SSGA
ACTIVE TRUST (THE “TRUST”)
STATEMENT
OF ADDITIONAL INFORMATION
October
31, 2023
This Statement of
Additional Information (“SAI”) is not a
prospectus. With respect to each of the Trust's series listed below, this SAI
should be read in conjunction with the prospectus dated October 31,
2023 (the “Prospectus”), as may be
revised
from time to time.
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SPDR®
Blackstone High Income ETF |
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SPDR
Blackstone Senior Loan ETF |
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SPDR
DoubleLine®
Emerging Markets Fixed Income ETF |
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SPDR
DoubleLine Short Duration Total Return Tactical ETF |
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SPDR
DoubleLine Total Return Tactical ETF |
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SPDR
Loomis Sayles Opportunistic Bond ETF |
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SPDR
Nuveen Municipal Bond ETF |
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SPDR
Nuveen Municipal Bond ESG ETF |
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SPDR
SSGA Fixed Income Sector Rotation ETF |
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SPDR
SSGA Global Allocation ETF |
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SPDR
SSGA Income Allocation ETF |
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SPDR
SSGA Multi-Asset Real Return ETF |
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SPDR
SSGA Ultra Short Term Bond ETF |
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SPDR
SSGA US Sector Rotation ETF |
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Principal U.S.
Listing Exchange for each ETF: NYSE Arca, Inc. (except HYBL, EMTL, STOT, OBND,
MBND and MBNE are listed on Cboe BZX
Exchange, Inc.)
Capitalized terms
used herein that are not defined have the same meaning as in the Prospectus,
unless otherwise noted. Copies of the
Prospectus and the Funds' (defined herein) Annual Reports to Shareholders dated
June 30, 2023 may be obtained without
charge by writing to State Street Global Advisors Funds Distributors, LLC, the
Funds' principal underwriter
(referred to herein as “Distributor” or “Principal
Underwriter”), One Iron Street,
Boston, Massachusetts 02210, by visiting the
Trust's website at https://www.ssga.com/spdrs or by calling 1-866-787-2257. The
Reports of Independent Registered Public
Accounting Firm, financial highlights and financial statements of the Funds
included in the Funds' Annual
Reports to Shareholders for the fiscal year
ended June 30, 2023 are incorporated by reference into this SAI.
ACTSAI
General
Description of the Trust
The Trust is an
open-end management investment company, registered under the Investment Company
Act of 1940, as amended (the
“1940 Act”), consisting of
multiple investment series, including SPDR Blackstone High Income ETF, SPDR
Blackstone Senior
Loan ETF, SPDR DoubleLine Emerging Markets Fixed Income ETF, SPDR DoubleLine
Short Duration Total Return
Tactical ETF, SPDR DoubleLine Total Return Tactical ETF, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Nuveen
Municipal Bond ETF, SPDR Nuveen Municipal Bond ESG ETF, SPDR SSGA Fixed Income
Sector Rotation ETF, SPDR SSGA
Global Allocation ETF, SPDR SSGA Income Allocation ETF, SPDR SSGA Multi-Asset
Real Return ETF, SPDR SSGA Ultra
Short Term Bond ETF and SPDR SSGA US Sector Rotation ETF (each a “Fund” and collectively
the “Funds”). The Trust was
organized as a Massachusetts business trust on March 30, 2011. The offering of
each Fund's shares (“Shares”) is registered
under the Securities Act of 1933, as amended (the “Securities
Act”). SSGA Funds
Management, Inc.
serves as the investment adviser for each Fund (“SSGA FM” or the “Adviser”) and certain Funds
are sub-advised by a
sub-adviser as further described herein (each, a “Sub-Adviser”). To the extent
that a reference in this SAI refers to the
“Adviser,” such reference
should be read to refer to the applicable Sub-Adviser where the context
requires.
Each Fund offers and
issues Shares at their net asset value (sometimes referred to herein as
“NAV”) only in
aggregations of a specified
number of Shares (each, a “Creation
Unit”). Each Fund
generally offers and issues Shares in exchange for (i) a basket of
securities designated by the Fund (“Deposit
Securities”) together with the
deposit of a specified cash payment
(“Cash
Component”) or (ii) a cash
payment equal in value to the Deposit Securities (“Deposit
Cash”) together
with
the Cash Component. The primary consideration accepted by a Fund (i.e., Deposit
Securities or Deposit Cash) is set forth under
“Purchase and
Redemption of Creation Units” later in this SAI.
The Trust reserves the right to permit or require the substitution of
a “cash in
lieu” amount to be added
to the Cash Component to replace any Deposit Security and reserves the right
to permit or require the substitution of Deposit Securities in lieu of Deposit
Cash (subject to applicable legal requirements).
The Shares have been approved for listing and secondary trading on a national
securities exchange (the “Exchange”). The Shares will
trade on the Exchange at market prices. These prices may differ from the Shares'
net asset values. The
Shares are also redeemable only in Creation Unit aggregations, and generally in
exchange for either (i) portfolio securities
and a specified cash payment or (ii) cash (subject to applicable legal
requirements).
Shares may be issued
in advance of receipt of Deposit Securities subject to various conditions
including a requirement to maintain on deposit
with the Trust cash at least equal to a specified percentage of the market value
of the missing Deposit Securities as set
forth in the Participant Agreement (as defined below). See “Purchase and
Redemption of Creation Units.” The Trust may
impose a transaction fee for each creation or redemption. In all cases, such
fees will be limited in accordance with the
requirements of the U.S. Securities and Exchange Commission (“SEC”) applicable to
management investment companies
offering redeemable securities. In addition to the fixed creation or redemption
transaction fee, an additional
transaction fee of up to three times the fixed creation or redemption
transaction fee and/or an additional variable charge may
apply.
Investment
Policies
Each Fund may
directly, or indirectly through investment in an exchange-traded product
(“ETP”), invest in any of
the instruments or
engage in any of the investment practices described below if such investment or
activity is consistent with the Fund's
investment objective and permitted by the Fund's stated investment
policies.
Each Fund may invest
in the following types of investments, consistent with its investment strategies
and objective. Please see a Fund's
Prospectus for additional information regarding its principal investment
strategies.
DIVERSIFICATION
STATUS
Each Fund (except
the SPDR Blackstone High Income ETF, SPDR Loomis Sayles Opportunistic Bond ETF,
SPDR Nuveen Municipal Bond ETF,
SPDR Nuveen Municipal Bond ESG ETF and SPDR SSGA Ultra Short Term Bond ETF) is
classified as a “diversified” investment company
under the 1940 Act. Under the 1940 Act, a diversified investment company, as to
75% of
its total assets, may not purchase securities of any issuer (other than
securities issued or guaranteed by the U.S. government, its
agents or instrumentalities or securities of other investment companies) if, as
a result, more than 5% of its total assets would
be invested in the securities of such issuer, or more than 10% of the issuer's
outstanding voting securities would be
held by the investment company.
The SPDR Blackstone
High Income ETF, SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Nuveen
Municipal Bond ETF, SPDR Nuveen
Municipal Bond ESG ETF and SPDR SSGA Ultra Short Term Bond ETF are each
classified as a non-diversified investment company
under the 1940 Act. A “non-diversified” classification
means that a Fund is not limited by
the 1940 Act with
regard to the percentage of its assets that may be invested in the securities of
a single issuer. This means that a Fund
may invest a greater portion of its assets in the securities of a single issuer
than a diversified fund. This may have an
adverse effect on a Fund's performance or subject a Fund's Shares to greater
price volatility than more diversified
investment companies.
Each Fund intends to
maintain a level of diversification and otherwise conduct their operations so as
to enable each Fund to qualify for
treatment as a “regulated investment
company” for purposes of the
Internal Revenue Code of 1986, as amended
(“Internal Revenue
Code”), and to relieve
each Fund of any liability for federal income tax to the extent that its
earnings are
distributed to shareholders. Compliance with the diversification requirements of
the Internal Revenue Code may limit the
investment flexibility of the Funds and may make it less likely that the Funds
will meet their investment objectives.
ASSET-BACKED
AND MORTGAGE-BACKED SECURITIES
Mortgage-backed
securities, including collateralized mortgage obligations (“CMOs”) and certain
stripped mortgage-backed securities,
represent a participation in, or are secured by, mortgage loans. Asset-backed
securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items
as motor vehicle installment sales or installment loan contracts, leases of
various types of real and personal property
and receivables from credit card agreements. The cash flow generated by the
underlying assets is applied to make
required payments on the securities and to pay related administrative expenses.
The amount of residual cash flow resulting
from a particular issue of asset-backed or mortgage-backed securities depends
on, among other things, the
characteristics of the underlying assets, the coupon rates on the securities,
prevailing interest rates, the amount of
administrative expenses and the actual prepayment experience on the underlying
assets. Each Fund may invest in any such
instruments or variations as may be developed, to the extent consistent with its
investment objective and policies and
applicable regulatory requirements. In general, the collateral supporting
asset-backed securities is of a shorter maturity
than mortgage loans and is likely to experience substantial
prepayments.
Mortgage-backed
securities have yield and maturity characteristics corresponding to the
underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until maturity, when the
entire principal amount comes due, payments on
certain mortgage-backed securities include both interest and a partial repayment
of principal. Besides the scheduled
repayment of principal, repayments of principal may result from the voluntary
prepayment, refinancing or foreclosure of the
underlying mortgage loans. If property owners make unscheduled prepayments of
their mortgage loans, these
prepayments will result in early payment of the applicable mortgage-backed
securities. In that event, a Fund may be unable to
invest the proceeds from the early payment of the mortgage-backed securities in
an investment that provides as high a
yield as the mortgage-backed securities. Consequently, early payment associated
with mortgage-backed securities may
cause these securities to experience significantly greater price and yield
volatility than that experienced by
traditional fixed-income securities. The occurrence of mortgage prepayments is
affected by factors including the level
of interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic
conditions. During periods of falling interest rates, the rate of mortgage
prepayments tends to increase, thereby tending to
decrease the life of mortgage-backed securities. During periods of rising
interest rates, the rate of mortgage prepayments
usually decreases, thereby tending to increase the life of mortgage-backed
securities. If the life of a mortgage-backed
security is inaccurately predicted, a Fund may not be able to realize the rate
of return it expected.
Adjustable rate
mortgage securities (“ARMs”), like traditional
mortgage-backed securities, are interests in pools of mortgage loans that
provide investors with payments consisting of both principal and interest as
mortgage loans in the underlying mortgage
pool are paid off by the borrowers. Unlike fixed-rate mortgage-backed
securities, ARMs are collateralized by or
represent interests in mortgage loans with variable rates of interest. These
interest rates are reset at periodic intervals,
usually by reference to an interest rate index or market interest rate. Although
the rate adjustment feature may act as a
buffer to reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes
in value based on, among other things, changes in market interest rates or
changes in the issuer's creditworthiness.
Because the interest rates are reset only periodically, changes in the interest
rate on ARMs may lag changes in
prevailing market interest rates. Also, some ARMs (or the underlying mortgages)
are subject to caps or floors that limit the
maximum change in the interest rate during a specified period or over the life
of the security. As a result, changes in the
interest rate on an ARM may not fully reflect changes in prevailing market
interest rates during certain periods.
A Fund may also
invest in hybrid ARMs, whose underlying mortgages combine fixed-rate and
adjustable rate features.
Mortgage-backed and
asset-backed securities are less effective than other types of securities as a
means of locking in attractive long-term
interest rates. One reason is the need to reinvest prepayments of principal;
another is the possibility of significant
unscheduled prepayments resulting from declines in interest rates. These
prepayments would have to be reinvested at lower
rates. The automatic interest rate adjustment feature of mortgages underlying
ARMs likewise reduces the ability to
lock-in attractive rates. As a result, mortgage-backed and asset-backed
securities may have less potential for capital appreciation
during periods of declining interest rates than other securities of comparable
maturities, although they may have a similar
risk of decline in market value during periods of rising interest rates.
Prepayments may also significantly
shorten the effective maturities of these securities, especially during periods
of declining interest rates. Conversely, during
periods of rising interest rates, a reduction in prepayments may increase the
effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt
securities, and, therefore, potentially increasing the volatility of the
Fund.
At times, some
mortgage-backed and asset-backed securities will have higher than market
interest rates and therefore will be purchased at a
premium above their par value. Prepayments may cause losses on securities
purchased at a premium.
CMOs may be issued
by a U.S. government agency or instrumentality or by a private issuer. Although
payment of the principal of, and
interest on, the underlying collateral securing privately issued CMOs may be
guaranteed by the U.S. government or its
agencies or instrumentalities, these CMOs represent obligations solely of the
private issuer and are not insured or
guaranteed by the U.S. government, its agencies or instrumentalities or any
other person or entity.
Prepayments could
cause early retirement of CMOs. CMOs are designed to reduce the risk of
prepayment for certain investors by issuing
multiple classes of securities, each having different maturities, interest rates
and payment schedules, and with the
principal and interest on the underlying mortgages allocated among the several
classes in various ways. Payment of interest
or principal on some classes or series of CMOs may be subject to contingencies
or some classes or series may bear some
or all of the risk of default on the underlying mortgages. CMOs of different
classes or series are generally retired in
sequence as the underlying mortgage loans in the mortgage pool are repaid. If
enough mortgages are repaid ahead of
schedule, the classes or series of a CMO with the earliest maturities generally
will be retired prior to their maturities. Thus,
the early retirement of particular classes or series of a CMO would have the
same effect as the prepayment of
mortgages underlying other mortgage-backed securities. Conversely, slower than
anticipated prepayments can extend the
effective maturities of CMOs, subjecting them to a greater risk of decline in
market value in response to rising interest
rates than traditional debt securities, and, therefore, potentially increasing
their volatility.
Prepayments could
result in losses on stripped mortgage-backed securities. Stripped
mortgage-backed securities are usually structured
with two classes that receive different portions of the interest and principal
distributions on a pool of mortgage loans. The
yield to maturity on an interest only or “IO” class of stripped
mortgage-backed securities is extremely sensitive not only
to changes in prevailing interest rates but also to the rate of principal
payments (including prepayments) on the underlying
assets. A rapid rate of principal prepayments may have a measurable adverse
effect on the Fund's yield to maturity to the
extent it invests in IOs. If the assets underlying the IO experience greater
than anticipated prepayments of principal, the
Fund may fail to recoup fully its initial investment in these securities.
Principal only or “POs” tend to
increase in value if
prepayments are greater than anticipated and decline if prepayments are slower
than anticipated. The secondary market for
stripped mortgage-backed securities may be more volatile and less liquid than
that for other mortgage-backed
securities, potentially limiting the Fund's ability to buy or sell those
securities at any particular time.
Subprime mortgage
loans, which typically are made to less creditworthy borrowers, have a higher
risk of default than conventional
mortgage loans. Therefore, mortgage-backed securities backed by subprime
mortgage loans may suffer significantly
greater declines in value due to defaults or the increased risk of
default.
The risks associated
with other asset-backed securities (including in particular the risks of issuer
default and of early prepayment) are
generally similar to those described above for CMOs. In addition, because
asset-backed securities generally do not
have the benefit of a security interest in the underlying assets that is
comparable to a mortgage, asset-backed securities present
certain additional risks that are not present with mortgage-backed securities.
The ability of an issuer of
asset-backed securities to enforce its security interest in the underlying
assets may be limited. For example, revolving credit
receivables are generally unsecured and the debtors on such receivables are
entitled to the protection of a number of state and
federal consumer credit laws, many of which give debtors the right to set-off
certain amounts owed, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles,
rather than by real property.
Asset-backed
securities may be collateralized by the fees earned by service providers. The
values of asset-backed securities may be
substantially dependent on the servicing of the underlying asset and are
therefore subject to risks associated with the
negligence or malfeasance by their servicers and to the credit risk of their
servicers. In certain circumstances, the
mishandling of related documentation may also affect the rights of the security
holders in and to the underlying
collateral. The insolvency of entities that generate receivables or that utilize
the assets may result in added costs and delays in
addition to losses associated with a decline in the value of the underlying
assets.
Federal, state and
local government officials and representatives as well as certain private
parties have proposed actions to assist homeowners
who own or occupy property subject to mortgages. Certain of those proposals
involve actions that would affect the
mortgages that underlie or relate to certain mortgage-related securities,
including securities or other instruments which a
Fund may hold or in which it may invest. Some of those proposals include, among
other things, lowering or
forgiving principal balances; forbearing, lowering or eliminating interest
payments; or utilizing eminent domain powers to seize
mortgages, potentially for below market compensation. The prospective or actual
implementation of one or more of these
proposals may significantly and adversely affect the value and liquidity of
securities held by a Fund and could cause the
Fund's net asset value to decline, potentially significantly. Tremendous
uncertainty remains in the market concerning the
resolution of these issues; the range of proposals and the potential
implications of any implemented solution is
impossible to predict.
A Fund may invest in
any level of the capital structure of an issuer of mortgage-backed or
asset-backed securities, including the equity
or “first
loss” tranche. See
“COLLATERALIZED DEBT
OBLIGATIONS.”
Consistent with a
Fund's investment objective and policies, the Adviser or Sub-Adviser may also
cause a Fund to invest in other types of
mortgage- and asset-backed securities offered currently or in the future,
including certain yet-to-be-developed types of mortgage-
and asset-backed securities which may be created as the market
evolves.
BANK
LOANS
Bank loans include
floating rate loans and institutionally traded floating rate debt obligations
issued by asset-backed pools and other issues,
and interests therein. Bank loan interests may be acquired from U.S. or foreign
commercial banks, insurance companies,
finance companies or other financial institutions that have made loans or are
members of a lending syndicate or from
other holders of loan interests. Bank loans typically pay interest at rates
which are re-determined periodically on the
basis of a floating base lending rate (such as the Secured Overnight Financing
Rate (SOFR)) plus a premium. Bank loans
are typically of below investment grade quality. Bank loans generally (but not
always) hold the most senior position in
the capital structure of a borrower and are often secured with
collateral.
Each Fund may, and
the SPDR DoubleLine Total Return Tactical ETF intends to, invest in both secured
and unsecured bank loans. Holders'
claims under unsecured loans are subordinated to claims of creditors holding
secured indebtedness and possibly other
classes of creditors holding unsecured debt. Unsecured loans have a greater risk
of default than secured loans,
particularly during periods of deteriorating economic conditions. Also, since
they do not afford the lender recourse to
collateral, unsecured loans are subject to greater risk of nonpayment in the
event of default than secured loans. Many such
loans are relatively illiquid and may be difficult to value.
Some bank loans are
subject to the risk that a court, pursuant to fraudulent conveyance or other
similar laws, could subordinate the bank
loans to presently existing or future indebtedness of the borrower or take other
action detrimental to the holders of the
bank loans, including, in certain circumstances, invalidating such bank loans or
causing interest previously paid to
be refunded to the borrower. If interest were required to be refunded, it could
negatively affect a Fund's performance.
Indebtedness of
companies whose creditworthiness is poor involves substantially greater risks
and may be highly speculative. Some
companies may never pay off their indebtedness or pay only a small fraction of
the amount owed. Consequently, when
investing in indebtedness of companies with poor credit, a Fund bears a
substantial risk of losing the entire amount
invested.
Investments in bank
loans through a direct assignment of the financial institution's interest with
respect to the bank loan may involve
additional risks. For example, if a secured bank loan is foreclosed, a Fund
could become part owner of any collateral, and
would bear the costs and liabilities associated with owning and disposing of the
collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, a Fund could be held liable
as a co-lender. When a Fund is a purchaser of an
assignment, it succeeds to all the rights and obligations under the loan
agreement of the assigning lender and becomes a
lender under the loan agreement with the same rights and obligations as the
assigning lender.
Bank loans may be
structured to include both term loans, which are generally fully funded at the
time of investment, and revolving credit
facilities, which would require a Fund to make additional investments in the
bank loans as required under the terms of the
credit facility at the borrower's demand.
A financial
institution's employment as agent bank may be terminated in the event that it
fails to observe a requisite standard of care or
becomes insolvent. A successor agent bank would generally be appointed to
replace the terminated agent bank, and
assets held by the agent bank under the loan agreement would remain available to
the holders of such indebtedness.
However, if assets held by the agent bank for the benefit of a Fund were
determined to be subject to the claims of the agent
bank's general creditors, the Fund may incur certain costs and delays in
realizing payments on a bank loan or loan
participation and could suffer a loss of principal and/or interest.
The SPDR DoubleLine
Emerging Markets Fixed Income ETF and SPDR DoubleLine Short Duration Total
Return Tactical ETF each may invest
up to 20% of its portfolio in junior bank loans, although the SPDR DoubleLine
Emerging Market Fixed Income ETF's
investments in structured securities and junior bank loans in the aggregate may
not exceed 20% of its assets. Due to their
lower place in the borrower's capital structure, junior bank loans involve a
higher degree of overall risk than senior bank
loans of the same borrower.
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; provided, however, a zero coupon
bond pays no interest to its holder during
its life. The value of a zero coupon bond to a Fund consists of the difference
between such bond's face value at the time of
maturity and the price for which it was acquired, which may be an amount
significantly less than its face value
(sometimes referred to as a “deep
discount”
price).
An issuer may have
the right to redeem or “call” a bond before
maturity, in which case the investor may have to reinvest the proceeds at
lower market rates. Most bonds bear interest income at a “coupon” rate that is fixed
for the life of the bond. The value of a
fixed rate bond usually rises when market interest rates fall, and falls when
market interest rates rise. Accordingly, a fixed
rate 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 a 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. A Fund may treat some of these
bonds as having a shorter maturity for
purposes of calculating the weighted average maturity of its investment
portfolio. Bonds may be senior or subordinated
obligations. Senior obligations generally have the first claim on a
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).
In addition, each
Fund may invest in corporate bonds. The investment return of corporate
bonds reflects interest on the bond and changes in
the market value of the bond. The market value of a corporate bond may be
affected by the credit rating of the
corporation, the corporation's performance and perceptions of the corporation in
the market place. There is a risk that the
issuers of the securities may not be able to meet their obligations on interest
or principal payments at the time called for by such a
security.
COLLATERALIZED
DEBT OBLIGATIONS
Collateralized debt
obligations (“CDOs”) are a type of
asset-backed security and include, among other things, collateralized bond
obligations (“CBOs”), collateralized
loan obligations (“CLOs”) and other
similarly structured securities. A CBO is a trust
which is backed by a diversified pool of high risk, below investment grade fixed
income securities. A CLO is a trust typically
collateralized by a pool of loans, which may include, among others, domestic and
foreign senior secured loans, senior
unsecured loans and subordinate corporate loans, including loans that may be
rated below investment grade or equivalent
unrated loans.
The cash flows from
the CDO trust are generally split into two or more portions, called tranches,
varying in risk and yield. Senior tranches are
paid from the cash flows from the underlying assets before the junior tranches
and equity or “first
loss”
tranches. Losses are
first borne by the equity tranches, next by the junior tranches, and finally by
the senior tranches.
Senior tranches pay
the lowest interest rates but are generally safer investments than more junior
tranches because, should there be any
default, senior tranches are typically paid first. The most junior tranches,
such as equity tranches, would attract the
highest interest rates but suffer the highest risk should the holder of an
underlying loan default. If some loans default and
the cash collected by the CDO is insufficient to pay all of its investors, those
in the lowest, most junior tranches suffer
losses first. Since it is partially protected from defaults, a senior tranche
from a CDO trust typically has higher ratings and
lower yields than the underlying securities, and can be rated investment grade.
Despite the protection from the equity
tranche, more senior CDO tranches can experience substantial losses due to
actual defaults, increased sensitivity to
defaults due to collateral default and disappearance of protecting tranches,
market anticipation of defaults and aversion to CDO
securities as a class.
The risks of an
investment in a CDO depend largely on the quality and type of the collateral and
the tranche of the CDO in which a Fund
invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and
thus are not registered under the securities
laws. As a result, investments in CDOs may be characterized by a Fund as
illiquid investments; however, an active
dealer market, or other relevant measures of liquidity, may exist for CDOs
allowing a CDO potentially to be deemed liquid by
the Adviser or Sub-Adviser under liquidity policies approved by the Board of
Trustees of the Trust (the “Board”). In addition to
the risks associated with debt instruments (e.g., interest rate risk and credit
risk), CDOs carry additional risks
including, but not limited to: (i) the possibility that distributions from
collateral securities will not be adequate to make
interest or other payments; (ii) the quality of the collateral may decline in
value or default; (iii) the possibility that a
Fund may invest in CDOs that are subordinate to other classes; and (iv) the
complex structure of the security may not be
fully understood at the time of investment and may produce disputes with the
issuer or unexpected investment
results.
COLLATERALIZED
LOAN OBLIGATIONS (“CLOs”)
Each Fund may invest
in CLOs. A CLO is a financing company (generally called a Special Purpose
Vehicle or “SPV”), created to
reapportion the risk and return characteristics of a pool of assets. While the
assets underlying CLOs are typically Senior
Loans, the assets may also include (i) unsecured loans, (ii) other debt
securities that are rated below investment grade,
(iii) debt tranches of other CLOs and (iv) equity securities incidental to
investments in Senior Loans. When investing in
CLOs, a Fund will not invest in equity tranches, which are the lowest tranche.
However, a Fund may invest in lower debt
tranches of CLOs, which typically experience a lower recovery, greater risk of
loss or deferral or non-payment of interest than
more senior debt tranches of the CLO. In addition, a Fund intends to invest in
CLOs consisting primarily of
individual Senior Loans of borrowers and not repackaged CLO obligations from
other high risk pools. The underlying Senior
Loans purchased by CLOs are generally performing at the time of purchase but may
become non-performing, distressed or
defaulted. CLOs with underlying assets of non-performing, distressed or
defaulted loans are not contemplated to
comprise a significant portion of a Fund's investments in CLOs. The key feature
of the CLO structure is the prioritization
of the cash flows from a pool of debt securities among the several classes of
the CLO. The SPV is a company founded
solely for the purpose of securitizing payment claims arising out of this
diversified asset pool. On this basis, marketable
securities are issued by the SPV which, due to the diversification of the
underlying risk, generally represent a lower
level of risk than the original assets. The redemption of the securities issued
by the SPV typically takes place at maturity
out of the cash flow generated by the collected claims.
Holders of CLOs bear
risks of the underlying investments, index or reference obligation and are
subject to counterparty risk.
A Fund may have the
right to receive payments only from the CLOs, and generally does not have direct
rights against the issuer or the entity
that sold the assets to be securitized. While certain CLOs enable the investor
to acquire interests in a pool of securities
without the brokerage and other expenses associated with directly holding the
same securities, investors in CLOs generally
pay their share of the CLO's administrative and other expenses. Although it is
difficult to predict whether the prices of
indices and securities underlying a CLO will rise or fall, these prices (and,
therefore, the prices of CLOs) will be influenced by the
same types of political and economic events that affect issuers of securities
and capital markets generally. If the
issuer of a CLO uses shorter term financing to purchase longer term securities,
the issuer may be forced to sell its
securities at below market prices if it experiences difficulty in obtaining
short-term financing, which may adversely affect the
value of the CLOs owned by a Fund.
Certain CLOs may be
thinly traded or have a limited trading market. CLOs are typically privately
offered and sold. As a result, investments
in CLOs may be characterized by a Fund as illiquid investments. In addition to
the general risks associated with debt
securities discussed herein, CLOs carry additional risks, including, but not
limited to: (i) the possibility that distributions
from collateral securities will not be adequate to make interest or other
payments; (ii) the quality of the
collateral may
decline in value or default; (iii) the possibility that the investments in CLOs
are subordinate to other classes or tranches thereof;
and (iv) the complex structure of the security may not be fully understood at
the time of investment and may produce
disputes with the issuer or unexpected investment results.
COLLATERALIZED
MORTGAGE OBLIGATIONS (CMOS) AND MULTICLASS PASS-THROUGH SECURITIES
CMOs are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities. CMOs may be collateralized by
Government National Mortgage Association (“Ginnie
Mae”), Federal National
Mortgage Association (“Fannie
Mae”), or Federal Home
Loan Mortgage Corporation (“Freddie
Mac”) certificates, but
also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral is collectively
hereinafter referred to as “Mortgage
Assets”). Mortgage Assets
may be collateralized by commercial or residential uses. Multiclass pass-through
securities are
equity interests in a trust composed of Mortgage Assets. Payments of principal
of and interest on the Mortgage Assets, and
any reinvestment income thereon, may require a Fund to pay debt service on the
CMOs or make scheduled
distributions on the multiclass pass-through securities. CMOs may be issued by
federal agencies, or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. The issuer of a series
of mortgage pass-through securities may
elect to be treated as a Real Estate Mortgage Investment Conduit (“REMIC”). REMICs include
governmental and/or
private entities that issue a fixed pool of mortgages secured by an interest in
real property. REMICs are similar to CMOs
in that they issue multiple classes of securities, but unlike CMOs, which are
required to be structured as debt securities,
REMICs may be structured as indirect ownership interests in the underlying
assets of the REMICs themselves. Although
CMOs and REMICs differ in certain respects, characteristics of CMOs described
below apply in most cases to
REMICs, as well.
In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of CMOs,
often referred to as a tranche, is issued
at a specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semiannual basis. Certain CMOs
may have variable or floating interest rates and others may be stripped mortgage
securities. For more information on
stripped mortgage securities, see “STRIPPED MORTGAGE
SECURITIES.”
The principal of and
interest on the Mortgage Assets may be allocated among the several classes of a
CMO series in a number of different
ways. Generally, the purpose of the allocation of the cash flow of a CMO to the
various classes is to obtain a more
predictable cash flow to certain of the individual tranches than exists with the
underlying collateral of the CMO. As a general
rule, the more predictable the cash flow is on a CMO tranche, the lower the
anticipated yield will be on that tranche at the
time of issuance relative to prevailing market yields on other mortgage-backed
securities. As part of the process of
creating more predictable cash flows on most of the tranches in a series of
CMOs, one or more tranches generally must be
created that absorb most of the volatility in the cash flows on the underlying
mortgage loans. The yields on these tranches
are generally higher than prevailing market yields on mortgage-backed securities
with similar maturities. As a result of the
uncertainty of the cash flows of these tranches, the market prices of and yield
on these tranches generally are more
volatile. See “COLLATERALIZED DEBT
OBLIGATIONS” for a discussion on
investments in structured products with
multiple tranches.
CMO
RESIDUALS
CMO residuals are
mortgage securities issued by agencies or instrumentalities of the U.S.
government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing. The cash flow
generated by the mortgage assets
underlying a series of a CMO is applied first to make required payments of
principal and interest on the securities or
certificates issued by the CMO and second to pay the related administrative
expenses and any management fee of the issuer.
The residual in a CMO structure generally represents the interest in any excess
cash flow remaining after making the foregoing
payments. Each payment of such excess cash flow to a holder of the related CMO
residual represents income
and/or a return of capital. The amount of residual cash flow resulting from a
CMO will depend on, among other things,
the characteristics of the mortgage assets, the coupon rate of each class of
CMO, prevailing interest rates, the amount of
administrative expenses and the pre-payment experience on the mortgage assets.
In particular, the yield to maturity on
CMO residuals is extremely sensitive to pre-payments on the related underlying
mortgage assets. In addition, if a
series of a CMO includes a class that bears interest at an adjustable rate, the
yield to maturity on the related CMO residual will
also be extremely sensitive to changes in the level of the index upon which
interest rate adjustments are based. As described
below with respect to stripped mortgage-backed securities, in certain
circumstances a Fund may fail
to recoup fully its
initial investment in a CMO residual. CMO residuals are generally purchased and
sold by institutional investors through
several investment banking firms acting as brokers or dealers. In addition, CMO
residuals may, or pursuant to an
exemption therefrom, may not have been registered under the Securities Act. CMO
residuals, whether or not registered under
the Securities Act, may be subject to certain restrictions on transferability,
and may be deemed “illiquid.”
COMMERCIAL
PAPER
Commercial paper
consists of short-term, promissory notes issued by banks, corporations and other
entities to finance short-term credit
needs. These securities generally are discounted but sometimes may be interest
bearing.
COMMON
STOCK
Risks inherent in
investing in equity securities include the risk that the financial condition of
issuers may become impaired or that the general
condition of the stock market may deteriorate (either of which may cause a
decrease in the value of a Fund's portfolio
securities and therefore a decrease in the value of Shares of the Fund). Common
stock is susceptible to general stock market
fluctuation and to volatile increases and decreases in value as market
confidence and perceptions change. These
investor perceptions are based on various and unpredictable factors, including
expectations regarding government,
economic, monetary and fiscal policies; inflation and interest rates; economic
expansion or contraction; and global or regional
political, economic or banking crises.
Holders of common
stock incur more risk than holders of preferred stock and debt obligations
because common stockholders, as
owners of the issuer, have generally inferior rights to receive payments from
the issuer in comparison with the rights of
creditors of, or holders of debt obligations or preferred stock issued by, the
issuer. Further, unlike debt securities which
typically have a stated principal amount payable at maturity (whose value,
however, will be subject to market fluctuations
prior thereto), or preferred stock which typically has a liquidation preference
and which may have stated optional or
mandatory redemption provisions, common stock has neither a fixed principal
amount nor a maturity. Common stock values
are subject to market fluctuations as long as the common stock remains
outstanding.
It also is possible
that an issuer of bonds held by a Fund could enter into a bankruptcy or
restructuring process whereby such issuer's bonds
are converted to equity securities.
CONCENTRATION
The Funds do not
intend to concentrate their investments in any particular industry. The Funds
(except the SPDR Nuveen Municipal Bond ETF
and SPDR Nuveen Municipal Bond ESG ETF) look to the Global Industry
Classification Standard Level 3
(Industries) in making industry determinations. The SPDR Nuveen Municipal Bond
ETF and SPDR Nuveen Municipal Bond ESG
ETF look to Nuveen Asset Management LLC's (“Nuveen Asset
Management”) proprietary set of
industry groups for
making industry determinations based on classifications developed by third party
providers. The Trust's general
policy is to exclude securities of the U.S. government and its agencies or
instrumentalities when measuring industry
concentration.
CONVERTIBLE
SECURITIES
Convertible
securities are bonds, debentures, notes, preferred stock or other securities
that may be converted or exchanged (by the
holder or by the issuer) into shares of the underlying common stock (or cash or
securities of equivalent value) at a stated
exchange ratio. A convertible security may also be called for redemption or
conversion by the issuer after a particular
date and under certain circumstances (including a specified price) established
upon issue. If a convertible security
held by a Fund is called for redemption or conversion, the Fund could be
required to tender it for redemption, convert
it into the underlying common stock, or sell it to a third party.
Convertible
securities generally have less potential for gain or loss than common stock.
Convertible securities generally provide yields
higher than the underlying common stock, but generally lower than comparable
non-convertible securities. Because of this
higher yield, convertible securities generally sell at a price above their
“conversion
value,” which is the
current
market value of the stock to be received upon conversion. The difference between
this conversion value and the price of convertible
securities will vary over time depending on changes in the value of the
underlying common stock and interest rates. When
the underlying common stock declines in value, convertible securities will tend
not to decline to the same extent because
of the interest or dividend payments and the repayment of principal at maturity
for certain types of convertible
securities. However, securities that are convertible other than at the option of
the holder generally do not limit
the potential for
loss to the same extent as securities convertible at the option of the holder.
When the underlying common stock rises in
value, the value of convertible securities may also be expected to increase. At
the same time, however, the difference between
the market value of convertible securities and their conversion value will
narrow, which means that the value of convertible
securities will generally not increase to the same extent as the value of the
underlying common stock. Because convertible
securities may also be interest-rate sensitive, their value may increase as
interest rates fall and decrease as interest
rates rise. Convertible securities are also subject to credit risk, and are
often lower-quality securities.
The SPDR Blackstone
High Income ETF, SPDR DoubleLine Emerging Markets Fixed Income ETF, SPDR
DoubleLine Short Duration Total
Return Tactical ETF, SPDR DoubleLine Total Return Tactical ETF and SPDR Loomis
Sayles Opportunistic Bond
ETF may invest in contingent convertible bonds (“CoCo
bonds”), which also are
known as enhanced capital notes. CoCo
bonds are hybrid debt securities that are intended to either convert into equity
at a predetermined share price or have
their principal written down or written off upon the occurrence of certain
triggering events generally linked to regulatory
capital thresholds or regulatory actions calling into question the issuing
banking institution's continued viability as a going
concern. CoCo Bonds are subject to the risks associated with bonds and equities
and to the risks specific to
convertible securities in general. In addition, CoCo Bonds are inherently risky
because of the difficulty of predicting
triggering events that would require the debt to convert to equity. Since CoCo
Bonds are typically issued in the form of subordinated
debt instruments in order to provide the appropriate regulatory capital, in the
event of liquidation, dissolution or
winding-up of an issuer prior to a conversion, the rights and claims of the
holders of the CoCo Bonds against the issuer
in respect of or arising under the terms of the CoCo Bonds will generally rank
junior to the claims of all holders of
unsubordinated obligations of the issuer. Also, the value of CoCo Bonds will be
influenced by many factors, including: the
creditworthiness of the issuer and/or fluctuations in the issuer's capital
ratios; the supply and demand for the CoCo Bonds; general
market conditions and available liquidity; and economic, financial and political
events that affect the issuer, the market
it operates in or the financial markets in general. CoCo Bonds are a new form of
instrument and the market and
regulatory environment for these instruments is still evolving. As a result, it
is uncertain how the overall market for CoCo Bonds would
react to a trigger event or coupon suspension applicable to one
issuer.
COVENANT-LITE
LOANS
The SPDR Blackstone
High Income ETF, SPDR Blackstone Senior Loan ETF and SPDR Loomis Sayles
Opportunistic Bond ETF may invest
in loans that do not have certain maintenance covenants related to financial
ratios, which are often referred to as
“covenant-lite” loans. Currently,
approximately 80% of outstanding senior secured loans in the market are
covenant-lite loans,
and therefore such loans are widely held by loan market participants, including
the Fund. Other important collateral
protections will continue to exist in most loan credit agreements with respect
to covenant-lite loans, including (i)
limitations on restricted payments, (ii) limitations on investments, (iii)
limitations on additional debt and liens, and (iv) limitations
on asset sales. While the Sub-Adviser will seek loans that provide attractive
credit protection, the Fund is not limited in
the amount of loans it may hold that are covenant-lite.
CREDIT-LINKED
NOTES
The SPDR DoubleLine
Emerging Markets Fixed Income ETF may invest in credit-linked notes, which is a
type of structured note. The
difference between a credit default swap and a credit-linked note is that the
seller of a credit-linked note receives the
principal payment from the buyer at the time the contract is originated. Through
the purchase of a credit-linked note, the buyer
assumes the risk of the reference asset and funds this exposure through the
purchase of the note. The buyer takes on
the exposure to the seller to the full amount of the funding it has provided.
The seller has hedged its risk on the
reference asset without acquiring any additional credit exposure. The Fund has
the right to receive periodic interest payments
from the issuer of the credit-linked note at an agreed-upon interest rate and a
return of principal at the maturity
date.
Credit-linked notes
are subject to the credit risk of the corporate credits referenced by the note.
If one of the underlying corporate credits
defaults, the Fund may receive the security that has defaulted, and the Fund's
principal investment would be reduced by the
difference between the original face value of the reference security and the
current value of the defaulted security.
Credit-linked notes are typically privately negotiated transactions between two
or more parties. The Fund bears the risk
that the issuer of the credit-linked note will default or become bankrupt. The
Fund bears the risk of loss of its
principal investment, and the periodic interest payments expected to be received
for the duration of its investment in the
credit-linked note.
EQUITY
SECURITIES
A Fund may invest in
equity securities. Equity securities are securities that represent an ownership
interest (or the right to acquire such an
interest) in a company and include common and preferred stock. Common stocks
represent an equity or ownership interest
in an issuer. Preferred stock represents an equity or ownership interest in an
issuer that pays dividends at a specified rate
and that has priority over common stock in the payment of dividends. In the
event an issuer is liquidated or declares
bankruptcy, the claims of owners of bonds take priority over holders of
preferred stock, whose claims take priority over the
claims of those who own common stock.
While offering
greater potential for long-term growth, equity securities generally are more
volatile and riskier than some other forms of
investment, although under certain market conditions various fixed-income
investments have comparable or greater price
volatility. Therefore, the value of an investment in the Fund may at times
decrease instead of increase. The Fund's investments
may include securities traded over-the-counter as well as those traded on a
securities exchange. Some securities,
particularly over-the-counter securities, may be more difficult to sell under
some market conditions.
EXCHANGE-TRADED
PRODUCTS
ETPs include
exchange-traded funds (“ETFs”) registered under
the 1940 Act; exchange-traded commodity trusts; and exchange-traded
notes (“ETNs”). The Adviser may
receive management or other fees from the ETPs (“Affiliated
ETPs”) in which the Funds may
invest, as well as a management fee for managing the Funds. It is possible that
a conflict of interest among the Funds and
Affiliated ETPs could affect how the Adviser fulfills its fiduciary duties to
the Funds and the Affiliated ETPs. Because the
amount of the investment management fees to be retained by the Adviser may
differ depending upon the Affiliated ETPs
in which a Fund invests, there is a conflict of interest for the Adviser in
selecting the Affiliated ETP. In addition, the
Adviser may have an incentive to take into account the effect on an Affiliated
ETP in which a Fund may invest in determining
whether, and under what circumstances, to purchase or sell shares in that
Affiliated ETP. Although the Adviser takes steps
to address the conflicts of interest, it is possible that the conflicts could
impact the Funds.
Each Fund may invest
in new ETPs or ETPs that have not yet established a deep trading market at the
time of investment. Shares of such ETPs
may experience limited trading volume and less liquidity, in which case the
“spread” (the difference
between
bid price and ask price) may be higher.
EXCHANGE-TRADED
FUNDS
Each Fund may invest
in other ETFs (including ETFs managed by the Adviser). ETFs may be structured as
investment companies that are
registered under the 1940 Act, typically as open-end funds or unit investment
trusts. These ETFs are generally based on
specific domestic and foreign market securities indices. An “index-based
ETF” seeks to provide
investment results
that match the performance of an index by holding in its portfolio either the
contents of the index or a representative
sample of the securities in the index. An “actively-managed
ETF” invests in
securities based on an adviser's investment strategy.
An “enhanced
ETF” seeks to provide
investment results that match a positive or negative multiple of the performance of
an underlying index. In seeking to provide such results, an ETF and, in
particular, an enhanced ETF, may engage in short
sales of securities included in the underlying index and may invest in
derivatives instruments, such as equity index
swaps, futures contracts, and options on securities, futures contracts, and
stock indices. Alternatively, ETFs may be
structured as grantor trusts or other forms of pooled investment vehicles that
are not registered or regulated under the 1940 Act.
These ETFs typically hold commodities, precious metals, currency or other
non-securities investments. ETFs,
like mutual funds, have expenses associated with their operation, such as
advisory and custody fees. When a Fund invests
in an ETF, in addition to directly bearing expenses associated with its own
operations, including the brokerage costs
associated with the purchase and sale of shares of the ETF, the Fund will bear a
pro rata portion of the ETF's expenses. In
addition, it may be more costly to own an ETF than to directly own the
securities or other investments held by the ETF
because of ETF expenses. The risks of owning shares of an ETF generally reflect
the risks of owning the underlying
securities or other investments held by the ETF, although lack of liquidity in
the market for the shares of an ETF could result in the
ETF's value being more volatile than the underlying securities or other
investments.
EXCHANGE-TRADED
NOTES
ETNs are debt
obligations of investment banks which are traded on exchanges and the returns of
which are linked to the performance of
market indexes. In addition to trading ETNs on exchanges, investors may redeem
ETNs directly with the issuer on a weekly
basis, typically in a minimum amount of 50,000 units, or hold the ETNs until
maturity. ETNs may be riskier than
ordinary debt securities and may have no principal protection. A Fund's
investment in an ETN may be influenced by many
unpredictable factors, including highly volatile commodities prices, changes in
supply and demand
relationships,
weather, agriculture, trade, changes in interest rates, and monetary and other
governmental policies, action and inaction.
Investing in ETNs is not equivalent to investing directly in index components or
the relevant index itself. Because ETNs are
debt securities, they possess credit risk; if the issuer has financial
difficulties or goes bankrupt, the investor may not
receive the return it was promised.
FOREIGN
CURRENCY TRANSACTIONS
Each Fund may
conduct foreign currency transactions on a spot (i.e., cash) or forward basis
(i.e., by entering into forward contracts to
purchase or sell foreign currencies). Although foreign exchange dealers
generally do not charge a fee for such conversions, they do
realize a profit based on the difference between the prices at which they are
buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency at one rate, while offering
a lesser rate of exchange should the
counterparty desire to resell that currency to the dealer. Forward contracts are
customized transactions that generally require a
specific amount of a currency to be delivered at a specific exchange rate on a
specific date or range of dates in the future,
although the Funds may also enter into non-deliverable currency forward
contracts (“NDFs”) that contractually
require the netting of the parties' liabilities. Forwards, including NDFs, can
have substantial price volatility. While foreign
currency transactions on a spot and forward basis are exempt from the definition
of “swap” under the
Commodity Exchange
Act (“CEA”), NDFs are not,
and, thus, are subject to the jurisdiction of the Commodity Futures Trading Commission
(“CFTC”). Forward contracts
are generally traded in an interbank market directly between currency
traders
(usually large commercial banks) and their customers. The parties to a forward
contract may agree to offset or terminate the
contract before its maturity, or may hold the contract to maturity and complete
the contemplated currency exchange. In the
event that the parties to a forward contract agree to offset or terminate the
contract before its maturity, the contract is no
longer exempt from the definition of “swap” under the CEA and
shall be treated as a swap. At the discretion of the
Adviser, the Funds may enter into forward currency exchange contracts for
hedging purposes to help reduce the risks and
volatility caused by changes in foreign currency exchange rates, or to gain
exposure to certain currencies. When
used for hedging purposes, they tend to limit any potential gain that may be
realized if the value of a Fund's foreign
holdings increases because of currency fluctuations.
FOREIGN
SECURITIES
Investments in
foreign securities involve special risks and considerations. As foreign
companies are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to
domestic companies, there may be less publicly available information about a
foreign company than about a domestic company.
For example, foreign markets have different clearance and settlement procedures.
Delays in settlement could
result in temporary periods when assets of a Fund are uninvested. The inability
of a Fund to make intended security
purchases due to settlement problems could cause it to miss certain investment
opportunities. They may also entail certain
other risks, such as the possibility of one or more of the following: imposition
of dividend or interest withholding or
confiscatory taxes, higher brokerage costs, thinner trading markets, currency
blockages or transfer restrictions,
expropriation, nationalization, military coups or other adverse political or
economic developments; less government
supervision and regulation of securities exchanges, brokers and listed
companies; and the difficulty of enforcing
obligations in other countries. Purchases of foreign securities are usually made
in foreign currencies and, as a result, a Fund may
incur currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign
currencies against the U.S. dollar. Further, it may be more difficult for a
Fund's agents to keep currently informed about corporate
actions which may affect the prices of portfolio securities. Communications
between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Certain markets
may require payment for securities before delivery. A
Fund's ability and decisions to purchase and sell portfolio securities may be
affected by laws or regulations relating
to the convertibility of currencies and repatriation of assets.
A number of current
significant political, demographic and economic developments may affect
investments in foreign securities and in
securities of companies with operations overseas. Such developments include
dramatic political changes in government and
economic policies in several Eastern European countries and the republics
composing the former Soviet Union, as
well as the unification of the European Economic Community. The course of any
one or more of these events and the
effect on trade barriers, competition and markets for consumer goods and
services are uncertain. Similar considerations are
of concern with respect to developing countries. For example, the possibility of
revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. Management seeks to mitigate
the risks associated with these considerations through diversification and
active professional management.
FUTURES
CONTRACTS, FORWARDS, OPTIONS AND SWAP AGREEMENTS
Each Fund may invest
up to 20% of its assets in derivatives, including forward contracts,
exchange-traded futures on indices,
exchange-traded futures on Treasuries or Eurodollars, U.S. exchange-traded or
OTC put and call options contracts and exchange-traded
or OTC swap transactions (including interest rate swaps, total return swaps,
excess return swaps, and credit default
swaps).
Futures
and Options on Futures: Futures contracts
generally provide for the future sale by one party and purchase by another party of a
specified commodity or security at a specified future time and at a specified
price. Index futures contracts are
settled daily with a payment by one party to the other of a cash amount based on
the difference between the level of the index
specified in the contract from one day to the next. A futures contract on an
index is an agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index
at the close of the last trading day of the contract and the price at which the
index contract originally was written.
Although the value of an index might be a function of the value of certain
specified securities, physical delivery of these
securities is not always made. A public market exists in futures contracts
covering a number of indexes, as well as financial
instruments, including, without limitation: U.S. Treasury bonds; U.S. Treasury
notes; GNMA Certificates;
three-month U.S. Treasury bills; 90-day commercial paper; bank certificates of
deposit; Eurodollar certificates of deposit; the
Australian Dollar; the Canadian Dollar; the British Pound; the Japanese Yen; the
Swiss Franc; the Mexican Peso; and certain
multinational currencies, such as the Euro. It is expected that other futures
contracts will be developed and traded in the
future. Futures contracts are standardized as to maturity date and underlying
instrument and are traded on futures
exchanges.
The Funds may
purchase and write (sell) call and put options on futures. Options on futures
give the holder the right, in return for the
premium paid, to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price upon
expiration of, or at any time during the period of, the option. Upon exercise of
a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite
is true.
A Fund is required
to make a good faith margin deposit in cash or U.S. government securities (or
other eligible collateral) with a broker or
custodian to initiate and maintain open positions in futures contracts. A margin
deposit is intended to assure completion of
the contract (delivery or acceptance of the underlying commodity or payment of
the cash settlement amount) if it is not
terminated prior to the specified delivery date. Brokers may establish deposit
requirements which are higher than the
exchange minimums. Futures contracts are customarily purchased and sold on
margin deposits which may range upward from
less than 5% of the value of the contract being traded.
After a futures
contract position is opened, the value of the contract is marked to market
daily. If the futures contract price changes to the
extent that the margin on deposit does not satisfy price changes, additional
payments will be required. Conversely, change
in the contract value may reduce the required margin, resulting in a repayment
of excess margin to the contract holder.
Variation margin payments are made to and from the futures broker for as long as
the contract remains open. In such case,
a Fund would expect to earn interest income on its margin deposits. Although
some futures contracts call for making or
taking delivery of the underlying commodity, generally these obligations are
closed out prior to delivery by offsetting
purchases or sales of matching futures contracts (involving the same exchange,
underlying commodity, security or index
and delivery month). If an offsetting purchase price is less than the original
sale price, the Fund realizes a capital gain, or
if it is more, the Fund realizes a capital loss. Conversely, if an offsetting
sale price is more than the original purchase
price, the Fund realizes a capital gain, or if it is less, the Fund realizes a
capital loss. The transaction costs also must be
included in these calculations.
Options: A Fund may purchase
and sell put and call options. Such options may relate to particular securities
and may or may not be listed on
a national securities exchange and issued by the Options Clearing Corporation.
Options trading is a highly specialized
activity that entails greater than ordinary investment risk. Options on
particular securities may be more volatile than the
underlying securities, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation
than an investment in the underlying securities themselves.
Short
Sales “Against
the Box”: The Funds may
engage in short sales “against the
box.” In a short sale
against the box, a Fund agrees to sell
at a future date a security that it either contemporaneously owns or has the
right to acquire at no extra cost. If the price
of the security has declined at the time the Fund is required to deliver the
security, the Fund will benefit from the difference
in the price. If the price of the security has increased, the Fund will be
required to pay the difference.
Forwards: A forward contract
is an obligation to purchase or sell a specific security, currency or other
instrument for an agreed price at a
future date that is individually negotiated and privately traded by traders and
their customers. Unlike contracts traded on
an exchange (such as futures contracts), forward contracts trade OTC and are not
guaranteed by an exchange or
clearinghouse and are subject to the creditworthiness of the counterparty of the
trade. Forward contracts are highly leveraged and
highly volatile, and a relatively small price movement in a forward contract may
result in substantial losses to a Fund.
Depending on the asset underlying the forward contract, forward transactions can
be influenced by, among other things,
changing supply and demand relationships, government commercial and trade
programs and policies, national and
international political and economic events, weather and climate conditions,
insects and plant disease, purchases and sales
by foreign countries and changing interest rates.
Swap
Transactions: Each Fund may enter
into swap transactions, including interest rate swap, credit default swap, NDF,
and
total return swap transactions. Swap transactions are contracts between parties
in which one party agrees to make periodic payments to
the other party based on the change in market value or level of a specified
rate, index or asset. In return, the other
party agrees to make payments to the first party based on the return of a
different specified rate, index or asset. Swap
transactions will usually be done on a net basis, i.e., where the two parties
make net payments with a Fund receiving or paying,
as the case may be, only the net amount of the two payments. The net amount of
the excess, if any, of a 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. Swaps may be used in conjunction
with other instruments to offset interest rate, currency or other underlying
risks. For example, interest rate swaps may be
offset with “caps,”
“floors” or “collars.” A “cap” is essentially a
call option which places a limit on the amount of floating
rate interest that must be paid on a certain principal amount. A “floor” is essentially a
put option which places a limit on
the minimum amount that would be paid on a certain principal amount. A
“collar” is essentially a
combination of a
long cap and a short floor where the limits are set at different
levels.
The use of swap
transactions by a Fund entails certain risks, which may be different from, or
possibly greater than, the risks associated
with investing directly in the securities and other investments that are the
referenced asset for the swap agreement. Swaps are
highly specialized instruments that require investment techniques, risk
analyses, and tax planning different from those
associated with stocks, bonds, and other traditional investments. The use of a
swap requires an understanding not
only of the referenced asset, reference rate, or index, but also of the swap
itself, without the benefit of observing the
performance of the swap under all the possible market conditions. Because some
swap transactions have a leverage component,
adverse changes in the value or level of the underlying asset, reference rate,
or index can result in a loss substantially
greater than the amount invested in the swap itself. Certain swaps have the
potential for unlimited loss, regardless of the
size of the initial investment.
Bilateral OTC
transactions differ from exchange-traded or cleared derivatives transactions in
several respects. Bilateral OTC transactions are
transacted directly with dealers and not with a clearing corporation. Without
the availability of a clearing
corporation, bilateral OTC transaction pricing is normally done by reference to
information from market makers and/or available
index data, which information is carefully monitored by the Adviser and verified
in appropriate cases. As bilateral OTC
transactions are entered into directly with a dealer, there is a risk of
nonperformance by the dealer as a result of its
insolvency or otherwise. Under regulations adopted by the CFTC and federal
banking regulators (“Margin Rules”), a Fund is
required to post collateral (known as variation margin) to cover the
mark-to-market exposure in respect of its uncleared
swaps. The Margin Rules also mandate that collateral in the form of initial
margin be posted to cover potential future
exposure attributable to uncleared swap transactions. In the event a Fund is
required to post collateral in the form of initial
margin or variation margin in respect of its uncleared swap transactions, all
such collateral will be posted with a third party
custodian pursuant to a triparty custody agreement between the Fund, its dealer
counterparty and an unaffiliated
custodian.
The requirement to
execute certain OTC derivatives contracts on exchanges or electronic trading
platforms called swap execution facilities
(“SEFs”) may offer certain
advantages over traditional bilateral OTC trading, such as ease of execution,
price
transparency, increased liquidity and/or favorable pricing. However, SEF trading
may make it more difficult and costly for a Fund to enter
into highly tailored or customized transactions and may result in additional
costs and risks. Market participants such as
the Funds that execute derivatives contracts through a SEF, whether directly or
through a broker intermediary, are
required to submit to the jurisdiction of the SEF and comply with SEF and CFTC
rules and regulations which impose, among
other things disclosure and recordkeeping obligations. In addition, a Fund will
generally incur SEF or broker
intermediary fees when it trades on a SEF. A Fund may also be required to
indemnify the SEF or broker intermediary for any
losses or costs that may result from the Fund's transactions on the
SEF.
Total
Return Swaps: A Fund may enter
into total return swap transactions for investment purposes. Total return swaps
are transactions in
which one party agrees to make periodic payments based on the change in market
value of the underlying assets, which may
include a specified security, basket of securities or security indexes during
the specified period, in return for periodic
payments based on a fixed or variable interest rate of the total return from
other underlying assets. Total return swaps may be
used to obtain exposure to a security or market without owning or taking
physical custody of such security or market,
including in cases in which there may be disadvantages associated with direct
ownership of a particular security.
In a typical total return equity swap, payments made by a Fund or the
counterparty are based on the total return of a
particular reference asset or assets (such as an equity security, a combination
of such securities, or an index). That is, one
party agrees to pay another party the return on a stock, basket of stocks, or
stock index in return for a specified interest
rate. By entering into an equity index swap, for example, the index receiver can
gain exposure to stocks making up the index
of securities without actually purchasing those stocks. Total return swaps
involve not only the risk associated with the
investment in the underlying securities, but also the risk of the counterparty
not fulfilling its obligations under the
agreement.
Credit
Default Swaps: A Fund may enter
into credit default swap transactions for investment purposes. A credit default
swap
transaction may have as reference obligations one or more securities that are
not currently held by the Fund. A Fund may be either the
protection buyer or protection seller in the transaction. Credit default swaps
may also be structured based on the debt of
a basket of issuers, rather than a single issuer, and may be customized with
respect to the default event that triggers
purchase or other factors. As a protection seller, a Fund would generally
receive an upfront payment or a fixed rate of
income throughout the term of the swap, which typically is between six months
and three years, provided that there is no
credit event. If a credit event occurs, generally the protection seller must pay
the protection buyer the full face amount of the
reference obligations that may have little or no value. If a Fund were a
protection buyer and no credit event occurred
during the term of the swap, the Fund would recover nothing if the swap were
held through its termination date. However, if a
credit event occurred, the protection buyer may elect to receive the full
notional value of the swap in exchange for an
equal face amount of the reference obligation that may have little or no value.
Where a Fund is the protection buyer,
credit default swaps involve the risk that the seller may fail to satisfy its
payment obligations to the Fund in the event of a
default. The purchase of credit default swaps involves costs, which will reduce
a Fund's return.
Currency
Swaps:
A Fund may enter into currency swap transactions for investment purposes.
Currency swaps are similar to interest rate
swaps, except that they involve multiple currencies. A Fund may enter into a
currency swap when it has exposure to one
currency and desires exposure to a different currency. Typically, the interest
rates that determine the currency swap
payments are fixed, although occasionally one or both parties may pay a floating
rate of interest. Unlike an interest rate swap,
however, the principal amounts are exchanged at the beginning of the contract
and returned at the end of the contract. In
addition to paying and receiving amounts at the beginning and end of the
transaction, both sides will have to pay in full
on a periodic basis based upon the currency they have borrowed. Change in
foreign exchange rates and changes in interest
rates, as described above, may negatively affect currency swaps.
Interest
Rate Swaps: A Fund may enter
into an interest rate swap in an effort to protect against declines in the value
of fixed income
securities held by the Fund. In such an instance, the Fund may agree to pay a
fixed rate (multiplied by a notional amount)
while a counterparty agrees to pay a floating rate (multiplied by the same
notional amount). If interest rates rise,
resulting in a diminution in the value of the Fund's portfolio, the Fund would
receive payments under the swap that would offset,
in whole or in part, such diminution in value.
Interest
Rate Caps, Floors and Collars: A Fund may use
interest rate caps, floors and collars. Interest rate caps, floors and
collars
are similar to interest rate swap contracts because the payment obligations are
measured by changes in interest rates as applied to
a notional amount and because they are generally individually negotiated with a
specific counterparty. The purchase of an
interest rate cap entitles the purchaser, to the extent that a specific index
exceeds a specified interest rate, to receive
payments of interest on a notional principal amount from the party selling the
interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified index
falls below specified interest rates, to receive
payments of interest on a notional principal amount from the party selling the
interest rate floor. The purchase of an
interest rate collar entitles the purchaser, to the extent that a specified
index exceeds or falls below a specified interest
rate, to receive payments of interest on a notional principal amount from the
party selling the interest rate
collar.
Options
on Swaps: An option on a swap
agreement, or a “swaption,” is a contract that
gives a counterparty the right (but not the obligation)
to enter into a new swap agreement or to shorten, extend, cancel or otherwise
modify an existing swap agreement, at some
designated future time on specified terms. In return, the purchaser pays a
“premium” to the seller of
the
contract. The seller of the contract receives the premium and bears the risk of
unfavorable changes on the underlying
swap. A Fund may
write (sell) and purchase put and call swaptions. A Fund may also enter into
swaptions on either an asset-based or
liability-based basis, depending on whether the Fund is hedging its assets or
its liabilities. A Fund may write (sell) and
purchase put and call swaptions to the same extent it may make use of standard
options on securities or other instruments. A
Fund may enter into these transactions primarily to preserve a return or spread
on a particular investment or
portion of its holdings, as a duration management technique, to protect against
an increase in the price of securities the Fund
anticipates purchasing at a later date, or for any other purposes, such as for
speculation to increase returns. Swaptions
are generally subject to the same risks involved in a Fund's use of
options.
Depending on the
terms of the particular option agreement, a Fund will generally incur a greater
degree of risk when it writes a swaption
than it will incur when it purchases a swaption. When a Fund purchases a
swaption, it risks losing only the amount of the
premium it has paid should it decide to let the option expire unexercised.
However, when a Fund writes a swaption, upon
exercise of the option the Fund will become obligated according to the terms of
the underlying agreement.
Contracts
for Differences: Contracts for
differences are swap arrangements in which a Fund may agree with a counterparty that
its return (or loss) will be based on the relative performance of two different
groups or “baskets” of securities. For
example, as to one of the baskets, a Fund's return is based on theoretical long
futures positions in the securities
comprising that basket, and as to the other basket, the Fund's return is based
on theoretical short futures positions in the
securities comprising that other basket. The notional sizes of the baskets will
not necessarily be the same, which can give rise
to investment leverage. A Fund may also use actual long and short futures
positions to achieve the market exposure(s)
as contracts for differences. A Fund may enter into swaps and contracts for
differences for investment return, hedging,
risk management and for investment leverage
Government
Regulation: The Dodd-Frank Wall
Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”) that was signed into law
on July 21, 2010 created a new statutory framework that comprehensively
regulated the over-the-counter (“OTC”) derivatives
markets for the first time. Prior to the Dodd-Frank Act, the OTC derivatives
markets were traditionally traded
on a bilateral basis (so-called “bilateral OTC
transactions”). Under the
Dodd-Frank Act, certain OTC derivatives
transactions are now required to be centrally cleared and traded on
SEFs.
On October 28, 2020,
the SEC adopted Rule 18f-4 (the “Derivatives
Rule”) under the 1940 Act
which replaced prior SEC and staff guidance
with an updated, comprehensive framework for registered funds' use of
derivatives. The Derivatives Rule permits a Fund
to enter into derivatives transactions and certain other transactions
notwithstanding the restrictions on the issuance of
“senior
securities” under Section 18 of
the 1940 Act. The Derivatives Rule requires the Funds to trade derivatives and
certain other instruments that create future payment or delivery obligations
subject to a value-at-risk (“VaR”) leverage limit,
develop and implement a derivatives risk management program and new testing
requirements, and comply with new
requirements related to board and SEC reporting. These requirements apply unless
a Fund qualifies as a “limited derivatives
user,” as defined in the
Derivatives Rule. To the extent a Fund uses derivatives, complying with the
Derivatives Rule may
increase the cost of a Fund's investments and cost of doing business, which
could adversely affect investors. Other new
regulations could adversely affect the value, availability and performance of
certain derivative instruments, may
make them more costly, and may limit or restrict their use by the
Funds.
Regulation
Under the Commodity Exchange Act: Each Fund intends
to use commodity interests, such as futures, swaps and options on
futures in accordance with Rule 4.5 of the CEA. An exclusion from the definition
of the term “commodity
pool
operator” has been claimed
with respect to each series of the Trust in accordance with Rule 4.5 such that
registration or regulation as a
commodity pool operator under the CEA is not necessary.
Restrictions
on Trading in Commodity Interests: Each Fund reserves
the right to engage in transactions involving futures, options thereon and
swaps to the extent allowed by the CFTC regulations in effect from time to time
and in accordance with a Fund's
policies.
Certain additional
risk factors related to derivatives are discussed below:
Derivatives
Risk:
Under recently adopted rules by the CFTC, transactions in some types of interest
rate swaps and index credit
default swaps on North American and European indices are required to be cleared.
In addition, the CFTC may
promulgate additional regulations that require clearing of other classes of
swaps. In a cleared derivatives
transaction (which includes futures, options on futures, and cleared swaps
transactions), a Fund's counterparty is a
clearing house (such as CME, ICE Clear Credit or LCH.Clearnet), rather than a
bank or broker. Since each Fund is
not a member of a clearing house and only members of a clearing house can
participate directly in the
clearing house, a Fund holds cleared derivatives through accounts at clearing
members, who are futures commission
merchants that are members of the clearing houses and who have the appropriate
regulatory
approvals to engage
in cleared derivatives transactions. A Fund makes and receives payments owed
under cleared derivatives
transactions (including margin payments) through its accounts at clearing
members. Clearing members guarantee
performance of their clients' obligations to the clearing house. In contrast to
bilateral OTC transactions,
clearing members generally can require termination of existing cleared
derivatives transactions at any time and
increases in margin above the margin that it required at the beginning of a
transaction. Clearing houses also have
broad rights to increase margin requirements for existing transactions and to
terminate transactions in
accordance with their rules. Any such increase or termination could interfere
with the ability of a Fund to pursue its
investment strategy. Also, a Fund is subject to execution risk if it enters into
a derivatives transaction that is
required to be cleared (or that the Advisor expects to be cleared), and no
clearing member is willing or able to
clear the transaction on the Fund's behalf. While the documentation in place
between a Fund and its clearing members
generally provides that the clearing members will accept for clearing all
transactions submitted for
clearing that are within credit limits specified by the clearing members in
advance, the Fund could be subject to this
execution risk if the Fund submits for clearing transactions that exceed such
credit limits, if the clearing house does
not accept the transactions for clearing, or if the clearing members do not
comply with their agreement to clear
such transactions. In that case, the transaction might have to be terminated,
and the Fund could lose some or
all of the benefit of any increase in the value of the transaction after the
time of the transaction. In
addition, new regulations could, among other things, restrict a Fund's ability
to engage in, or increase the cost to
the Fund of, derivatives transactions, for example, by making some types of
derivatives no longer available to
the Fund or increasing margin or capital requirements. If a Fund is not able to
enter into a particular
derivatives transaction, the Fund's investment performance and risk profile
could be adversely affected as a
result.
Counterparty
Risk:
Counterparty risk with respect to OTC derivatives may be affected by new
regulations promulgated by the
CFTC and SEC affecting the derivatives market. As described under “Derivatives
Risk” above, all futures and
options on futures and some swap transactions are required to be cleared, and a
party to a cleared derivatives
transaction is subject to the credit risk of the clearing house and the clearing
member through which it holds its cleared
derivatives position, rather than the credit risk of its original counterparty
to the derivative transaction.
Clearing members are required to segregate all funds received from customers
with respect to cleared derivatives
transactions from the clearing member's proprietary assets. However, all funds
and other property received by
a clearing broker from its customers are generally held by the clearing broker
on a commingled basis in
an omnibus account, and the clearing broker may also invest those funds in
certain instruments
permitted under the applicable regulations. Also, the clearing member transfers
to the clearing house the amount of margin
required by the clearing house for cleared derivatives transactions, which
amounts are generally held in
the relevant omnibus account at the clearing house for all customers of the
clearing member.
For commodities
futures positions, the clearing house may use all of the collateral held in the
clearing member's omnibus account to meet a
loss in that account, without regard to which customer in fact supplied that
collateral. Accordingly, in addition to bearing
the credit risk of its clearing member, each customer to a futures transaction
also bears “fellow customer” risk from other
customers of the clearing member. However, with respect to cleared swaps
positions, recent regulations
promulgated by the CFTC require that the clearing member notify the clearing
house of the amount of initial margin provided by
the clearing member to the clearing house that is attributable to each customer.
Because margin in respect of cleared
swaps must be earmarked for specific clearing member customers, the clearing
house may not use the collateral of one
customer to cover the obligations of another customer. However, if the clearing
member does not provide accurate reporting,
a Fund is subject to the risk that a clearing house will use the Fund's assets
held in an omnibus account at the
clearing house to satisfy payment obligations of a defaulting customer of the
clearing member to the clearing house. In
addition, clearing members may generally choose to provide to the clearing house
the net amount of variation margin
required for cleared swaps for all of its customers in the aggregate, rather
than the gross amount for each customer.
FUTURE
DEVELOPMENTS
A Fund may take
advantage of opportunities in the area of options and futures contracts, options
on futures contracts, warrants, swaps and
any other investments which are not presently contemplated for use by the Fund
or which are not currently available
but which may be developed, to the extent such opportunities are both consistent
with the Fund's investment objective
and legally permissible for the Fund. Before entering into such transactions or
making any such investment, a Fund
will provide appropriate disclosure.
GOVERNMENT
MORTGAGE PASS-THROUGH SECURITIES
Each Fund may invest
in mortgage pass-through securities representing participation interests in
pools of residential mortgage loans
purchased from individual lenders by an agency, instrumentality or sponsored
corporation of the United States government
(“Federal
Agency”) or originated by
private lenders and guaranteed, to the extent provided in such securities, by a
Federal Agency. Such securities, which are ownership interests in the underlying
mortgage loans, differ from conventional
debt securities, which provide for periodic payment of interest in fixed amounts
(usually semiannually) and principal
payments at payments (not necessarily in fixed amounts) that are a pass-through
of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees paid to the
guarantor of such securities and the servicer of the underlying mortgage
loans.
The government
mortgage pass-through securities in which the Fund may invest include those
issued or guaranteed by Ginnie Mae, Fannie
Mae and Freddie Mac. Ginnie Mae certificates are direct obligations of the U.S.
government and, as such, are backed by
the full faith and credit of the United States. Fannie Mae is a federally
chartered, privately owned corporation and
Freddie Mac is a corporate instrumentality of the United States. Fannie Mae and
Freddie Mac certificates are not backed by
the full faith and credit of the United States but the issuing agency or
instrumentality has the right to borrow, to meet its
obligations, from an existing line of credit with the U.S. Treasury. The U.S.
Treasury has no legal obligation to
provide such line of credit and may choose not to do so.
Certificates for
these types of mortgage-backed securities evidence an interest in a specific
pool of mortgages. These certificates are, in
most cases, modified pass-through instruments, wherein the issuing agency
guarantees the payment of principal and
interest on mortgages underlying the certificates, whether or not such amounts
are collected by the issuer on the underlying
mortgages.
The Housing and
Economic Recovery Act of 2008 (“HERA”) authorized the
Secretary of the Treasury to support Fannie Mae, Freddie Mac,
and the Federal Home Loan Banks (“FHLBs”) (collectively, the
“GSEs”) by purchasing
obligations and other securities
from those government-sponsored enterprises. HERA gave the Secretary of the
Treasury broad authority to determine the
conditions and amounts of such purchases.
On September 6,
2008, the Federal Housing Finance Agency (“FHFA”) placed Fannie Mae
and Freddie Mac into conservatorship. As
the conservator, FHFA succeeded to all rights, titles, powers and privileges of
Fannie Mae and Freddie Mac and of
any stockholder, officer or director of Fannie Mae and Freddie Mac with respect
to Fannie Mae and Freddie Mac and the
assets of Fannie Mae and Freddie Mac. FHFA selected a new chief executive
officer and chairman of the board of
directors for Fannie Mae and Freddie Mac.
In September 2008,
the U.S. Treasury announced a federal takeover of Fannie Mae and Freddie Mac,
placing the two federal
instrumentalities in conservatorship. Under the terms of the takeover, the U.S.
Treasury agreed to acquire $1 billion of senior preferred
stock of each instrumentality and obtained warrants for the purchase of common
stock of each instrumentality.
Under these Senior Preferred Stock Purchase Agreements (“SPAs”), the U.S. Treasury
has pledged to provide a limited
amount of capital per instrumentality as needed, including the contribution of
cash capital to the instrumentalities in
the event their liabilities exceed their assets. In May 2009, the U.S. Treasury
increased its maximum commitment to each
instrumentality under the SPAs from $100 billion to $200 billion per
instrumentality. In December 2009, the U.S.
Treasury amended the SPAs to provide Fannie Mae and Freddie Mac with some
additional flexibility to meet the requirement to
reduce their mortgage portfolios. Also in December 2009, the U.S. Treasury
further amended the SPAs to allow the cap on
the U.S. Treasury's funding commitment to increase as necessary to accommodate
any cumulative reduction in Fannie
Mae's and Freddie Mac's net worth through the end of 2012. On August 17, 2012,
the U.S. Treasury announced that it
was again amending the SPAs to terminate the requirement that Fannie Mae and
Freddie Mac each pay a 10% dividend
annually on all amounts received under the funding commitment. Instead, the
companies were required to transfer to the U.S.
Treasury on a quarterly basis all profits earned during a quarter that exceeded
a capital reserve amount. The capital
reserve amount was $3 billion in 2013, and decreased by $600 million in each
subsequent year through 2017. On
December 21, 2017, the U.S. Treasury announced amendments to the SPAs to
reinstate the $3 billion capital reserve
amount. On September 30, 2019, the U.S. Treasury announced amendments to the
SPAs permitting Fannie Mae and
Freddie Mac to maintain capital reserves of $25 billion and $20 billion,
respectively. Fannie Mae and Freddie Mac are the
subject of several continuing class action lawsuits and investigations by
federal regulators over certain accounting,
disclosure or corporate governance matters, which (along with any resulting
financial restatements) may adversely affect
the guaranteeing entities. Importantly, the future of the entities is in serious
question as the U.S. government
reportedly is considering multiple options, ranging from nationalization,
privatization, consolidation, or abolishment of the
entities.
Under the Federal
Housing Finance Regulatory Reform Act of 2008 (the “Reform
Act”), which was
included as part of Housing and Economic
Recovery Act of 2008, FHFA, as conservator or receiver, has the power to
repudiate any contract entered into by
Fannie Mae or Freddie Mac prior to FHFA's appointment as conservator or
receiver, as applicable, if FHFA determines, in its
sole discretion, that performance of the contract is burdensome and that
repudiation of the contract promotes the orderly
administration of Fannie Mae's or Freddie Mac's affairs. The Reform Act requires
FHFA to exercise its right to
repudiate any contract within a reasonable period of time after its appointment
as conservator or receiver.
FHFA, in its
capacity as conservator, has indicated that it has no intention to repudiate the
guaranty obligations of Fannie Mae or Freddie Mac
because FHFA views repudiation as incompatible with the goals of the
conservatorship. However, in the event that FHFA,
as conservator or if it is later appointed as receiver for Fannie Mae or Freddie
Mac, were to repudiate any such guaranty
obligation, the conservatorship or receivership estate, as applicable, would be
liable for actual direct compensatory damages
in accordance with the provisions of the Reform Act. Any such liability could be
satisfied only to the extent of Fannie
Mae's or Freddie Mac's available assets. The future financial performance of
Fannie Mae and Freddie Mac is
heavily dependent on the performance of the U.S. housing market.
In the event of
repudiation, the payments of interest to holders of Fannie Mae, or Freddie Mac
mortgage-backed securities would be
reduced if payments on the mortgage loans represented in the mortgage loan
groups related to such mortgage-backed
securities are not made by the borrowers or advanced by the servicer. Any actual
direct compensatory damages for
repudiating these guaranty obligations may not be sufficient to offset any
shortfalls experienced by such mortgage-backed
security holders.
Further, in its
capacity as conservator or receiver, FHFA has the right to transfer or sell any
asset or liability of Fannie Mae or Freddie Mac
without any approval, assignment or consent. Although FHFA has stated that it
has no present intention to do so, if FHFA, as
conservator or receiver, were to transfer any such guaranty obligation to
another party, holders of Fannie Mae or
Freddie Mac mortgage-backed securities would have to rely on that party for
satisfaction of the guaranty obligation and would
be exposed to the credit risk of that party.
In addition, certain
rights provided to holders of mortgage-backed securities issued by Fannie Mae
and Freddie Mac under the operative
documents related to such securities may not be enforced against FHFA, or
enforcement of such rights may be delayed, during
the conservatorship or any future receivership. The operative documents for
Fannie Mae and Freddie Mac mortgage-backed
securities may provide (or with respect to securities issued prior to the date
of the appointment of the conservator may
have provided) that upon the occurrence of an event of default on the part of
Fannie Mae or Freddie Mac, in its capacity
as guarantor, which includes the appointment of a conservator or receiver,
holders of such mortgage-backed securities have the
right to replace Fannie Mae or Freddie Mac as trustee if the requisite
percentage of mortgage-backed security holders
consent. The Reform Act prevents mortgage-backed security holders from enforcing
such rights if the event of default
arises solely because a conservator or receiver has been appointed. The Reform
Act also provides that no person may
exercise any right or power to terminate, accelerate or declare an event of
default under certain contracts to which
Fannie Mae or Freddie Mac is a party, or obtain possession of or exercise
control over any property of Fannie Mae or
Freddie Mac, or affect any contractual rights of Fannie Mae or Freddie Mac,
without the approval of FHFA, as conservator or
receiver, for a period of 45 or 90 days following the appointment of FHFA as
conservator or receiver, respectively.
HIGH
YIELD SECURITIES
Investment in high
yield securities (commonly known as “junk” bonds) generally
provides greater income and increased opportunity for
capital appreciation than investments in higher quality securities, but they
also typically entail greater price volatility and
credit risk. These high yield securities are regarded as predominantly
speculative with respect to the issuer's continuing ability
to meet principal and interest payments. Analysis of the creditworthiness of
issuers of debt securities that are high yield
may be more complex than for issuers of higher quality debt securities. In
addition, high yield securities are often issued by
smaller, less creditworthy companies or by highly leveraged (indebted) firms,
but can also be issued by governments. Such
issuers are generally less able than more financially stable issuers to make
scheduled payments of interest and
principal. The risks posed by securities issued under such circumstances are
substantial.
Investing in high
yield debt securities involves risks that are greater than the risks of
investing in higher quality debt securities. These
risks include: (i) changes in credit status, including weaker overall credit
conditions of issuers and risks of default; (ii)
industry, market and economic risk; and (iii) greater price variability and
credit risks of certain high yield securities such as
zero coupon and payment-in-kind securities. While these risks provide the
opportunity for maximizing return over time,
they may result in greater volatility of the value of a Fund than a fund that
invests in higher-rated securities.
Furthermore, the
value of high yield securities may be more susceptible to real or perceived
adverse economic, company or industry
conditions than is the case for higher quality securities. The market values of
certain of these lower-rated and unrated debt
securities tend to reflect individual issuer developments to a greater extent
than do higher-rated securities which react
primarily to fluctuations in the general level of interest rates, and tend to be
more sensitive to economic conditions than are
higher-rated securities. Adverse market, credit or economic conditions could
make it difficult at certain times to sell
certain high yield securities held by a Fund.
The secondary market
on which high yield securities are traded may be less liquid than the market for
higher grade securities. Less
liquidity in the secondary trading market could adversely affect the price at
which a Fund could sell a high yield security, and
could adversely affect the daily net asset value per share of a Fund. When
secondary markets for high yield securities are
less liquid than the market for higher grade securities, it may be more
difficult to value the securities because there is
less reliable, objective data available.
The use of credit
ratings as a principal method of selecting high yield securities can involve
certain risks. For example, credit ratings
evaluate the safety of principal and interest payments, not the market value
risk of high yield securities. Also, credit rating
agencies may fail to change credit ratings in a timely fashion to reflect events
since the security was last rated.
HYBRID
INSTRUMENTS
The SPDR Blackstone
High Income ETF, SPDR DoubleLine Emerging Markets Fixed Income ETF and SPDR
Loomis Sayles Opportunistic
Bond ETF may acquire hybrid instruments. A hybrid instrument is a type of
derivative that combines a traditional stock
or bond with an option or forward contract. Generally, the principal amount,
amount payable upon maturity or
redemption or interest rate of a hybrid is tied (positively or negatively) to
the price of some currency or securities index,
another interest rate or some other economic factor (each a “benchmark”). The interest rate
or (unlike most fixed-income
securities) the principal amount payable at maturity of a hybrid security may be
increased or decreased, depending
on changes in the value of the benchmark. An example of a hybrid could be a bond
issued by an oil company that
pays a small base level of interest with additional interest that accrues in
correlation to the extent to which oil prices
exceed a certain predetermined level. Such a hybrid instrument would be
economically similar to a combination of a
bond and a call option on oil.
Hybrids can be used
as an efficient means of pursuing a variety of investment goals, including
currency hedging, duration management and
increased total return. Hybrids may not bear interest or pay dividends. The
value of a hybrid or its interest rate may be
a multiple of a benchmark and, as a result, may be leveraged and move (up or
down) more steeply and rapidly than the
benchmark. These benchmarks may be sensitive to economic and political events,
such as currency devaluations, which
cannot be readily foreseen by the purchaser of a hybrid. Under certain
conditions, the redemption value of a hybrid
could be zero. Thus, an investment in a hybrid may entail significant market
risks that are not associated with a similar
investment in a traditional, U.S. dollar-denominated bond that has a fixed
principal amount and pays a fixed rate or floating
rate of interest. The purchase of hybrids also exposes a Fund to the
credit/counterparty risk of the issuer of the hybrids.
These risks may cause significant fluctuations in the NAV of a Fund.
Certain hybrid
instruments may provide exposure to the commodities markets. These are
derivative instruments with one or more
commodity-linked components that have payment features similar to commodity
futures contracts, commodity options or similar
instruments. Commodity-linked hybrid instruments may be either equity or debt
securities, leveraged or unleveraged, and are
considered hybrid instruments because they have both security and commodity-like
characteristics. A portion of the
value of these instruments may be derived from the value of a commodity, futures
contract, index or other economic variable
and therefore are subject to many of the same risks as investments in those
underlying securities, instruments or
commodities.
Certain issuers of
structured products such as hybrid instruments may be deemed to be investment
companies as defined in the 1940 Act. As
a result, a Fund's investments in these products may be subject to limits
applicable to investments in investment companies
and may be subject to restrictions contained in the 1940 Act.
ILLIQUID
INVESTMENTS
Each Fund may invest
in illiquid investments. A Fund may not acquire any illiquid investment if,
immediately after the acquisition, the
Fund would have invested more than 15% of its net assets in illiquid
investments. An illiquid investment means any investment
that a Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days
or less without the sale or disposition significantly changing the market value
of the investment. If illiquid investments
exceed 15% of a Fund's net assets, certain remedial actions will be taken as
required by Rule 22e-4 under the 1940 Act
and the Funds' policies and procedures.
INFLATION-PROTECTED
OBLIGATIONS
Each Fund may invest
in inflation-protected public obligations, commonly known as “TIPS,” of the U.S.
Treasury, as well as TIPS of major
governments and emerging market countries, excluding the United States. TIPS are
a type of security issued by a
government that are designed to provide inflation protection to investors. TIPS
are income-generating instruments whose
interest and principal payments are adjusted for inflation—a sustained increase
in prices that erodes the purchasing power
of money. The inflation adjustment, which is typically applied monthly to the
principal of the bond, follows a designated
inflation index, such as the Consumer Price Index. A fixed coupon rate is
applied to the inflation-adjusted principal so that
as inflation rises or falls, both the principal value and the interest payments
will increase or decrease. This can
provide investors with a hedge against inflation, as it helps preserve the
purchasing power of an investment. Because
of this inflation adjustment feature, inflation-protected bonds typically have
lower yields than conventional
fixed-rate bonds.
INVERSE
FLOATERS
An inverse floater
is a type of instrument that bears a floating or variable interest rate that
moves in the opposite direction to interest rates
generally or the interest rate on another security or index. Changes in interest
rates generally, or the interest rate of the
other security or index, inversely affect the interest rate paid on the inverse
floater, with the result that the inverse
floater's price will be considerably more volatile than that of a fixed-rate
bond. Brokers typically create inverse floaters by
depositing an income-producing instrument, which may be a mortgage-backed
security, in a trust. The trust in turn issues a
variable rate security and inverse floaters. The returns on the inverse floaters
may be leveraged, increasing substantially their
volatility and interest rate sensitivity. The rate at which interest is paid by
the trust on an inverse floater may vary by a
magnitude that exceeds the magnitude of the change in a reference rate of
interest (typically a short term interest rate), and
the market prices of inverse floaters may as a result be highly sensitive to
changes in interest rates and in prepayment rates
on the underlying securities, and may decrease significantly when interest rates
increase or prepayment rates
change. The interest rate for the variable rate security is typically determined
by an index or an auction process, while the
inverse floater holder receives the balance of the income from the underlying
income-producing instrument less an
auction fee.
INVESTMENT
COMPANIES
Each Fund may invest
in the securities of other investment companies, including affiliated funds,
money market funds and closed-end funds,
subject to applicable limitations under Section 12(d)(1) of the 1940 Act.
Pursuant to Section 12(d)(1), a Fund may invest in
the securities of another investment company (the “acquired
company”) provided that the
Fund, immediately after
such purchase or acquisition, does not own in the aggregate: (i) more than 3% of
the total outstanding voting stock of the
acquired company; (ii) securities issued by the acquired company having an
aggregate value in excess of 5% of the value
of the total assets of the Fund; (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;
or (iv) in the case of investment in a closed-end fund, more than 10% of the
total outstanding voting stock of the
acquired company. A fund may also invest in the securities of other investment
companies if such securities are the only
investment securities held by the fund, such as through a master-feeder
arrangement. To the extent allowed by law,
regulation, and/or a Fund's
investment restrictions, a Fund may invest its assets in securities of
investment companies, including
affiliated funds and/or money market funds, in excess of the limits discussed
above.
To the extent a 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.
INVESTMENTS
IN VARIABLE INTEREST ENTITY STRUCTURES
The Funds may gain
investment exposure to certain Chinese companies through variable interest
entity (“VIE”) structures.
Such
investments are subject to the investment risks associated with the
Chinese-based company. The VIE structure enables foreign
investors, such as the Funds, to obtain investment exposure to a Chinese company
in situations in which the Chinese
government has limited or prohibited non-Chinese ownership of such company. The
VIE structure does not involve direct
equity ownership in a China-based company, but rather involves claims to the
China-based company's profits and control of the
assets that belong to the China-based company through contractual arrangements.
The contractual arrangements in
place with the China-based company provide limited ability to exercise control
over the China-based company and the
China-based company's actions may negatively impact the value of an investment
through a VIE structure. Control
may also be jeopardized if a natural person who holds an equity interest in the
China-based company breaches the terms
of the contractual arrangements or is subject to legal proceedings, or if any
physical instruments such as chops and seals
are used without authorization.
Intervention by the
Chinese government with respect to the VIE structure could significantly affect
the Chinese operating company's
performance and thus, the value of a Fund's investment through a VIE structure,
as well as the enforceability of the contractual
arrangements of the VIE structure. In the event of such an occurrence, a Fund,
as a foreign investor, may have little or
no legal recourse. If the Chinese government were to determine that the
contractual arrangements establishing the VIE
structure did not comply with Chinese law or regulations, the Chinese operating
company could be subject to
penalties, revocation of its business and operating license, or forfeiture of
ownership interests. In addition to the risk of government
intervention, investments through a VIE structure are subject to the risk that
the China-based company (or its officers,
directors, or Chinese equity owners) may breach the contractual arrangements, or
Chinese law changes in a way that adversely
affects the enforceability of the arrangements, or the contracts are otherwise
not enforceable under Chinese law, in
which case a Fund may suffer significant losses on its investments through a VIE
structure with little or no recourse
available.
LENDING
PORTFOLIO SECURITIES
Each Fund (except
the SPDR Nuveen Municipal Bond ETF and SPDR Nuveen Municipal Bond ESG ETF) may
lend portfolio securities
to certain creditworthy borrowers in U.S. and non-U.S. markets in an amount not
to exceed 40% of the value of its net
assets. The borrowers provide collateral that is marked to market daily in an
amount at least equal to the current market value
of the securities loaned. A Fund may terminate a loan at any time and obtain the
securities loaned. A Fund receives the
value of any interest or cash or non-cash distributions paid on the loaned
securities. A Fund cannot vote proxies for
securities on loan, but may recall loans to vote proxies if a material issue
affecting the Fund's economic interest in the
investment is to be voted upon. Efforts to recall such securities promptly may
be unsuccessful, especially for foreign securities
or thinly traded securities. Distributions received on loaned securities in lieu
of dividend payments (i.e., substitute payments)
would not be considered qualified dividend income.
With respect to
loans that are collateralized by cash, the borrower may be entitled to receive a
fee based on the amount of cash collateral. A
Fund is compensated by the difference between the amount earned on the
reinvestment of cash collateral and the
fee paid to the borrower. In the case of collateral other than cash, a Fund is
compensated by a fee paid by the borrower
equal to a percentage of the market value of the loaned securities. Any cash
collateral may be reinvested in certain high
quality short-term instruments either directly on behalf of the lending Fund or
through one or more joint accounts or funds,
which may include those managed by the Adviser. A Fund could lose money due to a
decline in the value of collateral
provided for loaned securities or any investments made with cash collateral.
Certain non-cash collateral or investments made
with cash collateral may have a greater risk of loss than other non-cash
collateral or investments.
A Fund may pay a
portion of the interest or fees earned from securities lending to a borrower as
described above, and to one or more
securities lending agents approved by the Board who administer the lending
program for the Funds in accordance with
guidelines approved by the Board. In such capacity, the lending agent provides
the following services to the Funds in
connection with the Funds' securities lending activities: (i) locating borrowers
among an approved list of prospective
borrowers; (ii) causing the delivery of loaned securities from a Fund to
borrowers; (iii) monitoring the value of loaned securities,
the value of collateral received, and other lending parameters; (iv) seeking
additional collateral, as necessary, from
borrowers; (v) receiving and holding collateral from borrowers, and facilitating
the investment and reinvestment of all
or substantially all cash collateral in an investment vehicle designated by the
Funds; (vi) returning collateral to
borrowers; (vii) facilitating substitute dividend, interest, and other
distribution payments to the Funds from borrowers; (viii)
negotiating the terms of each loan of securities, including but not limited to
the amount of any loan premium, and
monitoring the terms of securities loan agreements with prospective borrowers
for consistency with the
requirements of the
Funds' Securities Lending Authorization Agreement; (ix) selecting securities,
including amounts (percentages), to be
loaned; (x) recordkeeping and accounting servicing; and (xi) arranging for
return of loaned securities to the Fund in
accordance with the terms of the Securities Lending Authorization Agreement.
State Street Bank and Trust Company
(“State
Street”), an affiliate of
the Trust, has been approved by the Board to serve as securities lending agent
for the
Funds and the Trust has entered into an agreement with State Street for such
services. Among other matters, the Trust has agreed to
indemnify State Street for certain liabilities. State Street has received an
order of exemption from the SEC under Sections
17(a) and 12(d)(1) under the 1940 Act to serve as the lending agent for
affiliated investment companies such as
the Trust and to invest the cash collateral received from loan transactions to
be invested in an affiliated cash collateral
fund.
Securities lending
involves exposure to certain risks, including operational risk (i.e., the risk
of losses resulting from problems in the
settlement and accounting process especially so in certain international markets
such as Taiwan), “gap”
risk
(i.e., the risk of a mismatch between the return on cash collateral
reinvestments and the fees a Fund has agreed to pay a borrower),
risk of loss of collateral, credit, legal, counterparty and market risk. If a
securities lending counterparty were to default, a
Fund would be subject to the risk of a possible delay in receiving collateral or
in recovering the loaned securities, or to a
possible loss of rights in the collateral. In the event a borrower does not
return a 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. Although State Street has agreed to provide a Fund with
indemnification in the event of a borrower default, a Fund is
still exposed to the risk of losses in the event a borrower does not return a
Fund's securities as agreed. For example, delays
in recovery of lent securities may cause a Fund to lose the opportunity to sell
the securities at a desirable
price.
LEVERAGING
While the Funds do
not anticipate doing so, a Fund may borrow money in an amount greater than 5% of
the value of the Fund's total assets.
However, under normal circumstances, a Fund will not borrow money from a bank in
an amount greater than
33 1∕3% of the value of
the Fund's total assets. Borrowing for investment purposes is one form of
leverage. Leveraging
investments, by purchasing securities with borrowed money, is a speculative
technique that increases investment risk, but
also increases investment opportunity. Because substantially all of a Fund's
assets will fluctuate in value, whereas the
interest obligations on borrowings may be fixed, the NAV of a Fund will increase
more when such Fund's portfolio
assets increase in value and decrease more when the Fund's portfolio assets
decrease in value than would otherwise be
the case. Moreover, interest costs on borrowings may fluctuate with changing
market rates of interest and may partially
offset or exceed the returns on the borrowed funds.
MORTGAGE
DOLLAR ROLLS
A mortgage dollar
roll is a transaction in which a fund sells mortgage-related securities for
immediate settlement and simultaneously
purchases the same type of securities for forward settlement at a discount.
While a fund begins accruing interest on the
newly purchased securities from the purchase or trade date, it is able to invest
the proceeds from the sale of its previously
owned securities, which will be used to pay for the new securities. The use of
mortgage dollar rolls is a speculative
technique involving leverage, and can have an economic effect similar to
borrowing money for investment purposes.
MORTGAGE
PASS-THROUGH SECURITIES
Each Fund may invest
in U.S. agency mortgage pass-through securities. The term “U.S. agency mortgage
pass-through security” refers to a
category of pass-through securities backed by pools of mortgages and issued by
one of several U.S. government-sponsored
enterprises: Ginnie Mae, Fannie Mae or Freddie Mac. In the basic mortgage
pass-through structure, mortgages
with similar issuer, term and coupon characteristics are collected and
aggregated into a “pool”
consisting of
multiple mortgage loans. The pool is assigned a CUSIP number and undivided
interests in the pool are traded and sold as
pass-through securities. The holder of the security is entitled to a pro rata
share of principal and interest payments
(including unscheduled prepayments) from the pool of mortgage loans.
An investment in a
specific pool of pass-through securities requires an analysis of the specific
prepayment risk of mortgages within the
covered pool (since mortgagors typically have the option to prepay their loans).
The level of prepayments on a
pool of mortgage securities is difficult to predict and can impact the
subsequent cash flows and value of the mortgage pool.
In addition, when trading specific mortgage pools, precise execution, delivery
and settlement arrangements must be
negotiated for each transaction. These factors combine to make trading in
mortgage pools somewhat
cumbersome.
For the foregoing
and other reasons, the Funds may seek to obtain exposure to U.S. agency mortgage
pass-through securities through
the use of “to-be-announced” or “TBA
transactions.”
“TBA” refers to a
commonly used mechanism for the forward
settlement of U.S. agency mortgage pass-through securities, and not to a
separate type of mortgage-backed security.
Transactions in mortgage pass-through securities may occur through the use of
TBA transactions. TBA transactions
generally are conducted in accordance with widely-accepted guidelines which
establish commonly observed terms and conditions
for execution, settlement and delivery. In a TBA transaction, the buyer and
seller decide on general trade parameters,
such as agency, settlement date, par amount, and price. The actual pools
delivered generally are determined two days
prior to settlement date. A Fund may use TBA transactions in several ways. For
example, a Fund may enter into TBA
agreements and “roll
over” such agreements
prior to the settlement date stipulated in such agreements. This
type of TBA transaction is sometimes known as a “TBA
roll.” In a TBA roll, a
Fund generally will sell the obligation to
purchase the pools stipulated in the TBA agreement prior to the stipulated
settlement date and will enter into a new TBA agreement
for future delivery of pools of mortgage pass-through securities. In addition, a
Fund may enter into TBA agreements and
settle such transactions on the stipulated settlement date by accepting actual
receipt or delivery of the pools of
mortgage pass-through securities stipulated in the TBA agreement.
Default by or
bankruptcy of a counterparty to a TBA transaction would expose a Fund to
possible loss because of adverse market action,
expenses or delays in connection with the purchase or sale of the pools of
mortgage pass-through securities specified
in the TBA transaction. To minimize this risk, a Fund will enter into TBA
transactions only with established
counterparties (such as major broker-dealers) and the Adviser will monitor the
creditworthiness of such counterparties. In
addition, a Fund may accept assignments of TBA transactions from Authorized
Participants (as defined below) from time to
time. A Fund's use of TBA rolls may cause such Fund to experience higher
portfolio turnover, higher transaction costs
and to pay higher capital gain distributions to shareholders (which may be
taxable) than other funds.
The Funds intend to
invest cash pending settlement of any TBA transactions in money market
instruments, repurchase agreements,
commercial paper (including asset-backed commercial paper) or other
high-quality, liquid short-term instruments, which
may include money market funds affiliated with the Adviser.
MUNICIPAL
SECURITIES
General: Municipal
securities are securities issued by states, municipalities and other political
subdivisions, agencies, authorities and
instrumentalities of states and multi-state agencies or authorities.
Shareholders should note that, although interest paid on
municipal securities is generally exempt from regular federal income tax, each
Fund (except for the SPDR Nuveen Municipal
Bond ETF and SPDR Nuveen Municipal Bond ESG ETF) does not anticipate holding
municipal securities in
sufficient quantities to enable such Fund to qualify to pay exempt-interest
dividends. As a result, distributions by a Fund (except
for the SPDR Nuveen Municipal Bond ETF and SPDR Nuveen Municipal Bond ESG ETF)
to shareholders are
expected to be treated for federal income tax purposes as ordinary dividends
without regard to the character in the
hands of the Fund of any interest that it receives on municipal
securities.
Municipal securities
share the attributes of debt/fixed income securities in general, but are
generally issued by states, municipalities and
other political subdivisions, agencies, authorities and instrumentalities of
states and multi-state agencies or
authorities. The municipal securities which a Fund may purchase include general
obligation bonds and limited obligation bonds (or
revenue bonds), including industrial development bonds issued pursuant to former
federal tax law. General obligation
bonds are obligations involving the credit of an issuer possessing taxing power
and are payable from such issuer's
general revenues and not from any particular source. Limited obligation bonds
are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific
revenue source. Tax-exempt industrial development bonds generally are also
revenue bonds and thus are not payable from the
issuer's general revenues. The credit and quality of industrial development
bonds are usually related to the credit of the
corporate user of the facilities. Payment of interest on and repayment of
principal of such bonds is the responsibility of
the corporate user (and/or any guarantor).
Some longer-term
municipal securities give the investor the right to “put” or sell the
security at par (face value) within a specified number of
days following the investor's request—usually one to seven days. This demand
feature enhances a security's liquidity
by shortening its effective maturity and enables it to trade at a price equal to
or very close to par. If a demand feature
terminates prior to being exercised, a Fund would hold the longer-term security,
which could experience substantially more
volatility.
The market for
municipal bonds may be less liquid than for taxable bonds. This means that it
may be harder to buy and sell municipal
securities, especially on short notice, than non-municipal securities. There may
also be less information available on the
financial condition of issuers of municipal securities than for public
corporations. This means that it may be harder to buy and
sell municipal securities, especially on short notice, and municipal securities
may be more difficult for a Fund to value
accurately than securities of public corporations. If a Fund invests in
municipal securities, the Fund's portfolio may have
greater exposure to liquidity risk than a fund that only invests in
non-municipal securities. In addition, the municipal
securities market is generally characterized as a buy and hold investment
strategy. As a result, the accessibility of
municipal securities in the market is generally greater closer to the original
date of issue of the securities and lessens as the
securities move further away from such issuance date.
Municipal securities
are subject to credit and market risk. Generally, prices of higher quality
issues tend to fluctuate more with changes in
market interest rates than prices of lower quality issues and prices of longer
maturity issues tend to fluctuate more than
prices of shorter maturity issues.
Prices and yields on
municipal securities are dependent on a variety of factors, including general
money-market conditions, the
financial condition of the issuer, general conditions of the municipal security
market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. A number of these
factors, including the ratings of particular issues,
are subject to change from time to time. Information about the financial
condition of an issuer of municipal securities
may not be as extensive as that which is made available by corporations whose
securities are publicly traded. As a result,
municipal securities may be more difficult to value than securities of public
corporations.
Obligations of
issuers of municipal securities are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights
and remedies of creditors. Congress or state legislatures may seek to extend the
time for payment of principal or
interest, or both, or to impose other constraints upon enforcement of such
obligations. In addition, municipal securities are
subject to the risk that their tax treatment could be changed by Congress or
state legislatures, thereby affecting the value
of outstanding municipal securities. There is also the possibility that as a
result of litigation or other conditions, the
power or ability of issuers to meet their obligations for the payment of
interest and principal on their municipal securities
may be materially affected or their obligations may be found to be invalid or
unenforceable. Such litigation or
conditions may from time to time have the effect of introducing uncertainties in
the market for municipal securities or
certain segments thereof, or of materially affecting the credit risk with
respect to particular bonds. Adverse economic, business,
legal or political developments might affect all or a substantial portion of a
Fund's municipal securities in the
same manner.
Municipal
Leases and Certificates of Participation: Also included
within the general category of municipal securities are municipal leases,
certificates of participation in such lease obligations or installment purchase
contract obligations (hereinafter
collectively called “Municipal Lease
Obligations”) of municipal
authorities or entities. Although a Municipal Lease Obligation
does not constitute a general obligation of the municipality for which the
municipality's taxing power is pledged, a Municipal
Lease Obligation is ordinarily backed by the municipality's covenant to budget
for, appropriate and make the payments
due under the Municipal Lease Obligation. However, certain Municipal Lease
Obligations contain “non-appropriation” clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future
years unless money is appropriated for such purpose on a yearly basis. In the
case of a “non-appropriation” lease, a Fund's
ability to recover under the lease in the event of non-appropriation or default
will be limited solely to the
repossession of the leased property, without recourse to the general credit of
the lessee, and disposition or releasing of the
property might prove difficult.
Municipal
Insurance: A municipal
security may be covered by insurance that guarantees the bond's scheduled
payment of interest and
repayment of principal. This type of insurance may be obtained by either (i) the
issuer at the time the bond is issued (primary
market insurance), or (ii) another party after the bond has been issued
(secondary market insurance).
Both primary and
secondary market insurance guarantee timely and scheduled repayment of all
principal and payment of all interest on a
municipal security in the event of default by the issuer, and cover a municipal
security to its maturity, enhancing its credit
quality and value.
Municipal security
insurance does not insure against market fluctuations or fluctuations in a
Fund's share price. In addition, a
municipal security insurance policy will not cover: (i) repayment of a municipal
security before maturity (redemption), (ii)
prepayment or payment of an acceleration premium (except for a mandatory sinking
fund redemption) or any other provision
of a bond indenture that advances the maturity of the bond, or (iii) nonpayment
of principal or interest caused by negligence
or bankruptcy of the paying agent. A mandatory sinking fund redemption may be a
provision of a municipal security
issue whereby part of the municipal security issue may be retired before
maturity.
Because a
significant portion of the municipal securities issued and outstanding is
insured by a small number of insurance companies, an event
involving one or more of these insurance companies could have a significant
adverse effect on the value of the
securities insured by that insurance company and on the municipal markets as a
whole.
Municipal
Market Disruption Risk: The value of
municipal securities may be affected by uncertainties in the municipal
market
related to legislation or litigation involving the taxation of municipal
securities or the rights of municipal securities holders in the event
of a bankruptcy. Proposals to restrict or eliminate the federal income tax
exemption for interest on municipal securities
are introduced before Congress from time to time. Proposals also may be
introduced before state legislatures that
would affect the state tax treatment of a municipal fund's distributions. If
such proposals were enacted, the availability of
municipal securities and the value of any municipal securities held by a Fund
would be affected. Municipal
bankruptcies are relatively rare, and certain provisions of the U.S. Bankruptcy
Code governing such bankruptcies are
unclear and remain untested. Further, the application of state law to municipal
issuers could produce varying results
among the states or among municipal securities issuers within a state. These
legal uncertainties could affect the municipal
securities market generally, certain specific segments of the market, or the
relative credit quality of particular
securities. Any of these effects could have a significant impact on the prices
of some or all of the municipal securities held by a
Fund.
CONSIDERATIONS
REGARDING INVESTMENT IN MUNICIPAL SECURITIES ISSUED BY PUERTO RICO
The SPDR Nuveen
Municipal Bond ETF and SPDR Nuveen Municipal Bond ESG ETF may each invest in the
Commonwealth of
Puerto Rico (“Puerto
Rico”) municipal bonds
and, therefore, may be impacted by political, economic, or regulatory
developments that affect issuers in Puerto Rico and their ability to pay
principal and interest on their obligations. Puerto
Rico, the fourth largest of the Caribbean islands, is located approximately
1,000 miles southeast of Miami, Florida.
Puerto Rico's constitutional status is that of a territory of the United States,
and, pursuant to the territorial clause of the U.S.
Constitution, the ultimate source of power over Puerto Rico is the U.S.
Congress. Residents of Puerto Rico are citizens of
the United States but do not vote in national elections.
Protracted economic
decline and population losses have directly impacted Puerto Rico's tax base and
operating budget. Puerto Rico's
operating budget became structurally unbalanced during the 2008 recession and,
as a result, the government began
relying on deficit financing for annual operations. This borrowing led to a
tremendous debt burden, which is very high
in comparison to that of most states. Further, Puerto Rico issues debt under
many different securities, but many of the
security pledges are ultimately dependent on the island's general fund, creating
interdependency between credits.
In 2014, Puerto
Rico's then-Governor declared that Puerto Rico's “debt is not
payable” and Puerto Rico
would no longer borrow to address
annual budget deficits. Puerto Rico experienced its first debt default in 2015.
On June 30, 2016, the Puerto Rico
Oversight, Management and Economic Stability Act (“PROMESA”) was signed into
law, aimed at helping Puerto Rico
restructure its debt. Among other things, PROMESA established the Financial and
Oversight Management Board (“FOMB”) to oversee Puerto
Rico's financial operations and provide a legal framework for debt
restructuring. As required by PROMESA,
Puerto Rico must submit fiscal plans to the FOMB. The fiscal plans are required
to provide estimates of
revenues and expenditures, ensure funding for essential public services, provide
adequate funding pensions, eliminate any
structural deficits, provide for a sustainable debt burden, and improve fiscal
governance, accountability and internal controls.
The fiscal plans must also include a debt sustainability analysis and provide
for capital investments necessary to promote
economic growth. In addition, PROMESA legislation implemented a legal framework
providing a court-supervised
debt restructuring process that enables Puerto Rico to adjust its debt and
pension obligations. PROMESA establishes
two alternate procedures for debt restructuring. The Title III restructuring
process incorporates by reference parts of
the federal bankruptcy code for municipal entities and is a court-supervised
debt-adjustment mechanism similar to
the U.S. bankruptcy code's chapter 9. The Title VI framework creates a
streamlined process to
achieve debt
restructuring through negotiated modifications of debt with the consent of a
supermajority of creditors. If a supermajority of
each pool of creditors approves a debt modification, the terms of the approved
restructuring will apply to all other creditors
within the pool. The FOMB will be terminated once Puerto Rico has adequate
access to short-term and long-term credit
markets at reasonable interest rates.
In the first quarter
of 2022, Puerto Rico's central government exited bankruptcy and executed a debt
exchange, impacting the majority of
outstanding bonded debt. Puerto Rico's bankruptcy court approved a consensually
negotiated debt adjustment plan in
January, followed by a debt exchange, which became effective in March 2022. The
bankruptcy, which took nearly five
years to complete, represents the largest ever municipal restructuring. The plan
reduced Puerto Rico's direct debt
obligations to $7.4 billion from $34.3 billion. Annual debt service (inclusive
of Puerto Rico Sales Tax Financing Corporation (COFINA)
sales tax bonds) was reduced to $1.15 billion from $4.2 billion. General
Obligation (GO) and Public Building Authority
(PBA) bondholders received a consideration package of a proportional share of
$7.4 billion in new General Obligations
bonds, $7 billion in cash, and a proportional share of a new, taxable Contingent
Value Instrument (CVI), which allows
creditors to benefit from an annual payment if sales tax collection out-perform
a benchmark schedule. The plan also
consolidated debt issued under various security pledges into a single GO bond.
As of June 15, 2023, Puerto Rico's
government does not have a credit rating. While Puerto Rico's major debt
restructuring has concluded, there are several
debt restructurings still pending, including the Puerto Rico Industrial
Development Company and Puerto Rico Electric Power
Authority (PREPA), that each bring unique complexities.
Puerto Rico's
economy, historically dominated by government and manufacturing employment,
experienced a 17% decrease in its real
GNP between 2006 and 2017. Puerto Rico's real GNP is projected to decline in
2023 by 0.7%, after a 2.0% increase in
2022, and have a period of near-zero growth between 2024 and 2026, but then
experience a brief growth rebound in
2027 and 2028. Economic struggles, high unemployment, weak job growth and
natural disasters have contributed to
historic outmigration of Puerto Rican residents. At its peak, Puerto Rico had a
population of more than 3.8 million. Between
2010 and 2020, the population declined 11.8%. Furthermore, it is estimated that
the country experienced a 2% decline in
population from April 2020 to July 2022. It is expected that by 2025, the
population will drop below 3 million.
Catastrophic
physical damage caused by hurricanes Irma and Maria in 2017, a series of
earthquakes in 2020, and hurricane Fiona in
2022, coupled with the effects of COVID-19, have also resulted in a dramatic
decline in the tourism industry, which
makes up a substantial portion of the Puerto Rico's economy. While the island's
prospects looked dire at the peak of the
pandemic, multiple rounds of federal stimulus contributed to a faster than
expected economic recovery at the national and
local level. Furthermore, the country's tourism industry also seems to be
improving. In 2022, approximately $8.9
billion in revenue was generated by travel and tourism, which is a 39% increase
over the previous high in 2019.
Additionally, room bookings have doubled between 2021 and 2022, with the number
of prospective room nights for 2023 expected to
top 1 million nights, a 35% increase over 2021. Additionally, unemployment in
Puerto Rico has been trending downwards,
reaching 6.2% as of July 2023, down from 8.4% in July 2021. However, even with
these recent developments, the
long-term effects the COVID-19 pandemic will have on Puerto Rico are still
unpredictable.
OTHER
SHORT-TERM INSTRUMENTS
Each Fund may invest
in short-term instruments, including money market instruments, (including money
market funds advised by the
Adviser), cash and cash equivalents, on an ongoing basis to provide liquidity or
for other reasons. Money market instruments
are generally short-term investments that may include but are not limited to:
(i) shares of money market funds
(including those advised by the Adviser); (ii) obligations issued or guaranteed
by the U.S. government, its agencies or
instrumentalities (including government-sponsored enterprises); (iii) negotiable
certificates of deposit (“CDs”), bankers'
acceptances, fixed time deposits and other obligations of U.S. and foreign banks
(including foreign branches) and similar
institutions; (iv) commercial paper rated at the date of purchase “Prime-1” by Moody's
Investors Service (“Moody's”) or “A-1” by S&P Global
Ratings (“S&P”), or if unrated, of
comparable quality as determined by the Adviser; (v) non-convertible
corporate debt securities (e.g., bonds and debentures) with remaining maturities
at the date of purchase of not more than 397
days and that present minimal credit risk; and (vi) short-term U.S.
dollar-denominated obligations of foreign banks
(including U.S. branches) that, in the opinion of the Adviser, are of comparable
quality to obligations of U.S. banks which may be
purchased by a Fund. Any of these instruments may be purchased on a current or a
forward-settled basis. Time deposits
are non-negotiable deposits maintained in banking institutions for specified
periods of time at stated interest rates.
Bankers' acceptances are time drafts drawn on commercial banks by borrowers,
usually in connection with international
transactions. Money market instruments also include shares of money market
funds. The SEC and other government agencies
continue to review the regulation of money market funds. The SEC has adopted
changes to the
rules that govern
money market funds over the years, most recently in July 2023. Legislative
developments may also affect money market funds.
These changes and developments may affect the investment strategies,
performance, yield, operating expenses
and continued viability of a money market fund.
PERPETUAL
BONDS
Perpetual bonds
offer a fixed return with no maturity date. Because they never mature, perpetual
bonds can be more volatile than other
types of bonds that have a maturity date and may have heightened sensitivity to
changes in interest rates. An issuer of
perpetual bonds is responsible for coupon payments in perpetuity but does not
have to redeem the securities.
Perpetual bonds may be callable after a set period of time. It is possible that
one or more perpetual bonds in which a Fund invests
will be characterized as equity rather than debt for U.S. federal income tax
purposes. Where such perpetual bonds are
issued by non-U.S. issuers, they may be treated in turn as equity securities of
a “passive foreign
investment
company.”
PREFERRED
SECURITIES
Preferred securities
pay fixed or adjustable rate interest or dividends to investors, and are
generally senior to common stock, but may be
subordinated to bonds and other debt instruments in a company's capital
structure and therefore may be subject to
greater credit risk than those debt instruments. There is no assurance that
interest payments, dividends or distributions on the
preferred securities in which a Fund invests will be declared or otherwise made
payable. In the case of preferred stock, in
order to be payable, distributions on preferred securities must be declared by
the issuer's board of directors. The
market value of preferred securities may be affected by favorable and
unfavorable changes impacting companies in the
utilities and financial services sectors, which are prominent issuers of
preferred securities, and by actual and anticipated
changes in tax laws.
Because the claim on
an issuer's earnings represented by preferred securities may become onerous when
interest rates fall below the rate
payable on such securities, the issuer may redeem the securities. Thus, in
declining interest rate environments in
particular, a Fund's holdings of higher rate-paying fixed rate preferred
securities may be reduced and the Fund would be unable
to acquire securities paying comparable rates with the redemption
proceeds.
PRIVATE
MORTGAGE PASS-THROUGH SECURITIES
Private mortgage
pass-through securities are structured similarly to the Ginnie Mae, Fannie Mae
and Freddie Mac mortgage
pass-through securities and are issued by United States and foreign private
issuers such as originators of and investors in
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special
purpose subsidiaries of the foregoing. These securities usually are backed by a
pool of conventional fixed rate or
adjustable rate mortgage loans. Since private mortgage pass- through securities
typically are not guaranteed by an entity having
the credit status of Ginnie Mae, Fannie Mae and Freddie Mac, such securities
generally are structured with one or more
types of credit enhancement.
Mortgage Assets
often consist of a pool of assets representing the obligations of a number of
different parties. There are usually fewer
properties in a pool of assets backing commercial mortgage-backed securities
than in a pool of assets backing residential
mortgage-backed securities hence they may be more sensitive to the performance
of fewer Mortgage Assets. To lessen
the effect of failures by obligors on underlying assets to make payments, those
securities may contain elements of credit
support, which fall into two categories: (i) liquidity protection and (ii)
protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely
fashion. Protection against losses resulting from default ensures ultimate
payment of the obligations on at least a portion
of the assets in the pool. This protection may be provided through guarantees,
insurance policies or letters of credit
obtained by the issuer or sponsor from third parties, through various means of
structuring the transaction or through a
combination of such approaches. The degree of credit support provided for each
issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in a
security.
PRIVATE
PLACEMENTS AND RESTRICTED SECURITIES
Each Fund may invest
in securities that are purchased in private placements and, accordingly, are
subject to restrictions on resale as a
matter of contract or under federal securities laws. While such private
placements may offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often “restricted
securities,” i.e., securities
which cannot be sold to the public without registration under the Securities Act
or the availability of an exemption from
registration (such as Rules 144 or 144A), or which are not readily marketable
because they are subject to other
legal or contractual delays in or restrictions on resale. Generally speaking,
restricted securities may be sold only to
qualified institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities
after they have been held for a specified period of time and other conditions
are met pursuant to an exemption from
registration, or in a public offering for which a registration statement is in
effect under the Securities Act.
Because there may be
relatively few potential purchasers for such investments, especially under
adverse market or economic conditions
or in the event of adverse changes in the financial condition of the issuer, a
Fund could find it more difficult to sell
such securities when the Adviser believes it advisable to do so or may be able
to sell such securities only at prices lower than if
such securities were more widely held. Market quotations for such securities are
generally less readily available than for
publicly traded securities. The absence of a trading market can make it
difficult to ascertain a market value for such
securities for purposes of computing a Fund's net asset value, and the judgment
of the Adviser may at times play a greater
role in valuing these securities than in the case of publicly traded securities.
Disposing of such securities, which
may be illiquid investments, can involve time-consuming negotiation and legal
expenses, and it may be difficult or
impossible for a Fund to sell them promptly at an acceptable price. A Fund may
have to bear the extra expense of registering such
securities for resale and the risk of substantial delay in effecting such
registration.
A Fund may be deemed
to be an “underwriter” for purposes of the
Securities Act when selling restricted securities to the public, and in such
event the Fund may be liable to purchasers of such securities if the
registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or
misleading.
QUALIFIED
PUBLICLY TRADED PARTNERSHIPS
Regulated investment
companies (“RICs”) are subject to
favorable tax treatment under the Internal Revenue Code. To qualify as a RIC,
each Fund must derive at least 90% of its gross income for each taxable year
from sources generating “qualifying
income.” Income derived from
direct and certain indirect investments in commodities is not qualifying income.
Thus,
income from certain commodities-related investments may cause a Fund not to
qualify as a RIC. Each Fund may invest up to 25%,
except for the SPDR DoubleLine Short Duration Total Return Tactical ETF, which
may invest up to 20%, of its total assets
in one or more ETPs that are qualified publicly traded partnerships
(“QPTPs”) and whose
principal activities are the
buying and selling of commodities or options, futures, or forwards with respect
to commodities. Income from QPTPs is
generally qualifying income. A QPTP is an entity that is treated as a
partnership for federal income tax purposes, subject to
certain requirements. If such an ETP fails to qualify as a QPTP, the income
generated from a Fund's investment in the
ETP may not be qualifying income. A Fund will only invest in such an ETP if it
intends to qualify as a QPTP, but there is
no guarantee that each such ETP will be successful in qualifying as a QPTP. In
addition, there is little regulatory guidance
concerning the application of the rules governing qualification as a QPTP, and
it is possible that future guidance may
adversely affect the qualification of such ETPs as QPTPs. If a Fund fails to
qualify as a RIC, the Fund itself will be subject to
tax, which will reduce returns to the Fund's shareholders. Such a failure will
also alter the treatment of distributions to the
Fund's shareholders.
RATINGS
An investment grade
rating means the security or issuer is rated investment grade by Moody's,
S&P, Fitch Ratings, Inc. (“Fitch”), Dominion Bond
Rating Service Limited, or another credit rating agency designated as a
nationally recognized statistical rating
organization by the SEC, or is unrated but considered to be of equivalent
quality by the Adviser.
Subsequent to
purchase by a Fund, a rated security may cease to be rated or its investment
grade rating may be reduced below an investment
grade rating. Bonds rated lower than Baa3 by Moody's or BBB- by S&P or Fitch
are below investment grade quality and
are obligations of issuers that are considered predominantly speculative with
respect to the 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. See “HIGH YIELD
SECURITIES” above for more
information relating to the risks associated
with investing in lower rated securities, or Appendix A for more information on
the ratings of debt instruments.
REAL
ESTATE INVESTMENT TRUSTS (“REITs”)
REITs pool
investors' funds for investment primarily in income producing real estate or
real estate loans or interests. A REIT is not taxed on
income distributed to shareholders if it complies with several requirements
relating to its organization, ownership, assets,
and income and a requirement that it distribute to its shareholders at least 90%
of its taxable income (other than net
capital gains) for each taxable year. REITs can generally be classified as
Equity REITs, Mortgage REITs and Hybrid REITs.
Equity REITs, which invest the majority of their assets directly in real
property, derive their income primarily from
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs,
which invest the majority of their assets in real estate mortgages, derive their
income primarily from interest payments.
Hybrid REITs combine the characteristics of both Equity REITs and Mortgage
REITs. The Funds will not invest in real
estate directly, but only in securities issued by real estate companies.
However, the Funds may be subject to risks similar to
those associated with the direct ownership of real estate (in addition to
securities markets risks) to the extent they invest
in the securities of companies in the real estate industry. These include
declines in the value of real estate, risks
related to general and local economic conditions, dependency on management
skill, heavy cash flow dependency, possible
lack of availability of mortgage funds, overbuilding, extended vacancies of
properties, increased competition,
increases in property taxes and operating expenses, changes in zoning laws,
losses due to costs resulting from the clean-up of
environmental problems, liability to third parties for damages resulting from
environmental problems, casualty or
condemnation losses, limitations on rents, changes in neighborhood values, the
appeal of properties to tenants and changes
in interest rates. Investments in REITs may subject Fund shareholders to
duplicate management and administrative
fees.
In addition to these
risks, Equity REITs may be affected by changes in the value of the underlying
property owned by the trusts, while
Mortgage REITs may be affected by the quality of any credit extended. Further,
Equity and Mortgage REITs are dependent upon
management skills and generally may not be diversified. Equity and Mortgage
REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, Equity and
Mortgage REITs could possibly fail to
qualify for the beneficial tax treatment available to REITs under the Internal
Revenue Code, or to maintain their exemptions
from registration under the 1940 Act. The above factors may also adversely
affect a borrower's or a lessee's ability to
meet its obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in
enforcing its rights as a mortgagee or lessor and may incur substantial costs
associated with protecting
investments.
REPURCHASE
AGREEMENTS
Each Fund may invest
in repurchase agreements with commercial banks, brokers or dealers to generate
income from its excess cash balances
and to invest securities lending cash collateral. A repurchase agreement is an
agreement under which a Fund
acquires a financial instrument (e.g., a security issued by the U.S. government
or an agency thereof, a 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—as defined below). A repurchase agreement may be considered a
loan collateralized by
securities. The resale price reflects an agreed upon interest rate effective for
the period the instrument is held by a Fund and
is unrelated to the interest rate on the underlying instrument.
In these repurchase
agreement transactions, the securities acquired by a Fund (including accrued
interest earned thereon) must have a
total value in excess of the value of the repurchase agreement and are held by
the Custodian until repurchased. No more
than an aggregate of 15% of a Fund's net assets will be invested in illiquid
investments, including repurchase
agreements having maturities longer than seven days and securities subject to
legal or contractual restrictions on resale, or for
which there are no readily available market quotations.
The use of
repurchase agreements involves certain risks. For example, if the other party to
the agreement defaults on its obligation to
repurchase the underlying security at a time when the value of the security has
declined, a Fund may incur a loss upon
disposition of the security. If the other party to the agreement becomes
insolvent and subject to liquidation or reorganization under
the U.S. Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a
loan by a Fund not within the control of the Fund and, therefore, the Fund may
not be able to substantiate its interest in the
underlying security and may be deemed an unsecured creditor of the other party
to the agreement.
REVERSE
REPURCHASE AGREEMENTS
Each Fund may enter
into reverse repurchase agreements, which involve the sale of securities with an
agreement to repurchase the
securities at an agreed-upon price, date and interest payment and have the
characteristics of borrowing. The securities
purchased with the funds obtained from the agreement and securities
collateralizing the agreement will have maturity dates
no later than the repayment date. Generally the effect of such transactions is
that a Fund can recover all or most of the
cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while in many cases
a Fund is able to keep some of the interest income associated with those
securities. Such transactions are
only advantageous if a Fund has an opportunity to earn a greater rate of
interest on the cash derived from these
transactions than the interest cost of obtaining the same amount of cash.
Opportunities to realize earnings from the use of the
proceeds equal to or greater than the interest required to be paid may not
always be available and a Fund intends to use
the reverse repurchase technique only when the Adviser believes it will be
advantageous to the Fund. The use of reverse
repurchase agreements may exaggerate any interim increase or decrease in the
value of a Fund's assets. A Fund may
enter into reverse repurchase agreements if it either meets the relevant asset
coverage requirements of Section 18 of the
1940 Act for senior securities representing indebtedness, or elects to treat
such arrangements as derivatives
transactions under the Derivatives Rule. Each Fund does not expect to engage,
under normal circumstances, in reverse
repurchase agreements with respect to more than 33 1∕3%, or in the case of
the SPDR DoubleLine Emerging Markets Fixed Income
ETF, SPDR DoubleLine Short Duration Total Return Tactical ETF, SPDR Nuveen
Municipal Bond ETF and SPDR Nuveen
Municipal Bond ESG ETF, more than 10%, of their respective total
assets.
SENIOR
LOANS
The SPDR SSGA Fixed
Income Sector Rotation ETF and SPDR SSGA Income Allocation ETF, through
investments in an underlying
exchange-traded product (the “Underlying
Fund”) may, and SPDR
Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High
Income ETF and SPDR Blackstone Senior Loan ETF through direct investments will,
receive exposure to senior
loans. Senior loans consist generally of obligations of companies and other
entities (collectively, “borrowers”) incurred for the
purpose of reorganizing the assets and liabilities of a borrower; acquiring
another company; taking over control
of a company (leveraged buyout); temporary refinancing; or financing internal
growth or other general business purposes.
Senior Loans are often obligations of borrowers who have incurred a significant
percentage of debt compared to their
total assets and thus are highly leveraged. The Underlying Fund, SPDR Loomis
Sayles Opportunistic Bond ETF, SPDR
Blackstone High Income ETF and SPDR Blackstone Senior Loan ETF do not treat the
banks originating or acting as agents
for the lenders, or granting or acting as intermediary in participation
interests, in loans held by the Underlying Fund,
SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High Income ETF or
SPDR Blackstone Senior
Loan ETF as the issuers of such loans.
Senior Loans may be
acquired by direct investment as a lender at the inception of the loan or by
assignment of a portion of a loan previously
made to a different lender or by purchase of a participation interest. If the
Fund makes a direct investment in a
Senior Loan as one of the lenders, it generally acquires the loan at or below
par. This means the Underlying Fund,
SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High Income ETF or
SPDR Blackstone Senior
Loan ETF receives a return at or above the full interest rate for the loan. If
the Underlying Fund, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone High Income ETF or SPDR Blackstone
Senior Loan ETF acquires its
interest in Senior Loans in the secondary market or acquires a participation
interest, the loans may be purchased or sold
above, at, or below par, which can result in a yield that is below, equal to, or
above the stated interest rate of the loan. At
times, the Underlying Fund, SPDR Loomis Sayles Opportunistic Bond ETF, SPDR
Blackstone High Income ETF or SPDR
Blackstone Senior Loan ETF may be able to invest in Senior Loans only through
assignments or participations.
When the Underlying
Fund, SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High Income ETF
or SPDR Blackstone Senior
Loan ETF is a purchaser of an assignment, it succeeds to all the rights and
obligations under the loan agreement of the
assigning lender and becomes a lender under the loan agreement with the same
rights and obligations as the assigning
lender. These rights include the ability to vote along with the other lenders on
such matters as enforcing the terms of the
loan agreement (e.g., declaring defaults, initiating collection actions, etc.).
Taking such actions typically requires at least a
vote of the lenders holding a majority of the investment in the loan and may
require a vote by lenders holding two-thirds
or more of the investment in the loan. Because the Underlying Fund, SPDR Loomis
Sayles Opportunistic Bond
ETF, SPDR Blackstone High Income ETF or SPDR Blackstone Senior Loan ETF usually
does not hold a majority of the
investment in any loan, it will not be able by itself to control decisions that
require a vote by the lenders.
The Underlying Fund,
SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High Income ETF and
SPDR Blackstone Senior
Loan ETF may, but will not typically, invest in Senior Loans through
participations. A participation interest represents
a fractional interest in a loan held by the lender selling the Underlying Fund,
SPDR Loomis Sayles Opportunistic Bond
ETF, SPDR Blackstone High Income ETF or SPDR Blackstone Senior Loan ETF the
participation interest. In the
case of participations, the Underlying Fund, SPDR Loomis Sayles Opportunistic
Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone Senior Loan ETF will not have any direct
contractual relationship with the borrower, the
Underlying Fund's, SPDR Loomis Sayles Opportunistic Bond ETF's, SPDR Blackstone
High Income ETF's or SPDR
Blackstone Senior Loan ETF's rights to consent to modifications of the loan are
limited and it is dependent upon the
participating lender to enforce the Underlying Fund's, SPDR Loomis Sayles
Opportunistic Bond ETF's, SPDR Blackstone High
Income ETF's or SPDR Blackstone Senior Loan ETF's rights upon a default. The
Underlying Fund or SPDR Blackstone
Senior Loan ETF will have the right to receive payments of principal, interest,
and any fees to which it is entitled only from
the lender selling the participation and only upon receipt by the lender of the
payments from the borrower. The
Underlying Fund or SPDR Blackstone Senior Loan ETF will only purchase
participations from lenders with credit ratings of
Baa3 or higher by Moody's or BBB- or higher by S&P or Fitch, or a comparable
rating by another nationally
recognized rating agency.
The Underlying Fund,
SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High Income ETF or
SPDR Blackstone Senior
Loan ETF may be affected by the credit of both the agent and the lender from
whom the Underlying Fund, SPDR Loomis
Sayles Opportunistic Bond ETF, SPDR Blackstone High Income ETF or SPDR
Blackstone Senior Loan ETF acquires a
participation interest. These credit risks may include delay in receiving
payments of principal and interest paid by the
borrower to the agent or by the agent to the lender or offsets against payments
received from the borrower. In the
event of the borrower's bankruptcy, the borrower's obligation to repay the loan
may be subject to defenses that the borrower
can assert as a result of improper conduct by the agent.
Historically, the
amount of public information available about a specific Senior Loan has been
less extensive than if the loan were registered
or exchange-traded.
The loans in which
the Underlying Fund, SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone
High Income ETF or SPDR
Blackstone Senior Loan ETF will invest will, in most instances, be Senior Loans,
which are secured and senior to other
indebtedness of the borrower. Each Senior Loan will generally be secured by
collateral such as accounts receivable,
inventory, equipment, real estate, intangible assets such as trademarks,
copyrights and patents, and securities of subsidiaries or
affiliates. The value of the collateral generally will be determined by
reference to financial statements of the borrower, by an
independent appraisal, by obtaining the market value of such collateral, in the
case of cash or securities if
readily ascertainable, or by other customary valuation techniques considered
appropriate by the Adviser. The value of collateral
may decline after the Underlying Fund's, SPDR Loomis Sayles Opportunistic Bond
ETF's, SPDR Blackstone High
Income ETF's or SPDR Blackstone Senior Loan ETF's investment, and collateral may
be difficult to sell in the event of
default. Consequently, the Underlying Fund, SPDR Loomis Sayles Opportunistic
Bond ETF's, SPDR Blackstone High
Income ETF's or SPDR Blackstone Senior Loan ETF may not receive all the payments
to which it is entitled. By virtue
of their senior position and collateral, Senior Loans typically provide lenders
with the first right to cash flows or proceeds
from the sale of a borrower's collateral if the borrower becomes insolvent
(subject to the limitations of bankruptcy law,
which may provide higher priority to certain claims such as employee salaries,
employee pensions, and taxes). This means
Senior Loans are generally repaid before unsecured bank loans, corporate bonds,
subordinated debt, trade creditors, and
preferred or common stockholders. To the extent that the Underlying Fund, SPDR
Loomis Sayles Opportunistic Bond
ETF, SPDR Blackstone High Income ETF or SPDR Blackstone Senior Loan ETF invests
in unsecured loans, if the
borrower defaults on such loan, there is no specific collateral on which the
lender can foreclose. If the borrower defaults on
a subordinated loan, the collateral may not be sufficient to cover both the
senior and subordinated loans.
Senior Loans will
usually require, in addition to scheduled payments of interest and principal,
the prepayment of the Senior Loan from
free cash flow, as further described below. The degree to which borrowers prepay
Senior Loans, whether as a
contractual requirement or at their election, may be affected by general
business conditions, the financial condition of the
borrower and competitive conditions among loan investors, among others. As such,
prepayments cannot be predicted with
accuracy. Certain market conditions, including those where default rates are
falling, among others, may lead to increased
prepayment frequency and loan renegotiations. These renegotiations are often on
terms more favorable to borrowers. Upon a
prepayment, either in part or in full, the actual outstanding debt on which the
Underlying Fund,
SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone High Income ETF or SPDR Blackstone
Senior Loan ETF derives interest
income will be reduced. However, the Underlying Fund, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone
High Income ETF or SPDR Blackstone Senior Loan ETF may receive a prepayment
penalty fee assessed against the
prepaying borrower.
Senior Loans
typically pay interest at least quarterly at rates which equal a fixed
percentage spread over a base rate. For example, if the base
rate were 0.3% and the borrower was paying a fixed spread of 2.50%, the total
interest rate paid by the borrower would
be 2.80%. Additionally, many Senior Loans also have a minimum base rate, or
floor, which will be used if the actual base
rate is below this minimum base rate. This measure is designed to ensure lenders
receive a minimum interest rate in
periods of low interest rates. By illustration, if the base rate were 0.3% and
the borrower was paying a fixed spread of 2.50%, the
total interest rate paid by the borrower would be 2.80%. However, if the same
Senior Loan had a floor of 1.50%, then
1.50% would be used as the base rate notwithstanding that the base rate was
currently at 0.3%, thereby making the
interest rate paid the borrower 4.00% (1.50% floor base rate plus 2.50% fixed
spread). During periods when the base rate
is greater than the floor, the floor would have no impact on the interest rate
paid by the borrower. Not all Senior Loans
have floors and this feature may not persist in future issuances of Senior
Loans.
Although a base rate
can change every day, loan agreements for Senior Loans typically allow the
borrower the ability to choose how often the
base rate for its loan will reset. A single loan may have multiple reset periods
at the same time, with each reset period
applicable to a designated portion of the loan. Such reset periods can range
from one day to one year, with most borrowers
choosing monthly or quarterly reset periods. During periods of rising interest
rates, borrowers will tend to choose
longer reset periods, and during periods of declining interest rates, borrowers
will tend to choose shorter reset
periods.
Senior Loans
generally are arranged through private negotiations between a borrower and
several financial institutions represented by an
agent who is usually one of the originating lenders. In larger transactions, it
is common to have several agents; however,
generally only one such agent has primary responsibility for ongoing
administration of a Senior Loan. Agents are typically
paid fees by the borrower for their services.
The administrative
agent is primarily responsible for negotiating the loan agreement which
establishes the terms and conditions of the
Senior Loan and the rights of the borrower and the lenders. The collateral agent
is responsible for monitoring
collateral and for exercising remedies available to the lenders such as
foreclosure upon collateral. Any applicable
Sub-Adviser or its affiliates may from time to time borrow from financial
institutions that act as agents for loans.
Loan agreements may
provide for the termination of the agent's agency status in the event that it
fails to act as required under the relevant
loan or collateral agreement, becomes insolvent, enters Federal Deposit
Insurance Corporation (“FDIC”) receivership or,
if not FDIC insured, enters into bankruptcy. Should such an agent, lender or
assignor with respect to an assignment
interpositioned between the Underlying Fund, SPDR Loomis Sayles Opportunistic
Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone Senior Loan ETF and the borrower become insolvent
or enter FDIC receivership or
bankruptcy, any interest in the Senior Loan of such person and any loan payment
held by such person for the benefit of the
Underlying Fund, SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone
Senior Loan ETF should not be included in such person's or entity's bankruptcy
estate. If, however, any such amount were
included in such person's or entity's bankruptcy estate, the Underlying Fund,
SPDR Loomis Sayles Opportunistic Bond
ETF, SPDR Blackstone High Income ETF or SPDR Blackstone Senior Loan ETF would
incur certain costs and delays in
realizing payment or could suffer a loss of principal or interest. In this
event, SPDR Loomis Sayles Opportunistic Bond
ETF, SPDR Blackstone High Income ETF, SPDR Blackstone Senior Loan ETF or the
Underlying Fund and, therefore, the
applicable Fund could experience a decrease in the NAV.
Most borrowers pay
their debts from cash flow generated by their businesses. If a borrower's cash
flow is insufficient to pay its debts, it
may attempt to restructure its debts rather than sell collateral. Borrowers may
try to restructure their debts by filing for
protection under the federal bankruptcy laws or negotiating a work-out. If a
borrower becomes involved in a bankruptcy
proceeding, access to collateral may be limited by bankruptcy and other laws.
Such action by a court could be based, for example,
on a “fraudulent
conveyance” claim to the effect
that the borrower did not receive fair consideration for granting the
security interest in the loan collateral to the Underlying Fund, SPDR Loomis
Sayles Opportunistic Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone Senior Loan ETF. If a court decides that access to
collateral is limited or void, the
Underlying Fund, SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone
Senior Loan ETF may not recover the full amount of principal and interest that
is due.
A borrower must
comply with certain restrictive covenants contained in the loan agreement. In
addition to requiring the scheduled payment of
principal and interest, these covenants may include restrictions on the payment
of dividends and other distributions
to the borrower's shareholders, provisions requiring compliance with specific
financial ratios, and limits on total
indebtedness. The agreement may also require the prepayment of the loans from
excess cash flow. A breach of a covenant that is not
waived by the agent (or lenders directly) is normally an event of default, which
provides the agent and lenders the right to
call for repayment of the outstanding loan. The typical practice of an agent or
a loan investor in relying exclusively or
primarily on reports from the borrower to monitor the borrower's compliance with
covenants may involve a risk of fraud by the
borrower.
In the process of
buying, selling and holding Senior Loans, the Underlying Fund, SPDR Loomis
Sayles Opportunistic Bond ETF, SPDR
Blackstone High Income ETF or SPDR Blackstone Senior Loan ETF may receive and/or
pay certain fees. These fees are
in addition to interest payments received and may include facility fees,
commitment fees, commissions and
prepayment penalty fees. When the Underlying Fund, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone Senior Loan ETF buys or sells a Senior Loan it may
pay an assignment fee. On
an ongoing basis, the Underlying Fund, SPDR Loomis Sayles Opportunistic Bond
ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone Senior Loan ETF may receive a commitment fee based
on the undrawn portion of
the underlying line of credit portion of a Senior Loan. In certain
circumstances, the Underlying Fund, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone High Income ETF or SPDR Blackstone
Senior Loan ETF may receive a
prepayment penalty fee upon prepayment of a Senior Loan. Other fees received by
the Underlying Fund, SPDR Loomis
Sayles Opportunistic Bond ETF, SPDR Blackstone High Income ETF or SPDR
Blackstone Senior Loan ETF may include
covenant waiver fees, covenant modification fees or other consent or amendment
fees.
Notwithstanding its
intention in certain situations to not receive material, non-public information
with respect to its management of
investments in Senior Loans, the Adviser and/or applicable Sub-Adviser may from
time to time come into possession of
material, non-public information about the issuers of loans that may be held in
the Underlying Fund's, SPDR Loomis Sayles
Opportunistic Bond ETF's, SPDR Blackstone High Income ETF's or SPDR Blackstone
Senior Loan ETF's portfolio.
Possession of such information may in some instances occur despite the Adviser's
and/or applicable Sub-Adviser's efforts to avoid
such possession, but in other instances the Adviser and/or applicable
Sub-Adviser may choose to receive such
information (for example, in connection with participation in a creditors'
committee with respect to a financially
distressed issuer). The Adviser's and/or applicable Sub-Adviser's ability to
trade in these Senior Loans for the account of the
Underlying Fund, SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone
Senior Loan ETF could potentially be limited by its possession of such
information. Such limitations on the Adviser's and/or
applicable Sub-Adviser's ability to trade could have an adverse effect on the
Underlying Fund, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone High Income ETF or SPDR Blackstone
Senior Loan ETF by, for example, preventing
the Underlying Fund, SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone
High Income ETF or SPDR
Blackstone Senior Loan ETF from selling a Senior Loan that is experiencing a
material decline in value. In some instances,
these trading restrictions could continue in effect for a substantial period of
time.
An increase in
demand for Senior Loans may benefit the Underlying Fund, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone Senior Loan ETF by providing increased liquidity
for such loans and higher sales
prices, but it may also adversely affect the rate of interest payable on such
loans acquired by the Underlying Fund,
SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High Income ETF or
SPDR Blackstone Senior
Loan ETF and the rights provided to the Underlying Fund, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone
High Income ETF or SPDR Blackstone Senior Loan ETF under the terms of the
applicable loan agreement, and may
increase the price of loans that the Underlying Fund, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone Senior Loan ETF wishes to purchase in the
secondary market. A decrease in the
demand for Senior Loans may adversely affect the price of loans in the
Underlying Fund's, SPDR Loomis Sayles
Opportunistic Bond ETF's, SPDR Blackstone High Income ETF's or SPDR Blackstone
Senior Loan ETF's portfolio, which
could cause SPDR Loomis Sayles Opportunistic Bond ETF's, SPDR Blackstone High
Income ETF ‘s, SPDR Blackstone
Senior Loan ETF's or the Underlying Fund's and, therefore, the applicable Fund's
net asset value to decline. The size of
the loan market and number of participants may vary over time.
The Underlying Fund,
SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High Income ETF or
SPDR Blackstone Senior
Loan ETF may acquire interests in Senior Loans which are designed to provide
temporary or “bridge”
financing to a
borrower pending the sale of identified assets or the arrangement of longer-term
loans or the issuance and sale of debt
obligations. The Underlying Fund, SPDR Loomis Sayles Opportunistic Bond ETF,
SPDR Blackstone High Income ETF or SPDR
Blackstone Senior Loan ETF may also invest in Senior Loans of borrowers that
have obtained
bridge loans from
other parties. A borrower's use of bridge loans involves a risk that the
borrower may be unable to locate permanent financing
to replace the bridge loan, which may impair the borrower's perceived
creditworthiness. Bridge loans may have less
liquidity than other Senior Loans that were issued to fund corporate purposes on
a longer term basis.
Although not
anticipated in the normal course, the Underlying Fund, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone Senior Loan ETF may occasionally acquire warrants
and other equity securities as part
of a unit combining a Senior Loan and equity securities of a borrower or its
affiliates. The acquisition of such equity
securities will only be incidental to the Underlying Fund's, SPDR Loomis Sayles
Opportunistic Bond ETF's, SPDR Blackstone High
Income ETF's or SPDR Blackstone Senior Loan ETF's purchase of a Senior Loan. The
Underlying Fund,
SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High Income ETF or
SPDR Blackstone Senior
Loan ETF may also acquire equity securities or credit securities (including
non-dollar denominated equity or credit
securities) issued in exchange for a Senior Loan or issued in connection with
the debt restructuring or reorganization of a
Borrower, or if such acquisition, in the judgment of the Adviser may enhance the
value of a Senior Loan or would
otherwise be consistent with the Underlying Fund's, SPDR Loomis Sayles
Opportunistic Bond ETF, SPDR Blackstone High
Income ETF's or SPDR Blackstone Senior Loan ETF's investment policies. Such
warrants and equity securities will
typically have limited value and there is no assurance that such securities will
ever obtain value.
Other loans. The
Underlying Fund, SPDR Loomis Sayles Opportunistic Bond ETF, SPDR Blackstone High
Income ETF or SPDR Blackstone
Senior Loan ETF may invest in secured loans that are not first lien and loans
that are unsecured. These loans have the same
characteristics as Senior Loans except that such loans are not first in priority
of repayment and/or are not secured by
collateral. Accordingly, the risks associated with these loans are higher than
the risks for loans with first priority over the
collateral. Because these loans are lower in priority and/or unsecured, they are
subject to the additional risk that the cash
flow of the borrower may be insufficient to meet scheduled payments after giving
effect to the secured obligations of the
borrower. In the event of default on such a loan, the first priority lien holder
has first claim to the underlying
collateral of the loan. It is possible that no value would remain for the
holders of secured loans that are not first lien and loans that
are unsecured and therefore result in a loss of investment to the Underlying
Fund, SPDR Loomis Sayles Opportunistic
Bond ETF, SPDR Blackstone High Income ETF or SPDR Blackstone Senior Loan
ETF.
Secured loans that
are not first lien and loans that are unsecured generally have greater price
volatility than Senior Loans and may be less
liquid. There is also a possibility that originators will not be able to sell
participations in these loans, which would create
greater credit risk exposure for the holders of such loans. Secured loans that
are not first lien and loans that are
unsecured share the same risks as other below investment grade
instruments.
SOVEREIGN
DEBT OBLIGATIONS
Sovereign debt
obligations are issued or guaranteed by foreign governments or their agencies.
Sovereign debt may be in the form of
conventional securities or other types of debt instruments such as loans or loan
participations. Governmental entities responsible
for repayment of the debt may be unable or unwilling to repay principal and pay
interest when due, and may require
renegotiation or reschedule of debt payments. In addition, prospects for
repayment of principal and payment of interest
may depend on political as well as economic factors. Although some sovereign
debt, such as Brady Bonds, is
collateralized by U.S. Government securities, repayment of principal and payment
of interest is not guaranteed by the U.S.
Government.
STRIPPED
MORTGAGE SECURITIES
Stripped mortgage
securities may be issued by Federal Agencies, or by private originators of, or
investors in, mortgage loans, including
savings and loan associations, mortgage banks, commercial banks, investment
banks and special purpose subsidiaries
of the foregoing. Stripped mortgage securities not issued by Federal Agencies
will be treated by a Fund as illiquid
investments so long as the staff of the SEC maintains its position that such
securities are illiquid. Stripped mortgage securities
issued by Federal Agencies generally will be treated by a Fund as liquid
securities under procedures adopted by the Fund
and approved by the Fund's Board.
Stripped mortgage
securities usually are structured with two classes that receive different
proportions of the interest and principal
distribution of a pool of mortgage assets. A common type of stripped mortgage
security will have one class receiving some of
the interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and
the remainder of the principal. In the most extreme case, one class will receive
all of the interest (the interest-only or
“IO” class), while the
other class will receive all of the principal (the principal-only or
“PO” class). PO
classes
generate income through the accretion of the deep discount at which such
securities are purchased, and, while PO classes do not
receive periodic payments of interest, they receive monthly payments associated
with scheduled
amortization and
principal prepayment from the mortgage assets underlying the PO class. The yield
to maturity on a PO or an IO class
security is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage
assets. A slower than expected rate of principal payments may have an adverse
effect on a PO class security's yield to
maturity. If the underlying mortgage assets experience slower than anticipated
principal repayment, a Fund may fail to
fully recoup its initial investment in these securities. Conversely, a rapid
rate of principal payments may have a material
adverse effect on an IO class security's yield to maturity. If the underlying
mortgage assets experience greater than
anticipated prepayments or principal, a Fund may fail to fully recoup its
initial investment in these securities.
A Fund may purchase
stripped mortgage securities for income, or for hedging purposes to protect the
Fund against interest rate
fluctuations. For example, since an IO class will tend to increase in value as
interest rates rise, it may be utilized to hedge
against a decrease in value of other fixed-income securities in a rising
interest rate environment.
STRUCTURED
INVESTMENTS
Each Fund may invest
in structured investments. A structured investment is a security having a return
tied to an underlying index or other
security or asset class. Structured investments generally are individually
negotiated agreements and may be traded
over-the-counter. Structured investments are organized and operated to
restructure the investment characteristics of
the underlying security. This restructuring involves the deposit with or
purchase by an entity, such as a corporation or
trust, on specified instruments (such as commercial bank loans) and the issuance
by that entity or one or more classes of
securities (“structured
securities”) backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued structured
securities to create securities with
different investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the
extent of such payments made with respect to structured securities is dependent
on the extent of the cash flow on the
underlying instruments. Because structured securities typically involve no
credit enhancement, their credit risk generally will
be equivalent to that of the underlying instruments. Investments in structured
securities are generally of a class of
structured securities that is either subordinated or unsubordinated to the right
of payment of another class. Subordinated
structured securities typically have higher yields and present greater risks
than unsubordinated structured securities.
Structured securities are typically sold in private placement transactions, and
there currently is no active trading market for
structured securities. Investments in government and government-related and
restructured debt instruments are subject to special
risks, including the inability or unwillingness to repay principal and interest,
requests to reschedule or restructure
outstanding debt and requests to extend additional loan amounts. The SPDR
DoubleLine Emerging Markets Fixed Income ETF may
invest up to 20% of its assets in structured securities; although the SPDR
DoubleLine Emerging Markets Fixed Income
ETF's investments in structured securities and junior bank loans in the
aggregate may not exceed 20% of its
assets.
TAX
EXEMPT COMMERCIAL PAPER
The SPDR Nuveen
Municipal Bond ETF and SPDR Nuveen Municipal Bond ESG ETF may invest in tax
exempt commercial paper.
Tax exempt commercial paper is a short-term obligation with a stated maturity of
365 days or less. It is typically issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing. Each
instrument may be backed only by the credit of the issuer or may be backed by
some form of credit enhancement,
typically in the form of a guarantee by a commercial bank. Commercial paper
backed by guarantees of foreign banks may
involve additional risk due to the difficulty of obtaining and enforcing
judgments against such banks and the generally less
restrictive regulations to which such banks are subject.
U.S.
GOVERNMENT OBLIGATIONS
U.S. Government
obligations are a type of bond. U.S. Government obligations include securities
issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities.
One type of U.S.
Government obligation, U.S. Treasury obligations, are backed by the full faith
and credit of the U.S. Treasury and differ
only in their interest rates, maturities, and times of issuance. U.S. Treasury
bills have initial maturities of one-year or less;
U.S. Treasury notes have initial maturities of one to ten years; and U.S.
Treasury bonds generally have initial maturities
of greater than ten years.
Other U.S.
Government obligations are issued or guaranteed by agencies or instrumentalities
of the U.S. Government including, but not
limited to, Federal National Mortgage Association (“Fannie
Mae”), the Government
National Mortgage Association
(“Ginnie
Mae”), the Small
Business Administration, the Federal Farm Credit Administration, the Federal
Home Loan Mortgage
Corporation (“Freddie
Mac”), the Federal Home
Loan Banks (“FHLB”), Banks for
Cooperatives (including
the Central Bank for
Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks,
the Tennessee Valley Authority, the
Export-Import Bank of the United States, the Commodity Credit Corporation, the
Federal Financing Bank, the Student Loan
Marketing Association, the National Credit Union Administration and the Federal
Agricultural Mortgage Corporation (Farmer
Mac). Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for
example, Ginnie Mae pass-through certificates, are supported by the full faith
and credit of the U.S. Treasury. Other obligations
issued by or guaranteed by federal agencies, such as those securities issued by
Fannie Mae, are supported by the
discretionary authority of the U.S. Government to purchase certain obligations
of the federal agency, while other
obligations issued by or guaranteed by federal agencies, such as those of the
Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the U.S. Treasury. While the U.S. Government
provides financial support to such U.S.
Government-sponsored federal agencies, no assurance can be given that the U.S.
Government will always do so, since
the U.S. Government is not so obligated by law.
In September 2008,
the U.S. Treasury announced a federal takeover of Fannie Mae and Freddie Mac,
placing the two federal
instrumentalities in conservatorship. Under the terms of the takeover, the U.S.
Treasury agreed to acquire $1 billion of senior preferred
stock of each instrumentality and obtained warrants for the purchase of common
stock of each instrumentality.
Under these Senior Preferred Stock Purchase Agreements (“SPAs”), the U.S. Treasury
has pledged to provide a limited
amount of capital per instrumentality as needed, including the contribution of
cash capital to the instrumentalities in
the event their liabilities exceed their assets. In May 2009, the U.S. Treasury
increased its maximum commitment to each
instrumentality under the SPAs from $100 billion to $200 billion per
instrumentality. In December 2009, the U.S.
Treasury amended the SPAs to provide Fannie Mae and Freddie Mac with some
additional flexibility to meet the requirement to
reduce their mortgage portfolios. Also in December 2009, the U.S. Treasury
further amended the SPAs to allow the cap on
the U.S. Treasury's funding commitment to increase as necessary to accommodate
any cumulative reduction in Fannie
Mae's and Freddie Mac's net worth through the end of 2012. On August 17, 2012,
the U.S. Treasury announced that it
was again amending the SPAs to terminate the requirement that Fannie Mae and
Freddie Mac each pay a 10% dividend
annually on all amounts received under the funding commitment. Instead, they
were required to transfer to the U.S. Treasury on
a quarterly basis all profits earned during a quarter that exceeded a capital
reserve amount of $3 billion. On
September 30, 2019, the U.S. Treasury announced amendments to the SPAs
permitting Fannie Mae and Freddie Mac to
maintain capital reserves of $25 billion and $20 billion, respectively. It is
believed that the amendment puts Fannie Mae and
Freddie Mac in a better position to service their debt because the companies no
longer have to borrow from the U.S.
Treasury to make fixed dividend payments.
Fannie Mae and
Freddie Mac are the subject of several continuing class action lawsuits and
investigations by federal regulators over
certain accounting, disclosure or corporate governance matters, which (along
with any resulting financial restatements) may
adversely affect the guaranteeing entities. Importantly, the future of the
entities is in serious question as the U.S.
government reportedly is considering multiple options, ranging from
nationalization, privatization, consolidation, or
abolishment of the entities.
U.S.
REGISTERED SECURITIES OF FOREIGN ISSUERS
Each Fund may
purchase exchange-traded common stocks and exchange-traded preferred securities
of foreign corporations, as
well as 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 standards, the possibility of expropriation or
confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investments in foreign countries, and
potential restrictions of the flow of international capital. Foreign companies
may be subject to less governmental
regulation than U.S. issuers. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in
such respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self- sufficiency
and balance of payment positions.
A Fund's investments
in common stock of foreign corporations may also be in the form of American
Depositary Receipts (“ADRs”), Global Depositary
Receipts (“GDRs”) and European
Depositary Receipts (“EDRs”) (collectively
“Depositary
Receipts”). Depositary
Receipts are receipts, typically issued by a bank or trust company, which
evidence ownership of underlying
securities issued by a foreign corporation. For ADRs, the depository is
typically a U.S. financial institution and the underlying
securities are issued by a foreign issuer. For other Depositary Receipts, the
depository may be a foreign or a U.S. entity, and
the underlying securities may have a foreign or a U.S. issuer. Depositary
Receipts will not necessarily be denominated in the
same currency as their underlying securities. Generally, ADRs, in registered
form, are designed for use in the U.S.
securities markets, and EDRs, in bearer form, are designated for use in European
securities markets.
GDRs are tradable
both in the United States and in Europe and are designed for use throughout the
world. The SPDR DoubleLine Emerging
Markets Fixed Income ETF, SPDR DoubleLine Short Duration Total Return Tactical
ETF and SPDR DoubleLine Total
Return Tactical ETF each may invest in sponsored or unsponsored ADRs; however,
not more than 10% of the net assets of
each of the SPDR DoubleLine Emerging Markets Fixed Income ETF, SPDR DoubleLine
Short Duration Total
Return Tactical ETF and SPDR DoubleLine Total Return Tactical ETF will be
invested in unsponsored ADRs. The issuers of
unsponsored ADRs are not obligated to disclose material information in the
United States, and, therefore, there may
be less information available regarding such issuers and there may not be a
correlation between such information and
the market value of the ADRs.
VARIABLE
AND FLOATING RATE SECURITIES
Variable rate
securities are instruments issued or guaranteed by entities such as (1) U.S.
Government, or an agency or instrumentality
thereof, (2) states, municipalities and other political subdivisions, agencies,
authorities and instrumentalities or states and
multi-state agencies or authorities, (3) corporations, (4) financial
institutions, (5) insurance companies or (6) trusts that have a
rate of interest subject to adjustment at regular intervals but less frequently
than annually. A variable rate security
provides for the automatic establishment of a new interest rate on set dates.
Variable rate obligations whose interest is
readjusted no less frequently than annually will be deemed to have a maturity
equal to the period remaining until the next
readjustment of the interest rate. A Fund may also purchase floating rate
securities. A floating rate security provides for the
automatic adjustment of its interest rate whenever a specified interest rate
changes. Interest rates on these securities are
ordinarily tied to, and are a percentage of, a widely recognized interest rate,
such as the yield on 90-day U.S. Treasury bills
or the prime rate of a specified bank. These rates may change as often as twice
daily. Generally, changes in interest
rates will have a smaller effect on the market value of variable and fixed rate
floating rate securities than on the market
value of comparable fixed rate fixed income obligations. Thus, investing in
variable and fixed rate floating rate
securities generally allows less opportunity for capital appreciation and
depreciation than investing in comparable fixed
rate fixed income securities.
VARIABLE
RATE DEMAND OBLIGATIONS
Variable rate demand
obligations (“VRDOs”) are short-term
tax-exempt fixed income instruments whose yield is reset on a periodic basis. VRDO
securities tend to be issued with long maturities of up to 30 or 40 years;
however, they are considered
short-term instruments because they include a put feature which coincides with
the periodic yield reset. For example, a VRDO
whose yield resets weekly will have a put feature that is exercisable upon seven
days' notice. VRDOs are put back to a
bank or other entity that serves as a liquidity provider, who then tries to
resell the VRDOs or, if unable to resell, holds them
in its own inventory. VRDOs are generally supported by either a Letter of Credit
or a Stand-by Bond Purchase Agreement
to provide credit enhancement.
WHEN-ISSUED
SECURITIES
Each Fund may
purchase securities on a when-issued basis. Delivery of and payment for these
securities may take place as long as a month
or more after the date of the purchase commitment. The value of these securities
is subject to market fluctuation during
this period, and no income accrues to a Fund until settlement takes place. When
entering into a when-issued transaction, a Fund
will rely on the other party to consummate the transaction; if the other party
fails to do so, a Fund may be
disadvantaged.
Securities purchased
on a when-issued basis and held by a Fund are subject to changes in market value
based upon actual or perceived
changes in the level of interest rates. Generally, the value of such securities
will fluctuate inversely to changes in interest
rates — i.e., they will appreciate in value when interest rates decline and
decrease in value when interest rates rise.
Therefore, if a Fund purchases securities on a “when-issued” basis, there may be
a greater possibility of fluctuation in
the Fund's NAV.
Special
Considerations and Risks
A discussion of the
risks associated with an investment in each Fund is contained in the Prospectus.
The discussion below supplements,
and should be read in conjunction with, the Prospectus.
GENERAL
Investment in a Fund
should be made with an understanding that the value of a 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 a
Fund should also be made with an understanding of the risks inherent in an
investment in securities, including the risk
that the financial condition of issuers may become impaired or that the general
condition of the securities markets
may deteriorate (either of which may cause a decrease in the value of the
portfolio securities and thus in the value of
Shares). Securities are susceptible to general market fluctuations and to
volatile increases and decreases in value as market
confidence in and perceptions of their issuers change. These investor
perceptions are based on various and
unpredictable factors including expectations regarding government, economic,
monetary and fiscal policies, inflation and
interest rates, economic expansion or contraction, and global or regional
political, economic and banking crises. Securities
of issuers traded on exchanges may be suspended on certain exchanges by the
issuers themselves, by an exchange or by
government authorities. The likelihood of such suspensions may be higher for
securities of issuers in emerging or
less-developed market countries than in countries with more developed markets.
Trading suspensions may be applied from time to
time to the securities of individual issuers for reasons specific to that
issuer, or may be applied broadly by exchanges
or governmental authorities in response to market events. Suspensions may last
for significant periods of time,
during which trading in the securities and instruments that reference the
securities, such as participatory notes (or
“P-notes”) or other
derivative instruments, may be halted.
The principal
trading market for some securities may be in the over-the-counter market. The
existence of a liquid trading market for certain
securities may depend on whether dealers will make a market in such securities.
There can be no assurance that a
market will be made or maintained or that any such market will be or remain
liquid. The price at which securities may be
sold and the value of a Fund's Shares will be adversely affected if trading
markets for a Fund's portfolio securities are
limited or absent or if bid/ask spreads are wide.
CHINA
A SHARES RISK
Certain Funds may be
subject to risks associated with investments in A Shares of Chinese issuers
(“China A
Shares” or “A Shares”). Subject to minor
exceptions, under current regulations in the People's Republic of China (the
“PRC”), foreign
investors, such as
the Funds, can invest in A Shares only (i) through certain foreign institutional
investors that have obtained a license
from the Chinese regulators and (ii) through the Hong Kong-Shanghai Stock
Connect or Shenzhen-Hong Kong Stock Connect
programs (the “Stock Connect
program” as further
described below).
RQFII
Investment Risk: Investment
companies, such as the Funds, are not currently within the types of entities
that are eligible for a
Renminbi Qualified Foreign Institutional Investor (“RQFII”) or Qualified
Foreign Institutional Investor (“QFII”) license (the two
parallel regimes of QFII and RQFII have been combined with a unified set of
rules applicable to all QFIIs and RQFIIs by the
Chinese regulators since May 2020). Rather, a Fund may utilize the Adviser's
RQFII license granted under RQFII
regulations to invest in A Shares.
It is also possible
that the Adviser's RQFII status could be suspended or revoked. Pursuant to PRC
and RQFII regulations, the State
Administration of Foreign Exchange (“SAFE”) and the China
Securities Regulatory Commission (“CSRC”) are vested with the
power to impose regulatory sanctions if the Adviser, in its capacity as RQFII,
or the PRC Custodian (as that term is defined
below) violates any provision of the RQFII regulations. Any such violations
could result in the revocation of the
Adviser's RQFII license or other regulatory sanctions and may adversely affect
the ability of a Fund to invest directly in A
Shares. The Adviser is also subject to regulation by certain Hong Kong
regulatory authorities, including the Hong Kong
Securities and Futures Commission. Regulatory matters arising from such
regulation could also adversely affect the Adviser's
RQFII license and ability to provide advisory services, generally.
There can be no
assurance that the Adviser will continue to maintain its RQFII status. In the
event the Adviser is unable to maintain its RQFII
status, it may be necessary for the Fund to limit or suspend creations of
Creation Units. In such event it is possible that the
trading price of the Fund's Shares on its Exchange will be at a significant
premium to the NAV. In extreme
circumstances, a Fund may incur significant loss due to limited investment
capabilities, or may not be able fully to implement or pursue
its investment objectives or strategies, due to RQFII investment restrictions,
illiquidity of the PRC securities markets,
and delay or disruption in execution of trades or in settlement of
trades.
The current RQFII
regulations also include rules on investment restrictions applicable to each
Fund, which may adversely affect a Fund's
liquidity and performance. In addition, because transaction sizes for RQFIIs are
relatively large, the corresponding
heightened risk of exposure to decreased market liquidity and significant price
volatility could lead to possible adverse
effects on the timing and pricing of acquisition or disposal of
securities.
The regulations
which regulate investments by RQFIIs in the PRC and the repatriation of capital
from RQFII investments are relatively new.
The application and interpretation of such investment regulations are therefore
relatively untested and there is no
certainty as to how they will be applied as the PRC authorities and regulators
have been given wide discretion in such investment
regulations and there is no precedent or certainty as to how such discretion may
be exercised now or in the future.
Existing RQFII regulations may change over time and new RQFII regulations may be
promulgated in the future and no
assurance can be given that any such changes will not adversely affect a Fund or
its ability to achieve its investment
objective.
PRC
Broker and PRC Custodian Risk: The Adviser will
have appointed PRC Brokers to execute transactions for certain Funds in the PRC
markets. In its selection of a PRC Broker(s), the Adviser will consider factors
such as the competitiveness of
commission rates, size of the relevant orders and execution standards. Should,
for any reason, a Fund's ability to
use one or more of the relevant PRC Brokers be affected, this could disrupt the
operations of the Fund, causing a premium or
a discount to the trading price of the Fund's Shares.
According to the
RQFII regulations and market practice, the securities and cash accounts for a
Fund in the PRC are to be maintained by a
custodian in the PRC subject to local Chinese laws and regulations (the
“PRC
Custodian”) in the name of
“the RQFII holder—the
Fund.” In the event a Fund
invests in A Shares through the RQFII license granted to the Adviser,
the
securities and cash accounts for those Funds in the PRC will be maintained by a
PRC Custodian. The PRC Custodian maintains each
Fund's RMB deposit accounts and oversees the Fund's investments in A Shares in
the PRC to ensure its compliance with the
rules and regulations of the CSRC and the People's Bank of China (“PBOC”). A Shares that are
traded
on the Shanghai Stock Exchange (“SSE”) or Shenzhen Stock
Exchange (“SZSE”) are dealt and held
in book-entry form through the
China Securities Depository and Clearing Corporation Limited (“CSDCC”). A Shares
purchased by the Adviser, in its
capacity as a RQFII, on behalf of a Fund, may be received by the CSDCC and
credited to a securities trading account
maintained by the PRC Custodian in the joint names of the Fund and Adviser as
the RQFII.
Under the investment
regulations that permit RQFIIs to invest in A Shares, the PRC Custodian is
required to deposit a minimum amount in
the form of a clearing reserve fund, the percentage amount to be determined from
time to time by the CSDCC Shanghai and
Shenzhen branches, with the CSDCC. The minimum clearing reserve ratio is
determined by the CSDCC Shanghai and
Shenzhen branches from time to time and will be deposited by the PRC Custodian
into its minimum clearing
reserve fund. In times of rising PRC securities values, the inability to invest
the assets of a Fund retained in the
clearing reserve fund may have a negative impact on the performance of the Fund
and, conversely, in times of falling PRC
security values, the retained assets may cause a Fund to perform better than
might otherwise have been the
case.
The assets held or
credited in a Fund's securities trading account(s) maintained with the CSDCC are
segregated and independent from the
proprietary assets of the PRC Custodian. The account to which cash is held or
credited is required to be maintained
separately and independently by the PRC Custodian from its own proprietary
accounts or accounts of other customers.
However, under PRC law, in the event of bankruptcy or liquidation of the PRC
Custodian, cash deposited in a Fund's cash
account(s) maintained with the PRC Custodian will not be segregated but will be
treated as a debt owing from the PRC
Custodian to such Fund as a depositor. Under such circumstances, a Fund will not
have any proprietary rights to the cash
deposited in such cash account(s), and such Fund will become an unsecured
creditor, ranking pari passu with all other
unsecured creditors, of the PRC Custodian.
There is a risk that
a Fund may suffer losses from the default, bankruptcy or disqualification of the
PRC Broker(s) or PRC Custodian. In such
event, the Fund may be adversely affected in the execution of any transaction or
face difficulty and/or encounter delays in
recovering its assets, or may not be able to recover it in full or at all. A
Fund may also incur losses due to the acts or
omissions of the PRC Brokers and/or the PRC Custodian in the execution or
settlement of any transaction or in the transfer of
any funds or securities. Subject to the applicable laws and regulations in the
PRC, the Adviser will make arrangements to
ensure that the PRC Brokers and PRC Custodian have appropriate procedures to
properly safe-keep each Fund's
assets.
Repatriation
Risk:
SAFE regulates and monitors the repatriation of funds out of the PRC by RQFIIs.
RQFIIs are currently permitted to make
repatriations (up to net redemptions) daily and are not subject to repatriation
restrictions or prior approval from the
SAFE, although authenticity and compliance reviews will be conducted by the PRC
Custodian (as that term is defined
above). There is no assurance, however, that PRC and RQFII rules and regulations
will not change or that repatriation
restrictions will not be imposed in the future. Further, such changes to the PRC
and RQFII rules and regulations may take
effect retroactively.
Any restrictions on
repatriation of a Fund's invested capital and net profits may impact such Fund's
operations, including its ability to meet
redemption requests. Furthermore, as the PRC Custodian's review on authenticity
and compliance is conducted on each
repatriation, the repatriation may be delayed or even rejected by the PRC
Custodian in case of non-compliance with the RQFII
regulations. In such cases, it is expected that redemption proceeds will be paid
as soon as practicable and
after the completion of the repatriation of the funds concerned. It should be
noted that the actual time required for the
completion of the relevant repatriation will be beyond the control of the
Adviser.
If a Fund becomes
subject to repatriation restrictions, it may be difficult for such Fund to
satisfy redemption requests in a timely manner. To
manage its ability to satisfy redemption requests under such circumstances, it
may be necessary for a Fund to maintain
higher than normal cash balances, which may cause the Fund to dispose of certain
investments at an inopportune time and
forego investment opportunities that may have been beneficial to the Fund,
adversely affecting the Fund's performance
and its ability to achieve its investment objective.
Investing
through the Stock Connect Program
A Fund may invest in
eligible securities listed and traded on the SSE or SZSE through the Stock
Connect program, a securities trading
and clearing program developed by The Stock Exchange of Hong Kong Limited
(“SEHK”), SSE and
SZSE,
Hong Kong Securities Clearing Company Limited (“HKSCC”) and CSDCC Limited
for the establishment of mutual market access
between the SEHK, SSE and SZSE. Among other restrictions, investors in
securities obtained via the Stock Connect program are
generally subject to Chinese securities regulations and SSE or SZSE rules.
Securities obtained via the Stock Connect
program generally may only be sold, purchased or otherwise transferred through
the Stock Connect program in
accordance with applicable rules. The Stock Connect program is
recently-established and further developments are
likely. There can be no assurance as to whether or how such developments may
restrict or affect a Fund's investments
or returns. In addition, the application and interpretation of the laws and
regulations of Hong Kong and the PRC, and the
rules, policies or guidelines published or applied by relevant regulators and
exchanges in respect of the Stock Connect
program, are uncertain, and they may have a detrimental effect on a Fund's
investments and returns. A summary of the risks
associated with a Fund's investment through the Stock Connect program is set
forth below.
Eligible
Securities Risk: As of the date of
this SAI, a Fund may invest through the Stock Connect program in shares listed
on the
SSE that are (a) constituent stocks of the SSE 180 Index; (b) constituent stocks
of the SSE 380 Index; (c) A Shares listed on the
SSE that are not constituent stocks of the SSE 180 Index or the SSE 380 Index,
but which have corresponding H
Shares accepted for listing and trading on the SEHK, provided that: (i) they are
not traded on the SSE in currencies other
than RMB; and (ii) they are not included in the risk alert board. A Fund may
invest through the Stock Connect program in
shares listed on the SZSE that are: (a) constituent stocks of the Shenzhen Stock
Exchange Component Index,
which have a market capitalization of not less than RMB 6 billion, (b)
constituent stocks of the SZSE Small/Mid Cap
Innovation Index, which have a market capitalization of not less than RMB 6
billion , and (c) all the SZSE-listed A Shares which have
corresponding H Shares listed on the SEHK, except the following: (i) SZSE-listed
shares which are not traded
in RMB; and (ii) SZSE-listed shares which are under risk alert. The securities
eligible to be traded by a Fund through the
Stock Connect program are subject to change and any such change may adversely
affect the Adviser's ability to
effectively pursue a Fund's investment strategy.
Ownership
of A Shares Risk: A Shares acquired
by Hong Kong and foreign investors, including each Fund, through the
Stock
Connect program are held by HKSCC as the “nominee
holder” of such A Shares. A
nominee holder is the person who holds securities
on behalf of an underlying investor, or “beneficial
owner,” who is entitled to
the rights and benefits of the SSE or SZSE
securities acquired through the Stock Connect program. Applicable PRC rules,
regulations and other administration
measures and provisions generally provide for the concept of a “nominee
holder” and recognize the
concept
of a “beneficial
owner” of securities and
the Stock Connect program rules expressly recognize the rights of a beneficial owner (in
this case, a Fund). Separately, under applicable Central Clearing and Settlement
System (“CCASS”) rules all
proprietary interests in respect of A Shares held by HKSCC as nominee holder
belong to the relevant CCASS participants or
their clients (as the case may be). However, the precise nature and rights of an
investor as the beneficial owner of A Shares
acquired through the Stock Connect program and held by HKSCC as nominee holder
is not well defined under PRC
law and it is not yet clear that such rights can be successfully
enforced.
Quota
Limitations Risk: Although a Fund's
investments through the Stock Connect program, if any, are not subject to
individual
investment quotas, daily investment quotas apply to all participants in the
Stock Connect program. Trading through the Stock
Connect program is subject to daily quotas (“Daily
Quotas”). The Daily Quotas
differ for Hong Kong and foreign investors
(including the Funds) trading into Mainland China (“Northbound
Trading”) and PRC investors
trading into Hong Kong
(“Southbound
Trading”). The Daily Quotas
are applicable to trading activity transacted through the Stock Connect program and
are monitored by the SEHK. The Daily Quota limits the maximum net buy value of
cross-border trades via
Northbound Trading through the Stock Connect program each day, and is set at RMB
52 billion as of the date of this SAI. The Daily
Quotas may change throughout the trading day and consequently affect a Fund's
ability to trade through the Stock
Connect program at any given time during a trading day.
In particular, once
the remaining balance of the Daily Quota applicable to Northbound Trading drops
to zero or such Daily Quota is exceeded,
new buy orders will be rejected (though investors will be allowed to sell their
A Shares regardless of the quota balance).
Therefore, quota limitations may restrict or limit a Fund's ability to invest in
A Shares through the Stock Connect program on a
timely basis or at all on any given day.
Restriction
on Day Trading Risk: Day (turnaround)
trading is not permitted through the Stock Connect program. Investors
buying
A Shares on day T can only sell the shares on and after day T+1 subject to any
Stock Connect program rules.
Order
Priority Risk: Where a PRC Broker
provides Stock Connect program trading services to its clients, proprietary
trades
of the PRC Broker or its affiliates may be submitted independently and without
the traders having information on the status of orders
received from clients. There is no guarantee that PRC brokers will observe
client order priority (as applicable under
relevant laws and regulations). A Fund may be especially vulnerable to this risk
during times Northbound Trading through the
Stock Connect program appears to be approaching a Daily Quota
limit.
Limited
Off-Exchange Trading and Transfers Risk:
“Non-trade” transfers (i.e.,
off-exchange trading and transfers) are permitted in only
limited circumstances, such as post-trade allocation of A Shares to different
funds/sub-funds by fund managers or
correction of trade errors.
Additional
Clearing, Settlement and Custody Risk: HKSCC and CSDCC
will establish the clearing links between the SEHK and the SSE or SZSE
and each will become a participant of each other to facilitate clearing and
settlement of cross-border trades. For
cross-border trades initiated in a market, the clearing house of that market
will on one hand clear and settle with its own
clearing participants, and on the other hand undertake to fulfill the clearing
and settlement obligations of its clearing
participants with the counterparty clearing house. Trading via the Stock Connect
program is subject to trading, clearance and
settlement procedures that are relatively untested in China, which could pose
risks to a Fund.
There are risks
involved in dealing with the custodians or PRC brokers who hold a Fund's
investments or settle a Fund's trades. It is
possible that, in the event of the insolvency or bankruptcy of a custodian or
PRC broker, a Fund would be delayed or prevented
from recovering its assets from the custodian or PRC broker, or its estate, and
may have only a general unsecured
claim against the custodian or PRC broker for those assets. As discussed above,
a Fund's rights and interests in A
Shares will be exercised through HKSCC exercising its rights as the nominee
holder of the A Shares.
Risk
of CCASS Default and CSDCC Default Risk: Investors should
note that A Shares held with PRC brokers or custodians in
accounts with CCASS may be vulnerable in the event of a default, bankruptcy or
liquidation of CCASS. In such case, there is
a risk that a Fund may be deemed to not have proprietary rights to the assets
deposited in the account with CCASS, and/or
such Fund may become an unsecured creditor, ranking pari passu with all other
unsecured creditors, of
CCASS.
In the event of any
settlement default by HKSCC, and a failure by HKSCC to designate securities or
sufficient securities in an amount equal to
the default such that there is a shortfall of securities to settle any A Shares
trades, CSDCC will deduct the amount of that
shortfall from HKSCC's RMB common stock omnibus account with CSDCC, such that a
Fund may share in any such
shortfall.
CSDCC has
established a risk management framework and measures that are approved and
supervised by the CSRC. Should the remote
event of CSDCC's default occur and CSDCC be declared as a defaulter, HKSCC has
stated that it will in good faith, seek
recovery of the outstanding A Shares and monies from CSDCC through available
legal channels or through CSDCC's
liquidation process, if applicable. HKSCC will in turn distribute the A Shares
and/or monies recovered to clearing
participants on a pro-rata basis as prescribed by the relevant CSDCC
authorities. In that event, the applicable Fund may suffer
delay in the recovery process or may not be able to fully recover their losses
from CSDCC.
Participation
in Corporate Actions and Shareholders' Meetings Risk: Following existing
market practice in the PRC, investors engaged in
the trading of A Shares through Northbound Trading will not be able to attend
meetings by proxy or in person of the SSE
or SZSE listed companies in which it may hold shares, nor will a Fund be able to
exercise voting rights of the
invested companies in the same manner as provided for in the U.S. and other
developed markets.
In addition, any
corporate action in respect of A Shares will be announced by the relevant issuer
through the SSE or SZSE website and
certain officially appointed newspapers. SSE or SZSE listed issuers publish
corporate documents in Chinese only, and
English translations will not be available, which may adversely affect the
information available to a Fund.
Additional
Operational Risk: The Stock Connect
program is premised on the functioning of the operational systems of the
relevant market
participants. Market participants are able to participate in the Stock Connect
program subject to meeting certain information
technology capability, risk management and other requirements as may be
specified by the relevant exchange and/or
clearing house.
Further, the
“connectivity” in the Stock
Connect program requires routing of orders across the border of Hong Kong and
the
PRC. This requires the development of new information technology systems on the
part of the SEHK and Exchange Participants (i.e.,
China Stock Connect System). There is no assurance that the systems of the SEHK
and market participants will
function properly or will continue to be adapted to changes and developments in
both markets. In the event that the
relevant systems fail to function properly, trading in A Shares through the
Stock Connect program could be disrupted. A Fund's
ability to access the A Shares market through the Stock Connect program may be
adversely affected.
Differences
in Trading Day Risk: The Stock Connect
program will only operate on days when both the PRC and Hong Kong markets are
open for trading and when banks in both markets are open on the corresponding
settlement days. So it is possible that
there are occasions when it is a normal trading day for the PRC market but
investors, including the Funds, cannot carry out any
A Shares trading. A Fund may be subject to a risk of price fluctuations in A
Shares during the time when the Stock
Connect program is not trading as a result.
General
PRC-Related Risks
Economic,
Political and Social Risks of the PRC: The economy of
China, which has been in a state of transition from a planned economy to a
more market oriented economy, differs from the economies of most developed
countries in many respects, including
the level of government involvement, its state of development, its growth rate,
control of foreign exchange, protection
of intellectual property rights and allocation of resources.
Although the
majority of productive assets in China are still owned by the PRC government at
various levels, in recent years, the PRC
government has implemented economic reform measures emphasizing utilization of
market forces in the development of the
economy of China and a high level of management autonomy. The economy of China
has experienced
significant growth in the past several decades, but growth has been uneven both
geographically and among various sectors of
the economy, and no assurance can be given that such growth will continue.
Economic growth has also been accompanied by
periods of high inflation. The PRC government has implemented various measures
from time to time to control
inflation and restrain the rate of economic growth.
There can, however,
be no assurance that the PRC government will continue to pursue such economic
policies or, if it does, that those
policies will continue to be successful. Any such adjustment and modification of
those economic policies may have an adverse
impact on the securities markets in the PRC as well as the portfolio securities
of a Fund. Further, the PRC government may
from time to time adopt corrective measures to control the growth of the PRC
economy, which may also have an adverse
impact on the capital growth and performance of a Fund. Political changes,
social instability and adverse diplomatic
developments in the PRC could result in the imposition of additional government
restrictions, including expropriation of
assets, confiscatory taxes, limits on repatriation, or nationalization of some
or all of the property held by the underlying
issuers of a Fund's portfolio securities.
PRC
Laws and Regulations Risk: The regulatory and
legal framework for capital markets and joint stock companies in the
PRC may
not be as well developed as those of developed countries. PRC laws and
regulations affecting securities markets are
relatively new and evolving, and because of the limited volume of published
cases and judicial interpretation and their
non-binding nature, interpretation and enforcement of these regulations involve
significant uncertainties. In addition, as the PRC
legal system develops, no assurance can be given that changes in such laws and
regulations or new laws, regulations or
practices relating specifically to the RQFII regime and transactions in other
Chinese securities will be promulgated, or that
their interpretation or enforcement will not have a material adverse effect on a
Fund's portfolio securities.
In addition, the
effect of future developments in the PRC legal system is unpredictable, such as
changes to the existing regulatory
environment and government scrutiny in certain areas, uncertain interpretation
and implementation of existing laws or enforcement
thereof, or the preemption of local regulations by national laws. For instance,
China has tightened regulatory
requirements with respect to privacy, data protection and information security,
and has promulgated new regulations and
policy to regulate certain industries in the past year, which may in turn impact
the business operation of the underlying
issuers of a Fund's portfolio securities. The rapid evolving legal system of
China may have a material adverse effect on a
Fund's portfolio securities.
Political
Tension Risk: Recently there have
been heightened tensions in international economic relations and rising
political tensions.
In particular, political tensions between the United States and China have
escalated due to, among other things, trade
disputes, the COVID-19 outbreak, sanctions imposed by the U.S. Department of
Treasury on certain officials of the Hong Kong
Special Administrative Region and the PRC central government, as well as
retaliatory actions of the PRC government.
Rising political tensions could reduce levels of trade and investments and other
economic activities between the two
major economies, and any escalation thereof may have a negative impact on the
general, economic, political, and
social conditions in China and, in turn, adversely impact a Fund's portfolio
securities.
Restricted
Markets Risk: A Fund's
investments in A Shares may be subject to limitations or restrictions on foreign
ownership or
holdings imposed by PRC laws and regulations. The capacity of a Fund to make
investments in A Shares will be affected by
the relevant threshold limits and the activities of all underlying foreign
investors. Such legal and regulatory
restrictions or limitations may have adverse effects on the liquidity and
performance of a Fund's portfolio holdings. This may
affect a Fund's capacity to make investments in A Shares. It is also difficult
in practice to monitor the investments of
underlying foreign investors, since an investor may make investments through
different permitted channels under PRC
laws.
A
Shares Market Suspension Risk: A Shares may only
be purchased from, or sold to, a Fund from time to time where the relevant A Shares
may be sold or purchased on the SSE or the SZSE, as appropriate. Securities
exchanges in the PRC typically have the
right to suspend or limit trading in any security traded on the relevant
exchange. In particular, trading band limits are
imposed by the stock exchanges, whereby trading in any A Shares on the relevant
stock exchange may be suspended if the
trading price of the security fluctuates beyond the trading band limit. Such a
suspension would make any dealing with the
existing positions impossible and may impair the liquidity of such positions and
potentially expose the Fund to
losses.
Given that the A
Shares market is considered volatile and unstable (with the risk of suspension
of a particular stock or government
intervention), the creation and redemption of Creation Units may also be
disrupted. Such suspensions may be widespread and,
on some occasions, have affected a majority of listed issuers in China. A
participating dealer may not be able to create
Creation Units of a Fund if A Shares are not available or not available in
sufficient amounts.
A
Shares Tax Risk: While overseas
investors currently are exempt from paying capital gains or value added taxes on
income
and gains from investments in A Shares, these PRC tax rules could be changed,
which could result in unexpected tax liabilities for
a Fund. A Fund's investments in securities, including A Shares, issued by PRC
companies may cause the Fund to become
subject to withholding and other taxes imposed by the PRC.
If a Fund were
considered to be a tax resident of the PRC, it would be subject to PRC corporate
income tax at the rate of 25% on its worldwide
taxable income. If a Fund were considered to be a non-resident enterprise with a
“permanent
establishment” in the PRC, it
would be subject to PRC corporate income tax of 25% on the profits attributable
to the permanent
establishment. The Adviser intends to operate each applicable Fund in a manner
that will prevent it from being treated as a tax
resident of the PRC and from having a permanent establishment in the PRC. It is
possible, however, that the PRC could
disagree with that conclusion or that changes in PRC tax law could affect the
PRC corporate income tax status of a
Fund.
The PRC generally
imposes withholding income tax at a rate of 10% on dividends, premiums, interest
and capital gains originating in the
PRC and paid to a company that is not a resident of the PRC for tax purposes and
that has no permanent
establishment in China. The withholding is in general made by the relevant PRC
tax company making such payments. The State
Administration of Taxation has confirmed the application to a QFII and RQFII of
the withholding income tax on
dividends, premiums and interest. In the event the relevant PRC tax resident
company fails to withhold the relevant PRC
withholding income tax or otherwise fails to pay the relevant withholding income
tax to the PRC tax authorities, the
appropriate PRC tax authorities may, in their sole discretion, impose tax
obligations on a Fund.
The Ministry of
Finance of the PRC, the State Administration of Taxation of the PRC and the CSRC
(collectively, the “PRC Authorities”) issued the
“Notice on temporary
exemption of Corporate Income Tax on capital gains derived from the transfer of PRC
equity investment assets such as PRC domestic stocks by QFII and
RQFII” Caishui [2014] No.
79 (“Notice 79”) on October 31,
2014. Notice 79 states that QFIIs and RQFIIs (without an establishment or place
of business in the PRC or having an
establishment or place in the PRC but the income so derived in the PRC is not
effectively connected with such
establishment or place) will be temporarily exempt from corporate income tax on
gains derived from the trading of PRC equity
investments including A Shares effective from November 17, 2014. In addition,
the PRC Authorities issued the “Notice on Taxation
Relating to the Pilot Program of Shanghai-Hong Kong Stock Connect (Caishui
[2014] No.81)”
(“Notice
81”) on October 31,
2014 and “Notice on Taxation
Relating to the Pilot Program of Shenzhen-Hong Kong Stock Connect (Caishui
[2016] No. 127)” (“Notice
127”) on November 5,
2016. Notice 81 and Notice 127 state that the capital gain from disposal
of A Shares by foreign investors enterprises via the Stock Connect program will
be temporarily exempt from withholding
income tax. Notice 81 and Notice 127 also state that the dividends derived from
A Shares by foreign investors
enterprises is subject to 10% withholding income tax.
There is no
indication of how long the temporary exemption will remain in effect and a Fund
may be subject to such withholding income
tax in the future. If, in the future, China begins applying tax rules regarding
the taxation of income from A Shares investment
to QFIIs and RQFIIs or investments through the Stock Connect program and/or
begins collecting capital gains taxes
on such investments, a Fund could be subject to withholding income tax liability
if the Fund determines that such liability
cannot be reduced or eliminated by applicable tax treaties. The PRC tax
authorities may in the future issue further
guidance in this regard and with potential retrospective effect. The negative
impact of any such tax liability on a Fund's return
could be substantial.
In light of the
uncertainty as to how gains or income that may be derived from a Fund's
investments in the PRC will be taxed, each Fund
reserves the right to provide for withholding tax on such gains or income and
withhold tax for the account of the
Fund.
Any tax provision,
if made, will be reflected in the net asset value of a Fund at the time the
provision is used to satisfy tax liabilities. If the
actual applicable tax levied by the PRC tax authorities is greater than that
provided for by the applicable Fund so that there
is a shortfall in the tax provision amount, the net asset value of that Fund may
suffer, as such Fund will have to bear
additional tax liabilities. In this case, then existing and new investors in
that Fund will be disadvantaged. If the actual applicable
tax levied by the PRC tax authorities is less than that provided for by a Fund
so that there is an excess in the tax provision
amount, investors who redeemed Shares before the PRC tax authorities' ruling,
decision or guidance may have been
disadvantaged, as they would have borne any loss from a Fund's overprovision. In
this case, the then existing and new
investors in a Fund may benefit if the difference between the tax provision and
the actual taxation liability can be returned to
the account of a Fund as assets thereof. Any excess in the tax provision amount
shall be treated as property of a Fund,
and investors who previously transferred or redeemed their Shares will not be
entitled or have any right to claim any
part of the amount representing the excess.
Stamp duty under the
PRC laws generally applies to the execution and receipt of taxable documents,
which include contracts for the
sale of A Shares traded on PRC stock exchanges. In the case of such contracts,
the stamp duty is currently imposed on
the seller but not on the purchaser, at the rate of 0.05%. The sale or other
transfer by the Adviser of A Shares will
accordingly be subject to PRC Stamp Duty, but the Adviser will not be subject to
PRC Stamp Duty when it acquires A
Shares.
RQFIIs may also
potentially be subject to PRC value added tax at the rate of 6% on capital gains
derived from trading of A Shares and interest
income (if any). Existing guidance provides a temporary value added tax
exemption for QFIIs and RQFIIs in respect of
their gains derived from the trading of PRC securities. Since there is no
indication of how long the temporary exemption
will remain in effect, a Fund may be subject to such value added tax in the
future. In addition, urban maintenance and
construction tax (currently at rates ranging from 1% to 7%), educational
surcharge (currently at the rate of 3%) and local
educational surcharge (currently at the rate of 2%) (collectively the
“surtaxes”) are imposed based
on value added tax
liabilities, so if the Adviser or a Fund were liable for value added tax it
would also be required to pay the applicable
surtaxes.
The PRC rules for
taxation of RQFIIs, QFIIs and the Stock Connect program are evolving and certain
of the tax regulations to be
issued by the PRC State Administration of Taxation and/or PRC Ministry of
Finance to clarify the subject matter may apply
retrospectively, even if such rules are adverse to a Fund and its investors. The
applicability of reduced treaty rates of
withholding in the case of a RQFII acting for a foreign investor, such as a
Fund, is also uncertain. The imposition of such
taxes, particularly on a retrospective basis, could have a material adverse
effect on a Fund's returns. Before further
guidance is issued and is well established in the administrative practice of the
PRC tax authorities, the
practices of the PRC
tax authorities that collect PRC taxes relevant to a Fund may differ from, or be
applied in a manner inconsistent with,
the practices with respect to the analogous investments described herein or any
further guidance that may be issued. The
value of a Fund's investment in the PRC and the amount of its income and gains
could be adversely affected by an
increase in tax rates or change in the taxation basis.
The above
information is only a general summary of the potential PRC tax consequences that
may be imposed on a Fund and its investors
either directly or indirectly and should not be taken as a definitive,
authoritative or comprehensive statement of the
relevant matter. Investors should seek their own tax advice on their tax
position with regard to their investment in a
Fund.
As described below
under “Taxes—Taxation of
Fund Investments,” an applicable Fund
may elect, for U.S. federal income tax purposes, to
treat PRC taxes (including withholding taxes) paid by such Fund as paid by its
shareholders. Even if a Fund is qualified to
make that election and does so, however, your ability to claim a credit for
certain PRC taxes may be limited under
general U.S. tax principles and may not extend to taxes that are reserved but
not paid.
Should the Chinese
government impose restrictions on a Fund's ability to repatriate funds
associated with direct investments in A
Shares, such Fund may be unable to satisfy distribution requirements applicable
to RICs under the Internal Revenue
Code, and that Fund may therefore be subject to Fund-level U.S. federal taxes.
In the event such restrictions are
imposed, a Fund may borrow funds to the extent necessary to distribute to
shareholders income sufficient to maintain its
status as a RIC.
The PRC government
has implemented a number of tax reform policies in recent years. The current tax
laws and regulations may be
revised or amended in the future. Any revision or amendment in tax laws and
regulations may affect the after-taxation
profit of PRC companies and foreign investors in such companies, such as the
Funds.
Government
Intervention and Restriction Risk: Governments and
regulators may intervene in the financial markets, such as by the imposition
of trading restrictions, a ban on “naked” short selling or
the suspension of short selling for certain stocks. This may
affect the operation and market making activities related to a Fund, and may
have an unpredictable impact on a Fund.
Furthermore, such market interventions may have a negative impact on the market
sentiment which may in turn affect
the performance of the Fund.
RMB
Exchange Controls and Restrictions Risk: It should be noted
that the RMB is currently not a freely convertible currency, as it is
subject to foreign exchange control policies and repatriation restrictions
imposed by the PRC government. There is no
assurance that there will always be RMB available in sufficient amounts for a
Fund to remain fully invested. Since 1994, the
conversion of RMB into U.S. dollars has been based on rates set by the PBOC,
which are set daily based on the previous
day's PRC interbank foreign exchange market rate. On July 21, 2005, the PRC
government introduced a managed floating
exchange rate system to allow the value of RMB to fluctuate within a regulated
band based on market supply and demand
and by reference to a basket of currencies. In addition, a market maker system
was introduced to the interbank spot
foreign exchange market. In July 2008, China announced that its exchange rate
regime was further transformed into a
managed floating mechanism based on market supply and demand. Given the domestic
and overseas economic
developments, the PBOC decided to further improve the RMB exchange rate regime
in June 2010 to enhance the flexibility of
the RMB exchange rate. In March 2014, the PBOC decided to take a further step to
increase the flexibility of the RMB exchange
rate by expanding the daily trading band from +/-1% to +/-2% and may seek to do
so again in the future.
However it should be
noted that the PRC government's policies on exchange control and repatriation
restrictions are subject to change,
and any such change may adversely impact a Fund. There can be no assurance that
the RMB exchange rate will
not fluctuate widely against the U.S. dollar or any other foreign currency in
the future. Foreign exchange transactions under
the capital account, including principal payments in respect of foreign
currency-denominated obligations,
currently continue to be subject to significant foreign exchange controls and
require the approval of the SAFE. On the other hand,
the existing PRC foreign exchange regulations have significantly reduced
government foreign exchange controls
for transactions under the current account, including trade and service related
foreign exchange transactions and
payment of dividends. Nevertheless, the Adviser cannot predict whether the PRC
government will continue its
existing foreign exchange policy or when the PRC government will allow free
conversion of the RMB to foreign currencies.
RMB
Trading and Settlement Risk: The trading and
settlement of RMB-denominated securities are recent developments in Hong Kong and there
is no assurance that problems will not be encountered with the systems or that
other logistical problems will not
arise.
RQFII
Late Settlement Risk: A Fund will be
required to remit RMB from Hong Kong to the PRC to settle the purchase of A
Shares
by that Fund from time to time.
Future
Movements in RMB Exchange Rates Risk: The exchange rate
of RMB ceased to be pegged to U.S. dollars on July 21, 2005, resulting
in a more flexible RMB exchange rate system. China Foreign Exchange Trading
System, authorized by the PBOC,
promulgates the central parity rate of RMB against U.S. dollars, Euro, Yen,
pound sterling and Hong Kong dollar at 9:15 a.m.
on each business day, which will be the daily central parity rate for
transactions on the Inter-bank Spot Foreign Exchange
Market and OTC transactions of banks. The exchange rate of RMB against the
above-mentioned currencies
fluctuates within a range above or below such central parity rate. As the
exchange rates are based primarily on market forces, the
exchange rates for RMB against other currencies, including U.S. dollars and Hong
Kong dollars, are susceptible to
movements based on external factors. There can be no assurance that such
exchange rates will not fluctuate widely
against U.S. dollars, Hong Kong dollars or any other foreign currency in the
future. From 1994 to July 2005, the exchange
rate for RMB against U.S. dollar and the Hong Kong dollar was relatively stable.
Since July 2005, the appreciation of RMB
has begun to accelerate. Although the PRC government has constantly reiterated
its intention to maintain the
stability of RMB, it may introduce measures (such as a reduction in the rate of
export tax refund) to address the concerns of the
PRC's trading partners. Therefore, the possibility that the appreciation of RMB
will be further accelerated cannot
be excluded. On the other hand, there can be no assurance that RMB will not be
subject to devaluation.
Offshore
RMB (“CNH”)
Market Risk: The onshore RMB
(“CNY”) is the only
official currency of the PRC and is used in all financial
transactions between individuals, state and corporations in the PRC. Hong Kong
is the first jurisdiction to allow accumulation of RMB
deposits outside the PRC. Since June 2010, the CNH is traded officially,
regulated jointly by the Hong Kong Monetary
Authority and the PBOC. While both CNY and CNH represent RMB, they are traded in
different and separated markets.
The two RMB markets operate independently where the flow between them is highly
restricted. Though the CNH is a
proxy of the CNY, they do not necessarily have the same exchange rate and their
movement may not be in the same
direction. This is because these currencies act in separate jurisdictions, which
leads to separate supply and demand
conditions for each, and therefore separate but related currency
markets.
The current size of
RMB-denominated financial assets outside the PRC is limited. In addition,
participating authorized institutions are
also required by the Hong Kong Monetary Authority to maintain a total amount of
RMB (in the form of cash and its settlement
account balance with a Renminbi clearing bank) of no less than 25% of their RMB
deposits, which further limits the
availability of RMB that participating authorized institutions can utilize for
conversion services for their customers. RMB
business participating banks do not have direct RMB liquidity support from the
PBOC. Only the Renminbi clearing bank has
access to onshore liquidity support from the PBOC (subject to annual and
quarterly quotas imposed by the PBOC) to square
open positions of participating banks for limited types of transactions,
including open positions resulting from
conversion services for corporations relating to cross-border trade settlement.
The Renminbi clearing bank is not obliged to
square for participating banks any open positions resulting from other foreign
exchange transactions or conversion services
and the participating banks will need to source RMB from the offshore market to
square such open positions. Although
it is expected that the offshore RMB market will continue to grow in depth and
size, its growth is subject to many
constraints as a result of PRC laws and regulations on foreign exchange. There
is no assurance that new PRC regulations will
not be promulgated or the relevant settlement agreements between Hong Kong banks
and the PBOC will not be
terminated or amended in the future which will have the effect of restricting
availability of RMB offshore.
Disclosure
of Interests and Short Swing Profit Rule: A Fund may be
subject to shareholder disclosure of interest regulations
promulgated by the CSRC. To the extent they are applicable, these regulations
currently would require a Fund to make certain
public disclosures when the Fund and parties acting in concert with that Fund
acquire 5% or more of the issued securities of
a listed company (which include A Shares of the listed company). Additional
information may be required if a Fund
and its concerted parties constitute the largest shareholder or actual
controlling shareholder of the listed company. The
report must be made to the CSRC, the stock exchange, the invested company, and
the CSRC local representative
office where the listed company is located. The Fund would also be required to
make a public announcement through
a media outlet designated by the CSRC. The public announcement must contain the
same content as the official
report.
If the 5%
shareholding threshold is triggered by a Fund and parties acting in concert with
that Fund, such Fund would be required to file its
report within three days of the date the threshold is reached. During the time
limit for filing the report, a trading freeze
applies and the Fund would not be permitted to make subsequent trades in the
invested company's securities. Any such
trading freeze may undermine a Fund's performance, if the Fund would otherwise
make trades during that period but is
prevented from doing so by the regulations.
The relevant PRC
regulations presumptively treat all affiliated investors and investors under
common control as parties acting in concert.
As such, under a conservative interpretation of these regulations, a Fund may be
deemed as a “concerted
party” of other funds
managed by the Adviser or its affiliates and therefore may be subject to the
risk that the Fund's holdings may
be required to be reported in the aggregate with the holdings of such other
funds should the aggregate holdings
trigger the reporting threshold under the PRC law.
Once a Fund and
parties acting in concert reach the 5% trading threshold as to any listed
company, any subsequent incremental increase
or decrease of 5% or more will trigger a further reporting requirement and an
additional three-day trading freeze, and
also an additional freeze on trading within three days of the Fund's report and
announcement of the incremental change.
These trading freezes may undermine a Fund's performance as described above.
Also, SSE requirements
currently require a Fund and parties acting in concert, once they have reached
the 5% threshold, to disclose whenever their
shareholding drops below this threshold (even as a result of trading which is
less than the 5% incremental change that would
trigger a reporting requirement under the relevant CSRC
regulation).
CSRC regulations
also contain additional disclosure (and tender offer) requirements that apply
when an investor and parties acting in
concert reach certain thresholds in excess of 10%. Subject to the interpretation
of PRC courts and PRC regulators, the
operation of the PRC short swing profit rule may be applicable to the trading of
a Fund with the result that where the holdings
of the Fund (possibly with the holdings of other investors deemed as concert
parties of such Fund) exceed 5% of the
total issued shares of a listed company, the Fund may not reduce its holdings in
the company within six months of the last
purchase of shares of the company. If a Fund violates the rule, it may be
required by the listed company to return
any profits realized from such trading to the listed company. In addition, the
rule limits the ability of the Fund to repurchase
securities of the listed company within six months of such sale. Moreover, under
PRC civil procedures, a Fund's
assets may be frozen to the extent of the claims made by the company in
question. These risks may greatly impair the
performance of the applicable Fund.
CONFLICTS
OF INTEREST RISK
An investment in a
Fund may be subject to a number of actual or potential conflicts of interest.
For example, the Adviser or its affiliates may
provide services to a Fund, such as securities lending agency services,
custodial, administrative, bookkeeping, and
accounting services, transfer agency and shareholder servicing, securities
brokerage services, and other services for
which the Fund would compensate the Adviser and/or such affiliates. A Fund may
invest in other pooled investment vehicles
sponsored, managed, or otherwise affiliated with the Adviser. There is no
assurance that the rates at which a Fund pays
fees or expenses to the Adviser or its affiliates, or the terms on which it
enters into transactions with the Adviser or its
affiliates, will be the most favorable available in the market generally or as
favorable as the rates the Adviser makes
available to other clients. Because of its financial interest, the Adviser may
have an incentive to enter into transactions or
arrangements on behalf of a Fund with itself or its affiliates in circumstances
where it might not have done so in the absence of
that interest.
CONTINUOUS
OFFERING
The method by which
Creation Units of Shares are created and traded may raise certain issues under
applicable securities laws.
Because new Creation Units of Shares are issued and sold by the Trust on an
ongoing basis, at any point a “distribution,” as such term is
used in the Securities Act, may occur. Broker-dealers and other persons are
cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions
of the Securities Act.
For example, a
broker-dealer firm or its client may be deemed a statutory underwriter if it
takes Creation Units after placing an order
with the Distributor, breaks them down into constituent Shares, and sells such
Shares directly to customers, or if it
chooses to couple the creation of a supply of new Shares with an active selling
effort involving solicitation of
secondary market demand for Shares. A determination of whether one is an
underwriter for purposes of the Securities Act must
take into account all the facts and circumstances pertaining to the activities
of the broker-dealer or its client in the
particular case, and the examples mentioned above should not be considered a
complete description of all the activities that
could lead to a categorization as an underwriter.
Broker-dealer firms
should also note that dealers who are not “underwriters” but are effecting
transactions in Shares, whether or not
participating in the distribution of Shares, are generally required to deliver a
prospectus. This is because the prospectus
delivery exemption in Section 4(a)(3) of the Securities Act is not available in
respect of such transactions as a result of
Section 24(d) of the 1940 Act. Firms that incur a prospectus-delivery obligation
with respect to Shares of a
Fund are reminded
that under Securities Act Rule 153, a prospectus-delivery obligation under
Section 5(b)(2) of the Securities Act owed
to an exchange member in connection with a sale on the Exchange is satisfied by
the fact that a 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.
SSGA or its
affiliates (the “Selling
Shareholder”) may purchase
Creation Units through a broker-dealer to “seed” (in whole
or in
part) Funds as they are launched, or may purchase shares from broker-dealers or
other investors that have previously provided
“seed” for a Fund when
they were launched or otherwise in secondary market transactions, and
because
the Selling Shareholder may be deemed an affiliate of such Funds, the Shares are
being registered to permit the resale of these
shares from time to time after purchase. The Funds will not receive any of the
proceeds from the resale by the Selling
Shareholders of these Shares.
The Selling
Shareholder intends to sell all or a portion of the Shares owned by it and
offered hereby from time to time directly or through
one or more broker-dealers, and may also hedge such positions. The Shares may be
sold on any national securities
exchange on which the Shares may be listed or quoted at the time of sale, in the
over-the-counter market or in
transactions other than on these exchanges or systems at fixed prices, at
prevailing market prices at the time of the sale, at
varying prices determined at the time of sale, or at negotiated prices. These
sales may be effected in transactions, which
may involve cross or block transactions.
The Selling
Shareholder may also loan or pledge Shares to broker-dealers that in turn may
sell such Shares, to the extent permitted by
applicable law. The Selling Shareholder may also enter into options or other
transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require
the delivery to such broker-dealer or other financial
institution of Shares, which Shares such broker-dealer or other financial
institution may resell.
The Selling
Shareholder and any broker-dealer or agents participating in the distribution of
Shares may be deemed to be “underwriters” within the meaning
of Section 2(a)(11) of the Securities Act in connection with such sales. In such
event, any commissions paid
to any such broker-dealer or agent and any profit on the resale of the Shares
purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The Selling
Shareholder who may be deemed an
“underwriter” within the meaning
of Section 2(a)(11) of the Securities Act will be subject to the applicable
prospectus delivery
requirements of the Securities Act.
COUNTERPARTY
RISK
Counterparty risk
with respect to derivatives has been and may continue to be affected by new
rules and regulations affecting the
derivatives market. Some derivatives transactions are required to be centrally
cleared, and a party to a cleared derivatives
transaction is subject to the credit risk of the clearing house and the clearing
member through which it holds its cleared
position, rather than the credit risk of its original counterparty to the
derivatives transaction. Credit risk of market participants
with respect to derivatives that are centrally cleared is concentrated in a few
clearing houses, and it is not clear how an
insolvency proceeding of a clearing house would be conducted, what effect the
insolvency proceeding would have on any
recovery by a Fund, and what impact an insolvency of a clearing house would have
on the financial system more
generally.
FUTURES
AND OPTIONS TRANSACTIONS
There can be no
assurance that a liquid secondary market will exist for any particular futures
contract or option at any specific time. Thus,
it may not be possible to close a futures or options position. In the event of
adverse price movements, a Fund would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if a Fund has
insufficient cash, it may have to sell portfolio securities to meet daily margin
requirements at a time when it may be disadvantageous
to do so. In addition, a Fund may be required to make delivery of the
instruments underlying futures contracts it has
sold.
Each Fund will
minimize the risk that it will be unable to close out a futures or options
contract by only entering into futures and options for
which there appears to be a liquid secondary market.
The risk of loss in
trading futures contracts or uncovered call options in some strategies (e.g.,
selling uncovered index futures contracts)
is potentially unlimited. The risk of a futures position may still be large as
traditionally measured due to the low margin
deposits required. In many cases, a relatively small price movement in a futures
contract may result in immediate and
substantial loss or gain to the investor relative to the size of a required
margin deposit. A Fund, however, may utilize futures
and options contracts in a manner designed to limit its risk exposure to that
which is comparable to what it would have
incurred through direct investment in securities.
Utilization of
futures transactions by a Fund involves the risk of 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 price
fluctuation limit” or “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, generally no trades may be made on
that day at a price beyond that limit.
The daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions. Futures
contract prices have occasionally moved
to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial
losses.
RISKS
OF SWAP AGREEMENTS
Swap agreements are
subject to the risk that the swap counterparty will default on its obligations.
If such a default occurs, a Fund will have
contractual remedies pursuant to the agreements related to the transaction, but
such remedies may be subject to
bankruptcy and insolvency laws which could affect the 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. The use of a swap
requires an understanding not only of the
referenced asset, reference rate, or index, but also of the swap itself, without
the benefit of observing the performance of the
swap under all possible market conditions. These transactions generally do not
involve the delivery of securities or other
underlying assets or principal.
The absence of a
regulated execution facility or contract market and lack of liquidity for swap
transactions has led, in some instances, to
difficulties in trading and valuation, especially in the event of market
disruptions. Under recently adopted rules and
regulations, transactions in some types of swaps are required to be centrally
cleared. In a cleared derivatives
transaction, a Fund's counterparty to the transaction is a central derivatives
clearing organization, or clearing house, rather than a
bank or broker. Because the Funds are not members of a clearing house, and only
members of a clearing house can
participate directly in the clearing house, each Fund holds cleared derivatives
through accounts at clearing members. In
cleared derivatives transactions, a Fund will make payments (including margin
payments) to and receive payments
from a clearing house through its accounts at clearing members. Clearing members
guarantee performance of their
clients' obligations to the clearing house. Centrally cleared derivative
arrangements may be less favorable to a Fund
than bilateral (non-cleared) arrangements. For example, a Fund may be required
to provide greater amounts of margin
for cleared derivatives transactions than for bilateral derivatives
transactions. Also, in contrast to bilateral
derivatives transactions, in some cases following a period of notice to a Fund,
a clearing member generally can require termination
of existing cleared derivatives transactions at any time or an increase in
margin requirements above the margin that the
clearing member required at the beginning of a transaction. Clearing houses also
have broad rights to increase margin
requirements for existing transactions or to terminate transactions at any time
in accordance with their rules. A Fund is
subject to risk if it enters into a derivatives transaction that is required to
be cleared (or which SSGA FM expects to be
cleared), and no clearing member is willing or able to clear the transaction on
the Fund's behalf. In that case, the
transaction might have to be terminated, and the Fund could lose some or all of
the benefit of the transaction, including loss of an
increase in the value of the transaction and loss of hedging protection. In
addition, the documentation governing the
relationship between a Fund and clearing members is drafted by the clearing
members and generally is less favorable to the
Fund than typical bilateral derivatives documentation.
These clearing rules
and other new rules and regulations could, among other things, restrict a Fund's
ability to engage in, or increase the cost
to the Fund of, derivatives transactions, for example, by making some types of
derivatives no longer available to the
Fund, increasing margin or capital requirements, or otherwise limiting liquidity
or increasing transaction costs. These
regulations, as applicable to swaps, are relatively new and evolving, so their
potential impact on a Fund and the financial system
are not yet known.
Because they are two
party contracts that may be subject to contractual restrictions on
transferability and termination and because they may
have terms of greater than seven days, swap agreements may be considered to be
illiquid and subject to a Fund's
limitation on investments in illiquid investments. To the extent that a swap is
not liquid, it may not be possible to initiate a
transaction or liquidate a position at an advantageous time or price, which may
result in significant losses. Like most other
investments, swap agreements are subject to the risk that the market value of
the instrument will change in a way detrimental to a
Fund's interest.
If a Fund uses a
swap as a hedge against, or as a substitute for, a portfolio investment, the
Fund will be exposed to the risk that the swap
will have or will develop imperfect or no correlation with the portfolio
investment. This could cause substantial losses
for the Fund. While hedging strategies involving swap instruments can reduce the
risk of loss, they can also reduce the
opportunity for gain or even result in losses by offsetting favorable price
movements in other Fund investments. Many
swaps are complex and often valued subjectively.
EUROPE
– RECENT EVENTS
A number of
countries in Europe, including Greece, Spain, Ireland, Italy, and Portugal, have
substantial government debt levels. The concern
over these debt levels has led to volatility in the European financial markets,
which has adversely affected the
exchange rate of the euro and may continue to significantly affect every country
in Europe. For some countries, the
ability to repay sovereign debt is in question, and default is possible, which
could affect their ability to borrow in the future.
Several countries have agreed to multi-year bailout loans from the European
Central Bank, the IMF, and other institutions. A
default or debt restructuring by any European country can adversely impact
holders of that country's debt and can affect
exposures to other European Union (“EU”) countries and
their financial companies as well. These financial difficulties may
continue, worsen or spread within or outside Europe. Responses to the financial
problems by European governments, central
banks and others, including austerity measures and reforms, may not work, may
result in social unrest and may limit
future growth and economic recovery or have other unintended
consequences.
Uncertainties
regarding the viability of the EU have impacted and may continue to impact
markets in the United States and around the
world. On January 31, 2020, the United Kingdom formally withdrew from the EU
(commonly referred to as “Brexit”) and entered an
11-month transition period. The transition period concluded on December 31,
2020, and the United Kingdom left
the EU single market and customs union under the terms of a new trade agreement.
The agreement governs the new
relationship between the United Kingdom and EU with respect to trading goods and
services, but critical aspects of the
relationship remain unresolved and subject to further negotiation and agreement.
Certain aspects of Brexit have had an adverse
impact on the region, leading to increased inflation, labor shortages and
business closures, among others. The full
scope and nature of the consequences of the exit are not at this time known and
are unlikely to be known for a significant
period of time. It is also unknown whether the United Kingdom's exit will
increase the likelihood of other countries also
departing the EU. Any additional exits from the EU, or the possibility of such
exits, may have a significant impact on the United
Kingdom, Europe, and global economies, which may result in increased volatility
and illiquidity, new legal and regulatory
uncertainties and potentially lower economic growth for such economies that
could potentially have an adverse effect on
the value of a Fund's investments.
LIBOR
RISK
The London Interbank
Offered Rate (LIBOR) was a leading benchmark or reference rate for various
commercial and financial contracts,
including corporate and municipal bonds, bank loans, asset-backed and
mortgage-related securities, interest rate swaps
and other derivatives. On July 27, 2017, the United Kingdom's Financial Conduct
Authority (FCA), which regulates
LIBOR, announced the gradual phase out of the LIBOR rate, with nearly all LIBOR
rate publications having ceased as of
June 30, 2023 (some LIBOR rates continue to be published, but only on a
temporary and synthetic basis). Alternatives
to LIBOR have been established and others may be developed. The U.S. Federal
Reserve, in conjunction with the
Alternative Reference Rates Committee, a steering committee comprised of large
U.S. financial institutions, has
identified the Secured Overnight Financial Rate (SOFR) as the preferred
alternative rate to LIBOR. SOFR is a relatively new
index calculated by short-term repurchase agreements, backed by Treasury
securities. There remains uncertainty
surrounding the nature of any replacement rates.
The transition to a
new reference rate may result in (i) increased volatility or illiquidity in
markets for instruments or contracts that
previously relied on or still rely on LIBOR, (ii) a reduction in the value of
certain instruments or contracts held by a Fund,
(iii) reduced effectiveness of related Fund transactions, such as hedging, (iv)
additional tax, accounting and regulatory
risks, or (v) costs incurred in connection with closing out positions and
entering into new trades. Any pricing adjustments to a
Fund's investments resulting from a substitute reference rate may also adversely
affect a Fund's performance and/or
NAV. There is no assurance that the composition or characteristics of any such
alternative reference rate will be similar
to or produce the same value or economic equivalence as LIBOR or that
instruments or contracts using an alternative rate
will have the same volume or liquidity.
MARKET
TURBULENCE RESULTING FROM INFECTIOUS ILLNESS
A widespread
outbreak of an infectious illness, such as COVID-19, may lead to governments and
businesses world-wide taking aggressive
measures, including closing borders, restricting international and domestic
travel, and the imposition of prolonged
quarantines of large populations. As occurred in the wake of COVID-19, the
spread of such an illness may result in the
disruption of and delays in the delivery of healthcare services and processes,
the cancellation of organized events and
educational institutions, the disruption of production and supply chains, a
decline in consumer demand for certain goods and
services, and general concern and uncertainty, all of which may contribute to
increased volatility in global markets.
COVID-19, and other epidemics and pandemics that may arise in the future, could
adversely affect the economies of many
nations, the global economy, individual companies, sectors and industries, and
capital markets in ways that cannot be
foreseen at the present time. In addition, the impact of infectious diseases in
developing or emerging market countries may
be greater due to limited health care resources. Political, economic and social
stresses caused by infectious illness
also may exacerbate other pre-existing political, social and economic risks in
certain countries. The duration of such an
illness and its effects cannot be determined at this time, but the effects could
be present for an extended period of
time.
RUSSIA
SANCTIONS RISK
Sanctions threatened
or imposed by a number of jurisdictions, including the United States, the
European Union and the United Kingdom, and
other intergovernmental actions that have been or may be undertaken in the
future, against Russia, Russian entities or
Russian individuals, may result in the devaluation of Russian currency, a
downgrade in the country's credit rating, an
immediate freeze of Russian assets, a decline in the value and liquidity of
Russian securities, property or interests, and/or
other adverse consequences to the Russian economy or a Fund. The scope and scale
of sanctions in place at a
particular time may be expanded or otherwise modified in a way that have
negative effects on a Fund. Sanctions, or the
threat of new or modified sanctions, could impair the ability of a Fund to buy,
sell, hold, receive, deliver or otherwise
transact in certain affected securities or other investment instruments.
Sanctions could also result in Russia taking counter
measures or other actions in response, which may further impair the value and
liquidity of Russian securities. These
sanctions, and the resulting disruption of the Russian economy, may cause
volatility in other regional and global markets
and may negatively impact the performance of various sectors and industries, as
well as companies in other countries,
which could have a negative effect on the performance of a Fund, even if a Fund
does not have direct exposure to
securities of Russian issuers. As a collective result of the imposition of
sanctions, Russian government countermeasures and
the impact that they have had on the trading markets for Russian securities,
certain Funds have used, and may in the
future use, fair valuation procedures approved by the Fund's Board to
value certain Russian securities, which
could result in such securities being deemed to have a zero value.
A reduction in
liquidity of certain Fund holdings as a result of sanctions and related actions
may cause a Fund to experience increased
premiums or discounts to its NAV and/or wider bid-ask spreads. Additionally, if
it becomes impracticable or
unlawful for a Fund to hold securities subject to, or otherwise affected by,
sanctions, or if deemed appropriate by the
Fund's investment adviser, the Fund may prohibit in-kind deposits of the
affected securities in connection with
creation transactions and instead require a cash deposit, which may also
increase the Fund's transaction costs.
TAX
RISKS
As with any
investment, you should consider how your investment in Shares of a Fund will be
taxed. The tax information in the Prospectus and
this SAI is provided as general information. You should consult your own tax
professional about the tax consequences of
an investment in Shares of a Fund.
Unless your
investment in Shares is made through a tax-exempt entity or tax-advantaged
retirement account, such as an individual
retirement account, you need to be aware of the possible tax consequences when a
Fund makes distributions or you sell
Shares.
Investment
Restrictions
The Trust has
adopted the following investment restrictions as fundamental policies with
respect to each Fund. These restrictions cannot
be changed with respect to a 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 a Fund means the vote, at
an annual or a special meeting of the security holders of the Trust, of the
lesser of (1) 67% or more of
the voting
securities of the Fund present at such meeting, if the holders of more than 50%
of the outstanding voting securities of the
Fund are present or represented by proxy, or (2) more than 50% of the
outstanding voting securities of the Fund. Except
with the approval of a majority of the outstanding voting securities, a Fund may
not:
1.
(Except SPDR
Blackstone High Income ETF, SPDR SSGA Ultra Short Term Bond ETF, SPDR Nuveen
Municipal Bond ETF, SPDR
Nuveen Municipal Bond ESG ETF and SPDR Loomis Sayles Opportunistic Bond ETF)
Purchase securities
of an issuer that would cause the Fund to fail to satisfy the diversification
requirement for a diversified
management company under the 1940 Act, the rules or regulations thereunder or
any exemption therefrom, as such
statute, rules or regulations may be amended or interpreted from time to
time;
2.
Concentrate
investments in a particular industry or group of industries, as concentration is
defined under the 1940 Act, the Rules and
regulations thereunder or any exemption therefrom, as such statute, rules or
regulations may be amended or
interpreted from time to time;(1)
3.
Make loans to
another person except as permitted by the 1940 Act or other governing statute,
by the Rules thereunder, or by
the SEC or other regulatory agency with authority over the
Funds;
4.
Issue senior
securities or borrow money except as permitted by the 1940 Act or other
governing statute, by the Rules thereunder, or
by the SEC or other regulatory agency with authority over the
Funds;
5.
Invest directly in
real estate unless the real estate is acquired as a result of ownership of
securities or other instruments. This
restriction shall not preclude a Fund from investing in companies that deal in
real estate or in instruments that are
backed or secured by real estate;
6.
Act as an
underwriter of another issuer's securities, except to the extent the Fund may be
deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the Fund's purchase
and sale of portfolio
securities;
7.
Invest in
commodities except as permitted by the 1940 Act or other governing statute, by
the Rules thereunder, or by the SEC or other
regulatory agency with authority over the Funds; or
8.
With respect to SPDR
Nuveen Municipal Bond ETF and SPDR Nuveen Municipal Bond ESG ETF, invest, under
normal
circumstances, less than 80% of its assets, plus the amount of borrowings for
investment purposes, in investments the
income of which is exempt from federal income tax.
In addition to the
investment restrictions adopted as fundamental policies as set forth above, each
Fund observes the following
restrictions, which may be changed by the Board without a shareholder vote. A
Fund will not:
1.
Invest in the
securities of a company for the purpose of exercising management or control,
provided that the Trust may vote the
investment securities owned by the Fund in accordance with its
views;
2.
With respect to the
SPDR SSGA Fixed Income Sector Rotation ETF, under normal circumstances, invest
less than 80% of its net
assets (plus the amount of borrowings for investment purposes) directly, or
indirectly through investments in
underlying ETFs, in fixed income securities. Prior to any change in this 80%
investment policy, the Fund will provide
shareholders with 60 days' written notice;
3.
With respect to the
SPDR SSGA US Sector Rotation ETF, under normal circumstances, invest less than
80% of its net assets (plus
the amount of borrowings for investment purposes) directly, or indirectly
through investments in underlying ETFs, in
securities of U.S. companies. Prior to any change in this 80% investment policy,
the Fund will provide shareholders
with 60 days' written notice;
4.
With respect to the
SPDR SSGA Ultra Short Term Bond ETF, under normal circumstances, invest less
than 80% of its net assets
(plus the amount of borrowings for investment purposes) in debt securities.
Prior to any change in this 80% investment
policy, the Fund will provide shareholders with 60 days' written
notice;
5.
With respect to the
SPDR Blackstone Senior Loan ETF, under normal circumstances, invest less than
80% of its net assets (plus the
amount of any borrowings for investment purposes) in senior loans. For purposes
of this 80% test, “senior
loans” are first lien
senior secured floating rate bank loans. Prior to any change this 80% investment
policy,
the Fund will provide shareholders with 60 days' written
notice;
(1)
The SEC Staff
considers concentration to involve more than 25% of a fund's assets to be
invested in an industry or group of industries.
6.
With respect to the
SPDR DoubleLine Emerging Markets Fixed Income ETF, under normal circumstances,
invest less than 80% of its
net assets (plus the amount of borrowings for investment purposes) in emerging
market fixed income instruments
or in derivatives or other instruments that provide investment exposure to
emerging market fixed income
instruments. Prior to any change in this 80% investment policy, the Fund will
provide shareholders with 60 days'
written notice;
7.
With respect to the
SPDR DoubleLine Short Duration Total Return Tactical ETF, under normal
circumstances, invest less than 80%
of its net assets (plus the amount of borrowings for investment purposes) in
fixed-income securities. Prior to
any change in this 80% investment policy, the Fund will provide shareholders
with 60 days' written notice;
or
8.
With respect to the
SPDR Loomis Sayles Opportunistic Bond ETF, under normal circumstances, less than
80% of its assets, plus the
amount of borrowings for investment purposes, directly, or indirectly through
investments in underlying ETFs, in
debt securities. Prior to any change in the Fund's 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 will be observed
continuously. With respect to the limitation on borrowing, in the
event that a subsequent change in net assets or other circumstances cause a Fund
to exceed its limitation, the Fund
will take steps to bring the aggregate amount of borrowing back within the
limitations within three days thereafter (not
including Sundays and holidays).
The 1940 Act
currently permits each Fund to loan up to 33 1/3% of its total assets. With
respect to borrowing, the 1940 Act presently allows
each Fund to: (1) borrow from any bank (including pledging, mortgaging or
hypothecating assets) in an amount up to 33
1/3% of its total assets, (2) borrow money for temporary purposes in an amount
not exceeding 5% of the value of each
Fund's total assets at the time of the loan, and (3) enter into reverse
repurchase agreements. However, under normal
circumstances any borrowings by a Fund will not exceed 10% of a Fund's total
assets. The 1940 Act generally prohibits
funds from issuing senior securities, although it does not treat certain
transactions as senior securities, such as certain
borrowings, with appropriate asset coverage. With respect to investments in
commodities, the 1940 Act presently permits
each Fund to invest in commodities in accordance with investment policies
contained in its prospectus and SAI. Any such
investment shall also comply with the CEA and the rules and regulations
thereunder. The 1940 Act does not directly
restrict an investment company's ability to invest in real estate, but does
require that every investment company have the
fundamental investment policy governing such investments. A Fund will not
purchase or sell real estate, except that the Fund
may invest in companies that deal in real estate (including REITs) or in
instruments that are backed or secured by real
estate.
Exchange
Listing and Trading
A discussion of
exchange listing and trading matters associated with an investment in a Fund is
contained in the Prospectus under
“PURCHASE AND SALE
INFORMATION” and “ADDITIONAL PURCHASE
AND SALE INFORMATION.”
The
discussion below supplements, and should be read in conjunction with, such
sections of the Prospectus.
The Shares of each
Fund are approved for listing and trading on the Exchange, subject to notice of
issuance. Shares trade on the
Exchange at prices that may differ to some degree from their net asset value.
There can be no assurance that the
requirements of the Exchange necessary to maintain the listing of Shares of a
Fund will continue to be met.
The Exchange may
consider the suspension of trading in, and may initiate delisting proceedings
of, the Shares of a Fund under any of the
following circumstances: (i) if the Exchange becomes aware that the Fund is no
longer eligible to operate in reliance on Rule
6c-11 under the 1940 Act; (ii) if the Fund no longer complies with the
applicable listing requirements set forth in the
Exchange's rules; (iii) if, following the initial twelve-month period after
commencement of trading on the Exchange of the
Fund, there are fewer than 50 beneficial holders of the Fund; or (iv) if such
other event shall occur or condition exists
which, in the opinion of the Exchange, makes further dealings on the Exchange
inadvisable. The Exchange will remove
the Shares from listing and trading upon termination of a Fund.
The Trust reserves
the right to adjust the Share price of a Fund in the future to maintain
convenient trading ranges for investors. Any
adjustments would be accomplished through stock splits or reverse stock splits,
which would have no effect on the net assets of
the Fund or an investor's equity interest in the Fund.
As in the case of
other publicly traded securities, brokers' commissions on transactions will be
based on negotiated commission rates at
customary levels.
The base and trading
currencies of each Fund is the U.S. dollar. The base currency is the currency in
which a Fund's net asset value per
Share is calculated and the trading currency is the currency in which Shares of
a Fund are listed and traded on the
Exchange.
Management
of the Trust
The following
information supplements and should be read in conjunction with the section in
the Prospectus entitled “MANAGEMENT.”
BOARD
RESPONSIBILITIES
The management and
affairs of the Trust and its series, including the Funds described in this SAI,
are overseen by the Trustees. The Board
has approved contracts, as described in this SAI, under which certain companies
provide essential management services
to the Trust.
Like most mutual
funds, the day-to-day business of the Trust, including the management of risk,
is performed by third party service
providers, such as the Adviser, Sub-Advisers, Distributor, Administrator, and
Sub-Administrator. The Trustees are responsible for
overseeing the Trust's service providers and, thus, have oversight
responsibility with respect to risk management performed
by those service providers. Risk management seeks to identify and address risks,
i.e., events or
circumstances that
could have material adverse effects on the business, operations, shareholder
services, investment performance or
reputation of the Funds. The Funds and their service providers employ a variety
of processes, procedures and controls to
identify various of those possible events or circumstances, to lessen the
probability of their occurrence and/or to mitigate
the effects of such events or circumstances if they do occur. Each service
provider is responsible for one or more discrete
aspects of the Trust's business (e.g., a Sub-Adviser is
responsible for the day-to-day management of a Fund's portfolio
investments) and, consequently, for managing the risks associated with that
business. The Board has emphasized to the
Funds' service providers the importance of maintaining vigorous risk
management.
The Trustees' role
in risk oversight begins before the inception of a Fund, at which time the
Fund's Adviser and, if applicable,
Sub-Adviser presents the Board with information concerning the investment
objectives, strategies and risks of the Fund, as well as
proposed investment limitations for the Fund. Additionally, the Fund's Adviser
and Sub-Adviser provide the Board
with an overview of, among other things, their investment philosophies,
brokerage practices and compliance
infrastructures. Thereafter, the Board continues its oversight function as
various personnel, including the Trust's Chief
Compliance Officer, as well as personnel of the Adviser and other service
providers, such as the Fund's independent
accountants, make periodic reports to the Audit Committee or to the Board with
respect to various aspects of risk management. The
Board and the Audit Committee oversee efforts by management and service
providers to manage risks to which a
Fund may be exposed.
The Board is
responsible for overseeing the nature, extent and quality of the services
provided to the Funds by the Adviser and
Sub-Adviser and receives information about those services at its regular
meetings. In addition, on an annual basis, in connection
with its consideration of whether to renew the Investment Advisory Agreement and
Sub-Advisory Agreement with the
Adviser and Sub-Adviser, respectively, the Board meets with the Adviser and
Sub-Adviser to review such services. Among
other things, the Board regularly considers the Adviser's and Sub-Adviser's
adherence to each Fund's investment
restrictions and compliance with various Fund policies and procedures and with
applicable securities regulations. The
Board also reviews information about each Fund's investments.
The Trust's Chief
Compliance Officer reports regularly to the Board to review and discuss
compliance issues. At least annually, the
Trust's Chief Compliance Officer provides the Board with a report reviewing the
adequacy and effectiveness of the Trust's
policies and procedures and those of its service providers, including the
Adviser and any Sub-Adviser. The report addresses the
operation of the policies and procedures of the Trust and each service provider
since the date of the last report; any
material changes to the policies and procedures since the date of the last
report; any recommendations for material changes
to the policies and procedures; and any material compliance matters since the
date of the last report.
The Board receives
reports from the Funds' service providers regarding operational risks and risks
related to the valuation and liquidity of
portfolio securities. Regular reports are made to the Board concerning
investments for which market quotations are not
readily available. Annually, the independent registered public accounting firm
reviews with the Audit Committee its audit
of each Fund's financial statements, focusing on major areas of risk encountered
by the Fund and
noting any
significant deficiencies or material weaknesses in the Fund's internal controls.
Additionally, in connection with its oversight
function, the Board oversees Fund management's implementation of disclosure
controls and procedures, which are designed
to ensure that information required to be disclosed by the Trust in its periodic
reports with the SEC are recorded, processed,
summarized, and reported within the required time periods. The Board also
oversees the Trust's internal controls
over financial reporting, which comprise policies and procedures designed to
provide reasonable assurance regarding
the reliability of the Trust's financial reporting and the preparation of the
Trust's financial statements.
From their review of
these reports and discussions with the Adviser and Sub-Adviser, the Chief
Compliance Officer, the independent
registered public accounting firm and other service providers, the Board and the
Audit Committee learn in detail about the
material risks of the Funds, thereby facilitating a dialogue about how
management and service providers identify and
mitigate those risks.
The Board recognizes
that not all risks that may affect a Fund can be identified and/or quantified,
that it may not be practical or
cost-effective to eliminate or mitigate certain risks, that it may be necessary
to bear certain risks (such as investment-related
risks) to achieve a Fund's goals, and that the processes, procedures and
controls employed to address certain risks may be
limited in their effectiveness. Moreover, reports received by the Trustees as to
risk management matters are
typically summaries of the relevant information. Most of the Funds' investment
management and business affairs are carried
out by or through a Fund's Adviser, Sub-Adviser and other service providers,
each of which has an independent interest
in risk management but whose policies and the methods by which one or more risk
management functions are
carried out may differ from the Funds' and each other's in the setting of
priorities, the resources available or the effectiveness of
relevant controls. As a result of the foregoing and other factors, the Board's
ability to monitor and manage risk, as a
practical matter, is subject to limitations.
TRUSTEES
AND OFFICERS
There are eight
members of the Board of Trustees, six of whom are not interested persons of the
Trust, as that term is defined in the 1940
Act (“Independent
Trustees”). Carl Verboncoeur,
an Independent Trustee, serves as Chairman of the Board. The Board has
determined its leadership structure is appropriate given the specific
characteristics and circumstances of the
Trust. The Board made this determination in consideration of, among other
things, the fact that the Independent Trustees
constitute a super-majority (75%) of the Board, the fact that the chairperson of
each Committee of the Board is an
Independent Trustee, the amount of assets under management in the Trust, and the
number of funds overseen by the
Board. The Board also believes that its leadership structure facilitates the
orderly and efficient flow of information to the
Independent Trustees from fund management.
The Board of
Trustees has two standing committees: the Audit Committee and Trustee Committee.
The Audit Committee and Trustee
Committee are each chaired by an Independent Trustee and composed of all of the
Independent Trustees.
Set forth below are
the names, year of birth, position with the Trust, length of term of office, and
the principal occupations during the last five
years and other directorships held of each of the persons currently serving as a
Trustee or Officer of the
Trust.
TRUSTEES
Name,
Address
and
Year of Birth |
|
Term
of
Office
and
Length
of
Time
Served |
Principal
Occupation(s)
During
Past
Five
Years |
Number
of
Portfolios
in
Fund
Complex
Overseen
by
Trustee† |
Other
Directorships
Held
by
Trustee
During
Past
Five
Years |
|
|
CARL
G. VERBONCOEUR
c/o
SSGA Active Trust
One
Iron Street
Boston,
MA 02210
1952 |
Independent
Trustee,
Chairman,
Trustee
Committee
Chair |
Term:
Unlimited
Served:
since
March
2011 |
Self-employed
consultant
since 2009. |
|
|
DWIGHT
D. CHURCHILL
c/o
SSGA Active Trust
One
Iron Street
Boston,
MA 02210
1953 |
Independent
Trustee,
Audit
Committee
Chair |
Term:
Unlimited
Served:
since
March
2011 |
Self-employed
consultant
since 2010;
CEO
and President,
CFA
Institute (June 2014
-
January 2015). |
|
Affiliated
Managers
Group,
Inc. (Director)
(2010
- present). |
Name,
Address
and
Year of Birth |
|
Term
of
Office
and
Length
of
Time
Served |
Principal
Occupation(s)
During
Past
Five
Years |
Number
of
Portfolios
in
Fund
Complex
Overseen
by
Trustee† |
Other
Directorships
Held
by
Trustee
During
Past
Five
Years |
CLARE
S. RICHER
c/o
SSGA Active Trust
One
Iron Street
Boston,
MA 02210
1958 |
|
Term:
Unlimited
Served:
since
July
2018 |
Retired.
Chief Financial
Officer,
Putnam
Investments
LLC
(December
2008 - May
2017). |
|
Principal
Financial
Group
(Director and
Financial
Committee
Chair)
(2020 – present);
Bain
Capital Specialty
Finance
(Director) (2019
–
present); Bain Capital
Private
Credit (Director)
(2022
– present);
University
of Notre
Dame
(Trustee) (2015 –
present). |
SANDRA
G. SPONEM
c/o
SSGA Active Trust
One
Iron Street
Boston,
MA 02210
1958 |
|
Term:
Unlimited
Served:
since
July
2018 |
Retired.
Chief Financial
Officer,
M.A. Mortenson
Companies,
Inc.
(construction
and real
estate
company)
(February
2007 - April
2017). |
|
Rydex
Series Funds (52
portfolios),
Rydex
Dynamic
Funds (8
portfolios)
and Rydex
Variable
Trust (49
portfolios)
(Trustee)
(2016
– present);
Guggenheim
Strategy
Funds
Trust (3
portfolios),
Guggenheim
Funds
Trust (18
portfolios),
Guggenheim
Taxable
Municipal Bond
&
Investment Grade
Debt
Trust, Guggenheim
Strategic
Opportunities
Fund,
Guggenheim
Variable
Funds Trust (14
portfolios),
and
Transparent
Value Trust
(5
portfolios) (Trustee)
(2019-present);
Guggenheim
Active
Allocation
Fund
(Trustee)
(2021-present);
Fiduciary/Claymore
Energy
Infrastructure
Fund
(Trustee)
(2019-2022);
Guggenheim
Enhanced
Equity
Income Fund and
Guggenheim
Credit
Allocation
Fund
(Trustee)
(2019-2021);
and
Guggenheim
Energy
& Income Fund
(Trustee)
(2015 - 2023). |
CAROLYN
M. CLANCY
c/o
SSGA Active Trust
One
Iron Street
Boston,
MA 02210
1960 |
|
Term
Unlimited
Served:
since
October
2022 |
Retired.
Executive Vice
President,
Head of
Strategy,
Analytics and
Market
Readiness,
Fidelity
Investments
(April
2020 – June
2021);
Executive Vice
President,
Head of
Broker
Dealer Business,
Fidelity
Investments
(July
2017 – March
2020). |
|
Assumption
University
(Trustee)
(2011 – 2021)
and
(2022 – present);
Big
Sister Association of
Greater
Boston
(Director)
(2016 – 2023). |
KRISTI
L. ROWSELL
c/o
SSGA Active Trust
One
Iron Street |
|
|
Partner
and President,
Harris
Associates (2010
–
2021). |
|
Harris
Associates
Investment
Trust (8
portfolios)
(Trustee) |
Name,
Address
and
Year of Birth |
|
Term
of
Office
and
Length
of
Time
Served |
Principal
Occupation(s)
During
Past
Five
Years |
Number
of
Portfolios
in
Fund
Complex
Overseen
by
Trustee† |
Other
Directorships
Held
by
Trustee
During
Past
Five
Years |
|
|
|
|
|
|
(2010
– present); Board
of
Governors,
Investment
Company
Institute
(Member) (2018
–
present); Habitat for
Humanity
Chicago
(Director)
(2015 –
present). |
|
|
JAMES
E. ROSS*
c/o
SSGA Active Trust
One
Iron Street
Boston,
MA 02210
1965 |
|
Term:
Unlimited
Served:
since
March
2011 |
President,
Winnisquam
Capital
LLC (December
2022
– present);
Non-Executive
Chairman,
Fusion
Acquisition
Corp II
(February
2020 –
present);
Non-Executive
Chairman,
Fusion
Acquisition
Corp. (June
2020
– September
2021);
Retired Chairman
and
Director, SSGA
Funds
Management, Inc.
(2005
– March 2020);
Retired
Executive Vice
President,
State Street
Global
Advisors (2012 –
March
2020); Retired
Chief
Executive Officer
and
Manager, State
Street
Global Advisors
Funds
Distributors, LLC
(May
2017 – March
2020);
Director, State
Street
Global Markets,
LLC
(2013 – April 2017);
President,
SSGA Funds
Management,
Inc. (2005
–
2012); Principal, State
Street
Global Advisors
(2000
– 2005). |
|
Investment
Managers
Series
Trust (50
Portfolios)
(2022 –
present);
The Select
Sector
SPDR Trust (11
portfolios)
(2005 –
present);
SSGA SPDR
ETFs
Europe I plc
(Director)
(2016 – 2020);
SSGA
SPDR ETFs
Europe
II plc (Director)
(2016
– 2020); State
Street
Navigator
Securities
Lending Trust
(2016
– 2020); SSGA
Funds
(2014 – 2020);
State
Street Institutional
Investment
Trust (2007
–2020);
State Street
Master
Funds (2007
–2020);
Elfun Funds
(2016
–2018). |
GUNJAN
CHAUHAN**
c/o
SSGA Active Trust
One
Iron Street
Boston,
MA 02210
1982 |
|
Term
Unlimited
Served:
since
October
2022 |
Senior
Managing
Director,
State Street
Global
Advisors (April
2018
– Present);
Managing
Director, State
Street
Global Advisors
(June
2015– March
2018). |
|
State
Street ICAV
(Director)
(2018 – 2022). |
†
For the purpose of
determining the number of portfolios overseen by the Trustees, “Fund
Complex” comprises registered
investment companies for which SSGA Funds
Management, Inc. serves as investment adviser, which includes series of the SSGA
Active Trust, SPDR Series Trust and SPDR Index Shares
Funds.
*
Mr. Ross is an
Interested Trustee because of his ownership interest in an affiliate of the
Adviser.
**
Ms. Chauhan is an
Interested Trustee because of her position with an affiliate of the
Adviser.
OFFICERS
Name,
Address
and
Year of Birth |
|
Term
of
Office
and
Length
of
Time
Served |
Principal
Occupation(s)
During
Past Five Years |
ANN
M. CARPENTER
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1966 |
President
and
Principal
Executive
Officer;
Deputy
Treasurer |
Term:
Unlimited
Served:
since
May
2023 (with
respect
to
President
and
Principal
Executive
Officer);
Term:
Unlimited
Served:
since
February
2016
(with
respect to
Deputy
Treasurer) |
Chief
Operating Officer, SSGA Funds Management, Inc.
(April
2005 - present)*; Managing Director, State Street
Global
Advisors (April 2005 - present).* |
BRUCE
S. ROSENBERG
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1961 |
Treasurer
and
Principal
Financial
Officer |
Term:
Unlimited
Served:
since
February
2016 |
Managing
Director, State Street Global Advisors and
SSGA
Funds Management, Inc. (July 2015 - present);
Director,
Credit Suisse (April 2008 - July 2015). |
CHAD
C. HALLETT
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1969 |
|
Term:
Unlimited
Served:
since
February
2016 |
Vice
President, State Street Global Advisors and SSGA
Funds
Management, Inc. (November 2014 - present). |
MICHAEL
P. RILEY
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1969 |
|
Term:
Unlimited
Served:
since
March
2011 |
Managing
Director, State Street Global Advisors (2005 -
present).* |
SEAN
O'MALLEY
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1969 |
|
Term:
Unlimited
Served:
since
August
2019 |
Senior
Vice President and Deputy General Counsel,
State
Street Global Advisors (November 2013 - present). |
DAVID
URMAN
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1985 |
|
Term:
Unlimited
Served:
since
August
2019 |
Vice
President and Senior Counsel, State Street Global
Advisors
(April 2019 - present); Vice President and
Counsel,
State Street Global Advisors (August 2015 -
April
2019); Associate, Ropes & Gray LLP (November
2012
- August 2015). |
DAVID
BARR
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1974 |
|
Term:
Unlimited
Served:
since
November
2020 |
Vice
President and Senior Counsel, State Street Global
Advisors
(October 2019 - present); Vice President and
Counsel,
Eaton Vance Corp. (October 2010 - October
2019). |
E.
GERARD MAIORANA, JR.
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1971 |
|
Term:
Unlimited
Served:
since
May
2023 |
Assistant
Vice President, State Street Global Advisors
(July
2014 - present). |
DARLENE
ANDERSON-VASQUEZ
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1968 |
|
Term:
Unlimited
Served:
since
November
2016 |
Managing
Director, State Street Global Advisors and
SSGA
Funds Management, Inc. (May 2016 - present);
Senior
Vice President, John Hancock Investments
(September
2007 - May 2016). |
ARTHUR
A. JENSEN
SSGA
Funds Management, Inc.
1600
Summer Street
Stamford,
CT 06905
1966 |
|
Term:
Unlimited
Served:
since
August
2017 |
Vice
President, State Street Global Advisors and SSGA
Funds
Management, Inc. (July 2016 - present); Mutual
Funds
Controller, GE Asset Management Incorporated
(April
2011 - July 2016). |
Name,
Address
and
Year of Birth |
|
Term
of
Office
and
Length
of
Time
Served |
Principal
Occupation(s)
During
Past Five Years |
DAVID
LANCASTER
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1971 |
|
Term:
Unlimited
Served:
since
November
2020 |
Vice
President, State Street Global Advisors and SSGA
Funds
Management, Inc. (July 2017 - present); Assistant
Vice
President, State Street Bank and Trust Company
(November
2011 - July 2017).* |
JOHN
BETTENCOURT
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1976 |
|
Term:
Unlimited
Served:
since
May
2022 |
Vice
President, State Street Global Advisors and SSGA
Funds
Management Inc. (March 2020 – present);
Assistant
Vice President, State Street Global Advisors
(June
2007 – March 2020). |
BRIAN
HARRIS
SSGA
Funds Management, Inc.
One
Iron Street
Boston,
MA 02210
1973 |
Chief
Compliance
Officer;
Anti-Money
Laundering
Officer;
Code
of Ethics
Compliance
Officer |
Term:
Unlimited
Served:
since
November
2013 |
Managing
Director, State Street Global Advisors and
SSGA
Funds Management, Inc. (June 2013 -
present).* |
*
Served in various
capacities and/or with various affiliated entities during the noted time
period.
INDIVIDUAL
TRUSTEE QUALIFICATIONS
The Board has
concluded that each of the Trustees should serve on the Board because of his or
her ability to review and understand
information about the Funds provided to him or her by management, to identify
and request other information he or she may deem
relevant to the performance of his or her duties, to question management and
other service providers regarding
material factors bearing on the management and administration of the Funds, and
to exercise his or her business
judgment in a manner that serves the best interests of each Fund's shareholders.
The Board has concluded that each of the
Trustees should serve as a Trustee based on his or her own experience,
qualifications, attributes and skills as described
below.
The Board has
concluded that Mr. Verboncoeur should serve as Trustee because of the experience
he gained serving as the Chief Executive
Officer of a large financial services and investment management company, his
knowledge of the financial services
industry and his experience serving on the boards of other investment companies,
including SPDR Index Shares Funds
and SPDR Series Trust since April 2010.
The Board has
concluded that Mr. Churchill should serve as Trustee because of the experience
he gained serving as the Head of the Fixed
Income Division of one of the nation's leading mutual fund companies and
provider of financial services, his
knowledge of the financial services industry and the experience he has gained
serving as Trustee of SPDR Index Shares Funds
and SPDR Series Trust since April 2010.
The Board has
concluded that Ms. Richer should serve as Trustee because of the experience she
gained serving as the Chief Financial
Officer of a large financial services and investment management company, her
knowledge of the financial services industry
and her experience serving on the board of a major educational institution. Ms.
Richer was appointed to serve as Trustee of
the Trust in July 2018 and elected to serve as Trustee of the Trust in October
2022.
The Board has
concluded that Ms. Sponem should serve as Trustee because of the experience she
gained serving as the Chief Financial
Officer of a large financial services company, her knowledge of the financial
services industry and her experience serving
on the boards of other investment companies. Ms. Sponem was appointed to serve
as Trustee of the Trust in July 2018
and elected to serve as Trustee of the Trust in October 2022.
The Board has
concluded that Ms. Clancy should serve as Trustee because of the experience she
gained serving as an Executive Vice
President of a large financial services company, her knowledge of the financial
services industry and her experience serving
on the boards of a major educational institution and a charitable foundation.
Ms. Clancy was elected to serve as Trustee of
the Trust in October 2022.
The Board has
concluded that Ms. Rowsell should serve as Trustee because of the experience she
gained serving as the President and Chief
Financial Officer of a large financial services company, her knowledge of the
financial services industry and her
experience serving on the boards of a financial services company, a leading
association representing regulated investment
funds and a charitable foundation. Ms. Clancy was elected to serve as Trustee of
the Trust in October
2022.
The Board has
concluded that Mr. Ross should serve as Trustee because of the experience he has
gained in his various roles with the
Adviser, his knowledge of the financial services industry, and the experience he
has gained serving as Trustee of SPDR
Index Shares Funds and SPDR Series Trust since 2005 (Mr. Ross did not serve as
Trustee of SPDR Index Shares Funds
or SPDR Series Trust from December 2009 until April 2010).
The Board has
concluded that Ms. Chauhan should serve as Trustee because of the experience she
has gained in her various roles with
an affiliate of the Adviser and her knowledge of the financial services
industry. Ms. Chauhan was elected to serve as
Trustee of the Trust in October 2022.
In its periodic
assessment of the effectiveness of the Board, the Board considers the
complementary individual skills and experience of the
individual Trustees primarily in the broader context of the Board's overall
composition so that the Board, as a body, possesses
the appropriate (and appropriately diverse) skills and experience to oversee the
business of the Funds.
REMUNERATION
OF THE TRUSTEES AND OFFICERS
No officer, director
or employee of the Adviser, its parent or subsidiaries receives any compensation
from the Trust for serving as an
officer or Trustee of the Trust. The Trust, SPDR Series Trust and SPDR Index
Shares Funds (together with the Trust, the
“Trusts”) pay, in the
aggregate, each Trustee (other than Ms. Chauhan) an annual fee of $300,000 plus
$10,000
per in-person meeting attended and $2,500 for each telephonic or video
conference meeting attended. The Chairman of the
Board receives an additional annual fee of $115,000 (prior to January 1, 2023,
$75,000) and the Chairman of the
Audit Committee receives an additional annual fee of $40,000 (prior to January
1, 2023, $30,000). The Trusts also
reimburse each Trustee (other than Ms. Chauhan) for travel and other
out-of-pocket expenses incurred by him/her in connection with
attending such meetings and in connection with attending industry seminars and
meetings. Trustee fees are allocated
between the Trusts and each of their respective series in such a manner as
deemed equitable, taking into consideration
the relative net assets of the series.
The table below
shows the compensation that the Trustees received during the Funds' fiscal year
ended June 30, 2023.
|
|
|
Pension
or
Retirement
Benefits
Accrued
as
Part
of
Trust
Expenses |
Estimated
Annual
Benefits
Upon
Retirement |
Total
Compensation
from
the
Trust
and
Fund
Complex
Paid
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The Fund Complex
includes SPDR Series Trust, SSGA Active Trust and SPDR Index Shares
Funds.
(2)
Trustee was elected
to the Board as of October 20, 2022. During the fiscal year ended June 30, 2023,
Ms. Clancy received $60,433 from the Fund Complex ($2,760 from
the Trust) for her service as a consultant to the Independent Trustees of the
Board.
(3)
Trustee was elected
to the Board as of October 20, 2022. During the fiscal year ended June 30, 2023,
Ms. Rowsell received $96,683 from the Fund Complex ($4,825 from
the Trust) for her service as a consultant to the Independent Trustees of the
Board.
(4)
Not compensated by
the Trust due to Ms. Chauhan's position with an affiliate of the
Adviser.
STANDING
COMMITTEES
Audit
Committee: The Board has an
Audit Committee consisting of Messrs. Verboncoeur and Churchill and Mses.
Clancy, Richer, Rowsell and
Sponem, each of whom is an Independent Trustee. Mr. Churchill serves as
Chairman. 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 four (4) times during the fiscal year ended June 30, 2023.
Trustee
Committee: The Board has
established a Trustee Committee consisting of Messrs. Verboncoeur and Churchill
and
Mses. Clancy, Richer, Rowsell and Sponem, each of whom is an Independent
Trustee. Mr. Verboncoeur serves as Chairman. The
responsibilities of the Trustee Committee are to: 1) nominate Independent
Trustees; 2) review on a periodic basis the
governance structures and procedures of the Funds; 3) review proposed
resolutions and conflicts of interest that may
arise in the business of the Funds and may have an impact on the investors of
the Funds; 4) select any independent counsel
of the independent trustees as well as make determinations as to that counsel's
independence; 5) review matters that
are referred to the Committee by the Chief Legal Officer or other counsel to the
Trust; and 6) provide general oversight of
the Funds on behalf of the investors of the Funds. The Trustee Committee does
not have specific procedures in place
with respect to the consideration of nominees recommended by security holders,
but may consider such nominees in the
event that one is recommended. The Trustee Committee met four (4) times during
the fiscal year ended June 30,
2023.
OWNERSHIP
OF FUND SHARES
As of December 31,
2022, neither the Independent Trustees nor their immediate family members owned
beneficially or of record any
securities in the Adviser, Sub-Advisers, Principal Underwriter or any person
directly or indirectly controlling, controlled by, or
under common control with the Adviser, Sub-Advisers or Principal
Underwriter.
The following table
shows, as of December 31, 2022, the amount of equity securities beneficially
owned by the Trustees in the
Trust.
|
|
|
Dollar
Range of Equity
Securities
in the Trust |
Aggregate
Dollar Range of Equity
Securities
in All
Funds
Overseen
by
Trustee in Family of
Investment
Companies(1) |
|
|
|
|
|
|
|
|
|
|
|
SPDR Blackstone
Senior Loan ETF |
|
|
|
|
SPDR Blackstone
Senior Loan ETF |
|
|
|
|
SPDR DoubleLine
Short Duration Total Return Tactical ETF |
|
|
|
|
SPDR DoubleLine
Total Return Tactical ETF |
|
|
|
|
SPDR Blackstone
Senior Loan ETF |
|
|
|
|
SPDR Blackstone
High Income ETF |
|
|
|
|
SPDR Blackstone
Senior Loan ETF |
|
|
|
|
SPDR DoubleLine
Total Return Tactical ETF |
|
|
|
|
|
|
|
|
|
SPDR DoubleLine
Short Duration Total Return Tactical ETF |
|
|
|
|
SPDR DoubleLine
Total Return Tactical ETF |
|
|
|
|
|
|
|
(1) The family of
investment companies includes series of SSGA Active Trust, SPDR Series Trust and
SPDR Index Shares Funds.
CODES
OF ETHICS
The Trust, the
Adviser (which includes applicable reporting personnel of the Distributor) and
the Sub-Advisers each have adopted a Code of
Ethics pursuant to Rule 17j-1 of the 1940 Act, which is designed to prevent
affiliated persons of the Trust, the Adviser,
the Sub-Advisers and the Distributor from engaging in deceptive, manipulative or
fraudulent activities in connection with
securities held or to be acquired by the Funds (which may also be held by
persons subject to the Codes of Ethics). Each Code
of Ethics permits personnel, subject to that Code of Ethics, to invest in
securities for their personal investment accounts,
subject to certain limitations, including securities that may be purchased or
held by the Funds.
There can be no
assurance that the Codes of Ethics will be effective in preventing such
activities. Each Code of Ethics, filed as exhibits to
this registration statement, may be examined at the office of the SEC in
Washington, D.C. or on the Internet at the
SEC's website at https://www.sec.gov.
PROXY
VOTING POLICIES
The Board has
delegated the responsibility to vote proxies on securities held by the Funds to
the Adviser for each Fund, other than SPDR
Blackstone High Income ETF and SPDR Blackstone Senior Loan ETF (the “Blackstone
ETFs”), which
are
sub-advised by Blackstone Liquid Credit Strategies LLC, the SPDR DoubleLine
Emerging Markets Fixed Income ETF, SPDR DoubleLine
Short Duration Total Return Tactical ETF and SPDR DoubleLine Total Return
Tactical ETF (the “DoubleLine
ETFs”), which are
sub-advised by DoubleLine Capital LP (“DoubleLine”), SPDR Loomis
Sayles Opportunistic Bond ETF, which is
sub-advised by Loomis Sayles & Company, L.P. (“Loomis
Sayles”), and the SPDR
Nuveen Municipal Bond ETF and SPDR
Nuveen Municipal Bond ESG ETF (the “Nuveen
ETFs”), which are
sub-advised by Nuveen Asset Management
(“Nuveen”). The Board has
delegated the responsibility to vote proxies of Blackstone ETFs, the DoubleLine
ETFs,
Nuveen ETFs and SPDR Loomis Sayles Opportunistic Bond ETF to Blackstone Liquid
Credit Strategies LLC, DoubleLine, Nuveen
and Loomis Sayles, respectively. The Trust's, Adviser's and Sub-Advisers' proxy
voting policies are attached at the end
of this SAI. Information regarding how a Fund voted proxies relating to its
portfolio securities during the most recent
twelve-month period ended June 30 is available: (1) without charge by calling
1-866-787-2257; (2) on the Funds' website at
https://www.ssga.com/spdrs; and (3) on the
SEC's website at https://www.sec.gov.
PROXY
VOTING POLICIES—Nuveen ETFs
The Nuveen ETFs
invest their assets primarily in municipal bonds and cash management securities,
which typically do not issue proxies. On
rare occasions a Fund may acquire, directly or through a special purpose
vehicle, securities of a municipal bond
issuer whose bonds the Fund already owns when such bonds have deteriorated or
are expected shortly to deteriorate
significantly in credit quality. The purpose of acquiring additional securities
generally will be to seek to maximize the value
of the existing holdings, prevent the credit deterioration or facilitate the
liquidation or other workout of the distressed
issuer's credit problem. In the course of these activities, Nuveen Asset
Management may pursue the Fund's interests in
a variety of ways, which may entail negotiating and executing consents,
agreements and other arrangements, and/or
otherwise influencing the management of the issuer. Nuveen Asset Management does
not consider such activities
proxy voting for purposes of Rule 206(4)-6 under the Investment Advisers Act of
1940, as amended.
In the rare event
that a municipal issuer were to issue a proxy or that a Fund were to receive a
proxy issued by a security, Nuveen Asset
Management would vote in accordance with its proxy voting policies and
procedures and guidelines. Nuveen Asset
Management's proxy voting team would oversee the administration of the voting,
and coordinate with State Street Global
Advisors with respect to reporting and other matters.
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 Funds' portfolio holdings are publicly
disseminated each day a Fund is open for
business through financial reporting and news services including publicly
accessible Internet web sites. In addition, a
basket composition file, which includes the security names and share quantities
to deliver in exchange for Shares, together
with estimates and actual cash components, is publicly disseminated daily prior
to the opening of the Exchange via the
National Securities Clearing Corporation (“NSCC”). The basket
represents one Creation Unit of a Fund. Neither the Trust
nor the Adviser, the Sub-Advisers or State Street will disseminate non-public
information concerning the Trust, except
information may be made available prior to its public availability: (i) to a
party for a legitimate business purpose related to
the day-to-day operations of the Funds, including (a) a service provider, (b)
the stock exchanges upon which the ETF is
listed, (c) the NSCC, (d) the Depository Trust Company, and (e) financial
data/research companies such as Morningstar,
Bloomberg L.P., and Reuters, or (ii) to any other party for a legitimate
business or regulatory purpose, upon waiver or
exception, with the consent of an applicable Trust officer.
Investment
Advisory and Other Services
THE
INVESTMENT ADVISER
SSGA FM acts as
investment adviser to the Trust and, subject to the oversight of the Board, is
responsible for the investment
management of each Fund. As of June 30, 2023, the Adviser managed approximately
$849.53 billion in assets. The
Adviser's principal address is One Iron Street, Boston, Massachusetts 02210. The
Adviser, a Massachusetts corporation, is a
wholly-owned subsidiary of State Street Global Advisors, Inc., which itself is a
wholly-owned subsidiary of State Street
Corporation, a publicly held financial holding company. State Street Global
Advisors (“SSGA”), consisting of
the
Adviser and other investment advisory affiliates of State Street Corporation, is
the investment management arm of State Street
Corporation.
The Adviser serves
as investment adviser to each Fund pursuant to an investment advisory agreement
(“Investment
Advisory
Agreement”) between the Trust
and the Adviser. The Investment Advisory Agreement, with respect to each Fund,
continues in effect
for two years from its effective date, and thereafter is subject to annual
approval by (1) the Board or (2) vote of a majority
of the outstanding voting securities (as defined in the 1940 Act) of the Fund,
provided that in either event such
continuance also is approved by a majority of the Board who are not interested
persons (as defined in the 1940 Act) of the
Trust by a vote cast in person at a meeting called for the purpose of voting on
such approval. The Investment Advisory
Agreement with respect to each Fund is terminable without penalty, on 60 days'
notice, by the Board or by a vote of the
holders of a majority (as defined in the 1940 Act) of a Fund's outstanding
voting securities. The Investment Advisory
Agreement is also terminable upon 90 days' notice by the Adviser and will
terminate automatically in the event of its
assignment (as defined in the 1940 Act).
Under the Investment
Advisory Agreement, the Adviser, subject to the oversight of the Board and in
conformity with the stated investment
policies of each Fund, manages the investment of each Fund's assets. The Adviser
is responsible for placing purchase and
sale orders and providing continuous supervision of the investment portfolio of
each Fund. Pursuant to the
Investment Advisory Agreement, the Adviser is not liable for certain
liabilities, including certain liabilities arising under the
federal securities laws, unless such loss or liability results from (a) willful
misfeasance, bad faith or gross negligence in the
performance of its duties; (b) the reckless disregard of its obligations and
duties; or (c) a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for
services.
Under the Advisory
Agreement, the Adviser performs certain oversight and supervisory functions with
respect to Blackstone Liquid
Credit Strategies LLC as sub-adviser to the Blackstone ETFs, DoubleLine as
sub-adviser to the DoubleLine ETFs,
Loomis Sayles as sub-adviser to SPDR Loomis Sayles Opportunistic Bond ETF, and
Nuveen as sub-adviser to the Nuveen ETFs,
including: (i) conduct periodic analysis and review of the performance by
Blackstone Liquid Credit Strategies
LLC, DoubleLine, Loomis Sayles and Nuveen of their obligations to their
respective Funds and provide periodic reports to
the Board regarding such performance; (ii) review any changes to Blackstone
Liquid Credit Strategies LLC, DoubleLine,
Loomis Sayles and Nuveen ownership, management, or personnel responsible for
performing their obligations to their
respective Funds and make appropriate reports to the Board; (iii) perform
periodic due diligence meetings with
representatives of Blackstone Liquid Credit Strategies LLC, DoubleLine, Loomis
Sayles and Nuveen; and (iv) assist the
Board and management of the Trust, as applicable, concerning the initial
approval, continued retention or replacement of
Blackstone Liquid Credit Strategies LLC, DoubleLine, Loomis Sayles and Nuveen as
sub-advisers to their respective
Funds.
A discussion
regarding the basis for the Board's approval of the Investment Advisory
Agreement regarding each Fund is available in the
Trust's Annual Report to Shareholders dated June 30, 2023.
For the services
provided to the Funds under the Investment Advisory Agreement, each Fund pays
the Adviser monthly fees based on a
percentage of each Fund's average daily net assets as set forth in each Fund's
Prospectus. With respect to each Fund, the
management fee is reduced by any acquired fund fees and expenses attributable to
the Funds' investments in other
investment companies (except acquired fund fees and expenses associated with
holdings of acquired funds for cash
management purposes). The Adviser pays all expenses of each Fund other than the
management fee, acquired fund fees
and expenses associated with holdings of acquired funds for cash management
purposes, brokerage expenses, taxes,
interest, fees and expenses of the Independent Trustees (including any Trustee's
counsel fees), litigation
expenses and other
extraordinary expenses. The Adviser may, from time to time, waive all or a
portion of its fee. The Adviser has agreed
to pay all costs associated with the organization of the Trust and each Fund.
For the past three fiscal years ended June 30,
the Funds paid the following amounts to the Adviser:
|
|
|
|
|
SPDR
Blackstone High Income ETF(1) |
|
|
|
SPDR
Blackstone Senior Loan ETF(2) |
|
|
|
SPDR
DoubleLine Emerging Markets Fixed Income ETF(3) |
|
|
|
SPDR
DoubleLine Short Duration Total Return Tactical ETF(4) |
|
|
|
SPDR
DoubleLine Total Return Tactical ETF(5) |
|
|
|
SPDR
Loomis Sayles Opportunistic Bond ETF(6) |
|
|
|
SPDR
Nuveen Municipal Bond ESG ETF(7) |
|
|
|
SPDR
Nuveen Municipal Bond ETF(8) |
|
|
|
SPDR
SSGA Fixed Income Sector Rotation ETF |
|
|
|
SPDR
SSGA Global Allocation ETF |
|
|
|
SPDR
SSGA Income Allocation ETF |
|
|
|
SPDR
SSGA Multi-Asset Real Return ETF |
|
|
|
SPDR
SSGA Ultra Short Term Bond |
|
|
|
SPDR
SSGA US Sector Rotation ETF |
|
|
|
(1)
The Fund commenced
operations on February 17, 2022. For the fiscal years ended June 30, 2023 and
June 30, 2022, the Adviser reimbursed the Fund in the amount of
$2,834 and $0, respectively.
(2)
For the fiscal years
ended June 30, 2023, June 30, 2022 and June 30, 2021, the Adviser
reimbursed the Fund in the amounts of $18,732, $0 and $0, respectively.
(3)
For the fiscal years
ended June 30, 2023, June 30, 2022 and June 30, 2021, the Adviser
reimbursed the Fund in the amounts of $0, $0 and $64,946, respectively.
(4)
For the fiscal years
ended June 30, 2023, June 30, 2022 and June 30, 2021, the Adviser
reimbursed the Fund in the amounts of $0, $0 and $53,010, respectively.
(5)
For the fiscal years
ended June 30, 2023, June 30, 2022 and June 30, 2021, the Adviser reimbursed the
Fund in the amounts of $0, $0 and $2,355,432,
respectively.
(6)
The Fund commenced
operations on September 28, 2021. For the fiscal years ended June 30, 2023 and
June 30, 2022, the Adviser reimbursed the Fund in the amount of
$0 and $12,925, respectively.
(7)
The Fund commenced
operations on April 5, 2022.
(8)
The Fund commenced
operations on February 3, 2021.
INVESTMENT
SUB-ADVISER—Blackstone ETFs
Pursuant to the
Advisory Agreement between the Funds and the Adviser, the Adviser is authorized
to engage one or more sub-advisers for the
performance of any of the services contemplated to be rendered by the Adviser.
The Adviser has retained Blackstone
Liquid Credit Strategies LLC to be responsible for the day-to-day management of
the Blackstone ETFs' investments,
subject to supervision of the Adviser and oversight by the Board while the
Adviser will provide administrative,
compliance and general management services to the Blackstone ETFs. Blackstone
Liquid Credit Strategies LLC is a
wholly-owned subsidiary of Blackstone Alternative Credit Advisors LP
(collectively with its affiliates in the credit-focused business of
Blackstone Inc., “Blackstone
Credit”). Blackstone Credit
is part of the credit-focused platform of Blackstone Inc.
(collectively with its affiliates, “Blackstone”). Blackstone is a
leading global manager of private capital and provider of
financial advisory services. It is one of the largest independent managers of
private capital in the world, with assets under
management of approximately $1 trillion as of June 30, 2023. As of June 30,
2023, Blackstone Credit and Insurance's asset
management operations, which includes Blackstone Credit and its affiliates in
the insurance-focused business of
Blackstone, had aggregate assets under management of approximately $295 billion
across multiple strategies within the leveraged
finance marketplace, including Senior Loans, high yield bonds, investment grade
corporate credit, distressed and
mezzanine debt. Blackstone Liquid Credit Strategies LLC's principal business
address is 345 Park Avenue, 31st Floor, New
York, New York 10154.
A discussion
regarding the basis for the Board's approval of the continuation of the
Sub-Advisory Agreement is available in the Trust's
Annual Report to Shareholders dated June 30, 2023.
In accordance with
the Sub-Advisory Agreement between the Adviser and Blackstone Liquid Credit
Strategies LLC, the Adviser will pay
Blackstone Liquid Credit Strategies LLC an annual investment sub-advisory fee
equal to a portion of average daily net
assets of each Blackstone ETF. For the past three fiscal years ended June 30,
the Adviser paid the following amounts to
the Blackstone Liquid Credit Strategies LLC for its services:
|
|
|
|
|
SPDR
Blackstone High Income ETF (1) |
|
|
|
SPDR
Blackstone Senior Loan ETF |
|
|
|
(1) The Fund commenced
operations on February 17, 2022.
INVESTMENT
SUB-ADVISER—DoubleLine ETFs
Pursuant to the
Advisory Agreement between the DoubleLine ETFs and the Adviser, the Adviser is
authorized to engage one or more
sub-advisers for the performance of any of the services contemplated to be
rendered by the Adviser. The Adviser has retained
DoubleLine as sub-adviser, to be responsible for the day-to-day management of
the DoubleLine ETFs' investments,
subject to oversight of the Adviser and the Board while the Adviser provides
administrative, compliance and
general management services to the DoubleLine ETFs. DoubleLine's principal
office is located at 2002 North Tampa Street,
Suite 200, Tampa, Florida 33602. As of June 30, 2023, DoubleLine had
approximately $95.2 billion in assets under
management.
A discussion
regarding the basis for the Board's approval of the continuation of the
Sub-Advisory Agreement is available in the Trust's
Annual Report to Shareholders dated June 30, 2023.
In accordance with
the Sub-Advisory Agreement between the Adviser and DoubleLine, the Adviser will
pay DoubleLine an annual investment
sub-advisory fee equal to a portion of average daily net assets of each
DoubleLine ETF. For the past three fiscal years
ended June 30, the Adviser paid the following amounts to DoubleLine for its
services:
|
|
|
|
|
SPDR
DoubleLine Emerging Markets Fixed Income ETF |
|
|
|
SPDR
DoubleLine Short Duration Total Return Tactical ETF |
|
|
|
SPDR
DoubleLine Total Return Tactical ETF |
|
|
|
INVESTMENT
SUB-ADVISER – SPDR Loomis Sayles Opportunistic Bond ETF
Pursuant to the
Investment Advisory Agreement between the Trust and the Adviser, the Adviser is
authorized to engage one or more
sub-advisers for the performance of any of the services contemplated to be
rendered by the Adviser. The Adviser has retained
Loomis Sayles as sub-adviser, to be responsible for the day to day management of
the Fund's investments, subject
to supervision of the Adviser and oversight by the Board. The Adviser provides
administrative, compliance and
general management services to the Fund. Loomis Sayles offers advisory and
investment management services to a broad
range of mutual fund clients and has extensive experience in managing municipal
securities. As of June 30, 2023,
Loomis Sayles managed approximately $310.3 billion in assets. Loomis Sayles's
principal business address is One
Financial Center, Boston, MA 02111.
Loomis Sayles is a
Delaware limited partnership. Loomis Sayles' sole limited partner, Natixis
Investment Managers, LLC (“Natixis
LLC”), and Loomis Sayles
general partner, Loomis, Sayles & Company, Inc., own Loomis Sayles. Natixis
LLC owns Loomis, Sayles
& Company, Inc. Natixis LLC is an indirect subsidiary of Natixis Investment
Managers, an international asset
management group based in Paris, France, that is in turn owned by Natixis, a
French investment banking and
financial services firm. Natixis is wholly-owned by Groupe BPCE, France's second
largest banking group. Groupe BPCE is owned
by banks comprising two autonomous and complementary retail banking networks
consisting of the Caisse d'Epargne
regional savings banks and the Banque Populaire regional cooperative banks. The
registered address of Natixis
is 30, avenue Pierre Mendès France, 75013 Paris, France. The registered address
of BPCE is 50, avenue Pierre Mendès
France, 75013 Paris, France.
A discussion
regarding the basis for the Board's approval of the continuation of the
Sub-Advisory Agreement is available in the Trust's
Annual Report to Shareholders dated June 30, 2023.
In accordance with
the Sub-Advisory Agreement between the Adviser and Loomis Sayles, the Adviser
will pay Loomis Sayles an annual
investment sub-advisory fee equal to a portion of average daily net assets of
the Fund. For the past three fiscal years
ended June 30, the Adviser paid the following amounts to Loomis Sayles for its
services:
|
|
|
|
|
SPDR
Loomis Sayles Opportunistic Bond ETF(1) |
|
|
|
(1) The Fund commenced
operations on September 28, 2021.
INVESTMENT
SUB-ADVISER—Nuveen ETFs
Pursuant to the
Investment Advisory Agreement between the Trust and the Adviser, the Adviser is
authorized to engage one or more
sub-advisers for the performance of any of the services contemplated to be
rendered by the Adviser. The Adviser has retained
Nuveen Asset Management as sub-adviser, to be responsible for the day-to-day
management of the Nuveen ETFs'
investments, subject to supervision of the Adviser and oversight by the Board.
The Adviser provides administrative,
compliance and general management services to the Nuveen ETFs. Nuveen Asset
Management offers advisory and
investment management services to a broad range of mutual fund clients and has
extensive experience in managing municipal
securities. As of June 30, 2023, Nuveen Asset Management managed approximately
$252.7 billion in assets. Nuveen Asset
Management's principal business address is 333 West Wacker Drive, Chicago,
Illinois 60606. Nuveen Asset
Management is a subsidiary of Nuveen Fund Advisors, LLC, which is a subsidiary
of Nuveen, LLC (“Nuveen”).
Nuveen is the asset
management division of Teachers Insurance and Annuity Association of America
(“TIAA”). TIAA is a
leading
financial services provider that provides a wide range of financial solutions,
including investing, advice and education, and
retirement services. TIAA was originally founded in 1918 by the Carnegie
Foundation for the Advancement of
Teaching.
A discussion
regarding the basis for the Board's approval of the Sub-Advisory Agreement is
available in the Trust's Annual Report to
Shareholders dated June 30, 2023.
In accordance with
the Sub-Advisory Agreement between the Adviser and Nuveen Asset Management, the
Adviser pays Nuveen Asset
Management an annual investment sub-advisory fee equal to a portion of the
average daily net assets of each Nuveen ETF. For
the past three fiscal years ended June 30, the Adviser paid the following amount
to the Nuveen for its
services:
|
|
|
|
|
SPDR
Nuveen Municipal Bond ESG ETF (1) |
|
|
|
SPDR
Nuveen Municipal Bond ETF (2) |
|
|
|
(1)
The Fund commenced
operations on April 5, 2022.
(2)
The Fund commenced
operations on February 3, 2021.
PORTFOLIO
MANAGERS
The Adviser manages
the Funds, Blackstone Liquid Credit Strategies LLC manages the Blackstone ETFs,
DoubleLine manages the
DoubleLine ETFs, Loomis manages the SPDR Loomis Sayles Opportunistic Bond ETF
and Nuveen Asset Management manages
the Nuveen ETFs, using a team of investment professionals. The professionals
primarily responsible for the
day-to-day portfolio management of each Fund are:
Portfolio
Management Team |
|
Daniel
McMullen, Adam Dwinells, Dan Smith, Bonnie
Brookshaw,
Gordon McKemie and Paul Harrison |
SPDR
Blackstone High Income ETF |
Daniel
T. McMullen, Gordon McKemie and Bonnie
Brookshaw
|
SPDR
Blackstone Senior Loan ETF |
Luz
Padilla, Mark Christensen and Su Fei Koo |
SPDR
DoubleLine Emerging Markets Fixed Income ETF |
Jeffrey
Gundlach and Jeffrey Sherman
|
SPDR
DoubleLine Short Duration Total Return Tactical ETF
SPDR
DoubleLine Total Return Tactical
ETF |
Portfolio
Management Team |
|
Kevin
Kearns, Andrea DiCenso and Tom Stolberg |
SPDR
Loomis Sayles Opportunistic Bond ETF |
Timothy
T. Ryan and Joel H. Levy |
SPDR
Nuveen Municipal Bond ETF |
Timothy
T. Ryan and David J. Blair |
SPDR
Nuveen Municipal Bond ESG ETF |
Michael
Martel, Jeremiah Holly and Leo Law
|
SPDR
SSGA Fixed Income Sector Rotation ETF |
Michael
Martel and Jeremiah Holly |
SPDR
SSGA Global Allocation ETF
SPDR
SSGA Income Allocation ETF |
Robert
Guiliano and Michael Narkiewicz |
SPDR
SSGA Multi-Asset Real Return ETF |
James
Palmieri and John Mele |
SPDR
SSGA Ultra Short Term Bond ETF |
Michael
Martel, Michael Narkiewicz and Jeremiah Holly |
SPDR
SSGA US Sector Rotation ETF |
All
ETFs (except Blackstone ETFs, Doubleline ETFs, SPDR Loomis Sayles Opportunistic
Bond ETF and Nuveen ETFs):
The
following table lists the number and types of accounts managed by each of the
key professionals involved in the day-to-day portfolio
management for each Fund and assets under management in those accounts. The
portfolio managers, who are also members
of the Funds' Investment Committee, are primarily responsible for the day-to-day
portfolio management of the
Funds. The other members of the Funds' Investment Committee have oversight
responsibilities for the investments made by
the Funds.
Other
Accounts Managed as of June 30, 2023
|
|
Registered
Investment
Company
Accounts |
Assets
Managed
(billions) |
Other
Pooled
Investment
Vehicle
Accounts |
Assets
Managed
(billions) |
|
Assets
Managed
(billions) |
Total
Assets
Managed
(billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Includes 4 accounts
(totaling $222.52 million in assets under management) with performance-based
fees.
**
Includes 3 accounts
(totaling $2.90 billion in assets under management) with performance-based
fees.
None of the
portfolio managers listed above beneficially owned Shares as of June 30, 2023,
except as noted in the table below:
|
|
|
Dollar
Range of Trust Shares Beneficially
Owned |
|
|
SPDR SSGA
Multi-Asset Real Return ETF |
|
|
|
SPDR SSGA
Fixed Income Sector Rotation ETF |
|
|
|
SPDR SSGA
Income Allocation ETF |
|
|
|
SPDR SSGA US
Sector Rotation ETF |
|
|
|
SPDR SSGA
Fixed Income Sector Rotation ETF |
|
|
|
SPDR SSGA
Income Allocation ETF |
|
|
|
SPDR SSGA US
Sector Rotation ETF |
|
Conflicts
of Interest. A portfolio manager
that has responsibility for managing more than one account may be subject to
potential conflicts
of interest because he or she is responsible for other accounts in addition to
the Funds. Those conflicts could include
preferential treatment of one account over others in terms of: (a) the portfolio
manager's execution of different investment
strategies for various accounts; or (b) the allocation of resources or of
investment opportunities.
Portfolio managers
may manage numerous accounts for multiple clients. These accounts may include
registered investment
companies, other types of pooled accounts (e.g., collective investment funds),
and separate accounts (i.e., accounts managed on
behalf of individuals or public or private institutions). Portfolio managers
make investment decisions
for each account
based on the investment objectives and policies and other relevant investment
considerations applicable to that portfolio. A
potential conflict of interest may arise as a result of a portfolio manager's
responsibility for multiple accounts with
similar investment guidelines. Under these circumstances, a potential investment
may be suitable for more than one of the
portfolio manager's accounts, but the quantity of the investment available for
purchase is less than the aggregate amount the
accounts would ideally allocate to the opportunity. Similar conflicts may arise
when multiple accounts seek to
dispose of the same investment. The portfolio managers may also manage accounts
whose objectives and policies differ
from that of the Funds. These differences may be such that under certain
circumstances, trading activity appropriate
for one account managed by the portfolio manager may have adverse consequences
for another account managed by
the portfolio manager. For example, an account may sell a significant position
in a security, which could cause the
market price of that security to decrease, while a Fund maintained its position
in that security.
A potential conflict
may arise when the portfolio managers are responsible for accounts that have
different advisory 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, as applicable.
Another potential conflict may arise when the portfolio manager has a personal
investment in one or more accounts
that participate in transactions with other accounts. His or her personal
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. With
respect to conflicts arising from personal investments, all employees, including
portfolio managers, must comply with personal
trading controls established by each of the Adviser's and Trust's Code of
Ethics.
SSGA's culture is
complemented and reinforced by a total rewards strategy that is based on a pay
for performance philosophy which
seeks to offer a competitive pay mix of base salary, benefits, cash incentives
and deferred compensation.
Salary is based on a
number of factors, including external benchmarking data and market trends, and
performance both at the business and
individual level. SSGA's Global Human Resources department regularly
participates in compensation surveys in order to
provide SSGA with market-based compensation information that helps support
individual pay decisions.
Additionally,
subject to State Street and SSGA business results, an incentive pool is
allocated to SSGA to reward its employees. The size
of the incentive pool for most business units is based on the firm's overall
profitability and other factors, including
performance against risk-related goals. For most SSGA investment teams, SSGA
recognizes and rewards performance
by linking annual incentive decisions for investment teams to the firm's or
business unit's profitability and business unit
investment performance over a multi-year period.
Incentive pool
funding for most active investment teams is driven in part by the post-tax
investment performance of fund(s) managed by the team
versus the return levels of the benchmark index(es) of the fund(s) on a one-,
three- and, in some cases, five-year
basis. For most active investment teams, a material portion of incentive
compensation for senior staff is deferred over a
four-year period into the SSGA Long-Term Incentive (“SSGA LTI”) program. For these
teams, The SSGA LTI program indexes
the performance of these deferred awards against the post-tax investment
performance of fund(s) managed by the team.
This is intended to align our investment team's compensation with client
interests, both through annual incentive
compensation awards and through the long-term value of deferred awards in the
SSGA LTI program.
For the index equity
investment team, incentive pool funding is driven in part by the post-tax 1 and
3-year tracking error of the funds managed by
the team against the benchmark indexes of the funds.
The discretionary
allocation of the incentive pool to the business units within SSGA is influenced
by market-based compensation data,
as well as the overall performance of each business unit. Individual
compensation decisions are made by the
employee's manager, in conjunction with the senior management of the employee's
business unit. These decisions are based
on the overall performance of the employee and, as mentioned above, on the
performance of the firm and business unit.
Depending on the job level, a portion of the annual incentive may be awarded in
deferred compensation, which
may include cash and/or Deferred Stock Awards (State Street stock), which
typically vest over a four-year period.
This helps to retain staff and further aligns SSGA employees' interests with
SSGA clients' and shareholders'
long-term interests.
SSGA recognizes and
rewards outstanding performance by:
•Promoting
employee ownership to connect employees directly to the company's
success.
•Using
rewards to reinforce mission, vision, values and business strategy.
•Seeking
to recognize and preserve the firm's unique culture and team
orientation.
•Providing
all employees the opportunity to share in the success of SSGA.
Blackstone
ETFs
The following table
lists the number and types of accounts managed by each of the key professionals
involved in the day-to-day portfolio
management for each Fund and assets under management in those accounts as of
June 30, 2023. The Portfolio Managers,
who are also members of the Sub-Adviser's Investment Committee, are primarily
responsible for the day-to-day portfolio
management of the Fund. The other members of the Sub-Adviser's Investment
Committee have oversight
responsibilities for the investments made by the respective Fund.
Other
Accounts Managed as of June 30, 2023
|
|
Registered
Investment
Company
Accounts
|
Assets
Managed
(billions) |
Other
Pooled
Investment
Vehicle
Accounts |
Assets
Managed
(billions) |
|
Assets
Managed
(billions) |
Total
Assets
Managed
(billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Includes 1 account
(totaling $33 million in assets under management) with performance-based
fees.
**
Includes 1 account
(totaling $7 million in assets under management) with performance-based
fees.
None of the
portfolio managers listed above beneficially owned Shares as of June 30, 2023,
except as noted in the table below:
|
|
|
Dollar
Range of Trust
Shares
Beneficially Owned |
|
|
SPDR
Blackstone High Income ETF |
|
|
|
SPDR
Blackstone High Income ETF |
|
|
|
SPDR
Blackstone Senior Loan ETF |
|
|
|
SPDR
Blackstone Senior Loan ETF |
|
Compensation: The Sub-Adviser's
financial arrangements with its portfolio managers, its competitive compensation
and its career path emphasis
at all levels reflect the value senior management places on key resources.
Compensation may include a variety of
components and may vary from year to year based on a number of factors. The
principal components of compensation
include a base salary and a discretionary bonus.
Base
Compensation: Generally,
portfolio managers receive base compensation and employee benefits based on
their
individual seniority and/or their position with the firm.
Discretionary
Compensation: In addition to base
compensation, portfolio managers may receive discretionary compensation.
Discretionary compensation is based on individual seniority, contributions to
the Sub-Adviser and performance of the
client assets that the portfolio manager has primary responsibility for. The
discretionary compensation is not
based on a precise formula, benchmark or other metric.
These compensation
guidelines are structured to closely align the interests of employees with those
of the Sub-Adviser and its
clients.
Blackstone
Credit Potential Conflicts of Interest:
The purchase of
Shares in SPDR Blackstone High Income ETF and SPDR Blackstone Senior Loan ETF
(for purposes of this section only,
collectively referred to as the “Fund”) involves a number
of significant risks that should be considered before making any
investment. The Fund and shareholders will be subject to a number of actual and
potential conflicts of interest involving
Blackstone and Blackstone Credit (together, the “Firm”). In addition, as a
consequence of Blackstone
holding a
controlling interest in Blackstone Credit and Blackstone's status as a public
company, the officers, directors, members, managers
and employees of Blackstone Credit will take into account certain additional
considerations and other factors in
connection with the management of the business and affairs of the Fund that
would not necessarily be taken into account
if Blackstone were not a public company. The following discussion enumerates
certain, but not all, potential conflicts
of interest that should be carefully evaluated before making an investment in
the Fund, but is not intended to be an
exclusive list of all such conflicts. The Firm and its personnel may in the
future engage in further activities that may
result in additional conflicts of interest not addressed below. Any references
to the Firm, Blackstone Credit, Blackstone
or Blackstone Liquid Credit Strategies LLC in this section will be deemed to
include their respective affiliates,
partners, members, shareholders, officers, directors and employees, except that
portfolio companies of managed clients
shall only be included to the extent the context shall require and references to
Blackstone Credit affiliates shall only be to
affiliates operating as a part of Blackstone's credit focused business
group.
For purposes of this
discussion and ease of reference, the following terms shall have the meanings as
set forth below:
“Other
Blackstone Credit Clients” means,
collectively, the investment funds, client accounts (including managed
accounts) and
proprietary accounts and/or other similar arrangements (including such
arrangements in which the Fund or one or more Other
Blackstone Credit Clients own interests) that Blackstone Credit may establish,
advise or sub-advise from time to time
and to which Blackstone Credit provides investment management or sub-advisory
services (other than the Fund and any
such funds and accounts in which the Fund has an interest), in each case
including any alternative investment vehicles
and additional capital vehicles relating thereto and any vehicles established by
Blackstone Credit to exercise its
side-by-side or other general partner investment rights as set forth in their
respective governing documents; provided, that for
the avoidance of doubt, “Other Blackstone
Credit Clients” shall not include
Blackstone Credit in its role as principal of any
account, including any accounts for which Blackstone Credit or an affiliate
thereof acts as an advisor.
“Blackstone
Clients” means,
collectively, the investment funds, client accounts (including managed accounts)
and proprietary accounts
and/or other similar arrangements (including such arrangements in which the Fund
or one or more Blackstone Clients
own interests) that Blackstone may establish, advise or sub-advise from time to
time and to which Blackstone provides
investment management or sub-advisory services (other than the Fund, any such
funds and accounts in which the Fund
has an interest and Other Blackstone Credit Clients), in each case including any
alternative investment vehicles and
additional capital vehicles relating thereto and any vehicles established by
Blackstone to exercise its side-by- side or other
general partner investment rights as set forth in their respective governing
documents; provided that, for the avoidance of doubt,
“Blackstone
Clients” shall not include
Blackstone in its role as principal of any account, including any accounts for which
Blackstone or an affiliate thereof acts as an advisor.
“Other
Clients” means,
collectively, Other Blackstone Credit Clients and Blackstone
Clients.
The
Firm's Policies and Procedures. The Firm has
implemented policies and procedures to address conflicts that arise as a result of its
various activities, as well as regulatory and other legal considerations.
Because the Firm has many different asset
management and advisory businesses, including private equity, a credit business,
a hedge fund business, a capital markets
group, a life sciences business and a real estate advisory business, it is
subject to a number of actual and potential conflicts
of interest, greater regulatory oversight and more legal and contractual
restrictions than that to which it would otherwise be
subject if it had just one line of business. In addressing these conflicts and
regulatory, legal and contractual
requirements across its various businesses and to protect against the
inappropriate sharing and/or use of information between
the Fund and the other business units at the Firm, the Firm has implemented
certain policies and procedures
(e.g., information wall
policy) regarding the sharing of information that may reduce the positive
synergies that the Fund expects to
utilize for purposes of identifying and managing attractive investments. For
example, the Firm will from time to time come
into possession of material non-public information with respect to companies in
which Other Clients may be considering
making an investment or companies that are clients of the Firm. As a
consequence, that information, which could be of
benefit to the Fund, might become restricted to those other respective
businesses and otherwise be unavailable to the
Fund. It is also possible that the Fund could be restricted from trading despite
the fact that the Fund did not receive such
information. There can be no assurance, however, that any such policies and/or
procedures will be effective in
accomplishing their stated purpose and/or that they will not otherwise adversely
affect the ability of the Fund to effectively achieve
its investment objective by unduly limiting the investment flexibility of the
Fund and/or the flow of otherwise
appropriate information between Blackstone Credit and other business units at
the Firm. Personnel of the Firm may be unable, for
example, to assist with the activities of the Fund as a result of these walls.
There can be no assurance that additional
restrictions will not be imposed that would further limit the ability of the
Firm to share information internally. In addition, to the
extent that the Firm is in possession of material non-public information or is
otherwise restricted from trading in certain
securities, the Fund and Blackstone Credit may also be deemed to be in
possession of such information
or otherwise
restricted. Additionally, the terms of confidentiality or other agreements with
or related to companies in which any Other Client has
or has considered making an investment or which is otherwise a client of the
Firm will from time to time restrict or
otherwise limit the ability of the Fund and/or its obligors and their affiliates
to make investments in or otherwise engage in
businesses or activities competitive with such companies. The Firm may enter
into one or more strategic
relationships in certain regions or with respect to certain types of investments
that, although intended to provide greater
opportunities for the Fund, may require the Fund to share such opportunities or
otherwise limit the amount of an opportunity the Fund
can otherwise take.
Broad
and Wide-Ranging Activities. The Firm engages in
a broad spectrum of activities. In the ordinary course of its business activities,
the Firm will engage in activities where the interests of certain divisions of
the Firm or the interests of its clients will
conflict with the interests of shareholders in the Fund. Other present and
future activities of the Firm will give rise to additional
conflicts of interest. In the event that a conflict of interest arises,
Blackstone Credit will attempt to resolve such conflict in a
fair and equitable manner, subject to the limitations of the 1940 Act and the
Board's oversight. Shareholders should
be aware that conflicts will not necessarily be resolved in favor of the Fund's
interests. Investors should be aware that
conflicts will not necessarily be resolved in favor of the Fund's interests. In
addition, Blackstone Credit may in
certain situations choose to obtain the consent of the Board with respect to any
specific conflict of interest, including with
respect to the approvals required under the 1940 Act and the Advisers Act. The
Fund may enter into joint transactions or
cross-trades with clients or affiliates of Blackstone Credit to the extent
permitted by the 1940 Act, the Advisers Act.
Subject to the limitations of the 1940 Act, the Fund may invest in loans or
other securities, the proceeds of which may refinance
or otherwise repay debt or securities of companies whose debt is owned by other
funds managed by Blackstone
Credit.
Allocation
of Personnel. Blackstone Credit
and its members, officers and employees will devote as much of their time to
the
activities of the Fund as they deem necessary to conduct its business affairs in
an appropriate manner. By the terms of the investment
advisory agreement, the Firm is not restricted from forming additional
investment funds, from entering into other
investment advisory relationships or from engaging in other business activities,
even though such activities may be in competition
with the Fund and/or may involve substantial time and resources of Blackstone
Credit. Firm personnel, including members of
the investment committee, will work on other projects, serve on other committees
(including boards of directors) and
source potential investments for and otherwise assist the investment programs of
Other Clients and their portfolio companies,
including other investment programs to be developed in the future. Certain
members of Blackstone Credit's investment
team are also members of Other Clients' investment teams and will continue to
serve in those roles (which could be
their primary responsibility) and as a result, not all of their business time
will be devoted to Blackstone or the Fund. Certain
non-investment professionals are not dedicated solely to the Fund and are
permitted to perform work for Other Clients which
is expected to detract from the time such persons devote to the Fund. These
activities could be viewed as creating a
conflict of interest in that the time and effort of the members of Blackstone
Credit and its officers and employees will not
be devoted exclusively to the business of the Fund, but will be allocated
between the business of the Fund and the
management of the monies of such Other Clients of Blackstone Credit. Time spent
on these other initiatives diverts attention
from the activities of the Fund, which could negatively impact shareholders.
Furthermore, Blackstone Credit and
Blackstone Credit personnel derive financial benefit from these other
activities, including fees and performance- based compensation.
Firm personnel outside of Blackstone Credit may share in the fees and
performance-based compensation from
the Fund; similarly, Blackstone Credit personnel may share in the fees and
performance-based compensation
generated by Other Clients. These and other factors create conflicts of interest
in the allocation of time by Firm personnel.
Blackstone Credit's determination of the amount of time necessary to conduct the
Fund's activities will be conclusive.
Outside
Activities of Principals and Other Personnel and their Related
Parties.
Certain
of the principals and employees of
Blackstone Credit will, in certain circumstances, be subject to a variety of
conflicts of interest relating to their
responsibilities to the Fund, Other Clients and their respective portfolio
companies, and their outside personal or business activities,
including as members of investment or advisory committees or boards of directors
of or advisors to investment funds,
corporations, foundations or other organizations. Such positions create a
conflict if such other entities have interests that
are adverse to those of the Fund, including if such other entities compete with
the Fund for investment opportunities or
other resources. The other managed accounts and/or investment funds in which
such individuals may become involved may
have investment objectives that overlap with the Fund. Although such principals
and employees will seek to limit any
such conflicts in a manner that is in accordance with their fiduciary duties to
the Fund, there can be no assurance that
conflicts of interest between the interests of the Fund and Other Clients will
be resolved favorably for the Fund. Furthermore,
certain principals and employees of Blackstone Credit may have a greater
financial interest in the performance of such
other funds or accounts than the performance of the Fund. Such involvement may
create conflicts of
interest in making
investments on behalf of the Fund and such other funds and accounts. Also,
Blackstone personnel, Firm employees,
including employees of Blackstone Credit, are generally permitted to invest in
alternative investment funds, private
equity funds, real estate funds, hedge funds and other investment vehicles, as
well as engage in other personal trading
activities relating to companies, assets, securities or instruments (subject to
the Firm's Code of Ethics requirements), some
of which will involve conflicts of interests. Such personal securities
transactions will, in certain circumstances,
relate to securities or instruments which can be expected to also be held or
acquired by Other Clients, the Fund, or otherwise
relate to the obligors in which the Fund has or acquires a different principal
investment (including, for example, with
respect to seniority). There can be no assurance that conflicts of interest
arising out of such activities will be resolved in favor of
the Fund. Shareholders will not receive any benefit from any such investments,
and the financial incentives of Firm
personnel in such other investments could be greater than their financial
incentives in relation to the Fund.
Additionally,
certain employees and other professionals of the Firm may have family members or
relatives employed by advisers and service
providers (or their affiliates) or otherwise actively involved in industries and
sectors in which the Fund invests, and/or have
business, financial, personal or other relationships with companies in such
industries and sectors (including the
advisors and service providers described above) or other industries, which gives
rise to potential or actual conflicts of
interest. For example, such family members or relatives might be employees,
officers, directors, personnel or owners of companies
or assets that are actual or potential investments of the Fund or other
counterparties of the Fund and its obligors
and/or assets, or service providers of the Fund. Moreover, in certain instances,
the Fund or its obligors can be expected to
issue loans to or acquire securities from, or otherwise transact with, companies
that are owned by such family members
or relatives or in respect of which such family members or relatives have other
involvement. These relationships also
may influence Blackstone, and/or Blackstone Credit in deciding whether to select
or recommend certain service providers to
perform services for the Fund or obligors (the cost of which will generally be
borne directly or indirectly by the
Fund or such obligors, as applicable) and to incentivize Blackstone to engage
such service provider over a third party. The
fees for services provided by such service providers may or may not be at the
same rate charged by other third parties
and the Firm undertakes no obligations to select service providers who may have
lower rates. The Firm undertakes no
minimum amount of benchmarking. To the extent the Firm does engage in
benchmarking, it cannot be assured that such
benchmarking will be accurate, comparable, or relate specifically to the assets
or services to which such rates or terms
relate. Whether or not the Firm has a relationship or receives financial or
other benefit from recommending a
particular service provider, there can be no assurance that no other service
provider is more qualified to provide the
applicable services or could provide such services at lesser cost.
Notwithstanding the foregoing, investment transactions
relating to the Fund that require the use of a service provider will generally
be allocated to service providers on the basis of best
execution, the evaluation of which includes, among other considerations, such
service provider's provision of certain
investment-related services and research that Blackstone Credit believes to be
of benefit to the Fund. To the extent that
the Firm determines appropriate, conflict mitigation strategies can be expected
to be put in place with respect to a
particular circumstance, such as internal information barriers or recusal,
disclosure or other steps determined appropriate by the
Firm.
Secondments
and Internships. Certain personnel of
the Firm and its affiliates, including consultants, will, in certain
circumstances, be
seconded to one or more portfolio companies, vendors, service providers and
vendors or shareholders or other investors
of the Fund and Other Clients to provide finance, accounting, operation support,
data management and other similar
services, including the sourcing of investments for the Fund or other parties.
The salaries, benefits, overhead and other similar
expenses for such personnel during the secondment could be borne by the Firm and
its affiliates or the organization for
which the personnel are working or both. In addition, personnel of portfolio
companies, vendors and service providers
(including law firms and accounting firms) and shareholders or other investors
of the Fund and Other Clients will, in
certain circumstances, be seconded to, serve internships at or otherwise provide
consulting services to, the Firm, the Fund and
its obligors, and Other Clients and its portfolio companies. While often the
Fund, Other Clients and their obligors or
portfolio companies (as applicable) are the beneficiaries of these types of
arrangements, the Firm is from time to time a
beneficiary of these arrangements as well, including in circumstances where the
vendor, personnel or service provider or
otherwise also provides services to the Fund, Other Clients, their obligors or
portfolio companies (as applicable) or the
Firm in the ordinary course. The Firm, the Fund, Other Clients or their obligors
or respective portfolio companies (as
applicable) could receive benefits from these arrangements at no cost, or
alternatively could pay all or a portion of the fees,
compensation or other expenses in respect of these arrangements. The management
fee will not be reduced as a result
of these arrangements or any fees, expense reimbursements or other costs related
thereto and the Fund may not receive
any benefit as a result of these arrangements. The personnel described above may
provide services in respect
of multiple matters, including in respect of matters related to the Firm, the
Fund, Other Clients,
portfolio companies,
each of their respective affiliates and related parties, and the Firm will
endeavor in good faith to allocate the costs
of these arrangements, if any, to the Firm, the Fund, Other Clients, portfolio
companies and other parties based on
time spent by the personnel or another methodology the Firm deems appropriate in
a particular circumstance.
Other
Benefits. Blackstone Credit
and its personnel and related parties will receive intangible and other
benefits, discounts and
perquisites arising or resulting from their activities on behalf of the Fund,
the value of which will not reduce the management fees
or incentive fees or otherwise be shared with the Fund, its or portfolio
companies. For example, airline travel or
hotel stays incurred as Fund expenses, as set forth in the investment advisory
agreement (“Fund Expenses”), may result in
“miles” or “points” or credit in
loyalty or status programs, and certain purchases made by credit card will result in
“credit card
points”, “cash
back” or rebates in
addition to such loyalty or status program miles or points. Such benefits and/or
amounts will, whether or not de minimis or difficult to value, inure exclusively
to the benefit of Blackstone Credit,
its affiliates or their personnel (and not the Fund and/or portfolio companies)
even though the cost of the underlying
service is borne as Fund Expenses or by its portfolio companies. (See also
“- Service Providers,
Vendors and Other
Counterparties Generally” herein.) Similarly,
Blackstone Credit, its affiliates and their personnel and related persons also receive
discounts on products and services provided by portfolio companies and/or
customers or suppliers of such portfolio
companies. Such other benefits or fees may give rise to conflicts of interest in
connection with the Fund's investment
activities, and while Blackstone Credit will seek to resolve any such conflicts
in a fair and equitable manner, there is no
assurance that any such conflicts will be resolved in favor of the Fund. (See
also “—Obligor/Portfolio
Company Service Providers
and Vendors” and “—Obligor/ Portfolio
Company Relationships Generally”
below.)
Senior
Advisors, Industry Experts and Operating Partners. Blackstone Credit
may engage and retain strategic advisers,
consultants, senior advisors, executive advisers, industry experts, operating
partners, deal sourcers, consultants and other similar
professionals (which may include former employees of Blackstone and/or
Blackstone Credit, as well as current employees of
Blackstone's and/or Blackstone Credit's portfolio companies) (“Senior and Other
Advisors”) who are
not
employees or affiliates of Blackstone Credit, including through joint ventures,
investment platforms, other entities or similar
arrangements, and who will, from time to time, receive payments from, or
allocations of a profits interest with respect to,
portfolio companies (as well as from Blackstone Credit or the Fund). In
particular, in some cases, consultants, including those with
a “Senior
Advisor” title, have been
and will be engaged with the responsibility to source and recommend
transactions to Blackstone Credit or to undertake a build-up strategy to acquire
and develop assets and businesses in a
particular sector or involving a particular strategy, potentially on a full-time
and/or exclusive basis and notwithstanding any
overlap with the responsibilities of Blackstone Credit under the investment
advisory agreement, the compensation to such
consultants may be borne fully by the Fund and/or portfolio companies (with no
reduction to the management fee
payable by the Fund) and not Blackstone Credit. In such circumstances, such
payments from, or allocations of a
profits interest with respect to, portfolio companies and/or the Fund may,
subject to applicable law, be treated as Fund
Expenses and will not, even if they have the effect of reducing any retainers or
minimum amounts otherwise payable by
Blackstone Credit, be deemed paid to or received by Blackstone Credit, and such
amounts will not reduce the
management fees or incentive fees payable.
To the extent
permitted by applicable law and/or any applicable SEC-granted exemptive or
no-action relief, these Senior and Other Advisors
often have the right or may be offered the ability to (i) co-invest alongside
the Fund, including in the specific investments
in which they are involved (and for which they may be entitled to receive
performance-related incentive fees,
which will reduce the Fund's returns), (ii) otherwise participate in equity
plans for management of any such portfolio company or
(iii) invest directly in the Fund or in a vehicle controlled by the Fund subject
to reduced or waived management fees
and/or incentive fees, including after the termination of their engagement by or
other status with the Firm. Such
co-investment and/or participation generally will result in the Fund being
allocated a smaller share of the applicable
investment. Such co-investment and/or participation may vary by transaction and
such participation may, depending on its
structure, reduce the Fund's returns. Additionally, and notwithstanding the
foregoing, these Senior and Other Advisors, as
well as other Blackstone Clients, may be (or have the preferred right to be)
investors in Blackstone Credit's portfolio
companies (which, in some cases, may involve agreements to pay performance fees
or allocate profits interests to such
persons in connection with the Fund's investment therein, which will reduce the
Fund's returns) and/or Other Clients. Such
Senior and Other Advisors, as well as other Blackstone Clients, may also,
subject to applicable law, have rights to
co-invest with the Fund on a side-by-side basis, which rights are generally
offered on a no-fee/no-carried interest basis and
generally result in the Fund being allocated a smaller share of an investment
than would otherwise be the case in the
absence of such side-by-side participation. Senior and Other Advisors' benefits
described in this paragraph will, in
certain circumstances, continue after termination of status as a Senior and
Other Advisor.
The time, dedication
and scope of work of, and the nature of the relationship with each of the Senior
and Other Advisors vary considerably.
In certain cases, they may advise Blackstone on transactions, provide Blackstone
with industry-specific insights and
feedback on investment themes, assist in transaction due diligence or make
introductions to and provide reference checks on
management teams. In other cases, they take on more extensive roles (and may be
exclusive service providers to
Blackstone) and serve as executives or directors on the boards of portfolio
companies or contribute to the identification and
origination of new investment opportunities. The Fund may rely on these Senior
and Other Advisors to recommend Blackstone
as a preferred investment partner, identify investments, source opportunities,
and otherwise carry out its investment
program, but there is no assurance that these advisers will continue to be
involved with the Fund for any length of time. In
certain instances, Blackstone has formal arrangements with these Senior and
Other Advisors (which may or may not be
terminable upon notice by any party), and in other cases the relationships are
more informal. They are either compensated
(including pursuant to retainers and expense reimbursement, and, in any event,
pursuant to negotiated
arrangements) by Blackstone, the Fund, and/or portfolio companies or otherwise
uncompensated unless and until an engagement
with a portfolio company develops. In certain cases, they have certain
attributes of Blackstone “employees” (e.g.,
they
can be expected to have dedicated offices at Blackstone, receive administrative
support from Blackstone
personnel, participate in general meetings and events for Blackstone personnel,
work on Blackstone matters as their primary or
sole business activity, service Blackstone exclusively, have Blackstone -related
e-mail addresses and/or business cards and
participate in certain benefit arrangements typically reserved for Blackstone
employees, etc.) even though they are not
considered Blackstone employees, affiliates or personnel for purposes of the
investment advisory agreement between
the Fund and Blackstone. Some Senior and Other Advisors may provide services
only for the Fund and its obligors,
while others may have other clients. Senior and Other Advisors could have
conflicts of interest between their services for
the Fund and its obligors, on the one hand, and themselves or other clients, on
the other hand, and Blackstone is
limited in its ability to monitor and mitigate these conflicts. Blackstone
expects, where applicable, to allocate the costs of such
Senior and Other Advisors to the Fund and/or applicable portfolio companies, and
to the extent any such costs are allocated
to the Fund, they would be treated as Fund Expenses. Payments or allocations to
Senior and Other Advisors will not be
reduced by the management fee, and can be expected to increase the overall costs
and expenses borne indirectly by
investors in the Fund. There can be no assurance that any of the Senior and
Other Advisors, to the extent engaged, will
continue to serve in such roles and/or continue their arrangements with
Blackstone, the Fund and/or any portfolio
companies for the duration of the relevant investments.
As an example of the
foregoing, in certain investments through joint ventures, investment platforms,
other entities or similar
arrangements, the Fund will from time to time enter into an arrangement with one
or more individuals (who may be former personnel of
the Firm or current or former personnel of portfolio companies of the Fund or
Other Clients, may have experience or
capability in sourcing or managing investments, and may form a management team)
to undertake a build-up strategy to
acquire and develop assets and businesses in a particular sector or involving a
particular strategy. The services provided by
such individuals or relevant portfolio company, as the case may be, could
include the following with respect to
investments: origination or sourcing, due diligence, evaluation, negotiation,
servicing, development, management
(including turnaround) and disposition. The individuals or relevant portfolio
company could be compensated with a salary and
equity incentive plan, including a portion of profits derived from the Fund or a
portfolio company or asset of the Fund, or
other long-term incentive plans. Compensation could also be based on assets
under management, a waterfall similar to
a carried interest, respectively, or other similar metric. The Fund could
initially bear the cost of overhead (including rent,
utilities, benefits, salary or retainers for the individuals or their affiliated
entities) and the sourcing, diligence and analysis of
investments, as well as the compensation for the individuals and entity
undertaking the build-up strategy. Such expenses could
be borne directly by the Fund as Fund Expenses (or broken deal expenses, if
applicable) or indirectly through
expenditures by a portfolio company. None of the fees, costs or expenses
described above will reduce the management
fee.
In addition,
Blackstone Credit will, in certain circumstances, engage third parties as Senior
and Other Advisors (or in another similar
capacity) in order to advise it with respect to existing investments, specific
investment opportunities, and economic and
industry trends. Such Senior and Other Advisors may receive reimbursement of
reasonable related expenses by
portfolio companies or the Fund and may have the opportunity to invest in a
portion of the equity and/or debt available to the
Fund for investment that would otherwise be taken by Blackstone Credit and its
affiliates. If such Senior and Other Advisors
generate investment opportunities on the Fund's behalf, such Senior and Other
Advisors may receive special additional
fees or allocations comparable to those received by a third party in an arm's
length transaction and such additional fees or
allocations would be borne fully by the Fund and/or portfolio companies (with no
reduction to the management fee
payable by the Fund) and not Blackstone Credit.
Multiple
Firm Business Lines.
The
Firm has multiple business lines, including the Blackstone Capital Markets
Group, which, subject to
applicable law, Blackstone, Blackstone Credit, the Fund, Other Clients,
portfolio companies of the Fund and Other Clients
and third parties will, in certain circumstances, engage for debt and equity
financings and to provide other investment
banking, brokerage, investment advisory or other services. As a result of these
activities, the Firm is subject to a number
of actual and potential conflicts of interest, greater regulatory oversight and
more legal and contractual
restrictions than if it had one line of business. For example, the Firm may come
into possession of information that limits the
Fund's ability to engage in potential transactions. Similarly, other Firm
businesses and their personnel may be prohibited by law
or contract from sharing information with Blackstone Credit that would be
relevant to monitoring the Fund's investments
and other activities. Additionally, Blackstone, Blackstone Credit or Other
Clients can be expected to enter into covenants
that restrict or otherwise limit the ability of the Fund or its obligors and
their affiliates to make investments in, or
otherwise engage in, certain businesses or activities. For example, Other
Clients could have granted exclusivity to a
joint venture partner that limits the Fund and Other Clients from owning assets
within a certain distance of any of the joint
venture's assets, or Blackstone, Blackstone Credit or an Other Client could have
entered into a non- compete in
connection with a sale or other transaction. These types of restrictions may
negatively impact the ability of the Fund to implement
its investment program. (See also “—Other Blackstone
and Blackstone Credit Clients; Allocation of Investment
Opportunities”). Finally,
Blackstone and Blackstone Credit personnel who are members of the investment
team or
investment committee may be excluded from participating in certain investment
decisions due to conflicts involving other Firm
businesses or for other reasons, including other business activities in which
case the Fund will not benefit from their experience.
Shareholders will not receive a benefit from any fees earned by the Firm or
their personnel from these other
businesses.
Blackstone is under
no obligation to decline any engagements or investments in order to make an
investment opportunity available to the
Fund. The Firm has long-term relationships with a significant number of
corporations and their senior management. In
determining whether to invest in a particular transaction on behalf of the Fund,
Blackstone Credit will consider those
relationships and may decline to participate in a transaction as a result of one
or more of such relationships
(e.g.,
investments in a
competitor of a client or other person with whom Blackstone has a relationship).
The Fund may be forced
to sell or hold existing investments as a result of investment banking
relationships or other relationships that
the Firm may have or transactions or investments the Firm may make or have made.
(See “—Other Blackstone and
Blackstone Credit Clients; Allocation of Investment Opportunities” and “—Obligor/Portfolio
Company Relationships
Generally.”) Subject to the
1940 Act, the Fund may also co-invest with clients of the Firm in particular
investment
opportunities, and the relationship with such clients could influence the
decisions made by Blackstone Credit with respect to such
investments. There can be no assurance that all potentially suitable investment
opportunities that come to the
attention of the Firm will be made available to the Fund.
Finally, Blackstone
and other Blackstone Clients could acquire shares in the Fund in the secondary
market. Blackstone and other Blackstone
Clients would generally have greater information than counterparties in such
transactions, and the existence of such
business could produce conflicts, including in the valuation of the Fund's
Investments.
Minority
Investments in Asset Management Firms. Blackstone and Other
Clients, including Blackstone Strategic Capital Holdings
(“BSCH”) and its related
parties, regularly make minority investments in alternative asset management
firms
that are not affiliated with Blackstone, the Fund, Other Clients and their
respective portfolio companies, and which may from time to
time engage in similar investment transactions, including with respect to
purchase and sale of investments, with
these asset management firms and their sponsored funds and portfolio companies.
Typically, the Blackstone related
party with an interest in the asset management firm would be entitled to receive
a share of carried interest/performance
based incentive compensation and net fee income or revenue share generated by
the various products, vehicles,
funds and accounts managed by that third party asset management firm that are
included in the transaction or
activities of the third party asset management firm, or a subset of such
activities such as transactions with a Blackstone related
party. In addition, while such minority investments are generally structured so
that Blackstone does not “control” such third party
asset management firms, Blackstone may nonetheless be afforded certain
governance rights in relation to such
investments (typically in the nature of “protective” rights, negative
control rights or anti-dilution arrangements, as
well as certain reporting and consultation rights) that afford Blackstone the
ability to influence the firm. Although Blackstone
and Other Clients, including BSCH, do not intend to control such third party
asset management firms, there can be
no assurance that all third parties will similarly conclude that such
investments are non- control investments or that,
due to the provisions of the governing documents of such third party asset
management firms or the interpretation of
applicable law or regulations, investments by Blackstone and Other Clients,
including BSCH, will not be deemed to have
control elements for certain contractual, regulatory or other purposes. While
such third party asset managers may not be
affiliated with the Fund within the meaning of the 1940 Act, Blackstone may,
under certain
circumstances, be in
a position to influence the management and operations of such asset managers and
the existence of its economic/revenue
sharing interest therein may give rise to conflicts of interest. Participation
rights in a third party asset management firm (or
other similar business), negotiated governance arrangements and/or the
interpretation of applicable law or regulations
could expose the investments of the Fund to claims by third parties in
connection with such investments (as indirect owners
of such asset management firms or similar businesses) that may have an adverse
financial or reputational impact
on the performance of the Fund. The Fund, its affiliates and their respective
obligors and portfolio companies may from
time to time engage in transactions with, and buy and sell investments from, any
such third party asset managers and
their sponsored funds, and such transactions and other commercial arrangements
between such third party asset
managers and the Fund and its obligors are not subject to approval by the Board.
There can be no assurance that the
terms of these transactions between parties related to Blackstone, on the one
hand, and the Fund and its obligors, on the
other hand, will be at arm's length or that Blackstone will not receive a
benefit from such transactions, which can be
expected to incentivize Blackstone to cause these transactions to occur. Such
conflicts related to investments in and
arrangements with other asset management firms will not necessarily be resolved
in favor of the Fund. Shareholders will
not be entitled to receive notice or disclosure of the terms or occurrence of
either the investments in alternative asset
management firms or transactions therewith and will not receive any benefit from
such transactions. These conflicts
related to investments in and arrangements with other asset management firms,
will not necessarily be resolved in favor of
the Fund.
Blackstone
Policies and Procedures; Information Walls. Blackstone has
implemented policies and procedures to address conflicts
that arise as a result of its various activities, as well as regulatory and
other legal considerations. Some of these policies
and procedures, such as Blackstone's information wall policy, implemented by
Blackstone to mitigate potential conflicts
of interest and address certain regulatory requirements and contractual
restrictions, will reduce the synergies and
collaboration across Blackstone's various businesses that the Fund expects to
draw on for purposes of identifying,
pursuing and managing attractive investment opportunities. Because Blackstone
has many different asset management and
advisory businesses, including private equity, growth equity, a credit business,
a hedge fund business, a capital markets
group, a life sciences business and a real estate advisory business, it is
subject to a number of actual and potential conflicts
of interest, greater regulatory oversight and more legal and contractual
restrictions than that to which it would otherwise be
subject if it had just one line of business. In addressing these conflicts and
regulatory, legal and contractual
requirements across its various businesses and to protect against the
inappropriate sharing and/or use of information between
the Fund and the other business units at Blackstone, Blackstone has implemented
certain policies and procedures
(e.g., Blackstone's
information wall policy) regarding the sharing of information that have the
potential to reduce the positive
synergies and collaborations that the Fund could otherwise expect to utilize for
purposes of identifying and managing
attractive investments. For example, Blackstone will from time to time come into
possession of material non-public
information with respect to companies in which Other Clients may be considering
making an investment or companies that are
clients of Blackstone. As a consequence, that information, which could be of
benefit to the Fund, might become
restricted to those other respective businesses and otherwise be unavailable to
the Fund. There can be no assurance, however,
that any such policies and/or procedures will be effective in accomplishing
their stated purpose and/ or that they will
not otherwise adversely affect the ability of the Fund to effectively achieve
its investment objective by unduly limiting the
investment flexibility of the Fund and/or the flow of otherwise appropriate
information between Blackstone Credit
and other business units at Blackstone. For example, in some instances,
personnel of Blackstone would be unable to assist
with the activities of the Fund as a result of these walls. There can be no
assurance that additional restrictions will
not be imposed that would further limit the ability of Blackstone to share
information internally. In addition, due to these
restrictions, the Fund may not be able to initiate a transaction that it
otherwise might have initiated and may not be able to
purchase or sell an investment that it otherwise might have purchase or sold,
which could negatively affect its
operations.
In addition, to the
extent that Blackstone is in possession of material non-public information or is
otherwise restricted from trading in certain
securities, the Fund would also be deemed to be in possession of such
information or otherwise restricted.
Additionally, the terms of confidentiality or other agreements with or related
to companies in which any Blackstone fund has
or has considered making an investment or which is otherwise a client of
Blackstone will from time to time restrict or
otherwise limit the ability of the Fund and/or its obligors and their affiliates
to make investments in or otherwise engage in
businesses or activities competitive with such companies. Blackstone has in the
past entered into, and reserves the
right to enter into in the future, one or more strategic relationships in
certain regions or with respect to certain types of
investments that, although intended to provide greater opportunities for the
Fund, require the Fund to share such
opportunities or otherwise limit the amount of an opportunity the Fund can
otherwise take.
Data.
The
Firm receives, generates or obtains various kinds of data and information from
the Fund, Other Clients and their obligors or
portfolio companies (as applicable), including but not limited to data and
information relating to business operations,
financial information results, trends, budgets, energy usage, plans, ESG, and
related metrics, customer and user data, employee
and contractor data, supplier and cost data, and other related data and
information, some of which is sometimes referred
to as alternative data or “big
data.” The Firm can be
expected to anticipate macroeconomic and other trends, and
otherwise develop investment themes or identify specific investment, trading or
business opportunities, as a result of its access
to (and rights regarding) this data and information from the Fund, Other Clients
and their obligors or portfolio companies
(as applicable). The Firm has entered and will continue to enter into
information sharing and use, measurements and
other arrangements, which will give the Firm access to (and rights regarding,
including ownership, use, distribution and
derived works rights over) data that would not otherwise obtain in the ordinary
course, with the Fund, Other Clients and
their obligors or portfolio companies (as applicable), related parties and
service providers. Although the Firm believes that
these activities improve the Firm's investment management activities on behalf
of the Fund and Other Clients, information
obtained from the Fund and its obligors also provides material benefits to
Blackstone, Blackstone Credit or Other
Clients without compensation or other benefit accruing to the Fund or
shareholders. For example, information from a
portfolio company in which the Fund holds an interest can be expected to enable
the Firm to better understand a
particular industry and execute trading and investment strategies in reliance on
that understanding for Blackstone,
Blackstone Credit and Other Clients that do not own an interest in the portfolio
company, typically without compensation or
benefit to the Fund or its obligors. Further, data is expected to be aggregated
across the Fund, Other Clients and their
respective obligors/portfolio companies and, in connection therewith, Blackstone
would serve as the repository for such
data, including with ownership and use rights therein.
Furthermore, except
for contractual obligations to third parties to maintain confidentiality of
certain information or otherwise limit the
scope and purpose of its use or distribution, and regulatory limitations on the
use of material nonpublic information, the
Firm is generally free to use and distribute data and information from the
Fund's activities to assist in the pursuit of the
Firm's various other activities, including but not limited to trading activities
for the benefit of the Firm and/or an Other Client. Any
confidentiality obligations in the operative documents do not limit the Firm's
ability to do so. For example, the Firm's
ability to trade in securities of an issuer relating to a specific industry may,
subject to applicable law, be enhanced by
information of a portfolio company in the same or related industry. Such trading
or other business activities can be
expected to provide a material benefit to the Firm without compensation or other
benefit to the Fund or shareholders.
The sharing and use
of “big data” and other
information presents potential conflicts of interest and shareholders
acknowledge and
agree that any benefits received by the Firm or its personnel (including fees,
costs and expenses) will not reduce the
management fees or incentive fees payable to Blackstone or otherwise be shared
with the Fund or shareholders. As a
result, Blackstone has an incentive to pursue investments that have data and
information that can be utilized in a manner
that benefits the Firm or Other Clients.
Data
Management Services. Blackstone or an
affiliate of Blackstone formed in the future will provide data management
services to
portfolio companies and will provide such services directly to the Fund and
Other Clients (collectively, “Data Holders”). Such services may
include assistance with obtaining, analyzing, curating, processing, packaging,
distributing, organizing, mapping,
holding, transforming, enhancing, marketing and selling such data (among other
related data management and
consulting services) for monetization through licensing or sale arrangements
with third parties and, subject to
applicable law and the limitations in the investment advisory agreement and any
other applicable contractual limitations, with
the Fund, Other Clients, portfolio companies and other Blackstone affiliates and
associated entities (including funds in
which Blackstone and Other Clients make investments, and portfolio companies
thereof). Where Blackstone believes
appropriate, data from one Data Holder may be aggregated or pooled with data
from other Data Holders. Any
revenues arising from such aggregated or pooled data sets would be allocated
between applicable Data Holders on a fair
and reasonable basis as determined by Blackstone Credit in its sole discretion,
with Blackstone Credit able to make
corrective allocations should it determine subsequently that such corrections
were necessary or advisable. Blackstone is
expected to receive compensation for such data management services, which may
include a percentage of the revenues
generated through any licensing or sale arrangements with respect to the
relevant data, and which compensation is also
expected to include fees, royalties and cost and expense reimbursement
(including start-up costs and allocable
overhead associated with personnel working on relevant matters (including
salaries, benefits and other similar expenses)),
and will not offset the management fee or otherwise shared with the Fund or
shareholders. Additionally,
Blackstone is expected to share and distribute the products from such Data
Management Services within Blackstone or its
affiliates (including Other Clients or their portfolio companies) at no charge
and, in such cases, the Data
Holders may not
receive any financial or other benefit from having provided such data to
Blackstone. The potential receipt of such compensation
by Blackstone may create incentives for the Firm to cause the Fund to invest in
portfolio companies with a significant
amount of data that it might not otherwise have invested in or on terms less
favorable than it otherwise would have sought to
obtain.
Blackstone
and Blackstone Credit Strategic Relationships. Blackstone and
Blackstone Credit have entered, and it can be expected that
Blackstone and Blackstone Credit in the future will enter, into strategic
relationships with investors (and/ or one or more of
their affiliates) that involve an overall relationship with Blackstone or
Blackstone Credit (which will afford such investor
special rights and benefits) that could incorporate one or more strategies
(including, but not limited to, a different sector
and/or geographical focus) in addition to the Fund's strategy (“Strategic
Relationships”), with terms and
conditions
applicable solely to such investor and its investment in multiple Blackstone or
Blackstone Credit strategies that would not apply to
any other investor's investment in the Fund. A Strategic Relationship often
involves an investor agreeing to make a capital
commitment to or investment in (as applicable) multiple Blackstone or Blackstone
Credit funds, one of which may include
the Fund. Shareholders will not receive a copy of any agreement memorializing
such a Strategic Relationship program
(even if in the form of a side letter) and will be unable to elect in the
“most-favored-nations” election
process
any rights or benefits afforded through a Strategic Relationship. Specific
examples of such additional rights and benefits include,
among others, specialized reporting, discounts or reductions on and/or
reimbursements or rebates of management fees or
carried interest, secondment of personnel from the investor to Blackstone or
Blackstone Credit (or vice versa), rights
to participate in the investment review and evaluation process, as well as
priority rights or targeted amounts for
co-investments alongside Blackstone Credit or Blackstone vehicles (including,
without limitation, preferential or favorable
allocation of co-investment and preferential terms and conditions related to
co-investment or other participation in
Blackstone or Blackstone Credit funds (including in respect of any carried
interest and/or management fees to be charged
with respect thereto, as well as any additional discounts, reductions,
reimbursements or rebates with respect thereto or
other penalties that may result if certain target co-investment allocations or
other conditions under such arrangements are not
achieved)). The co-investment that is part of a Strategic Relationship may
include co-investment in investments made by
the Fund. Blackstone, including its personnel (including Blackstone Credit
personnel), reserve the right to receive
compensation from Strategic Relationships, and may be incentivized to allocate
investment opportunities away from the Fund
to, or source investment opportunities for, Strategic Relationships. Strategic
Relationships may therefore result in
fewer co- investment opportunities (or reduced or no allocations) being made
available to shareholders, subject to the 1940
Act.
Buying
and Selling Investments or Assets from Certain Related Parties.
The
Fund and its obligors may purchase investments or
assets from or sell investments or assets to shareholders, other obligors of the
Fund, portfolio companies of Other Clients or
their respective related parties. Purchases and sales of investments or assets
between the Fund or its obligors, on the one
hand, and shareholders, other obligors of the Fund, portfolio companies of Other
Clients or their respective related
parties, on the other hand, are not, unless required by applicable law, subject
to the approval of the Board or any
shareholder. These transactions involve conflicts of interest, as the Firm may
receive fees and other benefits, directly or
indirectly, from or otherwise have interests in both parties to the transaction,
including different financial incentives
Blackstone may have with respect to the parties to the transaction. For example,
there can be no assurance that any investment
or asset sold by the Fund to a shareholder, other obligors of the Fund,
portfolio company of Other Clients or any of
their respective related parties will not be valued or allocated a sale price
that is lower than might otherwise have been
the case if such asset were sold to a third party rather than to a shareholder,
portfolio company of Other Clients or any
of their respective related parties. The Firm will not be required to solicit
third party bids or obtain a third party
valuation prior to causing the Fund or any of its obligors to purchase or sell
any asset or investment from or to a shareholder, other
obligors of the Fund, portfolio company of Other Clients or any of their
respective related parties as provided
above.
Other
Firm Businesses, Activities and Relationships. As part of its
regular business, Blackstone provides a broad range of investment
banking, advisory and other services. In addition, from time to time, the Firm
will provide services in the future beyond
those currently provided. Shareholders will not receive any benefit from any
fees relating to such services.
In the regular
course of its capital markets, investment banking, real estate advisory and
other businesses, Blackstone represents potential
purchasers, sellers and other involved parties, including corporations,
financial buyers, management, shareholders and
institutions, with respect to transactions that could give rise to other
transactions that are suitable for the Fund. In such a
case, a Blackstone advisory client would typically require Blackstone to act
exclusively on its behalf. Such advisory client
requests may preclude all Blackstone-affiliated clients, including the Fund,
from participating in related transactions that
would otherwise be suitable. Blackstone will be under no obligation to decline
any such engagements in
order to make an
investment opportunity available to the Fund. In connection with its capital
markets, investment banking, advisory, real
estate and other businesses, Blackstone comes into possession of information
that limits its ability to engage in potential
transactions. The Fund's activities are expected to be constrained as a result
of the inability of Blackstone personnel
to use such information. For example, employees of Blackstone, from time to
time, are prohibited by law or contract from
sharing information with members of the Fund's investment team. Additionally,
there are expected to be circumstances in
which one or more individuals associated with Blackstone affiliates (including
clients) will be precluded from
providing services related to the Fund's activities because of certain
confidential information available to those individuals or
to other parts of Blackstone (e.g.,
trading
may be restricted). Where Blackstone affiliates are engaged to find buyers or
financing sources for potential sellers of assets, the seller may permit the
Fund to act as a participant in such transactions
(as a buyer or financing partner), which would raise certain conflicts of
interest inherent in such a situation (including
as to the negotiation of the purchase price).
The Fund may invest
in securities of the same issuers as Other Clients, other investment vehicles,
accounts and clients of the Firm and
Blackstone Credit. To the extent that the Fund holds interests that are
different (or more senior or junior) than those held by such
Other Clients, Blackstone Credit may be presented with decisions involving
circumstances where the interests of such
Other Clients are in conflict with those of the Fund. Furthermore, it is
possible the Fund's interest may be subordinated or
otherwise adversely affected by virtue of such Other Clients' involvement and
actions relating to its investment.
In addition, the
1940 Act may limit the Fund's ability to undertake certain transactions with its
affiliates that are registered under the 1940 Act
or regulated as business development companies under the 1940 Act. As a result
of these restrictions, the Fund may be
prohibited from executing “joint” transactions with
such affiliates, which could include investments in the same portfolio
company (whether at the same or different times). These limitations may limit
the scope of investment opportunities that
would otherwise be available to the Fund.
In addition, other
present and future activities of the Firm and its affiliates (including
Blackstone Credit) will from time to time give rise to
additional conflicts of interest relating to the Firm and its investment
activities. In the event that any such conflict of interest
arises, Blackstone Credit will attempt to resolve such conflicts in a fair and
equitable manner. Investors should be aware
that, subject to applicable law, conflicts will not necessarily be resolved in
favor of the Fund's interests.
Transactions
with Clients of Blackstone Insurance Solutions. Blackstone Insurance
Solutions (“BIS”) is a business
unit of
Blackstone that comprises two affiliated registered investment advisers. BIS
provides investment advisory services to insurers
(including insurance companies that are owned, directly or indirectly, by
Blackstone or Other Clients, in whole or in part). Actual
or potential conflicts of interest may arise with respect to the relationship of
the Fund and its obligors with the funds,
vehicles or accounts BIS advises or sub-advises, including accounts where an
insurer participates in investments directly
and there is no separate vehicle controlled by Blackstone (collectively,
“BIS
Clients”). BIS Clients have
invested and are
expected to continue investing in Other Clients and the Fund. BIS Clients may
have investment objectives that overlap with
those of the Fund or its obligors, and such BIS Clients may invest, as permitted
by applicable law, alongside the Fund
or such obligors in certain investments, which will reduce the investment
opportunities otherwise available to the
Fund or such obligors. BIS Clients will also participate in transactions related
to the Fund and/or its obligors
(e.g.,
as
originators, co-originators, counterparties or otherwise). Other transactions in
which BIS Clients will participate include,
without limitation, investments in debt or other securities issued by portfolio
companies or other forms of financing to
portfolio companies (including special purpose vehicles established by the Fund
or such portfolio companies). When
investing alongside the Fund or its obligors or in other transactions related to
the Fund or its obligors, BIS Clients may or
may not invest or divest at the same time or on the same terms as the Fund or
the applicable obligors. BIS Clients may also
from time to time acquire investments and obligors directly or indirectly from
the Fund, as permitted by applicable law.
In circumstances where Blackstone Credit determines in good faith that the
conflict of interest is mitigated in whole
or in part through various measures that Blackstone or Blackstone Credit
implements, Blackstone Credit may determine
to proceed with the applicable transaction (subject to oversight by the Board
and the applicable law to which the Fund is
subject). In order to seek to mitigate any potential conflicts of interest with
respect to such transactions (or
other transactions involving BIS Clients), Blackstone may, in its discretion,
involve independent members of the board of a
portfolio company or a third-party stakeholder in the transaction to negotiate
price and terms on behalf of the BIS Clients
or otherwise cause the BIS Clients to “follow the
vote” thereof, and/or
cause an independent client representative or
other third party to approve the investment or otherwise represent the interests
of one or more of the parties to the
transaction. In addition, Blackstone or Blackstone Credit may limit the
percentage interest of the BIS Clients participating in
such transaction, or obtain appropriate price quotes or other benchmarks, or,
alternatively, a third-party price opinion or
other document to support the reasonableness of the price and terms of the
transaction. BIS will also
from time to time
require the applicable BIS Clients participating in a transaction to consent
thereto (including in circumstances where
Blackstone Credit does not seek the consent of the Board). There can be no
assurance that any such measures or
other measures that may be implemented by Blackstone will be effective at
mitigating any actual or potential conflicts
of interest.
Allocation
of Portfolios. The Firm will, in
certain circumstances, have an opportunity to acquire a portfolio or pool of
assets,
securities and instruments that it determines should be divided and allocated
among the Fund and Other Clients. Such allocations
generally would be based on the Firm's assessment of the expected returns and
risk profile of each of the assets. For
example, some of the assets in a pool may have a return profile appropriate for
the Fund, while others may have a return
profile not appropriate for the Fund but appropriate for Other Clients. Also, a
pool may contain both debt and equity instruments
that the Firm determines should be allocated to different funds. In all of these
situations, the combined purchase price paid
to a seller would be allocated among the multiple assets, securities and
instruments in the pool and therefore, subject
to applicable law, among the Fund and Other Clients acquiring any of the assets,
securities and instruments.
Similarly, there will likely be circumstances in which the Fund and Other
Clients will sell assets in a single or related transactions
to a buyer. In some cases, a counterparty will require an allocation of value in
the purchase or sale contract, though the
Firm could determine such allocation of value is not accurate and should not be
relied upon. The Firm will generally
rely upon internal analysis to determine the ultimate allocation of value,
though it could also obtain third party valuation
reports. Regardless of the methodology for allocating value, the Firm will have
conflicting duties to the Fund and Other
Clients when they buy or sell assets together in a portfolio, including as a
result of different financial incentives the Firm
has with respect to different vehicles, most clearly when the fees and
compensation, including performance-based
compensation, earned from the different vehicles differ. There can be no
assurance that an investment will not
be valued or allocated a purchase price that is higher or lower than it might
otherwise have been allocated if such
investment were acquired or sold independently rather than as a component of a
portfolio shared with Other
Clients.
Other
Affiliate Transactions and Investments in Different Levels of Capital
Structure.
From
time to time, the Fund and the Other
Clients can be expected to make investments at different levels of an issuer's
capital structure or otherwise in different classes
of an issuer's securities or loans, subject to the limitations of the 1940 Act.
Such investments may inherently give rise
to conflicts of interest or perceived conflicts of interest between or among the
various classes of securities or loans
that may be held by such entities. To the extent the Fund holds securities or
loans that are different (including with
respect to their relative seniority) than those held by an Other Client,
Blackstone Credit and its affiliates may be presented
with decisions when the interests of the funds are in conflict. For example,
conflicts could arise where the Fund lends funds
to a portfolio company while an Other Client invests in equity securities of
such portfolio company. In this circumstance,
for example, if such portfolio company were to go into bankruptcy, become
insolvent or otherwise be unable to meet its
payment obligations or comply with its debt covenants, conflicts of interest
could arise between the holders of different
types of securities or loans as to what actions the portfolio company should
take. In addition, purchases or sales
of securities or loans for the account of the Fund (particularly marketable
securities) will be bunched or aggregated with
orders for Other Clients, including other funds. It is frequently not possible
to receive the same price or execution on the
entire volume of securities sold, and the various prices will, in certain
circumstances, be averaged, which may be
disadvantageous to the Fund. Further conflicts could arise after the Fund and
Other Clients have made their respective initial
investments. For example, if additional financing is necessary as a result of
financial or other difficulties, it may not be in the
best interests of the Fund to provide such additional financing. If the Other
Clients were to lose their respective
investments as a result of such difficulties, the ability of Blackstone Credit
to recommend actions in the best interests of the
Fund might be impaired. Blackstone Credit may in its discretion take steps to
reduce the potential for adversity between
the Fund and the Other Clients, including causing the Fund and/or such Other
Clients to take certain actions that, in the
absence of such conflict, it would not take. Such conflicts will be more
difficult if the Fund and Other Clients hold
significant or controlling interests in competing or different tranches of a
portfolio company's capital structure. Equity holders and
debt holders have different (and often competing) motives, incentives, liquidity
goals and other interests with respect to a
portfolio company. In addition, there may be circumstances where Blackstone
Credit agrees to implement certain procedures
to ameliorate conflicts of interest that may involve a forbearance of rights
relating to the Fund or Other Clients, such as
where Blackstone Credit may cause the Fund or Other Clients to decline to
exercise certain control- and/ or
foreclosure-related rights with respect to a portfolio company.
Further, the Fund is
prohibited under the 1940 Act from participating in certain transactions with
certain of its affiliates (including portfolio
companies of Other Clients) without the prior approval of a majority of the
independent members of the Board and, in
some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of
the outstanding voting securities of the
Fund will be an affiliate of the Fund for purposes of the 1940 Act and generally
the Fund will be
prohibited from
buying or selling any securities from or to such affiliate, absent the prior
approval of the Board. However, the Fund may under
certain circumstances purchase any such affiliate's loans or securities in the
secondary market, which could create a
conflict for Blackstone Credit between the Fund's interests and the interests of
such affiliate, in that the ability of
Blackstone Credit to recommend actions in the Fund's best interest may be
limited. The 1940 Act also prohibits certain
“joint” transactions with
certain affiliates, which could include investments in the same portfolio
company (whether at the same
or closely related times), without prior approval of the Board and, in some
cases, the SEC.
In addition,
conflicts may arise in determining the amount of an investment, if any, to be
allocated among potential investors and the
respective terms thereof. There can be no assurance that any conflict will be
resolved in favor of the Fund, and, subject
to applicable law, a decision by Blackstone Credit to take any particular action
could have the effect of benefiting an Other
Client, Blackstone Credit and therefore may not have been in the best interests
of, and may be adverse to, the
Fund. There can be no assurance that the return on the Fund's investment will be
equivalent to or better than the returns
obtained by the Other Clients participating in the same or similar transactions.
Shareholders will not receive any benefit
from fees paid to any affiliate of Blackstone Credit in respect of any Other
Client's investment in a portfolio company ,
to the extent permitted by the 1940 Act.
Related
Financing Counterparties. The Fund can be
expected to invest in companies or other entities in which Other Clients make an
investment in a different part of the capital structure (and vice versa) subject
to the requirements of the 1940 Act. Blackstone
Credit requests in the ordinary course proposals from lenders and other sources
to provide financing to the Fund and its
obligors. Blackstone Credit takes into account various facts and circumstances
it deems relevant in selecting financing
sources, including whether a potential lender has expressed an interest in
evaluating debt financing opportunities,
whether a potential lender has a history of participating in debt financing
opportunities generally and with the Firm in
particular, the size of the potential lender's loan amount, the timing of the
relevant cash requirement, the availability of
other sources of financing, the creditworthiness of the lender, whether the
potential lender has demonstrated a
long-term or continuing commitment to the success of Blackstone, Blackstone
Credit and their funds, and such other factors
that Blackstone and Blackstone Credit deem relevant under the circumstances. The
cost of debt alone is not
determinative.
The Firm could have
incentives to cause the Fund and its obligors to accept less favorable financing
terms from a shareholder, Other
Clients, their portfolio companies, Blackstone, and other parties with material
relationships with the Firm than it would
from a third party. If the Fund or a portfolio company occupies a more senior
position in the capital structure than a
shareholder, Other Client, their portfolio companies and other parties with
material relationships with Blackstone,
Blackstone could have an incentive to cause the Fund or portfolio company to
offer more favorable financing terms to such
parties. In the case of a related party financing between the Fund or its
obligors, on the one hand, and Blackstone or Other
Clients' portfolio companies, on the other hand, to the extent permitted by the
1940 Act, Blackstone Credit could, but is
not obligated to, rely on a third party agent to confirm the terms offered by
the counterparty are consistent with
market terms, or Blackstone Credit could instead rely on its own internal
analysis, which Blackstone Credit believes is often
superior to third party analysis given the Firm's scale in the market. If
however any of the Firm, the Fund, an Other Client or
any of their obligors or portfolio companies (as applicable) delegates to a
third party, such as another member of a
financing syndicate or a joint venture partner, the negotiation of the terms of
the financing, the transaction will be assumed to
be conducted on an arms-length basis, even though the participation of the Firm
related vehicle impacts the market
terms. For example, in the case of a loan extended to the Fund or a portfolio
company by a financing syndicate in which
an Other Client has agreed to participate on terms negotiated by a third party
participant in the syndicate, it may
have been necessary to offer better terms to the financing provider to fully
subscribe the syndicate if the Other Client had not
participated. It is also possible that the frequent participation of Other
Clients in such syndicates could dampen
interest among other potential financing providers, thereby lowering demand to
participate in the syndicate and increasing the
financing costs to the Fund. Blackstone Credit does not believe either of these
effects is significant, but no assurance can be
given to shareholders that these effects will not be significant in any
circumstance. Unless required by applicable law,
Blackstone Credit will not seek any consent or approvals from shareholders or
the Board in the case of any of these
conflicts.
The Firm could cause
actions adverse to the Fund to be taken for the benefit of Other Clients that
have made an investment more
senior in the capital structure of a portfolio company than the Fund
(e.g.,
provide
financing to a portfolio company, the equity
of which is owned by the Fund) and, vice versa, actions will, in certain
circumstances, be taken for the benefit of the Fund
and its obligors that are adverse to Other Clients. The Firm could seek to
implement procedures to mitigate conflicts
of interest in these situations such as (i) a forbearance of rights, including
some or all non-economic rights, by the Fund
or relevant Other Client (or their respective obligors or portfolio companies,
as the case may be) by, for example, agreeing to
follow the vote of a third party in the same tranche of the capital structure,
or otherwise deciding to
recuse itself with
respect to both normal course ongoing matters (such as consent rights with
respect to loan modifications in intercreditor
agreements) and also decisions on defaults, foreclosures, workouts,
restructurings and other similar matters, (ii)
causing the Fund or relevant Other Client (or their respective obligors or
portfolio companies, as the case may be) to hold only a
non-controlling interest in any such portfolio company, (iii) retaining a third
party loan servicer, administrative agent
or other agent to make decisions on behalf of the Fund or relevant Other Client
(or their respective obligors or
portfolio companies, as the case may be), or (iv) create groups of personnel
within the Firm separated by information barriers
(which can be expected to be temporary and limited purpose in nature), each of
which would advise one of the clients
that has a conflicting position with other clients. As an example, to the extent
an Other Client holds an interest in a loan
or security that is different (including with respect to relative seniority)
than those held by the Fund or its obligors, the Firm
may decline to exercise, or delegate to a third party, certain control,
foreclosure and other similar governance rights of
the Other Client. In these cases, the Firm would generally act on behalf of one
of its clients, though the other client
would generally retain certain control rights, such as the right to consent to
certain actions taken by the trustee or
administrative or other agent of the investment, including a release, waiver,
forgiveness or reduction of any claim for principal or
interest; extension of maturity date or due date of any payment of any principal
or interest; release or substitution of any
material collateral; release, waiver, termination or modification of any
material provision of any guaranty or
indemnity; subordination of any lien; and release, waiver or permission with
respect to any covenants. The efficacy of
following the vote of third-party creditors will be limited in circumstances
where the Fund or Other Client acquires all or
substantially all of a relevant instrument, tranche or class of
securities.
In connection with
negotiating loans and bank financings in respect of Blackstone Credit-sponsored
transactions, Blackstone Credit
will generally obtain the right to participate (for its own account or an Other
Client) in a portion of the financings with
respect to such Blackstone Credit-sponsored transactions on the same terms
negotiated by third parties with the Firm or
other terms Blackstone Credit determines to be consistent with the market.
Although the Firm could rely on third parties to
verify market terms, the Firm may nonetheless have influence on such third
parties. No assurance can be given that
negotiating with a third party, or verification of market terms by a third
party, will ensure that the Fund and its obligors receive
market terms.
In addition, it is
anticipated that in a bankruptcy proceeding the Fund's interests will likely be
subordinated or otherwise adverse to the
interests of Other Clients with ownership positions that are more senior to
those of the Fund. For example, an Other Client that
has provided debt financing to an investment of the Fund may take actions for
its benefit, particularly if the Fund's
Investment is in financial distress, which adversely impact the value of the
Fund's subordinated interests.
Although Other
Clients can be expected to provide financing to the Fund and its obligors
subject to the requirements of the 1940 Act, there
can be no assurance that any Other Client will indeed provide any such financing
with respect to any particular
Investment. Participation by Other Clients in some but not all financings of the
Fund and its obligors may adversely impact the
ability of the Fund and its obligors to obtain financing from third parties when
Other Clients do not participate, as it
may serve as a negative signal to market participants.
Any financing
provided by a shareholder or an affiliate to the Fund or a portfolio company is
not a capital contribution to the
Fund.
The respective
investment programs of the Fund and the Other Clients may or may not be
substantially similar. Blackstone Credit and/or
Blackstone may give advice to, and recommend securities for, Other Clients that
may differ from advice given to, or securities
recommended or bought for, the Fund, even though their investment objectives may
be the same as or similar to those of
the Fund. While Blackstone Credit will seek to manage potential conflicts of
interest in a fair and equitable manner,
the portfolio strategies employed by Blackstone Credit and Blackstone in
managing their respective Other Clients are
likely to conflict from time to time with the transactions and strategies
employed by Blackstone Liquid Credit Strategies
LLC in managing the Fund and may affect the prices and availability of the
securities and instruments in which the Fund
invests. Conversely, participation in specific investment opportunities may be
appropriate, at times, for both the Fund and
Other Clients. In any event, it is the policy of Blackstone Credit to allocate
investment opportunities and sale opportunities
on a basis deemed by Blackstone Credit, in its sole discretion, to be fair and
equitable over time.
Conflicting
Fiduciary Duties to Debt Funds. Other Clients
include funds and accounts that make investments in senior secured loans,
distressed debt, subordinated debt, high-yield securities, commercial
mortgage-backed securities and other debt
instruments. As discussed above, it is expected that these Other Clients or
investors therein will be offered the opportunity, subject
to applicable law, to provide financing with respect to investments made by the
Fund and its obligors. The Firm owes a
fiduciary duty and/or other obligations to these Other Clients as well as to the
Fund and will encounter conflicts in the
exercise of these duties and/or obligations. For example, if an Other Client
purchases high-yield securities or other debt
instruments of a portfolio company of the Fund, or otherwise occupies a senior
(or other different) position in
the capital
structure of an investment relative to the Fund, the Firm will encounter
conflicts in providing advice to the Fund and to these Other
Clients with regard to appropriate terms of such high-yield securities or other
instruments, the enforcement of
covenants, the terms of recapitalizations and the resolution of workouts or
bankruptcies, among other matters. For
example, in a bankruptcy proceeding, in circumstances where the Fund holds an
equity investment in a portfolio company,
the holders of such portfolio company's debt instruments (which may include one
or more Other Clients) may take
actions for their benefit (particularly in circumstances where such portfolio
company faces financial difficulties or
distress) that subordinate or adversely impact the value of the Fund's
investment in such portfolio company. More commonly, the
Fund could hold an investment that is senior in the capital structure, such as a
debt instrument, to an Other Client.
Although measures described above in “Related Financing
Counterparties” above can mitigate
these conflicts, they
cannot completely eliminate them.
Similarly, certain
Other Clients can be expected to invest in securities of publicly traded
companies that are actual or potential
investments of the Fund or its obligors. The trading activities of those
vehicles may differ from or be inconsistent with activities that
are undertaken for the account of the Fund or its obligors in any such
securities or related securities. In addition, the Fund
may not pursue an investment in a portfolio company otherwise within the
investment strategy of the Fund as a result of
such trading activities by Other Clients.
Other
Blackstone and Blackstone Credit Clients; Allocation of Investment
Opportunities. Certain inherent
conflicts of interest arise
from the fact that Blackstone Credit and Blackstone provide investment
management, advisory and sub- advisory services to
the Fund and Other Clients.
The respective
investment programs of the Fund and the Other Clients may or may not be
substantially similar. Blackstone Credit and/or
Blackstone may give advice to, and recommend securities for, Other Clients that
may differ from advice given to, or securities
recommended or bought for, the Fund, even though their investment objectives may
be the same as or similar to those of
the Fund. While Blackstone Credit will seek to manage potential conflicts of
interest in a fair and equitable manner,
the portfolio strategies employed by Blackstone Credit and Blackstone in
managing their respective Other Clients are
likely to conflict from time to time with the transactions and strategies
employed by Blackstone Credit in managing the Fund
and may affect the prices and availability of the securities and instruments in
which the Fund invests. In addition, certain
investment opportunities that fall within the Fund's investment objectives or
strategy may be allocated in whole or in part
(a) to Blackstone or Blackstone Credit itself, such as strategic investments
made by Blackstone or Blackstone Credit
itself (whether in financial institutions or otherwise), or (b) to Other
Clients, such as Other Clients that have investment
objectives or guidelines similar to or overlapping, in whole or in part, with
the Fund to some extent, or pursue similar
returns as the Fund but have a different investment strategy or
objective.
Allocation
Methodology Considerations
Blackstone Credit
will share any investment and sale opportunities with such Other Clients and the
Fund in accordance with the Advisers
Act, and Firm-wide allocation policies, which generally provide for sharing pro
rata based on targeted acquisition size or
targeted sale size.
Notwithstanding the
foregoing, Blackstone Credit may also consider the following factors in making
any allocation determinations
(which determinations shall be on a basis that Blackstone Credit believes in
good faith to be fair and reasonable), and
such factors may result in a different allocation of investment and/or sale
opportunities: (i) the risk-return and target return
profile of the proposed investment relative to the Fund's and the Other Clients'
current risk profiles; (ii) the Fund's and/or
the Other Clients' investment guidelines, restrictions, terms, objectives,
parameters, limitations and other contractual
provisions, including whether such objectives are considered solely in light of
the specific investment under consideration or in
the context of the respective portfolios' overall holdings; (iii) the need to
re-size risk in the Fund's or the Other Clients'
portfolios (including the potential for the proposed investment to create an
industry, sector or issuer imbalance in the
Fund's and Other Clients' portfolios, as applicable) and taking into account any
existing non-pro rata investment positions
in the portfolio of the Fund and Other Clients; (iv) liquidity considerations of
the Fund and the Other Clients, including
during a ramp-up or wind-down of one or more of the Fund or such Other Clients,
proximity to the end of the Fund's or Other
Clients' specified term or investment period, any redemption/withdrawal
requests, anticipated future contributions and
available cash; (v) legal, tax, accounting, political, national security and
other consequences; (vi) regulatory or
contractual restrictions or consequences (including, without limitation,
requirements under the 1940 Act and any related rules,
orders, guidance or other authority applicable to the Fund or Other Blackstone
Credit Clients); (vii) avoiding a de
minimis or odd lot allocation; (viii) availability and degree of leverage and
any requirements or other terms of any existing
leverage facilities; (ix) the Fund's or Other Clients' investment focus on a
classification attributable to an investment or issuer
of an investment, including, without limitation, investment strategy, geography,
industry or business sector; (x) the
nature and extent of involvement in the transaction on the part of the
respective teams of investment
professionals
dedicated to the Fund or such Other Clients; (xi) the management of any actual
or potential conflict of interest; (xii) with
respect to investments that are made available to Blackstone Credit by
counterparties pursuant to negotiated trading
platforms (e.g.,
ISDA
contracts), the absence of such relationships which may not be available to the
Fund
and all Other Clients; (xiii) available capital of the Fund and the Other
Clients, (xiv) primary and permitted investment strategies,
guidelines, liquidity positions and requirements, and objectives of the Fund and
the Other Clients, including, without limitation,
with respect to Other Clients that expect to invest in or alongside other funds
or across asset classes based on expected
return (such as certain managed accounts with similar investment strategies and
objectives), (xv) sourcing of the
investment, (xvi) the specific nature (including size, type, amount, liquidity,
holding period, anticipated maturity and minimum
investment criteria) of the investment, (xvii) expected investment return,
(xviii) expected cash characteristics
(such as cash-on-cash yield, distribution rates or volatility of cash flows),
(xix) capital expenditure required as part of the
investment, (xx) portfolio diversification and concentration concerns
(including, but not limited to, whether a particular fund
already has its desired exposure to the investment, sector, industry, geographic
region or markets in question), (xxi)
relation to existing investments in a fund, if applicable (e.g.,
“follow
on” to existing
investment, joint venture or other partner to
existing investment, or same security as existing investment), (xxii) timing
expected to be necessary to execute an
investment, (xxiii) whether Blackstone Credit believes that allocating
investment opportunities to an investor will help establish,
recognize, strengthen and/or cultivate relationships that may provide indirectly
longer-term benefits (including
strategic, sourcing or similar benefits) to the Fund, Other Clients and/or
Blackstone and (xxiv) any other considerations
deemed relevant by Blackstone Credit in good faith.
Blackstone Credit
shall not have any obligation to present any investment opportunity (or portion
of any investment opportunity) to the
Fund if Blackstone Credit determines in good faith that such opportunity (or
portion thereof) should not be presented to the
Fund for any one or a combination of the reasons specified above, or if
Blackstone Credit is otherwise restricted from
presenting such investment opportunity to the Fund.
Moreover, with
respect to Blackstone Credit's ability to allocate investment opportunities,
including where such opportunities are
within the common objectives and guidelines of the Fund and one or more Other
Clients (which allocations are to
be made on a basis that Blackstone Credit believes in good faith to be fair and
reasonable), Blackstone Credit and
Blackstone have established general guidelines and policies, which it may update
from time to time, for determining how such
allocations are to be made, which, among other things, set forth principles
regarding what constitutes
“debt” or “debt-like” investments,
criteria for defining “control-oriented
equity” or “infrastructure” investments,
guidance regarding
allocation for certain types of investments (e.g.,
distressed energy)
and other matters. In addition, certain Other
Clients may receive certain priority or other allocation rights with respect to
certain investments, subject to various conditions
set forth in such Other Clients' respective governing agreements. The
application of those guidelines and conditions may
result in the Fund or Other Clients not participating (and/or not participating
to the same extent) in certain investment
opportunities in which they would have otherwise participated had the related
allocations been determined without
regard to such guidelines and conditions and based only on the circumstances of
those particular investments.
Additionally, investment opportunities sourced by Blackstone Credit will be
allocated in accordance with Blackstone's and
Blackstone Credit's allocation policies, which may provide that investment
opportunities will be allocated in whole or in part
to other business units of the Firm on a basis that Blackstone and Blackstone
Credit believe in good faith to be fair and
reasonable, based on various factors, including the involvement of the
respective teams from Blackstone Credit
and such other business units. It should also be noted that investment
opportunities sourced by business units of
the Firm other than Blackstone Credit will be allocated in accordance with such
business units' allocation policies, which will
result in such investment opportunities being allocated, in whole or in part,
away from Blackstone Credit, the Fund and
Other Blackstone Credit Clients.
When Blackstone
Credit determines not to pursue some or all of an investment opportunity for the
Fund that would otherwise be within
the Fund's objectives and strategies, and Blackstone or Blackstone Credit
provides the opportunity or offers the
opportunity to Other Clients, Blackstone or Blackstone Credit, including their
personnel (including Blackstone Credit personnel),
can be expected to receive compensation from the Other Clients, whether or not
in respect of a particular
investment, including an allocation of carried interest or referral fees, and
any such compensation could be greater than amounts
paid by the Fund to Blackstone Credit. As a result, Blackstone Credit (including
Blackstone Credit personnel who
receive such compensation) could be incentivized to allocate investment
opportunities away from the Fund to or source
investment opportunities for Other Clients. In addition, in some cases
Blackstone or Blackstone Credit can be expected to earn
greater fees when Other Clients participate alongside or instead of the Fund in
an Investment.
Blackstone Credit
makes good faith determinations for allocation decisions based on expectations
that will, in certain circumstances, prove
inaccurate. Information unavailable to Blackstone Credit, or circumstances not
foreseen by Blackstone Credit at
the time of allocation, may cause an investment opportunity to yield a different
return than expected. Conversely, an
investment that Blackstone Credit expects to be consistent with the Fund's
objectives will, in certain circumstances, fail
to achieve them.
Blackstone Credit
may, but will be under no obligation to, provide co-investment opportunities
relating to investments made by the Fund to
shareholders, Other Clients, and investors of such Other Clients, subject to the
1940 Act. Such co- investment
opportunities may be offered to such parties in Blackstone Credit's discretion.
From time to time, Blackstone Credit may form one
or more funds or accounts to co-invest in transactions with the Fund (or
transactions alongside any of the Fund and one or
more Other Clients). Furthermore, for the avoidance of doubt, to the extent that
the Fund has received its target
amount in respect of an investment opportunity, any remaining portion of such
investment opportunity initially allocated
to the Fund may be allocated to Other Clients or to co-investors in Blackstone
Credit's discretion.
Orders may be
combined for the Fund and all other participating Other Clients, and if any
order is not filled at the same price, they may be
allocated on an average price basis. Similarly, if an order on behalf of more
than one account cannot be fully executed
under prevailing market conditions, securities may be allocated among the
different accounts on a basis that Blackstone
Credit or its affiliates consider equitable.
There may be
circumstances, including in the case where there is a seller who is seeking to
dispose of a pool or combination of
assets, properties, securities or instruments, where the Fund and Other Clients
participate, subject to applicable law, in a
single or related transactions with a particular seller where certain of such
assets, properties, securities or
instruments are specifically allocated (in whole or in part) to any of the Fund
and such Other Clients. The allocation of such
specific items generally would be based on Blackstone Credit's determination of,
among other things, the expected returns
for such items, and in any such case the combined purchase price paid to a
seller would be allocated among the multiple
assets, properties, securities or instruments based on a determination by the
seller, by a third-party valuation firm
and/or by Blackstone Credit and its affiliates. Additionally, it can be expected
that the Firm will, from time to time, enter into
arrangements or strategic relationships with third parties, including other
asset managers, financial firms or other businesses or
companies, that, among other things, provide for referral, sourcing or sharing
of investment opportunities.
Blackstone or Blackstone Credit may, in certain circumstances, pay management
fees and performance- based compensation
in connection with such arrangements. Blackstone or Blackstone Credit may also
provide for or receive
reimbursement of certain expenses incurred or received in connection with these
arrangements, including diligence expenses
and general overhead, administrative, deal sourcing and related corporate
expenses. The amount of such reimbursements
may relate to allocations of co-investment opportunities and increase if certain
co-investment allocations are not
made. While it is possible that the Fund will, along with the Firm itself,
benefit from the existence of those arrangements
and/or relationships, it is also possible that investment opportunities that
would otherwise be presented to or made
by the Fund would instead be referred (in whole or in part) to such third party,
or, as indicated above, to other third
parties, either as a contractual obligation or otherwise, resulting in fewer
opportunities (or reduced allocations) being
made available to the Fund and/or shareholders. This means that co-investment
opportunities that are sourced by the Fund
may be allocated to investors that are not shareholders. For example, a firm
with which the Firm has entered into a
strategic relationship may be afforded with “first-call” rights on a
particular category of investment opportunities,
although there is not expected to be substantial overlap in the investment
strategies and/or objectives between the Fund and
any such firm.
Certain
Investments Inside the Fund's Strategy that are not Pursued by the Fund.
Under
certain circumstances, Blackstone or
Blackstone Credit can be expected to determine not to pursue some or all of an
investment opportunity within the Fund's
strategy, including without limitation, as a result of business, reputational or
other reasons applicable to the Fund, Other
Clients, their respective obligors or portfolio companies or Blackstone. In
addition, Blackstone Credit will, in certain
circumstances, determine that the Fund should not pursue some or all of an
investment opportunity, including, by way of example
and without limitation, because the Fund has already invested sufficient capital
in the investment, sector, industry,
geographic region or markets in question, as determined by Blackstone Credit in
its sole discretion, or the investment is not
appropriate for the Fund for other reasons as determined by Blackstone Credit in
its sole discretion. In any such case
Blackstone or Blackstone Credit could, thereafter, offer such opportunity to
other parties, including Other Clients or portfolio
companies or limited partners or shareholders of the Fund or Other Clients,
joint venture partners, related parties or
third parties. Any such Other Clients may be advised by a different Blackstone
or Blackstone Credit business group with
a different investment committee, which could determine an investment
opportunity to be more attractive than
Blackstone Credit believes to be the case. In any event, there can be no
assurance that Blackstone Credit's assessment will
prove correct or that the performance of any investments actually pursued by the
Fund will be comparable
to any investment
opportunities that are not pursued by the Fund. Blackstone and Blackstone
Credit, including their personnel, may
receive compensation from any such party that makes the investment, including an
allocation of carried interest or referral
fees, and any such compensation could be greater than amounts paid by the Fund
to Blackstone Credit. In some
cases, Blackstone or Blackstone Credit earns greater fees when Other Clients
participate alongside or instead of the Fund
in an Investment.
Cross
Transactions. Situations may arise
where certain assets held by the Fund may be transferred to Other Clients and
vice
versa. Such transactions will be conducted in accordance with, and subject to,
Blackstone Credit's contractual obligations to the
Fund and applicable law, including the 1940 Act and in accordance with the
practices set out in “Other Conflicts”
herein.
Fund
Co-Investment Opportunities. As a registered
investment company under the 1940 Act, the Fund is subject to certain limitations
relating to co-investments and joint transactions with affiliates, which likely
will in certain circumstances limit the Fund's
ability to make investments or enter into other transactions alongside the Other
Clients. There can be no assurance that such
regulatory restrictions will not adversely affect the Fund's ability to
capitalize on attractive investment opportunities.
However, subject to the 1940 Act, the Fund may co-invest with Other Clients
(including co-investment or other vehicles in
which the Firm or its personnel invest and that co-invest with such Other
Clients) in investments that are suitable for the
Fund and one or more of such Other Clients. Even if the Fund and any such Other
Clients and/or co- investment or other
vehicles invest in the same securities, conflicts of interest may still
arise.
Investments
in Portfolio Companies Alongside Other Clients. From time to time,
the Fund will co-invest with Other Clients (including
co-investment or other vehicles in which the Firm or its personnel invest and
that co-invest with such Other Clients) in
investments that are suitable for both the Fund and such Other Clients, as
permitted by applicable law. Even if the Fund and
any such Other Clients invest in the same securities or loans, conflicts of
interest may still arise. For example, it is
possible that as a result of legal, tax, regulatory, accounting or other
considerations, the terms of such investment (and
divestment thereof) (including with respect to price and timing) for the Fund
and such other funds and vehicles may not be
the same. Additionally, the Fund and such Other Clients and/or vehicles will
generally have different investment periods
and/or investment objectives (including return profiles) and Blackstone Credit,
as a result, may have conflicting goals
with respect to the price and timing of disposition opportunities. Such Other
Clients may also have certain governance rights
for legal, regulatory or other reasons that the Fund will not have. As such,
subject to applicable law, the Fund and/or such
Other Clients may dispose of any such shared investment at different times and
on different terms.
Debt
Financings and Investments in connection with Acquisitions and
Dispositions/Refinancings. The Fund may
from
time to time, make investments that involve financing as part of a third party
purchaser's bid for, or acquisition of, a portfolio entity or
the underlying assets thereof owned by one or more Other Clients. This generally
would include the circumstance where
the Fund is making commitments to provide financing at or prior to the time such
third party purchaser commits to
purchase such investments or assets from one or more Other Clients. The Fund may
also make investments and
provide debt financing with respect to obligors in which Other Clients and/or
affiliates hold or propose to acquire an interest,
including when such investments or debt financing would result in the repayment
of (or otherwise provide liquidity
with respect to) an Other Client's existing investment. While the terms and
conditions of any such arrangements will
generally be at arm's length and negotiated on a case by case basis, the
involvement of the Fund and/or such Other Clients
or affiliates may affect the terms of such transactions or arrangements and/or
may otherwise influence
Blackstone's decisions with respect to the management of the Fund and/or such
Other Clients or the relevant portfolio company,
as applicable, which may give rise to potential or actual conflicts of interest
and which could adversely impact the
Fund.
Firm
Involvement in Financing of Third Party Dispositions by the Fund. The Fund may from
time to time dispose of all or a portion of
an investment by way of accepting a third-party purchaser's bid where the Firm
or one or more Other Clients is providing
financing as part of such bid or acquisition of the investment or underlying
assets thereof. This generally would
include the circumstance where the Firm or one or more Other Clients is making
commitments to provide financing at or
prior to the time such third-party purchaser commits to purchase such
investments or assets from the Fund. Such involvement of
the Firm or one or more Other Clients as such a provider of debt financing in
connection with the potential
acquisition of portfolio investments by third parties from the Fund may give
rise to potential or actual conflicts of interest.
Material,
Non-Public Information. Blackstone Credit
will come into possession of confidential information with respect to
an
Issuer and other actual or prospective portfolio companies. Blackstone Credit
can be restricted from buying, originating or selling
securities, loans, or derivatives on behalf of the Fund until such time as the
information becomes public or is no longer deemed
material such that it would preclude the Fund from participating in an
investment. Disclosure of such
information to
Blackstone Credit's personnel responsible for the affairs of the Fund will be on
a need-to-know basis only, and the Fund may not
be free to act upon any such information. Therefore, the Fund may not have
access to confidential information in the
possession of Blackstone Credit that might be relevant to an investment decision
to be made for the Fund. In addition,
Blackstone Credit, in an effort to avoid buying or selling restrictions on
behalf of the Fund or Other Clients, can choose
to forego an opportunity to receive (or elect not to receive) information that
other market participants or counterparties,
including those with the same positions in the issuer as the Fund, are eligible
to receive or have received, even if
possession of such information would otherwise be advantageous to the
Fund.
In addition,
affiliates of Blackstone Credit within Blackstone may come into possession of
confidential information with respect to an
issuer. Blackstone Credit may be restricted from buying, originating or selling
securities, loans of, or derivatives with
respect to, the issuer on behalf of the Fund if the Firm deemed such restriction
appropriate. Disclosure of such information to
Blackstone Credit's personnel responsible for the affairs of the Fund will be on
a need-to-know basis only, and the Fund
may not be free to act upon any such information. Therefore, the Fund may not
have access to confidential
information in the possession of the Firm that might be relevant to an
investment decision to be made by the Fund. Accordingly,
the Fund may not be able to initiate a transaction that it otherwise might have
initiated and may not be able to sell an
investment that it otherwise might have sold.
Break-up
and other Similar Fees.
Break-up or topping
fees with respect to the Fund's investments can be paid to Blackstone Credit.
Alternatively, the Fund could receive the break-up or topping fees directly.
Break-up or topping fees paid to Blackstone Credit
or the Fund in connection with a transaction could be allocated, or not, to
Other Clients or co- investment vehicles
that invest (or are expected to invest) alongside the Fund, as determined by
Blackstone Credit to be appropriate in the
circumstances. Generally, Blackstone Credit would not allocate break-up or
topping fees with respect to a potential
investment to the Fund, an Other Client or co-investment vehicle unless such
person would also share in broken deal expenses
related to the potential investment. In the case of fees for services as a
director of a portfolio company, the
management fee will not be reduced to the extent any Firm personnel continues to
serve as a director after the Fund has exited
(or is in the process of exiting) the applicable portfolio company and/or
following the termination of such employee's
employment with the Firm. For the avoidance of doubt, although the financial
advisory and restructuring business of
Blackstone has been spun out, to the extent any investment banking fees,
consulting (including management consulting) fees,
syndication fees, capital markets syndication and advisory fees (including
underwriting fees), origination fees, servicing
fees, healthcare consulting / brokerage fees, fees relating to group purchasing,
financial advisory fees and similar fees for
arranging acquisitions and other major financial restructurings, loan servicing
and/or other types of insurance fees,
operations fees, financing fees, fees for asset services, title insurance fees,
data management and services fees or
payments and other similar fees and annual retainers (whether in cash or in
kind) are received by Blackstone, such
fees will not be required to be shared with the Fund or shareholders and will
not reduce the management fee
payable by the Fund.
Broken
Deal Expenses.
Any
expenses that may be incurred by the Fund for actual investments as described
herein may also be incurred by
the Fund with respect to broken deals (i.e.,
investments that are
not consummated). Blackstone Credit is not required to
and in most circumstances will not seek reimbursement of broken deal expenses
(i.e., expenses incurred
in
pursuit of an investment that is not consummated) from third parties, including
counterparties to the potential transaction or
potential co-investors. Examples of such broken deal expenses include, but are
not limited to, reverse termination fees,
extraordinary expenses such as litigation costs and judgments, travel and
entertainment expenses incurred, costs of
negotiating co-investment documentation, and legal, accounting, tax, printing
expenses, other due diligence and
pursuit costs and expenses and broken deal expenses associated with services
provided by portfolio companies. Any such
broken deal expenses could, in the sole discretion of Blackstone Credit, be
allocated solely to the Fund and not to
Other Clients or co-investment vehicles that could have made the investment,
even when the Other Client or co-investment
vehicle commonly invests alongside the Fund in its investments or the Firm or
Other Clients in their investments. In such
cases, the Fund's shares of expenses would increase. In the event broken deal
expenses are allocated to an
Other Client or a co-investment vehicle, Blackstone Credit will, in certain
circumstances, advance such fees and expenses
without charging interest until paid by the Other Client or co-investment
vehicle, as applicable.
Other
Firm Business Activities. The Firm, Other
Clients, their obligors/portfolio companies, and personnel and related
parties
of the foregoing will receive fees and compensation, including performance-based
and other incentive fees, for products and
services provided to the Fund and its obligors, such as fees for asset
management (including, without limitation,
management fees and carried interest/incentive arrangements), development and
property management; portfolio operations
support (such as those provided by Blackstone's Portfolio Operations Group);
arranging, underwriting(including
without limitation, evaluation regarding value creation opportunities and ESG
risk mitigation); syndication or
refinancing of a loan or investment(or other additional fees, including
acquisition fees, loan modification or
restructuring fees);
servicing, loan servicing; special servicing; administrative services; advisory
services on purchase or sale of an asset or
company; advisory services; investment banking and capital markets services;
treasury and valuation services; placement
agent services; fund administration; internal legal and tax planning services;
information technology products and
services; insurance procurement; brokerage solutions and risk management
services; data extraction and management products
and services; fees for monitoring and oversight of loans or title insurance
provided to portfolio companies or third
parties; and other products and services (including but not limited to
restructuring, consulting, monitoring,
commitment, syndication, origination, organization and financing, and divestment
services). For example, the Firm or Other Client
may, directly or indirectly through a portfolio entity, from time to time
acquire loans or other assets and/or Other
Clients, and may receive syndication or other fees in connection therewith. Such
parties will also provide products and
services for fees to the Firm, Other Clients and their obligors/portfolio
companies, and their personnel and related parties, as
applicable, as well as third parties. Further, such parties could provide
products and services for fees to the Fund, Other
Clients and their obligors/portfolio companies in circumstances where
third-party service providers are concurrently
providing similar services to the Fund, Other Clients and their
obligors/portfolio companies. Through its Innovations group,
Blackstone incubates businesses that can be expected to provide goods and
services to the Fund (subject to the
requirements of the 1940 Act and applicable guidance) and Other Clients and
their obligors/portfolio companies, as well
as other Firm-related parties and third parties. By contracting for a product or
service from a business related to the Firm,
the Fund and its obligors would provide not only current income to the business
and its stakeholders, but could also
create significant enterprise value in them, which would not be shared with the
Fund or shareholders and could benefit the
Firm directly and indirectly. Also, the Firm, Other Clients and their
obligors/portfolio companies, and their personnel and
related parties may receive compensation or other benefits, such as through
additional ownership interests or otherwise,
directly related to the consumption of products and services by the Fund and its
obligors. The Fund and its obligors will incur
expense in negotiating for any such fees and services, which will be treated as
Fund Expenses. In addition, the Firm
may receive fees associated with capital invested by co-investors relating to
investments in which the Fund participates or
otherwise, in connection with a joint venture in which the Fund participates
(subject to the 1940 Act) or otherwise with
respect to assets or other interests retained by a seller or other commercial
counterparty with respect to which the Firm
performs services. Finally, the Firm and its personnel and related parties may
also receive compensation in connection with
origination activities, referrals and other related activities of such business
incubated by the Blackstone Innovations group,
and unconsummated transactions.
Blackstone Credit,
Other Clients and their portfolio companies, and their affiliates, personnel and
related parties could continue to receive
fees, including performance-based or incentive fees, for the services described
in the preceding paragraphs with
respect to investments sold by the Fund or a portfolio company to a third party
buyer after the sale is consummated. Such
post-disposition involvement will give rise to potential or actual conflicts of
interest, particularly in the sale process.
Moreover, Blackstone Credit, Other Clients and their portfolio companies, and
their affiliates, personnel and related parties may
acquire a stake in the relevant asset as part of the overall service
relationship, at the time of the sale or
thereafter.
Blackstone Credit
does not have any obligation to ensure that fees for products and services
contracted by the Fund or its obligors are at
market rates unless the counterparty is considered an affiliate of the Firm and
given the breadth of the Firm's investments
and activities Blackstone Credit may not be aware of every commercial
arrangement between the Fund and its
obligors, on the one hand, and the Firm, Other Clients and their
obligors/portfolio companies, and personnel and related parties
of the foregoing, on the other hand.
Except as set forth
above, the Fund and shareholders will not receive the benefit (e.g.,
through
a reduction to the management fee or
otherwise) of any fees or other compensation or benefit received by Blackstone
Credit, its affiliates or their personnel and
related parties. (See also “—Service Providers,
Vendors and Other Counterparties Generally” and “—Other Firm Business
Activities.”)
Securities
and Lending Activities. Blackstone, its
affiliates and their related parties and personnel will from time to time
participate in
underwriting or lending syndicates with respect to current or potential
portfolio companies, or may otherwise act as arrangers of
financing, including with respect to the public offering and/or private
placement of debt or equity securities issued
by, or loan proceeds borrowed by the Fund and its obligors, or otherwise in
arranging financing (including loans) for such
obligors or advise on such transactions. Such underwritings, financings or
engagements may be on a firm commitment basis or
may be on an uncommitted “best
efforts” basis, and the
underwriting or financing parties are under no duty to provide
any commitment unless specifically set forth in the relevant contract.
Blackstone can also be expected to provide, either
alone or alongside third parties performing similar services, placement,
financial advisory or other similar services to
purchasers or sellers of securities (including in connection with primary
offerings, secondary transactions and/ or transactions
involving special purpose acquisition companies), including loans or instruments
issued by portfolio
companies. There may
also be circumstances in which the Fund commits to purchase any portion of such
issuance from the portfolio
company that a Blackstone broker-dealer intends to syndicate to third parties.
As a result thereof, subject to the limitations of
the 1940 Act, Blackstone may receive commissions or other compensation, thereby
creating a potential conflict of
interest. This could include, by way of example, fees and/or commissions for
equity syndications to co- investment vehicles.
In certain cases, subject to the limitations of the 1940 Act, a Blackstone
broker-dealer will, from time to time, act as the
managing underwriter, or a member of the underwriting syndicate or broker for
the Fund or its obligors, or as dealer, broker
or advisor to a counterparty to the Fund or a portfolio company, and purchase
securities from or sell securities to the
Fund, Other Clients or obligors/portfolio companies of the Fund or Other Clients
or advise on such transactions.
Blackstone will also from time to time, on behalf of the Fund or other parties
to a transaction involving the Fund or its
obligors, effect transactions, including transactions in the secondary markets
that result in commissions or other compensation
paid to Blackstone by the Fund or its obligors or the counterparty to the
transaction, thereby creating a potential conflict
of interest. This could include, by way of example, fees and/or commissions for
equity syndications to co-investment
vehicles. Subject to applicable law, Blackstone will from time to time receive
underwriting fees, discounts, placement
commissions, loan modification or restructuring fees, servicing fees, capital
markets fees, advisory fees (including capital
markets advisory fees), lending arrangement fees, asset/property management
fees, insurance (including title
insurance) fees and consulting fees, monitoring fees, commitment fees,
syndication fees, origination fees, organizational fees,
operational fees, loan servicing fees, and financing and divestment fees (or, in
each case, rebates in lieu of any such
fees, whether in the form of purchase price discounts or otherwise, even in
cases where Blackstone, an Other Client or its
portfolio companies are purchasing debt) or other compensation with respect to
the foregoing activities, which are not
required to be shared with the Fund. In addition, the management fee with
respect to the Fund generally will not be reduced by
such amounts. Therefore, Blackstone will from time to time have a potential
conflict of interest regarding the Fund and the
other parties to those transactions to the extent it receives commissions,
discounts or other compensation from
such other parties. The Board, in its sole discretion, will approve any
transactions, subject to the limitations of the
1940 Act, in which a Blackstone broker-dealer acts as an underwriter, as broker
for the Fund, or as dealer, broker or
advisor, on the other side of a transaction with the Fund only where the Board
believes that such transactions are
appropriate for the Fund and, by investing in Shares, a shareholder consents to
all such transactions, along with the other
transactions involving conflicts of interest described herein, to the fullest
extent permitted by law.
Sales of loans or
securities for the account of the Fund and its portfolio companies will from
time to time be bunched or aggregated with
orders for other accounts of the Firm including Other Clients. It could be
impossible, as determined by Blackstone Credit in
its sole discretion, to receive the same price or execution on the entire volume
of securities sold, and the various prices
will, in certain circumstances, therefore be averaged which may be
disadvantageous to the Fund.
When Blackstone
serves as underwriter with respect to securities of the Fund or its obligors,
the Fund and such obligors could from time to
time be subject to a “lock-up” period following
the offering under applicable regulations during which time the Fund or
portfolio company would be unable to sell any securities subject to the
“lock-up.” This may prejudice
the ability of the Fund
and its obligors to dispose of such securities at an opportune time. In
addition, Blackstone Capital Markets may serve as
underwriter in connection with the sale of securities by the Fund or its
obligors. Conflicts may arise because such
engagement would result in Blackstone Capital Markets receiving selling
commissions or other compensation in
connection with such sale. (See also “—Obligor/Portfolio
Company Relationships Generally”
below.)
Blackstone and
Blackstone Credit employees are generally permitted to invest in alternative
investment funds, real estate funds, hedge funds
or other investment vehicles, including potential competitors of the Fund. The
Fund will not receive any benefit from any
such investments.
PJT
Partners Inc. On October 1, 2015,
Blackstone spun off its financial and strategic advisory services, restructuring
and reorganization
advisory services, and its Park Hill fund placement businesses and combined
these businesses with PJT Partners Inc.
(“PJT”), an independent
financial advisory firm founded by Paul J. Taubman. While the combined business
operates
independently from Blackstone and is not an affiliate thereof, it is expected
that there will be substantial overlapping
ownership between Blackstone and PJT for a considerable period of time going
forward. Therefore, conflicts of interest will
arise in connection with transactions between or involving the Fund and its
obligors, on the one hand, and PJT, on the other.
The pre-existing relationship between Blackstone and its former personnel
involved in financial and strategic advisory
services at PJT, the overlapping ownership and co-investment and other
continuing arrangements between PJT and
Blackstone may influence Blackstone Credit to select or recommend PJT to perform
services for the Fund or its
obligors, the cost of which will generally be borne directly or indirectly by
the Fund. Given that PJT is no longer an affiliate of
Blackstone, Blackstone Credit and its affiliates will be free to cause the Fund
and portfolio companies to transact with PJT
generally without restriction under the applicable governing documents,
notwithstanding the relationship between Blackstone
and PJT.
Obligor/Portfolio
Company Relationships Generally. The Fund's obligors
are expected to be counterparties to or participants in
agreements, transactions or other arrangements with portfolio companies of Other
Clients or other Blackstone
affiliates for the provision of goods and services, purchase and sale of assets
and other matters. Although the Firm may determine
that such agreements, transactions or other arrangements are consistent with the
requirements of such Other Clients'
offering and/or governing agreements, such agreements, transactions or other
arrangements may not have otherwise been
entered into but for the affiliation with Blackstone Credit and/or Blackstone.
These agreements, transactions or
other agreements involve fees, commissions, servicing payments and/or discounts
to Blackstone Credit, any Blackstone
affiliate (including personnel) or a portfolio company, none of which reduce the
management fee payable by the Fund). For
example, the Firm may cause, or offer the opportunity to, portfolio companies to
enter into agreements regarding group
procurement (such as the group purchasing organization), benefits management,
purchase of title and/or other insurance
policies (which may be pooled across portfolio companies and discounted due to
scale) and other operational,
administrative or management related matters from a third party or a Firm
affiliate, and other similar operational
initiatives that may result in commissions or similar payments, including
related to a portion of the savings achieved by the
portfolio company. Such agreements, transactions or other arrangements may be
entered into without the consent or direct
involvement of the Fund and/or such Other Client or the consent of the Board
and/or shareholders of the Fund or such Other
Client (including, without limitation, in the case of minority and/or
non-controlling investments by the Fund in such
portfolio companies or the sale of assets from one portfolio company to another)
and/or such Other Client. In any such case, the
Fund may not be involved in the negotiation process, and there can be no
assurance that the terms of any such agreement,
transaction or other arrangement will be as favorable to the Fund as otherwise
would be the case if the counterparty
were not related to the Firm.
In addition, it is
possible that certain portfolio companies of Other Clients or companies in which
Other Clients have an interest will
compete with the Fund for one or more investment opportunities and/or engage in
activities that may have adverse consequences
on the Fund and/or its obligors. As an example of the latter, the laws and
regulations of certain jurisdictions
(e.g.,
bankruptcy,
environmental, consumer protection and/or labor laws) may not recognize the
segregation of assets and
liabilities as between separate entities and may permit recourse against the
assets of not just the entity that has incurred the
liabilities, but also the other entities that are under common control with, or
part of the same economic group as, such
entity. In such circumstances, the assets of the Fund and/or its obligors may be
used to satisfy the obligations or
liabilities of one or more Other Clients, their portfolio companies and/or
affiliates.
In addition,
Blackstone and affiliates of Blackstone may also establish other investment
products, vehicles and platforms focusing on specific
asset classes or industry sectors that fall within the Fund's investment
strategy, which may compete with the Fund for
investment opportunities (it being understood that such arrangements may give
rise to conflicts of interest that may
not necessarily be resolved in favor of the Fund).
Certain portfolio
companies may have established or invested in, or may in the future establish or
invest in, vehicles that are managed
exclusively by the portfolio company (and not the Fund or the Firm or any of its
affiliates) and that invest in asset classes or
industry sectors (such as cyber security) that fall within the Fund's investment
strategy. Such vehicles, which may not be
considered affiliates of the Firm and would not be subject to the Firm's
policies and procedures, may compete with the
Fund for investment opportunities. Portfolio companies and affiliates of the
Firm may also establish other investment
products, vehicles and platforms focusing on specific asset classes or industry
sectors (such as reinsurance) that
may compete with the Fund for investment opportunities (it being understood that
such arrangements may give rise to
conflicts of interest that may not necessarily be resolved in favor of the
Fund). In addition, the Fund may hold non-controlling
interests in certain portfolio companies and, as a result, such portfolio
companies could engage in activities outside
of the Fund's control that may have adverse consequences on the Fund and/or its
other obligors.
Blackstone has also
entered into certain investment management arrangements whereby it provides
investment management services
for compensation to insurance companies including (i) FGL Holdings which was
formerly known as Fidelity &
Guaranty Life Insurance Company and was acquired by Fidelity National Financial
Inc., and certain of its affiliates
(“FGL”), (ii) Everlake
Life Insurance Company and certain of its affiliates (“Everlake”) and (iii) certain
subsidiaries of Corebridge
Financial, Inc. (“Corebridge”),and (iv) certain
subsidiaries of Resolution Life Group Holdings Ltd. (“Resolution
Life”). As of the date of
this Memorandum, Everlake is a portfolio entity of Other Blackstone Clients
which involve investments
across a variety of asset classes (including investments that may otherwise be
appropriate for the Fund) and Blackstone
has acquired a 9.9% equity interest in the parent company of Corebridge. As a
result, in addition to the compensation
Blackstone receives for providing investment management services to insurance
companies in which Blackstone or an
Other Blackstone Client owns an interest, in certain instances Blackstone
receives additional compensation in its
capacity as an indirect owner of such insurance companies and/or Other
Blackstone Clients. In the future Blackstone
will likely enter into similar arrangements with other portfolio companies of
the Fund, Other Blackstone
Clients or other
insurance companies. Such arrangements may reduce the allocations of investments
to the Fund, and Blackstone may be
incentivized to allocate investments away from the Fund to the counterparties to
such investment management
arrangements or other vehicles/ accounts to the extent the economic arrangements
related thereto are more favorable to
Blackstone relative to the terms of the Fund.
Further, obligors
with respect to which the Fund may elect members of the board of directors or a
managing member could, as a result,
subject the Fund and/or such directors or managing member to fiduciary
obligations to make decisions that they believe to
be in the best interests of any such portfolio company. Although in most cases
the interests of the Fund and any such
portfolio company will be aligned, this may not always be the case. This may
create conflicts of interest between the
relevant director's or managing member's obligations to any such portfolio
company and its stakeholders, on the
one hand, and the interests of the Fund, on the other hand. Although Blackstone
Credit will generally seek to minimize the
impact of any such conflicts, there can be no assurance they will be resolved
favorably for the Fund.
Obligor/Portfolio
Company Service Providers and Vendors.
Subject
to applicable law, the Fund, Other Clients, obligors/portfolio
companies of each of the foregoing and Blackstone Credit can be expected to
engage obligors/portfolio companies of the
Fund and Other Clients to provide some or all of the following services: (a)
corporate support services (including, without
limitation, accounts payable, accounts receivable, accounting/audit (including
valuation support services), account
management, insurance, procurement, placement, brokerage, consulting, cash
management, corporate secretarial
services, domiciliation, data management, directorship services, finance/budget,
human resources, information technology/systems
support, internal compliance, know-your-client reviews and refreshes, judicial
processes, legal, environmental due
diligence support (e.g., review of property condition reports), operational
coordination (i.e.,
coordination with JV
partners, property managers), risk management, reporting, such as tax reporting,
debt reporting or other), tax and
treasury, tax analysis and compliance (e.g.,
CIT and
VAT compliance), transfer pricing and internal risk control, treasury
and valuation services); (b) loan services (including, without limitation,
monitoring, restructuring and work-out of
performing, sub-performing and nonperforming loans, administrative services, and
cash management); (c) management services
(i.e.,
management by a
portfolio company, Blackstone affiliate or third party (e.g.,
a
third-party manager) of
operational services); (d) operational services (i.e.,
general
management of day-to-day operations); (e) risk management (tax and
treasury); (f) insurance procurement, placement, brokerage and consulting
services; and (g) other services. Similarly,
Blackstone Credit, Other Clients and their portfolio companies can be expected
to engage obligors of the Fund to provide
some or all of these services. Some of the services performed by portfolio
company service providers could also be
performed by Blackstone Credit from time to time and vice versa. Fees paid by
the Fund or its obligors to the other portfolio
company service providers do not reduce the management fee payable by the Fund
and are not otherwise shared with the
Fund. Portfolio company service providers described in this section are
generally owned and controlled by one or more Other
Clients. In certain instances, a similar company could be owned and controlled
by Blackstone directly.
Obligors/portfolio
companies of the Fund and Other Clients some of which can be expected to provide
services to the Fund and its
obligors include, without limitation, the following, and may include additional
obligors that may be formed or acquired in the
future:
BTIG.
BTIG,
LLC (“BTIG”) is a global
financial services firm in which certain Blackstone entities own a strategic
minority investment. BTIG
provides institutional trading, investment banking, research and related
brokerage services and may provide goods and
services for the Fund or its obligors.
Optiv.
Optiv
Security, Inc. is a portfolio company held by certain Blackstone private equity
funds that provides a full slate of information
security services and solutions and may provide goods and services for the Fund
and its obligors.
PSAV.
PSAV,
Inc. is a portfolio company held by certain Blackstone private equity funds that
provides outsourced audiovisual services
and event production and may provide goods and services for the Fund and its
obligors.
Refinitiv.
On
October 1, 2018, a consortium led by Blackstone announced that private equity
funds managed by Blackstone had
completed an acquisition of Thomson Reuters' Financial & Risk business
(“Refinitiv”). On January 29,
2021,
Refinitiv was sold to London Stock Exchange Group (“LSEG”), with Blackstone
private equity funds receiving a minority stake in
LSEG. Refinitiv operates a pricing service that provides valuation services and
provides goods and services for the
Fund and its obligors.
Kryalos.
Blackstone through
one or more Other Clients has made a minority investment in Kryalos Investments
S.r.l. (“Kryalos”), an operating
partner in certain real estate investments made by Other Clients. Kryalos may
perform services for the Fund and its
portfolio companies.
Peridot
Financial Services (“Peridot”)
and Global Supply Chain Finance (“GSCF”).
Blackstone through
one or more of its funds has
made majority investments into Peridot and GSCF, which provide supply chain
financing and accounts receivable services
globally.
RE
Tech Advisors (“RE
Tech”).
Blackstone through
one or more of its funds has made a majority investment in RE Tech, an energy
audit/consulting firm that identifies and implements energy efficiency programs,
calculates return on investment and
tracks performance post-completion. RE Tech is expected to perform services for
the Fund, its obligors/ portfolio companies
and Other Clients.
Therma
Holdings. Therma Holdings LLC
is a portfolio company held by certain Blackstone private equity funds that
provides carbon
reduction and energy management services and may provide goods and services for
the Fund and its obligors/portfolio
companies.
Revantage.
Revantage is a
portfolio entity of certain Blackstone Clients that provides corporate support
services, including, without
limitation, accounting, legal, tax, treasury, information technology and human
resources and operational services and
management services.
The Fund and its
obligors will compensate one or more of these service providers and vendors
owned by the Fund or Other Clients,
including through incentive based compensation payable to their management teams
and other related parties. The
incentive based compensation paid with respect to a portfolio company or asset
of the Fund or Other Clients will vary from the
incentive based compensation paid with respect to other portfolio companies and
assets of the Fund and Other Clients;
as a result the management team or other related parties can be expected to have
greater incentives with respect to
certain assets and portfolio companies relative to others, and the performance
of certain assets and portfolio companies
may provide incentives to retain management that also service other assets and
portfolio companies. Some of these
service providers and vendors owned or controlled by the Fund or Other Clients
will charge the Fund and its obligors for
goods and services at rates generally consistent with those available in the
market for similar goods and services. The
discussion regarding the determination of market rates under “Firm Affiliated
Service Providers” herein applies equally in
respect of the fees and expenses of the portfolio company service providers, if
charged at rates generally consistent
with those available in the market. Other service providers and vendors owned
and/or controlled by the Fund or Other
Clients pass through expenses on a cost reimbursement, no-profit or break-even
basis, in which case the service provider
allocates costs and expenses directly associated with work performed for the
benefit of the Fund and its obligors to
them, along with any related tax costs and an allocation of the service
provider's overhead, including any of the following:
salaries, wages, benefits and travel expenses; marketing and advertising fees
and expenses; legal, accounting and other
professional fees and disbursements; office space (including, without
limitation, rent and refurbishment costs
and office space) and equipment; insurance premiums; technology expenditures,
including hardware and software costs;
costs to engage recruitment firms to hire employees; diligence expenses;
one-time costs, including costs related to
building-out and winding-down a portfolio company; costs that are of a limited
duration or non-recurring (such as start-up or
technology build-up costs, one-time technology and systems implementation costs,
employee on- boarding and
severance payments, and readiness of initial public offering and other
infrastructure costs); taxes; and other operating and
capital expenditures. Any of the foregoing costs (including in prior periods,
such as where any such costs are amortized over
an extended period), although allocated in a particular period, will, in certain
circumstances, relate to activities occurring
outside the period, and further will, in certain circumstances, be of a general
and administrative nature that is not
specifically related to particular services, and therefore the Fund could pay
more than its pro rata portion of fees for services.
The allocation of overhead among the entities and assets to which services are
provided can be expected to be based
on any of a number of different methodologies, including, without limitation,
“cost” basis as
described above,
“time-
allocation” basis, “per unit” basis, “per square
footage” basis or
“fixed
percentage” basis, and the
particular
methodology used to allocate such overhead among the entities and assets to
which services are provided are expected to vary
depending on the types of services provided and the applicable asset class
involved, and could, in certain
circumstances, change from one period to another. There can be no assurance that
a different manner of allocation would
result in the Fund and its obligors bearing less or more costs and expenses. In
certain instances, particularly where
such service providers and vendors are located in Europe or Asia, such service
providers and vendors will charge the Fund
and its portfolio companies for goods and services at cost plus a percentage of
cost for transfer pricing or other
tax, legal, regulatory, accounting or other reasons. The Firm is not expected to
perform or obtain benchmarking
analysis or third- party verification of expenses with respect to services
provided on a cost reimbursement, no profit or break
even basis. There can be no assurances that amounts charged by portfolio company
service providers that are not
controlled by the Fund or Other Clients will be consistent with market rates or
that any benchmarking, verification or
other analysis will be performed with respect to such charges. In addition,
while it is expected that the Fund or Other Clients
will engage in long-term or recurring contracts with the obligor service
providers, Blackstone Credit may
not seek to
benchmark or otherwise renegotiate the original fee arrangement for a
significant period of time. If benchmarking is
performed, the related expenses will be borne by the Fund, Other Clients and
their respective obligors/portfolio companies and will
not reduce the management fee. A portfolio company service provider will, in
certain circumstances,
subcontract certain of its responsibilities to other portfolio companies. In
such circumstances, the relevant subcontractor could
invoice the portfolio company for fees (or in the case of a cost reimbursement
arrangement, for allocable costs and
expenses) in respect of the services provided by the subcontractor. The
portfolio company, if charging on a cost
reimbursement, no-profit or break-even basis, would in turn allocate those costs
and expenses as it allocates other fees and
expenses as described above. Similarly, Other Clients, their portfolio companies
and Blackstone Credit can be expected to
engage portfolio companies of the Fund to provide services, and these portfolio
companies will generally charge for services
in the same manner described above, but the Fund and its obligors generally will
not be reimbursed for any costs (such as
start-up costs) relating to such portfolio companies incurred prior to such
engagement. Some of the services performed
by these service providers could also be performed by Blackstone Credit from
time to time and vice versa. Fees paid by
the Fund or its obligors to these service providers do not the offset or reduce
the management fee payable to
Blackstone Credit.
Service
Providers, Vendors and Other Counterparties Generally. Certain third party
advisors and other service providers and
vendors to the Fund and its obligors (including accountants, administrators,
lenders, bankers, brokers, attorneys,
consultants, title agents and investment or commercial banking firms) are owned
by the Firm, the Fund or Other Clients or provide
goods or services to, or have other business, personal, financial or other
relationships with, the Firm, the Other Clients and
their respective portfolio companies and affiliates and personnel. Such advisors
and service providers referred to above
may be investors in the Fund, affiliates of Blackstone Credit, sources of
financing and investment opportunities or
co-investors or commercial counterparties or entities in which the Firm and/or
Other Clients have an investment, and
payments by the Fund and/or such entities may indirectly benefit the Firm, the
Other Clients (including co-investment
vehicles) and their respective portfolio companies or any affiliates or
personnel. Also, advisors, lenders, investors,
commercial counterparties, vendors and service providers (including any of their
affiliates or personnel) to the Fund and its
obligors could have other commercial or personal relationships with the Firm,
Other Clients and their respective portfolio
companies, or any affiliates, personnel or family members of personnel of the
foregoing. Although the Firm selects service
providers and vendors it believes are most appropriate in the circumstances
based on its knowledge of such service
providers and vendors (which knowledge is generally greater in the case of
service providers and vendors that have other
relationships to the Firm), the relationship of service providers and vendors to
the Firm as described above will influence
the Firm in deciding whether to select, recommend or form such an advisor or
service provider to perform services for
the Fund, subject to applicable law, or a portfolio company, the cost of which
will generally be borne directly or
indirectly by the Fund and can be expected to incentivize the Firm to engage
such service provider over a third party, utilize the
services of such service providers and vendors more frequently than would be the
case absent the conflict, or to pay
such service providers and vendors higher fees or commissions, resulting in
higher fees and expenses being borne by the
Fund, than would be the case absent the conflict. The incentive could be created
by current income and/or the
generation of enterprise value in a service provider or vendor; the Firm can be
expected to also have an incentive to invest
in or create service providers and vendors to realize on these opportunities.
Blackstone has an incentive to use
third party services providers who do so as a result of the indirect benefit to
Blackstone and additional business for the
related service providers and vendors. Fees paid by the Fund or its portfolio
companies to or value created in these
service providers and vendors do not offset or reduce Fund Fees payable by the
Shareholders and are not otherwise shared
with the Fund. In the case of brokers, Blackstone has a best execution policy
that it updates from time to time to
comply with regulatory requirements in applicable jurisdictions.
The Firm has a
practice of not entering into any arrangements with advisors, vendors or service
providers that provide lower rates or
discounts to the Firm itself compared to those it enters into on behalf of the
Fund and its obligors for the same services.
However, legal fees for unconsummated transactions are often charged at a
discounted rate, such that if the Fund and its
obligors consummate a higher percentage of transactions with a particular law
firm than the Firm, the Fund, Other Clients
and their obligors/portfolio companies, shareholders could indirectly pay a
higher net effective rate for the services of that
law firm than the Firm, the Fund or Other Clients or their obligors/portfolio
companies. Also, advisors, vendors and service
providers often charge different rates or have different arrangements for
different types of services. For example,
advisors, vendors and service providers often charge fees based on the
complexity of the matter as well as the expertise and
time required to handle it. Therefore, to the extent the types of services used
by the Fund and its obligors are
different from those used by the Firm, Other Clients and their portfolio
companies, and their affiliates and personnel, the Fund
and its obligors can be expected to pay different amounts or rates than those
paid by such other persons. Similarly,
the Firm, the Fund, the Other Clients and their obligors/portfolio companies and
affiliates can be expected to enter
into agreements or other arrangements with vendors and other similar
counterparties (whether such
counterparties are
affiliated or unaffiliated with the Firm) from time to time whereby such
counterparty will, in certain circumstances,
charge lower rates (or no fee) or provide discounts or rebates for such
counterparty's products or services depending on the
volume of transactions in the aggregate or other factors. (See
also “Group Procurement;
Discounts”
herein.)
Subject to
applicable law, the Fund, Other Clients and their obligors/portfolio companies
are expected to enter into joint ventures with third
parties to which the service providers and vendors described above will, in
certain circumstances, provide services. In
some of these cases, the third party joint venture partner may negotiate to not
pay its pro rata share of fees, costs and
expenses to be allocated as described above, in which case the Fund, Other
Clients and their obligors/ portfolio companies
that also use the services of the portfolio company service provider will,
directly or indirectly, pay the difference, or the
portfolio company service provider will bear a loss equal to the
difference.
The Firm may, from
time to time, encourage service providers to funds and investments to use,
generally at market rates and/or on arm's
length terms, the Firm-affiliated (and/or on the basis of best execution, if
applicable), service providers in connection with the
business of the Fund, obligors/portfolio companies, and unaffiliated entities.
This practice provides an indirect benefit to
the Firm in the form of added business for the Firm-affiliated service
providers.
Certain
obligors/portfolio companies that provide services to the Fund, Other Clients
and/or obligors/portfolio companies or assets of the
Fund and/or Other Clients may be transferred between and among the Fund and/or
Other Clients (where the Fund may be a
seller or a buyer in any such transfer) for minimal or no consideration (based
on a third party valuation confirming the
same). Such transfers may give rise to actual or potential conflicts of interest
for Blackstone Credit.
Firm
Affiliated Service Providers.
Certain
of the Fund's, the Firm's and/or obligor/portfolio companies' advisers and
other
service providers, or their affiliates (including accountants, administrators,
lenders, bankers, brokers, attorneys, consultants, and
investment or commercial banking firms) also provide goods or services to, or
have business, personal, financial or other
relationships with, the Firm, its affiliates and portfolio companies. Such
advisers and service providers (or their
affiliates) may be investors in the Fund, affiliates of the Firm, sources of
investment opportunities, co-investors, commercial
counterparties and/or portfolio companies in which the Firm and/or the Fund has
an investment. Accordingly, payments to such
entities may indirectly benefit the Fund and/or its affiliates, including the
Firm and Other Clients. In addition to the
service providers (including obligor/portfolio company service providers) and
vendors described above, the Fund and its
obligors/portfolio companies will engage in transactions with one or more
businesses that are owned or controlled by the
Firm directly, not through one of its funds, including the businesses described
below. These businesses will, in certain
circumstances, also enter into transactions with other counterparties of the
Fund and its obligors/portfolio companies, as well
as service providers and vendors. The Firm could benefit from these transactions
and activities through current
income and creation of enterprise value in these businesses. No fees charged by
these service providers and vendors will
reduce the management fees payable to Blackstone Credit. Furthermore, the Firm,
the Other Clients and their portfolio
companies and their affiliates and related parties will use the services of
these Firm affiliates, including at different rates.
Although the Firm believes the services provided by its affiliates are equal or
better than those of third parties, the Firm
directly benefits from the engagement of these affiliates, and there is
therefore an inherent conflict of interest such as
those described above.
Because the Firm has
many different businesses, including the Blackstone Capital Markets Group, which
Blackstone investment teams and
portfolio companies may engage to provide underwriting and capital market
advisory services, it is subject to a number
of actual and potential conflicts of interest, greater regulatory oversight and
more legal and contractual
restrictions than that to which it would be subject if it had just one line of
business. To the extent Blackstone determines
appropriate, conflict mitigation strategies may be put in place with respect to
a particular circumstance, such as internal
information barriers or recusal, disclosure or other steps determined
appropriate by Blackstone Credit. Service providers affiliated
with the Firm, which are generally expected to receive competitive market rate
fees (as determined by Blackstone Credit or
its affiliates) with respect to certain Investments, include:
Aquicore.
Aquicore is a
cloud-based platform that tracks, analyzes and predicts key metrics in real
estate, focused on the reduction of energy
consumption. Blackstone holds a minority investment in Aquicore.
Equity
Healthcare. Equity Healthcare
LLC (“Equity
Healthcare”) is a Blackstone
affiliate that negotiates with providers of standard
administrative services for health benefit plans and other related services for
cost discounts, quality of service monitoring, data
services and clinical consulting. Because of the combined purchasing power of
its client participants,
which include
unaffiliated third parties, Equity Healthcare is able to negotiate pricing terms
that are believed to be more favorable than those
that the portfolio companies could obtain for themselves on an individual basis.
The fees received by Equity Healthcare in
connection with services provided to investments will not reduce the management
fee payable by the Fund.
LNLS. Blackstone wholly
owns a leading national title agency, Lexington National Land Services
(“LNLS”), a title agent
company. LNLS may
act as an agent for one or more underwriters in issuing title policies and/or
providing support services in connection with
investments by the Fund, Other Clients and third parties. LNLS focuses on
transactions in rate-regulated U.S. states where
the cost of title insurance is non-negotiable. LNLS will not perform services in
nonregulated U.S. states for the
Fund and Other Clients unless (i) in the context of a portfolio transaction that
includes assets in rate- regulated U.S.
states, (ii) as part of a syndicate of title insurance companies where the rate
is negotiated by other insurers or their agents,
(iii) when a third party is paying all or a material portion of the premium or
(iv) when providing only support services to the
underwriter and not negotiating the title policy or issuing it to the insured.
LNLS earns fees, which would have otherwise been
paid to third parties, by providing title agency services and facilitating the
placement of title insurance with
underwriters. Blackstone receives distributions from LNLS in connection with
investments by the Fund based on its equity
interest in LNLS. In each case, there will be no related reduction in management
fees. As a result, while Blackstone
believes that venture will provide services at or better than those provided by
third parties (even in jurisdictions where
insurance rates are regulated), there is an inherent conflict of interest that
would incentivize Blackstone to engage LNLS over
a third party.
Refinitiv. See “—Obligor/Portfolio
Company Service Providers and Vendors.”
In addition,
Blackstone has acquired a 9.9% equity interest in the parent company of American
International Group Inc.'s life and retirement
business. As a result, in addition to the compensation Blackstone receives for
providing investment management services
to insurance companies in which Blackstone or an Other Blackstone Client owns an
interest, in certain instances
Blackstone receives additional compensation in its capacity as an indirect owner
of such insurance companies and/or
Other Blackstone Clients. Such arrangements may reduce the allocations of
investments to the Fund, and Blackstone may
be incentivized to allocate investments away from the Fund to the counterparties
to such investment management
arrangements or other vehicles/accounts to the extent the economic arrangements
related thereto are more favorable to
Blackstone relative to the terms of the Fund.
The Fund could
participate alongside the Firm in the acquisition of a service provider. The
Firm is expected to establish a valuation
methodology in relation to any such sale or acquisition by the Fund of a service
provider. In addition, before entering into any
such transaction with respect to any such service provider, it is anticipated
that the Firm will obtain any consents that may be
required under the Advisers Act or other applicable laws or
regulations.
Certain
Blackstone-affiliated service providers and their respective personnel will
receive a management promote, an incentive fee and
other performance-based compensation in respect of investments, sales or other
transaction volume. Furthermore,
Blackstone-affiliated service providers may charge costs and expenses based on
allocable overhead associated with
personnel working on relevant matters (including salaries, benefits and other
similar expenses).
In connection with
such relationships, Blackstone Credit and, if required by applicable law, the
Board, will make determinations of
competitive market rates based on its consideration of a number of factors,
which are generally expected to include
Blackstone Credit's experience with non-affiliated service providers,
benchmarking data and other methodologies
determined by Blackstone Credit to be appropriate under the circumstances
(i.e.,
rates
that fall within a range that
Blackstone Credit has determined is reflective of rates in the applicable market
and certain similar markets, though not
necessarily equal to or lower than the median rate of comparable firms). In
respect of benchmarking, while Blackstone Credit
often obtains benchmarking data regarding the rates charged or quoted by third
parties for services similar to those
provided by Blackstone Credit affiliates in the applicable market or certain
similar markets, relevant comparisons may not
be available for a number of reasons, including, without limitation, as a result
of a lack of a substantial market
of providers or users of such services or the confidential or bespoke nature of
such services (e.g.,
different assets may
receive different services). In addition, benchmarking data is based on general
market and broad industry overviews,
rather than determined on an asset by asset basis. As a result, benchmarking
data does not take into account specific
characteristics of individual assets then invested in by the Fund (such as
location or size), or the particular
characteristics of services provided. Further, it could be difficult to identify
comparable third-party service providers that
provide services of a similar scope and scale as the Firm-affiliated service
providers that are the subject of the benchmarking
analysis. For these reasons, such market comparisons may not result in precise
market terms for comparable services.
Expenses to obtain benchmarking data will be borne by the Fund, Other Clients
and their respective obligors/portfolio
companies and will not reduce the management fee. To the extent the Fund or
Other Clients engage in a
long-term or
recurring contract with a Blackstone-affiliated service provider, Blackstone
Credit may not seek to benchmark or otherwise
renegotiate the original fee arrangement for a significant period of time.
Finally, in certain circumstances Blackstone Credit
can be expected to determine that third party benchmarking is unnecessary,
either because the price for a particular
good or service is mandated by law (e.g.,
title
insurance in rate regulated states) or because in Blackstone Credit's view no
comparable service provider offering such good or service exists or because
Blackstone Credit has access to adequate
market data to make the determination without reference to third party
benchmarking. For example, certain portfolio
companies may enter into an employer health program arrangement or similar
arrangements with Equity Healthcare, a
Blackstone affiliate that negotiates with providers of standard administrative
services and insurance carriers for health benefit
plans and other related services for cost discounts, quality of service
monitoring, data services and clinical consulting.
Because of the combined purchasing power of its client participants, Equity
Healthcare is able to negotiate pricing
terms from providers that are believed to be more favorable than the companies
could obtain for themselves on an
individual basis. The payments made to Blackstone in connection with Equity
Healthcare, group purchasing,
insurance and benefits management will not reduce the management fee payable to
Blackstone Credit.
Advisers and service
providers, or their affiliates, often charge different rates, including
below-market or no fee, or have different
arrangements for different types of services. With respect to service providers,
for example, the fee for a given type of work may
vary depending on the complexity of the matter as well as the expertise required
and demands placed on the service
provider. Therefore, to the extent the types of services used by the Fund and/or
portfolio companies differ from those used by
the Firm and its affiliates (including personnel), Blackstone Credit and/or
Blackstone or their respective affiliates
(including personnel) may pay different amounts or rates than those paid by the
Fund and/or portfolio companies. However, Blackstone
Credit and its affiliates have a longstanding practice of not entering into any
arrangements with advisers or service
providers that could provide for lower rates or discounts than those available
to the Fund, Other Clients and/or portfolio
companies for the same services. Furthermore, advisers and service providers may
provide services exclusively to the
Firm and its affiliates, including the Fund, Other Clients and their
obligors/portfolio companies, although such advisers and
service providers would not be considered employees of Blackstone or Blackstone
Credit. Similarly, Blackstone,
Blackstone Credit, each of their respective affiliates, the Fund, the Other
Clients and/or their obligors/portfolio companies, may enter
into agreements or other arrangements with vendors and other similar
counterparties (whether such counterparties
are affiliated or unaffiliated with the Firm) from time to time whereby such
counterparty may charge lower rates (or no
fee) and/or provide discounts or rebates for such counterparty's products and/or
services depending on certain factors,
including volume of transactions entered into with such counterparty by the
Firm, its affiliates, the Fund, the Other Clients
and their obligors/portfolio companies in the aggregate.
In addition,
investment banks or other financial institutions, as well as Blackstone
employees, may also be investors in the Fund. These
institutions and employees are a potential source of information and ideas that
could benefit the Fund. Blackstone has
procedures in place reasonably designed to prevent the inappropriate use of such
information by the Fund.
Transactions
with Portfolio Companies. The Firm and
obligors/portfolio companies of the Fund and Other Clients operate in multiple
industries and provide products and services to or otherwise contract with the
Fund and its obligors, among others. In the
alternative, the Firm may form a joint venture with such a company to implement
such referral arrangement. For
example, such arrangements may include the establishment of a joint venture or
other business arrangement between
the Firm, on the one hand, and a portfolio company of the Fund, portfolio
company of an Other Client or third
party, on the other hand, pursuant to which the joint venture or business
provides services (including, without limitation,
corporate support services, loan management services, management services,
operational services, ongoing account
services (e.g., interacting and coordinating with banks generally and with
regard to their know your client requirements), risk
management services, data management services, consulting services, brokerage
services, insurance procurement,
placement, brokerage and consulting services, and other services) to obligors of
the Fund (and portfolio companies of Other
Clients) that are referred to the joint venture or business by the Firm. The
Firm, the Fund and Other Clients and their
respective obligors/portfolio companies and personnel and related parties of the
foregoing can be expected to make
referrals or introductions to obligors/portfolio companies of the Fund or Other
Clients in an effort, in part, to increase
the customer base of such companies or businesses (and therefore the value of
the investment held by the Fund or Other
Client, which would also benefit the Firm financially through its participation
in such joint venture or business) or because
such referrals or introductions will, in certain circumstances, result in
financial benefits, such as cash payments, additional
equity ownership, participation in revenue share and/or milestones benefitting
the referring or introducing party
that are tied or related to participation by the obligors/portfolio companies of
the Fund and/or of Other Clients, accruing to
the party making the introduction. Such joint venture or business could use data
obtained from such portfolio entities
(see “—Data” herein).
Furthermore, such introductions or referrals may involve the transfer of certain
personnel or
employees among the Firm and obligors of the Fund and Other Clients, which may
result in a termination fee or similar payments
being due and payable from one such entity to another. The Fund and shareholders
will not share in any fees, economics,
equity or other benefits accruing to the Firm, Other Clients and their portfolio
companies as a result of the introduction
of the Fund and its obligors. Moreover, payments made to the Firm in connection
with such arrangements will
not reduce the management fee payable to Blackstone Credit. There may, however,
be instances in which the applicable
arrangements provide that the Fund or its obligors share in some or all of any
resulting financial incentives
(including, in some cases, cash payments, additional equity ownership,
participation in revenue share and/or milestones) based on
structures and allocation methodologies determined in the sole discretion of the
Firm. Conversely, where the Fund or
one of its obligors is the referring or introducing party, rather than receiving
all of the financial incentives
(including, in some cases, cash payments, additional equity ownership,
participation in revenue share and/or milestones) for
similar types of referrals and/or introductions, such financial incentives
(including, in some cases, equity ownership) may be
similarly shared with the participating Other Clients or their respective
portfolio companies.
The Firm may also
enter into commercial relationships with third party companies, including those
in which the Fund considered making an
investment (but ultimately chose not to pursue). For example, the Firm may enter
into an introducer engagement with such
company, pursuant to which the Firm introduces the company to unaffiliated third
parties (which may include current
and former portfolio companies and portfolio companies of Other Clients and/or
their respective employees) in
exchange for a fee from, or equity interest in, such company. Even though the
Firm may benefit financially from this commercial
relationship, the Firm will be under no obligation to reimburse the Fund for
Broken Deal Expenses incurred in
connection with its consideration of the prospective investment and such
arrangements will not be subject to the management fee
payable to Blackstone Credit and otherwise described herein.
Additionally, the
Firm or an affiliate thereof will from time to time hold equity or other
investments in companies or businesses that
provide services to or otherwise contract with portfolio companies. Blackstone
and Blackstone Credit have in the past entered
(and can be expected in the future to enter) into relationships with companies
in the information technology,
corporate services and related industries whereby Blackstone acquires an equity
or similar interest in such company. In
connection with such relationships, Blackstone and/or Blackstone Credit may also
make referrals and/or introductions to
portfolio companies (which may result in financial incentives (including
additional equity ownership) and/or milestones
benefitting Blackstone and/or Blackstone Credit that are tied or related to
participation by portfolio companies). Such joint venture
or business could use data obtained from obligors of the Fund and/or portfolio
companies of Other Clients. These
arrangements may be entered into without the consent or direct involvement of
the Fund. The Fund and shareholders will
not share in any fees or economics accruing to Blackstone and/or Blackstone
Credit as a result of these relationships and/or
participation by portfolio companies.
With respect to
transactions or agreements with portfolio companies (including, for the
avoidance of doubt, long-term incentive plans), at
times if officers unrelated to the Firm have not yet been appointed to represent
a portfolio company, the Firm may
negotiate and execute agreements between the Firm and/or the Fund on the one
hand, and the portfolio company or its
affiliates, on the other hand, without arm's length representation of the
portfolio company, which could entail a conflict of
interest in relation to efforts to enter into terms that are arm's length. Among
the measures the Firm can be expected to use
to mitigate such conflicts are to involve outside counsel to review and advise
on such agreements and provide insights
into commercially reasonable terms, or establish separate groups with
information barriers within the Firm to advise on each
side of the negotiation.
Related
Party Leasing.
Subject
to applicable law, the Fund and its obligors will, in certain circumstances,
lease property to or from
Blackstone, Other Clients and their portfolio companies and affiliates and other
related parties. The leases are generally expected
to, but may not always, be at market rates. Blackstone may confirm market rates
by reference to other leases it is aware
of in the market, which Blackstone expects to be generally indicative of the
market given the scale of Blackstone's real
estate business and with regard to other decisions related to such assets and
investments. Blackstone can be expected to,
but may not always, nonetheless have conflicts of interest in making these
determinations, and with regard to other
decisions related to such assets and investments. There can be no assurance that
the Fund and its obligors will lease
to or from any such related parties on terms as favorable to the Fund and its
obligors as would apply if the counterparties
were unrelated.
Cross-Guarantees
and Cross-Collateralization.
While
Blackstone Credit generally seeks to use reasonable efforts to avoid
cross-guarantees and other similar arrangements, a counterparty, lender or other
participant in any transaction to be pursued by the Fund
(other than alternative investment vehicles) and/or the Other Clients may
require or prefer facing only one fund entity or
group of entities, which may result in any of the Fund, such Other Clients, the
portfolio companies, such Other Clients'
portfolio companies and/or other vehicles being jointly and severally liable for
such applicable obligation
(subject to any
limitations set forth in the applicable partnership agreements or other
governing documents thereof), which in each case may
result in the Fund, such Other Clients, such portfolio companies, and/or
vehicles entering into a back-to- back or other
similar reimbursement agreement, subject to applicable law. In such situation,
better financing terms may be available through a
cross-collateralized arrangement, but it is not expected that any of the Fund or
such Other Clients or vehicles would be
compensated (or provide compensation to the other) for being primarily liable
vis-à -vis such third party counterparty. Also,
it is expected that cross-collateralization will generally occur at portfolio
companies rather than the Fund for obligations
that are not recourse to the Fund except in limited circumstances such as
“bad boy” events. Any
cross-collateralization
arrangements with Other Clients could result in the Fund losing its interests in
otherwise performing investments due to
poorly performing or non-performing investments of Other Clients in the
collateral pool or such persons otherwise
defaulting on their obligations under the terms of such
arrangements.
Similarly, a lender
could require that it face only one portfolio company of the Fund and Other
Clients, even though multiple obligors of
the Fund and Other Clients benefit from the lending, which will typically result
in (i) the portfolio company facing the
lender being solely liable with respect to the entire obligation, and therefore
being required to contribute amounts
in respect of the shortfall attributable to other portfolio companies, and (ii)
obligors of the Fund and Other Clients being
jointly and severally liable for the full amount of the obligation, liable on a
cross-collateralized basis or liable for an equity
cushion (which cushion amount may vary depending upon the type of financing or
refinancing (e.g.,
cushions for
refinancings may be smaller)). The obligor/portfolio companies of the Fund and
Other Clients benefiting from a financing may
enter into a back-to-back or other similar reimbursement agreements to ensure no
obligor/portfolio company bears more
than its pro rata portion of the debt and related obligations. It is not
expected that the obligors/ portfolio companies
would be compensated (or provide compensation to other portfolio companies) for
being primarily liable, or jointly
liable, for other portfolio companies pro rata share of any
financing.
Group
Procurement; Discounts.
The
Fund (subject to applicable law) and certain portfolio companies will enter into
agreements regarding
group procurement (including, but not limited to, CoreTrust, an independent
group purchasing organization),
benefits management, purchase of title and other insurance policies (which can
be expected to include brokerage or
placement thereof, and will from time to time be pooled across portfolio
companies and discounted due to scale, including
through sharing of deductibles and other forms of shared risk retention from a
third party or an affiliate of Blackstone Credit
and/or Blackstone, and other operational, administrative or management related
initiatives. The Firm will allocate the cost of
these various services and products purchased on a group basis among the Fund,
Other Clients and their
obligors/portfolio companies. Some of these arrangements result in commissions,
discounts, rebates or similar payments to
Blackstone Credit and/or Blackstone or their affiliates (including personnel),
or Other Clients and their portfolio companies,
including as a result of transactions entered into by the Fund and its obligors
and/or related to a portion of the
savings achieved by the obligors. Such commissions or payment will not reduce
the management fee. The Firm can be expected
to also receive consulting, usage or other fees from the parties to these group
procurement arrangements. To the
extent that a portfolio company of an Other Client is providing such a service,
such portfolio company and such
Other Client will benefit. Further, the benefits received by a particular
portfolio company providing the service may be
greater than those received by the Fund and its obligors receiving the service.
Conflicts exist in the allocation of the
costs and benefits of these arrangements, and shareholders rely on Blackstone
Credit to handle them in its sole
discretion.
Diverse
Shareholder Group. Shareholders are
expected to be based in a wide variety of jurisdictions and take a wide
variety
of forms. Shareholders may have conflicting investment, tax and other interests
with respect to their investments in the Fund and with
respect to the interests of investors in other investment vehicles managed or
advised by Blackstone Credit that may
participate in the same investments as the Fund, and investor personnel may have
incentives or conflicts with respect to
their investments in the Fund or Other Clients, including matters Blackstone
Credit is not aware of, such as interests in
Blackstone. The conflicting interests of individual shareholders with respect to
other shareholders and relative to investors in
other investment vehicles would generally relate to or arise from, among other
things, the nature of investments made by
the Fund and such other partnerships, the structuring or the acquisition of
investments, financing, tax profile and
timing of disposition of investments. As a consequence, conflicts of interest
will, in certain circumstances, arise in connection
with the decisions made by Blackstone Credit, including with respect to the
nature or structuring of investments that can
be expected to be more beneficial for one investor than for another investor,
especially with respect to investors'
individual tax situations. In addition, the Fund can be expected to make
investments that will, in certain circumstances, have
a negative impact on related investments made by shareholders in separate
transactions. In selecting and structuring
investments appropriate for the Fund, Blackstone Credit will consider the
investment and tax objectives of the Fund and
shareholders (and those of investors in other investment vehicles managed or
advised by Blackstone Credit) as a whole, not the
investment, tax or other objectives of any shareholder
individually.
In addition, certain
shareholders also could be investors in Other Clients, including supplemental
capital vehicles and co- investment vehicles
that may invest alongside the Fund in one or more investments, consistent with
applicable law. Shareholders also
may include affiliates of the Firm, such as Other Clients, affiliates of
obligors/portfolio companies of the Fund or Other
Clients, charities, foundations or other entities or programs associated with
Firm personnel and/or current or former
Firm employees, the Firm's senior advisors and/or operating partners and any
affiliates, funds or persons can be
expected to also invest in the Fund through the vehicles established in
connection with the Firm's side-by- side co-investment
rights, subject to applicable law, in each case, without being subject to
management fees, and shareholders will
not be afforded the benefits of such arrangements. Some of the foregoing Firm
related parties are sponsors of feeder
vehicles that could invest in the Fund as shareholders. The Firm related
sponsors of feeder vehicles generally charge
their investors additional fees, including performance based fees, which could
provide the Firm current income and increase
the value of its ownership position in them. The Firm will therefore have
incentives to refer potential investors to these
feeder vehicles. All of these Firm related shareholders will have equivalent
rights to vote and withhold consents as
nonrelated shareholders. Nonetheless, the Firm may have the ability to
influence, directly or indirectly, these Firm related
shareholders. It is also possible that the Fund or its obligors will, in certain
circumstances, be a counterparty (such counterparties
dealt with on an arm's-length basis) or participant in agreements, transactions
or other arrangements with a shareholder
or an affiliate of a shareholder (which may occur in connection with such
shareholder or its affiliates making an investment
in the Fund or Other Clients), including with respect to one or more investments
(or types of investments). Such
transactions may include agreements to pay performance fees to operating
partners, a management team and other
related persons in connection with the Fund's investment therein, which will
reduce the Fund's returns. Such shareholders
described in the previous sentences can be expected to therefore have different
information about the Firm and the Fund
than shareholders not similarly positioned. In addition, conflicts of interest
will, in certain circumstances, arise
in dealing with any such shareholders, and Blackstone Credit and its affiliates
may be motivated to enter into
agreements, transactions or arrangements with shareholders or their affiliates
in order to secure capital commitments from
investors in Other Clients and may otherwise be motivated by factors other than
the interests of the Fund. Similar
information disparity may occur as a result of shareholders monitoring their
investments in vehicles such as the Fund
differently. For example, certain shareholders can be expected to periodically
request from Blackstone Credit information
regarding the Fund, its investments and/or obligors that is not otherwise set
forth in (or has yet to be set forth) in the reporting and
other information required to be delivered to all shareholders. In such
circumstances, Blackstone Credit may provide
such information to such shareholders, subject to applicable law and
regulations. Unless required by applicable law,
Blackstone Credit will not be obligated to affirmatively provide such
information to all shareholders (although Blackstone
Credit will generally provide the same information upon request and treat
shareholders equally in that regard). As a
result, certain shareholders may have more information about the Fund than other
shareholders, and, unless required by
applicable law, Blackstone Credit will have no duty to ensure all shareholders
seek, obtain or process the same information
regarding the Fund, its investments and/or obligors. Therefore, certain
shareholders can be expected to be able
to take actions on the basis of such information which, in the absence of such
information, other shareholders do not
take. Furthermore, at certain times the Firm will, in certain circumstances, be
restricted from disclosing to
shareholders material non-public information regarding any assets in which the
Fund invests, particularly those investments in
which an Other Client or portfolio company that is publicly registered
co-invests with the Fund. In addition, investment
banks or other financial institutions, as well as Firm personnel, can be
expected to also be shareholders. These
institutions and personnel are a potential source of information and ideas that
could benefit the Fund, and can be
expected to receive information about the Fund and its obligors in their
capacity as a service provider or vendor to the Fund
and its obligors.
Possible
Future Activities. The Firm and its
affiliates may expand the range of services that it provides over time. Except
as
provided herein, the Firm and its affiliates will not be restricted in the scope
of its business or in the performance of any such services
(whether now offered or undertaken in the future) even if such activities could
give rise to conflicts of interest, and
whether or not such conflicts are described herein. The Firm and its affiliates
have, and will continue to develop,
relationships with a significant number of companies, financial sponsors and
their senior managers, including relationships with
clients who may hold or may have held investments similar to those intended to
be made by the Fund. These clients may
themselves represent appropriate investment opportunities for the Fund or may
compete with the Fund for investment
opportunities.
Restrictions
Arising under the Securities Laws. The Firm's
activities and the activities of Other Clients (including the holding of
securities positions or having one of its employees on the board of directors of
a portfolio company) could result in securities
law restrictions on transactions in securities held by the Fund, affect the
prices of such securities or the ability of such
entities to purchase, retain or dispose of such investments, or otherwise create
conflicts of interest, any of which could have an
adverse impact on the performance of the Fund and thus the return to
shareholders.
The 1940 Act may
limit the Fund's ability to undertake certain transactions with or alongside its
affiliates that are registered under the
1940 Act. As a result of these restrictions, the Fund may be prohibited from
executing “joint”
transactions with
the Fund's 1940 Act registered affiliates, which could include investments in
the same portfolio company (whether at the same
or different times) or buying investments from, or selling them to, Other
Clients. These limitations may limit the scope
of investment opportunities that would otherwise be available to the
Fund.
Shareholders'
Outside Activities.
A
shareholder shall be entitled to and can be expected to have business interests
and engage in activities
in addition to those relating to the Fund, including business interests and
activities in direct competition with the Fund and
its obligors, and may engage in transactions with, and provide services to, the
Fund or its obligors (which may include
providing leverage or other financing to the Fund or its obligors as determined
by Blackstone Credit in its sole
discretion). None of the Fund, any shareholder or any other person shall have
any rights by virtue of the Fund's operative documents
in any business ventures of any shareholder. Shareholders, and in certain cases
Blackstone Credit, will have
conflicting loyalties in these situations.
Technological
and Scientific Innovations. Recent technological
and scientific innovations have disrupted numerous established
industries and those with incumbent power in them. As technological and
scientific innovation continues to advance rapidly, it
could impact one or more of the Fund's strategies. Moreover, given the pace of
innovation in recent years, the impact on
a particular Investment may not have been foreseeable at the time the Fund made
such Investment and may adversely
impact the Fund and/or its obligors/portfolio companies. Furthermore, Blackstone
Credit could base investment decisions
on views about the direction or degree of innovation that prove inaccurate and
lead to losses.
Additional
Potential Conflicts of Interest. The officers,
directors, members, managers, employees and personnel of Blackstone Credit
can be expected to trade in securities and make personal investments for their
own accounts, subject to restrictions and
reporting requirements as may be required by law or the Firm's policies, or
otherwise determined from time to time by
Blackstone Credit. In addition, certain Other Clients may be subject to the 1940
Act or other regulations that, due to the
role of the Firm, could restrict the ability of the Fund to buy investments
from, to sell investments to or to invest in the same
securities as, such Other Clients. Such regulations may have the effect of
limiting the investment opportunities
available to the Fund. Such personal securities transactions and investments
will, in certain circumstances, result in conflicts
of interest, including to the extent they relate to (i) a company in which the
Fund holds or acquires an investment (either
directly through a privately negotiated investment or indirectly through the
purchase of securities or other traded
instruments related thereto) and (ii) entities that have interests which are
adverse to those of the Fund or pursue similar
investment opportunities as the Fund. In addition, as a consequence of
Blackstone's status as a public company, the
officers, directors, members, managers and personnel of Blackstone Credit can be
expected to take into account certain
considerations and other factors in connection with the management of the
business and affairs of the Fund and its
affiliates that would not necessarily be taken into account if Blackstone were
not a public company. The directors of
Blackstone have fiduciary duties to shareholders of the public company that may
conflict with their duties to the Fund. Finally,
although the Firm believes its positive reputation in the marketplace provides
benefit to the Fund and Other Clients,
Blackstone Credit could decline to undertake investment activity or transact
with a counterparty on behalf of the Fund for
reputational reasons, and this decision could result in the Fund foregoing a
profit or suffering a loss.
DoubleLine
ETFs (the “Funds”)
The following table
lists the number and types of accounts managed by each of the key professionals
involved in the day-to-day portfolio
management for each Fund and assets under management in those accounts. The
total number of accounts and assets
have been allocated to each respective manager. Therefore, some accounts and
assets have been counted
twice.
Other
Accounts Managed as of June 30, 2023
|
|
Registered
Investment
Company
Accounts* |
Assets
Managed
(billions) |
Other
Pooled
Investment
Vehicle
Accounts** |
Assets
Managed
(billions) |
|
Assets
Managed
(billions) |
Total
Assets
Managed
(billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
“Registered Investment
Companies” include only those
funds for which a portfolio manager is listed in the
prospectus.
**
“Pooled Investment
Vehicle” indicates private
accounts and undertakings for collective investments in transferable
securities.
***
“Other” indicates
DoubleLine's view of the portfolio manager primarily responsible to manage those
accounts.
(1)
Includes 1 account
(totaling $620.71 million in assets under management) with performance-based
fees.
(2)
Includes 2 accounts
(totaling $1.10 billion in assets under management) with performance-based
fees.
(3)
Includes 3 accounts
(totaling $1.21 billion in assets under management) with performance-based
fees.
(4)
Includes 1 account
(totaling $1.01 billion in assets under management) with performance-based
fees.
The portfolio
managers listed above did not beneficially own any interests of any Fund as of
June 30, 2023.
Compensation:
The overall
objective of the compensation program for the portfolio managers employed by the
Sub-Adviser is for the Sub-Adviser to attract
competent and expert investment professionals and to retain them over the
long-term. Compensation is comprised of several
components which, in the aggregate, are designed to achieve these objectives and
to reward the Sub-Adviser's
portfolio managers for their contribution to the success of the clients and the
Sub-Adviser. The Sub-Adviser Portfolio managers
are compensated through a combination of base salary, discretionary bonus and,
in some cases, equity participation
in the Sub-Adviser.
Salary. Salary is agreed to
with managers at time of employment and is reviewed from time to time. It does
not change significantly and
often does not constitute a significant part of portfolio managers'
compensation.
Discretionary
Bonus/Guaranteed Minimums. Portfolio managers
receive discretionary bonuses. However, in some cases, pursuant to
contractual arrangements, some portfolio managers may be entitled to a mandatory
minimum bonus if the sum of their salary
and profit sharing does not reach certain levels.
Equity
Incentives. Some portfolio
managers participate in equity incentives based on overall firm performance of
the Sub-Adviser, through direct
ownership interests in the Sub-Adviser. These ownership interests or
participation interests provide eligible portfolio
managers the opportunity to participate in the financial performance of the
Sub-Adviser. Participation is generally determined
in the discretion of the Sub-Adviser, taking into account factors relevant to
the portfolio manager's contribution to the
success of the Sub-Adviser.
Other
Plans and Compensation Vehicles. Portfolio managers
may elect to participate in the Sub-Adviser's 401(k) plan, to which they may
contribute a portion of their pre- and post-tax compensation to the plan for
investment on a tax-deferred basis. The
Sub-Adviser may also choose, from time to time, to offer certain other
compensation plans and vehicles, such as a deferred
compensation plan, to portfolio managers.
Summary. As described above,
an investment professional's total compensation is determined through a
subjective process that
evaluates numerous quantitative and qualitative factors, including the
contribution made to the overall investment process.
Not all factors apply to each employee and there is no particular weighting or
formula for considering certain factors.
Among the factors considered are: relative investment performance of portfolios
(although there are no specific benchmarks
or periods of time used in measuring performance); complexity of investment
strategies; participation in the investment
team's dialogue; contribution to business results and overall business strategy;
success of marketing/business development efforts
and client servicing; seniority/length of service with the firm; management and
supervisory responsibilities;
and fulfillment of the Sub-Adviser's leadership criteria.
Potential
Conflicts of Interest:
The Sub-Adviser
seeks to identify potential conflicts of interest resulting from a portfolio
manager's management of both the Funds and other
accounts, and has adopted policies and procedures designed to address such
potential conflicts.
From time to time,
potential and actual conflicts of interest may arise between a portfolio
manager's management of the investments of a
Fund, on the one hand, and the management of other accounts, on the other.
Potential and actual conflicts of
interest also may result because of the Sub-Adviser's other business activities.
Other accounts managed by a portfolio manager
might have similar investment objectives or strategies as a Fund or otherwise
hold, purchase, or sell securities that are
eligible to be held, purchased or sold by a Fund. The other accounts might also
have different investment
objectives or strategies than a Fund.
Knowledge
and Timing of Fund Trades. A potential
conflict of interest may arise as a result of the portfolio manager's
management of the
Funds. Because of their positions with the Funds, the portfolio managers know
the size, timing and possible market
impact of each Fund's trades. It is theoretically possible that a portfolio
manager could use this information to the
advantage of other accounts under management, and also theoretically possible
that actions could be taken (or not taken)
to the detriment of a Fund.
Investment
Opportunities. A potential conflict
of interest may arise as a result of the portfolio manager's management of a
number
of accounts with varying investment guidelines. Often, an investment opportunity
may be suitable for both the Funds and other
accounts managed by the portfolio manager, but securities may not be available
in sufficient quantities for both a Fund and
the other accounts to participate fully. Similarly, there may be limited
opportunity to sell an investment held by a Fund and
another account. The Sub-Adviser has adopted policies and procedures reasonably
designed to allocate investment
opportunities on a fair and equitable basis over time.
Under the
Sub-Adviser's allocation procedures, investment opportunities are allocated
among various investment strategies based on
individual account investment guidelines, the Sub-Adviser's investment outlook,
cash availability and a series of other
factors. The Sub-Adviser has also adopted additional internal practices to
complement the general trade allocation policy
that are designed to address potential conflicts of interest due to the
side-by-side management of the Funds and certain
pooled investment vehicles, including investment opportunity allocation
issues.
Conflicts
potentially limiting a Fund's investment opportunities may also arise when a
Fund and other clients of the Sub-Adviser invest in, or even
conduct research relating to, different parts of an issuer's capital structure,
such as when a Fund owns senior debt
obligations of an issuer and other clients own junior tranches of the same
issuer. In such circumstances, decisions over
whether to trigger an event of default, over the terms of any workout, or how to
exit an investment may result in conflicts
of interest. In order to minimize such conflicts, a portfolio manager may avoid
certain investment opportunities that
would potentially give rise to conflicts with other clients of the Sub-Adviser
or result in the Sub-Adviser receiving material,
non-public information, or the Sub-Adviser may enact internal procedures
designed to minimize such conflicts, which
could have the effect of limiting a Fund's investment opportunities.
Additionally, if the Sub-Adviser acquires material
non-public confidential information in connection with its business activities
for other clients, a portfolio manager or other
investment personnel may be restricted from purchasing securities or selling
certain securities for a Fund or other
clients. When making investment decisions where a conflict of interest may
arise, the Sub-Adviser will endeavor to act in a
fair and equitable manner between a Fund and other clients; however, in certain
instances the resolution of the
conflict may result in the Sub-Adviser acting on behalf of another client in a
manner that may not be in the best interest,
or may be opposed to the best interest, of a Fund.
Investors in a Fund
may also be advisory clients of the Sub-Adviser or a Fund may invest in a
product managed or sponsored or
otherwise affiliated with the Sub-Adviser. Accordingly, the Sub-Adviser may in
the course of its business provide advice to
advisory clients whose interests may conflict with those of a Fund, may render
advice to a Fund that provides a direct or
indirect benefit to the Sub-Adviser or an affiliate of the Sub-Adviser or may
manage or advise a product in which a
Fund is invested in such a way that would not be beneficial to a Fund. The
Sub-Adviser could also, for example, make
decisions with respect to a structured product managed or sponsored by the
Sub-Adviser in a manner that could have adverse
effects on investors in the product, including, potentially, a
Fund.
Broad
and Wide-Ranging Activities. The portfolio
managers, the Sub-Adviser and its affiliates engage in a broad spectrum
of
activities. In the ordinary course of their business activities, the portfolio
managers, the Sub-Adviser and its affiliates may engage in
activities where the interests of certain divisions of the Sub-Adviser and its
affiliates or the interests of their clients may
conflict with the interests of the shareholders of a Fund.
Possible
Future Activities. The Sub-Adviser and
its affiliates may expand the range of services that it provides over time.
Except
as provided herein, the Sub-Adviser and its affiliates will not be restricted in
the scope of its business or in the performance of any
such services (whether now offered or undertaken in the future) even if such
activities could give rise to conflicts of
interest, and whether or not such conflicts are described herein. The
Sub-Adviser and its affiliates have, and will continue to
develop, relationships with a significant number of companies, financial
sponsors and their senior managers, including
relationships with clients who may hold or may have held investments similar to
those intended to be made by a Fund.
These clients may themselves represent appropriate investment opportunities for
a Fund or may compete with a Fund
for investment opportunities.
Performance
Fees and Personal Investments. A portfolio manager
may advise certain accounts with respect to which the advisory fee is
based entirely or partially on performance or in respect of which the portfolio
manager may have made a significant personal
investment. Such circumstances may create a conflict of interest for the
portfolio manager in that the
portfolio manager
may have an incentive to allocate the investment opportunities that he or she
believes might be the most profitable to such
other accounts instead of allocating them to a Fund. The Sub-Adviser has adopted
policies and procedures
reasonably designed to allocate investment opportunities between a Fund and
performance fee based accounts on a fair
and equitable basis over time.
Loomis
Sayles
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 as of June
30, [ ]. The total number of accounts
and assets have been allocated to each respective manager. Therefore, some
accounts and assets have been counted
twice.
Other
Accounts Managed as of June 30, 2023
|
|
Registered
Investment
Company
Accounts |
Assets
Managed
(billions) |
Other
Pooled
Investment
Vehicle
Accounts |
Assets
Managed
(billions) |
|
Assets
Managed
(billions) |
Total
Assets
Managed
(billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Includes 4 accounts
(totaling $711.43 million in assets under management) with performance-based
fees.
The portfolio
managers listed above did not beneficially own any interests of any Fund as of
June 30, 2023.
Conflicts
of Interest. Conflicts of
interest may arise in the allocation of investment opportunities and the
allocation of aggregated orders
among the Fund and other accounts managed by the portfolio managers. A portfolio
manager potentially could
give favorable treatment to some accounts for a variety of reasons, including
favoring larger accounts, accounts that pay
higher fees, accounts that pay performance- based fees, accounts of affiliated
companies and accounts in which the
portfolio manager has an interest. In addition, due to differences in the
investment strategies or restrictions among the Fund and a
portfolio manager's other accounts, the portfolio manager may take action with
respect to another account that differs
from the action taken with respect to the Fund. Although such favorable
treatment could lead to more favorable investment
opportunities or allocations for some accounts and may appear to create
additional conflicts of interest for the
portfolio manager in the allocation of management time and resources, Loomis
Sayles strives to ensure that portfolio
managers endeavor to exercise their discretion in a manner that is equitable to
all interested persons. Furthermore, Loomis
Sayles makes investment decisions for all accounts (including institutional
accounts, mutual funds, hedge funds and
affiliated accounts) based on each account's investment objective, investment
guidelines and restrictions, the availability of
other comparable investment opportunities and Loomis Sayles' desire to treat all
accounts fairly and equitably over time.
Loomis Sayles maintains trade aggregation and allocation policies and procedures
to mitigate the effects of these
potential conflicts as well as other types of conflicts of interest. However,
there is no guarantee that such procedures will
detect each and every situation where a conflict arises or that Loomis Sayles
will treat all accounts identically.
Conflicts of interest also arise to the extent a portfolio manager short sells a
stock or otherwise takes a short position in one
client account but holds that stock long in other accounts, including the Fund,
or sells a stock for some accounts while
buying the stock for others, and through the use of “soft dollar
arrangements,” which are discussed
in Loomis Sayles'
Brokerage Allocation Policies and Procedures and Loomis Sayles' Trade
Aggregation and Allocation Policies and
Procedures.
Compensation. Loomis Sayles
believes that portfolio manager compensation should be driven primarily by the
delivery of consistent and
superior long-term performance for its clients. Although portfolio manager
compensation is not directly tied to assets under
management, a portfolio manager's base salary and/or bonus potential may reflect
the amount of assets for which the
manager is responsible relative to other portfolio managers. The annual bonus is
incentive-based and generally represents
a significant multiple of base salary. The bonus is based on three factors:
investment performance, profit growth of the
firm, and personal conduct. Investment performance is the primary component of
the annual bonus and generally
represents at least 60% of the total for fixed-income managers. The other
factors are used to determine the remainder of the
annual incentive bonus, subject to the discretion of the Chief Investment
Officer (“CIO”) and senior
management. The CIO
and senior management evaluate these other factors annually.
The investment
performance component of the annual incentive bonus depends primarily on
investment performance against benchmark
and/or against peers within similar disciplines. The score is based upon the
product's institutional composite
performance; however, adjustments may be made if there is significant dispersion
among the returns of the composite and
accounts not included in the composite. For most products, the product
investment score compares the product's rolling
three year performance over the past nine quarters (a five year view) against
both a benchmark and a peer group
established by the CIO. The scoring rewards both the aggregate excess
performance of the product against a benchmark and the
product's relative rank within a peer group. In addition, for fixed income
products, the performance score rewards for
the consistency of that outperformance and is enhanced if over the past five
years it has kept its rolling three-year
performance ahead of its benchmark. Portfolio managers working on several
product teams receive a final score based on the
relative revenue weight of each product.
Portfolio managers
may also participate in the three segments of the long-term incentive program.
The amount of the awards for each
segment are dependent upon role, industry experience, team and firm
profitability, and/or investment performance.
General. The core
elements of the Loomis Sayles compensation plan include a base salary, an annual
incentive bonus, and, for senior
investor and leadership roles, a long-term incentive bonus. The base salary is a
fixed amount based on a combination of
factors, including industry experience, firm experience, job performance and
market considerations. The annual incentive
bonus and long term incentive bonus is driven by a variety of factors depending
upon the specific role. Factors include
investment performance, individual performance, team and firm profitability,
role, and industry experience. Both the annual and
long term bonus have a deferral component. Loomis Sayles has developed and
implemented three long-term incentive
plan segments to attract and retain investment talent.
For the senior-most
investment roles, a Long Term Incentive Plan provides annual grants relative to
the role, and includes a post retirement
payment feature to incentivize effective succession management. Participation is
contingent upon signing an award
agreement, which includes a non-compete covenant. The second and third Long Term
Incentive Plans are constructed to
create mid- term alignment for key positions, including a two year deferral
feature. The second plan is role based, and the
third is team based which is more specifically dependent upon team profitability
and/or investment performance.
In addition, Loomis
Sayles also offers a profit sharing plan for all employees and a defined benefit
plan for employees who joined the firm
prior to May 3, 2003. The profit sharing contribution to the retirement plan of
each employee is based on a percentage of base
salary (up to a maximum amount). The defined benefit plan is based on years of
service and base compensation (up to
a maximum amount).
Nuveen
Asset Management
The following table
lists the number and types of accounts managed by each of the key professionals
involved in the day-to-day portfolio
management for each Fund and assets under management in those accounts. The
total number of accounts and assets
have been allocated to each respective manager. Therefore, some accounts and
assets have been counted
twice.
Other
Accounts Managed as of June 30, 2023
|
|
Registered
Investment
Company
Accounts |
Assets
Managed
(billions)* |
Other
Pooled
Investment
Vehicle
Accounts |
Assets
Managed
(billions)* |
|
Assets
Managed
(billions)* |
Total
Assets
Managed
(billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
There are no
performance-based fees associated with these accounts.
The portfolio
managers listed above did not beneficially own any interests of any Fund as of
June 30, 2023.
Compensation: Portfolio managers
are compensated through a combination of base salary and variable components
consisting of (i) a
cash bonus; (ii) a long-term performance award; and (iii) participation in a
profits interest plan.
Base salary. A
portfolio manager's base salary is determined based upon an analysis of the
portfolio manager's general performance,
experience and market levels of base pay for such position.
Cash bonus. A
portfolio manager is eligible to receive an annual cash bonus that is based on
three variables: risk-adjusted investment
performance relative to benchmark generally measured over the most recent one,
three and five year periods (unless the
portfolio manager's tenure is shorter), ranking versus Morningstar peer funds
generally measured over the most recent one,
three and five year periods (unless the portfolio manager's tenure is shorter),
and management and peer reviews.
Long-term
performance award. A portfolio manager is eligible to receive a long-term
performance award that vests after three years. The
amount of the award when granted is based on the same factors used in
determining the cash bonus. The value of the
award at the completion of the three-year vesting period is adjusted based on
the risk-adjusted investment
performance of fund(s) managed by the portfolio manager during the vesting
period and the performance of the TIAA
organization as a whole.
Profits interest
plan. Portfolio managers are eligible to receive profits interests in Nuveen
Asset Management (and certain affiliates), which
vest over time and entitle their holders to a percentage of the firms' annual
profits. Profits interests are allocated to each
portfolio manager based on such person's overall contribution to the
firms.
Material
Conflicts of Interest: Actual or apparent
conflicts of interest may arise when a portfolio manager has day-to-day
management
responsibilities with respect to more than one account. More specifically,
portfolio managers who manage multiple accounts
are presented a number of potential conflicts, including, among others, those
discussed below.
The management of
multiple accounts may result in a portfolio manager devoting unequal time and
attention to the management of each
account. Nuveen Asset Management seeks to manage such competing interests for
the time and attention of
portfolio managers by having portfolio managers focus on a particular investment
discipline.
If a portfolio
manager identifies a limited investment opportunity which may be suitable for
more than one account, an account may not be
able to take full advantage of that opportunity due to an allocation of filled
purchase or sale orders across all eligible
accounts. To deal with these situations, Nuveen Asset Management has adopted
procedures for allocating limited
opportunities across multiple accounts.
With respect to many
of its clients' accounts, Nuveen Asset Management determines which broker to use
to execute transaction orders,
consistent with its duty to seek best execution of the transaction. However,
with respect to certain other accounts, Nuveen
Asset Management may be limited by the client with respect to the selection of
brokers or may be instructed to direct
trades through a particular broker. In these cases, Nuveen Asset Management may
place separate, non-simultaneous,
transactions for a Fund and other accounts which may temporarily affect the
market price of the security or the
execution of the transaction, or both, to the detriment of the Fund or the other
accounts.
Some clients are
subject to different regulations. As a consequence of this difference in
regulatory requirements, some clients may not be
permitted to engage in all the investment techniques or transactions or to
engage in these transactions to the same extent
as the other accounts managed by the portfolio manager. Finally, the appearance
of a conflict of interest may arise
where Nuveen Asset Management has an incentive, such as a performance-based
management fee, which relates to the
management of some accounts, with respect to which a portfolio manager has
day-to-day management
responsibilities.
Nuveen Asset
Management has adopted certain compliance procedures which are designed to
address these types of conflicts common
among investment managers. However, there is no guarantee that such procedures
will detect each and every situation in
which a conflict arises.
THE
ADMINISTRATOR, SUB-ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Administrator: SSGA FM serves as
the administrator to each series of the Trust, pursuant to an Administration
Agreement dated June 1, 2015
(the “SSGA Administration
Agreement”). Pursuant to the
SSGA Administration Agreement, SSGA FM is obligated to
continuously provide business management services to the Trust and its series
and will generally, subject to the general
oversight of the Trustees and except as otherwise provided in the SSGA
Administration Agreement, manage all of the business
and affairs of the Trust.
Sub-Administrator,
Custodian and Transfer Agent: State Street serves
as the sub-administrator to each series of the Trust, pursuant to a
Sub-Administration Agreement dated June 1, 2015 (the “Sub-Administration
Agreement”). Under the
Sub-Administration Agreement, State
Street is obligated to provide certain administrative services to the Trust and
its series. State Street is a
wholly-owned subsidiary of State Street Corporation, a publicly held financial
holding company, and is affiliated with the
Adviser. State Street's mailing address is State Street Financial Center, One
Congress Street, Boston, Massachusetts
02114.
State Street also
serves as Custodian for the Trust's series pursuant to a custodian agreement
(“Custodian
Agreement”). As Custodian, State
Street holds Fund assets, calculates the net asset value of the Shares and
calculates net income and realized capital
gains or losses. State Street and the Trust will comply with the self-custodian
provisions of Rule 17f-2 under the 1940
Act.
State Street also
serves as Transfer Agent for each series of the Trust pursuant to a transfer
agency agreement (“Transfer
Agency
Agreement”).
Compensation: As compensation for
its services provided under the SSGA Administration Agreement, SSGA FM shall
receive
fees for the services, calculated based on the average aggregate net assets of
the Trust which are accrued daily and paid monthly out
of its management fee.
As compensation for
its services under the Sub-Administration Agreement, Custodian Agreement and
Transfer Agency Agreement, State
Street shall receive an annual fixed fee per Fund. In addition, State Street
shall receive global safekeeping and
transaction fees, which are calculated on a per-country basis, in-kind creation
(purchase) and redemption transaction fees (as
described below) and revenue on certain cash balances. State Street may be
reimbursed by the series of the Trust
for its out-of-pocket expenses. The Investment Advisory Agreement provides that
the Adviser will pay certain operating
expenses of the Trust, including the fees due to State Street under the
Custodian Agreement and the Transfer Agency
Agreement.
Additional
Sub-Administration Services: Also under the
Sub-Administration Agreement, State Street receives an annual per Fund fee for
certain services required in the preparation (including preparing a schedule of
quarterly portfolio investments) and
filing of Form N-PORT and Form N-CEN with the SEC (“N-PORT Related
Services”). Additionally,
State Street receives an
annual per Fund fee for services regarding certain liquidity analytics
(“Liquidity Risk
Measurement Services”) under the
Sub-Administration Agreement. N-PORT Related Services and Liquidity Risk
Measurement Services fees are paid by the
Adviser from its management fee.
SECURITIES
LENDING ACTIVITIES
The Trust's Board
has approved each Fund's (except the SPDR Nuveen Municipal Bond ETF and SPDR
Nuveen Municipal Bond ESG
ETF) participation in a securities lending program. Under the securities lending
program, each Fund has retained State
Street to serve as the securities lending agent.
For the fiscal year
ended June 30, 2023, the income earned by each Fund as well as the fees and/or
compensation paid by each Fund (in
dollars) pursuant to the Master Amended and Restated Securities Lending
Authorization Agreement among SPDR Series
Trust, SPDR Index Shares Funds and the Trust, each on behalf of its respective
series, and State Street (the
“Securities Lending
Authorization Agreement”) were as
follows:
|
|
Gross
income
earned
by
the
Fund
from
securities
lending
activities |
Fees
and/or compensation paid by the Fund for securities lending activities
and
related
services |
Aggregate
fees
and/or
compensation
paid
by
the
Fund
for
securities
lending
activities
and
related
services |
Net
income
from
securities
lending
activities |
|
Fees
paid
to
State
Street
from
a
revenue
split |
Fees
paid
for
any
cash
collateral
management
service
(including
fees
deducted
from
a
pooled
cash
collateral
reinvestment
vehicle)
that
are not
included
in a
revenue
split |
Admini-
strative
fees
not
included
in
a
revenue
split |
Indemnifi-
cation
fees
not
included
in
a
revenue
split |
Rebate
(paid
to
borrower) |
Other
fees
not
included
in
a
revenue
split |
SPDR
Blackstone
High
Income
ETF |
|
|
|
|
|
|
|
|
|
SPDR
Blackstone
Senior
Loan
ETF |
|
|
|
|
|
|
|
|
|
|
|
Gross
income
earned
by
the
Fund
from
securities
lending
activities |
Fees
and/or compensation paid by the Fund for securities lending activities
and
related
services |
Aggregate
fees
and/or
compensation
paid
by
the
Fund
for
securities
lending
activities
and
related
services |
Net
income
from
securities
lending
activities |
|
Fees
paid
to
State
Street
from
a
revenue
split |
Fees
paid
for
any
cash
collateral
management
service
(including
fees
deducted
from
a
pooled
cash
collateral
reinvestment
vehicle)
that
are not
included
in a
revenue
split |
Admini-
strative
fees
not
included
in
a
revenue
split |
Indemnifi-
cation
fees
not
included
in
a
revenue
split |
Rebate
(paid
to
borrower) |
Other
fees
not
included
in
a
revenue
split |
SPDR
DoubleLine
Emerging
Markets
Fixed
Income
ETF |
|
|
|
|
|
|
|
|
|
SPDR
DoubleLine
Short
Duration
Total
Return
Tactical
ETF |
|
|
|
|
|
|
|
|
|
SPDR
DoubleLine
Total
Return
Tactical
ETF |
|
|
|
|
|
|
|
|
|
SPDR
Loomis
Sayles
Opportunistic
Bond
ETF |
|
|
|
|
|
|
|
|
|
SPDR
SSGA
Fixed
Income
Sector
Rotation
ETF |
|
|
|
|
|
|
|
|
|
SPDR
SSGA
Global
Allocation
ETF |
|
|
|
|
|
|
|
|
|
SPDR
SSGA
Income
Allocation
ETF |
|
|
|
|
|
|
|
|
|
SPDR
SSGA
Multi-Asset
Real
Return
ETF |
|
|
|
|
|
|
|
|
|
SPDR
SSGA
Ultra
Short
Term
Bond
ETF |
|
|
|
|
|
|
|
|
|
SPDR
SSGA US
Sector
Rotation
ETF |
|
|
|
|
|
|
|
|
|
For the fiscal year
ended June 30, 2023, State Street, acting as agent of the Funds, provided the
following services to the Funds in connection
with the Funds' securities lending activities: (i) locating borrowers among an
approved list of prospective
borrowers; (ii) causing the delivery of loaned securities from a Fund to
borrowers; (iii) monitoring the value of loaned securities,
the value of collateral received, and other lending parameters; (iv) seeking
additional collateral, as necessary, from
borrowers; (v) receiving and holding collateral from borrowers, and facilitating
the investment and reinvestment of all
or substantially all cash collateral in an investment vehicle designated by the
Funds; (vi) returning collateral to
borrowers; (vii) facilitating substitute dividend, interest, and other
distribution payments to the Funds from
borrowers; (viii)
negotiating the terms of each loan of securities, including but not limited to
the amount of any loan premium, and
monitoring the terms of securities loan agreements with prospective borrowers
for consistency with the requirements of the
Funds' Securities Lending Authorization Agreement; (ix) selecting securities,
including amounts (percentages), to be
loaned; (x) recordkeeping and accounting services; and (xi) arranging for return
of loaned securities to a Fund in
accordance with the terms of the Securities Lending Authorization
Agreement.
THE
DISTRIBUTOR
State Street Global
Advisors Funds Distributors, LLC is the principal underwriter and Distributor of
Shares. Its principal address is One Iron
Street, Boston, Massachusetts 02210. Investor information can be obtained by
calling 1-866-787-2257. The Distributor has
entered into a distribution agreement (“Distribution
Agreement”) with the Trust
pursuant to which it distributes
Shares of each Fund. The Distribution Agreement will continue for two years from
its effective date and is renewable annually
thereafter. Shares will be continuously offered for sale by the Trust through
the Distributor only in Creation Units, as
described in the Prospectus and below under “PURCHASE AND
REDEMPTION OF CREATION UNITS.” Shares in less than
Creation Units are not distributed by the Distributor. The Distributor will
deliver the Prospectus to persons
purchasing Creation Units and will maintain records of both orders placed with
it and confirmations of acceptance furnished
by it. The Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended (the
“Exchange
Act”) and a member of
the Financial Industry Regulatory Authority (“FINRA”). The Distributor
has no
role in determining the investment policies of the Trust or which securities are
to be purchased or sold by the Trust. An affiliate of the
Distributor may assist Authorized Participants (as defined below) in assembling
shares to purchase Creation Units or
upon redemption, for which it may receive commissions or other fees from such
Authorized Participants. An affiliate of the
Distributor also receives compensation from State Street for providing on-line
creation and redemption functionality to
Authorized Participants through its Fund Connect application.
The Adviser or
Distributor, or an affiliate of the Adviser or Distributor, may directly or
indirectly make cash payments to certain
broker-dealers for participating in activities that are designed to make
registered representatives and other professionals more
knowledgeable about exchange-traded products, including the SPDR funds, or for
other activities, such as
participation in marketing activities and presentations, educational training
programs, conferences, the development of
technology platforms and reporting systems.
In addition, as of
the date of this SAI, the Adviser and/or Distributor had arrangements whereby
they may make payments, other than for the
educational programs and marketing activities described above, to Pershing LLC
(“Pershing”), RBC Capital Markets, LLC
(“RBC”), LPL Financial,
LLC (“LPL”), and Morgan
Stanley Wealth Management, LLC. These amounts, which may
be significant, are paid by the Adviser and/or Distributor from their own
resources and not from Fund assets. Pursuant to
these arrangements, Pershing, RBC and LPL have agreed to offer certain SPDR
funds to their customers and not to
charge certain of their customers any commissions when those customers purchase
or sell shares of certain SPDR
funds. Payments to a broker-dealer or intermediary may create potential
conflicts of interest between the broker dealer or
intermediary and its clients.
In addition, the
Adviser or Distributor, or an affiliate of the Adviser or Distributor, as well
as an index provider that is not affiliated with the
Adviser or Distributor, may reimburse expenses or make payments from their own
assets to other persons in
consideration of services, provision of data, or other activities that they
believe may benefit the SPDR business or facilitate
investment in SPDR funds.
The Distribution
Agreement provides that it may be terminated at any time, without the payment of
any penalty, as to a Fund: (i) by vote of
a majority of the Independent Trustees or (ii) by vote of a majority (as defined
in the 1940 Act) of the outstanding voting
securities of the Fund, on at least 60 days' written notice to the Distributor.
The Distribution Agreement is also terminable
upon 60 days' notice by the Distributor and will terminate automatically in the
event of its assignment (as defined in the
1940 Act).
The continuation of
the Distribution Agreement and any other related agreements is subject to annual
approval of the Board, including by
a majority of the Independent Trustees, as described above.
The Distributor may
also enter into agreements with securities dealers (“Soliciting
Dealers”) who will solicit
purchases of Creation Unit
aggregations of Shares. Such Soliciting Dealers may also be Participating
Parties (as defined in the “Book Entry Only
System” section below)
and/or DTC Participants (as defined below).
Pursuant to the
Distribution Agreement, the Trust has agreed to indemnify the Distributor, and
may indemnify Soliciting Dealers and
Authorized Participants (as described below) entering into agreements with the
Distributor, for certain liabilities,
including certain liabilities arising under the federal securities laws, unless
such loss or liability results from willful misfeasance, bad
faith or gross negligence in the performance of its duties or the reckless
disregard of its obligations and duties under the
Distribution Agreement or other agreement, as applicable.
Brokerage
Transactions
All portfolio
transactions are placed on behalf of the Funds by the Adviser. Purchases and
sales of securities on a securities exchange
are affected through brokers who charge a commission for their services.
Ordinarily commissions are not charged on
over-the-counter orders (e.g., fixed income securities) because the Funds pay a
spread which is included in the cost of the
security and represents the difference between the dealer's quoted price at
which it is willing to sell the security and the
dealer's quoted price at which it is willing to buy the security. When a Fund
executes an over-the-counter order with an
electronic communications network or an alternative trading system, a commission
is charged by such electronic
communications networks and alternative trading systems as they execute such
orders on an agency basis. Securities may be
purchased from underwriters at prices that include underwriting
fees.
In placing a
portfolio transaction, the Adviser seeks to achieve best execution. The
Adviser's duty to seek best execution requires the Adviser
to take reasonable steps to obtain for the client as favorable an overall result
as possible for Fund portfolio
transactions under the circumstances, taking into account various factors that
are relevant to the particular transaction.
The Adviser refers
to and selects from the list of approved trading counterparties maintained by
the Adviser's Credit Risk Management team. In
selecting a trading counterparty for a particular trade, the Adviser seeks to
weigh relevant factors including, but not
limited to the following:
•Prompt
and reliable execution;
•The
competitiveness of commission rates and spreads, if applicable;
•The
financial strength, stability and/or reputation of the trading
counterparty;
•The
willingness and ability of the executing trading counterparty to execute
transactions (and commit capital) of size in liquid and
illiquid markets without disrupting the market for the security;
•Local
laws, regulations or restrictions;
•The
ability of the trading counterparty to maintain confidentiality;
•The
availability and capability of execution venues, including electronic
communications networks for trading and execution management
systems made available to Adviser;
•Market
share;
•Liquidity;
•Price;
•Execution
related costs;
•History
of execution of orders;
•Likelihood
of execution and settlement;
•Order
size and nature;
•Clearance
and settlement capabilities, especially in high volatility market
environments;
•Availability
of lendable securities;
•Sophistication
of the trading counterparty's trading capabilities and
infrastructure/facilities;
•The
operational efficiency with which transactions are processed and cleared, taking
into account the order size and
complexity;
•Speed
and responsiveness to the Adviser;
•Access
to secondary markets;
•Counterparty
exposure; and
•Depending
upon the circumstances, the Adviser may take other relevant factors into account
if the Adviser believes that these are
important in taking all sufficient steps to obtain the best possible result for
execution of the order.
In selecting a
trading counterparty, the price of the transaction and costs related to the
execution of the transaction typically merit a
high relative importance, depending on the circumstances. The Adviser does not
necessarily select a trading counterparty
based upon price and costs but may take other relevant factors into account if
it believes that these are important in
taking reasonable steps to obtain the best possible result for a Fund under the
circumstances. Consequently, the
Adviser may cause a client to pay a trading counterparty more than another
trading counterparty might have charged for the
same transaction in recognition of the value and quality of the brokerage
services provided. The following matters
may influence the relative importance that the Adviser places upon the relevant
factors:
(i)
The nature and
characteristics of the order or transaction. For example, size of order, market
impact of order, limits, or other
instructions relating to the order;
(ii)
The characteristics
of the financial instrument(s) or other assets which are the subject of that
order. For example, whether the order
pertains to an equity, fixed income, derivative or convertible
instrument;
(iii)
The characteristics
of the execution venues to which that order can be directed, if relevant. For
example, availability and
capabilities of electronic trading systems;
(iv)
Whether the
transaction is a ‘delivery versus payment' or ‘over-the-counter' transaction.
The creditworthiness of the trading
counterparty, the amount of existing exposure to a trading counterparty and
trading counterparty settlement
capabilities may be given a higher relative importance in the case of
‘over-the-counter' transactions; and/or
(v)
Any other
circumstances that the Adviser believes are relevant at the
time.
The process by which
trading counterparties are selected to effect transactions is designed to
exclude consideration of the sales efforts
conducted by broker-dealers in relation to the Funds.
The Adviser does not
currently use the Funds' assets in connection with third-party soft dollar
arrangements. While the Adviser does not
currently use “soft” or commission
dollars paid by the Funds for the purchase of third-party research, the
Adviser
reserves the right to do so in the future.
Blackstone
Credit:
Blackstone Credit is responsible for decisions to buy and sell securities for
each Fund, the selection of brokers and dealers
to effect the transactions and the negotiation of prices and any brokerage
commissions. With respect to fixed income
instruments and other types of securities, each Fund may (i) purchase securities
in the over-the-counter market from an
underwriter or dealer serving as market maker for the securities, in which case
the price includes a fixed amount of
compensation to the underwriter or dealer, and (ii) purchase and sell listed
securities on an exchange, which are effected through
brokers who charge a commission for their services. Affiliates of Blackstone
Credit may participate in the primary and
secondary market for fixed income instruments. Because of certain limitations
imposed by the 1940 Act, this may restrict a
Fund's ability to acquire some fixed income instruments. Blackstone Credit does
not believe that this will have a material
effect on a Fund's ability to acquire fixed income instruments consistent with
its investment policies. Sales to dealers are
effected at bid prices.
Payments of
commissions to brokers who are affiliated persons of the Funds (or affiliated
persons of such persons) will be made in
accordance with Rule 17e-1 under the 1940 Act.
Commissions paid on
such transactions would be commensurate with the rate of commissions paid on
similar transactions to
brokers that are not so affiliated.
Blackstone Credit is
responsible for placing portfolio transactions and will do so in a manner deemed
fair and reasonable to each Fund and not
according to any formula. The primary consideration in all portfolio
transactions is best execution of orders, which the
SEC generally describes as a duty to seek to execute securities transactions so
that a client's total costs or proceeds in each
transaction are the most favorable under the circumstances. In selecting
broker-dealers and in negotiating prices
and any brokerage commissions on such transactions, Blackstone Credit considers
the full range and quality of broker
services, including expertise and ability to perform execution services; ability
to execute transactions in the markets at
competitive prices without disrupting the market for a particular security;
range of services provided and products offered
(e.g., securities lending, margin lending, capital introduction, start-up
services, reporting, research, valuation); quality
and timeliness of market information provided; ability of broker to maintain
confidentiality; relationship
management/sales
coverage; credit worthiness and financial responsibility; operational expertise;
ability to maintain confidentiality;
trading volumes; fees; and commission rate or spread involved. There may be
instances when, in the judgment of
Blackstone Credit, more than one firm can offer comparable execution
services.
A commission paid to
such brokers may be higher than that which another qualified broker would have
charged for effecting the same
transaction, provided that Blackstone Credit determine in good faith that such
commission is reasonable in terms
either of the transaction or the overall responsibility of Blackstone Credit to
a Fund and its other clients and that the
total commissions paid by a Fund will be reasonable in relation to the benefits
to the Fund over the long-term. The
advisory fees that each Fund pays to Blackstone Credit will not be reduced as a
consequence of Blackstone Credit's
receipt of brokerage and research services. To the extent that portfolio
transactions are used to obtain such services, the
brokerage commissions paid by such Fund will exceed those that might otherwise
be paid by an amount that cannot
be presently determined. Such services generally would be useful and of value to
Blackstone Credit in serving one or more
of its other clients and, conversely, such services obtained by the placement of
brokerage business of other clients
generally would be useful to Blackstone Credit in carrying out its obligations
to a Fund. While such services are not
expected to reduce the expenses of Blackstone Credit, Blackstone Credit would,
through use of the services, avoid the
additional expenses that would be incurred if it should attempt to develop
comparable information through its own
staff. Commission rates for brokerage transactions on foreign stock exchanges
are generally fixed.
One or more of the
other accounts that Blackstone Credit manages may own from time to time some of
the same investments as a
Fund. Investment decisions for each Fund are made independently from those of
such other investment companies or
accounts; however, from time to time, the same investment decision may be made
for more than one company or account.
When two or more companies or accounts seek to purchase or sell the same
securities, the securities actually
purchased or sold will be allocated among the companies and accounts on a good
faith equitable basis, usually on a pro
rata basis, by Blackstone Credit in its discretion in accordance with the
accounts' various investment objectives. Such
allocations are based upon the written procedures of Blackstone Credit. In some
cases, this system may adversely affect the
price or size of the position obtainable for a Fund. In other cases, however,
the ability of a Fund to participate in
volume transactions may produce better execution for the Fund. It is the opinion
of Blackstone Credit that this advantage, when
combined with the other benefits available due to Blackstone Credit's
organization, outweighs any disadvantages that
may exist from exposure to simultaneous transactions.
Portfolio turnover
rate is not considered a limiting factor in the execution of investment
decisions for the Funds. Because it is difficult to
predict accurately portfolio turnover rates, actual turnover may be higher or
lower than expected. Higher portfolio turnover
results in increased Fund costs, including brokerage commissions, dealer
mark-ups and other transaction costs on
the sale of securities and on the reinvestment in other securities.
DoubleLine: The Sub-Adviser is
responsible for the placement of each Fund's portfolio transactions and, with
respect thereto, the
negotiation of prices, brokerage commissions, if any, and mark-ups and
mark-downs or spreads on principal transactions. The
Sub-Adviser may also purchase securities on behalf of a Fund in underwritten
offerings at fixed prices that include
discounts to underwriters and/or concessions to dealers.
In placing a
portfolio transaction, the Sub-Adviser seeks to achieve best execution. This
means that, in selecting broker-dealers to execute
portfolio transactions for the Funds, the Sub-Adviser seeks to select
broker-dealers that will execute securities
transactions in a manner such that the total cost or proceeds of each
transaction is the most favorable under the circumstances. This
does not mean, however, that portfolio transactions are always executed at the
lowest available commission or
spread, and the Sub-Adviser may effect transactions that cause a Fund to pay a
commission or spread in excess of a
commission or spread that another broker-dealer would have charged if the
Sub-Adviser determines that, notwithstanding such
commission or spread, such transaction is in such Fund's best interest. In
making this determination, the Sub-Adviser may
take a variety of factors into consideration, including, without limitation, (i)
execution quality in light of order size,
difficulty of execution and other relevant factors; (ii) associated expenses and
costs; (iii) the quality, reliability, responsiveness and
value of the provided services, (iv) the operational compatibility between the
broker-dealer and the Sub-Adviser; (v) the
broker-dealer's safety and soundness; and (vi) the provision of research and
brokerage products and services. The
provision of research and brokerage products and services is not typically
considered in respect of transactions by a
Fund when trading fixed income securities.
From time to time,
the Sub-Adviser receives unsolicited research from various brokers, which may or
may not be counterparties to
trades placed on behalf of clients. While the Sub-Adviser may review and
consider certain of the research received,
the provision of unsolicited research does not factor into the Sub-Adviser's
broker selection process with respect to
trading fixed-income securities. Research services include items such as reports
on industries and
companies, economic
analyses, review of business conditions and portfolio strategy and various
trading and quotation services. Such
services also include advice from broker-dealers as to the value of securities,
availability of securities, availability of
buyers, and availability of sellers. These services also include recommendations
as to purchase and sale of individual
securities and timing of transactions.
Investment decisions
for each Fund and for the other investment advisory clients of the Sub-Adviser
are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability
for the particular client involved (including the Funds). Some securities
considered for investment by a Fund also may be
appropriate for other clients served by the Sub-Adviser. Thus, a particular
security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time, including accounts in which the
Sub-Adviser, its officers or employees may have a financial interest. If a
purchase or sale of securities consistent with the
investment policies of a Fund and one or more of these clients served by the
Sub-Adviser is considered at or
about the same time, transactions in such securities will be allocated among
such Fund and other clients pursuant to the
Sub-Adviser's trade allocation policy that is designed to ensure that all
accounts, including the Fund, are treated fairly and
equitably over time.
As permitted by
Section 28(e) of the Exchange Act , the Sub-Adviser may, on behalf of a client,
pay a broker or dealer that provides
“brokerage and
research services” (as defined in the
Exchange Act) to the Sub-Adviser an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission that another broker or dealer would have
charged for effecting that transaction, if the Sub-Adviser determines in good
faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in
terms of either that particular transaction or the Sub-Adviser's overall
responsibilities to the client and to other client
accounts over which the Sub-Adviser exercises investment discretion. Such
research services include proprietary research
created internally by a broker or by a third-party provider (and made available
to the Sub-Adviser by a broker) such as, for
example, individual stock information and research, industry and sector
analysis, trend analysis and forecasting,
discussions with individual stock analysts, and meetings arranged with various
sources of information regarding particular
issuers, industries, governmental policies, specific information about local
markets and applicable regulations,
economic trends, and other matters. In addition, a broker may accumulate credits
for the Sub-Adviser's account and use them
to purchase brokerage and research services at the Sub-Adviser's discretion and
based on the Sub-Adviser's
determination of the relative benefits of the various services available for
purchase. These arrangements are commonly known
as “commission sharing
arrangements.” Accordingly, the
Sub-Adviser's clients may be deemed to be paying for research
and these other services with “soft” or commission
dollars. Research furnished by brokers or dealers or pursuant to
credits accumulated at brokers or dealers through commission sharing
arrangements may be used in servicing any or all
of the Sub-Adviser's clients and may be used for client accounts other than
those that pay commissions to the
broker or dealer providing the research. The Sub-Adviser also may receive soft
dollar credits based on certain “riskless” principal
securities transactions with brokerage firms. With respect to certain products
and services used for both
research/brokerage and non-research/brokerage purposes, the Sub-Adviser
generally allocates the costs of such products and
services between their research/brokerage and non-research/brokerage uses, and
generally uses soft dollars to pay only
for the portion allocated to research/brokerage uses. Examples of products and
services used for non-research/brokerage purposes (and not
paid for with soft dollars) include equipment and exchange data (e.g., quotes,
volume). Some of
these services may be of value to the Sub-Adviser and its affiliates in advising
various of their clients (including the
Funds), although not all of these services are necessarily useful and of value
in managing the Funds. The sub-advisory fee
paid by each Fund is not reduced because the Sub-Adviser or its affiliates
receive these services even though the
Sub-Adviser might otherwise be required to purchase some of these services for
cash. The Sub-Adviser's authority to cause a
Fund to pay any such greater commissions is also subject to such policies as the
Trustees may adopt from time to
time.
The Sub-Adviser's
relationships with brokerage firms that provide soft dollar services to the
Sub-Adviser (including brokerage firms that
participate in commission sharing arrangements) may influence the Sub-Adviser's
judgment and create conflicts of
interest, both in allocating brokerage business between firms that provide soft
dollar services and firms that do not, and in
allocating the costs of mixed-use products between their research and
non-research uses. When the Sub-Adviser uses
client brokerage commissions to obtain research or other products or services,
the Sub-Adviser receives a benefit because it
does not have to produce or pay for such research, products, or services. As
such, the Sub-Adviser has an incentive to
select or recommend a broker-dealer based on the Sub-Adviser's interest in
receiving the research or other products or
services, rather than on the Sub-Adviser's clients' interest in receiving most
favorable execution. Client trades executed
through these brokers or any other brokerage firm may not be at the lowest price
otherwise available. The Sub-Adviser
maintains policies and procedures designed to address such conflicts of
interest.
In an effort to
achieve efficiencies in execution and reduce trading costs, the Sub-Adviser and
its affiliates may, but will not necessarily,
aggregate securities transactions on behalf of a number of accounts, including
accounts of the Funds, at the same time. In
addition, the Sub-Adviser may execute securities transactions alongside or
interspersed between aggregated orders
when the Sub-Adviser believes that such execution will not interfere with its
ability to execute in a manner believed to
be most favorable to its clients as a whole. The Sub-Adviser may exclude trades
for accounts that direct brokerage or
that are managed in part for tax considerations from aggregate
orders.
When executing
aggregate orders, trades will be allocated among accounts using procedures that
the Sub-Adviser considers to be
reasonably designed to be non-preferential and fair and equitable over time.
This may include making the allocation on a
random or pro
rata
basis or based on such considerations as diversification requirements, duration,
investment
objectives, client contractual or regulatory investment guidelines and
restrictions, existing or targeted account weightings in
particular securities or sectors, lot size, account size, cash availability,
amount of existing holdings (or substitutes) of the
security in the accounts, investment time horizons and directed brokerage
instructions, if applicable.
The Sub-Adviser
shares allocations of public offerings and other desirable but limited
opportunities to buy or sell securities in a
manner that the Sub-Adviser considers reasonably designed to be non-preferential
and fair and equitable over time, such that
no account or group of accounts receives consistently favorable or unfavorable
treatment. Generally, such allocations
will be made after taking into account cash availability and need, suitability,
investment objectives and guidelines and other
factors deemed appropriate in making investment allocation decisions for each
client. Shares obtained in initial
public offerings will be allocated using these criteria unless the number of
shares made available to the Adviser is
de
minimis, in which case the
shares will be allocated among the eligible accounts based on the Sub-Adviser's
assessment of the
circumstances.
In addition, and
particularly with respect to fixed-income securities, if a small amount of an
investment is allocated to the Sub-Adviser, the
Sub-Adviser may allocate it disproportionately, taking into consideration lot
size, existing or targeted account weightings
in particular securities and/or sectors, account size, diversification
requirements and investment objectives/restrictions.
Loomis
Sayles:
Fixed-income securities are generally purchased from the issuer or a primary
market maker acting as principal on a net
basis with no brokerage commission paid by the client. Such securities may also
be purchased from underwriters at
prices which include underwriting fees. In placing orders for the purchase and
sale of options, futures, options on futures,
and underlying securities upon exercise of options, Loomis Sayles selects only
brokers that it believes are financially
responsible, will provide efficient and effective services in executing,
clearing and settling an order and will charge commission
rates that, when combined with the quality of the foregoing services, will
produce the best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission, if any, will be paid. However,
the commissions charged are believed to be competitive with generally prevailing
rates. Loomis Sayles will use its best
efforts to obtain information as to the general level of commission rates being
charged by the brokerage community from time
to time and will evaluate the overall reasonableness of brokerage commissions,
if any, paid on transactions by
reference to such data. In making such evaluation, factors affecting liquidity
and execution of the order, as well as the amount
of the capital commitment by the broker in connection with the order are taken
into account. Loomis Sayles may place
orders for the Fund which, combined with orders for its' other clients, may
impact the price of the relevant security.
This could cause the Fund to obtain a worse price on the transaction than would
otherwise be the case if the orders were
placed in smaller amounts or spread out over a longer period of
time.
Subject to the
overriding objective of obtaining the best possible execution of orders, Loomis
Sayles may allocate brokerage
transactions to affiliated brokers. Any such transactions will comply with Rule
17e-1 under the 1940 Act. In order for the
affiliated broker to effect portfolio transactions for the Fund, the
commissions, fees or other remuneration received by the
affiliated broker must be reasonable and fair compared to the commissions, fees
and other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange
during a comparable period. Furthermore, the Fund's Board of Trustees, including
a majority of the Independent
Trustees, has adopted procedures that are reasonably designed to provide that
any commissions, fees or other remuneration
paid to an affiliated broker are consistent with the foregoing
standard.
Transactions on
stock, option, and futures exchanges involve the payment of negotiated brokerage
commissions. In the case of securities
traded in the OTC market, there is generally no stated commission but the price
usually includes an undisclosed
commission or mark-up.
Generally, Loomis
Sayles seeks to obtain quality executions at favorable security prices and at
competitive commission rates, where
applicable, through brokers and dealers who, in Loomis Sayles' opinion, can
provide the best overall net results for its
clients. Transactions in equity securities are frequently executed through a
primary market maker but may also be executed on
an Electronic Communication Network (ECN), Alternative Trading System (ATS), or
other execution systems that in
Loomis Sayles' opinion can provide the best overall net results for its
clients.
Commissions
and Other Factors in Broker or Dealer Selection. Loomis Sayles uses
its best efforts to obtain information as to the general level
of commission rates being charged by the brokerage community, from time to time,
and to evaluate the overall
reasonableness of brokerage commissions paid on client portfolio transactions by
reference to such data. In making this
evaluation, all factors affecting liquidity and execution of the order, as well
as the amount of the capital commitment by the
broker or dealer, are taken into account. Other relevant factors may include,
without limitation: (a) the execution
capabilities of the brokers and/or dealers, (b) research and other products or
services (as described in the section “Soft
Dollars” below) provided by
such brokers and/or dealers which are expected to enhance Loomis Sayles'
general
portfolio management capabilities, (c) the size of the transaction, (d) the
difficulty of execution, (e) the operations facilities of the
brokers and/or dealers involved, (f) the risk in positioning a block of
securities, (g) fair dealing and (h) the quality of the
overall brokerage and research services provided by the broker-
dealer.
Soft
Dollars. Brokerage trading
activity is an essential factor in accessing Wall Street and third-party firm
research. First and foremost, Loomis
Sayles recognizes that it has a fiduciary duty to seek best execution of its
clients' transactions. In regard to equity
trading commissions paid to trading counterparts, Loomis Sayles is unbundled
across all its dealers, with execution and
research commission splits being consistent across dealers. This enables Loomis
Sayles' trading desk to route orders to
dealers solely based on achieving best execution. Research products or services
may be paid for with Loomis Sayles' own
assets or may, in connection with transactions in equity securities effected for
client accounts for which Loomis Sayles
exercises investment discretion, be paid for with client commissions (i.e.
“soft
dollars”).
For purposes of this
soft dollars discussion, the term “commission” includes
commissions paid to brokers in connection with transactions
effected on an agency basis. Loomis Sayles does not generate soft dollars on
fixed-income transactions.
Loomis Sayles will
only acquire research and brokerage products and services with soft dollars if
they qualify as eligible products and
services under the safe harbor of Section 28(e) of the Exchange Act. Eligible
research services and products that may be
acquired by Loomis Sayles are those products and services that provide advice,
analysis or reports that will aid Loomis
Sayles in carrying out its investment decision- making responsibilities.
Eligible research must reflect the expression of
reasoning or knowledge (having inherently intangible and non-physical
attributes) and may include the following research
items: traditional research reports; discussions with research analysts and
corporate executives; seminars or
conferences; financial and economic publications that are not targeted to a wide
public audience; software that provides
analysis of securities portfolios; market research including pre-trade and
post-trade analytics; and market data.
Eligible brokerage
services and products that may be acquired by Loomis Sayles are those services
or products that (i) are required to
effect securities transactions; (ii) perform functions incidental to securities
transactions; or (iii) are services that are required by
an applicable self-regulatory organization or SEC rule(s). The brokerage and
research products or services provided to
Loomis Sayles by a particular broker-dealer may include (a) products and
services created by such broker-dealer, (b)
products and services created by other broker-dealers, and (c) products and
services created by a third party. All soft
dollar services are reviewed and approved by Loomis Sayles' Chief Compliance
Officer.
If Loomis Sayles
receives a particular product or service that both aids it in carrying out its
investment decision-making responsibilities
(i.e., a “research
use”) and provides
non-research related uses, Loomis Sayles will make a good faith determination as to
the allocation of the cost of such “mixed-use
item” between the
research and non-research uses, and will only use soft
dollars to pay for the portion of the cost relating to its research use. As of
the date of this SAI, there are no mixed-use
services being provided to Loomis Sayles.
In connection with
Loomis Sayles' use of soft dollars, a Fund may pay a broker-dealer an amount of
commission for effecting a
transaction for the Fund in excess of the amount of commission another
broker-dealer would have charged for effecting that
transaction if Loomis Sayles determines in good faith that the amount of
commission is reasonable in relation to the
value of the brokerage and research products or services provided by the
broker-dealer, viewed in terms of either the
particular transaction or Loomis Sayles' overall responsibilities with respect
to the accounts as to which Loomis Sayles exercises
investment discretion.
Loomis Sayles may
use soft dollars to acquire brokerage or research products and services that
have potential application to all client
accounts, including the Fund. The soft dollars generated by Loomis Sayles'
clients that are used to purchase research services
with a Fund's commissions are not necessarily for the exclusive benefit of the
particular Fund, but rather for the
benefit of the funds/clients in the same product (e.g., Large Cap Growth). The
soft dollar commissions of an account in one
product are not used for the benefit of a product managed by a different
investment team. Furthermore given the fact that
soft dollars are generated from the trading in client/fund portfolios, those
clients/funds that have cash flows will generally
generate more soft dollars than clients/funds that do not have cash flows.
However, the clients/funds with cash flows will
not generate more soft dollars than the amount budgeted for the client/fund in a
given year. Finally, while some clients
do not generate soft dollar commissions, such as wrap/model program clients,
clients with directed brokerage or zero
commission arrangements (which may limit or prevent Loomis Sayles from using
such clients' commissions to pay
for research and research services), and certain fixed income accounts, they may
still benefit from the research provided to
Loomis Sayles in connection with other transactions placed for other clients. As
a result, certain clients may have
more of their commissions directed for research and research services than
others.
Loomis Sayles' use
of soft dollars to acquire brokerage and research products and services benefits
Loomis Sayles by allowing it to
obtain such products and services without having to purchase them with its own
assets. Loomis Sayles believes that its
use of soft dollars also benefits the Fund as described above. However,
conflicts may arise between the Fund's interest in
paying the lowest commission rates available and Loomis Sayles' interest in
receiving brokerage and research products
and services from particular brokers and dealers without having to purchase such
products and services with Loomis
Sayles' own assets.
Client
Commission Arrangements. Loomis Sayles has
entered into client commission arrangements (“CCAs”) (also known
as
commission sharing arrangements) with some of its key broker-dealer
relationships. In a CCA, subject to best execution, Loomis
Sayles will allocate a higher portion of its clients' equity trading with
broker-dealers who have agreed to unbundle their
commission rates in order to enable Loomis Sayles to separately negotiate rates
for execution and research and
research services. The execution rates Loomis Sayles has negotiated with such
firms vary depending on the type of orders
Loomis Sayles executes with the CCAs.
Pursuant to the CCAs
Loomis Sayles has with these broker-dealers, each firm will pool the research
commissions accumulated during a
calendar quarter and then, at the direction of Loomis Sayles, pay various
broker-dealers and third-party services from this
pool for the research and research services such firms have provided to Loomis
Sayles.
These CCAs are
deemed to be soft dollar arrangements and Loomis Sayles and each CCA intends to
comply with the applicable
requirements of Section 28(e) of the Exchange Act, as well as the Commission
Guidance Regarding Client Commission Practices
under Section 28(e) in the SEC Release No. 34-54165 dated July 18,
2006.
The CCAs enable
Loomis Sayles to strengthen its relationships with its key broker-dealers, and
limit the broker-dealers with whom it trades
to those with whom it has FIX Connectivity, while still maintaining the research
relationships with broker-dealers that
provide Loomis Sayles with research and research services. In addition, the
ability to unbundle the execution and
research components of commissions enables Loomis Sayles to provide greater
transparency to its clients in their commission
reports.
In addition to
trading with the CCA broker-dealers discussed above, Loomis Sayles continues to
trade with full service broker-dealers and
ECNs, ATSs and other electronic systems.
As a result of
guidance from the UK Financial Conduct Authority, Loomis Sayles pays
broker-dealers a “Corporate
Access”
arrangement fee in
hard dollars in connection with the Corporate Access meetings attended by
investment team members who manage equity
accounts of clients organized in the United Kingdom.
Aggregation
of Orders. When Loomis Sayles
believes it is desirable, appropriate and feasible to purchase or sell the same
security for a
number of client accounts at the same time, Loomis Sayles may (but is not
obligated to) aggregate its clients' orders
(“Aggregated
Orders”), including orders
on behalf of affiliated clients and hedge funds, in a way that seeks
to
obtain more favorable executions, in terms of the price at which the security is
purchased or sold, the cost of the execution of the
orders, and the efficiency of the processing of the transactions. Subject to
certain exceptions, all client accounts
participating in an Aggregated Order, including affiliated clients and hedge
funds, will participate at the average price at which the
Aggregated Order was executed and will bear a pro rata portion of the execution
cost of the Aggregated Order.
When an Aggregated Order cannot be completely filled on the day it is placed in
the market for execution, the
portion of the Aggregated Order that is filled on any particular day may be
allocated to each account
participating in the
Aggregated Order on a pro rata basis relative to the number of securities that
were intended to be traded for each
account participating in that Aggregated Order, and such accounts may
participate at the average price at which such
partially-filled Aggregated Order was executed and will bear a pro rata portion
of the execution cost of the partially-filled
Aggregated Order for such day.
Notwithstanding the
above, a portfolio manager or an appropriate designee thereof and/or a trader
may allocate shares/bonds purchased or sold
in a manner that is other than pro rata, when a pro rata allocation would be
impractical or would lead to an
inefficient or undesirable result. Examples of such instances include, but are
not limited to, when the portfolio manager, appointed
designee thereof and/or trader determine(s) that it would be appropriate to
round off odd-lots or a small number of
shares/bonds received by an account pursuant to a pro rata allocation, or when
the portfolio manager and/or trader
determine(s) that it would be appropriate, given the limited number of
shares/bonds actually purchased or sold, to fill one or
more account(s) completely due the account's weighting in the security relative
to the portfolio manager's target
weighting for the security/sector, or when the portfolio manager is seeking to
invest the cash of a new client account or a
significant cash add from an existing client account.
Although Loomis
Sayles believes that the ability to aggregate orders for client accounts will in
general benefit its clients as a whole over time,
in any particular instance, such aggregation may result in a less favorable
price or execution for any particular client
than might have been obtained if a particular transaction had been effected on
an unaggregated basis. With respect to
client accounts that have provided Loomis Sayles with directions to use specific
brokers or dealers to execute some or all
of their trades, compliance with such directions may in some instances result in
such a directed brokerage account
not participating in an Aggregated Order. As a result, the directed brokerage
account may receive a less favorable price
or execution, or incur higher execution costs, in particular transactions, than
if the directed brokerage account had
participated in an Aggregated Order with other client accounts.
Nuveen: Nuveen Asset
Management is responsible for decisions to buy and sell securities for the SPDR
Nuveen Municipal Bond ETF and
SPDR Nuveen Municipal Bond ESG ETF the negotiation of the prices to be paid or
received for principal (i.e., non-agency)
trades, and the allocation of its transactions among various dealer firms.
Portfolio securities will normally be
purchased directly from an underwriter in a new issue offering or in the
over-the-counter secondary market from the principal
dealers in such securities, unless it appears that a better price or execution
may be obtained elsewhere. Portfolio securities
will not be purchased from Nuveen Asset Management or its affiliates except in
compliance with the 1940
Act.
Nuveen Asset
Management expects that substantially all portfolio transactions will be
effected on a principal (as opposed to an agency) basis
and, accordingly, do not expect to pay significant amounts of brokerage
commissions. Brokerage commissions will not
be allocated based on the sale of a Fund's shares. Purchases from underwriters
will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include the spread between the bid and
asked price. It is the policy of Nuveen Asset Management to seek the best
execution under the circumstances of
each trade. Nuveen Asset Management evaluates price as the primary
consideration, with the financial condition,
reputation and responsiveness of the dealer, among other non-economic factors,
considered secondarily in determining best
execution. While the primary goal is to secure the best execution that may be
obtainable, it may be Nuveen Asset
Management's practice to select dealers that, in addition, furnish research
information (primarily credit analyses of issuers
and general economic reports), statistical information and other services to
Nuveen Asset Management. It is
not possible to place a dollar value on such information, statistics and other
services received from dealers. Since it is
only supplementary to Nuveen Asset Management's own research efforts, the
receipt of research information is not
expected to reduce significantly Nuveen Asset Management's expenses. For certain
secondary market transactions where
the execution capability of two brokers is judged to be of substantially similar
quality, Nuveen Asset Management may
randomly select one of them. Nuveen Asset Management may manage other investment
companies and investment
accounts for other clients that have investment objectives similar to the Fund.
Subject to applicable laws and regulations,
Nuveen Asset Management seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made
to purchase or sell securities by a Fund and another advisory account. In making
such allocations the main factors to be
considered will be, but may not be limited to, the respective investment
objectives, the relative size of the portfolio
holdings of the same or comparable securities, the availability of cash for
investment or need to raise cash, and the size of
investment commitments generally held. While this procedure could have a
detrimental effect on the price or amount of the
securities (or, in the case of dispositions, the demand for securities)
available to a Fund from time to time, Nuveen Asset
Management believes that the benefits available will outweigh any disadvantage
that may arise from exposure to
simultaneous transactions.
The table below
shows the aggregate dollar amount of brokerage commissions paid by the Funds for
the past three fiscal years ended June 30.
Brokerage commissions paid by a Fund may be substantially different from year to
year for multiple reasons, including
market volatility, the demand for a particular Fund, or increases or decreases
in trading volume.
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SPDR
Blackstone High Income ETF(1) |
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SPDR
Blackstone Senior Loan ETF |
|
|
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SPDR
DoubleLine Emerging Markets Fixed Income ETF |
|
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SPDR
DoubleLine Short Duration Total Return Tactical ETF |
|
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SPDR
DoubleLine Total Return Tactical ETF |
|
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SPDR
Loomis Sayles Opportunistic Bond ETF(2) |
|
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SPDR
Nuveen Municipal Bond ESG ETF(3) |
|
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SPDR
Nuveen Municipal Bond ETF(4) |
|
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SPDR
SSGA Fixed Income Sector Rotation ETF |
|
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SPDR
SSGA Global Allocation ETF |
|
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|
SPDR
SSGA Income Allocation ETF |
|
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SPDR
SSGA Multi-Asset Real Return ETF |
|
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SPDR
SSGA Ultra Short Term Bond ETF |
|
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SPDR
SSGA US Sector Rotation ETF |
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(1)
The Fund commenced
operations on February 17, 2022.
(2)
The Fund commenced
operations on September 28, 2021.
(3)
The Fund commenced
operations on April 5, 2022.
(4)
The Fund commenced
operations on February 3, 2021.
Securities
of “Regular
Broker-Dealers”: The Trust 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 Trust's holdings
in Securities of Regular Broker-Dealers as of June 30, 2023:
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Credit
Suisse Securities (USA) LLC |
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J.P.
Morgan Securities LLC |
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Portfolio
Turnover: Portfolio turnover
may vary from year to year, as well as within a year. High turnover rates are
likely to result in
comparatively greater brokerage expenses or transaction costs. The overall
reasonableness of brokerage commissions and
transaction costs is evaluated by the Adviser based upon its knowledge of
available information as to the general level of
commissions and transaction costs paid by other institutional investors for
comparable services.
The
SPDR DoubleLine Short Duration Total Return Tactical ETF experienced a
significant variation in its portfolio turnover rate for the fiscal
year ended 2022 when compared with 2023. The portfolio turnover rate for fiscal
year ended 2022 was unusually high due,
in part, to market volatility and risk management purposes, and DoubleLine's
investment team selling certain securities
to take better advantage of buying opportunities.
Book
Entry Only System
The following
information supplements and should be read in conjunction with the section in
the Prospectus entitled “ADDITIONAL PURCHASE
AND SALE INFORMATION.”
The Depository Trust
Company (“DTC”) acts as securities
depositary for the Shares. Shares of each Fund are represented by
securities registered in the name of DTC or its nominee, Cede & Co., and
deposited with, or on behalf of, DTC. Except in the
limited circumstance provided below, certificates will not be issued for
Shares.
DTC, a
limited-purpose trust company, was created to hold securities of its
participants (the “DTC
Participants”) and to
facilitate the
clearance and settlement of securities transactions among the DTC Participants
in such securities through electronic
book-entry changes in accounts of the DTC Participants, thereby eliminating the
need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and
certain other organizations, some of whom (and/or their representatives) own
DTC. More specifically, DTC is owned by a
number of its DTC Participants and by the New York Stock Exchange (“NYSE”) and FINRA. Access
to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly (the
“Indirect
Participants”).
Beneficial ownership
of Shares is limited to DTC Participants, Indirect Participants and persons
holding interests through DTC Participants and
Indirect Participants. Ownership of beneficial interests in Shares (owners of
such beneficial interests are
referred to herein as “Beneficial
Owners”) is shown on, and
the transfer of ownership is effected only through, records
maintained by DTC (with respect to DTC Participants) and on the records of DTC
Participants (with respect to Indirect
Participants and Beneficial Owners that are not DTC Participants). Beneficial
Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase of
Shares.
Conveyance
of all notices, statements and other communications to Beneficial Owners is
effected as follows.
Pursuant to the
Depositary Agreement between the Trust and DTC, DTC is required to make
available to the Trust upon request and for a
fee to be charged to the Trust a listing of the Shares of each Fund held by each
DTC Participant. The Trust, either
directly or through a third party service, shall inquire of each such DTC
Participant as to the number of Beneficial Owners
holding Shares, directly or indirectly, through such DTC Participant. The Trust,
either directly or through a third party
service, shall provide each such DTC Participant with copies of such notice,
statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice,
statement or communication may be transmitted by such DTC Participant, directly
or indirectly, to such Beneficial Owners.
In addition, the Trust shall pay to each such DTC Participant and/or third party
service a fair and reasonable amount as
reimbursement for the expenses attendant to such transmittal, all subject to
applicable statutory and regulatory
requirements.
Share distributions
shall be made to DTC or its nominee, Cede & Co., as the registered holder of
all Shares. DTC or its nominee, upon
receipt of any such distributions, shall credit immediately DTC Participants'
accounts with payments in amounts
proportionate to their respective beneficial interests in Shares of a Fund as
shown on the records of DTC or its nominee. Payments by
DTC Participants to Indirect Participants and Beneficial Owners of Shares held
through such DTC Participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of
customers in bearer form or registered in a “street
name,” and will be the
responsibility of such DTC Participants.
The Trust has no
responsibility or liability for any aspects of the records relating to or
notices to Beneficial Owners, or payments made on
account of beneficial ownership interests in such Shares, or for maintaining,
supervising or reviewing any records relating
to such beneficial ownership interests or for any other aspect of the
relationship between DTC and the DTC Participants
or the relationship between such DTC Participants and the Indirect Participants
and Beneficial Owners owning
through such DTC Participants.
DTC may determine to
discontinue providing its service with respect to Shares at any time by giving
reasonable notice to the Trust and
discharging its responsibilities with respect thereto under applicable law.
Under such circumstances, the Trust shall take
action either to find a replacement for DTC to perform its functions at a
comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing ownership of
Shares, unless the Trust makes other
arrangements with respect thereto satisfactory to the Exchange.
Control
Persons and Principal Holders of Securities
Although the Funds
do not have information concerning their beneficial ownership held in the names
of DTC Participants, as of October 13,
2023, the names, addresses and percentage ownership of each DTC Participant that
owned of record 5% or more of the
outstanding Shares of the Funds were as follows:
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SPDR
BLACKSTONE HIGH INCOME ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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BofA
Securities, Inc./Safekeeping
One
Bryant Park
New
York, NY 10036 |
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Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
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Merrill
Lynch, Pierce, Fenner &
Smith
Incorporated/8862
MLPF&S
TS Sub
One
Bryant Park
New
York, NY 10036 |
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National
Financial Services LLC
499
Washington Blvd
Jersey
City, NJ 07310 |
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SPDR
BLACKSTONE SENIOR LOAN ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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National
Financial Services LLC
499
Washington Blvd
Jersey
City, NJ 07310 |
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Morgan
Stanley Smith Barney
LLC
522
5th Avenue
New
York, NY 10036 |
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Merrill
Lynch, Pierce, Fenner &
Smith
Incorporated/8862
MLPF&S
TS Sub
One
Bryant Park
New
York, NY 10036 |
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State
Street Bank and Trust
Company
1776
Heritage Drive, 5th Floor
Quincy,
MA 02171 |
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SPDR
DOUBLELINE EMERGING MARKETS FIXED INCOME ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
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National
Financial Services LLC
499
Washington Blvd
Jersey
City, NJ 07310 |
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The
Bank of New York Mellon
240
Greenwich Street, 13FL
East
New
York, NY 10286 |
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BofA
Securities, Inc.
One
Bryant Park
New
York, NY 10036 |
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SPDR
DOUBLELINE SHORT DURATION TOTAL RETURN TACTICAL ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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LPL
Financial LLC
4707
Executive Drive
San
Diego, CA 92121 |
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SPDR
DOUBLELINE TOTAL RETURN TACTICAL ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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National
Financial Services LLC
499
Washington Blvd
Jersey
City, NJ 07310 |
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Morgan
Stanley Smith Barney
LLC
522
5th Avenue
New
York, NY 10036 |
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Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
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LPL
Financial LLC
4707
Executive Drive
San
Diego, CA 92121 |
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SPDR
LOOMIS SAYLES OPPORTUNISTIC BOND ETF |
National
Financial Services LLC
499
Washington Blvd
Jersey
City, NJ 07310 |
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BofA
Securities, Inc./Safekeeping
One
Bryant Park
New
York, NY 10036 |
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Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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SPDR
NUVEEN MUNICIPAL BOND ETF |
BOFA
Securities, Inc.
/Safekeeping
One
Bryant Park
New
York, NY 10036 |
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Citibank,
N.A.
390
Greenwich Street, 3rd Floor
New
York, NY 10013 |
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Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
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SPDR
NUVEEN MUNICIPAL BOND ESG ETF |
Citibank,
N.A.
390
Greenwich Street, 3rd Floor
New
York, NY 10013 |
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BofA
Securities, Inc./Safekeeping
One
Bryant Park
New
York, NY 10036 |
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Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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SPDR
SSGA FIXED INCOME SECTOR ROTATION ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
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LPL
Financial LLC
4707
Executive Drive
San
Diego, CA 92121 |
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Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
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SPDR
SSGA GLOBAL ALLOCATION ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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National
Financial Services LLC
499
Washington Blvd
Jersey
City, NJ 07310 |
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Raymond
James & Associates,
Inc.
880
Carillon Parkway
St.
Petersburg, FL 33733 |
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Merrill
Lynch, Pierce, Fenner &
Smith
Incorporated/8862
MLPF&S
TS Sub
One
Bryant Park
New
York, NY 10036 |
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Morgan
Stanley Smith Barney
LLC
522
5th Avenue
New
York, NY 10036 |
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LPL
Financial LLC
4707
Executive Drive
San
Diego, CA 92121 |
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SPDR
SSGA INCOME ALLOCATION ETF |
Fiduciary
SSB
1776
Heritage Dr.
North
Quincy, MA 02169 |
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Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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Morgan
Stanley Smith Barney
LLC
522
5th Avenue
New
York, NY 10036 |
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RBC
Capital Markets, LLC
510
Marquette Ave S.
Minneapolis,
MN 55418 |
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National
Financial Services LLC
499
Washington Blvd
Jersey
City, NJ 07310 |
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SPDR
SSGA MULTI-ASSET REAL RETURN ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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National
Financial Services LLC
499
Washington Blvd
Jersey
City, NJ 07310 |
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LPL
Financial LLC
4707
Executive Drive
San
Diego, CA 92121 |
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Merrill
Lynch, Pierce, Fenner &
Smith
Incorporated/8862
MLPF&S
TS Sub
One
Bryant Park
New
York, NY 10036 |
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D.
A. Davidson & Co.
757
3rd Ave Suite 1902
New
York, NY 10017 |
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SPDR
SSGA ULTRA SHORT TERM BOND ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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LPL
Financial Corporation
4707
Executive Drive
San
Diego, CA 92121 |
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|
Morgan
Stanley Smith Barney
LLC
522
5th Avenue
New
York, NY 10036 |
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National
Financial Services LLC
499
Washington Blvd
Jersey
City, NJ 07310 |
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RBC
Capital Markets, LLC
510
Marquette Ave S.
Minneapolis,
MN 55418 |
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SPDR
SSGA US SECTOR ROTATION ETF |
LPL
Financial LLC
4707
Executive Drive
San
Diego, CA 92121 |
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Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
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Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
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An Authorized
Participant (as defined below) may hold of record more than 25% of the
outstanding Shares of a Fund. From time to time,
Authorized Participants may be a beneficial and/or legal owner of a Fund, may be
affiliated with an index provider, may
be deemed to have control of the applicable Fund and/or may be able to affect
the outcome of matters presented
for a vote of the shareholders of the Fund. Authorized Participants may execute
an irrevocable proxy granting the
Distributor or another affiliate of State Street (the “Agent”) power to vote or
abstain from voting such Authorized
Participant's beneficially or legally owned Shares of a Fund. In such cases, the
Agent shall mirror vote (or abstain from voting)
such Shares in the same proportion as all other beneficial owners of the
Fund.
As of October 13,
2023, to the knowledge of the Trust, the following persons held of record or
beneficially through one or more accounts 25% or
more of the outstanding shares of a Fund.
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SPDR
BLACKSTONE HIGH INCOME ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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SPDR
DOUBLELINE EMERGING MARKETS FIXED INCOME ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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SPDR
DOUBLELINE SHORT DURATION TOTAL RETURN TACTICAL
ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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SPDR
DOUBLELINE TOTAL RETURN TACTICAL ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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SPDR
LOOMIS SAYLES OPPORTUNISTIC BOND ETF |
National
Financial Services Corporation
499
Washington Blvd
Jersey
City, NJ 07310 |
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BofA
Securities, Inc./Safekeeping
One
Bryant Park
New
York, NY 10036 |
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SPDR
NUVEEN MUNICIPAL BOND ETF |
BOFA
Securities, Inc. /Safekeeping
One
Bryant Park
New
York, NY 10036 |
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Citibank,
N.A.
390
Greenwich Street, 3rd Floor
New
York, NY 10013 |
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SPDR
NUVEEN MUNICIPAL BOND ESG ETF |
Citibank,
N.A.
390
Greenwich Street, 3rd Floor
New
York, NY 10013 |
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BofA
Securities, Inc./Safekeeping
One
Bryant Park
New
York, NY 10036 |
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SPDR
SSGA FIXED INCOME SECTOR ROTATION ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
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SPDR
SSGA INCOME ALLOCATION ETF |
Fiduciary
SSB
1776
Heritage Dr.
North
Quincy, MA 02169 |
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SPDR
SSGA MULTI-ASSET REAL RETURN ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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SPDR
SSGA ULTRA SHORT TERM BOND ETF |
Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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SPDR
SSGA US SECTOR ROTATION ETF |
LPL
Financial LLC
4707
Executive Drive
San
Diego, CA 92121 |
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Charles
Schwab & Co., Inc.
211
Main St.
San
Francisco, CA 94105-1905 |
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The Trustees and
Officers of the Trust, as a group, own less than 1% of the Trust's voting
securities as of the date of this SAI.
Purchase
and Redemption of Creation Units
Each Fund issues and
redeems its Shares on a continuous basis, at net asset value, only in a large
specified number of Shares called a
“Creation
Unit.” The value of each
Fund is determined once each business day, normally as of the Closing Time, except
weekends and the following holidays: New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday,
Memorial Day (observed), Juneteenth National Independence Day, Independence Day,
Labor Day, Thanksgiving Day and
Christmas Day. The net asset value of a Fund is determined once each business
day, normally as of the Closing Time.
The Creation Unit size for each Fund may change. Authorized Participants (as
defined below) will be notified of such
change. The principal consideration for creations and redemptions for each Fund
is set forth in the table below:
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SPDR
Blackstone High Income ETF |
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SPDR
Blackstone Senior Loan ETF |
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SPDR
DoubleLine Emerging Markets Fixed Income ETF |
|
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SPDR
DoubleLine Short Duration Total Return Tactical ETF |
|
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SPDR
DoubleLine Total Return Tactical ETF |
|
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SPDR
Loomis Sayles Opportunistic Bond ETF |
|
|
SPDR
Nuveen Municipal Bond ETF |
|
|
SPDR
Nuveen Municipal Bond ESG ETF |
|
|
SPDR
SSGA Fixed Income Sector Rotation ETF |
|
|
SPDR
SSGA Global Allocation ETF |
|
|
SPDR
SSGA Income Allocation ETF |
|
|
SPDR
SSGA Multi-Asset Real Return ETF |
|
|
SPDR
SSGA Ultra Short Term Bond ETF |
|
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SPDR
SSGA US Sector Rotation ETF |
|
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*
May be revised at any
time without notice.
PURCHASE
(CREATION)
The Trust issues and
sells Shares of each Fund only in Creation Units on a continuous basis through
the Principal Underwriter, without
a sales load (but subject to transaction fees), at their NAV per share next
determined after receipt of an order, on any
Business Day (as defined below), in proper form pursuant to the terms of the
Authorized Participant Agreement
(“Participant
Agreement”). A “Business
Day” with respect to a
Fund is, generally, any day on which the NYSE is open for
business.
FUND
DEPOSIT
The consideration
for purchase of a Creation Unit of a Fund generally consists of either (i) the
Deposit Securities and the Cash Component
(defined below), computed as described below; or (ii) the cash value of the
Deposit Securities and “Cash
Component,” computed as
described below. When accepting purchases of Creation Units for cash, a Fund may
incur
additional costs associated with the acquisition of Deposit Securities that
would otherwise be provided by an in-kind purchaser.
Together, the
Deposit Securities or Deposit Cash, as applicable, and the Cash Component
constitute the “Fund
Deposit,”
which
represents the minimum initial and subsequent investment amount for a Creation
Unit of any Fund. The “Cash Component”, which may include
a Dividend Equivalent Payment, is an amount equal to the difference between the
net asset value of the
Shares (per Creation Unit) and the market value of the Deposit Securities or
Deposit Cash, as applicable. The
“Dividend Equivalent
Payment” enables the Fund to
make a complete distribution of dividends on the day preceding the next
dividend payment date, and is an amount equal, on a per Creation Unit basis, to
the dividends on all the portfolio
securities of the Fund (“Dividend
Securities”) with ex-dividend
dates within the accumulation period for such distribution (the
“Accumulation
Period”), net of expenses
and liabilities for such period, as if all of the Dividend Securities
had
been held by the Fund for the entire Accumulation Period. The Accumulation
Period begins on the ex-dividend date for each Fund and
ends on the day preceding the next ex-dividend date. If the Cash Component is a
positive number (i.e., the net asset value
per Creation Unit exceeds the market value of the Deposit Securities or Deposit
Cash, as applicable), the Cash Component
shall be such positive amount. If the Cash Component is a negative number (i.e.,
the net asset value per Creation
Unit is less than the market value of the Deposit Securities or Deposit Cash, as
applicable), the Cash Component shall be
such negative amount and the creator will be entitled to receive cash in an
amount equal to the Cash Component. The Cash
Component serves the function of compensating for any differences between the
net asset value per Creation Unit
and the market value of the Deposit Securities or Deposit Cash, as applicable.
Computation of the Cash Component excludes
any stamp duty or other similar fees and expenses payable upon transfer of
beneficial ownership of the Deposit
Securities, if applicable, which shall be the sole responsibility of the
Authorized Participant (as defined below).
The Custodian,
through NSCC, makes available on each Business Day, prior to the opening of
business on the Exchange (currently 9:30
a.m., Eastern time), the list of the names and the required number of shares of
each Deposit Security or the required amount
of Deposit Cash, as applicable, to be included in the current standard Fund
Deposit (based on information at the
end of the previous Business Day) for a Fund. Such standard Fund Deposit is
subject to any applicable adjustments as
described below, in order to effect purchases of Creation Units of a Fund until
such time as the next-announced composition of the
Deposit Securities or the required amount of Deposit Cash, as applicable, is
made available.
The identity and
number of shares of the Deposit Securities or the amount of Deposit Cash, as
applicable, required for a Fund Deposit for
each Fund may be changed from time to time with a view to the investment
objective of the Fund. Information
regarding the Fund Deposit necessary for the purchase of a Creation Unit is made
available to Authorized Participants and
other market participants seeking to transact in Creation Unit
aggregations.
As noted above, the
Trust reserves the right to permit or require the substitution of Deposit Cash
to replace any Deposit Security, which
shall be added to the Cash Component, including, without limitation, situations
where the Deposit Security: (i) may not be
available in sufficient quantity for delivery, (ii) may not be eligible for
transfer through the systems of DTC for corporate securities
and municipal securities; (iii) may not be eligible for trading by an Authorized
Participant (as defined below) or the
investor for which it is acting; (iv) would be restricted under the securities
laws or where the delivery of the Deposit Security to
the Authorized Participant would result in the disposition of the Deposit
Security by the Authorized Participant becoming
restricted under the securities laws, or (v) in certain other situations
(collectively, “non-standard
orders”). The Trust also
reserves the right to: permit or require the substitution of Deposit Securities
in lieu of Deposit Cash. 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, resulting from certain corporate
actions.
PROCEDURES
FOR PURCHASE OF CREATION UNITS
To be eligible to
place orders with the Principal Underwriter, as facilitated via the Transfer
Agent, to purchase a Creation Unit of a Fund, an
entity must be (i) a “Participating
Party”, i.e., a
broker-dealer or other participant in the clearing process through the
Continuous Net Settlement System of the NSCC (the “Clearing
Process”), a clearing agency
that is registered with the SEC; or
(ii) a DTC Participant (see “Book Entry Only
System”). In addition, each
Participating Party or DTC Participant (each,
an “Authorized
Participant”) must execute a
Participant Agreement that has been agreed to by the Principal
Underwriter and the Transfer Agent, and that has been accepted by the Trust,
with respect to purchases and
redemptions of
Creation Units. Each Authorized Participant will agree, pursuant to the terms of
a Participant Agreement, on behalf of itself
or any investor on whose behalf it will act, to certain conditions, including
that it will pay to the Trust, an amount of cash
sufficient to pay the Cash Component together with the creation transaction fee
(described below) and any other applicable
fees, taxes and additional variable charge.
All orders to
purchase Shares directly from a Fund, including non-standard orders, must be
placed for one or more Creation Units and
in the manner and by the time set forth in the Participant Agreement and/or the
applicable order form. The date on which an
order to purchase Creation Units (or an order to redeem Creation Units, as set
forth below) is received and
accepted is referred to as the “Order Placement
Date.”
An Authorized
Participant may require an investor to make certain representations or enter
into agreements with respect to the order (e.g.,
to provide for payments of cash, when required). Investors should be aware that
their particular broker may not have
executed a Participant Agreement and that, therefore, orders to purchase Shares
directly from a Fund in Creation Units have
to be placed by the 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, a Fund may require
orders to create Creation Units to be placed
earlier in the day. In addition, if a market or markets on which a Fund's
investments are primarily traded is closed, the Fund
will also generally not accept orders on such day(s). Orders must be transmitted
by an Authorized Participant by
telephone or other transmission method acceptable to the Distributor pursuant to
procedures set forth in the Participant
Agreement and in accordance with the applicable order form. Those placing orders
through an Authorized Participant should
allow sufficient time to permit proper submission of the purchase order by the
cut-off time. Economic or market disruptions
or changes, or telephone or other communication failure may impede the ability
to reach the Distributor or an Authorized
Participant.
Fund Deposits must
be delivered by an Authorized Participant through the Federal Reserve System
(for cash and U.S. government
securities), or through DTC (for corporate securities and municipal securities),
through a subcustody agent (for foreign
securities) and/or through such other arrangements allowed by the Trust or its
agents. With respect to foreign Deposit Securities,
the Custodian shall cause the subcustodian of a Fund to maintain an account into
which the Authorized
Participant shall deliver, on behalf of itself or the party on whose behalf it
is acting, such Deposit Securities. Foreign Deposit
Securities must be delivered to an account maintained at the applicable local
subcustodian. The Fund Deposit transfer
must be ordered by the Authorized Participant in a timely fashion so as to
ensure the delivery of the requisite number of
Deposit Securities or Deposit Cash, as applicable, to the account of a Fund or
its agents by no later than the Settlement
Date. The “Settlement
Date” for a Fund is
generally the second Business Day (“T+2”) after the Order
Placement Date,
except for SPDR Blackstone Senior Loan ETF and SPDR DoubleLine Emerging Markets
Fixed Income ETF, which generally
settle on the third business day (“T+3”). All questions as
to the number of Deposit Securities or Deposit Cash to be
delivered, as applicable, and the validity, form and eligibility (including time
of receipt) for the deposit of any tendered
securities or cash, as applicable, will be determined by the Trust, whose
determination shall be final and binding. The amount
of cash represented by the Cash Component must be transferred directly to the
Custodian through the Federal Reserve
Bank wire transfer system in a timely manner so as to be received by the
Custodian no later than the Settlement Date. If
the Cash Component and the Deposit Securities or Deposit Cash, as applicable,
are not received in a timely manner by the
Settlement Date, the creation order may be cancelled. Upon written notice to the
Distributor, such canceled order may
be resubmitted the following Business Day using a Fund Deposit as newly
constituted to reflect the then current NAV of
the Fund. The delivery of Creation Units so created generally will occur no
later than the second Business Day, or in
the case of SPDR Blackstone Senior Loan ETF and SPDR DoubleLine Emerging Markets
Fixed Income ETF on 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 by 2:00 p.m. or 3:00
p.m. Eastern time (per applicable instructions), with the Custodian on the
Settlement Date. If the order is not placed in proper
form as required, or federal funds in the appropriate amount are not received by
2:00 p.m. or 3:00 p.m. Eastern time
(per applicable instructions) on the Settlement Date, then the order may be
deemed to be rejected and the Authorized
Participant shall be liable to the Fund for losses, if any, resulting therefrom.
A creation request is considered to be in
“proper
form” if all procedures
set forth in the Participant Agreement, order form and this SAI are properly
followed.
ISSUANCE
OF A CREATION UNIT
Except as provided
herein, Creation Units will not be issued until the transfer of good title to
the Trust of the Deposit Securities or
payment of Deposit Cash, as applicable, and the payment of the Cash Component
have been completed. When the
subcustodian has confirmed to the Custodian that the required Deposit Securities
(or the cash value thereof) have been delivered
to the account of the relevant subcustodian or subcustodians, the Principal
Underwriter and the Adviser shall be
notified of such delivery, and the Trust will issue and cause the delivery of
the Creation Units.
In instances where
the Trust accepts Deposit Securities for the purchase of a Creation Unit, the
Creation Unit may be purchased in advance
of receipt by the Trust of all or a portion of the applicable Deposit Securities
as described below. In these circumstances,
the initial deposit will have a value greater than the net asset value of the
Shares on the date the order is placed in
proper form since in addition to available Deposit Securities, cash must be
deposited in an amount equal to the sum of (i)
the Cash Component, plus (ii) an additional amount of cash equal to a percentage
of the market value as set forth in the
Participant Agreement, of the undelivered Deposit Securities (the “Additional Cash
Deposit”), which shall
be
maintained in a 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 Trust may use such Additional Cash
Deposit to buy the missing Deposit Securities at any time. Authorized
Participants will be liable to the Trust for all costs,
expenses, dividends, income and taxes associated with missing Deposit
Securities, including the costs incurred by the
Trust in connection with any such purchases. These costs will be deemed to
include the amount by which the actual purchase
price of the Deposit Securities exceeds the market value of such Deposit
Securities on the day the purchase order was
deemed received by the Principal Underwriter plus the brokerage and related
transaction costs associated with such
purchases. The Trust will return any unused portion of the Additional Cash
Deposit once all of the missing Deposit
Securities have been properly received by the Custodian or purchased by the
Trust and deposited into the Trust. In addition,
a transaction fee as set forth below under “Creation Transaction
Fees” will be charged in
all cases and an additional
variable charge may also be applied. The delivery of Creation Units so created
generally will occur no later than the Settlement
Date.
ACCEPTANCE
OF ORDERS OF CREATION UNITS
The Trust reserves
the right to reject an order for Creation Units transmitted in respect of a Fund
at its discretion, including, without
limitation, if (a) the order is not in proper form or the Deposit Securities
delivered do not consist of the securities that the
Custodian specified; (b) the Deposit Securities or Deposit Cash, as applicable,
delivered by the Authorized
Participant are not as disseminated through the facilities of the NSCC for that
date by the Custodian; (c) the investor(s), upon
obtaining the Shares ordered, would own 80% or more of the currently outstanding
Shares of the Fund; (d) the acceptance
of the Fund Deposit would, in the opinion of counsel, be unlawful; (e) the
acceptance or receipt of the order for a Creation
Unit would, in the opinion of counsel to the Trust, be unlawful; or (f) in the
event that circumstances outside the control
of the Trust, the Custodian, the Transfer Agent, the Distributor and/or the
Adviser make it for all practical purposes
not feasible to process orders for Creation Units. Examples of such
circumstances include acts of God or public service or
utility problems such as fires, floods, extreme weather conditions and power
outages resulting in telephone, telecopy
and computer failures; market conditions or activities causing trading halts;
systems failures involving computer or other
information systems affecting the Trust, the Principal Underwriter, the
Custodian, the Transfer Agent, DTC, NSCC, Federal
Reserve System, or any other participant in the creation process, and other
extraordinary events. The Trust or its
agents shall communicate to the Authorized Participant its rejection of an
order. The Trust, the Transfer Agent, the Custodian
and the Principal Underwriter are under no duty, however, to give notification
of any defects or irregularities in
the delivery of Fund Deposits nor shall either of them incur any liability for
the failure to give any such notification. The
Trust, the Transfer Agent, the Custodian and the Principal Underwriter shall not
be liable for the rejection of any purchase
order for Creation Units. Given the importance of the ongoing issuance of
Creation Units to maintaining a market price that is
at or close to the underlying net asset value of the Fund, the Trust does not
intend to suspend acceptance of orders
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.
REDEMPTION
Shares may be
redeemed only in Creation Units at their net asset value next determined after
receipt of a redemption request in proper
form by a Fund through the Transfer Agent and only on a Business Day. EXCEPT
UPON LIQUIDATION OF A FUND, THE TRUST
WILL NOT REDEEM SHARES IN AMOUNTS LESS THAN CREATION UNITS. Investors must
accumulate enough
Shares in the secondary market to constitute a Creation Unit in order to have
such Shares redeemed by the Trust. There
can be no assurance, however, that there will be sufficient liquidity in the
public trading market at any time to permit
assembly of a Creation Unit. Investors should expect to incur brokerage and
other costs in connection with assembling a
sufficient number of Shares to constitute a redeemable Creation
Unit.
With respect to each
Fund, the Custodian, through the NSCC, makes available prior to the opening of
business on the Exchange (currently
9:30 a.m. Eastern time) on each Business Day, the list of the names and share
quantities of securities
designated by the Fund that will be applicable (subject to possible amendment or
correction) to redemption requests received in
proper form (as defined below) on that day (“Redemption
Securities”). Redemption
Securities received on
redemption may not be identical to Deposit Securities. The identity and number
of shares of the Redemption Securities or the
Cash Redemption Amount (defined below) may be changed from time to time with a
view to the investment objective
of a Fund.
Redemption proceeds
for a Creation Unit are paid either in-kind or in cash or a combination thereof,
as determined by the Trust. With respect
to in-kind redemptions of a Fund, redemption proceeds for a Creation Unit will
consist of Redemption Securities 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 Redemption
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 Redemption Securities have a value greater than the net asset value of
the Shares, a compensating cash
payment equal to the differential is required to be made by or through an
Authorized Participant by the redeeming
shareholder. Notwithstanding the foregoing: at the Trust's discretion, an
Authorized Participant may receive the corresponding cash
value of the securities in lieu of the in-kind securities value representing one
or more Redemption Securities.
PROCEDURES
FOR REDEMPTION OF CREATION UNITS
Redemption proceeds
from the Fund will be delivered to the redeeming Authorized Participant. The
Fund may deliver redemption proceeds
directly to a redeeming Authorized Participant. After the Trust has deemed an
order for redemption received, the Trust
will initiate procedures to transfer the requisite Redemption Securities and the
Cash Redemption Amount to the
Authorized Participant by the Settlement Date. With respect to in-kind
redemptions of a Fund, the calculation of the
value of the Redemption Securities and the Cash Redemption Amount to be
delivered upon redemption will be made by the
Custodian according to the procedures set forth under “Determination of Net
Asset Value”, computed
on the
Business Day on which a redemption order is deemed received by the Trust.
Therefore, if a redemption order in proper form is
submitted to the Principal Underwriter by a DTC Participant by the specified
time on the Order Placement Date, and the
requisite number of Shares of a Fund are delivered to the Custodian prior to
2:00 p.m. or 3:00 p.m. Eastern time (per applicable
instructions) on the Settlement Date, then the value of the Redemption
Securities and the Cash Redemption Amount to
be delivered will be determined by the Custodian on such Order Placement Date.
If the requisite number of Shares of
the Fund are not delivered by 2:00 p.m. or 3:00 p.m. Eastern time (per
applicable instructions) on the Settlement Date, the
Fund will not release the underlying securities for delivery unless collateral
is posted in such percentage amount of
missing Shares as set forth in the Participant Agreement (marked to market
daily).
With respect to
in-kind redemptions of a Fund, in connection with taking delivery of shares of
Redemption Securities upon redemption of
Creation Units, an Authorized Participant must maintain appropriate custody
arrangements with a qualified broker-dealer, bank
or other custody providers in each jurisdiction in which any of the Redemption
Securities are customarily traded
(or such other arrangements as allowed by the Trust or its agents), to which
account such Redemption Securities will be
delivered. Deliveries of redemption proceeds generally will be made within two
Business Days of the trade date. Due to
the schedule of holidays in certain countries, however, the delivery of in-kind
redemption proceeds may take longer than two
or three Business Days, as applicable, after the day on which the redemption
request is received in proper form. If the
Authorized Participant has not made appropriate arrangements to take delivery of
the Redemption 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 Redemption Securities in such jurisdiction, the Trust may, in
its discretion, exercise its option to redeem
such Shares in cash, and the Authorized Participant will be required to receive
its redemption proceeds in
cash.
If it is not
possible to make other such arrangements, or if it is not possible to effect
deliveries of the Redemption Securities, the
Trust may in its discretion exercise its option to redeem such Shares in cash,
and the redeeming investor will be required to
receive its redemption proceeds in cash. In addition, an investor may request a
redemption in cash that a Fund may, in its
sole discretion, permit. In either case, the investor will receive a cash
payment equal to the NAV of its Shares based on the
NAV of Shares of the relevant Fund next determined after the redemption request
is received in proper form (minus a
redemption transaction fee and additional charge for requested cash redemptions
specified above, to offset the Trust's
brokerage and other transaction costs associated with the disposition of
Redemption Securities). A Fund may also, in its
sole discretion, upon request of a shareholder, provide such redeemer a
portfolio of securities that differs from the exact
composition of the Redemption Securities but does not differ in net asset
value.
An Authorized
Participant submitting a redemption request is deemed to represent to the Trust
that, as of the close of the Business Day on
which the redemption request was submitted, it (or its client) will own (within
the meaning of Rule 200 of Regulation SHO) or
has arranged to borrow for delivery to the Trust on or prior to the Settlement
Date of the redemption request, the
requisite number of Shares of the relevant Fund to be redeemed as a Creation
Unit. In either case, the Authorized
Participant is deemed to acknowledge that: (i) it (or its client) has full legal
authority and legal right to tender for redemption the
requisite number of Shares of the applicable Fund and to receive the entire
proceeds of the redemption; and (ii) if such
Shares submitted for redemption have been loaned or pledged to another party or
are the subject of a repurchase
agreement, securities lending agreement or any other arrangement affecting legal
or beneficial ownership of such Shares being
tendered, there are no restrictions precluding the tender and delivery of such
Shares (including borrowed shares, if
any) for redemption, free and clear of liens, on the redemption Settlement Date.
The Trust reserves the right to verify
these representations at its discretion, but will typically require verification
with respect to a redemption request from a Fund
in connection with higher levels of redemption activity and/or short interest in
the Fund. If the Authorized
Participant, upon receipt of a verification request, does not provide sufficient
verification of its representations as determined by the
Trust, the redemption request will not be considered to have been received in
proper form and may be rejected by the
Trust.
Redemptions of
Shares for Redemption Securities will be subject to compliance with applicable
federal and state securities laws and
each Fund (whether or not it otherwise permits cash redemptions) reserves the
right to redeem Creation Units for
cash to the extent that the Trust could not lawfully deliver specific Redemption
Securities upon redemptions or could
not do so without first registering the Redemption 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 Redemption
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 Redemption
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 Redemption Securities.
The right of
redemption may be suspended or the date of payment postponed with respect to a
Fund (1) for any period during which the
Exchange is closed (other than customary weekend and holiday closings); (2) for
any period during which trading on the
Exchange is suspended or restricted; (3) for any period during which an
emergency exists as a result of which disposal of
the Shares of the Fund or determination of the NAV of the Shares is not
reasonably practicable; or (4) in such other
circumstance as is permitted by the SEC.
REQUIRED
EARLY ACCEPTANCE OF ORDERS
Notwithstanding the
foregoing, as described in the Participant Agreement and/or the applicable order
form, certain Funds may require orders
to be placed prior to the trade date, as described in the Participant Agreement
or the applicable order form, in order to
receive the trade date's net asset value. The cut-off time to receive the trade
date's net asset value will not precede the
calculation of the net asset value of a Fund's shares on the prior Business Day.
Orders to purchase Shares of such Funds
that are submitted on the Business Day immediately preceding a holiday or a day
(other than a weekend) that the
equity markets in the relevant foreign market are closed may not be accepted.
Authorized Participants may be notified that
the cut-off time for an order may be earlier on a particular Business Day, as
described in the Participant
Agreement and the applicable order form.
CREATION
AND REDEMPTION TRANSACTION FEES
A transaction fee,
as set forth in the table below, is imposed for the transfer and other
transaction costs associated with the purchase or
redemption of Creation Units, as applicable. Authorized Participants will be
required to pay a fixed creation transaction
fee and/or a fixed redemption transaction fee, as applicable, on a given day
regardless of the number of Creation Units
created or redeemed on that day. A Fund may adjust the transaction fee from time
to time. An additional charge or a variable
charge (discussed below) will be applied to certain creation and redemption
transactions, including non-standard orders
and whole or partial cash purchases or redemptions. With respect to creation
orders, Authorized Participants are
responsible for the costs of transferring the securities constituting the
Deposit Securities to the account of the Trust and with
respect to redemption orders, Authorized Participants are responsible for the
costs of transferring the Redemption
Securities from the Trust to their account or on their order.
Investors who use
the services of a broker or other such intermediary may also be charged a fee
for such services.
Creation
and Redemption Transaction Fees:
|
|
|
Maximum
Transaction
Fee*,
** |
SPDR
Blackstone High Income ETF |
|
|
SPDR
Blackstone Senior Loan ETF |
|
|
SPDR
DoubleLine Emerging Markets Fixed Income ETF |
|
|
SPDR
DoubleLine Short Duration Total Return Tactical ETF |
|
|
SPDR
DoubleLine Total Return Tactical ETF |
|
|
SPDR
Loomis Sayles Opportunistic Bond ETF |
|
|
SPDR
Nuveen Municipal Bond ETF |
|
|
SPDR
Nuveen Municipal Bond ESG ETF |
|
|
SPDR
SSGA Fixed Income Sector Rotation ETF |
|
|
SPDR
SSGA Global Allocation ETF |
|
|
SPDR
SSGA Income Allocation ETF |
|
|
SPDR
SSGA Multi-Asset Real Return ETF |
|
|
SPDR
SSGA Ultra Short Term Bond ETF |
|
|
SPDR
SSGA US Sector Rotation ETF |
|
|
*
From time to time,
any Fund may waive all or a portion of its applicable transaction fee(s). An
additional charge of up to three (3) times the standard transaction fee may
be charged to the extent a transaction is outside of the clearing
process.
**
In addition to the
transaction fees listed above, the Funds may charge an additional variable fee
for creations and redemptions in cash to offset brokerage and impact
expenses associated with the cash transaction. The variable transaction fee will
be calculated based on historical transaction cost data and the
Adviser's view of current market conditions; however, the actual variable fee
charged for a given transaction may be lower or higher than the trading
expenses incurred by a Fund with respect to that transaction.
Determination
of Net Asset Value
The following
information supplements and should be read in conjunction with the sections in
the Prospectus entitled “PURCHASE AND SALE
INFORMATION” and “ADDITIONAL PURCHASE
AND SALE INFORMATION.”
NAV per Share for
each Fund is computed by dividing the value of the net assets of the Fund (i.e.,
the value of its total assets less total
liabilities) by the total number of Shares outstanding. Expenses and fees,
including the management fees, are accrued
daily and taken into account for purposes of determining NAV. The NAV of each
Fund is calculated by State Street and
determined once daily as of the close of the regular trading session on the NYSE
(ordinarily 4:00 p.m. Eastern time) on
each day that such exchange is open. Creation/redemption order cut-off times may
be earlier on any day that the Securities
Industry and Financial Markets Association (or applicable exchange or market on
which a Fund's investments are
traded) announces an early closing time. Any assets or liabilities denominated
in currencies other than the U.S. dollar are
converted into U.S. dollars at market rates on the date of valuation (generally
as of 4:00 p.m. London time) as quoted by
one or more sources.
In calculating a
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) or (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). Each Fund relies on a third-party service provider for
assistance with the
daily calculation of
the Fund's NAV. The third-party service provider, in turn, relies on other
parties for certain pricing data and other inputs
used in the calculation of the Fund's NAV. Therefore, each Fund is subject to
certain operational risks associated with
reliance on its service provider and that service provider's sources of pricing
and other data. NAV calculation may be
adversely affected by operational risks arising from factors such as errors or
failures in systems and technology. Such
errors or failures may result in inaccurately calculated NAVs, delays in the
calculation of NAVs and/or the inability to
calculate NAV over extended time periods. A Fund may be unable to recover any
losses associated with such failures. In
the case of shares of other funds that are not traded on an exchange, a market
valuation means such fund's published net
asset value per share. Each Fund may use various pricing services, or
discontinue the use of any pricing service.
Fixed-income assets are generally valued as of the announced closing time for
trading in fixed-income instruments in a
particular market or exchange, and generally 4:00 p.m. EST for U.S. fixed-income
assets. Fixed-income assets are generally
valued at the mean of the bid and ask prices for bank loans and inflation
protected securities, and at the bid price for
all other fixed-income assets.
Pursuant to Board
approved valuation procedures, the Board has designated the Adviser as the
valuation designee for each Fund. These
procedures address, among other things, (i) determining (a) when market
quotations are not readily available or
reliable and (b) the methodologies to be used for determining the fair value of
investments, and (ii) the use and oversight of
third-party pricing services for fair valuation. The Adviser is responsible for
periodically reviewing the procedures, and the
selected methodologies used, for their continuing appropriateness and accuracy,
and making any changes or
adjustments to the procedures and methodologies as appropriate.
In the event that
current market valuations are not readily available or are deemed unreliable,
the Trust's procedures require the Adviser
to determine a security's fair value. In determining a fair value, the Adviser
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 and market indices). In
these cases, a Fund's net asset value may reflect
certain portfolio securities' fair values rather than their market prices. The
fair value of a portfolio instrument is
generally the price which a Fund might reasonably expect to receive upon its
current sale in an orderly market between
market participants. Ascertaining fair value requires a determination of the
amount that an arm's-length buyer, under the
circumstances, would currently pay for the portfolio instrument. Fair value
pricing involves subjective judgments and it is
possible that the fair value determination for a security is materially
different than the value that could be realized upon the
sale of the security.
Dividends
and Distributions
The following
information supplements and should be read in conjunction with the section in
each Prospectus entitled “DISTRIBUTIONS.”
GENERAL
POLICIES
Dividends from net
investment income, if any, are generally declared and paid quarterly by each
Fund (monthly for SPDR Blackstone High
Income ETF, SPDR Blackstone Senior Loan ETF, SPDR DoubleLine Emerging Markets
Fixed Income ETF, SPDR DoubleLine
Short Duration Total Return Tactical ETF, SPDR Loomis Sayles Opportunistic Bond
ETF, SPDR Nuveen Municipal
Bond ETF, SPDR Nuveen Municipal Bond ESG ETF, the SPDR SSGA Fixed Income Sector
Rotation ETF and SPDR SSGA
Ultra Short Term Bond ETF), but may vary significantly from period to period.
Distributions of net realized securities
gains, if any, generally are declared and paid once a year, but the Trust may
make distributions on a more frequent basis
for a Fund to comply with the distribution requirements of the Internal Revenue
Code, in all events in a manner consistent
with the provisions of the 1940 Act.
Dividends and other
distributions on Shares are distributed, as described below, on a pro rata basis
to Beneficial Owners of such Shares.
Dividend payments are made through DTC Participants and Indirect Participants to
Beneficial Owners then of record with
proceeds received from the Trust.
Management of the
Trust reserves the right to declare special dividends if, in its reasonable
discretion, such action is necessary or
advisable to preserve a Fund's eligibility for treatment as a RIC under the
Internal Revenue Code or to avoid imposition of income
or excise taxes at the Fund level.
DIVIDEND
REINVESTMENT
Broker dealers, at
their own discretion, may offer a dividend reinvestment service under which
Shares are purchased in the secondary market
at current market prices. Investors should consult their broker dealer for
further information regarding any
dividend reinvestment service offered by such broker dealer.
Taxes
The following is a
summary of certain federal income tax considerations generally affecting the
Funds and their shareholders that
supplements the discussion in the Prospectus. No attempt is made to present a
comprehensive explanation of the
federal, state, local or foreign tax treatment of the Funds or their
shareholders, and the discussion here and in the
Prospectus is not intended to be a substitute for careful tax
planning.
The following
general discussion of certain federal income tax consequences is based on the
Internal Revenue Code and the regulations
issued thereunder as in effect on the date of this SAI. New legislation, as well
as administrative changes or court decisions, may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions
contemplated herein.
The following
information should be read in conjunction with the section in the Prospectus
entitled “ADDITIONAL TAX
INFORMATION.”
TAXATION
OF THE FUNDS
Each Fund is treated
as a separate corporation for federal income tax purposes. Each Fund therefore
is considered to be a separate entity in
determining its treatment under the rules for RICs described herein and in the
Prospectus. Losses in one series of the
Trust do not offset gains in any other series of the Trust, and the requirements
(other than certain organizational
requirements) for qualifying for treatment as a RIC are determined at the Fund
level rather than at the Trust level. Each Fund has
elected or will elect and intends to qualify each year to be treated as a
separate RIC under Subchapter M of the
Internal Revenue Code. As such, each Fund should not be subject to federal
income tax on its net investment income
and capital gains, if any, to the extent that it timely distributes such income
and capital gains to its shareholders. In
order to qualify for treatment as a RIC, a Fund must distribute annually to its
shareholders at least the sum of 90% of its
taxable net investment income (generally including the excess of net short-term
capital gains over net long-term capital
losses) and 90% of its net tax-exempt interest income, if any (the “Distribution
Requirement”) and also
must
meet several additional requirements. Among these requirements are the
following: (i) at least 90% of a Fund's gross income each
taxable year must be derived from dividends, interest, payments with respect to
certain securities loans, gains from
the sale or other disposition of stock, securities or foreign currencies, or
other income derived with respect to its
business of investing in such stock, securities or currencies, and net income
derived from interests in qualified publicly
traded partnerships (the “Qualifying Income
Requirement”); and (ii) at the
end of each quarter of a Fund's taxable year,
its assets must be diversified so that (a) at least 50% of the market value of
its total assets must be represented by cash
and cash items, U.S. government securities, securities of other RICs and other
securities, with such other securities
limited, in respect to any one issuer, to an amount not greater in value than 5%
of the value of the Fund's total assets and to
not more than 10% of the outstanding voting securities of such issuer, and (b)
not more than 25% of the value of its
total assets is invested in the securities (other than U.S. government
securities or securities of other RICs) of any one issuer,
the securities (other than securities of other RICs) of two or more issuers that
it controls and that are engaged in the same,
similar, or related trades or businesses, or the securities of one or more
qualified publicly traded partnerships (the
“Diversification
Requirement”).
If a Fund fails to
satisfy the Qualifying Income Requirement or the Diversification Requirement in
any taxable year, the Fund may be eligible
for relief provisions if the failures are due to reasonable cause and not
willful neglect and if a penalty tax is paid with
respect to each failure to satisfy the applicable requirements. Additionally,
relief is provided for certain de minimis failures of
the Diversification Requirement where a Fund corrects the failure within a
specified period of time. In order to be eligible
for the relief provisions with respect to a failure to meet the Diversification
Requirement, a Fund may be required to
dispose of certain assets. If these relief provisions were not available to a
Fund and it were to fail to qualify for treatment as a
RIC for a taxable year, all of its taxable income would be subject to tax at the
applicable corporate rate without any
deduction for distributions to shareholders, and its distributions (including
capital gains distributions) generally would be taxable as
ordinary income dividends to its shareholders, subject to the dividends-received
deduction for corporate
shareholders and the lower tax rates on qualified dividend income received by
noncorporate shareholders. To requalify for
treatment as a RIC in a subsequent taxable year, a Fund would be required to
satisfy the RIC qualification
requirements for
that year and to distribute any earnings and profits from any year in which the
Fund failed to qualify for tax treatment as a
RIC. If a Fund failed to qualify as a RIC for a period greater than two taxable
years, it would generally be required to pay a
Fund-level tax on certain net built-in gains recognized with respect to certain
of its assets upon a disposition of such
assets within five years of qualifying as a RIC in a subsequent year. The Board
reserves the right not to maintain the
qualification of a Fund for treatment as a RIC if it determines such course of
action to be beneficial to shareholders.
As discussed more
fully below, each Fund intends to distribute substantially all of its net
investment income and its capital gains for each
taxable year. If a Fund meets the Distribution Requirement but retains some or
all of its income or gains, it will be subject to
federal income tax to the extent any such income or gains are not distributed. A
Fund may designate certain amounts
retained as undistributed net capital gain in a notice to its shareholders, who
(i) will be required to include in income for U.S.
federal income tax purposes, as long-term capital gain, their proportionate
shares of the undistributed amount so
designated, (ii) will be entitled to credit their proportionate shares of the
income tax paid by the Fund on that undistributed amount
against their federal income tax liabilities and to claim refunds to the extent
such credits exceed their liabilities and
(iii) will be entitled to increase their tax basis, for federal income tax
purposes, in their Shares by an amount equal to the excess
of the amount of undistributed net capital gain included in their respective
income over their respective income tax credits.
If a Fund failed to satisfy the Distribution Requirement for any taxable year,
it would be taxed as a regular corporation,
with consequences generally similar to those described in the preceding
paragraph.
A Fund will be
subject to a 4% excise tax on certain undistributed income if it does not
distribute to its shareholders in each calendar year
an amount at least equal to 98% of its ordinary income for the calendar year
plus 98.2% of its capital gain net income for
the twelve months ended October 31 of such year, subject to an increase for any
shortfall in the prior year's distribution.
Each Fund intends to declare and distribute dividends and distributions in the
amounts and at the times necessary to avoid
the application of this 4% excise tax.
A Fund may elect to
treat part or all of any “qualified late year
loss” as if it had been
incurred in the succeeding taxable year in determining
the Fund's taxable income, net capital gain, net short-term capital gain, and
earnings and profits. The effect of this
election is to treat any such “qualified late year
loss” as if it had been
incurred in the succeeding taxable year in characterizing
Fund distributions for any calendar year. A “qualified late year
loss” generally includes
net capital loss, net long-term capital
loss, or net short-term capital loss incurred after October 31 of the current
taxable year (commonly referred to as
“post-October
losses”) and certain other
late-year losses.
Capital losses in
excess of capital gains (“net capital
losses”) are not permitted
to be deducted against a RIC's net investment income.
Instead, for U.S. federal income tax purposes, potentially subject to certain
limitations, each Fund may carry a net capital
loss from any taxable year forward indefinitely to offset its capital gains, if
any, in years following the year of the loss. To
the extent subsequent capital gains are offset by such losses, they will not
result in U.S. federal income tax liability to a
Fund and may not be distributed as capital gains to its shareholders. Generally,
the Funds may not carry forward any losses
other than net capital losses.
TAXATION
OF SHAREHOLDERS – DISTRIBUTIONS
Each Fund intends to
distribute annually to its shareholders substantially all of its investment
company taxable income (computed without
regard to the deduction for dividends paid), its net tax-exempt income, if any,
and any net capital gain (net recognized
long-term capital gains in excess of net recognized short-term capital losses,
taking into account any capital loss
carryforwards). Each Fund will report to shareholders annually the amounts of
dividends paid from ordinary income, the amount
of distributions of net capital gain, the portion of dividends which may qualify
for the dividends-received deduction, and the
portion of dividends which may qualify for treatment as qualified dividend
income, and the amount of
exempt-interest dividends, if any. Since the SPDR Blackstone High Income ETF,
SPDR Blackstone Senior Loan ETF, SPDR DoubleLine
Emerging Markets Fixed Income ETF, SPDR DoubleLine Short Duration Total Return
Tactical ETF, SPDR DoubleLine
Total Return Tactical ETF, SPDR Loomis Sayles Opportunistic Bond ETF, SPDR SSGA
Fixed Income Sector Rotation ETF,
SPDR SSGA Ultra Short Term Bond ETF, SPDR Nuveen Municipal Bond ETF and SPDR
Nuveen Municipal Bond ESG
ETF primarily hold investments that do not pay dividends, it is not expected
that any portion of dividends paid by
those Funds will qualify either for the dividends-received deduction for
corporations or for the reduced U.S. federal income
tax rates available to individual and certain other noncorporate shareholders on
qualified dividend income.
Subject to certain
limitations, dividends reported by a Fund as qualified dividend income will be
taxable to noncorporate shareholders at
reduced rates. Dividends may be reported by a Fund as qualified dividend income
if they are attributable to qualified
dividend income received by the Fund. Qualified dividend income includes, in
general, subject to certain
holding period
requirements and other requirements, dividend income from certain U.S. and
foreign corporations. Subject to certain
limitations, eligible foreign corporations include those incorporated in
possessions of the United States, those incorporated in
certain countries with comprehensive tax treaties with the United States and
other foreign corporations if the stock with
respect to which the dividends are paid is tradable on an established securities
market in the United States. A dividend generally
will not be treated as qualified dividend income to the extent that (i) the
shareholder has not held the stock on which the
dividend was paid for more than 60 days during the 121-day period that begins on
the date that is 60 days before the date
on which the stock becomes ex-dividend with respect to such dividend or, in the
case of certain preferred stock, for
more than 90 days during the 181-day period beginning 90 days before such date,
(ii) the shareholder is under an
obligation (whether pursuant to a short sale or otherwise) to make related
payments with respect to substantially
similar or related property, or (iii) the shareholder elects to treat such
dividend as investment income under section 163(d)(4)(B)
of the Internal Revenue Code. The holding period requirements described in this
paragraph apply to the shareholders'
investments in the Funds and to the Funds' investments in the underlying
dividend-paying stocks. Dividends treated as
received by a Fund from a REIT or another RIC may be treated as qualified
dividend income generally only to
the extent the dividend distributions are attributable to qualified dividend
income received by such REIT or RIC. It is
expected that dividends received by a Fund from a REIT and distributed by that
Fund to a shareholder generally will be
taxable to the shareholder as ordinary income. Additionally, income derived in
connection with a Fund's securities lending
activities will, in general, not be treated as qualified dividend income. If 95%
or more of a Fund's gross income (calculated
without taking into account net capital gain derived from sales or other
dispositions of stock or securities) consists
of qualified dividend income, that Fund may report all distributions of such
income as qualified dividend
income.
Certain dividends
received by a Fund from U.S. corporations (generally, dividends received by a
Fund in respect of any share of stock (1)
with a tax holding period of at least 46 days during the 91-day period beginning
on the date that is 45 days before the date
on which the stock becomes ex-dividend as to that dividend and (2) that is held
in an unleveraged position) when
distributed and appropriately so reported by the Fund may be eligible for the
50% dividends-received deduction generally
available to corporations under the Internal Revenue Code. Dividends received by
a Fund from REITs will not be eligible
for that deduction. In order to qualify for the deduction, corporate
shareholders must meet the minimum holding period
requirement stated above with respect to their Shares, taking into account any
holding period reductions from certain hedging
or other transactions or positions that diminish their risk of loss with respect
to their Shares, and, if they borrow to
acquire or otherwise incur debt attributable to Shares, they may be denied a
portion of the dividends-received deduction with
respect to those Shares. Any corporate shareholder should consult its tax
adviser regarding the possibility that its
tax basis in its Shares may be reduced, for U.S. federal income tax purposes, by
reason of “extraordinary
dividends” received with
respect to the Shares and, to the extent such basis would be reduced below zero,
current
recognition of income may be required.
Distributions from a
Fund's net short-term capital gains will generally be taxable to shareholders as
ordinary income. Distributions from a
Fund's net capital gain will be taxable to shareholders at long-term capital
gains rates, regardless of how long
shareholders have held their Shares. Long-term capital gains are generally taxed
to noncorporate shareholders at reduced rates.
Certain capital gain dividends attributable to dividends a Fund receives from
REITs may be taxable to noncorporate
shareholders at a rate other than the reduced rates generally applicable to
long-term capital gains.
Each of the SPDR
Nuveen Municipal Bond ETF and SPDR Nuveen Municipal Bond ESG ETF intend to
satisfy certain conditions
(including requirements as to the proportion of their assets invested in
municipal securities) that will enable them to report
distributions from the interest income generated by its investments in municipal
securities as exempt-interest dividends.
Shareholders receiving exempt-interest dividends will not be subject to regular
federal income tax on the amount of such
dividends, but (as discussed below) exempt-interest dividends may be taken into
account in determining
shareholders' federal alternative minimum tax liability. Insurance proceeds
received by SPDR Nuveen Municipal Bond ETF
and SPDR Nuveen Municipal Bond ESG ETF under any insurance policies in respect
of scheduled interest payments on
defaulted municipal securities will generally be correspondingly excludable from
federal gross income. In the case
of non-appropriation by a political subdivision, however, there can be no
assurance that payments made by the insurer
representing interest on non-appropriation lease obligations will be excludable
from gross income for federal income tax
purposes.
Exempt-interest
dividends paid by SPDR Nuveen Municipal Bond ETF and SPDR Nuveen Municipal Bond
ESG ETF and attributable to
interest earned on municipal securities issued by a state or its political
subdivisions are generally exempt in the hands of a
shareholder from income tax imposed by that state, but exempt-interest dividends
attributable to interest on municipal securities
issued by another state generally will not be exempt from such income
tax.
Distributions by
SPDR Nuveen Municipal Bond ETF and SPDR Nuveen Municipal Bond ESG ETF of net
interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its
agencies and instrumentalities) and net short-term capital gains realized by the
Funds, if any, will be taxable to
shareholders as ordinary income. If SPDR Nuveen Municipal Bond ETF or SPDR
Nuveen Municipal Bond ESG ETF purchases a
municipal security at a market discount, any gain realized by the Fund upon sale
or redemption of the municipal security
will be treated as taxable interest income to the extent of the market discount,
and any gain realized in excess of the market
discount will be treated as capital gains.
If you lend your
Shares in SPDR Nuveen Municipal Bond ETF and SPDR Nuveen Municipal Bond ESG ETF
pursuant to a securities lending
or similar arrangement, you may lose the ability to treat dividends paid by SPDR
Nuveen Municipal Bond ETF or SPDR
Nuveen Municipal Bond ESG ETF, as applicable, while the Shares are held by the
borrower as tax-exempt income. Interest on
indebtedness incurred by a shareholder to purchase or carry Shares of SPDR
Nuveen Municipal Bond ETF
or SPDR Nuveen Municipal Bond ESG ETF will not be deductible for U.S. federal
income tax purposes. If a
shareholder receives exempt-interest dividends with respect to any share of the
SPDR Nuveen Municipal Bond ETF or SPDR
Nuveen Municipal Bond ESG ETF and if the share is held by the shareholder for
six months or less, then any loss on the
sale or exchange of the share may, to the extent of the exempt-interest
dividends, be disallowed. In addition, the
Internal Revenue Code may require a shareholder in SPDR Nuveen Municipal Bond
ETF or SPDR Nuveen Municipal Bond ESG
ETF that receives exempt-interest dividends to treat as taxable income a portion
of certain otherwise non-taxable social
security and railroad retirement benefit payments. Furthermore, a portion of any
exempt-interest dividend paid by
SPDR Nuveen Municipal Bond ETF or SPDR Nuveen Municipal Bond ESG ETF that
represents income derived from certain
revenue or private activity bonds held by SPDR Nuveen Municipal Bond ETF or SPDR
Nuveen Municipal Bond ESG
ETF, as applicable, may not retain its tax-exempt status in the hands of a
shareholder who is a “substantial
user” of a facility
financed by such bonds, or a “related
person” thereof.
Shareholders should consult their own tax advisers as to
whether they are “substantial
users” with respect to a
facility or “related” to such users
within the meaning of the
Internal Revenue Code.
Federal tax law
imposes an alternative minimum tax with respect to individuals. Interest on
certain municipal securities that meet the
definition of private activity bonds under the Internal Revenue Code is included
as an item of tax preference in determining the
amount of a noncorporate taxpayer's alternative minimum taxable income. To the
extent that the SPDR Nuveen Municipal
Bond ETF or SPDR Nuveen Municipal Bond ESG ETF receive income from private
activity bonds, a portion of the
dividends paid by it, although otherwise exempt from federal income tax, may be
taxable to those noncorporate
shareholders subject to the alternative minimum tax regime. SPDR Nuveen
Municipal Bond ETF and SPDR Nuveen Municipal
Bond ESG ETF will annually supply shareholders with a report indicating the
percentage of their income attributable
to municipal securities required to be included in calculating the federal
alternative minimum tax applicable to
noncorporate taxpayers.
Although dividends
generally will be treated as distributed when paid, any dividend declared by a
Fund in October, November or December
and payable to shareholders of record in such a month that is paid during the
following January will be treated for
U.S. federal income tax purposes as received by shareholders on December 31 of
the calendar year in which it was
declared.
If a Fund's
distributions exceed its earnings and profits, all or a portion of the
distributions made in the taxable year may be treated as a
return of capital to shareholders. A return of capital distribution generally
will not be taxable but will reduce the shareholder's
cost basis and result in a higher capital gain or lower capital loss when the
Shares on which the distribution was
received are sold. After a shareholder's basis in the Shares has been reduced to
zero, distributions in excess of earnings
and profits will be treated as gain from the sale of the shareholder's
Shares.
Under Section 163(j)
of the Code, a taxpayer's business interest expense is generally deductible to
the extent of its business interest
income plus certain other amounts. If a Fund earns business interest income, it
may report a portion of its dividends as
“Section 163(j)
interest dividends,” which its
shareholders may be able to treat as business interest income for purposes
of Section 163(j) of the Code. The Fund's “Section 163(j)
interest dividend” for a tax year will
be limited to the
excess of its business interest income over the sum of its business interest
expense and other deductions properly allocable
to its business interest income. In general, a Fund's shareholders may treat a
distribution reported as a Section 163(j)
interest dividend as interest income only to the extent the distribution exceeds
the sum of the portions of the distribution
reported as other types of tax-favored income (which would generally include
exempt-interest income). To be eligible to treat
a Section 163(j) interest dividend as interest income, a shareholder may need to
meet certain holding period requirements
in respect of Shares and must not have hedged its position in Shares in certain
ways.
Distributions that
are reinvested in additional Shares through the means of a dividend reinvestment
service, if offered by your broker- dealer,
will nevertheless be taxable dividends to the same extent as if such dividends
had been received in cash.
A 3.8% Medicare
contribution tax generally applies to all or a portion of the net investment
income of a shareholder who is an individual and
not a nonresident alien for federal income tax purposes and who has adjusted
gross income (subject to certain adjustments)
that exceeds a threshold amount ($250,000 if married filing jointly or if
considered a “surviving
spouse” for federal income
tax purposes, $125,000 if married filing separately, and $200,000 in other
cases). This 3.8% tax also applies to
all or a portion of the undistributed net investment income of certain
shareholders that are estates and trusts. For these
purposes, dividends, interest and certain capital gains (generally including
capital gain distributions and capital gains
realized on the sale of Shares) are generally taken into account in computing a
shareholder's net investment income, but
exempt-interest dividends generally are not taken into account.
Distributions of
ordinary income and capital gains may also be subject to foreign, state and
local taxes depending on a shareholder's
circumstances.
TAXATION
OF SHAREHOLDERS – SALE OF SHARES
In general, a sale
of Shares results in capital gain or loss, and for individual shareholders, is
taxable at a federal rate dependent upon the
length of time the Shares were held. A sale of Shares held for a period of one
year or less at the time of such sale will,
for tax purposes, generally result in short-term capital gains or losses, and a
sale of those held for more than one year will
generally result in long-term capital gains or losses. Long-term capital gains
are generally taxed to noncorporate
shareholders at reduced rates.
Gain or loss on the
sale of Shares is measured by the difference between the amount received and the
adjusted tax basis of the Shares.
Shareholders should keep records of investments made (including Shares acquired
through reinvestment of dividends and
distributions) so they can compute the tax basis of their Shares. It may not be
advantageous from a tax perspective for
shareholders to sell or redeem Shares of SPDR Nuveen Municipal Bond ETF or SPDR
Nuveen Municipal Bond ESG ETF after
tax-exempt income has accrued but before the record date for the exempt-interest
dividend representing the
distribution of such income. Because such accrued tax-exempt income is included
in the net asset value per share, such a
sale or redemption could result in treatment of the portion of the sales or
redemption proceeds equal to the accrued
tax-exempt interest as taxable gain (to the extent the sale or redemption price
exceeds the shareholder's tax basis in the Fund
Shares of SPDR Nuveen Municipal Bond ETF or SPDR Nuveen Municipal Bond ESG ETF
disposed of) rather than
tax-exempt interest.
A loss realized on a
sale of Shares may be disallowed if substantially identical Shares are acquired
(whether through the reinvestment of
dividends or otherwise) within a sixty-one (61) day period beginning thirty (30)
days before and ending thirty (30) days
after the date that the Shares are disposed of. In such a case, the basis of the
Shares acquired must be adjusted to reflect
the disallowed loss. Any loss upon the sale of Shares held for six (6) months or
less will be disallowed to the extent of
exempt-interest dividends paid on such Shares, and any amount of the loss that
exceeds the amount disallowed will be
treated as long-term capital loss to the extent of any amounts treated as
distributions to the shareholder of long-term capital
gain (including any amounts credited to the shareholder as undistributed capital
gains).
As noted above, each
Fund may directly make investments in an ETP, invest in any of the instruments
or engage in any of the investment
practices described above if such investment activity is consistent with the
Fund's investment objective and permitted by each
Fund's stated investment policies.
COST
BASIS REPORTING
The cost basis of
Shares acquired by purchase will generally be based on the amount paid for the
Shares and then may be subsequently
adjusted for other applicable transactions as required by the Internal Revenue
Code. The difference between the selling
price and the cost basis of Shares generally determines the amount of the
capital gain or loss realized on the sale or
exchange of Shares. Contact the broker through whom you purchased your Shares to
obtain information with respect to the
available cost basis reporting methods and elections for your
account.
INVESTMENTS
IN MASTER LIMITED PARTNERSHIPS
A Fund's ability to
invest in Master Limited Partnerships (“MLPs”) and other related
entities that are treated as QPTPs for federal income tax
purposes is limited by the Fund's intent to qualify as a RIC. In order to
qualify as a RIC, a Fund generally may not
invest more than 25% of the value of its total assets in securities of QPTPs.
Each Fund intends to satisfy the
requirements for qualification as a RIC and, as such each Fund must limit its
investments in QPTPs accordingly. In
certain cases, the status of an investment as an investment in a QPTP is not
clear.
When a Fund invests
in the equity securities of an MLP or any other entity that is treated as a
partnership for U.S. federal income tax purposes,
the Fund will be treated as a partner in the entity for tax purposes.
Accordingly, in calculating such Fund's taxable
income, it will be required to take into account its allocable share of the
income, gains, losses, deductions, and credits
recognized by each such entity, regardless of whether the entity distributes
cash to a Fund. Distributions from such an entity to a
Fund are not generally taxable unless the cash amount (or, in certain cases, the
fair market value of marketable
securities) distributed to a Fund exceeds a Fund's adjusted tax basis in its
interest in the entity. In general, a Fund's allocable
share of such an entity's net income will increase a Fund's adjusted tax basis
in its interest in the entity, and distributions to
a Fund from such an entity and a Fund's allocable share of the entity's net
losses will decrease a Fund's adjusted
basis in its interest in the entity, but not below zero. A Fund may receive cash
distributions from such an entity in excess of
the net amount of taxable income the Fund is allocated from its investment in
the entity. In other circumstances, the
net amount of taxable income the Fund is allocated from its investment in such
an entity may exceed cash distributions
received from the entity. Thus, a Fund's investments in such an entity may cause
the Fund to make distributions to
shareholders in excess of its earnings and profits, or such Fund may be required
to sell investments, including when not
otherwise advantageous to do so, in order for the Fund to satisfy the
distribution requirements applicable to
RICs.
Depreciation or
other cost recovery deductions passed through to a Fund in a given year from the
Fund's investment in an MLP or a related
entity treated as a partnership for U.S. federal income tax purposes will
generally reduce the Fund's taxable income, but
those deductions may be recaptured in a Fund's income in one or more subsequent
years upon either (i) the sale of an
interest in the MLP or related entity or (ii) in respect of the sale or other
disposition by the MLP or related entity, of property
held by it. When recognized and distributed, recapture income will generally be
taxable to shareholders at the time of the
distribution at ordinary income tax rates, even though the shareholders at that
time might not have held Shares at the time
the deductions were taken by a Fund, and even though those shareholders will not
have corresponding economic gain on
their Shares at the time of the recapture. In order to distribute recapture
income or to fund redemption requests, a Fund may
need to liquidate investments, which may lead to additional recapture
income.
Noncorporate
taxpayers are generally eligible for a deduction of up to 20% of “qualified publicly
traded partnership income.” A Fund will not be
able to claim such a deduction in respect of income allocated to it by any MLPs
or other publicly traded
partnerships in which it invests, and shareholders will not be able to claim
such a deduction in respect of Fund dividends
attributable to any such income.
TAXATION
OF FUND INVESTMENTS
Dividends and
interest received by a Fund on foreign securities may give rise to withholding
and other taxes imposed by foreign countries.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes. If a Fund meets certain
requirements, which include a requirement that more than 50% of the value of the
Fund's total assets at the close
of its respective taxable year consist of certain foreign securities (generally
including foreign government
securities), then the Fund should be eligible to file an election with the
Internal Revenue Service (the “IRS”) that may enable its
shareholders, in effect, to receive either the benefit of a foreign tax credit,
or a tax deduction, with respect to certain
foreign and U.S. possessions income taxes paid by the Fund, subject to certain
limitations. If at least 50% of a Fund's
total assets at the close of each quarter of a taxable year consists of
interests in other RICs (including money market funds
and ETFs that are taxable as RICs), the Fund may make the same election and pass
through to its shareholders their
pro rata shares of qualified foreign taxes paid by those other RICs and passed
through to the Fund for that taxable year.
Pursuant to this election, a Fund would treat the applicable foreign taxes as
dividends paid to its shareholders. Each
such shareholder would be required to include a proportionate share of those
taxes in gross income as income received
from a foreign source and must treat the amount so included as if the
shareholder had paid the foreign tax
directly. The shareholder may then either deduct the taxes deemed paid by him or
her in computing his or her taxable income or,
alternatively, use the foregoing information in calculating any foreign tax
credit the shareholder may be entitled to use
against such shareholder's federal income tax. If a Fund makes this election,
the Fund will report annually to its shareholders
the respective amounts per share of the Fund's income from sources within, and
taxes paid to, foreign
countries and U.S.
possessions. No deduction for such taxes will be permitted to individuals in
computing their alternative minimum tax
liability. If a Fund does not make this election, the Fund will be entitled to
claim a deduction for certain foreign taxes incurred by
the Fund. In certain instances, the Fund might not elect to apply otherwise
allowable U.S. federal income tax deductions for
those foreign taxes, whether or not credits or deductions for those foreign
taxes could be passed through to its
shareholders pursuant to the election described above. If the Fund does not
elect to apply these deductions, taxable
distributions you receive from the Fund may be larger than they would have been
if the Fund had taken deductions for such taxes.
Under certain circumstances, if a Fund receives a refund of foreign taxes paid
in respect of a prior year, the value of Shares
could be affected or any foreign tax credits or deductions passed through to
shareholders in respect of the Fund's
foreign taxes for the current year could be reduced.
Certain of the
Funds' investments may be subject to complex provisions of the Internal Revenue
Code (including provisions relating
to hedging transactions, straddles, integrated transactions, foreign currency
contracts, forward foreign currency contracts,
and notional principal contracts) that, among other things, may affect the
character of gains and losses realized by a
Fund (e.g., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Fund
and defer losses. These rules could therefore affect the character, amount and
timing of distributions to shareholders.
These provisions also may require a Fund to mark-to-market certain types of
positions in its portfolio (i.e., treat them as if
they were closed out) which may cause the Fund to recognize income without
receiving cash with which to make distributions
to its shareholders in amounts necessary to facilitate satisfaction of the RIC
distribution requirements for avoiding income
and excise taxes. The Funds intend to monitor their transactions, intend to make
appropriate tax elections, and
intend to make appropriate entries in their books and records in order to
mitigate the effect of these rules and preserve the
Funds' qualification for treatment as RICs.
Certain investments
made by a Fund may be treated as equity in passive foreign investment companies
or “PFICs” for federal income tax
purposes. In general, a passive foreign investment company is a foreign
corporation (i) that receives at least 75% of its
annual gross income from passive sources (such as interest, dividends, certain
rents and royalties, or capital gains) or
(ii) where at least 50% of its assets (computed based on average fair market
value) either produce or are held for the
production of passive income. If a Fund acquires any equity interest (under
Treasury regulations that may be promulgated in the
future, generally including not only stock but also an option to acquire stock
such as is inherent in a convertible bond) in
a PFIC, the Fund could be subject to U.S. federal income tax and nondeductible
interest charges on “excess
distributions” received from such
companies or on gain from the sale of stock in such companies, even if all
income
or gain actually received by the Fund is timely distributed by the Fund to its
shareholders. The Fund would not be able to pass through
to its shareholders any credit or deduction for such a tax. A “qualified electing
fund” election or a
“mark to
market” election may be
available that would ameliorate these adverse tax consequences, but such
elections could require the
applicable Fund to recognize taxable income or gain (subject to the distribution
requirements applicable to RICs, as
described above) without the concurrent receipt of cash. In order to satisfy the
distribution requirements and avoid a tax at the
Fund level, a Fund may be required to liquidate portfolio securities that it
might otherwise have continued to hold, potentially
resulting in additional taxable gain or loss to the Fund. Gains from the sale of
stock of PFICs may also be treated as
ordinary income. In order for a Fund to make a qualified electing fund election
with respect to a PFIC, the PFIC would have to
agree to provide certain tax information to the Fund on an annual basis, which
it might not agree to do. The Funds may
limit and/or manage their holdings in PFICs to limit their tax liability or
maximize their returns from these
investments.
If a sufficient
portion of the interests in a foreign issuer are held or deemed held by a Fund,
independently or together with certain other U.S.
persons, that issuer may be treated as a “controlled foreign
corporation” (a “CFC”) with respect to
the Fund, in which case
the Fund will be required to take into account each year, as ordinary income,
its share of certain portions of that
issuer's income, whether or not such amounts are distributed. A Fund may have to
dispose of its portfolio securities
(potentially resulting in the recognition of taxable gain or loss, and
potentially under disadvantageous circumstances) to
generate cash, or may have to borrow the cash, to meet its distribution
requirements and avoid Fund-level taxes. In addition,
some Fund gains on the disposition of interests in such an issuer may be treated
as ordinary income. A Fund may
limit and/or manage its holdings in issuers that could be treated as CFCs in
order to limit its tax liability or
maximize its after-tax return from these investments.
The Internal Revenue
Code currently treats income and gains from trading in commodities as
nonqualifying income under the Qualifying
Income Requirement described above. Each Fund intends to obtain any exposure to
commodities through investments that are
consistent with the Fund's intention to be taxable as a RIC under Subchapter M
of the Internal Revenue Code. For
example, a Fund may invest up to 25% of its total assets in one or more QPTPs,
including QPTPs such as ETPs or MLPs
whose principal activities are the buying and selling of commodities or options,
futures, or forwards with respect to
commodities. Income from QPTPs is generally qualifying income. If an entity
intending to qualify as a
QPTP fails to
qualify as a QPTP, the income generated from a Fund's investment in the entity
may not comply with Qualifying Income
Requirement. A Fund will only invest in such an entity if it intends to qualify
as a QPTP, but there is no guarantee that any
such entity will be successful in qualifying as a QPTP. In addition, there is
little regulatory guidance concerning the
application of the rules governing qualification as a QPTP, and it is possible
that future guidance may adversely affect the
qualification of such entities as QPTPs. In order for a Fund to meet the
Diversification Requirement, the Fund generally
may not acquire an interest in any QPTP (including a QPTP in which the Fund
already invests) if more than 25% of the
value of a Fund's total assets after the acquisition would be invested in the
securities of QPTPs.
Each Fund is
required for federal income tax purposes to mark to market and recognize as
income for each taxable year its net unrealized
gains and losses on certain futures contracts as of the end of the year as well
as those actually realized during the year.
Gain or loss from futures and options contracts on broad-based indexes required
to be marked to market will be 60%
long-term and 40% short-term capital gain or loss. Application of this rule may
alter the timing and character of distributions to
shareholders. A Fund may be required to defer the recognition of losses on
futures contracts, options contracts and swaps
to the extent of any unrecognized gains on offsetting positions held by the
Fund. It is anticipated that certain net gain
realized from the closing out of futures or options contracts will be considered
gain from the sale of securities and
therefore will be qualifying income for purposes of the Qualifying Income
Requirement.
Investments by a
Fund in zero coupon or other discount securities will result in income to the
Fund equal to a portion of the excess face
value of the securities over their issue price (the “original issue
discount” or “OID”) each year that the
securities are held,
even though the Fund may receive no cash interest payments or may receive cash
interest payments that are less than
the income recognized for tax purposes. In other circumstances, whether pursuant
to the terms of a security or as a
result of other factors outside the control of a Fund, the Fund may recognize
income without receiving a commensurate amount
of cash. Such income is included in determining the amount of income that a Fund
must distribute to maintain its
eligibility for treatment as a RIC and to avoid the payment of federal income
tax, including the nondeductible 4% excise tax
described above.
Any market discount
recognized on a market discount bond is taxable as ordinary income. A market
discount bond is a bond acquired in the
secondary market at a price below redemption value or below adjusted issue price
if issued with original issue
discount. Absent a Fund's election 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. If the SPDR Nuveen Municipal Bond ETF or SPDR Nuveen Municipal Bond
ESG ETF purchases a
municipal security at a market discount, any gain realized by the SPDR Nuveen
Municipal Bond ETF or SPDR Nuveen
Municipal Bond ESG ETF, as applicable, upon sale or redemption of the municipal
security will be treated as taxable interest
income to the extent of the market discount, and any gain realized in excess of
the market discount will be treated as
capital gains. Where the income required to be recognized as a result of the OID
and/or market discount rules is not matched
by a corresponding cash receipt by a Fund, the Fund may be required to borrow
money or dispose of other securities to
enable the Fund to make distributions to its shareholders in order to qualify
for treatment as a RIC and eliminate taxes at
the Fund level.
Special rules apply
to any investments by a Fund in inflation-indexed bonds, such as TIPS.
Generally, all stated interest on inflation-indexed
bonds is taken into income by a Fund under its regular method of accounting for
interest income. The amount of any
positive inflation adjustment for a taxable year, which results from an increase
in the inflation-adjusted principal amount of
the bond, is treated as OID. The amount of a Fund's OID in a taxable year with
respect to a bond will increase a Fund's
taxable income for such year without a corresponding receipt of cash, until the
bond matures. As a result, a Fund may
need to use other sources of cash to satisfy its distribution requirements for
the applicable year. The amount of any
negative inflation adjustments, which result from a decrease in the inflation-
adjusted principal amount of the bond, first
reduces the amount of interest (including stated interest, OID, and market
discount, if any) otherwise includable in the
Fund's taxable income with respect to the bond for the taxable year; any
remaining negative adjustments will be either
treated as ordinary loss or, in certain circumstances, carried forward to reduce
the amount of interest income taken into account
with respect to the bond in future taxable years.
For tax years
beginning after December 31, 2017 and before January 1, 2026, a noncorporate
taxpayer is generally eligible for a
deduction of up to 20% of the taxpayer's “qualified REIT
dividends.” If a Fund receives
dividends (other than capital gain
dividends) in respect of U.S. REIT shares, the Fund may report its own dividends
as eligible for the 20% deduction, to the
extent the Fund's income is derived from such qualified REIT dividends, as
reduced by allocable Fund
expenses. In order
for a Fund's dividends to be eligible for this deduction when received by a
noncorporate shareholder, the Fund must meet
certain holding period requirements with respect to the U.S. REIT shares on
which the Fund received the eligible
dividends, and the noncorporate shareholder must meet certain holding period
requirements with respect to the
Shares.
TAX-EXEMPT
SHAREHOLDERS
Certain tax-exempt
shareholders, including qualified pension plans, individual retirement accounts,
salary deferral arrangements, 401(k)
plans, and other tax-exempt entities, generally are exempt from federal income
taxation except with respect to their
unrelated business taxable income (“UBTI”). Under current
law, a Fund generally serves to block UBTI from being realized
by its tax-exempt shareholders. However, notwithstanding the foregoing,
tax-exempt shareholders could realize UBTI
by virtue of their investment in a Fund where, for example, (i) the Fund invests
in REITs that hold residual interests
in real estate mortgage investment conduits (“REMICs”) or (ii) Shares
constitute debt-financed property in the hands of the
tax-exempt shareholders within the meaning of section 514(b) of the Internal
Revenue Code. Charitable remainder
trusts are subject to special rules and should consult their tax advisers. There
are no restrictions preventing a Fund
from holding investments in REITs that hold residual interests in REMICs, and a
Fund may do so. The IRS has issued
guidance with respect to these issues and prospective shareholders, especially
charitable remainder trusts, are strongly
encouraged to consult with their tax advisers regarding these
issues.
Certain tax-exempt
educational institutions will be subject to a 1.4% tax on net investment income.
For these purposes, certain dividends
and capital gain distributions, and certain gains from the disposition of Shares
(among other categories of income), are
generally taken into account in computing a shareholder's net investment
income.
FOREIGN
SHAREHOLDERS
Dividends, other
than capital gains dividends and exempt-interest dividends, “short-term capital
gain dividends” and “interest-related
dividends” (described below),
paid by a Fund to shareholders who are nonresident aliens or foreign
entities will be
subject to a 30% United States withholding tax unless a reduced rate of
withholding or a withholding exemption is
provided under applicable treaty law to the extent derived from investment
income and short-term capital gain or unless such
income is effectively connected with a U.S. trade or business carried on through
a permanent establishment in the
United States. Nonresident shareholders are urged to consult their own tax
advisers concerning the applicability of the
United States withholding tax and the proper withholding form(s) to be submitted
to a Fund. A non-U.S. shareholder who
fails to provide an appropriate IRS Form W-8 may be subject to backup
withholding at the appropriate rate.
Dividends reported
by a Fund as (i) interest-related dividends, to the extent such dividends are
derived from the Fund's “qualified net
interest income,” or (ii) short-term
capital gain dividends, to the extent such dividends are derived from the
Fund's
“qualified short-term
gain,” are generally
exempt from this 30% withholding tax. “Qualified net
interest income” is a Fund's net income
derived from U.S.- source interest and original issue discount, subject to
certain exceptions and limitations.
“Qualified short-term
gain” generally means the
excess of a Fund's net short-term capital gain for the taxable year over its net
long-term capital loss, if any. In the case of Shares held through an
intermediary, the intermediary may withhold even if a
Fund reports the payment as an interest-related dividend or as a short- term
capital gain dividend. Non-U.S. shareholders should
contact their intermediaries with respect to the application of these rules to
their accounts.
Unless certain
non-U.S. entities that hold Shares comply with IRS requirements that will
generally require them to report information
regarding U.S. persons investing in, or holding accounts with, such entities, a
30% withholding tax may apply to Fund
distributions (other than exempt-interest dividends) payable to such entities. A
non-U.S. shareholder may be exempt from the
withholding described in this paragraph under an applicable intergovernmental
agreement between the U.S. and a foreign
government, provided that the shareholder and the applicable foreign government
comply with the terms of such
agreement.
Non-U.S. persons are
subject to U.S. tax on disposition of a “United States real
property interest” (a “USRPI”). Gain on
such a
disposition is sometimes referred to as “FIRPTA
gain”. The Internal
Revenue Code provides a look-through rule for distributions of
“FIRPTA
gain” if certain
requirements are met. If the look-through rule applies, certain distributions
attributable to
income treated as received by a Fund from REITs may be treated as gain from the
disposition of a USRPI, causing
distributions to be subject to U.S. withholding taxes, and requiring non-U.S.
investors to file nonresident U.S.
income tax returns.
Also, FIRPTA gain may be subject to a 30% branch profits tax in the hands of a
non-U.S. shareholder that is treated as a
corporation for federal income tax purposes. Under certain circumstances, Shares
may qualify as USRPIs, which could
result in 15% withholding on certain distributions and gross redemption proceeds
paid to certain non-U.S.
investors.
BACKUP
WITHHOLDING
A Fund will be
required in certain cases to withhold (as “backup
withholding”) on amounts
(including exempt-interest dividends) payable
to any shareholder who (1) has provided the Fund either an incorrect tax
identification number or no number at all, (2)
is subject to backup withholding by the IRS for failure to properly report
payments of interest or dividends, (3) has
failed to certify to the Fund that such shareholder is not subject to backup
withholding, or (4) has not certified that such
shareholder is a U.S. person (including a U.S. resident alien). The backup
withholding rate is currently 24%. Backup
withholding will not be applied to payments that have been subject to the 30%
withholding tax on shareholders who are
neither citizens nor permanent residents of the U.S.
CREATION
UNITS
An Authorized
Participant who exchanges securities for Creation Units generally will recognize
a gain or a loss. The gain or loss will be
equal to the difference between the market value of the Creation Units at the
time and the sum of the exchanger's
aggregate basis in the securities surrendered plus the amount of cash paid for
such Creation Units. A person who redeems Creation
Units will generally recognize a gain or loss equal to the difference between
the exchanger's basis in the Creation
Units and the sum of the aggregate market value of any securities received plus
the amount of any cash received for such
Creation Units. The IRS, however, may assert that a loss realized upon an
exchange of securities for Creation Units
cannot be deducted currently under the rules governing “wash
sales,” or on the basis
that there has been no significant
change in economic position.
Any gain or loss
realized upon a creation of Creation Units will be treated as capital gain or
loss if the Authorized Participant holds
the securities exchanged therefor as capital assets, and otherwise will be
ordinary income or loss. Similarly, any gain
or loss realized upon a redemption of Creation Units will be treated as capital
gain or loss if the Authorized
Participant holds Shares comprising the Creation Units as capital assets, and
otherwise will be ordinary income or loss. Any
capital gain or loss realized upon the creation of Creation Units will generally
be treated as long-term capital gain or loss
if the securities exchanged for such Creation Units have been held for more than
one year, and otherwise will be
short-term capital gain or loss. Any capital gain or loss realized upon the
redemption of Creation Units will generally be
treated as long-term capital gain or loss if the Shares comprising the Creation
Units have been held for more than one year,
and otherwise, will generally be short-term capital gain or loss. Any capital
loss realized upon a redemption of
Creation Units held for six (6) months or less will be disallowed to the extent
of exempt-interest dividends paid with respect to
the Creation Units, and to the extent not disallowed will be treated as a
long-term capital loss to the extent of any
amounts treated as distributions to the applicable Authorized Participant of
long-term capital gains with respect to the
Creation Units (including any amounts credited to the Authorized Participant as
undistributed capital gains).
A Fund has the right
to reject an order for Creation Units if the purchaser (or a group of
purchasers) would, upon obtaining Shares so
ordered, own 80% or more of the outstanding shares of the Fund and if, pursuant
to section 351 of the Internal Revenue
Code, the Fund would have a basis in any deposit securities different from the
market value of such securities on the
date of deposit. A Fund also has the right to require information necessary to
determine beneficial Share ownership for
purposes of the 80% determination. If a Fund does issue Creation Units to a
purchaser (or a group of purchasers) that
would, upon obtaining the Shares so ordered, own 80% or more of the outstanding
shares of the Fund, the purchaser (or a
group of purchasers) may not recognize gain or loss upon the exchange of
securities for Creation Units.
If the Fund redeems
Creation Units in cash, it may bear additional costs and recognize more capital
gains than it would if it redeems Creation
Units in kind.
Persons purchasing
or redeeming Creation Units should consult their own tax advisers with respect
to the tax treatment of any creation or
redemption transaction.
CERTAIN
POTENTIAL TAX REPORTING REQUIREMENTS
Under promulgated
Treasury regulations, if a shareholder recognizes a loss on disposition of a
Fund's shares of $2 million or more for
an individual shareholder or $10 million or more for a corporate shareholder (or
certain greater amounts over a combination
of years), the shareholder must file with the IRS a disclosure statement on IRS
Form 8886. Direct shareholders of
portfolio securities are in many cases excepted from this reporting requirement,
but under current guidance,
shareholders of a RIC are not excepted. A shareholder who fails to make the
required disclosure to the IRS may be subject to
adverse tax consequences, including significant penalties. The fact that a loss
is reportable under these regulations does not
affect the legal determination of whether the 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 advisers 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 Other Securities
Each Fund issues
Shares of beneficial interest with no par value per Share. The Board may
designate additional funds.
Each Share issued by
the Trust has a pro rata interest in the assets of the corresponding series of
the Trust. Shares have no preemptive,
exchange, subscription or conversion rights and are freely transferable. Each
Share is entitled to participate equally
in dividends and distributions declared by the Board with respect to each Fund,
and in the net distributable assets
of each Fund on liquidation.
Each Share has one
vote with respect to matters upon which a shareholder vote is required
consistent with the requirements of the
1940 Act and the rules promulgated thereunder. Shares of all series of the Trust
(“Funds”) vote together as a single
class except that if the matter being voted on affects only a particular fund it
will be voted on only by that fund and if a
matter affects a particular fund differently from other Funds, that fund will
vote separately on such matter. Under
Massachusetts law, the Trust is not required to hold an annual meeting of
shareholders unless required to do so under the 1940
Act. The policy of the Trust is not to hold an annual meeting of shareholders
unless required to do so under the 1940
Act. All Shares of the Trust (regardless of the fund) have noncumulative voting
rights for the election of Trustees. Under
Massachusetts law, Trustees of the Trust may be removed by vote of the
shareholders.
Under Massachusetts
law, shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for
obligations of the Trust. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts
or obligations of the Trust, requires that Trust obligations include such
disclaimer, and provides for indemnification and
reimbursement of expenses out of the 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 each 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 Advisors Funds Distributors, LLC at
One Iron Street, Boston, Massachusetts 02210.
Counsel
and Independent Registered Public Accounting Firm
Morgan, Lewis &
Bockius LLP, located at 1111 Pennsylvania Avenue NW, Washington, DC 20004,
serves as counsel to the Trust.
Ernst & Young LLP, located at 200 Clarendon Street, Boston, MA
02116, serves as the independent registered public accounting
firm of the Trust. Ernst & Young LLP performs annual audits of the
Funds' financial statements and provides other
audit, tax and related services.
Local
Market Holiday Schedules
The Trust generally
intends to effect deliveries of portfolio securities on a basis of “T” plus two Business
Days (i.e., days on which the NYSE is
open), or in the case of SPDR Blackstone Senior Loan ETF and SPDR DoubleLine
Emerging Markets Fixed Income
ETF on a basis of “T” plus three Business
Days, in the relevant foreign market of a Fund. The ability of the Trust
to effect in-kind redemptions within two or three Business Days, as applicable,
of receipt of a redemption request
is subject, among other things, to the condition that, within the time period
from the date of the request to the date
of delivery of the securities, there are no days that are local market holidays
on the relevant Business Days. For every
occurrence of one or more intervening holidays in the local market that are not
holidays observed in the United States, the
redemption settlement cycle may be extended by the number of such intervening
local holidays. In addition to
holidays, other unforeseeable closings in a foreign market due to emergencies
may also prevent the Trust from delivering
securities within two or three Business Days, as applicable.
The securities
delivery cycles currently practicable for transferring portfolio securities to
redeeming investors, coupled with local market holiday
schedules, may require a delivery process longer than the standard settlement
period. In certain circumstances during
the calendar year, the settlement period may be greater than seven calendar
days.
Financial
Statements
The financial
statements and financial highlights of the Funds that were operating during the
year ended June 30, 2023, along with the
Report of Ernst & Young LLP, the Funds' Independent Registered Public
Accounting Firm, included in the Funds' Annual
Reports to Shareholders on Form N-CSR under the 1940 Act, are incorporated by
reference into this Statement of
Additional Information.
APPENDIX
A
Standard
& Poor's, a division of S&P Global (“S&P”),
Corporate Long-Term Issue Ratings:
|
|
An
obligation rated ‘AAA' has the highest rating assigned by S&P Global
Ratings. The obligor's
capacity
to meet its financial commitments on the obligation is extremely
strong. |
|
|
An
obligation rated ‘AA' differs from the highest-rated obligations only to a
small degree. The
obligor's
capacity to meet its financial commitments on the obligation is very
strong. |
|
|
An
obligation rated ‘A' is somewhat more susceptible to the adverse effects
of changes in
circumstances
and economic conditions than obligations in higher-rated categories.
However,
the
obligor's capacity to meet its financial commitments on the obligation is
still strong. |
|
|
An
obligation rated ‘BBB' exhibits adequate protection parameters. However,
adverse economic
conditions
or changing circumstances are more likely to weaken the obligor's capacity
to meet
its
financial commitments on the obligation. |
|
|
Obligations
rated ‘BB', ‘B', ‘CCC', ‘CC', and ‘C' are regarded as having significant
speculative
characteristics.
‘BB' indicates the least degree of speculation and ‘C' the highest. While
such
obligations
will likely have some quality and protective characteristics, these may be
outweighed
by
large uncertainties or major exposure to adverse
conditions. |
|
|
An
obligation rated ‘BB' is less vulnerable to nonpayment than other
speculative issues.
However,
it faces major ongoing uncertainties or exposure to adverse business,
financial, or
economic
conditions that could lead to the obligor's inadequate capacity to meet
its financial
commitments
on the obligation. |
|
|
An
obligation rated ‘B' is more vulnerable to nonpayment than obligations
rated ‘BB', but the
obligor
currently has the capacity to meet its financial commitments on the
obligation. Adverse
business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness
to
meet its financial commitments on the obligation. |
|
|
An
obligation rated ‘CCC' is currently vulnerable to nonpayment and is
dependent upon
favorable
business, financial, and economic conditions for the obligor to meet its
financial
commitments
on the obligation. In the event of adverse business, financial, or
economic
conditions,
the obligor is not likely to have the capacity to meet its financial
commitments on the
obligation. |
|
|
An
obligation rated ‘CC' is currently highly vulnerable to nonpayment. The
‘CC' rating is used
when
a default has not yet occurred but S&P Global Ratings expects default
to be a virtual
certainty,
regardless of the anticipated time to default. |
|
|
An
obligation rated ‘C' is currently highly vulnerable to nonpayment, and the
obligation is
expected
to have lower relative seniority or lower ultimate recovery compared with
obligations
that
are rated higher. |
|
|
An
obligation rated ‘D' is in default or in breach of an imputed promise. For
non-hybrid capital
instruments,
the ‘D' rating category is used when payments on an obligation are not
made on
the
date due, unless S&P Global Ratings believes that such payments will
be made within five
business
days in the absence of a stated grace period or within the earlier of the
stated grace
period
or 30 calendar days. The ‘D' rating also will be used upon the filing of a
bankruptcy
petition
or the taking of similar action and where default on an obligation is a
virtual certainty, for
example
due to automatic stay provisions. A rating on an obligation is lowered to
‘D' if it is
subject
to a distressed exchange
offer. |
*
Ratings from ‘AA' to
‘CCC' may be modified by the addition of a plus (+) or minus (-) sign to show
relative standing within the rating categories.
Moody's
Investors Service, Inc.'s (“Moody's”)
Long-Term Obligation Ratings:
|
|
Obligations
rated Aaa are judged to be of the highest quality, subject to the lowest
level of credit risk. |
|
|
Obligations
rated Aa are judged to be of high quality and are subject to very low
credit risk. |
|
|
Obligations
rated A are judged to be upper-medium grade and are subject to low credit
risk. |
|
|
Obligations
rated Baa are judged to be medium-grade and subject to moderate credit
risk and as such may
possess
certain speculative characteristics. |
|
|
Obligations
rated Ba are judged to be speculative and are subject to substantial
credit risk. |
|
|
Obligations
rated B are considered speculative and are subject to high credit
risk. |
|
|
Obligations
rated Caa are judged to be speculative of poor standing and are subject to
very high credit risk. |
|
|
Obligations
rated Ca are highly speculative and are likely in, or very near, default,
with some prospect of recovery
of
principal and interest. |
|
|
Obligations
rated C are the lowest rated and are typically in default, with little
prospect for recovery of principal or
interest. |
Note: Moody's
appends numerical modifiers 1, 2, and 3 to each generic rating classification
from Aa through Caa. The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates a ranking in the lower end of that generic rating
category. Additionally, a “(hyb)” indicator is
appended to all ratings of hybrid securities issued by banks, insurers, finance
companies, and securities
firms.*
Note: For more
information on long-term ratings assigned to obligations in default, please see
the definition “Long-Term
Credit
Ratings for Defaulted or Impaired Securities” in the Other
Definitions section of this publication.
*
By
their terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment
if such an omission occurs. Hybrid securities may also be subject to
contractually allowable write-downs of principal that could result in
impairment.
Together with the hybrid indicator, the long-term obligation rating assigned to
a hybrid security is an expression of the relative credit risk associated
with that security.
Fitch
Ratings Ltd.'s (“Fitch”)
Corporate Finance Obligations – Long-Term Ratings:
AAA - ‘AAA' National
Ratings denote the highest rating assigned by the agency in its National Rating
scale for that country. This rating
is assigned to issuers or obligations with the lowest expectation of default
risk relative to all other issuers or
obligations in the same country or monetary union.
AA - ‘AA' National
Ratings denote expectations of a very low level of default risk relative to
other issuers or obligations in the same country or
monetary union. The default risk inherent differs only slightly from that of the
country's highest rated issuers or
obligations.
A - ‘A' National
Ratings denote expectations of a low level of default risk relative to other
issuers or obligations in the same country or
monetary union.
BBB - ‘BBB' National
Ratings denote a moderate level of default risk relative to other issuers or
obligations in the same country or monetary
union.
BB - ‘BB' National
Ratings denote an elevated default risk relative to other issuers or obligations
in the same country or monetary
union.
B - ‘B' National
Ratings denote a significantly elevated level of default risk relative to other
issuers or obligations in the same country or
monetary union.
CCC - ‘CCC' National
Ratings denote a very high level of default risk relative to other issuers or
obligations in the same country or monetary
union.
CC - ‘CC' National
Ratings denote the level of default risk is among the highest relative to other
issuers or obligations in the same country or
monetary union.
C - A default or
default-like process has begun, or the issuer is in standstill, or for a closed
funding vehicle, payment capacity is
irrevocably impaired. Conditions that are indicative of a ‘C' category rating
for an issuer include:
a. the issuer has
entered into a grace or cure period following non-payment of a material
financial obligation;
b. the issuer has
entered into a temporary negotiated waiver or standstill agreement following a
payment default on a material
financial obligation;
c. the formal
announcement by the issuer or their agent of a distressed debt exchange;
and
d. a closed
financing vehicle where payment capacity is irrevocably impaired such that it is
not expected to pay interest and/or
principal in full during the life of the transaction, but where no payment
default is imminent
RD - Restricted
default. ‘RD' ratings indicate an issuer that, in Fitch's opinion, has
experienced an uncured payment default on a bond,
loan or other material financial obligation but that has not entered into
bankruptcy filings, administration, receivership,
liquidation or other formal winding-up procedure and has not otherwise ceased
business. This would include:
a. the selective
payment default on a specific class or currency of debt;
b. the uncured
expiry of any applicable grace period, cure period or default forbearance period
following a payment default on a
bank loan, capital markets security or other material financial
obligation;
c. the extension of
multiple waivers or forbearance periods upon a payment default on one or more
material financial
obligations, either in series or in parallel; or
d. execution of a
distressed debt exchange on one or more material financial
obligations.
D - ‘D' National
Ratings denote an issuer that has entered into bankruptcy filings,
administration, receivership, liquidation or other formal
winding-up procedure or that has otherwise ceased business.
S&P's
Short-Term Issue Credit Ratings:
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A
short-term obligation rated ‘A-1' is rated in the highest category by
S&P Global Ratings. The obligor's capacity to
meet
its financial commitments on the obligation is strong. Within this
category, certain obligations are designated
with
a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitments on these obligations
is
extremely strong. |
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A
short-term obligation rated ‘A-2' is somewhat more susceptible to the
adverse effects of changes in
circumstances
and economic conditions than obligations in higher rating categories.
However, the obligor's capacity
to
meet its financial commitments on the obligation is
satisfactory. |
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A
short-term obligation rated ‘A-3' exhibits adequate protection parameters.
However, adverse economic conditions
or
changing circumstances are more likely to weaken an obligor's capacity to
meet its financial commitments on the
obligation. |
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A
short-term obligation rated ‘B' is regarded as vulnerable and has
significant speculative characteristics. The
obligor
currently has the capacity to meet its financial commitments; however, it
faces major ongoing uncertainties
that
could lead to the obligor's inadequate capacity to meet its financial
commitments. |
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short-term obligation rated ‘C' is currently vulnerable to nonpayment and
is dependent upon favorable business,
financial,
and economic conditions for the obligor to meet its financial commitments
on the obligation. |
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short-term obligation rated ‘D' is in default or in breach of an imputed
promise. For non-hybrid capital instruments,
the
‘D' rating category is used when payments on an obligation are not made on
the date due, unless S&P Global
Ratings
believes that such payments will be made within any stated grace period.
However, any stated grace period
longer
than five business days will be treated as five business days. The ‘D'
rating also will be used upon the filing of
a
bankruptcy petition or the taking of a similar action and where default on
an obligation is a virtual certainty, for
example
due to automatic stay provisions. A rating on an obligation is lowered to
‘D' if it is subject to a distressed
exchange
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Moody's
Short-Term Obligation Ratings:
P-1 Issuers (or
supporting institutions) rated Prime-1 have a superior ability to repay
short-term debt obligations.
P-2 Issuers (or
supporting institutions) rated Prime-2 have a strong ability to repay short-term
debt obligations.
P-3 Issuers (or
supporting institutions) rated Prime-3 have an acceptable ability to repay
short-term obligations.
NP Issuers (or
supporting institutions) rated Not Prime do not fall within any of the Prime
rating categories.
Fitch's
Short-Term Obligation Ratings:
F1 - Indicates the
strongest capacity for timely payment of financial commitments relative to other
issuers or obligations in the same country.
Under the agency's National Rating scale, this rating is assigned to the lowest
default risk relative to others in the same
country or monetary union. Where the liquidity profile is particularly strong, a
“+” is added to the
assigned
rating.
F2 - Indicates a
good capacity for timely payment of financial commitments relative to other
issuers or obligations in the same country or
monetary union. However, the margin of safety is not as great as in the case of
the higher ratings.
F3 - Indicates an
adequate capacity for timely payment of financial commitments relative to other
issuers or obligations in the same country or
monetary union.
B - Indicates an
uncertain capacity for timely payment of financial commitments relative to other
issuers or obligations in the same country or
monetary union.
C - Indicates a
highly uncertain capacity for timely payment of financial commitments relative
to other issuers or obligations in the
same country or monetary union.
RD - Restricted
default. Indicates an entity that has defaulted on one or more of its financial
commitments, although it continues to meet
other financial obligations. Applicable to entity ratings only.
D - Indicates a
broad-based default event for an entity, or the default of a short-term
obligation.
Notes:
The
ISO International Country Code is placed in parentheses immediately following
the rating letters to indicate the identity
of the National market within which the rating applies. For illustrative
purposes, (xxx) has been used.
Appendix
B
SPDR®
Series Trust
SPDR®
Index
Shares Funds
SSGA
Active Trust
(each,
a “Trust”
or “Fund,”
and, collectively, the “Trusts”
or “Funds”)
PROXY
VOTING POLICY AND PROCEDURES
The Board of
Trustees of the Trusts has adopted the following policy and procedures with
respect to voting proxies relating to
portfolio securities held by the Trusts' investment portfolios.
The policy of each
Trust is to delegate the responsibility for voting proxies relating to portfolio
securities held by the Trusts to SSGA Funds
Management, Inc., the Trusts' investment adviser (the “Adviser”), subject to the
Trustees' continuing oversight.
The right to vote
proxies with respect to portfolio securities held by each Trust is an asset of
the Trusts. The Adviser acts as a fiduciary of
the Trusts and must vote proxies in a manner consistent with the best interest
of the Trusts and its shareholders.
3.
Proxy
Voting Procedures
A.
At least annually,
the Adviser shall present to the Board of Trustees (the “Board”) its policies,
procedures and other guidelines for
voting proxies (“Policy”) and the Policy of
any Sub-adviser (defined below) to which proxy voting authority has
been delegated (see Section 9 below). In addition, the Adviser shall notify the
Board of material changes to
its Policy or the Policy of any Sub-adviser promptly and no later than the next
regular meeting of the Board after
such amendment is implemented.
B.
At least annually,
the Adviser shall present to the Board its policy for managing the conflicts of
interests that may arise through the
Adviser's proxy voting activities. In addition, the Adviser shall report any
Policy overrides involving portfolio
securities held by the Trusts to the Trustees at the next regular meeting of the
Board after such override(s)
occur.
C.
At least annually,
the Adviser shall inform the Trustees that a record is available for each proxy
voted with respect to portfolio
securities of each Trust during the year. Also see Section 5
below.
4.
Revocation
of Authority to Vote
The delegation by
the Trustees of the authority to vote proxies relating to portfolio securities
of the Trusts may be revoked by the Trustees, in
whole or in part, at any time.
5.
Annual
Filing of Proxy Voting Record
The Adviser shall
provide the required data for each proxy voted with respect to portfolio
securities of a Trust to that respective Trust or
its designated service provider in a timely manner and in a format acceptable to
be filed in the Trust's annual proxy voting
report on Form N-PX for the twelve-month period ended June 30. Form N-PX is
required to be filed not later than
August 31 of each year.
6.
Retention
and Oversight of Proxy Advisory Firms
A.
In considering
whether to retain or continue retaining a particular proxy advisory firm, the
Adviser will ascertain whether the proxy
advisory firm has the capacity and competency to adequately analyze proxy
issues, act as proxy voting agent
as requested, and implement the Policy. In this regard, the Adviser will
consider, at least annually, among
other things, the adequacy and quality of the proxy advisory firm's staffing and
personnel and the robustness of its
policies and procedures regarding its ability to identify and address any
conflicts of interest. The Adviser shall, at
least annually, report to the Board regarding the results of this
review.
B.
The Adviser will
request quarterly and annual reporting from any proxy advisory firm retained by
the Adviser, and hold ad hoc meetings
with such proxy advisory firm, in order to determine whether there has been any
business changes that might
impact the proxy advisory firm's capacity or competency to provide proxy voting
advice or services or changes
to the proxy advisory firm's conflicts policies or procedures. The Adviser will
also take reasonable steps to
investigate any material factual error, notified to the Adviser by the proxy
advisory firm or identified by the
Adviser, made by the proxy advisory firm in providing proxy voting
services.
The Adviser will
periodically sample proxy votes to review whether they complied with the
Policy.
A.
A Trust shall
include in its registration statement:
1.
A description of
this policy and of the policies and procedures used by the Adviser to determine
how to vote proxies relating to
portfolio securities; and
2.
A statement
disclosing that information regarding how the Trust voted proxies relating to
portfolio securities during the most
recent twelve-month period ended June 30 is available without charge, upon
request, by calling the Trust's
toll-free telephone number; or through a specified Internet address; or both;
and on the Securities and
Exchange Commission's (the “SEC”)
website.
B.
A Trust shall
include in its annual and semi-annual reports to
shareholders:
1.
A statement
disclosing that a description of the policies and procedures used by or on
behalf of the Trust to determine how to
vote proxies relating to portfolio securities of the Funds is available without
charge, upon request, by calling
the Trust's toll-free telephone number; through a specified Internet address, if
applicable; and on the SEC's
website; and
2.
A statement
disclosing that information regarding how the Trust voted proxies relating to
portfolio securities during the most
recent twelve-month period ended June 30 is available without charge, upon
request, by calling the Trust's
toll-free telephone number; or through a specified Internet address; or both;
and on the SEC's
website.
For certain Funds,
the Adviser retains investment management firms (“Sub-advisers”) to provide
day-to-day investment management services
to the Trusts pursuant to sub-advisory agreements. It is the policy of the
Trusts that the Adviser may delegate proxy
voting authority with respect to a Fund to a Sub-adviser. Pursuant to such
delegation, a Sub-adviser is authorized to vote
proxies on behalf of the applicable Fund or Funds for which it serves as
sub-adviser, in accordance with the Sub-adviser's
proxy voting policies and procedures.
The Trustees shall
review this policy to determine its continued sufficiency as necessary from time
to time.
Adopted
(SPDR Series Trust/SPDR Index Shares Funds): |
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Adopted
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APPENDIX C – ADVISER’S PROXY VOTING
PROCEDURES AND GUIDELINES
March 2023
Global Proxy Voting and Engagement Principles
State Street Global Advisors, one of the industry’s largest
institutional asset managers, is the investment management arm of State Street
Corporation, a leading provider of financial services to institutional
investors. As an investment manager, State Street Global Advisors has
discretionary proxy voting authority over most of its client accounts, and State
Street Global Advisors votes these proxies in the manner that we believe will
most likely protect and promote the long-term economic value of client
investments, as described in this document.i
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These Global Proxy Voting and
Engagement Principles (the “Principles”) are also applicable to SSGA Funds
Management, Inc., State Street Global Advisors Trust Company, and other
advisory affiliates of State Street Corporation. Additionally, State
Street Global Advisors maintains Proxy Voting and Engagement Guidelines
for select markets, including: Australia, continental Europe, Japan, New
Zealand, North America (Canada and the US), the UK and Ireland, and
emerging markets. International markets not covered by our market-specific
guidelines are reviewed and voted in a manner that is consistent with the
Principles; however, State Street Global Advisors also endeavors to show
sensitivity to local market practices when voting in these various
markets. |
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| State
Street Global Advisors’ Authority and Duties to Vote Client and Fund
Securities |
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Where
State Street Global Advisors’ clients have asked it to vote their shares
on their behalf or where a commingled fund fiduciary has delegated the
responsibility to vote the fund’s securities to State Street Global
Advisors, State Street Global Advisors votes those client and fund-owned
securities in a unified manner, consistent with the Principles described
in this document. Exceptions to this unified voting policy are:
(1) where State Street Global Advisors has made proxy voting choices
(i.e., the proxy voting program) available to investors within a
commingled fund, in which case a pro rata portion of shares held by the
fund attributable to investors who choose to participate in the proxy
voting program would be voted consistent with the third-party proxy voting
policies selected by the investors, and (2) in the limited
circumstances where a pooled investment vehicle managed by State Street
Global Advisors utilizes a third party proxy voting guideline as set forth
in that fund’s organizational and/or offering documents. With respect to
such funds utilizing third-party proxy voting guidelines, the terms of the
applicable third-party proxy voting guidelines shall apply in place of the
Principles described herein and the proxy votes implemented with respect
to such a fund may differ from and be contrary to those votes implemented
for other portfolios managed by State Street Global Advisors pursuant to
its proprietary proxy voting guidelines. |
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| The Principles-State Street Global
Advisors’ Approach to Proxy Voting and Issuer Engagement |
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At State Street Global Advisors, we
take our fiduciary duties as an asset manager very seriously. We have a
dedicated team of corporate governance professionals who help us carry out
our duties as a responsible investor. These duties include engaging with
companies, developing and enhancing in-house corporate governance
guidelines, analyzing corporate governance issues on a case-by-case basis at the
company level, and exercising voting rights. The underlying goal is to
maximize shareholder value. |
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The Principles may take different
perspectives on common governance issues that vary from one market to
another. Similarly, engagement activity may take different forms in order
to best achieve long-term engagement goals. Rather than divesting from
portfolio companies, our approach is to engage with such companies. We
believe that proxy voting and engagement with portfolio companies is often
the most direct and productive way for shareholders to exercise their
ownership rights. This comprehensive toolkit is an integral part of the
overall investment process. |
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We believe engagement and voting
activity have a direct relationship. As a result, the integration of our
engagement activities, while leveraging the exercise of voting rights,
provides a meaningful shareholder tool that we believe protects and
enhances the long-term economic value of the holdings in our clients’
accounts. We maximize voting power and engagement by maintaining a
centralized proxy voting and active ownership process covering all
holdings, regardless of strategy. Despite the vast array of investment
strategies and objectives across State Street Global Advisors, the
fiduciary responsibilities of share ownership and voting for which State
Street Global Advisors has voting discretion are carried out with a single
voice and objective. |
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The Principles support governance
structures that we believe add to, or maximize, shareholder value for the
companies held in our clients’ portfolios. We conduct issuer-specific
engagements with companies to discuss our principles, including
sustainability-related risks and opportunities. In addition, we encourage
issuers to find ways to increase the amount of direct communication board
members have with shareholders. Direct communication with executive board
members and independent non-executive directors is critical to
helping companies understand shareholder concerns. |
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In conducting our engagements, we
also evaluate the various factors that influence the corporate governance
framework of a country, including the macroeconomic conditions and broader
political system, the quality of regulatory oversight, the enforcement of
property and shareholder rights, and the independence of the judiciary. We
understand that regulatory requirements and investor expectations relating
to governance practices and engagement activities differ from country to
country. As a result, we engage with issuers, regulators, or a combination
of the two depending upon the market. We are also a member of various
investor associations that seek to address broader corporate
governance-related policy at the country level. |
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The State Street Global Advisors Asset
Stewardship Team may consult with members of various investment teams to
engage with companies on corporate governance issues and to address any
specific concerns. This facilitates our comprehensive approach to
information gathering as it relates to items that are to be voted upon at
upcoming shareholder meetings. We also conduct issuer-specific engagements
with companies, covering various corporate governance and
sustainability-related topics outside of proxy season. |
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The Asset
Stewardship Team employs a blend of quantitative and qualitative research,
analysis and data in order to support screens that identify issuers where
active engagement may be necessary to protect and promote shareholder
value. Issuer engagement may also be event-driven, focusing on
issuer-specific corporate governance or sustainability concerns, or
broader industry-related trends. We also consider the size of our total
position in the issuer in question and/or the potential negative
governance, performance profile, and circumstance at hand. As a result, we
believe issuer engagement can take many forms and be triggered by numerous
circumstances. The following approaches represent how we define engagement
methods: |
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We use screening tools designed to
capture a mix of company-specific data, including governance and
sustainability profiles, to inform our voting and engagement
activity. |
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We will
actively seek direct dialogue with the board and management of companies
that we have identified through our screening processes. Such engagements
may lead to further monitoring to ensure that the company improves its
governance or sustainability practices. In these cases, the engagement
process represents the most meaningful opportunity for us to protect
long-term shareholder value from excessive risk due to poor governance and
sustainability practices. |
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| Reactive |
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Reactive engagement is initiated by
issuers. We routinely discuss specific voting issues and items with the
issuer community. Reactive engagement is an opportunity to address not
only voting items, but also a wide range of governance and sustainability
issues. |
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We have
established an engagement protocol that further describes our approach to
issuer engagement. |
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| Measurement |
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Our stewardship activities are
designed to have an impact on company-specific and market-level disclosure
and oversight practices that we believe protect and promote shareholder
value. |
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Company-specific successes
Assessing the effectiveness of our company-specific engagement process
can be challenging to measure. To limit subjectivity in measuring our
success, we actively seek issuer feedback and monitor the actions taken by
issuers post-engagement in order to identify tangible changes. This
enables us to establish indicators to gauge how issuers respond to our
concerns and to what degree these responses satisfy our requests. It is
also important to note that successful engagement activity can be measured
over multiple years depending on the facts and circumstances involved.
These engagements not only inform our voting decisions but also allow us
to monitor improvement over time and to contribute to our evolving
perspectives on priority areas. We also track the impact of our proxy
votes by reviewing changing trends in market practices on specific
corporate-governance or sustainability-related issues that we address
through voting action. We report engagement and voting actions to clients
on an annual basis. |
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Market-level successes We track the broader adoption
of our stewardship priorities — Effective Board Oversight, Climate Risk
Management, Human Capital Management, and Diversity, Equity, and Inclusion
- which we consider core to creating long-term value, by assessing the
number of market participants that have embraced positions consistent with
our thought leadership and advocacy. |
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| Proxy Voting Procedure |
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Oversight |
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The Asset Stewardship Team is responsible for developing and
implementing State Street Global Advisors’ Global Proxy Voting and
Engagement Principles, Global Proxy Voting and Engagement Guidelines for
Environmental and Social Factors, regional proxy voting and engagement
guidelines, and guidance published thereunder by State Street Global
Advisors from time to time, available at ssga.com/about-us/asset-stewardship.html
(collectively, the “Voting Policy”), the implementation of third-party
proxy voting guidelines where applicable, case-by-case voting items,
issuer engagement activities, and research and analysis of
governance-related issues. The Asset Stewardship Team’s activities are
overseen by our internal governance body, State Street Global Advisors’
ESG Committee (the “ESG Committee”). The ESG Committee is responsible for
reviewing State Street Global Advisors’ stewardship strategy, engagement
priorities, and proxy voting guidelines, and for monitoring the delivery
of voting objectives. |
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| Proxy Voting Process |
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In order to facilitate our proxy
voting process, we retain Institutional Shareholder Services Inc. (“ISS”),
a firm with expertise in proxy voting and corporate governance. We utilize
ISS to: (1) act as our proxy voting agent (providing State Street
Global Advisors with vote execution and administration services), (2)
assist in applying the Voting Policy, (3) provide research and
analysis relating to general corporate governance issues and specific
proxy items, and (4) provide proxy voting guidelines in limited
circumstances. |
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All voting decisions and engagement
activities are undertaken in accordance with our in-house Voting Policy, ensuring that
the interests of our clients remain the sole consideration when
discharging our stewardship responsibilities. Exceptions to this policy is
the use of an independent third party to vote on State Street stock and
other State Street Global Advisors affiliated entities, to mitigate a
conflict of interest of voting on our parent company or affiliated
entities, and other situations where we retain an independent fiduciary to
make a voting decision where we believe we may be conflicted from voting
(for example, due to an outside business interest). In such cases,
delegated third parties exercise vote decisions based upon State Street
Global Advisors’ Proxy Voting and Engagement Guidelines. |
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We aim to vote at all shareholder
meetings where our clients have given us the authority to vote their
shares and where it is feasible to do so. However, when we deem
appropriate, we could refrain from voting at meetings in cases
where: |
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• Power of attorney documentation is
required. |
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• Voting will have a material impact on our ability to
trade the security. |
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• Voting is not permissible due to sanctions affecting a
company or individual. |
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• Issuer-specific special documentation is required or
various market or issuer certifications are required. |
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• Unless a client directs otherwise, State Street Global
Advisors will not vote proxies in so-called “share blocking” markets
(markets where proxy voters have their securities blocked from trading
during the period of the annual meeting). |
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Additionally, we are unable to vote
proxies when certain custodians, used by our clients, do not offer proxy
voting in a jurisdiction or when they charge a meeting-specific fee in
excess of the typical custody service agreement. |
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In rare
circumstances where nuances within specific resolutions fall outside of
the scope of existing voting guidelines, requiring case-by-case analysis, such
resolutions are escalated to the head of Asset Stewardship and reported to
the ESG Committee. Additionally, in certain cases, where a material
conflict of interest is identified, the matter may be referred to the ESG
Committee for review. |
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| Conflict
of Interest |
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See our
standalone Conflicts Mitigation Guidelines. |
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| Proxy
Voting and Engagement Principles |
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| Directors and Boards |
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The election of directors is one of
the most important fiduciary duties we perform on behalf of our clients.
We believe that well-governed companies can protect and pursue shareholder
interests better and withstand the challenges of an uncertain economic
environment. As such, we seek to vote director elections in a way that we
believe will maximize long-term value. |
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Principally, a board acts on behalf
of shareholders by protecting their interests and preserving their rights.
This concept establishes the standard by which board and director
performance is measured. In order to achieve this fundamental principle,
the role of the board is to carry out its responsibilities in the best
long-term interest of the company and its shareholders. An independent and
effective board sets the strategy and provides guidance on strategic
matters, oversees management, selects the CEO and other senior executives,
creates a succession plan for the board and management, provides risk
oversight, and assesses the performance of the CEO and management. In
contrast, management implements the business and capital allocation
strategies and runs the company’s day-to-day operations. As part
of our engagement process, we routinely discuss the importance of these
responsibilities with the boards of issuers. |
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We
believe the quality of a board is a measure of director independence,
director succession planning, board diversity, evaluations and
refreshment, and company governance practices. In voting to elect
nominees, we consider many factors. We believe independent directors are
crucial to good corporate governance; they help management establish sound
corporate governance policies and practices. A sufficiently independent
board will effectively monitor management, maintain appropriate governance
practices, and perform oversight functions necessary to protect
shareholder interests. We also believe the right mix of skills,
independence, diversity, and qualifications among directors provides
boards with the knowledge and direct experience to manage risks and
operating structures that are often complex and
industry-specific. |
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| Accounting and Audit- Related
Issues |
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We believe audit committees are
critical and necessary as part of the board’s risk oversight role. The
audit committee is responsible for setting out an internal audit function
that provides robust audit and internal control systems designed to
effectively manage potential and emerging risks to the company’s
operations and strategy. We believe audit committees should have
independent directors as members, and we will hold the members of the
audit committee responsible for overseeing the management of the audit
function. |
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We
believe the disclosure and availability of reliable financial statements
in a timely manner is imperative for the investment process. As a result,
board oversight of the internal controls and the independence of the audit
process are essential if investors are to rely upon financial statements.
It is important for the audit committee to appoint external auditors who
are independent from management as we expect auditors to provide assurance
of a company’s financial condition. |
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| Capital Structure, Reorganization and
Mergers |
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The ability to raise capital is
critical for companies to carry out strategy, to grow, and to achieve
returns above their cost of capital. The approval of capital raising
activities is fundamental to a shareholder’s ability to monitor the
amounts of proceeds and to ensure capital is deployed efficiently.
Altering the capital structure of a company is a critical decision for
boards. When making such a decision, we believe the company should
disclose a comprehensive business rationale that is consistent with
corporate strategy and not overly dilutive to its
shareholders. |
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Mergers or reorganization of the
structure of a company often involve proposals relating to
reincorporation, restructurings, liquidations, and other major changes to
the corporation. |
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Proposals that are in the best
interests of shareholders, demonstrated by enhancing share value or
improving the effectiveness of the company’s operations, will be
supported. In evaluating mergers and acquisitions, we consider the impact
of the corporate governance provisions to shareholders. In all cases, we
use our discretion in order to maximize shareholder
value. |
C-7
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Occasionally, companies add anti-takeover provisions that
reduce the chances of a potential acquirer to make an offer, or to reduce
the likelihood of a successful offer. We do not support proposals that
reduce shareholders’ rights, entrench management, or reduce the likelihood
of shareholders’ right to vote on reasonable offers. |
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| Compensation |
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We consider it the board’s
responsibility to identify the appropriate level of executive
compensation. Despite the differences among the types of plans and the
awards possible, there is a simple underlying philosophy that guides our
analysis of executive compensation: we believe that there should be a
direct relationship between executive compensation and company performance
over the long term. |
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Shareholders should have the
opportunity to assess whether pay structures and levels are aligned with
business performance. When assessing remuneration reports, we consider
factors such as adequate disclosure of various remuneration elements,
absolute and relative pay levels, peer selection and benchmarking, the mix
of long-term and short-term incentives, alignment of pay structures with
shareholder interests, as well as with corporate strategy and performance.
We may oppose remuneration reports where pay seems misaligned with
shareholders’ interests. We may also consider executive compensation
practices when re-electing
members of the remuneration committee. |
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We
recognize that compensation policies and practices are unique from market
to market; often there are significant differences between the level of
disclosures, the amount and forms of compensation paid, and the ability of
shareholders to approve executive compensation practices. As a result, our
ability to assess the appropriateness of executive compensation is often
dependent on market practices and laws. |
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| Environmental and Social
Issues |
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As a fiduciary, State Street Global
Advisors takes a comprehensive approach to engaging with our portfolio
companies about material environmental and social issues. Our Asset
Stewardship program prioritization process allows us to proactively
identify companies for engagement and voting in order to mitigate
sustainability risks in our portfolio. Through engagement, we aim to build
long-term relationships with the issuers in which we invest on behalf of
our clients and to address a broad range of topics relating to the
promotion of long-term shareholder value creation. When voting, we
fundamentally consider whether the adoption of a shareholder proposal
addressing a material environmental or social topic would promote
long-term shareholder value in the context of the company’s existing
practices and disclosures as well as existing market
practice. |
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For more information on our approach to environmental and
social topics, please see our Global Proxy Voting and Engagement
Guidelines for Environmental and Social Factors, available at
ssga.com/about-us/asset-stewardship.html. |
C-8
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| General/Routine |
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Although we do not seek involvement in the day-to-day operations of an
organization, we recognize the need for conscientious oversight and input
into management decisions that may affect a company’s value. We support
proposals that encourage economically advantageous corporate practices and
governance, while leaving decisions that are deemed to be routine or
constitute ordinary business to management and the board of
directors. |
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| Fixed Income Stewardship |
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The two elements of our fixed income
stewardship program are: |
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Proxy Voting: |
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While matters that arise for a vote
at bondholder meetings vary by jurisdiction, examples of common proxy
voting resolutions at bondholder meetings include: |
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• Approving amendments to debt covenants and/or terms of
issuance |
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• Authorizing procedural matters, such as filing of
required documents/other formalities |
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• Approving debt restructuring plans |
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• Abstaining from challenging the bankruptcy
trustees |
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• Authorizing repurchase of issued debt
security |
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• Approving the placement of unissued debt securities under
the control of directors |
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• Approving spin-off/absorption
proposals |
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Given the nature of the items that
arise for vote at bondholder meetings, we take a case-by-case approach to voting
bondholder resolutions. Where necessary, we will engage with issuers on
voting matters prior to arriving at voting decisions. All voting decisions
will be made in the best interest of our clients. |
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Issuer
Engagement: |
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We
recognize that debt holders have limited leverage with companies on a
day-to-day basis. Our guidelines
for engagement with fixed income issuers broadly follow the engagement
guidelines for our equity holdings, as described above. |
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| Securities on Loan |
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As a responsible investor and
fiduciary, we recognize the importance of balancing the benefits of voting
shares and the incremental lending revenue for the pooled funds that
participate in State Street Global Advisors’ securities lending program
(the “Funds”). Our objective is to recall securities on loan and restrict
future lending until after the record date for the respective vote in
instances where we believe that a particular vote could have a material
impact on the Funds’ long-term financial performance and the benefit of
voting shares will outweigh the forgone lending
income. |
C-9
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Accordingly, we have set systematic
recall and lending restriction criteria for shareholder meetings involving
situations with the highest potential financial implications (such as
proxy contests and strategic transactions including mergers and
acquisitions, going dark transactions, change of corporate form,
bankruptcy and liquidation). |
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Generally, these criteria for recall
and restriction for lending only apply to certain large cap indices in
developed markets. |
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State Street Global Advisors
monitors the forgone lending revenue associated with each recall to
determine if the impact on the Funds’ long-term financial performance and
the benefit of voting shares will outweigh the forgone lending
income. |
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Although our objective is to systematically recall
securities based on the aforementioned criteria, we must receive notice of
the vote in sufficient time to recall the shares on or before the record
date. In cases in which we do not receive timely notice, we may be unable
to recall the shares on or before the record date. |
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| Reporting |
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We
provide transparency for our stewardship activities through our regular
client reports and relevant information reported online. We publish an
annual stewardship report that provides details of our stewardship
approach, engagement and voting policies, and activities during the year.
The annual report is complemented by quarterly stewardship activity
reports as well as the regular publication of thought leadership on
governance and sustainability on our website. Our voting record
information is available on Vote View, an interactive platform that
provides relevant company details, proposal types, resolution
descriptions, and records of our votes cast. |
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| About
State Street Global Advisors |
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For four decades, State Street Global
Advisors has served the world’s governments, institutions and financial
advisors. With a rigorous, risk-aware approach built on research, analysis
and market-tested experience, we build from a breadth of index and active
strategies to create cost-effective solutions. And, as pioneers in index,
ETF, and ESG investing, we are always inventing new ways to invest. As a
result, we have become the world’s fourth-largest asset manager* with US
$3.62 trillion† under our
care. |
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* Pensions & Investments
Research Center, as of December 31, 2021. |
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† This figure is presented as of March 31,
2023 and includes approximately $65.03 billion USD of assets with
respect to SPDR products for which State Street Global Advisors Funds
Distributors, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD
and State Street Global Advisors are affiliated. Please note all AUM is
unaudited. |
C-10
ssga.com
Marketing communications
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T:
+971 2 245 9000. Australia: State Street Global Advisors,
Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial
Services License (AFSL Number 238276). Registered office: Level 14, 420
George Street, Sydney, NSW 2000, Australia. T: +612 9240-7600. F: +612
9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La
Hulpe 185, 1170 Brussels, Belgium. T: +32 2 663 2036. State Street Global
Advisors Belgium is a branch office of State Street Global
Advisors Europe Limited, registered in Ireland with company number
49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s
Quay, Dublin 2. Canada: State Street Global Advisors, Ltd.,
1981 McGill College
Avenue, Suite 500, Montreal, Qc, H3A 3A8, T: +514 282 2400 and 30
Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900.
France: State Street Global Advisors Europe Limited, France Branch
(“State Street Global Advisors France”) is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
France is registered in France with company number RCS Nanterre 899 183 289, and
its office is located at Coeur Défense — Tour A — La Défense 4, 33e étage, 100,
Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex, France.
T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State
Street Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59,
D-80333 Munich, Germany (“State Street
Global Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors
Germany is a branch of State Street Global Advisors Europe Limited, registered
in Ireland with company number 49934, authorised and regulated by the Central
Bank of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Hong Kong: State Street Global Advisors Asia
Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong
Kong. T: +852 2103-0288. F: +852 2103-0200.
Ireland: State Street Global Advisors Europe Limited is
regulated by the Central Bank of Ireland. Registered office address 78 Sir John
Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353 (0)1 776 3000.
F: +353 (0)1 776 3300. Italy: State Street Global Advisors Europe
Limited, Italy Branch (“State Street Global Advisors Italy”) is a branch of
State Street Global Advisors Europe Limited, registered in Ireland with company
number 49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street
Global Advisors Italy is registered in Italy with company number 11871450968 —
REA: 2628603 and VAT number 11871450968, and its office is located at Via
Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F: +39
02 32066 155. Japan: State Street Global Advisors (Japan)
Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan,
Japan Securities Dealers’ Association. Netherlands: State
Street Global Advisors Netherlands, Apollo Building 7th floor,
Herikerbergweg 29, 1101 CN Amsterdam, Netherlands. T: +31 20 7181
000. State Street Global Advisors Netherlands is a branch office of State Street
Global Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Singapore: State
Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No.
5776591 81. Registered office: 20 Churchill Place, Canary Wharf,
London, E14 5HJ. T: 020 3395 6000. F: 020 3395
6350. United States: State Street Global Advisors, 1 Iron
Street, Boston, MA 02210-1641. T: +1 617 786 3000.
C-11
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the
current accuracy, reliability or completeness of, nor liability for, decisions
based on such information and it should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies.
A portfolio’s ESG criteria may result in the portfolio investing
in industry sectors or securities which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates are
only available to such persons and persons of any other description (including
retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind relating
to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results generated out of the scoring
model is based on sustainability and corporate governance
dimensions of a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence of investment
research (b) is not subject to any prohibition on dealing ahead of the
dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1551551-3479888.7.2.GBL.RTL 0423 Exp. Date: 03/31/2024
C-12
April 2023
Global Proxy Voting and Engagement Guidelines for Environmental
and Social Factors
Information Classification: Limited Access
C-13
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| Overview |
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Our primary fiduciary obligation to
our clients is to maximize the long-term returns of their investments. It
is our view that material sustainability considerations, including
material environmental and social (E&S) issues, can present material
risks and/or opportunities that impact long-term value creation. This
philosophy provides the foundation for our value-based approach to Asset
Stewardship. |
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We regularly identify stewardship
priorities that we believe are important for our portfolio companies to
consider. |
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| Our Approach to Assessing E&S
Factors |
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While we believe that E&S factors can expose companies
to material risks as well as drive long-term value creation, the
materiality of specific E&S factors varies across industries, markets,
and specific companies. We leverage several inputs to inform our views on
an E&S issue at a given company, including:
• Established frameworks, including The Sustainability
Accounting Standards Board’s (SASB) Standards, the Task Force on
Climate-related Financial Disclosures (TCFD) Framework, etc.
• Academic research and other expert insights
• Disclosure expectations required by regulation
• Market expectations for the sector and
industry
We expect companies to disclose information regarding their
approach to identifying and managing E&S-related risks and opportunities
they have deemed to be material, as well as the board’s oversight of these
risks and opportunities. |
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| Our Approach to E&S Factors
Through Engagements |
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The Asset Stewardship team regularly
identifies thematic stewardship priorities that will be addressed across
different engagement meetings. We focus on priorities that we consider
important to be considered by the portfolio companies in which we invest
our clients’ assets. These engagements help us to establish disclosure
expectations and to more fully understand the nuanced challenges that
companies seek to address related to E&S factors. Establishing robust
disclosure expectations allows us to monitor companies’ progress toward
alignment with our relevant disclosure expectations, and contributes to
our perspectives on our stewardship priority areas. |
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Through engagement, we address a
broad range of factors that align with our stewardship priorities and seek
to foster constructive, long-term relationships with issuers. We view
engagements as part of an ongoing dialogue, versus a series of one-off
conversations. During conversations with issuers, we share expectations
and perspectives on key dimensions of E&S factors, and seek to
understand how companies and their boards manage and oversee related risks
and opportunities. |
Information Classification: Limited Access
C-14
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The Use of R-Factor in
Engagements |
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R-Factor™ is a scoring system
created by State Street Global Advisors that measures the performance of a
company’s business operations and governance as it relates to material ESG
factors facing the company’s industry. SSGA uses R-Factor as a consideration when
prioritizing engagements. State Street Global Advisors may also engage
with a company regarding its R-Factor™ score at the request
of the company. |
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| Analyzing E&S Proposals |
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When analyzing shareholder proposals related to E&S
factors, we consider the following factors:
• The materiality of the E&S factors in the proposal to
the company’s business and sector (see “Our Approach to Assessing
Materiality and Relevance of E&S Factors” above)
• The content and intent of the proposal, including whether
the adoption of such a proposal would provide information to allow
investors to better understand risk and opportunities in the context of
the company’s disclosure and practices
• The strength of board oversight of the company’s relevant
sustainability practices, as well as responsiveness to
engagement
• Binding nature or prescriptiveness of proposal
For proposal topics for which we have developed guidance, we
leverage the specific guidance, found in the Appendix, as a benchmark to
analyze a company’s disclosures relative to our expectations for the
relevant E&S factor.
For proposal topics for which we have not published
guidance, we evaluate the company’s determination of materiality of the
proposal to the company’s business and operations and the company’s
related disclosures and oversight. |
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| Voting on E&S
Proposals |
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Below is the approach we follow when voting on E&S
proposals:
• FOR We will consider voting for proposals that we believe
will lead to increased alignment with our expectations, including those
set out in the attached Appendix;
• ABSTAIN We will consider voting abstain when we support
some elements of a proposal’s request, or recognize a company’s commitment
to implement related disclosure and/or oversight practices;
• AGAINST We will consider voting against proposals that we
believe are immaterial, overly prescriptive, or would not further our
disclosure and oversight expectations, including those set out in the
Appendix. |
Information Classification: Limited Access
C-15
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| Appendix |
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Guidance on Common Environmental and Social Proposal
Topics
The following provides an overview of State Street Global
Advisors’ public guidance related to common environmental and social
shareholder proposal topics. We leverage this to inform our analysis of
relevant shareholder proposals as it applies to companies in our
portfolios.
Climate Change
We expect all companies to provide public disclosures in
accordance with the following four pillars of the Taskforce for
Climate-related Financial Disclosures (TCFD) framework:
1. Governance;
2. Strategy;
3. Risk Management; and
4. Metrics and Targets. |
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Additionally, we expect companies in
carbon-intensive sectors to disclose: |
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Interim greenhouse gas emissions
reduction targets to accompany long-term climate ambitions |
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Discussion of impacts of
scenario-planning on strategy and financial planning Incorporation of
climate considerations in capital allocation decisions |
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Scope 1, 2, and material categories
of Scope 3 greenhouse gas emissions |
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For additional context on our
expectations for relevant disclosures, please review our related
guidance. |
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Diversity, Equity, and
Inclusion |
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We expect all companies to provide
public disclosure in the following key areas: |
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1. Board Oversight — Describe how the board executes its
oversight role in risks and opportunities related to diversity and
inclusion;
2. Strategy — Articulate the role diversity (of race,
ethnicity, and gender, at minimum) plays in the company’s broader human
capital management practices and long-term strategy;
3. Goals — Describe what diversity, equity, and
inclusion-related goals exist, how these goals contribute to the company’s
overall strategy, and how they are managed and
progressing; |
Information Classification: Limited Access
C-16
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4. Metrics — Provide measures of the diversity of the
company’s global employee base and board, including: |
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- Workforce — Employee diversity by race, ethnicity, and
gender (at minimum). We expect to see this information to be broken down
by industry-relevant employment categories or levels of seniority, for all
full-time employees. In the US, companies are expected to at least use the
disclosure framework set forth by the United States Equal Employment
Opportunity Commission’s EEO-1
Survey. Non-US companies are
encouraged to disclose this information in alignment with SASB guidance
and nationally appropriate frameworks; and, |
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- Board — Diversity characteristics, including racial,
ethnic, and gender makeup (at minimum) of the board of directors;
and |
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5. Board Diversity — Articulate goals and strategy related
to diverse representation at the board (including race, ethnicity, and
gender, at minimum), including how the board reflects the diversity of the
company’s workforce, community, customers, and other key
stakeholders. |
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For additional context on our expectations for relevant
disclosures, please review our related guidance. |
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Civil Rights
Risks |
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We expect all companies in the US to
provide public disclosure on: |
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1. Risks related to civil rights, including risks
associated with products, practices, and services ;
2. Plans to manage and mitigate these risks; and
3. Processes at the board for overseeing such risks (e.g.,
committee responsible, frequency of discussions, etc.). |
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For additional context on our
expectations for relevant disclosures, please review our related
guidance. |
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Pay Equity |
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We expect all companies in the US and the UK to provide
public disclosure on:
1. Adjusted pay gaps related to race and gender within the
company (Disclosure of the unadjusted pay gap is also encouraged, but not
expected outside of the UK market at this time);
2. Strategy to achieve and maintain pay equity;
and
3. Role of the board in overseeing pay strategies as well
as Diversity, Equity and Inclusion efforts. |
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For additional context on our
expectations for relevant disclosures, please review our related
guidance. |
Information Classification: Limited Access
C-17
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Human Rights |
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We expect companies to disclose whether they have
established processes for identifying risks related to human rights. If
any material human rights risks are identified, we expect further public
disclosure describing:
1. Human rights-related risks the company considers most
material;
2. Plans to manage and mitigate these risks;
3. Board oversight of these risks; and
4. Assessment of the effectiveness of the human rights risk
management program. |
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For additional context on our
expectations for relevant disclosures, please review our related
guidance. |
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Human Capital
Management |
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We expect all companies to provide
public disclosure on: |
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1. Board oversight — Methods outlining how the board
oversees human capital-related risks and opportunities;
2. Strategy — Approaches to human capital management and
how these advance the long-term business strategy;
3. Compensation — Strategies throughout the organization
that aim to attract and retain employees, and incentivize contribution to
an effective human capital strategy;
4. Voice — Channels to ensure the concerns and ideas from
workers are solicited and acted upon, and how the workforce is engaged and
empowered in the organization; and
5. Diversity, equity, and inclusion — Efforts to advance
diversity, equity, and inclusion (see our complementary Guidance on
Diversity Disclosures & Practices for additional
context). |
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For additional context on our
expectations for relevant disclosures, please review our related
guidance. |
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Environmental
Impacts |
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If material risks related to adverse environmental impacts
from company operations have been identified, we expect companies to
disclose information related to:
1. Adverse environmental impacts the company considers most
material, including relevant demographic data where applicable;
2. Management of material risks from company operations,
including the role of stakeholders; and
3. Board oversight of such
risks. |
Information Classification: Limited Access
C-18
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Deforestation-Intensive
Companies |
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We expect companies that have determined deforestation is a
material risk to their business and operations to disclose:
1. Strategy to assess and manage deforestation-related
risks and opportunities for high-risk commodities in the company’s
operations and/or business value chain (e.g., supply chain monitoring and
engagement, greenhouse gas emissions linked to deforestation, product
certifications, stakeholder engagement);
2. Quantitative and/or qualitative metrics and time-bound
targets used to assess and manage risks and opportunities related to high
deforestation-risk commodities in the company’s operations and/or business
value chain; and
3. Board oversight and accountability for deforestation
and/or land use-related
risks. |
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For
additional context on our expectations for relevant disclosures and
leading practices, please review our related insights gained from
engaging with our portfolio companies in deforestation-intensive
sectors. |
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| About
State Street Global Advisors |
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|
For
four decades, State Street Global Advisors has served the world’s
governments, institutions and financial advisors. With a rigorous,
risk-aware approach built on research, analysis and market-tested
experience, we build from a breadth of index and active strategies to
create cost-effective solutions. And, as pioneers in index, ETF, and ESG
investing, we are always inventing new ways to invest. As a result, we
have become the world’s fourth-largest asset manager* with US $3.62
trillion† under our
care. |
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* Pensions & Investments
Research Center, as of December 31, 2021. |
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† This figure is
presented as of March 31, 2023 and includes approximately
$65.03 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is unaudited. |
Information Classification: Limited Access
C-19
ssga.com
State Street Global Advisors
Marketing Communication
Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2 245
9000. Australia: State Street Global Advisors, Australia, Limited (ABN 42
003 914 225) is the holder of an Australian Financial Services License (AFSL
Number 238276). Registered office: Level 14, 420 George Street, Sydney, NSW
2000, Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium: State
Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels,
Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium is a branch
office of State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir
John Rogerson’s Quay, Dublin 2. Canada: State Street Global
Advisors, Ltd., 1981 McGill College Avenue, Suite 500, Montreal, Qc, H3A 3A8, T:
+514 282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6.
T: +647 775 5900. France: State Street Global Advisors Europe Limited,
France Branch (“State Street Global Advisors France”) is a branch of State
Street Global Advisors Europe Limited, registered in Ireland with company number
49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street
Global Advisors France is registered in France with company number RCS Nanterre
899 183 289, and its office is located at Coeur Défense — Tour A — La Défense 4,
33e étage, 100, Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex,
France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street
Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Hong Kong: State Street
Global Advisors Asia Limited, 68/F, Two International Finance
Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852
2103-0200. Ireland: State Street Global Advisors Europe Limited is
regulated by the Central Bank of Ireland. Registered office address 78 Sir John
Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353 (0)1 776 3000. F:
+353 (0)1 776 3300. Italy: State Street Global Advisors Europe Limited,
Italy Branch (“State Street Global Advisors Italy”) is a branch of State Street
Global Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
Italy is registered in Italy with company number 11871450968 — REA: 2628603 and
VAT number 11871450968, and its office is located at Via Ferrante Aporti, 10 -
20125 Milan, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan:
State Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F
1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors
Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101 CN
Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global Advisors
Netherlands is a branch office of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Singapore: State Street Global Advisors
Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. South Africa: State Street Global Advisors Limited
is regulated by the Financial Sector Conduct Authority in South Africa
under license number 42670. United Kingdom: State Street Global
Advisors Limited. Authorised and regulated by the Financial Conduct Authority.
Registered in England. Registered No. 2509928. VAT No. 5776591 81.
Registered office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020
3395 6000. F: 020 3395 6350. United States: State Street Global Advisors,
1 Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
Information Classification: Limited Access
C-20
Important Risk Information
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without State
Street Global Advisors’ express The views expressed in this material are the
views of SSGA Asset Stewardship Team through the period ended May 26, 2023
and are subject to change based on market and other conditions. This document
contains certain statements that may be deemed forward-looking statements.
Please note that any such statements are not guarantees of any future
performance and actual results or developments may differ materially from those
projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the current accuracy,
reliability or completeness of, nor liability for, decisions based on such
information and it should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing
in industry sectors or securities which underperform the market as
a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates are
only available to such persons and persons of any other description (including
retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind relating
to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not
represent investment performance. Results generated out of the
scoring model is based on sustainability and corporate governance dimensions of
a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence of investment
research (b) is not subject to any prohibition on dealing ahead of the
dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1533400-3479887.5.1.GBL.RTL 0423
Exp. Date: 06/30/2024
Information Classification: Limited Access
C-21
March 2023
Conflicts Mitigation Guidelines Managing Conflicts of Interest
Arising from State Street Global Advisors’ Proxy Voting and Engagement Activity
State Street Corporation has a comprehensive standalone Conflicts
of Interest Policy and other policies that address a range of identified
conflicts of interests. In addition, State Street Global Advisors, the asset
management business of State Street Corporation, maintains a conflicts register
that identifies key conflicts and describes systems in place to mitigate the
conflicts. This document* is designed to act in conjunction with related
policies and practices employed by other groups within the organization.
Further, it complements those policies and practices
C-22
by providing information about managing the conflicts of interests
that may arise through State Street Global Advisors’ proxy voting and engagement
activities.
| |
* |
These Managing Conflicts of Interest
Arising From State Street Global Advisors’ Proxy Voting and Engagement
Activity Guidelines are also applicable to SSGA Funds Management, Inc.
SSGA Funds Management, Inc. is an SEC-registered investment adviser. SSGA
Funds Management, Inc., State Street Global Advisors Trust Company, and
other advisory affiliates of State Street make up State Street Global
Advisors, the investment management arm of State Street Corporation.
|
C-23
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Managing Conflicts
of Interest Related to Proxy Voting and
Engagement |
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State Street Global Advisors has implemented processes
designed to prevent undue influence on State Street Global Advisors’
voting and engagement activities that may arise from relationships between
proxy issuers or companies and State Street Corporation, State Street
Global Advisors,
State Street Global Advisors affiliates, State Street Global
Advisors Funds, or State Street Global Advisors Fund affiliates. State
Street Global Advisors assigns sole responsibility for the implementation
of proxy voting guidelines to members of its Asset Stewardship Team, a
team that is independent from other functions within the organization,
such as sales and marketing, investment, or client facing teams. Proxy
voting is undertaken in accordance with the Global Proxy Voting and
Engagement Principles, Global Proxy Voting and Engagement Guidelines for
Environmental and Social Factors, regional proxy voting and engagement
guidelines and guidance published thereunder by State Street Global
Advisors from time to time (the “Voting Policy”), which are reviewed and
overseen by the State Street Global Advisors’ ESG Committee (the “ESG
Committee”). Any changes to the Voting Policy are communicated to Asset
Stewardship Team employees in a timely manner to ensure that they
understand the potential impact to their proxy voting activities. In rare
circumstances where nuances within specific proxy proposals fall outside
of the scope of the Voting Policy, requiring case-by-case analysis, such
proposals are escalated to the head of Asset Stewardship and reported to
the ESG Committee. Voting consistently with the Voting Policy helps
mitigate potential conflicts of interest, as the Voting Policy is
determined without reference to any specific entities or
relationship.
Members of the Asset Stewardship Team may from time to time
discuss views on proxy voting matters, company performance, strategy, etc.
with other State Street Corporation or State Street Global Advisors
employees, including portfolio managers, senior executives, and
relationship managers. However, final voting decisions are made solely by
the Asset Stewardship Team, in accordance with the Voting Policy and in a
manner consistent with the best interest of its clients, taking into
account various perspectives on risks and opportunities with the goal of
maximizing the value of client assets. Except in certain jurisdictions
where proxy voting decisions are regularly disclosed prior to voting
pursuant to local custom, Asset Stewardship Team employees are generally
prohibited from disclosing State Street Global Advisors’ voting decisions
prior to the meetings. In addition, State Street Global Advisors generally
exercises a single voting decision for each ballot item across the client
accounts for which it is responsible for proxy voting regardless of
investment strategy.1 In certain cases,
where a material conflict of interest is identified, the matter may be
referred to the ESG Committee for review.
Other protocols designed to help mitigate potential
conflicts of interest include: |
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1 Exceptions to this unified voting policy are where:
(1) State Street Global Advisors has made proxy voting choices (i.e.,
the State Street Global Advisors proxy voting program) available to
investors within a pooled investment vehicle, in which case a pro rata
portion of shares held by the fund attributable to investors who choose to
participate in the proxy voting program would be voted consistent with the
third-party proxy voting policies selected by the investors, and
(2) in limited circumstances, certain pooled investment vehicles for
which State Street Global Advisors acts as investment manager may,
pursuant to their governing documents, utilize proxy voting guidelines
developed by third-party advisors. |
C-24
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Types of Potential Conflict
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Stewardship Conflict of Interest
Description
|
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Typical Conflict Mitigation Protocols That
We
Employ
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| Business relationships |
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A conflict of interest may arise where, for example, we hold
investments in companies with which we, or our affiliates, have material
business relationships. |
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Assigning sole responsibility for the implementation of
proxy voting guidelines to members of Asset Stewardship Team and voting in
accordance with the Voting Policy are our primary conflict mitigation
protocols. Furthermore, the voting rationale is recorded to provide
transparency.
Additional mitigation steps may be implemented on a case-by-case basis. This may
include, for example, blackout periods for communications with
issuers/clients. |
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| Equity investments |
|
A conflict of interest may arise where
client accounts and/ or State Street Global Advisors pooled funds, where
State Street Global Advisors acts as trustee, may hold shares in State
Street Corporation or other State Street Global Advisors affiliated
entities, such as mutual funds affiliated with SSGA Funds Management,
Inc. |
|
Mitigants may include, for example,
outsourcing voting decisions relating to a shareholder meeting of State
Street Corporation or other State Street Global Advisors affiliated
entities to independent outside third parties. In such cases, delegated
third parties exercise voting decisions based upon State Street Global
Advisors’ Voting Policy. |
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| Outside business interest |
|
A conflict of interest may arise where an Asset Stewardship
Team employee or a key employee in the firm has an outside business
interest (such as a director role in a company we invest in, or in the
same industry as we invest). |
|
State Street Global Advisors maintains an Outside Activities
Policy and employees must submit a request requiring approval before
undertaking any outside activities that are captured by the Outside
Activities Policy. The request will be reviewed by the employee’s manager
and the Conduct Risk Management Office to ensure compliance with
applicable policies and procedures (such as the Global Anti-Corruption
Policy and the Standard of Conduct) and ensure potential conflicts are
mitigated.
Additional mitigation steps may be implemented on a case-by-case basis. This may
include, for example, retaining an independent fiduciary to make a voting
decision where State Street Global Advisors believes it may be conflicted
from voting due to an employee’s outside business
interest. |
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| Other personal conflicts |
|
A conflict of interest may arise where a
family member or other personal contact of an employee is employed by a
company in which we invest. |
|
Mitigation
steps may be implemented for personal conflicts on a case-by-case basis. This may
include, for example, filing a Personal Conflicts declaration with a
mitigation strategy to document how the conflict will be avoided. Such
strategies may include, for example, a member of the Asset Stewardship
Team with a conflict recusing him/herself from voting and participating in
engagement activities at the relevant company, and implementing blackout
periods for communications with issuers/clients. |
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| Securities lending |
|
We may lend securities that we hold in one
of our portfolios to another financial counterparty. This may create a
conflict of interest regarding whether to recall those securities to
enable us to vote on behalf of the portfolio in a shareholder resolution,
which may impact the intended securities lending income. |
|
Our approach to securities lending recall,
and any potential conflicts that may be created through our securities
lending recall activity, is governed by the Securities Lending Recall for
Proxy Voting Procedure, which is co-owned by the Asset Stewardship Team,
Securities Lending Team and Proxy Operations Group. The conflict
mitigation protocols include predefining criteria to systematically recall
shares, periodic review of the recall procedure by relevant stakeholders,
and periodic reporting of recall activities and associated forgone lending
income to the relevant internal governance
bodies. |
C-25
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| About State Street Global
Advisors |
|
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|
For four decades, State Street Global Advisors has served
the world’s governments, institutions and financial advisors. With a
rigorous, risk-aware approach built on research, analysis and
market-tested experience, we build from a breadth of index and active
strategies to create cost-effective solutions. And, as pioneers in index,
ETF, and ESG investing, we are always inventing new ways to invest. As a
result, we have become the world’s fourth-largest asset manager* with US
$3.48 trillion† under our care.
|
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* Pensions & Investments
Research Center, as of December 31, 2021. |
|
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† This figure is presented as of
December 31, 2022 and includes approximately $58.60 billion USD
of assets with respect to SPDR products for which State Street Global
Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing
agent. SSGA FD and State Street Global Advisors are affiliated. Please
note all AUM is unaudited. |
C-26
ssga.com
Marketing communication
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2 245
9000. Australia: State Street Global Advisors, Australia, Limited (ABN 42
003 914 225) is the holder of an Australian Financial Services License (AFSL
Number 238276). Registered office: Level 14, 420 George Street, Sydney, NSW
2000, Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium: State
Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels,
Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium is a branch
office of State Street Global Advisors Europe Limited, registered in Ireland
with company number
49934, authorised and regulated by the Central Bank of Ireland,
and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin 2.
Canada: State Street Global Advisors, Ltd., 1981 McGill College Avenue,
Suite 500, Montreal, Qc, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street
East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900. France: State
Street Global Advisors Europe Limited, France Branch (“State Street Global
Advisors France”) is a branch of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. State Street Global Advisors France is registered in
France with company number RCS Nanterre 899 183 289, and its office is located
at Coeur Défense — Tour A — La Défense 4, 33e étage, 100, Esplanade du Général
de Gaulle, 92 931 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1
44 45 41 92. Germany: State Street Global Advisors Europe Limited, Branch
in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch
of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two
International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852
2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors
Europe Limited is regulated by the Central Bank of Ireland. Registered office
address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353
(0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors
Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is a branch
of State Street Global Advisors Europe Limited, registered in Ireland with
company number 49934, authorised and regulated by the Central Bank of Ireland,
and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State
Street Global Advisors Italy is registered in Italy with company number
11871450968 — REA: 2628603 and VAT number 11871450968, and its office is located
at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F: +39 02
32066 155. Japan: State Street Global Advisors (Japan)
Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101 CN
Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global Advisors
Netherlands is a branch office of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Singapore: State Street Global Advisors
Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and
C-27
regulated by the Financial Conduct Authority. Registered in
England. Registered No. 2509928. VAT No. 5776591 81. Registered
office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F:
020 3395 6350. United States: State Street Global Advisors, 1 Iron
Street, Boston, MA 02210-1641. T: +1 617 786 3000.
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of
its contents disclosed to third parties without SSGA’s express
written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the current accuracy,
reliability or completeness of, nor liability for, decisions based on such
information and it should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies.
A portfolio’s ESG criteria may result in the portfolio investing
in industry sectors or securities which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates are
only available to such persons and persons of any other description (including
retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind relating
to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not
represent investment performance. Results generated out of the
scoring model is based on sustainability and corporate governance dimensions of
a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in
Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation.
This means that this marketing communication (a) has not been prepared in
accordance with legal requirements designed to promote the independence of
investment research (b) is not subject to any prohibition on dealing ahead
of the dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1482714-3479898.4.1.GBL.RTL 0323 Exp. Date: 03/31/2024
C-28
March 2023
State Street Global Advisors’ Global Issuer and Stakeholder
Engagement Guidelines
State Street Global Advisors has developed engagement guidelines
to increase transparency around our engagement philosophy, approach, and
processes. These guidelines are designed to communicate with our investee
companies regarding the objectives of our engagement activities and to
facilitate a better understanding of our preferred terms of engagement. The
guidelines also outline our approach to engaging with activist investors and
shareholder proposal proponents.
C-29
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State
Street Global Advisors’ engagement activities are driven exclusively by
our goal to maximize and protect the long-term value of our clients’
assets. |
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| State Street Global Advisors’
Methodology for Developing its Annual Engagement Strategy |
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While we would like to maintain a
dialogue with all of our portfolio companies, we recognize the need to
focus our engagement efforts where we believe we will have maximum impact.
Each year, as part of its strategic review process, the Asset Stewardship
Team develops an annual engagement strategy, and it accordingly identifies
a priority list of companies that we intend to engage with during the
year. We focus on priorities that we consider important to be considered
by the portfolio companies in which we invest our clients’
assets. |
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The intensity and type of engagement
with a company is determined by State Street Global Advisors’ relative and
absolute holdings in that company. In addition, we factor in geographic
diversity in our engagement efforts to reflect the level of economic
exposure to various markets. Finally, we also consider the engagement
culture in a market or geographic region when developing our engagement
priority list and approach. |
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State
Street Global Advisors meets with companies through in-person and virtual meetings. We
prefer virtual meetings as we believe this is cost effective for our
clients and investee companies. This also helps us minimize our global
carbon footprint. |
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| Helpful
Information to Include in Engagement Request Emails to State Street Global
Advisors |
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To help expedite the review of engagement requests, please
include the following information in engagement request emails to State
Street Global Advisors:
• Company name and identifier (i.e. ticker)
• Topics the issuer is interested in discussing
• Upcoming meeting date, if applicable
• Issuer attendees and their titles
All requests for engagement should be sent to the Asset
Stewardship Team at [email protected]. |
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| Guidelines for Engaging with Investee
Companies |
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• During the ‘proxy season’, we prioritize conversations
related to companies’ shareholder meetings. In the ‘off-season’, we discuss our focus
areas and stewardship priorities with companies for whom these topics are
most material. |
C-30
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• We believe that as a long-term shareholder with
substantial holdings, it is important to establish a relationship and have
a direct communication channel with independent directors in our investee
companies. Therefore, as part of our engagement process, we prefer to meet
with the non-executive
chairperson/lead independent director and/or representative of key board
committees. Such meetings help us assess the quality and effectiveness of
the board, the extent of the oversight of management, and the board’s
perspectives on key issues, such as strategy, risk, capital allocation,
and compensation. It also allows us to escalate matters to the board’s
attention if management has been unresponsive to suggestions discussed
during prior engagements. |
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• After our initial meeting with members of the board, the
frequency of desired follow-up
meetings is determined by the nature of the issues discussed. We will
outline expectations and timelines for subsequent meetings during the
discussion. We follow similar guidelines for meeting requests with C-suite management representatives at
companies. |
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• Typically, we allow additional capacity for reactive
engagement in Q2 for markets such as the US, UK, EU, and Japan (Q4 for
Australian companies) where the majority of the companies have general
meetings between the months of April and June. |
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• We reserve the Q1, Q3, and Q4 time periods to conduct the
majority of our active engagements with some room for reactive engagement
with companies that have experienced a significant event or are seeking
approval for a corporate transaction, board transition, or other material
concern. |
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• Instances in which we are likely to accept engagement
requests include instances when: |
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– We have concerns about a ballot item; and |
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– We believe that engagement will better inform our voting
decision; and/or |
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– We want to discuss material risks with a
company |
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• Instances in which we are likely to decline engagement
requests include instances when: |
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– We do not have any immediate concerns about a ballot
item |
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– We believe we have adequate information to make an
informed voting decision on a ballot item |
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– Our position on a ballot item is addressed in our public
policy statement |
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– We have actively engaged with the company on matters
pertaining to the ballot proposal outside the ‘proxy
season’ |
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– We believe that the matter is best discussed outside the
vote solicitation period |
C-31
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• If we have provided feedback during the vote solicitation
period, we believe that any follow-up discussion with the company
should focus on the board or company’s response to our
feedback |
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• We track all feedback provided to investee companies and
routinely conduct follow-up
engagements to assess the progress made by a company toward the
incorporation of our feedback |
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• We welcome written submission of changes made by the
board to the company’s governance or remuneration policies and
practices
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| Guidelines for Engaging with Other
Investors Soliciting State Street Global Advisors’ Votes in Connection
with Vote-No Campaigns or
Shareholder Proposals |
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We believe it is good practice for
us to speak to other investors that are running proxy contests, putting
forth vote-no campaigns, or
proposing shareholder proposals at investee companies. However, we
generally limit such discussions with investors to one engagement unless
we believe that it is necessary for us to have a follow-up call. We welcome the
opportunity to review materials sent in advance of the proposed
discussion. To the extent possible, we review all materials made publicly
available by the investor or the company on a contested ballot item before
making a voting decision. Our primary purpose of engaging with investors
is: |
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• To gain a better understanding of their position or
concerns at investee companies. |
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• In proxy contest situations: |
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– To assess possible director candidates where investors are
seeking board representation in proxy contest situations |
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– To understand the investor’s proposed strategy for the
company and investment time horizon to assess their alignment with State
Street Global Advisors’ views and interests as a long-term
shareholder |
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All requests for engagement should be sent to
[email protected].
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Investor Engagement Protocol |
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State Street Global Advisors encourages boards of directors
to develop an investor engagement protocol or plan that establishes
policies and mechanisms through which independent directors communicate
with and receive feedback from institutional investors. The protocol would
help foster strong relationships between a company’s directors and its
investors, while promoting transparency, responsibility, and
accountability of the board.
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C-32
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The protocol should identify key independent directors (such
as a non-executive chairman, lead
independent director, or a representative of a key board committee), who
would be mandated to engage with shareholders on a range of topics that
are of interest to State Street Global Advisors and/or other institutional
investors. A robust engagement protocol would also develop a crisis
communication plan for the board when institutional investors and the
market-at- large need to
communicate with independent directors, in a timely manner, about their
oversight and response to a developing concern facing the
company.
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| Requesting R-Factor™ Scores |
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Companies interested in receiving
their R-Factor™ scores should submit
an email request to [email protected] including the following
information: |
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• Company’s legal name |
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• Ticker |
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• ISIN |
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• Company’s headquarter location |
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• Contact name |
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• Contact’s Title at Company |
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• Contact email address (must be an official company email
address) |
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• Contact phone# |
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Please
note that R-Factor™ scores will be
provided only to employees affiliated with a company’s Investor Relations,
Chief Financial Officer, ESG/Sustainability Leadership or General
Secretary’s organizations. Please include attestation in your email
stating that you are affiliated with one of these functions. |
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| About
State Street Global Advisors |
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For
four decades, State Street Global Advisors has served the world’s
governments, institutions and financial advisors. With a rigorous,
risk-aware approach built on research, analysis and market-tested
experience, we build from a breadth of index and active strategies to
create cost-effective solutions. And, as pioneers in index, ETF, and ESG
investing, we are always inventing new ways to invest. As a result, we
have become the world’s fourth-largest asset manager* with US $3.48
trillion† under our care. |
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* Pensions & Investments Research Center, as of
December 31, 2021. |
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† This figure is
presented as of December 31, 2022 and includes approximately
$58.60 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is
unaudited. |
C-33
ssga.com
Marketing communication
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2 245
9000. Australia: State Street Global Advisors, Australia, Limited (ABN 42
003 914 225) is the holder of an Australian Financial Services License (AFSL
Number 238276). Registered office: Level 14, 420 George Street, Sydney, NSW
2000, Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium: State
Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels,
Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium is a branch
office of State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir
John Rogerson’s Quay, Dublin 2. Canada: State Street Global
Advisors, Ltd., 1981 McGill College Avenue, Suite 500, Montreal, Qc, H3A 3A8, T:
+514 282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6.
T: +647 775 5900. France: State Street Global Advisors Europe Limited,
France Branch (“State Street Global Advisors France”) is a branch of State
Street Global Advisors Europe Limited, registered in Ireland with company number
49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street
Global Advisors France is registered in France with company number RCS Nanterre
899 183 289, and its office is located at Coeur Défense — Tour A — La Défense 4,
33e étage, 100, Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex,
France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street
Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin
2. Hong Kong: State Street Global Advisors Asia Limited,
68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T:
+852 2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors
Europe Limited is regulated by the Central Bank of Ireland. Registered office
address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353
(0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors
Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is a branch
of State Street Global Advisors Europe Limited, registered in Ireland with
company number 49934, authorised and regulated by the Central Bank of Ireland,
and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State
Street Global Advisors Italy is registered in Italy with company number
11871450968 — REA: 2628603 and VAT number 11871450968, and its office is located
at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F: +39 02
32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd.,
Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan,
Japan Securities Dealers’ Association. Netherlands: State
Street Global Advisors Netherlands, Apollo Building 7th floor, Herikerbergweg
29, 1101 CN Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global
Advisors Netherlands is a branch office of State Street Global Advisors Europe
Limited, registered in Ireland with company number 49934, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78
Sir John Rogerson’s Quay, Dublin 2. Singapore: State Street Global
Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No. 5776591 81. Registered
office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F:
020 3395 6350. United States: State Street Global Advisors, 1 Iron
Street, Boston, MA 02210-1641. T: +1 617 786 3000.
C-34
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed.
There is no representation or warranty as to the current accuracy,
reliability or completeness of, nor liability for, decisions based on such
information and it should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates are
only available to such persons and persons of any other description (including
retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind relating
to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results generated out of the scoring model is based
on sustainability and corporate governance dimensions of a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence of investment
research (b) is not subject to any prohibition on dealing ahead of the
dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1482720-3479897.3.1.GBL.RTL 0323 Exp. Date: 03/31/2024
C-35
March 2023
Australia and New Zealand
Proxy Voting and Engagement Guidelines
State Street Global Advisors’ Proxy Voting and Engagement
Guidelinesi for Australia
and New Zealand outline our approach to voting and engaging with companies
listed on stock exchanges in Australia and New Zealand. These Guidelines
complement and should be read in conjunction with State Street Global Advisors’
Global Proxy Voting and Engagement Principles, which outline our overall
approach to voting and engaging with companies, and State Street Global
Advisors’ Conflicts Mitigation Guidelines, which provide information about
managing the conflicts of interests that may arise through State Street Global
Advisors’ proxy voting and engagement activities.
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These Proxy Voting and Engagement
Guidelines (the “Guidelines”) are also applicable to SSGA Funds
Management, Inc., State Street Global Advisors Trust Company, and other
advisory affiliates of State Street Corporation. Additionally, State
Street Global Advisors maintains Proxy Voting and Engagement Guidelines
for select markets, including: Australia, continental Europe, Japan, New
Zealand, North America (Canada and the US), the UK and Ireland, and
emerging markets. International markets not covered by our market-specific
guidelines are reviewed and voted in a manner that is consistent with the
Global Proxy Voting and Engagement Principles; however, State Street
Global Advisors also endeavors to show sensitivity to local market
practices when voting in these various markets.
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C-36
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State Street Global Advisors’ Proxy
Voting and Engagement Guidelines for Australia and New Zealand address our
market-specific approaches to topics including directors and boards,
accounting and audit-related issues, capital structure, reorganization and
mergers, remuneration, and other governance-related issues. |
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When voting and engaging with
companies in global markets, we consider market-specific nuances in the
manner that we believe will most likely protect and promote the long-term
economic value of client investments. We expect companies to observe the
relevant laws and regulations of their respective markets as well as
country-specific best practice guidelines and corporate governance codes.
We may hold companies in some markets to our global standards when we feel
that a country’s regulatory requirements do not address some of the key
philosophical principles that we believe are fundamental to our global
voting principles. |
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In our
analysis and research into corporate governance issues in Australia and
New Zealand, we expect all companies at a minimum to comply with the ASX
Corporate Governance Principles or the NZX Corporate Governance Code,
based on their locations. Consistent with the ‘comply or explain’
expectations established by the Principles and the Code, we encourage
companies to proactively disclose their level of compliance with the
Principles or the Code. In instances of non-compliance, and when companies
cannot explain the nuances of their governance structure effectively,
either publicly or through engagement, we may vote against the independent
board leader. |
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| State Street Global Advisors’ Proxy
Voting and Engagement Philosophy |
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In our view, corporate governance
and sustainability issues are an integral part of the investment process.
The Asset Stewardship Team consists of investment professionals with
expertise in corporate governance, remuneration, accounting, and
environmental and social issues. We have established robust corporate
governance principles and practices that are backed with extensive
analytical expertise in order to understand the complexities of the
corporate governance landscape. We engage with companies to provide
insight on the principles and practices that drive our voting decisions.
We also conduct proactive engagement to address significant shareholder
concerns and issues in a manner consistent with maximizing shareholder
value. |
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The
team works alongside members of State Street Global Advisors’ Active
Fundamental and Asia-Pacific (“APAC”) investment teams, collaborating on
issuer engagements and providing input on company-specific
fundamentals. |
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| Directors and Boards |
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Principally, a board acts on behalf
of shareholders by protecting their interests and preserving their rights.
In order to carry out their primary responsibilities, directors have to
undertake activities that range from setting strategy and providing
guidance on strategic matters, overseeing executive management, to
selecting the CEO and other senior executives, creating a succession plan
for the board and management, and providing effective risk oversight,
including of risks related to sustainability issues. Further, we believe
good corporate governance necessitates the existence of effective internal
controls and risk management systems, which should be governed by the
board. |
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State Street Global Advisors
believes that a well-constituted board of directors with a good balance of
skills, expertise, and independence provides the foundations for a
well-governed company. We view board quality as a measure of director
independence, director succession planning, board diversity, evaluations
and refreshment, and company governance practices. We vote for the (re-)election of directors on a case-by-case basis after
considering various factors including board quality, general market
practice, and availability of information on director skills and
expertise. |
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In our analysis of boards, we
consider whether board members have adequate skills to provide effective
oversight of corporate strategy, operations, and risks, including
environmental and social issues. Boards should also have a regular
evaluation process in place to assess the effectiveness of the board and
the skills of board members to address issues, such as emerging risks,
changes to corporate strategy, and diversification of operations and
geographic footprint. |
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We may
also consider board performance and directors who appear to be remiss in
the performance of their oversight responsibilities when analyzing their
suitability for reappointment (e.g. fraud, criminal wrongdoing and breach
of fiduciary responsibilities). |
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| Board Independence |
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In principle, we believe independent
directors are crucial to robust corporate governance and help management
establish sound corporate governance policies and practices. We believe a
sufficiently independent board will most effectively monitor management
and perform oversight functions necessary to protect shareholder
interests. |
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We expect boards of ASX 300 and New
Zealand listed companies to be comprised of at least a majority of
independent directors. At all other Australian listed companies, we expect
boards to be comprised of at least one-third independent
directors. |
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Our broad criteria for director
independence in Australia and New Zealand include factors such
as: |
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• Participation in related-party transactions and other
business relations with the company |
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• Employment history with
company |
C-38
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• Relations with controlling shareholders |
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• Family ties with any of the company’s advisers,
directors, or senior employees |
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| Separation
Chair/CEO |
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While
we are generally supportive of having the roles of chairman and CEO
separated in the Australian and New Zealand markets, we assess the
division of responsibilities between chairman and CEO on a case-by-case basis, giving
consideration to factors such as company-specific circumstances, overall
level of independence on the board and general corporate governance
standards in the company. Similarly, we will monitor for circumstances in
which a combined chairman/CEO is appointed or where a former CEO becomes
chairman. |
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| Director Time Commitments |
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When voting on the election or re-election of a director, we also
consider the number of outside board directorships that a non-executive and an executive may
undertake. Thus, State Street Global Advisors may take voting action
against a director who exceeds the number of board mandates listed
below: |
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• Named Executive Officers (NEOs) of a public company who
sit on more than two public company boards |
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• Non-executive
board chairs or lead independent directors who sit on more than three
public company boards |
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• Director nominees who sit on more than four public
company boards |
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For non-executive board chairs/lead
independent directors and director nominees who hold excessive
commitments, as defined above, we may consider waiving our policy and vote
in support of a director if a company discloses its director commitment
policy in a publicly available manner (e.g., corporate governance
guidelines, proxy statement, company website). This policy or associated
disclosure must include: |
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• A numerical limit on public company board seats a
director can serve on |
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— This limit cannot exceed our policy by more than one
seat |
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• Consideration of public company board leadership
positions (e.g., Committee Chair) |
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• Affirmation that all directors are currently compliant
with the company policy |
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• Description of an annual policy review process undertaken
by the Nominating Committee to evaluate outside director time
commitments |
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If a director is imminently leaving
a board and this departure is disclosed in a written, time-bound and
publicly-available manner, we may consider waiving our withhold vote when
evaluating the director for excessive time
commitments. |
C-39
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Service
on a mutual fund board, the board of a UK investment trust or a Special
Purpose Acquisition Company (SPAC) board is not considered when evaluating
directors for excessive commitments. However, we do expect these roles to
be considered by nominating committees when evaluating director time
commitments. |
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| Director
Attendance at Board Meetings |
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We also
consider attendance at board meetings and may withhold votes from
directors who attend less than 75 percent of board meetings without
appropriate explanation or providing reason for their failure to meet the
attendance threshold. In addition, we monitor other factors that may
influence the independence of a non-executive director, such as
performance-related pay, cross-directorships, significant shareholdings,
and tenure. We support the annual election of directors and encourage
Australian and New Zealand companies to adopt this practice. |
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| Board Committees |
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We believe companies should have
committees for audit, remuneration, and nomination oversight. The audit
committee is responsible for monitoring the integrity of the financial
statements of the company, appointing external auditors, monitoring their
qualifications and independence, and their effectiveness and resource
levels. ASX Corporate Governance Principles requires listed companies to
have an audit committee of at least three members all of whom are non-executive directors and a majority
of whom are independent directors. It also requires that the committee be
chaired by an independent director who is not the chair of the board. We
hold Australian and New Zealand companies to our global standards for
developed financial markets by requiring that all members of the audit
committee be independent directors. |
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The
nomination committee is responsible for evaluating and reviewing the
balance of skills, knowledge, and experience of the board. It also ensures
that adequate succession plans are in place for directors and the CEO. We
may vote against the re-election
of members of the nomination committee if the board has failed to address
concerns over board structure or succession. |
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| Board Gender Diversity |
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We expect boards of all listed
companies to have at least one female board member and the boards of ASX
300 companies to be composed of at least 30 percent women directors.
If a company does not meet the applicable expectation, State Street Global
Advisors may vote against the Chair of the board’s nominating committee or
the board leader in the absence of a nominating committee. Additionally,
if a company does not meet the applicable expectation for three
consecutive years, State Street Global Advisors may vote against all
incumbent members of the nominating committee or those persons deemed
responsible for the nomination process. |
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We may waive this voting guideline
if a company engages with State Street Global Advisors and provides a
specific, timebound plan for either reaching the 30-percent threshold (ASX 300) or for
adding a woman director (non-ASX
300). |
C-40
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| Board Responsiveness to High Dissent
Against Pay Proposals |
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Executive pay is another important
aspect of corporate governance. We believe that executive pay should be
determined by the board of directors. We expect companies to have in place
remuneration committees to provide independent oversight over executive
pay. ASX Corporate Governance Principles require listed companies to have
a remuneration committee of at least three members all of whom are non-executive directors and a majority
of whom are independent directors. Similarly, the NZX Corporate Governance
Code recommends that at least a majority of remuneration committee members
be independent. |
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Since Australia has a non-binding vote on pay with a two-strike rule requiring a board spill
vote in the event of a second strike, we believe that the vote provides
investors a mechanism to address concerns they may have on the quality of
oversight provided by the board on remuneration issues. Accordingly, our
voting guidelines accommodate local market practice. |
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We
believe poorly structured executive compensation plans pose increasing
reputational risk to companies. Ongoing high level of dissent against a
company’s compensation proposals may indicate that the company is not
receptive to investor concerns. If the level of dissent against a
company’s remuneration report and/or remuneration policy is consistently
high, and we have determined that a vote against a pay-related proposal is warranted in
the third consecutive year, we may vote against the Chair of the
remuneration committee. |
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| Climate-related Disclosure |
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State Street Global Advisors finds that the recommendations
of the Taskforce on Climate-related Financial Disclosures (TCFD) provide
the most effective framework for disclosure of climate-related risks and
opportunities.
As such, we may take voting action against companies in the
ASX 200 that fail to provide sufficient disclosure regarding
climate-related risks and opportunities related to that company, or board
oversight of climate related risks and opportunities, in accordance with
the TCFD framework. |
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| Indemnification and Limitations on Liability |
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Generally, State Street Global Advisors supports proposals
to limit directors’ liability and/or expand indemnification and liability
protection up to the limit provided by law, if he or she has not acted in
bad faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his or her office. |
C-41
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Shareholder Rights
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| Virtual/Hybrid Shareholder
Meetings |
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As a result of the COVID-19 pandemic, companies are
increasingly conducting their shareholder meetings in a virtual or hybrid
format. While we are encouraged by the success of virtual and hybrid
shareholder meetings, companies and shareholders must remain vigilant in
continuing to improve their virtual shareholder meeting
practices.
Recognizing the success of virtual and hybrid shareholder
meetings and a shifting regulatory environment, we will generally support
proposals that grant boards the right to hold shareholder meetings in a
virtual or hybrid format as long as companies uphold the following best
practices: |
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• Afford virtual attendee shareholders the same rights as
would normally be granted to in-person attendee
shareholders |
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• Commit to time-bound renewal (five years or less) of
meeting format authorization by shareholders |
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• Provide a written record of all questions posed during
the meeting, and |
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• Comply with local market laws and regulations relating to
virtual and hybrid shareholder meeting practices |
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If a
company breaches of any of the criteria above, we may vote against the
Chair of the nominating committee. |
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| Accounting and Audit- Related Issues |
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Companies should have robust internal audit and internal
control systems designed for effective management of any potential and
emerging risks to company operations and strategy. The responsibility of
setting out an internal audit function lies with the audit committee,
which should have independent non-executive directors designated as
members. |
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| Appointment of External Auditors |
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State
Street Global Advisors believes that a company’s auditor is an essential
feature of an effective and transparent system of external supervision.
Shareholders should be given the opportunity to vote on their appointment
or to re-appoint at the annual
meeting. When appointing external auditors and approving audit fees, we
will take into consideration the level of detail in company disclosures.
We will generally not support resolutions if adequate breakdown is not
provided and if non-audit fees
are more than 50 percent of audit fees. In addition, we may vote
against members of the audit committee if we have concerns with
audit-related issues or if the level of non-audit fees to audit fees is
significant. In certain circumstances, we may consider auditor tenure when
evaluating the audit process. |
C-42
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| Approval
of Financial Statements |
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We
believe the disclosure and availability of reliable financial statements
in a timely manner is imperative for the investment process. We expect
external auditors to provide assurance of a company’s financial condition.
Hence, we may vote against the approval of financial statements if i) they
have not been disclosed or audited; ii) the auditor opinion is
qualified/adverse, or the auditor has issued a disclaimer of opinion; or
iii) the auditor opinion is not disclosed. |
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Capital Structure, Reorganization, and
Mergers
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| Share Issuances |
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The ability to raise capital is
critical for companies to carry out strategy, to grow, and to achieve
returns above their cost of capital. The approval of capital raising
activities is fundamental to shareholders’ ability to monitor the returns
and to ensure capital is deployed efficiently. State Street Global
Advisors supports capital increases that have sound business reasons and
are not excessive relative to a company’s existing capital
base. |
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Pre-emption rights are a fundamental
right for shareholders to protect their investment in a company. Where
companies seek to issue new shares without pre-emption rights, we may vote against
if such authorities are greater than 20 percent of the issued share
capital. We may also vote against resolutions seeking authority to issue
capital with pre-emption rights
if the aggregate amount allowed seems excessive and is not justified by
the board. Generally, we are against capital issuance proposals greater
than 100 percent of the issued share capital when the proceeds are
not intended for specific purpose. |
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| Share
Repurchase Programs |
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We
generally support proposals to repurchase shares, unless the issuer does
not clearly state the business purpose for the program, a definitive
number of shares to be repurchased, and the timeframe for the repurchase.
We may vote against share repurchase requests that allow share repurchases
during a takeover period. |
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| Dividends |
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We
generally support dividend payouts that constitute 30 percent or more
of net income. We may vote against a dividend payout if the dividend
payout ratio has been consistently below 30 percent without adequate
explanation. We may also vote against if the payout is excessive given the
company’s financial position. Particular attention will be warranted when
the payment may damage the company’s long-term financial
health. |
C-43
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| Mergers and Acquisitions |
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Mergers or reorganization of the
company structure often involve proposals relating to reincorporation,
restructurings, liquidations, and other major changes to the corporation.
Proposals that are in the best interests of shareholders, demonstrated by
enhancing share value or improving the effectiveness of the company’s
operations, will be supported. In general, provisions that are not viewed
as financially sound or are thought to be destructive to shareholders’
rights are not supported. We will generally support transactions that
maximize shareholder value. Some of the considerations
include: |
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• Offer premium |
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• Strategic rationale |
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• Board oversight of the process for the recommended
transaction, including, director and/or management conflicts of
interest |
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• Offers made at a premium and where there are no other
higher bidders |
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• Offers in which the secondary market price is
substantially lower than the net asset value |
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We may vote against a transaction
considering the following: |
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• Offers with potentially damaging consequences for
minority shareholders because of illiquid stock |
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• Offers where we believe there is a reasonable prospect
for an enhanced bid or other bidders |
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• The current market price of the security exceeds the bid
price at the time of voting |
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| Anti-Takeover Measures |
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We
oppose anti-takeover defenses, such as authorities for the board to issue
warrants convertible into shares to existing shareholders during a hostile
takeover. |
C-44
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Remuneration
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| Executive
Pay |
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There
is a simple underlying philosophy that guides State Street Global
Advisors’ analysis of executive pay; there should be a direct relationship
between remuneration and company performance over the long term.
Shareholders should have the opportunity to assess whether pay structures
and levels are aligned with business performance. When assessing
remuneration reports, we consider various factors, such as adequate
disclosure of different remuneration elements, absolute and relative pay
levels, peer selection and benchmarking, the mix of long-term and
short-term incentives, alignment of pay structures with shareholder
interests as well as with corporate strategy and performance. We may
oppose remuneration reports in which there seems to be a misalignment
between pay and shareholders’ interests and where incentive policies and
schemes have a re-test option or
feature. We may also vote against the re-election of members of the
remuneration committee if we have serious concerns about remuneration
practices and if the company has not been responsive to shareholder
pressure to review its approach. |
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| Equity
Incentive Plans |
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We may
not support proposals on equity-based incentive plans where insufficient
information is provided on matters, such as grant limits, performance
metrics, performance, and vesting periods and overall dilution. Generally,
we do not support options under such plans being issued at a discount to
market price nor plans that allow for re-testing of performance
metrics. |
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| Non-Executive Director Pay |
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Authorities that seek shareholder approval for non-executive directors’ fees generally
are not controversial. We generally support resolutions regarding
directors’ fees unless disclosure is poor and we are unable to determine
whether the fees are excessive relative to fees paid by other comparable
companies. We will evaluate any non-cash or performance-related pay to
non-executive directors on a
company-by-company
basis. |
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| Risk
Management and Oversight |
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State
Street Global Advisors believes that risk management is a key function of
the board, which is responsible for setting the overall risk appetite of a
company and for providing oversight on the risk management process
established by senior executives at a company. We allow boards to have
discretion over the ways in which they provide oversight in this area.
However, we expect companies to disclose how the board provides oversight
on its risk management system and risk identification. Boards should also
review existing and emerging risks that evolve in tandem with the
political and economic landscape or as companies diversify or expand their
operations into new areas. |
C-45
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As responsible stewards, we believe
in the importance of effective risk management and oversight of issues
that are material to a company. To effectively assess the risk of our
clients’ portfolios and the broader market, we expect our portfolio
companies to manage risks and opportunities that are material and
industry-specific and that have a demonstrated link to long-term value
creation, and to provide high-quality disclosure of this process to
shareholders. |
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Consistent with this perspective, we may seek to engage with
our portfolio companies to better understand how their boards are
overseeing risks and opportunities the company has deemed to be material
to its business or operations. If we believe a company has failed to
implement and communicate effective oversight of these risks, we may
consider voting against the directors responsible. |
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| Environmental and Social
Issues |
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As a fiduciary, State Street Global
Advisors takes a comprehensive approach to engaging with our portfolio
companies about material environmental and social factors. Our Asset
Stewardship program prioritization process allows us to proactively
identify companies for engagement and voting in order to mitigate
sustainability risks in our portfolio. Through engagement, we aim to build
long-term relationships with the issuers in which we invest on behalf of
our clients and to address a broad range of topics relating to the
promotion of long-term shareholder value creation. When voting, we
fundamentally consider whether the adoption of a shareholder proposal
addressing an environmental or social topic material to the company would
promote long-term shareholder value in the context of the company’s
existing practices and disclosures as well as existing market
practice. |
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For
more information on our approach to environmental and social issues,
please see our Global Proxy Voting and Engagement Guidelines for
Environmental and Social Factors, available at ssga.com/about-us/asset-stewardship.html. |
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| About
State Street Global Advisors |
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For
four decades, State Street Global Advisors has served the world’s
governments, institutions and financial advisors. With a rigorous,
risk-aware approach built on research, analysis and market-tested
experience, we build from a breadth of index and active strategies to
create cost-effective solutions. And, as pioneers in index, ETF, and ESG
investing, we are always inventing new ways to invest. As a result, we
have become the world’s fourth-largest asset manager* with US $3.48
trillion† under our care.
. |
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* Pensions & Investments Research Center, as of
December 31, 2021. |
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† This figure is presented as of December 31, 2022 and
includes approximately $58.60 billion USD of assets with respect to
SPDR products for which State Street Global Advisors Funds Distributors,
LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street
Global Advisors are affiliated. Please note all AUM is
unaudited. |
C-46
ssga.com
Marketing communication
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2 245
9000. Australia: State Street Global Advisors, Australia, Limited (ABN 42
003 914 225) is the holder of an Australian Financial Services License (AFSL
Number 238276). Registered office: Level 14, 420 George Street, Sydney, NSW
2000, Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium: State
Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels,
Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium is a branch
office of State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and
regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Canada: State Street
Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500, Montreal, Qc, H3A
3A8, T: +514 282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario
M5C 3G6. T: +647 775 5900. France: State Street Global Advisors Europe
Limited, France Branch (“State Street Global Advisors France”) is a branch of
State Street Global Advisors Europe Limited, registered in Ireland with company
number 49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street
Global Advisors France is registered in France with company number RCS Nanterre
899 183 289, and its office is located at Coeur Défense —Tour A —La Défense 4,
33e étage, 100, Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex,
France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street
Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Hong Kong: State Street Global Advisors Asia
Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong
Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global
Advisors Europe Limited is regulated by the Central Bank of Ireland. Registered
office address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934.
T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global
Advisors Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is
a branch of State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin
2. State Street Global Advisors Italy is registered in Italy with company number
11871450968 —REA: 2628603 and VAT number 11871450968, and its office is located
at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F: +39 02
32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd.,
Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325
Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101 CN
Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global Advisors
Netherlands is a branch office of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Singapore: State Street Global Advisors
Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No.
C-47
2509928. VAT No. 5776591 81. Registered office: 20 Churchill
Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350.
United States: State Street Global Advisors, 1 Iron Street, Boston, MA
02210-1641. T: +1 617 786 3000.
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA
unless otherwise noted and has been obtained from sources believed
to be reliable, but its accuracy is not guaranteed. There is no representation
or warranty as to the current accuracy, reliability or completeness of, nor
liability for, decisions based on such information and it should not be relied
on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates are
only available to such persons and persons of any other description (including
retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind relating
to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not
represent investment performance. Results generated out of the
scoring model is based on sustainability and corporate governance dimensions of
a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance with
legal requirements designed to promote the independence of investment research
(b) is not subject to any prohibition on dealing ahead of the dissemination of
investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1482395-3479907.3.1.GBL.RTL 0323
Exp. Date: 03/31/2024
C-48
March 2023
Continental Europe
Proxy Voting and Engagement Guidelines
State Street Global Advisors’ Proxy Voting and Engagement
Guidelinesi for
Continental Europe outline our approach to voting and engaging with companies
listed on stock exchanges in European markets, excluding the United Kingdom and
Ireland. These Guidelines complement and should be read in conjunction with
State Street Global Advisors’ Global Proxy Voting and Engagement Principles,
which outline our overall approach to voting and engaging with companies, and
State Street Global Advisors’ Conflicts Mitigation Guidelines, which provide
information about managing the conflicts of interests that may arise through
State Street Global Advisors’ proxy voting and engagement activities.
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These Proxy Voting and Engagement
Guidelines (the “Guidelines”) are also applicable to SSGA Funds
Management, Inc., State Street Global Advisors Trust Company, and other
advisory affiliates of State Street Corporation. Additionally, State
Street Global Advisors maintains Proxy Voting and Engagement Guidelines
for select markets, including: Australia, continental Europe, Japan, New
Zealand, North America (Canada and the US), the UK and Ireland, and
emerging markets. International markets not covered by our market-specific
guidelines are reviewed and voted in a manner that is consistent with the
Global Proxy Voting and Engagement Principles; however, State Street
Global Advisors also endeavors to show sensitivity to local market
practices when voting in these various markets.
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C-49
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State Street Global Advisors’ Proxy
Voting and Engagement Guidelines for Continental Europe address our
market-specific approaches to topics including directors and boards,
accounting and audit-related issues, capital structure, reorganization and
mergers, remuneration, and other governance-related issues. |
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When voting and engaging with
companies in European markets, we consider market-specific nuances in the
manner that we believe will most likely protect and promote the long-term
economic value of client investments. We expect companies to observe the
relevant laws and regulations of their respective markets, as well as
country-specific best practice guidelines and corporate governance codes.
We may hold companies in some markets to our global standards when we feel
that a country’s regulatory requirements do not address some of the key
philosophical principles that we believe are fundamental to our global
voting principles. |
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In our analysis and research into corporate governance
issues at European companies, we expect all companies at a minimum to
comply with guidance issued by the European Commission and
country-specific governance codes. Consistent with the “comply-or-explain” expectations
commonly established by guidance and codes, we encourage companies to
proactively disclose their level of compliance with applicable provisions
and requirements. In cases of non-compliance, and when companies
cannot explain the nuances of their governance structures effectively,
either publicly or through engagement, we may vote against the independent
board leader.
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| State Street Global Advisors’ Proxy
Voting and Engagement Philosophy |
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In our view, corporate governance and sustainability issues
are an integral part of the investment process. The Asset Stewardship Team
consists of investment professionals with expertise in corporate
governance, remuneration, accounting, and environmental and social issues.
We have established robust corporate governance principles and practices
that are backed with extensive analytical expertise in order to understand
the complexities of the corporate governance landscape. We engage with
companies to provide insight on the principles and practices that drive
our voting decisions. We also conduct proactive engagements to address
significant shareholder concerns and issues in a manner consistent with
maximizing shareholder value.
The team works alongside members of State Street Global
Advisors’ Active Fundamental and Europe, Middle East and Africa (“EMEA”)
investment teams, collaborating on issuer engagements and providing input
on company-specific fundamentals.
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| Directors and Boards |
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Principally, a board acts on behalf
of shareholders by protecting their interests and preserving their rights.
In order to carry out their primary responsibilities, directors have to
undertake activities that range from setting strategy and providing
guidance on strategic matters, overseeing executive management, to
selecting the CEO and other senior executives, creating a succession plan
for the board and management, and providing effective risk oversight,
including of risks related to sustainability issues. Further, we believe
good corporate governance necessitates the existence of effective internal
controls and risk management systems, which should be governed by the
board. |
C-50
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We believe that a well-constituted board of directors with a
balance of skills, expertise and independence, provides the foundations
for a well-governed company. We view board quality as a measure of
director independence, director succession planning, board diversity,
evaluations and refreshment, and company governance practices. We vote for
the (re-)election of directors on
a case-by-case basis after
considering various factors, including board quality, general market
practice, and availability of information on director skills and
expertise.
In our analysis of boards, we consider whether board members
have adequate skills to provide effective oversight of corporate strategy,
operations, and risks, including environmental and social issues. Boards
should also have a regular evaluation process in place to assess the
effectiveness of the board and the skills of board members to address
issues such as emerging risks, changes to corporate strategy, and
diversification of operations and geographic footprint.
We may also consider factors such as board performance and
directors who appear to be remiss in the performance of their oversight
responsibilities (e.g. fraud, criminal wrongdoing and/or breach of
fiduciary responsibilities). |
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| Board Independence |
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In principle, we believe independent directors are crucial
to robust corporate governance and help management establish sound
corporate governance policies and practices. We believe a sufficiently
independent board will most effectively monitor management and perform
oversight functions necessary to protect shareholder interests.
Our broad criteria for director independence in European
companies include factors such as: |
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• Participation in related-party transactions and other
business relations with the company |
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• Employment history with the company |
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• Relations with controlling shareholders |
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• Family ties with any of the company’s advisers, directors
or senior employees |
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• Serving as an employee or government
representative |
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• Overall average board tenure and individual director
tenure at issuers with classified and de-classified boards, respectively,
and |
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• Company classification of a director as non-independent |
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While overall board independence
requirements and board structures differ from market to market, we
consider voting against directors we deem non-independent if overall board
independence is below 33 percent or if overall independence level is
below 50 percent after excluding employee representatives and/or
directors elected in accordance with local laws who are not elected by
shareholders. We may withhold support for a proposal to discharge the
board if a company does not meet adequate governance standards or board
level independence. |
C-51
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| Separation
Chair/CEO |
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We also
assess the division of responsibilities between chair and CEO on a case-by-case basis, giving
consideration to factors such as overall level of independence on the
board and general corporate governance standards in the company. However,
we may take voting action against the chair or members of the nominating
committee at the STOXX Europe 600 companies that have combined the roles
of chair and CEO and have not appointed an independent deputy chair or a
lead independent director. |
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| Director Time Commitments |
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When voting on the election or re-election of a director, we also
consider the number of outside board directorships a non-executive and an executive may
undertake. Thus, State Street Global Advisors may take voting action
against a director who exceeds the number of board mandates listed
below: |
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• Named Executive Officers (NEOs) of a public company who
sit on more than two public company boards |
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• Non-executive
board chairs or lead independent directors who sit on more than three
public company boards |
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• Director nominees who sit on more than four public
company boards |
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For non-executive board chairs/lead
independent directors and director nominees who hold excessive
commitments, as defined above, we may consider waiving our policy and vote
in support of a director if a company discloses its director commitment
policy in a publicly available manner (e.g., corporate governance
guidelines, proxy statement, company website). This policy or associated
disclosure must include: |
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• A numerical limit on public company board seats a
director can serve on |
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– This limit cannot exceed our policy by more than one
seat |
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• Consideration of public company board leadership
positions (e.g., Committee Chair) |
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• Affirmation that all directors are currently compliant
with the company policy |
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• Description of an annual policy review process undertaken
by the Nominating Committee to evaluate outside director time
commitments |
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If a director is imminently leaving
a board and this departure is disclosed in a written, time-bound and
publicly-available manner, we may consider waiving our withhold vote when
evaluating the director for excessive time commitments. |
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Service on a mutual fund board, the
board of a UK investment trust or a Special Purpose Acquisition Company
(SPAC) board is not considered when evaluating directors for excessive
commitments. However, we do expect these roles to be considered by
nominating committees when evaluating director time
commitments. |
C-52
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| Director Attendance at Board
Meetings |
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We also consider attendance at board meetings and may
withhold votes from directors who attend less than 75 percent of
board meetings without appropriate explanation or providing reason for
their failure to meet the attendance threshold. In addition, we monitor
other factors that may influence the independence of a non-executive director, such as
performance-related pay, cross-directorships and significant
shareholdings. Moreover, we may vote against the election of a director
whose biographical disclosures are insufficient to assess his or her role
on the board and/or independence.
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| Board Gender Diversity |
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We expect boards of all listed companies to have at least
one female board member and the boards of STOXX 600 companies to be
composed of at least 30 percent women directors. If a company does
not meet the applicable expectation, State Street Global Advisors may vote
against the Chair of the board’s nominating committee or the board leader
in the absence of a nominating committee. Additionally, if a company does
not meet the applicable expectation for three consecutive years, State
Street Global Advisors may vote against all incumbent members of the
nominating committee or those persons deemed responsible for the
nomination process.
We may waive this voting guideline if a company engages with
State Street Global Advisors and provides a specific, timebound plan for
either reaching the 30-percent
threshold (STOXX 600) or for adding a woman director (non-STOXX 600).
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| Length of Board Terms |
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Although we generally are in favour of the annual election
of directors, we recognise that director terms vary considerably in
different European markets. We may vote against article/bylaw changes that
seek to extend director terms. In addition, we may vote against directors
in certain markets if their terms extend beyond four years.
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| Board Committees |
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We believe companies should have relevant board level
committees for audit, remuneration and nomination oversight. The audit
committee is responsible for monitoring the integrity of the financial
statements of the company, appointing external auditors, monitoring their
qualifications and independence, and assessing effectiveness and resource
levels. Similarly, executive pay is an important aspect of corporate
governance, and it should be determined by the board of directors. We
expect companies to have remuneration committees to provide independent
oversight of executive pay. We may vote against nominees who are executive
members of audit or remuneration committees.
In certain European markets, it is not uncommon for the
election of directors to be presented in a single slate. In these cases,
where executives serve on the audit or the remuneration committees, we may
vote against the entire slate.
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| Board Responsiveness to High Dissent
Against Pay Proposals |
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Poorly-structured executive
remuneration plans pose increasing reputational risk to companies. Ongoing
high levels of dissent against a company’s remuneration proposals may
indicate that the company is not receptive to investor concerns. If the
level of dissent against a company’s remuneration report and/or
remuneration policy is consistently high, and we have determined that a
vote against a remuneration-related proposal is warranted in the third
consecutive year, we may vote against the Chair of the remuneration
committee. |
C-53
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| Climate-related Disclosure |
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State Street Global Advisors finds that the recommendations
of the Task Force on Climate-related Financial Disclosures (TCFD) provide
the most effective framework for disclosure of climate-related risks and
opportunities.
As such, we may take voting action against companies in the
STOXX 600 that fail to provide sufficient disclosure regarding
climate-related risks and opportunities related to that company, or board
oversight of climate-related risks and opportunities, in accordance with
the TCFD framework. |
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| Indemnification and Limitations on
Liability |
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Generally, we support proposals to limit directors’
liability and/or expand indemnification and liability protection up to the
limit provided by law if a director has not acted in bad faith, with gross
negligence, or with reckless disregard of the duties involved in the
conduct of his or her office.
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| Shareholder Rights |
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| Virtual/Hybrid Shareholder
Meetings |
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As a result of the COVID-19 pandemic, companies are
increasingly conducting their shareholder meetings in a virtual or hybrid
format. While we are encouraged by the success of virtual and hybrid
shareholder meetings, companies and shareholders must remain vigilant in
continuing to improve their virtual shareholder meeting
practices.
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Recognizing the success of virtual
and hybrid shareholder meetings and a shifting regulatory environment, we
will generally support proposals that grant boards the right to hold
shareholder meetings in a virtual or hybrid format as long as companies
uphold the following best practices: |
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• Afford virtual attendee shareholders the same rights as
would normally be granted to in-person attendee
shareholders |
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• Commit to time-bound renewal (five years or less) of
meeting format authorization by shareholders |
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• Provide a written record of all questions posed during
the meeting, and |
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• Comply with local market laws and regulations relating to
virtual and hybrid shareholder meeting practices |
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If a company breaches of any of the
criteria above, we may vote against the Chair of the nominating
committee. |
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| Accounting and Audit-Related Issues |
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Companies should have robust
internal audit and internal control systems designed for effective
management of any potential and emerging risks to company operations and
strategy. The responsibility of setting up an internal audit function lies
with the audit committee, which should have as members independent non-executive
directors. |
C-54
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| Appointment of External
Auditors |
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We believe that a company’s auditor is an essential feature
of an effective and transparent system of external supervision.
Shareholders should be given the opportunity to vote on their appointment
or re-appoint them at the annual
meeting. When appointing external auditors and approving audit fees, we
consider the level of detail in company disclosures; we will generally not
support such resolutions if adequate breakdown is not provided and if
non-audit fees are more than
50 percent of audit fees. In addition, we may vote against members of
the audit committee if we have concerns with audit-related issues or if
the level of non-audit fees to
audit fees is significant. We may consider auditor tenure when evaluating
the audit process in certain circumstances.
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| Limit Legal Liability of External
Auditors |
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We generally oppose limiting the legal liability of audit
firms as we believe this could create a negative impact on the quality of
the audit function.
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| Approval
of Financial Statements |
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We believe the disclosure and availability of reliable
financial statements in a timely manner is imperative for the investment
process. We expect external auditors to provide assurance of a company’s
financial condition. Hence, we may vote against the approval of financial
statements if i) they have not been disclosed or audited; ii) the auditor
opinion is qualified/adverse, or the auditor has issued a disclaimer of
opinion; or iii) the auditor opinion is not disclosed.
Capital Structure, Reorganization, and Mergers In some
European markets, differential voting rights continue to exist. State
Street Global Advisors supports the one-share, one-vote policy and favors a share
structure where all shares have equal voting rights. We believe pre-emption rights should be introduced
for shareholders in order to provide adequate protection from excessive
dilution from the issuance of new shares or convertible securities to
third parties or a small number of select shareholders. |
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| Unequal
Voting Rights |
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We
generally oppose proposals authorizing the creation of new classes of
common stock with superior voting rights. We will generally oppose the
creation of new classes of preferred stock with unspecified voting,
conversion, dividend distribution and other rights. In addition, we will
not support capitalization changes that add classes of stock with
undefined voting rights or classes that may dilute the voting interests of
existing shareholders. We support proposals to abolish voting caps and
capitalization changes that eliminate other classes of stock and/or
unequal voting rights. |
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| Increase
in Authorized Capital |
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The
ability to raise capital is critical for companies to carry out strategy,
to grow, and to achieve returns above their cost of capital. The approval
of capital raising activities is fundamental to shareholders’ ability to
monitor returns and to ensure capital is deployed efficiently. We support
capital increases that have sound business reasons and are not excessive
relative to a company’s existing capital base. |
C-55
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Pre-emption rights are a fundamental
right for shareholders to protect their investment in a company. Where
companies seek to issue new shares whilst disapplying pre-emption rights, we may vote against
if such authorities are greater than 20 percent of the issued share
capital. We may also vote against resolutions that seek authority to issue
capital with pre-emption rights
if the aggregate amount allowed seems excessive and is not justified by
the board. Generally, we oppose capital issuance proposals greater than
100 percent of the issued share capital when the proceeds are not
intended for a specific purpose. |
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| Share
Repurchase Programs |
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We
typically support proposals to repurchase shares; however, there are
exceptions in some cases. We do not support repurchases if the issuer does
not clearly state the business purpose for the program, a definitive
number of shares to be repurchased, the range of premium/discount to
market price at which the company can repurchase shares, and the timeframe
for the repurchase. We may vote against share repurchase requests that
allow share repurchases during a takeover period. |
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| Dividends |
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We
generally support dividend payouts that constitute 30 percent or more
of net income. We may vote against the dividend payouts if the dividend
payout ratio has been consistently below 30 percent without adequate
explanation or the payout is excessive given the company’s financial
position. Particular attention will be paid to cases in which the payment
may damage the company’s long-term financial health. |
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| Related-Party Transactions |
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Some
companies in European markets have a controlled ownership structure and
complex cross-shareholdings between subsidiaries and parent companies
(“related companies”). Such structures may result in the prevalence of
related-party transactions between the company and its various
stakeholders, such as directors and management, subsidiaries and
shareholders. In markets where shareholders are required to approve such
transactions, we expect companies to provide details of the transaction,
such as the nature, the value and the purpose of such a transaction. We
also encourage independent directors to ratify such transactions. Further,
we encourage companies to describe the level of independent board
oversight and the approval process, including details of any independent
valuations provided by financial advisors on related-party
transactions. |
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| Mergers
and Acquisitions |
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Mergers
or restructurings often involve proposals relating to reincorporation,
restructurings, mergers, liquidation and other major changes to the
corporation. Proposals will be supported if they are in the best interest
of the shareholders, which is demonstrated by enhancing share value or
improving the effectiveness of the company’s operations. In general,
provisions that are not viewed as financially sound or are thought to be
destructive to shareholders’ rights are not
supported. |
C-56
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We will generally support
transactions that maximize shareholder value. Some of the considerations
include: |
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• Offer premium |
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• Strategic rationale |
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• Board oversight of the process for the recommended
transaction, including director and/or management conflicts of
interest |
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• Offers made at a premium and where there are no other
higher bidders |
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• Offers in which the secondary market price is
substantially lower than the net asset value |
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We may vote against a transaction
considering the following: |
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• Offers with potentially damaging consequences for
minority shareholders because of illiquid stock |
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• Offers where we believe there is a reasonable prospect
for an enhanced bid or other bidders |
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• The current market price of the security exceeds the bid
price at the time of voting. |
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| Anti-Takeover Measures |
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European markets have diverse regulations concerning the use
of share issuances as takeover defenses, with legal restrictions lacking
in some markets. We support the one-share, one-vote policy. For example,
dual-class capital structures entrench certain shareholders and
management, insulating them from possible takeovers. We oppose unlimited
share issuance authorizations because they can be used as anti-takeover
devices. They have the potential for substantial voting and earnings
dilution. We also monitor the duration of time for authorities to issue
shares, as well as whether there are restrictions and caps on multiple
issuance authorities during the specified time periods. We oppose
antitakeover defenses, such as authorities for the board when subject to a
hostile takeover to issue warrants convertible into shares to existing
shareholders. |
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Remuneration
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| Executive Pay |
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Despite the differences among the
various types of plans and awards, there is a simple underlying philosophy
that guides our analysis of executive pay: there should be a direct
relationship between remuneration and company performance over the long
term. |
C-57
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Shareholders should have the opportunity to assess whether
pay structures and levels are aligned with business performance. When
assessing remuneration reports, we consider factors such as adequate
disclosure of remuneration elements, absolute and relative pay levels,
peer selection and benchmarking, the mix of long-term and short-term
incentives, alignment of pay structures with shareholder interests,
corporate strategy and performance. We may oppose remuneration reports
where pay seems misaligned with shareholders’ interests. We may also vote
against the re-election of
members of the remuneration committee if we have serious concerns about
remuneration practices and if the company has not been responsive to
shareholder pressure to review its approach. |
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| Equity
Incentives Plans |
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We may
not support proposals regarding equity-based incentive plans where
insufficient information is provided on matters, including grant limits,
performance metrics, performance and vesting periods, and overall
dilution. Generally, we do not support options under such plans being
issued at a discount to market price or plans that allow for retesting of
performance metrics. |
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| Non-Executive Director Pay |
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In
European markets, proposals seeking shareholder approval for non-executive directors’ fees are
generally not controversial. We typically support resolutions regarding
directors’ fees unless disclosure is poor and we are unable to determine
whether the fees are excessive relative to fees paid by comparable
companies. We will evaluate any non-cash or performance-related pay to
non-executive directors on a
company-by-company
basis. |
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| Risk Management |
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We believe that risk management is a key function of the
board, which is responsible for setting the overall risk appetite of a
company and for providing oversight on the risk management process
established by senior executives at a company. We allow boards to have
discretion regarding the ways in which they provide oversight in this
area. However, we expect companies to disclose how the board provides
oversight on its risk management system and risk identification. Boards
should also review existing and emerging risks that evolve in tandem with
the political and economic landscape or as companies diversify or expand
their operations into new areas.
As responsible stewards, we believe in the importance of
effective risk management and oversight of issues that are material to a
company. To effectively assess the risk of our clients’ portfolios and the
broader market, we expect our portfolio companies to manage risks and
opportunities that are material and industry-specific and that have a
demonstrated link to long-term value creation, and to provide high-quality disclosure of this process
to shareholders.
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C-58
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Consistent with this perspective, we may seek to engage
with our portfolio companies to better understand how their boards are
overseeing risks and opportunities the company has deemed to be material
to its business or operations. If we believe a company has failed to
implement and communicate effective oversight of these risks, we may
consider voting against the directors responsible. |
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| Environmental and Social Issues |
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As a fiduciary, State Street Global Advisors takes a
comprehensive approach to engaging with our portfolio companies about
material environmental and social factors. Our Asset Stewardship program
prioritization process allows us to proactively identify companies for
engagement and voting in order to mitigate sustainability risks in our
portfolio. Through engagement, we aim to build long-term relationships
with the issuers in which we invest on behalf of our clients and to
address a broad range of topics relating to the promotion of long-term
shareholder value creation. When voting, we fundamentally consider whether
the adoption of a shareholder proposal addressing an environmental or
social topic material to the company would promote long-term shareholder
value in the context of the company’s existing practices and disclosures
as well as existing market practice.
For more information on our approach to environmental and
social issues, please see our Global Proxy Voting and Engagement
Guidelines for Environmental and Social Factors, available at ssga.com/about-us/asset-stewardship.html. |
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| About
State Street Global Advisors |
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For
four decades, State Street Global Advisors has served the world’s
governments, institutions and financial advisors. With a rigorous,
risk-aware approach built on research, analysis and market-tested
experience, we build from a breadth of index and active strategies to
create cost-effective solutions. And, as pioneers in index, ETF, and ESG
investing, we are always inventing new ways to invest. As a result, we
have become the world’s fourth-largest asset manager* with US $3.48
trillion† under our care. |
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* Pensions & Investments Research Center, as of
December 31, 2021. |
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† This figure is
presented as of December 31, 2022 and includes approximately $58.60
billion USD of assets with respect to SPDR products for which State Street
Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the
marketing agent. SSGA FD and State Street Global Advisors are affiliated.
Please note all AUM is unaudited. |
C-59
ssga.com
Marketing communication
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2 245
9000. Australia: State Street Global Advisors, Australia, Limited (ABN 42
003 914 225) is the holder of an Australian Financial Services License (AFSL
Number 238276). Registered office: Level 14, 420 George Street, Sydney, NSW
2000, Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium: State
Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels,
Belgium. T: +32 2 663 2036. State Street Global
Advisors Belgium is a branch office of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s
Quay, Dublin 2. Canada: State Street Global Advisors, Ltd.,
1981 McGill College Avenue, Suite 500, Montreal, Qc, H3A 3A8, T: +514 282 2400
and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775
5900. France: State Street Global Advisors Europe Limited, France Branch
(“State Street Global Advisors France”) is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogerson’s
Quay, Dublin 2.
State Street Global Advisors France is registered in France with
company number RCS Nanterre 899 183 289, and its office is located at Coeur
Défense — Tour A — La Défense 4, 33e étage,100,
Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex, France. T: +33 1
44 45 40 00. F: +33 1 44 45 41 92.
Germany: State Street Global Advisors Europe Limited,
Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of
Ireland, and whose registered office is at 78 Sir John Rogerson’s
Quay, Dublin 2.
Hong Kong: State Street Global Advisors Asia Limited,
68/F, Two International Finance Centre, 8 Finance Street, Central,
Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street
Global Advisors Europe Limited is regulated by the Central Bank of Ireland.
Registered office address 78 Sir John Rogerson’s Quay, Dublin 2.
Registered Number: 49934. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300.
Italy: State Street Global Advisors Europe Limited, Italy Branch (“State
Street Global Advisors Italy”) is a branch of State Street Global Advisors
Europe Limited, registered in Ireland with company number 49934, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78
Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors Italy is
registered in Italy with company number 11871450968 —REA: 2628603
and VAT number 11871450968, and its office is located at Via Ferrante Aporti,
10 - 20125 Milan, Italy. T: +39 02 32066 100. F: +39 02 32066 155.
Japan: State Street Global Advisors (Japan) Co., Ltd., Toranomon Hills
Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities
Dealers’ Association. Netherlands: State Street
Global Advisors Netherlands,
Apollo Building 7th floor, Herikerbergweg
29, 1101 CN Amsterdam, Netherlands. T: +31 20 7181 000. State
Street Global
Advisors Netherlands is a branch office of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogerson’s
Quay, Dublin 2. Singapore: State Street Global Advisors Singapore
Limited, 168, Robinson Road, #33-01
Capital Tower, Singapore 068912 (Company Reg. No: 200002719D, regulated by the
Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501.
Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Registered with the Register
of Commerce Zurich CHE-105.078.458. T:
+41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street
Global Advisors Limited. Authorised and regulated by the Financial Conduct
Authority. Registered in England. Registered No. 2509928. VAT No.
5776591 81. Registered office: 20 Churchill Place, Canary Wharf,
London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States: State
Street Global Advisors, 1 Iron Street, Boston, MA 02210-1641. T: +1 617 786
3000.
C-60
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
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All information is from SSGA unless otherwise noted and has been
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reliability or completeness of,
nor liability for, decisions based on such information and it
should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
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investment horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator
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Responsible-Factor (R Factor) scoring is designed by State Street
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The information contained in this communication is not a
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© 2023
State Street Corporation.
All Rights Reserved.
ID1482701-3479909.3.1.GBL.RTL 0323 Exp. Date: 03/31/2024
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March 2023
Japan
Proxy Voting and Engagement Guidelines
State Street Global Advisors’ Proxy Voting and Engagement
Guidelinesi for Japan
outline our approach to voting and engaging with companies listed on stock
exchanges in Japan. These Guidelines complement and should be read in
conjunction with State Street Global Advisors’ Global Proxy Voting and
Engagement Principles, which outline our overall approach to voting and engaging
with companies, and State Street Global Advisors’ Conflicts Mitigation
Guidelines, which provide information about managing the conflicts of interests
that may arise through State Street Global Advisors’ proxy voting and engagement
activities.
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These Proxy Voting and Engagement
Guidelines are also applicable to SSGA Funds Management, Inc.. SSGA Funds
Management, Inc.is an SEC-registered investment adviser. SSGA
Funds Management, Inc., State Street Global Advisors Trust Company, and
other advisory affiliates of State Street make up State Street Global
Advisors, the investment management arm of State Street Corporation.
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State Street Global Advisors’ Proxy Voting and Engagement
Guidelines for Japan address our market-specific approaches to topics
including directors and boards, accounting and audit-related issues,
capital structure, remuneration and mergers, compensation, and other
governance-related issues. When voting and engaging with companies in
global markets, we consider market-specific nuances in the manner that we
believe will most likely protect and promote the long-term economic value
of client investments. We expect all companies to observe the relevant
laws and regulations of their respective markets, as well as any
country-specific best practice guidelines and corporate governance codes.
We may hold companies in some markets to our global standards when we feel
that a country’s regulatory requirements do not address some of the key
philosophical principles that we believe are fundamental to our global
voting principles.
With companies in Japan, State Street Global Advisors takes
into consideration the unique aspects of Japanese corporate governance
structures. We recognize that under Japanese corporate law, companies may
choose between three structures of corporate governance: the statutory
auditor system, the committee structure and the hybrid
structure.
Most Japanese boards predominantly consist of executives and
non-independent outsiders
affiliated through commercial relationships or cross-shareholdings.
Nonetheless, when evaluating companies, State Street Global Advisors
expects the boards of Japanese companies to address conflicts of interest
and risk management, and to demonstrate an effective process for
monitoring management.
Regardless of the corporate governance structure a company
adopts, we expect all companies at a minimum to comply with Japan’s
Corporate Governance Code (the “Code”). Consistent with the ‘comply or
explain’ expectations established by the Code, we encourage companies to
proactively disclose their level of compliance with the Code. In instances
of non-compliance, and when
companies cannot explain the nuances of their governance structure
effectively, either publicly or through engagement, we may vote against
the board leader.
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| State Street Global Advisors’ Proxy
Voting and Engagement Philosophy |
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In our view, corporate governance and sustainability issues
are an integral part of the investment process. The Asset Stewardship Team
consists of investment professionals with expertise in corporate
governance, remuneration, accounting, and environmental and social issues.
We have established robust corporate governance principles and practices
that are backed with extensive analytical expertise to understand the
complexities of the corporate governance landscape. We engage with
companies to provide insight on the principles and practices that drive
our voting decisions. We also conduct proactive engagement to address
significant shareholder concerns and issues in a manner consistent with
maximizing shareholder value.
The team works alongside members of State Street Global
Advisors’ Active Fundamental and Asia-Pacific (“APAC”) Investment Teams,
collaborating on issuer engagements and providing input on
company-specific fundamentals. |
C-63
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| Directors and Boards |
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Principally, a board acts on behalf
of shareholders by protecting their interests and preserving their rights.
In order to carry out their primary responsibilities, directors have to
undertake activities that range from setting strategy and providing
guidance on strategic matters, overseeing executive management, to
selecting the CEO and other senior executives, creating a succession plan
for the board and management, and providing effective risk oversight,
including of risks related to sustainability issues. Further, we believe
good corporate governance necessitates the existence of effective internal
controls and risk management systems, which should be governed by the
board. |
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State Street Global Advisors
believes that a well-constituted board of directors with a balance of
skills, expertise and independence provides the foundation for a
well-governed company. We view board quality as a measure of director
independence, director succession planning, board diversity, evaluations
and refreshment, and company governance practices. We vote for the (re-)election of directors on a case-by-case basis after considering
various factors, including board quality, general market practice, and
availability of information on director skills and expertise. |
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Japanese companies have the option
of having a traditional board of directors with statutory auditors, a
board with a committee structure, or a hybrid board with a board level
audit committee. We will generally support companies that seek shareholder
approval to adopt a committee or hybrid board structure. |
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Most Japanese issuers prefer the
traditional statutory auditor structure. Statutory auditors act in a
quasi-compliance role, as they are not involved in strategic
decision-making, nor are they part of the formal management decision
process. Statutory auditors attend board meetings, but do not have voting
rights at the board; however, they have the right to seek an injunction
and conduct broad investigations of unlawful behavior in the company’s
operations. |
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State Street Global Advisors will
support the election of statutory auditors unless the outside statutory
auditor nominee is regarded as non-independent based on our criteria,
the outside statutory auditor has attended less than 75 percent of
meetings of the board of directors or the board of statutory auditors
during the year under review, or the statutory auditor has been remiss in
the performance of their oversight responsibilities (fraud, criminal
wrongdoing, and breach of fiduciary responsibilities). |
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Board
Independence |
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In principle, we believe independent
directors are crucial to robust corporate governance and help management
establish sound corporate governance policies and practices. A
sufficiently independent board will most effectively monitor management
and perform oversight functions that are necessary to protect shareholder
interests. |
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We believe that boards of TOPIX 500
companies should have at least three independent directors and be at least
one-third independent. Otherwise,
we may oppose the board leader who is responsible for the director
nomination process. |
C-64
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For non-TOPIX 500 companies, we may oppose
the board leader if the board does not have at least two independent
directors. For companies with a committee structure or a hybrid board
structure, we also take into consideration the overall independence level
of the committees. |
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In determining director independence, we consider the
following factors:
• Participation in related-party transactions and other
business relations with the company
• Past employment with the company
• Professional services provided to the company
• Family ties with the company
Regardless of board structure, we may oppose the election of
a director for the following reasons:
• Failure to attend board meetings
• In instances of egregious actions related to a director’s
service on the board
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| Board Gender Diversity |
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We expect boards of all listed companies to have at least
one female board member. If a company does not meet this expectation,
State Street Global Advisors may vote against the Chair of the board’s
nominating committee or the board leader in the absence of a nominating
committee. Additionally, if a company does not meet this expectation for
three consecutive years, State Street Global Advisors may vote against all
incumbent members of the nominating committee or those persons deemed
responsible for the nomination process.
We may waive this voting guideline if a company engages with
State Street Global Advisors and provides a specific, timebound plan for
adding at least one woman to its board.
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| Climate-related Disclosures |
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State Street Global Advisors finds that the recommendations
of the Taskforce on Climate-related Financial Disclosures (TCFD) provide
the most effective framework for disclosure of climate-related risks and
opportunities.
As such, we take voting action against companies in the
TOPIX 100 that fail to provide sufficient disclosure regarding
climate-related risks and opportunities related to that company, or board
oversight of climate-related risks and opportunities, in accordance with
the TCFD framework.
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| Indemnification and Limitations on
Liability |
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Generally, State Street Global
Advisors supports proposals to limit directors’ and statutory auditors’
liability and/or expand indemnification and liability protection up to the
limit provided by law, if he or she has not acted in bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his or her office. We believe limitations and indemnification are
necessary to attract and retain qualified
directors. |
C-65
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Shareholder Rights
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| Virtual/Hybrid Shareholder
Meetings |
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As a result of the COVID-19 pandemic, companies are
increasingly conducting their shareholder meetings in a virtual or hybrid
format. While we are encouraged by the success of virtual and hybrid
shareholder meetings, companies and shareholders must remain vigilant in
continuing to improve their virtual shareholder meeting
practices. |
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Recognizing the success of virtual
and hybrid shareholder meetings and a shifting regulatory environment, we
will generally support proposals that grant boards the right to hold
shareholder meetings in a virtual or hybrid format as long as companies
uphold the following best practices: |
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• Afford virtual attendee shareholders the same rights as
would normally be granted to in-person attendee
shareholders |
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• Commit to time-bound renewal (five years or less) of
meeting format authorization by shareholders |
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• Provide a written record of all questions posed during
the meeting, and |
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• Comply with local market laws and regulations relating to
virtual and hybrid shareholder meeting practices |
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If a company breaches of any of the criteria above, we may
vote against the Chair of the nominating committee.
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| Accounting and Audit- Related Issues |
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State
Street Global Advisors believes that a company’s auditor is an essential
feature of an effective and transparent system of external supervision.
Shareholders should have the opportunity to vote on the appointment of the
auditor at the annual meeting. |
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| Ratifying
External Auditors |
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We
generally support the appointment of external auditors unless the external
auditor is perceived as being non-independent and there are concerns
about the accounts presented and the audit procedures
followed. |
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| Approval
of Financial Statements |
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We
believe the disclosure and availability of reliable financial statements
in a timely manner is imperative for the investment process. We expect
external auditors to provide assurance of a company’s financial condition.
Hence, we may vote against the approval of financial statements if i) they
have not been disclosed or audited; ii) the auditor opinion is
qualified/adverse, or the auditor has issued a disclaimer of opinion; or
iii) the auditor opinion is not disclosed. |
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| Limiting Legal Liability of External
Auditors |
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We generally oppose limiting the
legal liability of audit firms as we believe this could create a negative
impact on the quality of the audit function. |
C-66
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| Capital
Structure, Reorganization, and Mergers |
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| Unequal Voting Rights |
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State Street Global Advisors
supports the “one-share, one-vote” policy and favors a share
structure where all shares have equal voting rights. We support proposals
to abolish voting caps or multiple voting rights and will oppose measures
to introduce these types of restrictions on shareholder
rights. |
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We generally oppose proposals
authorizing the creation of new classes of common stock with superior
voting rights. We will generally oppose new classes of preferred stock
with unspecified voting, conversion, dividend distribution, and other
rights. In addition, we will not support capitalization changes that add
classes of stock with undefined voting rights or classes that may dilute
the voting interests of existing shareholders. |
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However, we will support capitalization changes that
eliminate other classes of stock and/ or unequal voting
rights. |
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| Share
Capital Increases |
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We
believe pre-emption rights should
be introduced for shareholders. This can provide adequate protection from
excessive dilution due to the issuance of new shares or convertible
securities to third parties or a small number of select
shareholders. |
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| Increase
in Authorized Capital |
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We
generally support increases in authorized capital where the company
provides an adequate explanation for the use of shares. In the absence of
an adequate explanation, we may oppose the request if the increase in
authorized capital exceeds 100 percent of the currently authorized
capital. Where share issuance requests exceed our standard threshold, we
will consider the nature of the specific need, such as mergers,
acquisitions and stock splits. |
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| Dividends |
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We
generally support dividend payouts that constitute 30 percent or more
of net income. We may vote against a dividend payout if the dividend
payout ratio has been consistently below 30 percent without adequate
explanation or if the payout is excessive given the company’s financial
position. Particular attention will be paid where the payment may damage
the company’s long-term financial health. |
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| Share
Repurchase Programs |
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Companies are allowed under Japan Corporate Law to amend
their articles to authorize the repurchase of shares at the board’s
discretion. We will oppose such amendments. We believe the company should
seek shareholder approval for a share repurchase program at each year’s
AGM, providing shareholders the right to evaluate the terms of the
repurchase. |
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We generally support proposals to repurchase shares, unless
the issuer does not clearly state the business purpose for the program, a
definitive number of shares to be repurchased and the timeframe for the
repurchase. We may vote against share repurchase requests that allow share
repurchases during a takeover period.
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| Mergers and Acquisitions |
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Mergers or reorganizing the
structure of a company often involve proposals relating to
reincorporation, restructurings, mergers, liquidations and other major
changes to the corporation. We will support proposals that are in the best
interests of shareholders, demonstrated by enhancing share value or
improving the effectiveness of the company’s operations. In general,
provisions that are deemed to be destructive to shareholders’ rights or
financially detrimental will not be supported. |
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We evaluate mergers and structural
reorganizations on a case-by-case basis. We will
generally support transactions that we believe will maximize shareholder
value. Some of the considerations include, but are not limited to, the
following: |
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• Offer premium |
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• Strategic rationale |
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• Board oversight of the process for the recommended
transaction, including director and/ or management conflicts of
interest |
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• Offers made at a premium and where there are no other
higher bidders |
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• Offers in which the secondary market price is
substantially lower than the net asset value |
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We may vote against a transaction considering the
following: |
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• Offers with potentially damaging consequences for
minority shareholders because of illiquid stock |
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• Offers where we believe there is a reasonable prospect
for an enhanced bid or other bidders |
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• Offers in which the current market price of the security
exceeds the bid price at the time of voting
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| Anti-Takeover Measures |
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In general, State Street Global
Advisors believes that adoption of poison pills that have been structured
to protect management and to prevent takeover bids from succeeding is not
in shareholders’ interest. A shareholder rights plan may lead to
management entrenchment. It may also discourage legitimate tender offers
and acquisitions. Even if the premium paid to companies with a shareholder
rights plan is higher than that offered to unprotected firms, a company’s
chances of receiving a takeover offer in the first place may be reduced by
the presence of a shareholder rights plan. |
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Proposals that reduce shareholders’
rights or have the effect of entrenching incumbent management will not be
supported. |
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Proposals that enhance the right of shareholders to make
their own choices as to the desirability of a merger or other proposal are
supported.
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| Shareholder Rights Plans |
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In evaluating the adoption or renewal of a Japanese issuer’s
shareholder rights plans (“poison pill”), we consider the following
conditions: (i) release of proxy circular with details of the
proposal with adequate notice in advance of meeting, (ii) minimum
trigger of over 20 percent, (iii) maximum term of three years,
(iv) sufficient number of independent directors, (v) presence of
an independent committee, (vi) annual election of directors, and
(vii) lack of protective or entrenchment features. Additionally, we
consider the length of time that a shareholder rights plan has been in
effect.
In evaluating an amendment to a shareholder rights plan
(“poison pill”), in addition to the conditions above, we will also
evaluate and consider supporting proposals where the terms of the new plan
are more favorable to shareholders’ ability to accept unsolicited
offers. |
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| “Cross-shareholdings” |
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“Cross-Shareholdings” are a long-standing feature of the
balance sheets of many Japanese companies, but, in our view, can be
detrimental for corporate governance practices and ultimately shareholder
returns.
Therefore, State Street Global Advisors may vote against the
board leader at those TOPIX 500 companies where the “cross-shareholdings”
(strategic listed shares) held by a company exceed 30 percent of the
company’s net assets (as in the securities report disclosed for the
previous fiscal year).
We may waive the guideline if a company engages with State
Street Global Advisors and provides a specific, timebound, and publicly
available plan for reducing its exposure to
“cross-shareholdings”: |
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• To less than 30% by 2025; or |
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• By 50% of current level by 2025
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| Compensation |
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In
Japan, excessive compensation is rarely an issue. Rather, the problem
tends to be the lack of connection between pay and performance. Fixed
salaries and cash retirement bonuses tend to comprise a significant
portion of the compensation structure while performance-based pay is
generally a small portion of the total pay. State Street Global Advisors,
where possible, seeks to encourage the use of performance-based
compensation in Japan as an incentive for executives and as a way to align
interests with shareholders. |
C-69
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| Adjustments to Aggregate Compensation Ceiling for
Directors |
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Remuneration for directors in Japan is generally reasonable.
Typically, each company sets the director compensation parameters as an
aggregate, thereby limiting the total pay to all directors. When
requesting a change, a company must disclose the last time the ceiling was
adjusted, and management provides the rationale for the ceiling increase.
We will generally support proposed increases to the ceiling if the company
discloses the rationale for the increase. We may oppose proposals to
increase the ceiling if there has been corporate malfeasance or sustained
poor performance. |
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Bonuses for Directors/Statutory Auditors |
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In Japan,
since there are no legal requirements that mandate companies to seek
shareholder approval before awarding a bonus, we believe that existing
shareholder approval of the bonus should be considered best practice. As a
result, we support management proposals on executive compensation where
there is a strong relationship between executive pay and performance over
a five-year period. |
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Bonuses for Directors/Statutory Auditors |
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While many
companies in Japan have abolished the practice where retirement bonuses,
based upon tenure, make up a sizeable portion of directors and auditors’
lifetime compensation, there remain many proposals seeking shareholder
approval for the total amounts paid to directors and statutory auditors as
a whole. In general, we support these payments unless the recipient is an
outsider or in instances where the amount is not disclosed. |
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Plans |
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Most
option plans in Japan are conservative, particularly at large companies.
Japanese corporate law requires companies to disclose the monetary value
of the stock options for directors and/or statutory auditors. Some
companies do not disclose the maximum number of options that can be issued
per year and shareholders are unable to evaluate the dilution impact. In
this case, we cannot calculate the dilution level and, therefore, we may
oppose such plans due to poor disclosure. We also oppose plans that allow
for the repricing of options. |
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| Deep
Discount Options |
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As
Japanese companies move away from the retirement bonus system, deep
discount options plans have become more popular. Typically, the exercise
price is set at JPY 1 per share. We evaluate deep discount options using
the same criteria used to evaluate stock options and consider the vesting
period. |
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| Risk Management |
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We believe that risk management is a
key function of the board, which is responsible for setting the overall
risk appetite of a company and for providing oversight on the risk
management process established by senior executives at a company. We allow
boards to have discretion regarding the ways in which they provide
oversight in this area. However, we expect companies to disclose how the
board provides oversight on its risk management system and risk
identification. Boards should also review existing and emerging risks that
evolve in tandem with the changing political and economic landscape or as
companies diversify or expand their operations into new
areas. |
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As responsible stewards, we believe in the importance of
effective risk management and oversight of issues that are material to a
company. To effectively assess the risk of our clients’ portfolios and the
broader market, we expect our portfolio companies to manage risks and
opportunities that are material and industry-specific and that have a
demonstrated link to long-term value creation, and to provide high-quality
disclosure of this process to shareholders.
Consistent with this perspective, we may seek to engage with
our portfolio companies to better understand how their boards are
overseeing risks and opportunities the company has deemed to be material
to its business or operations. If we believe a company has failed to
implement and communicate effective oversight of these risks, we may
consider voting against the directors responsible. |
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| Environmental and Social Issues |
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As a fiduciary, State Street Global Advisors takes a
comprehensive approach to engaging with our portfolio companies about
material environmental and social factors. Our Asset Stewardship program
prioritization process allows us to proactively identify companies for
engagement and voting in order to mitigate sustainability risks in our
portfolio. Through engagement, we aim to build long-term relationships
with the issuers in which we investon behalf of our clients and to address
a broad range of topics relating to the promotion of long-term shareholder
value creation. When voting, we fundamentally consider whether the
adoption of a shareholder proposal addressing an environmental or social
topic material to the company would promote long-term shareholder value in
the context of the company’s existing practices and disclosures as well as
existing market practice.
For more information on our approach to environmental and
social issues, please see our Global Proxy Voting and Engagement
Guidelines for Environmental and Social Factors, available at ssga.com/about-us/asset-stewardship.html. |
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| General/Routine |
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Expansion of
Business Activities |
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Japanese companies’ articles of
incorporation strictly define the types of businesses in which a company
is permitted to engage. In general, State Street Global Advisors views
proposals that expand and diversify the company’s business activities as
routine and non-contentious. We
will monitor instances in which there has been an inappropriate
acquisition and diversification away from the company’s main area of
competence that resulted in a decrease of shareholder
value. |
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| About
State Street Global Advisors |
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For
four decades, State Street Global Advisors has served the world’s
governments, institutions and financial advisors. With a rigorous,
risk-aware approach built on research, analysis and market-tested
experience, we build from a breadth of index and active strategies to
create cost-effective solutions. And, as pioneers in index, ETF, and ESG
investing, we are always inventing new ways to invest. As a result, we
have become the world’s fourth-largest asset manager* with US $3.48
trillion† under our
care. |
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* Pensions & Investments
Research Center, as of December 31, 2021. |
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† This figure is
presented as of December 31, 2022 and includes approximately
$58.60 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is
unaudited. |
C-72
ssga.com
Marketing communications
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2 245
9000. Australia: State Street Global Advisors, Australia, Limited (ABN 42
003 914 225) is the holder of an Australian Financial Services License (AFSL
Number 238276). Registered office: Level 14, 420 George Street, Sydney, NSW
2000, Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium: State
Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels,
Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium is a branch
office of State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central
Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Canada: State Street Global Advisors, Ltd.,
1981 McGill College Avenue, Suite 500, Montreal, Qc, H3A 3A8, T: +514 282 2400
and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775
5900. France: State Street Global Advisors Europe Limited, France Branch
(“State Street Global Advisors France”) is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
France is registered in France with company number RCS Nanterre 899 183 289, and
its office is located at Coeur Défense — Tour A — La Défense 4, 33e étage, 100,
Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex, France.
T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street
Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2.
Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two
International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852
2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors
Europe Limited is regulated by the Central Bank of Ireland. Registered office
address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353
(0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors
Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is a branch
of State Street Global Advisors Europe Limited, registered in Ireland with
company number 49934, authorised and regulated by the Central Bank of Ireland,
and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State
Street Global Advisors Italy is registered in Italy with company number
11871450968 — REA: 2628603 and VAT number 11871450968, and its office is located
at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F: +39 02
32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd.,
Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment
Trust Association, Japan, Japan Securities Dealers’ Association.
Netherlands: State Street Global Advisors Netherlands, Apollo Building
7th floor, Herikerbergweg 29, 1101 CN Amsterdam, Netherlands. T: +31 20 7181
000. State Street Global Advisors Netherlands is a branch office of State Street
Global Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Singapore: State
Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No. 5776591 81. Registered
office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F:
020 3395 6350. United States: State Street Global Advisors, 1 Iron
Street, Boston, MA 02210-1641. T: +1 617 786 3000.
C-73
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty
as to the current accuracy, reliability or completeness of, nor
liability for, decisions based on such information and it should not be relied
on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates are
only available to such persons and persons of any other description (including
retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind relating
to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results generated out of the
scoring model is based on sustainability and corporate governance
dimensions of a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence of investment
research (b) is not subject to any prohibition on dealing ahead of the
dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1482398-3479913.3.1.GBL.RTL 0323
Exp. Date: 03/31/2024
C-74
March 2023
North America (United States & Canada)
Proxy Voting and Engagement Guidelines
State Street Global Advisors’ Proxy Voting and Engagement
Guidelinesi for North
America outline our approach to voting and engaging with companies listed on
stock exchanges in the United States and Canada. These Guidelines complement and
should be read in conjunction with State Street Global Advisors’ Global Proxy
Voting and Engagement Principles, which outline our overall approach to voting
and engaging with companies, and State Street Global Advisors’ Conflicts
Mitigation Guidelines, which provide information about managing the conflicts of
interests that may arise through State Street Global Advisors’ proxy voting and
engagement activities.
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These Proxy Voting and Engagement
Guidelines (the “Guidelines”) are also applicable to SSGA Funds
Management, Inc., State Street Global Advisors Trust Company, and other
advisory affiliates of State Street Corporation. Additionally, State
Street Global Advisors maintains Proxy Voting and Engagement Guidelines
for select markets, including: Australia, continental Europe, Japan, New
Zealand, North America (Canada and the US), the UK and Ireland, and
emerging markets. International markets not covered by our market-specific
guidelines are reviewed and voted in a manner that is consistent with the
Global Proxy Voting and Engagement Principles; however, State Street
Global Advisors also endeavors to show sensitivity to local market
practices when voting in these various markets.
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C-75
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State Street Global Advisors’ Proxy
Voting and Engagement Guidelines for North America (United States [“US”]
and Canada) address our market-specific approaches to topics including
directors and boards, accounting and audit related issues, capital
structure, reorganization and mergers, compensation, and other
governance-related issues. |
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When voting and engaging with
companies in global markets, we consider market-specific nuances in the
manner that we believe will most likely protect and promote the long-term
economic value of client investments. We expect companies to observe the
relevant laws and regulations of their respective markets, as well as
country specific best practice guidelines and corporate governance codes.
We may hold companies in some markets to our global standards when we feel
that a country’s regulatory requirements do not address some of the key
philosophical principles that we believe are fundamental to our global
voting principles. |
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In our
analysis and research into corporate governance issues in North America,
we expect all companies to act in a transparent manner and to provide
detailed disclosure on board profiles, related-party transactions,
executive compensation, and other governance issues that impact
shareholders’ long-term interests. Further, as a founding member of the
Investor Stewardship Group (“ISG”), we proactively monitor companies’
adherence to the Corporate Governance Principles for US listed companies
(the “Principles”). Consistent with the “comply-or-explain” expectations
established by the Principles, we encourage companies to proactively
disclose their level of compliance with the Principles. In instances of
non-compliance, and when
companies cannot explain the nuances of their governance structure
effectively, either publicly or through engagement, we may vote against
the independent board leader. |
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| State Street Global Advisors’ Proxy
Voting and Engagement Philosophy |
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In our view, corporate governance
and sustainability issues are an integral part of the investment process.
The Asset Stewardship Team consists of investment professionals with
expertise in corporate governance, remuneration, accounting, and
environmental and social issues. We have established robust corporate
governance principles and practices that are backed with extensive
analytical expertise to understand the complexities of the corporate
governance landscape. We engage with companies to provide insight on the
principles and practices that drive our voting decisions. We also conduct
proactive engagements to address significant shareholder concerns and
issues in a manner consistent with maximizing shareholder
value. |
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The
team works alongside members of State Street Global Advisors’ Active
Fundamental and various other investment teams, collaborating on issuer
engagements and providing input on company-specific
fundamentals. |
C-76
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| Directors and Boards |
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Principally, a board acts on behalf
of shareholders by protecting their interests and preserving their rights.
In order to carry out their primary responsibilities, directors have to
undertake activities that range from setting strategy and providing
guidance on strategic matters, overseeing executive management, to
selecting the CEO and other senior executives, creating a succession plan
for the board and management, and providing effective risk oversight,
including of risks related to sustainability issues. Further, good
corporate governance necessitates the existence of effective internal
controls and risk management systems, which should be governed by the
board. |
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State Street Global Advisors
believes that a well-constituted board of directors, with a balance of
skills, expertise, and independence, provides the foundations for a
well-governed company. We view board quality as a measure of director
independence, director succession planning, board diversity, evaluations
and refreshment, and company governance practices. We vote for the (re-)election of directors on a case-by-case basis after
considering various factors, including board quality, general market
practice, and availability of information on director skills and
expertise. |
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In our analysis of boards, we
consider whether board members have adequate skills to provide effective
oversight of corporate strategy, operations, and risks, including
environmental and social issues. Boards should also have a regular
evaluation process in place to assess the effectiveness of the board and
the skills of board members to address issues, such as emerging risks,
changes to corporate strategy, and diversification of operations and
geographic footprint. |
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In principle, we believe independent
directors are crucial to robust corporate governance and help management
establish sound corporate governance policies and practices. We believe a
sufficiently independent board will most effectively monitor management
and perform oversight functions necessary to protect shareholder
interests. |
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Director-related proposals include issues submitted to
shareholders that deal with the composition of the board or with members
of a corporation’s board of directors. In deciding the director nominee to
support, we consider numerous factors. |
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| Director Elections |
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Our director election guideline
focuses on companies’ governance profile to identify if a company
demonstrates appropriate governance practices or if it exhibits negative
governance practices. Factors we consider when evaluating governance
practices include, but are not limited to the following: |
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• Shareholder rights |
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• Board independence |
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• Board
structure |
C-77
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If a company demonstrates
appropriate governance practices, we believe a director should be
classified as independent based upon the relevant listing standards or
local market practice standards. In such cases, the composition of the key
oversight committees of a board should meet the minimum standards of
independence. Accordingly, we may vote against a nominee at a company with
appropriate governance practices if the director is classified as non-independent under relevant listing
standards or local market practice and serves on a key committee of the
board (compensation, audit, nominating, or committees required to be fully
independent by local market standards). |
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Conversely, if a company
demonstrates negative governance practices, State Street Global Advisors
believes the classification standards for director independence should be
elevated. In such circumstances, we will evaluate all director nominees
based upon the following classification standards: |
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• Is the nominee an employee of or related to an employee
of the issuer or its auditor? |
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• Does the nominee provide professional services to the
issuer? |
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• Has the nominee attended an appropriate number of board
meetings? |
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• Has the nominee received non-board related compensation from the
issuer? |
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In the US market where companies
demonstrate negative governance practices, these stricter standards will
apply not only to directors who are a member of a key committee but to all
directors on the board as market practice permits. Accordingly, we may
vote against a nominee (with the exception of the CEO) where the board has
inappropriate governance practices and is considered not independent based
on the above independence criteria. |
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Additionally, we may withhold votes
from directors based on the following: |
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• Overall average board tenure is excessive. In assessing
excessive tenure, we consider factors such as the preponderance of long
tenured directors, board refreshment practices, and classified board
structures |
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• Directors attend less than 75 percent of board
meetings without appropriate explanation or providing reason for their
failure to meet the attendance threshold |
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• Directors of companies that have not been responsive to a
shareholder proposal that received a majority shareholder support at the
last annual or special meeting |
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• Consideration can be warranted if management submits the
proposal(s) on the ballot as a binding management proposal, recommending
shareholders vote for the particular
proposal(s) |
C-78
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• Directors of companies have unilaterally adopted/ amended
company bylaws that negatively impact our shareholder rights (such as
fee-shifting, forum selection,
and exclusion service bylaws) without putting such amendments to a
shareholder vote |
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• Compensation committee members where there is a weak
relationship between executive pay and performance over a five-year
period |
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• Audit committee members if non-audit fees exceed 50 percent
of total fees paid to the auditors |
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• Directors who appear to have been remiss in their
duties |
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Board Gender
Diversity |
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We expect boards of all listed
companies to have at least one female board member and the boards of
Russell 3000 companies to be composed of at least 30 percent women
directors. If a company does not meet the applicable expectation, State
Street Global Advisors may vote against the Chair of the board’s
nominating committee or the board leader in the absence of a nominating
committee. Additionally, if a company does not meet the applicable
expectation for three consecutive years, State Street Global Advisors may
vote against all incumbent members of the nominating committee or those
persons deemed responsible for the nomination process. |
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We may waive this voting guideline
if a company engages with State Street Global Advisors and provides a
specific, timebound plan for either reaching the 30-percent threshold (Russell 3000) or
for adding a woman director (non-Russell 3000). |
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Board Racial/Ethnic
Diversity |
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We believe effective board oversight
of a company’s long-term business strategy necessitates a diversity of
perspectives, especially in terms of gender, race and ethnicity. If a
company in the Russell 1000 does not disclose, at minimum, the gender,
racial and ethnic composition of its board, we may vote against the Chair
of the nominating committee. We may withhold support from the Chair of the
nominating committee also when a company in the S&P 500 does not have
at least one director from an underrepresented racial/ethnic community on
its board. |
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Workforce
Diversity |
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We may vote against the Chair of the
compensation committee at companies in the S&P 500 that do not
disclose their EEO-1 reports.
Acceptable disclosures include: |
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• The original EEO-1 report response |
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• The exact content of the report translated into custom
graphics |
C-79
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Director Time
Commitments |
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When voting on the election or re-election of a director, we also
consider the number of outside board directorships that a non-executive and an executive may
undertake. Thus, State Street Global Advisors may take voting action
against a director who exceeds the number of board mandates listed
below: |
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• Named Executive Officers (NEOs) of a public company who
sit on more than two public company boards |
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• Non-executive
board chairs or lead independent directors who sit on more than three
public company boards |
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• Director nominees who sit on more than four public
company boards |
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For non-executive board chairs/lead
independent directors and director nominees who hold excessive
commitments, as defined above, we may consider waiving our policy and vote
in support of a director if a company discloses its director commitment
policy in a publicly available manner (e.g., corporate governance
guidelines, proxy statement, company website). This policy or associated
disclosure must include: |
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• A numerical limit on public company board seats a
director can serve on |
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– This limit cannot exceed our policy by more than one
seat |
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• Consideration of public company board leadership
positions (e.g., Committee Chair) |
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• Affirmation that all directors are currently compliant
with the company policy |
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• Description of an annual policy review process undertaken
by the Nominating Committee to evaluate outside director time
commitments |
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If a director is imminently leaving
a board and this departure is disclosed in a written, time-bound and
publicly-available manner, we may consider waiving our withhold vote when
evaluating the director for excessive time commitments. |
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Service on a mutual fund board, the
board of a UK investment trust or a Special Purpose Acquisition Company
(SPAC) board is not considered when evaluating directors for excessive
commitments. However, we do expect these roles to be considered by
nominating committees when evaluating director time
commitments. |
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Climate-related
Disclosures |
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State Street Global Advisors finds
that the recommendations of the Taskforce on Climate-related Financial
Disclosures (TCFD) provide the most effective framework for disclosure of
climate-related risks and opportunities. |
C-80
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As
such, we may take voting action against companies in the S&P 500 and
S&P/TSX Composite that fail to provide sufficient disclosure regarding
climate-related risks and opportunities related to that company, or board
oversight of climate-related risks and opportunities, in accordance with
the TCFD framework. |
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| Director-Related Proposals |
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We generally vote for the following
director-related proposals: |
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• Discharge of board members’ duties, in the absence of
pending litigation, regulatory investigation, charges of fraud, or other
indications of significant concern |
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• Proposals to restore shareholders’ ability in order to
remove directors with or without cause |
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• Proposals that permit shareholders to elect directors to
fill board vacancies |
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• Shareholder proposals seeking disclosure regarding the
company, board, or compensation committee’s use of compensation
consultants, such as company name, business relationship(s), and fees
paid |
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We generally vote against the
following director-related proposals: |
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• Requirements that candidates for directorships own large
amounts of stock before being eligible to be elected |
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• 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 |
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• Proposals requiring two candidates per board
seat |
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| Majority Voting |
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We will generally support a majority
vote standard based on votes cast for the election of
directors. |
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We will
generally vote to support amendments to bylaws that would require simple
majority of voting shares (i.e. shares cast) to pass or to repeal certain
provisions. |
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| Annual
Elections |
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We
generally support the establishment of annual elections of the board of
directors. Consideration is given to the overall level of board
independence and the independence of the key committees, as well as the
existence of a shareholder rights plan. |
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| Cumulative
Voting |
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We do
not support cumulative voting structures for the election of
directors. |
C-81
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| Separation Chair/CEO |
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We analyze proposals for the
separation of Chair/CEO on a case-by-case basis taking into
consideration numerous factors, including the appointment of and role
played by a lead director, a company’s performance, and the overall
governance structure of the company. |
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However, we may take voting action against the chair or
members of the nominating committee at S&P 500 companies that have
combined the roles of chair and CEO and have not appointed a lead
independent director. |
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| Proxy
Access |
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In
general, we believe that proxy access is a fundamental right and an
accountability mechanism for all long-term shareholders. We will consider
proposals relating to proxy access on a case-by-case basis. We will
support shareholder proposals that set parameters to empower long-term
shareholders while providing management the flexibility to design a
process that is appropriate for the company’s circumstances. |
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We will review the terms of all
other proposals and will support those proposals that have been introduced
in the spirit of enhancing shareholder rights. |
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Considerations include the following:
• The ownership thresholds and holding duration proposed in
the resolution
• The binding nature of the proposal
• The number of directors that shareholders may be able to
nominate each year
• Company governance structure
• Shareholder rights
• Board performance
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| Age/Term
Limits |
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Generally, we may vote against age and term limits unless
the company is found to have poor board refreshment and director
succession practices, and has a preponderance of non-executive directors with
excessively long tenures serving on the board. |
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| Approve
Remuneration of Directors |
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Generally, we will support directors’ compensation, provided
the amounts are not excessive relative to other issuers in the market or
industry. In making our determination, we review whether the compensation
is overly dilutive to existing shareholders. |
C-82
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| Indemnification |
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Generally, we support proposals to limit directors’
liability and/or expand indemnification and liability protection if he or
she has not acted in bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his or her office. |
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| Classified
Boards |
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We
generally support annual elections for the board of
directors. |
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| Confidential Voting |
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We will
support confidential voting. |
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| Board
Size |
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We will
support proposals seeking to fix the board size or designate a range for
the board size and will vote against proposals that give management the
ability to alter the size of the board outside of a specified range
without shareholder approval. |
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| Board
Responsiveness |
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We may
vote against the re-election of
members of the compensation committee if we have serious concerns about
remuneration practices and if the company has not been responsive to
shareholder pressure to review its approach. In addition, if the level of
dissent against a management proposal on executive pay is consistently
high, and we have determined that a vote against a pay-related proposal is warranted in
the third consecutive year, we may vote against the Chair of the
compensation committee. |
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| Shareholder Rights |
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| Virtual/Hybrid Shareholder
Meetings |
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As a result of the COVID-19 pandemic, companies are
increasingly conducting their shareholder meetings in a virtual or hybrid
format. While we are encouraged by the success of virtual and hybrid
shareholder meetings, companies and shareholders must remain vigilant in
continuing to improve their virtual shareholder meeting
practices. |
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Recognizing the success of virtual
and hybrid shareholder meetings and a shifting regulatory environment, we
will generally support proposals that grant boards the right to hold
shareholder meetings in a virtual or hybrid format as long as companies
uphold the following best practices: |
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• Afford virtual attendee shareholders the same rights as
would normally be granted to in-person attendee
shareholders |
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• Commit to time-bound renewal (five years or less) of
meeting format authorization by shareholders |
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• Provide a written record of all questions posed during
the meeting, and |
C-83
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• Comply with local market laws and regulations relating to
virtual and hybrid shareholder meeting practices |
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If a
company breaches of any of the criteria above, we may vote against the
Chair of the nominating committee. |
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Accounting and
Audit-Related Issues |
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| Ratifying Auditors and Approving
Auditor Compensation |
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We support the approval of auditors
and auditor compensation provided that the issuer has properly disclosed
audit and non-audit fees relative
to market practice and the audit fees are not deemed excessive. We deem
audit fees to be excessive if the non-audit fees for the prior year
constituted 50 percent or more of the total fees paid to the auditor.
We will also support the disclosure of auditor and consulting
relationships when the same or related entities are conducting both
activities and will support the establishment of a selection committee
responsible for the final approval of significant management consultant
contract awards where existing firms are already acting in an auditing
function. |
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In circumstances where “other” fees
include fees related to initial public offerings, bankruptcy emergence,
and spin-offs, and the company makes public disclosure of the amount and
nature of those fees which are determined to be an exception to the
standard “non-audit fee”
category, then such fees may be excluded from the non-audit fees considered in
determining the ratio of non-audit to audit/audit-related
fees/tax compliance and preparation for purposes of determining whether
non-audit fees are
excessive. |
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We will support the discharge of
auditors and requirements that auditors attend the annual meeting of
shareholders. |
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Approval of Financial
Statements |
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We believe the disclosure and availability of
reliable financial statements in a timely manner is imperative for the
investment process. We expect external auditors to provide assurance of a
company’s financial condition. Hence, we may vote against the approval of
financial statements if i) they have not been disclosed or audited; ii)
the auditor opinion is qualified/adverse, or the auditor has issued a
disclaimer of opinion; or iii) the auditor opinion is not
disclosed. |
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| Capital Structure |
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Capital structure proposals include
requests by management for approval of amendments to the certificate of
incorporation that will alter the capital structure of the
company. |
C-84
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The
most common request is for an increase in the number of authorized shares
of common stock, usually in conjunction with a stock split or dividend.
Typically, we support requests that are not unreasonably dilutive or
enhance the rights of common shareholders. In considering authorized share
proposals, the typical threshold for approval is 100percent over current
authorized shares. However, the threshold may be increased if the company
offers a specific need or purpose (merger, stock splits, growth purposes,
etc.). All proposals are evaluated on a case-by-case basis taking into
account the company’s specific financial situation. |
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| Increase
in Authorized Common Shares |
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In
general, we support share increases for general corporate purposes up to
100 percent of current authorized stock. |
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We support increases for specific corporate purposes up to
100 percent of the specific need plus 50 percent of current
authorized common stock for US and Canadian firms.
When applying the thresholds, we will also consider the
nature of the specific need, such as mergers and acquisitions and stock
splits. |
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| Increase
in Authorized Preferred Shares |
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We vote on
a case-by-case basis on proposals
to increase the number of preferred shares. |
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Generally, we will vote for the authorization of preferred
stock in cases where the company specifies the voting, dividend,
conversion, and other rights of such stock and the terms of the preferred
stock appear reasonable. |
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We will
support proposals to create “declawed” blank check preferred stock (stock
that cannot be used as a takeover defense). However, we may vote against
proposals to increase the number of blank check preferred stock authorized
for issuance when no shares have been issued or reserved for a specific
purpose. |
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| Unequal Voting Rights |
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We will not support proposals
authorizing the creation of new classes of common stock with superior
voting rights and may vote against new classes of preferred stock with
unspecified voting, conversion, dividend distribution, and other rights.
In addition, we will not support capitalization changes that add “blank
check” classes of stock (i.e. classes of stock with undefined voting
rights) or classes that dilute the voting interests of existing
shareholders. |
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However, we will support capitalization changes that
eliminate other classes of stock and/ or unequal voting
rights. |
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Reorganization
and Mergers |
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The
reorganization of the structure of a company or mergers often involve
proposals relating to reincorporation, restructurings, liquidations, and
other major changes to the corporation. |
C-85
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Proposals that are in the best interests of the
shareholders, demonstrated by enhancing share value or improving the
effectiveness of the company’s operations, will be supported. |
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In
general, provisions that are not viewed as economically sound or are
thought to be destructive to shareholders’ rights are not
supported. |
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We will
generally support transactions that maximize shareholder value. Some of
the considerations include the following: |
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• Offer premium |
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• Strategic rationale |
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• Board oversight of the process for the recommended
transaction, including, director and/ or management conflicts of
interest |
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• Offers made at a premium and where there are no other
higher bidders |
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• Offers in which the secondary market price is
substantially lower than the net asset value |
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We may
vote against a transaction considering the following: |
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• Offers with potentially damaging consequences for
minority shareholders because of illiquid stock, especially in some non-US markets |
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• Offers where we believe there is a reasonable prospect
for an enhanced bid or other bidders |
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• The current market price of the security exceeds the bid
price at the time of voting |
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| Anti-Takeover Issues |
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Typically, these are proposals relating to requests by
management to amend the certificate of incorporation or bylaws to add or
to delete a provision that is deemed to have an anti-takeover effect. The
majority of these proposals deal with management’s attempt to add some
provision that makes a hostile takeover more difficult or will protect
incumbent management in the event of a change in control of the
company. |
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Proposals that reduce shareholders’ rights or have the
effect of entrenching incumbent management may not be
supported. |
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Proposals that enhance the right of shareholders to make
their own choices as to the desirability of a merger or other proposal are
supported. |
C-86
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| Shareholder Rights Plans |
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US: We will support mandates
requiring shareholder approval of a shareholder rights plans (“poison
pill”) and repeals of various anti-takeover related
provisions. |
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In
general, we may vote against the adoption or renewal of a US issuer’s
shareholder rights plan (“poison pill”). |
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We will
vote for an amendment to a shareholder rights plan (“poison pill”) where
the terms of the new plans are more favorable to shareholders’ ability to
accept unsolicited offers (i.e. if one of the following conditions are
met: (i) minimum trigger, flip-in or flip-over of
20 percent, (ii) maximum term of three years, (iii) no
“dead hand,” “slow hand,” “no hand” nor 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). |
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Canada: We analyze proposals for shareholder approval
of a shareholder rights plan (“poison pill”) on a case-by-case basis taking into
consideration numerous factors, including but not limited to, whether it
conforms to ‘new generation’ rights plans and the scope of the
plan. |
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| Special
Meetings |
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We will
vote for shareholder proposals related to special meetings at companies
that do not provide shareholders the right to call for a special meeting
in their bylaws if: |
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• The company also does not allow shareholders to act by
written consent |
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• The company allows shareholders to act by written consent
but the ownership threshold for acting by written consent is set above
25 percent of outstanding shares |
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We will
vote for shareholder proposals related to special meetings at companies
that give shareholders (with a minimum 10 percent ownership
threshold) the right to call for a special meeting in their bylaws
if: |
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• The current ownership threshold to call for a special
meeting is above 25 percent of outstanding shares |
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We will
vote for management proposals related to special meetings. |
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| Written
Consent |
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We will
vote for shareholder proposals on written consent at companies
if: |
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• The company does not have provisions in their bylaws
giving shareholders the right to call for a special
meeting |
C-87
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• The company allows shareholders the right to call for a
special meeting, but the current ownership threshold to call for a special
meeting is above 25percent of outstanding shares |
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• The company has a poor governance
profile |
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We will
vote management proposals on written consent on a case-by-case basis. |
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| Super-Majority |
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We will
generally vote against amendments to bylaws requiring super-majority
shareholder votes to pass or repeal certain provisions. We will vote for
the reduction or elimination of super-majority vote requirements, unless
management of the issuer was concurrently seeking to or had previously
made such a reduction or elimination. |
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| Compensation |
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Despite
the differences among the types of plans and the awards possible there is
a simple underlying philosophy that guides the analysis of all
compensation plans; namely, the terms of the plan should be designed to
provide an incentive for executives and/or employees to align their
interests with those of the shareholders and thus work toward enhancing
shareholder value. Plans that benefit participants only when the
shareholders also benefit are those most likely to be
supported. |
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| Advisory Vote on Executive Compensation
and Frequency |
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State Street Global Advisors
believes executive compensation plays a critical role in aligning
executives’ interest with shareholders’, attracting, retaining and
incentivizing key talent, and ensuring positive correlation between the
performance achieved by management and the benefits derived by
shareholders. We support management proposals on executive compensation
where there is a strong relationship between executive pay and performance
over a five-year period. We seek adequate disclosure of various
compensation elements, absolute and relative pay levels, peer selection
and benchmarking, the mix of long-term and short-term incentives,
alignment of pay structures with shareholder interests as well as with
corporate strategy, and performance. Further shareholders should have the
opportunity to assess whether pay structures and levels are aligned with
business performance on an annual basis. |
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In Canada, where advisory votes on
executive compensation are not commonplace, we will rely primarily upon
engagement to evaluate compensation plans. |
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Employee Equity
Award
Plans |
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We consider numerous criteria when
examining equity award proposals. Generally we do not vote against plans
for lack of performance or vesting criteria. Rather the main criteria that
will result in a vote against an equity award plan
are: |
C-88
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Excessive voting power dilution
To assess the dilutive effect, we divide the number of shares required
to fully fund the proposed plan, the number of authorized but unissued
shares and the issued but unexercised shares by the fully diluted share
count. We review that number in light of certain factors, such as the
industry of the issuer. |
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Historical option grants
Excessive historical option grants over the past three years. Plans
that provide for historical grant patterns of greater than five to eight
percent are generally not supported. |
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Repricing We may vote against
any plan where repricing is expressly permitted. If a company has a
history of repricing underwater options, the plan will not be
supported. |
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Other criteria include the
following: |
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• Number of participants or eligible
employees |
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• The variety of awards possible |
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• The period of time covered by the plan |
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There are numerous factors that we
view as negative. If combined they may result in a vote against a
proposal. Factors include: |
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• Grants to individuals or very small groups of
participants |
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• “Gun-jumping”
grants which anticipate shareholder approval of a plan or
amendment |
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• The power of the board to exchange “underwater” options
without shareholder approval. This pertains to the ability of a company to
reprice options, not the actual act of repricing described
above |
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• Below market rate loans to officers to exercise their
options |
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• The ability to grant options at less than fair market
value; |
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• Acceleration of vesting automatically upon a change in
control |
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• Excessive compensation (i.e. compensation plans which we
deem to be overly dilutive) |
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Share Repurchases If a
company makes a clear connection between a share repurchase program and
its intent to offset dilution created from option plans and the company
fully discloses the amount of shares being repurchased, the voting
dilution calculation may be adjusted to account for the impact of the buy
back. |
C-89
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Companies will not have any such
repurchase plan factored into the dilution calculation if they do not
(i) clearly state the intentions of any proposed share buy-back plan, (ii) disclose a
definitive number of the shares to be bought back, (iii) specify the
range of premium/discount to market price at which a company can
repurchase shares, and (iv) disclose the time frame during which the
shares will be bought back. |
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162(m) Plan Amendments If a plan would not normally
meet our criteria described above, but was primarily amended to add
specific performance criteria to be used with awards that were designed to
qualify for performance-based exception from the tax deductibility
limitations of Section 162(m) of the Internal Revenue Code, then we
will support the proposal to amend the plan. |
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| Employee
Stock Option Plans |
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We
generally vote for stock purchase plans with an exercise price of not less
than 85 percent of fair market value. However, we take market
practice into consideration. |
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| Compensation-Related Items |
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We generally support the following
proposals: |
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• Expansions to reporting of financial or
compensation-related information within reason |
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• Proposals requiring the disclosure of executive
retirement benefits if the issuer does not have an independent
compensation committee |
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We generally vote against the
following proposal: |
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• Retirement bonuses for non-executive directors and
auditors |
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Miscellaneous/
Routine Items |
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We generally support the following
miscellaneous/routine governance items: |
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• Reimbursement of all appropriate proxy solicitation
expenses associated with the election when voting in conjunction with
support of a dissident slate |
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• Opting-out of
business combination provision |
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• Proposals that remove restrictions on the right of
shareholders to act independently of management |
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• Liquidation of the company if the company will file for
bankruptcy if the proposal is not approved |
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• Shareholder proposals to put option repricings to a
shareholder vote |
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• General updating of, or corrective amendments to, charter
and bylaws 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) |
C-90
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• Change in corporation name |
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• Mandates that amendments to bylaws or charters have
shareholder approval |
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• Management proposals to change the date, time, and/or
location of the annual meeting unless the proposed change is
unreasonable
• Repeals, prohibitions or adoption of anti-greenmail
provisions
• Management proposals to implement a reverse stock split
when the number of authorized shares will be proportionately reduced and
proposals to implement a reverse stock split to avoid
delisting |
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• Exclusive forum provisions |
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State Street Global Advisors
generally does not support the following miscellaneous/ routine governance
items: |
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• Proposals requesting companies to adopt full tenure
holding periods for their executives |
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• Reincorporation to a location that we believe has more
negative attributes than its current location of
incorporation |
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• Shareholder proposals to change the date, time, and/or
location of the annual meeting unless the current scheduling or location
is unreasonable |
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• Proposals to approve other business when it appears as a
voting item |
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• Proposals giving the board exclusive authority to amend
the bylaws |
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• Proposals to reduce quorum requirements for shareholder
meetings below a majority of the shares outstanding unless there are
compelling reasons to support the proposal |
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| Risk Management |
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We believe that risk management is a
key function of the board, which is responsible for setting the overall
risk appetite of a company and for providing oversight on the risk
management process established by senior executives at a company. We allow
boards to have discretion regarding the ways in which they provide
oversight in this area. However, we expect companies to disclose how the
board provides oversight on its risk management system and risk
identification. Boards should also review existing and emerging risks that
evolve in tandem with the changing political and economic landscape or as
companies diversify or expand their operations into new
areas. |
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As responsible stewards, we believe
in the importance of effective risk management and oversight of issues
that are material to a company. To effectively assess the risk of our
clients’ portfolios and the broader market, we expect our portfolio
companies to manage risks and opportunities that
are |
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material and industry-specific and that have a demonstrated
link to long-term value creation, and to provide high-quality disclosure
of this process to shareholders.
Consistent with this perspective, we may seek to engage with
our portfolio companies to better understand how their boards are
overseeing risks and opportunities the company has deemed to be material
to its business or operations. If we believe a company has failed to
implement and communicate effective oversight of these risks, we may
consider voting against the directors responsible. |
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| Environmental and Social
Issues |
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As a fiduciary, State Street Global
Advisors takes a comprehensive approach to engaging with our portfolio
companies about material environmental and social factors. Our Asset
Stewardship program prioritization process allows us to proactively
identify companies for engagement and voting in order to mitigate
sustainability risks in our portfolio. Through engagement, we aim to build
long-term relationships with the issuers in which we invest on behalf of
our clients and to address a broad range of topics relating to the
promotion of long-term shareholder value creation. When voting, we
fundamentally consider whether the adoption of a shareholder proposal
addressing an environmental or social topic material to the company would
promote long-term shareholder value in the context of the company’s
existing practices and disclosures as well as existing market
practice. |
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For
more information on our approach to environmental and social issues,
please see our Global Proxy Voting and Engagement Guidelines for
Environmental and Social Factors, available at ssga.com/about-us/asset-stewardship.html. |
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| About
State Street Global Advisors |
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For four decades, State Street Global
Advisors has served the world’s governments, institutions and financial
advisors. With a rigorous, risk-aware approach built on research, analysis
and market-tested experience, we build from a breadth of index and active
strategies to create cost-effective solutions. And, as pioneers in index,
ETF, and ESG investing, we are always inventing new ways to invest. As a
result, we have become the world’s fourth-largest asset manager* with US
$3.48 trillion† under our
care. |
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* Pensions & Investments Research Center, as of
December 31, 2021.
† This figure is
presented as of December 31, 2022 and includes approximately
$58.60 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is
unaudited. |
C-92
ssga.com
Marketing communications
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2
245 9000. Australia: State Street Global Advisors, Australia, Limited
(ABN 42 003 914 225) is the holder of an Australian Financial Services License
(AFSL Number 238276). Registered office: Level 14, 420 George Street,
Sydney, NSW 2000, Australia. T: +612 9240-7600. F: +612 9240-7611.
Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 185,
1170 Brussels, Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium
is a branch office of State Street Global Advisors Europe Limited, registered in
Ireland with company
number 49934, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin
2. Canada: State Street Global Advisors, Ltd., 1981 McGill College
Avenue, Suite 500, Montreal, Qc, H3A 3A8, T: +514 282 2400 and 30 Adelaide
Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900.
France: State Street Global Advisors Europe Limited, France Branch
(“State Street Global Advisors France”) is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
France is registered in France with company number RCS Nanterre 899 183 289, and
its office is located at Coeur Défense — Tour A — La Défense 4, 33e étage, 100,
Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex, France.
T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street
Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central
Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Hong Kong: State Street Global Advisors Asia
Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong
Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global
Advisors Europe Limited is regulated by the Central Bank of Ireland. Registered
office address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934.
T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global
Advisors Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is
a branch of State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin
2. State Street Global Advisors Italy is registered in Italy with company number
11871450968 — REA: 2628603 and VAT number 11871450968, and its office is located
at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F: +39 02
32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd.,
Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment
Trust Association, Japan, Japan Securities Dealers’ Association.
Netherlands: State Street Global Advisors Netherlands, Apollo Building
7th floor, Herikerbergweg 29, 1101 CN Amsterdam, Netherlands. T: +31 20 7181
000. State Street Global Advisors Netherlands is a branch office of State Street
Global Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Singapore: State
Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00.
F: +41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No. 5776591 81. Registered office:
20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395
6350. United States: State Street Global Advisors, 1 Iron Street, Boston,
MA 02210-1641. T: +1 617 786 3000.
C-93
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the current accuracy,
reliability or completeness of, nor liability for, decisions based
on such information and it should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio
investing in industry sectors or securities which underperform the
market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by
the appropriate EU regulator who are deemed both knowledgeable and
experienced in matters relating to investments. The products and services to
which this communication relates are only available to such persons and persons
of any other description (including retail clients) should not rely on this
communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind relating
to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results generated out of the scoring model is based on
sustainability and corporate governance dimensions of a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in
Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation.
This means that this marketing communication (a) has not been prepared in
accordance with legal requirements designed to promote the independence of
investment research (b) is not subject to any prohibition on dealing ahead
of the dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved. ID1482705-3479916.3.1.GBL.RTL 0323
Exp. Date: 03/31/2024
C-94
March 2023
Rest of the World
Proxy Voting and Engagement Guidelines
State Street Global Advisors’ Proxy Voting and Engagement
Guidelinesi for the Rest
of the World outline our approach to voting and engaging with companies listed
on stock exchanges in international markets not covered under specific
country/regional Guidelines. These Guidelines complement and should be read in
conjunction with State Street Global Advisors’ Global Proxy Voting and
Engagement Principles, which outline our overall approach to voting and engaging
with companies, and State Street Global Advisors’ Conflicts Mitigation
Guidelines, which provide information about managing the conflicts of interests
that may arise through State Street Global Advisors’ proxy voting and engagement
activities.
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These Proxy Voting and Engagement
Guidelines (the “Guidelines”) are also applicable to SSGA Funds
Management, Inc., State Street Global Advisors Trust Company, and other
advisory affiliates of State Street Corporation. Additionally, State
Street Global Advisors maintains Proxy Voting and Engagement Guidelines
for select markets, including: Australia, continental Europe, Japan, New
Zealand, North America (Canada and the US), the UK and Ireland, and
emerging markets. International markets not covered by our market-specific
guidelines are reviewed and voted in a manner that is consistent with the
Global Proxy Voting and Engagement Principles; however, State Street
Global Advisors also endeavors to show sensitivity to local market
practices when voting in these various markets.
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C-95
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At State Street Global Advisors, we
recognize that markets not covered under specific country/regional
guidelines, specifically emerging markets, are disparate in their
corporate governance frameworks and practices. While they tend to pose
broad common governance issues, such as concentrated ownership, poor
disclosure of financial and related-party transactions, and weak
enforcement of rules and regulation, our Guidelines are designed to
identify and to address specific governance concerns across the markets.
We also evaluate the various factors that contribute to the corporate
governance framework of a country. These factors include, but are not
limited to: (i) the macroeconomic conditions and broader political
system in a country; (ii) quality of regulatory oversight,
enforcement of property and shareholder rights; and (iii) the
independence of judiciary. |
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When voting and engaging with
companies in global markets, we consider market-specific nuances in the
manner that we believe will most likely protect and promote the long-term
economic value of client investments. We expect all companies to observe
the relevant laws and regulations of their respective markets, as well as
any country-specific best practice guidelines and corporate governance
codes. We may hold companies in some markets to our global standards when
we feel that a country’s regulatory requirements do not address some of
the key philosophical principles that we believe are fundamental to our
global voting principles. |
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State
Street Global Advisors’ Proxy Voting and Engagement Guidelines for the
Rest of the World address our approaches to topics including directors and
boards, accounting and audit-related issues, capital structure,
reorganization and mergers, remuneration, and other governance-related
issues. |
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| State Street Global Advisors’ Proxy
Voting and Engagement Philosophy in Emerging Markets |
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State Street Global Advisors’
approach to proxy voting and issuer engagement in emerging markets is
designed to increase the value of our clients’ investments through the
mitigation of governance risks. The overall quality of the corporate
governance framework in an emerging market country drives the level of
governance risks investors assign to a country. Thus, improving the macro
governance framework in a country may help to reduce governance risks and
to increase the overall value of our clients’ holdings over time. In order
to improve the overall governance framework and practices in a country,
members of our Asset Stewardship Team endeavor to engage with
representatives from regulatory agencies and stock markets to highlight
potential concerns with the macro governance framework of a country. To
help mitigate company-specific risk, the State Street Global Advisors
Asset Stewardship Team works alongside members of the Active Fundamental
and emerging market specialists to engage with emerging market companies
on governance issues and address any specific concerns, or to get more
information regarding shareholder items that are to be voted on at
upcoming shareholder meetings. This integrated approach to engagement
drives our proxy voting and engagement philosophy in emerging
markets. |
C-96
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| Directors and Boards |
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Principally, a board acts on behalf
of shareholders by protecting their interests and preserving their rights.
In order to carry out their primary responsibilities, directors have to
undertake activities that range from setting strategy and providing
guidance on strategic matters, overseeing executive management, to
selecting the CEO and other senior executives, creating a succession plan
for the board and management, and providing risk oversight, including of
risks related to sustainability issues. Further, we believe good corporate
governance necessitates the existence of effective internal controls and
risk management systems, which should be governed by the
board. |
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We
believe that a well-constituted board of directors, with a good balance of
skills, expertise and independence, provides the foundation for a
well-governed company. However, several factors, such as low overall
independence level requirements by market regulators, poor biographical
disclosure of director profiles, prevalence of related-party transactions,
and the general resistance from controlling shareholders to increase board
independence, render the election of directors as one of the most
important fiduciary duties we perform in emerging market
companies. |
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| Board Independence |
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We vote for the (re-)election of directors on a case-by-case basis after
considering various factors, including board quality, general market
practice and availability of information on director skills and expertise.
We expect companies to meet minimum overall board independence standards,
as defined in a local corporate governance code or market practice.
Therefore, in several countries, we may vote against certain non-independent directors if overall
board independence levels do not meet market standards. |
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Our broad criteria for director
independence in emerging market companies include factors such
as: |
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• Participation in related-party
transactions |
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• Employment history with company |
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• Relations with controlling shareholders and
employees |
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• Company classification of a director as non-independent |
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| Board Committees |
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In some countries, market practice
calls for the establishment of a board level audit committee. We believe
an audit committee should be responsible for monitoring the integrity of
the financial statements of a company and appointing external auditors. It
should also monitor their qualifications, independence, effectiveness and
resource levels. Based upon our desire to enhance the quality of financial
and accounting oversight provided by independent directors, we expect that
listed companies have an audit committee constituted of a majority of
independent directors. |
C-97
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| Board Gender Diversity |
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We expect boards of listed companies
in all markets and indices to have at least one female board member. If a
company does not meet this expectation, State Street Global Advisors may
vote against the Chair of the board’s nominating committee or the board
leader in the absence of a nominating committee. Additionally, if a
company does not meet this expectation for three consecutive years, State
Street Global Advisors may vote against all incumbent members of the
nominating committee or those persons deemed responsible for the
nomination process. |
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We may
waive this voting guideline if a company engages with State Street Global
Advisors and provides a specific, timebound plan for adding at least one
woman to its board. |
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| Board
Responsiveness to High Dissent against Pay Proposals |
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Poorly
structured executive compensation plans pose increasing reputational risk
to companies. Ongoing high level of dissent against a company’s
compensation proposals may indicate that the company is not receptive to
investor concerns. If the level of dissent against a company’s
remuneration report and/or remuneration policy is consistently high, and
we have determined that a vote against a pay-related proposal is warranted in
the third consecutive year, we may vote against the Chair of the
remuneration committee. |
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| Climate-related Disclosures |
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State Street Global Advisors finds
that the recommendations of the Taskforce on Climate-related Financial
Disclosures (TCFD) provide the most effective framework for disclosure of
climate-related risks and opportunities. |
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As
such, we may take voting action against companies in the Hang Seng and
Straits Times that fail to provide sufficient disclosure regarding
climate-related risks and opportunities related to that company, or board
oversight of climate-related risks and opportunities, in accordance with
the TCFD framework. |
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Shareholder Rights
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| Virtual/Hybrid Shareholder
Meetings |
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As a result of the COVID-19 pandemic, companies are
increasingly conducting their shareholder meetings in a virtual or hybrid
format. While we are encouraged by the success of virtual and hybrid
shareholder meetings, companies and shareholders must remain vigilant in
continuing to improve their virtual shareholder meeting
practices. |
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Recognizing the success of virtual
and hybrid shareholder meetings and a shifting regulatory environment, we
will generally support proposals that grant boards the right to hold
shareholder meetings in a virtual or hybrid format as long as companies
uphold the following best practices: |
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• Afford virtual attendee shareholders the same rights as
would normally be granted to in-person attendee
shareholders |
C-98
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• Commit to time-bound renewal (five years or less) of
meeting format authorization by shareholders |
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• Provide a written record of all questions posed during
the meeting, and |
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• Comply with local market laws and regulations relating to
virtual and hybrid shareholder meeting practices |
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If a
company breaches of any of the criteria above, we may vote against the
Chair of the nominating committee. |
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| Accounting and Audit-Related Issues |
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The
disclosure and availability of reliable financial statements in a timely
manner is imperative for the investment process. As a result, board
oversight of internal controls and the independence of the audit process
are essential if investors are to rely upon financial statements. We
believe that audit committees provide the necessary oversight for the
selection and appointment of auditors, the company’s internal controls and
the accounting policies, and the overall audit process. |
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| Appointment of External Auditors |
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We
believe that a company’s auditor is an essential feature of an effective
and transparent system of external supervision. Shareholders should be
given the opportunity to vote on their appointment or re-appointment at the annual meeting.
We believe that it is imperative for audit committees to select outside
auditors who are independent from management. |
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| Approval of Financial
Statements |
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We believe the disclosure and
availability of reliable financial statements in a timely manner is
imperative for the investment process. We expect external auditors to
provide assurance of a company’s financial condition. Hence, we may vote
against the approval of financial statements if i) they have not been
disclosed or audited; ii) the auditor opinion is qualified/adverse, or the
auditor has issued a disclaimer of opinion; or iii) the auditor opinion is
not disclosed. |
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Capital
Structure, Reorganization, and Mergers State Street Global Advisors
believes that changes to a company’s capital structure, such as changes in
authorized share capital, share repurchase and debt issuances, are
critical decisions made by the board. We believe the company should have a
business rationale that is consistent with corporate strategy and should
not overly dilute its shareholders. |
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| Related-Party Transactions |
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Most companies in emerging markets
have a controlled ownership structure that often includes complex
cross-shareholdings between subsidiaries and parent companies (“related
companies”). As a result, there is a high prevalence of related-party
transactions between the company and its various stakeholders, such as
directors and management. In addition, inter-group loan and loan
guarantees provided to related companies are some of the
other |
C-99
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related-party transactions that increase
the risk profile of companies. In markets where shareholders are required
to approve such transactions, we expect companies to provide details about
the transaction, such as its nature, value and purpose. This also
encourages independent directors to ratify such transactions. Further, we
encourage companies to describe the level of independent board oversight
and the approval process, including details of any independent valuations
provided by financial advisors on related-party transactions. |
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| Share
Repurchase Programs |
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With
regard to share repurchase programs, we expect companies to clearly state
the business purpose for the program and a definitive number of shares to
be repurchased. |
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| Mergers and Acquisitions |
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Mergers or reorganization of the
structure of a company often involve proposals relating to
reincorporation, restructurings, liquidations and other major changes to
the corporation. Proposals that are in the best interest of the
shareholders, demonstrated by enhancing share value or improving the
effectiveness of the company’s operations, will be supported. In general,
provisions that are not viewed as financially sound or are thought to be
destructive to shareholders’ rights are not supported. |
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We evaluate mergers and structural
reorganizations on a case-by-case basis. We generally
support transactions that maximize shareholder value. Some of the
considerations include, but are not limited to, the
following: |
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• Offer premium |
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• Strategic rationale |
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• Board oversight of the process for the recommended
transaction, including director and/ or management conflicts of
interest |
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• Offers made at a premium and where there are no other
higher bidders |
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• Offers in which the secondary market price is
substantially lower than the net asset value |
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We may vote against a transaction
considering the following: |
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• Offers with potentially damaging consequences for
minority shareholders because of illiquid stock |
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• Offers where we believe there is a reasonable prospect
for an enhanced bid or other bidders |
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• The current market price of the security exceeds the bid
price at the time of voting |
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We will
actively seek direct dialogue with the board and management of companies
that we have identified through our screening processes. Such engagements
may lead to further monitoring to ensure the company improves its
governance or sustainability practices. In these cases, we believe the
engagement process represents the most meaningful opportunity for State
Street Global Advisors to protect long-term shareholder value from
excessive risk due to poor governance and sustainability
practices. |
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We consider it to be the board’s
responsibility to set appropriate levels of executive remuneration.
Despite the differences among the types of plans and the potential awards,
there is a simple underlying philosophy that guides our analysis of
executive remuneration: there should be a direct relationship between
executive compensation and company performance over the long term. In
emerging markets, we encourage companies to disclose information on senior
executive remuneration. |
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Shareholders should have the opportunity to assess whether
pay structures and levels are aligned with business performance. When
assessing remuneration reports, we consider factors such as adequate
disclosure of remuneration elements, absolute and relative pay levels,
peer selection and benchmarking, the mix of long-term and short-term
incentives, alignment of pay structures with shareholder interests,
corporate strategy and performance. We may oppose remuneration reports
where pay seems misaligned with shareholders’ interests. We may also vote
against the re-election of
members of the remuneration committee if we have serious concerns about
remuneration practices and if the company has not been responsive to
shareholder pressure to review its approach. With regard to director
remuneration, we support director pay provided the amounts are not
excessive relative to other issuers in the market or industry, and are not
overly dilutive to existing shareholders. |
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| Risk Management |
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We believe that risk management is a
key function of the board, which is responsible for setting the overall
risk appetite of a company and for providing oversight on the risk
management process established by senior executives at a company. We allow
boards to have discretion regarding the ways in which they provide
oversight in this area. However, we expect companies to disclose how the
board provides oversight on its risk management system and risk
identification. Boards should also review existing and emerging risks that
evolve in tandem with a changing political and economic landscape or as
companies diversify or expand their operations into new
areas. |
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As responsible stewards, we believe
in the importance of effective risk management and oversight of issues
that are material to a company. To effectively assess the risk of our
clients’ portfolios and the broader market, we expect our portfolio
companies to manage risks and opportunities that are material and
industry-specific and that have a demonstrated link to long-term value
creation, and to provide high-quality disclosure of this process to
shareholders. |
C-101
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Consistent with this perspective, we may seek to engage with
our portfolio companies to better understand how their boards are
overseeing risks and opportunities the company has deemed to be material
to its business or operations. If we believe a company has failed to
implement and communicate effective oversight of these risks, we may
consider voting against the directors responsible. |
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| Environmental and Social
Issues |
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As a fiduciary, State Street Global
Advisors takes a comprehensive approach to engaging with our portfolio
companies about material environmental and social factors. Our Asset
Stewardship program prioritization process allows us to proactively
identify companies for engagement and voting in order to mitigate
sustainability risks in our portfolio. Through engagement, we aim to build
long-term relationships with the issuers in which we invest on behalf of
our clients and to address a broad range of topics relating to the
promotion of long-term shareholder value creation. When voting, we
fundamentally consider whether the adoption of a shareholder proposal
addressing an environmental or social topic material to the company would
promote long-term shareholder value in the context of the company’s
existing practices and disclosures as well as existing market
practice. |
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For
more information on our approach to environmental and social issues,
please see our Global Proxy Voting and Engagement Guidelines for
Environmental and Social Factors, available at ssga.com/about-us/asset-stewardship.html. |
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Some of
the other issues that are routinely voted on in emerging markets include
approving the allocation of income and accepting financial statements and
statutory reports. For these voting items, our guidelines consider several
factors, such as historical dividend payouts, pending litigation,
governmental investigations, charges of fraud, or other indication of
significant concerns. |
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| About
State Street Global Advisors |
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For four decades, State Street Global
Advisors has served the world’s governments, institutions and financial
advisors. With a rigorous, risk-aware approach built on research, analysis
and market-tested experience, we build from a breadth of index and active
strategies to create cost-effective solutions. And, as pioneers in index,
ETF, and ESG investing, we are always inventing new ways to invest. As a
result, we have become the world’s fourth-largest asset manager* with US
$3.48 trillion† under our
care. |
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* Pensions & Investments Research Center, as of
December 31, 2021. |
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† This figure is
presented as of December 31, 2022 and includes approximately
$58.60 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is
unaudited. |
C-102
ssga.com
Marketing communication
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2 245
9000. Australia: State Street Global Advisors, Australia, Limited (ABN 42
003 914 225) is the holder of an Australian Financial Services License (AFSL
Number 238276). Registered office: Level 14, 420 George Street,
Sydney, NSW 2000, Australia. T: +612 9240-7600. F: +612 9240-7611.
Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 185,
1170 Brussels, Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium
is a branch office of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2.
Canada: State Street Global Advisors, Ltd., 1981 McGill College Avenue,
Suite 500, Montreal, Qc, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East
Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900. France: State
Street Global Advisors Europe Limited, France Branch (“State Street Global
Advisors France”) is a branch of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. State Street Global Advisors France is registered in
France with company number RCS Nanterre 899 183 289, and its office is located
at Coeur Défense — Tour A —La
Défense 4, 33e étage, 100, Esplanade du Général de Gaulle,
92 931 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41
92. Germany: State Street Global Advisors Europe Limited, Branch in
Germany, Brienner Strasse 59, D-80333
Munich, Germany (“State Street Global Advisors Germany”). T: +49 (0)89 55878
400. State Street Global Advisors Germany is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Hong Kong: State Street Global Advisors Asia
Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong
Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global
Advisors Europe Limited is regulated by the Central Bank of Ireland. Registered
office address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934.
T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global
Advisors Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is
a branch of State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. State Street Global Advisors Italy is registered in Italy with company
number 11871450968 —REA: 2628603 and VAT number 11871450968, and
its office is located at Via Ferrante Aporti, 10 - 20125 Milan,
Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State Street
Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan,
Japan Securities Dealers’ Association. Netherlands: State
Street Global Advisors Netherlands, Apollo Building 7th floor,
Herikerbergweg 29, 1101 CN Amsterdam, Netherlands. T: +31 20 7181 000. State
Street Global Advisors Netherlands is a branch office of
State Street Global Advisors Europe Limited, registered in Ireland with company
number 49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. Singapore:
State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. United Kingdom: State Street Global Advisors Limited.
Authorised and regulated by the Financial Conduct Authority. Registered in
England. Registered No. 2509928. VAT No. 5776591 81. Registered
office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395
6000. F: 020 3395 6350. United States: State Street Global Advisors, 1
Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
C-103
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the current accuracy,
reliability or completeness
of, nor liability for, decisions based on such information and it
should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate
EU regulator who are deemed both knowledgeable and experienced in
matters relating to investments. The products and services to which this
communication relates are only available to such persons and persons of any
other description (including retail clients) should not rely on this
communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind relating
to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State
Street to reflect certain ESG characteristics and does not represent
investment performance. Results generated out of the scoring model is based on
sustainability and corporate governance dimensions of a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence of investment
research (b) is not subject to any prohibition on dealing ahead of the
dissemination of investment research.
© 2023 State Street Corporation.
All Rights Reserved.
ID1482392-3479918.3.1.GBL.RTL 0323 Exp. Date: 03/31/2024
C-104
March 2023
United Kingdom and Ireland
Proxy Voting and Engagement Guidelines
State Street Global Advisors’ Proxy Voting and Engagement
Guidelinesi for the
United Kingdom and Ireland outline our approach to voting and engaging with
companies listed on stock exchanges in the United Kingdom and Ireland. These
Guidelines complement and should be read in conjunction with State Street Global
Advisors’ Global Proxy Voting and Engagement Principles, which outline our
overall approach to voting and engaging with companies, and State Street Global
Advisors’ Conflicts Mitigation Guidelines, which provide information about
managing the conflicts of interests that may arise through State Street Global
Advisors’ proxy voting and engagement activities.
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These Proxy Voting and Engagement
Guidelines (the “Guidelines”) are also applicable to SSGA Funds
Management, Inc., State Street Global Advisors Trust Company, and other
advisory affiliates of State Street Corporation. Additionally, State
Street Global Advisors maintains Proxy Voting and Engagement Guidelines
for select markets, including: Australia, continental Europe, Japan, New
Zealand, North America (Canada and the US), the UK and Ireland, and
emerging markets. International markets not covered by our market-specific
guidelines are reviewed and voted in a manner that is consistent with the
Global Proxy Voting and Engagement Principles; however, State Street
Global Advisors also endeavors to show sensitivity to local market
practices when voting in these various markets.
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C-105
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State
Street Global Advisors’ Proxy Voting and Engagement Guidelines for the
United Kingdom (“UK”) and Ireland address our market-specific approach to
topics including directors and boards, accounting and audit-related
issues, capital structure, reorganization and mergers, remuneration, and
other governance-related issues. |
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When
voting and engaging with companies in global markets, we consider
market-specific nuances in the manner that we believe will most likely
protect and promote the long-term economic value of client investments. We
expect companies to observe the relevant laws and regulations of their
respective markets, as well as country-specific best practice guideliness
and corporate governance codes. We may hold companies in some markets to
our global standards when we feel that a country’s regulatory requirements
do not address some of the key philosophical principles that we believe
are fundamental to our global voting principles. |
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In our
analysis and research into corporate governance issues in the UK and
Ireland, we expect all companies that obtain a primary listing on the
London Stock Exchange or the Irish Stock Exchange, regardless of domicile,
to comply with the UK Corporate Governance Code (the “Code”), and
proactively monitor companies’ adherence to the Code. Consistent with the
‘comply or explain’ expectations established by the Code, we encourage
companies to proactively disclose their level of compliance with the Code.
In instances of non-compliance in
which companies cannot explain the nuances of their governance structure
effectively, either publicly or through engagement, we may vote against
the independent board leader. |
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| State Street Global Advisors’ Proxy
Voting and Engagement Philosophy |
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In our view, corporate governance
and sustainability issues are an integral part of the investment process.
The Asset Stewardship Team consists of investment professionals with
expertise in corporate governance, remuneration, accounting, and
environmental and social issues. We have established robust corporate
governance principles and practices that are backed with extensive
analytical expertise to understand the complexities of the corporate
governance landscape. We engage with companies to provide insight on the
principles and practices that drive our voting decisions. We also conduct
proactive engagement to address significant shareholder concerns and
issues in a manner consistent with maximizing shareholder
value. |
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The team works alongside members of
State Street Global Advisors’ Active Fundamental and Europe, Middle East
and Africa (“EMEA”) investment teams, collaborating on issuer engagements
and providing input on company-specific
fundamentals. |
C-106
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| Directors and Boards |
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Principally, a board acts on behalf of shareholders by
protecting their interests and preserving their rights. In order to carry
out their primary responsibilities, directors have to undertake activities
that range from setting strategy and providing guidance on strategic
matters, overseeing executive management, to selecting the CEO and other
senior executives, creating a succession plan for the board and
management, and providing risk oversight, including of risks related to
sustainability issues. Further, we believe good corporate governance
necessitates the existence of effective internal controls and risk
management systems, which should be governed by the board. |
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We
believe that a well-constituted board of directors, with a balance of
skills, expertise and independence, provides the foundations for a
well-governed company. We view board quality as a measure of director
independence, director succession planning, board diversity, evaluations
and refreshment, and company governance practices. We vote for the (re-)election of directors on a case-by-case basis after
considering various factors, including board quality, general market
practice, and availability of information on director skills and
expertise. |
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We may
also consider board performance and directors who appear to be remiss in
the performance of their oversight responsibilities when analyzing their
suitability for reappointment (e.g. fraud, criminal wrongdoing and breach
of fiduciary responsibilities). |
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| Board Independence |
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In principle, we believe independent
directors are crucial to robust corporate governance and help management
establish sound corporate governance policies and practices. We believe a
sufficiently independent board will most effectively monitor management
and perform oversight functions necessary to protect shareholder
interests. |
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Our broad criteria for director
independence for UK companies include factors such as: |
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• Participation in related-party transactions and other
business relations with the company |
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• Employment history with company |
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• Excessive tenure and a preponderance of long-tenured
directors |
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• Relations with controlling shareholders |
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• Family ties with any of the company’s advisers, directors
or senior employees |
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• Company classification of a director as non-independent |
C-107
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| Director Attendance at Board
Meetings |
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We also consider attendance at board meetings and may
withhold votes from directors who attend less than 75 percent of
board meetings in a given year without appropriate explanation or
providing reason for their failure to meet the attendance threshold. In
addition, we monitor other factors that may influence the independence of
a non-executive director, such as
performance-related pay, cross-directorships and significant
shareholdings.
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| Classified
Boards |
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We
support the annual election of directors. |
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| Separation
Chair/CEO |
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While
we are generally supportive of having the roles of chair and CEO separated
in the UK market, we assess the division of responsibilities between chair
and CEO on a case-by-case basis, giving
consideration to factors such as the company’s specific circumstances,
overall level of independence on the board and general corporate
governance standards in the company. Similarly, we monitor for
circumstances in which a combined chair/CEO is appointed or a former CEO
becomes chair. |
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| Board Committees |
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We believe companies should have
committees for audit, remuneration and nomination oversight. The audit
committee is responsible for monitoring the integrity of the financial
statements of the company, the appointment of external auditors, auditor
qualifications and independence, and effectiveness and resource levels.
Similarly, executive pay is an important aspect of corporate governance,
and it should be determined by the board of directors. We expect companies
to have remuneration committees to provide independent oversight over
executive pay. We may vote against nominees who are executive members of
audit or remuneration committees. |
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We consider whether board members
have adequate skills to provide effective oversight of corporate strategy,
operations and risks, including environmental and social issues. Boards
should also have a regular evaluation process in place to assess the
effectiveness of the board and the skills of board members to address
issues such as emerging risks, changes to corporate strategy, and
diversification of operations and geographic footprint. The nomination
committee is responsible for evaluating and reviewing the balance of
skills, knowledge, and experience of the board. It also ensures that
adequate succession plans are in place for directors and the CEO. We may
vote against the re-election of
members of the nomination committee if, over time, the board has not
addressed concerns over board structure or succession. |
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Poorly
structured executive compensation plans pose increasing reputational risk
to companies. Ongoing high level of dissent against a company’s
compensation proposals may indicate that the company is not receptive to
investor concerns. If the level of dissent against a company’s
remuneration report and/or remuneration policy is consistently high, and
we have determined that a vote against a pay-related proposal is warranted in
the third consecutive year, we may vote against the Chair of the
remuneration committee. |
C-108
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| Board Gender Diversity |
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We expect boards of all listed
companies to have at least one female board member and the boards of FTSE
350 companies to be composed of at least 30 percent women directors.
If a company does not meet the applicable expectation, State Street Global
Advisors may vote against the chair of the board’s nominating committee or
the board leader in the absence of a nominating committee. Additionally,
if a company does not meet the applicable expectation for three
consecutive years, State Street Global Advisors may vote against all
incumbent members of the nominating committee or those persons deemed
responsible for the nomination process. |
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We may waive this voting guideline if a company engages with
State Street Global Advisors and provides a specific, timebound plan for
either reaching the 30-percent
threshold (FTSE 350) or for adding a woman director (non-FTSE 350).
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| Board
Racial/Ethnic Diversity |
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Effective board oversight of a company’s long-term business
strategy necessitates a diversity of perspectives, especially in terms of
gender, race and ethnicity. If a company in the FTSE 350 does not
disclose, at minimum, the gender, racial and ethnic composition of its
board, we may vote against the Chair of the nominating committee. We may
withhold support from the Chair of the nominating committee also when a
company in the FTSE 100 does not have at least one director from an
underrepresented racial and/or ethnic community on its board. |
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| Director Time Commitments |
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When voting on the election or re-election of a director, we also
consider the number of outside board directorships a non-executive and an executive may
undertake. Thus, State Street Global Advisors may take voting action
against a director who exceeds the number of board mandates listed
below: |
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• Named Executive Officers (NEOs) of a public company who
sit on more than two public company boards |
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• Non-executive
board chairs or lead independent directors who sit on more than three
public company boards |
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• Director nominees who sit on more than four public
company boards |
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For non-executive board chairs/lead
independent directors and director nominees who hold excessive
commitments, as defined above, we may consider waiving our policy and vote
in support of a director if a company discloses its director commitment
policy in a publicly available manner (e.g., corporate governance
guidelines, proxy statement, company website). This policy or associated
disclosure must include: |
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• A numerical limit on public company board seats a
director can serve on |
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– This limit cannot exceed our
policy by more than one seat |
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• Consideration of public company board leadership
positions (e.g., Committee Chair) |
C-109
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• Affirmation that all directors are currently compliant
with the company policy |
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• Description of an annual policy review process undertaken
by the Nominating Committee to evaluate outside director time
commitments |
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If a director is imminently leaving
a board and this departure is disclosed in a written, time-bound and
publicly-available manner, we may consider waiving our withhold vote when
evaluating the director for excessive time commitments. |
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Service on a mutual fund board, the
board of a UK investment trust or a Special Purpose Acquisition Company
(SPAC) board is not considered when evaluating directors for excessive
commitments. However, we do expect these roles to be considered by
nominating committees when evaluating director time
commitments. |
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| Climate-related Disclosures |
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State Street Global Advisors finds
that the recommendations of the Taskforce on Climate-related Financial
Disclosures (TCFD) provide the most effective framework for disclosure of
climate-related risks and opportunities. |
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As such, we may take voting action
against companies in the FTSE 350 that fail to provide sufficient
disclosure regarding climate-related risks and opportunities related to
that company, or board oversight of climate-related risks and
opportunities, in accordance with the TCFD framework. |
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| Indemnification and Limitations on
Liability |
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Generally, we support proposals to
limit directors’ liability and/or expand indemnification and liability
protection up to the limit provided by law. This holds if a director has
not acted in bad faith, gross negligence, nor reckless disregard of the
duties involved in the conduct of his or her office. |
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| Shareholder Rights |
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| Virtual/Hybrid Shareholder
Meetings |
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As a result of the COVID-19 pandemic, companies are
increasingly conducting their shareholder meetings in a virtual or hybrid
format. While we are encouraged by the success of virtual and hybrid
shareholder meetings, companies and shareholders must remain vigilant in
continuing to improve their virtual shareholder meeting
practices. |
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Recognizing the success of virtual
and hybrid shareholder meetings and a shifting regulatory environment, we
will generally support proposals that grant boards the right to hold
shareholder meetings in a virtual or hybrid format as long as companies
uphold the following best practices: |
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• Afford virtual attendee shareholders the same rights as
would normally be granted to in-person attendee
shareholders |
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• Commit to time-bound renewal (five years or less) of
meeting format authorization by
shareholders |
C-110
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• Provide a written record of all questions posed during
the meeting, and Comply with local market laws and regulations relating to
virtual and hybrid shareholder meeting practices |
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If a company breaches of any of the
criteria above, we may vote against the Chair of the nominating
committee. |
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| Accounting and Audit-Related Issues |
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Companies should have robust internal audit and internal
control systems designed for effective management of any potential and
emerging risks to company operations and strategy. The responsibility of
setting out an internal audit function lies with the audit committee,
which should have as members independent non-executive directors. Appointment of
External Auditors
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| Appointment of External Auditors |
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State
Street Global Advisors believes that a company’s auditor is an essential
feature of an effective and transparent system of external supervision.
Shareholders should be given the opportunity to vote on their appointment
or re-appoint at the annual
meeting. When appointing external auditors and approving audit fees, we
take into consideration the level of detail in company disclosures and
will generally not support such resolutions if an adequate breakdown is
not provided and if non-audit
fees are more than 50% of audit fees. In addition, we may vote against
members of the audit committee if we have concerns with audit-related
issues or if the level of non-audit fees to audit fees is
significant. In certain circumstances, we may consider auditor tenure when
evaluating the audit process. |
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| Limit
Legal Liability of External Auditors |
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We
generally oppose limiting the legal liability of audit firms because we
believe this could create a negative impact on the quality of the audit
function. |
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| Approval
of Financial Statements |
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We
believe the disclosure and availability of reliable financial statements
in a timely manner is imperative for the investment process. We expect
external auditors to provide assurance of a company’s financial condition.
Hence, we may vote against the approval of financial statements if i) they
have not been disclosed or audited; ii) the auditor opinion is
qualified/adverse, or the auditor has issued a disclaimer of opinion; or
iii) the auditor opinion is not disclosed. |
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Capital Structure, Reorganization, and
Mergers
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| Share Issuances |
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The ability to raise capital is
critical for companies to carry out strategy, to grow, and to achieve
returns above their cost of capital. The approval of capital raising
activities is essential to shareholders’ ability to monitor returns and to
ensure capital is deployed efficiently. We support capital increases that
have sound business reasons and are not excessive relative to a company’s
existing capital base. |
C-111
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Pre-emption rights are a fundamental
right for shareholders to protect their investment in a company. Where
companies seek to issue new shares without pre-emption rights, we may vote against
if such authorities are greater than 20% of the issued share capital. We
may also vote against resolutions that seek authority to issue capital
with pre-emption rights if the
aggregate amount allowed seems excessive and is not justified by the
board. Generally, we are against capital issuance proposals greater than
100% of the issued share capital when the proceeds are not intended for a
specific purpose. |
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| Share Repurchase Programs |
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We generally support a proposal to
repurchase shares. However, this is not the case if the issuer does not
clearly state the business purpose for the program, a definitive number of
shares to be repurchased, the range of premium/discount to market price at
which a company can repurchase shares, and the timeframe for the
repurchase. We may vote against share repurchase requests that allow share
repurchases during a takeover period. |
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| Dividends |
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We generally support dividend
payouts that constitute 30% or more of net income. We may vote against the
dividend payouts if the dividend payout ratio has been consistently below
30% without adequate explanation or the payout is excessive given the
company’s financial position. Particular attention will be paid where the
payment may damage the company’s long term financial health. |
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| Mergers and Acquisitions |
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Mergers or reorganizing the structure of a company often
involve proposals relating to reincorporation, restructurings, mergers,
liquidations, and other major changes to the corporation. Proposals that
are in the best interests of the shareholders, demonstrated by enhancing
share value or improving the effectiveness of the company’s operations,
will be supported. In general, provisions that are not viewed as
financially sound or are thought to be destructive to shareholders’ rights
and are not supported.
We will generally support transactions that maximize
shareholder value. Some of the considerations include the
following: |
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• Offer premium |
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• Strategic rationale |
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• Board oversight of the process for the recommended
transaction, including, director and/ or management conflicts of
interest |
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• Offers made at a premium and where there are no other
higher bidders |
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• Offers in which the secondary market price is
substantially lower than the net asset value |
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We may vote against a transaction
considering the following: |
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• Offers with potentially damaging consequences for
minority shareholders because of illiquid
stock |
C-112
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• Offers in which we believe there is a reasonable prospect
for an enhanced bid or other bidders |
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• The current market price of the security exceeds the bid
price at the time of voting
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| Anti-Takeover Measures |
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We oppose anti-takeover defenses
such as authorities for the board when subject to a hostile takeover to
issue warrants convertible into shares to existing
shareholders. |
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| Notice Period to Convene a General
Meeting |
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We expect companies to give as much
notice as is practicable when calling a general meeting. Generally, we are
not supportive of authorizations seeking to reduce the notice period to 14
days. |
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Remuneration
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| Executive Pay |
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Despite the differences among the types of plans and awards
possible, there is a simple underlying philosophy that guides our analysis
of executive pay: there should be a direct relationship between
remuneration and company performance over the long term.
Shareholders should have the opportunity to assess whether
pay structures and levels are aligned with business performance. When
assessing remuneration policies and reports, we consider adequate
disclosure of various remuneration elements, absolute and relative pay
levels, peer selection and benchmarking, the mix of long-term and
short-term incentives, alignment of pay structures with shareholder
interests as well as with corporate strategy and performance. We may
oppose remuneration reports where pay seems misaligned with shareholders’
interests. We may also vote against the re-election of members of the
remuneration committee if we have serious concerns about remuneration
practices or if the company has not been responsive to shareholder
concerns. |
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| Equity Incentive Plans |
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We may not support proposals on
equity-based incentive plans where insufficient information is provided on
matters such as grant limits, performance metrics, performance, vesting
periods, and overall dilution. Generally we do not support options under
such plans being issued at a discount to market price or plans that allow
for re-testing of performance
metrics. |
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| Non-Executive Director Pay |
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Authorities that seek shareholder
approval for non-executive
directors’ fees are generally not controversial. We typically support
resolutions regarding directors’ fees unless disclosure is poor and we are
unable to determine whether they are excessive relative to fees paid by
comparable companies. We will evaluate any non-cash or performance related pay to
non-executive directors on a
company- by-company
basis. |
C-113
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| Risk
Management |
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State Street Global Advisors believes that risk management
is a key function of the board, which is responsible for setting the
overall risk appetite of a company and for providing oversight of the risk
management process established by senior executives at a company. We allow
boards to have discretion over how they provide oversight in this area.
However, we expect companies to disclose how the board provides oversight
on its risk management system and risk identification. Boards should also
review existing and emerging risks that evolve in tandem with the with a
changing political and economic landscape or as companies diversify their
operations into new areas.
As responsible stewards, we believe in the importance of
effective risk management and oversight of issues that are material to a
company. To effectively assess the risk of our clients’ portfolios and the
broader market, we expect our portfolio companies to manage risks and
opportunities that are material and industry-specific and that have a
demonstrated link to long-term value creation, and to provide high-quality
disclosure of this process to shareholders.
Consistent with this perspective, we may seek to engage with
our portfolio companies to better understand how their boards are
overseeing risks and opportunities the company has deemed to be material
to its business or operations. If we believe a company has failed to
implement and communicate effective oversight of these risks, we may
consider voting against the directors responsible. |
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| Environmental and Social Issues |
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As a fiduciary, State Street Global Advisors takes a
comprehensive approach to engaging with our portfolio companies about
material environmental and social factors. Our Asset Stewardship program
prioritization process allows us to proactively identify companies for
engagement and voting in order to mitigate sustainability risks in our
portfolio. Through engagement, we aim to build long-term relationships
with the issuers in which we invest on behalf of our clients and to
address a broad range of topics relating to the promotion of long-term
shareholder value creation. When voting, we fundamentally consider whether
the adoption of a shareholder proposal addressing an environmental or
social topic material to the company would promote long-term shareholder
value in the context of the company’s existing practices and disclosures
as well as existing market practice.
For more information on our approach to environmental and
social issues, please see our Global Proxy Voting and Engagement
Guidelines for Environmental and Social Factors, available at ssga.com/about-us/asset-stewardship.html. |
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| About
State Street Global Advisors |
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For four
decades, State Street Global Advisors has served the world’s governments,
institutions and financial advisors. With a rigorous, risk-aware approach
built on research, analysis and market-tested experience, we build from a
breadth of index and active strategies to create cost-effective solutions.
And, as pioneers in index, ETF, and ESG investing, we are always inventing
new ways to invest. As a result, we have become the world’s fourth-largest
asset manager* with US $3.48 trillion† under our care. |
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* Pensions & Investments Research Center, as of
December 31, 2021. |
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† This figure is
presented as of December 31, 2022 and includes approximately
$58.60 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is
unaudited. |
C-114
ssga.com
Marketing communication
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2
245 9000. Australia: State Street Global Advisors, Australia, Limited
(ABN 42 003 914 225) is the holder of an Australian Financial Services License
(AFSL Number 238276). Registered office: Level 14, 420 George Street, Sydney,
NSW 2000, Australia.
T: +612 9240-7600. F: +612 9240-7611. Belgium: State
Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170
Brussels, Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium is a
branch office of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Canada: State Street Global Advisors, Ltd., 1981 McGill College
Avenue, Suite 500, Montreal, Qc, H3A 3A8, T: +514 282 2400 and 30 Adelaide
Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900.
France: State Street Global Advisors Europe Limited, France Branch
(“State Street Global Advisors France”) is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
France is registered in France with
company number RCS Nanterre 899 183 289, and its office is located
at Coeur Défense — Tour A —La Défense 4, 33e étage, 100, Esplanade du Général de
Gaulle, 92 931 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44
45 41 92. Germany: State Street Global Advisors Europe Limited, Branch in
Germany, Brienner Strasse 59, D-80333
Munich, Germany (“State Street Global Advisors Germany”). T: +49 (0)89 55878
400. State Street Global Advisors Germany is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Hong Kong: State
Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8
Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200.
Ireland: State Street Global Advisors Europe
Limited is regulated by the Central Bank of Ireland. Registered
office address 78 Sir John Rogerson’s Quay, Dublin 2. Registered
Number: 49934. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300.
Italy: State Street Global Advisors Europe Limited, Italy Branch (“State
Street Global Advisors Italy”) is a branch of State Street Global Advisors
Europe Limited, registered in Ireland with company number 49934, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78
Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors Italy is
registered in Italy with company number 11871450968 —REA: 2628603
and VAT number 11871450968, and its office is located at Via Ferrante Aporti, 10
- 20125 Milan, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan:
State Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F
1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors
C-115
Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101 CN
Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global Advisors
Netherlands is a branch office of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Singapore: State Street Global Advisors
Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00.
F: +41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No.
5776591 81. Registered office: 20 Churchill Place, Canary Wharf,
London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States:
State Street Global Advisors, 1 Iron Street, Boston, MA 02210-1641. T: +1
617 786 3000.
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the current accuracy,
reliability or completeness of, nor liability for, decisions based on such
information and it should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be
considered a solicitation to buy or an offer to sell a security.
It does not take into account any investor’s particular investment objectives,
strategies, tax status or investment horizon. You should consult your tax and
financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates are
only available to such persons and persons of any other description (including
retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind
relating to the accuracy, completeness or timeliness of the data
and have no liability for damages of any kind relating to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results generated out of the scoring model is based on
sustainability and corporate governance dimensions of a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence of investment
research (b) is not subject to any prohibition on dealing ahead of the
dissemination of investment research.
© 2023 State Street Corporation.
All Rights Reserved.
ID1482704-3479919.3.1.GBL.RTL 0323 Exp. Date: 03/31/2024
C-116
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Guidance
Asset Stewardship
April 2023 |
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Guidance on Managing Geopolitical
Risk |
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As
asset stewards, we are aware of the financial risks associated with
geopolitical risk, including risks arising from unexpected conflict
between or among nations. Where appropriate, we may seek to mitigate
relevant risks through engagements and proxy voting. |
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Below
is our guidance and approach to stewardship in such instances in an effort
to protect shareholder value. |
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Guidance for
Impacted Companies |
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We expect our portfolio companies that may be impacted by
geopolitical risk to:
• Manage and mitigate risks related to operating in
impacted markets, which may include financial, sanctions, regulatory,
and/or reputational risks, among others;
• Strengthen board oversight of these efforts;
and
• Describe these efforts in public disclosures.
In addition to these conflict-specific expectations, our
existing Guidance on Human Rights Disclosures &
Practices applies to all companies in our portfolio. |
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| Engagements |
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We may
request engagements with portfolio companies that have been identified as
having exposure to geopolitical risk. Our objective will be to understand
how companies are disclosing and managing relevant sanctions, regulatory,
reputational, human rights-related, and financial risks (e.g., disruptions
to operations, supply chain, human capital management strategies), and to
encourage alignment with our expectations. |
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| Proxy
Voting |
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We may
consider using proxy voting to hold boards accountable for insufficient
oversight of relevant risks, in line with our existing oversight
expectations for directors. |
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| Conclusion |
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This
guidance is an example of the Asset Stewardship Team’s commitment to
proactively managing risks to our portfolio in order to enhance long-term
value for our clients. Please reach out to State Street Global Advisors’
Asset Stewardship Team at [email protected] to request an
engagement on this topic. |
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C-117
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| About
State Street Global Advisors |
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Our clients are the world’s governments, institutions and
financial advisors. To help them achieve their financial goals we live our
guiding principles each and every day:
• Start with rigor
• Build from breadth
• Invest as stewards
• Invent the future
For four decades, these principles have helped us be the
quiet power in a tumultuous investing world. Helping millions of people
secure their financial futures. This takes each of our employees in 29
offices around the world, and a firm-wide conviction that we can always
do it better. As a result, we are the world’s fourth-largest asset
manager* with US $3.62 trillion† under our care. |
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* Pensions & Investments Research Center, as of
December 31, 2021.
† This figure is
presented as of March 31, 2023 and includes approximately $65.03 billion
USD of assets with respect to SPDR products for which State Street Global
Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing
agent. SSGA FD and State Street Global Advisors are affiliated. Please
note all AUM is unaudited. |
ssga.com
Marketing communications
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA).
This document is intended for Professional Clients
or Market Counterparties only as defined by the FSRA and no other
person should act upon it. State Street Global Advisors Limited, ADGM Branch, Al
Khatem Tower, Suite 42801,
Level 28, ADGM Square, Al Maryah Island, P.O Box 76404, Abu
Dhabi, United Arab Emirates. Regulated by the ADGM Financial Services Regulatory
Authority. T: +971 2 245 9000. Australia: State Street Global Advisors,
Australia, Limited (ABN
42 003 914 225) is the holder of an Australian Financial Services
License (AFSL Number 238276). Registered office: Level 14, 420 George
Street, Sydney, NSW 2000, Australia. T: +612 9240-7600. F: +612 9240-7611.
Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 185,
1170 Brussels, Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium
is a branch office of
State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin
2. Canada: State Street Global Advisors, Ltd., 1981 McGill College
Avenue, Suite 500, Montreal, Qc, H3A 3A8, T: +514 282 2400 and 30 Adelaide
Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900.
France: State Street Global Advisors Europe Limited, France Branch
(“State Street Global Advisors France”) is a branch of State Street Global
Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central
Bank of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. State Street Global Advisors France is registered in France with
company number RCS Nanterre 899 183 289, and its office is located at Coeur
Défense – Tour A – La Défense 4, 33e étage, 100, Esplanade du Général de Gaulle,
92 931 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41
92. Germany: State Street Global Advisors Europe Limited,
Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
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Guidance on Managing
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C-118
Advisors Germany”). T: +49 (0)89 55878 400. State Street
Global Advisors Germany is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number
49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. Hong Kong:
State Street Global Advisors Asia Limited, 68/F, Two International Finance
Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852
2103-0200. Ireland: State Street Global Advisors Europe Limited is
regulated by the Central Bank of Ireland. Registered office address 78 Sir John
Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353 (0)1 776 3000. F:
+353 (0)1 776 3300. Italy: State Street Global Advisors Europe Limited,
Italy Branch (“State Street Global Advisors Italy”) is a branch of State Street
Global Advisors Europe Limited, registered in Ireland with company number
49934, authorised and regulated by the Central Bank of Ireland,
and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State
Street Global Advisors Italy is registered in Italy with company number
11871450968 — REA: 2628603 and VAT number 11871450968, and its office is located
at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F: +39 02
32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd.,
Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101 CN
Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global
Advisors Netherlands is a branch office of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Singapore: State
Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00.
F: +41 (0)44 245 70 16. United Kingdom: State Street Global
Advisors Limited. Authorised and regulated by the Financial Conduct Authority.
Registered in England. Registered No. 2509928. VAT No. 5776591 81.
Registered office: 20 Churchill Place, Canary Wharf, London, E14
5HJ. T: 020 3395 6000. F: 020 3395 6350. United States: State Street
Global Advisors, 1 Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended April 12, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or
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Guidance on Managing
Geopolitical Risk |
C-119
transmitted or any of its contents disclosed to third parties
without SSGA’s express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the current accuracy,
reliability or completeness of, nor liability for, decisions based on such
information and it should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a
solicitation to buy or an offer to sell a security. It does not take into
account any investor’s particular investment objectives, strategies,
tax status or investment
horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude
companies that do not meet the portfolio’s specified ESG criteria may trail
the returns on a portfolio of securities which include such companies. A
portfolio’s ESG criteria may result in the portfolio investing in industry
sectors or securities which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates
are only available to such persons and persons of any other description
(including retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind
relating to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results generated out of the scoring model is based on
sustainability and corporate governance dimensions of a scored entity.
The information contained in this communication is
not a research recommendation or ‘investment research’ and is
classified as a ‘Marketing Communication’ in accordance with the Markets in
Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation.
This means that this marketing communication (a) has not been prepared in
accordance with legal requirements designed to promote the independence of
investment research (b) is not subject to any prohibition on dealing ahead
of the dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1522578-4654606.2.1.GBL.RTL 0423 Exp. Date: 03/31/2024
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Insights
Asset Stewardship
March 2023 |
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Guidance on Climate-related
Disclosures |
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At State Street Global
Advisors, we believe that managing climate-related risks and opportunities
is a key element in maximizing long-term risk-adjusted returns for our
clients. As a result, we have a longstanding commitment to enhance
investor-useful disclosure around this topic. We have encouraged our
portfolio companies to report in accordance with recommendations of the
Task Force for Climate-related Financial Disclosures (TCFD)1 since we first
endorsed the framework in 2017. Since then, companies have improved the
quality and quantity of climate-related disclosure and investors have
matured their expectations. |
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This guidance outlines our expectations with respect to the
disclosure of climate-related risks and opportunities and our approach to
voting and engagement on this important topic. We will continue to engage
with portfolio companies to ensure investors receive the information
needed to assess how companies are approaching climate-related risks and
opportunities.
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| Our
Expectations for Climate-related Disclosures |
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We expect all companies in our portfolios to offer public
disclosures in accordance with the four pillars of the TCFD framework:
Governance, Strategy, Risk Management, and Metrics and
Targets. |
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1 |
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Governance The TCFD recommends
companies describe the board’s oversight of, and management’s role in,
assessing and managing climate-related risks and
opportunities. |
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2 |
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Strategy The TCFD recommends
companies describe identified climate-related risks and opportunities and
the impact of these risks and opportunities on their businesses, strategy,
and financial planning. |
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3 |
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Risk Management The TCFD
recommends companies describe processes for identifying, assessing, and
managing climate-related risks and describe how these processes are
integrated into overall risk management. |
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4 |
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Metrics and Targets The TCFD recommends companies
disclose metrics and targets used to assess and manage climate-related
risks and opportunities.
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Disclosure Expectations for Effective Climate Transition
Plans |
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We believe it is our responsibility to provide portfolio
companies that have adopted a climate transition plan with clarity on our
expectations for effective climate transition plan
disclosure. |
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C-121
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In developing our climate transition plan disclosure
expectations, our asset stewardship team conducted an in-depth assessment of existing
disclosure frameworks and standards for relevant disclosures. We
considered several factors (e.g., market adoption, usefulness for
decision-making, applicability across sectors) and selected a core set of
disclosure expectations for companies that have adopted climate transition
plans.
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We recognize that there is no one-size-fits-all
approach to reaching net-zero and
that climate-related risks and opportunities can be highly nuanced across
and within industries. The expectations set out below serve to provide
transparency on the core criteria we expect companies that have adopted a
climate transition plan to address in their related
disclosures.
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Figure 1
Key Areas of Climate Transition Disclosure
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Category |
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Disclosure Expectations for Companies that Have Adopted a
Climate Transition Plan
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Ambition |
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Disclose what long-term climate ambition has been adopted by
the company |
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Targets |
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• |
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Disclose any interim GHG emissions
reduction targets |
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• |
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Disclose any commitment to align with temperature
goals |
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TCFD Disclosure |
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We promote adoption of TCFD-aligned
disclosure |
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Disclose any scenario analysis
performed by the company |
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• |
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Provide emissions reporting and assurance |
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Decarbonization Strategy |
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Disclose how the company’s transition
plan integrates into the company’s long-term strategy |
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Discuss decarbonization
actions |
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Disclose carbon offsets
utilization |
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Discuss decarbonization across the value chain |
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Capital Allocation Alignment |
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Disclose any integration of climate
considerations into capital allocation decisions |
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Disclose what capital expenditure is
made on low carbon strategies |
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• |
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Disclose the company’s approach to
carbon pricing |
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Disclose any investments in decarbonization |
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Climate Policy Engagement |
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Disclose any climate change policies
and positions |
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Disclose any trade association review |
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Climate Governance |
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Disclose board oversight of the climate
transition plan |
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Disclosure of management oversight of the climate transition
plan |
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Physical Risk |
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Disclose any physical risk assessment
performed by the company |
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Disclose the company’s physical risk management for
identified risks |
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Stakeholder Engagement |
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• |
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Disclose the company’s: |
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– |
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Industry collaboration |
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Investor engagement |
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Climate expert engagement |
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– |
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Internal engagement |
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C-122
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Voting
Incorporating Our Expectations into Our Proxy Voting
Policies |
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With
respect to voting on climate-related disclosure issues, we will first
engage with companies related to our climate-related disclosure
expectations outlined herein, focusing on companies and industries with
the greatest risk and opportunity. |
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| Director
Elections |
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Climate-related Disclosure Expectations
State Street Global Advisors has implemented the following
proxy voting guidelines:
• We may take voting action against companies in the
S&P 500, S&P/TSX Composite, FTSE 350, STOXX 600, and ASX 200
indices if companies fail to provide sufficient disclosure regarding
climate-related risks and opportunities related to that company, or board
oversight of climate related risks and opportunities, in accordance with
the TCFD framework. |
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Climate Transition Plan
Disclosure Expectations for Significant Emitters As a complement to
this director voting policy, we have launched an engagement campaign on
climate transition plan disclosure targeting significant emitters in
carbon-intensive sectors. Through our engagements, we will aim to better
understand climate transition plans and strategies, and gain insight on
each company’s unique set of climate-related risks and strategic
opportunities presented by the transition. |
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| Shareholder
Proposals |
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Climate-related
Shareholder Proposals |
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Below is the approach when
voting on climate-related shareholder proposals: |
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FOR We will consider voting for
shareholder proposals that we believe will lead to increased alignment
with our expectations for climate-related disclosures; |
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ABSTAIN We will consider voting
abstain when we support some elements of a proposal’s request, or
recognize a company’s commitment to implement related disclosure and/or
oversight practices; |
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AGAINST We will vote against
shareholder proposals that we believe are immaterial, overly prescriptive,
or would not further our disclosure and oversight
expectations |
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Guidance on
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C-123
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| Engagements Incorporating Our Expectations into
Conversations with Companies |
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Climate continues to be a core stewardship priority for
State Street Global Advisors. During engagement, we may ask companies one
or more of the questions outlined below. |
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Governance
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• |
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Where is the responsibility for climate
oversight housed at the board level? How frequently does the board discuss
the topic of climate change? |
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How is climate — and other ESG —
experience considered in the board refreshment process? |
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• |
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How is the board incorporating key
sustainability drivers into the performance evaluation of
management? |
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• |
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How does management and the board
utilize external expertise to stay abreast of the emerging areas of
climate? |
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Strategy |
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• |
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How does the company integrate climate
considerations into business strategy and financial planning? |
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• |
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What actions are being considered to
support efforts to reduce GHG emissions across the value chain, such as
with suppliers and customers? |
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• |
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Where does the company identify the
greatest opportunities for decarbonization in the short- and
medium-term? |
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Risk
Management |
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How does the company consider
climate-related risks as part of overall risk management? What is the
board’s role? |
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• |
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Has the company assessed the potential
impacts of physical risk on its assets and operations? |
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• |
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How does the company manage
climate-related policy risks? Has the company conducted an assessment of
its stated climate positions versus those of its trade and industry
associations? |
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Metrics and
Targets |
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What metrics does the company utilize
to track progress on achieving its climate goals? |
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What sources of GHG emissions
contribute most significantly to the company’s carbon
footprint? |
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Guidance on
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C-124
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What are the biggest challenges facing the company in
achieving its GHG emissions reduction targets?
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| Conclusion |
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We encourage companies in our portfolios to align their
climate-related disclosures and practices with our expectations and at the
same time we endeavor to communicate these expectations clearly to the
market. Please reach out to our Asset Stewardship team at
[email protected]. We look forward to engaging with you on
this important topic.
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| Endnotes |
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1 https://fsb-tcfd.org/publications/. |
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| About State Street Global Advisors |
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For
four decades, State Street Global Advisors has served the world’s
governments, institutions and financial advisors. With a rigorous,
risk-aware approach built on research, analysis and market-tested
experience, we build from a breadth of index and active strategies to
create cost-effective solutions.
And, as pioneers in index, ETF, and ESG investing, we are always inventing
new ways to invest. As a result, we have become the world’s fourth-largest
asset manager* with US $3.48 trillion† under our care. |
| |
* Pensions & Investments Research Center, as of
December 31, 2021.
† This figure is
presented as of December 31, 2022 and includes approximately
$58.60 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is
unaudited. |
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Guidance on
Climate-related Disclosures |
C-125
ssga.com
Marketing communication
State Street Global Advisors
Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2 245
9000. Australia: State Street Global Advisors, Australia, Limited (ABN 42
003 914 225) is the holder of an Australian Financial Services Licence
(AFSL Number 238276). Registered office: Level 14, 420 George Street,
Sydney, NSW 2000, Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium:
State Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels,
Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium is a
branch office of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at
78 Sir John Rogerson’s Quay, Dublin 2.
Canada: State Street Global Advisors, Ltd., 1981 McGill
College Avenue, Suite 500 , Montreal, Quebec, H3A 3A8, T: +514 282 2400 and 30
Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900.
France: State Street Global Advisors Europe Limited, France Branch
(“State Street Global Advisors France”) is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
France is registered in France with company number RCS Nanterre 899 183 289, and
its office is located at Coeur Défense — Tour A — La Défense 4, 33e étage, 100,
Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex, France. T: +33 1
44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors
Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central
Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Hong Kong: State Street Global Advisors Asia
Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong
Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global
Advisors Europe Limited is regulated by the Central Bank of Ireland. Registered
office address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934.
T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global
Advisors Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is
a branch of State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin
2. State Street Global Advisors Italy is registered in Italy with company number
11871450968 — REA: 2628603 and VAT number 11871450968, and its office is located
at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F: +39 02
32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd.,
Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership:
Japan
Investment Advisers Association, The Investment Trust Association,
Japan, Japan Securities Dealers’ Association. Netherlands: State Street
Global Advisors Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101
CN Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global Advisors
Netherlands is a branch office of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Singapore: State Street Global Advisors
Singapore Limited, 168,Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Registered with the Register of
Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16.
United Kingdom: State Street Global Advisors Limited. Authorised and
regulated by the Financial Conduct Authority. Registered in England. Registered
No. 2509928. VAT No. 5776591 81. Registered office: 20 Churchill Place, Canary
Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United
States: State Street Global Advisors, 1 Iron Street, Boston, MA 02210-1641.
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Guidance on
Climate-related Disclosures |
C-126
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the current accuracy,
reliability or completeness of, nor liability for, decisions based
on such information and it should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a
solicitation to buy or an offer to sell a security. It does not take into
account any investor’s particular investment objectives, strategies,
tax status or investment horizon. You should consult your tax and financial
advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional
clients (this includes eligible counterparties as defined by the
appropriate EU regulator) who are deemed both knowledgeable and experienced in
matters relating to investments. The products and services to which this
communication relates are only available to such persons and persons of any
other description (including retail clients) should not rely on this
communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind
relating to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results generated out of the scoring model is based on
sustainability and corporate governance dimensions of a scored
entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence of investment
research (b) is not subject to any prohibition on dealing ahead of the
dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1483211-4117655.2.1.GBL.RTL 0323 Exp. Date: 03/31/2024
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Guidance on
Climate-related Disclosures |
C-127
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| Guidance |
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April 2023 |
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Asset
Stewardship |
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Guidance on Disclosure Expectations for Effective
Climate Transition Plans |
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As
the world mobilizes toward achieving net-zero emissions by midcentury, our
portfolio companies are adopting long-term climate ambitions in increasing
numbers. However, few have provided a clear roadmap to achieving these
goals — and fewer asset managers have provided detail on what companies
are expected to disclose as they prepare for a transition to a low-carbon economy.
State
Street Global Advisors is a signatory to the Net Zero Asset Managers
initiative. We encourage companies in relevant sectors1 to develop climate
transition plans that take into account the risks and opportunities
associated with a transition to a lower carbon economy. To that end, we
believe it is our responsibility to provide portfolio companies with
clarity on our expectations for effective climate transition plan
disclosure to help ensure we — and the broader investor community —
receive the information necessary to assess each company’s preparedness
for a transition to a low-carbon
economy. |
C-128
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| Our Process for Developing Disclosure
Expectations |
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The Asset Stewardship team conducted an in-depth assessment of existing ESG
frameworks and standards for relevant climate-related disclosures. We
considered several factors (e.g., market adoption, usefulness for
decision-making, applicability across sectors, financial materiality) and
selected a core set of disclosures for climate transition plans that we
believe would be useful to investors like us. We leveraged existing
frameworks and considered market practice to help reduce the reporting
burden on companies while benefiting investors with more consistent and
robust disclosure. |
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Our selected disclosures
are organized into ten categories that closely align with those found in
the Institutional Investors Group on Climate Change (IIGCC) Net-Zero Investment Framework, which is
a widely accepted framework that provides guidance to investors on
assessing portfolio company transition plan disclosure 2. We included two
additional categories, “Physical Risk” and “Stakeholder Engagement”, as we
believe these are critical in understanding company performance and
represent areas where disclosure practices could be improved. |
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Our
Approach: Stakeholder
Engagement |
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We conducted a series of engagements with key
stakeholders — portfolio companies in carbon-intensive sectors, asset
owners, investor advocates and coalitions, and internal cross-functional
subject matter experts — to collect feedback on our expectations and help
inform our approach. Through these engagements, we identified areas of
disclosure that are realistic and others where the market may need more
time to coalesce around methodologies. |
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While stakeholders
generally agree on the value of considering the risks presented by the
social impacts of the transition to a low-carbon economy — including on
workers, communities, and customers — we found that the definition of
“just transition” and related disclosure expectations is still emerging.
In 2022, we conducted a series of targeted engagements with companies in
key sectors including Energy, Materials, and Utilities to understand best
practices and disclosure trends on managing risks and opportunities
associated with workforce transformation, customer affordability,
stakeholder engagement, and supply chain management, among others. We
continue to prioritize engagement on this topic to inform our disclosure
expectations related to just transition. |
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Disclosure
Expectations
for Effective Climate Transition Plans |
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We recognize that there is no one-size-fits-all
approach to climate transition plans and that climate-related risks and
opportunities are highly nuanced across and within industries. The
expectations set out below serve to provide transparency on the core
criteria we expect companies that have adopted a climate transition plan
to address in their related disclosures. |
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We recognize this is an emerging area of disclosure and
we will continue to develop our expectations over time, including
consideration of any mandated disclosure by
regulators. |
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Figure
1
Key
Areas of Climate Transition Disclosure |
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Category |
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Disclosure
Expectations for Companies that Have Adopted a Climate Transition
Plan |
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Ambition |
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• Disclose
what long-term climate ambition has been adopted by the company |
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Targets |
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• Disclose
any interim GHG emissions reduction targets |
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• Disclose
any commitment to align with temperature goals |
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TCFD Disclosure |
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• We
promote adoption of TCFD-aligned disclosure |
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• Disclose
any scenario analysis performed by the company |
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• Provide
emissions reporting and assurance |
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Decarbonization Strategy |
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• Disclose
how the company’s transition plan integrates into the company’s long-term
strategy |
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• Discuss
decarbonization actions |
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• Disclose
carbon offsets utilization |
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• Discuss
decarbonization across the value chain |
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Capital Allocation Alignment |
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• Disclose
any integration of climate considerations into capital allocation
decisions |
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• Disclose
what capital expenditure is made on low carbon strategies |
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• Disclose
the company’s approach to carbon pricing |
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• Disclose
any investments in decarbonization |
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Climate Policy Engagement |
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• Disclose
any climate change policies and positions |
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• Disclose
any trade association review |
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Climate Governance |
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• Disclose
board oversight of the climate transition plan |
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• Disclosure
of management oversight of the climate transition plan |
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Physical Risk |
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• Disclose
any physical risk assessment performed by the company |
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• Disclose
the company’s physical risk management for identified
risks |
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Stakeholder Engagement |
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• Disclose
the company’s: |
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— |
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Industry collaboration |
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— |
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Investor engagement |
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— |
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Climate expert engagement |
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— |
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Internal engagement |
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Applying
our Expectations to Proxy Voting and
Engagement |
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We encourage companies in relevant sectors to develop
climate transition plans that take into account the risks and
opportunities associated with a transition to a lower carbon economy.
Through our engagements, we will aim to better understand climate
transition plans and strategies, and gain insight on each company’s unique
set of climate-related risks and strategic opportunities presented by the
transition. We may consider taking voting action against directors of a
company in a relevant sector3 if those directors
fail to implement and communicate effective oversight of climate
transition risks applicable to that company and fail to demonstrate
responsiveness to us and sufficient disclosure following engagement. |
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Say on Climate |
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While we are generally supportive of the goals of “Say
on Climate” proposals because we support effective climate-related
disclosure, we currently do not endorse an annual advisory climate vote.
We have reservations with the potential unintended consequences of such a
vote, including insulating directors from accountability, distracting from
existing frameworks, and straining investors’ limited proxy voting
resources. Where management chooses to include a Say on Climate vote, we
assess the company’s disclosure on a case-by-case basis consistent
with our Disclosure Expectations for Effective Climate Transition Plans in
Figure 1 above. |
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We would consider
supporting a “Say on Climate” shareholder proposal if the company has not
provided investors with meaningful climate-related disclosure in line with
our expectations, nor signaled the intention to enhance disclosure in the
future. For more information on our approach to climate voting and
engagement see our Guidance on Climate-related
Disclosures. |
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| Conclusion |
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We encourage companies in
our portfolios to align their climate-related disclosures and practices
with our expectations and at the same time we endeavor to communicate
these expectations clearly to the market. Please reach out to our Asset
Stewardship team at [email protected]. We look forward to
engaging with you on this important topic |
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| Endnotes |
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1 As defined by the IIGCC Net Zero Investment
Framework |
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2 SSGA referred to the IIGCC Net Zero Investment
Framework which provides a list of alignment criteria for assessing
transition plans for listed equity and fixed income |
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3 As defined by the IIGCC Net Zero Investment
Framework |
C-131
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About
State Street
Global
Advisors |
|
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|
For four decades, State Street Global Advisors has
served the world’s governments, institutions and financial advisors. With
a rigorous, risk-aware approach built on research, analysis and
market-tested experience, we build from a breadth of index and active
strategies to create cost-effective solutions. And, as pioneers in index,
ETF, and ESG investing, we are always inventing new ways to invest. As a
result, we have become the world’s fourth-largest asset manager* with US
$3.62 trillion† under our care. |
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* Pensions & Investments Research Center, as of
December 31, 2021. |
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† This figure is
presented as of March 31, 2023 and includes approximately
$65.03 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is unaudited. |
C-132
ssga.com
Marketing Communication
State Street Global Advisors
Worldwide
Entities
____________________________
Abu
Dhabi: State Street Global Advisors Limited, ADGM branch is regulated by the
Financial Services Regulatory Authority (FSRA). This document is intended for
Professional Clients or Market Counterparties only as defined by the FSRA and no
other person should act upon it. State Street Global Advisors Limited, ADGM
Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM Square, Al Maryah
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State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the
holder of an Australian Financial Services License (AFSL Number 238276).
Registered office: Level 14, 420 George Street, Sydney, NSW 2000,
Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium: State Street
Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels, Belgium. T:
+32 2 663 2036.
State
Street Global Advisors Belgium is a branch office of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Canada: State Street
Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500, Montreal, Qc, H3A
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Limited, France Branch (“State Street Global Advisors France”) is a branch of
State Street Global Advisors Europe Limited, registered in Ireland with company
number 49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street
Global Advisors France is registered in France with company number RCS Nanterre
899 183 289, and its office is located at Coeur Défense — Tour A — La Défense 4,
33e étage, 100, Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex,
France.
T:
+33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global
Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two
International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852
2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors
Europe Limited is regulated by the Central Bank of Ireland. Registered office
address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353
(0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors
Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is a branch
of State Street Global Advisors Europe Limited, registered in Ireland with
company number 49934,
authorised
and regulated by the Central Bank of Ireland, and whose registered office is at
78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors Italy is
registered in Italy with company number 11871450968 — REA: 2628603 and VAT
number 11871450968, and its office is located at Via Ferrante Aporti, 10 - 20125
Milan, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State
Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101 CN
Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global Advisors
Netherlands is a branch office of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934,
C-133
authorised
and regulated by the Central Bank of Ireland, and whose registered office is at
78 Sir John Rogerson’s Quay, Dublin 2. Singapore: State Street Global
Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Registered with the Register of
Commerce Zurich CHE-105.078.458. T: +41
(0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street
Global Advisors Limited. Authorised and regulated by the Financial Conduct
Authority. Registered in England. Registered No. 2509928. VAT
No. 5776591 81. Registered office: 20 Churchill Place, Canary Wharf,
London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States: State
Street Global Advisors, 1 Iron Street, Boston, MA 02210-1641.
Investing
involves risk including the risk of loss of principal.
The
information provided does not constitute investment advice and it should not be
relied on as such. It should not be considered a solicitation to buy or an offer
to sell a security. It does not take into account any investor’s particular
investment objectives, strategies, tax status or investment horizon. You should
consult your tax and financial advisor.
The
information contained in this communication is not a research recommendation or
‘investment research’ and is classified as a ‘Marketing Communication’ in
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(a) has not been prepared in accordance with legal requirements designed to
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The
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The
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Equity
securities may fluctuate in value and can decline significantly in response to
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The
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Rights Reserved.
ID1523300-
4117397.4.1.GBL.RTL 0423 Exp. Date: 05/31/2024
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Insights |
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Asset Stewardship |
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Guidance on Environmental
Management Disclosures
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| March 2023 |
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Addressing Deforestation Risk
in Supply Chains
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| Key Takeaways |
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• Global deforestation is a major driver of biodiversity
loss and climate change, and has significant environmental, social and
financial implications for ecosystems, communities, companies and
investors. |
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• Deforestation presents a risk to companies with material
links to this practice in their supply chains and investments, and should
be disclosed and managed like any other business risk. |
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• In response to heightened regulatory, reputational, and
financial risks, boards and management teams of companies which source and
produce commodities at high risk of deforestation, or finance these
activities, should respond accordingly. This includes managing
deforestation and land degradation risk in their supply chains and
enhancing disclosure on these efforts. |
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• There is no standard framework among companies to
establish deforestation policies or disclose related oversight practices,
risk management efforts, targets and commitments, or performance KPIs,
making it difficult for investors to assess exposure to material
deforestation-related risks. |
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• Partnerships with regional policymakers and local
stakeholders are a critical component of managing deforestation-related
risks in the supply chain. Successful approaches include public-private
partnerships with local policymakers, inclusive training of the local
workforce in more sustainable practices, protection of human rights and
the respect of Free, Prior and Informed Consent (“FPIC”) of local
communities. |
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• While nearly 80% of the companies we engaged with
acknowledge the value of forests in their public disclosures, only 21%
formally recognize deforestation as a business risk. |
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• Among the companies engaged, 58% are signatories to
initiatives tackling deforestation. To achieve effective management of
deforestation risk, companies should consider following this first step
with enhanced sustainable business practices, supply chain risk
mitigation, robust board oversight and disclosure of these
efforts. |
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C-135
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| Background |
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Deforestation is a major driver of
biodiversity loss and climate change, and has significant environmental,
social and financial implications for ecosystems, communities, companies,
and investors. Globally, forests are disappearing at increasing rates.
Since 2015, an estimated 10 million hectares of forests have been
lost every year, primarily driven by commercial agriculture and production
of commodities, including palm oil, soy and cattle.1 |
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Forests represent environmental and
social value, providing habitat for over 80% of the world’s terrestrial
biodiversity and supporting livelihoods for human populations living in
and near these forests.2
As critical carbon sinks, forests also play an important role in
climate change mitigation, absorbing up to 30% of carbon emissions from
industry and fossil fuels every year.3 |
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Article 5 of the Paris Climate
Agreement4
recognizes deforestation as a key component of mitigating greenhouse
gas (GHG) emissions with the IPCC stating that deforestation and
conversion of natural ecosystems to human uses contributes 11% of global
GHG emissions.5
Tropical deforestation alone contributes 7%, mostly driven by the
production of agricultural and forest commodities. As the world moves
toward achieving net-zero
emissions by midcentury, our portfolio companies exposed to deforestation
and land degradation in their value chains must consider these topics when
adopting long-term climate ambitions. |
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Deforestation can also have human
rights-related implications, resulting in headline, human capital and
legal risk for companies with exposure to land degradation practices in
their supply chain. This includes the potential displacement of local
communities and destruction of areas that provide cultural importance or
essential resources such as food, fuel and medicine.6 A growing body of
evidence has also linked deforestation to outbreaks of infectious disease
among local communities and workforces,7 as native animal
species are forced out of their habitats to live among human
populations. |
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Global momentum around addressing
deforestation and nature loss has accelerated with the launch of the Task
Force on Nature-related Financial Disclosures (TNFD)8 and the focus on
nature as part of the COP 26 agenda. Among the various nature-related
commitments to come out of the summit, the most pertinent to addressing
deforestation was the Glasgow Leaders’ Declaration on Forest and Land
Use. Countries hosting 90% of global forests, along with financial
institutions and companies, signed a pledge to “halt and reverse forest
loss and land degradation by 2030 while delivering sustainable development
and promoting an inclusive rural transformation.”9 |
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For companies contributing to
deforestation through their supply chains and investments, these trends
represent a significant shift requiring a renewed approach to their
services, products and engagement culture with stakeholders. Aside from
presenting an inherent business risk, companies with deforestation
exposure are facing heightened regulatory, reputational, and financial
risk. At State Street Global Advisors, we believe it is important for
boards and management to work to manage risks related to deforestation and
land degradation in their supply chains and to enhance disclosure around
these efforts. |
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-136
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| Stewardship Focus Area: Land
Use & Biodiversity |
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Deforestation is an increasingly important area of focus for
the State Street Global Advisors’ Asset Stewardship program. Environmental
management — spanning topics that include land use, biodiversity, natural
resources and the circular economy — has been a thematic stewardship
priority for our program for several years. Effective environmental
management encompasses all environmental impacts, within both a company’s
operations and its supply chain. In 2022, our team will deepen our focus
on land use and biodiversity, conducting targeted engagement campaigns,
providing guidance to our investee companies and publishing thought
leadership on these subjects.
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| Deforestation Engagement
Campaign |
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In 2021, we initiated a series of
targeted engagements with our investee companies with direct exposure to
deforestation in their supply chains — primarily those that source
agricultural and forest commodities. Our objective was to learn more about
how these companies exercise oversight of their supply chains and how they
are managing the various material risks stemming from
deforestation. |
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We relied on existing frameworks,
including those from the CDP,10 Sustainability
Accounting Standards Board (SASB),11 United Nations
Environment Program (UNEP),12 United Nations Global
Compact (UNGC),13
and Ceres14
to identify high-impact sectors, and engaged 15 of our significant
holdings in those sectors to request in-depth engagements (see the Appendix
for a list of companies engaged). |
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We chose to focus on engaging
companies in the Food & Beverage and Consumer Goods sectors, due
to their usage or production of the core commodities and activities
responsible for the majority of agriculture-related deforestation. This
includes, but is not limited to, cattle, palm oil, cocoa, leather, rubber,
soy, timber and mining. |
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Our conversations with companies
centered on topics including: |
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• Supply chain risk management; |
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• Product certifications & industry
organizations; |
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• Participation in the policymaking
process; |
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• Land rights preservation and community stakeholder
engagement; |
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• Human rights and FPIC of local
communities; |
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• Ingredient traceability and identifying high-risk
commodities; |
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• Reputational risk and evolving consumer
preferences; |
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• The shifting regulatory context; and |
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• Board oversight of deforestation-related
risks. |
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-137
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We also engaged with external
experts including non-governmental organizations, issue
advocates, academic institutions and industry coalitions to understand
their perspectives on managing risks related to deforestation. The
individuals from these groups helped inform our engagement approach and
contextualize our insights gleaned from these
conversations. |
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| Engagement Insights |
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As a result of our engagements and
review of company disclosure practices, we identified the following key
challenges that companies face and some potential best practices they have
adopted to identify and address deforestation risks in their supply chain.
These insights are discussed in further detail in the sections
below. |
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• Supply Chain Risk Management While many of the
engaged companies have established supplier code of conducts, ongoing
monitoring and non-compliance
protocols differentiate leaders from laggards. Challengingly, a lack of
industry consensus exists regarding how to engage non-compliant suppliers, stalling the
implementation of no-deforestation commitments and
allowing product produced on deforested lands to enter global supply
chains. |
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• Integrity of Auditing Process During the Pandemic
Due to safety concerns of conducting in-person audits during the ongoing
pandemic, companies have had to pivot and virtually engage in innovative
ways, including satellite monitoring and wearable technology. While the
pandemic catalyzed innovation, this remote monitoring should be coupled
with a return to recurring on-the-ground engagement to be
most effective. |
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• Product Certification Several industry
standard-setters play a critical role in defining industry best practices
for product certification, but our investee companies echoed the belief
that membership and certification are a floor for risk management, not a
ceiling. |
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• Government Relations and Policymaking Process
Challenges arise for companies when working with local governments
with weak land use policies and lax enforcement by authorities. Pragmatic
public-private partnerships with local policymakers and international
organizations can fortify company efforts to create a more resilient
supply chain, protect shareholder value, and benefit local
stakeholders. |
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• Community Engagement &
Protection of Human Rights While often characterized as an
environmental risk, deforestation also presents a number of social risks
that companies must consider. Companies should adopt policies that address
indigenous rights such as FPIC and broader human rights topics, such as
forced or child labor. Strong policies on these topics should be supported
by stakeholder engagement in the value chain so that companies will have
access to unfiltered information and perspectives from key
communities. |
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-138
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• No-Deforestation Commitments,
Metrics & KPIs In our earlier publication,
“Effective Climate-Risk Disclosure in the Agricultural and Forestry
Sectors through the Lens of the Task Force on Climate-related Financial
Disclosures” we highlighted the need for companies in high-impact
sectors to set goals to reduce their carbon emissions. Similar timebound
goals should be considered when managing deforestation-related risks
stemming from key commodities in the supply chain. |
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Disclosure Insights |
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The 15 companies we engaged disclose the following
information related to deforestation: |
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• 79% acknowledge the value of forests; |
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• 58% are signatories to initiatives tackling
deforestation; |
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• 50% have established senior-level oversight and reporting
structures for deforestation-related risks; |
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• 21% formally recognize deforestation as a business risk;
and |
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• 14% have integrated performance metrics related to
deforestation-linked commodities into their executive compensation and
broader performance evaluation programs. |
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| Disclosure Expectations for
Companies |
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Companies with material exposure to
deforestation in their value chain and/or investments should continue to
improve their disclosure in the following areas: |
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• Board-level oversight and accountability for
deforestation and land use-related risks |
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• Reporting and targets to reduce emissions linked to
deforestation |
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• Conservation or reforestation activity taken by the
company |
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• How deforestation is managed as a business
risk |
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• Quantitative and qualitative metrics covering high-risk
commodities across value chain
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-139
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| Identifying and Mitigating Risks in the Supply
Chain |
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Supplier Engagement An end-to-end approach to ongoing
supplier engagement is an essential component of risk management for
companies with exposure to deforestation-related commodities. In our
engagement with Conagra Brands, an American consumer packaged goods
company, we learned how its Supplier Excellence Program facilitates
engagement with the company’s vendors. Conagra assesses key suppliers at
least annually on ESG risk-related performance and disclosure. This annual
sustainability assessment is supplemented by quarterly performance
discussions and risk analyses, and regular consultation between all
parties to address any operational issues or gaps in
disclosure. |
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| Supplier
Monitoring |
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While
many of the engaged companies have established supplier code of conducts,
ongoing supplier monitoring for compliance with these codes can prove
difficult to implement and requires regular independent review. At
Hormel Foods Corporation, an American food processing company, the
company’s South American beef suppliers have ensured their compliance with
relevant requirements by creating monitoring systems for farms supplying
cattle, leveraging satellite images and geo-referenced maps of farms,
deforestation data and information from public agencies regarding
embargoed? areas and human rights. This oversight is coupled with
independent audits of all environmental monitoring systems. |
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| Supplier
Non-Compliance |
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Companies without a defined protocol for dealing with non-compliant suppliers may have
greater exposure to deforestation risk and may suffer reputational and/or
legal consequences by working with suppliers that are misaligned with
policy expectations. We found a lack of consensus on how companies engage
with non-compliant suppliers,
which can delay the termination of relationships with suppliers that fail
to adequately address deforestation. Post Holdings, Inc., an
American consumer packaged goods company, requires its suppliers to follow
an annually reviewed code of conduct, and any potential breach of this
conduct is reviewed in a consistent and transparent manner. Industry
organizations like the Global Food Safety Initiative (GFSI) ensure that
third-party operations audits assist in identifying non-compliant suppliers and share this
information among members. |
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| High Risk
Commodity Exposure |
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The
investee companies we engaged with shared a variety of approaches to
identifying key ingredients in their products, as well as which
commodities were most exposed to deforestation risk. These prioritization
frameworks were generally holistic, science-based, and dependent on robust
supply chain audits. The results of the identification process are
paramount, as they inform the metrics and key performance indicators of
companies’ deforestation policies and commitments. We learned how The
Kraft Heinz Company, an American multinational food company partnered
with the Rainforest Alliance, an NGO, to expand its forest risk
commodities supply chain assessment to include soy. This work included
surveying their suppliers, evaluating sustainable product certifications
and better understanding sourcing risks based on counties of origin. The
findings from this exercise were material, with over a third of the
company’s global soy volume sourced from potential high-risk counties of
origin. |
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-140
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| COVID-19 Supply Chain Auditing
Challenges |
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The
global COVID-19 pandemic limited
abilities to conduct in-person
audits of suppliers, catalyzing innovation in virtual monitoring, while
raising questions about the effectiveness of this method in the long-term.
Some of our investee companies reported investing further in satellite
monitoring capabilities, while others explored new solutions like wearable
technology. Post Holdings, Inc equipped on-site employees with Google Glasses
to connect with virtual teams to complete multi-party audits in real time.
Several of the engaged companies also emphasized the need to maintain
employee privacy and ensure that these remote tools don’t breach these
obligations or trust. Safely fast-tracking the adoption of these new
technologies, while preserving employee privacy and protecting against
cybersecurity threats, were both expressed as continued focus areas for
our investee companies. |
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| Product
Certifications & Industry Organizations |
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Many of
our investee companies emphasized the importance of participating in
industry organizations to mitigate risk and work with their suppliers.
These organizations provide certifications for companies who fulfill the
required environmental and social criteria. Organizations frequently cited
in our engagements included: |
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• the Roundtable on Sustainable Palm Oil
(RSPO); |
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• the Forest Stewardship Council, (FSC); |
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• the Sustainable Forest Initiative (SFI); |
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• the Program for Forest Endorsement (PEFC);
and |
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• USDA Organic
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These standard-setters play a critical role in defining
industry best practices and encouraging stronger oversight practices, but
our investee companies echoed our belief that membership and certification
are a floor for risk management, not a ceiling. Compliance with the
standards and receiving certification are a strong initial step, but
companies cannot be overly reliant on this process and take this as a
proxy for total risk mitigation. |
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Engaging with Policymakers and
Local Governments |
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Participating in industry coalitions
and obtaining certification are valuable in creating more sustainable and
resilient supply chains, and mitigating social and reputational risk.
However, these mechanisms are largely voluntary, and their effectiveness
for member companies depends on the jurisdiction their supply chains are
located in. Several investee companies told us of the challenge posed when
working with local governments with weak land use policies and lax
enforcement by authorities. To achieve the systemic change required to
meet the 2030 Glasgow pledge, and to mitigate continued environmental and
social risk stemming from deforestation practices, companies may need to
consider how to best participate in the policy-making
conversation. |
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-141
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Highlighting the outsized impact one
company’s efforts can have in this process, Mondelez
International, Inc., an American multinational confectionery, food,
holding and beverage and snack food company, has spent ten years fostering
multi-lateral public-private partnerships in one of its critical supply
chain domiciles, sub-Saharan
Africa. In Ghana, the company developed “Cocoa Life”,15 a program which
incentivizes cocoa farmers to adopt more sustainable practices through
increased economic benefits like achieving higher yields using less
fertilizers and land. Mondelez built on this progress by announcing a
formal partnership with the Forest Commission of Ghana, Cocoa Board and
United Nations Development Program (“UNDP”) to reduce deforestation and
forest degradation in the country while simultaneously reducing emissions
in its cocoa supply chain. |
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Pragmatic public-private partnerships with local
policymakers and international organizations can fortify company efforts
to improve supply chain resilience, protect shareholder value, and benefit
local stakeholders. |
| |
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Addressing Evolving Shareholder
& Stakeholder Expectations |
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In recent years, evolving consumer
preferences and increased awareness of deforestation’s impacts —
particularly its contribution to biodiversity loss and climate change —
have led issue advocates and investors to demand enhanced disclosure from
companies exposed to deforestation risk. Since 2016, 11
deforestation-related shareholder proposals have been submitted to a
shareholder vote, with two of them receiving majority support for the
first time in 2021.16
Following the submission of one such proposal at
Procter & Gamble, an American multinational
consumer goods corporation, requesting that the company report on efforts
to eliminate deforestation from its forest pulp and palm oil supply chain,
Procter & Gamble responded across several fronts. These actions
included implementing public grievance reporting, strengthening its palm
oil sourcing policy, advancing company conservation and restoration
efforts and accelerating its RSPO certification targets to 2021 from 2022.
Investors, issue advocates and consumers will likely continue to hold
companies accountable through deforestation-related shareholder proposals
moving forward, and boards should prepare to strengthen their disclosure
efforts and management oversight accordingly. |
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-142
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| Preserving
Land Rights and Engaging with Community Stakeholders |
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Effective approaches to acting on deforestation-related
commitments must consider the land rights and livelihoods of local people,
particularly indigenous communities. As part of Bunge Limited’s
commitment to reaching deforestation-free value chains by 2025, we
learned how the American agribusiness and food company engages with
farmers to protect native vegetation and establishes incentives to support
this shift to more sustainable value chains. This process includes fairly
compensating farmers who commit to sustainable agricultural practices and
avoid negative conversion, discouraging the practice of converting
forested land to agriculture in favor of expanding across areas already
open for production. |
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| Protecting
Human Rights and Respecting FPIC of Local Communities |
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|
A
critical component of fostering sustainable value chains is the protection
of human rights and respect of FPIC of local communities. Responding to
feedback from issue advocates, Kellogg Company, an American
multinational food manufacturing company, materially revised its
deforestation-related commitments to protect local stakeholders in the
communities with exposure to its supply chain. These pledges include
immediately suspending company groups which perpetrate threats and
violence towards human rights advocates, communities and workers. The
company also committed to participate in and fund jurisdictional and
landscape approaches which fully respect the FPIC of local
communities. |
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| Establishing Deforestation Policies and
Commitments |
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|
Several
of the companies we engaged with have committed to establishing no-deforestation ambitions within their
supply chains covering key commodities. These policies tend to have time
horizons ranging from 2025 to 2030, in line with the global pledge made at
COP26. In the absence of a common industry disclosure framework on this
subject, the implementation and associated disclosure of these plans
varies by company. The Kroger Co., an American retail company that
operates supermarkets and multi-department stores, articulated its
commitment to source from deforestation-free processes across its four key
commodities of palm oil, beef, soy and pulp/paper/timber, with varying
implementation mechanisms and certifications for each
commodity. |
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| Measuring Success |
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As companies navigate the aforementioned challenges, there
are a range of deforestation-related metrics and KPIs being used to
measure success. High-level goals are typically supported by
commodity-specific objectives on varying timelines, and progress against
these objectives is shared with management, the board and shareholders.
For example, The Campbell Soup Company, an American
processed food and snack company is focused on reaching 100% of its
suppliers passing a social compliance audit by 2025, while achieving equal
success in determining accurate country of origin traceability on products
derived from high-risk commodities. Mondelez International Inc.
continues to report on 10 KPIs associated with its Cocoa Life project,
covering target topics in the value chain, including elimination of child
labor, supplier compliance certification, and ingredient traceability.
Clorox Company, an American global manufacturer and marketer of
consumer and professional products has committed to halve the amount of
virgin plastic and virgin fiber used in packaging by 2030.
To build on these initial efforts, stakeholders in our
engagements expressed the need for a standardized disclosure framework
that provides added transparency on how companies are performing against
any deforestation-related targets and commitments. Benefits cited include
defining relative and absolute performance thresholds and incentivizing
the adoption of better practices among industry
peers. |
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-143
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| Conclusion |
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At
State Street Global Advisors, we believe that global deforestation —
namely its direct linkage to biodiversity loss and climate change —
presents a risk to companies with material exposure to this practice in
their supply chains and investments, and should be disclosed and managed
like any other business risk. This perspective, along with our fiduciary
duty to act on behalf of our clients’ long-term interests, informs our
asset stewardship efforts on this topic. By sharing these insights from
our targeted engagement campaign and analysis of public disclosures, our
intention is to equip Boards to more effectively respond to the threat of
deforestation. |
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Companies in high-exposure sectors
are taking various steps to address risks related to global deforestation
in their supply chain and investments, but there are a number of
challenges they face while identifying and remediating these issues. We
will continue to engage with companies to inform our ongoing efforts in
this space. Please reach out to our team at [email protected]
to request an engagement on this important
topic. |
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-144
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Appendix: Companies
Engaged as Part
of Deforestation
Engagement Campaign |
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Company
Name |
|
Market/Country |
|
Sector |
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|
AGCO Corporation |
|
United States |
|
Resource Transformation |
| |
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|
Bunge Limited |
|
United States |
|
Food & Beverage |
| |
|
|
Campbell Soup Company |
|
United States |
|
Food & Beverage |
| |
|
|
Conagra Brands, Inc. |
|
United States |
|
Food & Beverage |
| |
|
|
Darden Restaurants, Inc. |
|
United States |
|
Food & Beverage |
| |
|
|
Hormel Foods Corporation |
|
United States |
|
Food & Beverage |
| |
|
|
Kellogg Company |
|
United States |
|
Food & Beverage |
| |
|
|
Mondelez International, Inc. |
|
United States |
|
Food & Beverage |
| |
|
|
Post Holdings, Inc. |
|
United States |
|
Food & Beverage |
| |
|
|
The Clorox Company |
|
United States |
|
Consumer Goods |
| |
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|
The J.M. Smucker Company |
|
United States |
|
Food & Beverage |
| |
|
|
The Kraft Heinz Company |
|
United States |
|
Food & Beverage |
| |
|
|
The Procter & Gamble
Company |
|
United States |
|
Consumer Goods |
| |
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The Kroger Co. |
|
United States |
|
Food & Beverage |
| |
|
|
Weyerhaeuser Company |
|
United States |
|
Renewable Resources & Alternative
Energy |
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| Endnotes |
|
|
|
1 Global Forest Resources Assessment 2020 — Key findings”
Food and Agriculture Organization of the United Nations.
(2020) http://fao.org/3/CA8753EN/ CA8753EN.pdf.
2 “Forests Sourcebook: Practical Guidance For Sustaining
Forests In Development Cooperation” World Bank-WWF Alliance for Forest
Conservation and Sustainable Use (2008) World Bank
Document.
3 Labbate, Gabriel. “Deforestation Factsheet”, United
Nations Environment Programme, (April 2021),
https://wedocs.unep.org/bitstream/
handle/20.500.11822/35851/DF.pdf.
4 “Paris Agreement”. United Nations Framework
Convention on Climate Change. (April 2016).
5 “Climate Change and Land: An IPCC Special Report on
climate change, desertification, land degradation, sustainable land
management, food security, and greenhouse gas fluxes in terrestrial
ecosystems”, Intergovernmental Panel on Climate Change, (January
2020), https://ipcc.ch/site/assets/uploads/
sites/4/2020/02/SPM_Updated-Jan20.pdf.
6 “Indonesia: Indigenous Peoples Losing Their Forests”
Human Rights Watch (September 2019) hrw.org/
news/2019/09/22/indonesia-indigenous-peoples-losing-their-forests#. |
|
7 Gross, Anna. Schipani, Andres. Palma, Stefania. Findlay,
Stephanie. “Global Deforestation Accelerates During the Pandemic”, The
Financial Times, (August 2020),
https://ft.com/content/b72e3969-522c-4e83-b431-c0b498754b2d.
8 “The TNFD Nature-related & Opportunity
Management and Disclosure Framework” Taskforce on Nature-related Financial
Disclosures, (March 2020) https://tnfd.
global/wp-content/uploads/2022/03/220321-TNFD- framework-beta-v0.1-Exec-Summary-FINAL.pdf.
9 “Glasgow Leaders’ Declaration on Forests and Land Use”,
UN Climate Change Conference UK 2021, (February 2021), https://ukcop26.org/glasgow-leaders-declaration-on-forests-and-
land-use/.
10 “The Collective Effort to End Deforestation: A Pathway
For Companies to Raise Their Ambition”, CDP, (March 2021), https://cdn.cdp.net/cdp-production/cms/reports/
documents/000/005/630/original/CDP_Forests_
analysis_report_2020.pdf?1616334771.
11 “Processed Foods: Sustainability Accounting Standard”,
Sustainability Accounting Standards Board, (October 2018) https://sasb.org/wp-content/
uploads/2018/11/
Processed_Foods_Standard_2018.pdf. |
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-145
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12 Labbate, Gabriel. “Deforestation Factsheet”, United
Nations Environment Programme, (April 2021),
https://wedocs.unep.org/bitstream/
handle/20.500.11822/35851/DF.pdf.
13 “A Spotlight on Sustainable Supply Chain &
Procurement”, United Nations Global Compact (December 2021),
https://unglobalcompact.org/take-
action/leadership/integrate-sustainability/roadmap/
supply-chain.
14 “The Investor Guide to Deforestation and Climate
Change”, Ceres, (June 2020), https://ceres.org/sites/ default/files/reports/2020-06/Ceres%20Investor%20
Guide%20FINAL%20June%2029.pdf. |
|
15 Van Cutsem, Cedric. “Action Plans to Protect and
Restore Forests, with Farmers at the Heart”, Cocoa Life: Mondelez
International, (March 2019). https://cocoalife. org/progress/action-plans-to-protect-and-restore-
forests-with-cocoa-life-farmers-at-the-heart.
16 Dhanasarnsombat, Sansanee. “Deforestation Shareholder
Proposals Wins Signals a Shift”, Bloomberg Law, (August
2021). https://news. bloomberglaw.com/ bloomberg-law-analysis/analysis-deforestation-shareholder-proposal-wins-signal-a-shift. |
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| About State Street Global
Advisors |
|
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Our clients are the world’s governments, institutions and
financial advisors. To help them achieve their financial goals we live our
guiding principles each and every day:
|
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• |
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Start with rigor |
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• |
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Build from breadth |
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Invest as stewards |
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• |
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Invent the future |
| |
For four decades, these principles have helped us be the
quiet power in a tumultuous investing world. Helping millions of people
secure their financial futures. This takes each of our employees in 29
offices around the world, and a firm-wide conviction that we can always
do it better. As a result, we are the world’s fourth-largest asset
manager* with US $3.48 trillion† under our care.
|
| |
* Pensions & Investments Research Center, as of
December 31, 2021. |
| |
† This figure is
presented as of December 31, 2022 and includes approximately
$58.60 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is
unaudited. |
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-146
ssga.com
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authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
Italy is registered in Italy with company number 11871450968 — REA: 2628603 and
VAT number 11871450968, and its office is located at Via Ferrante Aporti, 10 -
20125 Milan, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan:
State Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F
1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers
Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101 CN
Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global Advisors
Netherlands is a branch office of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Singapore: State Street Global Advisors
Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No. 5776591 81. Registered
office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F:
020 3395 6350. United States: State Street Global Advisors, 1 Iron
Street, Boston, MA 02210-1641. T: +1 617 786 3000.
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-147
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or
warranty as to the current accuracy, reliability or completeness
of, nor liability for, decisions based on such information and it should not be
relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate
EU regulator) who are deemed both knowledgeable and experienced in matters
relating to investments. The products and services to which this communication
relates are only available to such persons and persons of any other description
(including retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind relating
to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results generated out
of the scoring model is based on sustainability and corporate
governance dimensions of a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence of investment
research (b) is not subject to any prohibition on dealing ahead of the
dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1483402-4641947.2.1.GBL.RTL 0323 Exp. Date: 03/31/2024
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Guidance on Environmental
Management Disclosures Addressing Deforestation Risk in Supply
Chains |
C-148
May
2023
Asset
Stewardship
Guidance
on Human Rights Disclosures & Practices
State
Street Global Advisors is committed to upholding human rights, and we expect our
investee companies to as well given the reputational, regulatory, legal, and
operational risks that human rights violations can pose to a company. We expect
portfolio companies to regularly identify whether there are risks related to
human rights1 in their
operations and manage any material risks that emerge, providing relevant
disclosures to investors.
| |
1 |
As defined in the Universal Declaration
of Human Rights and the ILO Declaration on Fundamental Principles
and Rights at Work. |
C-149
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| Our Expectations for Human Rights Disclosures |
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We
expect companies to disclose whether they have established processes for
identifying risks related to human rights. If any material human rights
risks are identified, we expect further public disclosure describing:
1.
Human rights-related risks the company considers most material;
2.
Plans to manage and mitigate these risks;
3.
Board oversight of these risks; and
4.
Assessment of the effectiveness of the human rights risk management
program. |
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State Street Global Advisors believes that best
practices for enhancing human rights-related disclosures include
describing: |
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• Specific
geographic regions, industries, resources, or types of workforce where the
risk is highest;
• How
workers, civil society organizations, and other stakeholders are involved
in identifying and mitigating issues;
• Which
mechanisms exist for workers to raise grievances without fear of
retaliation; and
• How
the company supports impacted individuals in providing restorative
remedy. |
| |
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| Engagements |
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Incorporating Our Expectations Into Conversations with
Companies |
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We will engage companies on
this topic, prioritizing companies with the highest risk of human rights
violations. When assessing the risk level of a particular company, we will
consider the company’s industry, region, and business model; any history
of human rights violations; and client and stakeholder input. In 2021, we
initiated a targeted engagement campaign on modern slavery, and in 2022,
we undertook another series of proactive engagements on human rights,
targeting companies who were noncompliant with the UN Global Compact. We
also requested reactive engagements with specific companies if we were
made aware that they had been accused of human rights violations. |
| |
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| Thought Leadership Addressing Modern Slavery in
Supply Chains |
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In Q3 2021, we initiated a series of targeted
engagements on the topic of modern slavery. We relied on existing
frameworks including SASB, the Global Slavery Index, and the International
Labor Organization to identify high-risk sectors, and reached out to our
largest holdings in those sectors to request in-depth engagements. We focused on
companies in industries where modern slavery poses an outsized risk,
especially given the increasing reputational and regulatory risks
associated with forced labor in the supply chain. Through this process, we
gleaned insights into companies’ best practices to inform our ongoing
stewardship efforts in this space. To review our insights from this
campaign, please visit Modern Slavery Insights. |
C-150
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Voting
Incorporating
Our Expectations into Our Proxy Voting and Engagement Practices |
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With
respect to voting on human rights-related disclosure issues, we will first
engage with companies related to our human rights-related disclosure
expectations outlined herein, focusing on companies and industries with
the greatest risk and opportunity.
Below
is the approach we follow when voting on human rights related shareholder
proposals: |
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• FOR
we will consider voting for shareholder proposals that we believe will
lead to increased alignment with our expectations for human rights related
disclosures; |
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• ABSTAIN
we will consider voting abstain when we support some elements of a
proposal’s request, or recognize a company’s commitment to implement
related disclosure and/or oversight practices; |
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• AGAINST
we will vote against shareholder proposals that we believe are
immaterial, overly prescriptive, or would not further our disclosure and
oversight expectations. |
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| Investment and Research
Activities |
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State Street Global
Advisors also incorporates human rights into investment and research
activities. Our firm allocated significant resources toward building our
ESG data architecture which gives our portfolio managers and researchers
access to a variety of best-in-class data vendors. Our
colleagues have access to best-in-class data on companies’
human rights practices. |
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| Conclusion |
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We encourage companies in
our portfolios to align their disclosures and practices with our
expectations. Please reach out to State Street Global Advisors’ Asset
Stewardship Team at [email protected] to request an
engagement on this important topic. |
| |
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| About State Street Global
Advisors |
|
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For four decades, State
Street Global Advisors has served the world’s governments, institutions
and financial advisors. With a rigorous, risk-aware approach built on
research, analysis and market-tested experience, we build from a breadth
of index and active strategies to create cost-effective solutions. And, as
pioneers in index, ETF, and ESG investing, we are always inventing new
ways to invest. As a result, we have become the world’s fourth-largest
asset manager* with US $3.62 trillion† under our care. |
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* Pensions & Investments Research Center, as of
December 31, 2021. |
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† This figure is
presented as of March 31, 2023 and includes approximately
$65.03 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is unaudited. |
C-151
ssga.com
State
Street Global Advisors
Marketing
Communications
Worldwide
Entities
Abu
Dhabi: State Street Global Advisors Limited, ADGM branch is regulated
by the Financial Services Regulatory Authority (FSRA). This document is intended
for Professional Clients or Market Counterparties only as defined by the FSRA
and no other person should act upon it. State Street Global Advisors Limited,
ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM Square, Al Maryah
Island, P.O Box 76404, Abu Dhabi, United Arab Emirates. Regulated by the ADGM
Financial Services Regulatory Authority. T: +971 2 245 9000. Australia:
State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the
holder of an Australian Financial Services License (AFSL Number 238276).
Registered office: Level 14, 420 George Street, Sydney, NSW 2000, Australia. T:
+612 9240-7600. F: +612 9240-7611. Belgium: State Street Global Advisors
Belgium, Chaussée de La Hulpe 185, 1170 Brussels, Belgium. T: +32 2 663 2036.
State Street Global Advisors Belgium is a branch office of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and
regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir
John
Rogerson’s Quay, Dublin 2. Canada: State Street Global Advisors,
Ltd., 1981 McGill College Avenue, Suite 500, Montreal, Qc, H3A 3A8, T: +514
282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T:
+647 775 5900. France: State Street Global Advisors Europe Limited,
France Branch (“State Street Global Advisors France”) is a branch of State
Street Global Advisors Europe Limited, registered in Ireland with company number
49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street
Global Advisors France is registered in France with company number RCS Nanterre
899 183 289, and its office is located at Coeur Défense — Tour A — La Défense 4,
33e étage, 100, Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex,
France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street
Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Hong Kong: State Street
Global
Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance
Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200.
Ireland: State Street Global Advisors Europe Limited is regulated by the
Central Bank of Ireland. Registered office address 78 Sir John Rogerson’s Quay,
Dublin 2. Registered Number: 49934. T: +353 (0)1 776 3000. F: +353 (0)1 776
3300. Italy: State Street Global Advisors Europe Limited, Italy Branch
(“State Street Global Advisors Italy”) is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
Italy is registered in Italy with company number 11871450968 — REA: 2628603 and
VAT number 11871450968, and its office is located at Via Ferrante Aporti, 10 -
20125 Milan, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan:
State Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F
1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors
Netherlands,
Apollo Building 7th floor, Herikerbergweg 29, 1101 CN Amsterdam, Netherlands. T:
+31 20 7181 000. State Street Global Advisors Netherlands is a branch office of
State Street Global Advisors Europe Limited, registered in Ireland with company
number 49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. Singapore:
State Street Global Advisors Singapore Limited, 168, Robinson Road,
#33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. South Africa: State Street Global Advisors Limited
is regulated by the Financial Sector Conduct Authority in South Africa under
license number 42670. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No. 5776591 81. Registered office: 20
Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395
6350. United States: State Street Global Advisors, 1 Iron Street, Boston,
MA 02210-1641. T: +1 617 786 3000.
C-152
Important
Risk Information
Investing
involves risk including the risk of loss of principal.
The
returns on a portfolio of securities which exclude companies that do not meet
the portfolio’s specified ESG criteria may trail the returns on a portfolio of
securities which include such companies. A portfolio’s ESG criteria may result
in the portfolio investing in industry sectors or securities which underperform
the market as a whole.
Responsible-Factor
(R Factor) scoring is designed by State Street to reflect certain ESG
characteristics and does not represent investment performance. Results generated
out of the scoring model is based on sustainability and corporate governance
dimensions
The
information contained in this communication is not a research recommendation or
‘investment research’ and is classified as a ‘Marketing Communication’ in
accordance with the Markets in Financial Instruments Directive (2014/65/EU) or
applicable Swiss regulation.
This
means that this marketing communication (a) has not been prepared in
accordance with legal requirements designed to promote the independence of
investment research (b) is not subject to any prohibition on dealing ahead
of the dissemination of investment research.
The
views expressed in this material are the views of SSGA Asset Stewardship Team
through the period ended May 26, 2023 and are subject to change based on
market and other conditions. This document contains certain statements that may
be deemed forward-looking statements. Please note that any such statements are
not guarantees of any future performance and actual results or developments may
differ materially from those projected.
Investing
involves risk including the risk of loss of principal.
The
whole or any part of this work may not be reproduced, copied or transmitted or
any of its contents disclosed to third parties without SSGA’s express written
consent.
All
information is from SSGA unless otherwise noted and
has
been obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the current accuracy,
reliability or completeness of, nor liability for, decisions based on such
information and it should not be relied on as such.
The
information provided does not constitute investment advice and it should not be
relied on as such. It should not be considered a solicitation to buy or an offer
to sell a security. It does not take into account any investor’s particular
investment objectives, strategies, tax status or investment horizon. You should
consult your tax and financial advisor.
The
returns on a portfolio of securities which exclude companies that do not meet
the portfolio’s specified ESG criteria may trail the returns on a portfolio of
securities which include such companies. A portfolio’s ESG criteria may result
in the portfolio investing in industry sectors or securities which underperform
the market as a whole.
This
communication is directed at professional clients (this includes eligible
counterparties as defined by the appropriate
EU
regulator) who are deemed both knowledgeable and experienced in matters relating
to investments. The products and services to which this communication relates
are only available to such persons and persons of any other description
(including retail clients) should not rely on this communication.
The
trademarks and service marks referenced herein are the property of their
respective owners. Third party data providers make no warranties or
representations of any kind relating to the accuracy, completeness or timeliness
of the data and have no liability for damages of any kind relating to the use of
such data. Responsible-Factor (R Factor) scoring is designed by State Street to
reflect certain ESG characteristics and does not represent investment
performance. Results generated out of the scoring model is based on
sustainability and corporate governance dimensions of a scored entity.
© 2023 State Street
Corporation. All Rights Reserved.
ID1483214-4044035.5.1.GBL.RTL
0323 Exp. Date: 06/30/2024
C-153
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Insights
Asset Stewardship |
|
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|
Guidance on Board Oversight of Director Time
Commitments |
| April
2023 |
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| Key Takeaways |
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• The global COVID-19 pandemic and an elevated
culture of shareholder engagement have heightened the time commitment
required to serve as a director on a public company board.
• Investors would benefit from increased transparency over
how Nominating Committees assess their directors’ time commitments and
what factors are included in this discussion.
• This guidance sets forth our expectations for Nominating
Committees to evaluate their directors’ time commitments, regularly assess
director effectiveness, and provide public disclosure on their policies
and efforts to investors. |
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| A Historic
Transition |
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The
global COVID-19 pandemic and an
elevated culture of shareholder engagement have heightened the time
commitment required to serve as a director on a public company board.
State Street Global Advisors’ Asset Stewardship team values the critical
role that effective boards play in keeping management focused on their
companies’ long-term goals. Through our engagements with portfolio
companies, we learned how their strategies and operations are continuously
reinvented to meet a confluence of challenges, including the global health
crisis and the systemic risks of climate change and gender, racial and
ethnic inequity. These forces continue to shape board agendas, with
directors citing corporate resiliency1 as the emerging topic
most central to their conversations in 2021. |
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| The Evolving Role and
Expectations of Directors |
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To
effectively manage the risks and opportunities facing their companies,
directors are meeting more often. In 2021, S&P 500 boards formally met
an average of 9.4 times,2
a 25% year-over-year increase. FTSE 150 boards held an average of
11.6 meetings in 2021, a 50% increase compared to 2020,3 reflecting the global
nature of this development. |
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Additionally, a more robust engagement culture with both
internal and external stakeholders has placed more demands on directors’
time.
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C-154
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| SPAC
Directorship |
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The rise of Special Purpose Acquisition Companies (“SPACs”)
continues to shape our governance discussions with boards. The rapid pace
of SPAC activity has continued to challenge traditional models of
corporate governance, and has driven strong demand for qualified SPAC
directors, many of whom also serve as public company
directors. |
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Through our continued dialogue with
directors serving on both SPAC and public company boards, we have learned
the following: |
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• While SPAC director time commitment requirements vary
depending on the individual and SPAC board, they are generally less than
the average time associated with public company
directorship. |
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• SPACs are typically subject to a two-year time horizon to find an
acquisition target, and directors are generally called on to spend their
most significant service time in the final months before the acquisition
closes with the target company. |
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• Typically, no more than one SPAC director rolls onto the
new entity’s board in an official capacity. |
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• In many cases, multiple members of the SPAC sponsor
management team remain on the board once the target company goes
public. |
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• SPAC sponsors play a much more time-consuming role
relative to directors, and their responsibilities include raising capital,
deal sourcing, and conducting deep due diligence on potential
targets. |
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• SPAC director responsibilities include evaluating target
candidates, facilitating industry introductions, and providing general
oversight over the process. |
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Given these findings, we do not consider service on a SPAC
board when evaluating directors for excessive commitments. However, we do
expect these roles to be considered by Nominating Committees when
evaluating director time commitments.
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| Our
Guidance on Director Time Commitments |
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Insights gleaned from our director
engagements, coupled with a growing body of research,4 reflect the
ever-increasing time commitment associated with serving as a director on a
public company board. Directors have a challenging role, and the topics
they are expected to oversee have increased in scope and
complexity. |
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Guidance on Board
Oversight of Director Time Commitments |
C-155
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Despite the elevated oversight
expectations on directors and the company boards on which they serve, 112
boards among the S&P 500 do not report specific limits on additional
board service.5
Investors would benefit from increased transparency over how Nominating
Committees assess their directors’ time commitments and what factors are
included in these decisions. We believe well-governed boards are
responsible for establishing, enforcing and disclosing their director
commitment policies. |
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We expect Nominating Committees to evaluate their directors’
time commitments, regularly assess director effectiveness, and provide
public disclosure on their policies and efforts to investors.
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Voting
Incorporating Our Guidance into Our Voting
Policies |
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When voting on the election or re-election of a director, we consider
the number of outside board directorships that a non-executive and an executive may
undertake. Thus, State Street Global Advisors may take voting action
against a director who exceeds the number of board mandates listed
below: |
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• Named Executive Officers (NEOs) of a public company who
sit on more than two public company boards |
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• Non-executive
board chairs or lead independent directors who sit on more than three
public company boards |
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• Director nominees who sit on more than four public
company boards |
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For non-executive board chairs/lead
independent directors and director nominees who hold excessive
commitments, as defined above, we may consider waiving our policy and vote
in support of a director if a company discloses its director commitment
policy in a publicly available manner (e.g., corporate governance
guidelines, proxy statement, company website). This policy or associated
disclosure must include: |
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• A numerical limit on public company board seats a
director can serve on |
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— This limit cannot exceed our policy by more than one
seat |
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• Consideration of public company board leadership
positions (e.g., Committee Chair) |
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• Affirmation that all directors are currently compliant
with the company policy |
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• Description of an annual policy review process undertaken
by the Nominating Committee to evaluate outside director time
commitments
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Guidance on Board
Oversight of Director Time Commitments |
C-156
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A Sample Disclosure Might Look Like: |
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“Directors can sit on no more than five public company
boards (including our own), with consideration given to public company
leadership roles and outside commitments. The Nominating Committee
conducts an annual review of director commitment levels, and affirms that
all directors are compliant at this time.” |
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If a director is imminently leaving a board and this
departure is disclosed in a written, time-bound and publicly-available
manner, we may consider waiving our withhold vote when evaluating
directors for excessive commitments.
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Service on a mutual fund board, the board of a UK investment
trust or a Special Purpose Acquisition Company (SPAC) board is not
considered when evaluating directors for excessive commitments. However,
we do expect these roles to be considered by Nominating Committees when
evaluating director time commitments.
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| Conclusion |
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We
remain focused on our fiduciary duty to improve long-term value of our
clients’ investments. It is our conviction that well-governed boards are
best placed to evaluate their directors’ time commitments, and that
Nominating Committees are responsible for establishing, enforcing and
disclosing their director commitment policies to
investors. |
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| Endnotes |
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1 Celia Huber, Frithjof Lund and Nina Speilmann,
“How boards have risen to the COVID-19 challenge, and what’s next,”
McKinsey & Company, (April 2021), https://
mckinsey.com/business-functions/strategy-and-corporate
-finance/our-insights/how-boards-have
-risen-to-the-covid-19-
challenge-and-whats-next.
2 2Julie Hembrock Daum, Kathleen M. Tamayo, Ann Yerger,
“2021 U.S. Spencer Stuart Board Index,” Spencer Stuart,
(November 2021), https://spencerstuart.com/-/ media
/2021/october/ssbi2021/us-spencer-stuart
-board-index-2021.pdf.
3 3Tessa Bamford, Monisha Banerjee, Livia Enomoto, Keith
Fryer, Leoni Fruhwirth, Celia Jackson, Nadia Kangmasto, Alastair Rolfe,
Alice Wyatt. “2021 UK Spencer Stuart Board Index” Spencer Stuart,
(November 2021), https://spencerstuart.com/
research-and-insight/uk-
board-index. |
|
4 Celia Huber, Frithjof Lund and Nina
Speilmann, “How boards have risen to the COVID-19 challenge, and what’s next,”
Julie Hembrock Daum, Kathleen M. Tamayo, Ann Yerger, “2021 U.S. Spencer
Stuart Board Index,”
5 Julie Hembrock Daum, Kathleen M. Tamayo, Ann Yerger,
“2021 U.S. Spencer Stuart Board Index,” |
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Guidance on Board
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C-157
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| About State Street Global
Advisors |
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Our
clients are the world’s governments, institutions and financial advisors.
To help them achieve their financial goals we live our guiding principles
each and every day: |
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• Start with rigor |
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• Build from breadth |
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• Invest as stewards |
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• Invent the future |
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For four decades, these principles have helped us be the
quiet power in a tumultuous investing world. Helping millions of people
secure their financial futures. This takes each of our employees in 29
offices around the world, and a firm-wide conviction that we can always
do it better. As a result, we are the world’s fourth-largest asset
manager* with US $3.62 trillion† under our care.
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* Pensions & Investments Research Center, as of
December 31, 2021. |
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† This figure is
presented as of March 31, 2023 and includes approximately
$65.03 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affliiated. Please note all AUM is
unaudited. |
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Guidance on Board
Oversight of Director Time Commitments |
C-158
ssga.com
Marketing Communication
State Street Global Advisors
Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA).
This document is intended for Professional Clients or Market
Counterparties only as defined by the FSRA and no other person should act upon
it. State Street Global Advisors Limited, ADGM Branch, Al Khatem Tower, Suite
42801, Level 28, ADGM Square, Al Maryah Island, P.O Box 76404, Abu Dhabi,
United Arab Emirates. Regulated by the ADGM Financial Services Regulatory
Authority. T: +971 2 245 9000. Australia: State Street Global Advisors,
Australia, Limited (ABN 42 003 914 225) is the holder of an Australian Financial
Services License (AFSL Number 238276). Registered office: Level 14, 420
George Street, Sydney, NSW 2000, Australia. T: +612 9240-7600. F: +612
9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La
Hulpe 185, 1170 Brussels, Belgium. T: +32 2 663 2036. State Street Global
Advisors Belgium is a branch office of State Street Global Advisors Europe
Limited, registered in Ireland with company number 49934, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78
Sir John Rogerson’s Quay, Dublin
2. Canada: State Street Global Advisors, Ltd., 1981 McGill
College Avenue, Suite 500, Montreal, Qc, H3A 3A8, T: +514 282 2400 and 30
Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900.
France: State Street Global Advisors Europe Limited, France Branch
(“State Street Global Advisors France”) is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
France is registered in France with company number RCS Nanterre 899 183 289, and
its office is located at Coeur Défense — Tour A — La Défense 4, 33e étage, 100,
Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex, France. T: +33 1
44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street Global Advisors
Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Hong Kong: State Street Global Advisors Asia Limited,
68/F, Two International Finance Centre, 8 Finance Street, Central,
Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State
Street Global Advisors Europe Limited is regulated by the Central Bank of
Ireland. Registered office address 78 Sir John Rogerson’s Quay, Dublin 2.
Registered Number: 49934. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300.
Italy: State Street Global Advisors Europe Limited, Italy Branch (“State
Street Global Advisors Italy”) is a branch of State Street Global Advisors
Europe Limited, registered in Ireland with company number 49934, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78
Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors Italy is
registered in Italy with company number 11871450968 — REA: 2628603 and VAT
number 11871450968, and its office is located at Via Ferrante Aporti, 10 - 20125
Milan, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State
Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors Netherlands, Apollo Building
7th floor, Herikerbergweg 29, 1101 CN Amsterdam, Netherlands. T:
+31 20 7181 000. State Street Global Advisors Netherlands is a branch office of
State Street Global Advisors Europe Limited, registered in Ireland with company
number 49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. Singapore:
State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No. 5776591 81. Registered
office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F:
020 3395 6350. United States: State Street Global Advisors, 1 Iron
Street, Boston, MA 02210-1641. T: +1 617 786 3000.
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Guidance on Board
Oversight of Director Time Commitments |
C-159
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended April 12, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no
representation or warranty as to the current accuracy, reliability
or completeness of, nor liability for, decisions based on such information and
it should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates are
only available to such persons and persons of any other description (including
retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability for damages of any kind relating
to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results
generated out of the scoring model is based on sustainability and
corporate governance dimensions of a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence of investment
research (b) is not subject to any prohibition on dealing ahead of the
dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1522581-4055816.3.1.GBL.RTL 0423
Exp. Date: 03/31/2024
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Guidance on Board
Oversight of Director Time Commitments |
C-160
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Insights
Asset Stewardship
March 2023 |
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Corporate Participation in the Political Process in the
United States |
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This
guidance describes the framework we use to analyze shareholder proposals
regarding corporate participation in the political process in the United
States. |
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| Background |
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Corporate participation in the political process is common
practice in the United States, and we believe it continues to carry risks
that warrant stronger board oversight and increased transparency.
Companies that make political contributions, pursue lobbying activities,
or support politically-active industry groups in the United States have a
responsibility to provide adequate disclosure to investors, and their
boards should oversee political activities. |
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What
follows is an overview of the framework we use to evaluate three common
political activity shareholder proposal themes: 1) political
contributions; 2) lobbying; and 3) trade association alignment. We will
consider supporting relevant shareholder proposals when a company’s
disclosures are not fully aligned with our expectations outlined
below. |
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| Political
Contributions |
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Political contribution proposals ask issuers to disclose
direct and indirect political spending. State Street Global Advisors
expects investee companies to disclose the following information regarding
political contributions not only through mandated filings, but also on the
company’s own website or corporate responsibility reporting: |
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• All contributions, no matter the dollar value, made by
the company, its subsidiaries, and/ or affiliated Political Action
Committees (PACs) to individual candidates, PACs, and other political
organizations at the state and federal levels in the US;
and |
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• The role of the board in oversight of political
contributions. |
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Corporate Participation in
the Political Process in the United States |
C-161
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| Lobbying |
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Lobbying proposals ask companies to describe the process for
the board’s review of political policies, lobbying expenditures, general
lobbying activities, and selection and engagement of lobbyists. As
investors, we are concerned when lobbying creates potential reputational
risks, for example by contradicting companies’ publicly stated positions
on relevant issues. We believe that board oversight can help mitigate
these risks, as the board is attuned to the company’s values, mission, and
public perception. As such, we expect companies to disclose: |
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• Membership in US trade associations (to which payments
are above $50,000 per year); and |
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• The role of the board in overseeing lobbying
activities. |
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| Trade Association Alignment |
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The latest iteration of
politically-focused shareholder proposals ask that corporate membership in
trade associations be aligned with a company’s stated position on various
environmental and social issues, for example climate change. State Street
Global Advisors evaluates the following when considering such a
proposal: |
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• The board’s role in overseeing the company’s
participation in the political process in the US, including membership in
trade associations; |
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• Whether the company regularly performs a gap analysis of
its stated positions on relevant environmental and/or social issues versus
those of its trade associations; and |
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• Whether the company disclosed a list of its US trade
association memberships (to which payments are above $50,000 per
year). |
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| About
State Street Global Advisors |
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For
four decades, State Street Global Advisors has served the world’s
governments, institutions and financial advisors. With a rigorous,
risk-aware approach built on research, analysis and market-tested
experience, we build from a breadth of index and active strategies to
create cost-effective solutions.
And, as pioneers in index, ETF, and ESG investing, we are always inventing
new ways to invest. As a result, we have become the world’s fourth-largest
asset manager* with US $3.48 trillion† under our care. |
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* Pensions & Investments
Research Center, as of December 31, 2021. |
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† This figure is presented as of
December 31, 2022 and includes approximately $58.60 billion USD
of assets with respect to SPDR products for which State Street Global
Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing
agent. SSGA FD and State Street Global Advisors are affiliated. Please
note all AUM is unaudited. |
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Corporate Participation in
the Political Process in the United States |
C-162
ssga.com
Marketing communications
State Street Global Advisors
Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2 245
9000. Australia: State Street Global Advisors, Australia, Limited (ABN 42
003 914 225) is the holder of an Australian Financial Services License (AFSL
Number 238276). Registered office: Level 14, 420 George Street, Sydney, NSW
2000, Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium: State
Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels,
Belgium. T: +32 2 663 2036. State Street Global
Advisors Belgium is a branch office of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Canada: State Street
Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500, Montreal, Qc, H3A
3A8, T: +514 282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario
M5C 3G6. T: +647 775 5900. France: State Street Global Advisors Europe
Limited, France Branch (“State Street Global Advisors France”) is a branch of
State Street Global Advisors Europe Limited, registered in Ireland with company
number 49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street
Global Advisors France is registered in France with company number RCS Nanterre
899 183 289, and its office is located at Coeur Défense — Tour A — La Défense 4,
33e étage, 100, Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex,
France. T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street
Global Advisors Europe
Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two
International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852
2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors
Europe Limited is regulated by the Central Bank of Ireland. Registered office
address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353
(0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors
Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is a branch
of State Street Global Advisors Europe Limited, registered in Ireland with
company number 49934, authorised and regulated by the Central Bank of Ireland,
and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. State Street Global Advisors Italy is registered in
Italy with company number 11871450968 — REA: 2628603 and VAT number 11871450968,
and its office is located at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T:
+39 02 32066 100. F: +39 02 32066 155. Japan: State Street Global
Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101 CN
Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global Advisors
Netherlands is a branch office of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Singapore: State Street Global Advisors
Singapore Limited, 168,
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Corporate Participation in
the Political Process in the United States |
C-163
Robinson Road, #33-01
Capital Tower, Singapore 068912 (Company Reg. No: 200002719D, regulated by the
Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501.
Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Registered with the Register
of Commerce Zurich CHE-105.078.458. T:
+41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street
Global Advisors Limited. Authorised and regulated by the Financial Conduct
Authority. Registered in England. Registered No. 2509928. VAT
No. 5776591 81. Registered office: 20 Churchill Place, Canary Wharf,
London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States: State
Street Global Advisors, 1 Iron Street, Boston, MA 02210-1641. T: +1 617 786
3000.
The views expressed in this material are the views of SSGA Asset
Stewardship Team through the period ended March 23, 2023 and are subject to
change based on market and other conditions. This document contains certain
statements that may be deemed forward-looking statements. Please note that
any such statements are not guarantees of any future performance
and actual results or developments may differ materially from
those projected.
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without SSGA’s
express written consent.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the current accuracy,
reliability or completeness of, nor liability for, decisions based on such
information and it should not be relied on as such.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon.
You should consult your tax and financial advisor.
The returns on a portfolio of securities which exclude companies
that do not meet the portfolio’s specified ESG criteria may trail the returns on
a portfolio of securities which include such companies. A portfolio’s ESG
criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates are
only available to such persons and persons of any other description (including
retail clients) should not rely on this communication.
The trademarks and service marks referenced herein are the
property of their respective owners. Third party data providers make no
warranties or representations of any kind relating to the accuracy, completeness
or timeliness of the data and have no liability
for damages of any kind relating to the use of such data.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results generated out of the scoring model is based on
sustainability and corporate governance dimensions of a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence of investment
research (b) is not subject to any prohibition on dealing ahead of the
dissemination of investment research.
© 2023
State Street Corporation.
All Rights Reserved.
ID1487000-3503681.3.1.GBL.RTL 0323
Exp. Date: 03/31/2024
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Corporate Participation in
the Political Process in the United States |
C-164
May
2023
Asset
Stewardship
Guidance
on Diversity Disclosures and Practices
At
State Street Global Advisors, we believe that companies have a responsibility to
effectively manage and disclose risks and opportunities related to diversity,
equity, and inclusion, particularly regarding gender, race, and ethnicity.
Gender diversity has been a priority of State Street Global Advisors’ asset
stewardship program since 2017 and we have been a leader in this area since, as
evidenced by our Fearless Girl campaign. In this Guidance
we set forth our expectations for diversity-related disclosures and how we
integrate those expectations into our asset stewardship and proxy voting
activities.
Information Classification: Limited
Access
C-165
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| Our Expectations for Diversity, Equity, and Inclusion
Disclosures |
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Investors can benefit from increased publicly-available
data on diversity, equity, and inclusion at portfolio companies. As such,
we encourage companies to share relevant information with the market, and
we expect all companies in our portfolio to offer public disclosures in
five key areas: |
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1. Board
Oversight Describe how the board executes its role in oversight role
of risks and opportunities related to diversity and inclusion; |
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2. Strategy
Articulate the role diversity (of race, ethnicity, and gender, at
minimum) plays in the company’s broader human capital management practices
and long-term strategy; |
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3. Goals
Describe what diversity, equity, and inclusion-related goals exist,
how these goals contribute to the company’s overall strategy, and how they
are managed and progressing; |
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4. Metrics
Provide measures of the diversity of the company’s global employee
base and board, including: |
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a. Workforce
Employee diversity by race, ethnicity, and gender (at minimum). We
expect to see this information to be broken down by industry-relevant
employment categories or levels of seniority, for all full-time employees.
In the US, companies are expected to at least use the disclosure framework
set forth by the United States Equal Employment Opportunity Commission’s
EEO-1 Survey. Non-US companies are encouraged to
disclose this information in alignment with SASB guidance and nationally
appropriate frameworks; and, |
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b. Board
Diversity characteristics, including racial, ethnic, and gender makeup
(at minimum) of the board of directors; and |
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5. Board
Diversity Articulate goals and strategy related to diverse
representation at the board (including race, ethnicity, and gender, at
minimum), including how the board reflects the diversity of the company’s
workforce, community, customers, and other key stakeholders. |
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| Our Expectations for Pay Equity Disclosures |
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We expect all companies in the US and the UK to provide
public disclosure on: |
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1. Adjusted
pay gaps related to race and gender within the company (Disclosure of the
unadjusted pay gap is also encouraged, but not expected outside of the UK
market at this time); |
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2. Strategy
to achieve and maintain pay equity; and |
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3. Role
of the board in overseeing pay strategies as well as Diversity, Equity and
Inclusion efforts. |
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Classification: Limited Access
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| Civil Rights Risks |
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We expect companies in the US to provide public
disclosure on: |
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1. Risks
related to civil rights, including risks associated with products,
practices, and services; |
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2. Plans
to manage and mitigate these risks; and |
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3. Processes
at the board for overseeing such risks (e.g., committee responsible,
frequency of discussions, etc.). |
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| Expanding the Aperture of
Diversity, Equity, and Inclusion |
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Investors, regulators, and
other stakeholders are increasingly focused on other dimensions of
diversity beyond gender, race, and ethnicity. For example, California
lawmakers and the Nasdaq exchange include LGBTQ-identified individuals in
their perspectives on board diversity. Some advocates are calling for the
prioritization of disability as an essential dimension of diversity, and
several companies (especially outside of the US) already disclose
information regarding the role of people with disabilities in their
organization. We encourage our portfolio companies to consider providing
disclosures about the full diversity of their organization, as these
disclosures are wholly aligned with contributing to the intent to increase
diversity of thought that underlies the present more common focus on
gender, race and ethnic diversity. The reputational and regulatory risk of
not doing so also may increase in the coming years. |
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| Engagements
Incorporating Our Expectations into Conversations with
Companies |
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Since 2021, we have reached
out to 35 of the largest employers in our portfolio each year to have
deeper conversations on human capital management and diversity, equity,
and inclusion. Our aim is to monitor companies’ approaches to these
topics, and encourage alignment with our expectations described
herein. |
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| Voting Incorporating
Our Expectations into Our Proxy Voting Policies |
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In order to achieve
alignment with our aforementioned expectations and advance transparency in
the public markets, State Street Global Advisors has the following proxy
voting guidelines: |
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Race & Ethnicity –— United
States and United Kingdom |
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• If
a company in the Russell 1000 or FTSE 350 does not disclose the racial and
ethnic composition of its board, we will vote against the Chair of the
Nominating Committee. Acceptable disclosures include: |
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—
Aggregate-level (e.g., “5% of our Directors are Black”, “Seven of our
Directors are people of color”, “30% chose not to
self-identify”). |
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—
Individual-level (e.g., “Jane Doe is African-American, John Smith is
Caucasian,” etc.). |
C-167
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Classification: Limited Access
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• If
a company in the S&P 500 or FTSE 100 does not have at least one
director from an underrepresented racial or ethnic community, we will vote
against the Chair of the Nominating Committee. |
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• If
a company in the S&P 500 does not disclose its EEO-1 report, we will vote against the
Chair of the Compensation Committee. Acceptable disclosures
include: |
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—
The original EEO-1 report
response. |
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—
The exact content of the report translated into custom graphics. |
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Gender |
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• We
expect boards of companies in all markets and indices to have at least one
female board member. In markets where we are implementing this policy for
the first time, we may waive the policy if a company engages with State
Street Global Advisors and provides a specific, timebound plan for adding
at least one woman to the board. |
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• In
addition, we expect companies in the Russell 3000, TSX, FTSE 350, STOXX
600, and ASX 300 indices to have boards comprised of at least
30 percent women directors. We may waive the policy if a company
engages with State Street Global Advisors and provides a specific,
timebound plan for reaching 30 percent representation of women
directors. |
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• If
a company fails to meet any of the expectations outlined above, State
Street Global Advisors may vote against the Chair of the Nominating
Committee or the board leader in the absence of a Nominating Committee, if
necessary. Additionally, if a company fails to meet this expectation for
three consecutive years, State Street Global Advisors may vote against all
incumbent members of the Nominating Committee or those persons deemed
responsible for the nomination process. |
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| Shareholder Proposals |
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Below is the approach we follow when voting on
shareholder proposals: |
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• FOR
we will consider voting for shareholder proposals that we believe will
lead to increased alignment with our expectations for diversity-related
disclosures and practices; |
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• ABSTAIN
we will consider voting abstain when we support some elements of a
proposal’s request, or recognize a company’s commitment to implement
related disclosure and/or oversight practices; |
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AGAINST
we will vote against shareholder proposals that we believe are
immaterial, overly prescriptive, or would not further our disclosure and
oversight expectations. |
Information
Classification: Limited Access
C-168
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| Thought Leadership The
Board’s Oversight of Racial and Ethnic Diversity, Equity, and
Inclusion |
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In 2020, State Street
Corporation announced it would be taking “10 Actions to Address
Racism & Inequality.” As part of Action #7, State Street
Global Advisors’ Asset Stewardship team led an internal, cross-functional
workstream to study best practices in board oversight of racial and ethnic
diversity, equity, and inclusion. We partnered with Russell Reynolds
Associates and the Ford Foundation to interview 27 directors of FTSE 100
and S&P 500 multinational corporations, culminating in a report titled
“The Board’s Oversight of Racial and Ethnic Diversity, Equity and
Inclusion.” |
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| Conclusion |
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We remain focused on our
fiduciary duty to maximize the long-term shareholder value of our clients’
investments. We believe that teams with a diversity of perspectives
generate a diversity of ideas that can drive the long-term success of a
firm. Please reach out to our Asset Stewardship team at
[email protected]. We look forward to engaging with you on
this important topic. |
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| About State Street Global
Advisors |
|
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State Street Global
Advisors serves governments, institutions and financial advisors with a
rigorous approach, breadth of capabilities and belief that good
stewardship is good investing for the long term. Pioneers in index, ETF,
and ESG investing and the world’s fourth-largest asset manager*, we are
always inventing new ways to invest. |
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* Pensions & Investments Research Center, as of
December 31, 2021. |
Information
Classification: Limited Access
C-169
ssga.com
State
Street Global Advisors
Marketing
Communications
Worldwide
Entities
Abu
Dhabi: State Street Global Advisors Limited, ADGM branch is regulated
by the Financial Services Regulatory Authority (FSRA).
This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority.
T:
+971 2 245 9000. Australia: State Street Global Advisors, Australia,
Limited (ABN 42 003 914 225) is the holder of an Australian Financial Services
License (AFSL Number 238276). Registered office: Level 14, 420 George
Street, Sydney, NSW 2000, Australia.
T:
+612 9240-7600. F: +612 9240-7611. Belgium: State Street Global Advisors
Belgium, Chaussée de La Hulpe 185, 1170 Brussels, Belgium. T: +32 2 663 2036.
State Street Global Advisors Belgium is a branch office of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose
registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Canada: State Street
Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500, Montreal,
Qc, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East Suite 800, Toronto,
Ontario M5C 3G6. T: +647 775 5900. France: State Street Global Advisors
Europe Limited, France Branch (“State Street Global
Advisors
France”) is a branch of State Street Global Advisors Europe Limited, registered
in Ireland with company number 49934, authorised and regulated by the Central
Bank of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. State Street Global Advisors France is registered in France with
company number RCS Nanterre 899 183 289, and its office is located at Coeur
Défense — Tour A — La Défense 4, 33e étage, 100, Esplanade du Général de Gaulle,
92 931 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41
92. Germany: State Street Global Advisors Europe Limited, Branch in
Germany, Brienner Strasse 59, D-80333
Munich, Germany (“State Street Global Advisors Germany”). T: +49 (0)89 55878
400. State Street Global Advisors Germany is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin
2.
Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two
International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852
2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors
Europe Limited is regulated by the Central Bank of Ireland. Registered office
address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353
(0)1 776 3000.
F:
+353 (0)1 776 3300. Italy: State Street Global Advisors Europe Limited,
Italy Branch (“State Street Global Advisors Italy”) is a branch of State Street
Global Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street
Global
Advisors Italy is registered in Italy with company number
11871450968
— REA: 2628603 and VAT number 11871450968, and its office is located at Via
Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F: +39 02 32066
155. Japan: State Street Global Advisors (Japan) Co., Ltd., Toranomon
Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands:
State
Street Global Advisors Netherlands, Apollo Building 7th floor, Herikerbergweg
29, 1101 CN Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global
Advisors Netherlands is a branch office of State Street Global Advisors Europe
Limited, registered in Ireland with company number 49934, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78
Sir John Rogerson’s Quay, Dublin 2. Singapore: State Street Global
Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. South Africa: State Street Global Advisors Limited
is regulated by the Financial Sector Conduct Authority in South Africa under
license number 42670. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No. 5776591 81. Registered
office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F:
020 3395 6350. United States: State Street Global Advisors, 1 Iron
Street, Boston, MA 02210-1641. T: +1 617 786 3000.
Information
Classification: Limited Access
C-170
Important
Risk Information
The
views expressed in this material are the views of SSGA Asset Stewardship Team
through the period ended May 26, 2023 and are subject to change based on
market and other conditions. This document contains certain statements that may
be deemed forward-looking statements. Please note that any such statements are
not guarantees of any future performance and actual results or developments may
differ materially from those projected.
Investing
involves risk including the risk of loss of principal.
The
whole or any part of this work may not be reproduced, copied or transmitted or
any of its contents disclosed to third parties without SSGA’s express written
consent.
All
information is from SSGA unless otherwise noted and has been obtained from
sources believed to be reliable, but its accuracy is not guaranteed. There is no
representation or warranty as to the current accuracy, reliability or
completeness of, nor liability for, decisions based on such information and it
should not be relied on as such.
The
information provided does not constitute investment advice and it should not be
relied on as such. It should not be considered a solicitation to buy or an offer
to sell a security. It does not take into account any investor’s particular
investment objectives, strategies, tax status or investment horizon.
The
returns on a portfolio of securities which exclude companies that do not meet
the portfolio’s specified ESG criteria may trail the returns on a portfolio of
securities which
include
such companies. A portfolio’s ESG criteria may result in the portfolio investing
in industry sectors or securities which underperform the market as a whole.
This
communication is directed at professional clients (this includes eligible
counterparties as defined by the appropriate EU regulator) who are deemed both
knowledgeable and experienced in matters relating to investments. The products
and services to which this communication relates are only available to such
persons and persons of any other description (including retail clients) should
not rely on this communication.
The
trademarks and service marks referenced herein are the property of their
respective owners. Third party data providers make no warranties or
representations of any kind relating to the accuracy, completeness or timeliness
of the data and have no liability
for
damages of any kind relating to the use of such data.
The
information contained in this communication is not a research
recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in
Financial Instruments Directive (2014/65/EU) or applicable Swiss
regulation. This means that this marketing communication
(a) has not been prepared in accordance with
legal requirements designed to promote the independence of
investment research (b) is not subject to any
prohibition on dealing ahead of the dissemination of
investment research
© 2023 State Street
Corporation.
All
Rights Reserved. ID1483220-3383057.7.1.GBL.RTL 0323 Exp. Date: 06/30/2024
Information
Classification: Limited Access
C-171
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May
2023
Asset
Stewardship
Guidance
on Human Capital Management Disclosures & Practices
In
2021, State Street Global Advisors’ Asset Stewardship team sought to
strengthen our perspective on human capital management. We conducted over
185 engagements with investee companies on this topic in markets across
the world, including a proactive engagement campaign targeting the largest
employers in our portfolios. Our team also initiated conversations with
experts on the topic of human capital management to enhance our
understanding of this essential topic.
Our
intended outcome through these engagements was to develop expectations for
companies’ disclosures on human capital management, and to share our
insights regarding best practices and areas for improvement for portfolio
companies (please see our complementary Human Capital Management
Insights page for more on this topic). |
Information
Classification: Limited
Access
C-172
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| Our Expectations for Human Capital Management
Disclosures |
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While there are many material dimensions of human
capital management, our engagements and analysis suggest that five areas
are particularly meaningful components of a successful human capital
management strategy across industries. As a starting point, we expect all
companies to provide public disclosure on:: |
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1. Board Oversight Methods outlining how the
board oversees human capital-related risks and opportunities; |
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2. Strategy Approaches to human capital
management and how these advance the long-term business strategy; |
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3. Compensation Strategies throughout the
organization that aim to attract and retain employees, and incentivize
contribution to an effective human capital strategy; |
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4. Voice Channels to ensure the concerns and
ideas from workers are solicited and acted upon, and how the workforce is
engaged and empowered in the organization; and |
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5. Diversity, equity, and inclusion Efforts to
advance diversity, equity, and inclusion (see our complementary Guidance on Diversity Disclosures and
Practices for additional context). |
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We expect public disclosures to contain specific
information about these essential dimensions of human capital management.
For example, instead of disclosing that “employees are surveyed
regularly,” companies could consider describing survey frequency, examples
of questions asked, and actions taken in response to employee feedback
where relevant. |
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We
understand that this is an evolving topic and we will continue to engage
with companies to develop our expectations and inform our stewardship
efforts in this space. We also encourage companies to consider emerging
disclosure frameworks, including those required by regulators.
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Voting
Incorporating
Our Expectations into Our Proxy Voting and Engagement
Practices |
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With
respect to voting on shareholder proposals related to human capital
management , we will first engage with companies related to our human
capital management-related disclosure and oversight expectations outlined
herein, focusing on companies and industries with the greatest risk and
opportunity.
Below
is the approach when voting on human capital management-related
shareholder proposals:
• FOR
We will consider voting for shareholder proposals that we believe will
lead to increased alignment with our expectations for human
capital-related disclosures and oversight; |
Information
Classification: Limited Access
C-173
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• ABSTAIN
We will consider voting abstain when we support some elements of a
proposal’s request, or recognize a company’s commitment to implement
related disclosure and/or oversight practices. |
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• AGAINST
We will vote against shareholder proposals that we believe are
immaterial, overly prescriptive or would not further our disclosure and
oversight expectations. |
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For
more information on our voting policies related to diversity, equity, and
inclusion, please see our Guidance on Diversity
Disclosures & Practices. For example, we will take
voting action against chairs of the Nominating Committees at S&P 500
companies that do not disclose EEO-1 reports.
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Thought
Leadership
Human
Capital Management Insights |
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As
part of our increased focus on human capital management, we conducted over
150 engagements on this topic in markets across the world in 2021,
including a proactive engagement campaign targeting 60 of the largest
employers in our portfolio across the Americas, EMEA, and APAC regions.
Please see our Human Capital Management Insights for insights from
these engagements.
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| Conclusion |
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We encourage companies in
our portfolios to align their disclosures and practices with our
expectations. Please reach out to State Street Global Advisors’ Asset
Stewardship Team at [email protected] to request an
engagement on this important topic. |
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For
additional context regarding our perspective on labor rights as an
essential dimension of human rights, please see our Guidance on Human
Rights Disclosures & Practices.
|
| |
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| About State Street Global
Advisors |
|
|
|
For four decades, State
Street Global Advisors has served the world’s governments, institutions
and financial advisors. With a rigorous, risk-aware approach built on
research, analysis and market-tested experience, we build from a breadth
of index and active strategies to create cost-effective solutions. And, as
pioneers in index, ETF, and ESG investing, we are always inventing new
ways to invest. As a result, we have become the world’s fourth-largest
asset manager* with US $3.62 trillion† under our care. |
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*
Pensions & Investments Research Center, as of December 31,
2021.
† This figure is
presented as of March 31, 2023 and includes approximately
$65.03 billion USD of assets with respect to SPDR products for which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely
as the marketing agent. SSGA FD and State Street Global Advisors are
affiliated. Please note all AUM is unaudited. |
C-174
Information
Classification: Limited Access
ssga.com
Marketing
communication
State
Street Global Advisors Worldwide Entities
Abu
Dhabi: State Street Global Advisors Limited, ADGM branch is regulated by the
Financial Services Regulatory Authority (FSRA). This document is intended for
Professional Clients or Market Counterparties only as defined by the FSRA and no
other person should act upon it. State Street Global Advisors Limited, ADGM
Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM Square, Al Maryah
Island, P.O Box 76404, Abu Dhabi, United Arab Emirates. Regulated by the ADGM
Financial Services Regulatory Authority. T: +971 2 245 9000. Australia:
State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the
holder of an Australian Financial Services License (AFSL Number 238276).
Registered office: Level 14, 420 George Street, Sydney, NSW 2000,
Australia. T: +612 9240-7600. F: +612 9240- 7611. Belgium: State Street
Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels, Belgium. T:
+32 2 663 2036. State Street Global Advisors Belgium is a branch office of State Street
Global Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2.
Canada:
State Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500,
Montreal, Qc, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East Suite
800, Toronto, Ontario M5C 3G6. T: +647 775 5900. France: State Street
Global Advisors Europe Limited, France Branch (“State Street Global Advisors
France”) is a branch of State Street Global Advisors Europe Limited, registered
in Ireland with company number 49934, authorised and regulated by the Central
Bank of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. State Street Global Advisors France is registered in France with
company number RCS Nanterre 899 183 289, and its office is located at Coeur
Défense — Tour A — La Défense 4, 33e étage, 100, Esplanade du Général de Gaulle,
92 931 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45
41 92. Germany: State Street Global Advisors Europe Limited, Branch in
Germany, Brienner Strasse 59, D-80333
Munich, Germany (“State Street Global Advisors Germany”). T: +49 (0)89 55878
400. State Street Global Advisors Germany is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Hong Kong: State
Street Global Advisors Asia Limited,
68/F,
Two International Finance Centre, 8 Finance Street, Central, Hong Kong.
T: +852 2103-0288. F: +852 2103- 0200. Ireland: State Street Global
Advisors Europe Limited is regulated by the Central Bank of Ireland. Registered
office address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number:
49934.
T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global
Advisors Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is
a branch of State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin
2. State Street Global Advisors Italy is registered in Italy with company number
11871450968 — REA: 2628603 and VAT number 11871450968, and its office is located
at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F:
+39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd.,
Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3- 4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors Netherlands,Apollo Building
7th
floor, Herikerbergweg 29, 1101 CN Amsterdam, Netherlands. T: +31 20 7181 000.
State Street Global Advisors Netherlands is a branch office of State Street
Global Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. Singapore: State
Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. South Africa: State Street Global Advisors Limited
is regulated by the Financial Sector Conduct Authority in South Africa under
license number 42670.United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No. 5776591 81. Registered
office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F:
020 3395 6350. United States: State Street Global Advisors,
1 Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
Information
Classification: Limited Access
C-175
Important
Risk Information
Investing
involves risk including the risk of loss of principal. The returns on a
portfolio of securities which exclude companies that do not meet the portfolio’s
specified ESG criteria may trail the returns on a portfolio of securities which
include such companies.
A
portfolio’s ESG criteria may result in the portfolio investing in industry
sectors or securities which underperform the market as a whole.
The
views expressed in this material are the views of SSGA Asset Stewardship Team
through the period ended May 26, 2023 and are subject to change based on
market and other conditions. This document contains certain statements that may
be deemed forward-looking statements. Please note that
any
such statements are not guarantees of any future performance and actual results
or developments may differ materially from those projected.
The
information contained in this communication is not a research recommendation or
‘investment research’ and is classified as a ‘Marketing Communication’ in
accordance with the Markets in Financial Instruments Directive (2014/65/EU) or
applicable Swiss regulation. This means that this marketing communication
(a) has not been prepared in accordance with legal requirements designed to
promote the independence of investment research (b) is not subject to any
prohibition on dealing ahead of the dissemination of investment research.
This
communication is directed at professional clients (this includes eligible
counterparties as defined by the appropriate EU regulator) who are deemed both
knowledgeable and experienced in matters relating to investments. The products
and services to which this communication relates are only available to such
persons and persons of any other description (including retail clients) should
not rely on this communication.
The
information provided does not constitute investment advice and it should not be
relied on as such. It should not be considered a solicitation to buy or an offer
to sell a security. It does not take into account any investor’s particular
investment objectives, strategies, tax status or investment horizon. You should
consult your tax and financial advisor.
All
information is from SSGA unless otherwise noted and has been obtained from
sources believed to be reliable, but its accuracy is not guaranteed. There is no
representation or warranty as to the current accuracy, reliability or
completeness of, nor liability for, decisions based on such information and it
should not be relied on as such. The whole or any part of this work may not be
reproduced, copied or transmitted or any of its contents disclosed to third
parties without State Street Global Advisors’ express written consent.
© 2023 State Street
Corporation.
All
Rights Reserved.
ID1483214-
4044335.4.1.GBL.RTL 0423
Exp.
Date: 06/30/2024
Information
Classification: Limited Access
C-176
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Insights
Asset Stewardship |
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Guidance on Effective Board
Oversight |
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March 2023 |
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As stewards of near-permanent capital to thousands of public
companies across the world, State Street Global Advisors focuses on risks
and opportunities that may impact long-term value creation for our
clients. We rely on the elected representatives of the companies in which
we invest — the board of directors — to oversee these firms’ strategies.
We expect effective independent board oversight of the material risks and
opportunities to its business and operations. We believe that appropriate
consideration of these risks and opportunities is an essential component
of a firm’s long-term business strategy, and expect boards to actively
oversee the management of this strategy.
This paper provides guidance to our portfolio companies on
how we evaluate the effectiveness of the board oversight of the risks and
opportunities and should be read in conjunction with our Global Proxy
Voting and Engagement Principles and applicable regional proxy voting and
engagement guidelines. It also outlines our approach to incorporating
these perspectives into our voting and
engagement. |
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C-177
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| Guidance On Effective Board
Oversight |
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When
evaluating a board’s oversight of financially material risks and
opportunities, we assess the following factors, based on disclosures and
engagements with directors. |
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Oversees Long-term
Strategy |
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• Articulates the material risks and opportunities and how
those risks and opportunities fit into the firm’s long-term business
strategy |
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• Regularly assesses the effectiveness of the company’s
long-term strategy, and management’s execution of this
strategy |
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For example, we leverage established
frameworks, such as The Sustainability Accounting Standards Board (SASB)
Materiality Map to inform our views on the materiality of environmental
and social issues at a given company. We have also established the
following priorities for proxy voting and engagement: Effective Board
Oversight; Climate Risk Management; Human Capital Management; and
Diversity, Equity & Inclusion. |
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Demonstrates an Effective
Oversight Process |
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• Describes which committee(s) have oversight over specific
risks and opportunities, as well as which topics are overseen and/or
discussed at the full-board level |
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• Includes risks and opportunities in board and/or
committee agendas, and articulates how often specific topics are discussed
at the committee and/or full-board level |
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• Utilizes KPIs or metrics to assess the effectiveness of
risk management processes |
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• Engages with key stakeholders including employees and
investors |
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Ensures Effective
Leadership |
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• Holds management accountable for progress on relevant
metrics and targets |
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• Integrates necessary skills and perspectives into the
board nominating and executive hiring processes, and provides training to
directors and executives, including on topics material to the company’s
business or operations |
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• Conducts a periodic effectiveness
review |
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Guidance on Effective
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C-178
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Ensures Disclosures of Material
Information |
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• Ensures publication of relevant disclosures, including
those regarding material topics |
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— For example, we expect companies to disclose against the
four pillars of the Task Force on Climate-related Financial Disclosures
(TCFD) framework |
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| Incorporating our Expectations
for Effective Oversight Into our Proxy Voting and Engagement
Practices |
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As responsible stewards, we believe in the importance of
effective risk management and oversight of issues that are material to a
company. To effectively assess the risk of our clients’ portfolios and the
broader market, we expect our portfolio companies to manage risks and
opportunities that are material and industry-specific and that have a
demonstrated link to long-term value creation, and to provide high-quality
disclosure of this process to shareholders.
Consistent with this perspective, we may seek to engage with
our portfolio companies to better understand how their boards are
overseeing risks and opportunities the company has deemed to be material
to its business or operations. If we believe a company has failed to
implement and communicate effective oversight of these risks, we may
consider voting against the directors responsible. |
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| Next Steps For
Directors |
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We
encourage directors to review our existing guidance, as well as our voting
guidelines, all of which can be found on our website. We believe
regular engagements with directors is an essential component of successful
long-term partnerships with our portfolio companies. Please reach out to
the Asset Stewardship team at [email protected] to request an
engagement or share your ideas on effective board oversight. |
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| About State Street Global
Advisors |
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For
four decades, State Street Global Advisors has served the world’s
governments, institutions and financial advisors. With a rigorous,
risk-aware approach built on research, analysis and market-tested
experience, we build from a breadth of index and active strategies to
create cost-effective solutions.
And, as pioneers in index, ETF, and ESG investing, we are always inventing
new ways to invest. As a result, we have become the world’s fourth-largest
asset manager* with US $3.48 trillion† under our care. |
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* Pensions & Investments Research Center, as of
December 31, 2021. |
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† This figure is presented as of December 31, 2022 and
includes approximately $58.60 billion USD of assets with respect to
SPDR products for which State Street Global Advisors Funds Distributors,
LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street
Global Advisors are affiliated. Please note all AUM is
unaudited. |
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Guidance on Effective
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C-179
ssga.com
Marketing communication
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM Square, Al Maryah
Island, P.O Box 76404, Abu Dhabi, United Arab Emirates. Regulated by the ADGM
Financial Services Regulatory Authority. T: +971 2 245 9000. Australia:
State Street Global Advisors, Australia, Limited (ABN 42 003 914 225) is the
holder of an Australian Financial Services License (AFSL Number 238276).
Registered office: Level 14, 420 George Street, Sydney, NSW 2000,
Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium: State Street
Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels, Belgium. T:
+32 2 663 2036. State Street Global Advisors Belgium is a branch office of State
Street Global Advisors Europe Limited, registered in Ireland with company number
49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is
at 78 Sir John Rogerson’s Quay, Dublin 2. Canada: State
Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500, Montreal,
Qc, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East Suite 800, Toronto,
Ontario M5C 3G6. T: +647 775 5900. France: State Street Global
Advisors Europe Limited, France Branch (“State Street Global Advisors France”)
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. State Street Global Advisors France is registered in France with
company number RCS Nanterre 899 183 289, and its office is located at Coeur
Défense – Tour A – La Défense 4, 33e étage, 100, Esplanade du Général de Gaulle,
92 931 Paris La Défense Cedex, France. T: +33 1 44 45 40 00. F: +33 1 44 45 41
92. Germany: State Street Global Advisors Europe Limited, Branch in
Germany, Brienner Strasse 59, D-80333
Munich, Germany (“State Street Global Advisors Germany”). T: +49 (0)89 55878
400. State Street Global Advisors Germany is a branch of State
Street Global Advisors Europe Limited, registered in Ireland with company number
49934, authorised and regulated by the Central Bank of Ireland, and whose
registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. Hong Kong:
State Street Global Advisors Asia Limited, 68/F, Two International Finance
Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852
2103-0200. Ireland: State Street Global Advisors Europe Limited is
regulated by the Central Bank of Ireland. Registered office address 78 Sir John
Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353 (0)1 776 3000. F:
+353 (0)1 776 3300. Italy: State Street Global Advisors Europe Limited,
Italy Branch (“State Street Global Advisors Italy”) is a branch of State Street
Global Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
Italy is registered in Italy with company number
11871450968 – REA: 2628603 and VAT number 11871450968, and its
office is located at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02
32066 100. F: +39 02 32066 155. Japan: State Street Global Advisors
(Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’
Association. Netherlands: State Street Global Advisors
Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101 CN Amsterdam,
Netherlands. T: +31 20 7181 000. State Street Global Advisors Netherlands is a
branch office of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Singapore: State Street Global Advisors
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Guidance on Effective
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C-180
Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore).
T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global
Advisors AG, Beethovenstr. 19, CH-8027
Zurich. Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. United Kingdom: State Street Global Advisors Limited.
Authorised and regulated by the Financial Conduct Authority. Registered in
England. Registered No. 2509928. VAT No. 5776591 81. Registered
office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395
6000. F: 020 3395 6350. United States: State Street Global Advisors,
1 Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
Important Risk Information
Investing involves risk including the risk of loss of principal.
The returns on a portfolio of securities which exclude
companies that do not meet the portfolio’s specified ESG criteria
may trail the returns on a portfolio of securities which include such companies.
A portfolio’s ESG criteria may result in the portfolio investing in industry
sectors or securities which underperform the market as a whole.
Responsible-Factor (R Factor) scoring is designed by State Street
to reflect certain ESG characteristics and does not represent investment
performance. Results generated out of the scoring model is based on
sustainability and corporate governance dimensions of a scored entity.
The information contained in this communication is not a
research recommendation or ‘investment research’ and is classified as a
‘Marketing Communication’ in accordance with the Markets in Financial
Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means
that this marketing communication (a) has not been prepared in accordance
with legal requirements designed to promote the independence
of investment research (b) is not subject to any
prohibition on dealing ahead of the dissemination of investment research.
This communication is directed at professional clients (this
includes eligible counterparties as defined by the appropriate EU regulator) who
are deemed both knowledgeable and experienced in matters relating to
investments. The products and services to which this communication relates are
only available to such persons and persons of any other description (including
retail clients) should not rely on this communication.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not be considered a solicitation
to buy or an offer to sell a security. It does not take into account any
investor’s particular investment objectives, strategies, tax status or
investment horizon. You should consult your tax and financial advisor.
All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is not
guaranteed. There is no representation or warranty as to the
current accuracy, reliability or completeness of, nor liability for, decisions
based on such information and it should not be relied on as such.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without State
Street Global Advisors’ express written consent.
© 2023
State Street Corporation.
All Rights Reserved.
ID1519201-5596229.1.2.GBL.RTL 0423
Exp. Date: 03/31/2024
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Guidance on Effective
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C-181
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Insights
Asset Management
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Guidance on Virtual
Shareholder Meetings |
| April 2023 |
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As shareholder meetings have increasingly been held
virtually due to the pandemic, our Asset Stewardship team outlines our
voting approach to management proposals on this topic, expectations for
shareholder engagement best practices and guidance on preserving robust
shareholder rights.
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As a result of the COVID-19 pandemic, companies are
increasingly holding virtual shareholder meetings (“VSMs”) globally. Many
companies are proposing amendments to their governing documents that grant
the board the ability to host VSMs at their own discretion in
perpetuity. |
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Recognizing the success of virtual
and hybrid shareholder meetings and a shifting regulatory environment, we
will generally support proposals that grant boards the right to hold
shareholder meetings in a virtual or hybrid format as long as companies
uphold the following best practices: |
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• Afford virtual attendee shareholders the same rights as
would normally be granted to in-person attendee
shareholders |
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• Commit to time-bound renewal (five years or less) of
meeting format authorization by shareholders |
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• Provide a written record of all questions posed during
the meeting, and |
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• Comply with local market laws and regulations relating to
virtual and hybrid shareholder meeting practices |
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If a company breaches of any of the
criteria above, we may vote against the Chair of the nominating
committee. |
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Our evaluation of these proposals
will also consider the operating environment of the company, including
local regulatory developments and specific market circumstances impacting
virtual meeting practices. |
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C-182
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While we are encouraged by the
success of VSMs thus far,, companies and shareholders must remain vigilant
in continuing to improve their VSM practices. Maintaining a strong level
of shareholder dialogue, upholding shareholder rights, and leveraging the
virtual format to benefit companies and investors will be
essential. |
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| About
State Street Global Advisors |
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Our clients are the world’s
governments, institutions and financial advisors. To help them achieve
their financial goals we live our guiding principles each and every
day: |
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• Start with rigor |
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• Build from breadth |
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• Invest as stewards |
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• Invent the future |
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For four decades, these principles have
helped us be the quiet power in a tumultuous investing world. Helping
millions of people secure their financial futures. This takes each of our
employees in 29 offices around the world, and a firm-wide conviction that we can always
do it better. As a result, we are the world’s fourth-largest asset
manager* with US $3.62 trillion† under our care. |
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* Pensions & Investments
Research Center, as of December 31, 2021. |
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† This figure is presented as of
March 31, 2023 and includes approximately $65.03 billion USD of
assets with respect to SPDR products for which State Street Global
Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing
agent. SSGA FD and State Street Global Advisors are affiliated. Please
note all AUM is unaudited. |
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Guidance on Virtual
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C-183
ssga.com
Marketing communication
State Street Global Advisors
Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, ADGM
branch is regulated by the Financial Services Regulatory Authority (FSRA). This
document is intended for Professional Clients or Market Counterparties only as
defined by the FSRA and no other person should act upon it. State Street Global
Advisors Limited, ADGM Branch, Al Khatem Tower, Suite 42801, Level 28, ADGM
Square, Al Maryah Island, P.O Box 76404, Abu Dhabi, United Arab Emirates.
Regulated by the ADGM Financial Services Regulatory Authority. T: +971 2 245
9000. Australia: State Street Global Advisors, Australia, Limited (ABN 42
003 914 225) is the holder of an Australian Financial Services License (AFSL
Number 238276). Registered office: Level 14, 420 George Street, Sydney, NSW
2000, Australia. T: +612 9240-7600. F: +612 9240-7611. Belgium: State
Street Global Advisors Belgium, Chaussée de La Hulpe 185, 1170 Brussels,
Belgium. T: +32 2 663 2036. State Street Global Advisors Belgium is a branch
office of
State Street Global Advisors Europe Limited, registered in Ireland
with company number 49934, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin
2. Canada: State Street Global Advisors, Ltd., 1981 McGill College
Avenue, Suite 500, Montreal, Qc, H3A 3A8, T: +514 282 2400 and 30 Adelaide
Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900.
France: State Street Global Advisors Europe Limited, France Branch
(“State Street Global Advisors France”) is a branch of State Street Global
Advisors Europe Limited, registered in Ireland with company number 49934,
authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogerson’s Quay, Dublin 2. State Street Global Advisors
France is registered in France with company number RCS Nanterre 899 183 289, and
its office is located at Coeur Défense — Tour A — La Défense 4, 33e étage, 100,
Esplanade du Général de Gaulle, 92 931 Paris La Défense Cedex, France.
T: +33 1 44 45 40 00. F: +33 1 44 45 41 92. Germany: State Street
Global Advisors Europe
Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich, Germany (“State Street Global
Advisors Germany”). T: +49 (0)89 55878 400. State Street Global Advisors Germany
is a branch of State Street Global Advisors Europe Limited, registered in
Ireland with company number 49934, authorised and regulated by the Central Bank
of Ireland, and whose registered office is at 78 Sir John Rogerson’s Quay,
Dublin 2. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two
International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852
2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors
Europe Limited is regulated by the Central Bank of Ireland. Registered office
address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353
(0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors
Europe Limited, Italy Branch (“State Street Global Advisors Italy”) is a branch
of State Street Global Advisors Europe Limited, registered in Ireland with
company number 49934, authorised and regulated by the Central Bank of Ireland,
and whose registered office is at 78 Sir John Rogerson’s Quay, Dublin 2. State
Street
Global Advisors Italy is registered in Italy with company number
11871450968 — REA: 2628603 and VAT number 11871450968, and its office is located
at Via Ferrante Aporti, 10 - 20125 Milan, Italy. T: +39 02 32066 100. F:
+39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd.,
Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380. Financial Instruments
Business Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan
Investment Advisers Association, The Investment Trust Association, Japan, Japan
Securities Dealers’ Association. Netherlands: State Street Global
Advisors Netherlands, Apollo Building 7th floor, Herikerbergweg 29, 1101 CN
Amsterdam, Netherlands. T: +31 20 7181 000. State Street Global Advisors
Netherlands is a branch office of State Street Global Advisors Europe Limited,
registered in Ireland with company number 49934, authorised and regulated by the
Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogerson’s Quay, Dublin 2. Singapore: State Street Global Advisors
Singapore Limited, 168,
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Guidance on Virtual
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C-184
Robinson Road, #33-01
Capital Tower, Singapore 068912 (Company Reg. No: 200002719D, regulated by
the Monetary Authority of Singapore). T: +65 6826-7555.
F: +65 6826-7501. Switzerland: State Street Global Advisors
AG, Beethovenstr. 19, CH-8027 Zurich.
Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F:
+41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered
in England. Registered No. 2509928. VAT No. 5776591 81. Registered
office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395
6000. F: 020 3395 6350. United States: State Street Global
Advisors, 1 Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties without State
Street Global Advisors’ express
written consent.
The information provided does not constitute investment advice and
it should not be relied on as such. It should not
be considered a solicitation to buy or an offer to sell a
security. It does not take into account any investor’s particular investment
objectives, strategies, tax status or investment horizon. You should consult
your tax and financial advisor.
All information is from State Street Global Advisors unless
otherwise noted and has been obtained from sources believed to be reliable, but
its accuracy is not guaranteed. There is no representation or warranty as to the
current accuracy, reliability or completeness of, nor liability for, decisions
based on such information and it should not be relied on as such.
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or developments may differ
materially from those projected.
The returns on a portfolio of securities which exclude companies
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criteria may result in the portfolio investing in industry sectors or securities
which underperform the market as a whole.
This communication is directed at professional clients (this
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© 2023
State Street Corporation.
All Rights Reserved.
ID1522584-4255954.3.1.GBL.RTL 0423
Exp. Date: 04/30/2024
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Guidance on Virtual
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C-185
APPENDIX D
BLACKSTONE LIQUID CREDIT STRATEGIES LLC PROXY VOTING POLICIES
AND PROCEDURES
The
Board has delegated the voting of proxies of securities held by the SPDR
Blackstone High Income ETF and the SPDR Blackstone Senior Loan ETF (for this
section only, each, a “Fund” and together, the “Funds”) to Blackstone Liquid
Credit Strategies LLC (“Blackstone Credit”) pursuant to Blackstone Credit’s
proxy voting guidelines. Under these guidelines, Blackstone Credit will vote
proxies related to Fund securities in the best interests of the Fund and its
shareholders. Set forth below is a copy of the Blackstone Credit’s proxy voting
policy.
Information
on how the Funds voted proxies (if any) relating to portfolio securities during
the most recent 12-month period ended
June 30 will be reported on Form N-PX.
Blackstone
Credit Proxy Voting Policies and Procedures
By
virtue of Blackstone Credit’s relationship as general partner or investment
manager of funds, collateralized loan obligation vehicles, separately managed
accounts, and registered funds (the “Clients”), the Firm has proxy voting
authority with respect to Client securities. When voting proxies on behalf of
Clients, Blackstone Credit’s overall objective is to vote proxies in the best
interest of the Clients and, in so doing, to maximize the value of the
investments made by the Clients taking into consideration the Clients’
investment horizons and other relevant factors.
This
document sets forth Blackstone Credit’s policies and procedures that are
designed to meet these overall objectives. As described below, the Firm’s
policies and procedures address the following areas:
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• |
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The personnel responsible for monitoring corporate actions,
deciding how to vote proxies and confirming that proxies are submitted in
a timely manner; |
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• |
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The basis on which decisions are made regarding whether and how
to vote proxies depending on the nature of the matter at issue;
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• |
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The approach to addressing material conflicts of interest that
may arise between Blackstone Credit and the Clients when voting proxies
and how the Firm resolves those conflicts in the best interest of the
Clients; |
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• |
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The means by which the Clients and their investors may obtain
information about proxy voting; and |
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• |
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The books and records that Blackstone Credit retains in
connection with proxy voting. |
While
Blackstone Credit endeavors to follow these policies and procedures in all
situations, special circumstances may arise from time to time that warrant a
deviation. In addition, Blackstone Credit will apply its proxy voting policies
and procedures to votes cast with respect to publicly traded companies and, to
the extent applicable, to analogous actions taken with respect to investments
made in private companies.
General
Procedures
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1. |
Monitoring Corporate Actions
|
The
Clients that Blackstone Credit manages generally make a limited number of
investments in equity securities. When the Firm receives proxy voting materials
(or similar voting/solicitation notices), they are initially transmitted by the
company’s corporate secretary or transfer agent to the Employee who is
designated to receive notices in the definitive documentation governing the
relevant Client’s investment, if any (the “Proxy Recipient”). The Proxy
Recipient must inform the Head of Middle Office and Operations (“Head of
MOOG”) of such receipt and review the materials, determine which Client(s)
hold the securities and confirm the number of securities with the Head Trader
and the Head of MOOG.
D-1
The
Proxy Recipient will also consult the relevant Portfolio Manager(s) of each
Client that holds the securities that are the subject of the proxy vote. The
Proxy Recipient will monitor the voting deadline to confirm that the deadline
for the response is met.
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2. |
Determination of Voting Decisions
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Decisions
on how to vote a proxy generally are made by the relevant Portfolio Manager. The
Portfolio Manager and the members of the investment team covering the applicable
security often have the most intimate knowledge of both a company’s operations
and the potential impact of a proxy vote’s outcome. Where appropriate, the
Portfolio Manager or a member of the investment team may consult with the Chief
Compliance Officer or Chief Legal Officer and the members of the applicable
Investment Committee regarding decisions and completion of the proxy material.
Decisions are based on a number of factors that may vary depending on a proxy’s
subject matter, but are guided by the general policies described in this
document. In addition, Blackstone Credit may determine not to vote a proxy after
consideration of the vote’s expected benefit to Clients and the cost of voting
the proxy.1
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3. |
Communication of Decision
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After
making a decision to vote a proxy and determining how to vote the proxy, the
Portfolio Manager or a member of the investment team covering the security will
then submit the vote. The Portfolio Manager or such investment team member will
send completed copies of the proxy materials to the Proxy Recipient and the Head
of MOOG. The procedures for voting proxies may vary, and can include electronic
voting, forwarding voting instructions to the custodian or voting proxies
forwarded by the custodian.
Providing
Proxy Voting Information to Clients
Blackstone
Credit acknowledges that its investors have a right to information about how the
Firm votes Client proxies, and Blackstone Credit will make information available
on request. The Firm also will make a copy of these policies and procedures
available on request. When an investor makes a request about a particular vote,
Blackstone Credit usually will provide the following information: (1) the
date of the vote; (2) a brief description of the matter voted on;
(3) how (or whether) Blackstone Credit casts the vote on the matter; and
(4) any other reasonable information a limited partner might request. Proxy
voting information and the procedure for obtaining such information is included
in Blackstone Credit’s Form ADV, which is available to each investor.
Books
and Records
Blackstone
Credit must maintain the following additional records relating to proxy voting,
which must be maintained by MOOG, or other applicable individual or group, as
indicated, in an easily accessible place for five years from the end of the
fiscal year during which the last entry was made on such record, the first two
years of which in Blackstone Credit’s offices.
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A copy of these proxy voting policies and procedures
(maintained by Blackstone Credit’s Legal Compliance Department);
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A copy of each proxy statement received by Blackstone Credit
regarding Client securities; |
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A record of each vote cast by Blackstone Credit on behalf of a
Client; |
| 1 |
In determining whether the cost of voting a proxy outweighs its
expected benefit to Clients, the relevant Portfolio Manager may consider
factors such as (1) the subject matter of the vote; (2) the
additional length of time that Blackstone Credit anticipates holding the
investment; and (3) logistical issues associated with voting proxies
for foreign companies. |
D-2
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A copy of all memoranda or similar documents created by
Blackstone Credit that were material to making a decision on the voting of
Client securities or that memorialize the basis for that decision
(maintained by relevant deal team members); and |
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A copy of each written request by an investor for information
on how Blackstone Credit voted proxies on behalf of a Client, and a copy
of any written response by Blackstone Credit to any request (written or
oral) by an investor for information on how Blackstone Credit voted
proxies on behalf of the Client (maintained by the Investor
Relations & Business Development group, “IRBD”).
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Blackstone
Credit may satisfy the requirement to maintain copies of proxy statements
received and a record of votes cast on behalf of the Clients by relying on third
parties to make and retain, on behalf of Blackstone Credit, a copy of such proxy
statements and voting records, provided that Blackstone Credit has obtained an
undertaking from the third party to provide a copy of the proxy statements and
voting records promptly upon request. Blackstone Credit also may satisfy the
requirement to maintain copies of proxy statements by relying on its ability to
obtain a copy of a proxy statement from the SEC’s EDGAR system (to the extent
that such proxy statements are available through the EDGAR system).
D-3
APPENDIX E
DoubleLine Capital LP
DoubleLine Alternatives LP
DoubleLine ETF Adviser LP
DoubleLine Funds Trust
DoubleLine ETF Trust
DoubleLine Closed-End
Funds
Proxy Voting, Corporate Actions and Class Actions Policy
Rule
206(4)-6 of the Investment Advisers Act
of 1940, as amended (the “Advisers Act”), requires investment advisers that
exercise voting authority with respect to client securities to: (i) adopt
and implement written policies and procedures reasonably designed to ensure that
client securities are voted in the best interest of clients, which must include
how an adviser addresses material conflicts that may arise between an adviser’s
interests and those of its clients; (ii) provide a concise summary of its
proxy voting policies and procedures and, upon request, furnish a copy of the
full policies and procedures to its clients; and (iii) disclose how clients
may obtain information with respect to how the adviser voted their securities.
This
Proxy Voting, Corporate Actions and Class Actions Policy (the “Proxy
Policy”) is adopted by DoubleLine Capital LP, DoubleLine Alternatives LP and
DoubleLine ETF Adviser LP (the “Advisers,” or each applicable “Adviser”) to
govern the Advisers’ proxy voting, corporate actions and class actions
activities involving client investments, and along with the DoubleLine Funds
Trust, the DoubleLine ETF Trust, and the DoubleLine closed-end funds (each, a “Fund,”
collectively the “Funds,” and together with the Advisers, “DoubleLine”), to help
ensure compliance with applicable disclosure and reporting requirements.
Employees
must handle all proxy voting, corporate actions and class actions (“Proxy
Matters”) with reasonable care and diligence, and solely in the best interest of
DoubleLine clients. Accordingly, all Proxy Matter proposals must immediately be
forwarded to the Trade Management team to ensure that each proposal is processed
timely and in accordance with the Proxy Policy.
The
Adviser generally will exercise proxy voting, corporate actions and class
actions authority on behalf of clients only where the client has expressly
delegated such authority in writing. If directed to do so by the client, the
Adviser will process each proposal in a manner that seeks to enhance the
economic value of client investments.
Proxy
Voting Guidelines and Corporate Actions
Designated
employees from the Portfolio Management team will review the specific facts and
circumstances surrounding each proxy and corporate action proposal to determine
a course of action that promotes the best interest of clients (including, if so
directed, to maximize the value of client investments). The Advisers adopt the
Proxy Voting Guidelines (the “Guidelines,” see Attachment A) as a framework for
analyzing proxy and corporate action proposals on a consistent basis.
The
Portfolio Management team may, in their discretion, vote proxies and corporate
actions in a manner that is inconsistent with the Guidelines (or instruct
applicable parties to do so) when they determine, after conducting reasonable
due diligence, that doing so is in the best interest of the client. They may
consult with the Proxy Voting Committee (the “Proxy Committee”), DoubleLine
senior management or a third-party expert such as a proxy voting service
provider to make such determinations.
E-1
Class Actions
In
the event that a client investment becomes the subject of a class action
lawsuit, the Adviser will assess, among other factors, the potential financial
impact of participating in such legal action. If the Adviser determines that
participating in the class action is in the best interest of the client, the
Adviser will recommend that the client or its custodian submit appropriate
documentation on the client’s behalf, subject to contractual or other authority.
The Adviser may consider other factors in determining whether participation in a
class action lawsuit is in the best interest of the client, including
(i) the costs that likely would be incurred by the client, (ii) the
resources that likely would be expended in participating in the class action,
and (iii) other available options for pursuing legal recourse against the
issuer. If appropriate, the Adviser may also notify the client about the class
action without making a recommendation as to participation, which would allow
clients to decide on how to proceed. The Advisers provide no assurance to former
clients that applicable class action information will be delivered to them.
Conflicts
of Interest
Employees
must be diligent with respect to actual and potential conflicts of interest when
handling client investments. This covers conflicts between the interests of
DoubleLine, employees and clients, including conflicts between two or more
clients. As a general matter, conflicts should be avoided where practicable. In
cases where it cannot be avoided, the conflict must be mitigated as much as
possible and then fully and fairly disclosed to the client, such that the client
can make an informed decision and, where applicable, provide an informed
consent. As required under the Code of Ethics and the Outside Business
Activities and Affiliations Policy, employees must report, and in some cases
request pre-approval for, certain
transactions, activities and affiliations that may present a conflict of
interest. Moreover, employees from the Portfolio Management and Trade
Management teams who are directly involved in the implementation of the Proxy
Policy and members of the Proxy Committee should seek to identify, and report to
the Proxy Committee, any conflict of interest related to any proposal or the
Proxy Policy in general.
If
a material conflict involving a client is deemed to exist with respect to a
proposal, the Proxy Committee will generally seek to resolve such conflicts in
the best interest of the applicable client by pursuing any one of the following
courses of action: (i) voting (or not voting) in accordance with the
Guidelines; (ii) convening a Proxy Committee meeting to assess and
implement available measures; (iii) voting in accordance with the
recommendation of an independent third-party service provider chosen by the
Proxy Committee; (iv) voting (or not voting) in accordance with the
instructions of such client; or (v) not voting with respect to the proposal
if consistent with the Adviser’s fiduciary obligations.
In
the event that an Adviser invests in a Fund with other public shareholders, the
Adviser will vote the shares of such Fund in the same proportion as the votes of
the other shareholders. Under this “echo voting” approach, the Adviser’s
potential conflict is mitigated by replicating the voting preferences expressed
by the other shareholders.
Client
Inquiries
Employees
must immediately forward any inquiry about DoubleLine’s proxy voting policy and
practices, including historical voting records, to the Trade Management team.
The Trade Management team will record the identity of the client, the date
of the request, and the disposition of each request and coordinate the
appropriate response with the Investor Services team or other applicable party.
The
Adviser shall furnish the information requested, free of charge, to the client
within ten (10) business days. A copy of the written response should be
attached and maintained with the client’s written request, if applicable, and
stored in an appropriate file. Clients can require the delivery of the proxy
voting record relevant to their accounts for the five-year period prior to their
request.
E-2
The
Funds are required to furnish a description of the Proxy Policy within three
(3) business days of receipt of a shareholder request, by first-class mail
or other means designed to ensure equally prompt delivery. The Funds rely upon
the fund administrator to process such requests.
The
Trade Management team shall forward to the Proxy Committee all Proxy Matter
inquiries, including proxy solicitations or an Adviser’s voting intention on a
pending proposal, from third parties that are not duly authorized by a client.
| III. |
Third-Party Proxy Agent |
To
assist in carrying out its proxy voting obligations, DoubleLine has retained a
third-party proxy voting service provider, currently Glass, Lewis & Co.
(“Glass Lewis”), as its proxy voting agent. Pursuant to an agreement with
DoubleLine, Glass Lewis obtains proxy ballots related to client investments,
evaluates the facts and circumstances relating to each proposal and communicates
to the Adviser the recommendation from the issuer’s management (where available)
and Glass Lewis’ broad recommendation. The Adviser shall vote on proposals in
its discretion and in a manner consistent with the Proxy Policy or instructs
Glass Lewis to do so on its behalf.
In
the event that DoubleLine determines that a recommendation from Glass Lewis (or
from any other third-party proxy voting service provider retained by DoubleLine)
was based on a material factual error, DoubleLine will investigate the error,
taking into account, among other things, the nature of the error and the
recommendation, and seek to determine whether the vote or other actions related
to the proposal would change in light of the error and whether the service
provider is taking reasonable steps to reduce similar errors in the future.
DoubleLine will also inform the Proxy Committee of the error to determine if it
is a material compliance matter under Rule 206(4)-7 of the Advisers Act or Rule 38a-1 of the Investment Company Act of 1940,
as amended (the “1940 Act”), or if further remedial action is necessary.
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IV. |
Environmental, Social and Governance Matters
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The
Advisers integrate environmental, social and governance (“ESG”) factors into its
research and decision-making process to gain a more holistic view of the
relevant investment risks, better understand the potential drivers of
performance, and strive for better risk-adjusted returns. In particular, the
Advisers seek to identify and understand material ESG factors that have a
potential financial impact on an issuer and the valuation of client investments.
As stewards of client investments, the Advisers view proxy voting as an
opportunity to influence the financial impact of such material ESG factors (if
applicable) and, through the Guidelines, ensure that proposals are consistently
reviewed and voted in a manner that seeks to enhance the economic value of
client investments. The Advisers also may consider material ESG factors in
determining how to address corporate actions and class actions.
Securities
on Loan
The
Adviser may not be able to take action with respect to a proposal when the
client’s relevant securities are on loan in accordance with a securities lending
program or are controlled by a securities lending agent or custodian acting
independently of DoubleLine. In addition, the Adviser will not recall securities
if the potential economic impact of the proposal is insignificant or less than
the economic benefit gained if the securities remained on loan (such as the
interest income from the loan arrangement) or if recalling the securities is
otherwise not in the best interest of the client. In the event that the Adviser
determines that a proposal could reasonably enhance the economic value of the
client’s investment, the Adviser will make reasonable efforts to inform the
client and recall the securities. Employees cannot make any representation that
any securities on loan will be recalled successfully or in time for submitting a
vote on a pending proposal.
E-3
Foreign
Markets
In
certain markets, shares of securities may be blocked or frozen at the custodian
or other designated depositary for certain periods typically around the
shareholder meeting date. In such cases, the Adviser cannot guarantee that the
blocked securities can be processed in time for submitting a vote on a pending
proposal. In addition, where the Adviser determines that there are unusual costs
to the client or administrative difficulties associated with voting on a
proposal, which more typically might be the case with respect to proposals
involving non-U.S. issuers and foreign
markets, the Adviser reserves the right to not vote on the proposal unless the
Adviser determines that the potential benefits exceed the anticipated cost to
the client.
Proofs-of-Claim
The
Advisers do not complete proofs-of-claim on behalf of clients
for current or historical holdings other than for the Funds and private funds
offered by DoubleLine; however, an Adviser may provide reasonable assistance to
other existing clients by sharing related information that is in the Adviser’s
possession. The Advisers do not undertake to complete, or provide any assistance
for, proofs-of-claim involving securities
that had been held by any former client. The Advisers will complete proofs-of-claim for the Funds and
private funds offered by DoubleLine or provide reasonable access to the
applicable administrator to file such proofs-of-claim when appropriate.
Contractual
Obligations
In
certain limited circumstances, particularly in the area of structured finance,
the Adviser may, on behalf of clients, enter into voting agreements or other
contractual obligations that govern proxy and corporate action proposals. In the
event of a conflict between any such contractual requirements and the
Guidelines, the Adviser will vote in accordance with its contractual
obligations.
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VI. |
Other Regulatory Matters and Responsibilities
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Form
N-PX Filings
| A. |
Rule 30b1-4 under the
1940 Act requires open-end and
closed-end management investment
companies to file an annual record of proxies voted on Form N-PX. The Funds shall file Form N-PX in compliance with Rule 30b1-4, including certain new
requirements which include, but are not limited to, the following:
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Identification of Proxy Voting Matters – funds must use
the same language as the issuer’s proxy card (where a proxy card is
required under Rule 14a-4 of the
Securities Exchange Act of 1934, as amended, or the “Exchange Act”); and
if the matter relates to an election of directors, identify each director
separately in the same order as on the proxy card, even if the election of
directors is presented as a single matter. |
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Categorization of Voting Matters – funds are required to
categorize the votes reported on Form N-PX consistent with a list of
categories outlined in the amended form. The categories will be non-exclusive, and funds must select
all categories applicable to each proxy matter. |
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Quantitative Disclosures and Securities Lending – funds
must disclose the number of shares voted or instructed to be cast (if the
fund had not received confirmation of the actual number of votes cast) and
how those shares were voted (e.g., for, against or abstain). If the
votes were cast in multiple manners (e.g., both for and against),
funds will be required to disclose the number of shares voted or
instructed to be voted in each manner. Additionally, funds must disclose
the number of shares loaned but not recalled and, therefore, not voted by
the fund. |
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Structured Data Language – funds must file their reports
using a custom XML format. |
E-4
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Joint Reporting – funds are permitted to report on its
Form N-PX on behalf of a series
or a manager so long as the fund presents the complete voting record of
each included series separately and provide the required quantitative
information for each included manager separately. Funds must also provide
certain information (generally, their name and other identifying
information such as their legal entity identifier) in the summary page
about the included series or managers. |
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Standardized Order – funds must submit information based
on the specific Form N-PX format
and standardized order of disclosure requirements.
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Fund Notice Reports – funds are now permitted to
indicate on the cover page of Form N-PX if no securities were subject to a
vote and, therefore, do not have any proxy votes to report.
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Website Posting – funds that have a website must make
the most recently filed Form N-PX
report publicly available as soon as reasonably practicable. Funds may
satisfy the requirement by providing a direct link to the relevant
HTML-rendered Form N-PX report on
EDGAR. |
| B. |
Rule 14Ad-1 under the
Exchange Act requires institutional investment managers subject to section
13(f) of the Exchange Act, which may include certain Advisers, to report
annually on Form N-PX how the
managers voted proxies relating to executive compensation matters
(commonly referred to as “say-on-pay” votes). When
reporting say-on-pay votes, managers are
required to comply with the other requirements of Form N-PX for their say-on-pay votes (including the
new requirements as described above, except that a manager is not required
to disclose or provide access to its proxy voting records on its website).
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The
Legal team shall be primarily responsible for DoubleLine’s Form N-PX filings. DoubleLine may rely on the
applicable fund administrator or other service provider to prepare and submit
required Form N-PX filings. The
Trade Management team shall assist the Legal team and, as necessary, the
relevant service provider by furnishing complete and accurate information
required under Form N-PX (including by
causing such information to be provided by any third-party proxy voting service
provider). Form N-PX must be filed each
year no later than August 31 and must contain applicable proxy voting
records for the most recent twelve-month period ending June 30.
Proxy
Voting Disclosures
The
Legal team will ensure that (i) a concise summary of the Proxy Policy which
includes how conflicts of interest are addressed, and (ii) instructions for
obtaining a copy of the Proxy Policy and accessing relevant proxy voting records
free of charge (e.g., via a toll-free telephone number, the Funds’ website,
etc.) are provided within each Adviser’s Form ADV Part 2A and the Funds’
Statement of Additional Information, registration statement and Form N-CSR, in accordance with applicable legal
requirements.
DoubleLine
established the Proxy Voting Committee to help ensure compliance with the Proxy
Policy. The Proxy Committee, whose members include the Chief Risk Officer and
the Chief Compliance Officer (or their respective designees), meets on an as-needed basis. The Proxy Committee will
(i) monitor compliance with the Proxy Policy, including by periodically
sampling Proxy Matters for review, (ii) review, no less frequently than
annually, the adequacy of the Proxy Policy to ensure it has been effectively
implemented and that it continues to be designed to ensure that Proxy Matters
are addressed in a manner that promotes the best interest of clients,
(iii) periodically review, as needed, the adequacy and effectiveness of
Glass Lewis or other third-party proxy voting service provider retained by
DoubleLine, and (iv) review conflicts of interest that may arise under the
Proxy Policy, including changes to the businesses of DoubleLine or the service
provider retained by DoubleLine to determine whether those changes present new
or additional conflicts of interest that should be addressed pursuant to the
Proxy Policy.
E-5
The
Proxy Committee shall have primary responsibility for managing DoubleLine’s
relationship with Glass Lewis and any other third-party proxy voting service
provider, including overseeing their compliance with the Proxy Policy, as well
as reviewing periodically instances in which Glass Lewis does not provide a
recommendation with respect to a proposal, or when Glass Lewis commits material
errors.
The
Trade Management team shall maintain all proxy voting records whether internally
or through a third party in compliance with Rule 204-2 of the Advisers Act. The Trade
Management team will maintain records which include, but are not limited to:
(i) copies of each proxy statement that each Adviser receives regarding
securities held by clients; (ii) a record of each vote that each Adviser
cast on behalf of each client; (iii) any documentation that is material to
each Adviser’s decision on voting a proxy or that describes the basis for that
decision; (iv) a written description of each Adviser’s analysis when
deciding to vote a proxy in a manner inconsistent with the Guidelines or when an
Adviser has identified a material conflict of interest, (v) each written
request from a client for information about how the Adviser voted proxies; and
(vi) the Adviser’s written response to each client oral or written request
for such information. The Trade Management team shall also ensure that
comparable documentation related to corporate actions and class actions
involving client investments is maintained.
The
Legal team shall maintain investment management agreements which may include the
Adviser’s written authorization to process Proxy Matters or client-specified
proxy voting guidelines.
DoubleLine
must maintain all books and records described in the Proxy Policy for a period
of not less than five (5) years from the end of the fiscal year during
which the last entry was made on such record, the first two (2) years of
which shall be onsite at its place of business.
E-6
History
of Amendments:
Effective
as of August 2023
Approved
by the Boards of DFT, DET and Closed-End Funds: August 17, 2023
Effective
as of August 2022
Approved
by the Boards of DFT, DET and Closed-End Funds: August 18, 2022
Updated
and effective as of May 2022
Approved
by the Boards of DFT, DET and Closed-End Funds: May 19, 2022
Updated
and effective as of February 15, 2022
Approved
by the Boards of DFT, DET, DSL, DBL and DLY: February 15, 2022
Updated
and effective as of January 2022
Effective
as of January 2021
Approved
by the boards of DFT, DSL, DBL and DLY: December 15, 2020
Last
reviewed December 2020
Updated
and effective as of February 2020
Approved
by the boards of DFT, DSL, DBL and DLY: November 21, 2019
Last
reviewed November 2019
Reviewed
and approved by the Boards of the DoubleLine Funds Trust, DoubleLine Equity
Funds, DoubleLine Opportunistic Credit Fund and DoubleLine Income Solutions
Fund: August 20, 2015
Adopted
by the DoubleLine Equity Funds Board of Trustees: March 19, 2013
Renewed,
reviewed and approved by the DoubleLine Equity Funds Board: May 22, 2013
Renewed,
reviewed and approved by the DoubleLine Equity Funds Board: November 20, 2013
Renewed,
reviewed and approved by the DoubleLine Equity Funds Board: August 21, 2014
Adopted
by the DoubleLine Income Solutions Board of Trustees: March 19, 2013
Renewed,
reviewed and approved by the DoubleLine Income Solutions Board of Trustees: May
22, 2013
Renewed,
reviewed and approved by the DoubleLine Income Solutions Board of Trustees:
November 20, 2013
Renewed,
reviewed and approved by the DoubleLine Income Solutions Board of Trustees:
August 21, 2014
Adopted
by the DoubleLine Opportunistic Credit Fund Board of Trustees: August 24, 2011
Renewed
and approved by the DoubleLine Opportunistic Credit Fund Board of Trustees:
March 19, 2013
Renewed,
reviewed and approved by the DoubleLine Opportunistic Credit Fund Board of
Trustees: May 22, 2013
Renewed,
reviewed and approved by the DoubleLine Opportunistic Credit Fund Board of
Trustees: November 20, 2013
Renewed,
reviewed and approved by the DoubleLine Opportunistic Credit Fund Board of
Trustees: August 21, 2014
Adopted
by the DoubleLine Funds Trust Board: March 25, 2010
Renewed,
reviewed and approved by the DoubleLine Funds Trust Board: March 1, 2011
Renewed,
reviewed and approved by the DoubleLine Funds Trust Board: August 25, 2011
Renewed
and approved by the DoubleLine Funds Trust Board of Trustees: March 19, 2013
Renewed,
reviewed and approved by the DoubleLine Funds Trust Board: May 22, 2013
Renewed,
reviewed and approved by the DoubleLine Funds Trust Board: November 20, 2013
Renewed,
reviewed and approved by the DoubleLine Funds Trust Board: August 21, 2014
E-7
Attachment A to the Proxy Voting, Corporate Actions and Class
Actions Policy
Effective July 1, 2023
Guidelines
The
Advisers have a fiduciary duty to clients, and shall exercise diligence and
care, with respect to its proxy voting authority. Accordingly, the Advisers will
review each proposal to determine the relevant facts and circumstances and adopt
the following guidelines as a framework for analysis in seeking to maximize the
value of client investments. The guidelines do not address all potential voting
matters and actual votes by the Advisers may vary based on specific facts and
circumstances.
Directors
play a critical role in ensuring that the company and its management serve the
interests of its shareholders by providing leadership and appropriate oversight.
We believe that the board of directors should have the requisite industry
knowledge, business acumen and understanding of company stakeholders in order to
discharge its duties effectively.
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
Frequency
of Elections |
|
|
|
|
|
Electing
all directors annually |
|
|
|
For |
|
Uncontested
Elections |
|
|
|
|
|
Voting
management nominees, unless the nominee lacks independence or focus, has
had chronic absences or presents other material concerns to the detriment
of the effectiveness of the board |
|
|
|
For |
|
Majority
Voting |
|
|
|
|
|
Allowing
majority voting unless incumbent directors must resign if they do not
receive a majority vote in an uncontested election |
|
|
|
For |
|
Cumulative
Voting |
|
|
|
|
|
Allowing
cumulative voting unless the company previously adopted a majority voting
policy |
|
|
|
For |
|
Changes
in Board Structure |
|
|
|
|
|
Changing
the board structure, such as the process for vacancies or director
nominations, or the board size, unless there is an indication that the
change is an anti-takeover device, or it diminishes shareholder
rights |
|
|
|
For |
|
Stock
Ownership |
|
|
|
|
|
Requiring
directors to own company shares |
|
X |
|
Against |
|
Contested
Elections |
|
|
|
|
|
The
qualifications of nominees on both slates, management track record and
strategic plan for enhancing shareholder value, and company financial
performance generally will be considered when voting nominees in a
contested election |
|
X |
|
Case-by-Case |
| B. |
Section 14A Say-On-Pay Votes |
Current
law requires companies to allow shareholders to cast non-binding advisory votes
on the compensation for named executive officers, including the frequency of
such votes. The Advisers generally support proposals for annual votes, as well
as the ratification of executive compensation unless the compensation structure
or any prior actions taken by the board or compensation committee warrant a
case-by-case analysis.
E-8
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
Frequency
of Say-On-Pay Votes |
|
|
|
|
|
Annual
shareholder advisory votes regarding executive compensation |
|
X |
|
For |
|
Compensation
Disclosures |
|
|
|
|
|
Seeking
additional disclosures related to executive and director pay unless
similar information is already provided in existing disclosures or
reporting |
|
X |
|
For |
|
Executive
Compensation Advisory |
|
|
|
|
|
Executive
compensation proposals generally will be assessed based on its structure,
prevailing industry practice and benchmarks, and any problematic prior pay
practices or related issues involving the board/compensation
committee |
|
X |
|
Case-by-Case |
|
Golden
Parachute Advisory |
|
|
|
|
|
Golden
parachute proposals, in general, will be assessed based on the existing
change-in-control arrangements, the nature and terms of the triggering
event(s) and the amount to be paid |
|
X |
|
Case-by-Case |
The
Advisers generally support proposals for the selection or ratification of
independent auditors, subject to a consideration of any conflicts of interest,
poor accounting practices or inaccurate prior opinions and related fees.
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Appointment
of Auditors |
|
|
|
|
| Selecting or ratifying independent auditors, unless there
is a material conflict of interest, a history of poor accounting practice
or inaccurate opinions, or excessive fees |
|
|
|
For |
|
|
|
|
Non-Audit/Consulting
Services |
|
|
|
|
| Other alternative service providers, conflicts of interest,
and company disclosures are areas of consideration when voting proposals
to limit other engagements with auditors |
|
X |
|
Case-by-Case |
|
|
|
|
Indemnification
of Auditors |
|
|
|
|
| Indemnification of auditors generally will be assessed
based on the nature of the engagement, the auditor’s work history and
field of expertise, and the terms of the agreement such as its impact on
the ability of shareholders to pursue legal recourse against the auditor
for certain acts or omissions |
|
X |
|
Case-by-Case |
|
|
|
|
Rotation
of Auditors |
|
|
|
|
| Shareholder proposals requiring auditor rotation generally
will be assessed based on any audit issues involving the company, the
auditor’s tenure with the company, and policies and practices surrounding
auditor evaluations |
|
X |
|
Case-by-Case |
| D. |
Investment Company Matters |
When
the Advisers invest in a DoubleLine Fund with other public shareholders, the
Advisers will vote the shares of such fund in the same proportion as the votes
of the other shareholders. Under this “echo voting” approach, the Advisers’
potential conflict is mitigated by replicating the voting preferences
E-9
expressed
by the other shareholders. With respect to specific proposals involving the
DoubleLine Funds, the Advisers generally support recommendations by the fund’s
board unless applicable laws and regulations prohibit the Advisers from doing
so.
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Share
Classes |
|
|
|
|
| Issuance of new classes or series of shares |
|
|
|
For |
|
|
|
|
Investment
Objectives |
|
|
|
|
| Changing a fundamental investment objective to
nonfundamental |
|
|
|
Against |
|
|
|
|
Investment
Restrictions |
|
|
|
|
| Changing fundamental restrictions to nonfundamental
generally will be assessed in consideration of the target investments,
reason(s) for the change and its impact on the portfolio |
|
|
|
Case-by-Case |
|
|
|
|
Distribution
Agreements |
|
|
|
|
| Distribution agreements generally will be assessed based on
the distributor’s services and reputation, applicable fees, and other
terms of the agreement |
|
|
|
Case-by-Case |
|
|
|
|
Investment
Advisory Agreements |
|
|
|
|
| Investment advisory agreements generally will be assessed
based on the applicable fees, fund category and investment objective, and
performance |
|
|
|
Case-by-Case |
| E. |
Shareholder Rights and Defenses |
The
Advisers believe that companies have a fundamental obligation to protect the
rights of shareholders. Therefore, the Advisers generally support proposals that
hold the board and management accountable in serving the best interest of
shareholders and that uphold their rights. However, the Advisers generally will
not support proposals from certain shareholders that are hostile, disruptive, or
are otherwise counter to the best interest of the Advisers’ clients.
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Appraisal
Rights |
|
|
|
|
| Providing shareholders with rights of appraisal |
|
X |
|
For |
|
|
|
|
Fair
Price Provision |
|
|
|
|
| Fair price provisions that ensures each shareholder’s
securities will be purchased at the same price if the company is acquired
in disagreement with the board. However, fair price provisions may not be
supported if it is used as an anti-takeover device by the board |
|
X |
|
For |
|
|
|
|
Special
Meetings |
|
|
|
|
| Providing or restoring rights to call a special meeting so
long as the threshold to call a meeting is no less than 10 percent of
outstanding shares |
|
X |
|
For |
|
|
|
|
Confidential
Voting |
|
|
|
|
| Allowing shareholders to vote confidentially |
|
X |
|
For |
E-10
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Written
Consents |
|
|
|
|
| Allowing shareholders to act by written consent |
|
X |
|
For |
|
|
|
|
Greenmail |
|
|
|
|
| Adopting anti-greenmail charter or bylaw amendments or
otherwise restricting the company’s ability to make greenmail payments for
repurchasing shares at a premium to prevent a hostile takeover |
|
X |
|
For |
|
|
|
|
Supermajority
Vote |
|
|
|
|
| Requiring a supermajority vote, unless there are
disproportionate substantial shareholders that weaken minority votes |
|
|
|
Against |
|
|
|
|
Bundled
Proposals |
|
|
|
|
| Bundled or conditional proposals generally will be reviewed
to determine the benefit or cost of the matters included or if there is a
controversy or any matter that is adverse to shareholder interests |
|
|
|
Case-by-Case |
|
|
|
|
Preemptive
Rights |
|
|
|
|
| Preemptive rights, in general, will be assessed based on
the size of the company and its shareholder base, for which larger
publicly held companies with a broad shareholder base may be less ideal |
|
|
|
Case-by-Case |
|
|
|
|
Shareholder
Rights Plans (Poison Pills) |
|
|
|
|
| Poison pills generally will be assessed based on the
company’s governance practices, existing takeover defenses, and the terms
of the plan, including the triggering mechanism, duration, and
redemption/rescission features. Requests to have shareholders ratify plans
generally will be supported |
|
X |
|
Case-by-Case |
| F. |
Extraordinary Transactions |
Proposals
for transactions that may affect the ownership interests or voting rights of
shareholders, such as mergers, asset sales and corporate or debt restructuring,
will be assessed on a case-by-case basis generally in consideration of the
economic outcome for shareholders, the potential dilution of shareholder rights
and its impact on corporate governance, among other relevant factors.
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Reincorporation |
|
|
|
|
| Reincorporating in another state or country in support of
the rights and economic interests of shareholders |
|
|
|
For |
|
|
|
|
Merger,
Corporate Restructuring and Spin Offs |
|
|
|
|
| Merger, corporate restructuring and spin off proposals
generally will be assessed with the view of maximizing the economic value
of shareholder interests. The purchase or sale price and other deal terms
will be reviewed, among other factors, to ensure that the transaction is
aligned with the long-term interests of shareholders |
|
|
|
Case-by-Case |
E-11
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Debt
Restructuring |
|
|
|
|
| The terms of the transaction, current capital markets
environment, and conflicts of interest are factors that generally will be
considered for ensuring that the proposal enhances the economic value of
shareholder interests |
|
|
|
Case-by-Case |
|
|
|
|
Liquidations
and Asset Sales |
|
|
|
|
| As with other transaction proposals, the long-term economic
impact of the transaction will be the focus of review of such proposals
and, in general, factors such as the sale price, costs and conflicts of
interest will be considered |
|
|
|
Case-by-Case |
The
Advisers believe that the prudent management of debt and equity to finance
company operations and growth, and which is supportive of shareholders’ rights
and economic interests, is critical to financial viability.
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Common
Stock |
|
|
|
|
| Issuing common stock for recapitalizations, stock splits,
dividends or otherwise reasonably amending outstanding shares for a
specific purpose |
|
|
|
For |
|
|
|
|
Multi-Class
Shares |
|
|
|
|
| Adopting multi-class share structures so long as they have
equal voting rights |
|
|
|
For |
|
|
|
|
Repurchase
Programs |
|
|
|
|
| Adopting plans to repurchase shares in the open market
unless shareholders cannot participate on equal terms |
|
|
|
For |
|
|
|
|
Blank
Check Preferred Stock |
|
|
|
|
| Allowing the board to issue preferred shares without prior
shareholder approval and setting the terms and voting rights of preferred
shares at the board’s discretion |
|
|
|
Against |
|
|
|
|
Recapitalization
Plans |
|
|
|
|
| The rationale and objectives; current capital markets
environment; impact on shareholder interests including conversion terms,
dividends and voting rights; and any material conflicts of interest are
factors that generally will be considered when reviewing proposals to
reclassify debt or equity capital |
|
|
|
Case-by-Case |
The
Advisers believe that compensation arrangements should align the economic
interests of directors, management, and employees with those of shareholders and
consider factors such as (1) local norms, (2) industry-specific
practices and performance benchmarks, and (3) the structure of base and
incentive compensation. The Advisers generally support transparency (e.g.,
disclosures related to the performance metrics and how they promote better
corporate performance, etc.) and periodic reporting with respect to
compensation.
E-12
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Employee
401 (k) Plan |
|
|
|
|
| Adopting a 401 (k) plan for employees |
|
|
|
For |
|
|
|
|
Employee
Stock Option Plan (ESOP) |
|
|
|
|
| Requiring shareholder approval to adopt a broad-based ESOP
or to increase outstanding shares for an existing plan unless the
allocation of outstanding shares to the ESOP exceeds five percent or 10
percent among all stock-based plans |
|
|
|
For |
|
|
|
|
Recoupment
Provisions (Clawbacks) |
|
|
|
|
| Adopting clawback provisions in cases of revised financial
results or performance indicators on which prior compensation payments
were based, as well as for willful misconduct or violations of law or
regulation that result in financial or reputational harm to the company |
|
X |
|
For |
|
|
|
|
Limits
on Executive or Director Compensation |
|
|
|
|
| Setting limits on executive or director compensation unless
there is a substantial deviation from industry practice or any problematic
issue involving the board/compensation committee or prior pay practices |
|
X |
|
Against |
|
|
|
|
Equity-Based
and Other Incentive Plans |
|
|
|
|
| Incentive plans, in general, will be assessed based on the
prevailing local and industry-specific practices and performance
benchmarks, the terms of the plan and whether they are aligned with
company goals and shareholder interests, the cost of the plan, and the
overall compensation structure |
|
|
|
Case-by-Case |
|
|
|
Severance
Agreements for Executives (Golden Parachutes) |
|
|
| Golden parachutes generally will be assessed based on the
existing change-in-control arrangements, the nature and terms of the
triggering event(s) and the amount to be paid |
|
|
|
Case-by-Case |
The
Advisers believe that authority and accountability for establishing business
strategies, corporate policies and compensation generally should rest with the
board and management. The independence, qualifications, and integrity of the
board as well as the effectiveness of management and their oversight, which must
be aligned with shareholder interests, are essential to good governance. The
following general guidelines reflect these principles although material
environmental, social and governance (ESG) factors, which have a potential
financial impact on the company and the valuation of client investments, if any,
are also considered.
E-13
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Quorum
Requirements |
|
|
|
|
| Establishing a majority requirement, unless shareholder
turnout has been an issue, or a reduced quorum is reasonable based on
applicable laws or regulations and the market capitalization or ownership
structure of the company |
|
|
|
For |
|
|
|
|
Annual
Meetings |
|
|
|
|
| Changing the date, time, or location of annual meetings,
unless the proposed schedule or location is unreasonable |
|
|
|
For |
|
|
|
|
Board
Size |
|
|
|
|
| Setting the board size, so long as the proposal is
consistent with the prevailing industry practice and applicable laws or
regulations |
|
|
|
For |
|
|
|
|
Proxy
Access |
|
|
|
|
| Allowing shareholders to nominate director candidates in
proxy ballots with reasonable limitations (e.g., minimum percentage and
duration of ownership and a cap on board representation) for preventing
potential abuse by certain shareholders |
|
X |
|
For |
|
|
|
|
Independent
Directors |
|
|
|
|
| Requiring the board chair and a majority of directors to be
independent directors. Proposals for a lead independent director may be
supported in cases where the board chair is not independent |
|
X |
|
For |
|
|
|
Independent
Committees |
|
|
| Requiring independent directors exclusively for the audit,
compensation, nominating and governance committees |
|
X |
|
For |
|
|
|
|
Removal
of Directors |
|
|
|
|
| Removing a director without cause |
|
X |
|
For |
|
|
|
|
Indemnification
of Directors and Officers |
|
|
|
|
| Indemnifying directors and officers for acts and omissions
made in good faith and were believed to be in the best interest of the
company. Limitations on liability involving willful misconduct or
violations of law or regulation, or a breach of fiduciary duty, generally
will be voted against |
|
|
|
For |
|
|
|
|
Term
Limits for Directors |
|
|
|
|
| Imposing term limits on directors unless the director
evaluation process is ineffective and related issues persist |
|
X |
|
Against |
|
|
|
|
Classified
Boards |
|
|
|
|
| Establishing a classified board |
|
|
|
Against |
|
|
|
|
Adjournment
of Meetings |
|
|
|
|
| Providing management the authority to adjourn annual or
special meetings without reasonable grounds |
|
|
|
Against |
|
|
|
|
Amendments
to Bylaws |
|
|
|
|
| Giving the board the authority to amend bylaws without
shareholder approval |
|
|
|
Against |
E-14
| J. |
Environment or Climate |
The
Advisers would generally consider the recommendations of management for
shareholder proposals involving environmental issues as it believes that, in
most cases, elected directors and management are in the best position to address
such matters. In addition, reporting that provides meaningful information for
evaluating the financial impact of environmental policies and practices is
generally supported unless it is unduly costly or burdensome or it places the
company at a competitive disadvantage. Material ESG factors, which have a
potential financial impact on the company and the valuation of client
investments, if any, are also considered.
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Environmental
and Climate Disclosures |
|
|
|
|
| Providing environmental/climate-related disclosures and
reporting unless it is duplicative or unsuitable |
|
|
|
For |
|
|
|
|
Environmental
and Climate Policies |
|
|
|
|
| Environmental and climate policies generally will be
assessed based on the company’s related governance practices, local and
industry-specific practices, the nature and extent of environmental and
climate risks applicable to the company, and the economic benefit to
shareholders |
|
|
|
Case-by-Case |
| K. |
Human Rights or Human Capital/Workforce
|
The
Advisers would generally consider the recommendations of management for
shareholder proposals involving social issues as it believes that, in most
cases, elected directors and management are in the best position to address such
matters. In addition, reporting that provides meaningful information for
evaluating the financial impact of social policies and practices is generally
supported unless it is unduly costly or burdensome or it places the company at a
competitive disadvantage. Material ESG factors, which have a potential financial
impact on the company and the valuation of client investments, if any, are also
considered.
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Human
Rights and Labor Disclosures |
|
|
|
|
| Providing human rights and labor-related disclosures and
reporting unless it is duplicative or unsuitable |
|
|
|
For |
|
|
|
|
Human
Rights and Labor Policies |
|
|
|
|
| Human rights and labor policies generally will be assessed
based on the company’s related governance practices, applicable law or
regulations, local and industry-specific practices, the nature and extent
of supply chain or reputational risks applicable to the company, and their
economic benefit to shareholders |
|
|
|
Case-by-Case |
| L. |
Diversity, Equity, and Inclusion |
The
Advisers generally support reporting that provides meaningful information for
evaluating the financial impact of diversity, equity, and inclusion (DEI)
policies and practices unless it is unduly costly or burdensome. For policy
proposals, the Advisers will consider existing policies, regulations and
applicable local standards and best practices, to determine if they provide an
added benefit to shareholders. Material ESG factors, which have a potential
financial impact on the company and the valuation of client investments, if any,
are also considered.
E-15
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
DEI
Disclosures |
|
|
|
|
| Providing Equal Employment Opportunity (EEO-1) Reports, and
other additional disclosures or reporting unless it is duplicative or
unsuitable |
|
|
|
For |
|
|
|
|
Anti-Discrimination
Policy |
|
|
|
|
| Adopting an anti-discrimination and harassment policy |
|
|
|
For |
|
|
|
|
Other
DEI Policies |
|
|
|
|
| Other DEI policies generally will be assessed based on the
company’s related governance practices, applicable law or regulations, and
local and industry-specific practices |
|
|
|
Case-by-Case |
|
|
|
|
|
|
Proposal |
|
Shareholder Proposal |
|
Anticipated Vote |
|
|
|
|
Political
Contribution and Activities |
|
|
|
|
| Political contributions and lobbying activities generally
will be reviewed in consideration of legal restrictions and requirements,
applicable policies and historical practice, and its cost-benefit to the
company. Related disclosures to shareholders generally are supported |
|
|
|
Case-by-Case |
|
|
|
|
Charitable
Contributions |
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| Charitable contributions, in general, will be reviewed in
consideration of applicable policies and historical practice, conflicts of
interests, as well as the cost-benefit of charitable spending. Related
disclosures to shareholders generally are supported |
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Case-by-Case |
E-16
APPENDIX F
Loomis, Sayles & Company, L.P.
Proxy Voting Policies and Procedures
Effective Date: March 24, 2022
1.
GENERAL
A.
Introduction.
Loomis,
Sayles & Company, L.P. (“Loomis Sayles”) will vote proxies of the
securities held in its clients’ portfolios on behalf of each client that has
delegated proxy voting authority to Loomis Sayles as investment adviser. Loomis
Sayles has adopted and implemented these policies and procedures (“Proxy Voting
Procedures”) to ensure that, where it has voting authority, proxy matters are
handled in the best interests of clients, in accordance with Loomis Sayles’
fiduciary duty, and all applicable law and regulations. The Proxy Voting
Procedures, as implemented by the Loomis Sayles Proxy Committee (as described
below), are intended to support good corporate governance, including those
corporate practices that address environmental and social issues (“ESG
Matters”), in all cases with the objective of protecting shareholder interests
and maximizing shareholder value.
Loomis
Sayles uses the services of third parties (each a “Proxy Voting Service” and
collectively the “Proxy Voting Services”), to provide research, analysis and
voting recommendations and to administer the process of voting proxies for those
clients for which Loomis Sayles has voting authority. Any reference in these
Proxy Voting Procedures to a “Proxy Voting Service” is a reference either to the
Proxy Voting Service that provides research, analysis and voting recommendations
to Loomis Sayles or to the Proxy Voting Service that administers the process of
voting proxies for Loomis Sayles or to both, as the context may require. Loomis
Sayles will generally follow its express policy with input from the Proxy Voting
Service that provides research, analysis and voting recommendations to Loomis
Sayles unless the Proxy Committee determines that the client’s best interests
are served by voting otherwise.
B.
General Guidelines.
The
following guidelines will apply when voting proxies on behalf of accounts for
which Loomis Sayles has voting authority.
1.
Client’s Best Interests. The Proxy Voting Procedures are designed and
implemented in a way that is reasonably expected to ensure that proxy matters
are conducted in the best interests of clients. When considering the best
interests of clients, Loomis Sayles has determined that this means the best
investment interest of its clients as shareholders of the issuer. To protect its
clients’ best interests, Loomis Sayles has integrated the consideration of ESG
Matters into its investment process. The Proxy Voting Procedures are intended to
reflect the impact of these factors in cases where they are material to the
growth and sustainability of an issuer. Loomis Sayles has established its Proxy
Voting Procedures to assist it in making its proxy voting decisions with a view
toward enhancing the value of its clients’ interests in an issuer over the
period during which it expects its clients to hold their investments. Loomis
Sayles will vote against proposals that it believes could adversely impact the
current or future market value of the issuer’s securities during the expected
holding period. Loomis Sayles also believes that protecting the best interests
of clients requires the consideration of potential material impacts of proxy
proposals associated with ESG Matters.
For
the avoidance of doubt, and notwithstanding any other provisions of these Proxy
Voting Procedures, in all instances in which Loomis Sayles votes proxies on
behalf of clients that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), Loomis Sayles
(a) will act solely in accordance with the economic interest of the plan
and its
F-1
participants
and beneficiaries, and (b) will not subordinate the interests of the
participants and beneficiaries in their retirement income or financial benefits
under the plan to any other objective, or promote benefits or goals unrelated to
those financial interests of the plan’s participants and beneficiaries.
2.
Client Proxy Voting Policies. Rather than delegating proxy voting authority
to Loomis Sayles, a client may (a) retain the authority to vote proxies on
securities in its account; (b) delegate voting authority to another party;
or (c) instruct Loomis Sayles to vote proxies according to a policy that
differs from the Proxy Voting Procedures. Loomis Sayles will honor any of these
instructions if the instruction is agreed to in writing by Loomis Sayles in its
investment management agreement with the client. If Loomis Sayles incurs
additional costs or expenses in following any such instruction, it may request
payment for such additional costs or expenses from the client.
3.
Stated Policies. In the interest of consistency in voting proxies on behalf
of its clients where appropriate, Loomis Sayles has adopted policies that
identify issues where Loomis Sayles will (a) generally vote in favor of a
proposal; (b) generally vote against a proposal; (c) generally vote as
recommended by the Proxy Voting Service; and (d) specifically consider its
vote for or against a proposal. However, these policies are guidelines and each
vote may be cast differently than the stated policy, taking into consideration
all relevant facts and circumstances at the time of the vote. In certain cases
where the recommendation of the Proxy Voting Service and the recommendation of
the issuer’s management are the same, the vote will generally be cast as
recommended and will not be reviewed on a case-by-case basis by the Proxy
Committee. In cases where the portfolio manager of an account that holds voting
securities of an issuer or the analyst covering the issuer or its securities
recommends a vote, the proposal(s) will be voted according to these
recommendations after a review for any potential conflicts of interest is
conducted and will not be reviewed on a case-by-case basis by the Proxy
Committee. There may be situations where Loomis Sayles casts split votes despite
the stated policies. For example, Loomis Sayles may cast a split vote when
different clients may be invested in strategies with different investment
objectives, or when different clients may have different economic interests in
the outcome of a particular proposal. Loomis Sayles also may cast a split vote
on a particular proposal when its investment teams have differing views
regarding the impact of the proposal on their clients’ investment interests.
4.
Abstentions and Other Exceptions. Loomis Sayles’ general policy is to vote
rather than abstain from voting on issues presented, unless the Proxy Committee
determines, pursuant to its best judgment, that the client’s best interests
require abstention. However, in the following circumstances Loomis Sayles may
not vote a client’s proxy:
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• |
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The Proxy Committee has concluded that voting would have no
meaningful, identifiable economic benefit to the client as a shareholder,
such as when the security is no longer held in the client’s portfolio or
when the value of the portfolio holding is insignificant.
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• |
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The Proxy Committee has concluded that the costs of or
disadvantages resulting from voting outweigh the economic benefits of
voting. For example, in some non-US jurisdictions, the sale of
securities voted may be legally or practically prohibited or subject to
some restrictions for some period of time, usually between the record and
meeting dates (“share blocking”). Loomis Sayles believes that the loss of
investment flexibility resulting from share blocking generally outweighs
the benefit to be gained by voting. Information about share blocking is
often incomplete or contradictory. Loomis Sayles relies on the client’s
custodian and on its Proxy Voting Service to identify share blocking
jurisdictions. To the extent such information is wrong, Loomis Sayles
could fail to vote shares that could have been voted without loss of
investment flexibility, or could vote shares and then be prevented from
engaging in a potentially beneficial portfolio transaction.
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• |
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Administrative requirements for voting proxies in certain
foreign jurisdictions (which may be imposed a single time or may be
periodic), such as providing a power of attorney to the client’s
|
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local
sub-custodian, cannot be
fulfilled due to timing of the requirement, or the costs required to
fulfill the administrative requirements appear to outweigh the benefits to
the client of voting the proxy. |
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The client, as of the record date, has loaned the securities to
which the proxy relates and Loomis Sayles has concluded that it is not in
the best interest of the client to recall the loan or is unable to recall
the loan in order to vote the securities1.
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The client so directs Loomis Sayles. |
The
Proxy Committee will generally vote against, rather than abstain from voting on,
ballot issues where the issuer does not provide sufficient information to make
an informed decision. In addition, there may be instances where Loomis Sayles is
not able to vote proxies on a client’s behalf, such as when ballot delivery
instructions have not been processed by a client’s custodian, when the Proxy
Voting Service has not received a ballot for a client’s account (e.g., in cases
where the client’s shares have been loaned to a third party), when proxy
materials are not available in English, and under other circumstances beyond
Loomis Sayles’ control.
5.
Oversight. All issues presented for shareholder vote are subject to the
oversight of the Proxy Committee, either directly or by application of this
policy. All non-routine issues will
generally be considered directly by the Proxy Committee and, when necessary, the
investment professionals responsible for an account holding the security, and
will be voted in the best investment interests of the client. All routine “for”
and “against” issues will be voted according to this policy unless special
factors require that they be considered by the Proxy Committee and, when
necessary, the investment professionals responsible for an account holding the
security.
6.
Availability of Procedures. Loomis Sayles publishes these Proxy Voting
Procedures, as updated from time to time, on its public website,
www.loomissayles.com, and includes a description of its Proxy Voting Procedures
in Part 2A of its Form ADV. Upon request, Loomis Sayles also provides clients
with a copy of its Proxy Voting Procedures.
7.
Disclosure of Vote. Loomis Sayles makes certain disclosures regarding its
voting of proxies in the aggregate (not specific as to clients) on its website,
www.loomissayles.com. For mutual funds that it manages, Loomis Sayles is
required by law to make certain disclosures regarding its voting of proxies
annually. This information is also available on the Loomis Sayles website.
Additionally, Loomis Sayles will, upon request by a client, provide information
about how each proxy was voted with respect to the securities in that client’s
account. Loomis Sayles’ policy is not to disclose a client’s proxy voting
records to third parties except as required by applicable law and regulations.
C.
Proxy Committee.
1.
Proxy Committee. Loomis Sayles has established a Proxy Committee. The Proxy
Committee is composed of senior representatives from firm investment teams and
members of the Legal and Compliance Department, and other employees of Loomis
Sayles as needed. In the event that any member is unable to participate in a
meeting of the Proxy Committee, he or she may designate another individual to
act on his or her behalf. A vacancy in the Proxy Committee is filled by the
prior member’s successor in position at Loomis Sayles or a person of equivalent
experience. Each portfolio manager of an account that holds voting securities of
an issuer or the analyst covering the issuer or its securities may be an ad hoc
member of the Proxy Committee in connection with voting proxies of that issuer.
Voting determinations made by the Proxy Committee generally will be memorialized
electronically (e.g., by email).
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Loomis Sayles does not engage in securities lending. However,
some clients do opt to lend securities, availing themselves of their
custodians’ services. |
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2.
Duties. The Proxy Committee’s specific responsibilities include the
following:
a.
developing, authorizing, implementing and updating the Proxy Voting Procedures,
including:
(i)
annually reviewing the Proxy Voting Procedures to ensure consistency with
internal policies and regulatory agency policies, including determining the
continuing adequacy of the Proxy Voting Procedures to confirm that they have
been formulated reasonably and implemented effectively, including whether they
continue to be reasonably designed to ensure that proxy votes are cast in
clients’ best interest,
(ii)
annually reviewing existing voting guidelines and developing of additional
voting guidelines to assist in the review of proxy proposals, and
(iii)
annually reviewing the proxy voting process and addressing any general issues
that relate to proxy voting;
b.
overseeing the proxy voting process, including:
(i) overseeing
the vote on proposals according to the predetermined policies in the voting
guidelines,
(ii)
directing the vote on proposals where there is reason not to vote according to
the predetermined policies in the voting guidelines or where proposals require
special consideration,
(iii)
consulting with the portfolio managers and analysts for the accounts holding the
security when necessary or appropriate, and
(iv)
periodically sampling or engaging an outside party to sample proxy votes to
ensure they comply with the Proxy Voting Procedures and are cast in accordance
with the clients’ best interests;
c.
engaging and overseeing third-party vendors that materially assist Loomis Sayles
with respect to proxy voting, such as the Proxy Voting Services, including:
(i)
determining and periodically reassessing whether, as relevant, the Proxy Voting
Service has the capacity and competency to adequately analyze proxy issues by
considering:
(a)
the adequacy and quality of the Proxy Voting Service’s staffing, personnel and
technology,
(b)
whether the Proxy Voting Service has adequately disclosed its methodologies in
formulating voting recommendations, such that Loomis Sayles can understand the
factors underlying the Proxy Voting Service’s voting recommendations,
(c)
the robustness of the Proxy Voting Service’s policies and procedures regarding
its ability to ensure that its recommendations are based on current, materially
complete and accurate information, and
(d)
the Proxy Voting Service’s policies and procedures regarding how it identifies
and addresses conflicts of interest, including whether the Proxy Voting
Service’s policies and procedures provide for adequate disclosure of its actual
and potential conflicts of interest with respect to the services it provides to
Loomis Sayles.
(ii)
providing ongoing oversight of the Proxy Voting Services to ensure that proxies
continue to be voted in the best interests of clients and in accordance with
these Proxy Voting Procedures and the determinations and directions of the Proxy
Committee,
(iii)
receiving and reviewing updates from the Proxy Voting Services regarding
relevant business changes or changes to the Proxy Voting Services’ conflict
policies and procedures, and
(iv)
in the event that the Proxy Committee becomes aware that a recommendation of the
Proxy Voting Service was based on a material factual error (including materially
inaccurate or incomplete
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information):
investigating the error, considering the nature of the error and the related
recommendation, and determining whether the Proxy Voting Service has taken
reasonable steps to reduce the likelihood of similar errors in the future; and
d.
further developing and/or modifying these Proxy Voting Procedures as otherwise
appropriate or necessary.
3.
Standards.
a.
When determining the vote of any proposal for which it has responsibility, the
Proxy Committee shall vote in the client’s best interests as described in
section 1(B)(1) above. In the event a client believes that its other interests
require a different vote, Loomis Sayles shall vote as the client instructs if
the instructions are provided as required in section 1(B)(2) above.
b.
When determining the vote on any proposal, the Proxy Committee shall not
consider any benefit to Loomis Sayles, any of its affiliates, any of its or
their clients or service providers, other than benefits to the owner of the
securities to be voted.
c.
If Loomis Sayles becomes aware of additional information relevant to the voting
of a shareholder meeting after a vote has been entered but before the applicable
voting deadline has passed, it will consider whether or not such information
impacts the vote determination entered, and if necessary, use reasonable efforts
to change the vote instruction.
D.
Conflicts of Interest.
Loomis
Sayles has established policies and procedures to ensure that proxy votes are
voted in its clients’ best interests and are not affected by any possible
conflicts of interest. First, except in certain limited instances, Loomis Sayles
votes in accordance with its pre-determined policies set forth in these
Proxy Voting Procedures. Second, where these Proxy Voting Procedures allow for
discretion, Loomis Sayles will generally consider the recommendations of the
Proxy Voting Service in making its voting decisions. However, if the Proxy
Committee determines that the Proxy Voting Service’s recommendation is not in
the best interests of the firm’s clients, then the Proxy Committee may use its
discretion to vote against the Proxy Voting Service’s recommendation, but only
after taking the following steps: (1) conducting a review for any material
conflict of interest Loomis Sayles may have, and (2) if any material
conflict is found to exist, excluding anyone at Loomis Sayles who is subject to
that conflict of interest from participating in the voting decision in any way.
However, if deemed necessary or appropriate by the Proxy Committee after full
disclosure of any conflict, that person may provide information, opinions or
recommendations on any proposal to the Proxy Committee. In such event, prior to
directing any vote, the Proxy Committee will make reasonable efforts to obtain
and consider information, opinions and recommendations from or about the
opposing position.
E.
Recordkeeping.
Loomis
Sayles or the Proxy Voting Service will maintain records of proxies voted
pursuant to Rule 204-2 under the
Advisers Act. The records include: (1) a copy of its Proxy Voting
Procedures; (2) proxy statements received regarding client securities;
(3) a record of each vote cast; (4) a copy of any document created by
Loomis Sayles that is material to making a decision how to vote proxies on
behalf of a client or that memorializes the basis for that decision; and
(5) each written client request for proxy voting records and Loomis Sayles’
written response to any (written or oral) client request for such records.
Proxy
voting books and records are maintained in an easily accessible place for a
period of five years, the first two in an appropriate office of Loomis Sayles.
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2.
PROXY VOTING
A.
Introduction
Loomis
Sayles has established certain specific guidelines intended to achieve the
objective of the Proxy Voting Procedures: to support good corporate governance,
including ESG Matters, in all cases with the objective of protecting shareholder
interests and maximizing shareholder value.
B.
Board of Directors
Loomis
Sayles believes that an issuer’s independent, qualified board of directors is
the foundation of good corporate governance. Loomis Sayles supports proxy
proposals that reflect the prudent exercise of the board’s obligation to provide
leadership and guidance to management in fulfilling its obligations to its
shareholders. As an example, it may be prudent not to disqualify a director from
serving on a board if they participated in affiliated transactions if all
measures of independence and good corporate governance were met.
Annual
Election of Directors: Vote for proposals to repeal classified boards and to
elect all directors annually.
Chairman
and CEO are Separate Positions: Vote for proposals that require the
positions of chairman and CEO to be held by different persons.
Director
and Officer Indemnification and Liability Protection:
A.
Vote against proposals concerning director and officer indemnification and
liability protection that limit or eliminate entirely director and officer
liability for monetary damages for violating the duty of care, or that would
expand coverage beyond legal expenses to acts such as gross negligence that are
more serious violations of fiduciary obligations than mere carelessness.
B.
Vote for only those proposals that provide such expanded coverage in cases when
a director’s or officer’s legal defense was unsuccessful if (i) the
director or officer was found to have acted in good faith and in a manner that
the director or officer reasonably believed was in the best interests of the
company, and (ii) if the director’s or officer’s legal expenses only would
be covered.
Director
Nominees in Contested Elections: Votes in a contested election of directors
or a “vote no” campaign must be evaluated on a case-by-case basis, considering the
following factors: (1) long-term financial performance of the issuer
relative to its industry; management’s track record; (2) background to the
proxy contest; qualifications of director nominees (both slates); (3) evaluation
of what each side is offering shareholders as well as the likelihood that the
proposed objectives and goals can be met; and (4) stock ownership
positions.
Director
Nominees in Uncontested Elections:
A.
Vote for proposals involving routine matters such as election of directors,
provided that at least two-thirds of
the directors would be independent, as determined by the Proxy Voting Service,
and affiliated or inside nominees do not serve on any key board committee,
defined as the Audit, Compensation, Nominating and/or Governance Committees.
B.
Vote against nominees that are CFOs of the subject company. Generally, vote
against nominees that the Proxy Voting Service has identified as not acting in
the best interests of shareholders (e.g., due to over-boarding, risk management
failures, a lack of diversity, etc.). Vote against nominees that have attended
less than 75% of board and committee meetings, unless a reasonable cause (e.g.,
health or family emergency) for the absence is noted and accepted by the Proxy
Voting Service and the board. Vote against affiliated or inside nominees who
serve on a key board committee (as defined above). Vote against affiliated and
inside nominees if less than two-thirds
of the board would be independent. Vote against Governance or Nominating
Committee members if both the following are true: a) there is no independent
lead or presiding director; and b)
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the
position of CEO and chairman are not held by separate individuals. Generally,
vote against Audit Committee members if auditor ratification is not proposed,
except in cases involving: (i) investment company board members, who are
not required to submit auditor ratification for shareholder approval pursuant to
Investment Company Act of 1940 rules; or (ii) any other issuer that is not
required by law or regulation to submit a proposal ratifying the auditor
selection. Vote against Compensation Committee members when Loomis Sayles or the
Proxy Voting Service recommends a vote against the issuer’s “say on pay”
advisory vote.
C.
Generally, vote against all members of a board committee and not just the
chairman or a representative thereof in situations where the Proxy Voting
Service finds that the board committee has not acted in the best interests of
shareholders.
D.
Vote as recommended by the Proxy Voting Service when directors are being elected
as a slate and not individually.
E.
When electing directors for any foreign-domiciled issuer to which the Proxy
Voting Service believes it is reasonable to apply U.S. governance standards, we
generally will vote in accordance with our policies set forth in
(A) through (D) above. When electing directors for any other
foreign-domiciled issuers, a recommendation of the Proxy Voting Service will
generally be followed in lieu of the above stipulations.
Independent
Audit, Compensation and Nominating and/or Governance Committees: Vote for
proposals requesting that the board Audit, Compensation and/or Nominating and/or
Governance Committees include independent directors exclusively.
Independent
Board Chairman:
A.
Vote for shareholder proposals that generally request the board to adopt a
policy requiring its chairman to be “independent” (based on some reasonable
definition of that term) with respect to any issuer whose enterprise value is,
according to the Proxy Voting Service, greater than or equal to
$10 billion.
B.
Vote such proposals on a case-by-case basis when, according to
the Proxy Voting Service, the issuer’s enterprise value is less than
$10 billion.
Multiple
Directorships: Generally vote against a director nominee who serves as an
executive officer of any public company while serving on more than two total
public company boards and any other director nominee who serves on more than
five total public company boards, unless a convincing argument to vote for that
nominee is made by the Proxy Voting Service, in which case, the recommendation
of the Proxy Voting Service will generally be followed.
Staggered
Director Elections: Vote against proposals to classify or stagger the board.
Stock
Ownership Requirements: Generally vote against shareholder proposals
requiring directors to own a minimum amount of company stock in order to qualify
as a director, or to remain on the board.
Term
of Office: Vote against shareholder proposals to limit the tenure of outside
directors.
C.
Ratification of Auditor
Loomis
Sayles generally supports proposals for the selection or ratification of
independent auditors, subject to consideration of various factors such as
independence and reasonableness of fees.
A.
Generally vote for proposals to ratify auditors.
B.
Vote against ratification of auditors where an auditor has a financial interest
in or association with the company, and is therefore not independent; or there
is reason to believe that the independent auditor has rendered an opinion which
is neither accurate nor indicative of the company’s financial position.
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C.
In general, if non-audit fees amount to
35% or more of total fees paid to a company’s auditor we will vote against
ratification and against the members of the Audit Committee unless the Proxy
Voting Service states that the fees were disclosed and determined to be
reasonable. In such instances, the recommendation of the Proxy Voting service
will generally be followed.
D.
Vote against ratification of auditors and vote against members of the Audit
Committee where it is known that an auditor has negotiated an alternative
dispute resolution procedure.
E.
Vote against ratification of auditors if the Proxy Voting Service indicates that
a vote for the ratification of auditors it is not in the best long term interest
of shareholders.
D.
Remuneration and Benefits
Loomis
Sayles believes that an issuer’s compensation and benefit plans must be designed
to ensure the alignment of executives’ and employees’ interests with those of
its shareholders.
401(k)
Employee Benefit Plans: Vote for proposals to implement a 401(k) savings
plan for employees.
Compensation
Plans: Proposals with respect to compensation plans generally will be voted
as recommended by the Proxy Voting Service.
Compensation
in the Event of a Change in Control: Votes on proposals regarding executive
compensation in the event of a change in control of the issuer will be
considered on a case-by-case basis.
Director
Related Compensation: Vote proposals relating to director compensation, that
are required by and comply with applicable laws (domestic or foreign) or listing
requirements governing the issuer, as recommended by the Proxy Voting Service.
Employee
Stock Ownership Plans (“ESOPs”): Vote for proposals that request shareholder
approval in order to implement an ESOP or to increase authorized shares for
existing ESOPs, except in cases when the number of shares allocated to the ESOP
is “excessive” (i.e., generally greater than five percent of outstanding
shares), in which case the recommendation of the Proxy Voting Service will
generally be followed.
Golden
Coffins: Review on a case-by-case basis all proposals
relating to the obligation of an issuer to provide remuneration or awards to
survivors of executives payable upon such executive’s death.
Golden
and Tin Parachutes:
A.
Vote for shareholder proposals to have golden (top management) and tin (all
employees) parachutes submitted for shareholder ratification.
B.
Review on a case-by-case basis all proposals to
ratify or cancel golden or tin parachutes.
OBRA
(Omnibus Budget Reconciliation Act)-Related Compensation Proposals:
A.
Vote for proposals to amend shareholder-approved plans to include administrative
features or place a cap on the annual grants any one participant may receive to
comply with the provisions of Section 162(m) of OBRA.
B.
Vote for amendments to add performance goals to existing compensation plans to
comply with the provisions of Section 162(m) of OBRA.
C.
Vote for cash or cash-and-stock bonus plans to exempt
the compensation from taxes under the provisions of Section 162(m) of OBRA.
D.
Votes on amendments to existing plans to increase shares reserved and to qualify
the plan for favorable tax treatment under the provisions of Section 162(m)
should be evaluated on a case-by-case basis.
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Shareholder
Proposals to Limit Executive and Director Pay Including Executive Compensation
Advisory Resolutions (“Say on Pay”):
A.
Generally, vote for shareholder proposals that seek additional disclosure of
executive and director pay information.
B.
Review on a case-by-case basis (1) all
shareholder proposals that seek to limit executive and director pay and
(2) all advisory resolutions on executive pay other than shareholder
resolutions to permit such advisory resolutions.
C.
Vote against proposals to link all executive or director variable compensation
to performance goals.
D.
Vote for an annual review of executive compensation.
E.
Non-binding advisory votes on executive
compensation will be voted as recommended by the Proxy Voting Service.
F.
For foreign domiciled issuers where a non-binding advisory vote on executive
compensation is proposed concurrently with a binding vote on executive
compensation, and the recommendation of the Proxy Voting Service is the same for
each proposal, a vote will be entered as recommended by the Proxy Voting
Service.
Share
Retention by Executives: Generally vote against shareholder proposals
requiring executives to retain shares of the issuer for fixed periods unless the
board and the Proxy Voting Service recommend voting in favor of the proposal.
Stock
Option Plans: A recommendation of the Proxy Voting Service will generally be
followed using the following as a guide:
A.
Vote against stock option plans which expressly permit repricing of underwater
options.
B.
Vote against proposals to make all stock options performance based.
C.
Vote against stock option plans that could result in an earnings dilution above
the company specific cap considered by the Proxy Voting Service.
D.
Vote for proposals that request expensing of stock options.
E.
Capital Structure Management Issues
Adjustments
to Par Value of Common Stock: Vote for management proposals to reduce the
par value of common stock.
Authority
to Issue Shares: Vote for proposals by boards to authorize the issuance of
shares (with or without preemptive rights) to the extent the size of the
proposed issuance in proportion to the issuer’s issued ordinary share capital is
consistent with industry standards and the recommendations of the issuer’s board
and the Proxy Voting Service are in agreement. Proposals that do not meet the
above criteria will be reviewed on a case-by-case basis.
Blank
Check Preferred Authorization:
A.
Vote for proposals to create blank check preferred stock in cases when the
company expressly states that the stock will not be used as a takeover defense
or carry superior voting rights, and expressly states conversion, dividend,
distribution and other rights.
B.
Vote for shareholder proposals to have blank check preferred stock placements,
other than those shares issued for the purpose of raising capital or making
acquisitions in the normal course of business, submitted for shareholder
ratification.
C.
Review proposals to increase the number of authorized blank check preferred
shares on a case-by-case basis.
F-9
Common
Stock Authorization: Vote against proposed common stock authorizations that
increase the existing authorization by more than 100% unless a clear need for
the excess shares is presented by the company. A recommendation of the Proxy
Voting Service will generally be followed.
Greenshoe
Options (French issuers only): Vote for proposals by boards of French
issuers in favor of greenshoe options that grant the issuer the flexibility to
increase an over-subscribed securities issuance by up to 15% so long as such
increase takes place on the same terms and within thirty days of the initial
issuance, provided that the recommendation of the issuer’s board and the Proxy
Voting Service are in agreement. Proposals that do not meet the above criteria
will be reviewed on a case-by-case basis.
Reverse
Stock Splits: Vote for management proposals to reduce the number of
outstanding shares available through a reverse stock split.
Share
Cancellation Programs: Vote for management proposals to reduce share capital
by means of cancelling outstanding shares held in the issuer’s treasury.
Share
Repurchase Programs: Vote for management proposals to institute open-market
share repurchase plans in which all shareholders may participate on equal terms.
Stock
Distributions, Splits and Dividends: Generally vote for management proposals
to increase common share authorization, provided that the increase in authorized
shares following the split or dividend is not greater than 100 percent of
existing authorized shares.
F.
Mergers, Asset Sales and Other Special Transactions
Proposals
for transactions that have the potential to affect the ownership interests
and/or voting rights of the issuer’s shareholders, such as mergers, asset sales
and corporate or debt restructuring, will be considered on a case-by-case basis, based on
(1) whether the best economic result is being created for shareholders,
(2) what changes in corporate governance will occur, (3) what impact
they will have on shareholder rights, (4) whether the proposed transaction
has strategic merit for the issuer, and (5) other factors as noted in each
section below, if any.
Asset
Sales: Votes on asset sales will be determined on a case-by-case basis after considering
the impact on the balance sheet/working capital, value received for the asset,
and potential elimination of inefficiencies.
Conversion
of Debt Instruments: Votes on the conversion of debt instruments will be
considered on a case-by-case basis after the
recommendation of the relevant Loomis Sayles equity or fixed income analyst is
obtained.
Corporate
Restructuring: Votes on corporate restructuring proposals, including
minority squeeze-outs, leveraged
buyouts, spin-offs, liquidations, and asset sales will be considered on a case-by-case basis.
Debt
Restructurings: Review on a case-by-case basis proposals to
increase common and/or preferred shares and to issue shares as part of a
debt-restructuring plan. Consider the following issues:
A.
Dilution - How much will ownership interest of existing shareholders be reduced,
and how extreme will dilution to any future earnings be?
B.
Change in Control – Will the transaction result in a change in control of the
company?
C.
Bankruptcy – Loomis Sayles’ Corporate Actions Department is responsible for
consents related to bankruptcies and debt holder consents related to
restructurings.
D.
Potential Conflicts of Interest – For example, clients may own securities at
different levels of the capital structure; in such cases, Loomis Sayles will
exercise voting or consent rights for each such client based on that client’s
best interests, which may differ from the interests of other clients.
Delisting
a Security: Proposals to delist a security from an exchange will be
evaluated on a case-by-case basis.
F-10
Fair
Price Provisions:
A.
Vote for fair price proposals, as long as the shareholder vote requirement
embedded in the provision is no more than a majority of disinterested shares.
B.
Vote for shareholder proposals to lower the shareholder vote requirement in
existing fair price provisions.
Greenmail:
A.
Vote for proposals to adopt anti-greenmail charter or bylaw amendments or
otherwise restrict a company’s ability to make greenmail payments.
B.
Review anti-greenmail proposals on a case-by-case basis when they are
bundled with other charter or bylaw amendments.
C.
Vote for proposals to eliminate an anti-greenmail bylaw if the recommendations
of management and the Proxy Voting Service are in agreement. If they are not in
agreement, review and vote such proposals on a case-by-case basis.
Liquidations:
Proposals on liquidations will be voted on a case-by-case basis after reviewing
relevant factors including but not necessarily limited to management’s efforts
to pursue other alternatives, the appraisal value of assets, and the
compensation plan for executives managing the liquidation.
Mergers
and Acquisitions: Votes on mergers and acquisitions should be considered on
a case-by-case basis, generally taking
into account relevant factors including but not necessarily limited to:
anticipated financial and operating benefits; offer price (cost vs. premium);
prospects of the combined companies; how the deal was negotiated; golden
parachutes; financial benefits to current management; and changes in corporate
governance and their impact on shareholder rights.
Poison
Pills:
A.
Vote for shareholder proposals that ask a company to submit its poison pill for
shareholder ratification.
B.
Review on a case-by-case basis shareholder
proposals to redeem a company’s poison pill.
C.
Review on a case-by-case basis management
proposals to ratify a poison pill.
Reincorporation
Provisions: Proposals to change a company’s domicile will be evaluated on a
case-by-case basis.
Right
to Adjourn: Vote for the right to adjourn in conjunction with a vote for a
merger or acquisition or other proposal, and vote against the right to adjourn
in conjunction with a vote against a merger or acquisition or other proposal.
Spin-offs:
Votes on spin-offs will be considered on a case-by-case basis depending on
relevant factors including but not necessarily limited to the tax and regulatory
advantages, planned use of sale proceeds, market focus, and managerial
incentives.
Tender
Offer Defenses: Proposals concerning tender offer defenses will be evaluated
on a case-by-case basis.
G.
Shareholder Rights
Loomis
Sayles believes that issuers have a fundamental obligation to protect the rights
of their shareholders. Pursuant to its fiduciary duty to vote shares in the best
interests of its clients, Loomis Sayles considers proposals relating to
shareholder rights based on whether and how they affect and protect those
rights.
Appraisal
Rights: Vote for proposals to restore, or provide shareholders with, rights
of appraisal.
F-11
Bundled
Proposals: Review on a case-by-case basis bundled or
“conditioned” proxy proposals. In the case of items that are conditioned upon
each other, examine the benefits and costs of the packaged items. In instances
when the joint effect of the conditioned items is not in shareholders’ best
interests, vote against the proposals. If the combined effect is positive,
support such proposals.
Confidential
Voting: Vote for shareholder proposals that request corporations to adopt
confidential voting, use independent tabulators and use independent inspectors
of election as long as the proposals include clauses for proxy contests as
follows: in the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy remains in place. If the dissidents do not agree,
the confidential voting policy is waived. Vote for management proposals to adopt
confidential voting.
Counting
Abstentions: Votes on proposals regarding counting abstentions when
calculating vote proposal outcomes will be considered on a case-by-case basis.
Cumulative
Voting: Vote for proposals to permit cumulative voting, except where the
issuer already has in place a policy of majority voting.
Equal
Access: Vote for shareholder proposals that would allow significant company
shareholders equal access to management’s proxy material in order to evaluate
and propose voting recommendations on proxy proposals and director nominees, and
in order to nominate their own candidates to the board.
Exclusive
Forum Provisions: Vote against proposals mandating an exclusive forum for
any shareholder lawsuits. Vote against the members of the issuer’s Governance
Committee in the event of a proposal mandating an exclusive forum without
shareholder approval.
Independent
Proxy: Vote for proposals to elect an independent proxy to serve as a voting
proxy at shareholder meetings.
Majority
Voting: Vote for proposals to permit majority rather than plurality or
cumulative voting for the election of directors/ trustees.
Preemptive
Rights: Votes with respect to preemptive rights generally will be voted as
recommended by the Proxy Voting Service subject to the Common Stock
Authorization requirements above.
Proxy
Access: A recommendation of the Proxy Voting Service will generally be
followed with regard to proposals intended to grant shareholders the right to
place nominees for director on the issuer’s proxy ballot (“Proxy Access”). Vote
for such proposals when they require the nominating shareholder(s) to hold, in
aggregate, at least 3% of the voting shares of the issuer for at least three
years, and be allowed to nominate up to 25% of the nominees. All other proposals
relating to Proxy Access will be reviewed on a case-by-case basis.
Shareholder
Ability to Alter the Size of the Board:
A.
Vote for proposals that seek to fix the size of the board.
B.
Vote against proposals that give management the ability to alter the size of the
board without shareholder approval.
Shareholder
Ability to Remove Directors:
A.
Vote against proposals that provide that directors may be removed only for
cause.
B.
Vote against proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
C.
Vote for proposals to restore shareholder ability to remove directors with or
without cause and proposals that permit shareholders to elect directors to fill
board vacancies.
Shareholder
Advisory Committees: Proposals to establish a shareholder advisory committee
will be reviewed on a case-by-case basis.
F-12
Shareholder
Rights Regarding Special Meetings:
A.
Vote for proposals that set a threshold of 10% of the outstanding voting stock
as a minimum percentage allowable to call a special meeting of shareholders.
Vote against proposals that increase or decrease the threshold from 10%.
B.
Vote against proposals to restrict or prohibit shareholder ability to call
special meetings.
Supermajority
Shareholder Voting Requirements: Vote for all proposals to replace
supermajority shareholder voting requirements with simple majority shareholder
voting requirements, subject to applicable laws and regulations. Vote against
management proposals to require a supermajority shareholder vote to approve
charter and bylaw amendments.
Unequal
Voting Rights:
A.
Vote against dual class exchange offers and dual class recapitalizations.
B.
Vote on a case-by-case basis on proposals to
eliminate an existing dual class voting structure.
Written
Consent: Vote for proposals regarding the right to act by written consent
when the Proxy Voting Service recommends a vote for the proposal. Proposals
regarding the right to act by written consent where the Proxy Voting Service
recommends a vote against will be sent to the Proxy Committee for determination.
Generally vote against proposals to restrict or prohibit shareholder ability to
take action by written consent.
H.
Environmental and Social Matters
Loomis
Sayles has a fiduciary duty to act in the best interests of its clients.
Loomis
Sayles believes good corporate governance, including those practices that
address ESG Matters, is essential to the effective management of a company’s
financial, litigation and reputation risk, the maximization of its long-term
economic performance and sustainability, and the protection of its shareholders’
best interests, including the maximization of shareholder value.
Proposals
on environmental and social matters cover a wide range of issues, including
environmental and energy practices and their impacts, labor matters, diversity
and human rights. These proposals may be voted as recommended by the Proxy
Voting Service or may, in the determination of the Proxy Committee, be reviewed
on a case-by-case basis if the Proxy
Committee believes that a particular proposal (i) could have a material
impact on an industry or the growth and sustainability of an issuer;
(ii) is appropriate for the issuer and the cost to implement would not be
excessive; (iii) is appropriate for the issuer in light of various factors
such as reputational damage or litigation risk; or (iv) is otherwise
appropriate for the issuer.
Loomis
Sayles will consider whether such proposals are likely to enhance the value of
the client’s investments after taking into account the costs involved, pursuant
to its fiduciary duty to its clients.
Climate
Reporting: Generally vote for proposals requesting the issuer produce a report,
at reasonable expense, on the issuer’s climate policies. A recommendation
against such proposals by the Proxy Voting Service will be considered by the
Proxy Committee.
Workplace
Diversity Reporting: Generally vote for proposals requesting the issuer produce
a report, at reasonable expense, on the issuer’s workforce diversity or equity
policies and/or performance. A recommendation against such proposals by the
Proxy Voting Service will be considered by the Proxy Committee.
I.
General Corporate Governance
Loomis
Sayles has a fiduciary duty to its clients with regard to proxy voting matters,
including routine proposals that do not present controversial issues. The impact
of proxy proposals on its clients’ rights as shareholders must be evaluated
along with their potential economic benefits.
F-13
Changing
Corporate Name: Vote for management proposals to change the corporate name.
Charitable
and Political Contributions and Lobbying Expenditures: Votes on proposals
regarding charitable contributions, political contributions, and lobbying
expenditures, should be considered on a case-by-case basis. Proposals of UK
issuers concerning political contributions will be voted for if the issuer
states that (a) it does not intend to make any political donations or incur
any expenditures in respect to any political party in the EU; and (b) the
proposal is submitted to ensure that the issuer does not inadvertently breach
the Political Parties, Elections and Referendums Act 2000 and sections 366 and
367 of the Companies Act 2006.
Delivery
of Electronic Proxy Materials: Vote for proposals to allow electronic
delivery of proxy materials to shareholders.
Disclosure
of Prior Government Service: Review on a case-by-case basis all proposals to
disclose a list of employees previously employed in a governmental capacity.
Financial
Statements: Generally, proposals to accept and/or approve the delivery of
audited financial statements shall be voted as recommended by the Proxy Voting
Service. In certain non-US
jurisdictions where local regulations and/or market practices do not require the
release of audited financial statements in advance of custodian vote deadlines
(e.g., Korea), and the Proxy Voting Service has not identified any issues with
the company’s past financial statements or the audit procedures used, then
Loomis Sayles shall vote for such proposals.
Non-Material Miscellaneous Bookkeeping
Proposals: A recommendation of the Proxy Voting Service will generally be
followed regarding miscellaneous bookkeeping proposals of a non-material nature.
Ratification
of Board and/or Management Acts: Generally, proposals concerning the
ratification or approval of the acts of the board of directors and/or management
of the issuer for the past fiscal year shall be voted as recommended by the
Proxy Voting Service.
Reimbursement
of Proxy Contest Defenses: Generally, proposals concerning all proxy contest
defense cost reimbursements should be evaluated on a case-by-case basis.
Reimbursement
of Proxy Solicitation Expenses: Proposals to provide reimbursement for
dissidents waging a proxy contest should be evaluated on a case-by-case basis.
State
Takeover Statutes: Review on a case-by-case basis proposals to opt in
or out of state takeover statutes (including control share acquisition statutes,
control share cash-out statutes, freeze
out provisions, fair price provisions, stakeholder laws, poison pill
endorsements, severance pay and labor contract provisions, anti-greenmail
provisions, and disgorgement provisions).
Technical
Amendments to By-Laws: A
recommendation of the Proxy Voting Service will generally be followed regarding
technical or housekeeping amendments to by-laws or articles designed to bring the
by-laws or articles into line with
current regulations and/or laws.
Transaction
of Other Business: Vote against proposals asking for authority to transact
open-ended other business without any information provided by the issuer at the
time of voting.
Transition
Manager Ballots: Any ballot received by Loomis Sayles for a security that
was held for a client by a Transition Manager prior to Loomis Sayles’ management
of the client’s holdings will be considered on a case-by case basis by the Proxy Committee
(without the input of any Loomis Sayles analyst or portfolio manager) if such
security is no longer held in the client’s account with Loomis Sayles.
J.
Investment Company Matters
Election
of Investment Company Trustees: Vote for nominees who oversee fewer than 60
investment company portfolios. Vote against nominees who oversee 60 or more
investment company portfolios
F-14
that
invest in substantially different asset classes (e.g., if the applicable
portfolios include both fixed income funds and equity funds). Vote on a case-by-case basis for or against
nominees who oversee 60 or more investment company portfolios that invest in
substantially similar asset classes (e.g., if the applicable portfolios include
only fixed income funds or only equity funds). These policies will be followed
with respect to funds advised by Loomis Sayles and its affiliates, as well as
funds for which Loomis Sayles acts as subadviser and other third parties.
Mutual
Fund Distribution Agreements: Votes on mutual fund distribution agreements
should be evaluated on a case-by-case basis.
Investment
Company Fundamental Investment Restrictions: Votes on amendments to an
investment company’s fundamental investment restrictions should be evaluated on
a case-by-case basis.
Investment
Company Investment Advisory Agreements: Votes on investment company
investment advisory agreements should be evaluated on a case-by-case basis.
F-15
APPENDIX G
Nuveen Asset Management, LLC
Proxy Voting Policy
Applicability
This
Policy applies to Nuveen employees acting on behalf of Nuveen Asset Management,
LLC, Teachers Advisors, LLC, and TIAA-CREF Investment Management, LLC.
Policy
Purpose and Statement
Proxy
voting is the primary means by which shareholders may influence a publicly
traded company’s governance and operations and thus create the potential for
value and positive long-term investment
performance. When an SEC registered investment adviser has proxy voting
authority, the adviser has a fiduciary duty to vote proxies in the best
interests of its clients and must not subrogate its clients’ interests to its
own. In their capacity as fiduciaries and investment advisers, Nuveen Asset
Management, LLC (“NAM”), Teachers Advisors, LLC (“TAL”) and TIAA-CREF Investment
Management, LLC (“TCIM”), (each an “Adviser” and collectively, the “Advisers”),
vote proxies for the Portfolio Companies held by their respective clients,
including investment companies and other pooled investment vehicles,
institutional and retail separate accounts, and other clients as applicable. The
Advisers have adopted this Policy, the Nuveen Proxy Voting Guidelines, and the
Nuveen Proxy Voting Conflicts of Interest Policy for voting the proxies of the
Portfolio Companies they manage. The Advisers leverage the expertise and
services of an internal group referred to as the Responsible Investing Team (RI
Team) to administer the Advisers’ proxy voting. The RI Team adheres to the
Advisers’ Proxy Voting Guidelines which are reasonably designed to ensure that
the Advisers vote client securities in the best interests of the Advisers’
clients.
Policy
Statement
Proxy
voting is a key component of a Portfolio Company’s corporate governance program
and is the primary method for exercising shareholder rights and influencing the
Portfolio Company’s behavior. Nuveen makes informed voting decisions in
compliance with Rule 206(4)-6 (the
“Rule”) of the Investment Advisers Act of 1940, as amended (the “Advisers Act”)
and applicable laws and regulations, (e.g., the Employee Retirement Income
Security Act of 1974, “ERISA”).
Enforcement
As
provided in the TIAA Code of Business Conduct, all employees are expected to
comply with applicable laws and regulations, as well as the relevant policies,
procedures and compliance manuals that apply to Nuveen’s business activities.
Violation of this Policy may result in disciplinary action up to and including
termination of employment.
Terms
and Definitions
Advisory
Personnel includes the Adviser’s portfolio managers and/or research
analysts.
Proxy
Voting Guidelines (the ‘’Guidelines’’) are a set of pre-determined principles setting forth the
manner in which the Advisers intend to vote on specific voting categories, and
serve to assist clients, Portfolio Companies, and other interested parties in
understanding how the Advisers intend to vote on proxy-related matters. The Guidelines are not
exhaustive and do not necessarily dictate how the Advisers will ultimately vote
with respect to any proposal or resolution.
Portfolio
Company includes any publicly traded company held in an account that is
managed by an Adviser.
G-1
Policy
Requirements
Investment
advisers, in accordance with the Rule, are required to (i) adopt and
implement written policies and procedures that are reasonably designed to ensure
that proxies are voted in the best interest of clients, and address resolution
of material conflicts that may arise, (ii) describe their proxy voting
procedures to their clients and provide copies on request, and
(iii) disclose to clients how they may obtain information on how the
Advisers voted their proxies.
The
Nuveen Proxy Voting Committee (the “Committee”), the Advisers, the RI Team and
Nuveen Compliance are subject to the respective requirements outlined below
under Roles and Responsibilities.
Although
it is the general policy to vote all applicable proxies received in a timely
fashion with respect to securities selected by an Adviser for current clients,
the Adviser may refrain from voting in certain circumstances where such voting
would be disadvantageous, materially burdensome or impractical, or otherwise
inconsistent with the overall best interest of clients.
Roles
and Responsibilities
Nuveen
Proxy Voting Committee
The
purpose of the Committee is to establish a governance framework to oversee the
proxy voting activities of the Advisers in accordance with the Policy. The
Committee has delegated responsibility for the implementation and ongoing
administration of the Policy to the RI Team, subject to the Committee’s ultimate
oversight and responsibility as outlined in the Committee’s Proxy Voting
Charter.
Advisers
| |
1. |
Advisory Personnel maintain the ultimate decision-making
authority with respect to how proxies will be voted, unless otherwise
instructed by a client, and may determine to vote contrary to the
Guidelines and/or a vote recommendation of the RI Team if such Advisory
Personnel determines it is in the best interest of the Adviser’s clients
to do so. The rationale for all such contrary vote determinations will be
documented and maintained. |
| |
2. |
When voting proxies for different groups of client accounts,
Advisory Personnel may vote proxies held by the respective client accounts
differently depending on the facts and circumstances specific to such
client accounts. The rationale for all such vote determinations will be
documented and maintained. |
| |
3. |
Advisory Personnel must comply with the Nuveen Proxy Voting
Conflicts of Interest Policy with respect to potential material conflicts
of interest. |
Responsible
Investing Team
| |
1. |
Performs day-to-day administration of the
Advisers’ proxy voting processes. |
| |
2. |
Seeks to vote proxies in adherence to the Guidelines, which
have been constructed in a manner intended to align with the best
interests of clients. In applying the Guidelines, the RI Team, on behalf
of the Advisers, takes into account several factors, including, but not
limited to: |
| |
• |
|
Input from Advisory Personnel |
| |
• |
|
Specific Portfolio Company context, including environmental,
social and governance practices, and financial performance.
|
G-2
| |
3. |
Delivers copies of the Advisers’ Policy to clients and
prospective clients upon request in a timely manner, as appropriate.
|
| |
4. |
Assists with the disclosure of proxy votes as applicable on
corporate websites and elsewhere as required by applicable regulations.
|
| |
5. |
Prepares reports of proxies voted on behalf of the Advisers’
investment company clients to their Boards or committees thereof, as
applicable. |
| |
6. |
Performs an annual vote reconciliation for review by the
Committee. |
| |
7. |
Arranges the annual service provider due diligence, including a
review of the service provider’s potential conflicts of interests, and
presents the results to the Committee. |
| |
8. |
Facilitates quarterly Committee meetings, including agenda and
meeting minute preparation. |
| |
9. |
Complies with the Nuveen Proxy Voting Conflicts of Interest
Policy with respect to potential material conflicts of interest.
|
| |
10. |
Creates and retains certain records in accordance with Nuveen’s
Record Management program. |
| |
11. |
Oversees the proxy voting service provider in making and
retaining certain records as required under applicable regulation.
|
| |
12. |
Assesses, in cooperation with Advisory Personnel, whether
securities on loan should be recalled in order to vote their proxies.
|
Nuveen
Compliance
| |
1. |
Ensures proper disclosure of Advisers’ Policy to clients as
required by regulation or otherwise. |
| |
2. |
Ensures proper disclosure to clients of how they may obtain
information on how the Advisers voted their proxies.
|
| |
3. |
Assists the RI Team with arranging the annual service provider
due diligence and presenting the results to the Committee.
|
| |
4. |
Monitors for compliance with this Policy and retains records
relating to its monitoring activities pursuant to Nuveen’s Records
Management program. |
Governance
Review
and Approval
This
Policy will be reviewed at least annually and will be updated sooner if
substantive changes are necessary. The Policy Leader, the Committee and the NEFI
Compliance Committee are responsible for the review and approval of this Policy.
Implementation
Nuveen
has established the Committee to provide centralized management and oversight of
the proxy voting process administered by the RI Team for the Advisers in
accordance with its Proxy Voting Committee Charter and this Policy.
Exceptions
Any
request for a proposed exception or variation to this Policy will be submitted
to the Committee for approval and reported to the appropriate governance
committee(s), where appropriate.
G-3
Related
Documents
| • |
|
Nuveen Proxy Voting Committee Charter |
| • |
|
Nuveen Proxy Voting Guidelines |
| • |
|
Nuveen Proxy Voting Conflicts of Interest Policy and Procedures
|
| • |
|
Nuveen Policy Statement on Responsible Investing
|
|
|
|
| Policy Adoption Date |
|
February 3, 2020 |
|
|
| Current Policy Effective Date |
|
October 1, 2022 |
|
|
| Current Policy Approval Date |
|
August 31, 2022 |
|
|
| Policy Owner |
|
Nuveen Proxy Voting Committee |
|
|
| Policy Leader |
|
Managing Director, Nuveen Compliance |
|
|
| Policy Portal Administration |
|
Leader: Managing Director, Nuveen Compliance |
|
|
|
|
Owner: Managing Director, Head of Affiliate
Compliance |
|
|
| Criticality/Tier |
|
Moderate |
Nuveen Proxy Voting Conflicts of Interest Policy and Procedures
Applicability
This
Policy applies to employees of Nuveen (“Nuveen”) acting on behalf of Nuveen
Asset Management, LLC (“NAM”), Teachers Advisors, LLC (“TAL”) and TIAA-CREF
Investment Management, LLC (“TCIM”), (each an “Adviser” and collectively
referred to as the “Advisers”).
Policy
Purpose and Statement
Proxy
voting by investment advisers is subject to U.S. Securities and Exchange
Commission (“SEC”) rules and regulations, and for accounts subject to ERISA,
U.S. Department of Labor (“DOL”) requirements. These rules and regulations
require policies and procedures reasonably designed to ensure proxies are voted
in the best interest of clients and that such procedures set forth how the
adviser addresses material conflicts that may arise between the Adviser’s
interests and those of its clients. The purpose of this Proxy Voting Conflicts
of Interest Policy and Procedures (“Policy”) is to describe how the Advisers
monitor and address the risks associated with Material Conflicts of Interest
arising out of business and personal relationships that could affect proxy
voting decisions.
Nuveen’s
Responsible Investing Team (“RI Team”) is responsible for providing vote
recommendations, based on the Nuveen Proxy Voting Guidelines (the “Guidelines”),
to the Advisers and for administering the voting of proxies on behalf of the
Advisers. When determining how to vote proxies, the RI Team adheres to the
Guidelines which are reasonably designed to ensure that the Advisers vote
proxies in the best interests of the Advisers’ clients.
Advisers
may face certain potential Material Conflicts of Interest when voting proxies.
The procedures set forth below have been reasonably designed to identify,
monitor, and address potential Material Conflicts of Interest to ensure that the
Advisers’ voting decisions are based on the best interest of their clients and
are not the product of a conflict.
Policy
Statement
The
Advisers have a fiduciary duty to vote proxies in the best interests of their
clients and must not subrogate the interests of their clients to their own.
G-4
Enforcement
As
provided in the TIAA Code of Business Conduct, all employees are expected to
comply with applicable laws and regulations, as well as the relevant policies,
procedures and compliance manuals that apply to Nuveen’s business activities.
Violation of this Policy may result in disciplinary action up to and including
termination of employment.
Terms
and Definitions
Advisory
Personnel includes the Advisers’ portfolio managers and research
analysts.
Conflicts
Watch List (“Watch List”) refers to a list maintained by the RI Team
based on the following:
| |
1. |
The positions and relationships of the following categories of
individuals are evaluated to assist in identifying a potential Material
Conflict with a Portfolio Company: |
| |
ii. |
Nuveen Executive Leadership Team |
| |
iii. |
RI Team members who provide proxy voting recommendations on
behalf of the Advisers, |
| |
iv. |
Advisory Personnel, and |
| |
v. |
Household Members of the parties listed above in Nos. 1(i) –
1(iv) |
The
following criteria constitute a potential Material Conflict:
| |
• |
|
Any individual identified above in 1(i) – 1(v) who serves on a
Portfolio Company’s board of directors; and/or |
| |
• |
|
Any individual identified above in 1(v) who serves as a senior
executive of a Portfolio Company. |
| |
2. |
In addition, the following circumstances have been determined
to constitute a potential Material Conflict: |
| |
i. |
Voting proxies for Funds sponsored by a Nuveen Affiliated
Entity (i.e., registered investment funds and other funds that require
proxy voting) held in client accounts, |
| |
ii. |
Voting proxies for Portfolio Companies that are direct advisory
clients of the Advisers and/or the Nuveen Affiliated Entities,
|
| |
iii. |
Voting proxies for Portfolio Companies that have a material
distribution relationship1 with regard to the
products or strategies of the Advisers and/or the Nuveen Affiliated
Entities, |
| |
iv. |
Voting proxies for Portfolio Companies that are institutional
investment consultants with which the Advisers and/or the Nuveen
Affiliated Entities have engaged for any material business opportunity1 and
|
| |
v. |
Any other circumstance where the RI Team, the Nuveen Proxy
Voting Committee (the “Committee”), the Advisers, Nuveen Legal or Nuveen
Compliance are aware of in which the Adviser’s duty to serve its clients’
interests could be materially compromised. |
In
addition, certain conflicts may arise when a Proxy Service Provider or their
affiliate(s), have determined and/or disclosed that a relationship exists with
i) a Portfolio Company ii) an entity acting as a primary shareholder proponent
with respect to a Portfolio Company or iii) another party. Such relationships
include, but are not limited to, the products and services provided to, and the
revenue obtained from, such Portfolio Company or its affiliates. The Proxy
Service Provider is required to
| 1 |
Such criteria is defined in a separate standard operating
procedure. |
G-5
disclose
such relationships to the Advisers, and the RI Team reviews and evaluates the
Proxy Service Provider’s disclosed conflicts of interest and associated controls
annually and reports its assessment to the Committee.
Household
Member includes any of the following who reside or are expected to
reside in your household for at least 90 days a year: i) spouse or Domestic
Partner, ii) sibling, iii) child, stepchild, grandchild, parents, grandparent,
stepparent, and in-laws (mother,
father, son, daughter, brother, sister).
Domestic
Partner is defined as an individual who is neither a relative of, or
legally married to, a Nuveen employee but shares a residence and is in a mutual
commitment similar to marriage with such Nuveen employee.
Material
Conflicts of Interest (“Material Conflict”) A conflict of interest that
reasonably could have the potential to influence a recommendation based on the
criteria described in this Policy.
Nuveen
Affiliated Entities refers to TIAA and entities that are under common
control with the Advisers and that provide investment advisory services to third
party clients2. TIAA and
the Advisers will undertake reasonable efforts to identify and manage any
potential TIAA-related conflicts of
interest.
Portfolio
Company refers to any publicly traded company held in an account that is
managed by an Adviser or a Nuveen Affiliated Entity.
Proxy
Service Provider(s) refers to any independent third-party vendor(s) who provides proxy
voting administrative, research and/or recordkeeping services to Nuveen.
Proxy
Voting Guidelines (the “Guidelines’’) are a set of pre-determined principles setting forth the
manner in which the Advisers generally intend to vote on specific voting
categories and serve to assist clients, Portfolio Companies, and other
interested parties in understanding how the Advisers generally intend to vote
proxy-related matters. The Guidelines
are not exhaustive and do not necessarily dictate how the Advisers will
ultimately vote with respect to any proposal or resolution.
Proxy
Voting Conflicts of Interest Escalation Form (“Escalation Form”) Used in
limited circumstances as described below to formally document certain requests
to deviate from the Guidelines, the rationale supporting the request, and the
ultimate resolution.
Policy
Requirements
The
Advisers have a fiduciary duty to vote proxies in the best interests of their
clients and must not subrogate the interests of their clients to their own.
The
RI Team and Advisory Personnel are prohibited from being influenced in their
proxy voting decisions by any individual outside the established proxy voting
process. The RI Team and Advisory Personnel are required to report to Nuveen
Compliance any individuals or parties seeking to influence proxy votes outside
the established proxy voting process.
The
RI Team generally seeks to vote proxies in adherence to the Guidelines. In the
event that a potential Material Conflict has been identified, the Committee, the
RI Team, Advisory Personnel and Nuveen Compliance are required to comply with
the following:
Proxies
are generally voted in accordance with the Guidelines. In instances where a
proxy is issued by a Portfolio Company on the Watch List, and the RI Team’s vote
direction is in support of company management and either contrary to the
Guidelines or the Guidelines require a case by case review, then the RI Team
vote recommendation is evaluated using established criteria3 to determine whether a
| 2 |
Such list is maintained in a separate standard operating
procedure. |
| 3 |
Such criteria is defined in a separate standard operating
procedure. |
G-6
potential
conflict exists. In instances where it is determined a potential conflict
exists, the vote direction shall default to the recommendation of an independent
third-party Proxy Service Provider
based on such provider’s benchmark policy. To the extent the RI Team believes
there is a justification to vote contrary to the Proxy Service Provider’s
benchmark recommendation in such an instance, then such requests are evaluated
and mitigated pursuant to an Escalation Form review process as described in the
Roles and Responsibilities section below. In all cases votes are intended to be
in line with the Guidelines and in the best interests of clients.
The
Advisers are required to adhere to the baseline standards and guiding principles
governing client and personnel conflicts as outlined in the TIAA Conflicts of
Interest Policy to assist in identifying, escalating and addressing proxy voting
conflicts in a timely manner.
Roles
and Responsibilities
Nuveen
Proxy Voting Committee
| |
1. |
Annually, review and approve the criteria constituting a
Material Conflict involving the individuals and entities named on the
Watch List. |
| |
2. |
Review and approve the Policy annually, or more frequently as
required. |
| |
3. |
Review Escalation Forms as described above to determine whether
the rationale of the recommendation is clearly articulated and reasonable
relative to the potential Material Conflict. |
| |
4. |
Review RI Team Material Conflicts reporting.
|
| |
5. |
Review and consider any other matters involving the Advisers’
proxy voting activities that are brought to the Committee.
|
Responsible
Investing Team
| |
1. |
Promptly disclose RI Team members’ Material Conflicts to Nuveen
Compliance. |
| |
2. |
RI Team members must recuse themselves from all decisions
related to proxy voting for the Portfolio Company seeking the proxy for
which they personally have disclosed, or are required to disclose, a
Material Conflict. |
| |
3. |
Compile, administer and update the Watch List promptly based on
the Watch List criteria described herein as necessary.
|
| |
4. |
Evaluate vote recommendations for Portfolio Companies on the
Watch List, based on established criteria to determine whether a vote
shall default to the third-party
Proxy Service Provider, or whether an Escalation Form is required.
|
| |
5. |
In instances where an Escalation Form is required as described
above, the RI Team member responsible for the recommendation completes and
submits the form to an RI Team manager and the Committee. The RI Team will
specify a response due date from the Committee typically no earlier than
two business days from when the request was delivered. While the RI Team
will make reasonable efforts to provide a two business day notification
period, in certain instances the required response date may be shortened.
The Committee reviews the Escalation Form to determine whether a Material
Conflict exists and whether the rationale of the recommendation is clearly
articulated and reasonable relative to the existing conflict. The
Committee will then provide its response in writing to the RI Team member
who submitted the Escalation Form. |
G-7
| |
6. |
Provide Nuveen Compliance with established reporting.
|
| |
7. |
Prepare Material Conflicts reporting to the Committee and other
parties, as applicable. |
| |
8. |
Retain Escalation Forms and responses thereto and all other
relevant documentation in conformance with Nuveen’s Record Management
program. |
Advisory
Personnel
| |
1. |
Promptly disclose Material Conflicts to Nuveen Compliance.
|
| |
2. |
Provide input and/or vote recommendations to the RI Team upon
request. Advisory Personnel are prohibited from providing the RI Team with
input and/or recommendations for any Portfolio Company for which they have
disclosed, or are required to disclose, a Material Conflict.
|
| |
3. |
From time to time as part of the Adviser’s normal course of
business, Advisory Personnel may initiate an action to override the
Guidelines for a particular proposal. For a proxy vote issued by a
Portfolio Company on the Watch List, if Advisory Personnel request a vote
against the Guidelines and in favor of Portfolio Company management, then
the request will be evaluated by the RI Team in accordance with their
established criteria and processes described above. To the extent an
Escalation Form is required, the Committee reviews the Escalation Form to
determine whether the rationale of the recommendation is clearly
articulated and reasonable relative to the potential Material Conflict.
|
Nuveen
Compliance
| |
1. |
Determine criteria constituting a Material Conflict involving
the individuals and entities named on the Watch List.
|
| |
2. |
Determine parties responsible for collection of, and providing
identified Material Conflicts to, the RI Team for inclusion on the Watch
List. |
| |
3. |
Perform periodic reviews of votes where Material Conflicts have
been identified to determine whether the votes were cast in accordance
with this Policy. |
| |
4. |
Develop and maintain, in consultation with the RI Team,
standard operating procedures to support the Policy.
|
| |
5. |
Perform periodic monitoring to determine adherence to the
Policy. |
| |
6. |
Administer training to the Advisers and the RI Team, as
applicable, to ensure applicable personnel understand Material Conflicts
and disclosure responsibilities. |
| |
7. |
Assist the Committee with the annual review of this Policy.
|
Nuveen
Legal
| |
1. |
Provide legal guidance as requested. |
Governance
Review
and Approval
This
Policy will be reviewed at least annually and will be updated sooner if changes
are necessary. The Policy Leader, the Committee and the NEFI Compliance
Committee are responsible for the review and approval of this Policy.
G-8
Implementation
Nuveen
has established the Committee to provide centralized management and oversight of
the proxy voting process administered by the RI Team for the Advisers in
accordance with its Proxy Voting Committee Charter and this Policy.
Exceptions
Any
request for a proposed exception or variation to this Policy will be submitted
to the Committee for approval and reported to the appropriate governance
committee(s), where appropriate.
Related
Documents
| • |
|
Nuveen Proxy Voting Committee Charter |
| • |
|
Nuveen Proxy Voting Guidelines |
| • |
|
Nuveen Policy Statement on Responsible Investing
|
|
|
|
| Policy Adoption Date |
|
February 3, 2020 |
|
|
| Current Policy Effective Date |
|
October 1, 2022 |
|
|
| Current Policy Approval Date |
|
August 31, 2022 |
|
|
| Policy Owner |
|
Nuveen Proxy Voting Committee |
|
|
| Policy Leader |
|
Managing Director, Nuveen Compliance |
|
|
| Policy Portal Administration |
|
Leader: Managing Director, Nuveen Compliance |
|
|
|
|
Owner: Managing Director, Head of Affiliate
Compliance |
|
|
| Criticality/Tier |
|
Moderate |
G-9