STATEMENT OF ADDITIONAL INFORMATION
Dated [ ], 2020
This
Statement of Additional Information (SAI) is not a prospectus. With respect to the Trusts series listed below, this SAI should be read in conjunction with the prospectus dated [ ], 2020, as may be revised
from time to time (Prospectus).
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ETF
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TICKER
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SPDR [S&P 500 ESG] ETF
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Principal U.S. Listing Exchange for the ETF: [ ]
Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. Copies of the Prospectus and the
Trusts Annual Report to Shareholders dated [June 30, 2020] may be obtained without charge by writing to State Street Global Advisors Funds Distributors, LLC, the Trusts principal underwriter (referred to herein as
Distributor or Principal Underwriter), One Iron Street, Boston, Massachusetts 02210, by visiting the Trusts website at https://www.spdrs.com or by calling
1-866-787-2257. The Fund had not commenced operations as of the date of this SAI and therefore did not have any financial
information to report for the Trusts [June 30, 2020] fiscal year end.
TABLE OF CONTENTS
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GENERAL DESCRIPTION OF THE TRUST
The Trust is an open-end management investment company, registered under the Investment Company Act of 1940, as
amended (the 1940 Act), consisting of multiple investment series, including the SPDR [S&P 500 ESG] ETF (the Fund). The Trust was organized as a Massachusetts business trust on June 12, 1998. The offering of the
Funds shares (Shares) is registered under the Securities Act of 1933, as amended (the Securities Act). The investment objective of the Fund is to provide investment results that, before fees and expenses, correspond
generally to the total return performance of a specified market index (the Index). SSGA Funds Management, Inc. serves as the investment adviser for the Fund (SSGA FM or the Adviser).
The Fund offers and issues Shares at its net asset value (sometimes referred to herein as NAV) only in aggregations of a specified number of
Shares (each, a Creation Unit). The Fund generally offers and issues Shares either in exchange for (i) a basket of securities included in its Index (Deposit Securities) together with the deposit of a specified cash
payment (Cash Component) or (ii) a cash payment equal in value to the Deposit Securities (Deposit Cash) together with the Cash Component. The primary consideration accepted by the Fund (i.e., Deposit Securities or
Deposit Cash) is set forth under PURCHASE AND REDEMPTION OF CREATION UNITS later in this SAI. The Trust reserves the right to permit or require the substitution of a cash in lieu amount to be added to the Cash Component to
replace any Deposit Security and reserves the right to permit or require the substitution of Deposit Securities in lieu of Deposit Cash (subject to applicable legal requirements). The Shares have been approved for listing and secondary trading on a
national securities exchange (the Exchange). The Shares will trade on the Exchange at market prices. These prices may differ from the Shares net asset values. The Shares are also redeemable only in Creation Unit aggregations, and
generally in exchange either for (i) portfolio securities and a specified cash payment or (ii) cash (subject to applicable legal requirements). A Creation Unit of the Fund consists of [ ] shares.
Shares may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit with the Trust
cash at least equal to a specified percentage of the market value of the missing Deposit Securities, as set forth in the Participant Agreement (as defined below). See PURCHASE AND REDEMPTION OF CREATION UNITS. The Trust may impose a
transaction fee for each creation or redemption. In all cases, such fees will be limited in accordance with the requirements of the U.S. Securities and Exchange Commission (SEC) applicable to management investment companies offering
redeemable securities. In addition to the fixed creation or redemption transaction fee, an additional transaction fee of up to three times the fixed creation or redemption transaction fee and/or an additional variable charge may apply.
INVESTMENT POLICIES
The Fund may invest in the following types of investments, consistent with its investment strategies and objective. Please see the Funds Prospectus for
additional information regarding its principal investment strategies.
DIVERSIFICATION STATUS
The Fund is classified as a non-diversified investment company under the 1940 Act. A
non-diversified classification means that the Fund is not limited by the 1940 Act with regard to the percentage of its assets that may be invested in the securities of a single issuer. This means
that the Fund may invest a greater portion of its assets in the securities of a single issuer than a diversified fund. The securities of a particular issuer may constitute a greater portion of the Index and, therefore, the securities may constitute
a greater portion of the Funds portfolio. This may have an adverse effect on the Funds performance or subject the Funds Shares to greater price volatility than more diversified investment companies.
Although the Fund is non-diversified for purposes of the 1940 Act, the Fund intends to maintain the required level of
diversification and otherwise conduct its operations so as to qualify as a regulated investment company (RIC) for purposes of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and to
relieve the Fund of any liability for federal income tax to the extent that its earnings are distributed to shareholders. Compliance with the diversification requirements of the Internal Revenue Code may severely limit the investment flexibility of
the Fund and may make it less likely that the Fund will meet its investment objective.
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COMMON STOCK
Risks
inherent in investing in equity securities include the risk that the financial condition of issuers may become impaired or that the general condition of the stock market may deteriorate (either of which may cause a decrease in the value of the
Funds portfolio securities and therefore a decrease in the value of Shares of the Fund). Common stock is susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence and perceptions
change. These investor perceptions are based on various and unpredictable factors, including expectations regarding government, economic, monetary and fiscal policies; inflation and interest rates; economic expansion or contraction; and global or
regional political, economic or banking crises.
CONCENTRATION
The Fund will concentrate its investments in securities of issuers in the same industry as may be necessary to approximate the composition of the Funds
underlying Index. The securities of issuers in particular industries may dominate the benchmark Index of the Fund and consequently the Funds investment portfolio. This may adversely affect the Funds performance or subject its Shares to
greater price volatility than that experienced by less concentrated investment companies. The Trusts general policy is to exclude securities of the U.S. government and its agencies or instrumentalities when measuring industry concentration.
In pursuing its objective, the Fund may hold the securities of a single issuer in an amount exceeding 10% of the market value of the outstanding
securities of the issuer, subject to restrictions imposed by the Internal Revenue Code. In particular, as the Funds size grows and its assets increase, it will be more likely to hold more than 10% of the securities of a single issuer if the
issuer has a relatively small public float as compared to other components in its benchmark Index.
CONVERTIBLE SECURITIES
Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer)
into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio. A convertible security may also be called for redemption or conversion by the issuer after a particular date and under certain
circumstances (including a specified price) established upon issue. If a convertible security held by the Fund is called for redemption or conversion, the Fund could be required to tender it for redemption, convert it into the underlying common
stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss than common stock. Convertible securities
generally provide yields higher than underlying common stock, but generally lower than comparable non-convertible securities. Because of this higher yield, convertible securities generally sell at a price
above their conversion value, which is the current market value of the stock to be received upon conversion. The difference between this conversion value and the price of convertible securities will vary over time depending on changes in
the value of the underlying common stock and interest rates. When the underlying common stock declines in value, convertible securities will tend not to decline to the same extent because of the interest or dividend payments and the repayment of
principal at maturity for certain types of convertible securities. However, securities that are convertible other than at the option of the holder generally do not limit the potential for loss to the same extent as securities convertible at the
option of the holder. When the underlying common stock rises in value, the value of convertible securities may also be expected to increase. At the same time, however, the difference between the market value of convertible securities and their
conversion value will narrow, which means that the value of convertible securities will generally not increase to the same extent as the value of the underlying common stock. Because convertible securities may also be interest-rate sensitive, their
value may increase as interest rates fall and decrease as interest rates rise. Convertible securities are also subject to credit risk, and are often lower-quality securities.
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FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS
The Fund may invest up to 20% of its assets in derivatives, including exchange-traded futures on Treasuries or Eurodollars, U.S. exchange-traded or OTC put and
call options contracts and exchange-traded or OTC swap transactions (including NDFs interest rate swaps, total return swaps, excess return swaps, and credit default swaps). The Fund will segregate cash and/or appropriate liquid assets if required to
do so by SEC or CFTC regulation or interpretation.
Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the
regulation is not yet fully known and may not be for some time. New regulations could adversely affect the value, availability and performance of certain derivative instruments, may make them more costly, and may limit or restrict their use by the
Fund.
Futures contracts generally provide for the future sale by one party and purchase by another party of a specified commodity or security at a
specified future time and at a specified price. Index futures contracts are settled daily with a payment by one party to the other of a cash amount based on the difference between the level of the index specified in the contract from one day to the
next. A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and
the price at which the index contract originally was written. Although the value of an index might be a function of the value of certain specified securities, physical delivery of these securities is not always made. A public market exists in
futures contracts covering a number of indexes, as well as financial instruments, including, without limitation: U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S. Treasury bills;
90-day commercial paper; bank certificates of deposit; Eurodollar certificates of deposit; the Australian Dollar; the Canadian Dollar; the British Pound; the Japanese Yen; the Swiss Franc; the Mexican Peso;
and certain multinational currencies, such as the Euro. It is expected that other futures contracts will be developed and traded in the future. Futures contracts are standardized as to maturity date and underlying instrument and are traded on
futures exchanges.
The Fund may purchase and write (sell) call and put options on futures. Options on futures give the holder the right, in return for
the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price upon expiration of, or at any time during the period of, the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. The Fund is required to make a good faith margin deposit in cash or U.S. government securities (or other
eligible collateral) with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying commodity or payment of the
cash settlement amount) if it is not terminated prior to the specified delivery date. Brokers may establish deposit requirements which are higher than the exchange minimums. Futures contracts are customarily purchased and sold on margin deposits
which may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the
contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy price changes additional payments will be required. Conversely, change in the contract value may reduce the required
margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. In such case, the Fund would expect to earn interest income on its
margin deposits. Although some futures contracts call for making or taking delivery of the underlying commodity, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (involving
the same exchange, underlying security or index and delivery month). If an offsetting purchase price is less than the original sale price, the Fund realizes a capital gain, or if it is more, the Fund realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Fund realizes a capital gain, or if it is less, the Fund realizes a capital loss. The transaction costs also must be included in these calculations.
Regulation Under the Commodity Exchange Act. The Fund intends to use commodity interests such as futures, swaps and options on futures in accordance
with Rule 4.5 of the CEA. The Fund may use exchange-traded futures and options on futures, together with positions in cash and money market instruments, to simulate full investment in its underlying Index. Exchange-traded futures and options on
futures contracts may not be currently available for the Index. Under such circumstances, the Adviser may seek to utilize other instruments that it believes to be correlated to the Index components or a subset of the components. The [Trust has filed
a notice of eligibility for exclusion from the definition of the term commodity pool operator in accordance with Rule 4.5] so that it is not subject to registration or regulation as a commodity pool operator under the CEA.
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Restrictions on Trading in Commodity Interests. With respect to the Fund, the Trust has claimed an
exclusion from registration as a commodity pool operator under the CEA pursuant to CFTC Rule 4.5 and, therefore, is not subject to the registration and regulatory requirements of the CEA. The Fund reserves the right to engage in transactions
involving futures, options thereon and swaps to the extent allowed by the CFTC regulations in effect from time to time and in accordance with the Funds policies. The Fund would take steps to prevent its futures positions from
leveraging its securities holdings. When it has a long futures position, it will maintain with its custodian bank assets substantially identical to those underlying the contract or cash and equivalents (or a combination of the foregoing)
having a value equal to the net obligation of the Fund under the contract (less the value of any margin deposits in connection with the position). When it has a short futures position, it will maintain with its custodian bank assets substantially
identical to those underlying the contract or cash and equivalents (or a combination of the foregoing) having a value equal to the net obligation of the Fund under the contract (less the value of any margin deposits in connection with the position).
Options. The Fund may purchase and sell put and call options. Such options may relate to particular securities and may or may not be listed on a
national securities exchange and issued by the Options Clearing Corporation. Options trading is a highly specialized activity that entails greater than ordinary investment risk. Options on particular securities may be more volatile than the
underlying securities, and therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying securities themselves.
Short Sales Against the Box. The Fund may engage in short sales against the box. In a short sale against the box, the Fund
agrees to sell at a future date a security that it either contemporaneously owns or has the right to acquire at no extra cost. If the price of the security has declined at the time the Fund is required to deliver the security, the Fund will benefit
from the difference in the price. If the price of the security has increased, the Fund will be required to pay the difference.
Swap Transactions.
The Fund may enter into swap transactions, including interest rate, swap, credit default swap, NDF, and total return swap transactions. Swap transactions are contracts between parties in which one party agrees to make periodic payments to the other
party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make payments to the first party based on the return of a different specified rate, index or asset. Swap transactions will
usually be done on a net basis, i.e., where the two parties make net payments with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The net amount of the excess, if any, of the Funds obligations
over its entitlements with respect to each swap is accrued on a daily basis and an amount of cash or equivalents having an aggregate value at least equal to the accrued excess is maintained by the Fund. Swaps may be used in conjunction with other
instruments to offset interest rate, currency or other underlying risks. For example, interest rate swaps may be offset with caps, floors or collars. A cap is essentially a call option which places a
limit on the amount of floating rate interest that must be paid on a certain principal amount. A floor is essentially a put option which places a limit on the minimum amount that would be paid on a certain principal amount. A
collar is essentially a combination of a long cap and a short floor where the limits are set at different levels.
The use of swap
transactions by the Fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the swap agreement. Swaps
are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of a swap requires an understanding not only of the
referenced asset, reference rate, or index, but also of the swap itself, without the benefit of observing the performance of the swap under all the possible market conditions. Because some swap transactions have a leverage component, adverse changes
in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the swap itself. Certain swaps have the potential for unlimited loss, regardless of the size of the
initial investment.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) that was signed into law on
July 21, 2010 created a new statutory framework that comprehensively regulated the over-the-counter (OTC) derivatives markets for the first time. Key
Dodd-Frank Act provisions relating to OTC derivatives require rulemaking by the SEC and the CFTC, not all of which has been proposed or finalized as at the date of this SAI. Prior to the Dodd-Frank Act, the OTC derivatives markets were traditionally
traded on a bilateral basis (so-called bilateral OTC transactions). Under the Dodd-Frank Act, certain OTC derivatives transactions are now required to be centrally cleared and traded on exchanges
or electronic trading platforms called swap execution facilities (SEFs).
Bilateral OTC transactions differ from exchange-traded or cleared
derivatives transactions in several respects. Bilateral OTC transactions are transacted directly with dealers and not with a clearing corporation. Without the availability of a clearing corporation, bilateral OTC transaction pricing is normally done
by reference to information from market makers and/or available index data, which information is carefully monitored by the Adviser and verified in appropriate cases. As bilateral OTC transactions are entered into directly with a dealer, there is a
risk of nonperformance by the dealer as a result of its insolvency or otherwise. Under recently-adopted regulations by the CFTC and federal banking regulators (Margin Rules), the Fund is required to post collateral (known as variation
margin) to cover the mark-to-market exposure in respect of its uncleared swaps. The Margin Rules also mandate that collateral in the form of initial margin be posted to
cover potential future exposure attributable to uncleared swap transactions. In the event the Fund is required to post collateral in the form of initial margin or variation margin in respect of its uncleared swap transactions, all such collateral
will be posted with a third party custodian pursuant to a triparty custody agreement between the Fund, its dealer counterparty and an unaffiliated custodian.
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The requirement to execute certain OTC derivatives contracts on SEFs may offer certain advantages over
traditional bilateral OTC trading, such as ease of execution, price transparency, increased liquidity and/or favorable pricing. However, SEF trading may make it more difficult and costly for the Fund to enter into highly tailored or customized
transactions and may result in additional costs and risks. Market participants such as the Fund that execute derivatives contracts through a SEF, whether directly or through a broker intermediary, are required to submit to the jurisdiction of the
SEF and comply with SEF and CFTC rules and regulations which impose, among other things disclosure and recordkeeping obligations. In addition, the Fund will generally incur SEF or broker intermediary fees when it trades on a SEF. The Fund may also
be required to indemnify the SEF or broker intermediary for any losses or costs that may result from the Funds transactions on the SEF.
Total
Return Swaps. The Fund may enter into total return swap transactions for investment purposes. Total return swaps are transactions in which one party agrees to make periodic payments based on the change in market value of the underlying assets,
which may include a specified security, basket of securities or security indexes during the specified period, in return for periodic payments based on a fixed or variable interest rate of the total return from other underlying assets. Total return
swaps may be used to obtain exposure to a security or market without owning or taking physical custody of such security or market, including in cases in which there may be disadvantages associated with direct ownership of a particular security. In a
typical total return equity swap, payments made by the Fund or the counterparty are based on the total return of a particular reference asset or assets (such as an equity security, a combination of such securities, or an index). That is, one party
agrees to pay another party the return on a stock, basket of stocks, or stock index in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of
securities without actually purchasing those stocks. Total return swaps involve not only the risk associated with the investment in the underlying securities, but also the risk of the counterparty not fulfilling its obligations under the agreement.
Credit Default Swaps. The Fund may enter into credit default swap transactions for investment purposes. A credit default swap transaction may have
as reference obligations one or more securities that are not currently held by the Fund. The Fund may be either the protection buyer or protection seller in the transaction. Credit default swaps may also be structured based on the debt of a basket
of issuers, rather than a single issuer, and may be customized with respect to the default event that triggers purchase or other factors. As a protection seller, the Fund would generally receive an upfront payment or a fixed rate of income
throughout the term of the swap, which typically is between six months and three years, provided that there is no credit event. If a credit event occurs, generally the protection seller must pay the protection buyer the full face amount of the
reference obligations that may have little or no value. The notional value of the credit default swap will be used to segregate liquid assets for selling protection on credit default swaps. If the Fund were a protection buyer and no credit event
occurred during the term of the swap, the Fund would recover nothing if the swap were held through its termination date. However, if a credit event occurred, the protection buyer may elect to receive the full notional value of the swap in exchange
for an equal face amount of the reference obligation that may have little or no value. Where the Fund is the protection buyer, credit default swaps involve the risk that the seller may fail to satisfy its payment obligations to the Fund in the event
of a default. The purchase of credit default swaps involves costs, which will reduce the Funds return. When the Fund buys credit default swaps it will segregate an amount at least equal to the amount of any accrued premium payment obligations
including amounts for early terminations.
Currency Swaps. The Fund may enter into currency swap transactions for investment purposes. Currency
swaps are similar to interest rate swaps, except that they involve multiple currencies. The Fund may enter into a currency swap when it has exposure to one currency and desires exposure to a different currency. Typically, the interest rates that
determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the beginning of the contract and returned
at the end of the contract. In addition to paying and receiving amounts at the beginning and end of the transaction, both sides will have to pay in full on a periodic basis based upon the currency they have borrowed. Change in foreign exchange rates
and changes in interest rates, as described above, may negatively affect currency swaps.
Interest Rate Swaps. The Fund may enter into an interest
rate swap in an effort to protect against declines in the value of fixed income securities held by the Fund. In such an instance, the Fund may agree to pay a fixed rate (multiplied by a notional amount) while a counterparty agrees to pay a floating
rate (multiplied by the same notional amount). If interest rates rise, resulting in a diminution in the value of the Funds portfolio, the Fund would receive payments under the swap that would offset, in whole or in part, such diminution in
value.
Options on Swaps. An option on a swap agreement, or a swaption, is a contract that gives a counterparty the right (but not the
obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms. In return, the purchaser pays a premium to the seller of the
contract. The seller of the
7
contract receives the premium and bears the risk of unfavorable changes on the underlying swap. The Fund may write (sell) and purchase put and call swaptions. The Fund may also enter into
swaptions on either an asset-based or liability-based basis, depending on whether the Fund is hedging its assets or its liabilities. The Fund may write (sell) and purchase put and call swaptions to the same extent it may make use of standard options
on securities or other instruments. The Fund may enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its holdings, as a duration management technique, to protect against an increase in the
price of securities the Fund anticipates purchasing at a later date, or for any other purposes, such as for speculation to increase returns. Swaptions are generally subject to the same risks involved in the Funds use of options.
Depending on the terms of the particular option agreement, the Fund will generally incur a greater degree of risk when it writes a swaption than it will incur
when it purchases a swaption. When the Fund purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when the Fund writes a swaption, upon exercise of the option
the Fund will become obligated according to the terms of the underlying agreement.
Certain additional risk factors related to derivatives are discussed
below:
Derivatives Risk. Under recently adopted rules by the CFTC, transactions in some types of interest rate swaps and index credit default swaps
on North American and European indices are required to be cleared. In addition, the CFTC may promulgate additional regulations that require clearing of other classes of swaps. In a cleared derivatives transaction (which includes commodities futures
and cleared swaps transactions), the Funds counterparty is a clearing house (such as CME, ICE Clear Credit or LCH.Clearnet), rather than a bank or broker. Since the Fund is not a member of a clearing house and only members of a clearing house
can participate directly in the clearing house, the Fund holds cleared derivatives through accounts at clearing members, who are futures commission merchants that are members of the clearing houses and who have the appropriate regulatory approvals
to engage in cleared swap transactions. The Fund makes and receives payments owed under cleared derivatives transactions (including margin payments) through its accounts at clearing members. Clearing members guarantee performance of their
clients obligations to the clearing house. In contrast to bilateral OTC transactions, clearing members generally can require termination of existing cleared derivatives transactions at any time and increases in margin above the margin that it
required at the beginning of a transaction. Clearing houses also have broad rights to increase margin requirements for existing transactions and to terminate transactions. Any such increase or termination could interfere with the ability of the Fund
to pursue its investment strategy. Also, the Fund is subject to execution risk if it enters into a derivatives transaction that is required to be cleared (or that the Advisor expects to be cleared), and no clearing member is willing or able to clear
the transaction on the Funds behalf. While the documentation in place between the Fund and its clearing members generally provides that the clearing members will accept for clearing all transactions submitted for clearing that are within
credit limits specified by the clearing members in advance, the Fund could be subject to this execution risk if the Fund submits for clearing transactions that exceed such credit limits, if the clearing house does not accept the transactions for
clearing, or if the clearing members do not comply with their agreement to clear such transactions. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of any increase in the value of the
transaction after the time of the transaction. In addition, new regulations could, among other things, restrict the Funds ability to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of
derivatives no longer available to the Fund or increasing margin or capital requirements. If the Fund is not able to enter into a particular derivatives transaction, the Funds investment performance and risk profile could be adversely affected
as a result.
Counterparty Risk. Counterparty risk with respect to OTC derivatives may be affected by new regulations promulgated by the CFTC and
SEC affecting the derivatives market. As described under Derivatives Risk above, some derivatives transactions are required to be cleared, and a party to a cleared derivatives transaction is subject to the credit risk of the clearing
house and the clearing member through which it holds its cleared derivatives position, rather than the credit risk of its original counterparty to the derivative transaction. Clearing members are required to segregate all funds received from
customers with respect to cleared derivatives transactions from the clearing members proprietary assets. However, all funds and other property received by a clearing broker from its customers are generally held by the clearing broker on a
commingled basis in an omnibus account, which may also invest those funds in certain instruments permitted under the applicable regulations. Also, the clearing member transfers to the clearing house the amount of margin required by the clearing
house for cleared derivatives transactions, which amounts are generally held in the relevant omnibus account at the clearing house for all customers of the clearing member.
For commodities futures positions, the clearing house may use all of the collateral held in the clearing members omnibus account to meet a loss in that
account, without regard to which customer in fact supplied that collateral. Accordingly, in addition to bearing the credit risk of its clearing member, each customer to a futures transaction also bears fellow customer risk from other
customers of the clearing member. However, with respect to cleared swaps positions, recent regulations promulgated by the CFTC require that the clearing member notify the clearing house of the amount of initial margin provided by the clearing member
to the clearing house that is attributable to each customer. Because margin in respect of cleared swaps must be earmarked for specific clearing member customers, the clearing house may not use the collateral of one customer to cover the obligations
of another customer. However, if the clearing member does not provide accurate reporting, the Fund is subject to the risk that a clearing house will use the Funds assets held in an omnibus account at the clearing house to satisfy payment
obligations of a defaulting customer of the clearing member to the clearing house. In addition, clearing members may generally choose to provide to the clearing house the net amount of variation margin required for cleared swaps for all of its
customers in the aggregate, rather than the gross amount for each customer.
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FUTURE DEVELOPMENTS
The Fund may take advantage of opportunities in the area of options and futures contracts, options on futures contracts, warrants, swaps and any other
investments which are not presently contemplated for use by the Fund or which are not currently available but which may be developed, to the extent such opportunities are both consistent with the Funds investment objective and legally
permissible for the Fund. Before entering into such transactions or making any such investment, the Fund will provide appropriate disclosure.
ILLIQUID
SECURITIES
The Fund may invest in illiquid securities. The Fund may not acquire any illiquid investment if, immediately after the acquisition, the Fund
would have invested more than 15% of its net assets in illiquid securities. An illiquid security means any security that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without
the sale or disposition significantly changing the market value of the investment. If illiquid securities exceed 15% of the Funds net assets, certain remedial actions will be taken as required by Rule
22e-4 under the 1940 Act and the Funds policies and procedures.
INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies, including affiliated funds and money market funds, subject to applicable limitations under
Section 12(d)(1) of the 1940 Act. Pursuant to Section 12(d)(1), the Fund may invest in the securities of another investment company (the acquired company) provided that the Fund, immediately after such purchase or acquisition,
does not own in the aggregate: (i) more than 3% of the total outstanding voting stock of the acquired company; (ii) securities issued by the acquired company having an aggregate value in excess of 5% of the value of the total assets of the
Fund; or (iii) securities issued by the acquired company and all other investment companies (other than Treasury stock of the Fund) having an aggregate value in excess of 10% of the value of the total assets of the Fund. To the extent allowed
by law, regulation, the Funds investment restrictions and the Trusts exemptive relief, the Fund may invest its assets in securities of investment companies that are affiliated funds and/or money market funds in excess of the limits
discussed above.
If the Fund invests in and, thus, is a shareholder of, another investment company, the Funds shareholders will indirectly bear the
Funds proportionate share of the fees and expenses paid by such other investment company, including advisory fees, in addition to both the management fees payable directly by the Fund to the Funds own investment adviser and the other
expenses that the Fund bears directly in connection with the Funds own operations.
LENDING PORTFOLIO SECURITIES
The Fund may lend portfolio securities to certain creditworthy borrowers in U.S. and non-U.S. markets in an amount not
to exceed 40% of the value of its net assets. The borrowers provide collateral that is marked to market daily in an amount at least equal to the current market value of the securities loaned. The Fund may terminate a loan at any time and obtain
the securities loaned. The Fund receives the value of any interest or cash or non-cash distributions paid on the loaned securities. The Fund cannot vote proxies for securities on loan, but may recall loans to
vote proxies if a material issue affecting the Funds economic interest in the investment is to be voted upon. Efforts to recall such securities promptly may be unsuccessful, especially for foreign securities or thinly traded securities, and
may involve expenses to the Fund. Distributions received on loaned securities in lieu of dividend payments (i.e., substitute payments) would not be considered qualified dividend income.
With respect to loans that are collateralized by cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. The Fund is
compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the borrower. In the case of collateral other than cash, the Fund is compensated by a fee paid by the borrower equal to a percentage
of the market value of the loaned securities. Any cash collateral may be reinvested in certain high quality short-term instruments either directly on behalf of the Fund or through one or more joint accounts or funds, which may include those managed
by the Adviser. The Fund could lose money due to a decline in the value of collateral provided for loaned securities or any investments made with cash collateral. Certain non-cash collateral or investments
made with cash collateral may have a greater risk of loss than other non-cash collateral or investments.
The Fund
may pay a portion of the interest or fees earned from securities lending to a borrower as described above, and to one or more securities lending agents approved by the Board of Trustees of the Trust (the Board) who administer the lending
program for the Fund in accordance with guidelines approved by the Board. In such capacity, the lending agent provides the following services to the
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Fund in connection with the Funds securities lending activities: (i) locating borrowers among an approved list of prospective borrowers; (ii) causing the delivery of loaned
securities from the Fund to borrowers; (iii) monitoring the value of loaned securities, the value of collateral received, and other lending parameters; (iv) seeking additional collateral, as necessary, from borrowers; (v) receiving
and holding collateral from borrowers, and facilitating the investment and reinvestment of all or substantially all cash collateral in an investment vehicle designated by the Fund; (vi) returning collateral to borrowers; (vii) facilitating
substitute dividend, interest, and other distribution payments to the Fund from borrowers; (viii) negotiating the terms of each loan of securities, including but not limited to the amount of any loan premium, and monitoring the terms of
securities loan agreements with prospective borrowers for consistency with the requirements of the Funds Securities Lending Authorization Agreement; (ix) selecting securities, including amounts (percentages), to be loaned;
(x) recordkeeping and accounting servicing; and (xi) arranging for return of loaned securities to the Fund in accordance with the terms of the Securities Lending Authorization Agreement. State Street Bank and Trust Company (State
Street), an affiliate of the Trust, has been approved by the Board to serve as securities lending agent for the Fund and the Trust has entered into an agreement with State Street for such services. Among other matters, the Trust has agreed to
indemnify State Street for certain liabilities. State Street has received an order of exemption from the SEC under Sections 17(a) and 12(d)(1) under the 1940 Act to serve as the lending agent for affiliated investment companies such as the Trust and
to invest the cash collateral received from loan transactions to be invested in an affiliated cash collateral fund.
Securities lending involves exposure
to certain risks, including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process especially so in certain international markets such as Taiwan), gap risk (i.e., the risk of a
mismatch between the return on cash collateral reinvestments and the fees the Fund has agreed to pay a borrower), risk of loss of collateral, credit, legal, counterparty and market risk. If a securities lending counterparty were to default, the Fund
would be subject to the risk of a possible delay in receiving collateral or in recovering the loaned securities, or to a possible loss of rights in the collateral. In the event a borrower does not return the Funds securities as agreed, the
Fund may experience losses if the proceeds received from liquidating the collateral do not at least equal the value of the loaned security at the time the collateral is liquidated, plus the transaction costs incurred in purchasing replacement
securities. Although State Street has agreed to provide the Fund with indemnification in the event of a borrower default, the Fund is still exposed to the risk of losses in the event a borrower does not return the Funds securities as agreed.
For example, delays in recovery of lent securities may cause the Fund to lose the opportunity to sell the securities at a desirable price.
LEVERAGING
While the Fund does not anticipate doing so, the Fund may borrow money in an amount greater than 5% of the value of the Funds total
assets. However, under normal circumstances, the Fund will not borrow money from a bank in an amount greater than 10% of the value of the Funds total assets. Borrowing for investment purposes is one form of leverage. Leveraging
investments, by purchasing securities with borrowed money, is a speculative technique that increases investment risk, but also increases investment opportunity. Because substantially all of the Funds assets will fluctuate in value,
whereas the interest obligations on borrowings may be fixed, the NAV of the Fund will increase more when the Funds portfolio assets increase in value and decrease more when the Funds portfolio assets decrease in value than would
otherwise be the case. Moreover, interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the returns on the borrowed funds.
OTHER SHORT-TERM INSTRUMENTS
The Fund may invest in short-term
instruments, including money market instruments, (including money market funds advised by the Adviser), cash and cash equivalents, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term
investments that may include but are not limited to: (i) shares of money market funds (including those advised by the Adviser); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including
government-sponsored enterprises); (iii) negotiable certificates of deposit (CDs), bankers acceptances, fixed time deposits and other obligations of U.S. and foreign banks (including foreign branches) and similar institutions;
(iv) commercial paper rated at the date of purchase Prime-1 by Moodys Investors Service (Moodys) or A-1 by
Standard & Poors (S&P), or if unrated, of comparable quality as determined by the Adviser; (v) non-convertible corporate debt securities (e.g., bonds and debentures)
with remaining maturities at the date of purchase of not more than 397 days and that present minimal credit risk; and (vi) short-term U.S. dollar-denominated obligations of foreign banks (including U.S. branches) that, in the opinion of the
Adviser, are of comparable quality to obligations of U.S. banks which may be purchased by the Fund. Any of these instruments may be purchased on a current or a forward-settled basis. Time deposits are
non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers acceptances are time drafts drawn on commercial banks by borrowers, usually in
connection with international transactions. Money market instruments also include shares of money market funds. The SEC and other government agencies continue to review the regulation of money market funds. The SEC has adopted changes to the rules
that govern money market funds, and compliance with many of these amendments was required in October 2016. Legislative developments may also affect money market funds. These changes and developments may affect the investment strategies, performance,
yield, operating expenses and continued viability of a money market fund.
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PREFERRED SECURITIES
Preferred securities pay fixed or adjustable rate dividends to investors, and have preference over common stock in the payment of dividends and the
liquidation of a companys assets. This means that a company must pay dividends on preferred stock before paying any dividends on its common stock. In order to be payable, distributions on preferred securities must be declared by the
issuers board of directors. Income payments on typical preferred securities currently outstanding are cumulative, causing dividends and distributions to accrue even if not declared by the board of directors or otherwise made payable. There is
no assurance that dividends or distributions on the preferred securities in which the Fund invests will be declared or otherwise made payable.
The market
value of preferred securities may be affected by favorable and unfavorable changes impacting companies in the utilities and financial services sectors, which are prominent issuers of preferred securities, and by actual and anticipated changes in tax
laws.
Because the claim on an issuers earnings represented by preferred securities may become onerous when interest rates fall below the rate
payable on such securities, the issuer may redeem the securities. Thus, in declining interest rate environments in particular, the Funds holdings of higher rate-paying fixed rate preferred securities may be reduced and the Fund would be unable
to acquire securities paying comparable rates with the redemption proceeds.
PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
The Fund may invest in securities that are purchased in private placements and, accordingly, are subject to restrictions on resale as a matter of contract or
under federal securities laws. While such private placements may offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often restricted securities, i.e., securities
which cannot be sold to the public without registration under the Securities Act or the availability of an exemption from registration (such as Rules 144 or 144A), or which are not readily marketable because they are subject to other legal or
contractual delays in or restrictions on resale. Generally speaking, restricted securities may be sold only to qualified institutional buyers, or in a privately negotiated transaction to a limited number of purchasers, or in limited quantities after
they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration, or in a public offering for which a registration statement is in effect under the Securities Act.
Because there may be relatively few potential purchasers for such investments, especially under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the Fund could find it more difficult to sell such securities when the Adviser believes it advisable to do so or may be able to sell such securities only at prices lower than if such
securities were more widely held. Market quotations for such securities are generally less readily available than for publicly traded securities. The absence of a trading market can make it difficult to ascertain a market value for such securities
for purposes of computing the Funds net asset value, and the judgment of the Adviser may at times play a greater role in valuing these securities than in the case of publicly traded securities. Disposing of such securities, which may be
illiquid investments, can involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for the Fund to sell them promptly at an acceptable price. The Fund may have to bear the extra expense of registering such
securities for resale and the risk of substantial delay in effecting such registration.
The Fund may be deemed to be an underwriter for
purposes of the Securities Act when selling restricted securities to the public, and in such event the Fund may be liable to purchasers of such securities if the registration statement prepared by the issuer, or the prospectus forming a part of it,
is materially inaccurate or misleading.
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REAL ESTATE INVESTMENT TRUSTS (REITs)
REITs pool investors funds for investment primarily in income producing real estate or real estate loans or interests. A REIT is not taxed on income
distributed to shareholders if it complies with several requirements relating to its organization, ownership, assets, and income and a requirement that it distribute to its shareholders at least 90% of its taxable income (other than net capital
gains) for each taxable year. REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs, which invest the majority of their assets directly in real property, derive their income primarily from rents. Equity
REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs, which invest the majority of their assets in real estate mortgages, derive their income primarily from interest payments. Hybrid REITs combine
the characteristics of both Equity REITs and Mortgage REITs. The Fund will not invest in real estate directly, but only in securities issued by real estate companies. However, the Fund may be subject to risks similar to those associated with the
direct ownership of real estate (in addition to securities markets risks) to the extent they invest in the securities of companies in the real estate industry. These include declines in the value of real estate, risks related to general and local
economic conditions, dependency on management skill, heavy cash flow dependency, possible lack of availability of mortgage funds, overbuilding, extended vacancies of properties, increased competition, increases in property taxes and operating
expenses, changes in zoning laws, losses due to costs resulting from the clean-up of environmental problems, liability to third parties for damages resulting from environmental problems, casualty or
condemnation losses, limitations on rents, changes in neighborhood values, the appeal of properties to tenants and changes in interest rates. Investments in REITs may subject Fund shareholders to duplicate management and administrative fees.
In addition to these risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be
affected by the quality of any credit extended. Further, Equity and Mortgage REITs are dependent upon management skills and may not be diversified. Equity and Mortgage REITs are also subject to heavy cash flow dependency, defaults by borrowers and
self-liquidation. In addition, Equity and Mortgage REITs could possibly fail to qualify for the beneficial tax treatment available to REITs under the Internal Revenue Code, or to maintain their exemptions from registration under the 1940 Act. The
above factors may also adversely affect a borrowers or a lessees ability to meet its obligations to the REIT. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting investments.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements with commercial banks, brokers or dealers to generate income from its excess cash balances and to invest
securities lending cash collateral. A repurchase agreement is an agreement under which the Fund acquires a financial instrument (e.g., a security issued by the U.S. government or an agency thereof, a bankers acceptance or a certificate
of deposit) from a seller, subject to resale to the seller at an agreed upon price and date (normally, the next Business Day as defined below). A repurchase agreement may be considered a loan collateralized by securities. The resale price
reflects an agreed upon interest rate effective for the period the instrument is held by the Fund and is unrelated to the interest rate on the underlying instrument.
In these repurchase agreement transactions, the securities acquired by the Fund (including accrued interest earned thereon) must have a total value in excess
of the value of the repurchase agreement and are held by the Custodian until repurchased. No more than an aggregate of 15% of the Funds net assets will be invested in illiquid securities, including repurchase agreements having maturities
longer than seven days and securities subject to legal or contractual restrictions on resale, or for which there are no readily available market quotations.
The use of repurchase agreements involves certain risks. For example, if the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the Fund may incur a loss upon disposition of the security. If the other party to the agreement becomes insolvent and subject to liquidation or reorganization under the U.S.
Bankruptcy Code or other laws, a court may determine that the underlying security is collateral for a loan by the Fund not within the control of the Fund and, therefore, the Fund may not be able to substantiate its interest in the underlying
security and may be deemed an unsecured creditor of the other party to the agreement.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements, which involve the sale of securities with an agreement to repurchase the securities at an agreed-upon
price, date and interest payment and have the characteristics of borrowing. The securities purchased with the funds obtained from the agreement and securities collateralizing the agreement will have maturity dates no later than the repayment date.
Generally the effect of such transactions is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases the Fund is able to keep some of
the interest income associated with those securities. Such transactions are only advantageous if the Fund has an opportunity to earn a greater rate of interest on the cash derived from these transactions than the interest cost of obtaining the same
amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always
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be available and the Fund intends to use the reverse repurchase technique only when the Adviser believes it will be advantageous to the Fund. The use of reverse repurchase agreements may
exaggerate any interim increase or decrease in the value of the Funds assets. The Funds exposure to reverse repurchase agreements will be covered by securities having a value equal to or greater than such commitments. Under the 1940 Act,
reverse repurchase agreements are considered borrowings. Although there is no percentage limit on Fund assets that can be used in connection with reverse repurchase agreements, the Fund does not expect to engage, under normal circumstances, in
reverse repurchase agreements with respect to more than 10% of its total assets.
U.S. REGISTERED SECURITIES OF FOREIGN ISSUERS
Investing in U.S. registered, dollar-denominated, securities issued by non-U.S. issuers involves some risks and
considerations not typically associated with investing in U.S. companies. These include differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation, adverse changes in investment
or exchange control regulations, political instability which could affect U.S. investments in foreign countries, and potential restrictions of the flow of international capital. Foreign companies may be subject to less governmental regulation than
U.S. issuers. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of
payment positions.
The Funds investment in common stock of foreign corporations may also be in the form of American Depositary Receipts
(ADRs), Global Depositary Receipts (GDRs) and European Depositary Receipts (EDRs) (collectively Depositary Receipts). Depositary Receipts are receipts, typically issued by a bank or trust company,
which evidence ownership of underlying securities issued by a foreign corporation. For ADRs, the depository is typically a U.S. financial institution and the underlying securities are issued by a foreign issuer. For other Depositary Receipts, the
depository may be a foreign or a U.S. entity, and the underlying securities may have a foreign or a U.S. issuer. Depositary Receipts will not necessarily be denominated in the same currency as their underlying securities. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets, and EDRs, in bearer form, are designated for use in European securities markets. GDRs are tradable both in the United States and in Europe and are designed for use throughout the
world. The Fund may invest in unsponsored Depositary Receipts. The issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United States, and, therefore, there may be less information available regarding
such issuers and there may not be a correlation between such information and the market value of the Depositary Receipts.
SPECIAL CONSIDERATIONS AND RISKS
A discussion of the risks associated with an investment in the Fund is contained in the Prospectus. The discussion
below supplements, and should be read in conjunction with, the Prospectus.
GENERAL
Investment in the Fund should be made with an understanding that the value of the Funds portfolio securities may fluctuate in accordance with changes in
the financial condition of the issuers of the portfolio securities, the value of securities generally and other factors.
An investment in the Fund should
also be made with an understanding of the risks inherent in an investment in securities, including the risk that the financial condition of issuers may become impaired or that the general condition of the securities markets may deteriorate (either
of which may cause a decrease in the value of the portfolio securities and thus in the value of Shares). Securities are susceptible to general market fluctuations and to volatile increases and decreases in value as market confidence in and
perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or
contraction, and global or regional political, economic and banking crises. Securities of issuers traded on exchanges may be suspended on certain exchanges by the issuers themselves, by an exchange or by government authorities. The likelihood of
such suspensions may be higher for securities of issuers in emerging or less-developed market countries than in countries with more developed markets. Trading suspensions may be applied from time to time to the securities of individual issuers for
reasons specific to that issuer, or may be applied broadly by exchanges or governmental authorities in response to market events. Suspensions may last for significant periods of time, during which trading in the securities and instruments that
reference the securities, such as participatory notes (or P-notes) or other derivative instruments, may be halted.
Holders of common stock incur more risk than holders of preferred stocks and debt obligations because common stockholders, as owners of the issuer, have
generally inferior rights to receive payments from the issuer in comparison with the rights of creditors of, or holders of debt obligations or preferred stocks issued by, the issuer. Further, unlike debt securities which typically have a stated
principal amount payable at maturity (whose value, however, will be subject to market fluctuations prior thereto), or preferred stocks
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which typically have a liquidation preference and which may have stated optional or mandatory redemption provisions, common stock have neither a fixed principal amount nor a maturity. Common
stock values are subject to market fluctuations as long as the common stock remains outstanding.
The principal trading market for some of the securities
in the Index may be in the over-the-counter market. The existence of a liquid trading market for certain securities may depend on whether dealers will make a market in
such securities. There can be no assurance that a market will be made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of the Funds Shares will be adversely affected if
trading markets for the Funds portfolio securities are limited or absent or if bid/ask spreads are wide.
BREXIT RISK
In June 2016, citizens of the United Kingdom voted in a referendum to leave the European Union (EU) (known as Brexit), creating
economic and political uncertainty in its wake. In March 2017, the United Kingdom formally notified the European Council of the United Kingdoms intention to withdraw from the EU pursuant to Article 50 of the Treaty on European Union. This
formal notification began a multi-year period of negotiations regarding the terms of the United Kingdoms exit from the EU, which formally occurred on January 31, 2020. A transition period will take place following the United
Kingdoms exit where the United Kingdom will remain subject to EU rules but will have no role in the EU law-making process. During this transition period, United Kingdom and EU representatives will be
negotiating the precise terms of their future relationship. The full scope and nature of the consequences of the exit are not at this time known and are unlikely to be known for a significant period of time. It is also unknown whether the United
Kingdoms exit will increase the likelihood of other countries also departing the EU. Any exits from the EU, or the possibility of such exits, may have a significant impact on the United Kingdom, Europe, and global economies, which may result
in increased volatility and illiquidity, new legal and regulatory uncertainties and potentially lower economic growth for such economies that could potentially have an adverse effect on the value of the Funds investments.
CONFLICTS OF INTEREST RISK
An investment in the Fund may be
subject to a number of actual or potential conflicts of interest. For example, the Adviser or its affiliates may provide services to the Fund, such as securities lending agency services, custodial, administrative, bookkeeping, and accounting
services, transfer agency and shareholder servicing, securities brokerage services, and other services for which the Fund would compensate the Adviser and/or such affiliates. The Fund may invest in other pooled investment vehicles sponsored,
managed, or otherwise affiliated with the Adviser. There is no assurance that the rates at which the Fund pays fees or expenses to the Adviser or its affiliates, or the terms on which it enters into transactions with the Adviser or its affiliates,
will be the most favorable available in the market generally or as favorable as the rates the Adviser makes available to other clients. Because of its financial interest, the Adviser may have an incentive to enter into transactions or arrangements
on behalf of the Fund with itself or its affiliates in circumstances where it might not have done so in the absence of that interest.
CONTINUOUS OFFERING
The method by which Creation Units of Shares are created and traded may raise certain issues under applicable securities laws. Because new Creation Units
of Shares are issued and sold by the Trust on an ongoing basis, at any point a distribution, as such term is used in the Securities Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may,
depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor,
breaks them down into constituent Shares, and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A
determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples
mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not underwriters but are effecting transactions in Shares, whether or not participating
in the distribution of Shares, are generally required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(a)(3) of the Securities Act is not available in respect of such transactions as a result of
Section 24(d) of the 1940 Act. Firms that incur a prospectus-delivery obligation with respect to Shares of the Fund are reminded that under Securities Act Rule 153, a prospectus-delivery obligation under Section 5(b)(2) of the Securities
Act owed to an exchange member in connection with a sale on the Exchange is satisfied by the fact that the Funds Prospectus is available at the Exchange upon request. The prospectus delivery mechanism provided in Rule 153 is only available
with respect to transactions on an exchange.
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SSGA or its affiliates (the Selling Shareholder) may purchase Creation Units through a broker-dealer
to seed (in whole or in part) the Fund as it is launched, or may purchase shares from broker-dealers or other investors that have previously provided seed for the Fund when it was launched or otherwise in secondary market
transactions, and because the Selling Shareholder may be deemed an affiliate of the Fund, the Shares are being registered to permit the resale of these shares from time to time after purchase. The Fund will not receive any of the proceeds from the
resale by the Selling Shareholders of these Shares.
The Selling Shareholder intends to sell all or a portion of the Shares owned by it and offered hereby
from time to time directly or through one or more broker-dealers, and may also hedge such positions. The Shares may be sold on any national securities exchange on which the Shares may be listed or quoted at the time of sale, in the over-the-counter market or in transactions other than on these exchanges or systems at fixed prices, at prevailing market prices at the time of the sale, at varying prices
determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve cross or block transactions.
The
Selling Shareholder may also loan or pledge Shares to broker-dealers that in turn may sell such Shares, to the extent permitted by applicable law. The Selling Shareholder may also enter into options or other transactions with broker-dealers or other
financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of Shares, which Shares such broker-dealer or other financial institution may resell.
The Selling Shareholder and any broker-dealer or agents participating in the distribution of Shares may be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act in connection with such sales. In such event, any commissions paid to any such broker-dealer or agent and any profit on the resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Shareholder who may be deemed an underwriter within the meaning of Section 2(11) of the Securities Act will be subject to the applicable prospectus delivery requirements
of the Securities Act.
COUNTERPARTY RISK
Counterparty risk
with respect to derivatives has been and may continue to be affected by new rules and regulations affecting the derivatives market. Some derivatives transactions are required to be centrally cleared, and a party to a cleared derivatives transaction
is subject to the credit risk of the clearing house and the clearing member through which it holds its cleared position, rather than the credit risk of its original counterparty to the derivatives transaction. Credit risk of market participants with
respect to derivatives that are centrally cleared is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing house would be conducted, what effect the insolvency proceeding would have on any recovery by
the Fund, and what impact an insolvency of a clearing house would have on the financial system more generally.
FUTURES AND OPTIONS TRANSACTIONS
There can be no assurance that a liquid secondary market will exist for any particular futures contract or option at any specific time. Thus, it may not be
possible to close a futures or options position. In the event of adverse price movements, the Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if the Fund has insufficient cash, it
may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, the Fund may be required to make delivery of the instruments underlying futures contracts it has sold.
The Fund will minimize the risk that it will be unable to close out a futures or options contract by only entering into futures and options for which there
appears to be a liquid secondary market.
The risk of loss in trading futures contracts or uncovered call options in some strategies (e.g., selling
uncovered index futures contracts) is potentially unlimited. The Fund does not plan to use futures and options contracts, when available, in this manner. The risk of a futures position may still be large as traditionally measured due to the low
margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. The Fund, however, may utilize
futures and options contracts in a manner designed to limit its risk exposure to that which is comparable to what it would have incurred through direct investment in securities.
Utilization of futures transactions by the Fund involves the risk of imperfect or even negative correlation to its benchmark Index if the index underlying the
futures contracts differs from the benchmark Index or if the futures contracts do not track the benchmark Index as expected. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has
an open position in the futures contract or option.
15
Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during a
single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous days settlement price at the end of a trading session. Once the daily limit has been reached
in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
LIBOR RISK
On July 27, 2017, the United Kingdoms Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of
2021. The replacement or abandonment of, or modification to, LIBOR could have adverse impacts on newly issued financial instruments and existing financial instruments which reference LIBOR. While some instruments may contemplate a scenario where
LIBOR is no longer available by providing for an alternative rate setting methodology, not all instruments may have such provisions and there are significant uncertainty regarding the effectiveness of any such alternative methodologies. Abandonment
of or modifications to LIBOR could lead to significant short-term and long-term uncertainty and market instability. Instruments in which the Fund invests may pay interest at floating or adjusting rates based on LIBOR or may be subject to interest
caps or floors. There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate. The unavailability or replacement of LIBOR may affect the value, liquidity or return on certain Fund investments and may
result in costs incurred in connection with closing out positions and entering into new trades. Any pricing adjustments to the Funds investments resulting from a substitute reference rate may also adversely affect the Funds performance
and/or NAV. Such successor or substitute reference rate and any adjustments selected may negatively impact the Funds investments, performance or financial condition, and may expose the Fund to additional tax, accounting and regulatory risks,
Additionally, if LIBOR ceases to exist, the Fund may need to renegotiate the credit agreements extending beyond 2021 with the Funds obligors that utilize LIBOR as a factor in determining the interest rate and certain of the Funds
existing credit facilities to replace LIBOR with the new standard that is established. Any pricing adjustments to the Funds investments resulting from a substitute reference rate may also adversely affect the Funds performance and/or
NAV. Such successor or substitute reference rate and any adjustments selected may negatively impact the Funds investments, performance or financial condition, and may expose the Fund to additional tax, accounting and regulatory risks.
The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions,
is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities. Abandonment of or modifications to LIBOR could have adverse impacts on newly issued financial instruments and
existing financial instruments which reference LIBOR. While some instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate setting methodology, not all instruments may have such provisions and
there are significant uncertainty regarding the effectiveness of any such alternative methodologies.
In 2012, regulators in the United States and the
United Kingdom alleged that some of the member banks surveyed by the British Bankers Association engaged in manipulative acts in connection with the calculation of LIBOR. Several financial institutions have reached settlements with the CFTC, the
U.S. Department of Justice Fraud Section and the United Kingdom Financial Conduct Authority in connection with investigations by such authorities into submissions made by such financial institutions to the bodies that set LIBOR and other interbank
offered rates. Additional investigations remain ongoing with respect to other major banks. Despite increased regulation and other corrective actions since that time, concerns have arisen regarding LIBORs viability as a benchmark, due to
decreased confidence of the market in LIBOR and lead market participants looking for alternative, non-LIBOR based types of financing, such as fixed rate loans or bonds or floating rate loans based on non-LIBOR indices.
MARKET TURBULENCE RESULTING FROM COVID-19
An outbreak of a respiratory disease caused by a novel coronavirus first detected in China in December 2019 has spread globally in a short period of time. In
an organized attempt to contain and mitigate the effects of the spread of the coronavirus known as COVID-19, governments and businesses world-wide have taken aggressive measures, including closing borders,
restricting international and domestic travel, and the imposition of prolonged quarantines of large populations. COVID-19 has resulted in the disruption of and delays in the delivery of healthcare services and
processes, the cancellation of organized events and educational institutions, the disruption of production and supply chains, a decline in consumer demand for certain goods and services, and general concern and uncertainty, all of which have
contributed to increased volatility in global markets. The effects of COVID-19 will likely affect certain sectors and industries more dramatically than others, which may adversely affect the value of the
Funds investments in those sectors or industries. COVID-19, and other epidemics and pandemics that may arise in the future, could adversely affect the economies of many nations, the global economy,
individual companies and capital markets in ways that cannot be foreseen at the present time. In addition, the impact of infectious diseases in developing or emerging market countries may be greater due to limited health care resources. Political,
economic and social stresses caused by COVID-19 also may exacerbate other pre-existing political, social and economic risks in certain countries. The duration of COVID-19 and its effects cannot be determined at this time, but the effects could be present for an extended period of time.
16
RISKS OF SWAP AGREEMENTS
Swap agreements are subject to the risk that the swap counterparty will default on its obligations. If such a default occurs, the Fund will have contractual
remedies pursuant to the agreements related to the transaction, but such remedies may be subject to bankruptcy and insolvency laws which could affect the Funds rights as a creditor.
The use of interest-rate and index swaps is a highly specialized activity that involves investment techniques and risks different from those associated with
ordinary portfolio security transactions. The use of a swap requires an understanding not only of the referenced asset, reference rate or index but also of the swap itself, without the benefit of observing the performance of the swap under all
possible market conditions. These transactions generally do not involve the delivery of securities or other underlying assets or principal.
The absence
of a regulated execution facility or contract market and lack of liquidity for swap transactions has led, in some instances, to difficulties in trading and valuation, especially in the event of market disruptions. Under recently adopted rules and
regulations, transactions in some types of swaps are required to be centrally cleared. In a cleared derivatives transaction, the Funds counterparty to the transaction is a central derivatives clearing organization, or clearing house, rather
than a bank or broker. Because the Fund is not a member of a clearing house, and only members of a clearing house can participate directly in the clearing house, the Fund holds cleared derivatives through accounts at clearing members. In cleared
derivatives transactions, the Fund will make payments (including margin payments) to and receive payments from a clearing house through its accounts at clearing members. Clearing members guarantee performance of their clients obligations to
the clearing house. Centrally cleared derivative arrangements may be less favorable to the Fund than bilateral (non-cleared) arrangements. For example, the Fund may be required to provide greater amounts of
margin for cleared derivatives transactions than for bilateral derivatives transactions. Also, in contrast to bilateral derivatives transactions, in some cases following a period of notice to the Fund, a clearing member generally can require
termination of existing cleared derivatives transactions at any time or an increase in margin requirements above the margin that the clearing member required at the beginning of a transaction. Clearing houses also have broad rights to increase
margin requirements for existing transactions or to terminate transactions at any time. The Fund is subject to risk if it enters into a derivatives transaction that is required to be cleared (or which SSGA FM expects to be cleared), and no clearing
member is willing or able to clear the transaction on the Funds behalf. In that case, the transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the
value of the transaction and loss of hedging protection. In addition, the documentation governing the relationship between the Fund and clearing members is drafted by the clearing members and generally is less favorable to the Fund than typical
bilateral derivatives documentation.
These clearing rules and other new rules and regulations could, among other things, restrict the Funds ability
to engage in, or increase the cost to the Fund of, derivatives transactions, for example, by making some types of derivatives no longer available to the Fund, increasing margin or capital requirements, or otherwise limiting liquidity or increasing
transaction costs. These regulations are new and evolving, so their potential impact on the Fund and the financial system are not yet known.
Because they
are two party contracts that may be subject to contractual restrictions on transferability and termination and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid and subject to the Funds
limitation on investments in illiquid securities. To the extent that a swap is not liquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. Like most
other investments, swap agreements are subject to the risk that the market value of the instrument will change in a way detrimental to the Funds interest.
If the Fund uses a swap as a hedge against, or as a substitute for, a portfolio investment, the Fund will be exposed to the risk that the swap will have or
will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the Fund. While hedging strategies involving swap instruments can reduce the risk of loss, they can also reduce the opportunity for gain
or even result in losses by offsetting favorable price movements in other Fund investments. Many swaps are complex and often valued subjectively.
TAX
RISKS
As with any investment, you should consider how your investment in Shares of the Fund will be taxed. The tax information in the Prospectus and this
SAI is provided as general information. You should consult your own tax professional about the tax consequences of an investment in Shares of the Fund.
Unless your investment in Shares is made through a tax-exempt entity or
tax-advantaged retirement account, such as an individual retirement account, you need to be aware of the possible tax consequences when the Fund makes distributions or you sell Shares.
17
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions as fundamental policies with respect to the Fund. These restrictions cannot be changed without the
approval of the holders of a majority of the Funds outstanding voting securities. For purposes of the 1940 Act, a majority of the outstanding voting securities of the Fund means the vote, at an annual or a special meeting of the security
holders of the Trust, of the lesser of (1) 67% or more of the voting securities of the Fund present at such meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy, or
(2) more than 50% of the outstanding voting securities of the Fund. Except with the approval of a majority of the outstanding voting securities, the Fund may not:
1. Concentrate its investments in securities of issuers in the same industry, except as may be necessary to approximate the composition of the Funds
underlying Index;1
2. Make loans to another person except as permitted by the 1940 Act or other
governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund;
3. Issue senior securities or borrow
money except as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund;
4. Invest directly in real estate unless the real estate is acquired as a result of ownership of securities or other instruments. This restriction shall not
preclude the Fund from investing in companies that deal in real estate or in instruments that are backed or secured by real estate;
5. Act as an
underwriter of another issuers securities, except to the extent the Fund may be deemed to be an underwriter within the meaning of the Securities Act in connection with the Funds purchase and sale of portfolio securities; or
6. Invest in commodities except as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency
with authority over the Fund.
In addition to the investment restrictions adopted as fundamental policies as set forth above, the Fund observes the
following restrictions, which may be changed by the Board without a shareholder vote. The Fund will not:
1. Invest in the securities of a company for the
purpose of exercising management or control, provided that the Trust may vote the investment securities owned by the Fund in accordance with its views; and
2. Under normal circumstances, invest less than 80% of its total assets in securities that comprise the Index. Securities that have economic characteristics
substantially identical to the economic characteristics of the securities that comprise the Index are included within this 80% investment policy;
The
Fund defines the foregoing terms in accordance with the definition of such terms per the Index. If a percentage limitation is adhered to at the time of investment or contract, a later increase or decrease in percentage resulting from any change in
value or total or net assets will not result in a violation of such restriction, except that the percentage limitations with respect to the borrowing of money will be observed continuously. With respect to the limitation on borrowing, in the event
that a subsequent change in net assets or other circumstances cause the Fund to exceed its limitation, the Fund will take steps to bring the aggregate amount of borrowing back within the limitations within three days thereafter (not including
Sundays and holidays).
The 1940 Act currently permits the Fund to loan up to 33 1/3% of its total assets. With respect to borrowing, the 1940 Act
presently allows the Fund to: (1) borrow from any bank (including pledging, mortgaging or hypothecating assets) in an amount up to 33
1/3% of its total assets, (2) borrow money for temporary purposes in an amount not exceeding 5% of the value of the Funds total
assets at the time of the loan, and (3) enter into reverse repurchase agreements. However, under normal circumstances any borrowings by the Fund will not exceed 10% of the Funds total assets. The 1940 Act generally prohibits funds from
issuing senior securities, although it does not treat certain transactions as senior securities, such as certain borrowings, short sales, reverse repurchase agreements, firm
1
|
The SEC Staff considers concentration to involve more than 25% of a funds assets to be invested in an
industry or group of industries.
|
18
commitment agreements and standby commitments, with appropriate earmarking or segregation of assets to cover such obligation. With respect to investments in commodities, the 1940 Act presently
permits the Fund to invest in commodities in accordance with investment policies contained in its prospectus and SAI. Any such investment shall also comply with the CEA and the rules and regulations thereunder. The 1940 Act does not directly
restrict an investment companys ability to invest in real estate, but does require that every investment company have the fundamental investment policy governing such investments. The Fund will not purchase or sell real estate, except that the
Fund may invest in companies that deal in real estate (including REITs) or in instruments that are backed or secured by real estate.
EXCHANGE LISTING AND TRADING
A discussion of exchange listing and trading matters associated with an investment in the Fund is contained in the
Prospectus under PURCHASE AND SALE INFORMATION and ADDITIONAL PURCHASE AND SALE INFORMATION. The discussion below supplements, and should be read in conjunction with, such sections of the Prospectus.
The Shares of the Fund are approved for listing and trading on the Exchange, subject to notice of issuance. The Shares trade on the Exchange at prices that
may differ to some degree from their net asset value. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of Shares of the Fund will continue to be met.
The Exchange may consider the suspension of trading in, and may initiate delisting proceedings of, the Shares of the Fund under any of the following
circumstances: (i) if any of the continued listing requirements set forth in the Exchange rules are not continuously maintained; (ii) if the Exchange files separate proposals under Section 19(b) of the Securities Exchange Act of 1934,
as amended, and any of the statements or representations regarding (a) the description of the Index, portfolio, or reference asset; (b) limitations on the Index or the Funds portfolio holdings or reference assets; or (c) the
applicability of the Exchange listing rules specified in such proposals are not continuously maintained; (iii) if following the initial 12-month period beginning at the commencement of trading of the
Fund, there are fewer than 50 record or beneficial owners of the Shares of the Fund; (iv) if the value of the Funds underlying index or portfolio of securities on which the Fund is based is no longer calculated or available; or
(v) such other event shall occur or condition shall exist that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. If the Intraday Indicative Value of the Fund is not being disseminated as required by Exchange
rules, the Exchange may halt trading during the day in which such interruption occurs. If the interruption persists past the trading day in which it occurred, the Exchange will halt trading in the Shares. The Exchange will remove the Shares from
listing and trading upon termination of the Fund. The Trust reserves the right to adjust the Fund Share price of the Fund in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits
or reverse stock splits, which would have no effect on the net assets of the Fund.
The Trust reserves the right to adjust the Share price of the Fund in
the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the Fund.
As in the case of other publicly traded securities, brokers commissions on transactions will be based on negotiated commission rates at customary
levels.
The base and trading currencies of the Fund is the U.S. dollar. The base currency is the currency in which the Funds net asset value per
Share is calculated and the trading currency is the currency in which Shares of the Fund are listed and traded on the Exchange.
MANAGEMENT OF THE TRUST
The following information supplements and should be read in conjunction with the section in the Prospectus entitled
MANAGEMENT.
Board Responsibilities. The management and affairs of the Trust and its series, including the Fund described in this SAI, are
overseen by the Trustees. The Board has approved contracts, as described in this SAI, under which certain companies provide essential management services to the Trust.
Like most mutual funds, the day-to-day business of the Trust, including the
management of risk, is performed by third party service providers, such as the Adviser, Distributor, Administrator and Sub-Administrator. The Trustees are responsible for overseeing the Trusts service
providers and, thus, have oversight responsibility with respect to risk management performed by those service providers. Risk management seeks to identify and address risks, i.e., events or circumstances that could have material adverse effects on
the business, operations, shareholder services, investment performance or reputation of the Fund. The Fund and its service
19
providers employ a variety of processes, procedures and controls to identify various of those possible events or circumstances, to lessen the probability of their occurrence and/or to mitigate
the effects of such events or circumstances if they do occur. Each service provider is responsible for one or more discrete aspects of the Trusts business (e.g., the Adviser is responsible for the day-to-day management of the Funds portfolio investments) and, consequently, for managing the risks associated with that business. The Board has emphasized to the Funds service providers the
importance of maintaining vigorous risk management.
The Trustees role in risk oversight begins before the inception of the Fund, at which time the
Funds Adviser presents the Board with information concerning the investment objectives, strategies and risks of the Fund, as well as proposed investment limitations for the Fund. Additionally, the Funds Adviser provides the Board with an
overview of, among other things, their investment philosophies, brokerage practices and compliance infrastructures. Thereafter, the Board continues its oversight function as various personnel, including the Trusts Chief Compliance Officer, as
well as personnel of the Adviser and other service providers, such as the Funds independent accountants, make periodic reports to the Audit Committee or to the Board with respect to various aspects of risk management. The Board and the Audit
Committee oversee efforts by management and service providers to manage risks to which the Fund may be exposed.
The Board is responsible for overseeing
the nature, extent and quality of the services provided to the Fund by the Adviser and receives information about those services at its regular meetings. In addition, on an annual basis, in connection with its consideration of whether to renew the
Investment Advisory Agreement with the Adviser, the Board meets with the Adviser to review such services. Among other things, the Board regularly considers the Advisers adherence to the Funds investment restrictions and compliance with
various Fund policies and procedures and with applicable securities regulations. The Board also reviews information about the Funds investments.
The Trusts Chief Compliance Officer reports regularly to the Board to review and discuss compliance issues. At least annually, the Trusts Chief
Compliance Officer provides the Board with a report reviewing the adequacy and effectiveness of the Trusts policies and procedures and those of its service providers, including the Adviser. The report addresses the operation of the policies
and procedures of the Trust and each service provider since the date of the last report; any material changes to the policies and procedures since the date of the last report; any recommendations for material changes to the policies and procedures;
and any material compliance matters since the date of the last report.
The Board receives reports from the Funds service providers regarding
operational risks and risks related to the valuation and liquidity of portfolio securities. Regular reports are made to the Board concerning investments for which market quotations are not readily available. Annually, the independent registered
public accounting firm reviews with the Audit Committee its audit of the Funds financial statements, focusing on major areas of risk encountered by the Fund and noting any significant deficiencies or material weaknesses in the Funds
internal controls. Additionally, in connection with its oversight function, the Board oversees Fund managements implementation of disclosure controls and procedures, which are designed to ensure that information required to be disclosed by the
Trust in its periodic reports with the SEC are recorded, processed, summarized, and reported within the required time periods. The Board also oversees the Trusts internal controls over financial reporting, which comprise policies and
procedures designed to provide reasonable assurance regarding the reliability of the Trusts financial reporting and the preparation of the Trusts financial statements.
From their review of these reports and discussions with the Adviser, the Chief Compliance Officer, the independent registered public accounting firm and other
service providers, the Board and the Audit Committee learn in detail about the material risks of the Fund, thereby facilitating a dialogue about how management and service providers identify and mitigate those risks.
The Board recognizes that not all risks that may affect the Fund can be identified and/or quantified, that it may not be practical or cost-effective to
eliminate or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Funds goals, and that the processes, procedures and controls employed to address certain risks may be limited
in their effectiveness. Moreover, reports received by the Trustees as to risk management matters are typically summaries of the relevant information. Most of the Funds investment management and business affairs are carried out by or through
the Funds Adviser and other service providers, each of which has an independent interest in risk management but whose policies and the methods by which one or more risk management functions are carried out may differ from the Funds and
each others in the setting of priorities, the resources available or the effectiveness of relevant controls. As a result of the foregoing and other factors, the Boards ability to monitor and manage risk, as a practical matter, is subject
to limitations.
Trustees and Officers. There are seven members of the Board of Trustees, six of whom are not interested persons of the Trust, as
that term is defined in the 1940 Act (Independent Trustees). Frank Nesvet, an Independent Trustee, serves as Chairman of the Board. The Board has determined its leadership structure is appropriate given the specific characteristics and
circumstances of the Trust. The Board made this determination in consideration of, among other things, the fact that the Independent Trustees constitute a super-majority (greater than 75%) of the Board, the fact that the chairperson of each
Committee of the Board is an Independent Trustee, the amount of assets under management in the Trust, and the number of funds (and classes of shares) overseen by the Board. The Board also believes that its leadership structure facilitates the
orderly and efficient flow of information to the Independent Trustees from fund management.
20
The Board of Trustees has two standing committees: the Audit Committee and Trustee Committee. The Audit Committee
and Trustee Committee are each chaired by an Independent Trustee and composed of all of the Independent Trustees.
Set forth below are the names, year of
birth, position with the Trust, length of term of office, and the principal occupations during the last five years and other directorships held of each of the persons currently serving as a Trustee or Officer of the Trust.
TRUSTEES
|
|
|
|
|
|
|
|
|
|
|
NAME, ADDRESS
AND YEAR OF BIRTH
|
|
POSITION(S)
WITH
FUND
|
|
TERM OF
OFFICE AND
LENGTH OF
TIME SERVED
|
|
PRINCIPAL
OCCUPATION(S)
DURING PAST
5 YEARS
|
|
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN
BY TRUSTEE
|
|
OTHER
DIRECTORSHIPS
HELD BY
TRUSTEE
DURING THE
PAST 5 YEARS
|
|
|
|
|
|
INDEPENDENT TRUSTEES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRANK NESVET
c/o SPDR Series Trust
One Iron Street
Boston, MA 02210
1943
|
|
Independent
Trustee,
Chairman, Trustee
Committee Chair
|
|
Term:
Unlimited
Served: since
September
2000
|
|
Retired.
|
|
125
|
|
None.
|
|
|
|
|
|
|
BONNY EUGENIA BOATMAN
c/o SPDR Series
Trust
One Iron Street
Boston, MA 02210
1950
|
|
Independent
Trustee
|
|
Term:
Unlimited
Served: since
April 2010
|
|
Retired.
|
|
125
|
|
None.
|
|
|
|
|
|
|
DWIGHT D. CHURCHILL
c/o SPDR Series Trust
One Iron Street
Boston, MA 02210
1953
|
|
Independent
Trustee
|
|
Term:
Unlimited
Served: since
April 2010
|
|
Self-employed
consultant since 2010; CEO
and President, CFA Institute (June 2014January 2015).
|
|
125
|
|
Affiliated Managers Group, Inc. (Director).
|
21
|
|
|
|
|
|
|
|
|
|
|
NAME, ADDRESS
AND YEAR OF BIRTH
|
|
POSITION(S)
WITH
FUND
|
|
TERM OF
OFFICE AND
LENGTH OF
TIME SERVED
|
|
PRINCIPAL
OCCUPATION(S)
DURING PAST
5 YEARS
|
|
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN
BY TRUSTEE
|
|
OTHER
DIRECTORSHIPS
HELD BY
TRUSTEE
DURING THE
PAST 5 YEARS
|
CLARE S. RICHER
c/o SPDR Series Trust
One Iron Street
Boston, MA 02210
1958
|
|
Independent
Trustee
|
|
Term:
Unlimited
Served: since
July 2018
|
|
Retired. Chief Financial Officer, Putnam Investments LLC (December 2008 May 2017).
|
|
125
|
|
Bain Capital Specialty Finance (Director); Putnam Acquisition Financing Inc. (Director);
Putnam Acquisition Financing LLC (Director); Putnam GP Inc. (Director); Putnam Investor Services, Inc. (Director); Putnam Investments Limited (Director);
University of Notre Dame (Trustee).
|
22
|
|
|
|
|
|
|
|
|
|
|
NAME, ADDRESS
AND YEAR OF BIRTH
|
|
POSITION(S)
WITH
FUND
|
|
TERM OF
OFFICE AND
LENGTH OF
TIME SERVED
|
|
PRINCIPAL
OCCUPATION(S)
DURING PAST
5 YEARS
|
|
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN
BY TRUSTEE
|
|
OTHER
DIRECTORSHIPS
HELD BY
TRUSTEE
DURING THE
PAST 5 YEARS
|
SANDRA G. SPONEM
c/o SPDR Series Trust
One Iron Street
Boston, MA 02210
1958
|
|
Independent
Trustee
|
|
Term:
Unlimited
Served: since
July 2018
|
|
Retired. Chief Financial Officer, M.A. Mortenson Companies, Inc. (February 2007 April 2017).
|
|
125
|
|
Rydex Series Funds (Trustee); Rydex Dynamic Funds (Trustee); Rydex Variable Trust (Trustee); Guggenheim Funds Trust (Trustee); Guggenheim Variable Funds Trust (Trustee); Guggenheim Strategy Funds Trust (Trustee); Transparent Value
Trust (Trustee); Fiduciary/ Claymore Energy Infrastructure Fund (Trustee); Guggenheim Taxable Municipal Managed Duration Trust (Trustee); Guggenheim Strategic Opportunities Fund (Trustee); Guggenheim Enhanced Equity Income Fund (Trustee); Guggenheim
Credit Allocation Fund (Trustee); Guggenheim Energy & Income Fund (Trustee).
|
|
|
|
|
|
|
CARL G. VERBONCOEUR
c/o SPDR Series
Trust
One Iron Street
Boston, MA 02210
1952
|
|
Independent
Trustee,
Audit
Committee
Chair
|
|
Term:
Unlimited
Served: since
April 2010
|
|
Self-employed
consultant since 2009.
|
|
125
|
|
The Motley Fool Funds Trust (Trustee).
|
23
|
|
|
|
|
|
|
|
|
|
|
NAME, ADDRESS
AND YEAR OF BIRTH
|
|
POSITION(S)
WITH
FUND
|
|
TERM OF
OFFICE AND
LENGTH OF
TIME SERVED
|
|
PRINCIPAL
OCCUPATION(S)
DURING PAST
5 YEARS
|
|
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN
BY TRUSTEE
|
|
OTHER
DIRECTORSHIPS
HELD BY
TRUSTEE
DURING THE
PAST 5 YEARS
|
|
|
|
|
|
|
INTERESTED TRUSTEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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JAMES E. ROSS*
SSGA Funds Management, Inc.
One Iron Street
Boston, MA 02210
1965
|
|
Interested
Trustee
|
|
Term:
Unlimited
Served as
Trustee: since
April 2010
|
|
Retired Chairman and Director, SSGA Funds Management, Inc. (2005 March 2020); Retired Executive Vice President, State Street Global Advisors (2012 March 2020); Retired Chief Executive Officer and Director, State Street
Global Advisors Funds Distributors, LLC (May 2017 March 2020); Director, State Street Global Markets, LLC (2013April 2017); President, SSGA Funds Management, Inc. (20052012); Principal, State Street Global Advisors
(20002005).
|
|
136
|
|
SSGA SPDR ETFs Europe I plc (Director) (November 2016 March 2020); SSGA SPDR ETFs Europe II plc (Director) (November 2016 March 2020); State Street Navigator Securities Lending Trust (July 2016 March 2020); SSGA
Funds (January 2014 March 2020); State Street Institutional Investment Trust (February 2007 March 2020); State Street Master Funds (February 2007 March 2020); Elfun Funds (July 2016 December 2018).
|
|
For the purpose of determining the number of portfolios overseen by the Trustees, Fund Complex
comprises registered investment companies for which SSGA Funds Management, Inc. serves as investment adviser.
|
*
|
Mr. Ross is an Interested Trustee because of his former position with the Adviser and ownership interest
in an affiliate of the Adviser. Mr. Ross previously served as an Interested Trustee from November 2005 to December 2009.
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24
OFFICERS
|
|
|
|
|
|
|
NAME, ADDRESS
AND YEAR OF BIRTH
|
|
POSITION(S)
WITH FUND
|
|
TERM OF
OFFICE AND
LENGTH
OF
TIME SERVED
|
|
PRINCIPAL
OCCUPATION(S)
DURING
THE
PAST 5 YEARS
|
ELLEN M. NEEDHAM
SSGA Funds Management,
Inc.
One Iron Street
Boston, MA 02210
1967
|
|
President
|
|
Term: Unlimited
Served: since
October 2012
|
|
Chairman, SSGA Funds Management, Inc. (March 2020Present); President and Director, SSGA Funds Management, Inc. (2001Present)*; Senior Managing Director, State Street Global Advisors (1992Present)*; Manager, State
Street Global Advisors Funds Distributors, LLC (May 2017Present).
|
|
|
|
|
BRUCE S. ROSENBERG
SSGA Funds Management,
Inc.
One Iron Street
Boston, MA 02210
1961
|
|
Treasurer
|
|
Term: Unlimited
Served: since
February 2016
|
|
Managing Director, State Street Global Advisors and SSGA Funds Management, Inc. (July 2015Present); Director, Credit Suisse (April 2008 - July 2015).
|
|
|
|
|
ANN M. CARPENTER
SSGA Funds Management,
Inc.
One Iron Street
Boston, MA 02210
1966
|
|
Vice President;
Deputy Treasurer
|
|
Term: Unlimited
Served: since August 2012 (with
respect to Vice President); Unlimited Served: since February 2016 (with respect to Deputy Treasurer)
|
|
Chief Operating Officer, SSGA Funds Management, Inc. (April 2005Present)*; Managing Director, State Street Global Advisors (April 2005 - Present).*
|
|
|
|
|
MICHAEL P. RILEY
SSGA Funds Management,
Inc.
One Iron Street
Boston, MA 02210
1969
|
|
Vice
President
|
|
Term: Unlimited
Served: since
February 2005
|
|
Managing Director, State Street Global Advisors (2005 - Present).*
|
|
|
|
|
SEAN OMALLEY
SSGA Funds Management,
Inc.
One Iron Street
Boston, MA 02210
1969
|
|
Chief Legal
Officer
|
|
Term: Unlimited
Served: since
August 2019
|
|
Senior Vice President and Deputy General Counsel, State Street Global Advisors (November 2013 - Present).
|
|
|
|
|
ANDREW DELORME
SSGA Funds Management, Inc.
One Iron Street
Boston, MA 02210
1975
|
|
Secretary
|
|
Term: Unlimited
Served: since
August 2019
|
|
Vice President and Senior Counsel, State Street Global Advisors (April 2016Present); Vice President and Counsel, State Street Global Advisors (August 2014March
2016).
|
25
|
|
|
|
|
|
|
NAME, ADDRESS
AND YEAR OF BIRTH
|
|
POSITION(S)
WITH FUND
|
|
TERM OF
OFFICE AND
LENGTH
OF
TIME SERVED
|
|
PRINCIPAL
OCCUPATION(S)
DURING
THE
PAST 5 YEARS
|
KEVIN MORRIS
SSGA Funds Management, Inc.
One Iron Street
Boston, MA 02210
1982
|
|
Assistant Secretary
|
|
Term: Unlimited
Served: since
August 2019
|
|
Vice President and Senior Counsel, State Street Global Advisors (April 2019Present); Vice President and Counsel, State Street Global Advisors (January 2016April 2019); Director, Asset Management Compliance, Fidelity
Investments (June 2015January 2016); Senior Compliance Advisor, Asset Management Compliance, Fidelity Investments (June 2012June 2015).
|
|
|
|
|
DAVID URMAN
SSGA Funds Management, Inc.
One Iron Street
Boston, MA 02210
1985
|
|
Assistant Secretary
|
|
Term: Unlimited
Served: since
August 2019
|
|
Vice President and Senior Counsel, State Street Global Advisors (April 2019Present); Vice President and Counsel, State Street Global Advisors (August 2015April 2019); Associate, Ropes & Gray LLP (November
2012August 2015).
|
|
|
|
|
CHAD C. HALLETT
SSGA Funds Management, Inc.
One Iron Street
Boston, MA 02210
1969
|
|
Deputy Treasurer
|
|
Term: Unlimited
Served: since
February 2016
|
|
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (November 2014Present); Vice President, State Street Bank and Trust Company (2001November 2014).*
|
|
|
|
|
DARLENE ANDERSON-VASQUEZ
SSGA Funds Management,
Inc.
One Iron Street
Boston, MA 02210
1968
|
|
Deputy Treasurer
|
|
Term:
Unlimited
Served: since
November 2016
|
|
Managing Director, State Street Global Advisors and SSGA Funds Management, Inc. (May 2016Present); Senior Vice President, John Hancock Investments (September 2007May
2016).
|
26
|
|
|
|
|
|
|
NAME, ADDRESS
AND YEAR OF BIRTH
|
|
POSITION(S)
WITH FUND
|
|
TERM OF
OFFICE AND
LENGTH
OF
TIME SERVED
|
|
PRINCIPAL
OCCUPATION(S)
DURING
THE
PAST 5 YEARS
|
ARTHUR A. JENSEN
SSGA Funds Management,
Inc.
1600 Summer Street
Stamford, CT 06905
1966
|
|
Deputy Treasurer
|
|
Term:
Unlimited
Served: since
August 2017
|
|
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (July 2016Present); Deputy Treasurer of Elfun Funds (July 2016Present); Treasurer of State Street Institutional Funds, State Street
Variable Insurance Series Funds, Inc. and GE Retirement Savings Plan Funds (June 2011Present); Treasurer of Elfun Funds (June 2011July 2016); Mutual Funds Controller of GE Asset Management Incorporated (April 2011 - July
2016).
|
|
|
|
|
DANIEL FOLEY
SSGA Funds Management, Inc.
One Iron Street
Boston, MA 02210
1972
|
|
Assistant
Treasurer
|
|
Term: Unlimited
Served: since
February 2016
|
|
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (April 2007 - Present).*
|
|
|
|
|
DANIEL G. PLOURDE
SSGA Funds Management,
Inc.
One Iron Street
Boston, MA 02210
1980
|
|
Assistant
Treasurer
|
|
Term: Unlimited
Served: since
May 2017
|
|
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (May 2015Present); Officer, State Street Bank and Trust Company (March 2009 - May 2015).
|
|
|
|
|
SUJATA UPRETI
SSGA Funds Management, Inc.
One Iron Street
Boston, MA 02210
1974
|
|
Assistant
Treasurer
|
|
Term: Unlimited
Served: since
February 2016
|
|
Vice President, State Street Global Advisors and SSGA Funds Management, Inc. (May 2015 - Present); Assistant Director, Cambridge Associates, LLC (July 2014January 2015); Vice President, Bank of New York Mellon (July
2012 - August 2013); Manager, PricewaterhouseCoopers, LLP (September 2003 - July 2012).
|
27
|
|
|
|
|
|
|
NAME, ADDRESS
AND YEAR OF BIRTH
|
|
POSITION(S)
WITH FUND
|
|
TERM OF
OFFICE AND
LENGTH
OF
TIME SERVED
|
|
PRINCIPAL
OCCUPATION(S)
DURING
THE
PAST 5 YEARS
|
BRIAN HARRIS
SSGA Funds Management, Inc.
One Iron Street
Boston, MA 02210
1973
|
|
Chief Compliance Officer; Anti-Money Laundering Officer; Code of Ethics Compliance Officer
|
|
Term: Unlimited
Served: since
November 2013
|
|
Managing Director, State Street Global Advisors and SSGA Funds Management, Inc. (June 2013 - Present)*; Senior Vice President and Global Head of Investment Compliance, BofA Global Capital Management (September 2010 - May
2013).
|
*
|
Served in various capacities and/or with various affiliated entities during noted time period.
|
**
|
Served in various capacities and/or with unaffiliated mutual funds or
closed-end funds for which State Street Bank and Trust Company or its affiliates act as a provider of services during the noted time period.
|
Individual Trustee Qualifications
The Board has concluded that
each of the Trustees should serve on the Board because of his or her ability to review and understand information about the Fund provided to him or her by management, to identify and request other information he or she may deem relevant to the
performance of his or her duties, to question management and other service providers regarding material factors bearing on the management and administration of the Fund, and to exercise his or her business judgment in a manner that serves the best
interests of the Funds shareholders. The Board has concluded that each of the Trustees should serve as a Trustee based on his or her own experience, qualifications, attributes and skills as described below.
The Board has concluded that Mr. Nesvet should serve as Trustee because of the experience he has gained serving as the Chief Executive Officer of a
financial services consulting company, serving on the boards of other investment companies, and serving as chief financial officer of a major financial services company; his knowledge of the financial services industry, and the experience he has
gained serving as Trustee of the Trust since 2000.
The Board has concluded that Ms. Boatman should serve as Trustee because of the experience she
gained serving as Managing Director of the primary investment division of one of the nations leading financial institutions and her knowledge of the financial services industry. Ms. Boatman was elected to serve as Trustee of the Trust in
April 2010.
The Board has concluded that Mr. Churchill should serve as Trustee because of the experience he gained serving as the Head of the Fixed
Income Division of one of the nations leading mutual fund companies and provider of financial services and his knowledge of the financial services industry. Mr. Churchill was elected to serve as Trustee of the Trust in April 2010.
The Board has concluded that Ms. Richer should serve as Trustee because of the experience she gained serving as the Chief Financial Officer of a large
financial services and investment management company, her knowledge of the financial services industry and her experience serving on the board of a major educational institution. Ms. Richer was appointed to serve as Trustee of the Trust in July
2018.
The Board has concluded that Ms. Sponem should serve as Trustee because of the experience she gained serving as the Chief Financial Officer of
a large financial services company, her knowledge of the financial services industry and her experience serving on the board of another investment company. Ms. Sponem was appointed to serve as Trustee of the Trust in July 2018.
The Board has concluded that Mr. Verboncoeur should serve as Trustee because of the experience he gained serving as the Chief Executive Officer of a
large financial services and investment management company, his knowledge of the financial services industry and his experience serving on the boards of other investment companies. Mr. Verboncoeur was elected to serve as Trustee of the Trust in
April 2010.
The Board has concluded that Mr. Ross should serve as Trustee because of the experience he has gained in his various roles with the
Adviser, his knowledge of the financial services industry, and the experience he has gained serving as Trustee of the Trust since 2005 (Mr. Ross did not serve as Trustee from December 2009 until April 2010).
28
In its periodic assessment of the effectiveness of the Board, the Board considers the complementary individual
skills and experience of the individual Trustees primarily in the broader context of the Boards overall composition so that the Board, as a body, possesses the appropriate (and appropriately diverse) skills and experience to oversee the
business of the Fund.
REMUNERATION OF THE TRUSTEES AND OFFICERS
No officer, director or employee of the Adviser, its parent or subsidiaries receives any compensation from the Trust for serving as an officer or Trustee of
the Trust. The Trust, SSGA Active Trust and SPDR Index Shares Funds (together with the Trust, the Trusts) pay, in the aggregate, each Trustee an annual fee of $245,000 plus $10,000 per in-person
meeting attended and $1,250 for each telephonic or video conference meeting attended. The Chairman of the Board receives an additional annual fee of $60,000 and the Chairman of the Audit Committee receives an additional annual fee of $30,000. The
Trust also reimburses each Trustee for travel and other out-of-pocket expenses incurred by him/her in connection with attending such meetings and in connection with
attending industry seminars and meetings. Trustee fees are allocated between the Trusts and each of their respective series in such a manner as deemed equitable, taking into consideration the relative net assets of the series.
The table below shows the compensation that the Trustees received during the Trusts fiscal year ended [June 30, 2020].
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAME OF
TRUSTEE
|
|
AGGREGATE
COMPENSATION
FROM THE TRUST(1)
|
|
|
PENSION OR
RETIREMENT
BENEFITS
ACCRUED
AS PART
OF TRUST
EXPENSES
|
|
|
ESTIMATED
ANNUAL
BENEFITS
UPON
RETIREMENT
|
|
|
TOTAL
COMPENSATION
FROM THE
TRUST AND
FUND COMPLEX
PAID TO
TRUSTEES(1)
|
|
Independent Trustees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank Nesvet
|
|
$
|
|
[ ]
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
[ ]
|
Bonny Eugenia Boatman
|
|
$
|
|
[ ]
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
[ ]
|
Dwight D. Churchill
|
|
$
|
|
[ ]
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
[ ]
|
David Kelly(2)
|
|
$
|
|
[ ]
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
[ ]
|
Clare S. Richer
|
|
$
|
|
[ ]
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
[ ]
|
Sandra G. Sponem
|
|
$
|
|
[ ]
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
[ ]
|
Carl G. Verboncoeur
|
|
$
|
|
[ ]
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
[ ]
|
Interested Trustee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Ross(3)
|
|
$
|
|
[ ]
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
[ ]
|
(1)
|
The Fund Complex includes the Trust.
|
(2)
|
Effective August 22, 2018, Mr. Kelly resigned from his position as Trustee and no longer serves as a
trustee to the Trust.
|
(3)
|
Mr. Ross did not receive any compensation from the Fund Complex for the fiscal year ended [June 30, 2020]. Mr.
Ross became eligible to receive compensation from the Trust on April 1, 2020.
|
STANDING COMMITTEES
Audit Committee. The Board has an Audit Committee consisting of all Independent Trustees. Mr. Verboncoeur serves as Chairman. The Audit Committee meets
with the Trusts independent auditors to review and approve the scope and results of their professional services; to review the procedures for evaluating the adequacy of the Trusts accounting controls; to consider the range of audit fees;
and to make recommendations to the Board regarding the engagement of the Trusts independent auditors. The Audit Committee met [five (5)] times during the fiscal year ended [June 30, 2020].
Trustee Committee. The Board has established a Trustee Committee consisting of all Independent Trustees. Mr. Nesvet serves as Chairman. The
responsibilities of the Trustee Committee are to: 1) nominate Independent Trustees; 2) review on a periodic basis the governance structures and procedures of the Fund; 3) review proposed resolutions and conflicts of interest that may arise in the
business of the Fund and may have an impact on the investors of the Fund; 4) select any independent counsel of the independent trustees as well as make determinations as to that counsels independence; 5) review matters that are referred to the
Committee by the Chief Legal Officer or other counsel to the Trust; and 6) provide general oversight of the Fund on behalf of the investors of the Fund. The Trustee Committee does not have specific procedures in place with respect to the
consideration of nominees recommended by security holders, but may consider such nominees in the event that one is recommended. The Trustee Committee met [four (4)] times during the fiscal year ended [June 30, 2020].
29
OWNERSHIP OF FUND SHARES
As of December 31, 2019, neither the Independent Trustees nor their immediate family members owned beneficially or of record any securities in the
Adviser, Principal Underwriter or any person directly or indirectly controlling, controlled by, or under common control with the Adviser or Principal Underwriter.
The following table shows, as of December 31, 2019, the amount of equity securities beneficially owned by the Trustees in the Trust.
|
|
|
|
|
|
|
|
|
|
|
Name of Trustee
|
|
Fund
|
|
|
Dollar Range of
Equity Securities in
the
Trust
|
|
Aggregate Dollar Range of
Equity Securities in All
Funds Overseen by
Trustee in Family of
Investment Companies
|
|
Independent Trustees:
|
|
|
|
|
|
|
|
|
|
|
Frank Nesvet
|
|
|
None
|
|
|
None
|
|
|
None
|
|
Bonny Eugenia Boatman
|
|
|
None
|
|
|
None
|
|
|
None
|
|
Dwight D. Churchill
|
|
|
SPDR Nuveen Bloomberg Barclays
High Yield Municipal Bond ETF
|
|
|
Over $100,000
|
|
|
Over
$100,000
|
|
Clare S. Richer
|
|
|
None
|
|
|
None
|
|
|
None
|
|
Sandra G. Sponem
|
|
|
None
|
|
|
None
|
|
|
None
|
|
Carl G. Verboncoeur
|
|
|
SPDR S&P Dividend ETF
SPDR S&P 600 Small Cap Value ETF
|
|
|
$10,001 -$50,000
$10,001 -$50,000
|
|
|
$10,001 - $50,000
|
|
Interested Trustee:
|
|
|
|
|
|
|
|
|
|
|
James E. Ross
|
|
|
SPDR Portfolio Large Cap ETF
SPDR S&P Biotech ETF
SPDR S&P Dividend ETF
SPDR
Portfolio Mid Cap ETF
SPDR Dow Jones REIT ETF
SPDR S&P 400 Mid Cap Growth ETF
SPDR Nuveen Bloomberg
Barclays High Yield Municipal Bond
ETF
SPDR S&P 600 Small Cap Growth ETF
|
|
|
Over $100,000
$10,001 -$50,000
$10,001 -$50,000
$10,001 -$50,000
$10,001 -$50,000
$10,001 -$50,000
Over $100,000
$10,001 -$50,000
|
|
|
Over $100,000
|
|
CODES OF ETHICS
The Trust and
the Adviser (which includes applicable reporting personnel of the Distributor) each have adopted a Code of Ethics pursuant to Rule 17j-1 of the 1940 Act, which is designed to prevent affiliated persons of the
Trust, the Adviser and the Distributor from engaging in deceptive, manipulative or fraudulent activities in connection with securities held or to be acquired by the Fund (which may also be held by persons subject to the Codes of Ethics). Each Code
of Ethics permits personnel, subject to that Code of Ethics, to invest in securities for their personal investment accounts, subject to certain limitations, including securities that may be purchased or held by the Fund.
There can be no assurance that the Codes of Ethics will be effective in preventing such activities. Each Code of Ethics, filed as exhibits to this
registration statement, may be examined at the office of the SEC in Washington, D.C. or on the Internet at the SECs website at https://www.sec.gov.
PROXY VOTING POLICIES
The Board believes that the voting of
proxies on securities held by the Fund is an important element of the overall investment process. As such, the Board has delegated the responsibility to vote such proxies to the Adviser for all of the Funds. The Advisers proxy voting policy is
attached at the end of this SAI. Information regarding how the Fund voted proxies relating to its portfolio securities during the most recent twelve-month period ended June 30 is available: (1) without charge by calling 1-866-787-2257; (2) on the Funds website at https://www.spdrs.com; and (3) on the SECs website at
https://www.sec.gov.
30
DISCLOSURE OF PORTFOLIO HOLDINGS POLICY
The Trust has adopted a policy regarding the disclosure of information about the Trusts portfolio holdings. The Board must approve all material
amendments to this policy. The Funds portfolio holdings are publicly disseminated each day the Fund is open for business through financial reporting and news services including publicly accessible Internet web sites. In addition, a basket
composition file, which includes the security names and share quantities to deliver in exchange for Shares, together with estimates and actual cash components, is publicly disseminated daily prior to the opening of the Exchange via the National
Securities Clearing Corporation (NSCC). The basket represents one Creation Unit of the Fund. The Trust, the Adviser or State Street will not disseminate non-public information concerning the Trust,
except information may be made available prior to its public availability: (i) to a party for a legitimate business purpose related to the day-to-day operations of
the Fund, including (a) a service provider, (b) the stock exchanges upon which the ETF is listed, (c) the NSCC, (d) the Depository Trust Company, and (e) financial data/research companies such as Morningstar, Bloomberg L.P.,
and Reuters, or (ii) to any other party for a legitimate business or regulatory purpose, upon waiver or exception, with the consent of an applicable Trust officer.
INVESTMENT ADVISORY AND OTHER SERVICES
THE INVESTMENT ADVISER
SSGA FM acts as investment adviser to
the Trust and, subject to the oversight of the Board, is responsible for the investment management of the Fund. As of [March 31, 2020], the Adviser managed approximately $[ ] billion in assets. The Advisers
principal address is One Iron Street, Boston, Massachusetts 02210. The Adviser, a Massachusetts corporation, is a wholly-owned subsidiary of State Street Global Advisors, Inc., which is itself a wholly-owned subsidiary of State Street Corporation, a
publicly held financial holding company. State Street Global Advisors (SSGA), consisting of the Adviser and other investment advisory affiliates of State Street Corporation, is the investment management arm of State Street Corporation.
The Adviser serves as investment adviser to the Fund pursuant to an investment advisory agreement (Investment Advisory Agreement) between the
Trust and the Adviser. The Investment Advisory Agreement, with respect to the Fund, continues in effect for two years from its effective date, and thereafter is subject to annual approval by (1) the Board or (2) vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund, provided that in either event such continuance also is approved by a majority of the Board who are not interested persons (as defined in the 1940 Act) of the Trust by a vote
cast in person at a meeting called for the purpose of voting on such approval. The Investment Advisory Agreement with respect to the Fund is terminable without penalty, on 60 days notice, by the Board or by a vote of the holders of a majority
(as defined in the 1940 Act) of the Funds outstanding voting securities. The Investment Advisory Agreement is also terminable upon 60 days notice by the Adviser and will terminate automatically in the event of its assignment (as defined
in the 1940 Act).
Under the Investment Advisory Agreement, the Adviser, subject to the oversight of the Board and in conformity with the stated
investment policies of the Fund, manages the investment of the Funds assets. The Adviser is responsible for placing purchase and sale orders and providing continuous supervision of the investment portfolio of the Fund. Pursuant to the
Investment Advisory Agreement, the Adviser is not liable for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or gross negligence
in the performance of its duties or the reckless disregard of its obligations and duties.
For the services provided to the Fund under the Investment
Advisory Agreement, the Fund pays the Adviser monthly fees based on a percentage of the Funds average daily net assets as set forth in the Funds Prospectus. From time to time, the Adviser may waive all or a portion of its fee. The
Adviser pays all expenses of the Fund other than the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustees counsel fees), acquired fund fees and expenses, litigation expenses and
other extraordinary expenses.
A summary of the factors considered by the Board of Trustees in connection with the initial approval of the Investment
Advisory Agreement for the Fund will be available in the Funds first shareholder report after the Fund commences operations.
The Fund had not
commenced operations as of the date of this SAI and therefore did not pay fees to the Adviser for the past three fiscal years.
31
PORTFOLIO MANAGERS
The Adviser manages the Fund using a team of investment professionals. The professionals primarily responsible for the day-to-day portfolio management of the Fund are Emiliano Rabinovich, Karl Schneider and Olga Winner. The following table lists the number and types of accounts managed by each of the key professionals
involved in the day-to-day portfolio management for the Fund and assets under management in those accounts. The total number of accounts and assets have been allocated
to each respective manager. Therefore, some accounts and assets have been counted twice.
Other Accounts Managed as of [December 31,
2019]:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Manager
|
|
Registered
Investment
Company
Accounts
|
|
|
Assets
Managed
(billions)*
|
|
|
Other
Pooled
Investment
Vehicle
Accounts
|
|
|
Assets
Managed
(billions)*
|
|
|
Other
Accounts
|
|
|
Assets
Managed
(billions)*
|
|
|
Total
Assets
Managed
(billions)
|
|
Emiliano Rabinovich
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Karl Schneider
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Olga Winner
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
[*
|
There are no performance-based fees associated with these accounts.]
|
The Fund had not commenced operations prior to the date of this SAI and therefore the portfolio managers did not beneficially own any Shares.
A portfolio manager that has responsibility for managing more than one account may be subject to potential conflicts of interest because he or she is
responsible for other accounts in addition to the Fund. Those conflicts could include preferential treatment of one account over others in terms of: (a) the portfolio managers execution of different investment strategies for various
accounts or (b) the allocation of resources or of investment opportunities.
Portfolio managers may manage numerous accounts for multiple clients.
These accounts may include registered investment companies, other types of pooled accounts (e.g., collective investment funds), and separate accounts (i.e., accounts managed on behalf of individuals or public or private institutions).
Portfolio managers make investment decisions for each account based on the investment objectives and policies and other relevant investment considerations applicable to that portfolio.
A potential conflict of interest may arise as a result of the portfolio managers responsibility for multiple accounts with similar investment
guidelines. Under these circumstances, a potential investment may be suitable for more than one of the portfolio managers accounts, but the quantity of the investment available for purchase is less than the aggregate amount the accounts would
ideally devote to the opportunity. Similar conflicts may arise when multiple accounts seek to dispose of the same investment. The portfolio managers may also manage accounts whose objectives and policies differ from that of the Fund. These
differences may be such that under certain circumstances, trading activity appropriate for one account managed by the portfolio manager may have adverse consequences for another account managed by the portfolio manager. For example, an account may
sell a significant position in a security, which could cause the market price of that security to decrease, while the Fund maintained its position in that security.
A potential conflict may arise when the portfolio managers are responsible for accounts that have different advisory feesthe difference in fees could
create an incentive for the portfolio manager to favor one account over another, for example, in terms of access to investment opportunities. Another potential conflict may arise when the portfolio manager has an investment in one or more accounts
that participate in transactions with other accounts. His or her investment(s) may create an incentive for the portfolio manager to favor one account over another. The Adviser has adopted policies and procedures reasonably designed to address these
potential material conflicts. For instance, portfolio managers are normally responsible for all accounts within a certain investment discipline, and do not, absent special circumstances, differentiate among the various accounts when allocating
resources. Additionally, the Adviser and its advisory affiliates have processes and procedures for allocating investment opportunities among portfolios that are designed to provide a fair and equitable allocation.
SSGAs culture is complemented and reinforced by a total rewards strategy that is based on a pay for performance philosophy which seeks to offer a
competitive pay mix of base salary, benefits, cash incentives and deferred compensation.
Salary is based on a number of factors, including external
benchmarking data and market trends, State Street performance, SSGA performance, and individual overall performance. SSGAs Global Human Resources department regularly participates in compensation surveys in order to provide SSGA with
market-based compensation information that helps support individual pay decisions.
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Additionally, subject to State Street and SSGA business results, State Street allocates an incentive pool to SSGA
to reward its employees. The size of the incentive pool for most business units is based on the firms overall profitability and other factors, including performance against risk-related goals. For most SSGA investment teams, SSGA recognizes
and rewards performance by linking annual incentive decisions for investment teams to the firms or business units profitability and business unit investment performance over a multi-year period.
Incentive pool funding for most active investment teams is driven in part by the post-tax investment performance of
fund(s) managed by the team versus the return levels of the benchmark index(es) of the fund(s) on a one-, three- and, in some cases, five-year basis. For most active investment teams, a material portion of
incentive compensation for senior staff is deferred over a four-year period into the SSGA Long-Term Incentive (SSGA LTI) program. For these teams, The SSGA LTI program indexes the performance of these deferred awards against the post-tax investment performance of fund(s) managed by the team. This is intended to align our investment teams compensation with client interests, both through annual incentive compensation awards and
through the long-term value of deferred awards in the SSGA LTI program.
For the passive equity investment team, incentive pool funding is driven in part
by the post-tax 1 and 3-year tracking error of the funds managed by the team against the benchmark indexes of the funds.
The discretionary allocation of the incentive pool to the business units within SSGA is influenced by market-based compensation data, as well as the overall
performance of each business unit. Individual compensation decisions are made by the employees manager, in conjunction with the senior management of the employees business unit. These decisions are based on the overall performance of the
employee and, as mentioned above, on the performance of the firm and business unit. Depending on the job level, a portion of the annual incentive may be awarded in deferred compensation, which may include cash and/or Deferred Stock Awards (State
Street stock), which typically vest over a four-year period. This helps to retain staff and further aligns SSGA employees interests with SSGA clients and shareholders long-term interests.
SSGA recognizes and rewards outstanding performance by:
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Promoting employee ownership to connect employees directly to the companys success.
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Using rewards to reinforce mission, vision, values and business strategy.
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Seeking to recognize and preserve the firms unique culture and team orientation.
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Providing all employees the opportunity to share in the success of SSGA.
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THE ADMINISTRATOR, SUB-ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Administrator. SSGA FM serves as the administrator to each series of the Trust, pursuant to an Administration Agreement dated June 1, 2015 (the
SSGA Administration Agreement). Pursuant to the SSGA Administration Agreement, SSGA FM is obligated to continuously provide business management services to the Trust and its series and will generally, subject to the general oversight of
the Trustees and except as otherwise provided in the SSGA Administration Agreement, manage all of the business and affairs of the Trust.
Sub-Administrator, Custodian and Transfer Agent. State Street serves as the sub-administrator to each series of the Trust, pursuant to a
Sub-Administration Agreement dated June 1, 2015 (the Sub-Administration Agreement). Under the Sub-Administration
Agreement, State Street is obligated to provide certain sub-administrative services to the Trust and its series. State Street is a wholly owned subsidiary of State Street Corporation, a publicly held financial
holding company, and is affiliated with the Adviser. State Streets mailing address is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111.
State Street also serves as Custodian for the Trusts series pursuant to a custodian agreement (Custodian Agreement). As Custodian, State
Street holds Fund assets, calculates the net asset value of the Shares and calculates net income and realized capital gains or losses. State Street and the Trust will comply with the self-custodian provisions of Rule
17f-2 under the 1940 Act.
State Street also serves as Transfer Agent for each series of the Trust pursuant to a
transfer agency agreement (Transfer Agency Agreement).
Compensation. As compensation for its services provided under the SSGA
Administration agreement, SSGA FM, shall receive fees for the services, calculated based on the average aggregate net assets of the Trust and SIS, which are accrued daily and paid monthly out of its management fee.
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As compensation for its services under the Sub-Administration Agreement,
Custodian Agreement and Transfer Agency Agreement, State Street shall receive a fee for the services, calculated based on the average aggregate net assets of the Trust and SIS, which are accrued daily and paid monthly by the Adviser from its
management fee. For each series of the Trust and SIS, an annual minimum fee applies. In addition, State Street shall receive global safekeeping and transaction fees, which are calculated on a
per-country basis, in-kind creation (purchase) and redemption transaction fees (as described below) and revenue on certain cash balances. State Street may be reimbursed
for its out-of-pocket expenses. The Investment Advisory Agreement provides that the Adviser will pay certain operating expenses of the Trust, including the fees due to
State Street under the Custodian Agreement and the Transfer Agency Agreement.
THE DISTRIBUTOR
State Street Global Advisors Funds Distributors, LLC is the principal underwriter and Distributor of Shares. Its principal address is One Iron Street, Boston,
Massachusetts 02210. Investor information can be obtained by calling 1-866-787-2257. The Distributor has entered into a
distribution agreement (Distribution Agreement) with the Trust pursuant to which it distributes Shares of the Fund. The Distribution Agreement will continue for two years from its effective date and is renewable annually thereafter.
Shares will be continuously offered for sale by the Trust through the Distributor only in Creation Units, as described in the Prospectus and below under PURCHASE AND REDEMPTION OF CREATION UNITS. Shares in less than Creation Units are
not distributed by the Distributor. The Distributor will deliver the Prospectus to persons purchasing Creation Units and will maintain records of both orders placed with it and confirmations of acceptance furnished by it. The Distributor is a
broker-dealer registered under the Securities Exchange Act of 1934, as amended (the Exchange Act) and a member of the Financial Industry Regulatory Authority (FINRA). The Distributor has no role in determining the investment
policies of the Trust or which securities are to be purchased or sold by the Trust. An affiliate of the Distributor may assist Authorized Participants (as defined below) in assembling shares to purchase Creation Units or upon redemption, for which
it may receive commissions or other fees from such Authorized Participants. An affiliate of the Distributor also receives compensation from State Street for providing on-line creation and redemption
functionality to Authorized Participants through its Fund Connect application.
The Adviser or Distributor, or an affiliate of the Adviser or Distributor,
may directly or indirectly make cash payments to certain broker-dealers for participating in activities that are designed to make registered representatives and other professionals more knowledgeable about exchange traded products, including the
SPDR funds, or for other activities, such as participation in marketing activities and presentations, educational training programs, conferences, the development of technology platforms and reporting systems.
In addition, as of the date of this SAI, the Adviser and/or Distributor had arrangements whereby they may make payments, other than for the educational
programs and marketing activities described above, to Pershing LLC (Pershing), RBC Capital Markets, LLC (RBC), LPL Financial, LLC (LPL), and Morgan Stanley Wealth Management, LLC. These amounts, which may be
significant, are paid by the Adviser and/or Distributor from their own resources and not from Fund assets. Pursuant to these arrangements, Pershing, RBC and LPL have agreed to offer certain SPDR funds to their customers and not to charge certain of
their customers any commissions when those customers purchase or sell shares of certain SPDR funds. Payments to a broker-dealer or intermediary may create potential conflicts of interest between the broker dealer or intermediary and its clients.
In addition, the Adviser or Distributor, or an affiliate of the Adviser or Distributor, as well as an index provider that is not affiliated with the
Adviser or Distributor, may also reimburse expenses or make payments from their own assets to other persons in consideration of services or other activities that they believe may benefit the SPDR business or facilitate investment in SPDR funds.
The Distribution Agreement provides that it may be terminated at any time, without the payment of any penalty, as to the Fund: (i) by vote of a majority
of the Independent Trustees or (ii) by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, on at least 60 days written notice to the Distributor. The Distribution Agreement is also terminable
upon 60 days notice by the Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The
continuation of the Distribution Agreement and any other related agreements is subject to annual approval of the Board, including by a majority of the Independent Trustees, as described above.
The allocation among the Trusts series of fees and expenses payable under the Distribution Agreement will be made pro rata in accordance with the daily
net assets of the respective series.
The Distributor may also enter into agreements with securities dealers (Soliciting Dealers) who will
solicit purchases of Creation Unit aggregations of Shares. Such Soliciting Dealers may also be Participating Parties (as defined in the Book Entry Only System section below) and/or DTC Participants (as defined below).
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Pursuant to the Distribution Agreement, the Trust has agreed to indemnify the Distributor, and may indemnify
Soliciting Dealers and Authorized Participants (as described below) entering into agreements with the Distributor, for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability
results from willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its obligations and duties under the Distribution Agreement or other agreement, as applicable.
INDEX PROVIDER AND OTHER PERSONS
An unaffiliated index provider
may make payments from its own assets to other persons in consideration for services provided or other activities that may facilitate investment in SPDR funds.
BROKERAGE TRANSACTIONS
All portfolio transactions are placed on behalf of the Fund by the Adviser. Purchases and sales of securities on a securities exchange are affected through
brokers who charge a commission for their services. Ordinarily commissions are not charged on over the counter orders (e.g., fixed income securities) because the Fund pays a spread which is included in the cost of the security and represents the
difference between the dealers quoted price at which it is willing to sell the security and the dealers quoted price at which it is willing to buy the security. When the Fund executes an over the counter order with an electronic
communications network or an alternative trading system, a commission is charged because electronic communications networks and alternative trading systems execute such orders on an agency basis. Securities may be purchased from underwriters at
prices that include underwriting fees.
In placing a portfolio transaction, the Adviser seeks to achieve best execution. The Advisers duty to seek
best execution requires the Adviser to take reasonable steps to obtain for the client as favorable an overall result as possible for Fund portfolio transactions under the circumstances, taking into account various factors that are relevant to the
particular transaction.
The Adviser refers to and selects from the list of approved trading counterparties maintained by the Advisers Credit Risk
Management team. In selecting a trading counterparty for a particular trade, the Adviser seeks to weigh relevant factors including, but not limited to the following:
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Prompt and reliable execution;
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The competitiveness of commission rates and spreads, if applicable;
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The financial strength, stability and/or reputation of the trading counterparty;
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The willingness and ability of the executing trading counterparty to execute transactions (and commit capital) of
size in liquid and illiquid markets without disrupting the market for the security;
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Local laws, regulations or restrictions;
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The ability of the trading counterparty to maintain confidentiality;
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The availability and capability of execution venues, including electronic communications networks for trading and
execution management systems made available to Adviser;
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Execution related costs;
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History of execution of orders;
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Likelihood of execution and settlement;
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Clearing and settlement capabilities, especially in high volatility market environments;
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Availability of lendable securities;
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Sophistication of the trading counterpartys trading capabilities and infrastructure/facilities;
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The operational efficiency with which transactions are processed and cleared, taking into account the order size
and complexity;
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Speed and responsiveness to the Adviser;
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Access to secondary markets;
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Counterparty exposure; and
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Any other consideration the Adviser believes is relevant to the execution of the order.
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In selecting a trading counterparty, the price of the transaction and costs related to the execution of the transaction typically merit a high relative
importance, depending on the circumstances. The Adviser does not necessarily select a trading counterparty based upon price and costs but may take other relevant factors into account if it believes that these are important in taking reasonable steps
to obtain the best possible result for the Fund under the circumstances. Consequently, the Adviser may cause a client to pay a trading counterparty more than another trading counterparty might have charged for the same transaction in recognition of
the value and quality of the brokerage services provided. The following matters may influence the relative importance that the Adviser places upon the relevant factors:
(i) The nature and characteristics of the order or transaction. For example, size of order, market impact of order, limits, or other
instructions relating to the order;
(ii) The characteristics of the financial instrument(s) or other assets which are the subject of that
order. For example, whether the order pertains to an equity, fixed income, derivative or convertible instrument;
(iii) The characteristics
of the execution venues to which that order can be directed, if relevant. For example, availability and capabilities of electronic trading systems;
(iv) Whether the transaction is a delivery versus payment or over the counter transaction. The creditworthiness of the
trading counterparty, the amount of existing exposure to a trading counterparty and trading counterparty settlement capabilities may be given a higher relative importance in the case of over the counter transactions; and
(v) Any other circumstances relevant the Adviser believes is relevant at the time.
The process by which trading counterparties are selected to effect transactions is designed to exclude consideration of the sales efforts conducted by
broker-dealers in relation to the Fund.
The Adviser does not currently use the Funds assets in connection with third party soft dollar
arrangements. While the Adviser does not currently use soft or commission dollars paid by the Fund for the purchase of third party research, the Adviser reserves the right to do so in the future.
The Fund had not commenced operations as of the date of this SAI and therefore did not pay brokerage commissions during the past three fiscal years.
Securities of Regular Broker-Dealers. The Fund is required to identify any securities of its regular brokers and dealers (as such term
is defined in the 1940 Act) which it may hold at the close of its most recent fiscal year. Regular brokers or dealers of the Trust are the ten brokers or dealers that, during the most recent fiscal year: (i) received the greatest
dollar amounts of brokerage commissions from the Trusts portfolio transactions; (ii) engaged as principal in the largest dollar amounts of portfolio transactions of the Trust; or (iii) sold the largest dollar amounts of the
Trusts shares.
The Fund had not commenced operations as of the date of this SAI and therefore did not have any holdings in Securities of Regular
Broker-Dealers as of [June 30, 2020].
Portfolio Turnover. Portfolio turnover may vary from year to year, as well as within a year. High
turnover rates are likely to result in comparatively greater brokerage expenses or transaction costs. The overall reasonableness of brokerage commissions and transaction costs is evaluated by the Adviser based upon its knowledge of available
information as to the general level of commissions and transaction costs paid by other institutional investors for comparable services.
36
BOOK ENTRY ONLY SYSTEM
The following information supplements and should be read in conjunction with the section in the Prospectus entitled ADDITIONAL PURCHASE AND SALE
INFORMATION.
The Depository Trust Company (DTC) acts as securities depositary for the Shares. Shares of the Fund are represented by
securities registered in the name of DTC or its nominee, Cede & Co., and deposited with, or on behalf of, DTC. Except in the limited circumstance provided below, certificates will not be issued for Shares.
DTC, a limited-purpose trust company, was created to hold securities of its participants (the DTC Participants) and to facilitate the clearance
and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC
Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC
Participants and by the New York Stock Exchange (NYSE) and FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly (the Indirect Participants).
Beneficial ownership of Shares is limited to DTC Participants,
Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as Beneficial Owners) is
shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of Shares.
Conveyance
of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Trust and DTC, DTC is required to make available to the Trust upon request and for a fee to be charged
to the Trust a listing of the Shares of the Fund held by each DTC Participant. The Trust, either directly or through a third party service, shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or
indirectly, through such DTC Participant. The Trust, either directly or through a third party service, shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such place as
such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC
Participant and/or third party service a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt of any
such distributions, shall credit immediately DTC Participants accounts with payments in amounts proportionate to their respective beneficial interests in Shares of the Fund as shown on the records of DTC or its nominee. Payments by DTC
Participants to Indirect Participants and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in
bearer form or registered in a street name, and will be the responsibility of such DTC Participants.
The Trust has no responsibility or
liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue
and deliver printed certificates representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The Fund had not commenced operations prior to the date of this SAI and therefore did not have any beneficial owners that owned greater than 5% of the
outstanding voting securities as of the date of this SAI.
An Authorized Participant (as defined below) may hold of record more than 25% of the
outstanding Shares. From time to time, Authorized Participants may be a beneficial and/or legal owner of the Fund, may be affiliated with an index provider, may be deemed to have control of the Fund and/or may be able to affect the outcome of
matters presented for a vote of the shareholders of the Fund. Authorized Participants may execute an irrevocable proxy granting the Distributor or another affiliate of State Street (the Agent) power to vote or abstain from voting such
Authorized Participants beneficially or legally owned Shares. In such cases, the Agent shall mirror vote (or abstain from voting) such Shares in the same proportion as all other beneficial owners of the Fund.
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The Trustees and Officers of the Trust, as a group, own less than 1% of the Trusts voting securities as of
the date of this SAI.
PURCHASE AND REDEMPTION OF CREATION UNITS
The Fund issues and redeems its Shares on a continuous basis, at net asset value, only in a large specified number of Shares called a Creation
Unit, either principally in-kind for securities included in the Index or in cash for the value of such securities. The value of the Fund is determined once each business day, as described under
Determination of Net Asset Value. A Creation Unit of the Fund consists of [ ] Shares, but may change. Authorized Participants (as defined below) will be notified of
such change. The principal consideration for creations and redemptions for the Fund is in-kind, although this may be revised at any time without notice.
PURCHASE (CREATION). The Trust issues and sells Shares of the Fund only in Creation Units on a continuous basis through the Principal Underwriter, without a
sales load (but subject to transaction fees), at their NAV per share next determined after receipt of an order, on any Business Day (as defined below), in proper form pursuant to the terms of the Authorized Participant Agreement (Participant
Agreement). A Business Day with respect to the Fund is, generally, any day on which the NYSE is open for business, plus Veterans Day and Columbus Day.
FUND DEPOSIT. The consideration for purchase of a Creation Unit of the Fund generally consists of either (i) the
in-kind deposit of a designated portfolio of securities (the Deposit Securities) per each Creation Unit constituting a substantial replication, or a portfolio sampling representation, of the
securities included in the Funds benchmark Index and the Cash Component (defined below), computed as described below or (ii) the cash value of the Deposit Securities (Deposit Cash) and Cash Component, computed as
described below. When accepting purchases of Creation Units for cash, the Fund may incur additional costs associated with the acquisition of Deposit Securities that would otherwise be provided by an in-kind
purchaser.
Together, the Deposit Securities or Deposit Cash, as applicable, and the Cash Component constitute the Fund Deposit, which
represents the minimum initial and subsequent investment amount for a Creation Unit of the Fund. The Cash Component which may include a Dividend Equivalent Payment, is an amount equal to the difference between the net asset value of the
Shares (per Creation Unit) and the market value of the Deposit Securities or Deposit Cash, as applicable. The Dividend Equivalent Payment enables the Fund to make a complete distribution of dividends on the day preceding the next
dividend payment date, and is an amount equal, on a per Creation Unit basis, to the dividends on all the portfolio securities of the Fund (Dividend Securities) with ex-dividend dates within the
accumulation period for such distribution (the Accumulation Period), net of expenses and liabilities for such period, as if all of the Dividend Securities had been held by the Fund for the entire Accumulation Period. The Accumulation
Period begins on the ex-dividend date for the Fund and ends on the day preceding the next ex-dividend date. If the Cash Component is a positive number (i.e., the
net asset value per Creation Unit exceeds the market value of the Deposit Securities or Deposit Cash, as applicable), the Cash Component shall be such positive amount. If the Cash Component is a negative number (i.e., the net asset value per
Creation Unit is less than the market value of the Deposit Securities or Deposit Cash, as applicable), the Cash Component shall be such negative amount and the creator will be entitled to receive cash in an amount equal to the Cash Component. The
Cash Component serves the function of compensating for any differences between the net asset value per Creation Unit and the market value of the Deposit Securities or Deposit Cash, as applicable. Computation of the Cash Component excludes any stamp
duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Securities, if applicable, which shall be the sole responsibility of the Authorized Participant (as defined below).
The Custodian, through NSCC, makes available on each Business Day, prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern time), the
list of the names and the required number of shares of each Deposit Security or the required amount of Deposit Cash, as applicable, to be included in the current Fund Deposit (based on information at the end of the previous Business Day) for the
Fund. Such Fund Deposit is subject to any applicable adjustments as described below, in order to effect purchases of Creation Units of the Fund until such time as the next-announced composition of the Deposit Securities or the required amount of
Deposit Cash, as applicable, is made available.
The identity and number of shares of the Deposit Securities or the amount of Deposit Cash, as applicable,
required for a Fund Deposit for the Fund changes as rebalancing adjustments, interest payments and corporate action events are reflected from time to time by the Adviser with a view to the investment objective of the Fund. Information regarding a
Fund Deposit necessary for the purchase of a Creation Unit is made available to Authorized Participants and other market participants seeking to transact in Creation Unit aggregations. The composition of the Deposit Securities may also change in
response to adjustments to the weighting or composition of the component securities of the Funds Index.
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As noted above, the Trust reserves the right to permit or require the substitution of Deposit Cash to replace any
Deposit Security, which shall be added to the Cash Component, including, without limitation, in situations where the Deposit Security: (i) may not be available in sufficient quantity for delivery, (ii) may not be eligible for transfer
through the systems of DTC for corporate securities and municipal securities or the Federal Reserve System for U.S. Treasury securities; (iii) may not be eligible for trading by an Authorized Participant (as defined below) or the investor for
which it is acting; (iv) would be restricted under the securities laws or where the delivery of the Deposit Security to the Authorized Participant would result in the disposition of the Deposit Security by the Authorized Participant becoming
restricted under the securities laws, or (v) in certain other situations (collectively, non-standard orders). The Trust also reserves the right to: (i) permit or require the substitution
of Deposit Securities in lieu of Deposit Cash; and (ii) include or remove Deposit Securities from the basket in anticipation of index rebalancing changes. The adjustments described above will reflect changes, known to the Adviser on the date of
announcement to be in effect by the time of delivery of the Fund Deposit, in the composition of the subject Index being tracked by the Fund or resulting from certain corporate actions.
PROCEDURES FOR PURCHASE OF CREATION UNITS. To be eligible to place orders with the Principal Underwriter, as facilitated via the Transfer Agent, to purchase a
Creation Unit of the Fund, an entity must be (i) a Participating Party, i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the NSCC (the Clearing
Process), a clearing agency that is registered with the SEC; or (ii) a DTC Participant (see BOOK ENTRY ONLY SYSTEM). In addition, each Participating Party or DTC Participant (each, an Authorized Participant) must
execute a Participant Agreement that has been agreed to by the Principal Underwriter and the Transfer Agent, and that has been accepted by the Trust, with respect to purchases and redemptions of Creation Units. Each Authorized Participant will
agree, pursuant to the terms of a Participant Agreement, on behalf of itself or any investor on whose behalf it will act, to certain conditions, including that it will pay to the Trust, an amount of cash sufficient to pay the Cash Component together
with the creation transaction fee (described below) and any other applicable fees, taxes and additional variable charge.
All orders to purchase Shares
directly from the Fund, including non-standard orders, must be placed for one or more Creation Units and in the manner and by the time set forth in the Participant Agreement and/or the applicable order form.
The date on which an order to purchase Creation Units (or an order to redeem Creation Units, as set forth below) is received and accepted is referred to as the Order Placement Date.
An Authorized Participant may require an investor to make certain representations or enter into agreements with respect to the order (e.g., to provide
for payments of cash, when required). Investors should be aware that their particular broker may not have executed a Participant Agreement and that, therefore, orders to purchase Shares directly from the Fund in Creation Units have to be placed by
the investors broker through an Authorized Participant that has executed a Participant Agreement. In such cases there may be additional charges to such investor. At any given time, there may be only a limited number of broker-dealers that have
executed a Participant Agreement and only a small number of such Authorized Participants may have international capabilities.
On days when the Exchange
or the bond markets close earlier than normal, the Fund may require orders to create Creation Units to be placed earlier in the day. In addition, if a market or markets on which the Funds investments are primarily traded is closed, the Fund
will also generally not accept orders on such day(s). Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement and
in accordance with the applicable order form. Those placing orders through an Authorized Participant should allow sufficient time to permit proper submission of the purchase order by the cut-off time. Economic
or market disruptions or changes, or telephone or other communication failure may impede the ability to reach the Distributor or an Authorized Participant.
Fund Deposits must be delivered by an Authorized Participant through the Federal Reserve System (for cash and U.S. government securities), or through DTC (for
corporate securities and municipal securities), through a subcustody agent (for foreign securities) and/or through such other arrangements allowed by the Trust or its agents. With respect to foreign Deposit Securities, the Custodian shall cause the
subcustodian of the Fund to maintain an account into which the Authorized Participant shall deliver, on behalf of itself or the party on whose behalf it is acting, such Deposit Securities. Foreign Deposit Securities must be delivered to an account
maintained at the applicable local subcustodian. The Fund Deposit transfer must be ordered by the Authorized Participant in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities or Deposit Cash, as applicable,
to the account of the Fund or its agents by no later than the Settlement Date. The Settlement Date for the Fund is generally the second Business Day (T+2) after the Order Placement Date. All questions as to the number of
Deposit Securities or Deposit Cash to be delivered, as applicable, and the validity, form and eligibility (including time of receipt) for the deposit of any tendered securities or cash, as applicable, will be determined by the Trust, whose
determination shall be final and binding. The amount of cash represented by the Cash Component must be transferred directly to the Custodian through the Federal Reserve Bank wire transfer system in a timely manner so as to be received by the
Custodian no later than the Settlement Date. If the Cash Component and the Deposit Securities or Deposit Cash, as applicable, are not received in a timely manner by the Settlement Date, the creation order may be cancelled. Upon written notice to the
Distributor, such canceled order may be resubmitted the following Business Day using a Fund Deposit as newly constituted to reflect the then current NAV of the Fund. The delivery of Creation Units so created generally will occur no later than the
second Business Day following the day on which the purchase order is deemed received by the Distributor.
39
The order shall be deemed to be received on the Business Day on which the order is placed provided that the order
is placed in proper form prior to the applicable cut-off time and the federal funds in the appropriate amount are deposited by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions), with the
Custodian on the Settlement Date. If the order is not placed in proper form as required, or federal funds in the appropriate amount are not received by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions) on the Settlement Date, then
the order may be deemed to be rejected and the Authorized Participant shall be liable to the Fund for losses, if any, resulting therefrom. A creation request is considered to be in proper form if all procedures set forth in the
Participant Agreement, order form and this SAI are properly followed.
ISSUANCE OF A CREATION UNIT. Except as provided herein, Creation Units will not be
issued until the transfer of good title to the Trust of the Deposit Securities or payment of Deposit Cash, as applicable, and the payment of the Cash Component have been completed. When the subcustodian has confirmed to the Custodian that the
required Deposit Securities (or the cash value thereof) have been delivered to the account of the relevant subcustodian or subcustodians, the Principal Underwriter and the Adviser shall be notified of such delivery, and the Trust will issue and
cause the delivery of the Creation Units.
In instances where the Trust accepts Deposit Securities for the purchase of a Creation Unit, the Creation Unit
may be purchased in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities as described below. In these circumstances, the initial deposit will have a value greater than the net asset value of the Shares on the date
the order is placed in proper form since in addition to available Deposit Securities, cash must be deposited in an amount equal to the sum of (i) the Cash Component, plus (ii) an additional amount of cash equal to a percentage of the
market value as set forth in the Participant Agreement, of the undelivered Deposit Securities (the Additional Cash Deposit), which shall be maintained in a general non-interest bearing collateral
account. An additional amount of cash shall be required to be deposited with the Trust, pending delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to
the applicable percentage, as set forth in the Participant Agreement, of the daily marked to market value of the missing Deposit Securities. The Trust may use such Additional Cash Deposit to buy the missing Deposit Securities at any time. Authorized
Participants will be liable to the Trust for all costs, expenses, dividends, income and taxes associated with missing Deposit Securities, including the costs incurred by the Trust in connection with any such purchases. These costs will be deemed to
include the amount by which the actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the day the purchase order was deemed received by the Principal Underwriter plus the brokerage and related
transaction costs associated with such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit Securities have been properly received by the Custodian or purchased by the Trust and deposited
into the Trust. In addition, a transaction fee as set forth below under Creation Transaction Fees will be charged in all cases and an additional variable charge may also be applied. The delivery of Creation Units so created generally
will occur no later than the Settlement Date.
ACCEPTANCE OF ORDERS OF CREATION UNITS. The Trust reserves the absolute right to reject an order for
Creation Units transmitted in respect of the Fund at its discretion, including, without limitation, if (a) the order is not in proper form; (b) the Deposit Securities or Deposit Cash, as applicable, delivered by the Participant are not as
disseminated through the facilities of the NSCC for that date by the Custodian; (c) the investor(s), upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares of the Fund; (d) acceptance of the Deposit
Securities would have certain adverse tax consequences to the Fund; (e) the acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance of the Fund Deposit would otherwise, in the discretion of the
Trust or the Adviser, have an adverse effect on the Trust or the rights of beneficial owners; (g) the acceptance or receipt of the order for a Creation Unit would, in the opinion of counsel to the Trust, be unlawful; or (h) in the event
that circumstances outside the control of the Trust, the Custodian, the Transfer Agent and/or the Adviser make it for all practical purposes not feasible to process orders for Creation Units. Examples of such circumstances include acts of God or
public service or utility problems such as fires, floods, extreme weather conditions and power outages resulting in telephone, telecopy and computer failures; market conditions or activities causing trading halts; systems failures involving computer
or other information systems affecting the Trust, the Principal Underwriter, the Custodian, the Transfer Agent, DTC, NSCC, Federal Reserve System, or any other participant in the creation process, and other extraordinary events. The Trust or its
agents shall communicate to the Authorized Participant its rejection of an order. The Trust, the Transfer Agent, the Custodian and the Principal Underwriter are under no duty, however, to give notification of any defects or irregularities in the
delivery of Fund Deposits nor shall either of them incur any liability for the failure to give any such notification. The Trust, the Transfer Agent, the Custodian and the Principal Underwriter shall not be liable for the rejection of any purchase
order for Creation Units.
All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and
acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trusts determination shall be final and binding.
40
REDEMPTION. Shares may be redeemed only in Creation Units at their net asset value next determined after receipt
of a redemption request in proper form by the Fund through the Transfer Agent and only on a Business Day. EXCEPT UPON LIQUIDATION OF THE FUND, THE TRUST WILL NOT REDEEM SHARES IN AMOUNTS LESS THAN CREATION UNITS. Investors must accumulate enough
Shares in the secondary market to constitute a Creation Unit in order to have such Shares redeemed by the Trust. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly
of a Creation Unit. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Shares to constitute a redeemable Creation Unit.
With respect to the Fund, the Custodian, through the NSCC, makes available prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern time)
on each Business Day, the list of the names and share quantities of the Funds portfolio securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that
day (Fund Securities). Fund Securities received on redemption may not be identical to Deposit Securities.
Redemption proceeds for a Creation
Unit are paid either in-kind or in cash, or a combination thereof, as determined by the Trust. With respect to in-kind redemptions of the Fund, redemption proceeds for a
Creation Unit will consist of Fund Securities as announced by the Custodian prior to the opening of business on the Business Day of the request for redemption received in proper form plus cash in an amount equal to the difference between the
net asset value of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities (the Cash Redemption Amount), less a fixed redemption transaction fee and any applicable
additional variable charge as set forth below. In the event that the Fund Securities have a value greater than the net asset value of the Shares, a compensating cash payment equal to the differential is required to be made by or through an
Authorized Participant by the redeeming shareholder. Notwithstanding the foregoing, at the Trusts discretion, an Authorized Participant may receive the corresponding cash value of the securities in lieu of the
in-kind securities value representing one or more Fund Securities.
PROCEDURES FOR REDEMPTION OF CREATION UNITS.
After the Trust has deemed an order for redemption received, the Trust will initiate procedures to transfer the requisite Fund Securities and the Cash Redemption Amount to the Authorized Participant by the Settlement Date. With respect to in-kind redemptions of the Fund, the calculation of the value of the Fund Securities and the Cash Redemption Amount to be delivered upon redemption will be made by the Custodian according to the procedures set forth
under Determination of Net Asset Value, computed on the Business Day on which a redemption order is deemed received by the Trust. Therefore, if a redemption order in proper form is submitted to the Principal Underwriter by a DTC
Participant by the specified time on the Order Placement Date, and the requisite number of Shares of the Fund are delivered to the Custodian prior to 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions) on the Settlement Date, then the
value of the Fund Securities and the Cash Redemption Amount to be delivered will be determined by the Custodian on such Order Placement Date. If the requisite number of Shares of the Fund are not delivered by 2:00 p.m. or 3:00 p.m. Eastern time (per
applicable instructions) on the Settlement Date, the Fund will not release the underlying securities for delivery unless collateral is posted in such percentage amount of missing Shares as set forth in the Participant Agreement (marked to market
daily).
With respect to in-kind redemptions of the Fund, in connection with taking delivery of shares of Fund
Securities upon redemption of Creation Units, an Authorized Participant must maintain appropriate custody arrangements with a qualified broker-dealer, bank or other custody providers in each jurisdiction in which any of the Fund Securities are
customarily traded (or such other arrangements as allowed by the Trust or its agents), to which account such Fund Securities will be delivered. Deliveries of redemption proceeds generally will be made within two Business Days of the trade date. Due
to the schedule of holidays in certain countries, however, the delivery of in-kind redemption proceeds may take longer than two Business Days after the day on which the redemption request is received in proper
form. The section below entitled Local Market Holiday Schedules identifies the instances where more than seven days would be needed to deliver redemption proceeds. Pursuant to an order of the SEC, in respect of the Fund, the Trust will
make delivery of in-kind redemption proceeds within the number of days stated in the Local Market Holidays section to be the maximum number of days necessary to deliver redemption proceeds. If the Authorized
Participant has not made appropriate arrangements to take delivery of the Fund Securities in the applicable foreign jurisdiction and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Fund
Securities in such jurisdiction, the Trust may, in its discretion, exercise its option to redeem such Shares in cash, and the Authorized Participant will be required to receive its redemption proceeds in cash.
If it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Fund Securities, the Trust may in its discretion
exercise its option to redeem such Shares in cash, and the redeeming investor will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash that the Fund may, in its sole discretion, permit.
In either case, the investor will receive a cash payment equal to the NAV of its Shares based on the NAV of Shares of the Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee and additional
charge for requested cash redemptions specified above, to offset the Trusts brokerage and other transaction costs associated with the disposition of Fund Securities). The Fund may also, in its sole discretion, upon request of a shareholder,
provide such redeemer a portfolio of securities that differs from the exact composition of the Fund Securities but does not differ in net asset value.
41
An Authorized Participant submitting a redemption request is deemed to represent to the Trust that, as of the
close of the Business Day on which the redemption request was submitted, it (or its client) will own (within the meaning of Rule 200 of Regulation SHO) or has arranged to borrow for delivery to the Trust on or prior to the Settlement Date of the
redemption request, the requisite number of Shares of the Fund to be redeemed as a Creation Unit. In either case, the Authorized Participant is deemed to acknowledge that: (i) it (or its client) has full legal authority and legal right to
tender for redemption the requisite number of Shares of the Fund and to receive the entire proceeds of the redemption; and (ii) if such Shares submitted for redemption have been loaned or pledged to another party or are the subject of a
repurchase agreement, securities lending agreement or any other arrangement affecting legal or beneficial ownership of such Shares being tendered, there are no restrictions precluding the tender and delivery of such Shares (including borrowed
shares, if any) for redemption, free and clear of liens, on the redemption Settlement Date. The Trust reserves the right to verify these representations at its discretion, but will typically require verification with respect to a redemption request
from the Fund in connection with higher levels of redemption activity and/or short interest in the Fund. If the Authorized Participant, upon receipt of a verification request, does not provide sufficient verification of its representations as
determined by the Trust, the redemption request will not be considered to have been received in proper form and may be rejected by the Trust.
Redemptions
of Shares for Fund Securities will be subject to compliance with applicable federal and state securities laws and the Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that
the Trust could not lawfully deliver specific Fund Securities upon redemptions or could not do so without first registering the Fund Securities under such laws. An Authorized Participant or an investor for which it is acting subject to a legal
restriction with respect to a particular security included in the Fund Securities applicable to the redemption of Creation Units may be paid an equivalent amount of cash. The Authorized Participant may request the redeeming investor of the Shares to
complete an order form or to enter into agreements with respect to such matters as compensating cash payment. Further, an Authorized Participant that is not a qualified institutional buyer, (QIB) as such term is defined under
Rule 144A of the Securities Act, will not be able to receive Fund Securities that are restricted securities eligible for resale under Rule 144A. An Authorized Participant may be required by the Trust to provide a written confirmation with respect to
QIB status in order to receive Fund Securities.
The right of redemption may be suspended or the date of payment postponed with respect to the Fund
(1) for any period during which the Exchange is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the Exchange is suspended or restricted; (3) for any period during which an
emergency exists as a result of which disposal of the Shares of the Fund or determination of the NAV of the Shares is not reasonably practicable; or (4) in such other circumstance as is permitted by the SEC.
REQUIRED EARLY ACCEPTANCE OF ORDERS. Notwithstanding the foregoing, as described in the Participant Agreement and/or applicable order form, the Fund may
require orders to be placed prior to the trade date, as described in the Participant Agreement or the applicable order form, in order to receive the trade dates net asset value. The cut-off time to
receive the trade dates net asset value will not precede the calculation of the net asset value of the Funds shares on the prior Business Day. Orders to purchase shares of such funds that are submitted on the Business Day immediately
preceding a holiday or a day (other than a weekend) that the equity markets in the relevant foreign market are closed may not be accepted. Authorized Participants may be notified that the cut-off time for an
order may be earlier on a particular Business Day, as described in the Participant Agreement and the applicable order form.
CREATION AND REDEMPTION
TRANSACTION FEES. A transaction fee, as set forth in the table below, is imposed for the transfer and other transaction costs associated with the purchase or redemption of Creation Units, as applicable. Authorized Participants will be required to
pay a fixed creation transaction fee and/or a fixed redemption transaction fee, as applicable, on a given day regardless of the number of Creation Units created or redeemed on that day. The Fund may adjust the transaction fee from time to time. An
additional charge or a variable charge (discussed below) will be applied to certain creation and redemption transactions, including non-standard orders and whole or partial cash purchases or redemptions. With
respect to creation orders, Authorized Participants are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Trust and with respect to redemption orders, Authorized Participants are
responsible for the costs of transferring the Fund Securities from the Trust to their account or on their order. Investors who use the services of a broker or other such intermediary may also be charged a fee for such services.
Creation and Redemption Transaction Fees:
|
|
|
|
|
|
|
|
|
FUND
|
|
TRANSACTION
FEE*, **
|
|
|
MAXIMUM
TRANSACTION
FEE*, **
|
|
SPDR [S&P 500 ESG] ETF
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
*
|
From time to time, the Fund may waive all or a portion of its applicable transaction fee(s). An additional
charge of up to three (3) times the standard transaction fee may be charged to the extent a transaction is outside of the clearing process.
|
42
**
|
In addition to the transaction fees listed above, the Fund may charge an additional variable fee for
creations and redemptions in cash to offset brokerage and impact expenses associated with the cash transaction. The variable transaction fee will be calculated based on historical transaction cost data and the Advisers view of current market
conditions; however, the actual variable fee charged for a given transaction may be lower or higher than the trading expenses incurred by the Fund with respect to that transaction.
|
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with the sections in the Prospectus entitled PURCHASE AND SALE INFORMATION
and ADDITIONAL PURCHASE AND SALE INFORMATION.
Net asset value per Share for the Fund is computed by dividing the value of the net assets of
the Fund (i.e., the value of its total assets less total liabilities) by the total number of Shares outstanding. Expenses and fees, including the management fees, are accrued daily and taken into account for purposes of determining net asset
value. The net asset value of the Fund is calculated by State Street and determined once daily as of the close of the regular trading session on the NYSE (ordinarily 4:00 p.m. Eastern time) on each day that such exchange is open. Fixed-income assets
are generally valued as of the announced closing time for trading in fixed-income instruments in a particular market or exchange. Creation/redemption order cut-off times may be earlier on any day that the
Securities Industry and Financial Markets Association (or applicable exchange or market on which the Funds investments are traded) announces an early closing time. Any assets or liabilities denominated in currencies other than the U.S. dollar
are converted into U.S. dollars at market rates on the date of valuation (generally as of 4:00 p.m. London time) as quoted by one or more sources.
In
calculating the Funds net asset value per Share, the Funds investments are generally valued using market valuations. A market valuation generally means a valuation (i) obtained from an exchange, a pricing service, or a major market
maker (or dealer), (ii) based on a price quotation or other equivalent indication of value supplied by an exchange, a pricing service, or a major market maker (or dealer) or (iii) based on amortized cost. The Fund relies on a third-party
service provider for assistance with the daily calculation of the Funds NAV. The third-party service provider, in turn, relies on other parties for certain pricing data and other inputs used in the calculation of the Funds NAV.
Therefore, the Fund is subject to certain operational risks associated with reliance on its service provider and that service providers sources of pricing and other data. NAV calculation may be adversely affected by operational risks arising
from factors such as errors or failures in systems and technology. Such errors or failures may result in inaccurately calculated NAVs, delays in the calculation of NAVs and/or the inability to calculate NAV over extended time periods. The Fund may
be unable to recover any losses associated with such failures. In the case of shares of other funds that are not traded on an exchange, a market valuation means such funds published net asset value per share. The Adviser may use various
pricing services, or discontinue the use of any pricing service, as approved by the Board from time to time. A price obtained from a pricing service based on such pricing services valuation matrix may be considered a market valuation.
In the event that current market valuations are not readily available or are deemed unreliable, the Trusts procedures require the Oversight Committee to
determine a securitys fair value if a market price is not readily available. In determining such value the Oversight Committee may consider, among other things, (i) price comparisons among multiple sources, (ii) a review of corporate
actions and news events, and (iii) a review of relevant financial indicators (e.g., movement in interest rates, market indices, and prices from the Funds Index Provider). In these cases, the Funds net asset value may reflect
certain portfolio securities fair values rather than their market prices. The fair value of a portfolio instrument is generally the price which the Fund might reasonably expect to receive upon its current sale in an orderly market between
market participants. Ascertaining fair value requires a determination of the amount that an arms-length buyer, under the circumstances, would currently pay for the portfolio instrument. Fair value
pricing involves subjective judgments and it is possible that the fair value determination for a security is materially different than the value that could be realized upon the sale of the security. In addition, fair value pricing could result in a
difference between the prices used to calculate the Funds net asset value and the prices used by the Funds benchmark Index. This may result in a difference between the Funds performance and the performance of the Funds
benchmark Index. With respect to securities that are primarily listed on foreign exchanges, the value of the Funds portfolio securities may change on days when you will not be able to purchase or sell your Shares.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction with the section in the Prospectus entitled DISTRIBUTIONS.
GENERAL POLICIES
Dividends from net investment income, if any,
are generally declared and paid [monthly] by the Fund, but may vary significantly from period to period. Distributions of net realized securities gains, if any, generally are declared and paid once a year, but the Trust may make distributions on a
more frequent basis for the Fund to improve index tracking or to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the 1940 Act.
43
Dividends and other distributions on Shares are distributed, as described below, on a pro rata basis to
Beneficial Owners of such Shares. Dividend payments are made through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received from the Trust.
Management of the Trust reserves the right to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve
the Funds eligibility for treatment as a RIC under the Internal Revenue Code or to avoid imposition of income or excise taxes at the Fund level.
DIVIDEND REINVESTMENT
Broker dealers, at their own discretion,
may offer a dividend reinvestment service under which Shares are purchased in the secondary market at current market prices. Investors should consult their broker dealer for further information regarding any dividend reinvestment service offered by
such broker dealer.
TAXES
The following is a summary of certain federal income tax considerations generally affecting the Fund and its shareholders that supplements the discussion in
the Prospectus. No attempt is made to present a comprehensive explanation of the federal, state, local or foreign tax treatment of the Fund or its shareholders, and the discussion here and in the Prospectus is not intended to be a substitute for
careful tax planning.
The following general discussion of certain federal income tax consequences is based on the Internal Revenue Code and the
regulations issued thereunder as in effect on the date of this SAI. New legislation, as well as administrative changes or court decisions, may significantly change the conclusions expressed herein, and may have a retroactive effect with respect to
the transactions contemplated herein.
The following information should be read in conjunction with the section in the Prospectus entitled
ADDITIONAL TAX INFORMATION.
TAXATION OF THE FUND. The Fund is treated as a separate corporation for federal income tax purposes. The Fund
therefore is considered to be a separate entity in determining its treatment under the rules for RICs described herein and in the Prospectus. Losses in one series of the Trust do not offset gains in any other series of the Trust and the requirements
(other than certain organizational requirements) for qualifying for treatment as a RIC are determined at the Fund level rather than at the Trust level. The Fund has elected or will elect and intends to qualify each year to be treated as a separate
RIC under Subchapter M of the Internal Revenue Code. As such, the Fund should not be subject to federal income tax on its net investment income and capital gains, if any, to the extent that it timely distributes such income and capital gains to its
shareholders. In order to qualify for treatment as a RIC, the Fund must distribute annually to its shareholders at least the sum of 90% of its taxable net investment income (generally including the excess of net short-term capital gains over net
long-term capital losses) and 90% of its net tax exempt interest income, if any (the Distribution Requirement) and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of the
Funds gross income each taxable year must be derived from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with
respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly traded partnerships (the Qualifying Income Requirement); and (ii) at the end of each quarter
of the Funds taxable year, its assets must be diversified so that (a) at least 50% of the market value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to an amount not greater in value than 5% of the value of the Funds total assets and to not more than 10% of the outstanding voting securities of such issuer, and
(b) not more than 25% of the value of its total assets is invested in the securities (other than U.S. government securities or securities of other RICs) of any one issuer, the securities (other than securities of other RICs) of two or more
issuers that it controls and that are engaged in the same, similar, or related trades or businesses, or the securities of one or more qualified publicly traded partnerships (the Diversification Requirement).
If the Fund fails to satisfy the Qualifying Income Requirement or the Diversification Requirement in any taxable year, the Fund may be eligible for relief
provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures
of the Diversification Requirement where the Fund corrects the failure within a specified period of time. In order to be eligible for the relief
44
provisions with respect to a failure to meet the Diversification Requirement, the Fund may be required to dispose of certain assets. If these relief provisions were not available to the Fund and
it were to fail to qualify for treatment as a RIC for a taxable year, all of its taxable income would be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and its distributions (including capital
gains distributions) generally would be taxable as ordinary income dividends to its shareholders, subject to the dividends-received deduction for corporate shareholders and the lower tax rates on qualified dividend income received by noncorporate
shareholders. To requalify for treatment as a RIC in a subsequent taxable year, the Fund would be required to satisfy the RIC qualification requirements for that year and to distribute any earnings and profits from any year in which the Fund failed
to qualify for tax treatment as a RIC. If the Fund failed to qualify as a RIC for a period greater than two taxable years, it would generally be required to pay a Fund-level tax on certain net built-in gains
recognized with respect to certain of its assets upon a disposition of such assets within five years of qualifying as a RIC in a subsequent year. The Board reserves the right not to maintain the qualification of the Fund for treatment as a RIC if it
determines such course of action to be beneficial to shareholders.
As discussed more fully below, the Fund intends to distribute substantially all of its
net investment income and its capital gains for each taxable year.
If the Fund meets the Distribution Requirement but retains some or all of its income
or gains, it will be subject to federal income tax to the extent any such income or gains are not distributed. The Fund may designate certain amounts retained as undistributed net capital gain in a notice to its shareholders, who (i) will be
required to include in income for U.S. federal income tax purposes, as long-term capital gain, their proportionate shares of the undistributed amount so designated, (ii) will be entitled to credit their proportionate shares of the income tax
paid by the Fund on that undistributed amount against their federal income tax liabilities and to claim refunds to the extent such credits exceed their liabilities and (iii) will be entitled to increase their tax basis, for federal income tax
purposes, in their Shares by an amount equal to the excess of the amount of undistributed net capital gain included in their respective income over their respective income tax credits. If the Fund failed to satisfy the Distribution Requirement for
any taxable year, it would be taxed as a regular corporation, with consequences generally similar to those described in the preceding paragraph.
The Fund
will be subject to a 4% excise tax on certain undistributed income if it does not distribute to its shareholders in each calendar year an amount at least equal to 98% of its ordinary income for the calendar year plus 98.2% of its capital gain net
income for the twelve months ended October 31 of such year, subject to an increase for any shortfall in the prior years distribution. The Fund intends to declare and distribute dividends and distributions in the amounts and at the times
necessary to avoid the application of this 4% excise tax.
The Fund may elect to treat part or all of any qualified late year loss as if it
had been incurred in the succeeding taxable year in determining the Funds taxable income, net capital gain, net short-term capital gain, and earnings and profits. The effect of this election is to treat any such qualified late year
loss as if it had been incurred in the succeeding taxable year in characterizing Fund distributions for any calendar year. A qualified late year loss generally includes net capital loss, net long-term capital loss, or net
short-term capital loss incurred after October 31 of the current taxable year (commonly referred to as post-October losses) and certain other late-year losses.
Capital losses in excess of capital gains (net capital losses) are not permitted to be deducted against a RICs net investment income.
Instead, for U.S. federal income tax purposes, potentially subject to certain limitations, the Fund may carry a net capital loss from any taxable year forward to offset its capital gains in future years. The Fund is permitted to carry forward
indefinitely a net capital loss to offset its capital gains, if any, in years following the year of the loss. To the extent subsequent capital gains are offset by such losses, they will not result in U.S. federal income tax liability to the Fund and
may not be distributed as capital gains to its shareholders. Generally, the Fund may not carry forward any losses other than net capital losses.
TAXATION
OF SHAREHOLDERSDISTRIBUTIONS. The Fund intends to distribute annually to its shareholders substantially all of its investment company taxable income (computed without regard to the deduction for dividends paid), its net tax-exempt income, if any, and any net capital gain (net recognized long-term capital gains in excess of net recognized short-term capital losses, taking into account any capital loss carryforwards). The Fund will
report to shareholders annually the amounts of dividends paid from ordinary income, the amount of distributions of net capital gain, the portion of dividends which may qualify for the dividends-received deduction, the portion of dividends which may
qualify for treatment as qualified dividend income.
45
Subject to certain limitations, dividends reported by the Fund as qualified dividend income will be taxable to
noncorporate shareholders at rates of up to 20%. Dividends may be reported by the Fund as qualified dividend income if they are attributable to qualified dividend income received by the Fund. Qualified dividend income includes, in general, subject
to certain holding period requirements and other requirements, dividend income from certain U.S. and foreign corporations. Subject to certain limitations, eligible foreign corporations include those incorporated in possessions of the United States,
those incorporated in certain countries with comprehensive tax treaties with the United States and other foreign corporations if the stock with respect to which the dividends are paid is tradable on an established securities market in the United
States. A dividend generally will not be treated as qualified dividend income to the extent that (i) the shareholder has not held the stock on which the dividend was paid for more than 60 days during the
121-day period that begins on the date that is 60 days before the date on which the stock becomes ex-dividend with respect to such dividend or, in the case of certain
preferred stock, for more than 90 days during the 181-day period beginning 90 days before such date, (ii) the shareholder is under an obligation (whether pursuant to a short sale or otherwise) to make
related payments with respect to substantially similar or related property, or (iii) the shareholder elects to treat such dividend as investment income under section 163(d)(4)(B) of the Internal Revenue Code. The holding period requirements
described in this paragraph apply to shareholders investments in the Fund and to the Funds investments in underlying dividend-paying stock. Dividends treated as received by the Fund from a REIT or another RIC may be treated as qualified
dividend income generally only to the extent the dividend distributions are attributable to qualified dividend income received by such REIT or RIC. It is expected that dividends received by the Fund from a REIT and distributed from that Fund to a
shareholder generally will be taxable to the shareholder as ordinary income. Additionally, income derived in connection with the Funds securities lending activities, will, in general, not be treated as qualified dividend income. If 95% or more
of the Funds gross income (calculated without taking into account net capital gain derived from sales or other dispositions of stock or securities) consists of qualified dividend income, the Fund may report all distributions of such income as
qualified dividend income.
Certain dividends received by the Fund from U.S. corporations (generally, dividends received by the Fund in respect of any
share of stock (1) with a tax holding period of at least 46 days during the 91-day period beginning on the date that is 45 days before the date on which the stock becomes
ex-dividend as to that dividend and (2) that is held in an unleveraged position) when distributed and appropriately so reported by the Fund may be eligible for the 50% dividends-received deduction
generally available to corporations under the Internal Revenue Code. Dividends received by the Fund from REITs will not be eligible for that deduction. In order to qualify for the deduction, corporate shareholders must meet the minimum holding
period requirement stated above with respect to their Shares, taking into account any holding period reductions from certain hedging or other transactions or positions that diminish their risk of loss with respect to their Shares, and, if they
borrow to acquire or otherwise incur debt attributable to Shares, they may be denied a portion of the dividends-received deduction with respect to those Shares. Any corporate shareholder should consult its tax adviser regarding the possibility that
its tax basis in its Shares may be reduced, for U.S. federal income tax purposes, by reason of extraordinary dividends received with respect to the Shares and, to the extent such basis would be reduced below zero, current recognition of
income may be required.
Distributions from the Funds net short-term capital gains will generally be taxable to shareholders as ordinary income.
Distributions from the Funds net capital gain will be taxable to shareholders at long-term capital gains rates, regardless of how long shareholders have held their Shares in the Fund. Long-term capital gains are generally taxed to noncorporate
shareholders at rates of up to 20%. Certain capital gain dividends attributable to dividends the Fund receives from REITs may be taxable to noncorporate shareholders at a rate of 25%.
Although dividends generally will be treated as distributed when paid, any dividend declared by the Fund in October, November or December and payable to
shareholders of record in such a month that is paid during the following January will be treated for U.S. federal income tax purposes as received by shareholders on December 31 of the calendar year in which it was declared.
If the Funds distributions exceed its earnings and profits, all or a portion of the distributions made in the taxable year may be treated as a return of
capital to shareholders. A return of capital distribution generally will not be taxable but will reduce the shareholders cost basis and result in a higher capital gain or lower capital loss when the Shares on which the distribution was
received are sold. After a shareholders basis in the Shares has been reduced to zero, distributions in excess of earnings and profits will be treated as gain from the sale of the shareholders Shares.
Distributions that are reinvested in additional Shares through the means of a dividend reinvestment service, if offered by your broker-dealer, will
nevertheless be taxable dividends to the same extent as if such dividends had been received in cash.
A 3.8% Medicare contribution tax generally applies
to all or a portion of the net investment income of a shareholder who is an individual and not a nonresident alien for federal income tax purposes and who has adjusted gross income (subject to certain adjustments) that exceeds a threshold amount
($250,000 if married filing jointly or if considered a surviving spouse for federal income tax purposes, $125,000 if married filing separately, and $200,000 in other cases). This 3.8% tax also applies to all or a portion of the
undistributed net investment income of certain shareholders that are estates and trusts. For these purposes, interest dividends and certain capital gains (generally including capital gain distributions and capital gains realized on the sale of
Shares) are generally taken into account in computing a shareholders net investment income.
46
Distributions of ordinary income and capital gains may also be subject to foreign, state and local taxes
depending on a shareholders circumstances.
TAXATION OF SHAREHOLDERS SALE OF SHARES. In general, a sale of Shares results in capital gain or
loss, and for individual shareholders, is taxable at a federal rate dependent upon the length of time the Shares were held. A sale of Shares held for a period of one year or less at the time of such sale will, for tax purposes, generally result in
short-term capital gains or losses, and a sale of those held for more than one year will generally result in long-term capital gains or losses. Long-term capital gains are generally taxed to noncorporate shareholders at rates of up to 20%.
Gain or loss on the sale of Shares is measured by the difference between the amount received and the adjusted tax basis of the Shares. Shareholders should
keep records of investments made (including Shares acquired through reinvestment of dividends and distributions) so they can compute the tax basis of their Shares.
A loss realized on a sale of Shares may be disallowed if substantially identical Shares are acquired (whether through the reinvestment of dividends or
otherwise) within a sixty-one (61) day period beginning thirty (30) days before and ending thirty (30) days after the date that the Shares are disposed of. In such a case, the basis of the
Shares acquired must be adjusted to reflect the disallowed loss. Any loss upon the sale of Shares held for six (6) months or less is treated as long-term capital loss to the extent of any amounts treated as distributions to the shareholder of
long-term capital gain (including any amounts credited to the shareholder as undistributed capital gains).
COST BASIS REPORTING. The cost basis of Shares
acquired by purchase will generally be based on the amount paid for the Shares and then may be subsequently adjusted for other applicable transactions as required by the Internal Revenue Code. The difference between the selling price and the cost
basis of Shares generally determines the amount of the capital gain or loss realized on the sale or exchange of Shares. Contact the broker through whom you purchased your Shares to obtain information with respect to the available cost basis
reporting methods and elections for your account.
TAXATION OF FUND INVESTMENTS. Dividends and interest received by the Fund on foreign securities may
give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If the Fund meets certain requirements, which include a requirement that more
than 50% of the value of the Funds total assets at the close of its respective taxable year consists of certain foreign securities (generally including foreign government securities), then the Fund should be eligible to file an election with
the Internal Revenue Service (the IRS) that may enable its shareholders, in effect, to receive either the benefit of a foreign tax credit, or a tax deduction, with respect to certain foreign and U.S. possessions income taxes paid by the
Fund, subject to certain limitations. If at least 50% of the Funds total assets at the close of each quarter of a taxable year consists of interests in other RICs (including money market funds and ETFs that are taxable as RICs), the Fund may
make the same election and pass through to its shareholders their pro rata shares of qualified foreign taxes paid by those other RICs and passed through to the Fund for that taxable year. Pursuant to this election, the Fund would treat the
applicable foreign taxes as dividends paid to its shareholders. Each such shareholder would be required to include a proportionate share of those taxes in gross income as income received from a foreign source and must treat the amount so included as
if the shareholder had paid the foreign tax directly. The shareholder may then either deduct the taxes deemed paid by him or her in computing his or her taxable income or, alternatively, use the foregoing information in calculating any foreign tax
credit the shareholder may be entitled to use against such shareholders federal income tax. If the Fund makes this election, the Fund will report annually to its shareholders the respective amounts per share of the Funds income from
sources within, and taxes paid to, foreign countries and U.S. possessions. No deduction for such taxes will be permitted to individuals in computing their alternative minimum tax liability. If the Fund does not make this election, the Fund will be
entitled to claim a deduction for certain foreign taxes incurred by the Fund. In certain instances, the Fund might not elect to apply otherwise allowable U.S. federal income tax deductions for those foreign taxes, whether or not credits or
deductions for those foreign taxes could be passed through to its shareholders pursuant to the election described above. If the Fund does not elect to apply these deductions, taxable distributions you receive from the Fund may be larger than they
would have been if the Fund had taken deductions for such taxes. Under certain circumstances, if the Fund receives a refund of foreign taxes paid in respect of a prior year, the value of Shares could be affected or any foreign tax credits or
deductions passed through to shareholders in respect of the Funds foreign taxes for the current year could be reduced.
Certain of the Funds
investments may be subject to complex provisions of the Internal Revenue Code (including provisions relating to hedging transactions, straddles, integrated transactions, foreign currency contracts, forward foreign currency contracts, and notional
principal contracts) that, among other things, may affect the character of gains and losses realized by the Fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Fund and defer
losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also may require the Fund to
mark-to-market certain types of positions in its portfolio (i.e., treat them as if they were closed out) which may cause the Fund to recognize income without receiving
cash with which to make distributions to its shareholders in amounts necessary to satisfy the RIC distribution requirements for avoiding income and excise taxes. The Fund intends to monitor its transactions, intends to make appropriate tax
elections, and intends to make appropriate entries in its books and records in order to mitigate the effect of these rules and preserve the Funds qualification for treatment as a RIC.
47
Certain investments made by the Fund may be treated as equity in passive foreign investment companies or
PFICs for federal income tax purposes. In general, a passive foreign investment company is a foreign corporation (i) that receives at least 75% of its annual gross income from passive sources (such as interest, dividends, certain
rents and royalties, or capital gains) or (ii) where at least 50% of its assets (computed based on average fair market value) either produce or are held for the production of passive income. If the Fund acquires any equity interest (under
Treasury regulations that may be promulgated in the future, generally including not only stock but also an option to acquire stock such as is inherent in a convertible bond) in a PFIC, the Fund could be subject to U.S. federal income tax and
nondeductible interest charges on excess distributions received from such companies or on gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. A qualified electing fund election or a mark to market election may be available that would ameliorate these adverse tax
consequences, but such elections could require the Fund to recognize taxable income or gain (subject to the distribution requirements applicable to RICs, as described above) without the concurrent receipt of cash. In order to satisfy the
distribution requirements and avoid a tax at the Fund level, the Fund may be required to liquidate portfolio securities that it might otherwise have continued to hold, potentially resulting in additional taxable gain or loss to the Fund. Gains from
the sale of stock of PFICs may also be treated as ordinary income. In order for the Fund to make a qualified electing fund election with respect to a PFIC, the PFIC would have to agree to provide certain tax information to the Fund on an annual
basis, which it might not agree to do. The Fund may limit and/or manage its holdings in PFICs to limit its tax liability or maximize its returns from these investments.
If a sufficient portion of the interests in a foreign issuer are held or deemed held by the Fund, independently or together with certain other U.S. persons,
that issuer may be treated as a controlled foreign corporation (a CFC) with respect to the Fund, in which case the Fund will be required to take into account each year, as ordinary income, its share of certain portions of
that issuers income, whether or not such amounts are distributed. The Fund may have to dispose of its portfolio securities (potentially resulting in the recognition of taxable gain or loss, and potentially under disadvantageous circumstances)
to generate cash, or may have to borrow the cash, to meet its distribution requirements and avoid Fund-level taxes. In addition, some Fund gains on the disposition of interests in such an issuer may be treated as ordinary income. The Fund may limit
and/or manage its holdings in issuers that could be treated as CFCs in order to limit its tax liability or maximize its after-tax return from these investments.
The Fund is required for federal income tax purposes to mark-to-market and
recognize as income for each taxable year its net unrealized gains and losses on certain futures contracts as of the end of the year as well as those actually realized during the year. Gain or loss from futures and options contracts on broad-based
indexes required to be marked to market will be 60% long-term and 40% short-term capital gain or loss. Application of this rule may alter the timing and character of distributions to shareholders. The Fund may be required to defer the recognition of
losses on futures contracts, options contracts and swaps to the extent of any unrecognized gains on offsetting positions held by the Fund. It is anticipated that certain net gain realized from the closing out of futures or options contracts will be
considered gain from the sale of securities and therefore will be qualifying income for purposes of the Qualifying Income Requirement.
For tax years
beginning after December 31, 2017 and before January 1, 2026, a noncorporate taxpayer is generally eligible for a deduction of up to 20% of the taxpayers qualified REIT dividends. If the Fund receives dividends (other
than capital gain dividends) in respect of REIT shares, the Fund may report its own dividends as eligible for the 20% deduction, to the extent the Funds income is derived from such qualified REIT dividends, as reduced by allocable Fund
expenses. In order for the Funds dividends to be eligible for this deduction when received by a noncorporate shareholder, the Fund must meet certain holding period requirements with respect to the REIT shares on which the Fund received the
eligible dividends, and the noncorporate shareholder must meet certain holding period requirements with respect to the Shares.
TAX-EXEMPT SHAREHOLDERS. Certain tax-exempt shareholders, including qualified pension plans, individual retirement accounts, salary deferral arrangements, 401(k) plans, and
other tax-exempt entities, generally are exempt from federal income taxation except with respect to their unrelated business taxable income (UBTI). Under current law, the Fund generally serves to
block UBTI from being realized by its tax-exempt shareholders. However, notwithstanding the foregoing, tax-exempt shareholders could realize UBTI by virtue of their
investment in the Fund where, for example, (i) the Fund invests in REITs that hold residual interests in real estate mortgage investment conduits (REMICs) or (ii) Shares constitute debt-financed property in the hands of the tax-exempt shareholders within the meaning of section 514(b) of the Internal Revenue Code. Charitable remainder trusts are subject to special rules and should consult their tax advisors. There are no restrictions
preventing the Fund from holding investments in REITs that hold residual interests in REMICs, and the Fund may do so. The IRS has issued guidance with respect to these issues and prospective shareholders, especially charitable remainder trusts, are
strongly encouraged to consult with their tax advisors regarding these issues.
48
Certain tax-exempt educational institutions will be subject to a 1.4% tax
on net investment income. For these purposes, certain dividends and capital gain distributions, and certain gains from the disposition of Shares (among other categories of income), are generally taken into account in computing a shareholders
net investment income.
FOREIGN SHAREHOLDERS. Dividends, other than capital gains dividends, short-term capital gain dividends and
interest-related dividends (described below), paid by the Fund to shareholders who are nonresident aliens or foreign entities will be subject to a 30% United States withholding tax unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law to the extent derived from investment income and short-term capital gain or unless such income is effectively connected with a U.S. trade or business carried on through a permanent establishment in
the United States. Nonresident shareholders are urged to consult their own tax advisors concerning the applicability of the United States withholding tax and the proper withholding form(s) to be submitted to the Fund. A non-U.S. shareholder who fails to provide an appropriate IRS Form W-8 may be subject to backup withholding at the appropriate rate.
Dividends reported by the Fund as (i) interest-related dividends, to the extent such dividends are derived from the Funds qualified net
interest income, or (ii) short-term capital gain dividends, to the extent such dividends are derived from the Funds qualified short-term gain, are generally exempt from this 30% withholding tax. Qualified net
interest income is the Funds net income derived from U.S.-source interest and original issue discount, subject to certain exceptions and limitations. Qualified short-term gain generally means the excess of the Funds net
short-term capital gain for the taxable year over its net long-term capital loss, if any. In the case of Shares held through an intermediary, the intermediary may withhold even if the Fund reports the payment as an interest-related dividend or as a
short-term capital gain dividend. Non-U.S. shareholders should contact their intermediaries with respect to the application of these rules to their accounts.
Unless certain non-U.S. entities that hold Shares comply with IRS requirements that will generally require them to
report information regarding U.S. persons investing in, or holding accounts with, such entities, a 30% withholding tax may apply to Fund distributions payable to such entities. A non-U.S. shareholder may be
exempt from the withholding described in this paragraph under an applicable intergovernmental agreement between the U.S. and a foreign government, provided that the shareholder and the applicable foreign government comply with the terms of such
agreement.
Non-U.S. persons are subject to U.S. tax on disposition of a United States real property
interest (a USRPI). Gain on such a disposition is sometimes referred to as FIRPTA gain. The Internal Revenue Code provides a look-through rule for distributions of FIRPTA gain if certain requirements are
met. If the look-through rule applies, certain distributions attributable to income treated as received by the Fund from REITs may be treated as gain from the disposition of a USRPI, causing distributions to be subject to U.S. withholding tax at
rates of up to 21%, and requiring non-U.S. investors to file nonresident U.S. income tax returns. Also, FIRPTA gain may be subject to a 30% branch profits tax in the hands of a
non-U.S. shareholder that is treated as a corporation for federal income tax purposes. Under certain circumstances, Shares may qualify as USRPIs, which could result in 15% withholding on certain distributions
and gross redemption proceeds paid to certain non-U.S. investors.
BACKUP WITHHOLDING. The Fund will be required
in certain cases to withhold (as backup withholding) on amounts payable to any shareholder who (1) has provided the Fund either an incorrect tax identification number or no number at all, (2) is subject to backup withholding by
the IRS for failure to properly report payments of interest or dividends, (3) has failed to certify to the Fund that such shareholder is not subject to backup withholding, or (4) has not certified that such shareholder is a U.S. person
(including a U.S. resident alien). The backup withholding rate is currently 24%. Backup withholding will not be applied to payments that have been subject to the 30% withholding tax on shareholders who are neither citizens nor permanent residents of
the U.S.
CREATION UNITS. An Authorized Participant who exchanges securities for Creation Units generally will recognize a gain or a loss. The gain or
loss will be equal to the difference between the market value of the Creation Units at the time and the sum of the exchangers aggregate basis in the securities surrendered plus the amount of cash paid for such Creation Units. A person who
redeems Creation Units will generally recognize a gain or loss equal to the difference between the exchangers basis in the Creation Units and the sum of the aggregate market value of any securities received plus the amount of any cash received
for such Creation Units. The IRS, however, may assert that a loss realized upon an exchange of securities for Creation Units cannot be deducted currently under the rules governing wash sales, or on the basis that there has been no
significant change in economic position.
Any gain or loss realized upon a creation of Creation Units will be treated as capital gain or loss if the
Authorized Participant holds the securities exchanged therefor as capital assets, and otherwise will be ordinary income or loss. Similarly, any gain or loss realized upon a redemption of Creation Units will be treated as capital gain or loss if the
Authorized Participant holds the Shares comprising the Creation Units as capital assets, and otherwise will be ordinary income or loss. Any capital gain or loss realized upon the creation of Creation Units will generally be treated as long-term
capital gain or loss if the securities exchanged for such Creation Units have been held for more than one year, and otherwise will be short-term capital gain or loss. Any capital gain or loss realized upon the redemption of Creation Units will
generally be treated as long-term capital gain or loss if the Shares comprising the Creation Units
49
have been held for more than one year, and otherwise, will generally be short-term capital gain or loss. Any capital loss realized upon a redemption of Creation Units held for six (6) months
or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions to the applicable Authorized Participant of long-term capital gains with respect to the Creation Units (including any amounts credited to the
Authorized Participant as undistributed capital gains).
The Fund has the right to reject an order for Creation Units if the purchaser (or a group of
purchasers) would, upon obtaining the Shares so ordered, own 80% or more of the outstanding shares of the Fund and if, pursuant to section 351 of the Internal Revenue Code, the Fund would have a basis in any deposit securities different from the
market value of such securities on the date of deposit. The Fund also has the right to require information necessary to determine beneficial Share ownership for purposes of the 80% determination. If the Fund does issue Creation Units to a purchaser
(or a group of purchasers) that would, upon obtaining the Shares so ordered, own 80% or more of the outstanding shares of the Fund, the purchaser (or a group of purchasers) may not recognize gain or loss upon the exchange of securities for Creation
Units.
Persons purchasing or redeeming Creation Units should consult their own tax advisors with respect to the tax treatment of any creation or
redemption transaction.
CERTAIN POTENTIAL TAX REPORTING REQUIREMENTS. Under promulgated Treasury regulations, if a shareholder recognizes a loss on
disposition of the Funds shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder (or certain greater amounts over a combination of years), the shareholder must file with the IRS a
disclosure statement on IRS Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. A shareholder who fails to make the
required disclosure to the IRS may be subject to adverse tax consequences, including significant penalties. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment
of the loss is proper. Shareholders should consult their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
The foregoing discussion is a summary only and is not intended as a substitute for careful tax planning. Purchasers of Shares should consult their own tax
advisors as to the tax consequences of investing in such Shares, including under state, local and other tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and
administrative interpretations in effect on the date hereof. Changes in applicable authority could materially affect the conclusions discussed above, and such changes often occur.
CAPITAL STOCK AND SHAREHOLDER REPORTS
The Fund issues shares of beneficial interest, par value $.01 per Share. The Board may designate additional funds.
Each Share issued by the Trust has a pro rata interest in the assets of the corresponding series of the Trust. Shares have no preemptive, exchange,
subscription or conversion rights and are freely transferable. Each Share is entitled to participate equally in dividends and distributions declared by the Board with respect to the Fund, and in the net distributable assets of the Fund on
liquidation.
Each Share has one vote with respect to matters upon which a shareholder vote is required consistent with the requirements of the 1940 Act
and the rules promulgated thereunder. Shares of all series of the Trust (Funds) vote together as a single class except that if the matter being voted on affects only a particular fund it will be voted on only by that fund and if a matter
affects a particular fund differently from other Funds, that fund will vote separately on such matter. Under Massachusetts law, the Trust is not required to hold an annual meeting of shareholders unless required to do so under the 1940 Act. The
policy of the Trust is not to hold an annual meeting of shareholders unless required to do so under the 1940 Act. All Shares of the Trust (regardless of the fund) have noncumulative voting rights for the election of Trustees. Under Massachusetts
law, Trustees of the Trust may be removed by vote of the shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the Trust. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust, requires that Trust obligations
include such disclaimer, and provides for indemnification and reimbursement of expenses out of the Trusts property for any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations. Given the above limitations on shareholder personal liability, and the nature of the Funds assets and
operations, the risk to shareholders of personal liability is believed to be remote.
Shareholder inquiries may be made by writing to the Trust, c/o the
Distributor, State Street Global Advisors Funds Distributors, LLC at One Iron Street, Boston, Massachusetts 02210.
50
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Morgan, Lewis & Bockius LLP, 1111 Pennsylvania Avenue NW, Washington, DC 20004, serves as counsel to the Trust. [ ], located
at [ ], serves as the independent registered public accounting firm of the Trust. [ ] performs annual audits of the Funds financial statements and provides other audit, tax and related services.
LOCAL MARKET HOLIDAY SCHEDULES
The Trust generally intends to effect deliveries of portfolio securities on a basis of T plus two Business Days (i.e., days on which the NYSE is
open) in the relevant foreign market of the Fund. The ability of the Trust to effect in-kind redemptions within two Business Days of receipt of a redemption request is subject to, among other things,
the condition that, within the time period from the date of the request to the date of delivery of the securities, there are no days that are local market holidays on the relevant Business Days. For every occurrence of one or more intervening
holidays in the local market that are not holidays observed in the United States, the redemption settlement cycle may be extended by the number of such intervening local holidays. In addition to holidays, other unforeseeable closings in a foreign
market due to emergencies may also prevent the Trust from delivering securities within two Business Days.
The securities delivery cycles currently
practicable for transferring portfolio securities to redeeming investors, coupled with local market holiday schedules, may require a delivery process longer than the standard settlement period. In certain circumstances during the calendar year, the
settlement period may be greater than seven calendar days. Such periods are listed in the table below, as are instances where more than seven days will be needed to deliver redemption proceeds. Since certain holidays may occur on different dates in
subsequent years, the number of days required to deliver redemption proceeds in any given year may exceed the maximum number of days listed in the table below. The proclamation of new holidays, the treatment by market participants of certain days as
informal holidays (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery practices,
could affect the information set forth herein at some time in the future and longer (worse) redemption periods are possible.
Listed below are the dates
in calendar year 2020 (the only year for which holidays are known at the time of this SAI filing) in which the regular holidays in non-U.S. markets may impact Fund settlement. This list is based on information
available to the Fund. The list may not be accurate or complete and is subject to change:
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Albania
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Argentina
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Australia
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Austria
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Bahrain
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January 1, 2
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January 1
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January 1, 27
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January 1
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January 1
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March 14, 24
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February 24, 25
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March 2, 9
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April 10, 13
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May 24, 25, 26
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April 13, 20
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March 23, 24
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April 10, 13
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May 1
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August 2, 20
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May 1
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April 2, 9, 10
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May 4
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June 1
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October 29
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July 31
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May 1, 25
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June 1, 8
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October 26
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December 16, 17
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September 7
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June 15
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August 3, 12
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December 24, 25, 31
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November 30
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July 9, 10
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September 28
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December 8, 25
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August 17
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October 5
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October 12
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November 3
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November 6, 23
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December 24*, 25, 28, 31*
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December 8, 25
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*Early closing
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Bangladesh
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Belgium
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Benin
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Bermuda
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Bosnia and Herzegovina
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March 17, 26
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January 1, 10*
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January 1
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January 1
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January 1, 2, 7, 9
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April 9, 14
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April 10, 13
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April 13
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April 10
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April 13, 17, 20
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May 6, 21, 24, 25
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May 1, 21, 22
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May 1, 21
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May 29
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May 1, 25
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July 1
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June 1
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June 1
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June 15
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July 31
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August 2, 11, 30
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July 21
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July 7
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July 30, 31
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November 21, 25
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October 26
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November 11
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August 7
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September 7
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December 25
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December 16, 31
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December 24*, 25, 31*
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September 11
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November 11
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*The Bangladeshi market is closed every Friday
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*Early closing
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December 25
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December 25, 28
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Botswana
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Brazil
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Bulgaria
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Burkina Faso
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Canada
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January 1, 2
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January 1
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January 1
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January 1
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January 1, 2
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April 10, 13
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February 24, 25, 26*
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March 3
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April 13
|
|
February 17
|
May 1, 21
|
|
April 10, 21
|
|
April 10, 13, 17, 20
|
|
May 1, 21
|
|
April 10
|
July 1, 20, 21
|
|
May 1
|
|
May 1, 6, 25
|
|
June 1
|
|
May 18
|
September 30
|
|
June 11
|
|
September 7, 22
|
|
July 7
|
|
June 24
|
October 1
|
|
July 9
|
|
December 24, 25, 28
|
|
August 7
|
|
July 1
|
December 25
|
|
September 7
|
|
|
|
September 11
|
|
August 3
|
|
|
October 12
|
|
|
|
December 25
|
|
September 7
|
|
|
November 2, 20
|
|
|
|
|
|
October 12
|
|
|
December 24^, 25, 31
|
|
|
|
|
|
November 11
|
|
|
*Late opening.
|
|
|
|
|
|
December 24*, 25, 28
|
|
|
^Early closing.
|
|
|
|
|
|
*Early closing.
|
|
|
|
|
|
Chile
|
|
China Connect Bond
Connect
|
|
China Connect Stock
Connect
|
|
China
|
|
Colombia
|
January 1
|
|
January 1, 27, 28
|
|
January 1, 24, 27, 28, 29, 30
|
|
January 1, 24, 27, 28, 29, 30
|
|
January 1, 6
|
April 10
|
|
April 10, 13, 30
|
|
April 6, 9, 10, 13, 29, 30
|
|
April 6
|
|
March 23
|
May 1, 21
|
|
May 1
|
|
May 1, 4, 5
|
|
May 1, 4, 5
|
|
April 9, 10
|
June 29
|
|
June 25
|
|
June 25, 26, 30
|
|
June 25, 26
|
|
May 1, 25
|
July 16
|
|
July 1
|
|
July 1
|
|
October 1, 2, 5, 6, 7, 8
|
|
June 15, 22, 29
|
September 18
|
|
October 1, 2, 26
|
|
October 1, 2, 5, 6, 7, 8, 23, 26
|
|
|
|
July 20
|
October 12
|
|
December 25
|
|
December 24, 25
|
|
|
|
August 7, 17
|
December 8, 25, 31
|
|
|
|
|
|
|
|
October 12
|
|
|
|
|
|
|
|
|
November 2, 16
|
|
|
|
|
|
|
|
|
December 8, 24, 25, 31
|
|
|
|
|
|
Costa Rica
|
|
Croatia
|
|
Cyprus
|
|
Czech Republic
|
|
Denmark
|
January 1
|
|
January 1, 6
|
|
January 1, 6
|
|
January 1
|
|
January 1
|
April 9, 10
|
|
April 10, 13
|
|
March 2, 25
|
|
April 10, 13
|
|
April 9, 10, 13
|
May 1
|
|
May 1
|
|
April 1, 10, 13, 17, 20, 21
|
|
May 1, 8
|
|
May 8, 21, 22
|
September 15
|
|
June 11, 22
|
|
May 1
|
|
July 6
|
|
June 1, 5
|
October 12
|
|
August 5
|
|
June 8
|
|
September 28
|
|
December 24, 25, 31
|
December 25
|
|
November 18
|
|
October 1, 28
|
|
October 28
|
|
|
|
|
December 24, 25, 31
|
|
December 24, 25
|
|
November 17
|
|
|
|
|
|
|
|
|
December 24, 25, 31
|
|
|
|
|
|
|
|
Egypt
|
|
Estonia
|
|
Eswatini
|
|
Finland
|
|
France
|
January 1, 7
|
|
January 1
|
|
January 1
|
|
January 1, 6
|
|
January 1
|
April 19, 20
|
|
February 24
|
|
April 10, 13, 20
|
|
April 10, 13
|
|
April 10, 13
|
May 24, 25
|
|
April 10, 13
|
|
May 1, 21
|
|
May 1, 21
|
|
May 1
|
July 23, 30
|
|
May 1, 21
|
|
July 22
|
|
June 19
|
|
December 24*, 25, 31*
|
August 20
|
|
June 23, 24
|
|
September 7
|
|
December 24, 25, 31
|
|
*Early closing.
|
October 6, 29
|
|
August 20
|
|
December 25, 28
|
|
|
|
|
|
|
December 24, 25, 31
|
|
|
|
|
|
|
|
|
|
|
|
Georgia
|
|
Germany
|
|
Ghana
|
|
Greece
|
|
Guinea-Bissau
|
January 1, 2, 7
|
|
January 1
|
|
January 1, 7
|
|
January 1, 6
|
|
January 1
|
March 3
|
|
April 10, 13
|
|
March 6
|
|
March 2, 25
|
|
April 13
|
April 9, 17, 20
|
|
May 1
|
|
April 10, 13
|
|
April 10, 13, 17, 20
|
|
May 1, 21
|
May 12, 26
|
|
June 1
|
|
May 1, 25
|
|
May 1
|
|
June 1
|
August 28
|
|
December 24, 25, 31
|
|
July 30, 31
|
|
June 8
|
|
July 7
|
October 14
|
|
|
|
August 4
|
|
October 28
|
|
August 7
|
November 23
|
|
|
|
September 21
|
|
December 24, 25
|
|
September 11
|
|
|
|
|
December 4, 25, 28
|
|
|
|
December 25
|
52
|
|
|
|
|
|
|
|
|
Hong Kong
|
|
Hungary
|
|
Iceland
|
|
India
|
|
Indonesia
|
January 1, 27, 28
|
|
January 1
|
|
January 1
|
|
February 19, 21
|
|
January 1
|
April 10, 13, 30
|
|
April 10, 13
|
|
April 9, 10, 13, 23
|
|
March 10, 25
|
|
March 25
|
May 1
|
|
May 1
|
|
May 1, 21
|
|
April 1, 2, 6, 10, 14
|
|
April 10
|
June 25
|
|
June 1
|
|
June 1, 17
|
|
May 1, 7, 25
|
|
May 1, 7, 21, 22, 25, 26, 27
|
July 1
|
|
August 20, 21
|
|
August 3
|
|
October 2, 30
|
|
June 1
|
October 1, 2, 26
|
|
October 23
|
|
December 24, 25, 31
|
|
November 16, 30
|
|
July 31
|
December 25
|
|
December 24, 25
|
|
|
|
December 25
|
|
August 17, 20
|
|
|
|
|
|
|
|
|
October 29
|
|
|
|
|
|
|
|
|
December 24, 25, 31
|
|
|
|
|
|
Ireland
|
|
Israel
|
|
Italy
|
|
Ivory Coast
|
|
Japan
|
January 1
|
|
March 10
|
|
January 1
|
|
January 1
|
|
January 1, 2, 3, 13
|
March 17
|
|
April 8, 9, 12*, 13*, 14, 15, 28, 29
|
|
April 10, 13
|
|
April 13
|
|
February 11, 24
|
April 10, 13
|
|
May 28
|
|
May 1
|
|
May 1, 21
|
|
March 20
|
May 1, 4
|
|
June 30
|
|
December 24, 25, 31
|
|
June 1
|
|
April 29
|
June 1
|
|
July 30
|
|
|
|
July 7
|
|
May 4, 5, 6
|
August 3
|
|
September 20, 27, 28
|
|
|
|
August 7
|
|
July 23, 24
|
October 26
|
|
October 4*, 5*, 6*, 7*, 8*
|
|
|
|
September 11
|
|
August 10
|
December 24*, 25, 28, 29, 31*
|
|
*Early closing.
|
|
|
|
December 25
|
|
September 21, 22
|
*Early closing.
|
|
**The Israeli market is closed every Friday.
|
|
|
|
|
|
November 2, 23
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
Jordan
|
|
Kazakhstan
|
|
Kenya
|
|
Kuwait
|
|
Latvia
|
January 1
|
|
January 1, 2, 7
|
|
January 1
|
|
January 1, 2
|
|
January 1
|
May 24, 25, 26
|
|
March 9, 23, 24, 25
|
|
April 10, 13
|
|
February 25, 26
|
|
April 10, 13
|
July 30
|
|
May 1, 7, 8
|
|
May 1, 25
|
|
March 22
|
|
May 1, 4, 21
|
August 2, 3, 20
|
|
July 6, 31
|
|
June 1
|
|
May 24, 25, 26
|
|
June 22, 23, 24
|
October 29
|
|
August 31
|
|
July 31
|
|
July 30
|
|
November 18
|
*The Jordanian market is closed every Friday.
|
|
December 1, 16, 17, 18
|
|
October 20
|
|
August 2, 3, 20
|
|
December 24, 25, 31
|
|
|
|
|
December 25
|
|
November 1
|
|
|
|
|
|
|
|
|
*The Kuwaiti market is closed every Friday.
|
|
|
|
|
|
|
|
Lithuania
|
|
Luxembourg
|
|
Malawi
|
|
Malaysia
|
|
Mali
|
January 1
|
|
January 1
|
|
January 1, 15
|
|
January 1, 24*, 27
|
|
January 1
|
March 11
|
|
April 10, 13
|
|
March 3
|
|
May 1, 7, 11, 25, 26
|
|
April 13
|
April 10, 13
|
|
May 1
|
|
April 10, 13
|
|
July 31
|
|
May 1, 21
|
May 1, 21
|
|
December 24*, 25, 31*
|
|
May 1, 14, 25
|
|
August 20, 31
|
|
June 1
|
June 24
|
|
*Early closing.
|
|
July 6
|
|
September 16
|
|
July 7
|
July 6
|
|
|
|
October 15
|
|
October 29
|
|
August 7
|
December 24, 25, 31
|
|
|
|
December 25
|
|
December 25
|
|
September 11
|
|
|
|
|
|
|
*Early closing.
|
|
December 25
|
|
|
|
|
|
Mauritius
|
|
Mexico
|
|
Morocco
|
|
Namibia
|
|
Netherlands
|
January 1, 2
|
|
January 1
|
|
January 1
|
|
January 1
|
|
January 1
|
February 21
|
|
February 3
|
|
May 1, 25, 26
|
|
April 10, 13
|
|
April 10, 13
|
March 12, 25
|
|
March 16
|
|
July 30, 31
|
|
May 1, 4, 21, 25
|
|
May 1
|
May 1
|
|
April 9, 10
|
|
August 14, 20, 21
|
|
August 26
|
|
December 24*, 25, 31*
|
November 2
|
|
May 1
|
|
October 30
|
|
December 10, 25
|
|
*Early closing.
|
December 25
|
|
September 16
|
|
November 6, 18
|
|
|
|
|
|
|
November 2, 16
|
|
|
|
|
|
|
|
|
December 25
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Zealand
|
|
Niger
|
|
Nigeria
|
|
Norway
|
|
Oman
|
January 1, 2
|
|
January 1
|
|
January 1
|
|
January 1
|
|
January 1
|
February 6
|
|
April 13
|
|
April 10, 13
|
|
April 8*, 9, 10, 13
|
|
March 22
|
April 10, 13, 27
|
|
May 1, 21
|
|
May 1, 25
|
|
May 1, 21
|
|
May 24
|
June 1
|
|
June 1
|
|
June 12
|
|
June 1
|
|
July 23
|
October 26
|
|
July 7
|
|
July 31
|
|
December 24, 25, 31
|
|
August 20
|
December 25, 28
|
|
August 7
|
|
October 1, 29
|
|
*Early closing.
|
|
October 29
|
|
|
September 11
|
|
December 25
|
|
|
|
November 18
|
|
|
December 25
|
|
|
|
|
|
|
|
|
|
|
|
Pakistan
|
|
Panama
|
|
Peru
|
|
Philippines
|
|
Poland
|
January 1
|
|
January 1, 13
|
|
January 1
|
|
January 1
|
|
January 1, 6
|
February 5
|
|
February 24, 25, 26
|
|
April 9, 10
|
|
February 25
|
|
April 10*, 13
|
March 23
|
|
April 9, 10
|
|
May 1
|
|
April 9, 10
|
|
May 1
|
April 23
|
|
May 1
|
|
June 29
|
|
May 1
|
|
June 11
|
May 1, 22, 25, 26, 27
|
|
November 3, 4, 5, 10
|
|
July 28
|
|
June 12
|
|
November 11
|
July 1, 30, 31
|
|
December 8, 25, 31
|
|
October 8
|
|
August 21, 31
|
|
December 24*, 25, 31*
|
August 14, 27, 28
|
|
|
|
December 25
|
|
November 2, 30
|
|
*Early closing.
|
October 29, 30
|
|
|
|
|
|
December 8
|
|
|
December 25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portugal
|
|
Qatar
|
|
Romania
|
|
Russia
|
|
Saudi Arabia
|
January 1
|
|
January 1
|
|
January 1, 2
|
|
January 1, 2, 7
|
|
May 24, 25, 26, 27, 28
|
April 10, 13
|
|
February 11
|
|
April 17, 20
|
|
February 24
|
|
July 30
|
May 1
|
|
March 1
|
|
May 1
|
|
March 9
|
|
August 2, 3, 4, 5
|
December 24*, 25, 31*
|
|
May 24, 25, 26
|
|
June 1, 8
|
|
May 1, 4, 5, 11
|
|
September 23
|
*Early closing.
|
|
July 30
|
|
November 30
|
|
June 12
|
|
* The Saudi Arabian market is closed every Friday.
|
|
|
|
|
December 1, 25
|
|
November 4
|
|
|
|
|
|
|
|
Senegal
|
|
Serbia
|
|
Singapore
|
|
Slovakia
|
|
Slovenia
|
January 1
|
|
January 1, 2, 3, 6, 7
|
|
January 1, 27
|
|
January 1, 6
|
|
January 1, 2
|
April 13
|
|
February 17
|
|
April 10
|
|
April 10, 13
|
|
April 10, 13, 27
|
May 1, 21
|
|
April 17, 20
|
|
May 1, 7, 25
|
|
May 1, 8
|
|
May 1
|
June 1
|
|
May 1
|
|
July 31
|
|
September 1, 15
|
|
June 25
|
July 7
|
|
November 11
|
|
August 10
|
|
November 17
|
|
December 24, 25, 31
|
August 7
|
|
|
|
December 25
|
|
December 24, 25
|
|
|
December 25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Africa
|
|
South Korea
|
|
Spain
|
|
Sri Lanka
|
|
Srpska
|
January 1
|
|
January 1, 24, 27
|
|
January 1
|
|
January 1, 10, 15
|
|
January 7, 9
|
April 10, 13, 27
|
|
April 15, 30
|
|
April 10, 13
|
|
February 4, 21
|
|
April 13, 17, 20
|
May 1
|
|
May 1, 5
|
|
May 1
|
|
March 9
|
|
|
June 16
|
|
September 30
|
|
December 24*, 25, 31*
|
|
April 7, 10, 13, 14
|
|
|
August 10
|
|
October 1, 2, 9
|
|
*Early closing.
|
|
May 1, 7, 8, 25
|
|
|
September 24
|
|
December 25, 31
|
|
|
|
June 5
|
|
|
December 16, 25
|
|
|
|
|
|
August 3
|
|
|
|
|
|
|
|
|
September 1
|
|
|
|
|
|
|
|
|
October 1, 30
|
|
|
|
|
|
|
|
|
December 25, 29
|
|
|
|
|
|
|
|
Sweden
|
|
Switzerland
|
|
Taiwan
|
|
Tanzania
|
|
Thailand
|
January 1, 6
|
|
January 1, 2
|
|
January 1, 23, 24, 27, 28, 29
|
|
January 1
|
|
January 1
|
April 9*, 10, 13, 30*
|
|
April 10, 13, 20*
|
|
February 28
|
|
April 7, 10, 13
|
|
February 10
|
May 1, 20*, 21
|
|
May 1, 21
|
|
April 2, 3
|
|
May 1
|
|
April 6, 13, 14, 15
|
June 19
|
|
June 1
|
|
May 1
|
|
July 7, 31
|
|
May 1, 4, 6
|
54
|
|
|
|
|
|
|
|
|
October 30*
|
|
September 14*
|
|
June 25, 26
|
|
October 14, 29
|
|
June 3
|
December 24, 25, 31
|
|
December 24, 25, 31
|
|
October 1, 2, 9
|
|
December 9, 25
|
|
July 6, 28
|
*Early closing.
|
|
*Early closing.
|
|
|
|
|
|
August 12
|
|
|
|
|
|
|
|
|
October 13, 23
|
|
|
|
|
|
|
|
|
December 7, 10, 31
|
|
|
|
|
|
Togo
|
|
Tunisia
|
|
Turkey
|
|
Uganda
|
|
Ukraine
|
January 1
|
|
January 1, 14
|
|
January 1
|
|
January 1
|
|
January 1, 2, 6, 7
|
April 13
|
|
March 20
|
|
April 23
|
|
April 10, 13
|
|
May 1
|
May 1, 21
|
|
April 9
|
|
May 1, 19, 25, 26
|
|
May 1
|
|
August 24
|
June 1
|
|
May 1, 25
|
|
July 15, 30*, 31
|
|
June 3, 9
|
|
October 14
|
July 7
|
|
July 30, 31
|
|
August 3
|
|
July 31
|
|
December 25
|
August 7
|
|
August 13, 20
|
|
October 28*, 29
|
|
October 9
|
|
|
September 11
|
|
October 15, 28
|
|
*Early closing.
|
|
December 25
|
|
|
December 25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Arab Emirates
|
|
United Kingdom
|
|
United States Bond Markets
|
|
Uruguay
|
|
Vietnam
|
January 1
|
|
January 1
|
|
January 1, 20
|
|
January 1, 6
|
|
January 1, 23, 24, 27, 28, 29
|
May 24, 25, 26
|
|
April 10, 13
|
|
February 17
|
|
February 24, 25
|
|
April 2, 30
|
August 20
|
|
May 8, 25
|
|
April 9*, 10
|
|
April 9, 10
|
|
May 1
|
December 1, 2, 3
|
|
August 31
|
|
May 22*, 25
|
|
May 1, 18
|
|
September 2
|
|
|
December 25, 28
|
|
July 2*, 3
|
|
June 19
|
|
|
|
|
|
|
September 7
|
|
August 25
|
|
|
|
|
|
|
October 12
|
|
October 12
|
|
|
|
|
|
|
November 11, 26, 27*
|
|
November 2
|
|
|
|
|
|
|
December 24*, 25, 31*
|
|
December 25
|
|
|
|
|
|
|
*The U.S. bond market has recommended early close.
|
|
|
|
|
Zambia
|
|
Zimbabwe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1
|
|
January 1
|
|
|
|
|
|
|
March 9, 12
|
|
February 21
|
|
|
|
|
|
|
April 10, 13
|
|
April 10, 13
|
|
|
|
|
|
|
May 1, 25
|
|
May 1, 25
|
|
|
|
|
|
|
July 6, 7
|
|
August 10, 11
|
|
|
|
|
|
|
August 3
|
|
December 22, 25
|
|
|
|
|
|
|
October 19
|
|
|
|
|
|
|
|
|
December 25
|
|
|
|
|
|
|
|
|
Redemptions. The longest redemption cycle for the Fund is a function of the longest redemption cycle among the
countries and regions whose securities comprise the Fund. In the calendar year 2020 (the only year for which holidays are known at the time of this SAI filing), the dates of regular holidays affecting the following securities markets present the
worst-case redemption cycles* for the Fund as follows:
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Country
|
|
Trade
Date
|
|
|
Settlement
Date
|
|
|
Number of
Days to
Settle
|
|
Australia
|
|
|
12/21/20
|
|
|
|
12/29/20
|
|
|
|
8
|
|
|
|
|
12/22/20
|
|
|
|
12/30/20
|
|
|
|
8
|
|
|
|
|
12/23/20
|
|
|
|
01/04/21
|
|
|
|
12
|
|
Bangladesh
|
|
|
05/18/20
|
|
|
|
05/26/20
|
|
|
|
8
|
|
|
|
|
05/19/20
|
|
|
|
05/27/20
|
|
|
|
8
|
|
|
|
|
05/20/20
|
|
|
|
05/28/20
|
|
|
|
8
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
Country
|
|
Trade
Date
|
|
|
Settlement
Date
|
|
|
Number of
Days to
Settle
|
|
China
|
|
|
01/21/20
|
|
|
|
01/31/20
|
|
|
|
10
|
|
|
|
|
01/22/20
|
|
|
|
02/03/20
|
|
|
|
12
|
|
|
|
|
01/23/20
|
|
|
|
02/04/20
|
|
|
|
12
|
|
|
|
|
04/28/20
|
|
|
|
05/06/20
|
|
|
|
8
|
|
|
|
|
04/29/20
|
|
|
|
05/07/20
|
|
|
|
8
|
|
|
|
|
04/30/20
|
|
|
|
05/08/20
|
|
|
|
8
|
|
|
|
|
09/28/20
|
|
|
|
10/09/20
|
|
|
|
11
|
|
|
|
|
09/29/20
|
|
|
|
10/12/20
|
|
|
|
13
|
|
|
|
|
09/30/20
|
|
|
|
10/13/20
|
|
|
|
13
|
|
China Connect Stock Connect
|
|
|
01/23/20
|
|
|
|
01/31/20
|
|
|
|
8
|
|
|
|
|
04/28/20
|
|
|
|
05/06/20
|
|
|
|
8
|
|
|
|
|
09/30/20
|
|
|
|
10/09/20
|
|
|
|
9
|
|
Eswatini
|
|
|
04/03/20
|
|
|
|
04/14/20
|
|
|
|
11
|
|
|
|
|
04/06/20
|
|
|
|
04/15/20
|
|
|
|
9
|
|
|
|
|
04/07/20
|
|
|
|
04/16/20
|
|
|
|
9
|
|
|
|
|
04/08/20
|
|
|
|
04/17/20
|
|
|
|
9
|
|
|
|
|
04/09/20
|
|
|
|
04/21/20
|
|
|
|
12
|
|
|
|
|
04/14/20
|
|
|
|
04/22/20
|
|
|
|
8
|
|
|
|
|
04/15/20
|
|
|
|
04/23/20
|
|
|
|
8
|
|
|
|
|
04/16/20
|
|
|
|
04/24/20
|
|
|
|
8
|
|
|
|
|
04/17/20
|
|
|
|
04/27/20
|
|
|
|
10
|
|
|
|
|
04/24/20
|
|
|
|
05/04/20
|
|
|
|
10
|
|
|
|
|
04/27/20
|
|
|
|
05/05/20
|
|
|
|
8
|
|
|
|
|
04/28/20
|
|
|
|
05/06/20
|
|
|
|
8
|
|
|
|
|
04/29/20
|
|
|
|
05/07/20
|
|
|
|
8
|
|
|
|
|
04/30/20
|
|
|
|
05/08/20
|
|
|
|
8
|
|
|
|
|
05/14/20
|
|
|
|
05/22/20
|
|
|
|
8
|
|
|
|
|
05/15/20
|
|
|
|
05/25/20
|
|
|
|
10
|
|
|
|
|
05/18/20
|
|
|
|
05/26/20
|
|
|
|
8
|
|
|
|
|
05/19/20
|
|
|
|
05/27/20
|
|
|
|
8
|
|
|
|
|
05/20/20
|
|
|
|
05/28/20
|
|
|
|
8
|
|
|
|
|
07/15/20
|
|
|
|
07/23/20
|
|
|
|
8
|
|
|
|
|
07/16/20
|
|
|
|
07/24/20
|
|
|
|
8
|
|
|
|
|
07/17/20
|
|
|
|
07/27/20
|
|
|
|
10
|
|
|
|
|
07/20/20
|
|
|
|
07/28/20
|
|
|
|
8
|
|
|
|
|
07/21/20
|
|
|
|
07/29/20
|
|
|
|
8
|
|
|
|
|
08/31/20
|
|
|
|
09/08/20
|
|
|
|
8
|
|
|
|
|
09/01/20
|
|
|
|
09/09/20
|
|
|
|
8
|
|
|
|
|
09/02/20
|
|
|
|
09/10/20
|
|
|
|
8
|
|
|
|
|
09/03/20
|
|
|
|
09/11/20
|
|
|
|
8
|
|
|
|
|
09/04/20
|
|
|
|
09/14/20
|
|
|
|
10
|
|
|
|
|
12/18/20
|
|
|
|
12/29/20
|
|
|
|
11
|
|
|
|
|
12/21/20
|
|
|
|
12/30/20
|
|
|
|
9
|
|
|
|
|
12/22/20
|
|
|
|
12/31/20
|
|
|
|
9
|
|
|
|
|
12/23/20
|
|
|
|
01/04/21
|
|
|
|
12
|
|
|
|
|
12/24/20
|
|
|
|
01/05/21
|
|
|
|
12
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
Country
|
|
Trade
Date
|
|
|
Settlement
Date
|
|
|
Number of
Days to
Settle
|
|
Ghana
|
|
|
07/28/20
|
|
|
|
08/05/20
|
|
|
|
8
|
|
|
|
|
07/29/20
|
|
|
|
08/06/20
|
|
|
|
8
|
|
Indonesia
|
|
|
05/19/20
|
|
|
|
05/28/20
|
|
|
|
9
|
|
|
|
|
05/20/20
|
|
|
|
05/29/20
|
|
|
|
9
|
|
Ireland
|
|
|
12/22/20
|
|
|
|
12/30/20
|
|
|
|
8
|
|
|
|
|
12/23/20
|
|
|
|
01/04/21
|
|
|
|
12
|
|
Israel
|
|
|
04/06/20
|
|
|
|
04/16/20
|
|
|
|
10
|
|
|
|
|
04/07/20
|
|
|
|
04/19/20
|
|
|
|
12
|
|
|
|
|
09/30/20
|
|
|
|
10/11/20
|
|
|
|
11
|
|
|
|
|
10/01/20
|
|
|
|
10/12/20
|
|
|
|
11
|
|
Kuwait
|
|
|
05/19/20
|
|
|
|
05/27/20
|
|
|
|
8
|
|
|
|
|
05/20/20
|
|
|
|
05/28/20
|
|
|
|
8
|
|
|
|
|
05/21/20
|
|
|
|
05/31/20
|
|
|
|
10
|
|
|
|
|
07/27/20
|
|
|
|
08/04/20
|
|
|
|
8
|
|
|
|
|
07/28/20
|
|
|
|
08/05/20
|
|
|
|
8
|
|
|
|
|
07/29/20
|
|
|
|
08/06/20
|
|
|
|
8
|
|
Malawi
|
|
|
01/08/20
|
|
|
|
01/16/20
|
|
|
|
8
|
|
|
|
|
01/09/20
|
|
|
|
01/17/20
|
|
|
|
8
|
|
|
|
|
01/10/20
|
|
|
|
01/20/20
|
|
|
|
10
|
|
|
|
|
01/13/20
|
|
|
|
01/21/20
|
|
|
|
8
|
|
|
|
|
01/14/20
|
|
|
|
01/22/20
|
|
|
|
8
|
|
|
|
|
02/25/20
|
|
|
|
03/04/20
|
|
|
|
8
|
|
|
|
|
02/26/20
|
|
|
|
03/05/20
|
|
|
|
8
|
|
|
|
|
02/27/20
|
|
|
|
03/06/20
|
|
|
|
8
|
|
|
|
|
02/28/20
|
|
|
|
03/09/20
|
|
|
|
10
|
|
|
|
|
03/02/20
|
|
|
|
03/10/20
|
|
|
|
8
|
|
|
|
|
04/03/20
|
|
|
|
04/14/20
|
|
|
|
11
|
|
|
|
|
04/06/20
|
|
|
|
04/15/20
|
|
|
|
9
|
|
|
|
|
04/07/20
|
|
|
|
04/16/20
|
|
|
|
9
|
|
|
|
|
04/08/20
|
|
|
|
04/17/20
|
|
|
|
9
|
|
|
|
|
04/09/20
|
|
|
|
04/20/20
|
|
|
|
11
|
|
|
|
|
04/24/20
|
|
|
|
05/04/20
|
|
|
|
10
|
|
|
|
|
04/27/20
|
|
|
|
05/05/20
|
|
|
|
8
|
|
|
|
|
04/28/20
|
|
|
|
05/06/20
|
|
|
|
8
|
|
|
|
|
04/29/20
|
|
|
|
05/07/20
|
|
|
|
8
|
|
|
|
|
04/30/20
|
|
|
|
05/08/20
|
|
|
|
8
|
|
|
|
|
05/07/20
|
|
|
|
05/15/20
|
|
|
|
8
|
|
|
|
|
05/08/20
|
|
|
|
05/18/20
|
|
|
|
10
|
|
|
|
|
05/11/20
|
|
|
|
05/19/20
|
|
|
|
8
|
|
|
|
|
05/12/20
|
|
|
|
05/20/20
|
|
|
|
8
|
|
|
|
|
05/13/20
|
|
|
|
05/21/20
|
|
|
|
8
|
|
|
|
|
05/18/20
|
|
|
|
05/26/20
|
|
|
|
8
|
|
|
|
|
05/19/20
|
|
|
|
05/27/20
|
|
|
|
8
|
|
|
|
|
05/20/20
|
|
|
|
05/28/20
|
|
|
|
8
|
|
|
|
|
05/21/20
|
|
|
|
05/29/20
|
|
|
|
8
|
|
|
|
|
05/22/20
|
|
|
|
06/01/20
|
|
|
|
10
|
|
|
|
|
06/29/20
|
|
|
|
07/07/20
|
|
|
|
8
|
|
|
|
|
06/30/20
|
|
|
|
07/08/20
|
|
|
|
8
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
Country
|
|
Trade
Date
|
|
|
Settlement
Date
|
|
|
Number of
Days to
Settle
|
|
|
|
|
07/01/20
|
|
|
|
07/09/20
|
|
|
|
8
|
|
|
|
|
07/02/20
|
|
|
|
07/10/20
|
|
|
|
8
|
|
|
|
|
07/03/20
|
|
|
|
07/13/20
|
|
|
|
10
|
|
|
|
|
10/08/20
|
|
|
|
10/16/20
|
|
|
|
8
|
|
|
|
|
10/09/20
|
|
|
|
10/19/20
|
|
|
|
10
|
|
|
|
|
10/12/20
|
|
|
|
10/20/20
|
|
|
|
8
|
|
|
|
|
10/13/20
|
|
|
|
10/21/20
|
|
|
|
8
|
|
|
|
|
10/14/20
|
|
|
|
10/22/20
|
|
|
|
8
|
|
|
|
|
12/18/20
|
|
|
|
12/28/20
|
|
|
|
10
|
|
|
|
|
12/21/20
|
|
|
|
12/29/20
|
|
|
|
8
|
|
|
|
|
12/22/20
|
|
|
|
12/30/20
|
|
|
|
8
|
|
|
|
|
12/23/20
|
|
|
|
12/31/20
|
|
|
|
8
|
|
|
|
|
12/24/20
|
|
|
|
01/04/21
|
|
|
|
11
|
|
Namibia
|
|
|
04/03/20
|
|
|
|
04/14/20
|
|
|
|
11
|
|
|
|
|
04/06/20
|
|
|
|
04/15/20
|
|
|
|
9
|
|
|
|
|
04/07/20
|
|
|
|
04/16/20
|
|
|
|
9
|
|
|
|
|
04/08/20
|
|
|
|
04/17/20
|
|
|
|
9
|
|
|
|
|
04/09/20
|
|
|
|
04/20/20
|
|
|
|
11
|
|
|
|
|
04/24/20
|
|
|
|
05/05/20
|
|
|
|
11
|
|
|
|
|
04/27/20
|
|
|
|
05/06/20
|
|
|
|
9
|
|
|
|
|
04/28/20
|
|
|
|
05/07/20
|
|
|
|
9
|
|
|
|
|
04/29/20
|
|
|
|
05/08/20
|
|
|
|
9
|
|
|
|
|
04/30/20
|
|
|
|
05/11/20
|
|
|
|
11
|
|
|
|
|
05/14/20
|
|
|
|
05/22/20
|
|
|
|
8
|
|
|
|
|
05/15/20
|
|
|
|
05/26/20
|
|
|
|
11
|
|
|
|
|
05/18/20
|
|
|
|
05/27/20
|
|
|
|
9
|
|
|
|
|
05/19/20
|
|
|
|
05/28/20
|
|
|
|
9
|
|
|
|
|
05/20/20
|
|
|
|
05/29/20
|
|
|
|
9
|
|
|
|
|
05/22/20
|
|
|
|
06/01/20
|
|
|
|
10
|
|
|
|
|
08/19/20
|
|
|
|
08/27/20
|
|
|
|
8
|
|
|
|
|
08/20/20
|
|
|
|
08/28/20
|
|
|
|
8
|
|
|
|
|
08/21/20
|
|
|
|
08/31/20
|
|
|
|
10
|
|
|
|
|
08/24/20
|
|
|
|
09/01/20
|
|
|
|
8
|
|
|
|
|
08/25/20
|
|
|
|
09/02/20
|
|
|
|
8
|
|
|
|
|
12/03/20
|
|
|
|
12/11/20
|
|
|
|
8
|
|
|
|
|
12/04/20
|
|
|
|
12/14/20
|
|
|
|
10
|
|
|
|
|
12/07/20
|
|
|
|
12/15/20
|
|
|
|
8
|
|
|
|
|
12/08/20
|
|
|
|
12/16/20
|
|
|
|
8
|
|
|
|
|
12/09/20
|
|
|
|
12/17/20
|
|
|
|
8
|
|
|
|
|
12/18/20
|
|
|
|
12/28/20
|
|
|
|
10
|
|
|
|
|
12/21/20
|
|
|
|
12/29/20
|
|
|
|
8
|
|
|
|
|
12/22/20
|
|
|
|
12/30/20
|
|
|
|
8
|
|
|
|
|
12/23/20
|
|
|
|
12/31/20
|
|
|
|
8
|
|
|
|
|
12/24/20
|
|
|
|
01/04/21
|
|
|
|
11
|
|
Norway
|
|
|
04/06/20
|
|
|
|
04/14/20
|
|
|
|
8
|
|
|
|
|
04/07/20
|
|
|
|
04/15/20
|
|
|
|
8
|
|
Pakistan
|
|
|
05/20/20
|
|
|
|
05/28/20
|
|
|
|
8
|
|
|
|
|
05/21/20
|
|
|
|
05/29/20
|
|
|
|
8
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
Country
|
|
Trade
Date
|
|
|
Settlement
Date
|
|
|
Number of
Days to
Settle
|
|
Qatar
|
|
|
05/19/20
|
|
|
|
05/27/20
|
|
|
|
8
|
|
|
|
|
05/20/20
|
|
|
|
05/28/20
|
|
|
|
8
|
|
|
|
|
05/21/20
|
|
|
|
05/31/20
|
|
|
|
10
|
|
Russia
|
|
|
04/28/20
|
|
|
|
05/06/20
|
|
|
|
8
|
|
|
|
|
04/29/20
|
|
|
|
05/07/20
|
|
|
|
8
|
|
|
|
|
04/30/20
|
|
|
|
05/08/20
|
|
|
|
8
|
|
Saudi Arabia
|
|
|
05/20/20
|
|
|
|
05/31/20
|
|
|
|
11
|
|
|
|
|
05/21/20
|
|
|
|
06/01/20
|
|
|
|
11
|
|
|
|
|
07/28/20
|
|
|
|
08/06/20
|
|
|
|
9
|
|
|
|
|
07/29/20
|
|
|
|
08/09/20
|
|
|
|
11
|
|
Sri Lanka
|
|
|
04/06/20
|
|
|
|
04/15/20
|
|
|
|
9
|
|
|
|
|
04/08/20
|
|
|
|
04/16/20
|
|
|
|
8
|
|
|
|
|
04/09/20
|
|
|
|
04/17/20
|
|
|
|
8
|
|
Taiwan
|
|
|
01/21/20
|
|
|
|
01/30/20
|
|
|
|
9
|
|
|
|
|
01/22/20
|
|
|
|
01/31/20
|
|
|
|
9
|
|
Tanzania
|
|
|
04/06/20
|
|
|
|
04/14/20
|
|
|
|
8
|
|
Vietnam
|
|
|
01/21/20
|
|
|
|
01/30/20
|
|
|
|
9
|
|
|
|
|
01/22/20
|
|
|
|
01/31/20
|
|
|
|
9
|
|
*
|
These worst-case redemption cycles are based on information regarding regular holidays available as of
January 17, 2020, which may be out of date as of the date of this SAI. Based on changes in holidays, longer (worse) redemption cycles are possible. Further, regional holidays, the treatment by market participants of certain days as unofficial
holidays (including days on which no or limited securities transactions occur as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery practices, could affect the
information set forth herein.
|
FINANCIAL STATEMENTS
The Fund had not commenced operations as of the date of this SAI and therefore did not have any financial information to report for the Trusts [June 30,
2020] fiscal year end.
59
APPENDIX B
|
|
|
|
|
Insights
Asset Stewardship
March 2020
|
|
|
|
Global Proxy Voting and Engagement Principles
|
|
|
|
|
State Street Global Advisors, one of the industrys largest institutional asset managers, is the investment management arm of State
Street Corporation, a leading provider of financial services to institutional investors. As an investment manager, State Street Global Advisors has discretionary proxy voting authority over most of its client accounts, and State Street Global
Advisors votes these proxies in the manner that we believe will most likely protect and promote the long-term economic value of client investments as described in this document.1
|
|
|
|
|
State Street Global Advisors maintains Proxy Voting and Engagement
Guidelines for select markets, including: Australia, the European Union, Japan, New Zealand, North America (Canada and the US), the UK and Ireland, and emerging markets. International markets not covered by our market-specific guidelines are
reviewed and voted in a manner that is consistent with our Global Proxy Voting and Engagement Principles; however, State Street Global Advisors also endeavors to show sensitivity to local market practices when voting in these various markets.
|
State Street Global Advisors Approach to Proxy Voting and
Issuer Engagement
|
|
|
|
At State Street Global Advisors, we take our fiduciary duties as an
asset manager very seriously. We have a dedicated team of corporate governance professionals who help us carry out our duties as a responsible investor. These duties include engaging with companies, developing and enhancing in-house corporate governance guidelines, analyzing corporate governance issues on a case-by-case basis at the company level, and exercising our voting rights. The underlying
goal is to maximize shareholder value.
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|
|
|
|
|
|
|
Our Global Proxy Voting and Engagement Principles (the Principles) may take different perspectives on common governance issues that vary from one market to another. Similarly, engagement activity may take different forms
in order to best achieve long-term engagement goals. We believe that proxy voting and engagement with portfolio companies is often the most direct and productive way for shareholders to exercise their ownership rights. This comprehensive toolkit is
an integral part of the overall investment process.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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B-1
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|
|
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|
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|
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|
|
We believe engagement and voting activity have a direct relationship. As a result, the integration of our engagement activities, while leveraging the exercise
of our voting rights, provides a meaningful shareholder tool that we believe protects and enhances the long-term economic value of the holdings in our client accounts. We maximize our voting power and engagement by maintaining a centralized proxy
voting and active ownership process covering all holdings, regardless of strategy. Despite the vast investment strategies and objectives across State Street Global Advisors, the fiduciary responsibilities of share ownership and voting for which
State Street Global Advisors has voting discretion are carried out with a single voice and objective.
|
|
|
|
|
|
|
|
The Principles support governance structures that we believe add to, or maximize shareholder value, for the companies held in our clients portfolios. We conduct issuer specific engagements with companies to discuss our
principles, including sustainability related risks. In addition, we encourage issuers to find ways to increase the amount of direct communication board members have with shareholders. Direct communication with executive board members and independent
non-executive directors is critical to helping companies understand shareholder concerns. Conversely, we conduct collaborative engagement activities with multiple shareholders and communicate with company representatives about common concerns where
appropriate.
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|
|
|
|
|
|
|
In conducting our engagements, we also evaluate the various factors that influence the corporate governance framework of a country, including the macroeconomic conditions and broader political system, the quality of regulatory
oversight, the enforcement of property and shareholder rights, and the independence of the judiciary. We understand that regulatory requirements and investor expectations relating to governance practices and engagement activities differ from country
to country. As a result, we engage with issuers, regulators, or a combination of the two depending upon the market. We are also a member of various investor associations that seek to address broader corporate governance related policy at the country
level as well as issuer- specific concerns at a company level.
|
|
|
|
|
|
|
|
The State Street Global Advisors Asset Stewardship Team may collaborate with members of the Active Fundamental and various other investment teams to engage with companies on corporate governance issues and to address any specific
concerns. This facilitates our comprehensive approach to information gathering as it relates to shareholder items that are to be voted upon at upcoming shareholder meetings. We also conduct issuer-specific engagements with companies covering various
corporate governance and sustainability related topics outside of proxy season.
|
|
|
|
|
|
|
|
The Asset Stewardship Team employs a blend of quantitative and qualitative research, analysis, and data in order to support screens that identify issuers where active engagement may be necessary to protect and promote shareholder
value. Issuer engagement may also be event driven, focusing on issuer-specific corporate governance, sustainability concerns, or more broad industry-related trends. We also consider the size of our total position of the issuer in question and/or the
potential negative governance, performance profile, and circumstance at hand. As a result, we believe issuer engagement can take many forms and be triggered by numerous circumstances. The following approaches represent how we define engagement
methods:
|
|
|
|
|
|
|
|
Active We use screening tools designed to capture a mix of company-specific data including governance and sustainability profiles to help us focus our voting and engagement activity. We will actively seek direct dialogue with
the board and management of companies that we have identified through our screening processes. Such engagements may lead to further monitoring to ensure that the company improves its governance or sustainability practices. In these cases, the
engagement process represents the most meaningful opportunity for us to protect long-term shareholder value from excessive risk due to poor governance and sustainability practices.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Proxy Voting and Engagement Principles
|
|
|
B-2
|
|
|
|
|
|
|
|
|
|
Reactive Reactive engagement is initiated by the issuers. We routinely discuss specific voting issues and items with the issuer community. Reactive
engagement is an opportunity to address not only voting items, but also a wide range of governance and sustainability issues.
|
|
|
|
|
|
|
|
We have established an engagement protocol that further describes our approach to issuer engagement.
|
|
|
|
|
|
|
|
Measurement Assessing the effectiveness of our issuer engagement process is often difficult. In order to limit the subjectivity of effectiveness measurement, we actively seek issuer feedback and monitor the actions issuers
take post-engagement in order to identify tangible changes. Thus, we are able to establish indicators to gauge how issuers respond to our concerns and to what degree these responses satisfy our requests. It is also important to note that successful
engagement activity can be measured over differing time periods depending upon the relevant facts and circumstances. Engagements can last as briefly as a single meeting or span multiple years.
|
|
|
|
|
|
|
|
Depending upon the issue and whether the engagement activity is reactive, recurring, or active, engagement with issuers can take the form of written communication, conference calls, or
in-person meetings. We believe active engagement is best conducted directly with company management or board members. Collaborative engagement, where multiple shareholders communicate with company
representatives, can serve as a potential forum for issues that are not identified by us as requiring active engagement. An example of such a forum is a shareholder conference call.
|
|
|
|
Proxy Voting Procedure
|
|
|
|
|
|
|
|
Oversight
|
|
|
|
The Asset Stewardship Team is responsible for developing and implementing the Proxy Voting and Engagement Guidelines (the Guidelines), case-by-case voting items, issuer engagement activities, and research and analysis of governance-related issues. The implementation of the Guidelines is overseen by the State
Street Global Advisors Global Proxy Review Committee (PRC), a committee of investment, compliance and legal professionals, who provide guidance on proxy issues as described in greater detail below. Oversight of the proxy voting process
is ultimately the responsibility of the State Street Global Advisors Investment Committee (IC). The IC reviews and approves amendments to the Guidelines. The PRC reports to the IC, and may refer certain significant proxy items to that
committee.
|
|
|
|
Proxy Voting Process
|
|
|
|
In order to facilitate our proxy voting process, we retain Institutional Shareholder Services Inc. (ISS), a firm with expertise in proxy voting and
corporate governance. We utilize ISSs services in three ways: (1) as our proxy voting agent (providing State Street Global Advisors with vote execution and administration services), (2) for applying the Guidelines, and (3) as
providers of research and analysis relating to general corporate governance issues and specific proxy items.
|
|
|
|
|
|
|
|
The Asset Stewardship Team reviews the Guidelines with ISS on an annual basis or on a case- by-case basis. On most routine proxy voting items (e.g., ratification of auditors), ISS will affect
the proxy votes in accordance with the Guidelines.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Proxy Voting and Engagement Principles
|
|
|
B-3
|
|
|
|
|
|
|
|
|
|
In other cases, the Asset Stewardship Team will evaluate the proxy solicitation to determine how to vote based upon facts, circumstances consistency with our
Principles and accompanying Guidelines.
|
|
|
|
|
|
|
|
In some instances, the Asset Stewardship Team may refer significant issues to the PRC for a determination of the proxy vote. In addition, in determining whether to refer a proxy vote to the PRC, the Asset Stewardship Team will
consider whether a material conflict of interest exists between the interests of our client and those of State Street Global Advisors or its affiliates (as explained in greater detail in our Conflict Mitigation Guidelines).
|
|
|
|
|
|
|
|
We vote in all markets where it is feasible; however, we may refrain from voting meetings when power of attorney documentation is required, where voting will have a material impact on our ability to trade the security, where
issuer-specific special documentation is required, or where various market or issuer certifications are required. We are unable to vote proxies when certain custodians, used by our clients, do not offer proxy voting in a jurisdiction or when they
charge a meeting specific fee in excess of the typical custody service agreement.
|
|
|
|
Conflict of Interest
|
|
|
|
See our standalone Conflict Mitigation Guidelines.
|
|
|
|
Proxy Voting and Engagement Principles
|
|
|
|
|
|
|
|
Directors and Boards
|
|
|
|
The election of directors is one of the most important fiduciary duties we perform as a shareholder. We believe that well-governed companies can protect and
pursue shareholder interests better and withstand the challenges of an uncertain economic environment. As such we seek to vote director elections in a way that we believe will maximize the long-term value of each portfolios
holdings.
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|
|
Principally a board acts on behalf of shareholders by protecting their interests and preserving their rights. This concept establishes the standard by which board and director performance is measured. In order to achieve this
fundamental principle, the role of the board is to carry out its responsibilities in the best long-term interest of the company and its shareholders. An independent and effective board oversees management, provides guidance on strategic matters,
selects the CEO and other senior executives, creates a succession plan for the board and management, provides risk oversight, and assesses the performance of the CEO and management. In contrast, management implements the business and capital
allocation strategies and runs the companys day-to-day operations. As part of our engagement process, we routinely discuss the importance of these responsibilities
with the boards of issuers.
|
|
|
|
|
|
|
|
We believe the quality of a board is a measure of director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. In voting to elect nominees, we consider many
factors. We believe independent directors are crucial to good corporate governance; they help management establish sound corporate governance policies and practices. A sufficiently independent board will effectively monitor management, maintain
appropriate governance practices, and perform oversight functions necessary to
|
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|
|
Global Proxy Voting and Engagement Principles
|
|
|
B-4
|
|
|
|
|
|
|
|
|
|
protect shareholder interests. We also believe the right mix of skills, independence, diversity, and qualifications among directors provides boards with the knowledge and direct experience to manage risks and operating structures
that are often complex and industry-specific.
|
|
|
|
Accounting and Audit- Related Issues
|
|
|
|
We believe audit committees are critical and necessary as part of the boards risk oversight role. The audit committee is responsible for setting out an
internal audit function that provides robust audit and internal control systems designed to effectively manage potential and emerging risks to the companys operations and strategy. We believe audit committees should have independent directors
as members, and we will hold the members of the audit committee responsible for overseeing the management of the audit function.
|
|
|
|
|
|
|
|
The disclosure and availability of reliable financial statements in a timely manner is imperative for the investment process. As a result, board oversight of the internal controls and the independence of the audit process are
essential if investors are to rely upon financial statements. It is important for the audit committee to appoint external auditors who are independent from management; we expect auditors to provide assurance of a companys financial
condition.
|
|
|
|
Capital Structure, Reorganization and Mergers
|
|
|
|
The ability to raise capital is critical for companies to carry out strategy, to grow, and to achieve returns above their cost of capital. The approval of
capital raising activities is fundamental to a shareholders ability to monitor the amounts of proceeds and to ensure capital is deployed efficiently. Altering the capital structure of a company is a critical decision for boards. When making
such a decision we believe the company should disclose a comprehensive business rationale that is consistent with corporate strategy and not overly dilutive to its shareholders.
|
|
|
|
|
|
|
|
Mergers or reorganization of the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes to the corporation.
|
|
|
|
|
|
|
|
Proposals that are in the best interests of shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In evaluating mergers and acquisitions, we consider
the adequacy of the consideration and the impact of the corporate governance provisions to shareholders. In all cases, we use our discretion in order to maximize shareholder value.
|
|
|
|
|
|
|
|
Occasionally, companies add anti-takeover provisions that reduce the chances of a potential acquirer to make an offer, or to reduce the likelihood of a successful offer. We do not support proposals that reduce shareholders
rights, entrench management, or reduce the likelihood of shareholders right to vote on reasonable offers.
|
|
|
|
Compensation
|
|
|
|
We consider it the boards responsibility to identify the appropriate level of executive compensation. Despite the differences among the types of plans
and the awards possible, there is a simple underlying philosophy that guides our analysis of executive compensation; we believe that there should be a direct relationship between executive compensation and company performance over the long
term.
|
|
|
|
|
|
|
|
Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration reports, we consider factors such as adequate disclosure of various remuneration
elements, absolute and relative pay levels,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Proxy Voting and Engagement Principles
|
|
|
B-5
|
|
|
|
|
|
|
|
|
|
peer selection and benchmarking, the mix of long-term and short-term incentives, alignment of pay structures with shareholder interests, as well as with corporate strategy and performance. We may oppose remuneration reports where
pay seems misaligned with shareholders interests. We may also consider executive compensation practices when re-electing members of the remuneration committee.
|
|
|
|
|
|
|
|
We recognize that compensation policies and practices are unique from market to market; often there are significant differences between the level of disclosures, the amount and forms of compensation paid, and the ability of
shareholders to approve executive compensation practices. As a result, our ability to assess the appropriateness of executive compensation is often dependent on market practices and laws.
|
|
|
|
Environmental and Social Issues
|
|
|
|
As a fiduciary, State Street Global Advisors takes a comprehensive approach to engaging with our portfolio companies about material environmental and social
(sustainability) issues. We use our voice and our vote through engagement, proxy voting, and thought leadership in order to communicate with issuers and educate market participants about our perspective on important sustainability topics. Our Asset
Stewardship program prioritization process allows us to proactively identify companies for engagement and voting in order to mitigate sustainability risks in our portfolio. Through engagement, we address a broad range of topics that align with our
thematic priorities and build long-term relationships with issuers. When voting, we fundamentally consider whether the adoption of a shareholder proposal addressing a material sustainability issue would promote long-term shareholder value in the
context of the companys existing practices and disclosures as well as existing market practice.
|
|
|
|
|
|
|
|
For more information on our approach to environmental and social issues, please see our Global Proxy Voting and Engagement Guidelines for Environmental and Social Issues available at
ssga.com/about-us/asset-stewardship.html.
|
|
|
|
General/Routine
|
|
|
|
Although we do not seek involvement in the day-to-day operations of an
organization, we recognize the need for conscientious oversight and input into management decisions that may affect a companys value. We support proposals that encourage economically advantageous corporate practices and governance, while
leaving decisions that are deemed to be routine or constitute ordinary business to management and the board of directors.
|
Fixed Income Stewardship
|
|
|
|
The two elements of our fixed income stewardship program are:
|
|
|
|
|
|
|
|
Proxy Voting While matters that arise for a vote at bondholder meetings vary by jurisdiction, examples of common proxy voting resolutions at bondholder meetings include:
|
|
|
|
|
|
|
|
Approving amendments to debt covenants and/or terms of
issuance
|
|
|
|
|
|
|
|
Authorizing procedural matters, such as filing of required
documents/other formalities
|
|
|
|
|
|
|
|
Approving debt restructuring plans
|
|
|
|
|
|
|
|
Abstaining from challenging the bankruptcy trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Global Proxy Voting and Engagement Principles
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B-6
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Authorizing repurchase of issued debt security
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Approving the placement of unissued debt securities under the control
of directors
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Approving spin-off/absorption
proposals
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Given the nature of the items that arise for vote at bondholder meetings, we take a case-by-case approach to voting bondholder resolutions. Where
necessary, we will engage with issuers on voting matters prior to arriving at voting decisions. All voting decisions will be made in the best interest of our clients.
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Issuer Engagement We recognize that debt holders have limited leverage with companies on a day-to-day basis. However, we believe that given the
size of our holdings in corporate debt, we can meaningfully influence ESG practices of companies through issuer engagement. Our guidelines for engagement with fixed income issuers broadly follow the engagement guidelines for our equity holdings as
described above.
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Securities on Loan
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For funds in which we act as trustee, we may recall securities in instances where we believe that a particular vote will have a material impact on the fund(s).
Several factors shape this process. First, we must receive notice of the vote in sufficient time to recall the shares on or before the record date. In many cases, we do not receive timely notice, and we are unable to recall the shares on or before
the record date. Second, State Street Global Advisors may exercise its discretion and recall shares if it believes that the benefit of voting shares will outweigh the foregone lending income. This determination requires State Street Global Advisors,
with the information available at the time, to form judgments about events or outcomes that are difficult to quantify. Given our expertise and vast experience, we believe that the recall of securities will rarely provide an economic benefit that
outweighs the cost of the foregone lending income.
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Reporting
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Any client who wishes to receive information on how its proxies were voted should contact its State Street Global Advisors relationship manager.
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Endnotes
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1 These Global Proxy Voting and Engagement Guidelines are also applicable to State Street Global
Advisors Funds Management, Inc. State Street Global Advisors Funds Management, Inc. is an SEC-registered investment adviser. State Street Global Advisors Funds Management, Inc., State Street Global Advisors
Trust Company, and other advisory affiliates of State Street make up State Street Global Advisors, the investment management arm of State Street Corporation.
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Global Proxy Voting and Engagement Principles
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B-7
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About State Street Global Advisors
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Our clients are the worlds governments, institutions and financial advisors. To help them achieve their financial goals we live our guiding principles
each and every day:
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Start with rigor
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Build from breadth
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Invest as stewards
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Invent the future
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For four decades, these principles have helped us be the quiet power in a tumultuous investing world. Helping millions of people secure their financial futures. This takes each of our employees in 27 offices around the world, and a
firm-wide conviction that we can always do it better. As a result, we are the worlds third-largest asset manager with US $3.12 trillion* under our care.
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* AUM reflects approximately $43.72 billion USD (as of December 31, 2019), with respect to
which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.
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ssga.com
State Street Global Advisors Worldwide Entities
Abu
Dhabi: State Street Global Advisors Limited, Middle East Branch, 42801, 28, Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu Dhabi, United Arab Emirates. Regulated by ADGM Financial Services Regulatory Authority. T: +971 2
245 9000. Australia: State Street Global Advisors, Australia Services Limited (ABN 16 108 671 441) (AFSL Number 274900) (SSGA, ASL). Registered office: Level 15, 420 George Street, Sydney, NSW 2000, Australia. T: 612
9240-7600. F: 612 9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 120, 1000 Brussels, Belgium. T: 32 2 663 2036. F: 32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Ireland
Limited. State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2.
Canada: State Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500 , Montreal, Quebec, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street
Global
Advisors Limited, DIFC Branch, Central Park Towers, Suite 15-38 (15th
floor), P.O Box 26838, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority (DFSA). T: +971 (0)4-4372800. F: +971 (0)4-4372818. France: State Street Global Advisors Ireland Limited, Paris branch is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Paris Branch, is registered in France with company number RCS Nanterre 832 734 602
and whose office is at Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: (+33) 1 44 45 40 00. F:
(+33) 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht
(BaFin). Registered with the Register of Commerce Munich HRB 121381. T: +49 (0)89-55878-400. F: +49 (0)89-55878-440.
Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors Ireland Limited is
regulated by the
Central Bank of Ireland. Registered office address 78 Sir John Rogersons Quay, Dublin 2. Registered number
145221. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with
company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano), is
registered in Italy with company number 10495250960-R.E.A. 2535585 and VAT number 10495250960 and whose office is at Via Ferrante Aporti, 10-20125 Milano, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State Street Global Advisors
(Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380 Financial
Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345) , Membership: Japan Investment Advisers Association, The Investment Trust Association, Japan, Japan Securities Dealers Association. Netherlands: State Street
Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. T: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Ireland
Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore
068912 (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the
Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street Global Advisors Limited. Authorised and
regulated by the Financial Conduct Authority. Registered in England. Registered No. 2509928. VAT No. 5776591 81. Registered office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States:
State Street Global Advisors, One Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
© 2020 State Street Corporation.
All Rights Reserved.
ID181820-3003736.2.1.GLB.RTL 0320 Exp.
Date: 03/31/2021
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Global Proxy Voting and Engagement Principles
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B-8
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Insights
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Asset Stewardship
March 2020
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Managing Conflicts of Interest Arising From State Street Global
Advisors Proxy Voting and Engagement Activity
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State Street Corporation has a comprehensive standalone Conflicts of Interest Policy and other policies that address a range of conflicts
of interests identified. In addition, State Street Global Advisors, the asset management business of State Street Corporation, maintains a conflicts register that identifies key conflicts and describes systems in place to mitigate the conflicts.
This guidance1 is designed to act in conjunction with related policies and practices employed by other groups within the organization. Further, they complement those policies and practices by
providing specific guidance on managing the conflicts of interests that may arise through State Street Global Advisors proxy voting and engagement activities.
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Managing Conflicts of Interest Related to Proxy Voting
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State Street Global Advisors has policies and procedures designed to prevent undue influence on State Street Global Advisors voting activities that may
arise from relationships between proxy issuers or companies and State Street Corporation, State Street Global Advisors, State Street Global Advisors affiliates, State Street Global Advisors Funds or State Street Global Advisors Fund affiliates.
Protocols designed to help mitigate potential conflicts of interest include:
Providing sole voting
discretion to members of State Street Global Advisors Asset Stewardship team. Members of the Asset Stewardship team may from time to time discuss views on proxy voting matters, company performance, strategy etc. with other State Street
Corporation or State Street Global Advisors employees including portfolio managers, senior executives and relationship managers. However, final voting decisions are made solely by the
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B-9
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Asset Stewardship team, in a manner that is consistent with the best interests of all clients, taking into account
various perspectives on risks and opportunities with a view of maximizing the value of client assets;
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Exercising a singular vote decision for each ballot item regardless
of our investment strategy;
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Prohibiting members of State Street Global Advisors Asset
Stewardship team from disclosing State Street Global Advisors voting decision to any individual not affiliated with the proxy voting process prior to the meeting or date of written consent, as the case may be;
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Mandatory disclosure by members of the State Street Global
Advisors Asset Stewardship team, Global Proxy Review Committee (PRC) and Investment Committee (IC) of any personal conflict of interest (e.g., familial relationship with company management, serves as a director on the
board of a listed company) to the Head of the Asset Stewardship team. Members are required to recuse themselves from any engagement or proxy voting activities related to the conflict;
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In certain instances, client accounts and/or State Street Global
Advisors pooled funds, where State Street Global Advisors acts as trustee, may hold shares in State Street Corporation or other State Street Global Advisors affiliated entities, such as mutual funds affiliated with State Street Global Advisors Funds
Management, Inc. In general, State Street Global Advisors will outsource any voting decision relating to a shareholder meeting of State Street Corporation or other State Street Global Advisors affiliated entities to independent outside third
parties. Delegated third parties exercise vote decisions based upon State Street Global Advisors Proxy Voting and Engagement Guidelines (Guidelines); and
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Reporting of overrides of Guidelines, if any, to the PRC on a
quarterly basis.
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In general, we do not believe matters that fall within the Guidelines and are voted consistently with the
Guidelines present any potential conflicts, since the vote on the matter has effectively been determined without reference to the soliciting entity. However, where matters do not fall within the Guidelines or where we believe that voting in
accordance with the Guidelines is unwarranted, we conduct an additional review to determine whether there is a conflict of interest. In circumstances where a conflict has been identified and either: (i) the matter does not fall clearly within
the Guidelines; or (ii) State Street Global Advisors determines that voting in accordance with such guidance is not in the best interests of its clients, the Head of the Asset Stewardship team will determine whether a material relationship
exists. If so, the matter is referred to the PRC. The PRC then reviews the matter and determines whether a conflict of interest exists, and if so, how to best resolve such conflict. For example, the PRC may (i) determine that the proxy vote
does not give rise to a conflict due to the issues presented, (ii) refer the matter to the IC for further evaluation or (iii) retain an independent fiduciary to determine the appropriate vote.
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Endnotes
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1 These Managing Conflicts of Interest Arising From State Street Global Advisors Proxy
Voting and Engagement Activity Guidelines are also applicable to State Street Global Advisors Funds Management, Inc. State Street Global Advisors Funds Management, Inc. is an SEC-registered investment adviser.
State Street Global Advisors Funds Management, Inc., State Street Global Advisors Trust Company, and other advisory affiliates of State Street make up State Street Global Advisors, the investment management arm of State Street
Corporation.
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Managing Conflicts of Interest Arising From State Street Global Advisors
Proxy Voting and Engagement Activity
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B-10
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About State Street
Global Advisors
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Our clients are the worlds governments, institutions and financial advisors. To help them achieve their financial goals we live our guiding principles
each and every day:
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Start with rigor
Build from breadth
Invest as stewards
Invent the
future
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|
For four decades, these principles have helped us be the quiet power in a tumultuous investing world. Helping millions of people secure
their financial futures. This takes each of our employees in 27 offices around the world, and a firm-wide conviction that we can always do it better. As a result, we are the worlds third-largest asset manager with US $3.12 trillion* under our
care.
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* AUM reflects approximately $43.72 billion USD (as of December 31, 2019), with respect to
which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.
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ssga.com
State Street Global Advisors Worldwide Entities
Abu
Dhabi: State Street Global Advisors Limited, Middle East Branch, 42801, 28, Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu Dhabi, United Arab Emirates. Regulated by ADGM Financial Services Regulatory Authority. T: +971 2
245 9000. Australia: State Street Global Advisors, Australia Services Limited (ABN 16 108 671 441) (AFSL Number 274900) (SSGA, ASL). Registered office: Level 15, 420 George Street, Sydney, NSW 2000, Australia. T: 612
9240-7600. F: 612 9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 120, 1000 Brussels, Belgium. T: 32 2 663 2036. F: 32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Ireland
Limited. State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2.
Canada: State Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500 , Montreal, Quebec, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street
Global
Advisors Limited, DIFC Branch, Central Park Towers, Suite 15-38 (15th
floor), P.O Box 26838, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority (DFSA). T: +971 (0)4-4372800. F: +971 (0)4-4372818. France: State Street Global Advisors Ireland Limited, Paris branch is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Paris Branch, is registered in France with company number RCS Nanterre 832 734 602
and whose office is at Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: (+33) 1 44 45 40 00. F:
(+33) 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht
(BaFin). Registered with the Register of Commerce Munich HRB 121381. T: +49 (0)89-55878-400. F: +49 (0)89-55878-440.
Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors Ireland Limited is
regulated by the
Central Bank of Ireland. Registered office address 78 Sir John Rogersons Quay, Dublin 2. Registered number
145221. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with
company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano), is
registered in Italy with company number 10495250960 - R.E.A. 2535585 and VAT number 10495250960 and whose office is at Via Ferrante Aporti, 10 - 20125 Milano, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State Street Global
Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380
Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345) , Membership: Japan Investment Advisers Association, The Investment Trust Association, Japan, Japan Securities Dealers Association. Netherlands: State
Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. T: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Ireland
Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore
068912 (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the
Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street Global Advisors Limited. Authorised and
regulated by the Financial Conduct Authority. Registered in England. Registered No. 2509928. VAT No. 5776591 81. Registered office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States:
State Street Global Advisors, One Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
© 2020 State Street Corporation.
All Rights Reserved.
ID178863-3002323.1.1.GBL.RTL 0320
Exp. Date: 03/31/2021
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Managing Conflicts of Interest Arising From State Street Global Advisors
Proxy Voting and Engagement Activity
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B-11
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Insights
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Asset Stewardship
March 2020
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Global Proxy Voting and Engagement
Guidelines for Environmental and Social Issues
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Overview
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Our primary fiduciary obligation to our clients is to maximize the long-term returns of their investments. It is our view that material environmental and
social (sustainability) issues can both create risk as well as generate long-term value in our portfolios. This philosophy provides the foundation for our value-based approach to Asset Stewardship.
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We use our voice and our vote through engagement, proxy voting, and thought leadership in order to communicate with issuers and educate market participants about our perspective on important sustainability topics. Our Asset
Stewardship program prioritization process allows us to proactively identify companies for engagement and voting in order to mitigate sustainability risks in our portfolio.
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Through engagement, we address a broad range of topics that align with our thematic priorities and build long-term relationships with issuers. Engagements are often multi- year exercises. We share our views of key topics and also
seek to understand the disclosure and practices of issuers. We leverage our long-term relationship with companies to effect change. Voting on sustainability issues is mainly driven through shareholder proposals. However, we may take voting action
against directors even in the absence of shareholder proposals for unaddressed concerns pertaining to sustainability matters.
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In this document we provide additional transparency into our approach to engagement and voting on sustainability- related matters.
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Our Approach to Assessing Materiality and Relevance of Sustainability Issues
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While we believe that sustainability-related factors can expose potential investment risks as well as drive long-term value creation, the materiality of
specific sustainability issues varies from industry to industry and company by company. With this in mind, we leverage several distinct frameworks as well as additional resources to inform our views on the materiality of a sustainability issue at a
given company including:
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The Sustainability Accounting Standards Boards (SASB) Industry
Standards
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The Task Force on Climate-related Financial Disclosures (TCFD)
Framework
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Disclosure expectations in a companys given regulatory
environment
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Market expectations for the sector and industry
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Other existing third party frameworks, such as the CDP (formally the
Carbon Disclosure Project) or the Global Reporting Initiative
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Our proprietary R-FactorTM1 score
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B-12
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We expect companies to disclose information regarding their approach to identifying material sustainability-related risks and the management policies and
practices in place to address such issues. We support efforts by companies to demonstrate the ways in which sustainability is incorporated into operations, business activities, and most importantly, long-term business strategy.
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Approach to Engagement on Sustainability Issues
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State Street Global Advisors holds around 12,000 listed equities across its global portfolios. The success of our engagement process is due to our ability to
prioritize and optimally allocate resources. Our approach is driven by:
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1 Proprietary Screens
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We have developed proprietary in-house sustainability screens to help identify companies for proactive engagement. These screens leverage our proprietary
R-FactorTM score to identify sector and industry outliers for engagement and voting on sustainability issues.
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2 Thematic Prioritization
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As part of our annual stewardship planning process we identify thematic sustainability priorities that will be addressed during most engagement meetings. We develop our priorities based upon several factors, including client
feedback, emerging sustainability trends, developing macroeconomic conditions, and evolving regulations. These engagements not only inform our voting decisions but also allow us to monitor improvement over time and to contribute to our evolving
perspectives on priority areas. Insights from these engagements are shared with clients through our publicly available Annual Stewardship Report.
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Voting on Sustainability Proposals
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Historically, shareholder proposals addressing sustainability-related topics have been most common in the US and Japanese markets. However, we have observed
such proposals being filed in additional markets, including Australia, the UK, and continental Europe.
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Agnostic of market, sustainability-related shareholder proposals address diverse topics and typically ask companies to either improve sustainability-related disclosure or enhance their practices. Common topics for
sustainability-related shareholder proposals include:
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Climate-related issues
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Sustainable practices
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Gender equity
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Campaign contributions and lobbying
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Labor and human rights
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Animal welfare
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Global Proxy Voting and Engagement Guidelines for Environmental and Social Issues
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B-13
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We take a case-by-case approach to voting on shareholder proposals related to
sustainability topics and consider the following when reaching a final vote decision:
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The materiality of the sustainability topic in the proposal to the
companys business and sector (see Our Approach to Assessing Materiality and Relevance of Sustainability Issues above)
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The content and intent of the proposal
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Whether the adoption of such a proposal would promote long-term
shareholder value in the context of the companys disclosure and practices
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The level of board involvement in the oversight of the companys
sustainability practices
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Quality of engagement and responsiveness to our feedback
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Binding nature of proposal or prescriptiveness of
proposal
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Vote Options for Sustainability- Related Proposals
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State Street Global Advisors votes For (support for proposal) if the issue is material and
the company has poor disclosure and/or practices relative to our expectations.
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State Street Global Advisors votes Abstain (some reservations) if the
issue is material and the companys disclosure and/or practices could be improved relative to our expectations.
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State Street Global Advisors votes Against (no support for proposal) if
the issue is non- material and/or the companys disclosure and/or practices meet our expectations.
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Endnotes
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1 State Street Global Advisors proprietary scoring model, which aligns with SASBs
Sustainability Accounting Standards, and measures the performance of a companys business operations and governance as it relates to financially material ESG factors facing the companys industry.
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Global Proxy Voting and Engagement Guidelines for Environmental and Social Issues
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B-14
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About State Street Global Advisors
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Our clients are the worlds governments, institutions and financial advisors. To help them achieve their financial goals we live our guiding principles
each and every day:
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Start with rigor
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Build from breadth
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Invest as stewards
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Invent the future
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For four decades, these principles have helped us be the quiet power in a tumultuous investing world. Helping millions of people secure
their financial futures. This takes each of our employees in 27 offices around the world, and a firm-wide conviction that we can always do it better. As a result, we are the worlds third-largest asset manager with US $3.12 trillion* under our
care.
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* AUM reflects approximately $43.72 billion USD (as of December 31, 2019), with respect to
which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.
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ssga.com
State Street Global Advisors Worldwide Entities
Abu
Dhabi: State Street Global Advisors Limited, Middle East Branch, 42801, 28, Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu Dhabi, United Arab Emirates.
Regulated by ADGM Financial Services Regulatory Authority. T: +971 2 245 9000. Australia: State Street Global Advisors, Australia Services Limited (ABN
16 108 671 441) (AFSL Number 274900) (SSGA, ASL). Registered
offi Level 15, 420 George Street, Sydney, NSW 2000, Australia. T: 612
9240-7600. F: 612
9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 120, 1000 Brussels, Belgium. T: 32 2 663
2036. F: 32 2 672 2077. SSGA Belgium is a branch offi of State Street Global Advisors Ireland Limited. State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of
Ireland, and whose registered offi is at 78 Sir John Rogersons Quay, Dublin 2. Canada: State Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500 , Montreal, Quebec, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East
Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Global Advisors
Limited, DIFC Branch, Central Park Towers, Suite 15-38 (15th fl ), P.O Box 26838, Dubai International Financial
Centre (DIFC), Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority (DFSA). T: +971
(0)4-4372800. F: +971 (0)4-4372818.
France:
State Street Global Advisors Ireland Limited, Paris branch is a branch of State Street Global Advisors Ireland Limited, registered in
Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered offi is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Paris Branch, is registered in
France with company number RCS Nanterre 832 734 602 and whose offi is at Immeuble Défense Plaza, 23-25 rue Delarivière- Lefoullon, 92064 Paris La Défense Cedex, France. T: (+33) 1 44 45 40
00. F: (+33) 1 44 45 41 92.
Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich.
Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).
Registered with the Register of Commerce Munich HRB 121381. T: +49
(0)89-55878-400.
F: +49
(0)89-55878-440. Hong Kong: State
Street Global Advisors Asia Limited, 68/F, Two International Finance
Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank
of Ireland. Registered offi address 78 Sir John Rogersons Quay, Dublin 2. Registered number 145221. T:
+353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number
145221, authorised and regulated by the Central Bank of Ireland, and whose registered offi is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano), is registered in
Italy with company number 10495250960 - R.E.A.
2535585 and VAT number 10495250960 and whose offi is at Via Ferrante Aporti, 10 - 20125 Milano, Italy. T:
+39 02 32066 100. F: +39 02
32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380 Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345) , Membership: Japan Investment Advisers
Association, The Investment Trust Association, Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th fl Herikerbergweg 29 1101 CN Amsterdam, Netherlands. T: 31 20
7181701. SSGA Netherlands is a branch offi of State Street Global Advisors Ireland Limited, registered in
Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose
registered offi is at 78 Sir John Rogersons Quay, Dublin 2. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Reg. No: 200002719D, regulated by the Monetary
Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501.
Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich.
Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE- 105.078.458. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street Global
Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 2509928. VAT No.
5776591 81.
Registered offi 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States: State Street Global Advisors, One Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
© 2020 State Street Corporation.
All Rights Reserved. ID179700-3002028.1.1.GBL
.RTL 0320
Exp. Date: 03/31/2021
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Global Proxy Voting and Engagement Guidelines for Environmental and Social Issues
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B-15
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Insights
Asset Stewardship
March 2020
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Proxy Voting and Engagement Guidelines: Australia and New Zealand
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State Street Global Advisors Australia and New Zealand Proxy Voting and Engagement Guidelines1 outline our expectations of companies listed on stock exchanges in Australia and New Zealand. These Guidelines complement and should be read in conjunction with State Street Global Advisors
Global Proxy Voting and Engagement Principles, which provide a detailed explanation of our approach to voting and engaging with companies and State Street Global Advisors Conflict Mitigation Guidelines.
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State Street Global Advisors Australia and New Zealand Proxy
Voting and Engagement Guidelines address areas including board structure, audit related issues, capital structure, remuneration, environmental, social, and other governance related issues.
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When voting and engaging with companies in global markets, we consider market specific nuances in the manner that we believe will best
protect and promote the long-term economic value of client investments. We expect companies to observe the relevant laws and regulations of their respective markets as well as country specific best practice guidelines, and corporate governance
codes. We may hold companies in such markets to our global standards when we feel that a countrys regulatory requirements do not address some of the key philosophical principles that we believe are fundamental to our global voting
guidelines.
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In our analysis and research into corporate governance issues in Australia and New Zealand, we expect all companies at a minimum to comply with the ASX Corporate Governance Principles and proactively monitor companies
adherence to the principles. Consistent with the comply or explain expectations established by the Principles, we encourage companies to proactively disclose their level of compliance with the Principles. In instances of non-compliance when companies cannot explain the nuances of their governance structure effectively, either publicly or through engagement, we may vote against the independent board leader.
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B-16
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State Street
Global Advisors Proxy Voting and
Engagement Philosophy
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In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment
professionals with expertise in corporate governance and company law, remuneration, accounting, and environmental and social issues. We have established robust corporate governance principles and practices that are backed with extensive analytical
expertise in order to understand the complexities of the corporate governance landscape. We engage with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address
significant shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
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The team works alongside members of State Street Global Advisors Active Fundamental and Asia-Pacific (APAC) investment teams, collaborating on issuer engagement and providing input on company specific
fundamentals. We are also a member of various investor associations that seek to address broader corporate governance related policy issues in the region.
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State Street Global Advisors is a signatory to the United Nations Principles of Responsible Investment (UNPRI). We are
committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practices where applicable and consistent with our fiduciary duty.
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Directors and Boards
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Principally we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In
order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and overseeing executive management to monitoring the risks that arise from a companys business, including risks related
to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
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State Street Global Advisors believes that a well constituted board of directors with a good balance of skills, expertise, and independence provides the foundations for a well governed company. We view board quality as a measure
of director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. We vote for the election/re-election of directors on a case-by-case basis after considering various factors including board quality, general market practice, and availability of information on director skills and expertise. In principle, we believe independent
directors are crucial to corporate governance and help management establish sound ESG policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder
interests. We expect boards of ASX 300 and New Zealand listed companies to be comprised of at least a majority of independent directors. At all other Australian listed companies, we expect boards to be comprised of at least one-third independent directors.
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Proxy Voting and Engagement Guidelines: Australia and New Zealand
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B-17
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Our broad criteria for director independence in Australia and New Zealand include factors such as:
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Participation in related-party transactions and other business
relations with the company
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Employment history with company
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Relations with controlling shareholders
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Family ties with any of the companys advisers, directors, or
senior employees
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When voting on the election or re-election of a director, we also consider the number of outside board directorships that a non-executive and an
executive may undertake. Thus, we may withhold votes from board chairs and lead independent directors who sit on more than three public company boards, and from non-executive directors who hold more than four
public company board mandates. We may also take voting action against named executive officers who undertake more than two public board memberships. We also consider attendance at board meetings and may withhold votes from directors who attend less
than 75% of board meetings without appropriate explanation or providing reason for their failure to meet the attendance threshold. In addition, we monitor other factors that may influence the independence of a
non-executive director, such as performance-related pay, cross-directorships, significant shareholdings, and tenure. We support the annual election of directors and encourages Australian and New Zealand
companies to adopt this practice.
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While we are generally supportive of having the roles of chairman and CEO separated in the Australian and New Zealand markets, we assess the division of responsibilities between chairman and CEO on a
case-by-case basis, giving consideration to factors such as company-specific circumstances, overall level of independence on the board and general corporate governance
standards in the company. Similarly, we will monitor for circumstances in which a combined chairman/CEO is appointed or where a former CEO becomes chairman.
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We may also consider board performance and directors who appear to be remiss in the performance of their oversight responsibilities when analyzing their suitability for reappointment (e.g. fraud, criminal wrongdoing and breach of
fiduciary responsibilities).
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We believe companies should have committees for audit, remuneration, and nomination oversight. The audit committee is responsible for monitoring the integrity of the financial statements of the company, appointing external auditors,
monitoring their qualifications and independence, and their effectiveness and resource levels. ASX Corporate Governance Principles requires listed companies to have an audit committee of at least three members all of whom are non-executive directors and a majority of whom are independent directors. It also requires that the committee be chaired by an independent director who is not the chair of the board. We hold Australian and New
Zealand companies to our global standards for developed financial markets by requiring that all members of the audit committee be independent directors.
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In our analysis of boards, we consider whether board members have adequate skills to provide effective oversight of corporate strategy, operations, and risks, including environmental and social issues. Boards should also have a
regular evaluation process in place to assess the effectiveness of the board and the skills of board members to address issues, such as emerging risks, changes to corporate strategy, and diversification of operations and geographic footprint. The
nomination committee is responsible for evaluating and reviewing the balance of skills, knowledge, and experience of the board. It also ensures that adequate succession plans are in place for directors and the CEO. We may vote against the re-election of members of the nomination committee if the board has failed to address concerns over board structure or succession.
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Proxy Voting and Engagement Guidelines: Australia and New Zealand
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B-18
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Further, we expect boards of ASX 300 listed companies to have at least one female board member. If a company fails to meet this expectation, State Street Global Advisors may vote against the Chair of the boards nominating
committee or the board leader in the absence of a nominating committee, if necessary. Additionally, if a company fails to meet this expectation for four consecutive years, State Street Global Advisors may vote against all incumbent members of the
nominating committee.
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Executive pay is another important aspect of corporate governance. We believe that executive pay should be determined by the board of directors. We expect companies to have in place remuneration committees to provide independent
oversight over executive pay. ASX Corporate Governance Principles requires listed companies to have a remuneration committee of at least three members all of whom are non-executive directors and a majority of
whom are independent directors. Since Australia has a non-binding vote on pay with a two-strike rule requiring a board spill vote in the event of a second strike, we
believe that the vote provides investors a mechanism to address concerns they may have on the quality of oversight provided by the board on remuneration issues. Accordingly our voting guidelines accommodate local market practice.
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State Street Global Advisors may take voting action against board members at companies on the ASX 100 that are laggards based on their
R-FactorTM scores2 and cannot articulate how they plan to improve their score.
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Indemnification and
Limitations on Liability
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Generally, State Street Global Advisors supports proposals to limit directors liability and/or expand indemnification and liability protection up to the
limit provided by law, if he or she has not acted in bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office.
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Audit-Related Issues
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Companies should have robust internal audit and internal control systems designed for effective management of any potential and emerging risks to company
operations and strategy. The responsibility of setting out an internal audit function lies with the audit committee, which should have independent non-executive directors designated as members.
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Appointment of
External Auditors
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State Street Global Advisors believes that a companys auditor is an essential feature of an effective and transparent system of external supervision.
Shareholders should be given the opportunity to vote on their appointment or to re-appoint at the annual meeting. When appointing external auditors and approving audit fees, we will take into consideration the
level of detail in company disclosures. We will generally not support resolutions if adequate breakdown is not provided and if non-audit fees are more than 50% of audit fees. In addition, we may vote against members of the audit committee if we have
concerns with audit-related issues or if the level of non-audit fees to audit fees is significant. In certain circumstances, we may consider auditor tenure when evaluating the audit process.
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Proxy Voting and Engagement Guidelines: Australia and New Zealand
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B-19
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Shareholder
Rights and Capital-
Related Issues
Share Issuances
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Share Issuances
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The ability to raise capital is critical for companies to carry out strategy, to grow, and to achieve returns above their cost of capital. The approval of
capital raising activities is fundamental to shareholders ability to monitor the returns and to ensure capital is deployed efficiently. State Street Global Advisors supports capital increases that have sound business reasons and are not
excessive relative to a companys existing capital base.
Pre-emption rights are
a fundamental right for shareholders to protect their investment in a company. Where companies seek to issue new shares without pre-emption rights, we may vote against if such authorities are greater than 20% of the issued share capital. We may also
vote against resolutions seeking authority to issue capital with pre-emption rights if the aggregate amount allowed seems excessive and is not justified by the board. Generally, we are against capital issuance proposals greater than 100% of the
issued share capital when the proceeds are not intended for specific purpose.
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Share Repurchase Programs
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We generally support proposals to repurchase shares, unless the issuer does not clearly state the business purpose for the program, a definitive number of
shares to be repurchased, and the timeframe for the repurchase. We may vote against share repurchase requests that allow share repurchases during a takeover period.
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Dividends
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We generally support dividend payouts that constitute 30% or more of net income. We may vote against the dividend payouts if the dividend payout ratio has been
consistently below 30% without adequate explanation. We may also vote against if the payout is excessive given the companys financial position. Particular attention will be warranted when the payment may damage the companys long-term
financial health.
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Mergers and Acquisitions
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Mergers or reorganization of the company structure often involve proposals relating to reincorporation, restructurings, liquidations, and other major changes
to the corporation. Proposals that are in the best interests of shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as
financially sound or are thought to be destructive to shareholders rights are not supported. We will generally support transactions that maximize shareholder value. Some of the considerations include:
Offer premium
Strategic
rationale
Board
oversight of the process for the recommended transaction, including, director and/or management conflicts of interest
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Proxy Voting and Engagement Guidelines: Australia and New Zealand
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B-20
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Offers made at a premium and where there are no other higher
bidders
Offers in
which the secondary market price is substantially lower than the net asset value
We
may vote against a transaction considering the following:
Offers with potentially damaging consequences for minority shareholders because of illiquid
stock
Offers where
we believe there is a reasonable prospect for an enhanced bid or other bidders
The current market price of the security exceeds the bid price at the time of voting
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Anti-Takeover Measures
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We oppose anti-takeover defenses, such as authorities for the board to issue warrants convertible into shares to existing shareholders during a hostile
takeover.
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Remuneration
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Executive Pay
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There is a simple underlying philosophy that guides State Street Global Advisors analysis of executive pay; there should be a direct relationship between
remuneration and company performance over the long term. Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration reports, we consider various factors,
such as adequate disclosure of different remuneration elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long-term and short-term incentives, alignment of pay structures with shareholder interests as well as with
corporate strategy and performance. State Street Global Advisors may oppose remuneration reports in which there seems to be a misalignment between pay and shareholders interests and where incentive policies and schemes have a re-test option or feature. We may also vote against the re-election of members of the remuneration committee if we have serious concerns about remuneration practices and if the company has not been responsive to
shareholder pressure to review its approach.
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Equity Incentive Plans
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We may not support proposals on equity-based incentive plans where insufficient information is provided on matters, such as grant limits, performance metrics,
performance, and vesting periods and overall dilution. Generally, we do not support options under such plans being issued at a discount to market price nor plans that allow for re-testing of performance
metrics.
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Non-Executive
Director
Pay
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Authorities that seek shareholder approval for non-executive directors fees generally are not controversial. We generally support resolutions regarding
directors fees unless disclosure is poor and we are unable to determine whether the fees are excessive relative to fees paid by other comparable companies. We will evaluate any non-cash or performance-related pay to non-executive directors on a company-by-company basis.
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Proxy Voting and Engagement Guidelines: Australia and New Zealand
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B-21
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Risk Management
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State Street Global Advisors believes that risk management is a key function of the board, which is responsible for setting the overall risk appetite of a
company and for providing oversight on the risk management process established by senior executives at a company. We allow boards to have discretion over the ways in which they provide oversight in this area. However, we expect companies to disclose
ways in which the board provides oversight on its risk management system and to identify key risks facing the company. Boards should also review existing and emerging risks that evolve in tandem with the political and economic landscape or as
companies diversify or expand their operations into new areas.
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Environmental and Social Issues
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As a fiduciary, State Street Global Advisors takes a comprehensive approach to engaging with our portfolio companies about material environmental and social
(sustainability) issues. We use our voice and our vote through engagement, proxy voting, and thought leadership in order to communicate with issuers and educate market participants about our perspective on important sustainability topics. Our Asset
Stewardship program prioritization process allows us to proactively identify companies for engagement and voting in order to mitigate sustainability risks in our portfolio. Through engagement, we address a broad range of topics that align with our
thematic priorities and build long-term relationships with issuers. When voting, we fundamentally consider whether the adoption of a shareholder proposal addressing a material sustainability issue would promote long-term shareholder value in the
context of the companys existing practices and disclosures as well as existing market practice.
For more information on our approach to environmental and social issues, please see our Global Proxy Voting and Engagement Guidelines for Environmental and
Social Issues available at ssga.com/about-us/asset-stewardship.html.
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More Information
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Any client who wishes to receive information on how its proxies were voted should contact its State Street Global Advisors relationship manager.
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Endnotes
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1 These
Proxy Voting and Engagement Guidelines are also applicable to SSGA Funds Management, Inc. SSGA Funds Management, Inc. is an SEC registered investment adviser. SSGA Funds Management, Inc., State Street Global Advisors Trust Company, and other
advisory affiliates of State Street make up State Street Global Advisors, the investment management arm of State Street Corporation.
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2 R-FactorTM
is a scoring system created by SSGA that measures the performance of a companys business operations and governance as it relates to financially material ESG factors facing the companys industry.
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Proxy Voting and Engagement Guidelines: Australia and New Zealand
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B-22
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About State Street Global Advisors
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Our clients are the worlds
governments, institutions and financial advisors. To help them achieve their financial goals we live our guiding principles each and every day:
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Start with rigor
Build from breadth
Invest as stewards
Invent the
future
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For four decades, these principles have helped us be the quiet power in a tumultuous investing world. Helping millions of people secure their financial futures. This takes each of our employees in 27 offices around the world, and a
firm-wide conviction that we can always do it better. As a result, we are the worlds third-largest asset manager with US $3.12 trillion* under our care.
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* AUM reflects approximately $43.72 billion USD (as of December 31, 2019), with respect to which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.
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ssga.com
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, Middle East Branch, 42801, 28, Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu
Dhabi, United Arab Emirates. Regulated by ADGM Financial Services Regulatory Authority. T: +971 2 245 9000. Australia: State Street Global Advisors, Australia Services Limited (ABN 16 108 671 441) (AFSL Number 274900) (SSGA, ASL).
Registered office: Level 15, 420 George Street, Sydney, NSW 2000, Australia. T: 612 9240-7600. F: 612 9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 120, 1000 Brussels, Belgium. T: 32 2 663 2036. F:
32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Ireland Limited. State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland,
and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. Canada: State Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500 , Montreal, Quebec, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East Suite
800, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Global
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Advisors Limited, DIFC Branch, Central Park Towers, Suite 15-38 (15th floor), P.O Box 26838, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. Regulated by the Dubai
Financial Services Authority (DFSA). T: +971 (0)4-4372800. F: +971 (0)4-4372818. France: State Street Global Advisors Ireland Limited, Paris branch is a branch of
State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. State Street
Global Advisors Ireland Limited, Paris Branch, is registered in France with company number RCS Nanterre 832 734 602 and whose office is at Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: (+33) 1 44 45 40 00. F: (+33) 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. T: +49 (0)89-55878-400. F: +49 (0)89-55878-440. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance
Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the
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Central Bank of Ireland. Registered office address 78 Sir John Rogersons Quay, Dublin 2. Registered number 145221. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Ireland Limited, Milan
Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 10495250960-R.E.A. 2535585 and VAT number 10495250960 and whose office is at Via
Ferrante Aporti, 10-20125 Milano, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku,
Tokyo 105-6325 Japan. T: +81-3-4530-7380 Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345) , Membership: Japan Investment Advisers
Association, The Investment Trust Association, Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. T: 31 20
7181701. SSGA Netherlands is a branch office of State Street Global Advisors Ireland
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Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered
office is at 78 Sir John Rogersons Quay, Dublin 2. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Reg. No:
200002719D, regulated by the Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische
Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the
Financial Conduct Authority. Registered in England. Registered No. 2509928. VAT No. 5776591 81. Registered office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States: State Street
Global Advisors, One Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
© 2020 State Street Corporation.
All Rights Reserved.
ID178858-3001282.1.1.GBL.RTL 0320
Exp. Date: 03/31/2021
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Proxy Voting and Engagement Guidelines: Australia and New Zealand
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B-23
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Insights
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Asset Stewardship
March 2020
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Proxy Voting and Engagement Guidelines: Europe
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State Street Global Advisors European Proxy Voting and Engagement Guidelines1 cover different corporate governance frameworks and practices in European markets, excluding
the United Kingdom and Ireland. These guidelines complement and should be read in conjunction with State Street Global Advisors Global Proxy Voting and Engagement Principles, which provide a detailed explanation of our approach to voting and
engaging with companies, and State Street Global Advisors Conflict Mitigation Guidelines.
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State Street Global Advisors Proxy Voting and Engagement Guidelines in European markets address areas such as board structure, audit-related issues, capital structure, remuneration, as well as environmental, social and
other governance-related issues.
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When voting and engaging with companies in European markets, we consider market-specific nuances in the manner that we believe will most likely protect and promote the long-term financial value of client investments. We expect
companies to observe the relevant laws and regulations of their respective markets, as well as country-specific best practice guidelines and corporate governance codes. We may hold companies in some markets to
our global standards when we feel that a countrys regulatory requirements do not address some of the key philosophical principles that we believe are fundamental to our global voting guidelines.
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In our analysis and research into corporate governance issues in European companies, we also consider guidance issued by the European Commission and country-specific governance codes. We
proactively monitor companies adherence to applicable guidance and requirements. Consistent with the diverse comply-or-explain expectations established by guidance and codes, we encourage companies to proactively disclose their
level of compliance with applicable provisions and requirements. In cases of non-compliance, when companies cannot explain the nuances of their governance structure effectively, either publicly or through engagement, we may vote against the
independent board leader.
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B-24
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State Street Global Advisors Proxy Voting and Engagement Philosophy
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Corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals
with expertise in corporate governance and company law, remuneration, accounting, and environmental and social issues. We have established robust corporate governance principles and practices that are backed with extensive analytical expertise in
order to understand the complexities of the corporate governance landscape. We engage with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant
shareholder concerns and environmental, social, and governance (ESG) issues in a manner consistent with maximizing shareholder value.
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The team works alongside members of State Street Global Advisors Active Fundamental and Europe, Middle East and Africa (EMEA) investment teams, collaborating on issuer engagement and providing input on company-specific fundamentals.
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State Street Global Advisors is a signatory to the United Nations Principles for Responsible Investment (UNPRI). We are
committed to sustainable investing; thus, we are working to further integrate ESG principles into investment and corporate governance practices where applicable and consistent with our fiduciary duty.
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Directors and Boards
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Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value, and to protect shareholder interests. In order to carry out their primary responsibilities, directors have
to undertake activities that range from setting strategy and overseeing executive management, to monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance
necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
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We believe that a well constituted board of directors, with a balance of skills, expertise and independence, provides the foundations for
a well governed company. We view board quality as a measure of director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. We vote for the election/re-election of directors on
a case-by-case basis after considering various factors, including board quality, general market practice, and availability of information on director skills and
expertise.
In principle, we believe independent directors are crucial to good corporate governance and help management establish sound corporate governance
policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions necessary to protect shareholder interests.
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Our broad criteria for director independence in European companies include factors such as:
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Participation in relatedparty transactions and other business
relations with the company
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Employment history with the company
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Relations with controlling shareholders
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Family ties with any of the companys advisers, directors or
senior employees
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Serving as an employee or government representative
and
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Proxy Voting and Engagement Guidelines: Europe
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B-25
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Overall average board tenure and individual director tenure at
issuers with classified and de-classified boards, respectively
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Company classification of a director as non-independent
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While overall board independence requirements and board structures differ from market to market, we consider voting against directors we deem non-independent if overall board independence
is below one-third or if overall independence level is below 50% after excluding employee representatives and/or directors elected in accordance with local laws who are not elected by shareholders. We may
withhold support for a proposal to discharge the board if a company fails to meet adequate governance standards or board level independence.
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We also assess the division of responsibilities between chair and CEO on a case-by-case basis, giving consideration to factors such as overall level
of independence on the board and general corporate governance standards in the company. However, we may take voting action against the chair or members of the nominating committee at the STOXX Europe 600 companies that have combined the roles of
chair and CEO and have not appointed an independent deputy chair or a lead independent director.
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When voting on the election or re-election of a director, we also consider the number of outside board directorships a non-executive and an executive
may undertake. Thus, we may withhold votes from board chairs and lead independent directors who sit on more than three public company boards, and from non-executive directors who hold more than four public
company board mandates. We may also take voting action against named executive officers who undertake more than two public board memberships.
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We also consider attendance at board meetings and may withhold votes from directors who attend less than 75% of board meetings without appropriate explanation or providing reason for their failure to meet the attendance threshold
. In addition, we monitor other factors that may influence the independence of a non-executive director, such as performance-related pay, cross-directorships and significant shareholdings. Moreover, we may
vote against the election of a director whose biographical disclosures are insufficient to assess his or her role on the board and/or independence.
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Further, we expect boards of STOXX Europe 600 listed companies to have at least one female board member. If a company fails to meet this expectation, State Street Global Advisors may vote against the Chair of the boards
nominating committee or the board leader in the absence of a nominating committee, if necessary.
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Although we generally are in favour of the annual election of directors, we recognise that director terms vary considerably in different European markets. We may vote against article/bylaw changes that seek to extend director
terms. In addition, we may vote against directors if their terms extend beyond four years in certain markets.
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We believe companies should have relevant board level committees for audit, remuneration and nomination oversight. The audit committee is responsible for monitoring the integrity of the financial statements of the company,
appointing external auditors, monitoring their qualifications and independence, and assessing effectiveness and resource levels. Similarly, executive pay is an important aspect of corporate governance, and it should be determined by the board of
directors. We expect companies to have remuneration committees to provide independent oversight of executive pay. We may vote against nominees who are executive members of audit or remuneration committees.
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Proxy Voting and Engagement Guidelines: Europe
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B-26
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In our analysis of boards, we consider whether board members have adequate skills to provide effective oversight of corporate strategy, operations, and risks,
including environmental and social issues. Boards should also have a regular evaluation process in place to assess the effectiveness of the board and the skills of board members to address issues such as emerging risks, changes to corporate
strategy, and diversification of operations and geographic footprint.
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In certain European markets it is not uncommon for the election of directors to be presented in a single slate. In these cases, where executives serve on the audit or the remuneration committees, we may vote against the entire
slate.
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We may also consider factors such as board performance and directors who appear to be remiss in the performance of their oversight responsibilities (e.g. fraud, criminal wrongdoing and/or breach of fiduciary
responsibilities).
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State Street Global Advisors may take voting action against board members at companies on the DAX 30 and CAC 40 that are laggards based on their R-FactorTM scores2 and cannot articulate how they plan to improve their score.
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Indemnification and
Limitations on
Liability
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Generally, we support proposals to limit directors liability and/or expand indemnification and liability protection up to the limit provided by law if a director has not acted in bad faith, with gross negligence, or with
reckless disregard of the duties involved in the conduct of his or her office.
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Audit-Related Issues
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Companies should have robust internal audit and internal control systems designed for effective management of any potential and emerging risks to company operations and strategy. The responsibility of setting up an internal audit
function lies with the audit committee, which should have as members independent non-executive directors.
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Appointment of External Auditors
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We believe that a companys auditor is an essential feature of an effective and transparent system of external supervision. Shareholders should be given the opportunity to vote on their appointment or re-appoint them at the annual meeting. When appointing external auditors and approving audit fees, we consider the level of detail in company disclosures; we will generally not support such resolutions if adequate
breakdown is not provided and if non-audit fees are more than 50% of audit fees. In addition, we may vote against members of the audit committee if we have concerns with audit-related issues or if the level of
non-audit fees to audit fees is significant. We may consider auditor tenure when evaluating the audit process in certain circumstances.
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Limit Legal Liability of External Auditors
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We generally oppose limiting the legal liability of audit firms as we believe this could create a negative impact on the quality of the audit function.
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Shareholder Rights and Capital-Related Issues
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In some European markets, differential voting rights continue to exist. State Street Global Advisors supports the one-share, one-vote policy and
favors a share structure where all shares have equal voting rights. We believe pre-emption rights should be introduced for shareholders in order to provide adequate protection from excessive dilution from the
issuance of new shares or convertible securities to third parties or a small number of select shareholders.
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Proxy Voting and Engagement Guidelines: Europe
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B-27
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Unequal Voting Rights
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We generally oppose proposals authorizing the creation of new classes of common stock with superior voting rights. We will generally oppose the creation of new
classes of preferred stock with unspecified voting, conversion, dividend distribution and other rights. In addition, we will not support capitalization changes that add classes of stock with undefined voting rights or classes that may dilute the
voting interests of existing shareholders. We support proposals to abolish voting caps and capitalization changes that eliminate other classes of stock and/or unequal voting rights.
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Increase in Authorized Capital
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The ability to raise capital is critical for companies to carry out strategy, to grow, and to achieve returns above their cost of capital. The approval of capital raising activities is fundamental to shareholders
ability to monitor returns and to ensure capital is deployed efficiently. We support capital increases that have sound business reasons and are not excessive relative to a companys existing capital base.
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Pre-emption rights are a fundamental right for shareholders to protect their investment in a company. Where companies seek to issue new shares whilst disapplying pre-emption rights, we may vote against if such authorities are greater than 20% of the issued share capital. We may also vote against resolutions that seek authority to issue capital with pre-emption rights if the aggregate amount allowed seems excessive and is not justified by the board. Generally, we oppose capital issuance proposals greater than 100% of the issued share capital when the proceeds
are not intended for a specific purpose.
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Share Repurchase Programs
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We typically support proposals to repurchase shares; however, there are exceptions in some cases. We do not support repurchases if the issuer does not clearly state the business purpose for the program, a definitive number of
shares to be repurchased, the range of premium/ discount to market price at which the company can repurchase shares, and the timeframe for the repurchase. We may vote against share repurchase requests that allow share repurchases during a takeover
period.
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Dividends
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We generally support dividend payouts that constitute 30% or more of net income. We may vote against the dividend payouts if the dividend payout ratio has been consistently below 30% without adequate explanation or the payout is
excessive given the companys financial position. Particular attention will be paid to cases in which the payment may damage the companys long-term financial health.
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Related-Party Transactions
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Some companies in European markets have a controlled ownership structure and complex cross-shareholdings between subsidiaries and parent companies (related companies). Such structures may result in the prevalence of
related-party transactions between the company and its various stakeholders, such as directors and management, subsidiaries and shareholders. In markets where shareholders are required to approve such transactions, we expect companies to provide
details of the transaction, such as the nature, the value and the purpose of such a transaction. We also encourage independent directors to ratify such transactions. Further, we encourage companies to describe the level of independent board
oversight and the approval process, including details of any independent valuations provided by financial advisors on related-party transactions.
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Proxy Voting and Engagement Guidelines: Europe
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B-28
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Mergers and Acquisitions
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Mergers or restructurings often involve proposals relating to reincorporation, restructurings, mergers, liquidation and other major changes to the corporation.
Proposals will be supported if they are in the best interest of the shareholders, which is demonstrated by enhancing share value or improving the effectiveness of the companys operations. In general, provisions that are not viewed as
financially sound or are thought to be destructive to shareholders rights are not supported.
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We will generally support transactions that maximize shareholder value. Some of the considerations include:
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Offer premium
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Strategic rationale
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Board oversight of the process for the recommended transaction,
including director and/or management conflicts of interest
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Offers made at a premium and where there are no other higher
bidders
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Offers in which the secondary market price is substantially lower
than the net asset value
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We may vote against a transaction considering the following:
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Offers with potentially damaging consequences for minority
shareholders because of illiquid stock
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Offers where we believe there is a reasonable prospect for an
enhanced bid or other bidders
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The current market price of the security exceeds the bid price at
the time of voting.
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AntiTakeover Measures
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European markets have diverse regulations concerning the use of share issuances as takeover defenses, with legal restrictions lacking in some markets. We support the one-share, one-vote policy. For example, dual-class capital structures entrench certain shareholders and management, insulating them from possible takeovers. We oppose unlimited share issuance authorizations because they can
be used as anti-takeover devices. They have the potential for substantial voting and earnings dilution. We also monitor the duration of time for authorities to issue shares, as well as whether there are restrictions and caps on multiple issuance
authorities during the specified time periods. We oppose antitakeover defenses, such as authorities for the board when subject to a hostile takeover to issue warrants convertible into shares to existing shareholders.
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Proxy Voting and Engagement Guidelines: Europe
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B-29
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Remuneration
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Executive Pay
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Despite the differences among the various types of plans and awards, there is a simple underlying philosophy that guides our analysis of executive pay: there should be a direct relationship between remuneration and company
performance over the long term.
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Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing remuneration reports, we consider factors such as adequate disclosure of remuneration
elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long-term and short-term incentives, alignment of pay structures with shareholder interests, corporate strategy and performance. We may oppose remuneration
reports where pay seems misaligned with shareholders interests. We may also vote against the re-election of members of the remuneration committee if we have serious concerns about remuneration practices
and if the company has not been responsive to shareholder pressure to review its approach.
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Equity Incentives Plans
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We may not support proposals regarding equity-based incentive plans where insufficient information is provided on matters, including grant limits, performance metrics, performance and vesting periods, and overall dilution.
Generally, we do not support options under such plans being issued at a discount to market price or plans that allow for retesting of performance metrics.
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NonExecutive Director Pay
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In European markets, proposals seeking shareholder approval for non-executive directors fees are generally not controversial. We typically support resolutions regarding
directors fees unless disclosure is poor and we are unable to determine whether the fees are excessive relative to fees paid by comparable companies. We will evaluate any non-cash or performance-related
pay to non-executive directors on a company-by-company basis.
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Risk Management
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We believe that risk management is a key function of the board, which is responsible for setting the overall risk appetite of a company and for providing oversight on the risk management process established by senior executives
at a company. We allow boards discretion regarding the ways in which they provide oversight in this area. However, we expect companies to disclose how the board provides oversight on its risk management system and risk identification. Boards should
also review existing and emerging risks, as they can change with a changing political and economic landscape or as companies diversify or expand their operations into new areas.
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Environmental and Social Issues
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As a fiduciary, State Street Global Advisors takes a comprehensive approach to engaging with our portfolio companies about material environmental and social (sustainability) issues. We use our voice and our vote through
engagement, proxy voting and thought leadership in order to communicate with issuers and educate market participants about our perspective on important sustainability topics. Our Asset Stewardship program prioritization process allows us to
proactively identify companies for engagement and voting in order to mitigate sustainability risks in our portfolio. Through engagement, we address a broad range of topics that align with our thematic priorities and build long-term relationships
with issuers. When voting, we fundamentally consider whether the adoption of a shareholder proposal addressing a material sustainability issue would promote long-term shareholder value in the context of the companys existing practices and
disclosures as well as existing market practice.
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Proxy Voting and Engagement Guidelines: Europe
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B-30
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For more information on our approach to environmental and social issues, please see our Global Proxy Voting and Engagement Guidelines for Environmental and
Social Issues available at ssga.com/about-us/asset-stewardship.html.
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More Information
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Any client who wishes to receive information on how its proxies were voted should contact its State Street Global Advisors relationship manager.
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Endnotes
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1 These Proxy Voting and Engagement Guidelines are also applicable to SSGA
Funds Management, Inc. SSGA Funds Management, Inc. is an SEC registered investment adviser. SSGA Funds Management, Inc., State Street Global Advisors Trust Company, and other advisory affiliates of State Street make up State Street Global Advisors,
the investment management arm of State Street Corporation.
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2 R-FactorTM is a scoring system created by SSGA that measures the performance of a companys business operations and governance as it relates to financially material ESG factors facing the companys
industry.
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Proxy Voting and Engagement Guidelines: Europe
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B-31
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About State Street Global Advisors
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Our clients are the worlds governments, institutions and financial advisors. To help them achieve their financial goals we live our guiding principles
each and every day:
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Start with rigor
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Build from breadth
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Invest as stewards
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Invent the future
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For four decades, these principles have helped us be the quiet power in a tumultuous investing world. Helping millions of people secure their financial futures. This takes each of our employees in 27 offices around the world, and
a firm-wide conviction that we can always do it better. As a result, we are the worlds third-largest asset manager with US $3.12 trillion* under our care.
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* AUM reflects approximately $43.72 billion USD (as of December 31,
2019), with respect to which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.
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ssga.com
State Street Global Advisors Worldwide Entities
Abu Dhabi: State Street Global Advisors Limited, Middle East Branch, 42801, 28, Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu
Dhabi, United Arab Emirates. Regulated by ADGM Financial Services Regulatory Authority. T: +971 2 245 9000. Australia: State Street Global Advisors, Australia Services Limited (ABN 16 108 671 441) (AFSL Number 274900) (SSGA, ASL).
Registered office: Level 15, 420 George Street, Sydney, NSW 2000, Australia. T: 612 9240- 7600. F: 612 9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 120, 1000 Brussels, Belgium. T: 32 2 663 2036.
F: 32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Ireland Limited. State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. Canada: State Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500 , Montreal, Quebec, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East
Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Global Advisors Limited,
DIFC Branch, Central Park Towers, Suite 15-38 (15th floor), P.O Box
26838, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority (DFSA). T: +971 (0)4- 4372800. F: +971 (0)4-4372818. France: State
Street Global Advisors Ireland Limited, Paris branch is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office
is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Paris Branch, is registered in France with company number RCS Nanterre 832 734 602 and whose office is at Immeuble Défense Plaza, 23-25 rue Delarivière- Lefoullon, 92064 Paris La Défense Cedex, France. T: (+33) 1 44 45 40 00. F: (+33) 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. T: +49 (0)89-55878-400. F: +49 (0)89-55878-440. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance
Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Registered office
address 78 Sir John Rogersons Quay, Dublin 2. Registered number 145221. T: +353 (0)1 776 3000. F: +353
(0)1 776 3300. Italy: State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company
number 10495250960 - R.E.A. 2535585 and VAT number 10495250960 and whose office is at Via Ferrante Aporti, 10 - 20125 Milano, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., Toranomon
Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380 Financial Instruments Business
Operator, Kanto Local Financial Bureau (Kinsho #345) , Membership: Japan Investment Advisers Association, The Investment Trust Association, Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors
Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. T: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Ireland Limited, registered in Ireland with company number
145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogersons Quay, Dublin 2. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Reg. No: 200002719D, regulated by the
Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised
and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 2509928. VAT No. 5776591 81. Registered office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395
6350. United States: State Street Global Advisors, One Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
© 2020 State Street
Corporation.
All Rights Reserved.
ID178878-3001282.1.1 0320
Exp. Date: 03/31/2021
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Proxy Voting and Engagement Guidelines: Europe
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B-32
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Insights
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Asset Stewardship
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Proxy Voting and Engagement Guidelines: Japan
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March 2020
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State Street Global Advisors Japan Proxy Voting and Engagement Guidelines1
outline our expectations of companies listed on stock exchanges in Japan. These Guidelines complement and should be read in conjunction with State Street Global Advisors overarching Global Proxy Voting and Engagement Guidelines, which provide
a detailed explanation of our approach to voting and engaging with companies and State Street Global Advisors Conflict Mitigation Guidelines.
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State Street Global Advisors Proxy Voting and Engagement Guidelines in Japan address areas including: board structure, audit related issues, capital
structure, remuneration, environmental, social, and other governance-related issues.
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When voting and engaging with companies in Japan, State Street Global Advisors takes into consideration the unique aspects of Japanese corporate governance structures. We recognize that under Japanese corporate law, companies may
choose between two structures of corporate governance: the statutory auditor system or the committee structure. Most Japanese boards predominantly consist of executives and non-independent outsiders affiliated
through commercial relationships or cross-shareholdings. Nonetheless, when evaluating companies, State Street Global Advisors expects Japanese companies to address conflicts of interest and risk management and to demonstrate an effective process for
monitoring management. In our analysis and research regarding corporate governance issues in Japan, we expect all companies at a minimum to comply with Japans Corporate Governance Principles and proactively monitor companies adherence to
the principles. Consistent with the comply or explain expectations established by the Principles, we encourage companies to proactively disclose their level of compliance with the Principles. In instances of non-compliance when companies cannot explain the nuances of their governance structure effectively, either publicly or through engagement, we may vote against the board leader.
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B-33
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State Street Global Advisors Proxy Voting and Engagement Philosophy
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In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment
professionals with expertise in corporate governance and company law, remuneration, accounting, and environmental and social issues. We have established robust corporate governance principles and practices that are backed with extensive analytical
expertise to understand the complexities of the corporate governance landscape. We engage with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant
shareholder concerns and environmental, social, and governance (ESG) issues in a manner consistent with maximizing shareholder value.
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The team works alongside members of State Street Global Advisors Active Fundamental and Asia-Pacific (APAC) Investment Teams; the teams collaborate on issuer engagement
and provide input on company specific fundamentals. We are also a member of various investor associations that seek to address broader corporate governance related policy issues in Japan.
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State Street Global Advisors is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with Japans Stewardship Code and Corporate Governance Code. We are committed to
sustainable investing and are working to further integrate ESG principles into investment and corporate governance practices where applicable and consistent with our fiduciary duty.
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Directors and Boards
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Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In
order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and overseeing executive management to monitoring the risks that arise from a companys business, including risks related
to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
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State Street Global Advisors believes that a well constituted board of directors with a balance of skills, expertise, and independence, provides the foundation for a well governed company. We view board quality as a measure of
director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. We vote for the election/re-election of directors on a case-by-case basis after considering various factors, including board quality, general market practice, and availability of information on director skills and expertise. In principle, we believe independent
directors are crucial to robust corporate governance and help management establish sound corporate governance policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions that are
necessary to protect shareholder interests.
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Further we expect boards of TOPIX 500 listed companies to have at least one female board member. If a company fails to meet this expectation, State Street Global Advisors may vote against the Chair of the boards nominating
committee or the board leader in the absence of a nominating committee, if necessary.
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Japanese companies have the option of having a traditional board of directors with statutory auditors, a board with a committee structure, or a hybrid board with a board level audit committee. We will generally support companies
that seek shareholder approval to adopt a committee or hybrid board structure.
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Proxy Voting and Engagement Guidelines: Japan
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B-34
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Most Japanese issuers prefer the traditional statutory auditor structure. Statutory auditors act in a quasi-compliance role, as they are not involved in
strategic decision-making nor are they part of the formal management decision process. Statutory auditors attend board meetings but do not have voting rights at the board; however, they have the right to seek an injunction and conduct broad
investigations of unlawful behavior in the companys operations.
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State Street Global Advisors will support the election of statutory auditors, unless the outside statutory auditor nominee is regarded as non-independent based on our criteria, the outside
statutory auditor has attended less than 75 percent of meetings of the board of directors or board of statutory auditors during the year under review, or the statutory auditor has been remiss in the performance of their oversight
responsibilities (fraud, criminal wrong doing, and breach of fiduciary responsibilities).
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For companies with a statutory auditor structure there is no legal requirement that boards have outside directors; however, we believe there should be a transparent process of independent and external monitoring of management on
behalf of shareholders.
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We believe that boards of TOPIX 500 companies should have at least
three independent directors or be at least one-third independent, whichever requires fewer independent directors. Otherwise, we may oppose the board leader who is responsible for the director nomination
process.
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For controlled, non-TOPIX
500 companies with a statutory auditor structure or hybrid structure, we may oppose the board leader if the board does not have at least two independent directors.
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For non-controlled, non-TOPIX 500 companies with a statutory auditor structure or hybrid structure, State Street Global Advisors may oppose the board leader, if the board does not have at least two outside directors.
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For companies with a committee structure or a hybrid board structure, we also take into consideration the overall independence level of the committees. In determining director independence, we consider the following
factors:
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Participation in related-party transactions and other business
relations with the company
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Past employment with the company
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Professional services provided to the company
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Family ties with the company
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Regardless of board structure, we may oppose the election of a director for the following reasons:
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Failure to attend board meetings
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In instances of egregious actions related to a directors
service on the board
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State Street Global Advisors may take voting action against board members at companies on the TOPIX 100 that are laggards based on their R-FactorTM scores2 and cannot articulate how they plan to improve their score.
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Proxy Voting and Engagement Guidelines: Japan
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B-35
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Indemnification and Limitations on Liability
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Generally, State Street Global Advisors supports proposals to limit directors and statutory auditors liability and/or expand indemnification and
liability protection up to the limit provided by law, if he or she has not acted in bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. We believe limitations and indemnification are
necessary to attract and retain qualified directors.
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Audit-Related Items
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State Street Global Advisors believes that a companys auditor is an essential feature of an effective and transparent system of external supervision.
Shareholders should have the opportunity to vote on the appointment of the auditor at the annual meeting.
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Ratifying External Auditors
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We generally support the appointment of external auditors unless the external auditor is perceived as being
non-independent and there are concerns about the accounts presented and the audit procedures followed.
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Limiting Legal Liability of External Auditors
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We generally oppose limiting the legal liability of audit firms as we believe this could create a negative impact on the quality of the audit function.
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Capital Structure, Reorganization, and Mergers
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State Street Global Advisors supports the one share one vote policy and favors a share structure where all shares have equal voting rights. We
support proposals to abolish voting caps or multiple voting rights and will oppose measures to introduce these types of restrictions on shareholder rights.
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We believe pre-emption rights should be introduced for shareholders. This can provide adequate
protection from excessive dilution due to the issuance of new shares or convertible securities to third parties or a small number of select shareholders.
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Unequal Voting Rights
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However, we will support capitalization changes that eliminate other classes of stock and/or unequal voting rights.
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Increase in Authorized Capital
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We generally support increases in authorized capital where the company provides an adequate explanation for the use of shares. In the absence of an adequate
explanation, we may oppose the request if the increase in authorized capital exceeds 100% of the currently authorized capital. Where share issuance requests exceed our standard threshold, we will consider the nature of the specific need, such as
mergers, acquisitions and stock splits.
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Dividends
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We generally support dividend payouts that constitute 30% or more of net income. We may vote against the dividend payouts if the dividend payout ratio has been
consistently below 30% without adequate explanation; or, the payout is excessive given the companys financial position. Particular attention will be paid where the payment may damage the companys long-term financial health.
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Proxy Voting and Engagement Guidelines: Japan
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B-36
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Share Repurchase Programs
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Companies are allowed under Japan Corporate Law to amend their articles to authorize the repurchase of shares at the boards discretion. We will oppose an
amendment to articles allowing the repurchase of shares at the boards discretion. We believe the company should seek shareholder approval for a share repurchase program at each years AGM, providing shareholders the right to evaluate the
purpose of the repurchase.
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We generally support proposals to repurchase shares, unless the issuer does not clearly state the business purpose for the program, a
definitive number of shares to be repurchased, and the timeframe for the repurchase. We may vote against share repurchase requests that allow share repurchases during a takeover period.
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Mergers and Acquisitions
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Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, mergers, liquidations, and other major
changes to the corporation. We will support proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations. In general, provisions that are deemed
to be destructive to shareholders rights or financially detrimental are not supported.
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We evaluate mergers and structural reorganizations on a case-by-case basis. We will generally support transactions that maximize shareholder value.
Some of the considerations include, but are not limited to the following:
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Offer premium
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Strategic rationale
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Board oversight of the process for the recommended transaction,
including director and/or management conflicts of interest
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Offers made at a premium and where there are no other higher
bidders
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Offers in which the secondary market price is substantially lower
than the net asset value
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We may vote against a transaction considering the following:
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Offers with potentially damaging consequences for minority
shareholders because of illiquid stock
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Offers where we believe there is a reasonable prospect for an
enhanced bid or other bidders
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Offers in which the current market price of the security exceeds the
bid price at the time of voting
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Proxy Voting and Engagement Guidelines: Japan
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B-37
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Shareholder Rights Plans
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In evaluating the adoption or renewal of a Japanese issuers shareholder rights plans (poison pill), we consider the following conditions:
(i) release of proxy circular with details of the proposal with adequate notice in advance of meeting, (ii) minimum trigger of over 20%, (iii) maximum term of three years, (iv) sufficient number of independent directors,
(v) presence of an independent committee, (vi) annual election of directors, and (vii) lack of protective or entrenchment features. Additionally, we consider the length of time that a shareholder rights plan has been in effect.
In evaluating an amendment to a shareholder rights plan (poison pill), in
addition to the conditions above, we will also evaluate and consider supporting proposals where the terms of the new plans are more favorable to shareholders ability to accept unsolicited offers.
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Anti-Takeover Measures
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In general, State Street Global Advisors believes that adoption of poison pills that have been structured to protect management and to prevent takeover bids
from succeeding is not in shareholders interest. A shareholder rights plan may lead to management entrenchment. It may also discourage legitimate tender offers and acquisitions. Even if the premium paid to companies with a shareholder rights
plan is higher than that offered to unprotected firms, a companys chances of receiving a takeover offer in the first place may be reduced by the presence of a shareholder rights plan.
Proposals that reduce shareholders rights or have the effect of entrenching
incumbent management will not be supported.
Proposals that enhance the right of
shareholders to make their own choices as to the desirability of a merger or other proposal are supported.
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Compensation
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In Japan, excessive compensation is rarely an issue. Rather, the problem is the lack of connection between pay and performance. Fixed salaries and cash
retirement bonuses tend to comprise a significant portion of the compensation structure while performance-based pay is generally a small portion of the total pay. State Street Global Advisors, where possible, seeks to encourage the use of
performance-based compensation in Japan as an incentive for executives and as a way to align interests with shareholders.
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Adjustments to Aggregate Compensation Ceiling for Directors
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Remuneration for directors is generally reasonable. Typically, each company sets the director compensation parameters as an aggregate thereby limiting the
total pay to all directors. When requesting a change, a company must disclose the last time the ceiling was adjusted, and management provides the rationale for the ceiling increase. We will generally support proposed increases to the ceiling if the
company discloses the rationale for the increase. We may oppose proposals to increase the ceiling if there has been corporate malfeasance or sustained poor performance.
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Annual Bonuses for Directors/Statutory Auditors
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In Japan, since there are no legal requirements that mandate companies to seek shareholder approval before awarding a bonus, we believe that existing
shareholder approval of the bonus should be considered best practice. As a result, we support management proposals on executive compensation where there is a strong relationship between executive pay and performance over a five-year period.
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Proxy Voting and Engagement Guidelines: Japan
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B-38
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Retirement Bonuses for Directors/Statutory Auditors
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Retirement bonuses make up a sizeable portion of directors and auditors lifetime compensation and are based upon board tenure. While many companies
in Japan have abolished this practice, there remain many proposals seeking shareholder approval for the total amounts paid to directors and statutory auditors as a whole. In general, we support these payments unless the recipient is an outsider or
in instances where the amount is not disclosed.
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Stock Plans
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Most option plans in Japan are conservative, particularly at large companies. Japanese corporate law requires companies to disclose the monetary value of the
stock options for directors and/or statutory auditors. Some companies do not disclose the maximum number of options that can be issued per year and shareholders are unable to evaluate the dilution impact. In this case, we cannot calculate the
dilution level and, therefore, we may oppose such plans for poor disclosure. We also oppose plans that allow for the repricing of the exercise price.
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Deep Discount Options
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As Japanese companies move away from the retirement bonus system, deep discount options plans have become more popular. Typically, the exercise price is set at
JPY 1 per share. We evaluate deep discount options using the same criteria used to evaluate stock options as well as considering the vesting period.
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Environmental and Social Issues
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As a fiduciary, State Street Global Advisors takes a comprehensive approach to engaging
with our portfolio companies about material environmental and social (sustainability) issues. We use our voice and our vote through engagement, proxy voting, and thought leadership in order to communicate with issuers and educate market participants
about our perspective on important sustainability topics. Our Asset Stewardship program prioritization process allows us to proactively identify companies for engagement and voting in order to mitigate sustainability risks in our portfolio. Through
engagement, we address a broad range of topics that align with our thematic priorities and build long-term relationships with issuers. When voting, we fundamentally consider whether the adoption of a shareholder proposal addressing a material
sustainability issue would promote long-term shareholder value in the context of the companys existing practices and disclosures as well as existing market practice.
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For more information on our approach to environmental and social
issues, please see our Global Proxy Voting and Engagement Guidelines for Environmental and Social Issues available at ssga.com/about-us/asset-stewardship.html.
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Miscellaneous/Routine Items
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Expansion of Business Activities
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Japanese companies articles of incorporation strictly define the types of businesses in which a company is permitted to engage. In general, State Street
Global Advisors views proposals that expand and diversify the companys business activities as routine and non-contentious. We will monitor in stances in which there has been an inappropriate acquisition and diversification away from the
companys main area of competence that resulted in a decrease of shareholder value.
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More Information
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Any client who wishes to receive information on how its proxies were voted should contact its State Street Global Advisors relationship manager.
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Proxy Voting and Engagement Guidelines: Japan
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B-39
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Endnotes
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1 These Proxy Voting and Engagement Guidelines are also applicable to SSGA Funds
Management, Inc. SSGA Funds Management, Inc. is an SEC registered investment adviser. SSGA Funds Management, Inc., State Street Global Advisors Trust Company, and other advisory affiliates of State Street make up State Street Global Advisors, the
investment management arm of State Street Corporation.
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2 R-FactorTM is a scoring system created by SSGA that measures the performance of a companys business operations and governance as it relates to financially material ESG factors facing the companys
industry.
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About State Street Global Advisors
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Our clients are the worlds governments, institutions and financial advisors. To help them achieve their financial goals we live our guiding principles
each and every day:
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Start with rigor
Build from breadth
Invest as stewards
Invent the
future
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For four decades, these principles have helped us be the quiet power in a tumultuous investing world. Helping millions of
people secure their financial futures. This takes each of our employees in 27 offices around the world, and a firm-wide conviction that we can always do it better. As a result, we are the worlds
third-largest asset manager with US $3.12 trillion* under our care.
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* AUM reflects approximately $43.72 billion USD (as of December 31, 2019), with respect to which
State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.
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ssga.com
State Street Global Advisors Worldwide Entities
Abu
Dhabi: State Street Global Advisors Limited, Middle East Branch, 42801, 28, Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu Dhabi, United Arab Emirates. Regulated by ADGM Financial Services Regulatory Authority. T: +971 2
245 9000. Australia: State Street Global Advisors, Australia Services Limited (ABN 16 108 671 441) (AFSL Number 274900) (SSGA, ASL). Registered office: Level 15, 420 George Street, Sydney, NSW 2000, Australia. T: 612
9240-7600. F: 612 9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 120, 1000 Brussels, Belgium. T: 32 2 663 2036. F: 32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Ireland
Limited. State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2.
Canada: State Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500 , Montreal, Quebec, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street
Global Advisors Limited,
DIFC Branch, Central Park Towers, Suite 15-38 (15th floor), P.O Box
26838, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority (DFSA). T: +971 (0)4- 4372800. F: +971 (0)4-4372818. France: State
Street Global Advisors Ireland Limited, Paris branch is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office
is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Paris Branch, is registered in France with company number RCS Nanterre 832 734 602 and whose office is at Immeuble Défense Plaza, 23-25 rue Delarivière - Lefoullon, 92064 Paris La Défense Cedex, France. T: (+33) 1 44 45 40 00. F: (+33) 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. T: +49 (0)89-55878-400. F: +49 (0)89-55878-440. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance
Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Registered office
address 78 Sir John Rogersons Quay, Dublin 2. Registered number 145221. T: +353 (0)1 776 3000. F: +353
(0)1 776 3300. Italy: State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company
number 10495250960 - R.E.A. 2535585 and VAT number 10495250960 and whose office is at Via Ferrante Aporti, 10 - 20125 Milano, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., Toranomon
Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380 Financial Instruments Business
Operator, Kanto Local Financial Bureau (Kinsho #345), Membership: Japan Investment Advisers Association, The Investment Trust Association, Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors
Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101 CN Amsterdam, Netherlands. T: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Ireland Limited, registered in Ireland with company number
145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John
Rogersons Quay, Dublin 2. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Reg. No: 200002719D, regulated by the
Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised
and regulated by the Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)4424570 00. F: +41 (0)442457016. United Kingdom: State Street Global Advisors
Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 2509928. VAT No. 5776591 81. Registered office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 02033956000. F: 02033956350.
United States: State Street Global Advisors, One Iron Street, Boston, MA 02210 -1641. T: +1 617 786 3000.
© 2020 State Street Corporation.
All Rights Reserved.
ID178876-3001933.1.1.GBL.RTL 0320
Exp. Date: 03/31/2021
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Proxy Voting and Engagement Guidelines: Japan
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B-40
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Insights
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Asset Allocation
March 2020
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Proxy Voting and Engagement Guidelines:
North America
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State Street Global Advisors North America Proxy Voting and Engagement Guidelines1 outline our expectations of companies listed on stock exchanges in the US and Canada.
These Guidelines complement and should be read in conjunction with State Street Global Advisors Global Proxy Voting and Engagement Principles, which provide a detailed explanation of our approach to voting and engaging with companies, and
State Street Global Advisors Conflict Mitigation Guidance.
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State Street Global Advisors North America Proxy Voting and Engagement Guidelines address areas, including board structure, director tenure, audit
related issues, capital structure, executive compensation, as well as environmental, social, and other governance-related issues of companies listed on stock exchanges in the US and Canada (North
America).
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When voting and engaging with companies in global markets, we consider market specific nuances in the manner that we believe will most likely protect and promote the long-term economic value of client investments. We expect
companies to observe the relevant laws and regulations of their respective markets, as well as country specific best practice guidelines and corporate governance codes. When we feel that a countrys regulatory requirements do not address some
of the key philosophical principles that we believe are fundamental to its global voting guidelines, we may hold companies in such markets to our global standards.
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In its analysis and research about corporate governance issues in North America, we expect all companies to act in a transparent manner and to provide detailed disclosure on board profiles,
related-party transactions, executive compensation, and other governance issues that impact shareholders long-term interests. Further, as a founding member of the Investor Stewardship Group
(ISG), we proactively monitor companies adherence to the Corporate Governance Principles for US listed companies. Consistent with the comply-or-explain expectations established by the principles, we encourage companies
to proactively disclose their level of compliance with the principles. In instances of non-compliance when companies cannot explain the nuances of their governance structure effectively, either publicly or
through engagement, we may vote against the independent board leader.
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B-41
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State Street Global Advisors Proxy Voting and Engagement Philosophy
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Corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment professionals
with expertise in corporate governance and company law, remuneration, accounting, and environmental and social issues. We have established robust corporate governance principles and practices that are backed with extensive analytical expertise to
understand the complexities of the corporate governance landscape. We engage with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagements to address significant shareholder
concerns and environmental, social, and governance (ESG) issues in a manner consistent with maximizing shareholder value.
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The team works alongside members of State Street Global Advisors Active Fundamental and various other investment teams, collaborating on issuer engagements and providing input on company specific fundamentals. We are also a
member of various investor associations that seek to address broader corporate governance related policy issues in North America.
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State Street Global Advisors is a signatory to the United Nations Principles of Responsible Investment (UNPRI) and is compliant with the US Investor Stewardship Group Principles.
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We are committed to sustainable investing and are working to further integrate ESG principles into investment and corporate governance practices, where applicable and consistent with our fiduciary duty.
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Directors and Boards
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Principally, we believe the primary responsibility of the board of directors is to preserve and enhance shareholder value and protect shareholder interests. In
order to carry out their primary responsibilities, directors have to undertake activities that range from setting strategy and overseeing executive management to monitoring the risks that arise from a companys business, including risks related
to sustainability issues. Further, good corporate governance necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
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State Street Global Advisors believes that a well constituted board of directors, with a balance of skills, expertise, and independence, provides the foundations for a well governed company. We view board quality as a measure of
director independence, director succession planning, board diversity, evaluations and refreshment, and company governance practices. We vote for the election/re-election of directors on a case-by-case basis after considering various factors, including board quality, general market practice, and availability of information on director skills and expertise. In principle, we believe independent
directors are crucial to robust corporate governance and help management establish sound corporate governance policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions necessary
to protect shareholder interests.
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Director related proposals include issues submitted to shareholders that deal with the composition of the board or with members of a corporations board of directors. In deciding the director nominee to support, we consider
numerous factors.
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Proxy Voting and Engagement Guidelines: North America
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B-42
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Director Elections
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Our director election guideline focuses on companies governance profile to identify if a company demonstrates appropriate governance practices or if it
exhibits negative governance practices. Factors we consider when evaluating governance practices include, but are not limited to the following:
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Shareholder rights
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Board independence
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Board structure
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If a company demonstrates appropriate governance practices, we believe a director should be classified as independent based upon the relevant listing standards or local market practice standards. In such cases, the composition of
the key oversight committees of a board should meet the minimum standards of independence. Accordingly, we will vote against a nominee at a company with appropriate governance practices if the director is classified as
non-independent under relevant listing standards or local market practice and serves on a key committee of the board (compensation, audit, nominating, or committees required to be fully independent by local
market standards).
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Conversely, if a company demonstrates negative governance practices, State Street Global Advisors believes the classification standards for director independence should be elevated. In such circumstances, we will evaluate all
director nominees based upon the following classification standards:
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Is the nominee an employee of or related to an employee of the issuer
or its auditor?
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Does the nominee provide professional services to the
issuer?
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Has the nominee attended an appropriate number of board
meetings?
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Has the nominee received
non-board related compensation from the issuer?
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In the US market where companies demonstrate negative governance practices, these stricter standards will apply not only to directors who are a member of a key committee but to all directors on the board as market practice permits.
Accordingly, we will vote against a nominee (with the exception of the CEO) where the board has inappropriate governance practices and is considered not independent based on the above independence criteria.
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Additionally, we may withhold votes from directors based on the following:
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Overall average board tenure is excessive. In assessing excessive
tenure, we consider factors such as the preponderance of long tenured directors, board refreshment practices, and classified board structures
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Directors attend less than 75% of board meetings without appropriate
explanation or providing reason for their failure to meet the attendance threshold
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NEOs of a public company who sit on more than two public company
boards
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Board chairs or lead independent directors who sit on more than three
public company boards
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Proxy Voting and Engagement Guidelines: North America
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B-43
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Director nominees who sit on more than four public company
boards
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Directors of companies that have not been responsive to a shareholder
proposal that received a majority shareholder support at the last annual or special meeting.
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Consideration can be warranted if management submits the proposal(s) on
the ballot as a binding management proposal, recommending shareholders vote for the particular proposal(s)
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Directors of companies have unilaterally adopted/amended company bylaws
that negatively impact our shareholder rights (such as fee-shifting, forum selection, and exclusion service bylaws) without putting such amendments to a shareholder vote
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Compensation committee members where there is a weak relationship
between executive pay and performance over a five-year period
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Audit committee members if
non-audit fees exceed 50% of total fees paid to the auditors
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Directors who appear to have been remiss in their duties
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Further, we expect boards of Russell 3000 and TSX listed companies to have at least one female board member. If a company fails to meet this expectation, State Street Global Advisors may vote against the Chair of the boards
nominating committee or the board leader in the absence of a nominating committee, if necessary. Additionally, for Russell 3000 listed companies, if a company fails to meet this expectation for four consecutive years, State Street Global Advisors
may vote against all incumbent members of the nominating committee.
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State Street Global Advisors may take voting action against board members at companies on the S&P 500 that are laggards based on their
R-FactorTM scores2 and cannot articulate how they plan to improve their score.
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Director Related Proposals
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We generally vote for the following director related proposals:
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Discharge of board members duties, in the absence of pending
litigation, regulatory investigation, charges of fraud, or other indications of significant concern
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Proposals to restore shareholders ability in order to remove
directors with or without cause
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Proposals that permit shareholders to elect directors to fill board
vacancies
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Shareholder proposals seeking disclosure regarding the company, board,
or compensation committees use of compensation consultants, such as company name, business relationship(s), and fees paid
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We generally vote against the following director related proposals:
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Requirements that candidates for directorships own large amounts of
stock before being eligible to be elected
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Proxy Voting and Engagement Guidelines: North America
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B-44
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Proposals that relate to the transaction of other business as
properly comes before the meeting, which extend blank check powers to those acting as proxy
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Proposals requiring two candidates per board seat
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Majority Voting
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We will generally support a majority vote standard based on votes cast for the election of directors.
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We will generally vote to support amendments to bylaws that would require simple majority of voting shares (i.e. shares cast) to pass or to repeal certain provisions.
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Annual Elections
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We generally support the establishment of annual elections of the board of directors. Consideration is given to the overall level of board independence and the
independence of the key committees, as well as the existence of a shareholder rights plan.
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Cumulative Voting
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We do not support cumulative voting structures for the election of directors.
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Separation Chair/CEO
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We analyze proposals for the separation of Chair/CEO on a case-by-case basis
taking into consideration numerous factors, including the appointment of and role played by a lead director, a companys performance, and the overall governance structure of the company.
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However, we may take voting action against the chair or members of the nominating committee at S&P 500 companies that have combined the roles of chair and CEO and have not appointed a lead independent director.
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Proxy Access
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In general, we believe that proxy access is a fundamental right and an accountability mechanism for all long-term shareholders. We will consider proposals
relating to proxy access on a case-by- case basis. We will support shareholder proposals that set parameters to empower long-term shareholders while providing management
the flexibility to design a process that is appropriate for the companys circumstances.
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We will review the terms of all other proposals and will support those proposals that have been introduced in the spirit of enhancing shareholder rights.
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Considerations include the following:
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The ownership thresholds and holding duration proposed in the
resolution
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The binding nature of the proposal
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The number of directors that shareholders may be able to nominate each
year
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Company governance structure
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Shareholder rights
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Board performance
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Proxy Voting and Engagement Guidelines: North America
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B-45
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Age/Term Limits
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Generally, we will vote against age and term limits unless the company is found to have poor board refreshment and director succession practices, and has a
preponderance of non- executive directors with excessively long tenures serving on the board.
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Approve Remuneration of Directors
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Generally, we will support directors compensation, provided the amounts are not excessive relative to other issuers in the market or industry. In making
our determination, we review whether the compensation is overly dilutive to existing shareholders.
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Indemnification
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Generally, we support proposals to limit directors liability and/or expand indemnification and liability protection if he or she has not acted in bad
faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office.
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Classified Boards
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We generally support annual elections for the board of directors.
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Confidential Voting
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We will support confidential voting.
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Board Size
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We will support proposals seeking to fix the board size or designate a range for the board size and will vote against proposals that give management the
ability to alter the size of the board outside of a specified range without shareholder approval.
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Audit-Related
Issues
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Ratifying Auditors and Approving Auditor Compensation
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We support the approval of auditors and auditor compensation provided that the issuer has properly disclosed audit and
non-audit fees relative to market practice and the audit fees are not deemed excessive. We deem audit fees to be excessive if the non-audit fees for the prior year
constituted 50% or more of the total fees paid to the auditor. We will also support the disclosure of auditor and consulting relationships when the same or related entities are conducting both activities and will support the establishment of a
selection committee responsible for the final approval of significant management consultant contract awards where existing firms are already acting in an auditing function.
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In circumstances where other fees include fees related to initial public offerings, bankruptcy emergence, and spin-offs, and the company makes public disclosure of the amount and nature of those fees which are determined
to be an exception to the standard non-audit fee category, then such fees may be excluded from the non-audit fees considered in determining the ratio of non-audit to audit/audit-related fees/tax compliance and preparation for purposes of determining whether non-audit fees are excessive.
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We will support the discharge of auditors and requirements that auditors attend the annual meeting of shareholders.3
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Proxy Voting and Engagement Guidelines: North America
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B-46
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Capital-Related Issues
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Capital structure proposals include requests by management for approval of amendments to the certificate of incorporation that will alter the capital structure
of the company.
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The most common request is for an increase in the number of authorized shares of common stock, usually in conjunction with a stock split or dividend. Typically, we support requests that are not unreasonably dilutive or enhance the
rights of common shareholders. In considering authorized share proposals, the typical threshold for approval is 100% over current authorized shares. However, the threshold may be increased if the company offers a specific need or purpose (merger,
stock splits, growth purposes, etc.). All proposals are evaluated on a case-by-case basis taking into account the companys specific financial situation.
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Increase in Authorized Common Shares
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In general, we support share increases for general corporate purposes up to 100% of current authorized stock.
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We support increases for specific corporate purposes up to 100% of the specific need plus 50% of current authorized common stock for US and Canadian firms.
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When applying the thresholds, we will also consider the nature of the specific need, such as mergers and acquisitions and stock splits.
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Increase in Authorized Preferred Shares
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We vote on a case-by-case basis on proposals to increase the number of
preferred shares.
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Generally, we will vote for the authorization of preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable.
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We will support proposals to create declawed blank check preferred stock (stock that cannot be used as a takeover defense). However, we will vote against proposals to increase the number of blank check preferred stock
authorized for issuance when no shares have been issued or reserved for a specific purpose.
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Unequal Voting Rights
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We will not support proposals authorizing the creation of new classes of common stock with superior voting rights and will vote against new classes of
preferred stock with unspecified voting, conversion, dividend distribution, and other rights. In addition, we will not support capitalization changes that add blank check classes of stock (i.e. classes of stock with undefined voting
rights) or classes that dilute the voting interests of existing shareholders.
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However, we will support capitalization changes that eliminate other classes of stock and/or unequal voting rights.
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Mergers and Acquisitions
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Mergers or the reorganization of the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations, and other major
changes to the corporation.
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Proposals that are in the best interests of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported.
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In general, provisions that are not viewed as economically sound or are thought to be destructive to shareholders rights are not supported.
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Proxy Voting and Engagement Guidelines: North America
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B-47
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We will generally support transactions that maximize shareholder value. Some of the considerations include the following:
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Offer premium
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Strategic rationale
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Board oversight of the process for the recommended transaction,
including, director and/or management conflicts of interest
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Offers made at a premium and where there are no other higher
bidders
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Offers in which the secondary market price is substantially lower than
the net asset value
We may vote against a transaction considering the
following:
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Offers with potentially damaging consequences for minority shareholders
because of illiquid stock, especially in some non-US markets
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Offers where we believe there is a reasonable prospect for an enhanced
bid or other bidders
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The current market price of the security exceeds the bid price at the
time of voting
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AntiTakeover Issues
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Typically, these are proposals relating to requests by management to amend the certificate of incorporation or bylaws to add or to delete a provision that is
deemed to have an anti-takeover effect. The majority of these proposals deal with managements attempt to add some provision that makes a hostile takeover more difficult or will protect incumbent management in the event of a change in control
of the company.
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Proposals that reduce shareholders rights or have the effect of entrenching incumbent management will not be supported.
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Proposals that enhance the right of shareholders to make their own choices as to the desirability of a merger or other proposal are supported.
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Shareholder Rights Plans
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US We will support mandates requiring shareholder approval of a shareholder rights plans (poison pill) and repeals of various anti-takeover
related provisions.
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In general, we will vote against the adoption or renewal of a US issuers shareholder rights plan (poison pill).
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We will vote for an amendment to a shareholder rights plan (poison pill) where the terms of the new plans are more favorable to shareholders ability to accept unsolicited offers (i.e. if one of the following
conditions are met: (i) minimum trigger, flip-in or flip-over of 20%, (ii) maximum term of three years, (iii) no dead hand, slow hand, no hand nor similar feature
that limits the ability of a future board to redeem the pill, and (iv) inclusion of a shareholder redemption feature (qualifying offer clause), permitting ten percent of the shares to call a special meeting or seek a written consent to vote on
rescinding the pill if the board refuses to redeem the pill 90 days after a qualifying offer is announced).
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Proxy Voting and Engagement Guidelines: North America
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B-48
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Canada We analyze proposals for shareholder approval of a shareholder rights plan (poison pill) on a case-by-case basis taking into consideration numerous factors, including but not limited to, whether it conforms to new generation rights plans and the scope of the plan.
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Special Meetings
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We will vote for shareholder proposals related to special meetings at companies that do not provide shareholders the right to call for a special meeting in
their bylaws if:
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The company also does not allow shareholders to act by written
consent
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The company allows shareholders to act by written consent but the
ownership threshold for acting by written consent is set above 25% of outstanding shares
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We will vote for shareholder proposals related to special meetings at companies that give shareholders (with a minimum 10% ownership threshold) the right to call for a special meeting in their bylaws if:
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The current ownership threshold to call for a special meeting is above 25% of outstanding shares.
We will vote for management proposals related to special meetings.
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Written Consent
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We will vote for shareholder proposals on written consent at companies if:
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The company does not have provisions in their bylaws giving
shareholders the right to call for a special meeting
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The company allows shareholders the right to call for a special
meeting, but the current ownership threshold to call for a special meeting is above 25% of outstanding shares
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The company has a poor governance profile
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We will vote management proposals on written consent on a case-by-case basis.
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SuperMajority
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We will generally vote against amendments to bylaws requiring super-majority shareholder votes to pass or repeal certain provisions. We will vote for the
reduction or elimination of super-majority vote requirements, unless management of the issuer was concurrently seeking to or had previously made such a reduction or elimination.
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Remuneration Issues
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Despite the differences among the types of plans and the awards possible there is a simple underlying philosophy that guides the analysis of all compensation
plans; namely, the terms of the plan should be designed to provide an incentive for executives and/or employees to align their interests with those of the shareholders and thus work toward enhancing shareholder value. Plans that benefit participants
only when the shareholders also benefit are those most likely to be supported.
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Proxy Voting and Engagement Guidelines: North America
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B-49
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Advisory Vote on Executive Compensation and Frequency
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State Street Global Advisors believes executive compensation plays a critical role in aligning executives interest with shareholders, attracting,
retaining and incentivizing key talent, and ensuring positive correlation between the performance achieved by management and the benefits derived by shareholders. We support management proposals on executive compensation where there is a strong
relationship between executive pay and performance over a five-year period. We seek adequate disclosure of various compensation elements, absolute and relative pay levels, peer selection and benchmarking, the mix of long-term and short-term
incentives, alignment of pay structures with shareholder interests as well as with corporate strategy, and performance.
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Further shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance on an annual basis.
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In Canada, where advisory votes on executive compensation are not commonplace, we will rely primarily upon engagement to evaluate compensation plans.
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Employee Equity Award Plans
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We consider numerous criteria when examining equity award proposals. Generally we do not vote against plans for lack of performance or vesting criteria. Rather
the main criteria that will result in a vote against an equity award plan are:
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Excessive voting power dilution To assess the dilutive effect, we divide the number of shares required to fully fund the proposed plan, the number of authorized but unissued shares and the issued but unexercised shares by the
fully diluted share count. We review that number in light of certain factors, such as the industry of the issuer.
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Historical option grants Excessive historical option grants over the past three years. Plans that provide for historical grant patterns of greater than five to eight percent are generally not supported.
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Repricing We will vote against any plan where repricing is expressly permitted. If a company has a history of repricing underwater options, the plan will not be supported.
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Other criteria include the following:
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Number of participants or eligible employees
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The variety of awards possible
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The period of time covered by the plan
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There are numerous factors that we view as negative. If combined they may result in a vote against a proposal. Factors include:
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Grants to individuals or very small groups of
participants
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Gun-jumping grants
which anticipate shareholder approval of a plan or amendment
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The power of the board to exchange underwater options
without shareholder approval. This pertains to the ability of a company to reprice options, not the actual act of repricing described above
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Proxy Voting and Engagement Guidelines: North America
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B-50
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Below market rate loans to officers to exercise their
options
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The ability to grant options at less than fair market
value;
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Acceleration of vesting automatically upon a change in
control
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Excessive compensation (i.e. compensation plans which we deem to be
overly dilutive)
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Share Repurchases If a company makes a clear connection between a share repurchase program and its intent to offset dilution created from option plans and the company fully discloses the amount of shares being repurchased,
the voting dilution calculation may be adjusted to account for the impact of the buy back.
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Companies will not have any such repurchase plan factored into the dilution calculation if they do not (i) clearly state the intentions of any proposed share buy-back plan,
(ii) disclose a definitive number of the shares to be bought back, (iii) specify the range of premium/discount to market price at which a company can repurchase shares, and (iv) disclose the time frame during which the shares will be
bought back.
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162(m) Plan Amendments If a plan would not normally meet our criteria described above, but was primarily amended to add specific performance criteria to be used with awards that were designed to qualify for performance-based
exception from the tax deductibility limitations of Section 162(m) of the Internal Revenue Code, then we will support the proposal to amend the plan.
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Employee Stock Option Plans
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We generally vote for stock purchase plans with an exercise price of not less than 85% of fair market value. However, we take market practice into
consideration.
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Compensation Related Items
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We generally support the following proposals:
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Expansions to reporting of financial or compensation-related
information within reason
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Proposals requiring the disclosure of executive retirement benefits if
the issuer does not have an independent compensation committee
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We generally vote against the following proposal:
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Retirement bonuses for
non-executive directors and auditors
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Miscellaneous/Routine Items
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We generally support the following miscellaneous/routine governance items:
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Reimbursement of all appropriate proxy solicitation expenses associated
with the election when voting in conjunction with support of a dissident slate
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Opting-out of business
combination provision
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Proposals that remove restrictions on the right of shareholders to act
independently of management
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Proxy Voting and Engagement Guidelines: North America
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B-51
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Liquidation of the company if the company will file for bankruptcy if
the proposal is not approved
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Shareholder proposals to put option repricings to a shareholder
vote
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General updating of, or corrective amendments to, charter and bylaws
not otherwise specifically addressed herein, unless such amendments would reasonably be expected to diminish shareholder rights (e.g. extension of directors term limits, amending shareholder vote requirement to amend the charter documents,
insufficient information provided as to the reason behind the amendment)
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Change in corporation name
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Mandates that amendments to bylaws or charters have shareholder
approval
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Management proposals to change the date, time, and/or location of the
annual meeting unless the proposed change is unreasonable
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Repeals, prohibitions or adoption of anti-greenmail
provisions
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Management proposals to implement a reverse stock split when the number
of authorized shares will be proportionately reduced and proposals to implement a reverse stock split to avoid delisting
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Exclusive forum provisions
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State Street Global Advisors generally does not support the following miscellaneous/routine governance items:
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Proposals requesting companies to adopt full tenure holding periods for
their executives
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Reincorporation to a location that we believe has more negative
attributes than its current location of incorporation
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Shareholder proposals to change the date, time, and/or location of the
annual meeting unless the current scheduling or location is unreasonable
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Proposals to approve other business when it appears as a voting
item
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Proposals giving the board exclusive authority to amend the
bylaws
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Proposals to reduce quorum requirements for shareholder meetings below
a majority of the shares outstanding unless there are compelling reasons to support the proposal
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Proxy Voting and Engagement Guidelines: North America
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B-52
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Environmental and Social Issues
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As a fiduciary, State Street Global Advisors takes a comprehensive approach to engaging with our portfolio companies about material environmental and social
(sustainability) issues. We use our voice and our vote through engagement, proxy voting, and thought leadership in order to communicate with issuers and educate market participants about our perspective on important sustainability topics. Our Asset
Stewardship program prioritization process allows us to proactively identify companies for engagement and voting in order to mitigate sustainability risks in our portfolio. Through engagement, we address a broad range of topics that align with our
thematic priorities and build long-term relationships with issuers. When voting, we fundamentally consider whether the adoption of a shareholder proposal addressing a material sustainability issue would promote long-term shareholder value in the
context of the companys existing practices and disclosures as well as existing market practice.
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For more information on our approach to environmental and social issues, please see our Global Proxy Voting and Engagement Guidelines for Environmental and Social Issues available at
ssga.com/about-us/asset-stewardship.html.
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More Information
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Any client who wishes to receive information on how its proxies were voted should contact its State Street Global Advisors relationship manager.
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Endnotes
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1 These
Proxy Voting and Engagement Guidelines are also applicable to SSGA Funds Management, Inc. SSGA Funds Management, Inc. is an SEC registered investment adviser. SSGA Funds Management, Inc., State Street Global Advisors Trust Company, and other
advisory affiliates of State Street make up State Street Global Advisors, the investment management arm of State Street Corporation.
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2 R-FactorTM is a scoring system created by SSGA that measures the performance of a companys business operations and governance as it relates to financially material ESG factors facing the companys
industry.
3 Common for non-US issuers; request from the issuer to discharge from liability the directors or auditors with respect to actions taken by them during the previous year.
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Proxy Voting and Engagement Guidelines: North America
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B-53
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About State Street Global Advisors
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Our clients are the worlds governments, institutions and financial advisors. To help them achieve their financial goals we live our guiding principles
each and every day:
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Start with rigor
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Build from breadth
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Invest as stewards
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Invent the future
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For four decades, these principles have helped us be the quiet power in a tumultuous investing world. Helping millions of people secure their
financial futures. This takes each of our employees in 27 offices around the world, and a firm-wide conviction that we can always do it better. As a result, we are the worlds third-largest asset manager with US $3.12 trillion* under our
care.
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* AUM reflects approximately $43.72 billion USD (as of December 31, 2019), with respect to
which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.
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ssga.com
State Street Global Advisors Worldwide Entities
Abu
Dhabi: State Street Global Advisors Limited, Middle East Branch, 42801, 28, Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu Dhabi, United Arab Emirates. Regulated by ADGM Financial Services Regulatory Authority. T: +971 2
245 9000. Australia: State Street Global Advisors, Australia Services Limited (ABN 16 108 671 441) (AFSL Number 274900) (SSGA, ASL). Registered office: Level 15, 420 George Street, Sydney, NSW 2000, Australia. T: 612
9240-7600. F: 612 9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 120, 1000 Brussels, Belgium. T: 32 2 663 2036. F: 32 2 672 2077. SSGA Belgium is a branch office of State Street Global Advisors Ireland
Limited. State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2.
Canada: State Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500 , Montreal, Quebec, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street
Global
Advisors Limited, DIFC Branch, Central Park Towers, Suite 15-38 (15th
floor), P.O Box 26838, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority (DFSA). T: +971 (0)4-4372800. F: +971 (0)4-4372818. France: State Street Global Advisors Ireland Limited, Paris branch is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and
regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Paris Branch, is registered in France with company number RCS Nanterre 832 734 602
and whose office is at Immeuble Défense Plaza, 23-25 rue Delarivière-Lefoullon, 92064 Paris La Défense Cedex, France. T: (+33) 1 44 45 40 00. F:
(+33) 1 44 45 41 92.
Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich.
Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. T: +49
(0)89-55878-400. F: +49 (0)89-55878-440. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International
Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors Ireland Limited is regulated by the
Central Bank of Ireland. Registered office address 78 Sir John Rogersons Quay, Dublin 2. Registered number
145221. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with
company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global
Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano), is registered in Italy with company number 10495250960-R.E.A. 2535585 and VAT number
10495250960 and whose office is at Via Ferrante Aporti, 10-20125 Milano, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380 Financial Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345)
, Membership: Japan Investment Advisers Association, The Investment Trust Association, Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors Netherlands, Apollo Building, 7th floor Herikerbergweg 29 1101
CN Amsterdam, Netherlands. T: 31 20 7181701. SSGA Netherlands is a branch office of State Street Global Advisors Ireland
Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of
Ireland, and whose registered office is at 78 Sir John Rogersons Quay, Dublin 2. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore
068912 (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the
Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street Global Advisors Limited. Authorised and
regulated by the Financial Conduct Authority. Registered in England. Registered No. 2509928. VAT No. 5776591 81. Registered office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States:
State Street Global Advisors, One Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
© 2020 State Street Corporation.
All Rights Reserved.
ID178872-3001365.1.1.GBL.RTL 0320
Exp. Date: 03/31/2021
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Proxy Voting and Engagement Guidelines: North America
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B-54
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Insights
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Asset Stewardship
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Proxy Voting and Engagement Guidelines: United Kingdom and Ireland
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March 2020
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State Street Global Advisors United Kingdom and Ireland Proxy Voting and Engagement Guidelines1 outline our expectations of companies listed on stock exchanges in the
United Kingdom and Ireland. These Guidelines complement and should be read in conjunction with State Street Global Advisors Global Proxy Voting and Engagement Principles, which provide a detailed explanation of our approach to voting and
engaging with companies, and State Street Global Advisors Conflict Mitigation Guidelines.
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State Street Global Advisors United Kingdom (UK) and Ireland Proxy Voting and Engagement Guidelines address areas including board structure, audit-related issues, capital structure, remuneration, environmental,
social and other governance-related issues.
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When voting and engaging with companies in global markets, we consider market specific nuances in the manner that we believe will most likely protect and promote the long-term economic value of client investments. We expect
companies to observe the relevant laws and regulations of their respective markets, as well as country-specific best practice guidelines and corporate governance codes. When we identify that a countrys
regulatory requirements do not address some of the key philosophical principles that we believe are fundamental to our global voting guidelines, we may hold companies in such markets to our global standards.
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In our analysis and research into corporate governance issues in the UK and Ireland, we expect all companies that obtain a primary listing
on the London Stock Exchange or the Irish Stock Exchange, regardless of domicile, to comply with the UK Corporate Governance Code, and proactively monitor companies adherence to the Code. Consistent with the comply or explain
expectations established by the Code, we encourage companies to proactively disclose
their level of compliance with the Code. In instances of non-compliance in which companies cannot explain the nuances of their governance structure effectively, either publicly or through engagement, we may vote against the independent board leader.
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B-55
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State Street Global Advisors Proxy Voting and Engagement Philosophy
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In our view, corporate governance and sustainability issues are an integral part of the investment process. The Asset Stewardship Team consists of investment
professionals with expertise in corporate governance and company law, remuneration, accounting, and environmental and social issues. We have established robust corporate governance principles and practices that are backed with extensive analytical
expertise to understand the complexities of the corporate governance landscape. We engage with companies to provide insight on the principles and practices that drive our voting decisions. We also conduct proactive engagement to address significant
shareholder concerns and environmental, social and governance (ESG) issues in a manner consistent with maximizing shareholder value.
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The team works alongside members of State Street Global Advisors Active Fundamental and Europe, Middle East and Africa (EMEA) Investment teams. We collaborate on issuer engagement and provide input on company
specific fundamentals. We are also a member of various investor associations that seek to address broader corporate governance related policy issues in the UK and European markets.
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State Street Global Advisors is a signatory to the United Nations Principles for Responsible Investment (UNPRI) and is compliant with the UK Stewardship Code. We are committed to sustainable investing and are working
to further integrate ESG principles into investment and corporate governance practice where applicable and consistent with our fiduciary duty.
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Directors and Boards
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Principally, we believe the primary responsibility of a board of directors is to preserve and enhance shareholder value and to protect shareholder interests. In order to carry out their primary responsibilities, directors have to
undertake activities that range from setting strategy, overseeing executive management, and monitoring the risks that arise from a companys business, including risks related to sustainability issues. Further, good corporate governance
necessitates the existence of effective internal controls and risk management systems, which should be governed by the board.
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We believe that a well constituted board of directors, with a balance of skills, expertise and independence, provides the foundations for a well governed company. We view board quality as a measure of director independence,
director succession planning, board diversity, evaluations and refreshment, and company governance practices. We vote for the election/re-election of directors on a case-by-case basis after considering various factors, including board quality, general market practice, and availability of information on director skills and expertise. In principle, we believe independent
directors are crucial to robust corporate governance and help management establish sound corporate governance policies and practices. A sufficiently independent board will most effectively monitor management and perform oversight functions necessary
to protect shareholder interests.
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Our broad criteria for director independence for UK companies include factors such as:
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Participation in related-party transactions and other business
relations with the company
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Employment history with company
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Excessive tenure and a preponderance of long-tenured
directors
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Relations with controlling shareholders
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Family ties with any of the companys advisers, directors or
senior employees
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Company classification of a director as non-independent
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Proxy Voting and Engagement Guidelines: United Kingdom and Ireland
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B-56
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When voting on the election or re-election of a director, we also consider the number of outside board directorships a non-executive and an executive may undertake. Thus, we may withhold votes from board chairs and lead independent directors who sit on more than three public company boards, and from
non-executive directors who hold more than four public company board mandates. We may also take voting action against Named Executive Officers who undertake more than two public board
memberships.
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We also consider attendance at board meetings and may withhold votes from directors who attend less than 75% of board meetings in a given year without appropriate explanation or providing reason for their failure to meet the
attendance threshold. In addition, we monitor other factors that may influence the independence of a non-executive director, such as performance-related pay, cross-directorships and significant
shareholdings.
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We support the annual election of directors.
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Further, we expect boards of FTSE 350 listed companies to have at least one female board member. If a company fails to meet this expectation, State Street Global Advisors may vote against the chair of the boards nominating
committee or the board leader in the absence of a nominating committee, if necessary. Additionally, if a company fails to meet this expectation for four consecutive years, State Street Global Advisors may vote against all incumbent members of the
nominating committee.
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While we are generally supportive of having the roles of chair and CEO separated in the UK market, we assess the division of responsibilities between chair and CEO on a case-by-case basis, giving consideration to factors such as the companys specific circumstances, overall level of independence on the board and general corporate governance standards in the company.
Similarly, we monitor for circumstances in which a combined chair/CEO is appointed or a former CEO becomes chair.
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We may also consider factors such as board performance and directors who appear to be remiss in the performance of their oversight responsibilities when considering their suitability for reappointment (e.g. fraud, criminal
wrongdoing and breach of fiduciary responsibilities).
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We believe companies should have committees for audit, remuneration and nomination oversight. The audit committee is responsible for monitoring the integrity of the financial statements of the company, the appointment of external
auditors, auditor qualifications and independence, and effectiveness and resource levels. Similarly, executive pay is an important aspect of corporate governance, and it should be determined by the board of directors. We expect companies to have
remuneration committees to provide independent oversight over executive pay. We will vote against nominees who are executive members of audit or remuneration committees.
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We consider whether board members have adequate skills to provide effective oversight of corporate strategy, operations and risks, including environmental and social issues. Boards should also have a regular evaluation process in
place to assess the effectiveness of the board and the skills of board members to address issues such as emerging risks, changes to corporate strategy, and diversification of operations and geographic footprint. The nomination committee is
responsible for evaluating and reviewing the balance of skills, knowledge, and experience of the board. It also ensures that adequate succession plans are in place for directors and the CEO. We may vote against the
re-election of members of the nomination committee if, over time, the board has failed to address concerns over board structure or succession.
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Proxy Voting and Engagement Guidelines: United Kingdom and Ireland
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B-57
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State Street Global Advisors may take voting action against board members at companies listed on the FTSE 350 that are laggards based on their R-FactorTM scores2 and cannot articulate how they plan to improve their score.
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Indemnification and Limitations on Liability
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Generally, we support proposals to limit directors liability and/or expand indemnification and liability protection up to the limit provided by law. This holds if a director has not acted in bad faith, gross negligence, nor
reckless disregard of the duties involved in the conduct of his or her office.
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Audit-Related Issues
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Companies should have robust internal audit and internal control systems designed for effective management of any potential and emerging risks to company operations and strategy. The responsibility of setting out an internal
audit function lies with the audit committee, which should have as members independent non-executive directors.
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Appointment of External Auditors
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State Street Global Advisors believes that a companys auditor is an essential feature of an effective and transparent system of external supervision. Shareholders should be given the opportunity to vote on their appointment
or re-appoint at the annual meeting. When appointing external auditors and approving audit fees, we take into consideration the level of detail in company disclosures and will generally not support such
resolutions if an adequate breakdown is not provided and if non-audit fees are more than 50% of audit fees. In addition, we may vote against members of the audit committee if we have concerns with
audit-related issues or if the level of non-audit fees to audit fees is significant. In certain circumstances, we may consider auditor tenure when evaluating the audit process.
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Limit Legal Liability of External Auditors
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We generally oppose limiting the legal liability of audit firms because we believe this could create a negative impact on the quality of the audit function.
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Shareholder Rights and Capital-Related Issues
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Share Issuances
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The ability to raise capital is critical for companies to carry out strategy, to grow, and to achieve returns above their cost of capital. The approval of capital raising activities is essential to shareholders ability to
monitor returns and to ensure capital is deployed efficiently. We support capital increases that have sound business reasons and are not excessive relative to a companys existing capital base.
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Pre-emption rights are a fundamental right for shareholders to protect their investment in a company. Where companies seek to issue new shares without
pre-emption rights, we may vote against if such authorities are greater than 20% of the issued share capital. We may also vote against resolutions that seek authority to issue capital with pre-emption rights if the aggregate amount allowed seems excessive and is not justified by the board. Generally, we are against capital issuance proposals greater than 100% of the issued share capital when the
proceeds are not intended for a specific purpose.
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Proxy Voting and Engagement Guidelines: United Kingdom and Ireland
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B-58
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Share Repurchase Programs
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We generally support a proposal to repurchase shares. However, this is not the case if the issuer does not clearly state the business purpose for the program,
a definitive number of shares to be repurchased, the range of premium/discount to market price at which a company can repurchase shares, and the timeframe for the repurchase. We may vote against share repurchase requests that allow share repurchases
during a takeover period.
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Dividends
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We generally support dividend payouts that constitute 30% or more of net income. We may vote against the dividend payouts if the dividend payout ratio has been consistently below 30% without adequate explanation or the payout is
excessive given the companys financial position. Particular attention will be paid where the payment may damage the companys long term financial health.
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Mergers and Acquisitions
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Mergers or reorganizing the structure of a company often involve proposals relating to reincorporation, restructurings, mergers, liquidations, and other major changes to the corporation. Proposals that are in the best interests
of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not viewed as financially sound or are thought to be destructive to
shareholders rights and are not supported.
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We will generally support transactions that maximize shareholder value. Some of the considerations include the following:
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Offer premium
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Strategic rationale
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Board oversight of the process for the recommended transaction,
including, director and/or management conflicts of interest
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Offers made at a premium and where there are no other higher
bidders
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Offers in which the secondary market price is substantially lower
than the net asset value
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We may vote against a transaction considering the following:
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Offers with potentially damaging consequences for minority
shareholders because of illiquid stock
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Offers in which we believe there is a reasonable prospect for an
enhanced bid or other bidders
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The current market price of the security exceeds the bid price at
the time of voting
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Anti-Takeover Measures
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We oppose anti-takeover defenses such as authorities for the board when subject to a hostile takeover to issue warrants convertible into shares to existing shareholders.
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Proxy Voting and Engagement Guidelines: United Kingdom and Ireland
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B-59
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Notice Period to Convene a General Meeting
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We expect companies to give as much notice as is practicable when calling a general meeting. Generally, we are not supportive of authorizations seeking to reduce the notice period to 14 days.
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Remuneration
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Executive Pay
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Despite the differences among the types of plans and awards possible, there is a simple underlying philosophy that guides our analysis of executive pay: there should be a direct relationship between remuneration and company
performance over the long term.
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Shareholders should have the opportunity to assess whether pay structures and levels are aligned with business performance. When assessing
remuneration policies and reports, we consider adequate disclosure of various remuneration elements, absolute and relative pay levels,
peer selection and
benchmarking, the mix of long-term and short-term incentives, alignment of pay structures with shareholder interests as well as with corporate strategy and performance.
We may oppose remuneration reports where pay seems misaligned with shareholders interests.
We may also vote against the re-election of members of the remuneration committee if we have serious concerns about remuneration practices or if the company has not been responsive to shareholder concerns.
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Equity Incentive Plans
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We may not support proposals on equity-based incentive plans where insufficient information is provided on matters such as grant limits, performance metrics, performance, vesting periods, and overall dilution. Generally we do not
support options under such plans being issued at a discount to market price or plans that allow for re-testing of performance metrics.
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Non-Executive Director Pay
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Authorities that seek shareholder approval for non-executive directors fees are generally not controversial. We typically support resolutions regarding directors fees unless
disclosure is poor and we are unable to determine whether they are excessive relative to fees paid by comparable companies. We will evaluate any non-cash or performance related pay to non-executive directors on a company- by-company basis.
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Risk Management
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State Street Global Advisors believes that risk management is a key function of the board, which is responsible for setting the overall risk appetite of a company and for providing oversight of the risk management process
established by senior executives at a company. We allow boards discretion over how they provide oversight in this area. We expect companies to disclose how the board provides oversight on its risk management system and risk identification. Boards
should also review existing and emerging risks as they can evolve with a changing political and economic landscape or as companies diversify their operations into new areas.
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Environmental and Social Issues
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As a fiduciary, State Street Global Advisors takes a comprehensive approach to engaging with our portfolio companies about material environmental and social (sustainability) issues. We use our voice and our vote through
engagement, proxy voting, and thought leadership in order to communicate with issuers and educate market participants about our perspective on important sustainability topics. Our Asset Stewardship program prioritization process allows us to
proactively identify companies for engagement and voting in order to mitigate sustainability
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Proxy Voting and Engagement Guidelines: United Kingdom and Ireland
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B-60
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risks in our portfolio. Through engagement, we address a broad range of topics that align with our thematic priorities and build long-term relationships with issuers. When voting, we fundamentally consider whether the
adoption of a shareholder proposal addressing a material sustainability issue would promote long-term shareholder value in the context of the companys existing practices and disclosures as well as existing market practice.
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For more information on our approach to environmental and social issues, please see our Global Proxy Voting and Engagement Guidelines for Environmental and Social Issues available at
ssga.com/about-us/asset-stewardship.html.
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More Information
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Any client who wishes to receive information on how its proxies were voted should contact its State Street Global Advisors relationship manager.
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Endnotes
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1 These Proxy Voting and Engagement Guidelines are also applicable to SSGA
Funds Management, Inc. SSGA Funds Management, Inc. is an SEC-registered investment adviser. SSGA Funds Management, Inc., State Street Global Advisors Trust Company, and other advisory affiliates of State
Street make up State Street Global Advisors, the investment management arm of State Street Corporation.
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2 R-FactorTM is a scoring system created by SSGA that measures the performance of a companys business operations and governance as it relates to financially material ESG factors facing the companys
industry.
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Proxy Voting and Engagement Guidelines: United Kingdom and Ireland
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B-61
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About State Street Global Advisors
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For four decades, State Street Global Advisors has served the worlds governments, institutions and financial advisors. With a rigorous, risk-aware approach built on research, analysis and market-tested experience, we build
from a breadth of active and index strategies to create cost-effective solutions. As stewards, we help portfolio companies see that what is fair for people and sustainable for the planet can deliver long-term performance. And, as pioneers in index,
ETF, and ESG investing, we are always inventing new ways to invest. As a result, we have become the worlds third-largest asset manager with US $3.12 trillion* under our care.
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* AUM reflects approximately $43.72 billion USD (as of 31 December
2019), with respect to which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.
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ssga.com
State Street Global Advisors Worldwide Entities
Abu
Dhabi: State Street Global Advisors Limited, Middle East Branch, 42801, 28, Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu Dhabi, United Arab Emirates. Regulated by ADGM Financial Services Regulatory Authority. T: +971 2
245 9000. Australia: State Street Global Advisors, Australia Services Limited (ABN 16 108 671 441) (AFSL Number 274900) (SSGA, ASL). Registered offi Level 15, 420 George Street, Sydney, NSW 2000, Australia. T: 612 9240-7600.
F: 612 9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 120, 1000 Brussels, Belgium. T: 32 2 663 2036. F: 32 2 672 2077. SSGA Belgium is a branch offi of State Street Global Advisors Ireland Limited. State
Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorized and regulated by the Central Bank of Ireland, and whose registered offi is at 78 Sir John Rogersons Quay, Dublin 2. Canada: State
Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500 , Montreal, Quebec, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647 775 5900. Dubai: State Street Global Advisors Limited,
DIFC Branch, Central Park Towers, Suite 15-38 (15th fl ), P.O Box 26838, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority (DFSA). T: +971
(0)4-4372800. F: +971 (0)4-4372818. France: State Street Global Advisors Ireland Limited, Paris branch is
a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorized and regulated by the Central Bank of Ireland, and whose registered offi is at 78 Sir John Rogersons Quay, Dublin 2. State
Street Global Advisors Ireland Limited, Paris Branch, is registered in France with company number RCS Nanterre 832 734 602 and whose offi is at Immeuble Défense Plaza, 23-25 rue Delarivière-
Lefoullon, 92064 Paris La Défense Cedex, France. T: (+33) 1 44 45 40 00. F: (+33) 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D-80333 Munich. Authorized and regulated by the Bundesanstalt für
Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. T: +49 (0)89-55878-400. F: +49 (0)89-55878-440. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State
Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Registered offi address 78 Sir John Rogersons Quay, Dublin 2. Registered number 145221. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State
Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorized and regulated by the Central Bank of Ireland,
and whose registered offi is at 78 Sir John
Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di
Milano), is registered in Italy with company number 10495250960 - R.E.A. 2535585 and VAT number 10495250960 and whose offi is at Via Ferrante Aporti, 10 -20125 Milano, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan: State Street
Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380 Financial Instruments Business
Operator, Kanto Local Financial Bureau (Kinsho #345) , Membership: Japan Investment Advisers Association, The Investment Trust Association, Japan, Japan Securities Dealers Association. Netherlands: State Street Global Advisors
Netherlands, Apollo Building, 7th fl Herikerbergweg 29 1101 CN Amsterdam, Netherlands. T: 31 20 7181701. SSGA Netherlands is a branch offi of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorized
and regulated by the Central Bank of Ireland, and whose registered offi is at 78 Sir John Rogersons Quay, Dublin 2. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912
(Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorized and regulated by the
Eidgenössische Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE-105.078.458. T: +41 (0)44 245 70 00. F: +41 (0)44
2457016. United Kingdom: State Street Global Advisors Limited. Authorized and regulated by the Financial
Conduct Authority. Registered in England. Registered No. 2509928. VAT No. 577659181. Registered offi 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States: State Street Global Advisors, One
Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
The information provided does not constitute investment advice and it should not be relied on as
such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investors particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and
financial advisor.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation
or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information.
The whole or any part of
this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without State Street Global Advisors express written consent.
© 2020 State Street Corporation.
All Rights Reserved.
ID178865-3002357.1.1.GBL.
RTL 0320
Exp. Date: 03/31/2021
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Proxy Voting and Engagement Guidelines: United Kingdom and Ireland
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B-62
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Insights
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Asset Stewardship
March 2020
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Proxy Voting and Engagement Guidelines: Rest of the World
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State Street Global Advisors Rest of the World Proxy Voting and Engagement Guidelines1 cover different corporate governance
frameworks and practices in international markets not covered under specific country/ regional guidelines. These Guidelines complement and should be read in conjunction with State Street Global Advisors overarching Global Proxy Voting and
Engagement Principles, which provide a detailed explanation of our approach to voting and engaging with companies, and State Street Global Advisors Conflict Mitigation Guidelines.
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At State Street Global Advisors, we recognize that markets not covered under specific country/ regional guidelines, specifically emerging
markets, are disparate in their corporate governance frameworks and practices. While they tend to pose broad common governance issues across all markets, such as concentrated ownership, poor disclosure of financial and
related-party transactions, and weak enforcement of rules and regulation, our proxy voting Guidelines are designed to identify and to address specific governance concerns in each market. We also evaluate the
various factors that contribute to the corporate governance framework of a country. These factors include, but are not limited to: (i) the macroeconomic conditions and broader political system in a country; (ii) quality of regulatory
oversight, enforcement of property and shareholder rights; and (iii) the independence of judiciary.
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State Street Global Advisors Proxy Voting and Engagement Philosophy in Emerging Markets
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State Street Global Advisors approach to proxy voting and issuer engagement in emerging markets is designed to increase the value of our investments
through the mitigation of governance risks. The overall quality of the corporate governance framework in an emerging market country drives the level of governance risks investors assign to a country. Thus, improving the macro governance framework in
a country may help to reduce governance risks and to increase the overall value of our holdings over time. In order to improve the overall governance framework and practices in a country, members of our Asset Stewardship Team endeavor to engage with
representatives from regulatory agencies and stock markets to highlight potential concerns with the macro governance framework of a country. We are also a member of various investor associations that seek to address broader corporate governance-related policy issues in emerging markets. To help mitigate company-specific risk, the State Street Global Advisors Asset Stewardship Team works alongside members
of the Active Fundamental and emerging
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B-63
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market specialists to engage with emerging market companies on governance issues and address any specific concerns, or to get more information regarding shareholder items that are to be voted on at upcoming shareholder meetings.
This integrated approach to engagement drives our proxy voting and engagement philosophy in emerging markets.
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Our proxy voting Guidelines in emerging markets address six broad areas:
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Directors and Boards
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Accounting and Audit-Related Issues
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Shareholder Rights and Capital-Related Issues
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Remuneration
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Environmental and Social Issues
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General/Routine Issues
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Directors and Boards
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We believe that a well constituted board of directors, with a balance of skills, expertise and independence, provides the foundation for a well governed
company. However, several factors, such as low overall independence level requirements by market regulators, poor biographical disclosure of director profiles, prevalence of related-party transactions, and the general resistance from controlling
shareholders to increase board independence, render the election of directors as one of the most important fiduciary duties we perform in emerging market companies.
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We vote for the election/re-election of directors on a case-by-case basis after considering various factors,
including general market practice and availability of information on director skills and expertise. We expect companies to meet minimum overall board independence standards, as defined in a local corporate governance code or market practice.
Therefore, in several countries, we will vote against certain non-independent directors if overall board independence levels do not meet market standards.
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Our broad criteria for director independence in emerging market companies include factors such as:
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Participation in related-party transactions
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Employment history with company
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Relations with controlling shareholders and employees
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Company classification of a director as non-independent
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In some countries, market practice calls for the establishment of a board level audit committee. We believe an audit committee should be responsible for monitoring the integrity of the fi statements of a company and appointing
external auditors. It should also monitor their qualifications, independence, effectiveness and resource levels. Based upon our desire to enhance the quality of financial and accounting oversight provided by independent directors, we expect that
listed companies have an audit committee constituted of a majority of independent directors.
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Proxy Voting and Engagement Guidelines: Rest of the World
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B-64
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Further, we expect boards of Straits Times and Hang Seng listed companies to have at least one female board member. If a company fails to meet this
expectation, SSGA may vote against the Chair of the boards nominating committee or the board leader in the absence of a nominating committee, if necessary.
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Audit-Related Issues
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The disclosure and availability of reliable financial statements in a timely manner is imperative for the investment process. As a result, board oversight of
internal controls and the independence of the audit process are essential if investors are to rely upon financial statements. We believe that audit committees provide the necessary oversight for the selection and appointment of auditors, the
companys internal controls and the accounting policies, and the overall audit process.
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Appointment of External Auditors
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We believe that a companys auditor is an essential feature of an effective and transparent system of external supervision. Shareholders should be given
the opportunity to vote on their appointment or re-appointment at the annual meeting. We believe that it is imperative for audit committees to select outside auditors who are independent from management.
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Shareholder Rights and Capital-Related Issues
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State Street Global Advisors believes that changes to a companys capital structure, such as changes in authorized share capital, share repurchase and
debt issuances, are critical decisions made by the board. We believe the company should have a business rationale that is consistent with corporate strategy and should not overly dilute its shareholders.
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Related-Party Transactions
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Most companies in emerging markets have a controlled ownership structure that often includes complex cross-shareholdings between subsidiaries and parent
companies (related companies). As a result, there is a high prevalence of related-party transactions between the company and its various stakeholders, such as directors and management. In addition, inter-group loan and loan guarantees
provided to related companies are some of the other related-party transactions that increase the risk profile of companies. In markets where shareholders are required to approve such transactions, we expect companies to provide details about the
transaction, such as its nature, value and purpose. This also encourages independent directors to ratify such transactions. Further, we encourage companies to describe the level of independent board oversight and the approval process, including
details of any independent valuations provided by financial advisors on related-party transactions.
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Share Repurchase Programs
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With regard to share repurchase programs, we expect companies to clearly state the business purpose for the program and a definitive number of shares to be
repurchased.
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Mergers and Acquisitions
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Mergers or reorganization of the structure of a company often involve proposals relating to reincorporation, restructurings, liquidations and other major
changes to the corporation. Proposals that are in the best interest of the shareholders, demonstrated by enhancing share value or improving the effectiveness of the companys operations, will be supported. In general, provisions that are not
viewed as financially sound or are thought to be destructive to shareholders rights are not supported.
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Proxy Voting and Engagement Guidelines: Rest of the World
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B-65
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We evaluate mergers and structural reorganizations on a case-by-case basis. We
generally support transactions that maximize shareholder value. Some of the considerations include, but are not limited to, the following:
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Offer premium
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Strategic rationale
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Board oversight of the process for the recommended transaction,
including director and/or management conflicts of interest
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Offers made at a premium and where there are no other higher
bidders
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Offers in which the secondary market price is substantially lower
than the net asset value
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We may vote against a transaction considering the following:
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Offers with potentially damaging consequences for minority
shareholders because of illiquid stock
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Offers where we believe there is a reasonable prospect for an
enhanced bid or other bidders
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The current market price of the security exceeds the bid price at
the time of voting
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We will actively seek direct dialogue with the board and management of companies that we have identified through our screening processes.
Such engagements may lead to further monitoring to ensure the company improves its governance or sustainability practices. In these cases, the engagement process represents the most meaningful opportunity for State Street Global Advisors to protect
long-term shareholder value from excessive risk due to poor governance and sustainability practices.
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Remuneration
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We consider it to be the boards responsibility to set appropriate levels of executive remuneration. Despite the differences among the types of plans and
the potential awards, there is a simple underlying philosophy that guides our analysis of executive remuneration: there should be a direct relationship between executive compensation and company performance over the long term. In emerging markets,
we encourage companies to disclose information on senior executive remuneration.
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With regard to director remuneration, we support director pay provided the amounts are not excessive relative to other issuers in the market or industry, and are not overly dilutive to existing shareholders.
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Proxy Voting and Engagement Guidelines: Rest of the World
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B-66
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Environmental and Social Issues
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As a fiduciary, State Street Global Advisors takes a comprehensive approach to engaging with our portfolio companies about material environmental and social
(sustainability) issues. We use our voice and our vote through engagement, proxy voting and thought leadership in order to communicate with issuers and educate market participants about our perspective on important sustainability topics. Our Asset
Stewardship program prioritization process allows us to proactively identify companies for engagement and voting in order to mitigate sustainability risks in our portfolio. Through engagement, we address a broad range of topics that align with our
thematic priorities and build long-term relationships with issuers. When voting, we fundamentally consider whether the adoption of a shareholder proposal addressing a material sustainability issue would promote long-term shareholder value in the
context of the companys existing practices and disclosures as well as existing market practice.
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For more information on our approach to environmental and social issues, please see our Global Proxy Voting and Engagement Guidelines for
Environmental and Social Issues available at ssga.com/about-us/asset-stewardship.html.
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General/Routine Issues
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Some of the other issues that are routinely voted on in emerging markets include approving the allocation of income and accepting financial statements and
statutory reports. For these voting items, our guidelines consider several factors, such as historical dividend payouts, pending litigation, governmental investigations, charges of fraud, or other indication of significant concerns.
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More Information
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Any client who wishes to receive information on how its proxies were voted should contact its State Street Global Advisors relationship manager.
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Endnotes
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1 These Proxy Voting and Engagement Guidelines are also applicable to SSGA Funds Management, Inc.
SSGA Funds Management, Inc. is an SEC-registered investment adviser. SSGA Funds Management, Inc., State Street Global Advisors Trust Company, and other advisory affiliates of State Street make up State Street
Global Advisors, the investment management arm of State Street Corporation.
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Proxy Voting and Engagement Guidelines: Rest of the World
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B-67
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About State Street Global Advisors
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Our clients are the worlds governments, institutions and financial advisors. To help them achieve their financial goals we live our guiding principles
each and every day:
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Start with rigor
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Build from breadth
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Invest as stewards
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Invent the future
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For four decades, these principles have helped us be the quiet power in a tumultuous investing world. Helping millions of people secure
their financial futures. This takes each of our employees in 27 offices around the world, and a firm-wide conviction that we can always do it better. As a result, we are the worlds third-largest asset manager with US $3.12 trillion* under our
care.
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* AUM reflects approximately $43.72 billion USD (as of December 31, 2019), with respect to
which State Street Global Advisors Funds Distributors, LLC (SSGA FD) serves as marketing agent; SSGA FD and State Street Global Advisors are affiliated.
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ssga.com
State Street Global Advisors Worldwide Entities
Abu
Dhabi: State Street Global Advisors Limited, Middle East Branch, 42801, 28, Al Khatem Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu Dhabi, United Arab Emirates. Regulated by ADGM Financial Services Regulatory Authority. T: +971 2
245 9000. Australia: State Street Global Advisors, Australia Services Limited (ABN 16 108 671 441) (AFSL Number 274900) (SSGA, ASL). Registered offi Level 15, 420 George Street, Sydney, NSW 2000, Australia. T: 612 9240-7600.
F: 612 9240-7611. Belgium: State Street Global Advisors Belgium, Chaussée de La Hulpe 120, 1000 Brussels, Belgium. T: 32 2 663 2036. F: 32 2 672 2077. SSGA Belgium is a branch offi of State Street Global Advisors Ireland Limited. State
Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered offi is at 78 Sir John Rogersons Quay, Dublin 2. Canada: State
Street Global Advisors, Ltd., 1981 McGill College Avenue, Suite 500 , Montreal, Quebec, H3A 3A8, T: +514 282 2400 and 30 Adelaide Street East Suite 800, Toronto, Ontario M5C 3G6. T: +647
775 5900. Dubai: State Street Global Advisors Limited, DIFC Branch, Central Park Towers, Suite 15-38
(15th fl ), P.O Box 26838, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority (DFSA). T: +971 (0)4-4372800. F: +971 (0)4-4372818. France: State Street Global Advisors
Ireland Limited, Paris branch is a branch of State Street Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered offi is at 78 Sir John
Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Paris Branch, is registered in France with company number RCS Nanterre 832 734 602 and whose offi is at Immeuble Défense Plaza,
23-25 rue Delarivière- Lefoullon, 92064 Paris La Défense Cedex, France. T: (+33) 1 44 45 40 00. F: (+33) 1 44 45 41 92. Germany: State Street Global Advisors GmbH, Brienner Strasse 59,
D-80333 Munich. Authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Registered with the Register of Commerce Munich HRB 121381. T: +49 (0)89-55878-400. F: +49 (0)89-55878-440. Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central,
Hong Kong. T: +852 2103-0288. F: +852 2103-0200. Ireland: State Street Global Advisors
Ireland Limited is regulated by the Central Bank of Ireland. Registered offi address 78 Sir John Rogersons
Quay, Dublin 2. Registered number 145221. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300. Italy: State Street Global Advisors Ireland Limited, Milan Branch (Sede Secondaria di Milano) is a branch of State Street Global Advisors Ireland Limited,
registered in Ireland with company number 145221, authorised and regulated by the Central Bank of Ireland, and whose registered offi is at 78 Sir John Rogersons Quay, Dublin 2. State Street Global Advisors Ireland Limited, Milan Branch (Sede
Secondaria di Milano), is registered in Italy with company number 10495250960 - R.E.A. 2535585 and VAT number 10495250960 and whose offi is at Via Ferrante Aporti, 10 - 20125 Milano, Italy. T: +39 02 32066 100. F: +39 02 32066 155. Japan:
State Street Global Advisors (Japan) Co., Ltd., Toranomon Hills Mori Tower 25F 1-23-1 Toranomon, Minato-ku, Tokyo 105-6325 Japan. T: +81-3-4530-7380 Financial
Instruments Business Operator, Kanto Local Financial Bureau (Kinsho #345) , Membership: Japan Investment Advisers Association, The Investment Trust Association, Japan, Japan Securities Dealers Association. Netherlands: State Street
Global Advisors Netherlands, Apollo Building, 7th fl Herikerbergweg 29 1101 CN Amsterdam, Netherlands. T: 31 20 7181701. SSGA Netherlands is a branch offi of State Street
Global Advisors Ireland Limited, registered in Ireland with company number 145221, authorised and regulated by
the Central Bank of Ireland, and whose registered offi is at 78 Sir John Rogersons Quay, Dublin 2. Singapore: State Street Global Advisors Singapore Limited, 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Reg. No:
200002719D, regulated by the Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. Authorised and regulated by the Eidgenössische
Finanzmarktaufsicht (FINMA). Registered with the Register of Commerce Zurich CHE - 105.078.458. T: +41 (0)44 245 70 00. F: +41 (0)44 245 70 16. United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the
Financial Conduct Authority. Registered in England. Registered No. 2509928. VAT No. 5776591 81. Registered offi 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: 020 3395 6000. F: 020 3395 6350. United States: State Street Global
Advisors, One Iron Street, Boston, MA 02210-1641. T: +1 617 786 3000.
© 2020 State Street Corporation.
All Rights Reserved.
ID178868-3002453.1.1.GBL
.RTL 0320
Exp. Date: 03/31/2021
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Proxy Voting and Engagement Guidelines: Rest of the World
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B-68
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