall, and falls when market
interest rates rise. Accordingly, a fixed rate bond's yield (income as a percent
of the bond's 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 the Fund holding
fixed rate bonds can decline, as can the value of the Fund's 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. The 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 corporation's earnings and assets and, in the event of
liquidation, are paid before subordinated obligations. Bonds may be unsecured
(backed only by the issuer's general creditworthiness) or secured (also backed
by specified collateral).
SOVEREIGN DEBT OBLIGATIONS
The Fund invests a substantial portion of its assets in sovereign debt that is
issued in local currency. 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
The Fund invests a portion of its assets in 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. Payment of principal and interest
on U.S. Government obligations (i) may be backed by the full faith and credit of
the United States (as with U.S. Treasury obligations and Government National
Mortgage Association ("GNMA") certificates) or (ii) may be backed solely by the
issuing or guaranteeing agency or instrumentality itself (as with Federal
National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC") and Federal Home Loan Bank ("FHLB") notes). In the latter case, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
where it is not obligated to do so. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
FOREIGN CURRENCY TRANSACTIONS
The 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 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. 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.
LENDING PORTFOLIO SECURITIES
The Fund may lend portfolio securities to certain creditworthy borrowers. The
borrowers provide collateral that is maintained in an amount at least equal to
the current market value of the securities loaned. The Fund may terminate a loan
at any time and obtain the return of the securities loaned. The Fund receives
the value of any interest or cash or non-cash distributions paid on the loaned
securities. Distributions received on loaned securities in lieu of dividend
payments (i.e., substitute payments) would not be considered qualified dividend
income.
5
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. The 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, the Fund is compensated by a fee paid by the borrower equal to
a percentage of the market value of the loaned securities. Any cash collateral
may be reinvested in certain short-term instruments either directly on behalf of
the lending Fund or through one or more joint accounts or money market funds,
which may include those managed by the Adviser.
The 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 (the "Board") who administer the
lending program for the Fund in accordance with guidelines approved by the
Board. In such capacity, the lending agent causes the delivery of loaned
securities from the Fund to borrowers, arranges for the return of loaned
securities to the Fund at the termination of a loan, requests deposit of
collateral, monitors the daily value of the loaned securities and collateral,
requests that borrowers add to the collateral when required by the loan
agreements, and provides recordkeeping and accounting services necessary for the
operation of the program. State Street Bank and Trust Company ("State Street"),
an affiliate of the Trust, has been approved by the Board to serve as securities
lending agent for the 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 Securities and Exchange Commission ("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), "gap" risk (i.e., the risk of a mismatch between the return
on cash collateral reinvestments and the fees the Fund has agreed to pay a
borrower), and credit, legal, counterparty and market risk. In the event a
borrower does not return the Fund's 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.
REPURCHASE AGREEMENTS
The 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 the Fund acquires a financial instrument (e.g., a security issued by the
U.S. government or an agency thereof, a banker's 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). 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 the
Fund and is unrelated to the interest rate on the underlying instrument.
In these repurchase agreement transactions, the securities acquired by the 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 the Fund's 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, the
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 the 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
The 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 the 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 the
Fund is able to keep some of the
6
interest income associated with those securities. Such transactions are only
advantageous if the 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 the 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 the Fund's assets. The Fund's 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 limit on the percentage of total
assets the Fund may invest in reverse repurchase agreements, the use of reverse
repurchase agreements is not a principal strategy.
COMMERCIAL PAPER
The Fund may invest in commercial paper. Commercial paper consists of
short-term, promissory notes issued by banks, corporations and other entities to
finance short-term credit needs. These securities generally are discounted but
sometimes may be interest bearing.
OTHER SHORT-TERM INSTRUMENTS
In addition to repurchase agreements, the Fund may invest in short-term
instruments, including money market instruments, 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 Moody's or
"A-1" by 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
satisfy the rating requirements set forth in Rule 2a-7 under the 1940 Act; 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 the Fund. Any of these
instruments may be purchased on a current or a forward-settled basis. Money
market instruments also include shares of money market funds. 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.
INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies, including
money market funds, subject to applicable limitations under Section 12(d)(1) of
the 1940 Act. Pursuant to Section 12(d)(1), the 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 or regulation, the Fund may invest its assets in securities of
investment companies that are money market funds, including those advised by the
Adviser or otherwise affiliated with the Adviser, in excess of the limits
discussed above.
If the Fund invests in and, thus, is a shareholder of, another investment
company, the Fund's shareholders will indirectly bear the Fund's 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 Fund's own investment adviser and the other expenses that the Fund
bears directly in connection with the Fund's own operations.
U.S. REGISTERED SECURITIES OF FOREIGN ISSUERS
The Fund may invest in U.S. registered, dollar-denominated bonds of foreign
corporations, governments, agencies and supra-national entities.
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
7
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.
FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS
The Fund may utilize exchange-traded futures and options contracts and swap
agreements. The Fund will segregate cash and/or appropriate liquid assets if
required to do so by SEC or Commodity Futures Trading Commission ("CFTC")
regulation or interpretation.
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. Futures contracts are standardized as to maturity date and
underlying instrument and are traded on futures exchanges.
The Fund is required to make a good faith margin deposit in cash or U.S.
government securities 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 margin requirements, payment of additional
"variation" margin 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, the Fund would
expect to earn interest income on its margin deposits. Closing out an open
futures position is done by taking an opposite position ("buying" a contract
which has previously been "sold," or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract position is opened or closed.
The 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.
The Fund intends to use futures and options in accordance with Rule 4.5 of the
Commodity Exchange Act ("CEA"). The Fund may use exchange-traded futures and
options, together with positions in cash and money market instruments, to
simulate full investment in its underlying Index. Exchange-traded futures and
options contracts are not currently available for the Indexes. 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, on behalf of the Fund, 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 the Fund is not subject to registration or
regulation as a commodity pool operator under the CEA.
Restrictions on the Use of Futures and Options. In connection with its
management of the Fund, the Adviser has claimed an exclusion from registration
as a commodity trading advisor under the CEA and, therefore, is not subject to
the registration and regulatory requirements of the CEA. The Fund reserves the
right to engage in transactions involving futures and options thereon to the
extent allowed by the CFTC regulations in effect from time to time and in
accordance with the Fund's policies. The 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, cash or equivalents.
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).
8
Swap Agreements. The fund may enter into swap agreements; including interest
rate, index and total return swap agreements. Swap agreements 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
agreements will usually be done on a net basis, i.e., where the two parties make
net payments with the 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 the Fund's
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.
In the case of a credit default swap ("CDS"), the contract gives one party (the
buyer) the right to recoup the economic value of a decline in the value of debt
securities of the reference issuer if the credit event (a downgrade or default)
occurs. This value is obtained by delivering a debt security of the reference
issuer to the party in return for a previously agreed payment from the other
party (frequently, the par value of the debt security). As the seller of a CDS
contract, the Fund would be required to pay the par (or other agreed upon) value
of a referenced debt obligation to the counterparty in the event of a default or
other credit event by the reference issuer, such as a U.S. or foreign corporate
issuer, with respect to debt obligations. In return, the Fund would receive from
the counterparty a periodic stream of payments over the term of the contract
provided that no event of default has occurred. If no default occurs, the Fund
would keep the stream of payments and would have no payment obligations. As the
seller, the Fund would be subject to investment exposure on the notional amount
of the swap.
CDSs may require initial premium (discount) payments as well as periodic
payments (receipts) related to the interest leg of the swap or to the default of
a reference obligation. The Fund will segregate assets necessary to meet any
accrued payment obligations when it is the buyer of CDS. In cases where the Fund
is a seller of a CDS, if the CDS is physically settled, the Fund will be
required to segregate the full notional amount of the CDS.
Future Developments -- The 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 Fund's investment
objective and legally permissible for the Fund. Before entering into such
transactions or making any such investment, the Fund will provide appropriate
disclosure.
RATINGS
An investment-grade rating means the security or issuer is rated
investment-grade by Moody's(R) Investors Service ("Moody's"), Standard &
Poor's(R) ("S&P(R)"), Fitch Inc., Dominion Bond Rating Service Limited, or
another credit rating agency designated as a nationally recognized statistical
rating organization by the SEC, or is unrated but considered to be of equivalent
quality by the Adviser.
Subsequent to purchase by the Fund, a rated security may cease to be rated or
its rating may be reduced below an investment grade rating. Bonds rated lower
than Baa3 by Moody's or BBB- by S&P are below investment grade quality and are
obligations of issuers that are considered predominantly speculative with
respect to the issuer's 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.
SPECIAL CONSIDERATIONS AND RISKS
A discussion of the risks associated with an investment in the Fund is contained
in the Prospectus under the heading "Principal Risks of the Fund" The discussion
below supplements, and should be read in conjunction with, that section of the
Prospectus.
9
GENERAL
Investment in the Fund should be made with an understanding that the value of
the Fund's 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 the 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.
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 the Fund's Shares will be adversely affected if
trading markets for the Fund's portfolio securities are limited or absent or if
bid/ask spreads are wide.
FUTURES AND OPTIONS TRANSACTIONS
Positions in futures contracts and options may be closed out only on an exchange
which provides a secondary market therefore. However, 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, the Fund would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if the 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, the Fund may be required to make
delivery of the instruments underlying futures contracts it has sold.
The 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 Fund does 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. The Fund, however, intends to utilize futures and options
contracts in a manner designed to limit their risk exposure to that which is
comparable to what it would have incurred through direct investment in
securities.
Utilization of futures transactions by the 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. There is also the risk of
loss by the Fund of margin deposits in the event of bankruptcy of a broker with
whom the 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 day's 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.
10
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, the 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
Fund's 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. These transactions generally do not
involve the delivery of securities or other underlying assets or principal.
TAX RISKS
As with any investment, you should consider how your investment in Shares of the
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 the Fund.
Unless your investment in Shares is made through a tax-exempt entity or
tax-deferred retirement account, such as an individual retirement account, you
need to be aware of the possible tax consequences when the Fund makes
distributions or you sell Fund Shares.
CONTINUOUS OFFERING
The method by which Creation Units of Shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation Units of
Shares are issued and sold by the Trust on an ongoing basis, at any point a
"distribution," as such term is used in the Securities Act, may occur.
Broker-dealers and other persons are cautioned that some activities on their
part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus delivery and liability
provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent Shares, and sells such Shares
directly to customers, or if it chooses to couple the creation of a supply of
new Shares with an active selling effort involving solicitation of secondary
market demand for Shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a categorization
as an underwriter.
Broker-dealer firms should also note that dealers who are not "underwriters" but
are effecting transactions in Shares, whether or not participating in the
distribution of Shares, are generally required to deliver a prospectus. This is
because the prospectus delivery exemption in Section 4(3) of the Securities Act
is not available in respect of such transactions as a result of Section 24(d) of
the 1940 Act. Firms that incur a prospectus-delivery obligation with respect to
Shares of the 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 the Fund's 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.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions as fundamental
policies with respect to the Fund. These restrictions cannot be changed with
respect to the Fund without the approval of the holders of a majority of the
Fund's outstanding voting securities. For purposes of the 1940 Act, a majority
of the outstanding voting securities of the 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, the Fund may not:
1. Concentrate its investments (i.e., hold 25% or more of its total assets in
the stocks of a particular industry or group of industries), except that the
Fund will concentrate to approximately the same extent that its underlying Index
concentrates in the stocks of such particular industry or group of industries.
For purposes of this limitation, securities of the U.S. government (including
its agencies and instrumentalities), repurchase agreements collateralized by
U.S. government securities, and securities of state or municipal governments and
their political subdivisions are not considered to be issued by members of any
industry.
11
2. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it is
permitted to invest (including participation interests in such securities or
obligations) and except that the Fund may lend its portfolio securities in an
amount not to exceed 33 1/3% of the value of its total assets;
3. Issue senior securities or borrow money, except borrowings from banks for
temporary or emergency purposes in an amount up to 10% of the value of the
Fund's total assets (including the amount borrowed), valued at market, less
liabilities (not including the amount borrowed) valued at the time the borrowing
is made, and the Fund will not purchase securities while borrowings in excess of
5% of the Fund's total assets are outstanding, provided, that for purposes of
this restriction, short-term credits necessary for the clearance of transactions
are not considered borrowings (this limitation on purchases does not apply to
acceptance by the Fund of a deposit principally of securities included in the
Index for creation of Creation Units);
4. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to
secure permitted borrowings as set forth above in restriction 2.(2) (The deposit
of underlying securities and other assets in escrow and collateral arrangements
with respect to initial or variation margin for futures contracts or options
contracts will not be deemed to be pledges of the Fund's assets);
5. Purchase, hold or deal in real estate, or oil, gas or mineral interests or
leases, but the Fund may purchase and sell securities that are issued by
companies that invest or deal in such assets;
6. Act as an underwriter of securities of other issuers, except to the extent
the Fund may be deemed an underwriter in connection with the sale of securities
in its portfolio;
7. Purchase securities on margin, except for such short-term credits as are
necessary for the clearance of transactions, except that the Fund may make
margin deposits in connection with transactions in options, futures and options
on futures;
8. Sell securities short; or
9. Invest in commodities or commodity contracts, except that the Fund may
transact in exchange traded futures contracts on securities, indexes and options
on such futures contracts and make margin deposits in connection with such
contract;
In addition to the investment restrictions adopted as fundamental policies as
set forth above, the Fund observes the following restrictions, which may be
changed by the Board without a shareholder vote. The Fund will not:
1. Invest in the securities of a company for the purpose of exercising
management or control, provided that the Trust may vote the investment
securities owned by the Fund in accordance with its views;
2. Hold illiquid assets in excess of 15% of its net assets. An illiquid asset is
any asset which may not be sold or disposed of in the ordinary course of
business within seven days at approximately the value at which the Fund has
valued the investment; or
3. Under normal circumstances, invest less than 80% of its total assets in
securities that comprise its 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. Prior to any change in the Fund's 80% investment policy, the Fund will
provide shareholders with 60 days written notice.
4. Under normal circumstances, invest less than 80% of its total assets in fixed
income securities. Prior to any change in the Fund's 80% investment policy, the
Fund will provide shareholders with 60 days written notice.
5. Under normal circumstances, invest less than 80% of its assets in sovereign
debt securities. Prior to any change in this 80% investment policy, the fund
will provide shareholders with 60 days written notice.
If a percentage limitation is adhered to at the time of investment or contract,
a later increase or decrease in percentage resulting from any change in value or
total or net assets will not result in a violation of such restriction, except
that the percentage limitations with respect to the borrowing of money and
illiquid securities will be observed continuously.
(2) There is no limit on the percentage of total assets the Fund may pledge.
The Fund, however, will only pledge assets as consistent with Section 18 of
the 1940 Act.
12
EXCHANGE LISTING AND TRADING
A discussion of exchange listing and trading matters associated with an
investment in the Fund is contained in the Prospectus under the "DETERMINATION
OF NET ASSET VALUE" and "BUYING AND SELLING THE FUND." The discussion below
supplements, and should be read in conjunction with, such sections of the
Prospectus.
The Shares of the 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 the Fund will continue to be met.
The Exchange may, but is not required to, remove the Shares of the Fund from
listing if: (1) following the initial twelve-month period beginning upon the
commencement of trading of the Fund, there are fewer than 50 beneficial holders
of the Shares for 30 or more consecutive trading days; (2) the value of its
underlying Index or portfolio of securities on which the Fund is based is no
longer calculated or available; (3) the "indicative optimized portfolio value"
("IOPV") of the Fund is no longer calculated or available; or (4) such other
event shall occur or condition exists that, in the opinion of the Exchange,
makes further dealings on the Exchange inadvisable. In addition, the Exchange
will remove the Shares from listing and trading upon termination of the Trust or
the Fund.
The Trust reserves the right to adjust Share price of the Fund in the future to
maintain convenient trading ranges for investors. Any adjustments would be
accomplished through stock splits or reverse stock splits, which would have no
effect on the net assets of the Fund.
As in the case of other publicly traded securities, brokers' commissions on
transactions will be based on negotiated commission rates at customary levels.
The base and trading currencies of the Fund is the U.S. dollar. The base
currency is the currency in which the Fund's net asset value per Share is
calculated and the trading currency is the currency in which Shares of the Fund
are listed and traded on the Exchange.
MANAGEMENT OF THE TRUST
The following information supplements and should be read in conjunction with the
section in the Prospectus entitled "MANAGEMENT."
TRUSTEES AND OFFICERS OF THE TRUST
The Board has responsibility for the overall management and operations of the
business affairs of the Trust, including general supervision and review of its
investment activities. The Trustees elect the officers of the Trust who are
responsible for administering the day-to-day operations of the Trust and the
Fund. The Trustees and executive officers of the Trust, along with their
principal occupations over the past five years and their affiliations, if any
with the Adviser, are listed below:
13
NUMBER OF
PORTFOLIOS
TERM OF PRINCIPAL IN FUND
OFFICE AND OCCUPATION(S) COMPLEX OTHER
NAME, ADDRESS POSITION(S) LENGTH OF DURING PAST OVERSEEN DIRECTORSHIPS
AND DATE OF BIRTH WITH FUNDS TIME SERVED 5 YEARS BY TRUSTEE HELD BY TRUSTEE
--------------------------- -------------- ------------------ ----------------------- ---------- ----------------------
TRUSTEES
INDEPENDENT TRUSTEES
DAVID M. KELLY Independent Unlimited Retired. [_] Chicago Stock Exchange
c/o SPDR Index Shares Funds Trustee Elected: (Public Governor/
State Street Financial July 2004 Director);
Center Penson Worldwide Inc.
One Lincoln Street (Director); Custodial
Boston, MA 02111-2900 Trust Co.
10/10/38 (Director);
SPDR Series Trust
(Trustee).
FRANK NESVET Independent Unlimited Chief Executive [_] SPDR Series Trust
c/o SPDR Index Shares Funds Trustee, Elected: Officer, Libra (Trustee); The
State Street Financial Chairman July 2004 Group, Inc. Massachusetts Health &
Center (1998-present)(a Education Tax Exempt
One Lincoln Street financial services Trust (Trustee).
Boston, MA 02111-2900 consulting company).
9/24/43
HELEN F. PETERS Independent Unlimited Professor of [_] Federal Home Loan Bank
c/o SPDR Index Shares Funds Trustee Elected: Finance, Carroll of Boston (Director);
State Street Financial July 2004 School of Management, BJ's Wholesale Clubs
Center Boston College (Director);
One Lincoln Street (2003-present); Dean, SPDR Series Trust
Boston, MA 02111-2900 Boston College (August (Trustee).
3/22/48 2000-2003).
INTERESTED TRUSTEE
JAMES E. ROSS* Interested Unlimited President, SSgA Funds [_] SPDR Series Trust
SSgA Funds Management, Inc. Trustee, Elected Trustee: Management, Inc. (Trustee); Select
State Street Financial President November 2005, (2005-present); Sector SPDR Trust
Center Elected President: Principal, SSgA Funds (Trustee);
One Lincoln Street May 2005 Management, Inc. State Street Master
Boston, MA 02111 (2001-present); Senior Funds Trust (Trustee);
6/24/65 Managing Director, and State Street
State Street Global Institutional
Advisors (2006-present); Investment Trust
Principal, State R(Trustee).
Street Global Advisors
(2000 to 2006).
OFFICERS
ELLEN M. NEEDHAM Vice President Unlimited Principal, SSgA Funds N/A N/A
SSgA Funds Management, Inc. Elected: March Management, Inc.
State Street Financial 2008 (1992-present)**;
Center Managing Director,
One Lincoln Street State Street Global
Boston, MA 02111 Advisors (1992 to
1/04/67 present)**.
MICHAEL P. RILEY Vice President Unlimited Principal, State N/A N/A
SSgA Funds Management, Inc. Elected: Street Global Advisors
State Street Financial February 2005 (2005-present);
Center Assistant Vice
One Lincoln Street President, State
Boston, MA 02111 Street Bank and Trust
3/22/69 Company (2000-2004).
|
14
NUMBER OF
PORTFOLIOS
TERM OF PRINCIPAL IN FUND
OFFICE AND OCCUPATION(S) COMPLEX OTHER
NAME, ADDRESS POSITION(S) LENGTH OF DURING PAST OVERSEEN DIRECTORSHIPS
AND DATE OF BIRTH WITH FUNDS TIME SERVED 5 YEARS BY TRUSTEE HELD BY TRUSTEE
--------------------------- -------------- ------------------ ----------------------- ---------- ----------------------
GARY L. FRENCH Treasurer Unlimited Senior Vice President, N/A N/A
State Street Bank and Elected: State Street Bank
Trust Company May 2005 and Trust Company
Two Avenue de Lafayette (2002-present);
Boston, MA 02111 Managing Director,
7/4/51 Deutsche Bank
(2001-2002).
RYAN M. LOUVAR Assistant Unlimited Vice President and N/A N/A
State Street Bank and Secretary Elected: Senior Counsel, State
Trust Company October 2006 Street Bank and Trust
One Lincoln Street/CPH0326 Company
Boston, MA 02111 (2005-present);
2/18/72 Counsel, BISYS Group,
Inc. (2000-2005) (a
financial services
company).
MARK E. TUTTLE Assistant Unlimited Vice President and N/A N/A
State Street Bank and Trust Secretary Elected: Counsel, State Street
Company August 2007 Bank & Trust Company
One Lincoln Street/CPH0326 (2007 - present);
Boston, MA 02111 Assistant Counsel,
3/25/70 BISYS Group, Inc.
(2006-2007) (a
financial; services
company); Compliance
Manager, BISYS Group,
Inc. (2005-2006); Sole
Practitioner, Mark E.
Tuttle Attorney at Law
(2004-2005); Paralegal,
John Hancock Financial
Services, Inc.
(2000-2004).
LAURA F. HEALY Assistant Unlimited Vice President, State N/A N/A
State Street Bank and Trust Treasurer Elected: Street Bank and Trust
Company November 2007 Company
Two Avenue de Lafayette (2002-present).*
Boston, MA 02111
3/20/64
CHAD C. HALLETT Assistant Unlimited Vice President, State N/A N/A
State Street Bank and Treasurer Elected: Street Bank and Trust
Trust Company May 2006 Company
Two Avenue de Lafayette (2001-present).*
Boston, MA 02111
1/28/69
MATTHEW FLAHERTY Assistant Unlimited Assistant Vice N/A N/A
State Street Bank and Trust Treasurer Elected: President, State
Company May 2005 Street Bank and Trust
Two Avenue de Lafayette (1994-present).*
Boston, MA 02111
2/19/71
TRACY A. ATKINSON Chief Unlimited Chief Compliance N/A N/A
SSgA Funds Compliance Elected: Officer, State Street
Management, Inc. Officer July 2008 Global Advisors
State Street Financial (2008-present);
Center Executive Vice
One Lincoln Street President, State Street
Boston, MA 02111 Corporation
1964 (2008-present); Senior
Vice President, MFS
Investment Management
(2004-2008); Chief
Financial Officer and
Treasurer, MFS Family
of Mutual Funds
(2005-2008); Chief
Risk and New Product
Development Officer,
MFS Investment
Management (2004-2005);
Partner,
PricewaterhouseCoopers,
LLP (prior to-2004)
|
15
* Mr. Ross is an Interested Trustee because of his employment with the
Adviser and ownership interest in an affiliate of the Adviser.
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 other than the Chief Compliance Officer, who serves at the pleasure of
the Independent Trustees. Commencing August 11, 2007, the Trust and SPDR Index
Shares Funds ("SIS Trust") pay, in the aggregate, each Independent Trustee an
annual fee of $60,000 plus $3,000 per in-person meeting attended. An Independent
Trustee will receive $1,000 for each telephonic or video conference meeting
attended. The Chair of the Board receives an additional annual fee of $25,000
and the Chair of the Audit Committee receives an additional annual fee of
$9,000. 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. Trustee fees are allocated between the Trust and SIS Trust and each of
their respective series in such a manner as deemed equitable, taking into
consideration the relative net assets of the series. Previously, the Trust paid
each Independent Trustee an annual fee of $12,000 plus $4,500 per in person
meeting attended or $500 for each meeting attended via telephone or video
conference.
The table below shows the compensation that the Independent Trustees received
during the Trust's fiscal year ended June 30, 2008.
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ESTIMATED FROM THE
ACCRUED ANNUAL TRUST AND
AGGREGATE AS PART BENEFITS FUND COMPLEX
NAME OF COMPENSATION OF TRUST UPON PAID TO
INDEPENDENT TRUSTEE FROM THE TRUST EXPENSES RETIREMENT TRUSTEES(1)
------------------- -------------- ---------- ---------- ------------
David M. Kelly $[________] $ 0 N/A $[_______]
Frank Nesvet $[________] $ 0 N/A $[_______]
Helen F. Peters $[________] $ 0 N/A $[_______]
|
(1) The Fund Complex includes the Trust and SIS Trust.
STANDING COMMITTEES
Audit Committee. The Board has an Audit Committee consisting of all Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust. Ms.
Peters serves as Chair. The Audit Committee meets with the Trust's independent
auditors to review and approve the scope and results of their professional
services; to review the procedures for evaluating the adequacy of the Trust's
accounting controls; to consider the range of audit fees; and to make
recommendations to the Board regarding the engagement of the Trust's independent
auditors. The Audit Committee met five (5) times during the fiscal year ended
June 30, 2008.
Trustee Committee. The Board has established a Trustee Committee consisting of
all Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust. Mr. Nesvet serves as Chair. 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 Fund; 3) review proposed
resolutions and conflicts of interest that may arise in the business of the Fund
and may have an impact on the investors of the Fund; 4) review matters that are
referred to the Committee by the Chief Legal Officer or other counsel to the
Trust; and 5) provide general oversight of the Fund on behalf of the investors
of the Fund. The Trustee Committee met four (4) times during the fiscal year
ended June 30, 2008.
16
Pricing and Investment Committee. The Board also has established a Pricing and
Investment Committee that is composed of Officers of the Trust, investment
management personnel of the Adviser and senior operations and administrative
personnel of State Street. The Pricing and Investment Committee is responsible
for the valuation and revaluation of any portfolio investments for which market
quotations or prices are not readily available. The Pricing and Investment
Committee meets only when necessary. The Board met four (4) times during the
fiscal year ended June 30, 2008 to review and ratify fair value pricing
determinations of the Pricing and Investment Committee. The Pricing and
Investment Committee reports to the Board on a quarterly basis.
OWNERSHIP OF FUND SHARES
The following table sets forth information describing the dollar range of equity
securities beneficially owned by each Trustee in the Trust as of December 31,
2007:
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN
DOLLAR RANGE OF EQUITY BY TRUSTEE IN FAMILY
NAME OF TRUSTEE SECURITIES IN THE TRUST OF INVESTMENT COMPANIES
--------------------- ----------------------- --------------------------------
INDEPENDENT TRUSTEES
David M. Kelly None None
Frank Nesvet None None
Helen F. Peters None None
INTERESTED TRUSTEE
James Ross None None
|
As of December 31, 2007, the Trustees who are not interested persons (as defined
in the 1940 Act) of the Trust or their immediate family members did not own
beneficially or of record any securities in the Adviser, the Distributor or any
person controlling, controlled by, or under common control with the Adviser or
the Distributor.
CODES OF ETHICS
The Trust, the Adviser and the Distributor each have adopted a code of ethics as
required by applicable law, which is designed to prevent affiliated persons of
the Trust, the Adviser and the Distributor from engaging in deceptive,
manipulative or fraudulent activities in connection with securities held or to
be acquired by the Fund (which may also be held by persons subject to the codes
of ethics).
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 SEC's website at http://www.sec.gov.
PROXY VOTING POLICIES
The Board believes that the voting of proxies on securities held by the 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. The Adviser's
proxy voting policy is attached to this SAI as Appendix A. Information regarding
how the 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; and (2) on the SEC's website at http://www.sec.gov.
DISCLOSURE OF PORTFOLIO HOLDINGS POLICY
The Trust has adopted a policy regarding the disclosure of information about the
Trust's portfolio holdings. The Board must approve all material amendments to
this policy. The Fund's portfolio holdings are publicly disseminated each day
the 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 Fund 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 the Fund. The Trust, the Adviser or State Street will not
disseminate non-public information concerning the Trust.
17
THE INVESTMENT ADVISER
SSgA Funds Management, Inc. acts as the investment adviser to the Trust and,
subject to the supervision of the Board, is responsible for the investment
management of the Fund. As of _______ __, 2008, the Adviser managed
approximately [$____] billion. The Adviser's principal address is State Street
Financial Center, One Lincoln Street, Boston, Massachusetts 02111. The Adviser,
a Massachusetts corporation, is a wholly owned subsidiary of State Street
Corporation, a publicly held bank 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 the Fund pursuant to an investment
advisory agreement ("Investment Advisory Agreement") between the Trust and the
Adviser. The Investment Advisory Agreement, with respect to the 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 the 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 the Fund's outstanding voting
securities. The Investment Advisory Agreement is also terminable upon 60 days
notice by the Adviser and will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
Under the Investment Advisory Agreement, the Adviser, subject to the supervision
of the Board and in conformity with the stated investment policies of the Fund,
manages the investment of the Fund's assets. The Adviser is responsible for
placing purchase and sale orders and providing continuous supervision of the
investment portfolio of the Fund. Pursuant to the Investment Advisory Agreement,
the Trust has agreed to indemnify the Adviser 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 Board's approval of the Investment
Advisory Agreement regarding the Fund will be provided in the Trust's
Semi-Annual Report to Shareholders dated December 31, 2008.
For the services provided to the Fund under the Investment Advisory Agreement,
the Fund pays the Adviser monthly fees based on a percentage of the Fund's
average daily net assets as set forth in the Prospectus. From time to time, the
Adviser may waive all or a portion of its fee. The Adviser pays all expenses of
the Fund other than the management fee, distribution fees pursuant to the
Distribution and Service Plan, if any, brokerage, taxes, interest, fees and
expenses of the Independent Trustees (including any Trustee's counsel fees),
litigation expenses and other extraordinary expenses.
PORTFOLIO MANAGERS
The Adviser manages the Fund using a team of investment professionals. Key
professionals primarily involved in the day-to-day portfolio management for the
Fund include Michael Brunell, John Kirby and Elya Schwartzman.
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 the
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 [_____]
REGISTERED POOLED TOTAL
INVESTMENT ASSETS INVESTMENT ASSETS ASSETS ASSETS
PORTFOLIO COMPANY MANAGED VEHICLE MANAGED OTHER MANAGED MANAGED
MANAGER ACCOUNTS (BILLIONS)* ACCOUNTS (BILLIONS)* ACCOUNTS (BILLIONS)* (BILLIONS)*
---------------- ---------- ----------- ---------- ----------- -------- ----------- -----------
Michael Brunell [______] [______] [______] [______] [______] [______] [______]
John Kirby [______] [______] [______] [______] [______] [______] [______]
Elya Schwartzman [______] [______] [______] [______] [______] [______] [______]
|
* There are no performance fees associated with these portfolios.
The following table lists the dollar range of equity securities beneficially
owned by the portfolio managers listed above as of [_____].
18
PORTFOLIO DOLLAR RANGE OF FUND
MANAGER SECURITIES BENEFICIALLY OWNED
---------------- -----------------------------
Michael Brunell None
John Kirby None
Elya Schwartzman None
|
A portfolio manager that has responsibility for managing more than one account
may be subject to potential conflicts of interest because he or she is
responsible for other accounts in addition to the fund. Those conflicts could
include preferential treatment of one account over others in terms of: (a) the
portfolio manager's execution of different investment strategies for various
accounts; or (b) the allocation of resources or of investment opportunities. The
Adviser has adopted policies and procedures designed to address these potential
material conflicts. For instance, portfolio managers are normally responsible
for all accounts within a certain investment discipline, and do not, absent
special circumstances, differentiate among the various accounts when allocating
resources. Additionally, the Adviser and its advisory affiliates have processes
and procedures for allocating investment opportunities among portfolios that are
designed to provide a fair and equitable allocation among the portfolio
manager's accounts with the same strategy.
Portfolio managers may manage numerous accounts for multiple clients. These
accounts may include registered investment companies, other types of pooled
accounts (e.g., collective investment funds), and separate accounts (i.e.,
accounts managed on behalf of individuals or public or private institutions).
Portfolio managers make investment decisions for each account based on the
investment objectives and policies and other relevant investment considerations
applicable to that portfolio. A potential conflict of interest may arise as a
result of the portfolio managers' responsibility for multiple accounts with
similar investment guidelines. Under these circumstances, a potential investment
may be suitable for more than one of the portfolio managers' accounts, but the
quantity of the investment available for purchase is less than the aggregate
amount the accounts would ideally devote to the opportunity. Similar conflicts
may arise when multiple accounts seek to dispose of the same investment. The
portfolio managers may also manage accounts whose objectives and policies differ
from that of the 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 the portfolio manager is responsible for
accounts that have different advisory fees - the 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. 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.
The compensation of the Adviser's investment professionals is based on a number
of factors. The first factor considered is external market. Through a
compensation survey process, the Adviser seeks to understand what its
competitors are paying people to perform similar roles. This data is then used
to determine a competitive baseline in the areas of base pay, bonus, and long
term incentive (i.e. equity). The second factor taken into consideration is the
size of the pool available for this compensation. The Adviser is a part of State
Street Corporation, and therefore works within its corporate environment on
determining the overall level of its incentive compensation pool. Once
determined, this pool is then allocated to the various locations and departments
of the Adviser and its affiliates. The discretionary determination of the
allocation amounts to these locations and departments is influenced by the
competitive market data, as well as the overall performance of the group. The
pool is then allocated on a discretionary basis to individual employees based on
their individual performance. There is no fixed formula for determining these
amounts, nor is anyone's compensation directly tied to the investment
performance or asset value of a product or strategy. The same process is
followed in determining incentive equity allocations.
THE ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
State Street, State Street Financial Center, One Lincoln Street, Boston,
Massachusetts 02111, serves as Administrator for the Trust pursuant to an
administration agreement ("Administration Agreement"). Under the Administration
Agreement, State Street is obligated on a continuous basis to provide such
administrative services as the Board reasonably deems necessary for the proper
administration of the Trust and the Fund. State Street will generally assist in
all aspects of the Trust's and the Fund's operations;
19
supply and maintain office facilities (which may be in State Street's own
offices), statistical and research data, data processing services, clerical,
accounting, bookkeeping and record keeping services (including, without
limitation, the maintenance of such books and records as are required under the
1940 Act and the rules thereunder, except as maintained by other agents),
internal auditing, executive and administrative services, and stationery and
office supplies; prepare reports to shareholders or investors; prepare and file
tax returns; supply financial information and supporting data for reports to and
filings with the SEC and various state Blue Sky authorities; supply supporting
documentation for meetings of the Board; provide monitoring reports and
assistance regarding compliance with the Declaration of Trust, by-laws,
investment objectives and policies and with federal and state securities laws;
arrange for appropriate insurance coverage; and negotiate arrangements with, and
supervise and coordinate the activities of, agents and others to supply
services.
Pursuant to the Administration Agreement, the Trust has agreed to a limitation
on damages and to indemnify the Administrator for certain liabilities, including
certain liabilities arising under the federal securities laws, unless such loss
or liability results from gross negligence or willful misconduct in the
performance of its duties.
State Street also serves as Custodian for the Fund pursuant to a custodian
agreement ("Custodian Agreement"). As Custodian, State Street holds the Fund's
assets, calculates the net asset value of the Shares and calculates net income
and realized capital gains or losses.
State Street also serves as Transfer Agent of the Fund pursuant to a transfer
agency agreement ("Transfer Agency Agreement"). State Street and the Trust will
comply with the self-custodian provisions of Rule 17f-2 under the 1940 Act.
COMPENSATION. As compensation for its services under the Administration
Agreement, the Custodian Agreement, and Transfer Agency Agreement, State Street
shall receive a fee for its services, calculated based on the average aggregate
net assets of the Fund as follows: 0.045% on the first $4.5 billion, 0.040% on
the next $4.5 billion, 0.0225% on the next $3.5 billion, and 0.0125% thereafter.
For the Fund, after the first six months of operations, a $75,000 minimum fee
per Fund applies. The greater of the minimum fee or the asset based fee will be
charged. In addition, State Street shall receive global safekeeping and
transaction fees, which are calculated on a per-country basis, and in-kind
creation (purchase) and redemption transaction fees (as described below and in
the Fund's Prospectus). State Street may be reimbursed by the Fund 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 each of the Administration Agreement, the Custodian
Agreement and the Transfer Agency Agreement.
THE DISTRIBUTOR
State Street Global Markets, LLC is the principal underwriter and Distributor of
Shares. Its principal address is State Street Financial Center, One Lincoln
Street, Boston, Massachusetts 02111. Investor information can be obtained by
calling 1-866-787-2257. The Distributor has entered into a distribution
agreement ("Distribution Agreement") with the Trust pursuant to which it
distributes Shares of the 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.
The Fund has adopted a Distribution and Service (Rule 12b-1) Plan (a "Plan")
pursuant to which payments of up to 0.25% may be made. No payments pursuant to
the Plan will be made during the next twelve (12) months of operation. Under its
terms, the Plan remains in effect from year to year, provided such continuance
is approved annually by vote of the Board, including a majority of the
"Independent Trustees" (Trustees who are not interested persons of the Fund (as
defined in the 1940 Act) and have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan). The Plan may
not be amended to increase materially the amount to be spent for the services
provided by the Distributor without approval by the shareholders of the Fund to
which the Plan applies, and all material amendments of the Plan also require
Board approval (as described above). The Plan may be terminated at any time,
without penalty, by vote of a majority of the Independent Trustees, or, by a
vote of a majority of the outstanding voting securities of the Fund (as such
vote is defined in the 1940 Act). Pursuant to the Distribution Agreement, the
Distributor will provide the Board with periodic reports of any amounts expended
under the Plan and the purpose for which such expenditures were made.
20
The Distribution Agreement provides that it may be terminated at any time,
without the payment of any penalty, as to the 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).
Pursuant to agreements entered into with such persons, the Distributor will make
payments under the Plan to certain broker-dealers or other persons ("Investor
Services Organizations") that enter into agreements with the Distributor in the
form approved by the Board to provide distribution assistance and shareholder
support, account maintenance and educational and promotional services (which may
include compensation and sales incentives to the registered brokers or other
sales personnel of the broker-dealer or other financial entity that is a party
to an investor services agreement) ("Investor Services Agreements"). No such
Investor Services Agreements will be entered into during the first twelve months
of operation. Each Investor Services Agreement will be a "related agreement"
under the relevant Plan. No Investor Services Agreement will provide for annual
fees of more than 0.25% of the Fund's average daily net assets per annum
attributable to Shares subject to such agreement.
Subject to an aggregate limitation of 0.25% of the Fund's average net assets per
annum, the fees paid by the Fund under the Plan will be compensation for
distribution, investor services or marketing services for the Fund. To the
extent the Plan fees aggregate less than 0.25% per annum of the average daily
net assets of the Fund, the Fund may also reimburse the Distributor and other
persons for their respective costs incurred in printing prospectuses and
producing advertising or marketing material prepared at the request of the Fund.
The aggregate payments under the Plan will not exceed, on an annualized basis,
0.25% of average daily net assets of the Fund.
The continuation of the Distribution Agreement, any Investor Services Agreements
and any other related agreements is subject to annual approval of the Board,
including by a majority of the Independent Trustees, as described above.
Each of the Investor Services Agreements will provide that it may be terminated
at any time, without the payment of any penalty, (i) by vote of a majority of
the Independent Trustees or (ii) by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the relevant Fund, on at least 60
days' written notice to the other party. Each of the Distribution Agreement and
the Investor Services Agreements 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). Each Investor Services Agreement is also terminable by
the applicable Investor Service Organization upon 60 days' notice to the other
party thereto.
The allocation among the funds of the Trust of fees and expenses payable under
the Distribution Agreement and the Investor Services Agreements will be made pro
rata in accordance with the daily net assets of the respective funds.
The Distributor may also enter into agreements with securities dealers
("Soliciting Dealers") who will solicit purchases of Creation Unit aggregations
of Fund Shares. Such Soliciting Dealers may also be Participating Parties (as
defined in the "Book Entry Only System" section below), DTC Participants (as
defined below) and/or Investor Services Organizations.
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.
BROKERAGE TRANSACTIONS
The policy of the Trust regarding purchases and sales of securities for the Fund
is that primary consideration will be given to obtaining the most favorable
prices and efficient executions of transactions. Consistent with this policy,
when securities transactions are effected on a stock exchange, the Trust's
policy is to pay commissions which are considered fair and reasonable without
necessarily determining that the lowest possible commissions are paid in all
circumstances. The Trust believes that a requirement always to seek the lowest
possible commission cost could impede effective portfolio management and
preclude the Fund and the Adviser from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Adviser relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
21
The Trust has adopted policies and procedures that prohibit the consideration of
sales of the Fund's Shares as a factor in the selection of a broker or dealer to
execute its portfolio transactions.
The Adviser owes a fiduciary duty to its clients to seek to provide best
execution on trades effected. In selecting a broker/dealer for each specific
transaction, the Adviser chooses the broker/dealer deemed most capable of
providing the services necessary to obtain the most favorable execution. Best
execution is generally understood to mean the most favorable cost or net
proceeds reasonably obtainable under the circumstances. The full range of
brokerage services applicable to a particular transaction may be considered when
making this judgment, which may include, but is not limited to: liquidity,
price, commission, timing, aggregated trades, capable floor brokers or traders,
competent block trading coverage, ability to position, capital strength and
stability, reliable and accurate communications and settlement processing, use
of automation, knowledge of other buyers or sellers, arbitrage skills,
administrative ability, underwriting and provision of information on a
particular security or market in which the transaction is to occur. The specific
criteria will vary depending upon the nature of the transaction, the market in
which it is executed, and the extent to which it is possible to select from
among multiple broker/dealers. The Adviser will also use electronic crossing
networks ("ECNs") when appropriate.
The Adviser does not presently participate in any soft dollar arrangements. The
Adviser may aggregate trades with clients of SSgA, whose commission dollars may
be used to generate soft dollar credits. Although the Adviser's clients'
commissions are not used for soft dollars, the clients may benefit from the soft
dollar products/services received by SSgA.
The Adviser assumes general supervision over placing orders on behalf of the
Trust for the purchase or sale of portfolio securities. If purchases or sales of
portfolio securities of the Trust and one or more other investment companies or
clients supervised by the Adviser are considered at or about the same time,
transactions in such securities are allocated among the several investment
companies and clients in a manner deemed equitable and consistent with its
fiduciary obligations to all by the Adviser. In some cases, this procedure could
have a detrimental effect on the price or volume of the security so far as the
Trust is concerned. However, in other cases, it is possible that the ability to
participate in volume transactions and to negotiate lower brokerage commissions
will be beneficial to the Trust. The primary consideration is prompt execution
of orders at the most favorable net price.
The Fund will not deal with affiliates in principal transactions unless
permitted by exemptive order or applicable rule or regulation.
Securities of "Regular Broker-Dealer." The 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 Trust's 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 Trust's shares. The Fund had not
commenced operations as of June 30, 2007 and therefore did not pay brokerage
commissions for the fiscal year ended June 30, 2007.
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.
The portfolio turnover rate for the Fund is expected to be under 50%. The
overall reasonableness of brokerage commissions is evaluated by the Adviser
based upon its knowledge of available information as to the general level of
commissions paid by other institutional investors for comparable services.
BOOK ENTRY ONLY SYSTEM
The following information supplements and should be read in conjunction with the
section in the Prospectus entitled "BUYING AND SELLING THE FUND."
The Depository Trust Company ("DTC") acts as securities depositary for the
Shares. Shares of the 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"),
the American Stock Exchange (the "AMEX") and the FINRA. Access to the DTC system
is
22
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 the Fund held by
each DTC Participant. The Trust 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 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 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
the Fund as shown on the records of DTC or its nominee. Payments by DTC
Participants to Indirect Participants and Beneficial Owners of Shares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspects of the records
relating to or notices to Beneficial Owners, or payments made on account of
beneficial ownership interests in such Shares, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests or for
any other aspect of the relationship between DTC and the DTC Participants or the
relationship between such DTC Participants and the Indirect Participants and
Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing its service with respect to Shares at
any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action either to find a replacement for DTC
to perform its functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing ownership of
Shares, unless the Trust makes other arrangements with respect thereto
satisfactory to the Exchange.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The Fund had not commenced operations prior to the date of this SAI and
therefore the Fund does not have any shareholders who beneficially own of record
5% or more of the outstanding shares of the Fund.
An Authorized Participant (as defined below) may hold of record more than 25% of
the outstanding Shares of the Fund. From time to time, Authorized Participants
may be a beneficial and/or legal owner of the Fund, may be affiliated with the
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 Participant's
beneficially or legally owned Shares of the 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.
The Fund had not commenced operations prior to the date of this SAI and
therefore the Trustees and officers of the Trust did not own any of the Fund's
outstanding shares.
PURCHASE AND REDEMPTION OF CREATION UNITS
23
PURCHASE (CREATION). The Trust issues and sells Shares of the Fund only: (i) in
Creation Units on a continuous basis through the Principal Underwriter, without
a sales load, at their NAV next determined after receipt, on any Business Day
(as defined below), of an order in proper form pursuant to the terms of the
Authorized Participant Agreement ("Participant Agreement"); or (ii) pursuant to
the Dividend Reinvestment Service (as defined below).
A "Business Day" with respect to the Fund is any day except weekends and the
following holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day, Columbus
Day, Veteran's Day, Thanksgiving Day and Christmas Day.
FUND DEPOSIT. The consideration for the purchase of a Creation Unit of the Fund
generally consists of a cash payment equal in value to the Deposit Securities,
the "Deposit Cash," together with the Cash Component. When accepting purchases
of Creation Units for cash, the 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 the Fund. The Cash
Component 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. If the Cash Component is a positive number (i.e.,
the net asset value per Creation Unit exceeds the market value of the Deposit
Securities or Deposit Cash, as applicable), the Cash Component shall be such
positive amount. If the Cash Component is a negative number (i.e., the net asset
value per Creation Unit is less than the market value of the Deposit Securities
or Deposit Cash, as applicable), the Cash Component shall be such negative
amount and the creator will be entitled to receive cash in an amount equal to
the Cash Component. The Cash Component serves the function of compensating for
any differences between the net asset value per Creation Unit and the market
value of the Deposit Securities or Deposit Cash, as applicable. Computation of
the Cash Component excludes any stamp duty or other similar fees and expenses
payable upon transfer of beneficial ownership of the Deposit Securities, if
applicable, which shall be the sole responsibility of the Authorized Participant
(as defined below).
The Custodian, through NSCC, makes available on each Business Day, immediately
prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern
time), the list of 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 the Fund. Such Fund Deposit is subject to any applicable
adjustments as described below, in order to effect purchases of Creation Units
of the 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 the 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. The composition of the Deposit Securities may also change
in response to adjustments to the weighting or composition of the component
securities of the Index.
In instances where the Trust accepts Deposit Securities for the purchase of a
Creation Unit, the Trust reserves the right to permit or require the
substitution of an amount of cash (i.e., a "cash in lieu" amount) to be added to
the Cash Component to replace any Deposit Security which: (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, "custom 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 Index being tracked by the Fund or resulting
from certain corporate actions.
PROCEDURES FOR PURCHASE OF CREATION UNITS. To be eligible to place orders with
the Principal Underwriter to purchase a Creation Unit of the 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
24
Authorized Participant will agree, pursuant to the terms of a Participation
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
(defined below) and any other applicable fees, taxes and additional variable
charge.
All orders to purchase Shares directly from the Fund, including custom 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. In the
case of custom orders, the order must be received by the Principal Underwriter
no later than the times set forth in the Participation Agreement. The date on
which an order to purchase Creation Units (or an order to redeem Creation Units,
as set forth below) 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 the Fund in Creation Units
have to be placed by the investor's 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, the
Fund may require orders to create Creation Units to be placed earlier in the
day. 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 to the
Principal Underwriter by the cut-off time on such Business Day. Economic or
market disruptions or changes, or telephone or other communication failure may
impede the ability to reach the Distributor or an Authorized Participant.
ADDITIONAL PROCEDURES FOR FIXED INCOME ETFs. 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) and/or through a subcustody agent for (for foreign securities). The
Fund Deposit transfer must be ordered by the DTC Participant in a timely fashion
so as to ensure the delivery of the requisite number of Deposit Securities or
Deposit Cash, as applicable, through DTC to the account of the Fund by no later
than 3:00 p.m., Eastern time, on the Settlement Date. The "Settlement Date" for
the Fund is generally the first business day 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 3:00
p.m., Eastern time, on the Settlement Date. If the Cash Component and the
Deposit Securities or Deposit Cash, as applicable, are not received by 3:00
p.m., Eastern time, on the Settlement Date, the creation order may be cancelled.
Upon written notice to the Distributor, such canceled order may be resubmitted
the following Business Day using a Fund Deposit as newly constituted to reflect
the then current NAV of the Fund. The delivery of Creation Units so created
generally will occur no later than the third Business Day 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 with by 3:00 p.m., Eastern time, 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 3:00 p.m. Eastern time 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.
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
25
Deposit Securities (the "Additional Cash Deposit"), which shall be maintained in
a separate 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 Participant Agreement will
permit the Trust to buy the missing Deposit Securities at any time. Authorized
Participants will be liable to the Trust for 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 to it by the Principal
Underwriter in respect of the Fund if (a) the order is not in proper form; (b)
the Deposit Securities or Deposit Cash, as applicable, delivered by the
Participant is 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 Principal Underwriter
shall notify a prospective creator of a Creation Unit and/or the Authorized
Participant acting on behalf of the creator of a Creation Unit of its rejection
of the order of such person. 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 Trust's
determination shall be final and binding.
CREATION TRANSACTION FEE. A purchase (i.e., creation) transaction fee is imposed
for the transfer and other transaction costs associated with the purchase of
Creation Units, and investors will be required to pay a fixed creation
transaction fee regardless of the number of Creation Units created in the
transaction, as set forth in the Fund's Prospectus, as may be revised from time
to time. The Fund may adjust the creation transaction fee from time to time
based upon actual experience. An additional charge for custom orders or partial
cash purchases for the Fund may be imposed. An additional variable charge for
brokerage and market impact expenses may also be applied. Investors who use the
services of a broker or other such intermediary may be charged a fee for such
services. Investors are responsible for the costs of transferring the securities
constituting the Deposit Securities to the account of the Trust.
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
the Fund through the Transfer Agent and only on a Business Day. EXCEPT UPON
LIQUIDATION OF THE 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 the Fund, the Custodian, through the NSCC, makes available
immediately prior to the opening of business on the Exchange (currently 9:30
a.m., Eastern time) on each Business Day, the list of the names and share
quantities of the Fund's 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
26
which are applicable to purchases of Creation Units for the Fund.
Redemption proceeds for a Creation Unit generally consist of cash. However, with
respect to in-kind redemptions of the Fund, redemption proceeds for a Creation
Unit generally consist of Fund Securities -- as announced by the Custodian on
the Business Day of the request for redemption received in proper form plus cash
in an amount equal to the difference between the net asset value of the Shares
being redeemed, as next determined after a receipt of a request in proper form,
and the value of the Fund Securities (the "Cash Redemption Amount"), less a
fixed redemption transaction fee and any applicable additional variable charge
as set forth below. In the event that the Fund Securities have a value greater
than the net asset value of the Shares, a compensating cash payment equal to the
differential is required to be made by or through an Authorized Participant by
the redeeming shareholder.
REDEMPTION TRANSACTION FEE. A redemption transaction fee is imposed for the
transfer and other transaction costs associated with the redemption of Creation
Units, and investors will be required to pay a fixed redemption transaction fee
regardless of the number of Creation Units created in the transaction, as set
forth in the Prospectus, as may be revised from time to time. The redemption
transaction fee is the same no matter how many Creation Units are being redeemed
pursuant to any one redemption request. The Fund may adjust the redemption
transaction fee from time to time based upon actual experience. An additional
charge for custom orders or partial cash redemptions (when cash redemptions are
available) for the Fund may be imposed. An additional variable charge for
brokerage and market impact expenses may also be applied. Investors who use the
services of a broker or other such intermediary may be charged a fee for such
services. Investors are responsible for the costs of transferring the Fund
Securities from the Trust to their account or on their order.
PROCEDURES FOR REDEMPTION OF CREATION UNITS. To be eligible to place redemption
orders for Creation Units of the Fund, an entity must be a DTC Participant that
has executed a Participant Agreement and have the ability to transact through
the Federal Reserve System. Orders to redeem Creation Units must be submitted in
proper form to the Transfer Agent prior to the time as set forth in the
Participant Agreement and/or applicable order form. A redemption request is
considered to be in "proper form" if (i) such order is accompanied or followed
by the requisite number of Shares of the Fund specified in such order, which
delivery must be made through DTC to the Custodian no later than 3:00 p.m.,
Eastern time, on the Settlement Date; and (ii) all other procedures set forth in
the Participant Agreement and order form are properly followed. On days when the
Exchange or the bond markets close earlier than normal, the Fund may require
orders to redeem Creation Units to be placed earlier in the day. 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 on behalf of the redeeming beneficial owner by the
Settlement Date.
With respect to in-kind redemptions of the 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 the Fund are delivered to the Custodian prior to 3:00 p.m.
Eastern time 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 3:00 p.m. Eastern time 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 the Fund, in connection with taking
delivery of shares of Fund Securities upon redemption of Creation Units, a
redeeming shareholder or Authorized Participant acting on behalf of such
Shareholder 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, to which account such Fund
Securities will be delivered. Deliveries of redemption proceeds generally will
be made 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 one business day 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 the 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
neither the redeeming shareholder nor the Authorized Participant acting on
behalf of such redeeming shareholder has 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 redeeming
Shareholders will be required to receive its redemption proceeds in cash.
27
ADDITIONAL REDEMPTION PROCEDURES. The 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.
Redemptions of shares for Fund Securities will be subject to compliance with
applicable federal and state securities laws and the 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 the 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.
TRANSACTION FEES. A fixed transaction fee is applicable to each creation
transaction and each redemption transaction regardless of the number of Creation
Units created in the transaction, as set forth in the Fund's Prospectus, as may
be revised from time to time.
REQUIRED EARLY ACCEPTANCE OF ORDERS. Notwithstanding the foregoing, as described
in the Participant Agreement and the applicable order form, Authorized
Participants may be notified that the cut-off time for an order may be earlier
on a particular business day.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with the
section in the Prospectus entitled "DETERMINATION OF NET ASSET VALUE."
Net asset value per Share for the Fund of the Trust 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, rounded to the
nearest cent. 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 the Fund is calculated by the Custodian and determined at 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, provided that fixed-income assets
may be valued as of the announced closing time for trading in fixed-income
instruments on any day that the SIFMA announces an early closing time.
In calculating the Fund's net asset value per Share, the Fund's 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. In the case of shares
of other funds that are not traded on an exchange, a market valuation means such
fund's 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 service's valuation matrix may be considered a market valuation. Any
assets or liabilities denominated in currencies other than the U.S. dollar are
converted into U.S. dollars at the current market rates on the date of valuation
as quoted by one or more sources.
In the event that current market valuations are not readily available or such
valuations do not reflect current market value, the Trust's procedures require
the Pricing and Investment Committee to determine a security's fair value if a
market price is not readily available. In determining such value the Pricing and
Investment 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 the Fund's index provider). In these
cases, the Fund's net asset value may reflect certain portfolio securities' fair
values rather than their market prices. 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 the Fund's net asset value and the prices used by
the Fund's benchmark Index. This may result in a difference between the Fund's
performance and the performance
28
of the applicable Fund's benchmark Index. With respect to securities that are
primarily listed on foreign exchanges, the value of the Fund's portfolio
securities may change on days when you will not be able to purchase or sell your
Shares.
DIVIDENDS AND DISTRIBUTIONS
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
monthly by the Fund, but may vary significantly from month to month.
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 the 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.
The Trust makes additional distributions to the extent necessary (i) to
distribute the entire annual taxable income of the Trust, plus any net capital
gains and (ii) to avoid imposition of the excise tax imposed by Section 4982 of
the Internal Revenue Code. Management of the Trust reserves the right to declare
special dividends if, in its reasonable discretion, such action is necessary or
advisable to preserve the status of the Fund as a regulated investment company
("RIC") or to avoid imposition of income or excise taxes on undistributed
income.
DIVIDEND REINVESTMENT SERVICE
Broker-dealers may make available the DTC book-entry Dividend Reinvestment
Service (the "Service") for use by Beneficial Owners of the Fund through DTC
Participants for reinvestment of their dividend distributions. If the Service is
available and used, dividend distributions of both income and realized gains
will be automatically reinvested in additional whole Shares issued by the Trust
of the Fund at NAV per share. Shares will be issued at NAV under the Service
regardless of whether the Shares are then trading in the secondary market at a
premium or discount to net asset value. Broker dealers, at their own discretion,
may also offer a dividend reinvestment program under which Shares are purchased
in the secondary market at current market prices. Investors should consult their
broker dealer for further information regarding the Service or other dividend
reinvestment programs.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the federal, state, local or foreign tax treatment of the Fund or
its 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 Statement of Additional Information. 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 also supplements and should be read in conjunction
with the section in the Prospectus entitled "TAX MATTERS."
The Fund intends to qualify for and to elect treatment as a separate RIC under
Subchapter M of the Internal Revenue Code. As such, the 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 be taxable as a RIC, the Fund must distribute
annually to its shareholders at least 90% of its net investment income
(generally net investment income plus the excess of net short-term capital gains
29
over net long-term capital losses) and at least 90% of its net tax exempt
interest income, for each tax year, if any, to its shareholders ("Distribution
Requirement") and also must meet several additional requirements. Among these
requirements are the following: (i) at least 90% of the Fund's gross income each
taxable year must be derived from dividends, interest, payments with respect to
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
an interest in qualified publicly traded partnerships; (ii) at the end of each
fiscal quarter of the Fund's taxable year, 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 than
5% of the value of the Fund's total assets or more than 10% of the outstanding
voting securities of such issuer, and (iii) at the end of each fiscal quarter of
the Fund's taxable year, 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 or the securities of two or more issuers
engaged in the same, similar, or related trades or businesses if the Fund owns
at least 20% of the voting power of such issuers, or the securities of one or
more qualified publicly traded partnerships.
The Fund is treated as a separate corporation for federal income tax purposes.
The 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 fund do not offset gains in another and the requirements (other
than certain organizational requirements) for qualifying RIC status are
determined at the Fund level rather than at the Trust level.
If the Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits, subject to the
dividends-received deduction for corporate shareholders and the lower tax rates
applicable to qualified dividend income distributed to individuals. The Board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines such course of action to be beneficial to
shareholders.
Although the Fund intends to distribute substantially all of its net investment
income and its capital gains for each taxable year, the Fund will be subject to
federal income tax to the extent any such income or gains are not distributed.
If the Fund's distributions exceed its taxable income and capital gains realized
during a taxable year, all or a portion of the distributions made in the taxable
year may be recharacterized as a return of capital to shareholders. A return of
capital distribution generally will not be taxable but will reduce the
shareholder's cost basis and result in a higher capital gain or lower capital
loss when those shares on which the distribution was received are sold.
The 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 at least 98% of
its ordinary income for the calendar year plus 98% of its capital gain net
income for the twelve months ended October 31 of such year. The 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.
As a result of tax requirements, the Trust on behalf of the Fund has the right
to reject an order to create Shares if the purchaser (or 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 the Deposit Securities different from the market
value of such securities on the date of deposit. The Trust also has the right to
require information necessary to determine beneficial Share ownership for
purposes of the 80% determination.
The Fund's transactions in foreign currencies and forward foreign currency
contracts will be subject to special provisions of the Internal Revenue Code
that, among other things, may affect the character of gains and losses realized
by the Fund (i.e., 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 the Fund to mark-to-market
certain types of positions in their portfolios (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 Fund intends
to monitor its transactions, intends to make the appropriate tax elections, and
intends to make the appropriate entries in its books and records when it
acquires any foreign currency or forward foreign currency contract in order to
mitigate the effect of these rules so as to prevent disqualification of the Fund
as a RIC and minimize the imposition of income and excise taxes.
If the Fund owns shares in certain foreign investment entities, referred to as
"passive foreign investment companies" or "PFIC," the Fund will be subject to
one of the following special tax regimes: (i) the Fund is liable for U.S.
federal income tax, and an additional interest charge, on a portion of any
"excess distribution" from such foreign entity or any gain from the disposition
of such shares, even
30
if the entire distribution or gain is paid out by the Fund as a dividend to its
shareholders; (ii) if the Fund were able and elected to treat a PFIC as a
"qualifying electing fund" or "QEF," the Fund would be required each year to
include in income, and distribute to shareholders in accordance with the
distribution requirements set forth above, the Fund's pro rata share of the
ordinary earnings and net capital gains of the passive foreign investment
company, whether or not such earnings or gains are distributed to the Fund; or
(iii) the Fund may be entitled to mark-to-market annually shares of the PFIC,
and in such event would be required to distribute to shareholders any such
mark-to-market gains in accordance with the distribution requirements set forth
above.
The Fund may invest in complex securities. These investments may be subject to
numerous special and complex rules. These rules could affect whether gains and
losses recognized by the Fund are treated as ordinary income or capital gain,
accelerate the recognition of income to the Fund and/or defer the Fund's ability
to recognize losses. In turn, these rules may affect the amount, timing or
character of the income distributed to you by the Fund.
The 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. The 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 any 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 90% requirement. The
Fund distributes to shareholders at least annually any net capital gains which
have been recognized for federal income tax purposes, including unrealized gains
at the end of the Fund's fiscal year on futures or options transactions. Such
distributions are combined with distributions of capital gains realized on the
Fund's other investments and shareholders are advised on the nature of the
distributions.
As a result of entering into swap contracts, the Fund may make or receive
periodic net payments. The Fund may also make or receive a payment when a swap
is terminated prior to maturity through an assignment of the swap or other
closing transaction. Periodic net payments, if positive, will generally
constitute taxable ordinary income and, if negative, will reduce net tax-exempt
income, while termination of a swap will generally result in capital gain or
loss (which will be a long-term capital gain or loss if the Fund has been a
party to the swap for more than one year). The tax treatment of many types of
credit default swaps is uncertain and may affect the amount, timing or character
of the income distributed to you by the Fund.
Investments by the 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 receives no cash
interest payments. In other circumstances, whether pursuant to the terms of a
security or as a result of other factors outside the control of the Fund, the
Fund may recognize income without receiving a commensurate amount of cash. Such
income is included in determining the amount of income that the Fund must
distribute to maintain its status as a RIC and to avoid the payment of federal
income tax, including the nondeductible 4% excise tax. Because such income may
not be matched by a corresponding cash distribution to the Fund, the Fund may be
required to borrow money or dispose of other securities to be able to make
distributions to its shareholders.
Any market discount recognized on a 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 adjusted issue price if issued with original issue discount.
Absent an election by the Fund to include the market discount in income as it
accrues, gain on the Fund's disposition of such an obligation will be treated as
ordinary income rather than capital gain to the extent of the accrued market
discount.
The Fund intends to distribute annually to its shareholders substantially all of
its investment company taxable income, all of its net tax-exempt income and any
net realized long-term capital gains in excess of net realized short-term
capital losses (including any capital loss carryovers). The Fund will report to
shareholders annually the amounts of dividends received from ordinary income,
the amount of distributions received from capital gains and the portion of
dividends which may qualify for the dividends received deduction, if any. A
portion of the dividends received from the Fund may be treated as qualified
dividend income (eligible for the reduced maximum rate to individuals of 15%
(lower rates apply to individuals in lower tax brackets)) to the extent that the
Fund receives qualified dividend income. Qualified dividend income includes, in
general, subject to certain holding period requirements and other requirements,
dividend income from certain U.S. and foreign corporations. 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 those whose stock is tradable on an established securities
market in the United States. The Fund may derive capital gains and losses in
connection with the sale or other disposition of its portfolio securities.
Distributions from net short-term capital
31
gains will be taxable to shareholders as ordinary income. Distributions from net
long-term gains will be taxable to you at long-term capital gains rates,
regardless of how long you have held your Shares in the Fund. Long-term capital
gains are currently taxed at a maximum rate of 15%. Absent further legislation,
the maximum 15% rate on qualified dividend income and long-term capital gains
will cease to apply to taxable years beginning after December 31, 2010.
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 redemption of a shareholder's Fund Shares is normally
treated as a sale for tax purposes. Fund Shares held for a period of one year or
less at the time of such sale or redemption will, for tax purposes, generally
result in short-term capital gains or losses and those held for more than one
year will generally result in long-term capital gains or losses. Under current
law, the maximum tax rate on long-term capital gains available to non-corporate
shareholders generally is 15%. As noted above, without future legislation, the
maximum tax rate on long-term capital gains would return to 20% in 2011.
Gain or loss on the sale or redemption of Shares in the Fund is measured by the
difference between the amount received and the adjusted tax basis of the Shares.
Shareholders should keep records of investment made (including Shares acquired
through reinvestment of dividends and distribution) so they can compute the tax
basis of their Shares.
A loss realized on a sale or exchange of Shares of the Fund may be disallowed if
other substantially identical Shares are acquired (whether through the automatic
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
or exchange of Shares held for six (6) months or less is treated as long-term
capital loss to the extent of any capital gain dividends received by the
shareholders.
Distribution of ordinary income and capital gains may also be subject to
foreign, state and local taxes depending on a shareholder's circumstances.
Distributions reinvested in additional Shares of the Fund through the means of
the service (see "DIVIDEND REINVESTMENT SERVICE") will nevertheless be taxable
dividends to Beneficial Owners acquiring such additional Shares to the same
extent as if such dividends had been received in cash.
Dividends paid by the 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 (other than "qualified short-term capital gain" described below) 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 the 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.
The Fund may, under certain circumstances, designate all or a portion of a
dividend as an "interest-related dividend" that if received by a nonresident
alien or foreign entity generally would be exempt from the 30% U.S. withholding
tax, provided that certain other requirements are met. The Fund may also, under
certain circumstances, designate all or a portion of a dividend as a "qualified
short-term capital gain dividend" which if received by a nonresident alien or
foreign entity generally would be exempt from the 30% U.S. withholding tax,
unless the foreign person is a nonresident alien individual present in the
United States for a period or periods aggregating 183 days or more during the
taxable year. In the case of shares held through an intermediary, the
intermediary may withhold even if the Fund designates the payment as qualified
net interest income or qualified short-term capital gain. Non-U.S. shareholders
should contact their intermediaries with respect to the application of these
rules to their accounts. The provisions relating to dividends to foreign persons
would apply to dividends with respect to taxable years of the Fund beginning
after December 31, 2004 and before January 1, 2008.
The Fund will be required in certain cases to withhold at applicable withholding
rates and remit to the United States Treasury the amount withheld on amounts
payable to any shareholder who (1) has provided the Fund either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to properly report
payments of interest or dividends, (3) who 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).
Under promulgated Treasury regulations, if a shareholder recognizes a loss on
disposition of the Fund's Shares of $2 million or more for an individual
shareholder or $10 million or more for a corporate shareholder, the shareholder
must file with the IRS a disclosure
32
statement on 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. Future guidance may extend the current
exception from this reporting requirement to shareholders of most or all
regulated investment companies. In addition, pursuant to recently enacted
legislation, significant penalties may be imposed for the failure to comply with
the reporting requirements. The fact that a loss is reportable under these
regulations does not affect the legal determination of whether the taxpayer's
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
The 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 Fund. 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 the relevant Fund, and in the net distributable assets of such 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 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 Trust's 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 the Fund's 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 Markets, LLC at State Street Financial Center, One Lincoln
Street, Boston, Massachusetts 02111.
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Morgan, Lewis & Bockius LLP, 1111 Pennsylvania Avenue NW, Washington, DC 20004,
serves as counsel to the Trust. [_________________], serves as the independent
registered public accounting firm of the Trust. [_____] performs annual audits
of the Fund's financial statements and provides other audit, tax and related
services.
LOCAL MARKET HOLIDAY SCHEDULES
The Trust generally intends to effect deliveries of portfolio securities on a
basis of "T" plus three business days (i.e., days on which the Exchange is open)
in the relevant foreign market of each Fund, except for the Funds which hold
Portfolio Securities primarily traded in South Africa. The ability of the Trust
to effect in-kind redemptions within three 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
33
due to emergencies may also prevent the Trust from delivering securities within
three 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 seven calendar days for some Funds,
in certain circumstances, during the calendar years 2008 and 2009. The holidays
applicable to each Fund during such periods are listed below, as are instances
where more than seven days will be needed to deliver redemption proceeds. The
countries set forth below are based on the composition of each Fund's benchmark
Index as of December 31, 2007 and may change. Although certain holidays may
occur on different dates in subsequent years, the number of days required to
deliver redemption proceeds in any given year is not expected to exceed the
maximum number of days listed below for each Fund. 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.
[TO BE PROVIDED BY AMENDMENT]
34
APPENDIX A
Proxy Voting Policy (SSGA LOGO)
Funds Management, Inc.
INTRODUCTION
SSgA Funds Management, Inc. ("FM") seeks to vote proxies for which it has
discretionary authority in the best interests of its clients. This entails
voting proxies in a way which FM believes will maximize the monetary value of
each portfolio's holdings with respect to proposals that are reasonably
anticipated to have an impact on the current or potential value of a security.
Absent unusual circumstances or specific client instructions, we vote proxies on
a particular matter in the same way for all clients, regardless of their
investment style or strategies. FM takes the view that voting in a manner
consistent with maximizing the value of our clients' holdings will benefit our
direct clients (e.g. investment funds) and, indirectly, the ultimate owners and
beneficiaries of those clients (e.g. fund shareholders).
Oversight of the proxy voting process is the responsibility of the State Street
Global Advisors ("SSgA") Investment Committee. The SSgA Investment Committee
reviews and approves amendments to the FM Proxy Voting Policy and delegates
authority to vote in accordance with this policy to the FM Proxy Review
Committee, a subcommittee of the SSgA Investment Committee. FM retains the final
authority and responsibility for voting. In addition to voting proxies, FM:
1) describes its proxy voting procedures to its clients in Part II of its
Form ADV;
2) provides the client with this written proxy policy, upon request;
3) discloses to its clients how they may obtain information on how FM
voted the client's proxies;
4) matches proxies received with holdings as of record date;
5) reconciles holdings as of record date and rectifies any discrepancies;
6) generally applies its proxy voting policy consistently and keeps
records of votes for each client;
7) documents the reason(s) for voting for all non-routine items; and
8) keeps records of such proxy voting available for inspection by the
client or governmental agencies.
PROCESS
The FM Manager of Corporate Governance is responsible for monitoring proxy
voting on behalf of our clients and executing the day to day implementation of
this Proxy Voting Policy. As stated above, oversight of the proxy voting process
is the responsibility of the SSgA Investment Committee.
In order to facilitate our proxy voting process, FM retains Institutional
Shareholder Services ("ISS"), a firm with expertise in the proxy voting and
corporate governance fields. ISS assists in the proxy voting process, including
acting as our voting agent (i.e. actually processing the proxies), advising us
as to current and emerging governance issues that we may wish to address,
interpreting this policy and applying it to individual proxy items, and
providing analytical information concerning specific issuers and proxy items as
well as governance trends and developments. This Policy does not address all
issues as to which we may receive proxies nor does it seek to describe in detail
all factors that we may consider relevant to any particular proposal. To assist
ISS in interpreting and applying this Policy, we meet with ISS at least
annually, provide written guidance on certain topics generally on an annual
basis and communicate more regularly as necessary to discuss how specific issues
should be addressed. This guidance permits ISS to apply this Policy without
consulting us as to each proxy but in a manner that is consistent with our
investment view and not their own governance opinions. If an issue raised by a
proxy is not addressed by this Policy or our prior guidance to ISS, ISS refers
the proxy to us for direction on voting. On issues that we do not believe affect
the economic value of our portfolio holdings or are considered by us to be
routine matters as to which we have not provided specific guidance, we have
agreed with ISS to act as our voting agent in
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voting such proxies in accordance with its own recommendations which, to the
extent possible, take into account this Policy and FM's general positions on
similar matters. The Manager of Corporate Governance is responsible, working
with ISS, for submitting proxies in a timely manner and in accordance with our
policy. The Manager of Corporate Governance works with ISS to establish and
update detailed procedures to implement this policy.
From time to time, proxy votes will be solicited which fall into one of the
following categories:
(i) proxies which involve special circumstances and require additional
research and discussion (e.g. a material merger or acquisition, or a
material governance issue with the potential to become a significant
precedent in corporate governance); or
(ii) proxies which are not directly addressed by our policies and which are
reasonably anticipated to have an impact on the current or potential
value of a security or which we do not consider to be routine.
These proxies are identified through a number of methods, including but not
limited to notification from ISS, concerns of clients, review by internal proxy
specialists, and questions from consultants. The role of third parties in
identifying special circumstances does not mean that we will depart from our
guidelines; these third parties are all treated as information sources. If they
raise issues that we determine to be prudent before voting a particular proxy or
departing from our prior guidance to ISS, we will weigh the issue along with
other relevant factors before making an informed decision. In all cases, we vote
proxies as to which we have voting discretion in a manner that we determine to
be in the best interest of our clients. As stated above, if the proposal has a
quantifiable effect on shareholder value, we seek to maximize the value of a
portfolio's holdings. With respect to matters that are not so quantifiable, we
exercise greater judgment but still seek to maximize long-term value by
promoting sound governance policies. The goal of the Proxy Voting Committee is
to make the most informed decision possible.
In instances of special circumstances or issues not directly addressed by our
policies or guidance to ISS, the FM Manager of Corporate Governance will refer
the item to the Chairman of the Investment Committee for a determination of the
proxy vote. The first determination is whether there is a material conflict of
interest between the interests of our client and those of FM or its affiliates
(as explained in greater detail below under "Potential Conflicts"). If the
Manager of Corporate Governance and the Chairman of the Investment Committee
determine that there is a material conflict, the process detailed below under
"Potential Conflicts" is followed. If there is no material conflict, we examine
the proposals that involve special circumstances or are not addressed by our
policy or guidance in detail in seeking to determine what vote would be in the
best interests of our clients. At this point, the Chairman of the Investment
Committee makes a voting decision in our clients' best interest. However, the
Chairman of the Investment Committee may determine that a proxy involves the
consideration of particularly significant issues and present the proxy item to
the Proxy Review Committee and/or to the entire Investment Committee for a final
decision on voting the proxy. The Investment Committee will use the same
rationale for determining the appropriate vote.
FM reviews proxies of non-US issuers in the context of these guidelines.
However, FM also endeavors to show sensitivity to local market practices when
voting these proxies, which may lead to different votes. For example, in certain
foreign markets, items are put to vote which have little or no effect on
shareholder value, but which are routinely voted on in those jurisdictions; in
the absence of material effect on our clients, we will follow market practice.
FM votes in all markets where it is feasible to do so. Note that certain
custodians utilized by our clients do not offer proxy voting in every foreign
jurisdiction. In such a case, FM will be unable to vote such a proxy.
VOTING
For most issues and in most circumstances, we abide by the following general
guidelines. However, it is important to remember that these are simply
guidelines. As discussed above, in certain circumstances, we may determine that
it would be in the best interests of our clients to deviate from these
guidelines.
I. Generally, FM votes for the following ballot items:
Board of Directors
36
- Elections of directors who (i) we determine to be adequately
independent of management and (ii) do not simultaneously serve on an
unreasonable (as determined by FM) number of other boards (other than
those affiliated with the issuer). Factors that we consider in
evaluating independence include whether the nominee is an employee of
or related to an employee of the issuer or its auditor, whether the
nominee provides professional services to the issuer, whether the
nominee has attended an appropriate number of scheduled board meetings
(as determined by SSgA), or whether the nominee receives non-board
related compensation from the issuer
- Directors' compensation, provided the amounts are not excessive
relative to other issuers in the market or industry. In making such a
determination, we review whether the compensation is overly dilutive
to existing shareholders.
- Proposals to limit directors' liability and/or expand indemnification
of directors, provided that a director shall only be eligible for
indemnification and liability protection if he or she has not acted in
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office
- Discharge of board members' duties*, in the absence of pending
litigation, governmental investigation, charges of fraud or other
indicia of significant concern
- The establishment of annual elections of the board of directors unless
the board is composed by a majority of independent directors, the
board's key committees (auditing, nominating and compensation) are
composed of independent directors, and there are no other material
governance issues or performance issues.
- Mandates requiring a majority of independent directors on the Board of
Directors
- Mandates that Audit, Compensation and Nominating Committee members
should all be independent directors
- Mandates giving the Audit Committee the sole responsibility for the
selection and dismissal of the auditing firm and any subsequent result
of audits are reported to the audit committee
- Elimination of cumulative voting
- Establishment of confidential voting
- Proposals seeking to establish or decrease an existing required
ownership threshold contained within the company by-laws that offer
shareholders the right to call special meetings.
Auditors
- Approval of auditors, unless the fees paid to auditors are excessive;
auditors' fees will be deemed excessive if the non-audit fees for the
prior year constituted 50% or more of the total fees paid to the
auditors
- Auditors' compensation, provided the issuer has properly disclosed
audit and non-audit fees relative to market practice and that
non-audit fees for the prior year constituted no more than 50% of the
total fees paid to the auditors
- Discharge of auditors*
* Common for non-US issuers; request from the issuer to discharge from
liability the directors or auditors with respect to actions taken by them
during the previous year.
* Common for non-US issuers; request from the issuer to discharge from
liability the directors or auditors with respect to actions taken by them
during the previous year.
37
- Approval of financial statements, auditor reports and allocation of
income
- Requirements that auditors attend the annual meeting of shareholders
- Disclosure of Auditor and Consulting relationships when the same or
related entities are conducting both activities
- Establishment of a selection committee responsible for the final
approval of significant management consultant contract awards where
existing firms are already acting in an auditing function
Capitalization
- Dividend payouts that are greater than or equal to country and
industry standards; we generally support a dividend which constitutes
30% or more of net income
- Authorization of share repurchase programs, unless the issuer does not
clearly state the business purpose for the program, a definitive
number of shares to be repurchased, and the time frame for the
repurchase
- Capitalization changes which eliminate other classes of stock and/or
unequal voting rights
- Changes in capitalization authorization for stock splits, stock
dividends, and other specified needs which are no more than 50% of the
existing authorization for U.S. companies and no more than 100% of
existing authorization for non-U.S. companies.
- Elimination of pre-emptive rights for share issuance of less than a
certain percentage (country specific - ranging from 5% to 20%) of the
outstanding shares, unless even such small amount could have a
material dilutive effect on existing shareholders (e.g. in illiquid
markets)
Anti-Takeover Measures
- Elimination of shareholder rights plans ("poison pill")
- Amendment to a shareholder rights plans ("poison pill") where the
terms of the new plans are more favorable to shareholders' ability to
accept unsolicited offers (i.e. if one of the following conditions are
met: (i) minimum trigger, flip-in or flip-over of 20%, (ii) maximum
term of three years, (iii) no "dead hand," "slow hand," "no hand" or
similar feature that limits the ability of a future board to redeem
the pill, and (iv) inclusion of a shareholder redemption feature
(qualifying offer clause), permitting ten percent of the shares to
call a special meeting or seek a written consent to vote on rescinding
the pill if the board refuses to redeem the pill 90 days after a
qualifying offer is announced)
- Adoption or renewal of a non-US issuer's shareholder rights plans
("poison pill") if the following conditions are met: (i) minimum
trigger, flip-in or flip-over of 20%, (ii) maximum term of three
years, (iii) no "dead hand," "slow hand," "no hand" or similar feature
that limits the ability of a future board to redeem the pill, and (iv)
inclusion of a shareholder redemption feature (qualifying offer
clause), permitting ten percent of the shares to call a special
meeting or seek a written consent to vote on rescinding the pill if
the board refuses to redeem the pill 90 days after a qualifying offer
is announced
- Reduction or elimination of super-majority vote requirements, unless
management of the issuer was concurrently seeking to or had previously
made such reduction or elimination
- Mandates requiring shareholder approval of a shareholder rights plans
("poison pill")
- Repeals of various anti-takeover related provisions
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Executive Compensation/Equity Compensation
- Stock purchase plans with an exercise price of not less that 85% of
fair market value
- Stock option plans which are incentive based and not excessively
dilutive. In order to assess the dilutive effect, we divide the number
of shares required to fully fund the proposed plan, the number of
authorized but unissued shares, and the issued but unexercised shares
by fully diluted share count. We review that number in light of
certain factors, including the industry of the issuer, in order to
make our determination as to whether the dilution is excessive.
- Other stock-based plans which are not excessively dilutive, using the
same process set forth in the preceding bullet
- Expansions to reporting of financial or compensation-related
information, within reason
- Proposals requiring the disclosure of executive retirement benefits if
the issuer does not have an independent compensation committee
Routine Business Items
- General updating of or corrective amendments to charter not otherwise
specifically addressed herein, unless such amendments would reasonably
be expected to diminish shareholder rights (e.g. extension of
directors' term limits, amending shareholder vote requirement to amend
the charter documents, insufficient information provided as to the
reason behind the amendment)
- Change in Corporation Name
- Mandates that amendments to bylaws or charters have shareholder
approval
Other
- Adoption of anti-"greenmail" provisions, provided that the proposal:
(i) defines greenmail; (ii) prohibits buyback offers to large block
holders (holders of at least 1% of the outstanding shares and in
certain cases, a greater amount, as determined by the Proxy Review
Committee) not made to all shareholders or not approved by
disinterested shareholders; and (iii) contains no anti-takeover
measures or other provisions restricting the rights of shareholders
- Repeals or prohibitions of "greenmail" provisions
- "Opting-out" of business combination provision
II. Generally, FM votes against the following items:
Board of Directors
- Establishment of classified boards of directors, unless 80% of the
board is independent
- Proposals requesting re-election of insiders or affiliated directors
who serve on audit, compensation, or nominating committees
- Limits to tenure of directors
39
- Requirements that candidates for directorships own large amounts of
stock before being eligible to be elected
- Restoration of cumulative voting in the election of directors
- Removal of a director, unless we determine the director (i) is not
adequately independent of management or (ii) simultaneously serves on
an unreasonable (as determined by FM) number of other boards (other
than those affiliated with the issuer). Factors that we consider in
evaluating independence include whether the director is an employee of
or related to an employee of the issuer or its auditor, whether the
director provides professional services to the issuer, or whether the
director receives non-board related compensation from the issuer
- The elimination of shareholders' right to call special meetings or
attempts to raise the ownership threshold beyond reasonable levels (as
determined by SSgA).
- Proposals that relate to the "transaction of other business as
properly comes before the meeting", which extend "blank check" powers
to those acting as proxy
- Approval of Directors who have failed to act on a shareholder proposal
that has been approved by a majority of outstanding shares
- Directors at companies where prior non-cash compensation was
improperly "backdated" or "springloaded" where one of the following
scenarios exists:
- (i) it is unknown whether the Compensation Committee had
knowledge of such backdating at the time, (ii) the
Compensation Committee was not independent at the time, and
(iii) the director seeking reelection served on the
Compensation Committee at the time; or
- (i) it is unknown whether the Compensation Committee had
knowledge of such backdating at the time, (ii) the
Compensation Committee was independent at the time, and
(iii) sufficient controls have not been implemented to avoid
similar improper payments going forward; or
- (i) the Compensation Committee had knowledge of such
backdating at the time, and (ii) the director seeking
reelection served on the Compensation Committee at the time;
or
- (i) the Compensation Committee did not have knowledge of
such backdating at the time, and (ii) sufficient controls
have not been implemented to avoid similar improper payments
going forward
Capitalization
- Capitalization changes that add "blank check" classes of stock (i.e.
classes of stock with undefined voting rights) or classes that dilute
the voting interests of existing shareholders
- Capitalization changes that exceed 100% of the issuer's current
authorized capital unless management provides an appropriate rationale
for such change
Anti-Takeover Measures
- Anti-takeover and related provisions that serve to prevent the
majority of shareholders from exercising their rights or effectively
deter appropriate tender offers and other offers
- Adjournment of Meeting to Solicit Additional Votes
- Shareholder rights plans that do not include a shareholder redemption
feature (qualifying offer clause), permitting ten percent of the
shares to call a special meeting or seek a written consent to vote on
rescinding the pill if the board refuses to redeem the pill 90 days
after a qualifying offer is announced
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- Adoption or renewal of a US issuer's shareholder rights plan ("poison
pill")
Executive Compensation/Equity Compensation
- Excessive compensation (i.e. compensation plans which are deemed by FM
to be overly dilutive)
- Retirement bonuses for non-executive directors and auditors
- Proposals requiring the disclosure of executive retirement benefits if
the issuer has an independent compensation committee
Routine Business Items
- Amendments to bylaws which would require super-majority shareholder
votes to pass or repeal certain provisions
- Reincorporation in a location which has more stringent anti-takeover
and related provisions
- Proposals asking the board to adopt any form of majority voting,
unless the majority standard indicated is based on a majority of
shares outstanding.
Other
- Requirements that the company provide costly, duplicative, or
redundant reports, or reports of a non-business nature
- Restrictions related to social, political, or special interest issues
which affect the ability of the company to do business or be
competitive and which have significant financial or best-interest
impact
- Proposals which require inappropriate endorsements or corporate
actions
- Proposals asking companies to adopt full tenure holding periods for
their executives
III. FM evaluates Mergers and Acquisitions on a case-by-case basis. Consistent
with our proxy policy, we support management in seeking to achieve their
objectives for shareholders. However, in all cases, FM uses its discretion in
order to maximize shareholder value. FM generally votes as follows:
- Against offers with potentially damaging consequences for minority
shareholders because of illiquid stock, especially in some non-US
markets
- Against offers when we believe that reasonable prospects exist for an
enhanced bid or other bidders
- Against offers where, at the time of voting, the current market price
of the security exceeds the bid price
- For proposals to restructure or liquidate closed end investment funds
in which the secondary market price is substantially lower than the
net asset value
- For offers made at a premium where no other higher bidder exists
PROTECTING SHAREHOLDER VALUE
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We at FM agree entirely with the United States Department of Labor's position
that "where proxy voting decisions may have an effect on the economic value of
the plan's underlying investment, plan fiduciaries should make proxy voting
decisions with a view to enhancing the value of the shares of stock" (IB 94-2).
Our proxy voting policy and procedures are designed with the intent that our
clients receive the best possible returns on their investments. We meet directly
with corporation representatives and participate in conference calls and
third-party inquiries in order to ensure our processes are as fully informed as
possible. However, we use each piece of information we receive - whether from
clients, consultants, the media, the issuer, ISS or other sources -- as one part
of our analysis in seeking to carry out our duties as a fiduciary and act in the
best interest of our clients. We are not unduly influenced by the identity of
any particular source, but use all the information to form our opinion as to the
best outcome for our clients.
Through our membership in the Council of Institutional Investors as well as our
contact with corporate pension plans, public funds, and unions, we are also able
to communicate extensively with other shareholders regarding events and issues
relevant to individual corporations, general industry, and current shareholder
concerns.
In addition, FM monitors "target" lists of underperforming companies prepared by
various shareholder groups, including: California Public Employee Retirement
System, The City of New York - Office of the Comptroller, International
Brotherhood of Teamsters, and Council of Institutional Investors. Companies, so
identified, receive an individual, systematic review by the FM Manager of
Corporate Governance and the Proxy Review Committee, as necessary.
As an active shareholder, FM's role is to support corporate policies that serve
the best interests of our clients. Though we do not seek involvement in the
day-to-day operations of an organization, we recognize the need for
conscientious oversight of and input into management decisions that may affect a
company's value. To that end, our monitoring of corporate management and
industry events is substantially more detailed than that of the typical
shareholder. We have demonstrated our willingness to vote against
management-sponsored initiatives and to support shareholder proposals when
appropriate. To date we have not filed proposals or initiated letter-writing or
other campaigns, but have used our active participation in the corporate
governance process -- especially the proxy voting process -- as the most
effective means by which to communicate our and our clients' legitimate
shareholder concerns. Should an issue arise in conjunction with a specific
corporation that cannot be satisfactorily resolved through these means, we shall
consider other approaches.
POTENTIAL CONFLICTS
As discussed above under Process, from time to time, FM will review a proxy
which may present a potential conflict of interest. As a fiduciary to its
clients, FM takes these potential conflicts very seriously While FM's only goal
in addressing any such potential conflict is to ensure that proxy votes are cast
in the clients' best interests and are not affected by FM's potential conflict,
there are a number of courses FM may take. Although various relationships could
be deemed to give rise to a conflict of interest, we have determined that two
categories of relationships present a sufficiently serious concern to warrant an
alternative process: customers of FM or its affiliates which are among the top
100 clients of FM and its affiliates based upon revenue; and the 10 largest
broker-dealers used by SSgA, based upon revenue (a "Material Relationship").
When the matter falls clearly within the polices set forth above or the guidance
previously provided by FM to ISS and the proxy is to be voted in accordance with
that guidance, we do not believe that such decision represents a conflict of
interest and no special procedures are warranted.
In circumstances where either (i) the matter does not fall clearly within the
policies set forth above or the guidance previously provided to ISS, or (ii) FM
determines that voting in accordance with such policies or guidance is not in
the best interests of its clients, the Manager of Corporate Governance will
compare the name of the issuer against a list of the top 100 revenue generating
clients of State Street Corporation and its affiliates and a list of the top 10
broker-dealer relationships to determine if a Material Relationship exists.
(These lists are updated quarterly.) If the issuer's name appears on either list
and the pre-determined policy is not being followed, FM will employ the services
of a third party, wholly independent of FM, its affiliates and those parties
involved in the proxy issue, to determine the appropriate vote. However, in
certain circumstances the Proxy Review Committee may determine that the use of a
third party fiduciary is not necessary or appropriate, either because the matter
involved does not involve a material issue or because the issue in question
affects the underlying value of the portfolio position and it is appropriate for
FM, notwithstanding the potential
42
conflict of interest, to vote the security in a manner that it determines will
maximize the value to its client. In such situations, the Proxy Committee, or if
a broader discussion is warranted, the SSgA Investment Committee, shall make a
decision as to the voting of the proxy. The basis for the voting decision,
including the basis for the determination that the decision is in the best
interests of FM's clients, shall be formalized in writing as a part of the
minutes to the Investment Committee.
RECORDKEEPING
In accordance with applicable law, FM shall retain the following documents for
not less than five years from the end of the year in which the proxies were
voted, the first two years in FM's office:
1) FM's Proxy Voting Policy and any additional procedures created
pursuant to such Policy;
2) a copy of each proxy statement FM receives regarding securities held
by its clients (note: this requirement may be satisfied by a third
party who has agreed in writing to do so or by obtaining a copy of the
proxy statement from the EDGAR database);
3) a record of each vote cast by FM (note: this requirement may be
satisfied by a third party who has agreed in writing to do so);
4) a copy of any document created by FM that was material in making its
voting decision or that memorializes the basis for such decision; and
5) a copy of each written request from a client, and response to the
client, for information on how FM voted the client's proxies.
DISCLOSURE OF CLIENT VOTING INFORMATION
Any client who wishes to receive information on how its proxies were voted
should contact its FM client service officer.
43
PART C
OTHER INFORMATION
ITEM 23. Exhibits
(a)(i) First Amended and Restated Declaration of the Trust was filed on
September 25, 2000, and is incorporated herein by reference.
(a)(ii) Amendment to the First Amended and Restated Declaration of Trust was
filed on August 10, 2007, and is incorporated herein by reference.
(b) Amended and Restated Bylaws of the Trust dated November 15, 2004 was
filed on April 14, 2005, and is incorporated herein by reference.
(c) Global certificates evidencing shares of the Beneficial Interest, $.01
par value, of each Fund were filed on September 25, 2000, and are
incorporated herein by reference.
(d)(i) Amended and Restated Investment Advisory Agreement between the Trust
and SSgA Funds Management, Inc. was filed on October 28, 2003, and is
incorporated herein by reference.
(d)(ii) Amended and Restated Sub-Advisory Agreement between the Trust on
behalf of the DJ Wilshire REIT ETF (formerly the streetTRACKS(R)
Wilshire REIT ETF) and SSgA Funds Management, Inc. was filed on
October 28, 2003, and is incorporated herein by reference.
(d)(iii) Revised Exhibit A to the Trust's Amended and Restated Investment
Advisory Agreement was filed on October 26, 2007, and is incorporated
herein by reference.
(d)(iv) Fee Waiver Agreement with respect to the SPDR(R) Lehman Aggregate Bond
ETF was filed on October 26, 2007, and is incorporated herein by
reference.
(d)(v) Fee Waiver Agreement Letter with respect to the SPDR(R) Lehman
Municipal Bond ETF was filed on October 26, 2007, and is incorporated
herein by reference.
(d)(vi) First Amendment to Amended and Restated Sub-Advisory Agreement, dated
April 30, 2007, was filed on October 26, 2007, and is incorporated
herein by reference.
(d)(vii) Revised Exhibit A to the Trust's Amended and Restated Investment
Advisory Agreement adding a new series, to be filed by amendment.
(e)(i) Distribution Agreement between the Trust and State Street Capital
Markets was filed on September 25, 2000, and is incorporated herein by
reference.
(e)(ii) Amended Annex I to the Distribution Agreement between the Trust and
State Street Global Markets was filed on October 26, 2007, and is
incorporated herein by reference.
(e)(iii) Amended Annex I to the Distribution Agreement between the Trust and
State Street Global Markets adding a new series, to be filed by
amendment.
(f) Not applicable.
(g)(i) Custodian Agreement dated September 22, 2000 was filed on September
25, 2000, and is incorporated herein by reference.
(g)(ii) Amended Schedule of Series to the Custodian Agreement dated September
22, 2000, as amended, was filed on October 26, 2007, and is
incorporated herein by reference.
(g)(iii) Amendment to the Custodian Agreement dated October 14, 2005 was filed
on October 28, 2005, and is incorporated herein by reference.
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(g)(iv) Amended Schedule of Series to the Custodian and Accounting Services
Agreement dated September 22, 2000, adding a new series, to be filed
by amendment.
(h)(i) Administration Agreement was filed on September 25, 2000, and is
incorporated herein by reference.
(h)(ii) Transfer Agency and Services Agreement was filed on September 25,
2000, and is incorporated herein by reference.
(h)(iii) Addendum to Transfer Agency and Services Agreement was filed on
October 28, 2005, and is incorporated herein by reference.
(h)(iv) Form of Participant Agreement was filed on May 23, 2007, and is
incorporated herein by reference.
(h)(v) Form of Sales and Investor Services Agreement was filed on September
25, 2000, and is incorporated herein by reference.
(h)(vi) Securities Lending Authorization Agreement, filed herewith.
(h)(vii) Amended Schedule A to the Administration Agreement dated October 22,
2000 was filed on October 26, 2007, and is incorporated herein by
reference.
(h)(viii) Amended Annex A to the Transfer Agency and Services Agreement dated
October 22, 2000, as amended, was filed on October 26, 2007, and is
incorporated herein by reference.
(h)(ix) Amended Annex A to the Transfer Agency and Services Agreement dated
October 22, 2000, as amended, was filed on October 26, 2007, and is
incorporated herein by reference.
(h)(x) Amended Schedule A to the Administration Agreement dated October 22,
2000, adding a new series, to be filed by amendment.
(h)(xi) Amended Annex A to the Transfer Agency and Services Agreement dated
October 22, 2000, adding a new series, to be filed by amendment.
(h)(x) Amended Schedule B to the Securities Lending Authorization Agreement
adding a new series, to be filed by amendment.
(i)(i) Opinion and Consent of Clifford Chance US LLP was filed on August 30,
2004, and is incorporated herein by reference.
(i)(ii) Opinion and Consent of Mayer Brown & Platt was filed on September 25,
2000, and is incorporated herein by reference.
(i)(iii) Opinion and Consent of Morgan Lewis & Bockius LLP with respect to the
SPDR(R) Lehman 1-3 Month T-Bill ETF, SPDR(R) Lehman Short Term
Treasury ETF, SPDR(R) Lehman Intermediate Term Treasury ETF, SPDR(R)
Lehman Long Term Treasury ETF, SPDR(R) Barclays Capital TIPS ETF,
SPDR(R) Lehman Short Term Corporate Bond ETF, SPDR(R) Lehman
Intermediate Term Corporate Bond ETF, SPDR(R) Lehman Long Term
Corporate Bond ETF and SPDR(R) Lehman Aggregate Bond ETF was filed on
May 23, 2007, and is incorporated herein by reference.
(i)(iv) Opinion and Consent of Morgan Lewis & Bockius LLP with respect to the
SPDR(R) Lehman International Treasury Bond ETF was filed on September
18, 2007, and is incorporated by reference.
(i)(v) Opinion and Consent of Morgan Lewis & Bockius LLP with respect to the
SPDR(R) Lehman High Yield Bond ETF was filed on November 28, 2007, and
is incorporated by reference.
(i)(vi) Opinion and Consent of Morgan Lewis & Bockius LLP with respect to the
SPDR(R) Lehman Short Term International Treasury Bond ETF, to be filed
by amendment.
(j) Not applicable.
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(k) Not applicable.
(l) Subscription Agreement(s) between the Trust and State Street Capital
Markets, LLC was filed on September 25, 2000, and is incorporated
herein by reference.
(m) Distribution and Service Plan was filed on August 30, 2004, and is
incorporated herein by reference.
(n) Not applicable.
(p)(i) Code of Ethics of the Trust was filed on April 14, 2005 and is
incorporated herein by reference.
(p)(ii) Code of Ethics of the Adviser was filed on June 2, 2004 and is
incorporated herein by reference.
(p)(iii) Sub-Adviser has adopted the Code of Ethics used by the Adviser was
filed on June 2, 2004, and is incorporated herein by reference.
(p)(iv) Distributor has adopted the Code of Ethics used by the Adviser was
filed on June 2, 2004, and is incorporated herein by reference.
(p)(v) Amendment to Code of Ethics of the Adviser was filed on June 21, 2007,
and is incorporated herein by reference.
(p)(vi) Revised Code of Ethics of the Trust was filed on September 14, 2007,
and is incorporated herein by reference.
(q) Powers of Attorney were filed on July 3, 2008, and are incorporated
herein by reference.
(r) Assistant Secretary's Certificate was filed on July 3, 2008, and is
incorporated herein by reference.
|
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Board of Trustees of the SPDR Series Trust (the "Trust") is the same as the
board of the SPDR Index Shares Funds which also has SSgA Funds Management, Inc.
as its investment adviser. In addition, the officers of the Trust are
substantially identical to the officers of the SPDR Index Shares Funds.
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 fund's outstanding shares and such
information is incorporated by reference to this Item.
ITEM 25. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Amended and Restated Declaration of
Trust and under Section 4.9 of the Registrant's 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 Registrant's 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 Registrant's 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 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 Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
The Registrant maintains insurance on behalf of any person who is or was a
Trustee, officer, employee or agent of Registrant, or who is or was serving at
the request of 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 Registrant maintain insurance to indemnify any such person for any act for
which Registrant itself is not permitted to indemnify him/her.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
SSgA FM serves as the investment advisor to the Registrant. SSgA FM is a
wholly-owned subsidiary of State Street Corporation, a publicly held bank
holding company. SSgA FM and other advisory affiliates of State Street
Corporation make up State Street Global Advisors ("SSgA"), the investment arm of
State Street Corporation.
The business, profession, vocation or employment of a substantial nature which
each director or officer of the investment adviser is or has been, at any time
during the past two fiscal years, engaged for his own account or in the capacity
of director, officer, employee, partner or trustee, is as follows:
CAPACITY WITH BUSINESS NAME AND ADDRESS
NAME ADVISOR OTHER POSITIONS
----------------------------------------------------------------------------------------------------------------------
Thomas P. Kelly Treasurer Managing Director and Comptroller, State Street Global
Advisors, a division of State Street Bank and Trust
Company, Boston, MA
Mark J. Duggan Director and Chief Senior Managing Director and Deputy General Counsel, State
Legal Officer Street Global Advisors, a division of State Street Bank
and Trust Company, Boston, MA
Beverly DeWitt Chief Compliance Vice President and Chief Compliance Officer State Street
Officer Global Advisors, a division of State Street Bank and
Trust Company, Boston, MA
Peter G. Leahy Director Executive Vice President, State Street Global Advisors, a
division of State Street Bank and Trust Company, Boston, MA
James Ross President & Director Senior Managing Director, State Street Global Advisors, a
division of State Street Bank and Trust Company, Boston, MA
|
See "Management" in the Prospectus and "Management of the Trust" in the
Statement of Additional Information for information regarding the business of
the Adviser. For information regarding broker-dealers and investment advisers
affiliated with the Adviser, reference is made to the Adviser's Form ADV, as
amended, filed with the Securities and Exchange Commission and incorporated
herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) State Street Global Markets, LLC, State Street Financial Center, One Lincoln
Street, Boston, Massachusetts 02111, is the Trust's principal underwriter.
(b) The following is a list of the executive officers, directors and partners of
State Street Global Markets, LLC:
Nicolas J. Bonn Chief Executive Officer, President and Director
F. Charles R. Hindmarsh Executive Vice President and Director
Simon Wilson Taylor Executive Vice President and Director
Richard Hart Vice President and Chief Operations Officer
Vincent Manzi Vice President and Chief Compliance Officer
R. Bryan Woodard Vice President, Chief Legal Counsel and Secretary
David McInnis Vice President and Compliance Officer
William Helfrich Vice President and Chief Financial Officer
James D. Doherty Vice President and Assistant Secretary
Anthony Rochte Vice President
Joseph Vignone Vice President
Howard Fairweather Director
Stefan Gavell Director
Peter Leahy Director
Aditya Mohan Director
Heidi Pickett Director
Stanley Shelton Director
Mark Snyder Director
|
(c) Not applicable.
ITEM 28. 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 will be maintained at the offices
of State Street Bank and Trust Company, One Lincoln Street, Boston,
Massachusetts 02111.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has caused this
amendment to the registration statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Boston and Commonwealth of
Massachusetts on the 8th day of August, 2008.
SPDR(R) SERIES TRUST
By: /s/ James E. Ross*
------------------------------
James E. Ross
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/ Gary L. French* Treasurer and Principal Financial Officer August 8, 2008
-------------------
Gary L. French
/s/David M. Kelly* Trustee August 8, 2008
------------------
David M. Kelly
/s/Frank Nesvet* Trustee August 8, 2008
----------------
Frank Nesvet
/s/Helen F. Peters* Trustee August 8, 2008
-------------------
Helen F. Peters
/s/ James E. Ross*
James E. Ross Trustee, President and Principal Executive Officer August 8, 2008
|
*By: /s/ Mark E. Tuttle
-----------------------------
Mark E. Tuttle
As Attorney-in-Fact
Pursuant to Power of Attorney
|
Exhibit List
Item 23
(h)(vi) Securities Lending Authorization Agreement
|
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