Prospectus
SSGA
Active Trust
State
Street® Galaxy Digital
Asset Ecosystem ETF (DECO)
State
Street® Galaxy Hedged
Digital Asset Ecosystem ETF (HECO)
State
Street® Galaxy
Transformative Tech Accelerators ETF (TEKX)
Principal
U.S. Listing Exchange: The Nasdaq Stock Market LLC
The U.S.
Securities and Exchange Commission and the U.S. Commodity Futures Trading
Commission have not approved or disapproved these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense. Shares in the 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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Distribution
and service (12b-1) fees |
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Other
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Total
annual Fund operating expenses |
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Principal
Risks of Investing in the Fund
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4
5
6
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8
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One
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Since
Inception |
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Return
Before Taxes |
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Return
After Taxes on Distributions |
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Return
After Taxes on Distributions and Sale of Fund Shares
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MSCI
ACWI Index (reflects no deduction for fees, expenses or taxes other than
withholding taxes on
reinvested
dividends) |
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Portfolio
Management
Investment
Adviser and Sub-Adviser
SSGA Funds
Management, Inc. (“SSGA FM” or the “Adviser”) serves as the investment adviser
to the Fund. Galaxy Digital Capital Management LP (“Galaxy”) serves as
investment sub-adviser to the Fund, subject to supervision by the Adviser and
oversight by the Board of Trustees (the “Board”) of SSGA Active Trust (the
“Trust”). To the extent that a reference in this Prospectus refers to the
Adviser, with respect to the Fund, such reference should also be read to refer
to Galaxy, where the context requires.
Portfolio
Managers
The professionals
primarily responsible for the day-to-day management of the Fund are Christopher
Rhine and Paul Cappelli.
Christopher Rhine,
CFA is the Head of Liquid Active Strategies at Galaxy. Mr. Rhine joined Galaxy
in 2022.
Paul Cappelli, is
the Head of Liquid Passive Strategies at Galaxy. Mr. Cappelli joined Galaxy in
2017.
Purchase
and Sale Information
The Fund will issue
(or redeem) Fund Shares to certain institutional investors (typically market
makers or other broker-dealers) only in large blocks of Fund Shares known as
“Creation Units.” Creation Unit transactions are conducted in exchange for the
deposit or delivery of a designated portfolio of in-kind securities and/or cash.
Creation Unit transactions may be conducted in exchange for cash only, which may
cause the Fund to recognize capital gains and to pay out higher annual capital
gain distributions to shareholders than if such transactions had been conducted
in-kind.
Individual Fund
Shares may only be purchased and sold on The Nasdaq Stock Market LLC (the
“Exchange”), other national securities exchanges, electronic crossing networks
and other alternative trading systems through your broker-dealer at market
prices. Because Fund Shares trade at market prices rather than at NAV, Fund
Shares may trade at a
9
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, qualified dividend
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
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Management
fees |
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Distribution
and service (12b-1) fees |
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Other
expenses |
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Total
annual Fund operating expenses |
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Year
1 |
Year
3 |
Year
5 |
Year
10 |
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$ |
$ |
$ |
$ |
11
12
Principal
Risks of Investing in the Fund
13
14
15
16
17
18
19
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One
Year |
Since
Inception |
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Return
Before Taxes |
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|
Return
After Taxes on Distributions |
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|
Return
After Taxes on Distributions and Sale of Fund Shares
|
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|
|
MSCI
ACWI Index (reflects no deduction for fees, expenses or taxes other than
withholding taxes on
reinvested
dividends) |
|
|
Portfolio
Management
Investment
Adviser and Sub-Adviser
SSGA Funds
Management, Inc. (“SSGA FM” or the “Adviser”) serves as the investment adviser
to the Fund. Galaxy Digital Capital Management LP (“Galaxy”) serves as
investment sub-adviser to the Fund, subject to supervision by the Adviser and
oversight by the Board of Trustees (the “Board”) of SSGA Active Trust (the
“Trust”). To the extent that a reference in this Prospectus refers to the
Adviser, with respect to the Fund, such reference should also be read to refer
to Galaxy, where the context requires.
Portfolio
Managers
The professionals
primarily responsible for the day-to-day management of the Fund are Christopher
Rhine and Paul Cappelli.
Christopher Rhine,
CFA is the Head of Liquid Active Strategies at Galaxy. Mr. Rhine joined Galaxy
in 2022.
Paul Cappelli, is
the Head of Liquid Passive Strategies at Galaxy. Mr. Cappelli joined Galaxy in
2017.
Purchase
and Sale Information
The Fund will issue
(or redeem) Fund Shares to certain institutional investors (typically market
makers or other broker-dealers) only in large blocks of Fund Shares known as
“Creation Units.” Creation Unit transactions are conducted in exchange for the
deposit or delivery of a designated portfolio of in-kind securities and/or cash.
Creation Unit transactions may be conducted in exchange for cash only, which may
cause the Fund to recognize capital gains and to pay out higher annual capital
gain distributions to shareholders than if such transactions had been conducted
in-kind.
Individual Fund
Shares may only be purchased and sold on The Nasdaq Stock Market LLC (the
“Exchange”), other national securities exchanges, electronic crossing networks
and other alternative trading systems through your broker-dealer at market
prices. Because Fund Shares trade at market prices rather than at NAV, Fund
Shares may trade at a
20
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, qualified dividend
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.
21
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|
Management
fees |
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|
Distribution
and service (12b-1) fees |
|
|
Other
expenses |
|
|
Total
annual Fund operating expenses |
|
|
Year
1 |
Year
3 |
Year
5 |
Year
10 |
|
$ |
$ |
$ |
$ |
22
Principal
Risks of Investing in the Fund
23
24
25
26
27
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|
One
Year |
Since
Inception |
|
| ||
|
Return
Before Taxes |
|
|
|
Return
After Taxes on Distributions |
|
|
|
Return
After Taxes on Distributions and Sale of Fund Shares
|
|
|
|
MSCI
ACWI Index (reflects no deduction for fees, expenses or taxes other than
withholding taxes on
reinvested
dividends) |
|
|
Portfolio
Management
Investment
Adviser and Sub-Adviser
SSGA Funds
Management, Inc. (“SSGA FM” or the “Adviser”) serves as the investment adviser
to the Fund. Galaxy Digital Capital Management LP (“Galaxy”) serves as
investment sub-adviser to the Fund, subject to supervision by the Adviser and
oversight by the Board of Trustees (the “Board”) of SSGA Active Trust (the
“Trust”). To the extent that a reference in this Prospectus refers to the
Adviser, with respect to the Fund, such reference should also be read to refer
to Galaxy, where the context requires.
Portfolio
Managers
The professionals
primarily responsible for the day-to-day management of the Fund are Christopher
Rhine and Paul Cappelli.
Christopher Rhine,
CFA is the Head of Liquid Active Strategies at Galaxy. Mr. Rhine joined Galaxy
in 2022.
Paul Cappelli, is
the Head of Liquid Passive Strategies at Galaxy. Mr. Cappelli joined Galaxy in
2017.
Purchase
and Sale Information
The Fund will issue
(or redeem) Fund Shares to certain institutional investors (typically market
makers or other broker-dealers) only in large blocks of Fund Shares known as
“Creation Units.” Creation Unit transactions are conducted in exchange for the
deposit or delivery of a designated portfolio of in-kind securities and/or cash.
Creation Unit transactions may be conducted in exchange for cash only, which may
cause the Fund to recognize capital gains and to pay out higher annual capital
gain distributions to shareholders than if such transactions had been conducted
in-kind.
Individual Fund
Shares may only be purchased and sold on The Nasdaq Stock Market LLC (the
“Exchange”), other national securities exchanges, electronic crossing networks
and other alternative trading systems through your broker-dealer at market
prices. Because Fund Shares trade at market prices rather than at NAV, Fund
Shares may trade at a
28
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, qualified dividend
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.
29
Additional
Strategies Information
Principal
Strategies
Please see each
Fund's respective “The Fund's Principal Investment Strategy” section under “Fund
Summaries” above for a discussion of its 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).
State
Street Galaxy Digital Asset Ecosystem ETF and State Street Galaxy Hedged Digital
Asset Ecosystem ETF
In seeking to
achieve its investment objective, each Fund will invest, either directly or
indirectly through the Subsidiary, in Crypto Asset ETFs. The investment
objective for such Crypto Asset ETFs is generally to seek investment results
that, before fees and expenses, correspond to price performance of bitcoin or
ether, as applicable. Each Fund will also seek to achieve its investment
objective through investments in cash-settled crypto asset futures contracts
traded on an exchange registered with the Commodity Futures Trading Commission
(“CFTC”).
Bitcoin
and the Bitcoin Network
Bitcoin is a digital
asset that is created and transmitted through the operations of the peer-to-peer
Bitcoin network, a decentralized network of computers that operates on
cryptographic protocols. The Bitcoin network allows people to exchange tokens of
value, called bitcoin, which are recorded on a public transaction ledger known
as the Bitcoin blockchain. Bitcoin can be used to pay for goods and services,
although it is not currently widely accepted, or it can be converted to fiat
currencies, such as the U.S. dollar, at rates determined on digital asset
trading platforms that enable trading in bitcoin or in individual
end-user-to-end-user transactions under a barter system.
The value of
bitcoin, like the value of other digital assets, is not backed by any
government, corporation or other identified body. Ownership and the ability to
transfer or take other actions with respect to bitcoin is protected through
public-key cryptography. The supply of bitcoin is constrained or formulated by
its protocol instead of being explicitly delegated to an identified body (e.g.,
a central bank or corporate treasury) to control. Units of bitcoin are treated
as fungible. No single entity owns or operates the Bitcoin network, the
infrastructure of which is collectively maintained by (1) a decentralized group
of participants who run computer software that results in the recording and
validation of transactions (commonly referred to as “miners”), (2) developers
who propose improvements to the Bitcoin protocol and the software that enforces
the protocol, and (3) users who choose what Bitcoin software to run. Anyone can
be a user, developer, or miner.
Bitcoin is created
by “mining.” Mining involves miners using a sophisticated computer program to
repeatedly solve complex mathematical problems on specialized computer hardware.
Miners authenticate and bundle bitcoin transactions sequentially into files
called “blocks.” Because each solved block contains a reference to the previous
block, they form a chronological “chain” back to the first bitcoin transaction.
A miner's proposed block is added to the blockchain once a majority of the nodes
on the network confirm the miner's work. A miner that is successful in adding a
block to the blockchain is automatically awarded a fixed amount of bitcoin for
its efforts plus any transaction fees paid by transferors whose transactions are
recorded in the block. This reward system is the means by which new bitcoin
enter circulation. This reward system, called proof of work, also ensures that
the local copies of the Bitcoin blockchain maintained by participants in the
Bitcoin network are kept in consensus with one another. Copies of the Bitcoin
blockchain are stored in a decentralized manner on the computers of each
individual Bitcoin network full node (i.e., any user who chooses to maintain on
their computer a full copy of the Bitcoin blockchain as well as related
software). Each bitcoin is associated with a set of unique cryptographic “keys”,
in the form of a string of numbers and letters, which allow whoever is in
possession of the private key to assign that bitcoin in a transfer that the
Bitcoin network will recognize. One or more private keys control the transfer or
“spending” of bitcoin from an associated public address. To use bitcoin, a user
or a service provider must have access to keys that identify it for its
transactions (similar to an ATM card and its related PIN). Bitcoin users keep
their keys in electronic “wallets” that can be maintained on their computers,
mobile phones, specialized hardware wallets, or wallets provided by online
custodians.
30
Bitcoin is an open
source project with no official developer or group of developers that controls
the Bitcoin network. However, the Bitcoin network's development is overseen by a
core group of developers. The core developers are able to access, and can alter,
the Bitcoin network source code and, as a result, they are responsible for
quasi-official releases of updates and other changes to the Bitcoin network's
source code. The release of updates to the Bitcoin network's source code does
not guarantee that the updates will be automatically adopted. Users and miners
must accept any changes made to the bitcoin source code by downloading the
proposed modification of the Bitcoin network's source code. As a practical
matter, a modification to the source code becomes part of the Bitcoin network
only if accepted by participants collectively having most of the processing
power on the Bitcoin network.
Ether
and the Ethereum Network
Ether is a digital
asset that is created and transmitted through the operations of the Ethereum
Network, a peer-to-peer protocol that operates on principles of cryptography.
The value of ether is not backed by any government, corporation, or other
identified body. No single entity owns or operates the Ethereum Network, the
infrastructure of which is open source and collectively maintained by a
community of developers. The Ethereum Network allows individuals to make
transactions which are recorded on a public ledger commonly known as a
blockchain. Ether can be used to pay for goods and services, although it is not
widely accepted, or it can be converted to fiat currencies, such as the U.S.
dollar, at rates determined on digital asset trading platforms or in individual
end-user-to-end-user transactions under a barter system. Furthermore, the
Ethereum Network also allows users to write and implement smart contracts—that
is, general-purpose code that executes on every computer in the network and can
instruct the exchange of information and value based on a sophisticated set of
logical conditions. A smart contract operates by a predefined set of rules
(i.e., “if/then statements”) that allows it to automatically execute code the
same way on any Ethereum node on the network. Such actions taken by the
predefined set of rules are not necessarily contractual in nature but are
intended to eliminate the arbitration of a third party for carrying out code
execution on behalf of users, making the system decentralized, while empowering
developers to create a wide range of applications layering together different
smart contracts. Using smart contracts, users can create markets, store
registries of debts or promises, represent the ownership of property, move funds
in accordance with conditional instructions and create digital assets other than
Ether on the Ethereum Network. Smart contract operations are executed on the
Ethereum Blockchain in exchange for payment of ether. The Ethereum Network is
one of a number of projects intended to expand blockchain use beyond just a
decentralized money system.
The Ethereum Network
is decentralized and does not require governmental authorities or financial
institution intermediaries to create, transmit or determine the value of ether.
Rather, following the initial distribution of ether, ether was created and
allocated by the Ethereum Network protocol through a proof-of-work “mining”
consensus mechanism until September 2022. In September 2022, the Ethereum
Network underwent an upgrade to a proof-of-stake consensus mechanism (referred
to as the “Merge”). Proof-of-stake consensus requires network participants to
contribute (aka, “stake”) a certain amount of the digital asset associated with
a given blockchain in order to validate transactions. A participant can be
penalized if they attempt to validate transactions in a way that is fraudulent
or violates the rules of the underlying blockchain. The value of ether is
determined by the supply of and demand for ether on the digital asset trading
platforms or in private end-user-to-end-user transactions.
Assets in the
Ethereum network are held in accounts. Each account, or “wallet,” is made up of
at least two components: a public address and a private key. An Ethereum private
key controls the transfer or “spending” of ether from its associated public
ether address. An ether “wallet” is a collection of public Ethereum addresses
and their associated private key(s). This design allows only the owner of ether
to send ether, the intended recipient of ether to unlock it, and the validation
of the transaction and ownership to be verified by any third party anywhere in
the world.
Because the Ethereum
network has no central authority, the release of updates to the network's source
code by developers does not guarantee that the updates will be automatically
adopted by the other participants. Users and validators must accept any changes
made to the source code by downloading the proposed modification and that
modification is effective only with respect to those users and validators who
choose to download it. As a practical matter, a modification to the source code
becomes part of the Ethereum network only if it is accepted by participants that
collectively have a majority of the processing power on the Ethereum
network.
31
Ether may be
regarded as a currency or digital commodity depending on its specific use in
particular transactions. Ether may be used as a medium of exchange or unit of
account. Although a number of large and small retailers accept ether as a form
of payment in the United States and foreign markets, there is relatively limited
use of ether for commercial and retail payments. Similarly, ether may be used as
a store of value (i.e., an asset that maintains its value rather than
depreciating), although it has experienced significant periods of price
volatility.
State
Street Galaxy Transformative Tech Accelerators ETF
Transformative Tech
Accelerators are companies that provide products or services contributing to the
disruptive potential of novel technologies (e.g., blockchain and
AI).
Artificial
Intelligence
Artificial
intelligence refers to the simulation of human intelligence processes by
machines and computer systems. Artificial intelligence enables machines to
perform a wide range of tasks that typically require human intelligence, such as
understanding natural language, recognizing patterns, solving problems, learning
from experience, and making decisions.
Blockchain
A blockchain is a
public database that is updated, shared and maintained across many computers in
a network. A public, permissionless blockchain is a type of blockchain that is
open to anyone who wishes to participate, without requiring permission from any
central authority. It is decentralized and operates based on a consensus
mechanism that ensures trust and security without the need for intermediaries.
The first blockchain/crypto asset was Bitcoin and was developed in the wake of
the global financial crisis to be a decentralized, peer-to-peer electric cash
network; disintermediating centralized monetary systems. The Bitcoin network
allows people to exchange tokens of value, called bitcoin, which are recorded on
a public transaction ledger known as the Bitcoin blockchain. Bitcoin can be used
to pay for goods and services, although it is not currently widely accepted, or
it can be converted to fiat currencies, such as the U.S. dollar, at rates
determined on digital asset trading platforms that enable trading in bitcoin or
in individual end-user-to-end-user transactions under a barter system.
Blockchain technology has since evolved to allow for greater programmability,
which has resulted in a wide array of use cases, including smart contracts,
without sacrificing the blockchains three core tenants: decentralization,
security, and scalability.
The software that
powers a blockchain is known as its protocol. Like all software, these protocols
may update or change from time-to-time. In the case of the Bitcoin protocol,
updates are made based on proposals submitted by developers, but only if a
majority of the users and miners adopt the new proposals and update their
individual copies of the protocol. Bitcoin is created by “mining.” Mining
involves miners using a sophisticated computer program to repeatedly solve
complex mathematical problems on specialized computer hardware. The mathematical
problem involves a computation involving all or some bitcoin transactions that
have been proposed by the Bitcoin network's participants. When this problem is
solved, the computer creates a “block” consisting of these transactions. As each
newly solved block refers back to and “connects” with the immediately prior
solved block, the addition of a new block adds to the blockchain in a manner
similar to a new link being added to a chain. A miner's proposed block is added
to the blockchain once a majority of the nodes on the network confirm the
miner's work. A miner that is successful in adding a block to the blockchain is
automatically awarded a fixed amount of bitcoin for its efforts plus any
transaction fees paid by transferors whose transactions are recorded in the
block. This reward system is the means by which new bitcoin enter circulation.
This reward system, called “proof of work”, also ensures that the local copies
of the Bitcoin blockchain maintained by participants in the Bitcoin network are
kept in consensus with one another.
General
Each of the State
Street Galaxy Digital Asset Ecosystem ETF and State Street Galaxy Hedged Digital
Asset Ecosystem ETF will concentrate its investments (i.e., hold more than
25% of its assets) in the following group of industries: software;
semiconductors & semiconductor equipment; financial services; and capital
markets. The State Street Galaxy Transformative Tech Accelerators ETF will
concentrate its investments (i.e., hold more than 25% of its assets) in the
following group of industries: software; semiconductors & semiconductor
equipment; oil, gas & consumable fuels; and electrical
equipment.
32
Each Fund, as
described in the SAI, has adopted a non-fundamental investment policy to invest
at least 80% of their respective net assets, plus the amount of borrowings for
investment purposes, in investments suggested by their respective names,
measured at the time of investment. Each Fund will provide shareholders with at
least 60 days' notice prior to any change in this non-fundamental 80% investment
policy. The Board of 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.
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 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 the Fund to borrow from any bank (including pledging, mortgaging or
hypothecating assets) in an amount up to 33 1/3% of its total assets (not
including temporary borrowings not in excess of 5% of its total assets). The
Fund may also invest in reverse repurchase agreements or similar financing
transactions. Consistent with a rule under the 1940 Act, the Fund may treat such
investments as either borrowings or derivatives transactions. To the extent the
Fund treats reverse repurchase agreements or similar financing transactions as
borrowings, such investments will also be included in the 33 1/3%
limit.
Lending
of Securities. 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 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. References to a “Fund” below should be read to also
apply to the Fund's Subsidiary where the context requires. Risk information is
applicable to all Funds unless otherwise noted.
33
Principal
Risks
The table below
identifies the principal risks of investing in each Fund.
|
Blockchain
Companies Risk |
x |
x |
x |
|
Concentration
Risk |
x |
x |
x |
|
Capital
Markets Industry Risk |
x |
x |
|
|
Electrical
Equipment Industry Risk |
|
|
x |
|
Financial
Services Industry Risk |
x |
x |
|
|
Oil,
Gas & Consumable Fuels Industry Risk |
|
|
x |
|
Semiconductors
& Semiconductor Equipment Industry Risk |
x |
x |
x |
|
Software
Industry Risk |
x |
x |
x |
|
Crypto
Asset ETF Risk |
x |
x |
|
|
Crypto
Asset Risk |
x |
x |
|
|
Cybersecurity-Related
Risk |
x |
x |
x |
|
Depositary
Receipts Risk |
x |
x |
x |
|
Derivatives
Risk |
x |
x |
|
|
Crypto
Asset Futures Contracts Risk |
x |
x |
|
|
Options
Risk |
|
x |
|
|
Digital
Asset Ecosystem Companies Risk |
x |
x |
|
|
Equity
Investing Risk |
x |
x |
x |
|
Fluctuation
of Net Asset Value, Share Premiums and Discounts
Risk |
x |
x |
x |
|
Large-Capitalization
Securities Risk |
x |
x |
x |
|
Leveraging
Risk |
x |
x |
|
|
Limited
Track Record Risk |
x |
x |
x |
|
Liquidity
Risk |
x |
x |
x |
|
Management
Risk |
x |
x |
x |
|
Market
Risk |
x |
x |
x |
|
Mid-Capitalization
Securities Risk |
x |
x |
x |
|
Non-Diversification
Risk |
x |
x |
x |
34
|
Non-U.S.
Securities Risk |
x |
x |
x |
|
Portfolio
Turnover Risk |
x |
x |
x |
|
Small-Capitalization
Securities Risk |
x |
x |
x |
|
Subsidiary
Investment Risk |
x |
x |
|
|
Technology
Sector Risk |
x |
x |
x |
|
Transformative
Tech Accelerator Companies Risk |
|
|
x |
|
Unconstrained
Sector Risk |
x |
x |
x |
|
Valuation
Risk |
x |
x |
x |
Blockchain
Companies Risk. Companies involved
in the blockchain industry are subject to the risks associated with blockchain
technology. Blockchain technology is new and many of its uses may be untested.
There is no assurance that widespread adoption of blockchain technology will
occur, and the development and acceptance of competing platforms or technologies
may cause consumers or investors to use an alternative to blockchain technology,
which may adversely impact companies in the blockchain industry. Transacting on
a blockchain depends in part specifically on the use of cryptographic keys that
are required to access a user's account (or “wallet”). Cybersecurity incidents
may specifically target a user's transaction history, digital assets, or
identity, thereby leading to privacy concerns. The theft, loss, or destruction
of these keys could adversely affect a user's ownership claims over an asset or
a company's business or operations if it was dependent on the blockchain. In
addition, certain features of blockchain technology, such as decentralization,
open source protocol, and reliance on peer-to-peer connectivity, may increase
the risk of fraud or cyber-attack by potentially reducing the likelihood of a
coordinated response. A 51% attack is an attack on a blockchain by a group of
miners who control more than 50% of the networks mining hash rate. Attackers
with majority network control can interrupt the recording of new blocks by
preventing other miners from completing blocks. Such an attack may adversely
impact the attractiveness of the respective blockchain and may adversely impact
the companies involved in such network, and consequently the performance of a
Fund. Additionally, if one or a coordinated group of validators were to gain
control of 51% of a blockchain, they may have the ability to manipulate
transactions, halt payments and fraudulently obtain crypto assets. A significant
disruption of Internet connectivity affecting large numbers of users or
geographic areas could impede the functionality of blockchain technologies.
Blockchain platforms are largely unregulated, and the regulatory environment is
rapidly evolving. Because blockchain technology works by having every
transaction build on every other transaction, participants can self-police any
corruption, which can mitigate the need to depend on the current level of legal
or government safeguards to monitor and control the flow of business
transactions. As a result, companies engaged in such blockchain activities may
be exposed to adverse regulatory action, fraudulent activity, or even failure.
There can be no guarantee that future regulation of blockchain technology will
not have a negative impact on the value of such technologies and of the
companies in the which a Fund invests.
35
Bitcoin was the
first digital asset to gain global adoption and critical mass and remains the
largest digital asset by market capitalization. Many consortiums and financial
institutions are also researching and investing resources into private or
permissioned smart contracts platforms rather than open platforms. In addition,
alternative public blockchains have been developed and may in the future develop
that compete with the Bitcoin blockchain and may have significant advantages as
alternative payment systems, including higher throughput, lower fees, faster
settlement and finalization, and the ability to facilitate untraceable and/or
privacy-shielded transactions through the use of zero-knowledge cryptography or
other means. In particular, bitcoin has been criticized for its slowness of
transaction processing and finality, variability of transaction fees, and price
volatility. Such competition could have a negative impact on the companies
involved with the bitcoin blockchain and thereby adversely affect the
performance of a Fund.
Furthermore, bitcoin
has not yet developed robust Layer 2 solutions to facilitate the use of smart
contracts or significantly improve scalability. So-called “Layer 2” solutions
are protocols built on top of an underlying smart contract platform blockchain,
and intended to provide scalability to the underlying blockchain by increasing
transaction efficiency. For example, the Bitcoin Lightning Network is a Layer 2
solution that uses channels to create peer-to-peer payment routs between two
parties. These exist separately from the Bitcoin network and their primary
purpose is to allow for faster transactions. Since these Layer 2 solutions are
recorded off of the Bitcoin network, this results in slower verification times
for these transactions, and users may be subject to manipulation of the
transaction data by unauthorized parties. This may result in users and retailers
less likely to accept bitcoin as a form of payment, and cause a decrease in the
value of bitcoin and the performance of a Fund. Such solutions are intended to
improve upon the transaction speed cost and efficiency of transactions on their
respective Layer 1. However, there is no guarantee that these Layer 2 solutions
will continue to be effective or that users or and investors in public
blockchains will not determine that blockchains without scalability issues or a
reliance on Layer 2 solutions are preferable. There is a risk that multiple
Layer 2 solutions will not be compatible with each other or the underlying
blockchain network or that a Layer 2 solution, if not implemented correctly,
would compromise the security or decentralization of the underlying blockchain
network.
The Bitcoin network
operates using open-source protocols, meaning that any user can download the
software, modify it and then propose that the users and miners of bitcoin adopt
the modification. When a modification is introduced and a substantial majority
of users and miners consent to the modification, the change is implemented and
the network remains uninterrupted. However, if less than a substantial majority
of users and miners consent to the proposed modification, and the modification
is not compatible with the software prior to its modification, the consequence
would be what is known as a “hard fork” of the network, with one group running
the pre modified software and the other running the modified software. The
effect of such a fork would be the existence of two versions of bitcoin running
in parallel on separate networks using separate blockchain ledgers, yet lacking
interchangeability. For example, in August 2017, bitcoin “forked” into bitcoin
and a new digital asset, bitcoin cash, as a result of a several-year dispute
over how to increase the rate of transactions that the Bitcoin network can
process. Since then, bitcoin has been forked numerous times to launch new
digital assets, such as bitcoin gold, bitcoin silver and bitcoin diamond.
Additional hard forks of the Bitcoin blockchain could impact demand for bitcoin
or other digital assets, which could adversely impact companies involved in the
blockchain industry.
Furthermore, a hard
fork can introduce new security risks. After a hard fork, it may become easier
for an individual miner or mining pool's hashing power to exceed 50% of the
processing power of the network, thereby making the network more susceptible to
attack. A fork could also be introduced by an unintentional, unanticipated
software flaw in the multiple versions of otherwise compatible software users
run. It is possible, however, that a substantial number of users and miners
could adopt an incompatible version while resisting community-led efforts to
merge the two chains. This would result in a permanent fork. Forks may impact
the value of the crypto asset associated with the underlying blockchain, which
could adversely impact companies involved in the corresponding
blockchain.
Miners generate
revenue from both newly created bitcoin, known as the “block reward” and from
fees taken upon verification of transactions. If the aggregate revenue from
transaction fees and the block reward is below a miner's cost, the miner may
cease operations. If the award of new units of bitcoin for solving blocks
declines and/or the difficulty of solving blocks increases, and transaction fees
voluntarily paid by participants are not sufficiently high, miners may not have
an adequate incentive to continue mining and may cease their mining operations.
The current fixed reward for solving a new block on the Bitcoin network is 3.125
bitcoin per block, which decreased from 6.25 bitcoin in April 2024. It is
estimated that it will halve again sometime in 2028. Reductions may result in a
reduction in the aggregate hash rate of the Bitcoin network as the incentive for
miners decreases. Miners ceasing operations would
36
reduce the
collective processing power on the Bitcoin network, which would adversely affect
the confirmation process for transactions (i.e., temporarily decreasing the
speed at which blocks are added to the blockchain until the next scheduled
adjustment in difficulty for block solutions) and make the Bitcoin network more
vulnerable to a malicious actor or botnet obtaining sufficient control to alter
the blockchain and hinder transactions. Any reduction in confidence in the
confirmation process or processing power of the Bitcoin network may adversely
affect a Fund.
Concentration
Risk.
Because a Fund concentrates in securities of issuers in a particular industry, a
Fund is subject to loss due to adverse occurrences that may affect that industry
or group of industries and may face more risks than if it were diversified more
broadly over numerous industries. Such industry-based risks, any of which may
adversely affect a Fund may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand in a particular industry; competition for resources,
adverse labor relations, political or world events; obsolescence of
technologies; and increased competition or new product introductions that may
affect the profitability or viability of companies in an industry. In addition,
at times, an industry may be out of favor and underperform other industries or
the market as a whole.
Capital
Markets Industry Risk. Capital markets
companies can be significantly affected by stock and bank trading activity,
changes in governmental regulation, continuing increases in price competition,
decreases in fees or fee-related business, including investment banking,
brokerage, asset management and other servicing fees, fluctuation in interest
rates and other factors which could adversely affect financial
markets.
Electrical
Equipment Industry Risk. The electrical
equipment industry can be significantly affected by general economic trends,
including employment, economic growth, interest rates, and changes in commodity
prices. Electrical equipment companies are subject to the risks of technical
obsolescence, and their profitability may be affected by government regulation
and spending, import controls and worldwide competition. The profitability of
these companies is impacted by changes in consumer sentiment and spending and
overall capital spending levels, which are influenced by an individual company's
profitability and broader factors such as interest rates and foreign
competition. A Fund is subject to the risk that the securities of such issuers
will underperform the market as a whole due to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting the
electrical equipment industry. The prices of the securities of companies
operating in this industry may also fluctuate due to the exchange value of the
dollar, import controls, liability for environmental damage, depletion of
resources, and mandated expenditures for safety and pollution control
devices.
Financial
Services Industry Risk. Financial services
companies are subject to extensive governmental regulation which may limit both
the amounts and types of loans and other financial commitments they can make,
the interest rates and fees they can charge, the scope of their activities, the
prices they can charge and the amount of capital they must maintain.
Profitability is largely dependent on the availability and cost of capital funds
and can fluctuate significantly when interest rates change or due to increased
competition. In addition, deterioration of the credit markets generally may
cause an adverse impact in a broad range of markets, including U.S. and
international credit and interbank money markets generally, thereby affecting a
wide range of financial institutions and markets. Certain events in the industry
may cause an unusually high degree of volatility in the financial markets, both
domestic and foreign, and cause certain financial services companies to incur
large losses. Securities of financial services companies may experience a
dramatic decline in value when such companies experience substantial declines in
the valuations of their assets, take action to raise capital (such as the
issuance of debt or equity securities), or cease operations. Credit losses
resulting from financial difficulties of borrowers and financial losses
associated with investment activities can negatively impact the industry.
Insurance companies may be subject to severe price competition. Adverse
economic, business or political developments could adversely affect financial
institutions engaged in mortgage finance or other lending or investing
activities directly or indirectly connected to the value of real
estate.
Oil,
Gas & Consumable Fuels Industry Risk. The oil, gas &
consumable fuels industry includes companies engaged in oil and gas exploration
and production (including integrated oil and gas exploration), oil and gas
refining and marketing, oil and gas storage and transportation, and production
and mining of coal and consumable fuels. The oil, gas & consumable fuels
industry is cyclical and highly dependent on the market price of fuel. The
market value of companies in the oil, gas & consumable fuels industry is
strongly affected by the levels and volatility of global commodity prices,
supply and demand, capital expenditures on exploration and production, energy
conservation efforts, the prices of alternative fuels, exchange rates and
technological advances. Events in
37
the regions in which
the companies operate (e.g., expropriation, nationalization, confiscation of
assets and property or the imposition of restrictions on foreign investments and
repatriation of capital, military coups and social unrest) may also affect
companies in this industry.
Companies in the
oil, gas & consumable fuels industry are subject to substantial government
regulation and contractual fixed pricing, which may increase the cost of
business and limit these companies' earnings. A significant portion of their
revenues depends on a relatively small number of customers, including
governmental entities and utilities. As a result, governmental budget restraints
may have a material adverse effect on the stock prices of companies in the
industry. Companies in the oil, gas & consumable fuels industry with
transactions or significant investments in emerging market countries may face
heightened risks.
Legislative or
regulatory changes and increased government supervision also may affect these
companies. The policies of the Organization of Petroleum Exporting Countries
(“OPEC”), changes in relationships among OPEC members and between OPEC and
oil-importing nations, the regulatory environment, taxation policies, and the
economies of the key energy consuming countries also may affect the prices of
the securities in the oil, gas & consumable fuels industry. Companies in the
oil, gas & consumable fuels industry also face a significant risk of civil
liability and environmental damage claims from accidents resulting in injury or
loss of life or property, pollution or other environmental mishaps, equipment
malfunctions or mishandling of materials, and a risk of loss from terrorism or
other natural disasters. Any such event could have serious consequences for the
general population of the area affected and result in a material adverse impact
on the Fund's portfolio securities and the performance of the
Fund.
Semiconductors
& Semiconductor Equipment Industry Risk. A Fund is subject
to the risk that market or economic factors impacting semiconductor companies
and companies that rely heavily on technological advances could have a major
effect on the value of the Fund's investments. The value of stocks of
semiconductor companies and companies that rely heavily on technology is
particularly vulnerable to rapid changes in product cycles, rapid product
obsolescence, government regulation and competition, both domestically and
internationally, including competition from foreign competitors with lower
production costs. Semiconductor companies and companies that rely heavily on
technology, especially those of smaller, less-seasoned companies, tend to be
more volatile than the overall market. Additionally, semiconductor companies may
face dramatic and often unpredictable changes in growth rates and competition
for the services of qualified personnel.
Software
Industry Risk. Computer
software/services companies can be significantly affected by competitive
pressures, aggressive pricing, technological developments, changing domestic
demand, the ability to attract and retain skilled employees and availability and
price of components. The market for products produced by computer
software/services companies is characterized by rapidly changing technology,
rapid product obsolescence, cyclical market patterns, evolving industry
standards and frequent new product introductions. The success of computer
software/services companies depends in substantial part on the timely and
successful introduction of new products and the ability to service such
products. An unexpected change in one or more of the technologies affecting an
issuer's products or in the market for products based on a particular technology
could have a material adverse effect on a participant's operating
results.
Many computer
software/services companies rely on a combination of patents, copyrights,
trademarks and trade secret laws to establish and protect their proprietary
rights in their products and technologies. There can be no assurance that the
steps taken by computer software/services companies to protect their proprietary
rights will be adequate to prevent misappropriation of their technology or that
competitors will not independently develop technologies that are substantially
equivalent or superior to such companies' technology.
Crypto
Asset ETF Risk. A Fund may invest
in or have exposure to one or more Crypto Asset ETFs to the extent consistent
with U.S. federal securities laws and related guidance applicable to the Fund.
Bitcoin ETFs are relatively new investment products. As a result, the Crypto
Asset ETFs in which a Fund may invest may have limited financial and operating
histories. A Fund's investment exposure to Crypto Asset ETFs subjects the Fund
to many of the same risks as an investment in a crypto asset, including those
described elsewhere in this Prospectus. The value of interests in Crypto Asset
ETFs and their underlying reference asset, crypto asset or crypto asset futures,
is subject to a number of factors, including the capabilities and development of
blockchain technologies, crypto assets' dependence on the internet, other
technologies, and the role played by key service providers, users, developers
and other facilitators (e.g., miners or validators) and the potential for
malicious activity at various stages in the crypto asset investment cycle. The
38
Funds expect to
purchase shares of any Crypto Asset ETF, either directly or indirectly, in the
secondary market at its market price, which may be highly volatile and may not
closely correspond to either the NAV per share of the Crypto Asset ETF or the
price of crypto asset. Shares of Crypto Asset ETFs may trade at premiums (i.e.,
the market price of the shares is more than the NAV) or discounts (i.e., the
market price of the shares is less than the NAV), which may be significant. The
risk that share prices differ from a Crypto Asset ETF's NAV and/or the price of
the bitcoin is likely to increase during times of market volatility or stressed
market conditions. Under such conditions, the market for shares of Crypto Asset
ETFs may become less liquid making it difficult for a Fund to either increase or
decrease its investment exposure to Crypto Asset ETFs. Extreme volatility
affecting crypto assets such as bitcoin may persist for extended periods and the
value of a Fund's investment in a Crypto Asset ETF may decline significantly
without recovery. The crypto asset markets and by extension, Crypto Asset ETFs
and a Fund's investments in such Crypto Asset ETFs, also may be significantly
and adversely affected by alleged and actual acts of fraud carried out by crypto
asset market participants, the bankruptcy or other failure of key crypto asset
service providers, and regulatory actions that negatively affect or constrain
the further development of crypto assets and the crypto asset markets.
Regulatory and enforcement scrutiny of crypto asset market participants and the
crypto asset markets more generally by, among others, the Department of Justice,
the SEC, the CFTC, the White House and Congress, as well as state regulators and
authorities has continued to increase. At this time, it is not possible to
predict all the risks that such increased scrutiny may pose to Crypto Asset
ETFs, their service providers or to the crypto asset markets as a whole. The
shares of Spot Crypto Asset ETPs in which a Fund may have investment exposure
are not registered under the 1940 Act, and therefore, do not afford the Fund the
investor protections typical of investments in U.S. registered funds. A Fund's
investments in Crypto Asset Futures ETFs are subject to the risks of crypto
asset futures contracts. Investments in crypto asset futures contracts may
expose the Crypto Asset Futures ETF to significant risks, which include
counterparty and liquidity risk. The market for crypto asset futures contracts
may be less developed, and potentially less liquid and more volatile, than more
established futures markets. Market conditions and expectations, position
limits, accountability levels, collateral requirements, availability of
counterparties, and other factors each may contribute to the supply of and
demand for crypto asset futures contracts. Due to the high margin requirements
for crypto asset futures contracts, a Crypto Asset Futures ETF may experience
difficulty maintaining the desired level of exposure to crypto asset futures
contracts, which may result in the Crypto Asset Futures ETF not being able to
meet its investment objective.
Crypto
Asset Risk. While the Funds
will not invest directly in crypto assets, the value of a Fund's investments in
Crypto Asset ETFs with exposure to crypto assets, and in publicly traded
securities of companies engaged in crypto asset-related businesses and
activities are subject to fluctuations in the value of the crypto asset, which
may be highly volatile as a result of the following factors.
Crypto assets are
digital assets designed to act as a medium of exchange. The value of crypto
assets is determined by supply and demand in the global crypto asset markets,
which consist primarily of transactions of the respective crypto assets on
electronic trading platforms or trading venues. Crypto assets are relatively
new, and their value is influenced by a wide variety of factors that are
uncertain and difficult to evaluate, such as the infancy of their development,
regulatory changes, a crisis of confidence, their dependence on technologies
such as cryptographic protocols, their dependence on the role played by miners
and developers and the potential for malicious activity (e.g., theft).
Crypto assets
generally operate without central authority (such as a bank) and are not backed
by any government. Crypto assets are not legal tender. Federal, state and/or
foreign governments may restrict the use and exchange of crypto assets, and
regulation in the U.S. is still developing. The market price of crypto assets,
such as bitcoin and ether, has been subject to extreme fluctuations. If crypto
asset markets continue to be subject to sharp fluctuations, investors may
experience losses. The market value of crypto assets has been and may continue
to be affected by momentum pricing of the market due to speculation about future
price appreciation, which may lead to increased volatility. Because crypto
assets are exposed to the instability in other speculative parts of the
blockchain or crypto asset industry, an event that is not necessarily related to
the security or utility of a crypto asset's blockchain could nonetheless
precipitate a significant decline in the price of that crypto
asset.
In addition, because
crypto assets have no physical existence beyond the record of transactions on
their respective blockchains, a variety of technical factors related to these
blockchains could also impact the price of the crypto assets. When a
modification is introduced and a substantial majority of users and miners
consent to the modification, the change is implemented and the network remains
uninterrupted. However, if less than a substantial majority of users
39
and miners consent
to the proposed modification, and the modification is not compatible with the
software prior to its modification, the consequence would be what is known as a
“hard fork” in the respective network, with one group running the pre modified
software and the other running the modified software. A fork may be intentional,
such as when the Ethereum network shifted from proof-of-work to proof-of-stake.
This means that instead of being required to solve complex mathematical problems
validators are required to stake ether. A fork may also be unintentional. For
example, in August 2017, bitcoin “forked” into bitcoin and a new digital asset,
bitcoin cash, as a result of a several-year dispute over how to increase the
rate of transactions that the Bitcoin network can process. Since then, bitcoin
has been forked numerous times to launch new digital assets, such as bitcoin
gold, bitcoin silver and bitcoin diamond.
Similar to fiat
currencies (i.e., a currency that is backed by a central bank or a national,
supra-national or quasi-national organization), crypto assets are susceptible to
theft, loss and destruction. Furthermore, if a miner, or a coordinated group of
miners, is able to gain control of 51% of a crypto asset's network, they would
be able to execute significant attacks, control transactions, stop payments, and
fraudulently obtain crypto assets. Following the Merge, the Ethereum network is
vulnerable to several types of attacks, including:
•
“˃33% attack” where,
if a validator or group of validators were to gain control of more than 33% of
the total staked ether on the Ethereum network, a malicious actor could
temporarily impede or delay block confirmation or even cause a temporary fork
(discussed further herein) in the blockchain. This is believed to be temporary,
as the Ethereum network's inactivity leak would be expected to eventually
penalize the attacker enough for the chain to finalize again (i.e., the honest
majority would be expected to reclaim more than a 2/3rd stake as the attacker's
stake is penalized). However, it is not believed that with 33% control, a
malicious actor could engage in double-spending or fraudulent block
propagation.
•
“˃50% attack” where,
if a validator or group of validators acting in concert were to gain control of
more than 50% of the total staked ether on the Ethereum network, a malicious
actor would be able to gain full control of the Ethereum network and the ability
to manipulate future transactions on the blockchain, including censoring
transactions, double-spending and fraudulent block propagation, potentially for
an extended period or even permanently. In theory, the minority non-attackers
might reach social consensus to reject blocks proposed by the malicious majority
attacker, reducing the attacker's ability to engage in malicious activity, but
there can be no assurance this would happen or that non-attackers would be able
to coordinate effectively.
•
“˃66% attack” where,
if a validator or group of validators acting in concert were to gain control of
more than 66% of the total staked ether on the Ethereum network, a malicious
actor could permanently and irreversibly manipulate the blockchain, including
censorship, double-spending and fraudulent block propagation. The attacker could
finalize their preferred chain without any consideration for the votes of other
stakers and could also revert finalized blocks.
The Bitcoin and
Ethereum blockchains' protocols, including the code of smart contracts running
on the Ethereum blockchain, may contain flaws that can be exploited by
attackers. Forks may also occur as a crypto asset network community's response
to a significant security breach. For example, in July 2016, Ethereum underwent
a hard fork between the Layer 1 Ethereum network and a new digital asset running
on a “forked” branch of the network, Ethereum Classic, as a result of the
Ethereum network community's response to a significant security breach. In June
2016, an anonymous hacker exploited a smart contract running on the Ethereum
network to syphon approximately $60 million of ether held by The DAO, a
distributed autonomous organization, into a segregated account. In response to
the hack, and after a contentious debate, most participants in the Ethereum
community elected to adopt a hard fork that effectively reversed the hack, and
this network constitutes the Layer 1 Ethereum network. However, a minority of
users continued to develop the original blockchain, now referred to as “Ethereum
Classic”, which is not backwards compatible with the Layer 1 Ethereum network
and is considered a forked branch, with the native digital asset on that
blockchain now referred to as Ethereum Classic, or ETC. ETC now trades on
several digital asset platforms. Following the July 2016 hard fork between the
Ethereum and Ethereum Classic networks, new security concerns surfaced. Replay
attacks, in which transactions from one network were rebroadcast to nefarious
effect on the other network, plagued Ethereum exchanges through at least October
2016. An Ethereum exchange announced in July 2016 that it had lost 40,000
Ethereum Classic, worth about $100,000 at that time, as a result of replay
attacks. Similar replay attack concerns occurred in connection with the Bitcoin
Cash and Bitcoin Satoshi's Vision networks split in November 2018, and security
concerns could similarly surface in connection with future hard
forks.
40
Unlike the exchanges
for more traditional assets, crypto asset trading platforms and other trading
venues on which crypto assets trade are relatively new and, in most cases,
largely unregulated and may therefore be more exposed to market manipulation,
fraud and failure than established, regulated exchanges for securities,
derivatives and other currencies. Investors in crypto assets may have little or
no recourse should such theft, fraud or manipulation occur and could suffer
significant losses. Crypto asset trading platforms on which bitcoin and ether
are traded, and which may serve as a pricing source for the calculation of the
reference rate that is used for the purposes of valuing a Fund's investments,
are or may become subject to enforcement actions by regulatory authorities for,
among other things, operating out of compliance with applicable regulation, and
such enforcement actions may have a material adverse impact on the Fund, its
investments, and its ability to implement its investment strategy. Additionally,
holders of crypto assets may not be able to access their wallets due to the
loss, theft, compromise or destruction of the private keys associated with the
public addresses that hold the crypto asset. A significant portion of crypto
assets are held by a small number of holders (each known as a “whale”), who have
the ability to manipulate the prices of such crypto assets. A Fund's indirect
investment in and exposure to crypto assets remains subject to volatility
experienced by the crypto asset trading platforms and other crypto asset trading
venues. Such volatility can adversely affect an investment in a Fund. Crypto
asset trading platforms may stop operating or permanently shut down due to
fraud, technical glitches, hackers or malware, which may also affect the price
of crypto assets and thus a Fund's investment in crypto asset-related
instruments or in publicly traded securities of companies engaged in crypto
asset-related businesses and activities.
Factors affecting
the further development of crypto assets include, but are not limited to,
continued worldwide growth or possible cessation or reversal in the adoption and
use of crypto assets and other digital assets; government and quasi-government
regulation or restrictions on or regulation of access to and operation of
digital asset networks; changes in consumer demographics and public preferences;
maintenance and development of open-source software protocol; availability and
popularity of other forms or methods of buying and selling goods and services;
the use of the networks supporting digital assets, such as those for developing
smart contracts and distributed applications; general economic conditions and
the regulatory environment relating to digital assets; negative consumer or
public perception; general risks tied to the use of information technologies,
including cyber risks; and political or economic crises. A hack or failure of
one crypto asset may lead to a loss in confidence in, and thus decreased usage
of and or value of, other crypto assets.
Bitcoin was the
first digital asset to gain global adoption and critical mass and remains the
largest digital asset by market capitalization, with ether being the second
largest by market capitalization. Many consortiums and financial institutions
are also researching and investing resources into private or permissioned smart
contracts platforms rather than open platforms like the Ethereum Network. In
addition, alternative public blockchains have been developed and may in the
future develop that compete with the Bitcoin blockchain and Ethereum network and
may have significant advantages as alternative payment systems, including higher
throughput, lower fees, faster settlement and finalization, and the ability to
facilitate untraceable and/or privacy-shielded transactions through the use of
zero-knowledge cryptography or other means. In particular, bitcoin has been
criticized for its slowness of transaction processing and finality, variability
of transaction fees, and price volatility, while the Ethereum network has
historically faced scalability challenges. Such competition could have a
negative impact on the demand for, and price of, bitcoin and ether and thereby
adversely affect the performance of a Fund.
Furthermore, bitcoin
has not yet developed robust Layer 2 solutions to facilitate the use of smart
contracts or significantly improve scalability. So-called “Layer 2” solutions
are protocols built on top of an underlying smart contract platform blockchain,
and intended to provide scalability to the underlying blockchain by increasing
transaction efficiency. For example, Polygon is a smart contract platform
protocol built on top of the Ethereum blockchain that is intended to provide
scalability to Ethereum by allowing users to transact on a variety of
blockchains deployed on the Ethereum network. Under this model, Ethereum
functions as the base layer, or “Layer 1” blockchain. The Polygon protocol
offers developers sidechain, roll-ups and other Layer 2 solutions which can be
tailored to an individual developer's intended use case. Another example is the
Bitcoin Lightning Network, a Layer 2 solution that uses channels to create
peer-to-peer payment routs between two parties. These exist separately from the
Bitcoin network and their primary purpose is to allow for faster transactions.
Since these Layer 2 solutions are recorded off of the Bitcoin network, this
results in slower verification times for these transactions, and users may be
subject to manipulation of the transaction data by unauthorized parties. This
may result in users and retailers less likely to accept bitcoin as a form of
payment, and cause a decrease in the value of bitcoin and the performance of a
Fund. Such
41
solutions are
intended to improve upon the transaction speed cost and efficiency of
transactions on their respective Layer 1. However, there is no guarantee that
these Layer 2 solutions will continue to be effective or that users and
investors in public blockchains will not determine that blockchains without
scalability issues or a reliance on Layer 2 solutions are preferable. There is a
risk that multiple Layer 2 solutions will not be compatible with each other or
the underlying blockchain network or that a Layer 2 solution, if not implemented
correctly, would compromise the security or decentralization of the underlying
blockchain network.
Currently, there is
relatively limited use of crypto assets in the retail and commercial
marketplace, which contributes to price volatility. A lack of expansion by
crypto assets into retail and commercial markets, or a contraction of such use,
may result in increased volatility or a reduction in the value of crypto assets,
either of which could adversely impact a Fund's investment. In addition, to the
extent market participants develop a preference for one crypto asset over
another, the value of the less preferred crypto asset would likely be adversely
affected. Bitcoin and ether are maintained on a decentralized, open source,
peer-to-peer computer networks, which are not owned or maintained by a single
entity. The development of such networks may play an important part in the value
of bitcoin and ether.
Cybersecurity-Related
Risk.
The companies included in a Fund's portfolio rely on technologies such as the
Internet and depend on computer systems to perform business and operational
functions, and therefore may be prone to operational and information security
risks resulting from cyber-attacks and/or technological malfunctions.
Cyber-attacks include, among others, stealing or corrupting data maintained
online or digitally, preventing legitimate users from accessing information or
services on a website, releasing confidential information without authorization,
and causing operational disruption. In general, cyber-attacks are deliberate,
but unintentional events may have similar effects. Successful cyber-attacks
against, or security breakdowns of, a company included in a Fund's portfolio may
result in material adverse consequences for such company, as well as other
companies included in the Fund's portfolio, and may cause a Fund's investments
to lose value.
Depositary
Receipts Risk. American
Depositary Receipts (“ADRs”) are typically trust receipts issued by a U.S. bank
or trust company that evidence an indirect interest in underlying securities
issued by a foreign entity. Global Depositary Receipts (“GDRs”), European
Depositary Receipts (“EDRs”), and other types of depositary receipts are
typically issued by non-U.S. banks or financial institutions to evidence an
interest in underlying securities issued by either a U.S. or a non-U.S. entity.
Investments in non-U.S. issuers through ADRs, GDRs, EDRs, and other types of
depositary receipts generally involve risks applicable to other types of
investments in non-U.S. issuers. Investments in depositary receipts may be less
liquid and more volatile than the underlying securities in their primary trading
market. If a depositary receipt is denominated in a different currency than its
underlying securities, a Fund will be subject to the currency risk of both the
investment in the depositary receipt and the underlying security. There may be
less publicly available information regarding the issuer of the securities
underlying a depositary receipt than if those securities were traded directly in
U.S. securities markets. Depositary receipts may or may not be sponsored by the
issuers of the underlying securities, and information regarding issuers of
securities underlying unsponsored depositary receipts may be more limited than
for sponsored depositary receipts. The values of depositary receipts may decline
for a number of reasons relating to the issuers or sponsors of the depositary
receipts, including, but not limited to, insolvency of the issuer or sponsor.
Holders of depositary receipts may have limited or no rights to take action with
respect to the underlying securities or to compel the issuer of the receipts to
take action. The prices of depositary receipts may differ from the prices of
securities upon which they are based.
Derivatives
Risk. A
derivative is a financial contract the value of which depends on, or is derived
from, the value of an underlying asset, interest rate, or index. Derivative
transactions typically involve leverage and may have significant volatility. It
is possible that a derivative transaction will result in a loss greater than the
principal amount invested, and a Fund may not be able to close out a derivative
transaction at a favorable time or price. Risks associated with derivative
instruments include potential changes in value in response to interest rate
changes or other market developments or as a result of the counterparty's credit
quality; the potential for the derivative transaction not to have the effect the
Adviser anticipated or a different or less favorable effect than the Adviser
anticipated; the failure of the counterparty to the derivative transaction to
perform its obligations under the transaction or to settle a trade; possible
mispricing or improper valuation of the derivative instrument; imperfect
correlation in the value of a derivative with the asset, rate, or index
underlying the derivative; the risk that 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
42
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.
Crypto
Asset Futures Contracts Risk. Transactions in
futures contracts can create investment leverage and may have significant
volatility. The risk of loss relating to the use of futures contracts is
potentially unlimited. The ability to establish and close out positions in
futures contracts will be subject to the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market on an
exchange will exist for any particular futures contract or at any particular
time. In the event no such market exists, it might not be possible to effect
closing transactions, and 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 assets underlying the
futures contracts. The prices of futures contracts, for a number of reasons, may
not correlate perfectly with movements in the securities or index underlying
them. The margin requirements in the futures markets may be less onerous than
margin requirements in the securities markets in general, and as a result those
markets may attract more speculators than the securities markets do. Increased
participation by speculators in those markets may cause temporary price
distortions. Due to the possibility of price distortion, even a correct forecast
of general market trends by the Adviser still may not result in a successful
futures activity over a very short time period.
In addition to the
risks associated with futures contracts generally, the market for crypto asset
futures contracts has additional, unique risks. The market for crypto asset
futures contracts may be less developed, and potentially less liquid and more
volatile, than more established futures markets. While the crypto asset futures
market has grown substantially since crypto asset futures contracts commenced
trading, there can be no assurance that this growth will continue. Crypto asset
futures contracts are subject to collateral requirements and daily limits that
may limit a Fund's ability to achieve the desired exposure. The CME Group's
position limits prevent any single investor, such as the Funds (together with
any other accounts managed by the Adviser required to be aggregated), from
holding more than a specified number of crypto asset futures contracts. These
position limits may hinder a Fund's ability to enter into the desired amount of
crypto asset futures contracts at times (possibly further hindered if other
accounts are required to be aggregated that also hold crypto asset futures
contracts or options on crypto asset futures). If a Fund is unable to achieve
such exposure, the Fund's returns may be lower than expected. Additionally,
collateral requirements may require a Fund to liquidate its position when it
otherwise would not do so. Further, futures commission merchants (“FCMs”)
utilized by a Fund may impose limits on the amount of exposure to futures
contracts the Fund can obtain through such FCMs. Margin levels for crypto asset
futures contracts generally are higher than the margin requirements for more
established futures contracts. Additionally, the FCMs utilized by a Fund may
impose margin requirements in addition to those imposed by the exchanges, and
such margin requirements are subject to change. High margin requirements could
prevent a Fund from obtaining desired levels of exposure to crypto asset futures
contracts. A Fund's obligation is to the FCM that carries the Fund's account,
whose obligation is in turn to the clearing organization. A Fund's investments
therefore introduce the risk that its FCM would default on an obligation to the
Fund, including the FCM's obligation to return margin posted in connection with
the Fund's futures contracts. The risk exists at, and from the time that, a Fund
enters into a contractual arrangement with its FCM to bring about the settlement
and clearing of futures contracts. The FCM may hold margin posted in connection
with those contracts and that margin may be re-hypothecated (or re-pledged) by
the FCM and lost or its return delayed due to a default by the FCM or other
customer of the FCM. The FCM may itself file for bankruptcy, which would either
delay the return of, or jeopardize altogether the assets posted by the FCM as
margin in response to margin calls relating to futures positions.
Options
Risk. A
Fund's use of options involves speculation and can lead to losses because of
adverse movements in the price or value of the underlying stock, index, or other
asset, which may be magnified by certain features of the options. 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 (sell) a call
option on a security based on the Adviser's expectation that the price of the
security would fall, but the price were to rise instead, a Fund could be
required to sell the security upon exercise at a price below the current market
price. When selling a call option, a Fund will
43
receive a premium;
however, this premium may not be enough to offset a loss incurred by a Fund if
the price of the underlying asset is above the strike price by an amount equal
to or greater than the premium. Purchasing of put options involves the payment
of premiums, which may adversely affect a Fund's performance. Purchasing a put
option gives the purchaser of the option the right to sell a specified quantity
of an underlying asset at a fixed exercise price over a defined period of time.
In order for a put option to be profitable, the market price of the underlying
security must decline sufficiently below the exercise price to cover the premium
and transaction costs that a Fund must pay. These costs will reduce any profit a
Fund might have realized had it sold the underlying security instead of buying
the put option. Frequent purchasing and selling of options may result in higher
Fund expenses and may result in increased taxable distributions to investors,
including potentially increased distributions that are taxable to individuals as
ordinary income. The value of an option may be adversely affected if the market
for the option becomes less liquid or smaller, and will be affected by changes
in the value or yield of the option's underlying asset, an increase in interest
rates, a change in the actual or perceived volatility of the stock market or the
underlying asset and the remaining time to expiration. Additionally, the value
of an option does not increase or decrease at the same rate as the underlying
asset(s). In addition, if the price of the underlying asset of an option is
above the strike price of a written call, the value of the option, and
consequently of a Fund, may decline significantly more than if a Fund invested
directly in the underlying asset instead of using options. The Fund could
experience a loss if its options do not perform as anticipated, or are not
correlated with the performance of their underlying asset or if a Fund is unable
to purchase or liquidate a position because of an illiquid secondary market. 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 call options may create
investment leverage.
Digital
Asset Ecosystem Companies Risk. Digital Asset
Ecosystem companies may use digital asset technologies or may provide products
or services involved in the operation of the technology. The technology relating
to digital assets, including blockchain and crypto assets, is new and developing
and the risks associated with digital assets may not fully emerge until the
technology is widely used. There is no assurance that widespread adoption of
blockchain technology and crypto assets will occur, and the development and
acceptance of competing platforms or technologies may cause consumers or
investors to use an alternative to blockchain technology or crypto assets, which
could have an adverse impact on the Digital Asset Ecosystem and a Fund. Because
the stock prices of these companies and the prices of crypto assets can be
highly correlated, the success of a Fund's strategy may be limited given that
the operations of companies in the blockchain and crypto asset industries are
expected to be significantly affected by the overall sentiment related to, and
the use of and investment in, blockchain technology and crypto assets. Certain
features of digital asset technologies, such as decentralization, open source
protocol, and reliance on peer-to-peer connectivity, may increase the risk of
fraud or cyber-attack. Restrictions imposed by governments on crypto-currency
related activities may adversely impact blockchain companies and, in turn, a
Fund. Digital Asset Ecosystem companies may rely heavily on a combination of
patents, copyrights, trademarks and trade secret laws to establish and protect
their proprietary rights in their products and technologies, and may be
adversely affected by loss or impairment of those rights, , which may also
reduce confidence in the viability of a digital asset. Because digital asset
platforms, including crypto asset trading platforms, may operate across many
national boundaries and regulatory jurisdictions, it is possible that they may
be subject to widespread and inconsistent regulation. A significant disruption
of internet connectivity affecting large numbers of users could impede the
functionality of these technologies and adversely affect Digital Asset Ecosystem
companies. In addition, these companies could be negatively impacted by
disruptions in service caused by hardware or software failure, or by
interruptions or delays in service by third-party data center hosting facilities
and maintenance providers. Digital asset systems built using third party
products may be subject to technical defects or vulnerabilities beyond a
company's control. Digital Asset Ecosystem companies are subject to more
volatility than companies that do not rely as heavily on such technology. In
addition, Digital Asset Ecosystem companies may be smaller, less-seasoned
companies that may be more volatile than the overall market. These companies may
engage in other lines of business unrelated to these activities and these lines
of business could adversely affect their operating results. Digital Asset
Ecosystem companies may also be impacted by the risks associated with crypto
assets and crypto asset markets generally, as discussed in the Crypto Asset Risk
discussion herein.
Blockchain
technology is relatively new and many of its uses may be untested. There is no
assurance that widespread adoption will occur. Transacting on a blockchain
depends in part specifically on the use of cryptographic keys that are required
to access a user's account. The theft, loss or destruction of these keys impairs
the value of ownership claims
44
users have over the
relevant assets being represented by the ledger and could also adversely affect
a company's business or operations if it were dependent on the ledger. The more
lenient a blockchain is about vetting issuers of digital assets or users that
transact on the platform, the higher the potential risk for fraud or the
manipulation of digital assets. Blockchain platforms are largely unregulated,
and the regulatory environment is rapidly evolving.
Equity
Investing Risk. The market prices
of equity securities owned by a Fund may go up or down, sometimes rapidly or
unpredictably. The value of a security may decline for a number of reasons that
may directly relate to the issuer, such as management performance, financial
leverage, non-compliance with regulatory requirements, and reduced demand for
the issuer's goods or services. The values of equity securities also may decline
due to general industry or market conditions that are not specifically related
to a particular company, such as real or perceived adverse economic conditions,
changes in the general outlook for corporate earnings, changes in interest or
currency rates, or adverse investor sentiment generally. In addition, equity
markets tend to move in cycles, which may cause stock prices to fall over short
or extended periods of time.
Fluctuation
of Net Asset Value, Share Premiums and Discounts Risk. The 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 the 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.
Large-Capitalization
Securities Risk. Securities issued
by large-capitalization companies may present risks not present in smaller
companies. For example, larger companies may be unable to respond as quickly as
smaller and mid-sized companies to competitive challenges or to changes in
business, product, financial, or other market conditions. Larger companies may
not be able to maintain growth at the high rates that may be achieved by
well-managed smaller and mid-sized companies, especially during strong economic
periods. Returns on investments in securities of large companies could trail the
returns on investments in securities of smaller and mid-sized
companies.
Leveraging
Risk.
Borrowing transactions, reverse repurchase agreements, certain derivatives
transactions, securities lending transactions and other investment transactions
such as when-issued, delayed-delivery, or forward commitment transactions may
create investment leverage. If 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
45
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.
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, if 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.
Mid-Capitalization
Securities Risk. The securities of
mid-capitalization companies may be more volatile and may involve more risk than
the securities of larger companies. These companies may have limited product
lines, markets or financial resources, may lack the competitive strength of
larger companies, and may depend on a few key employees. In addition, these
companies may have been recently organized and may have little or no track
record of success. The securities of mid-sized companies may trade less
frequently and in smaller volumes than more widely held securities. The prices
of these securities may fluctuate more sharply than those of other securities,
and a Fund may experience some difficulty in establishing or closing out
positions in these securities at prevailing market prices. There may be less
publicly available information about the issuers of these securities or less
market interest in these securities than in the case of larger companies, both
of which can cause significant price volatility. Some securities of mid-sized
issuers may be illiquid or may be restricted as to resale. Returns on
investments in securities of mid-capitalization companies could trail the
returns on investments in securities of larger or smaller
companies.
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 (including depositary receipts) entail risks
not typically associated with investing in securities of U.S. issuers. Similar
risks may apply to securities traded on a U.S. securities exchange that are
issued by entities with significant exposure to non-U.S. countries. In certain
countries, legal remedies available to investors may be more limited than those
available with regard to U.S. investments. Because non-U.S. securities are
typically denominated and traded in currencies other than the U.S. dollar, the
value of a Fund's assets, to the extent they are non-U.S. dollar denominated,
may be affected favorably or unfavorably by
46
currency exchange
rates, exchange control regulations, and restrictions or prohibitions on the
repatriation of non-U.S. currencies. To the extent underlying securities held by
a Fund trade on foreign exchanges that are closed when the exchange on which the
Fund's shares trade is open, there may be deviations between the current price
of an underlying security and the last quoted price for the underlying security
on the closed foreign market. These deviations could result in a Fund
experiencing premiums or discounts greater than those of ETFs that invest in
domestic securities. Income and gains with respect to investments in certain
countries may be subject to withholding and other taxes. There may be less
information publicly available about a non-U.S. entity than about a U.S. entity,
and many non-U.S. entities are not subject to accounting, auditing, and
financial reporting standards, regulatory framework and practices comparable to
those in the United States. The securities of some non-U.S. entities are less
liquid and at times more volatile than securities of comparable U.S. entities,
and could become subject to sanctions or embargoes that adversely affect 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 issuers in
certain non-U.S. countries. Investments in securities of non-U.S. issuers also
are subject to foreign political and economic risk not associated with U.S.
investments, meaning that political events (civil unrest, national elections,
changes in political conditions and foreign relations, imposition of exchange
controls and repatriation restrictions), social and economic events (labor
strikes, rising inflation) and natural disasters occurring in a country where 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.
Small-Capitalization
Securities Risk. The securities of
small-capitalization companies may be more volatile and may involve more risk
than the securities of larger companies. These companies may have limited
product lines, markets or financial resources, may lack the competitive strength
of larger companies, and may depend on a few key employees. In addition, these
companies may have been recently organized and may have little or no track
record of success. The securities of smaller companies may trade less frequently
and in smaller volumes than more widely held securities. The prices of these
securities may fluctuate more sharply than those of other securities, and a Fund
may experience some difficulty in establishing or closing out positions in these
securities at prevailing market prices. There may be less publicly available
information about the issuers of these securities or less market interest in
these securities than in the case of larger companies, both of which can cause
significant price volatility. Some securities of smaller issuers may be illiquid
or may be restricted as to resale. A Fund may be unable to liquidate its
positions in such securities at any time, or at a favorable price, in order to
meet a Fund's obligations. Returns on investments in securities of
small-capitalization companies could trail the returns on investments in
securities of larger companies.
Subsidiary
Investment Risk. By investing in
the Subsidiary, a Fund is indirectly exposed to the risks associated with the
Subsidiary's investments. The Subsidiary is not registered under 1940 Act and is
therefore not subject to all of the investor protections of the 1940 Act. Thus,
a Fund, as an investor in the Subsidiary, will not have all of the protections
offered to investors in registered investment companies. In addition, changes in
the laws of the United States and/or the Cayman Islands could result in the
inability of a Fund to operate as intended and could negatively affect the Fund
and its shareholders.
To qualify for the
favorable U.S. federal income tax treatment available to regulated investment
companies (“RICs”), a Fund must, among other things, derive at least 90% of its
gross income each taxable year from certain sources (“qualifying income”). Very
generally, certain income from crypto assets is not thought to be qualifying
income for purposes of this requirement. In order to implement its investment
objective while satisfying this requirement, a Fund intends to invest in certain
crypto assets indirectly, through the Subsidiary. A Fund therefore invests a
portion of its assets (not to exceed 25% of its assets) in the Subsidiary, which
is classified as a corporation for U.S. federal income tax purposes. Because the
Subsidiary is a foreign corporation that is wholly owned by a Fund, the
Subsidiary is a “controlled foreign corporation” for U.S. federal income tax
purposes, and a Fund is required to include in its gross income each taxable
year all the Subsidiary's “subpart F income.” Under applicable regulations, a
Fund's subpart F
47
income inclusions
derived from the Subsidiary will constitute qualifying income for the Fund,
whether or not any amount is distributed by the Subsidiary to the Fund, if those
subpart F income inclusions are derived with respect to the Fund's business of
investing in stock, securities or currencies. It is possible that the IRS might
take the position that subpart F income inclusions from the Subsidiary are not
qualifying income. Under those circumstances, a Fund might fail to qualify for
tax treatment as a regulated investment company.
Technology
Sector Risk. Market or economic
factors impacting technology companies and companies that rely heavily on
technological advances could have a major effect on the value of a Fund's
investments. The value of stocks of technology companies and companies that rely
heavily on technology is particularly vulnerable to rapid changes in technology
product cycles, rapid product obsolescence, government regulation and
competition, both domestically and internationally, including competition from
foreign competitors with lower production costs. Technology companies may have
limited product lines, markets, financial resources or personnel. Stocks of
technology companies and companies that rely heavily on technology, especially
those of smaller, less-seasoned companies, tend to be more volatile than the
overall market. Technology companies are heavily dependent on patent and
intellectual property rights, the loss or impairment of which may adversely
affect profitability. Additionally, companies in the technology sector may face
dramatic and often unpredictable changes in growth rates and competition for the
services of qualified personnel.
Transformative
Tech Accelerator Companies Risk. Transformative Tech
Accelerators are engaged in emerging industries and/or new technologies that may
be unproven. Transformative Tech Accelerators are vulnerable to rapid changes in
product cycles, and may have limited product lines, markets, financial resources
or personnel. Transformative Tech Accelerators typically face intense
competition, both domestically and internationally, and potentially rapid
product obsolescence. These companies also may rely heavily on a combination of
patents, copyrights, trademarks and trade secret laws to establish and protect
their proprietary rights in their products and technologies, and may be
adversely affected by loss or impairment of those rights. There can be no
assurance that Transformative Tech Accelerators will be able to successfully
protect their intellectual property to prevent the misappropriation of their
technology, or that competitors will not develop technology that is
substantially similar or superior. Transformative Tech Accelerator companies may
be smaller, less-seasoned companies that may be more volatile than the overall
market. Transformative Tech Accelerators may engage in significant amounts of
spending on research and development, and there is no guarantee that the
products or services produced by these companies will be successful.
Transformative Tech Accelerators are also subject to government regulations that
may impact their profitability. Additionally, these companies are potential
targets for cyberattacks, which may have a materially adverse impact on their
performance.
Companies that rely
heavily on technology tend to be more volatile than the overall market and are
subject to additional risks specific to their industries. Artificial
intelligence companies may depend significantly on retaining and growing the
consumer base of their respective products and services. Many artificial
intelligence companies are reliant on the end user demand of products and
services in various industries that may in part utilize artificial intelligence.
Cloud computing companies are susceptible to operational and information
security risks including those associated with hardware or software failures,
interruptions or delays in service by third party vendors and security breaches.
Data centers depend significantly on retaining and growing the consumer base of
their respective products or services. In addition, data centers depend on a
number of third-parties to provide internet connectivity, which, if interrupted,
may impact products and services. These companies may be especially affected by
power outages or shortages, increased costs of energy or general lack of
availability of electrical sources.
Semiconductor
companies face shortening product cycles and expanding manufacturing capacity,
leading to dramatic and often unpredictable changes in growth rates and
competition for the services of qualified personnel. The semiconductor industry
is highly cyclical, resulting in significant fluctuations in their performance.
Consequently, stock prices of semiconductor firms may exhibit extreme
volatility.
Energy companies
also tend to have cyclical profitability and the market value of their
securities may decline for many reasons, including, among other things, changes
in the levels and volatility of global energy prices, changes in international
politics, energy supply and demand, capital expenditures on production of energy
sources, exchange rates, interest rates, economic conditions, tax treatment,
energy conservation efforts, increased competition and technological advances.
Energy producers may be subject to substantial government regulation and
contractual fixed pricing, which may increase their costs and limit their
earnings.
48
Bitcoin mining
companies are vulnerable to technological malfunction and obsolescence, the
global supply chain and difficulty and cost in obtaining new hardware. At any
point in time, a certain number of bitcoin miners are typically off-line for
maintenance or repair. Any major bitcoin miner malfunction out of the typical
range of downtime for normal maintenance and repair could cause significant
economic damage. Many companies engaged in mining rely on third parties to
supply bitcoin miners, and shortages of bitcoin miners or their component parts,
material increases in bitcoin miner costs, or delays in delivery of orders,
including due to trade restrictions and supply chain disruptions, could
significantly interrupt plans for expanding bitcoin mining capacity in the near
term and future. Concerns have been raised about the electricity required to
secure and maintain digital asset networks. Driven by these concerns around
energy consumption and the impact on public utility companies, various states
and cities have implemented, or are considering implementing, moratoriums on
mining activity in their jurisdictions. A significant reduction in mining
activity as a result of such actions could adversely affect the security of the
Bitcoin network by making it easier for a malicious actor or botnet to
manipulate the Bitcoin network. If regulators or public utilities take action
that restricts or otherwise impacts mining activities, such actions could result
in decreased security of a digital asset network, including the Bitcoin network,
and consequently adversely impact the value of securities.
Unconstrained
Sector Risk. Each Fund may
invest a substantial portion of its assets within one or more economic sectors
or industries, which may change from time to time. When a Fund focuses its
investments in a particular industry or sector, financial, economic, business,
and other developments affecting issuers in that industry, market, or economic
sector will have a greater effect on the Fund than if it had not focused its
assets in that industry, market, or economic sector, which may increase the
volatility of the Fund.
Valuation
Risk.
Certain portfolio holdings 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.
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.
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.
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, Sub-Adviser or their 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, Sub-Adviser and/or such affiliates.
Each Fund may invest in other pooled investment vehicles sponsored, managed, or
otherwise affiliated with the Adviser or Sub-Adviser.
There is no assurance that the rates at which a Fund pays fees or expenses to
the Adviser, Sub-Adviser or their affiliates, or the terms on which it enters
into transactions with the Adviser, Sub-Adviser or their affiliates will be the
most favorable available in the market generally or as
49
favorable as the
rates the Adviser or Sub-Adviser makes
available to other clients. Because of its financial interest, the
Adviser or Sub-Adviser may
have an incentive to enter into transactions or arrangements on behalf of a Fund
with itself or its affiliates in circumstances where it might not have done so
in the absence of that interest.
The Adviser,
Sub-Adviser and their affiliates serve as investment advisers to other clients
and may make investment decisions that may be different from those that will be
made by the Adviser or Sub-Adviser on
behalf of a Fund. For example, the Adviser or Sub-Adviser may
provide asset allocation advice to some clients that may include a
recommendation to invest in or redeem from particular issuers while not
providing that same recommendation to all clients invested in the same or
similar issuers. The Adviser or Sub-Adviser may
(subject to applicable law) be simultaneously seeking to purchase (or sell)
investments for 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, Sub-Adviser and their affiliates
may invest for clients in various securities that are senior, pari passu or
junior to, or have interests different from or adverse to, the securities that
are owned by a Fund. The Adviser, Sub-Adviser or their affiliates, in connection
with its other business activities, may acquire material non-public confidential
information that may restrict the Adviser or Sub-Adviser from
purchasing securities or selling securities for itself or its clients (including
the 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
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 business continuity plans and systems
designed to minimize the risk of cyber-attacks through the use of technology,
processes and controls, there are inherent limitations in such plans and
systems, including the possibility that certain risks have not been identified,
given the evolving nature of this threat. The 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
50
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.
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
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 or Sub-Adviser
anticipated or a different or less favorable effect than the Adviser or Sub-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.
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.
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, SSGA FM or their affiliates (“State Street Entities”) guarantee the
value of an investment in a money market fund at $1.00 per share. Investors
should have no expectation of capital support to a money market fund from State
Street Entities. Other money market funds price and transact at a “floating” NAV
that will fluctuate along with changes in the market-based value of fund assets.
Shares sold utilizing a floating NAV may be worth more or less than their
original purchase price. Recent changes in the regulation of money market funds
may affect the operations and structures of money market funds. A money market
fund may be permitted or required to impose redemption fees during times of
market stress.
Potential
Conflicts of Interest Risk. The Sub-Adviser
will be subject to certain conflicts of interest in its management of a Fund. In
the ordinary course of their business activities, the Sub-Adviser and its
affiliates may engage in activities where the interests of certain divisions of
the Sub-Adviser and its affiliates or the interests of their clients may
conflict
51
with the interests
of a Fund or its shareholders. As part of its regular business, the Sub-Adviser
or its affiliates provide a broad range of investment management, advisory, and
other services. Because of such relationships, there may be certain investments
that the Sub-Adviser will decline or be unable to make. In addition, employees
of such affiliates may possess information relating to such issuers that is not
known to the individuals at the Sub-Adviser. Those employees of the
Sub-Adviser's affiliates will not be obligated to share any such information
with the Sub-Adviser and may be prohibited by law or contract from doing so. The
Sub-Adviser or certain of its affiliates may come into possession of material
non-public information with respect to an issuer. Should this occur, the
Sub-Adviser would be restricted from buying or selling securities or loans of
the issuer on behalf of a Fund until such time as the information became public
or was no longer deemed material, so as to preclude a Fund from participating in
an investment.
Regulatory
Risk.
Governmental and regulatory actions may have unexpected or adverse consequences
on particular markets, strategies, or investments, which may adversely impact 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. A 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.
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 the Fund Shares will develop
or be maintained. Trading in Fund Shares on the Exchange may be halted due to
market conditions or for reasons that, in the view of the Exchange, make trading
in Fund Shares inadvisable. In addition, trading in Fund Shares on the Exchange
is subject to trading halts caused by extraordinary market volatility pursuant
to Exchange “circuit breaker” rules. Similar to the shares of operating
companies listed on a stock exchange, Fund Shares may be sold short and are
therefore subject to the risk of increased volatility in the trading price of 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.
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
52
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 Galaxy Digital Asset Ecosystem ETF |
0.65
% |
|
State
Street Galaxy Hedged Digital Asset Ecosystem ETF |
0.90
% |
|
State
Street Galaxy Transformative Tech Accelerators ETF |
0.65
% |
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 Board, including a majority of the Independent Trustees, of the Trust, to
retain and amend existing sub-advisory agreements with unaffiliated investment
sub-advisers for 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. 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.
Investment
Sub-Adviser.
Pursuant to the
Investment Advisory Agreement between the Funds and the Adviser, the Adviser is
authorized to engage one or more sub-advisers for the performance of any of the
services contemplated to be rendered by the Adviser. The Adviser has entered
into an investment sub-advisory agreement (the “Sub-Advisory Agreement”) with
Galaxy, who has been retained to be responsible for the day-to-day management of
each Fund's investments, subject to supervision of the Adviser and oversight by
the Board. The Adviser provides administrative, compliance and general
management services to the Funds. Galaxy is controlled by Galaxy Digital LP (“GD
LP”), a Cayman Islands exempted limited partnership. GD LP is an operating
company and its sole limited partner is Galaxy Digital Holdings LP (“GDH LP”), a
Delaware limited partnership. GDH LP's general partner is Galaxy Digital Inc.
(“GDI”), a Delaware corporation. GDH LP has a single class of units representing
limited partnership interests (“Units”). Units of GDH LP are held by four
groups: (i) GDI, which is a publicly traded company whose shares are listed on
the Nasdaq Stock Market LLC (“NASDAQ”) and the Toronto Stock Exchange under the
symbol “GLXY”; (ii) Galaxy Group Investments LLC (“GGI”), a Delaware limited
liability company, owned 100% by Michael Novogratz and his family members; (iii)
employee founders of GDH LP; and (iv) former First Coin Capital Corp.
shareholders. In May 2025, the partners of GDH LP effected a corporate
reorganization resulting in GDI becoming the general partner of GDH LP. Galaxy's
principal office is located at 300 Vesey Street New York, New York 10282. As of
October 31, 2025, Galaxy had approximately $9.48 billion of assets under
management.
In accordance with
the Sub-Advisory Agreement, the Adviser pays Galaxy a portion of the advisory
fee paid by each Fund to the Adviser (after deducting payments to the fund
service providers and fund expenses) based on a percentage of the Fund's average
daily net assets managed by Galaxy. The Funds are not responsible for the fees
paid to Galaxy.
A discussion
regarding the Board's consideration of the Investment Advisory Agreement and
Sub-Advisory Agreement is provided in the Funds' Form N-CSR filing with the SEC
for the period ended October 31, 2024.
Portfolio
Managers.
53
The professionals
primarily responsible for the day-to-day management of the Funds are
Christopher Rhine and Paul Cappelli.
Christopher Rhine,
CFA, is a Portfolio Manager and Head of Galaxy Asset Management's Single Manager
Active overseeing Liquid Active strategies. Mr. Rhine brings over 20 years of
investment experience to Galaxy's Asset Management business, most recently at
Cohen & Steers where he served as Head of Large Cap (Thematic Strategies),
including Digital Infrastructure, Global Logistics, and Sustainable Resources
strategies. Mr. Rhine has an MBA from New York University and a B.S. in Computer
Information Systems from Drexel University.
Paul Cappelli is a
Portfolio Manager and Head of Galaxy Asset Management's Liquid Passive
strategies. Mr. Cappelli joined Galaxy in 2017 and has over 20 years of
investment experience. Mr. Cappelli holds a B.A. in Political Science from the
University of Notre Dame.
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.
The
Subsidiary. State Street Galaxy
Digital Asset Ecosystem ETF and State Street Galaxy Hedged Digital Asset
Ecosystem ETF expect to gain exposure to Spot Crypto Asset ETPs and crypto asset
futures by investing in their respective Subsidiaries, each of which is a
wholly-owned, exempted limited company organized under the laws of the Cayman
Islands. Each Subsidiary is overseen by its own board of directors. The Adviser
serves as each Subsidiary's investment adviser and manages the Subsidiary to
comply with the compliance policies and procedures of the applicable
Fund.
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 each Fund's distributor (“SSGA FD” or
the “Distributor”) pursuant to the Distribution Agreement between SSGA FD and
the Trust. The Distributor will not distribute Fund Shares in less than Creation
Units, and it does not maintain a secondary market in Fund Shares. The
Distributor may enter into selected dealer agreements with other broker-dealers
or other qualified financial institutions for the sale of Creation Units of Fund
Shares.
Additional
Information. The Board oversees
generally the operations of the Funds and the Trust. The Trust enters into
contractual arrangements with various parties, including, among others, the
Funds' investment adviser, the Funds' investment sub-adviser, 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.
Trademark
Licenses/Disclaimers
“Galaxy” is a
trademark of Galaxy Digital Holdings L.P.
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
54
Fund Shares in the
secondary market, you will pay the secondary market price for Fund Shares. In
addition, you may incur customary brokerage commissions and charges and may pay
some or all of the spread between the bid and the offered price in the secondary
market on each leg of a round trip (purchase and sale) transaction.
The trading prices
of Fund Shares will fluctuate continuously throughout trading hours based on
market supply and demand rather than the Fund's 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 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 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”).
55
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 RIC and intends to qualify each year to be treated
as such. A RIC is generally not subject to tax at the corporate level on income
and gains that are distributed to shareholders. However, 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 or qualified dividend income. Subject to certain limitations,
dividends that are reported by a Fund as qualified dividend income are taxable
to noncorporate shareholders at reduced rates. 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.
In general,
dividends may be reported by a Fund as qualified dividend income if they are
attributable to qualified dividend income received by the Fund, which, in
general, includes dividend income from taxable U.S. corporations and certain
foreign corporations (i.e., certain foreign corporations incorporated in a
possession of the United States or in certain countries with a comprehensive tax
treaty with the United States, and certain other foreign corporations if the
stock with respect to which the dividend is paid is readily tradable on an
established securities market in the United States), provided that the Fund
satisfies certain holding period requirements in respect of the stock of such
corporations and has not hedged its position in the stock in certain ways. A
dividend generally will not be treated as qualified dividend income if the
dividend is received with respect to any share of stock held by a Fund for fewer
than 61 days during the 121-day period beginning at the date which is 60 days
before the date on which such share becomes ex-dividend with respect to such
dividend or, in the case of certain preferred stock, for fewer than 91 days
during the 181-day period beginning 90 days before such date. These holding
period requirements will also apply to your ownership of Fund Shares. Holding
periods may be suspended for these purposes for stock that is hedged.
Additionally, income derived in connection with a Fund's securities lending
activities will not be treated as qualified dividend income.
U.S. individuals
with income exceeding specified thresholds are subject to a 3.8% Medicare
contribution tax on all or a portion of their “net investment income,” which
includes taxable interest, dividends and certain capital gains (generally
including capital gain distributions and capital gains realized upon the sale of
Fund Shares). This 3.8% tax also applies to all or a portion of the
undistributed net investment income of certain shareholders that are estates and
trusts.
Certain tax-exempt
educational institutions will be subject to 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.
If you lend your
Fund Shares pursuant to securities lending arrangements you may lose the ability
to treat Fund dividends (paid while the Fund Shares are held by the borrower) as
qualified dividend income. You should consult your financial intermediary
or tax advisor to discuss your particular
circumstances.
56
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 any 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, the
Fund may be required to borrow money or dispose of securities to be able to make
distributions to its shareholders in order to qualify for treatment as a RIC and
eliminate taxes at the Fund level.
Market
Discount. Any market discount
recognized on a market discount bond is taxable as ordinary income. A market
discount bond is a bond acquired in the secondary market at a price below
redemption value or below adjusted issue price if the bond was issued with
original issue discount. Absent an election by 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 receipt by the Fund, the Fund may be required to borrow money
or dispose of securities to enable the Fund to make distributions to its
shareholders in order to qualify for treatment as a RIC and eliminate taxes at
the Fund level, potentially resulting in additional taxable gain or loss to the
Fund.
Derivatives
and Other Complex Securities. 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.
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.
57
Taxes
on Exchange-Listed Share Sales. Any capital gain or
loss realized upon a sale of Fund Shares is generally treated as long-term
capital gain or loss if Fund Shares have been held for more than one year and as
short-term capital gain or loss if Fund Shares have been held for one year or
less, except that any capital loss on the sale of Fund Shares held for six
months or less is treated as long-term capital loss to the extent that capital
gain dividends were paid with respect to the Fund Shares.
Taxes
on Creations and Redemptions of Creation Units. A person who
exchanges securities for Creation Units generally will recognize a gain or loss.
The gain or loss will be equal to the difference between the market value of the
Creation Units at the time and the exchanger's aggregate basis in the securities
surrendered plus any cash paid for the Creation Units. A person who exchanges
Creation Units for securities will generally recognize a gain or loss equal to
the difference between the exchanger's basis in the Creation Units and the
aggregate market value of the securities and the amount of cash received. The
Internal Revenue Service (the “IRS”), however, may assert that a loss realized
upon an exchange of securities for Creation Units cannot be deducted currently
under the rules governing “wash sales,” or on the basis that there has been no
significant change in economic position. Persons exchanging securities should
consult their own tax advisor with respect to whether wash sale rules apply and
when a loss might be deductible.
Under current
federal tax laws, any capital gain or loss realized upon a redemption (or
creation) of Creation Units is generally treated as long-term capital gain or
loss if the Fund Shares (or securities surrendered) have been held for more than
one year and as a short-term capital gain or loss if the Fund Shares (or
securities surrendered) have been held for one year or less.
If you create or
redeem Creation Units, you will be sent a confirmation statement showing how
many Fund Shares you purchased or sold and at what price.
The Trust on behalf
of 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.
Certain
Tax-Exempt Investors. A Fund, if
investing in certain limited real estate investments and other publicly traded
partnerships, may be required to pass through certain “excess inclusion income”
and other income as “unrelated business taxable income” (“UBTI”). Prior to
investing in a Fund, tax-exempt investors sensitive to UBTI should consult their
tax advisors regarding this issue and IRS pronouncements addressing the
treatment of such income in the hands of such investors.
Investments
In Certain Foreign Corporations. A Fund may invest
in foreign entities classified as passive foreign investment companies or
“PFICs” or controlled foreign corporations or “CFCs” under the Internal Revenue
Code. PFIC and CFC investments are subject to complex rules that may under
certain circumstances adversely affect a Fund. Accordingly, investors should
consult their own tax advisors and carefully consider the tax consequences of
PFIC and CFC investments by a Fund before making an investment in a Fund. A
Fund's dividends attributable to dividends received from PFICs and certain CFCs
generally will not be treated as qualified dividend income. Additional
information pertaining to the potential tax consequences to a Fund, and to the
shareholders, from a Fund's potential investment in PFICs and CFCs can be found
in the SAI.
As discussed above,
to qualify for the favorable U.S. federal income tax treatment accorded to RICs,
a Fund must, among other things, derive in each taxable year at least 90% of its
gross income from certain prescribed sources (“qualifying income”). Very
generally, certain income from digital assets is not thought to be qualifying
income for purposes of this requirement. Each of State Street Galaxy Digital
Asset Ecosystem ETF and State Street Galaxy Hedged Digital Asset Ecosystem ETF
invests a portion of its assets (not to exceed 25% of its total assets) in its
Subsidiary, which is classified as a corporation for U.S. federal income tax
purposes. Because each Subsidiary is a
58
foreign corporation
that is wholly owned by the applicable Fund, each Subsidiary is a CFC. Because
the Subsidiary is a CFC, the applicable Fund is required to include in its gross
income each taxable year all the Subsidiary's “subpart F income.” Under
applicable regulations, a Fund's subpart F income inclusions will constitute
qualifying income for a Fund, whether or not any amount is distributed by its
Subsidiary to the Fund, if the subpart F income inclusions are derived with
respect to the Fund's business of investing in stock, securities or currencies.
It is possible that the IRS might take the position that subpart F income
inclusions from a Subsidiary are not qualifying income. Under those
circumstances a Fund might fail to qualify for treatment as a RIC. Additional
information pertaining to the potential tax consequences to a Fund, and to the
shareholders, from a Fund's potential investment in its Subsidiary can be found
in the SAI.
Taxation
of Digital Assets. Significant aspects
of the U.S. federal income tax treatment of digital assets are uncertain. The
existing guidance does not address the U.S. federal income tax treatment of
digital assets that are not digital currency. Nor does that guidance address
other significant aspects of the U.S. federal income tax treatment of digital
assets, including, but not limited to: (i) whether any digital asset is properly
treated as a “commodity” for U.S. federal income tax purposes; (ii) whether any
digital asset is properly treated as a “collectible” for U.S. federal income tax
purposes; (iii) the treatment of digital asset derivatives; and (iv) the
treatment of decentralized finance transactions. The uncertainty surrounding the
U.S. federal income tax treatment of digital assets could affect the performance
of a Fund and, potentially, the taxation of shareholders. The IRS may disagree
with positions taken by a Fund with respect to its investments in digital
assets.
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 a 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.
59
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.
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 a 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.
60
SSGA
ACTIVE TRUST
Selected
data for a share outstanding throughout each period
|
|
State
Street Galaxy Digital Asset Ecosystem ETF
(Consolidated) | |
|
|
Year
Ended
10/31/25 |
For
the
Period
9/10/24*-
10/31/24 |
|
Net
asset value, beginning of period |
$31.60 |
$25.00 |
|
Income
(loss) from investment operations:
|
|
|
|
Net
investment income (loss) (a) |
(0.08
) |
(0.01
) |
|
Net
realized and unrealized gain (loss) (b) |
24.21 |
6.61 |
|
Total
from investment operations |
24.13 |
6.60 |
|
Net
equalization credits and charges (a) |
(0.02
) |
(0.00
)(c) |
|
Other
capital (a) |
0.01 |
— |
|
Distributions
to shareholders from:
|
|
|
|
Net
investment income |
(0.05
) |
— |
|
Net
realized gains |
(0.51
) |
— |
|
Total
distributions |
(0.56
) |
— |
|
Net
asset value, end of period |
$55.16 |
$31.60 |
|
Total
return (d) |
77.58
% |
26.39
% |
|
Ratios
and Supplemental Data:
|
|
|
|
Net
assets, end of period (in 000s) |
$15,995 |
$6,636 |
|
Ratios
to average net assets:
|
|
|
|
Total
expenses |
0.65
% |
0.65
%(e) |
|
Net
investment income (loss) |
(0.22
)% |
(0.15
)%(e) |
|
Portfolio
turnover rate (f) |
130
% |
28
%(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
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) |
Amount
is less than $0.00005 per share. |
|
(d) |
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.
|
|
(e) |
Annualized. |
|
(f) |
Portfolio
turnover rate excludes securities received or delivered from in-kind
processing of creations or redemptions.
|
|
(g) |
Not
annualized. |
61
SSGA
ACTIVE TRUST
Selected
data for a share outstanding throughout each period
|
|
State
Street Galaxy Hedged Digital Asset Ecosystem ETF
(Consolidated) | |
|
|
Year
Ended
10/31/25 |
For
the
Period
9/10/24*-
10/31/24 |
|
Net
asset value, beginning of period |
$31.00 |
$25.00 |
|
Income
(loss) from investment operations:
|
|
|
|
Net
investment income (loss) (a) |
0.06 |
0.06 |
|
Net
realized and unrealized gain (loss) (b) |
16.13 |
5.94 |
|
Total
from investment operations |
16.19 |
6.00 |
|
Net
equalization credits and charges (a) |
0.10 |
— |
|
Other
capital (a) |
0.01 |
— |
|
Distributions
to shareholders from:
|
|
|
|
Net
investment income |
(0.30
) |
— |
|
Net
realized gains |
(0.52
) |
— |
|
Total
distributions |
(0.82
) |
— |
|
Net
asset value, end of period |
$46.48 |
$31.00 |
|
Total
return (c) |
53.88
% |
23.99
% |
|
Ratios
and Supplemental Data:
|
|
|
|
Net
assets, end of period (in 000s) |
$96,217 |
$124,007 |
|
Ratios
to average net assets:
|
|
|
|
Total
expenses |
0.89
% |
0.85
%(d) |
|
Net
investment income (loss) |
0.18
% |
1.41
%(d) |
|
Portfolio
turnover rate (e) |
141
% |
28
%(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. |
62
SSGA
ACTIVE TRUST
Selected
data for a share outstanding throughout each period
|
|
State
Street Galaxy Transformative Tech Accelerators ETF
| |
|
|
Year
Ended
10/31/25 |
For
the
Period
9/10/24*-
10/31/24 |
|
Net
asset value, beginning of period |
$30.71 |
$25.00 |
|
Income
(loss) from investment operations:
|
|
|
|
Net
investment income (loss) (a) |
0.02 |
(0.00
)(b) |
|
Net
realized and unrealized gain (loss) (c) |
14.71 |
5.71 |
|
Total
from investment operations |
14.73 |
5.71 |
|
Net
equalization credits and charges (a) |
0.01 |
— |
|
Other
capital (a) |
0.01 |
— |
|
Distributions
to shareholders from:
|
|
|
|
Net
investment income |
(0.01
) |
— |
|
Net
realized gains |
(0.96
) |
— |
|
Total
distributions |
(0.97
) |
— |
|
Net
asset value, end of period |
$44.49 |
$30.71 |
|
Total
return (d) |
49.91
% |
22.85
% |
|
Ratios
and Supplemental Data:
|
|
|
|
Net
assets, end of period (in 000s) |
$2,670 |
$6,143 |
|
Ratios
to average net assets:
|
|
|
|
Total
expenses |
0.65
% |
0.65
%(e) |
|
Net
investment income (loss) |
0.05
% |
(0.03
)%(e) |
|
Portfolio
turnover rate (f) |
124
% |
28
%(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
year. |
|
(b) |
Amount
is less than $0.005 per share. |
|
(c) |
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. |
|
(d) |
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.
|
|
(e) |
Annualized. |
|
(f) |
Portfolio
turnover rate excludes securities received or delivered from in-kind
processing of creations or redemptions.
|
|
(g) |
Not
annualized. |
63
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. An 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 the annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected each Fund's performance during the Fund's last
fiscal year, as applicable. In the Form N-CSR, you will find each 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.
SPDRATGALAXYPROThe
Trust's Investment Company Act Number is 811-22542.