Prospectus
September
9, 2024
SSGA
Active Trust
SPDR® Galaxy Hedged
Digital Asset Ecosystem ETF (HECO)
Principal
U.S. Listing Exchange: The Nasdaq Stock Market LLC
The U.S.
Securities and Exchange Commission and the U.S. Commodity Futures Trading
Commission have not approved or disapproved these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense. Shares in the Fund are not guaranteed or insured by the
Federal Deposit Insurance Corporation or any other agency of the U.S.
Government, nor are shares deposits or obligations of any bank. It is possible
to lose money by investing in the Fund.
Fund
Summary
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Management
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Distribution
and service (12b-1) fees |
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Other
expenses1
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Total
annual Fund operating expenses |
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1
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Year
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Year
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3
4
5
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Portfolio
Management
Investment
Adviser and Sub-Adviser
SSGA Funds
Management, Inc. (“SSGA FM” or the “Adviser”) serves as the investment adviser
to the Fund. Galaxy Digital Capital Management LP (“Galaxy”) serves as
investment sub-adviser to the Fund, subject to supervision by the Adviser and
oversight by the SSGA Active Trust's Board of Trustees. To the extent that a
reference in this Prospectus refers to the Adviser, with respect to the Fund,
such reference should also be read to refer to Galaxy, where the context
requires.
Portfolio
Managers
The professionals
primarily responsible for the day-to-day management of the Fund are Christopher
Rhine, Paul Cappelli and Ian Kolman.
Christopher Rhine,
CFA is the Head of Liquid Active Strategies at Galaxy. Mr. Rhine joined Galaxy
in 2022.
Paul Cappelli, is
the Head of Liquid Passive Strategies at Galaxy. Mr. Cappelli joined Galaxy in
2017.
Ian Kolman, is a
Vice President and Portfolio Manager at Galaxy. Mr. Kolman joined Galaxy in
2022.
Purchase
and Sale Information
The Fund will issue
(or redeem) Fund Shares to certain institutional investors (typically market
makers or other broker-dealers) only in large blocks of Fund Shares known as
“Creation Units.” Creation Unit transactions are conducted in exchange for the
deposit or delivery of a designated portfolio of in-kind securities and/or cash.
Creation Unit transactions may be conducted in exchange for cash only, which may
cause the Fund to recognize capital gains and to pay out higher annual capital
gain distributions to shareholders than if such transactions had been conducted
in-kind.
Individual Fund
Shares may only be purchased and sold on The Nasdaq Stock Market LLC (the
“Exchange”), other national securities exchanges, electronic crossing networks
and other alternative trading systems through your broker-dealer at market
prices. Because Fund Shares trade at market prices rather than at net asset
value (“NAV”), Fund Shares may trade at a price greater than NAV (premium) or
less than NAV (discount). When buying or selling Fund Shares in the secondary
market, you may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Fund Shares (bid) and the lowest
price a seller is willing to accept for Fund Shares (ask) (the “bid-ask
spread”). Recent information regarding the Fund's NAV, market price, premiums
and discounts, and bid-ask spreads is available at
https://www.ssga.com/spdrs.
Tax
Information
The Fund's
distributions are expected to be taxed as ordinary income and/or capital gains,
unless you are investing through a tax-advantaged arrangement, such as a 401(k)
plan or individual retirement account. Any withdrawals made from a
tax-advantaged arrangement may be taxable to you.
Payments
to Broker-Dealers and Other Financial Intermediaries
If you purchase Fund
Shares through a broker-dealer or other financial intermediary (such as a bank),
the Adviser or its affiliates may pay the financial intermediary for
certain activities related to the Fund, including educational training programs,
conferences, the development of technology platforms and reporting systems, or
other services related to the sale or promotion of the Fund. These payments may
create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your financial intermediary's website for more
information.
9
Additional
Strategies Information
Principal
Strategies
Please see “The
Fund's Principal Investment Strategy” section under “Fund Summary” above for a
discussion of the Fund's principal investment strategy. The Fund may invest in
various types of securities and engage in various investment techniques which
are not the principal focus of the Fund and therefore are not described in this
Prospectus. These securities, techniques and practices, together with their
risks, are described in the Statement of Additional Information (the “SAI”)
which you may obtain free of charge by contacting shareholder services (see the
back cover of this Prospectus for the address and phone number).
In seeking to
achieve its investment objective, the Fund will invest, either directly or
indirectly through the Subsidiary, in Crypto Asset ETFs. The investment
objective for such Crypto Asset ETFs is generally to seek investment results
that, before fees and expenses, correspond to price performance of bitcoin or
ether, as applicable. The Fund will also seek to achieve its investment
objective through investments in cash-settled crypto asset futures contracts
traded on an exchange registered with the Commodity Futures Trading
Commission.
Bitcoin
and the Bitcoin Network
Bitcoin is a digital
asset that is created and transmitted through the operations of the peer-to-peer
Bitcoin network, a decentralized network of computers that operates on
cryptographic protocols. The Bitcoin network allows people to exchange tokens of
value, called bitcoin, which are recorded on a public transaction ledger known
as the Bitcoin blockchain. Bitcoin can be used to pay for goods and services,
although it is not currently widely accepted, or it can be converted to fiat
currencies, such as the U.S. dollar, at rates determined on digital asset
trading platforms that enable trading in bitcoin or in individual
end-user-to-end-user transactions under a barter system.
The value of
bitcoin, like the value of other digital assets, is not backed by any
government, corporation or other identified body. Ownership and the ability to
transfer or take other actions with respect to bitcoin is protected through
public-key cryptography. The supply of bitcoin is constrained or formulated by
its protocol instead of being explicitly delegated to an identified body (e.g.,
a central bank or corporate treasury) to control. Units of bitcoin are treated
as fungible. No single entity owns or operates the Bitcoin network, the
infrastructure of which is collectively maintained by (1) a decentralized group
of participants who run computer software that results in the recording and
validation of transactions (commonly referred to as “miners”), (2) developers
who propose improvements to the Bitcoin protocol and the software that enforces
the protocol, and (3) users who choose what Bitcoin software to run. Anyone can
be a user, developer, or miner.
Bitcoin is created
by “mining.” Mining involves miners using a sophisticated computer program to
repeatedly solve complex mathematical problems on specialized computer hardware.
Miners authenticate and bundle bitcoin transactions sequentially into files
called “blocks.” Because each solved block contains a reference to the previous
block, they form a chronological “chain” back to the first bitcoin transaction.
A miner's proposed block is added to the blockchain once a majority of the nodes
on the network confirm the miner's work. A miner that is successful in adding a
block to the blockchain is automatically awarded a fixed amount of bitcoin for
its efforts plus any transaction fees paid by transferors whose transactions are
recorded in the block. This reward system is the means by which new bitcoin
enter circulation. This reward system, called proof of work, also ensures that
the local copies of the Bitcoin blockchain maintained by participants in the
Bitcoin network are kept in consensus with one another. Copies of the Bitcoin
blockchain are stored in a decentralized manner on the computers of each
individual Bitcoin network full node (i.e., any user who chooses to maintain on
their computer a full copy of the Bitcoin blockchain as well as related
software). Each bitcoin is associated with a set of unique cryptographic “keys”,
in the form of a string of numbers and letters, which allow whoever is in
possession of the private key to assign that bitcoin in a transfer that the
Bitcoin network will recognize. One or more private keys control the transfer or
“spending” of bitcoin from an associated public address. To use bitcoin, a user
or a service provider must have access to keys that identify it for its
transactions (similar to an ATM card and its related PIN). Bitcoin users keep
their keys in electronic “wallets” that can be maintained on their computers,
mobile phones, specialized hardware wallets, or wallets provided by online
custodians.
Bitcoin is an open
source project with no official developer or group of developers that controls
the Bitcoin network. However, the Bitcoin network's development is overseen by a
core group of developers. The core developers are able to access, and can alter,
the Bitcoin network source code and, as a result, they are responsible for
quasi-official releases of updates and other changes to the Bitcoin network's
source code. The release of updates to the Bitcoin
10
network's source
code does not guarantee that the updates will be automatically adopted. Users
and miners must accept any changes made to the bitcoin source code by
downloading the proposed modification of the Bitcoin network's source code. As a
practical matter, a modification to the source code becomes part of the Bitcoin
network only if accepted by participants collectively having most of the
processing power on the Bitcoin network.
Ether
and the Ethereum Network
Ether is a digital
asset that is created and transmitted through the operations of the Ethereum
Network, a peer-to-peer protocol that operates on principles of cryptography.
The value of ether is not backed by any government, corporation, or other
identified body. No single entity owns or operates the Ethereum Network, the
infrastructure of which is open source and collectively maintained by a
community of developers. The Ethereum Network allows individuals to make
transactions which are recorded on a public ledger commonly known as a
blockchain. Ether can be used to pay for goods and services, although it is not
widely accepted, or it can be converted to fiat currencies, such as the U.S.
dollar, at rates determined on digital asset trading platforms or in individual
end-user-to-end-user transactions under a barter system. Furthermore, the
Ethereum Network also allows users to write and implement smart contracts—that
is, general-purpose code that executes on every computer in the network and can
instruct the exchange of information and value based on a sophisticated set of
logical conditions. A smart contract operates by a predefined set of rules
(i.e., “if/then statements”) that allows it to automatically execute code the
same way on any Ethereum node on the network. Such actions taken by the
predefined set of rules are not necessarily contractual in nature but are
intended to eliminate the arbitration of a third party for carrying out code
execution on behalf of users, making the system decentralized, while empowering
developers to create a wide range of applications layering together different
smart contracts. Using smart contracts, users can create markets, store
registries of debts or promises, represent the ownership of property, move funds
in accordance with conditional instructions and create digital assets other than
Ether on the Ethereum Network. Smart contract operations are executed on the
Ethereum Blockchain in exchange for payment of ether. The Ethereum Network is
one of a number of projects intended to expand blockchain use beyond just a
decentralized money system.
The Ethereum Network
is decentralized and does not require governmental authorities or financial
institution intermediaries to create, transmit or determine the value of ether.
Rather, following the initial distribution of ether, ether was created and
allocated by the Ethereum Network protocol through a proof-of-work “mining”
consensus mechanism until September 2022. In September 2022, the Ethereum
Network underwent an upgrade to a proof-of-stake consensus mechanism (referred
to as the “Merge”). Proof-of-stake consensus requires network participants to
contribute (aka, “stake”) a certain amount of the digital asset associated with
a given blockchain in order to validate transactions. A participant can be
penalized if they attempt to validate transactions in a way that is fraudulent
or violates the rules of the underlying blockchain. The value of ether is
determined by the supply of and demand for ether on the digital asset trading
platforms or in private end-user-to-end-user transactions.
Assets in the
Ethereum network are held in accounts. Each account, or “wallet,” is made up of
at least two components: a public address and a private key. An Ethereum private
key controls the transfer or “spending” of ether from its associated public
ether address. An ether “wallet” is a collection of public Ethereum addresses
and their associated private key(s). This design allows only the owner of ether
to send ether, the intended recipient of ether to unlock it, and the validation
of the transaction and ownership to be verified by any third party anywhere in
the world.
Because the Ethereum
network has no central authority, the release of updates to the network's source
code by developers does not guarantee that the updates will be automatically
adopted by the other participants. Users and validators must accept any changes
made to the source code by downloading the proposed modification and that
modification is effective only with respect to those users and validators who
choose to download it. As a practical matter, a modification to the source code
becomes part of the Ethereum network only if it is accepted by participants that
collectively have a majority of the processing power on the Ethereum
network.
Ether may be
regarded as a currency or digital commodity depending on its specific use in
particular transactions. Ether may be used as a medium of exchange or unit of
account. Although a number of large and small retailers accept ether as a form
of payment in the United States and foreign markets, there is relatively limited
use of ether for commercial and retail payments. Similarly, ether may be used as
a store of value (i.e., an asset that maintains its value rather than
depreciating), although it has experienced significant periods of price
volatility.
General
11
The Fund will
concentrate its investments (i.e., hold more than 25% of its assets) in the
following group of industries: software; semiconductors & semiconductor
equipment; financial services; and capital markets.
The Fund has adopted
a non-fundamental investment policy to invest at least 80% of its net assets,
plus the amount of borrowings for investment purposes, directly or indirectly in
Digital Asset Ecosystem investments and other instruments that provide exposure
to the Digital Asset Ecosystem. The Fund will provide shareholders with at least
60 days' notice prior to any change in this non-fundamental 80% investment
policy. The Board of Trustees of SSGA Active Trust (the “Board”) may change
the Fund's investment objective, investment strategy and other policies without
shareholder approval, except as otherwise noted in this Prospectus or in the
SAI.
Non-Principal
Strategies
Temporary
Defensive Positions. In response to
actual or perceived adverse market, economic, political, or other conditions,
the Fund may (but will not necessarily), without notice, depart from its
principal investment strategies by temporarily investing for defensive purposes.
Temporary defensive positions may include, but are not limited to, cash, cash
equivalents, U.S. government securities, repurchase agreements collateralized by
such securities, money market funds, and high-quality debt investments. If the
Fund invests for defensive purposes, it may not achieve its investment
objective. In addition, the defensive strategy may not work as
intended.
Borrowing
Money.
The Fund may borrow money from a bank as permitted by the 1940 Act, or other
governing statute, by the rules thereunder, or by the U.S. Securities and
Exchange Commission (“SEC”) or other regulatory agency with authority over the
Fund, but only for temporary or emergency purposes. The 1940 Act presently
allows the Fund to borrow from any bank (including pledging, mortgaging or
hypothecating assets) in an amount up to 33 1/3% of its total assets (not
including temporary borrowings not in excess of 5% of its total assets). The
Fund may also invest in reverse repurchase agreements or similar financing
transactions. Consistent with a rule under the 1940 Act, the Fund may treat such
investments as either borrowings or derivatives transactions. To the extent the
Fund treats reverse repurchase agreements or similar financing transactions as
borrowings, such investments will also be included in the 33 1/3%
limit.
Lending
of Securities. The Fund may lend
its portfolio securities in an amount not to exceed 40% of the value of its net
assets via a securities lending program through its securities lending agent,
State Street Bank and Trust Company (“State Street” or the “Lending Agent”), to
brokers, dealers and other financial institutions desiring to borrow securities
to complete transactions and for other purposes. A securities lending program
allows the Fund to receive a portion of the income generated by lending its
securities and investing the respective collateral. The Fund will receive
collateral for each loaned security which is at least equal to the market value
of that security, marked to market each trading day. To the extent the Fund
receives cash collateral, as of the date of this Prospectus, the Adviser expects
to invest such cash collateral in a fund managed by the Adviser that invests in:
a broad range of money market instruments; certificates of deposit and time
deposits of U.S. and foreign banks; commercial paper and other high quality
obligations of U.S. or foreign companies; asset-backed securities;
mortgage-related securities; repurchase agreements; and shares of money market
funds. 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. The Fund is
compensated by the difference between the amount earned on the reinvestment of
cash collateral and the fee paid to the borrower. In the case of collateral
other than cash, the Fund is compensated by a fee paid by the borrower equal to
a percentage of the market value of the loaned securities. In the securities
lending program, the borrower generally has the right to vote the loaned
securities; however, the Fund may call loans to vote proxies if a material issue
affecting the Fund's economic interest in the investment is to be voted upon.
Security loans may be terminated at any time by the Fund.
Additional
Risk Information
The following
section provides information regarding the principal risks identified under
“Principal Risks of Investing in the Fund” in the Fund Summary along with
additional risk information.
Principal
Risks
Concentration
Risk.
Because the Fund concentrates in securities of issuers in a particular industry,
the Fund is subject to loss due to adverse occurrences that may affect that
industry or group of industries and may face more risks than if it were
diversified more broadly over numerous industries. Such industry-based risks,
any of which may adversely affect the Fund may include, but are not limited to,
the following: general economic conditions or cyclical market patterns that
could negatively affect supply and demand in a particular industry; competition
for resources, adverse
12
labor relations,
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in an industry. In addition, at times, an industry may be
out of favor and underperform other industries or the market as a
whole.
Capital
Markets Industry Risk. Capital markets
companies can be significantly affected by stock and bank trading activity,
changes in governmental regulation, continuing increases in price competition,
decreases in fees or fee-related business, including investment banking,
brokerage, asset management and other servicing fees, fluctuation in interest
rates and other factors which could adversely affect financial
markets.
Financial
Services Industry Risk. Financial services
companies are subject to extensive governmental regulation which may limit both
the amounts and types of loans and other financial commitments they can make,
the interest rates and fees they can charge, the scope of their activities, the
prices they can charge and the amount of capital they must maintain.
Profitability is largely dependent on the availability and cost of capital funds
and can fluctuate significantly when interest rates change or due to increased
competition. In addition, deterioration of the credit markets generally may
cause an adverse impact in a broad range of markets, including U.S. and
international credit and interbank money markets generally, thereby affecting a
wide range of financial institutions and markets. Certain events in the industry
may cause an unusually high degree of volatility in the financial markets, both
domestic and foreign, and cause certain financial services companies to incur
large losses. Securities of financial services companies may experience a
dramatic decline in value when such companies experience substantial declines in
the valuations of their assets, take action to raise capital (such as the
issuance of debt or equity securities), or cease operations. Credit losses
resulting from financial difficulties of borrowers and financial losses
associated with investment activities can negatively impact the industry.
Insurance companies may be subject to severe price competition. Adverse
economic, business or political developments could adversely affect financial
institutions engaged in mortgage finance or other lending or investing
activities directly or indirectly connected to the value of real
estate.
Semiconductors
& Semiconductor Equipment Industry Risk. The Fund is subject
to the risk that market or economic factors impacting semiconductor companies
and companies that rely heavily on technological advances could have a major
effect on the value of the Fund's investments. The value of stocks of
semiconductor companies and companies that rely heavily on technology is
particularly vulnerable to rapid changes in product cycles, rapid product
obsolescence, government regulation and competition, both domestically and
internationally, including competition from foreign competitors with lower
production costs. Semiconductor companies and companies that rely heavily on
technology, especially those of smaller, less-seasoned companies, tend to be
more volatile than the overall market. Additionally, semiconductor companies may
face dramatic and often unpredictable changes in growth rates and competition
for the services of qualified personnel.
Software
Industry Risk. Computer
software/services companies can be significantly affected by competitive
pressures, aggressive pricing, technological developments, changing domestic
demand, the ability to attract and retain skilled employees and availability and
price of components. The market for products produced by computer
software/services companies is characterized by rapidly changing technology,
rapid product obsolescence, cyclical market patterns, evolving industry
standards and frequent new product introductions. The success of computer
software/services companies depends in substantial part on the timely and
successful introduction of new products and the ability to service such
products. An unexpected change in one or more of the technologies affecting an
issuer's products or in the market for products based on a particular technology
could have a material adverse effect on a participant's operating
results.
Many computer
software/services companies rely on a combination of patents, copyrights,
trademarks and trade secret laws to establish and protect their proprietary
rights in their products and technologies. There can be no assurance that the
steps taken by computer software/services companies to protect their proprietary
rights will be adequate to prevent misappropriation of their technology or that
competitors will not independently develop technologies that are substantially
equivalent or superior to such companies' technology.
Crypto
Asset ETF Risk. The Fund may invest
in or have exposure to one or more Crypto Asset ETFs to the extent consistent
with U.S. federal securities laws and related guidance applicable to the Fund.
Bitcoin ETFs are relatively new investment products. As a result, the Crypto
Asset ETFs in which the Fund may invest may have limited financial and operating
histories. The Fund's investment exposure to Crypto Asset ETFs subjects the Fund
to many of the same risks as an investment in a crypto asset, including those
described elsewhere in this Prospectus. The value of interests
13
in Crypto Asset ETFs
and their underlying reference asset, crypto asset or crypto asset futures, is
subject to a number of factors, including the capabilities and development of
blockchain technologies, crypto assets' dependence on the internet, other
technologies, and the role played by key service providers, users, developers
and other facilitators (e.g., miners or validators) and the potential for
malicious activity at various stages in the crypto asset investment cycle. The
Fund expects to purchase shares of any Crypto Asset ETF, either directly or
indirectly, in the secondary market at its market price, which may be highly
volatile and may not closely correspond to either the NAV per share of the
Crypto Asset ETF or the price of crypto asset. Shares of Crypto Asset ETFs may
trade at premiums (i.e., the market price of the shares is more than the NAV) or
discounts (i.e., the market price of the shares is less than the NAV), which may
be significant. The risk that share prices differ from a Crypto Asset ETF's NAV
and/or the price of the bitcoin is likely to increase during times of market
volatility or stressed market conditions. Under such conditions, the market for
shares of Crypto Asset ETFs may become less liquid making it difficult for the
Fund to either increase or decrease its investment exposure to Crypto Asset
ETFs. Extreme volatility affecting crypto assets such as bitcoin may persist for
extended periods and the value of the Fund's investment in a Crypto Asset ETF
may decline significantly without recovery. The crypto asset markets and by
extension, Crypto Asset ETFs and the Fund's investments in such Crypto Asset
ETFs, also may be significantly and adversely affected by alleged and actual
acts of fraud carried out by crypto asset market participants, the bankruptcy or
other failure of key crypto asset service providers, and regulatory actions that
negatively affect or constrain the further development of crypto assets and the
crypto asset markets. Regulatory and enforcement scrutiny of crypto asset market
participants and the crypto asset markets more generally by, among others, the
Department of Justice, the SEC, the CFTC, the White House and Congress, as well
as state regulators and authorities has continued to increase. At this time, it
is not possible to predict all the risks that such increased scrutiny may pose
to Crypto Asset ETFs, their service providers or to the crypto asset markets as
a whole. The shares of Spot Crypto Asset ETPs in which the Fund may have
investment exposure are not registered under the 1940 Act, and therefore, do not
afford the Fund the investor protections typical of investments in U.S.
registered funds. The Fund's investments in Crypto Asset Futures ETFs are
subject to the risks of crypto asset futures contracts. Investments in crypto
asset futures contracts may expose the Crypto Asset Futures ETF to significant
risks, which include counterparty and liquidity risk. The market for crypto
asset futures contracts may be less developed, and potentially less liquid and
more volatile, than more established futures markets. Market conditions and
expectations, position limits, accountability levels, collateral requirements,
availability of counterparties, and other factors each may contribute to the
supply of and demand for crypto asset futures contracts. Due to the high margin
requirements for crypto asset futures contracts, a Crypto Asset Futures ETF may
experience difficulty maintaining the desired level of exposure to crypto asset
futures contracts, which may result in the Crypto Asset Futures ETF not being
able to meet its investment objective.
Crypto
Asset Risk. While the Fund will
not invest directly in crypto assets, the value of the Fund's investments in
Crypto Asset ETFs with exposure to crypto assets, and in publicly traded
securities of companies engaged in crypto asset-related businesses and
activities are subject to fluctuations in the value of the crypto asset, which
may be highly volatile as a result of the following factors.
Crypto assets are
digital assets designed to act as a medium of exchange. The value of crypto
assets is determined by supply and demand in the global crypto asset markets,
which consist primarily of transactions of the respective crypto assets on
electronic trading platforms or trading venues. Crypto assets are relatively
new, and their value is influenced by a wide variety of factors that are
uncertain and difficult to evaluate, such as the infancy of their development,
regulatory changes, a crisis of confidence, their dependence on technologies
such as cryptographic protocols, their dependence on the role played by miners
and developers and the potential for malicious activity (e.g.,
theft).
Crypto assets
generally operate without central authority (such as a bank) and are not backed
by any government. Crypto assets are not legal tender. Federal, state and/or
foreign governments may restrict the use and exchange of crypto assets, and
regulation in the U.S. is still developing. The market price of crypto assets,
such as bitcoin and ether, has been subject to extreme fluctuations. If crypto
asset markets continue to be subject to sharp fluctuations, investors may
experience losses. The market value of crypto assets has been and may continue
to be affected by momentum pricing of the market due to speculation about future
price appreciation, which may lead to increased volatility. Because crypto
assets are exposed to the instability in other speculative parts of the
blockchain or crypto asset industry, an event that is not necessarily related to
the security or utility of a crypto asset's blockchain could nonetheless
precipitate a significant decline in the price of that crypto
asset.
14
In addition, because
crypto assets have no physical existence beyond the record of transactions on
their respective blockchains, a variety of technical factors related to these
blockchains could also impact the price of the crypto assets. When a
modification is introduced and a substantial majority of users and miners
consent to the modification, the change is implemented and the network remains
uninterrupted. However, if less than a substantial majority of users and miners
consent to the proposed modification, and the modification is not compatible
with the software prior to its modification, the consequence would be what is
known as a “hard fork” in the respective network, with one group running the pre
modified software and the other running the modified software. A fork may be
intentional, such as when the Ethereum network shifted from proof-of-work to
proof-of-stake. This means that instead of being required to solve complex
mathematical problems validators are required to stake ether. A fork may also be
unintentional. For example, in August 2017, bitcoin “forked” into bitcoin and a
new digital asset, bitcoin cash, as a result of a several-year dispute over how
to increase the rate of transactions that the Bitcoin network can process. Since
then, bitcoin has been forked numerous times to launch new digital assets, such
as bitcoin gold, bitcoin silver and bitcoin diamond.
Similar to fiat
currencies (i.e., a currency that is backed by a central bank or a national,
supra-national or quasi-national organization), crypto assets are susceptible to
theft, loss and destruction. Furthermore, if a miner, or a coordinated group of
miners, is able to gain control of 51% of a crypto asset's network, they would
be able to execute significant attacks, control transactions, stop payments, and
fraudulently obtain crypto assets. Following the Merge, the Ethereum network is
vulnerable to several types of attacks, including:
•
“˃33% attack” where,
if a validator or group of validators were to gain control of more than 33% of
the total staked ether on the Ethereum network, a malicious actor could
temporarily impede or delay block confirmation or even cause a temporary fork
(discussed further herein) in the blockchain. This is believed to be temporary,
as the Ethereum network's inactivity leak would be expected to eventually
penalize the attacker enough for the chain to finalize again (i.e., the honest
majority would be expected to reclaim more than a 2/3rd stake as the attacker's
stake is penalized). However, it is not believed that with 33% control, a
malicious actor could engage in double-spending or fraudulent block
propagation.
•
“˃50% attack” where,
if a validator or group of validators acting in concert were to gain control of
more than 50% of the total staked ether on the Ethereum network, a malicious
actor would be able to gain full control of the Ethereum network and the ability
to manipulate future transactions on the blockchain, including censoring
transactions, double-spending and fraudulent block propagation, potentially for
an extended period or even permanently. In theory, the minority non-attackers
might reach social consensus to reject blocks proposed by the malicious majority
attacker, reducing the attacker's ability to engage in malicious activity, but
there can be no assurance this would happen or that non-attackers would be able
to coordinate effectively.
•
“˃66% attack” where,
if a validator or group of validators acting in concert were to gain control of
more than 66% of the total staked ether on the Ethereum network, a malicious
actor could permanently and irreversibly manipulate the blockchain, including
censorship, double-spending and fraudulent block propagation. The attacker could
finalize their preferred chain without any consideration for the votes of other
stakers and could also revert finalized blocks.
The Bitcoin and
Ethereum blockchains' protocols, including the code of smart contracts running
on the Ethereum blockchain, may contain flaws that can be exploited by
attackers. Forks may also occur as a crypto asset network community's response
to a significant security breach. For example, in July 2016, Ethereum underwent
a hard fork between the Layer 1 Ethereum network and a new digital asset running
on a “forked” branch of the network, Ethereum Classic, as a result of the
Ethereum network community's response to a significant security breach. In June
2016, an anonymous hacker exploited a smart contract running on the Ethereum
network to syphon approximately $60 million of ether held by The DAO, a
distributed autonomous organization, into a segregated account. In response to
the hack, and after a contentious debate, most participants in the Ethereum
community elected to adopt a hard fork that effectively reversed the hack, and
this network constitutes the Layer 1 Ethereum network. However, a minority of
users continued to develop the original blockchain, now referred to as “Ethereum
Classic”, which is not backwards compatible with the Layer 1 Ethereum network
and is considered a forked branch, with the native digital asset on that
blockchain now referred to as Ethereum Classic, or ETC. ETC now trades on
several digital asset platforms. Following the July 2016 hard fork between the
Ethereum and Ethereum Classic networks, new security concerns surfaced. Replay
attacks, in which transactions from one network were rebroadcast to nefarious
effect on the other network, plagued Ethereum exchanges through at least October
2016. An Ethereum exchange announced in July 2016 that it
15
had lost 40,000
Ethereum Classic, worth about $100,000 at that time, as a result of replay
attacks. Similar replay attack concerns occurred in connection with the Bitcoin
Cash and Bitcoin Satoshi's Vision networks split in November 2018, and security
concerns could similarly surface in connection with future hard
forks.
Unlike the exchanges
for more traditional assets, crypto asset trading platforms and other trading
venues on which crypto assets trade are relatively new and, in most cases,
largely unregulated and may therefore be more exposed to market manipulation,
fraud and failure than established, regulated exchanges for securities,
derivatives and other currencies. Investors in crypto assets may have little or
no recourse should such theft, fraud or manipulation occur and could suffer
significant losses. Crypto asset trading platforms on which bitcoin and ether
are traded, and which may serve as a pricing source for the calculation of the
reference rate that is used for the purposes of valuing the Fund's investments,
are or may become subject to enforcement actions by regulatory authorities, and
such enforcement actions may have a material adverse impact on the Fund, its
investments, and its ability to implement its investment strategy. Additionally,
holders of crypto assets may not be able to access their wallets due to the
loss, theft, compromise or destruction of the private keys associated with the
public addresses that hold the crypto asset. A significant portion of crypto
assets are held by a small number of holders (each known as a “whale”), who have
the ability to manipulate the prices of such crypto assets. The Fund's indirect
investment in and exposure to crypto assets remains subject to volatility
experienced by the crypto asset trading platforms and other crypto asset trading
venues. Such volatility can adversely affect an investment in the Fund. Crypto
asset trading platforms may stop operating or permanently shut down due to
fraud, technical glitches, hackers or malware, which may also affect the price
of crypto assets and thus the Fund's investment in crypto asset-related
instruments or in publicly traded securities of companies engaged in crypto
asset-related businesses and activities.
Factors affecting
the further development of crypto assets include, but are not limited to,
continued worldwide growth or possible cessation or reversal in the adoption and
use of crypto assets and other digital assets; government and quasi-government
regulation or restrictions on or regulation of access to and operation of
digital asset networks; changes in consumer demographics and public preferences;
maintenance and development of open-source software protocol; availability and
popularity of other forms or methods of buying and selling goods and services;
the use of the networks supporting digital assets, such as those for developing
smart contracts and distributed applications; general economic conditions and
the regulatory environment relating to digital assets; negative consumer or
public perception; general risks tied to the use of information technologies,
including cyber risks; and political or economic crises. A hack or failure of
one crypto asset may lead to a loss in confidence in, and thus decreased usage
of and or value of, other crypto assets.
Bitcoin was the
first digital asset to gain global adoption and critical mass and remains the
largest digital asset by market capitalization, with ether being the second
largest by market capitalization. Many consortiums and financial institutions
are also researching and investing resources into private or permissioned smart
contracts platforms rather than open platforms like the Ethereum Network. In
addition, alternative public blockchains have been developed and may in the
future develop that compete with the Bitcoin blockchain and Ethereum network and
may have significant advantages as alternative payment systems, including higher
throughput, lower fees, faster settlement and finalization, and the ability to
facilitate untraceable and/or privacy-shielded transactions through the use of
zero-knowledge cryptography or other means. In particular, bitcoin has been
criticized for its slowness of transaction processing and finality, variability
of transaction fees, and price volatility, while the Ethereum network has
historically faced scalability challenges. Such competition could have a
negative impact on the demand for, and price of, bitcoin and ether and thereby
adversely affect the performance of the Fund.
Furthermore, bitcoin
has not yet developed robust Layer 2 solutions to facilitate the use of smart
contracts or significantly improve scalability. So-called “Layer 2” solutions
are protocols built on top of an underlying smart contract platform blockchain,
and intended to provide scalability to the underlying blockchain by increasing
transaction efficiency. For example, Polygon is a smart contract platform
protocol built on top of the Ethereum blockchain that is intended to provide
scalability to Ethereum by allowing users to transact on a variety of
blockchains deployed on the Ethereum network. Under this model, Ethereum
functions as the base layer, or “Layer 1” blockchain. The Polygon protocol
offers developers sidechain, roll-ups and other Layer 2 solutions which can be
tailored to an individual developer's intended use case. Another example is the
Bitcoin Lightning Network, a Layer 2 solution that uses channels to create
peer-to-peer payment routs between two parties. These exist separately from the
Bitcoin network and their primary purpose is to allow for faster transactions.
Since these Layer 2 solutions are recorded off of the Bitcoin network, this
results in slower verification times for these transactions, and users may be
subject to
16
manipulation of the
transaction data by unauthorized parties. This may result in users and retailers
less likely to accept bitcoin as a form of payment, and cause a decrease in the
value of bitcoin and the performance of the Fund. Such solutions are intended to
improve upon the transaction speed cost and efficiency of transactions on their
respective Layer 1. However, there is no guarantee that these Layer 2 solutions
will continue to be effective or that users and investors in public blockchains
will not determine that blockchains without scalability issues or a reliance on
Layer 2 solutions are preferable. There is a risk that multiple Layer 2
solutions will not be compatible with each other or the underlying blockchain
network or that a Layer 2 solution, if not implemented correctly, would
compromise the security or decentralization of the underlying blockchain
network.
Currently, there is
relatively limited use of crypto assets in the retail and commercial
marketplace, which contributes to price volatility. A lack of expansion by
crypto assets into retail and commercial markets, or a contraction of such use,
may result in increased volatility or a reduction in the value of crypto assets,
either of which could adversely impact the Fund's investment. In addition, to
the extent market participants develop a preference for one crypto asset over
another, the value of the less preferred crypto asset would likely be adversely
affected. Bitcoin and ether are maintained on a decentralized, open source,
peer-to-peer computer networks, which are not owned or maintained by a single
entity. The development of such networks may play an important part in the value
of bitcoin and ether.
Cybersecurity-Related
Risk.
The companies included in the Fund's portfolio rely on technologies such as the
Internet and depend on computer systems to perform business and operational
functions, and therefore may be prone to operational and information security
risks resulting from cyber-attacks and/or technological malfunctions.
Cyber-attacks include, among others, stealing or corrupting data maintained
online or digitally, preventing legitimate users from accessing information or
services on a website, releasing confidential information without authorization,
and causing operational disruption. In general, cyber-attacks are deliberate,
but unintentional events may have similar effects. Successful cyber-attacks
against, or security breakdowns of, a company included in the Fund's portfolio
may result in material adverse consequences for such company, as well as other
companies included in the Fund's portfolio, and may cause the Fund's investments
to lose value.
Depositary
Receipts Risk. American
Depositary Receipts (“ADRs”) are typically trust receipts issued by a U.S. bank
or trust company that evidence an indirect interest in underlying securities
issued by a foreign entity. Global Depositary Receipts (“GDRs”), European
Depositary Receipts (“EDRs”), and other types of depositary receipts are
typically issued by non-U.S. banks or financial institutions to evidence an
interest in underlying securities issued by either a U.S. or a non-U.S. entity.
Investments in non-U.S. issuers through ADRs, GDRs, EDRs, and other types of
depositary receipts generally involve risks applicable to other types of
investments in non-U.S. issuers. Investments in depositary receipts may be less
liquid and more volatile than the underlying securities in their primary trading
market. If a depositary receipt is denominated in a different currency than its
underlying securities, the Fund will be subject to the currency risk of both the
investment in the depositary receipt and the underlying security. There may be
less publicly available information regarding the issuer of the securities
underlying a depositary receipt than if those securities were traded directly in
U.S. securities markets. Depositary receipts may or may not be sponsored by the
issuers of the underlying securities, and information regarding issuers of
securities underlying unsponsored depositary receipts may be more limited than
for sponsored depositary receipts. The values of depositary receipts may decline
for a number of reasons relating to the issuers or sponsors of the depositary
receipts, including, but not limited to, insolvency of the issuer or sponsor.
Holders of depositary receipts may have limited or no rights to take action with
respect to the underlying securities or to compel the issuer of the receipts to
take action. The prices of depositary receipts may differ from the prices of
securities upon which they are based.
Derivatives
Risk. A
derivative is a financial contract the value of which depends on, or is derived
from, the value of an underlying asset, interest rate, or index. Derivative
transactions typically involve leverage and may have significant volatility. It
is possible that a derivative transaction will result in a loss greater than the
principal amount invested, and the Fund may not be able to close out a
derivative transaction at a favorable time or price. Risks associated with
derivative instruments include potential changes in value in response to
interest rate changes or other market developments or as a result of the
counterparty's credit quality; the potential for the derivative transaction not
to have the effect the Adviser anticipated or a different or less favorable
effect than the Adviser anticipated; the failure of the counterparty to the
derivative transaction to perform its obligations under the transaction or to
settle a trade; possible mispricing or improper valuation of the derivative
instrument; imperfect correlation in the value of a derivative with the asset,
rate, or index underlying the derivative; the risk that the Fund may be required
to post collateral or margin with its counterparty, and will not be able to
recover the collateral or margin in the event of the counterparty's insolvency
or
17
bankruptcy; the risk
that the Fund will experience losses on its derivatives investments and on its
other portfolio investments, even when the derivatives investments may be
intended in part or entirely to hedge those portfolio investments; the risks
specific to the asset underlying the derivative instrument; lack of liquidity
for the derivative instrument, including, without limitation, absence of a
secondary trading market; the potential for reduced returns to the Fund due to
losses on the transaction and an increase in volatility; the potential for the
derivative transaction to have the effect of accelerating the recognition of
gain; and legal risks arising from the documentation relating to the derivative
transaction.
Crypto
Asset Futures Contracts Risk. Transactions in
futures contracts can create investment leverage and may have significant
volatility. The risk of loss relating to the use of futures contracts is
potentially unlimited. The ability to establish and close out positions in
futures contracts will be subject to the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market on an
exchange will exist for any particular futures contract or at any particular
time. In the event no such market exists, it might not be possible to effect
closing transactions, and the Fund will be unable to terminate the futures
contract. In using futures contracts, the Fund will be reliant on the ability of
the Adviser to predict market and price movements correctly; the skills needed
to use such futures contracts successfully are different from those needed for
traditional portfolio management. If the Fund uses futures contracts for hedging
purposes, there is a risk of imperfect correlation between movements in the
prices of the futures contracts and movements in the assets underlying the
futures contracts. The prices of futures contracts, for a number of reasons, may
not correlate perfectly with movements in the securities or index underlying
them. The margin requirements in the futures markets may be less onerous than
margin requirements in the securities markets in general, and as a result those
markets may attract more speculators than the securities markets do. Increased
participation by speculators in those markets may cause temporary price
distortions. Due to the possibility of price distortion, even a correct forecast
of general market trends by the Adviser still may not result in a successful
futures activity over a very short time period.
In addition to the
risks associated with futures contracts generally, the market for crypto asset
futures contracts has additional, unique risks. The market for crypto asset
futures contracts may be less developed, and potentially less liquid and more
volatile, than more established futures markets. While the crypto asset futures
market has grown substantially since crypto asset futures contracts commenced
trading, there can be no assurance that this growth will continue. Crypto asset
futures contracts are subject to collateral requirements and daily limits that
may limit the Fund's ability to achieve the desired exposure. The CME Group's
position limits prevent any single investor, such as the Fund (together with any
other accounts managed by the Adviser required to be aggregated), from holding
more than a specified number of crypto asset futures contracts. These position
limits may hinder the Fund's ability to enter into the desired amount of crypto
asset futures contracts at times (possibly further hindered if other accounts
are required to be aggregated that also hold crypto asset futures contracts or
options on crypto asset futures). If the Fund is unable to achieve such
exposure, the Fund's returns may be lower than expected. Additionally,
collateral requirements may require the Fund to liquidate its position when it
otherwise would not do so. Further, futures commission merchants (“FCMs”)
utilized by the Fund may impose limits on the amount of exposure to futures
contracts the Fund can obtain through such FCMs. Margin levels for crypto asset
futures contracts generally are higher than the margin requirements for more
established futures contracts. Additionally, the FCMs utilized by the Fund may
impose margin requirements in addition to those imposed by the exchanges, and
such margin requirements are subject to change. High margin requirements could
prevent the Fund from obtaining desired levels of exposure to crypto asset
futures contracts. The Fund's obligation is to the FCM that carries the Fund's
account, whose obligation is in turn to the clearing organization. The Fund's
investments therefore introduce the risk that its FCM would default on an
obligation to the Fund, including the FCM's obligation to return margin posted
in connection with the Fund's futures contracts. The risk exists at, and from
the time that, the Fund enters into a contractual arrangement with its FCM to
bring about the settlement and clearing of futures contracts. The FCM may hold
margin posted in connection with those contracts and that margin may be
re-hypothecated (or re-pledged) by the FCM and lost or its return delayed due to
a default by the FCM or other customer of the FCM. The FCM may itself file for
bankruptcy, which would either delay the return of, or jeopardize altogether the
assets posted by the FCM as margin in response to margin calls relating to
futures positions.
Options
Risk.
The Fund's use of options involves speculation and can lead to losses because of
adverse movements in the price or value of the underlying stock, index, or other
asset, which may be magnified by certain features of the options. The Fund's
successful use of options depends on the ability of the Adviser to forecast
18
market movements
correctly. For example, if the Fund were to write (sell) a call option on a
security based on the Adviser's expectation that the price of the security would
fall, but the price were to rise instead, the Fund could be required to sell the
security upon exercise at a price below the current market price. When selling a
call option, the Fund will receive a premium; however, this premium may not be
enough to offset a loss incurred by the Fund if the price of the underlying
asset is above the strike price by an amount equal to or greater than the
premium. Purchasing of put options involves the payment of premiums, which may
adversely affect the Fund's performance. Purchasing a put option gives the
purchaser of the option the right to sell a specified quantity of an underlying
asset at a fixed exercise price over a defined period of time. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. Frequent purchasing and selling of options may result in higher
Fund expenses and may result in increased taxable distributions to investors,
including potentially increased distributions that are taxable to individuals as
ordinary income. The value of an option may be adversely affected if the market
for the option becomes less liquid or smaller, and will be affected by changes
in the value or yield of the option's underlying asset, an increase in interest
rates, a change in the actual or perceived volatility of the stock market or the
underlying asset and the remaining time to expiration. Additionally, the value
of an option does not increase or decrease at the same rate as the underlying
asset(s). In addition, if the price of the underlying asset of an option is
above the strike price of a written call, the value of the option, and
consequently of the Fund, may decline significantly more than if the Fund
invested directly in the underlying asset instead of using options. The Fund
could experience a loss if its options do not perform as anticipated, or are not
correlated with the performance of their underlying asset or if the Fund is
unable to purchase or liquidate a position because of an illiquid secondary
market. The effective use of options also depends on the Fund's ability to
terminate option positions at times when the Adviser deems it desirable to do
so. There is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The sale of call
options may create investment leverage.
Digital
Asset Ecosystem Companies Risk. Digital Asset
Ecosystem companies may use digital asset technologies or may provide products
or services involved in the operation of the technology. The technology relating
to digital assets, including blockchain and crypto assets, is new and developing
and the risks associated with digital assets may not fully emerge until the
technology is widely used. There is no assurance that widespread adoption of
blockchain technology and crypto assets will occur, and the development and
acceptance of competing platforms or technologies may cause consumers or
investors to use an alternative to blockchain technology or crypto assets, which
could have an adverse impact on the Digital Asset Ecosystem and the Fund.
Because the stock prices of these companies and the prices of crypto assets can
be highly correlated, the success of the Fund's strategy may be limited given
that the operations of companies in the blockchain and crypto asset industries
are expected to be significantly affected by the overall sentiment related to,
and the use of and investment in, blockchain technology and crypto assets.
Certain features of digital asset technologies, such as decentralization, open
source protocol, and reliance on peer-to-peer connectivity, may increase the
risk of fraud or cyber-attack. Restrictions imposed by governments on
crypto-currency related activities may adversely impact blockchain companies
and, in turn, the Fund. Digital Asset Ecosystem companies may rely heavily on a
combination of patents, copyrights, trademarks and trade secret laws to
establish and protect their proprietary rights in their products and
technologies, and may be adversely affected by loss or impairment of those
rights, , which may also reduce confidence in the viability of a digital asset.
Because digital asset platforms, including crypto asset trading platforms, may
operate across many national boundaries and regulatory jurisdictions, it is
possible that they may be subject to widespread and inconsistent regulation. A
significant disruption of internet connectivity affecting large numbers of users
could impede the functionality of these technologies and adversely affect
Digital Asset Ecosystem companies. In addition, these companies could be
negatively impacted by disruptions in service caused by hardware or software
failure, or by interruptions or delays in service by third-party data center
hosting facilities and maintenance providers. Digital asset systems built using
third party products may be subject to technical defects or vulnerabilities
beyond a company's control. Digital Asset Ecosystem companies are subject to
more volatility than companies that do not rely as heavily on such technology.
In addition, Digital Asset Ecosystem companies may be smaller, less-seasoned
companies that may be more volatile than the overall market.
19
These companies may
engage in other lines of business unrelated to these activities and these lines
of business could adversely affect their operating results. Digital Asset
Ecosystem companies may also be impacted by the risks associated with crypto
assets and crypto asset markets generally, as discussed in the Crypto Asset Risk
discussion herein.
Blockchain
technology is relatively new and many of its uses may be untested. There is no
assurance that widespread adoption will occur. Transacting on a blockchain
depends in part specifically on the use of cryptographic keys that are required
to access a user's account. The theft, loss or destruction of these keys impairs
the value of ownership claims users have over the relevant assets being
represented by the ledger and could also adversely affect a company's business
or operations if it were dependent on the ledger. The more lenient a blockchain
is about vetting issuers of digital assets or users that transact on the
platform, the higher the potential risk for fraud or the manipulation of digital
assets. Blockchain platforms are largely unregulated, and the regulatory
environment is rapidly evolving.
Equity
Investing Risk. The market prices
of equity securities owned by the Fund may go up or down, sometimes rapidly or
unpredictably. The value of a security may decline for a number of reasons that
may directly relate to the issuer, such as management performance, financial
leverage, non-compliance with regulatory requirements, and reduced demand for
the issuer's goods or services. The values of equity securities also may decline
due to general industry or market conditions that are not specifically related
to a particular company, such as real or perceived adverse economic conditions,
changes in the general outlook for corporate earnings, changes in interest or
currency rates, or adverse investor sentiment generally. In addition, equity
markets tend to move in cycles, which may cause stock prices to fall over short
or extended periods of time.
Fluctuation
of Net Asset Value, Share Premiums and Discounts Risk. The net asset
value of Fund Shares will generally fluctuate with changes in the market value
of the Fund's securities holdings. The market prices of Fund Shares will
generally fluctuate in accordance with changes in the Fund's net asset value and
supply and demand of Fund Shares on the Exchange. It cannot be predicted whether
Fund Shares will trade below, at or above their net asset value. Price
differences may be due, in large part, to the fact that supply and demand forces
at work in the secondary trading market for Fund Shares will be closely related
to, but not identical to, the same forces influencing the prices of the
securities trading individually or in the aggregate at any point in time. The
market prices of Fund Shares may deviate significantly from the net asset value
of Fund Shares during periods of market volatility. However, given that Fund
Shares can be created and redeemed in Creation Units (unlike shares of many
closed-end funds, which frequently trade at appreciable discounts from, and
sometimes at premiums to, their net asset value), the Adviser believes that
large discounts or premiums to the net asset value of Fund Shares should not be
sustained over long periods. While the creation/redemption feature is designed
to make it likely that Fund Shares normally will trade close to the Fund's net
asset value, disruptions to creations and redemptions or market volatility may
result in trading prices that differ significantly from the Fund's net asset
value. If an investor purchases Fund Shares at a time when the market price is
at a premium to the net asset value of Fund Shares or sells at a time when the
market price is at a discount to the net asset value of Fund Shares, then the
investor may sustain losses.
Large-Capitalization
Securities Risk. Securities issued
by large-capitalization companies may present risks not present in smaller
companies. For example, larger companies may be unable to respond as quickly as
smaller and mid-sized companies to competitive challenges or to changes in
business, product, financial, or other market conditions. Larger companies may
not be able to maintain growth at the high rates that may be achieved by
well-managed smaller and mid-sized companies, especially during strong economic
periods. Returns on investments in securities of large companies could trail the
returns on investments in securities of smaller and mid-sized
companies.
Leveraging
Risk.
Borrowing transactions, reverse repurchase agreements, certain derivatives
transactions, securities lending transactions and other investment transactions
such as when-issued, delayed-delivery, or forward commitment transactions may
create investment leverage. If the Fund engages in transactions that have a
leveraging effect on the Fund's investment portfolio, the value of the Fund will
be potentially more volatile and all other risks will tend to be compounded.
This is because leverage generally creates investment risk with respect to a
larger base of assets than the Fund would otherwise have and so magnifies the
effect of any increase or decrease in the value of the Fund's underlying assets.
The use of leverage is considered to be a speculative investment practice and
may result in losses to the Fund. Certain derivatives have the potential for
unlimited loss, regardless of the size of the initial investment. The use of
leverage may cause the Fund to liquidate positions when it may not be
advantageous to do so to satisfy repayment, interest payment, or margin
obligations or to meet asset coverage requirements.
20
Liquidity
Risk.
Liquidity risk is the risk that the Fund may not be able to dispose of
investments readily at a favorable time or prices (or at all) or at prices
approximating those at which the Fund currently values them. For example,
certain investments may be subject to restrictions on resale, may trade in the
over-the-counter market or in limited volume, or may not have an active trading
market. Illiquid investments may trade at a discount from comparable, more
liquid investments and may be subject to wide fluctuations in market value. It
may be difficult for the Fund to value illiquid investments accurately. The
market for certain investments may become illiquid under adverse market or
economic conditions independent of any specific adverse changes in the
conditions of a particular issuer. If the liquidity of the Fund's holdings
deteriorates, it may lead to differences between the market price of Fund Shares
and the net asset value of Fund Shares, and could result in the Fund Shares
being less liquid. Disposal of illiquid investments may entail registration
expenses and other transaction costs that are higher than those for liquid
investments. The Fund may seek to borrow money to meet its obligations
(including among other things redemption obligations) if it is unable to dispose
of illiquid investments, resulting in borrowing expenses and possible leveraging
of the Fund.
Management
Risk.
The Fund is actively managed. The Adviser's judgments about the attractiveness,
relative value, or potential appreciation of a particular sector, security,
commodity or investment strategy may prove to be incorrect, and may cause the
Fund to incur losses. There can be no assurance that the Adviser's investment
techniques and decisions will produce the desired results.
Market
Risk.
Market prices of investments held by the Fund will go up or down, sometimes
rapidly or unpredictably. The Fund's investments are subject to changes in
general economic conditions, general market fluctuations and the risks inherent
in investment in securities markets. Investment markets can be volatile, and
prices of investments can change substantially due to various factors,
including, but not limited to, economic growth or recession, changes in interest
rates, inflation, changes in actual or perceived creditworthiness of issuers and
general market liquidity. Even if general economic conditions do not change, the
value of an investment in the Fund could decline if the particular industries,
sectors or companies in which the Fund invests do not perform well or are
adversely affected by events. Further, legal, political, regulatory and tax
changes also may cause fluctuations in markets and securities prices. Local,
regional or global events such as war, military conflicts, acts of terrorism,
natural disasters, public health issues, or other events could have a
significant impact on the Fund and its investments. Due to the
interconnectedness of economies and financial markets throughout the world, if
the Fund invests in securities of issuers located in or with significant
exposure to countries experiencing economic and financial difficulties, the
value and liquidity of the Fund's investments may be negatively affected. A
widespread outbreak of an infectious illness, such as COVID-19, and efforts to
contain its spread, may result in market volatility, inflation, reduced
liquidity of certain instruments, disruption in the trading of certain
instruments, and systemic economic weakness. The foregoing could impact the Fund
and its investments and result in disruptions to the services provided to the
Fund by its service providers.
Additionally, in
March 2023, the shutdown of certain financial institutions raised economic
concerns over disruption in the U.S. banking system. There can be no
certainty that the actions taken by the U.S. government to strengthen public
confidence in the U.S. banking system will be effective in mitigating the
effects of financial institution failures on the economy and restoring public
confidence in the U.S. banking system.
Mid-Capitalization
Securities Risk. The securities of
mid-capitalization companies may be more volatile and may involve more risk than
the securities of larger companies. These companies may have limited product
lines, markets or financial resources, may lack the competitive strength of
larger companies, and may depend on a few key employees. In addition, these
companies may have been recently organized and may have little or no track
record of success. The securities of mid-sized companies may trade less
frequently and in smaller volumes than more widely held securities. The prices
of these securities may fluctuate more sharply than those of other securities,
and the Fund may experience some difficulty in establishing or closing out
positions in these securities at prevailing market prices. There may be less
publicly available information about the issuers of these securities or less
market interest in these securities than in the case of larger companies, both
of which can cause significant price volatility. Some securities of mid-sized
issuers may be illiquid or may be restricted as to resale. Returns on
investments in securities of mid-capitalization companies could trail the
returns on investments in securities of larger or smaller
companies.
21
New
Fund Risk. The Fund is new
and there is no assurance that the Fund will grow quickly. When the Fund's size
is small, the Fund may experience low trading volume, which could lead to wider
bid/ask spreads. In addition, the Fund may face the risk of being delisted if
the Fund does not meet certain conditions of the listing exchange. Any resulting
liquidation of the Fund could cause elevated transaction costs for the Fund and
negative tax consequences for its shareholders.
Non-Diversification
Risk.
As a “non-diversified” fund, the Fund may hold a smaller number of portfolio
securities than many other funds. To the extent the Fund invests in a relatively
small number of issuers, a decline in the market value of a particular security
held by the Fund may affect its value more than if it invested in a larger
number of issuers. The value of Fund Shares may be more volatile than the values
of shares of more diversified funds.
Non-U.S.
Securities Risk. Investments in
securities of non-U.S. issuers (including depositary receipts) entail risks
not typically associated with investing in securities of U.S. issuers. Similar
risks may apply to securities traded on a U.S. securities exchange that are
issued by entities with significant exposure to non-U.S. countries. In certain
countries, legal remedies available to investors may be more limited than those
available with regard to U.S. investments. Because non-U.S. securities are
typically denominated and traded in currencies other than the U.S. dollar, the
value of the Fund's assets, to the extent they are non-U.S. dollar denominated,
may be affected favorably or unfavorably by currency exchange rates, exchange
control regulations, and restrictions or prohibitions on the repatriation of
non-U.S. currencies. To the extent underlying securities held by the Fund
trade on foreign exchanges that are closed when the exchange on which the Fund's
shares trade is open, there may be deviations between the current price of an
underlying security and the last quoted price for the underlying security on the
closed foreign market. These deviations could result in the Fund experiencing
premiums or discounts greater than those of ETFs that invest in domestic
securities. Income and gains with respect to investments in certain countries
may be subject to withholding and other taxes. There may be less information
publicly available about a non-U.S. entity than about a U.S. entity, and many
non-U.S. entities are not subject to accounting, auditing, and financial
reporting standards, regulatory framework and practices comparable to those in
the United States. The securities of some non-U.S. entities are less liquid and
at times more volatile than securities of comparable U.S. entities, and could
become subject to sanctions or embargoes that adversely affect the Fund's
investment. Non-U.S. transaction costs, such as brokerage commissions and
custody costs may be higher than in the U.S. In addition, there may be a
possibility of nationalization or expropriation of assets, imposition of
currency exchange controls, confiscatory taxation, and diplomatic developments
that could adversely affect the values of the Fund's investments in issuers in
certain non-U.S. countries. Investments in securities of non-U.S. issuers also
are subject to foreign political and economic risk not associated with U.S.
investments, meaning that political events (civil unrest, national elections,
changes in political conditions and foreign relations, imposition of exchange
controls and repatriation restrictions), social and economic events (labor
strikes, rising inflation) and natural disasters occurring in a country where
the Fund invests could cause the Fund's investments to experience gains or
losses.
Small-Capitalization
Securities Risk. The securities of
small-capitalization companies may be more volatile and may involve more risk
than the securities of larger companies. These companies may have limited
product lines, markets or financial resources, may lack the competitive strength
of larger companies, and may depend on a few key employees. In addition, these
companies may have been recently organized and may have little or no track
record of success. The securities of smaller companies may trade less frequently
and in smaller volumes than more widely held securities. The prices of these
securities may fluctuate more sharply than those of other securities, and the
Fund may experience some difficulty in establishing or closing out positions in
these securities at prevailing market prices. There may be less publicly
available information about the issuers of these securities or less market
interest in these securities than in the case of larger companies, both of which
can cause significant price volatility. Some securities of smaller issuers may
be illiquid or may be restricted as to resale. The Fund may be unable to
liquidate its positions in such securities at any time, or at a favorable price,
in order to meet the Fund's obligations. Returns on investments in securities of
small-capitalization companies could trail the returns on investments in
securities of larger companies.
Subsidiary
Investment Risk. By investing in
the Subsidiary, the Fund is indirectly exposed to the risks associated with the
Subsidiary's investments. The Subsidiary is not registered under 1940 Act and is
therefore not subject to all of the investor protections of the 1940 Act. Thus,
the Fund, as an investor in the Subsidiary, will not have all of the protections
offered to investors in registered investment companies. In addition, changes in
the laws of the United States and/or the Cayman Islands could result in the
inability the Fund to operate as intended and could negatively affect the Fund
and its shareholders.
22
To qualify for the
favorable U.S. federal income tax treatment available to regulated investment
companies (“RICs”), the Fund must, among other things, derive at least 90% of
its gross income each taxable year from certain sources (“qualifying income”).
Very generally, income from crypto assets is not thought to be qualifying income
for purposes of this requirement. In order to implement its investment objective
while satisfying this requirement, the Fund intends to invest in certain crypto
assets indirectly, through the Subsidiary. The Fund therefore invests a portion
of its assets (not to exceed 25% of its assets) in the Subsidiary, which is
classified as a corporation for U.S. federal income tax purposes. Because the
Subsidiary is a foreign corporation that is wholly owned by the Fund, the
Subsidiary is a “controlled foreign corporation” for U.S. federal income tax
purposes, and the Fund is required to include in its gross income each taxable
year all the Subsidiary's “subpart F income.” Under applicable regulations, the
Fund's subpart F income inclusions derived from the Subsidiary will constitute
qualifying income for the Fund, whether or not any amount is distributed by the
Subsidiary to the Fund, if those subpart F income inclusions are derived with
respect to the Fund's business of investing in stock, securities or currencies.
It is possible that the IRS might take the position that subpart F income
inclusions from the Subsidiary are not qualifying income. Under those
circumstances, the Fund might fail to qualify for tax treatment as a regulated
investment company.
Technology
Sector Risk. Market or economic
factors impacting technology companies and companies that rely heavily on
technological advances could have a major effect on the value of the Fund's
investments. The value of stocks of technology companies and companies that rely
heavily on technology is particularly vulnerable to rapid changes in technology
product cycles, rapid product obsolescence, government regulation and
competition, both domestically and internationally, including competition from
foreign competitors with lower production costs. Technology companies may have
limited product lines, markets, financial resources or personnel. Stocks of
technology companies and companies that rely heavily on technology, especially
those of smaller, less-seasoned companies, tend to be more volatile than the
overall market. Technology companies are heavily dependent on patent and
intellectual property rights, the loss or impairment of which may adversely
affect profitability. Additionally, companies in the technology sector may face
dramatic and often unpredictable changes in growth rates and competition for the
services of qualified personnel.
Unconstrained
Sector Risk. The Fund may
invest a substantial portion of its assets within one or more economic sectors
or industries, which may change from time to time. When the Fund focuses its
investments in a particular industry or sector, financial, economic, business,
and other developments affecting issuers in that industry, market, or economic
sector will have a greater effect on the Fund than if it had not focused its
assets in that industry, market, or economic sector, which may increase the
volatility of the Fund.
Valuation
Risk.
Some portfolio holdings, potentially a large portion of the Fund's investment
portfolio, may be valued on the basis of factors other than market quotations.
This may occur more often in times of market turmoil or reduced liquidity. There
are multiple methods that can be used to value a portfolio holding when market
quotations are not readily available. The value established for any portfolio
holding at a point in time might differ from what would be produced using a
different methodology or if it had been priced using market quotations.
Portfolio holdings that are valued using techniques other than market
quotations, including “fair valued” securities, may be subject to greater
fluctuation in their valuations from one day to the next than if market
quotations were used. Technological issues or other service disruption issues
involving third-party service providers may cause the Fund to value its
investments incorrectly. In addition, there is no assurance that the Fund could
sell or close out a portfolio position for the value established for it at any
time, and it is possible that the Fund would incur a loss because a portfolio
position is sold or closed out at a discount to the valuation established by the
Fund at that time.
Non-Principal
Risks
Authorized
Participants, Market Makers and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”), which are responsible for the creation and
redemption activity for the Fund. In addition, there may be a limited number of
market makers and/or liquidity providers in the marketplace. To the extent
either of the following events occur, Fund Shares may trade at a material
discount to NAV and possibly face delisting: (i) APs exit the business or
otherwise become unable to process creation and/or redemption orders and no
other APs step forward to perform these services, or (ii) market makers and/or
liquidity providers exit the business or significantly reduce their business
activities and no other entities step forward to perform their
functions.
23
Cash
Transaction Risk. To the extent the
Fund sells portfolio securities to meet some or all of a redemption request with
cash, the Fund may incur taxable gains or losses that it might not have incurred
had it made redemptions entirely in-kind. As a result, the Fund may pay out
higher annual capital gain distributions than if the in-kind redemption process
was used.
Conflicts
of Interest Risk. An investment in
the Fund may be subject to a number of actual or potential conflicts of
interest. For example, the Adviser, Sub-Adviser or their affiliates may provide
services to the 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, Sub-Adviser and/or such affiliates.
The Fund may invest in other pooled investment vehicles sponsored, managed, or
otherwise affiliated with the Adviser or Sub-Adviser.
There is no assurance that the rates at which the Fund pays fees or expenses to
the Adviser, Sub-Adviser or their affiliates, or the terms on which it enters
into transactions with the Adviser, Sub-Adviser or its affiliates will be the
most favorable available in the market generally or as favorable as the rates
the Adviser or Sub-Adviser makes
available to other clients. Because of its financial interest, the
Adviser or Sub-Adviser may
have an incentive to enter into transactions or arrangements on behalf of the
Fund with itself or its affiliates in circumstances where it might not have done
so in the absence of that interest.
The Adviser,
Sub-Adviser and their affiliates serve as investment advisers to other clients
and may make investment decisions that may be different from those that will be
made by the Adviser or Sub-Adviser on
behalf of the Fund. For example, the Adviser or Sub-Adviser may
provide asset allocation advice to some clients that may include a
recommendation to invest in or redeem from particular issuers while not
providing that same recommendation to all clients invested in the same or
similar issuers. The Adviser or Sub-Adviser may
(subject to applicable law) be simultaneously seeking to purchase (or sell)
investments for the Fund and to sell (or purchase) the same investment for
accounts, funds, or structured products for which it serves as asset manager, or
for other clients or affiliates. The Adviser, Sub-Adviser and their affiliates
may invest for clients in various securities that are senior, pari passu or
junior to, or have interests different from or adverse to, the securities that
are owned by the Fund. The Adviser, Sub-Adviser or their affiliates, in
connection with its other business activities, may acquire material non-public
confidential information that may restrict the Adviser or Sub-Adviser from
purchasing securities or selling securities for itself or its clients (including
the Fund) or otherwise using such information for the benefit of its clients or
itself.
The foregoing does
not purport to be a comprehensive list or complete explanation of all potential
conflicts of interests which may affect the Fund. The Fund may encounter
circumstances, or enter into transactions, in which conflicts of interest that
are not listed or discussed above may arise.
Costs
of Buying and Selling Shares. Investors buying
or selling Fund Shares in the secondary market will pay brokerage commissions or
other charges imposed by brokers, as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant proportional cost
for investors seeking to buy or sell relatively small amounts of Fund Shares. In
addition, secondary market investors will also incur the cost of the difference
between the price that an investor is willing to pay for Fund Shares (the “bid”
price) and the price at which an investor is willing to sell Fund Shares (the
“ask” price). This difference in bid and ask prices is often referred to as the
“spread” or “bid/ask spread.” The bid/ask spread varies over time for Fund
Shares based on trading volume and market liquidity, and is generally lower if
Fund Shares have more trading volume and market liquidity and higher if Fund
Shares have little trading volume and market liquidity. Further, increased
market volatility may cause increased bid/ask spreads. Due to the costs of
buying or selling Fund Shares, including bid/ask spreads, frequent trading of
Fund Shares may significantly reduce investment results and an investment in
Fund Shares may not be advisable for investors who anticipate regularly making
small investments.
Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as the Fund) and their service providers (including the Adviser) may be prone to
operational and information security risks resulting from cyber-attacks and/or
technological malfunctions. Furthermore, geopolitical tensions may have
increased the scale and sophistication of deliberate cybersecurity attacks,
particularly those from nation-states or from entities with nation-state
backing. In general, cyber-attacks are deliberate, but unintentional events may
have similar effects. Cyber-attacks include, among others, stealing or
corrupting data maintained online or digitally, preventing legitimate users from
accessing information or services on a website, releasing confidential
information without authorization, and causing operational disruption.
Successful cyber-attacks against, or security breakdowns of, the Fund, the
Adviser or a custodian, transfer agent, or
24
other affiliated or
third-party service provider may adversely affect the Fund or its shareholders.
For instance, cyber-attacks or technical malfunctions may interfere with the
processing of shareholder or other transactions, affect the Fund's ability to
calculate its NAV, cause the release of private shareholder information or
confidential Fund information, impede trading, cause reputational damage, and
subject the Fund to regulatory fines, penalties or financial losses,
reimbursement or other compensation costs, and additional compliance costs.
Cyber-attacks or technical malfunctions may render records of Fund assets and
transactions, shareholder ownership of Fund Shares, and other data integral to
the functioning of the Fund inaccessible or inaccurate or incomplete. The Fund
may also incur substantial costs for cybersecurity risk management in order to
prevent cyber incidents in the future. The Fund and its shareholders could be
negatively impacted as a result. While the Adviser has established business
continuity plans and systems designed to minimize the risk of cyber-attacks
through the use of technology, processes and controls, there are inherent
limitations in such plans and systems, including the possibility that certain
risks have not been identified, given the evolving nature of this threat. The
Fund relies on third-party service providers for many of its day-to-day
operations, and will be subject to the risk that the protections and protocols
implemented by those service providers will be ineffective to protect the Fund
from cyber-attack. The Adviser does not control the cybersecurity plans and
systems put in place by third-party service providers, and such third-party
service providers may have limited indemnification obligations to the Adviser or
the Fund. Similar types of cybersecurity risks or technical malfunctions also
are present for issuers of securities in which the Fund invests, which could
result in material adverse consequences for such issuers, and may cause the
Fund's investment in such securities to lose value.
Money
Market Fund Investment Risk. An investment in a
money market fund is not a deposit of any bank and is not insured or guaranteed
by the FDIC or any other government agency. Certain money market funds seek to
preserve the value of their shares at $1.00 per share, although there can be no
assurance that they will do so, and it is possible to lose money by investing in
such a money market fund. A major or unexpected change in interest rates or a
decline in the credit quality of an issuer or entity providing credit support,
an inactive trading market for money market instruments, or adverse market,
economic, industry, political, regulatory, geopolitical, and other conditions
could cause the share price of such a money market fund to fall below $1.00. It
is possible that such a money market fund will issue and redeem shares at $1.00
per share at times when the fair value of the money market fund's portfolio per
share is more or less than $1.00. None of State Street Corporation, State Street
Bank and Trust Company, State Street Global Advisors, Inc. (“SSGA”), SSGA
FM or their affiliates (“State Street Entities”) guarantee the value of an
investment in a money market fund at $1.00 per share. Investors should have no
expectation of capital support to a money market fund from State Street
Entities. Other money market funds price and transact at a “floating” NAV that
will fluctuate along with changes in the market-based value of fund assets.
Shares sold utilizing a floating NAV may be worth more or less than their
original purchase price. Recent changes in the regulation of money market funds
may affect the operations and structures of money market funds. A money market
fund may be permitted or required to impose redemption fees during times of
market stress.
Portfolio
Turnover Risk. The Fund may
engage in frequent trading of its portfolio securities. Fund turnover generally
involves a number of direct and indirect costs and expenses to the Fund,
including, for example, brokerage commissions, dealer mark-ups and bid/asked
spreads, and transaction costs on the sale of securities and reinvestment in
other securities. The costs related to increased portfolio turnover have the
effect of reducing the Fund's investment return, and the sale of securities by
the Fund may result in the realization of taxable capital gains, including
short-term capital gains.
Potential
Conflicts of Interest Risk. The Sub-Adviser
will be subject to certain conflicts of interest in its management of the Fund.
In the ordinary course of their business activities, 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 Fund or its shareholders. As part of its
regular business, the Sub-Adviser or its affiliates provide a broad range of
investment management, advisory, and other services. Because of such
relationships, there may be certain investments that the Sub-Adviser will
decline or be unable to make. In addition, employees of such affiliates may
possess information relating to such issuers that is not known to the
individuals at the Sub-Adviser. Those employees of the Sub-Adviser's affiliates
will not be obligated to share any such information with the Sub-Adviser and may
be prohibited by law or contract from doing so. The Sub-Adviser or certain of
its affiliates may come
25
into possession of
material non-public information with respect to an issuer. Should this occur,
the Sub-Adviser would be restricted from buying or selling securities or loans
of the issuer on behalf of the Fund until such time as the information became
public or was no longer deemed material, so as to preclude the Fund from
participating in an investment.
Regulatory
Risk.
Governmental and regulatory actions may have unexpected or adverse consequences
on particular markets, strategies, or investments, which may adversely impact
the Fund and impair how it is managed. Policy and legislative changes in the
United States and in other countries may affect aspects of financial regulation,
and may in some instances contribute to decreased liquidity and increased
volatility in the financial markets. The impact of these changes on the markets,
and the practical implications for market participants, may not be fully known
for some time.
Securities
Lending Risk. The Fund may lend
portfolio securities in an amount not to exceed 40% of the value of its net
assets. For these purposes, net assets shall exclude the value of all assets
received as collateral for the loan. Such loans may be terminated at any time.
Any such loans must be continuously secured by collateral maintained on a
current basis in an amount at least equal to the market value of the securities
loaned by the Fund, marked to market each trading day. The Fund will receive the
amount of all dividends, interest and other distributions on the loaned
securities; however, the borrower has the right to vote the loaned securities.
The Fund will call loans to vote proxies if a material issue affecting the
investment is to be voted upon. Efforts to recall such securities promptly may
be unsuccessful, especially for foreign securities or thinly traded securities.
Securities lending involves the risk that the Fund may lose money because the
borrower of the loaned securities fails to return the securities in a timely
manner or at all. Should the borrower of the securities fail financially, the
Fund may experience delays in recovering the securities or exercising its rights
in the collateral. Loans are made only to borrowers that are deemed by the
securities lending agent to be of good financial standing. In a loan
transaction, the Fund will also bear the risk of any decline in value of
securities provided as collateral or acquired with cash collateral. The Fund
will attempt to minimize this risk by limiting the investment of cash collateral
to high quality instruments of short maturity 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. In addition, the Fund will be subject to the risk
that any income generated by lending its securities or reinvesting cash
collateral is lower than any fees the Fund has agreed to pay a borrower. The
Adviser will take into account the tax impact to shareholders of substitute
payments for dividends when overseeing the Fund's securities lending
activity.
Trading
Issues.
Although Fund Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for the Fund Shares will develop
or be maintained. Trading in Fund Shares on the Exchange may be halted due to
market conditions or for reasons that, in the view of the Exchange, make trading
in Fund Shares inadvisable. In addition, trading in Fund Shares on the Exchange
is subject to trading halts caused by extraordinary market volatility pursuant
to Exchange “circuit breaker” rules. Similar to the shares of operating
companies listed on a stock exchange, Fund Shares may be sold short and are
therefore subject to the risk of increased volatility in the trading price of
the Fund's shares. While the Fund expects that the ability of Authorized
Participants to create and redeem Fund Shares at net asset value should be
effective in reducing any such volatility, there is no guarantee that it will
eliminate the volatility associated with such short sales. There can be no
assurance that the requirements of the Exchange necessary to maintain the
listing of the Fund will continue to be met or will remain unchanged or that
Fund Shares will trade with any volume, or at all, on any stock
exchange.
Management
Investment
Adviser
SSGA FM serves as
the investment adviser to the Fund pursuant to an investment advisory agreement
(“Investment Advisory Agreement”) between the Trust and the Adviser, and,
subject to the oversight of Board, is responsible for the investment management
of the Fund. The Adviser provides an investment management program for the Fund
and manages the investment of the Fund's assets. In addition, the Adviser
provides administrative, compliance and general management services to the Fund.
The Adviser is a wholly-owned subsidiary of State Street Global Advisors, Inc.,
which itself is a wholly-owned subsidiary of State Street Corporation. The
Adviser is registered with the SEC under the Investment Advisers Act of 1940, as
amended. The Adviser and certain other affiliates of State Street Corporation
26
make up SSGA. SSGA
is one of the world's largest institutional money managers and the investment
management arm of State Street Corporation. As of June 30, 2024, the Adviser
managed approximately $1.01 trillion in assets and SSGA managed approximately
$4.13 trillion in assets. The Adviser's principal business address is One Iron
Street, Boston, Massachusetts 02210.
For the services
provided to the Fund under the Investment Advisory Agreement, the Fund expects
to pay the Adviser the annual fees based on a percentage of the Fund's average
daily net assets as set forth below:
|
SPDR
Galaxy Hedged Digital Asset Ecosystem ETF |
0.90
% |
From time to time,
the Adviser may waive all or a portion of its management fee. The Adviser pays
all expenses of the 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.
SSGA FM, as the
investment adviser for the Fund, may hire one or more sub-advisers to oversee
the day-to-day investment activities of the Fund. The sub-advisers are subject
to oversight by the Adviser. The Adviser and the Trust have received
an exemptive order from the SEC that permits the Adviser, with the approval of
the Board, including a majority of the Independent Trustees, of the Trust, to
retain and amend existing sub-advisory agreements with unaffiliated investment
sub-advisers for the Fund without submitting the sub-advisory agreement to a
vote of the Fund's shareholders. The Trust will notify shareholders in the event
of any change in the identity of such sub-adviser or sub-advisers. The Adviser
has ultimate responsibility for the investment performance of the Fund due to
its responsibility to oversee each sub-adviser and recommend their hiring,
termination and replacement. The Adviser is not required to disclose fees paid
to any unaffiliated sub-adviser retained pursuant to the order.
Investment
Sub-Adviser.
The Adviser has
entered into an investment sub-advisory agreement (the “Sub-Advisory Agreement”)
with Galaxy Digital Capital Management LP (“Galaxy”), who has been retained 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. Galaxy serves as the
investment sub-adviser to the SPDR Galaxy Transformative Tech Accelerators ETF,
SPDR Galaxy Digital Asset Ecosystem ETF, and SPDR Galaxy Hedged Digital Asset
Ecosystem ETF, and is responsible for providing the investment program for each
Fund. Galaxy is a consolidated subsidiary of Galaxy Digital Holdings LP (“Galaxy
Holdings”). Galaxy Digital Holdings Ltd., which holds a limited partner interest
in Galaxy Holdings, is listed on the Toronto Stock Exchange under the symbol
“GLXY”. Galaxy's principal office is located at 300 Vesey Street New York, NY
10282. As of July 31, 2024, Galaxy had approximately $4.72 billion of assets
under management.
In accordance with
the Sub-Advisory Agreement, the Adviser pays Galaxy a portion of the advisory
fee paid by the Fund to the Adviser (after deducting payments to the fund
service providers and fund expenses) based on a percentage of the Fund's average
daily net assets managed by Galaxy. The Fund is not responsible for the fees
paid to Galaxy.
A summary of the
factors considered by the Board in connection with the initial approval of the
Investment Advisory Agreement and Sub-Advisory Agreement for the Fund will be
available in the Fund's Form N-CSR filing with the SEC for the period ended
October 31, 2024.
Portfolio
Managers.
The professionals
primarily responsible for the day-to-day management of the Fund are
Christopher Rhine, Paul Cappelli and Ian Kolman.
Additional
information about the portfolio managers' compensation, other accounts managed
by the portfolio managers, and the portfolio managers' ownership of the Fund is
available in the SAI.
The
Subsidiary. The Fund expects to
gain exposure to Spot Crypto Asset ETPs and crypto asset futures by investing in
the Subsidiary, a wholly-owned, exempted limited company organized under the
laws of the Cayman Islands. The Subsidiary is overseen by its own board of
directors. The Adviser serves as the Subsidiary's investment adviser and manages
the Subsidiary to comply with the compliance policies and procedures of the
Fund.
27
Administrator,
Sub-Administrator, Custodian and Transfer Agent. The Adviser serves
as Administrator for the Fund. State Street, part of State Street Corporation,
is the Sub-Administrator for the Fund and the Custodian for the Fund's assets,
and serves as Transfer Agent to the Fund.
Lending
Agent.
State Street is the securities lending agent for the Trust. For its services,
the lending agent would typically receive a portion of the net investment
income, if any, earned on the collateral for the securities
loaned.
Distributor. State Street Global
Advisors Funds Distributors, LLC serves as the Fund's distributor (“SSGA FD” or
the “Distributor”) pursuant to the Distribution Agreement between SSGA FD and
the Trust. The Distributor will not distribute Fund Shares in less than Creation
Units, and it does not maintain a secondary market in Fund Shares. The
Distributor may enter into selected dealer agreements with other broker-dealers
or other qualified financial institutions for the sale of Creation Units of Fund
Shares.
Additional
Information. The Board oversees
generally the operations of the Fund and the Trust. The Trust enters into
contractual arrangements with various parties, including among others the Fund's
investment adviser, the Fund's investment sub-adviser, custodian, transfer
agent, and accountants, who provide services to the Fund. Shareholders are not
parties to any such contractual arrangements or intended beneficiaries of those
contractual arrangements, and those contractual arrangements are not intended to
create in any shareholder any right to enforce them directly against the service
providers or to seek any remedy under them directly against the service
providers.
This Prospectus
provides information concerning the Trust and the Fund that you should consider
in determining whether to purchase Fund Shares. Neither this Prospectus nor the
related SAI is intended, or should be read, to be or give rise to an agreement
or contract between the Trust or the Fund and any investor, or to give rise to
any rights in any shareholder or other person other than any rights under
federal or state law that may not be waived.
Trademark
Licenses/Disclaimers
“Galaxy” is a
trademark of Galaxy Digital Holdings L.P.
SPDR
Trademark. The “SPDR”
trademark is used under license from Standard & Poor's Financial Services
LLC (“S&P”). No Fund offered by the Trust or its affiliates is sponsored,
endorsed, sold or marketed by S&P or its affiliates. S&P makes no
representation or warranty, express or implied, to the owners of the Fund or any
member of the public regarding the advisability of investing in securities
generally or in the Fund particularly. S&P is not responsible for and has
not participated in any determination or calculation made with respect to
issuance or redemption of Fund Shares. S&P has no obligation or liability in
connection with the administration, marketing or trading of the
Fund.
WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO,
LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
Additional
Purchase and Sale Information
Fund Shares are
listed for secondary trading on the Exchange and individual Fund Shares may only
be purchased and sold in the secondary market through a broker-dealer. The
secondary markets are closed on weekends and also are generally closed on 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 Exchange
may close early on the business day before certain holidays and on the day after
Thanksgiving Day. Exchange holiday schedules are subject to change without
notice. If you buy or sell Fund Shares in the secondary market, you will pay the
secondary market price for Fund Shares. In addition, you may incur customary
brokerage commissions and charges and may pay some or all of the spread between
the bid and the offered price in the secondary market on each leg of a round
trip (purchase and sale) transaction.
The trading prices
of Fund Shares will fluctuate continuously throughout trading hours based on
market supply and demand rather than the Fund's net asset value, which is
calculated at the end of each business day. Fund Shares will trade on the
Exchange at prices that may be above (i.e., at a premium) or
below (i.e., at a discount),
to varying degrees, the daily net asset value of Fund Shares. The trading prices
of Fund Shares may deviate significantly from the Fund's net asset value during
periods of market volatility. Given, however, that Fund Shares can be issued and
redeemed daily in Creation Units, the Adviser believes that large discounts and
premiums to net asset value should not be sustained over long
periods.
28
The Exchange will
disseminate, every fifteen seconds during the regular trading day, an indicative
optimized portfolio value (“IOPV”) relating to the Fund. The IOPV calculations
are estimates of the value of the Fund's net asset value per Fund Share.
Premiums and discounts between the IOPV and the market price may occur. This
should not be viewed as a “real-time” update of the net asset value per Fund
Share. The IOPV is based on the current market value of the published basket of
portfolio securities and/or cash required to be deposited in exchange for a
Creation Unit and does not necessarily reflect the precise composition
of the Fund's actual portfolio at a particular point in time. Moreover, the
IOPV is generally determined by using current market quotations and/or price
quotations obtained from broker-dealers and other market intermediaries and
valuations based on current market rates. The IOPV may not be calculated in the
same manner as the NAV, which (i) is computed only once a day, (ii) unlike the
calculation of the IOPV, takes into account Fund expenses, and (iii) may be
subject, in accordance with the requirements of the 1940 Act, to fair valuation
at different prices than those used in the calculations of the IOPV. The IOPV
price is based on quotes and closing prices from the securities' local market
converted into U.S. dollars at the current currency rates and may not reflect
events that occur subsequent to the local market's close. Therefore, the IOPV
may not reflect the best possible valuation of the Fund's current
portfolio. Neither the Fund nor the Adviser or any of their affiliates are
involved in, or responsible for, the calculation or dissemination of such IOPVs
and make no warranty as to their accuracy.
The Fund does not
impose any restrictions on the frequency of purchases and redemptions; however,
the Fund reserves the right to reject or limit purchases at any time as
described in the SAI. When considering that no restriction or policy was
necessary, the Board evaluated the risks posed by market timing activities, such
as whether frequent purchases and redemptions would interfere with the efficient
implementation of the Fund's investment strategy, or whether they would cause
the Fund to experience increased transaction costs. The Board considered that,
unlike traditional mutual funds, Fund Shares are issued and redeemed only in
large quantities of shares known as Creation Units, available only from the Fund
directly, and that most trading in the Fund occurs on the Exchange at prevailing
market prices and does not involve the Fund directly. Given this structure, the
Board determined that it is unlikely that (a) market timing would be attempted
by the Fund's shareholders or (b) any attempts to market time the Fund by
shareholders would result in negative impact to the Fund or its
shareholders.
Distributions
Dividends
and Capital Gains. As a Fund
shareholder, you are entitled to your share of the Fund's income and net
realized gains on its investments. The Fund pays out substantially all of its
net earnings to its shareholders as “distributions.”
The Fund may
earn interest from debt securities and, if participating, securities lending
income. The Fund will generally realize short-term capital gains or losses
whenever it sells or exchanges assets held for one year or less. Net short-term
capital gains will generally be treated as ordinary income when distributed to
shareholders. The Fund will generally realize long-term capital gains or losses
whenever it sells or exchanges assets held for more than one year. Net capital
gains (the excess of the Fund's net long-term capital gains over its net
short-term capital losses) are distributed to shareholders as “capital gain
distributions.”
Income dividend
distributions, if any, are generally distributed to shareholders monthly, but
may vary significantly from period to period.
Net capital gains
for the Fund are distributed at least annually. Dividends may be declared and
paid more frequently or at any other time to comply with the distribution
requirements of the Internal Revenue Code of 1986, as amended (the
“Code”).
Distributions in
cash may be reinvested automatically in additional whole Fund Shares only if the
broker through whom you purchased Fund Shares makes such option available.
Distributions which are reinvested will nevertheless be taxable to the same
extent as if such distributions had not been reinvested.
Portfolio
Holdings Disclosure
The Fund's portfolio
holdings disclosure policy is described in the SAI. In addition, the identities
and quantities of the securities held by the Fund are disclosed on the Fund's
website.
29
Additional
Tax Information
The following
discussion is a summary of some important U.S. federal income tax
considerations generally applicable to an investment in the Fund. Your
investment in the Fund may have other tax implications. Please consult your tax
advisor about federal, state, local, foreign or other tax laws applicable to
you. Investors, including non-U.S. investors, may wish to consult the SAI tax
section for additional disclosure.
The Fund has elected
or will elect to be a RIC and intends to qualify each year to be treated as
such. A RIC is generally not subject to tax at the corporate level on income and
gains that are distributed to shareholders. However, the Fund's failure to
qualify for treatment as a RIC may result in corporate level taxation, and
consequently, a reduction in income available for distribution to
shareholders.
Taxes
on Distributions. In general, your
distributions are subject to federal income tax when they are paid, whether you
take them in cash or reinvest them in the Fund. The income dividends and
short-term capital gains distributions you receive from the Fund will be taxed
as ordinary income or qualified dividend income. Subject to certain limitations,
dividends that are reported by the Fund as qualified dividend income are taxable
to noncorporate shareholders at reduced rates. Any distributions of the Fund's
net capital gains are taxable as long-term capital gain regardless of how long
you have owned Fund Shares. Long-term capital gains are generally taxed to
noncorporate shareholders at reduced rates. Distributions in excess of the
Fund's current and accumulated earnings and profits are treated as a tax-free
return of capital to the extent of your basis in Fund Shares, and, in general,
as capital gain thereafter.
In general,
dividends may be reported by the Fund as qualified dividend income if they are
attributable to qualified dividend income received by the Fund, which, in
general, includes dividend income from taxable U.S. corporations and certain
foreign corporations (i.e., certain foreign corporations incorporated in a
possession of the United States or in certain countries with a comprehensive tax
treaty with the United States, and certain other foreign corporations if the
stock with respect to which the dividend is paid is readily tradable on an
established securities market in the United States), provided that the Fund
satisfies certain holding period requirements in respect of the stock of such
corporations and has not hedged its position in the stock in certain ways. A
dividend generally will not be treated as qualified dividend income if the
dividend is received with respect to any share of stock held by the Fund for
fewer than 61 days during the 121-day period beginning at the date which is 60
days before the date on which such share becomes ex-dividend with respect to
such dividend or, in the case of certain preferred stock, for fewer than 91 days
during the 181-day period beginning 90 days before such date. These holding
period requirements will also apply to your ownership of Fund Shares. Holding
periods may be suspended for these purposes for stock that is hedged.
Additionally, income derived in connection with the Fund's securities lending
activities will not be treated as qualified dividend income.
U.S. individuals
with income exceeding specified thresholds are subject to a 3.8% Medicare
contribution tax on all or a portion of their “net investment income,” which
includes taxable interest, dividends and certain capital gains (generally
including capital gain distributions and capital gains realized upon the sale of
Fund Shares). 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.
Certain tax-exempt
educational institutions will be subject to a 1.4% tax on net investment income.
For these purposes, certain dividends and capital gain distributions, and
certain gains from the disposition of Fund Shares (among other categories of
income), are generally taken into account in computing a shareholder's net
investment income.
If you lend your
Fund Shares pursuant to securities lending arrangements you may lose the ability
to treat Fund dividends (paid while the Fund Shares are held by the borrower) as
qualified dividend income. You should consult your financial intermediary
or tax advisor to discuss your particular circumstances.
Distributions paid
in January, but declared by the Fund in October, November or December of the
previous year, payable to shareholders of record in such a month, may be taxable
to you in the calendar year in which they were declared. The Fund will inform
you of the amount of your ordinary income dividends and capital gain
distributions and any qualified dividend income shortly after the close of each
calendar year.
A distribution will
reduce the Fund's net asset value per Fund Share and may be taxable to you as
ordinary income or capital gain even though, from an investment standpoint, the
distribution may constitute a return of capital.
30
Original
Issue Discount. Investments by the
Fund in zero coupon or other discount securities will result in income to the
Fund equal to a portion of the excess face value of the securities over their
issue price (the “original issue discount” or “OID”) each year that the
securities are held, even though the Fund may receive no cash interest payments
or may receive cash interest payments that are less than the income recognized
for tax purposes. In other circumstances, whether pursuant to the terms of a
security or as a result of other factors outside the control of the Fund, the
Fund may recognize income without receiving a commensurate amount of cash. The
Fund's share of such income is included in determining the amount that the Fund
must distribute to maintain its eligibility for treatment as a RIC and to avoid
the payment of federal tax, including the nondeductible 4% excise tax. Because
any income required to be recognized as a result of the OID and/or market
discount rules (discussed below) may not be matched by a corresponding cash
payment, the Fund may be required to borrow money or dispose of securities to be
able to make distributions to its shareholders in order to qualify for treatment
as a RIC and eliminate taxes at the Fund level.
Market
Discount. 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 the bond was issued with
original issue discount. Absent an election by the Fund to include the market
discount in income as it accrues, the 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. Where the income required to be
recognized as a result of the market discount rules is not matched by a
corresponding cash receipt by the Fund, the Fund may be required to borrow money
or dispose of securities to enable the Fund to make distributions to its
shareholders in order to qualify for treatment as a RIC and eliminate taxes at
the Fund level, potentially resulting in additional taxable gain or loss to the
Fund.
Derivatives
and Other Complex Securities. The Fund may invest
in complex securities. These investments may be subject to numerous special and
complex rules. These rules could affect whether gains and losses recognized by
the Fund are treated as ordinary income or capital gain, accelerate the
recognition of income to the Fund and/or defer the Fund's ability to recognize
losses. In turn, these rules may affect the amount, timing or character of the
income distributed to you by the Fund. You should consult your personal tax
advisor regarding the application of these rules.
Foreign
Currency Transactions. The Fund's
transactions in foreign currencies, foreign currency denominated debt
obligations and certain foreign currency options, and forward contracts (and
similar instruments) may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in the value of the foreign currency
concerned.
Foreign
Income Taxes. Investment income
received by the Fund from sources within foreign countries may be subject to
foreign income taxes withheld at the source. The United States has entered into
tax treaties with many foreign countries which may entitle the Fund to a reduced
rate of such taxes or exemption from taxes on such income. It is impossible to
determine the effective rate of foreign tax for the Fund in advance since the
amount of the assets to be invested within various countries is not known. If
more than 50% of the total assets of the Fund at the close of its taxable year
consist of certain foreign stocks or securities, the Fund may elect to “pass
through” to you certain foreign income taxes (including withholding taxes) paid
by the Fund. If the Fund makes such an election, you will be considered to have
received as an additional dividend your share of such foreign taxes, but you may
be entitled to either a corresponding tax deduction in calculating your taxable
income, or, subject to certain limitations, a credit in calculating your federal
income tax. No deduction for such taxes will be permitted to individuals in
computing their alternative minimum tax liability. If the Fund does not so
elect, the Fund will be entitled to claim a deduction for certain foreign taxes
incurred by the Fund. Under certain circumstances, if the Fund receives a refund
of foreign taxes paid in respect of a prior year, the value of Fund 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.
Taxes
on Exchange-Listed Share Sales. Any capital gain or
loss realized upon a sale of Fund Shares is generally treated as long-term
capital gain or loss if Fund Shares have been held for more than one year and as
short-term capital gain or loss if Fund Shares have been held for one year or
less, except that any capital loss on the sale of Fund Shares held for six
months or less is treated as long-term capital loss to the extent that capital
gain dividends were paid with respect to the Fund Shares.
Taxes
on Creations and Redemptions of Creation Units. A person who
exchanges securities for Creation Units generally will recognize a gain or loss.
The gain or loss will be equal to the difference between the market value of the
Creation Units at the time and the exchanger's aggregate basis in the securities
surrendered plus any cash paid for
31
the Creation Units.
A person who exchanges Creation Units for securities will generally recognize a
gain or loss equal to the difference between the exchanger's basis in the
Creation Units and the aggregate market value of the securities and the amount
of cash received. The Internal Revenue Service (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. Persons exchanging
securities should consult their own tax advisor with respect to whether wash
sale rules apply and when a loss might be deductible.
Under current
federal tax laws, any capital gain or loss realized upon a redemption (or
creation) of Creation Units is generally treated as long-term capital gain or
loss if the Fund Shares (or securities surrendered) have been held for more than
one year and as a short-term capital gain or loss if the Fund Shares (or
securities surrendered) have been held for one year or less.
If you create or
redeem Creation Units, you will be sent a confirmation statement showing how
many Fund Shares you purchased or sold and at what price.
The Trust on behalf
of the Fund has the right to reject an order for Creation Units if the
purchaser (or a group of purchasers) would, upon obtaining the Fund Shares so
ordered, own 80% or more of the outstanding shares of the Fund and if, pursuant
to Section 351 of the Code, the Fund would have a basis in the securities
different from the market value of the securities on the date of deposit.
The Trust also has the right to require information necessary to determine
beneficial share ownership for purposes of the 80% determination. If the
Trust does issue Creation Units to a purchaser (or a group of purchasers) that
would, upon obtaining the Fund Shares so ordered, own 80% or more of the
outstanding shares of the Fund, the purchaser (or group of purchasers) will 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.
Certain
Tax-Exempt Investors. The Fund, if
investing in certain limited real estate investments and other publicly traded
partnerships, may be required to pass through certain “excess inclusion income”
and other income as “unrelated business taxable income” (“UBTI”). Prior to
investing in the Fund, tax-exempt investors sensitive to UBTI should consult
their tax advisors regarding this issue and IRS pronouncements addressing the
treatment of such income in the hands of such investors.
Investments
In Certain Foreign Corporations. The Fund may invest
in foreign entities classified as passive foreign investment companies or
“PFICs” or controlled foreign corporations or “CFCs” under the Internal Revenue
Code. PFIC and CFC investments are subject to complex rules that may under
certain circumstances adversely affect the Fund. Accordingly, investors should
consult their own tax advisors and carefully consider the tax consequences of
PFIC and CFC investments by the Fund before making an investment in the Fund.
The Fund's dividends attributable to dividends received from PFICs and certain
CFCs generally will not be treated as qualified dividend income. Additional
information pertaining to the potential tax consequences to the Fund, and to the
shareholders, from the Fund's potential investment in PFICs and CFCs can be
found in the SAI.
As discussed above,
to qualify for the favorable U.S. federal income tax treatment accorded to RICs,
the Fund must, among other things, derive in each taxable year at least 90% of
its gross income from certain prescribed sources (“qualifying income”). Very
generally, income from digital assets is not thought to be qualifying income for
purposes of this requirement. The Fund invests a portion of its assets (not to
exceed 25% of its assets) in the Subsidiary, which is classified as a
corporation for U.S. federal income tax purposes. Because the Subsidiary is a
foreign corporation that is wholly owned by the Fund, the Subsidiary is a CFC.
Because the Subsidiary is a CFC, the Fund is required to include in its gross
income each taxable year all the Subsidiary's “subpart F income.” Under
applicable regulations, the Fund's subpart F income inclusions will constitute
qualifying income for the Fund, whether or not any amount is distributed by the
Subsidiary to the Fund, if the subpart F income inclusions are derived with
respect to the Fund's business of investing in stock, securities or currencies.
It is possible that the IRS might take the position that subpart F income
inclusions from the Subsidiary are not qualifying income. Under those
circumstances the Fund might fail to qualify for treatment as a RIC. Additional
information pertaining to the potential tax consequences to the Fund, and to the
shareholders, from the Fund's potential investment in the Subsidiary can be
found in the SAI.
32
Taxation
of Digital Assets. Significant aspects
of the U.S. federal income tax treatment of digital assets are uncertain. The
existing guidance does not address the U.S. federal income tax treatment of
digital assets that are not digital currency. Nor does that guidance address
other significant aspects of the U.S. federal income tax treatment of digital
assets, including, but not limited to: (i) whether any digital asset is properly
treated as a “commodity” for U.S. federal income tax purposes; (ii) whether any
digital asset is properly treated as a “collectible” for U.S. federal income tax
purposes; (iii) the treatment of digital asset derivatives; and (iv) the
treatment of decentralized finance transactions. The uncertainty surrounding the
U.S. federal income tax treatment of digital assets could affect the performance
of the Fund and, potentially, the taxation of shareholders. The IRS may disagree
with positions taken by the Fund with respect to its investments in digital
assets.
Non-U.S.
Investors. Ordinary income
dividends paid by the Fund to shareholders who are non-resident aliens or
foreign entities will generally be subject to a 30% U.S. withholding
tax (other than distributions reported by the Fund as interest-related
dividends and short-term capital gain dividends), unless a lower treaty rate
applies or unless such income is effectively connected with a U.S. trade or
business. In general, the Fund may report interest-related dividends to the
extent of its net income derived from U.S. source interest, and the Fund
may report short-term capital gain dividends to the extent its net short-term
capital gain for the taxable year exceeds its net long-term capital loss.
Gains on the sale of
Fund Shares and dividends that are, in each case, effectively connected with the
conduct of a trade or business within the U.S. will generally be subject to U.S.
federal net income taxation at regular income tax rates. Non-U.S. shareholders
that own, directly or indirectly, more than 5% of the Fund's shares are urged to
consult their own tax advisors concerning special tax rules that may apply to
their investment.
Unless certain
non-U.S. entities that hold Fund 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 distributions payable to such entities. A non-U.S. shareholder may
be exempt from the withholding described in this paragraph under an applicable
intergovernmental agreement between the U.S. and a foreign government, provided
that the shareholder and the applicable foreign government comply with the terms
of such agreement.
Backup
Withholding. The Fund will be
required in certain cases to withhold (as “backup withholding”) on amounts
payable to any shareholder who (1) has provided the Fund either an incorrect tax
identification number or no number at all, (2) is subject to backup withholding
by the IRS for failure to properly report payments of interest or dividends, (3)
has failed to certify to the Fund that such shareholder is not subject to backup
withholding, or (4) has not certified that such shareholder is a U.S. person
(including a U.S. resident alien). The backup withholding rate is 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 United States.
Certain
Potential Tax Reporting Requirements. Under U.S. Treasury
regulations, if a shareholder recognizes a loss 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 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. Significant
penalties may be imposed for the failure to comply with the reporting
requirements. The fact that a loss is reportable under these regulations does
not affect the legal determination of whether the taxpayer's treatment of the
loss is proper. Shareholders should consult their tax advisors to determine the
applicability of these regulations in light of their individual
circumstances.
Other
Tax Issues. The Fund may be
subject to tax in certain states where the Fund does business (or is
treated as doing business as a result of its investments). Furthermore, in those
states which have income tax laws, the tax treatment of the Fund and of Fund
shareholders with respect to distributions by the Fund may differ from federal
tax treatment.
The foregoing
discussion summarizes some of the consequences under current federal income tax
law of an investment in the Fund. It is not a substitute for personal tax
advice. Consult your personal tax advisor about the potential tax consequences
of an investment in the Fund under all applicable tax
laws.
33
General
Information
The Trust was
organized as a Massachusetts business trust on March 30, 2011. If
shareholders of the Fund are required to vote on any matters, shareholders are
entitled to one vote for each Fund Share they own. Annual meetings of
shareholders will not be held except as required by the 1940 Act and other
applicable law. See the SAI for more information concerning the Trust's form of
organization.
Management
and Organization
The Fund is a
separate series of the Trust, which is an open-end registered management
investment company.
From time to time,
the Fund may advertise yield and total return figures. Yield is a historical
measure of dividend income, and total return is a measure of past dividend
income (assuming that it has been reinvested) plus capital appreciation. Neither
yield nor total return should be used to predict the future performance of the
Fund.
Morgan, Lewis &
Bockius LLP serves as counsel to the Trust, including the Fund. Ernst &
Young LLP serves as the independent registered public accounting firm and will
audit the Fund's financial statements annually.
Financial
Highlights
The Fund had not
commenced operations prior to the date of this Prospectus and therefore does not
have financial information.
34
Where
to Learn More About the Fund
This Prospectus does
not contain all the information included in the Registration Statement filed
with the SEC with respect to Fund Shares. The SAI, which has been filed with the
SEC, provides more information about the Fund. The Prospectus and SAI may be
supplemented from time to time. The SAI
is incorporated herein
by reference (i.e., it is legally part
of this Prospectus). These materials may be obtained without charge, upon
request, by writing to the Distributor, State Street Global Advisors Funds
Distributors, LLC, One Iron Street, Boston, Massachusetts 02210, by
visiting the Fund's website at https://www.ssga.com/spdrs or by calling the
following number:
Investor
Information: 1-866-787-2257
The Registration
Statement, including this Prospectus, the SAI, and the exhibits as well as any
shareholder reports may be reviewed on the EDGAR Database on the SEC's website
(http://www.sec.gov). You may also obtain copies of this and other information,
after paying a duplicating fee, by electronic request at the following E-mail
address: [email protected].
Shareholder
inquiries may be directed to the Fund in writing to State Street Global Advisors
Funds Distributors, LLC, One Iron Street, Boston, Massachusetts 02210, or
by calling the Investor Information number listed above.
No
person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer of Fund Shares, and, if given or made, the information or
representations must not be relied upon as having been authorized by the Trust
or the Fund. Neither the delivery of this Prospectus nor any sale of Fund Shares
shall under any circumstance imply that the information contained herein is
correct as of any date after the date of this Prospectus.
Dealers
effecting transactions in Fund Shares, whether or not participating in this
distribution, are generally required to deliver a Prospectus. This is in
addition to any obligation of dealers to deliver a Prospectus when acting as
underwriters.
SPDRGAHEECOPROThe
Trust's Investment Company Act Number is 811-22542.