Prospectus
SSGA
Active Trust
State
Street® IG Public &
Private Credit ETF (PRIV)
State
Street® Short Duration
IG Public & Private Credit ETF (PRSD)
Principal
U.S. Listing Exchange: NYSE Arca, Inc.
The U.S.
Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense. Shares in the Funds 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
Funds.
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Management
fees1
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Distribution
and service (12b-1) fees |
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Other
expenses |
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Total
annual Fund operating expenses1 |
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1
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Year
1 |
Year
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Year
5 |
Year
10 |
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$ |
$ |
$ |
$ |
1
2
Principal
Risks of Investing in the Fund
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4
5
6
7
8
Portfolio
Management
Investment
Adviser
SSGA Funds
Management, Inc. (“SSGA FM” or the “Adviser”) serves as the investment adviser
to the Fund.
9
Portfolio
Managers
The professionals
primarily responsible for the day-to-day management of the Fund are Matthew
Nest, James Palmieri and Stella DeLucia.
Matthew Nest, CFA,
is a Senior Managing Director of the Adviser and the Global Head of Active Fixed
Income and Liquidity Solutions. He joined the Adviser in
2016.
James Palmieri, CFA,
is a Managing Director of the Adviser, and a Senior Portfolio Manager and Head
of Structured Credit for the Adviser's Fundamental Active Fixed Income Team. He
joined the Adviser in 2016 through the acquisition of GE Asset Management
Incorporated (“GEAM”) by the ultimate parent company of State Street Investment
Management.
Stella DeLucia is a
Managing Director of the Adviser and a Senior Portfolio Manager in the Active
Fixed Income Team. She joined the Adviser in 2016 through the acquisition of
GEAM by the ultimate parent company of State Street Investment
Management.
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 NYSE Arca, Inc. (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 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
www.statestreet.com/im.
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.
10
|
|
|
|
|
Management
fees1
|
|
|
Distribution
and service (12b-1) fees |
|
|
Other
expenses2
|
|
|
Total
annual Fund operating expenses1 |
|
1
2
|
Year
1 |
Year
3 |
|
$ |
$ |
11
12
Principal
Risks of Investing in the Fund
13
14
15
16
17
18
Portfolio
Management
Investment
Adviser
SSGA Funds
Management, Inc. (“SSGA FM” or the “Adviser”) serves as the investment adviser
to the Fund.
19
Portfolio
Managers
The professionals
primarily responsible for the day-to-day management of the Fund are Matthew
Nest, James Palmieri and Stella DeLucia.
Matthew Nest, CFA,
is a Senior Managing Director of the Adviser and the Global Head of Active Fixed
Income and Liquidity Solutions. He joined the Adviser in
2016.
James Palmieri, CFA,
is a Managing Director of the Adviser, and a Senior Portfolio Manager and Head
of Structured Credit for the Adviser's Fundamental Active Fixed Income Team. He
joined the Adviser in 2016 through the acquisition of GE Asset Management
Incorporated (“GEAM”) by the ultimate parent company of State Street Investment
Management.
Stella DeLucia is a
Managing Director of the Adviser and a Senior Portfolio Manager in the Active
Fixed Income Team. She joined the Adviser in 2016 through the acquisition of
GEAM by the ultimate parent company of State Street Investment
Management.
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 NYSE Arca, Inc. (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 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
www.statestreet.com/im.
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.
20
Additional
Strategies Information
Principal
Strategies
Please see each
Fund's respective “The Fund's Principal Investment Strategy” section under “Fund
Summaries” above for a complete discussion of each Fund's principal investment
strategies. The Funds may invest in various types of securities and engage in
various investment techniques which are not the principal focus of the Funds 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).
The Board of
Trustees (the “Board”) of SSGA Active Trust (the “Trust”) may change each Fund's
investment objective, investment strategy and other policies without shareholder
approval, except as otherwise noted in this Prospectus or in the
SAI.
Apollo is not a
sponsor, distributor, promoter, or investment adviser to the Funds. Apollo has
entered into a contractual agreement with each Fund (each, a “Bid Quotation and
Purchase Agreement”) whereby it is obligated to provide firm bids on AOS
Investments to the Funds on a daily basis at certain intervals and is required
to repurchase AOS Investments that the Funds have purchased at or above the firm
bid price offered by Apollo, subject to, but not limited to, contractual levels
designed to cover the estimated seven-day stress redemption rate as of the date
hereof. The sale of AOS Investments to Apollo is not exclusive and the Funds may
seek to sell AOS Investments to other counterparties.
Non-Principal
Strategies
Temporary
Defensive Positions. In response to
actual or perceived adverse market, economic, political, or other conditions, a
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 a Fund
invests for defensive purposes, it may not achieve its investment objective. In
addition, the defensive strategy may not work as intended.
Borrowing
Money.
Each Fund may borrow money from a bank as permitted by the Investment
Company Act of 1940, as amended (the “1940 Act”), or other governing statutes,
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 a 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 Funds may also invest in reverse
repurchase agreements, which are considered borrowings under the 1940 Act.
Consistent with a rule under the 1940 Act, the Funds may treat such investments
as either borrowings or derivatives transactions. To the extent a 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. Each 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 a Fund to receive a portion of the income generated by lending its
securities and investing the respective collateral. A 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 a 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
U.S. dollar-denominated, short-term, high quality debt obligations, including
the following: 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. A Fund is
compensated by the difference between the amount earned on the reinvestment of
cash collateral and the fee paid to the borrower. In the case of collateral
other than cash, a Fund is compensated by
21
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, a 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 a Fund.
Additional
Risk Information
The following
section provides information regarding the principal risks identified under
“Principal Risks of Investing in the Fund” in each Fund Summary along with
additional risk information. Risk information is applicable to each
Fund.
Principal
Risks
Affiliated
ETF Risk. To the extent a
Fund invests in an affiliated ETF, the Fund's investment performance and risks
may be directly related to the investment performance and risks of the
affiliated ETF. In addition, the Adviser may have an incentive to take into
account the effect on an affiliated ETF in which a Fund may invest in
determining whether, and under what circumstances, to purchase or sell shares in
that affiliated ETF. Although the Adviser takes steps to address the conflicts
of interest, it is possible that the conflicts could impact a Fund.
Asset-Backed
and Mortgage-Backed Securities Risk. Asset-backed and
mortgage-backed securities (residential and commercial) represent interests in
“pools” of mortgages or other assets, including consumer loans or receivables
held in trust. These securities, in most cases, are not backed by the full faith
and credit of the U.S. government, and there can be no assurance that the U.S.
government would provide financial support to its agencies or instrumentalities
where it is not obligated to do so. These securities are subject to the risk of
default on the underlying asset or mortgage, particularly during periods of
economic downturn. Small movements in interest rates (both increases and
decreases) may quickly and significantly reduce the value of certain
asset-backed and mortgage-backed securities. In particular, during periods of
falling interest rates, mortgage-backed securities will be called or prepaid,
which may result in a Fund having to reinvest proceeds in other investments at a
lower interest rate. During periods of rising interest rates, the average life
of a mortgage-backed security may extend, which may lock in a below-market
interest rate, increase the security's duration, and reduce the value of the
security. The liquidity of mortgage-related and asset-backed securities may
change over time. Enforcing rights against the underlying assets or collateral
may be difficult, or the underlying assets or collateral may be insufficient if
the issuer defaults. The values of certain types of mortgage-backed securities,
such as inverse floaters and interest-only and principal-only securities, may be
extremely sensitive to changes in interest rates and prepayment
rates.
Transactions in
mortgage pass-through securities may occur through standardized contracts for
future delivery in which the exact mortgage pools to be delivered are not
specified until a few days prior to settlement, referred to as a
“to-be-announced transaction” or “TBA Transaction”. In a TBA Transaction, the
buyer and seller agree upon general trade parameters such as agency, settlement
date, par amount and price. Default by, or bankruptcy of, a counterparty to a
TBA Transaction would expose a Fund to possible losses because of an adverse
market action, expenses or delays in connection with the purchase or sale of the
pools of mortgage pass-through securities specified in the TBA Transaction. To
minimize this risk, to the extent a Fund enters into TBA Transactions, it will
do so only with established counterparties (such as major broker-dealers) and
the Adviser will monitor the creditworthiness of such counterparties. A Fund may
enter into such contracts on a regular basis. A Fund, pending settlement of such
contracts, will invest its assets in high-quality, liquid short term
instruments, including shares of affiliated money market
funds.
Bank
Loan Risk. A Fund may invest
in secured and unsecured participations in bank loans and assignments of such
loans. In making investments in such loans, which are made by banks or other
financial intermediaries to borrowers, a Fund will depend primarily upon the
creditworthiness of the borrower for payment of principal and interest which
will expose the Fund to the credit risk of both the financial institution and
the underlying borrower. The market for bank loans may not be highly liquid and
a Fund may have difficulty selling them. A Fund may also experience settlement
delays with respect to bank loan trades, resulting in the proceeds from the sale
of such loans not being readily available to make additional investments or to
meet the Fund's redemption obligations. Participations by a Fund in a lender's
portion of a bank loan typically will result in the Fund having a contractual
relationship only with such lender, not with the borrower. A Fund may have the
right to receive payments of principal, interest and any fees to which it is
entitled only from the lender selling a loan participation and only upon receipt
by such lender of such payments from the borrower. In connection with purchasing
participations, a Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement, nor any rights with respect to
any funds acquired by other lenders
22
through set-off
against the borrower, and a Fund may not directly benefit from any collateral
supporting the loan in which it has purchased the participation. As a result, a
Fund may assume the credit risk of both the borrower and the lender selling the
participation. Further, loans held by a Fund may not be considered securities
and, therefore, purchasers, such as a Fund, may not be entitled to rely on the
strong anti-fraud protections of the federal securities laws. Some of the loans
in which a Fund may invest or obtain exposure to may be “covenant-lite” loans.
Covenant-lite loans may contain fewer or no maintenance covenants compared to
other loans and may not include terms which allow the lender to monitor the
performance of the borrower and declare a default if certain criteria are
breached. A Fund may experience relatively greater realized or unrealized losses
or delays in enforcing its rights on its holdings of covenant-lite loans than
its holdings of loans with the usual covenants.
Below
Investment-Grade Securities Risk. Securities rated
below investment-grade and unrated securities of comparable credit quality
(commonly known as “high-yield” or “junk” bonds) lack strong investment-grade
characteristics, are considered predominantly speculative with respect to the
issuer's continuing ability to make principal and interest payments, and are
subject to greater levels of credit, liquidity and market risk than higher-rated
securities. They can involve a substantially greater risk of default than
higher-rated securities, and their values can decline significantly over short
periods of time. Issuers of lower-quality debt securities may have substantially
greater risk of insolvency or bankruptcy than issuers of higher-quality debt
securities. In the event the issuer of a debt security held by a Fund defaults
on its payments or becomes insolvent or bankrupt, the Fund may not receive the
return it was promised on the investment and could lose its entire investment.
The lower ratings of junk bonds reflect a greater possibility that actual or
perceived adverse changes in the financial condition of the issuer or in general
economic conditions, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. If this were
to occur, the values of such securities held by a Fund may fall substantially
and a Fund could lose some or all of the value of its investment. Lower-quality
debt securities tend to be more sensitive to adverse news about the issuer, or
the market or economy in general, than higher quality debt securities. The
market for lower quality debt securities can be less liquid than for higher
quality debt securities, especially during periods of recession or general
market decline, which could make it difficult at times for a Fund to sell
certain securities at prices used in calculating a Fund's NAV. These securities
may have significant volatility.
Call/Prepayment
Risk.
Call/prepayment risk is the risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund earlier than expected or required.
This may occur, for example, when there is a decline in interest rates, and an
issuer of bonds or preferred stock redeems the bonds or stock in order to
replace them with obligations on which it is required to pay a lower interest or
dividend rate. It may also occur when there is an unanticipated increase in the
rate at which mortgages or other receivables underlying mortgage- or
asset-backed securities held by a Fund are prepaid. In any such case, a Fund may
be forced to invest the prepaid amounts in lower-yielding investments, resulting
in a decline in the Fund's income.
Cash
Position Risk. A Fund may hold a
significant portion of its assets in cash or cash equivalents in the Adviser's
discretion. If a Fund holds a significant cash position, its investment returns
may be adversely affected, and the Fund may not achieve its investment
objective.
Cash
Transaction Risk. To the extent a
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, a Fund may pay out higher
annual capital gain distributions than if the in-kind redemption process was
used.
Closed-End
Fund and BDC Investing Risk. The value of the
underlying securities held by a CEF could decrease or the portfolio could become
illiquid. CEFs that are financially leveraged may create an opportunity for
greater total return, but with more volatility than other investments, and
greater potential for loss. Shares of CEFs frequently trade at a discount from
their NAV. There can be no assurance that the market discount on shares of any
CEF purchased by a Fund will ever decrease. In fact, it is possible that this
market discount may increase, and a Fund may suffer realized or unrealized
capital losses due to further decline in the market price of the securities of
such CEF, thereby adversely affecting a Fund's NAV. CEFs structured as “interval
funds” are not available for continuous redemption; instead, interval funds
offer to repurchase shares at their NAV periodically. Unlike many closed-end
investment companies, shares of interval funds are not listed on any securities
exchange and are not publicly-traded. In addition, the number of shares tendered
in connection with a repurchase offer may exceed the number of shares the
interval fund has offered to repurchase, in which case not all shares tendered
in that offer will be repurchased. For these reasons,
23
shares of interval
funds are considered illiquid. In addition to the foregoing risks with respect
to CEFs, federal securities laws impose restraints upon the organization and
operations of BDCs that can limit or negatively impact the performance of a BDC.
BDCs generally invest in less mature private companies, which involve greater
risk than well-established, publicly traded companies, and BDCs are subject to
high failure rates among the companies in which they invest. BDCs may have
relatively concentrated portfolios, which include a small number of investments.
A significant portion of a BDC's investments are recorded at fair value as
determined by its board of directors, which may potentially result in material
differences between a BDC's NAV and its market price. As a result, shares of
BDCs may trade at a discount from their NAV. There can be no assurance that the
market discount on shares of any BDC purchased by a Fund will ever decrease. In
fact, it is possible that this market discount may increase, and a Fund may
suffer realized or unrealized capital losses due to further decline in the
market price of the securities of such BDC, thereby adversely affecting a Fund's
NAV.
Collateralized
Debt Obligations Risk. The risks of an
investment in a collateralized debt obligation depend largely on the type of the
collateral securities and the class of the debt obligation in which a Fund
invests. Collateralized debt obligations are generally subject to many of the
same risks of investing as debt securities and asset-backed securities,
including credit, interest rate, valuation, liquidity, prepayment and extension
risks. These securities also are subject to risk of default on the underlying
assets, particularly during periods of economic downturn.
Collateralized
Loan Obligation Risk. The risks of an
investment in a collateralized loan obligation depend largely on the type of the
collateral securities and the class of the collateralized loan obligation in
which a Fund invests. Collateralized loan obligations are generally subject to
credit, interest rate, valuation, liquidity, prepayment and extension risks.
These securities also are subject to risk of default on the underlying asset,
particularly during periods of economic downturn. Collateralized loan
obligations carry additional risks including, but not limited to, (i) the
possibility that distributions from collateral securities will not be adequate
to make interest of other payments, (ii) the collateral may decline in value or
default, (iii) a Fund may invest in obligations that are subordinate to other
classes, and (iv) the complex structure of the security may not be fully
understood at the time of investment and produce disputes with the issuer or
unexpected investment results. Collateralized loan obligations are divided into
two or more classes, called “tranches,” each with a different credit rating and
risk/return profile. Tranches are categorized as senior, mezzanine and
subordinated/equity, according to their degree of credit risk. If there are
defaults or the collateralized loan obligation's collateral otherwise
underperforms, scheduled payments to senior tranches take precedence over those
of mezzanine tranches, and scheduled payments to mezzanine tranches take
precedence over those of subordinated/equity tranches. Senior and mezzanine
tranches are typically rated. The ratings reflect both the credit quality of
underlying collateral as well as how much protection a given tranche is afforded
by tranches that are subordinate to it.
Counterparty
Risk. A
Fund will be subject to credit risk with respect to the counterparties with
which the Fund enters into derivatives contracts and other transactions such as
repurchase agreements or reverse repurchase agreements. A Fund's ability to
profit from these types of investments and transactions will depend on the
willingness and ability of its counterparty to perform its obligations. If a
counterparty fails to meet its contractual obligations, a Fund may be unable to
terminate or realize any gain on the investment or transaction, resulting in a
loss to the Fund. A Fund may experience significant delays in obtaining any
recovery in an insolvency, bankruptcy, or other reorganization proceeding
involving its counterparty (including recovery of any collateral posted by it)
and may obtain only a limited recovery or may obtain no recovery in such
circumstances. If a Fund holds collateral posted by its counterparty, it may be
delayed or prevented from realizing on the collateral in the event of a
bankruptcy or insolvency proceeding relating to the counterparty. Under
applicable law or contractual provisions, including if a Fund enters into an
investment or transaction with a financial institution and such financial
institution (or an affiliate of the financial institution) experiences financial
difficulties, then the Fund may in certain situations be prevented or delayed
from exercising its rights to terminate the investment or transaction, or to
realize on any collateral and may result in the suspension of payment and
delivery obligations of the parties under such investment or transactions or in
another institution being substituted for that financial institution without the
consent of the Fund. Further, a Fund may be subject to “bail-in” risk under
applicable law whereby, if required by the financial institution's authority,
the financial institution's liabilities could be written down, eliminated or
converted into equity or an alternative instrument of ownership. A bail-in of a
financial institution may result in a reduction in value of some or all of its
securities and, if a Fund holds such securities or has entered into a
transaction with such a financial security when a bail-in occurs, such Fund may
also be similarly impacted.
24
Credit
Risk.
Issuers may not be able to repay the principal or interest on securities
(including loans), which may result in a Fund losing money. There may be
economic or political changes that impact the ability of issuers to repay
principal and to make interest payments on securities. Changes to the financial
condition or credit rating of issuers may also adversely affect the value of the
assets of a Fund.
Currency
Risk.
Investments in issuers in different countries are often denominated in
currencies other than the U.S. dollar. Changes in the values of those currencies
relative to the U.S. dollar may have a positive or negative effect on the values
of a Fund's investments denominated in those currencies. The values of other
currencies relative to the U.S. dollar may fluctuate in response to, among other
factors, interest rate changes, intervention (or failure to intervene) by
national governments, central banks, or supranational entities such as the
International Monetary Fund, the imposition of currency controls, and other
political or regulatory developments. Currency values can decrease significantly
both in the short term and over the long term in response to these and other
developments. Continuing uncertainty as to the status of the Euro and the
Economic and Monetary Union of the European Union (the “EMU”) has created
significant volatility in currency and financial markets generally. Any partial
or complete dissolution of the EMU, or any continued uncertainty as to its
status, could have significant adverse effects on currency and financial
markets, and on the values of a Fund's portfolio investments.
Currency
Hedging Risk. If a derivative is
used as a hedge against a position that a Fund holds, any gain generated by the
derivative generally should be substantially offset by losses on the hedged
investment, and vice versa. While hedging can reduce or eliminate losses, it can
also reduce or eliminate gains. Hedges are sometimes subject to imperfect
matching between a derivative and its reference asset. Furthermore, while a Fund
may hedge against currency fluctuations, it is possible that a degree of
currency exposure may remain even at the time a hedging transaction is
implemented. As a result, changes in currency exchange rates may affect Fund
returns even when the hedge works as intended. The effectiveness of a Fund's
currency hedging strategy will also generally be affected by the
volatility of both the securities that the Fund holds, and the volatility
of the U.S. dollar relative to the currencies to be hedged. Increased volatility
may reduce the effectiveness of a Fund's currency hedging strategy and may
impact the costs associated with hedging transactions. The effectiveness of a
Fund's currency hedging strategy and the costs associated with hedging
transactions may also in general be affected by interest rates. Significant
differences between U.S. dollar interest rates and foreign currency interest
rates may further impact the effectiveness of a Fund's currency hedging
strategy. There can be no assurance that a Fund's hedging transactions will be
effective. A Fund's currency hedging activities will potentially increase or
accelerate distributions to shareholders, increase distributions taxed to
shareholders as ordinary income, result in the re-characterization of prior
ordinary income distributions as return of capital, or generate losses that
cannot be used to offset income or capital gain in subsequent years. A Fund will
bear the costs associated with any such hedging transaction, regardless of any
gain or loss experienced on the hedging transaction.
Debt
Securities Risk. The values of debt
securities may increase or decrease as a result of the following: market
fluctuations, changes in interest rates, actual or perceived inability or
unwillingness of issuers, guarantors or liquidity providers to make scheduled
principal or interest payments or illiquidity in debt securities markets. To the
extent that interest rates rise, certain underlying obligations may be paid off
substantially slower than originally anticipated and the value of those
securities may fall sharply. A rising interest rate environment may cause the
value of a Fund's fixed income securities to decrease, a decline in a
Fund's income and yield, an adverse impact on the liquidity of a Fund's fixed
income securities, and increased volatility of the fixed income markets. During
periods when interest rates are at low levels, a Fund's yield can be low, and a
Fund may have a negative yield (i.e., it may lose money on an operating basis).
To the extent that interest rates fall, certain underlying obligations may be
paid off substantially faster than originally anticipated. If the principal on a
debt obligation is prepaid before expected, the prepayments of principal may
have to be reinvested in obligations paying interest at lower rates. During
periods of falling interest rates, the income received by a Fund may decline.
Changes in interest rates will likely have a greater effect on the values of
debt securities of longer durations. Returns on investments in debt securities
could trail the returns on other investment options, including investments in
equity securities. High levels of inflation and/or a significantly changing
interest rate environment can lead to heightened levels of volatility and
reduced liquidity.
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 a Fund may not be able to close out a derivative
transaction at a favorable time or price. Risks associated with derivative
25
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 a 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 bankruptcy; the risk that a 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 a 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.
Forward
Contracts Risk. A forward contract
is a private, customizable agreement to buy or sell a specified security or
instrument at a future date at a price set at the time of the contract. Forward
contracts settle at the end of the agreement and trade over-the-counter. A
forward currency contract is an agreement to buy or sell a specific currency at
a future date at a price set at the time of the contract. A non-deliverable
forward currency contract is a contract where there is no physical settlement of
two currencies at maturity. Instead, a net cash settlement will be made by one
party to the other based on the movement of the currencies. The risks of forward
contracts include, but are not limited to: (1) the success of the Adviser's
ability to predict movements in the prices of individual currencies or
securities, fluctuations in markets and movements in interest rates; (2)
imperfect or no correlation between the changes in market value of the
currencies or securities and the prices of such contracts; and (3) the risk that
the counterparty will default on its obligations.
Futures
Contract Risk. 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 market. There is no assurance that a
liquid 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 a Fund will be unable to terminate
the futures contract. In using futures contracts, a 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 a 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 securities
or index underlying the futures contracts or movements in the prices of the
Fund's investments that are the subject of such hedge. The prices of futures
contracts, for a number of reasons, may not correlate perfectly with movements
in the securities or index underlying them. For example, participants in the
futures markets are subject to margin deposit requirements. Such requirements
may cause investors to take actions with respect to their futures positions that
they would not otherwise take. 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. The risk of a position in a futures contract may be very large compared
to the relatively low level of margin a Fund is required to deposit. A Fund will
typically be required to post margin with its futures commission merchant in
connection with its transactions in futures contracts. In many cases, a
relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor relative to the size of a required
margin deposit. A Fund will incur brokerage fees in connection with its futures
transactions. In the event of an insolvency of the futures commission merchant
or a clearing house, a Fund may not be able to recover all (or any) of the
margin it has posted with the futures commission merchant, or to realize the
value of any increase in the price of its positions, or it may experience a
significant delay in doing so. The Commodity Futures Trading Commission (the
“CFTC”), certain foreign regulators, and many futures exchanges have established
limits referred to as “position limits” on the maximum net long or net short
positions that any person and certain affiliated entities may hold or control in
a particular futures and options contract. In addition, federal position limits
apply to swaps that are economically equivalent to futures contracts on certain
agricultural, metals and energy commodities. All positions owned or controlled
by the same person or entity, even if
26
in different
accounts, must be aggregated for purposes of complying with position limits. It
is possible that the positions of different clients managed by the Adviser may
be aggregated for this purpose. Therefore, the trading decisions of the Adviser
may have to be modified and positions held by a Fund liquidated in order to
avoid exceeding such limits. The modification of investment decisions or the
elimination of open positions, if it occurs, may adversely affect the
performance of a Fund. A violation of position limits could also lead to
regulatory action materially adverse to a Fund's investment strategy. In
addition, exchanges may establish accountability levels applicable to a futures
contract instead of position limits, provided that the futures contract is not
subject to federal position limits. An exchange may order a person who holds or
controls a position in excess of a position accountability level not to further
increase its position, to comply with any prospective limit that exceeds the
size of the position owned or controlled, or to reduce any open position that
exceeds the position accountability level if the exchange determines that such
action is necessary to maintain an orderly market. Position accountability
levels could adversely affect a Fund's ability to establish and maintain
positions in commodity futures contracts to which such levels apply, if the Fund
were to trade in such contracts, and a Fund's ability to achieve its investment
objective.
A Fund may also be
affected by other regimes, including those of the European Union and United
Kingdom, and trading venues that impose position limits on commodity derivative
contracts. Futures contracts traded on markets outside the U.S. are not
generally subject to the same level of regulation by the CFTC or other U.S.
regulatory entities as contracts traded in the U.S., including without
limitation as to the execution, delivery, and clearing of transactions. U.S.
regulators neither regulate the activities of a foreign exchange, nor have the
power to compel enforcement of the rules of the foreign exchange or the laws of
the foreign country in question. Margin and other payments made by the Fund may
not be afforded the same protections as are afforded those payments in the U.S.,
including in connection with the insolvency of an executing or clearing broker
or a clearinghouse or exchange. Certain foreign futures contracts may be less
liquid and more volatile than U.S. contracts.
Options
Risk. A
Fund's successful use of options depends on the ability of the Adviser to
forecast market movements correctly. For example, if a Fund were to write 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. Similarly, if a Fund were to write a put option based on the Adviser's
expectation that the price of the underlying security would rise, but the price
were to fall instead, the Fund could be required to purchase the security upon
exercise at a price higher than the current market price. When a Fund purchases
an option, it runs the risk that it will lose its entire investment in the
option in a relatively short period of time, unless the Fund exercises the
option or enters into a closing sale transaction before the option's expiration.
If the price of the underlying security does not rise (in the case of a call) or
fall (in the case of a put) to an extent sufficient to cover the option premium
and transaction costs, a Fund will lose part or all of its investment in the
option. This contrasts with an investment by a Fund in the underlying security,
since the Fund will not realize a loss if the security's price does not change
over a relatively short time period. The effective use of options also depends
on a Fund's ability to terminate option positions at times when the Adviser
deems it desirable to do so. There is no assurance that a Fund will be able to
effect closing transactions at any particular time or at an acceptable price.
The sale of options by a Fund may create investment leverage.
Swaps
Risk. A
swap is a two-party contract that generally obligates the parties to exchange
payments based on a specified reference security, basket of securities, security
index or index component. A total return swap is a contract in which one
party agrees to make periodic payments to another party based on the change in
market value of the assets underlying the contract, which may include a
specified security, basket of securities, or securities indices during the
specified period, in return for periodic payments based on a fixed or variable
interest rate or the total return from other underlying assets. Swap
agreements may be used to obtain exposure to a security or market without owning
or taking physical custody of such security or investing directly in such
market. Swaps can involve greater risks than direct investment in securities
because swaps may be leveraged and are subject to counterparty risk
(e.g., the risk of a
counterparty's defaulting on the obligation or bankruptcy), credit risk and
pricing risk (i.e., swaps may be
difficult to value). Swaps may also be considered illiquid. It may not be
possible for a Fund to liquidate a swap position at an advantageous time or
price, which may result in significant losses.
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Emerging
Markets Risk. Investments in
emerging markets are generally subject to a greater risk of loss than
investments in developed markets. This may be due to, among other things, the
possibility of greater market volatility, lower trading volume and liquidity,
greater risk of expropriation, nationalization, and social, political and
economic instability, greater reliance on a few industries, international trade
or revenue from particular commodities, less developed accounting, legal and
regulatory systems, increased potential for market manipulation, higher levels
of inflation, deflation or currency devaluation, greater risk of market
shutdown, and more significant governmental limitations on investment policy as
compared to those typically found in a developed market. There may be
limited legal rights and remedies for investors in companies domiciled in
emerging markets. In addition, issuers (including governments) in emerging
market countries may have less financial stability than in other countries. The
securities of emerging market companies may trade less frequently and in smaller
volumes than more widely held securities. Market disruptions or substantial
market corrections may limit very significantly the liquidity of securities of
certain companies in a particular country or geographic region, or of all
companies in the country or region. A 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. There is also the potential for unfavorable action
such as embargoes and acts of war. As a result, there will tend to be an
increased risk of price volatility in investments in emerging market countries,
which may be magnified by currency fluctuations relative to the U.S. dollar.
Settlement and asset custody practices for transactions in emerging markets may
differ from those in developed markets. Such differences may include possible
delays in settlement and certain settlement practices, such as delivery of
securities prior to receipt of payment, which increase the likelihood of a
“failed settlement.” Failed settlements can result in losses. For these and
other reasons, investments in emerging markets are often considered
speculative.
Exchange
Traded Funds Risk. As a shareholder
of another investment company, a Fund relies on that investment company to
achieve its investment objective. If the investment company fails to achieve its
objective, the value of a Fund's investment could decline, which could adversely
affect a Fund's performance. In addition, a Fund is subject to substantially the
same risks as those associated with the direct ownership of the securities or
other assets represented by an underlying ETF in which it invests. Federal
securities laws impose limitations on a Fund's ability to invest in other
investment companies.
Because ETFs are
listed on national stock exchanges and are traded like stocks listed on an
exchange, their shares potentially may trade at a discount or premium.
Investments in ETFs are also subject to brokerage and other trading costs, which
could result in greater expenses to a Fund. In addition, because the value of
ETF shares depends on the demand in the market and such value may deviate from
the NAV of the ETF, the Adviser may not be able to liquidate a Fund's holdings
at the most optimal time, especially times of extreme market stress, which could
adversely affect a Fund's performance.
Extension
Risk.
During periods of rising interest rates, the average life of certain types of
securities may be extended because of slower-than-expected principal payments.
This may increase the period of time during which an investment earns a
below-market interest rate, increase the security's duration and reduce the
value of the security. Extension risk may be heightened during periods of
adverse economic conditions generally, as payment rates decline due to higher
unemployment levels and other factors.
Fluctuation
of Net Asset Value, Share Premiums and Discounts Risk. The NAV of Fund
Shares will generally fluctuate with changes in the market value of a Fund's
securities holdings. The market prices of Fund Shares will generally fluctuate
in accordance with changes in a Fund's NAV and supply and demand of Fund Shares
on the Exchange. It cannot be predicted whether Fund Shares will trade below, at
or above their NAV. 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 NAV 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 NAV), the Adviser believes
that large discounts or premiums to the NAV 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 a Fund's NAV,
disruptions to creations and redemptions or market volatility may result in
trading prices that differ significantly from such Fund's NAV. If an investor
purchases Fund Shares at a time when the market price is at a premium to the NAV
of Fund Shares or sells at a time when the market price is at a discount to the
NAV of Fund Shares, then the investor may sustain
losses.
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Income
Risk. A
Fund's income may decline due to falling interest rates or other factors.
Issuers of securities held by a Fund may call or redeem the securities during
periods of falling interest rates, and the Fund would likely be required to
reinvest in securities paying lower interest rates. If an obligation held by a
Fund is prepaid, the Fund may have to reinvest the prepayment in other
obligations paying income at lower rates. A reduction in the income earned by a
Fund may limit the Fund's ability to achieve its objective.
Interest
Rate Risk. Interest rate risk
is the risk that the securities held by a Fund will decline in value because of
increases in market interest rates. Duration is a measure used to determine the
sensitivity of a security's price to changes in interest rates. Debt securities
with longer durations tend to be more sensitive to changes in interest rates,
usually making them more volatile than debt securities with shorter durations.
For example, the value of a security with a duration of five years would be
expected to decrease by 5% for every 1% increase in interest rates. Falling
interest rates also create the potential for a decline in a Fund's income and
yield. Interest-only and principal-only securities are especially sensitive to
interest rate changes, which can affect not only their prices but can also
change the income flows and repayment assumptions about those investments.
Variable and floating rate securities also generally increase or decrease in
value in response to changes in interest rates, although generally to a lesser
degree than fixed-rate securities. A substantial increase in interest rates may
also have an adverse impact on the liquidity of a security, especially those
with longer durations. Interest rate changes can be sudden and unpredictable,
and are influenced by a number of factors, including government policy, monetary
policy, inflation expectations, perceptions of risk, and supply and demand for
bonds. Changes in government or central bank policy, including changes in tax
policy or changes in a central bank's implementation of specific policy goals,
may have a substantial impact on interest rates. This could lead to heightened
levels of interest rate, volatility and liquidity risks for the fixed income
markets generally and could have a substantial and immediate effect on the
values of a Fund's investments. There can be no guarantee that any particular
government or central bank policy will be continued, discontinued or changed,
nor that any such policy will have the desired effect on interest
rates.
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 a 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 a 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 a Fund. Certain derivatives have the potential for
unlimited loss, regardless of the size of the initial investment. The use of
leverage may cause a 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.
Limited
Track Record Risk. Each Fund has a
limited track record and there is no assurance that a Fund will grow quickly.
When a Fund's size is small, the Fund may experience low trading volume, which
could lead to wider bid/ask spreads. In addition, a Fund may face the risk of
being delisted if the Fund does not meet certain conditions of the listing
exchange. Any resulting liquidation of a Fund could cause elevated transaction
costs for the Fund and negative tax consequences for its
shareholders.
Liquidity
Risk.
Liquidity risk is the risk that a 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 a 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 a
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 a Fund's holdings deteriorates, it may lead to
differences between the market price of Fund Shares and the NAV 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. A 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. Further, if counterparties are unwilling to
purchase AOS Investments, AOS Investments that were deemed liquid may become
illiquid.
29
Management
Risk.
Each 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 a 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 a Fund will go up or down, sometimes
rapidly or unpredictably. A 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 a 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,
trade policy changes or disputes, the threat or actual imposition of tariffs,
natural disasters, public health issues, or other events could have a
significant impact on a Fund and its investments. Due to the interconnectedness
of economies and financial markets throughout the world, whether or not a 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 a Fund and its investments and
result in disruptions to the services provided to a Fund by its service
providers.
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, SSGA FM or their affiliates (collectively,
the “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 the 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.
Non-Diversification
Risk.
As a “non-diversified” fund, each Fund may hold a smaller number of portfolio
securities than many other funds. To the extent a 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 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 a 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
delays, restrictions or prohibitions on the repatriation of non-U.S. currencies.
To the extent underlying securities held by a Fund trade on foreign exchanges
that are closed when the exchange on which a 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 a Fund experiencing premiums or discounts
greater than those of ETFs that invest in domestic securities. Income and gains
with respect to
30
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 a
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 a Fund's investments 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 a
Fund invests could cause the Fund's investments to experience gains or losses.
In addition, the threat of or actual imposition of tariffs may adversely impact
the price of non-U.S. securities.
Portfolio
Turnover Risk. A Fund may engage
in frequent trading of its portfolio securities. Fund turnover generally
involves a number of direct and indirect costs and expenses to a 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 a 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.
Preferred
Stock Risk. Generally,
preferred stock holders have no or limited voting rights with respect to the
issuing company. In addition, preferred stock is generally senior to common
stock, but subordinated to bonds and other debt instruments in a company's
capital structure and therefore will be subject to greater credit risk than
those debt instruments. In the event an issuer of preferred stock experiences
economic difficulties, the issuer's preferred stock may lose substantial value
due to the increased likelihood of deferred dividend payments and the fact that
the preferred stock may be subordinated to other securities of the same issuer.
Further, because many preferred stocks pay dividends at a fixed rate, their
market price can be sensitive to changes in interest rates in a manner similar
to bonds - that is, as interest rates rise, the value of the preferred stock
held by a Fund is likely to decline. Therefore, to the extent that a Fund
invests a substantial portion of its assets in fixed rate preferred stock,
rising interest rates may cause the value of a Fund's investments to decline
significantly. In addition, to the extent preferred stocks allow holders to
convert the preferred stock into common stock of the issuer, their market price
can be sensitive to changes in the value of the issuer's common stock and,
therefore, declining common stock values may also cause the value of a Fund's
investments to decline. Preferred stock often have call features which allow the
issuer to redeem the security at its discretion. The redemption of a preferred
stock having a higher than average yield may cause a decrease in a Fund's
yield.
Private
Fund Risk. Investments in
private funds are subject to the risks of the underlying investments held by the
private fund. Private funds are not registered under the 1940 Act and therefore,
an investor in such fund is not subject to its regulatory protections.
Generally, little public information exists on the portfolio holdings of a
private fund which means the private fund may be employing investment strategies
not known to the Adviser. Investments in private funds are considered illiquid
and may be difficult to value. A Fund will also incur fees when purchasing
shares of a private fund.
Privately
Issued Securities Risk. A Fund will invest
in privately-issued securities, including those which are issued pursuant to
Rule 144A or Regulation S under the Securities Act of 1933, or Section 4(a)(2)
of the Securities Act of 1933. Privately-issued securities are securities that
have not been registered under the Securities Act and as a result are subject to
legal restrictions on resale. Privately-issued securities are not traded on
established markets and may be illiquid, difficult to value and subject to wide
fluctuations in value. Limitations on the resale of these securities may have an
adverse effect on their marketability, and may prevent the Fund from disposing
of them promptly at reasonable prices. Private credit investments can range in
credit quality depending on a variety of factors, including total leverage,
amount of leverage senior to the security in question, variability in the
issuer's cash flows, the size of the issuer, the quality of assets securing debt
and the degree to which such assets cover the subject company's debt
31
obligations. In
addition, there can be no assurance that the Adviser will be able to secure all
of the investment opportunities that it identifies for a Fund, or that the size
of an investment opportunity available to the Fund will be as large as the
Adviser would desire, on account of general economic conditions, specific market
developments, or other circumstances outside of the Adviser's
control.
Reinvestment
Risk.
Income from a Fund may decline when the Fund invests the proceeds from
investment income, sales of portfolio securities or matured, traded or called
debt obligations. For instance, during periods of declining interest rates, an
issuer of debt obligations may exercise an option to redeem securities prior to
maturity, forcing a Fund to reinvest the proceeds in lower-yielding securities.
A decline in income received by a Fund from its investments is likely to have a
negative effect on the yield and total return of the Fund
Shares.
Restricted
Securities Risk. A Fund may hold
securities that have not been registered for sale to the public under the U.S.
federal securities laws pursuant to an exemption from registration. These
securities may be less liquid than securities registered for sale to the general
public. The liquidity of a restricted security may be affected by a number of
factors, including, among others: (i) the creditworthiness of the issuer; (ii)
the frequency of trades and quotes for the security; (iii) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (iv) dealer undertakings to make a market in the security; (v) the
nature of any legal restrictions governing trading in the security; and (vi) the
nature of the security and the nature of marketplace trades. There can be no
assurance that a liquid trading market will exist at any time for any particular
restricted security. Also, restricted securities may be difficult to value
because market quotations may not be readily available, and the securities may
have significant volatility.
Senior
Loan Risk. Investments in
senior loans are subject to credit risk and general investment risk. Credit risk
refers to the possibility that the borrower of a senior loan will be unable
and/or unwilling to make timely interest payments and/or repay the principal on
its obligation. Default in the payment of interest or principal on a senior loan
will result in a reduction in the value of the senior loan and consequently a
reduction in the value of a Fund's investments and a potential decrease in the
NAV of the Fund. Senior loans are also subject to the risk that the value of the
collateral securing a senior loan may decline, be insufficient to meet the
obligations of the borrower or be difficult to liquidate. In addition, a Fund's
access to the collateral may be limited by bankruptcy or other insolvency laws.
Further, loans held by a Fund may not be considered securities and, therefore,
purchasers, such as the Fund, may not be entitled to rely on the strong
anti-fraud protections of the federal securities laws. Some senior loans are
subject to the risk that a court, pursuant to fraudulent conveyance or other
similar laws, could subordinate the senior loans to presently existing or future
indebtedness of the borrower or take other action detrimental to lenders,
including a Fund, such as invalidation of senior loans or causing interest
previously paid to be refunded to the borrower. Senior loans are also subject to
high yield securities risks and liquidity risks described above. In addition,
bank loans may be subject to extended settlement periods, which may impair a
Fund's ability to sell or realize the full value of its loans in the event of a
need to liquidate such loans in a compressed period of time. Some of the loans
in which a Fund may invest or obtain exposure to may be “covenant-lite” loans.
Covenant-lite loans may contain fewer or no maintenance covenants compared to
other loans and may not include terms which allow the lender to monitor the
performance of the borrower and declare a default if certain criteria are
breached. A Fund may experience relatively greater realized or unrealized losses
or delays in enforcing its rights on its holdings of covenant-lite loans than
its holdings of loans with the usual covenants.
Settlement
Risk.
Markets in different countries have different clearance and settlement
procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of transactions. Delays in settlement
may increase credit risk to a Fund, limit the ability of a Fund to reinvest the
proceeds of a sale of securities, hinder the ability of a Fund to lend its
portfolio securities, and potentially subject a Fund to penalties for its
failure to deliver to on-purchasers of securities whose delivery to a Fund was
delayed. Delays in the settlement of securities purchased by a Fund may limit
the ability of a Fund to sell those securities at times and prices it considers
desirable, and may subject a Fund to losses and costs due to its own inability
to settle with subsequent purchasers of the securities from it. A Fund may be
required to borrow monies it had otherwise expected to receive in connection
with the settlement of securities sold by it, in order to meet its obligations
to others.
Structured
Notes Risk. Structured notes
and other related instruments purchased by a Fund are generally privately
negotiated debt obligations where the amounts of principal and/or interest
payments are determined by reference to the performance of a specific asset,
such as an equity security, benchmark asset, market or interest rate (“reference
32
measure”). The
purchase of structured notes exposes a Fund to the credit risk of the issuer of
the structured product as well as to the underlying reference measure.
Structured notes may be leveraged, increasing the volatility of each structured
note's value relative to the change in the reference measure. Structured notes
may also be more volatile, less liquid, and more difficult to price accurately
than less complex securities and instruments or more traditional debt
securities.
The interest rate or
the principal amount payable upon maturity or redemption of a structured note
may increase or decrease, depending upon changes in the value of the reference
measure. The terms of a structured note may provide that, in certain
circumstances, no principal is due at maturity and, therefore, may result in a
loss of invested capital by the Fund. The interest and/or principal payments
that may be made on a structured product may vary widely, depending on a variety
of factors, including the volatility of the reference measure. Structured notes
may be positively or negatively indexed, so the appreciation of the reference
measure may produce an increase or a decrease in the interest rate or the value
of the principal at maturity. The rate of return on structured notes may be
determined by applying a multiplier to the performance or differential
performance of reference measures. Application of a multiplier involves leverage
that will serve to magnify the potential for gain and the risk of
loss.
U.S.
Government Securities Risk. U.S. government
securities, such as Treasury bills, notes and bonds and mortgage-backed
securities guaranteed by the Government National Mortgage Association (Ginnie
Mae), are supported by the full faith and credit of the United States; others
are supported by the right of the issuer to borrow from the U.S. Treasury;
others are supported by the discretionary authority of the U.S. government to
purchase the agency's obligations; and still others are supported only by the
credit of the issuing agency, instrumentality, or enterprise. Although U.S.
government-sponsored enterprises such as the Federal Home Loan Mortgage
Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie
Mae) may be chartered or sponsored by Congress, they are not funded by
Congressional appropriations, and their securities are not issued by the U.S.
Treasury nor supported by the full faith and credit of the U.S. government.
There is no assurance that the U.S. government would provide financial support
to its agencies and instrumentalities if not required to do so. In addition,
certain governmental entities have been subject to regulatory scrutiny regarding
their accounting policies and practices and other concerns that may result in
legislation, changes in regulatory oversight and/or other consequences that
could adversely affect the credit quality, availability, or investment character
of securities issued by these entities. The value and liquidity of U.S.
government securities may be affected adversely by changes in the ratings of
those securities. Securities issued by the U.S. Treasury historically have been
considered to present minimal credit risk. The downgrade in the long-term U.S.
credit rating by at least two major rating agencies has introduced greater
uncertainty about the ability of the U.S. to repay its obligations. Further
credit rating downgrades or a U.S. credit default could decrease the value and
increase the volatility of a Fund's investments.
U.S.
Treasury Obligations Risk. U.S. Treasury
obligations may differ from other securities in their interest rates,
maturities, times of issuance and other characteristics. Similar to other
issuers, changes to the financial condition or credit rating of the U.S.
government may cause the value of a Fund's U.S. Treasury obligations to decline.
The total public debt of the United States as a percentage of gross domestic
product grew rapidly after the financial crisis of 2008 and has remained at a
historically high level. Although high debt levels do not necessarily indicate
or cause economic problems, they may create certain systemic risks if sound debt
management practices are not implemented. A high national debt level may
increase market pressures to meet government funding needs, which may drive debt
cost higher and cause a country to sell additional debt, thereby increasing
refinancing risk. A high national debt also raises concerns that a government
will not be able to make principal or interest payments when they are due. In
the worst case, unsustainable debt levels can cause a decline in the value of
the dollar (which may lead to inflation), and can prevent the U.S. government
from implementing effective countercyclical fiscal policy in economic downturns.
On August 5, 2011, Standard & Poor's Ratings Services downgraded U.S.
Treasury securities from AAA rating to AA+ rating. Standard & Poor's Ratings
Services stated that its decision was prompted by its view on the rising public
debt burden and its perception of greater policymaking uncertainty. Fitch also
downgraded its rating of U.S. Treasury securities from AAA to AA+ on August 1,
2023, citing increasing government debt and erosion in confidence regarding
governance of fiscal matters as a result of repeated political standoffs related
to debt limit approvals. Most recently, on May 16, 2025, Moody's downgraded U.S.
long-term issuer and senior unsecured ratings from Aaa to Aa1 to reflect over a
decade-long increase in government debt, as well as interest payment ratios
higher than those of similarly rated countries. A downgrade of the ratings of
U.S. government debt obligations, which are often used as a benchmark for other
borrowing arrangements, could result in higher interest rates for individual and
corporate borrowers, cause
33
disruptions in the
international bond markets and have a substantial negative effect on the U.S.
economy. Any additional downgrades of U.S. Treasury securities from ratings
agencies may cause the value of a Fund's U.S. Treasury obligations to decline.
In recent years, impasses in Congress regarding the federal budget have caused
temporary Federal government shutdowns. While Congress has temporarily suspended
the debt limit from time to time, the risks that the U.S. government will not
adopt a long-term budget or deficit reduction plan, of one or more additional
Federal government shutdowns or of future failures to not increase the Federal
government's debt limit, may affect investor and consumer confidence and may
adversely impact financial markets and the broader economy, perhaps suddenly and
to a significant degree.
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 a Fund to value its
investments incorrectly. In addition, there is no assurance that a Fund could
sell or close out a portfolio position for the value established for it at any
time, and it is possible that a Fund would incur a loss because a portfolio
position is sold or closed out at a discount to the valuation established by a
Fund at that time.
Variable
and Floating Rate Securities Risk. Variable or
floating rate securities are debt securities with variable or floating interest
rates payments. Variable or floating rate securities bear rates of interest that
are adjusted periodically according to formulae intended generally to reflect
market rates of interest and allow a Fund to participate (determined in
accordance with the terms of the securities) in increases in interest rates
through upward adjustments of the coupon rates on the securities. However,
during periods of increasing interest rates, changes in the coupon rates may lag
behind the changes in market rates or may have limits on the maximum increases
in coupon rates. Alternatively, during periods of declining interest rates, the
coupon rates on such securities will typically readjust downward resulting in a
lower yield. A Fund may also invest in variable or floating rate equity
securities, whose dividend payments vary based on changes in market rates of
interest or other factors.
In addition,
investment in derivative variable rate securities, such as inverse floaters,
whose rates vary inversely with market rates of interest, or range floaters or
capped floaters, whose rates are subject to periodic or lifetime caps, or in
securities that pay a rate of interest determined by applying a multiple to the
variable rate involves special risks as compared to investment in a fixed-rate
security and may involve leverage. The extent of increases and decreases in the
values of derivative variable rate securities and the corresponding change to
the NAV of a Fund in response to changes in market rates of interest generally
may be larger than comparable changes in the value of an equal principal amount
of a fixed-rate security having similar credit quality, redemption provisions,
and maturity. The markets for such securities may be less developed and may have
less liquidity than the markets for conventional securities.
Zero-Coupon
Bond Risk. Zero-coupon bonds
are debt obligations that are generally issued at a discount and payable in full
at maturity, and that do not provide for current payments of interest prior to
maturity. Zero-coupon bonds usually trade at a deep discount from their face or
par values and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities that make current
distributions of interest. When interest rates rise, the values of zero-coupon
bonds fall more rapidly than securities paying interest on a current basis,
because a Fund is unable to reinvest interest payments at the higher
rates.
Non-Principal
Risks
Authorized
Participants, Market Makers and Liquidity Providers Concentration
Risk.
A 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 a 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.
34
Conflicts
of Interest Risk. An investment in a
Fund may be subject to a number of actual or potential conflicts of interest.
For example, the Adviser or its affiliates may provide services to a Fund, such
as securities lending agency services, custodial, administrative, bookkeeping,
and accounting services, transfer agency and shareholder servicing, securities
brokerage services, and other services for which the Fund would compensate the
Adviser and/or such affiliates. Each Fund may invest in other pooled investment
vehicles sponsored, managed, or otherwise affiliated with the Adviser. There is
no assurance that the rates at which a Fund pays fees or expenses to the Adviser
or its affiliates, or the terms on which it enters into transactions with the
Adviser or its affiliates will be the most favorable available in the market
generally or as favorable as the rates the Adviser makes available to other
clients. Because of its financial interest, the Adviser may have an incentive to
enter into transactions or arrangements on behalf of a Fund with itself or its
affiliates in circumstances where it might not have done so in the absence of
that interest.
The Adviser and its
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 on
behalf of a Fund. For example, the 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 may (subject to applicable
law) be simultaneously seeking to purchase (or sell) investments for a 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 and its 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 a Fund. The Adviser or its
affiliates, in connection with its other business activities, may acquire
material non-public confidential information that may restrict the Adviser from
purchasing securities or selling securities for itself or its clients (including
the Funds) 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 Funds. The Funds 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 Funds) 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, a Fund, the Adviser
a custodian, the transfer agent, or other affiliated or third-party service
provider may adversely affect a Fund or its shareholders. For instance,
cyber-attacks or technical malfunctions may interfere with the processing of
shareholder or other transactions, affect a 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 a 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 a Fund
inaccessible or inaccurate or incomplete. A Fund may also incur substantial
35
costs for
cybersecurity risk management in order to prevent cyber incidents in the future.
A Fund and its shareholders could be negatively impacted as a result. While the
Adviser has established a business continuity plan 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 use of artificial intelligence and machine learning
could exacerbate these risks or result in cyber security incidents that
implicate personal data. Each 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 Funds. Similar types of
cybersecurity risks or technical malfunctions also are present for issuers of
securities in which each Fund invests, which could result in material adverse
consequences for such issuers, and may cause a Fund's investment in such
securities to lose value.
Regulatory
Risk.
Governmental and regulatory actions may have unexpected or adverse consequences
on particular markets, strategies, or investments, which may adversely impact a
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. Each 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 a Fund, marked to market each trading day.In a loan transaction, as
compensation for lending its securities, a Fund will receive a portion of the
dividends or interest accrued on the securities held as collateral or, in the
case of cash collateral, a portion of the income from the investment of such
cash. In addition, 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. A 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, and may involve expenses to the Fund. 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, a 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, a Fund
will also bear the risk of any decline in value of securities provided as
collateral or acquired with cash collateral. Each 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, a 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 a 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 such 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 a
Fund's shares. While each Fund expects that the ability of Authorized
Participants to create and redeem Fund Shares at NAV 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 a 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.
36
Management
Investment
Adviser
SSGA FM serves as
the investment adviser to each 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 each Fund. The Adviser provides an investment management program for each
Fund and manages the investment of each Fund's assets. In addition, the Adviser
provides administrative, compliance and general management services to each
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
make up State Street Investment Management, the investment management arm of
State Street Corporation. As of October 31, 2025, the Adviser managed
approximately $1.29 trillion in assets and State Street Investment Management
managed approximately $5.55 trillion in assets. The Adviser's principal business
address is One Congress Street, Boston, Massachusetts 02114.
For the services
provided to each Fund under the Investment Advisory Agreement, for the fiscal
year ended October 31, 2025, each Fund paid the Adviser the annual fees based on
a percentage of each Fund's average daily net assets as set forth
below:
|
State
Street IG Public & Private Credit ETF |
0.70
%1 |
|
State
Street Short Duration IG Public & Private Credit
ETF |
0.59
%2 |
1
Effective February
26, 2026, the Adviser agreed to reduce the Fund's management fee from 0.70% to
0.55% of the Fund's average daily net assets.
2
Effective February
26, 2026, the Adviser agreed to reduce the Fund's management fee from 0.59% to
0.45% of the Fund's average daily net assets.
From time to time,
the Adviser may waive all or a portion of its management fee. The Adviser pays
all expenses of each Fund other than the management fee, acquired fund fees and
expenses associated with holdings of acquired funds for cash management
purposes, brokerage expenses, taxes, interest, fees and expenses of the
Independent Trustees (including any Trustee's counsel fees), litigation expenses
and other extraordinary expenses.
SSGA FM, as the
investment adviser for each Fund, may hire one or more sub-advisers to oversee
the day-to-day investment activities of the Funds. 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 Independent Trustees of the Trust, to retain and amend existing sub-advisory
agreements with unaffiliated investment sub-advisers for a 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. For the avoidance of doubt, Apollo is not a
sub-adviser for the Funds. Apollo does not render advice of any kind or conduct
any analyses or make any recommendations or selections with respect to
investments considered by the Adviser for inclusion in a Fund's portfolio or any
other potential investment opportunities for a Fund's or SSGA FM's benefit or
consumption, nor does it perform any discretionary or any other asset management
functions of SSGA FM or its affiliates. The Adviser has ultimate responsibility
for the investment performance of the Funds 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.
A summary of the
factors considered by the Board in connection with the initial approval of the
Investment Advisory Agreement for the Funds is available in the Funds' Form
N-CSR filing with the SEC for the period ended April 30, 2025 for State Street
IG Public & Private Credit ETF and October 31, 2025 for State Street
Short Duration IG Public & Private Credit ETF.
Portfolio
Managers.
The Adviser manages the Funds using a team of investment professionals. The team approach is used to create an environment that encourages the flow of investment ideas. The portfolio managers within the team work together in a cohesive manner to develop and enhance techniques that drive the investment process for the investment strategy. This approach requires portfolio managers to share a variety of responsibilities, including investment strategy and
The Adviser manages the Funds using a team of investment professionals. The team approach is used to create an environment that encourages the flow of investment ideas. The portfolio managers within the team work together in a cohesive manner to develop and enhance techniques that drive the investment process for the investment strategy. This approach requires portfolio managers to share a variety of responsibilities, including investment strategy and
37
analysis, while
retaining responsibility for the implementation of the strategy within any
particular portfolio. The approach also enables the team to draw upon the
resources of other groups within State Street Investment Management. The
portfolio management team is overseen by State Street Investment Management's
internal governance.
The professionals
primarily responsible for the day-to-day management of each Fund are Matthew
Nest, James Palmieri and Stella DeLucia.
Matthew Nest, CFA,
is a Senior Managing Director of State Street Investment Management and the
Global Head of Active Fixed Income and Liquidity Solutions. In this capacity, he
is responsible for global active rates, investment grade credit, multi-sector
portfolio solutions, insurance, cash, currency, municipal, and structured credit
strategies. Prior to joining State Street Investment Management in 2016, Mr.
Nest spent sixteen years at PIMCO in a number of functions including portfolio
management, strategy and business development. He has worked in the U.S.,
Sydney, Singapore and Hong Kong. He started his career at Bank of America and
has been working in the investment industry since 1999. Mr. Nest has a Bachelor
of Science in Economics from Arizona State University and a Master of Business
Administration from the University of Chicago's Booth School of Business. He
earned the Chartered Financial Analyst (CFA) designation and is a member of the
CFA Institute.
James Palmieri, CFA,
is a Managing Director of State Street Investment Management and a Senior
Portfolio Manager and Head of Structured Credit for the Adviser's Fundamental
Active Fixed Income Team. In his role, he is the lead portfolio manager and
trader for the Structured Products Group servicing total rate of return and
insurance accounts. In addition to his portfolio management responsibilities,
Mr. Palmieri is a member of the Fixed Income Currency and Cash Senior Leadership
Team, and the Fundamental Active Core and Core Plus Fixed Income Team. He joined
State Street Investment Management in 2016 through the acquisition of GEAM by
the ultimate parent company of State Street Investment Management. Prior to
joining State Street Investment Management, Mr. Palmieri worked at GEAM for
eleven years as a senior portfolio manager and trader for all fixed income total
rate of return and insurance accounts for GE. Prior to joining GEAM, he worked
at Constitution State Corporate Credit Union for one year as an investment
director and CIGNA Investment Management for five years as a fixed income
portfolio manager. He received his Bachelor of Science from Central Connecticut
State University, is a Chartered Financial Analyst (CFA) charter holder, and has
been in the investment industry since 1996.
Stella DeLucia is a
Managing Director of State Street Investment Management and a Senior Portfolio
Manager in the Active Fixed Income Team. Ms. DeLucia joined State Street
Investment Management in July 2016 through the acquisition of GEAM by the
ultimate parent company of State Street Investment Management and has over
thirty years of experience in asset management. Ms. DeLucia started managing
municipal portfolios in 1989 when she worked at AllianceBernstein managing
national and state specific municipal mutual funds. Upon joining GEAM in 1994,
she managed total return municipal portfolios for multiple insurance clients.
Ms. DeLucia holds a Bachelor of Science from Cornell University and a Master of
Business Administration from the Stern School of Business at New York
University.
Additional
information about the portfolio managers' compensation, other accounts managed
by the portfolio managers, and the portfolio managers' ownership of the Funds is
available in the SAI.
Administrator,
Sub-Administrator, Custodian and Transfer Agent. The Adviser serves
as Administrator for each Fund. State Street, part of State Street Corporation,
serves as the Sub-Administrator for each Fund and the Custodian for each Fund's
assets, and serves as Transfer Agent to each Fund.
Lending
Agent.
State Street serves as 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 Funds' 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.
38
Additional
Information. The Board oversees
generally the operations of the Funds and the Trust. The Trust enters into
contractual arrangements with various parties, including, among others, the
Funds' investment adviser, the, custodian, transfer agent, and accountants, who
provide services to the Funds. 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 Funds 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 Funds 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.
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 relevant Fund's NAV, 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 NAV of Fund Shares. The trading prices of Fund
Shares may deviate significantly from the relevant Fund's NAV 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 NAV should not be sustained over long periods.
The Exchange will
disseminate, every fifteen seconds during the regular trading day, an indicative
optimized portfolio value (“IOPV”) relating to each Fund. The IOPV calculations
are estimates of the value of each Fund's NAV 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 NAV 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 a 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 a Fund's current portfolio. Neither the Funds 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 Funds do not
impose any restrictions on the frequency of purchases and redemptions; however,
the Funds reserve 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 a Fund's investment strategy, or whether they would cause a
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 a Fund
directly, and that most trading in a Fund occurs on the Exchange at prevailing
market
39
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 a Fund's shareholders or
(b) any attempts to market time a 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. Each Fund pays out substantially all of its
net earnings to its shareholders as “distributions.”
Each Fund may
earn interest from debt securities and, if participating, securities lending
income. Each 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. Each 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 a 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 each 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 Funds' portfolio
holdings disclosure policy is described in the SAI. In addition, the identities
and quantities of the securities held by each Fund are disclosed on the Funds'
website.
Additional
Tax Information
The following
discussion is a summary of some important U.S. federal income tax
considerations generally applicable to an investment in a Fund. Your investment
in a 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.
Each Fund has
elected or will elect to be a regulated investment company (“RIC”) for U.S.
federal income tax purposes 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, a 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 a Fund. The income dividends and
short-term capital gains distributions you receive from a Fund will be taxed as
ordinary income. Any distributions of a 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 a 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.
Since the Funds
primarily hold investments that do not pay dividends, it is not expected that a
substantial portion of the dividends paid by the Funds will qualify for either
the dividends-received deduction for corporations or the favorable income tax
rates available to individuals on qualified dividend
income.
40
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 an excise 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.
Distributions paid
in January, but declared by a 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 Funds will inform
you of the amount of your ordinary income dividends and capital gain
distributions and qualified dividend income shortly after the close of each
calendar year.
A distribution will
reduce a Fund's NAV 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.
Original
Issue Discount. Investments by a
Fund in zero coupon or other discount securities will result in income to the
Fund equal to a portion of the excess face value of the securities over their
issue price (the “original issue discount” or “OID”) each year that the
securities are held, even though the Fund may receive no cash interest payments
or may receive cash interest payments that are less than the income recognized
for tax purposes. In other circumstances, whether pursuant to the terms of a
security or as a result of other factors outside the control of a Fund, a Fund
may recognize income without receiving a commensurate amount of cash. A 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, a
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.
Inflation-Indexed
Bonds.
Special rules apply if a Fund holds inflation-indexed bonds. Generally, all
stated interest on inflation-indexed bonds is taken into income by a Fund under
its regular method of accounting for interest income. The amount of any positive
inflation adjustment for a taxable year, which results from an increase in the
inflation-adjusted principal amount of the bond, is treated as OID. The amount
of a Fund's OID in a taxable year with respect to a bond will increase the
Fund's taxable income for such year without a corresponding receipt of cash
until the bond matures. As a result, a Fund may need to use other sources of
cash to satisfy its distribution requirements for such year. The amount of any
negative inflation adjustments, which result from a decrease in the
inflation-adjusted principal amount of the bond, first reduces the amount of
interest (including stated interest, OID, and market discount, if any) otherwise
includible in a Fund's income with respect to the bond for the taxable year; any
remaining negative adjustments will be either treated as ordinary loss or, in
certain circumstances, carried forward to reduce the amount of interest income
taken into account with respect to the bond in future taxable
years.
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 a 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 payment, a Fund may be required to borrow money or dispose of
securities to enable a 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. A 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 a
Fund are treated as ordinary income or capital gain, accelerate the recognition
of income to a Fund and/or defer a Fund's ability to recognize losses. In turn,
these rules may affect the amount, timing or character of the income distributed
to you by a Fund. You should consult your personal tax advisor regarding the
application of these rules.
41
Private
Fund and Private Credit Investments. To qualify for
treatment as a RIC under the Code, a Fund must meet certain requirements,
including requirements regarding the sources of its income, the diversification
of its assets and the annual distribution of its income and gain. A Fund may
invest in private funds and private credit investments, and the application of
these tax requirements to RICs that invest in certain private fund and private
credit investments is complicated and not entirely clear. Certain private fund
and private credit investments are treated as equity in “passive foreign
investment companies” (“PFICs”) or as “controlled foreign corporations” (“CFCs”)
for U.S. federal income tax purposes. Investments in PFICs and CFCs are subject
to complex rules that may under certain circumstances adversely affect a Fund.
Certain other private fund and private credit investments are treated as equity
interests in entities treated as partnerships for U.S. federal income tax
purposes. In addition, the Internal Revenue Service (the “IRS”) may take the
position that, notwithstanding a private credit investment's form, the
investment should be treated as a different type of asset. A recharacterization
of an investment may have unintended and potentially adverse consequences for a
Fund and shareholders. A Fund may determine to hold private fund and private
credit investments through an entity treated as a CFC in order to achieve a
Fund's investment objective while complying with the tax requirements applicable
to RICs. If a Fund fails to meet the requirements applicable to RICs, all or a
portion of a Fund's income might be subject to entity-level tax, which would
adversely affect shareholders.
Foreign
Currency Transactions. A Fund's
transactions in foreign currencies, foreign currency denominated debt
obligations and certain foreign currency options, futures contracts 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 a 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 a 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 a 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 a 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 a 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 a 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 a 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 such 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 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.
42
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 each 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 applicable Fund, the purchaser (or group of
purchasers) will not recognize gain or loss upon the exchange of securities for
Creation Units.
If a 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.
Non-U.S.
Investors. Ordinary income
dividends paid by a 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,
a Fund may report interest-related dividends to the extent of its net income
derived from U.S. source interest, and a 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 a 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. A Fund will be
required in certain cases to withhold (as “backup withholding”) on amounts
payable to any shareholder who (1) has provided the Fund either an incorrect tax
identification number or no number at all, (2) is subject to backup withholding
by the IRS for failure to properly report payments of interest or dividends, (3)
has failed to certify to the Fund that such shareholder is not subject to backup
withholding, or (4) has not certified that such shareholder is a U.S. person
(including a U.S. resident alien). The backup withholding rate is 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. A 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 Funds and of Fund
shareholders with respect to distributions by the Funds may differ from federal
tax treatment.
43
The foregoing
discussion summarizes some of the consequences under current federal income tax
law of an investment in the Funds. It is not a substitute for personal tax
advice. Consult your personal tax advisor about the potential tax consequences
of an investment in the Funds under all applicable tax laws.
General
Information
The Trust was
organized as a Massachusetts business trust on March 30, 2011. If
shareholders of any 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
Each Fund is a
separate series of the Trust, which is an open-end registered management
investment company.
From time to time, a
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 a
Fund.
Morgan, Lewis &
Bockius LLP serves as counsel to the Trust, including the Funds.
Ernst & Young LLP serves as the independent registered public
accounting firm and will audit the Funds' financial statements
annually.
Financial
Highlights
These financial
highlight tables are intended to help you understand each Fund's financial
performance for the past five fiscal years or, if shorter, the period since each
Fund's inception. Certain information reflects the performance results for a
single Fund Share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in each Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Ernst & Young LLP, the Trust's independent registered public
accounting firm, whose report, along with each Fund's financial highlights and
financial statements, are included in each Fund's Form N-CSR filing, which is
available upon request. Any references to Notes in these financial highlight
tables refer to the “Notes to Financial Statements” section of each Fund's
financial statements, and the financial information included in these tables
should be read in conjunction with the financial statements incorporated by
reference in the SAI.
44
SSGA
ACTIVE TRUST
Selected
data for a share outstanding throughout each period
|
|
State
Street IG Public & Private Credit ETF |
|
|
For
the
Period
2/27/25*-
10/31/25 |
|
Net
asset value, beginning of period |
$25.00 |
|
Income
(loss) from investment operations:
|
|
|
Net
investment income (loss) (a) |
0.76 |
|
Net
realized and unrealized gain (loss) (b) |
0.36 |
|
Total
from investment operations |
1.12 |
|
Net
equalization credits and charges (a) |
0.02 |
|
Contribution
from affiliate (Note 5) |
0.01 |
|
Other
capital (a) |
0.07 |
|
Distributions
to shareholders from:
|
|
|
Net
investment income |
(0.67
) |
|
Net
asset value, end of period |
$25.55 |
|
Total
return (c) |
4.93
%(d) |
|
Ratios
and Supplemental Data:
|
|
|
Net
assets, end of period (in 000s) |
$195,425 |
|
Ratios
to average net assets:
|
|
|
Total
expenses |
0.70
%(e) |
|
Net
investment income (loss) |
4.46
%(e) |
|
Portfolio
turnover rate (f) |
57
%(g) |
|
* |
Commencement
of operations. |
|
(a) |
Per
share numbers have been calculated using average shares outstanding, which
more appropriately presents the per share data for the
period. |
|
(b) |
Amounts
shown in this caption for a share outstanding may not accord with the
change in aggregate gains and losses in securities for the fiscal period
because
of the timing of sales and repurchases of Fund shares in relation to
fluctuating market values for the Fund. |
|
(c) |
Total
return is calculated assuming a purchase of shares at net asset value on
the first day and a sale at net asset value on the last day of each period
reported.
Distributions are assumed, for the purpose of this calculation, to be
reinvested at net asset value per share on the respective payment dates of
each
distribution. Total returns for periods of less than one year are not
annualized. Broker commission charges are not included in this
calculation.
|
|
(d) |
If
an affiliate had not made a contribution during the period ended
October 31, 2025, the total return would have been
4.90%. |
|
(e) |
Annualized. |
|
(f) |
Portfolio
turnover rate excludes securities received or delivered from in-kind
processing of creations or redemptions.
|
|
(g) |
Not
annualized. |
45
SSGA
ACTIVE TRUST
Selected
data for a share outstanding throughout each period
|
|
State
Street Short Duration IG Public & Private Credit
ETF |
|
|
For
the
Period
9/10/25*-
10/31/25 |
|
Net
asset value, beginning of period |
$25.00 |
|
Income
(loss) from investment operations:
|
|
|
Net
investment income (loss) (a) |
0.14 |
|
Net
realized and unrealized gain (loss) (b) |
(0.02
) |
|
Total
from investment operations |
0.12 |
|
Other
capital |
0.03 |
|
Distributions
to shareholders from:
|
|
|
Net
investment income |
(0.06
) |
|
Net
asset value, end of period |
$25.09 |
|
Total
return (c) |
0.60
% |
|
Ratios
and Supplemental Data:
|
|
|
Net
assets, end of period (in 000s) |
$25,092 |
|
Ratios
to average net assets:
|
|
|
Total
expenses |
0.59
%(d) |
|
Net
investment income (loss) |
3.88
%(d) |
|
Portfolio
turnover rate (e) |
5
%(f) |
|
* |
Commencement
of operations. |
|
(a) |
Per
share numbers have been calculated using average shares outstanding, which
more appropriately presents the per share data for the
year. |
|
(b) |
Amounts
shown in this caption for a share outstanding may not accord with the
change in aggregate gains and losses in securities for the fiscal period
because
of the timing of sales and repurchases of Fund shares in relation to
fluctuating market values for the Fund. |
|
(c) |
Total
return is calculated assuming a purchase of shares at net asset value on
the first day and a sale at net asset value on the last day of each period
reported.
Distributions are assumed, for the purpose of this calculation, to be
reinvested at net asset value per share on the respective payment dates of
each
distribution. Total returns for periods of less than one year are not
annualized. Broker commission charges are not included in this
calculation.
|
|
(d) |
Annualized. |
|
(e) |
Portfolio
turnover rate excludes securities received or delivered from in-kind
processing of creations or redemptions.
|
|
(f) |
Not
annualized. |
46
Where
to Learn More About the Funds
This Prospectus does
not contain all the information included in the Registration Statement filed
with the SEC with respect to Fund Shares. A SAI, Form N-CSR and the annual and
semi-annual reports to shareholders, each of which has been or will be filed
with the SEC, provide more information about the Funds. In a Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the Fund's
last fiscal year. In the Form N-CSR, you will find the Fund's annual and
semi-annual financial statements. 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 Congress Street, Boston, Massachusetts 02114,
by visiting the Funds' website at www.statestreet.com/im 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 Funds in writing to State Street Global
Advisors Funds Distributors, LLC, One Congress Street, Boston,
Massachusetts 02114, 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 Funds. 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.
APOLLOIGSSTATPROThe
Trust's Investment Company Act Number is 811-22542.