Essential SSGA. Overview of US-Domiciled Commingled Funds and US-Managed Separately Managed Accounts

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1 Essential SSGA Overview of US-Domiciled Commingled Funds and US-Managed Separately Managed Accounts NOVEMBER 2014

2 Table of Contents Introduction...5 Section I. SSGA US-Domiciled Commingled Funds...6 How are SSGA s US-domiciled Commingled Funds organized?... 6 What are the governing documents for SSGA s Commingled Funds?... 6 What are the different types of Commingled Funds and who can invest in each?... 7 Who owns the assets of a Commingled Fund?... 8 Who manages the assets in a Commingled Fund?... 8 How does a Commingled Fund implement its investment strategy?... 8 How and when may I invest in or withdraw from a Commingled Fund?... 9 What fees and expenses are associated with an investment in a Commingled Fund?... 9 Do the Commingled Funds participate in securities lending programs? What is SSGA s policy on proxy voting for the Commingled Funds? What is SSGA s practice regarding filing of class action claims involving securities held by a Commingled Fund? Who provides custodial services for the Commingled Funds? What are tax considerations with respect to an investment in a Commingled Fund?

3 Section II. SSGA US-Managed Separately Managed Accounts...13 What are the governing documents for SSGA s US-managed Separately Managed Accounts? Who manages the assets in a Separately Managed Account? How does a Separately Managed Account implement its investment strategy? How do I invest in or withdraw from a Separately Managed Account? What fees and expenses are associated with an investment in a Separately Managed Account? Can Separately Managed Accounts participate in securities lending programs? Who provides custodial services for a Separately Managed Account? What is SSGA s policy on proxy voting for Separately Managed Accounts? What is SSGA s practice regarding filing of class action claims involving securities held by a Separately Managed Account? Does SSGA have a UBTI policy for Separately Managed Accounts? Section III. General Information Relating to US-Domiciled Commingled Funds and US-Managed Separately Managed Accounts and Information Regarding SSGA s Policies...16 Who oversees SSGA s actions regarding US-domiciled Commingled Funds and US-managed Separately Managed Accounts? Please describe SSGA s global firm footprint and operating model What are SSGA s policies with regard to risk management?

4 What is SSGA s policy on directed/restricted brokerage? What is SSGA s best execution policy, including with respect to foreign exchange transactions ( FX transactions )? Do Commingled Funds and Separately Managed Accounts invest in derivatives and FX transactions? What is SSGA s policy on the use of soft dollars? What is SSGA s policy on cross-trading? What is SSGA s policy on cross-trading on a holiday/customary market close day or during a force majeure event? How does SSGA value portfolio instruments? Please describe SSGA s anti-money laundering program Does SSGA have a code of ethics? Please describe SSGA s Compliance Program Does SSGA maintain insurance? Please describe potential conflicts of interest

5 Introduction State Street Global Advisors ( SSGA ) is a division of State Street Bank and Trust Company ( SSBT ) and is the asset management business of State Street Corporation ( State Street ). SSGA provides fiduciary and investment management services for client accounts ( Separately Managed Accounts ), common trust funds ( CTFs or Common Trust Funds ) and collective investment trusts ( ERISA Funds, and together with the CTFs, Commingled Funds ), and other unregistered investment vehicles. SSGA itself, as a division of SSBT, is not required to register with the US Securities Exchange Commission ( SEC ) as an investment adviser, although other SSGA affiliated entities are registered. The information presented here is intended to provide an overview of the management and oversight of SSGA s US-managed Separately Managed Accounts and US-domiciled Commingled Funds. It is not designed to cover other investment vehicles, such as SSGA s mutual funds registered under the Investment Company Act of 1940, as amended (the Investment Company Act ), or exchange traded funds. More specific information about SSGA s Commingled Funds is also included in the Governing Documents (as defined below), which are provided to clients prior to making an investment in a Commingled Fund, and are also available from your SSGA relationship manager upon request, or (in the case of existing investors only) are available on Client s Corner (via ssga.com). Such information should be read in conjunction with the information presented in this brochure. To the extent that the terms of this brochure conflict with the terms of any Governing Document, the terms of the Governing Document shall control and prevail. The information provided in this brochure does not constitute investment advice and it should not be relied on as such. This brochure should not be considered a solicitation to buy, or an offer to sell, a security. Additionally, this brochure does not take into account any investor s particular investment objectives, strategies, tax status or investment horizon. SSGA encourages you to consult your tax or financial adviser. Finally, to the extent that any information contained in this brochure conflicts with statements made in any RFP or RFI, the applicable RFP or RFI shall prevail. Our organization and industry are continually changing and evolving. As a result, we review our policies and procedures to evaluate their continued effectiveness. Accordingly, we may amend our policies and procedures as well as this brochure from time to time. The rights and obligations of SSGA and its clients are determined by reference to the agreements and Governing Documents related to the investment product in question, and not by this brochure. Nothing in this brochure shall be read or construed as creating any right, duty, obligation, or liability for SSGA or any of its affiliates or be legally binding on SSGA or any of its affiliates. 5

6 Section I. SSGA US-Domiciled Commingled Funds How are SSGA s US-domiciled Commingled Funds organized? SSGA s US-domiciled Commingled Funds are trusts established pursuant to Massachusetts statutory and common law, and each is operated as a collective investment trust that typically pools the assets of various entities to create a larger, diversified portfolio of assets managed collectively in accordance with a common investment strategy. Each Commingled Fund is its own legal entity, separate from SSGA, other Commingled Funds and Separately Managed Accounts managed by SSGA, and clients who invest in the Commingled Funds. Investors in the Commingled Funds own an undivided and proportionate beneficial interest in all of the assets and liabilities of a Commingled Fund. This proportionate interest is represented by units, and a Commingled Fund can issue an unlimited number of units to be owned by beneficial owners. Each unit generally has the same rights as every other unit in a Commingled Fund. However, some of SSGA s ERISA Funds issue different classes of units, each of which may reflect a different level of administrative and other services, and related fees that will be borne by the beneficial owner. Ownership of units generally does not confer voting or management rights on beneficial owners, and the Commingled Funds do not hold unit holder meetings or other meetings of beneficial owners. While beneficial owners may not transfer their units, they may redeem their units, subject to the terms of the specific Commingled Fund s Governing Documents, as defined and described in more detail below. As trustee of each Commingled Fund, SSGA has authority over management and operation of the Commingled Fund, and, unlike some other pooled investment vehicles, the Commingled Funds have no boards of directors with independent members providing oversight of SSGA s services as manager and trustee. What are the governing documents for SSGA s Commingled Funds? SSGA and its clients who invest in a US-domiciled Commingled Fund are bound by the provisions of certain documents (the Governing Documents ) for the Commingled Fund in which that client invests. The Governing Documents may be amended from time to time and are incorporated by reference into client contracts, including participation agreements, investment management agreements and agreements of trust. Moreover, US tax regulation requires US pension, profit sharing, and stock bonus plans and certain other plans ( Benefit Plan Investors ) that participate in SSGA s ERISA Funds to adopt the Governing Documents as part of their own trust documents. SSGA provides copies of Governing Documents and other important disclosure documents to clients electronically, in certain instances by providing a link to the documents, prior to investment in a Commingled Fund, as well as upon request. In the case of existing investors, copies of the Governing Documents are also available on Client s Corner at ssga.com. You may also request a 6

7 copy of any of these documents from your SSGA relationship manager at any time. Commingled Fund Governing Documents: Declaration of Trust. Each Declaration of Trust creates a trust under which various Commingled Funds are established and sets forth the basic operating structure for all of the Commingled Funds established under that trust. The Declaration of Trust provides that Commingled Funds may be created as part of the trust upon execution of a Fund Declaration, described below. Each Commingled Fund is treated as a separate trust, or sub-trust, and is governed by the terms of a Declaration of Trust and corresponding Fund Declaration. The Declaration of Trust establishes the rights and responsibilities of SSGA, as trustee, and of each beneficial owner. Please refer to the Fund Declaration for the name of the Declaration of Trust applicable to your Commingled Fund(s). Fund Declaration. SSGA may establish an individual Commingled Fund by executing a Fund Declaration. The Fund Declaration highlights the aspects of the Commingled Fund that make it different from other Commingled Funds, including its investment objective and strategy, fees and expenses, and valuation date. The Fund Declaration for each Commingled Fund incorporates a specific Strategy Disclosure Document, as described below. Class Description. SSGA may divide a Commingled Fund into one or more classes of units, each with its own fees and expenses. Each class is established pursuant to a Class Description, which sets forth requirements for eligibility for participation in the class as well as fees and expenses associated with investment in that class of units. The Class Description should be read in conjunction with the Commingled Fund s Declaration of Trust and Fund Declaration. Strategy Disclosure Document ( SDD ). SDDs were developed by SSGA to provide investors in Commingled Funds with additional information about core characteristics, attributes and risks associated the investment strategies which SSGA implements through Commingled Funds and also through Separately Managed Accounts. The SDD forms a part of the SSGA Commingled Fund documentation package provided to each beneficial owner and also to Separately Managed Account clients, as applicable, and if available. In each SDD, you will find: The collection of related investment strategies to which the disclosure applies; A product profile outlining the investment philosophy and process for the strategy group represented in the SDD; An investment overview of the portfolios governed by the given set of strategies, including investment objective and principal investments; Selected risk factors; and An Individual Strategy Overview (as described below) for each investment strategy represented in the SDD. The Individual Strategy Overviews identify important information unique to each underlying strategy, including composite returns, benchmark performance, and information about key facts associated with the individual strategy. What are the different types of Commingled Funds and who can invest in each? As discussed in the introduction to this brochure, SSGA provides fiduciary and investment management services to Separately Managed Accounts, CTFs, ERISA Funds, and other unregistered investment vehicles. Set out below are descriptions of SSGA s CTFs and ERISA Funds. What is an ERISA Fund? An ERISA Fund is a pool of SSGA s Benefit Plan Investor clients assets. The ERISA Funds are established to facilitate the collective investment of these clients assets following a common investment strategy. In order to invest in an ERISA Fund, a Benefit Plan Investor must enter into an agreement with SSGA whereby it appoints SSGA as a fiduciary and investment manager of assets in its benefit plan and adopts the Declaration of Trust as a part of its plan, establishing the group trust as part of the plan s own trust document. Pursuant to that agreement, SSGA then purchases units of an ERISA Fund for the benefit of the Benefit Plan Investor. 7

8 Who can invest in SSGA s ERISA Funds? ERISA Funds are generally available to: (i) a US pension or profit sharing plan qualified within the meaning of 401(a) of the Internal Revenue Code of 1986, as amended (the Code ); (ii) a US governmental pension plan or unit described in 818(a)(6) of the Code, such as a state or municipal plan; or (iii) a segregated asset account maintained by a life insurance company consisting exclusively of investors described in (i) and (ii) above. What is a Common Trust Fund (CTF)? A Common Trust Fund (CTF) is a pool of SSGA s discretionary trust clients assets. A CTF facilitates the collective investment of these clients assets in accordance with a common investment strategy. Typically, discretionary trust clients establish a separate grantor trust with SSGA pursuant to an agreement of trust. As discretionary trustee of the grantor trust, SSGA has investment management discretion over the trust assets and may contribute the trust assets to any CTF with an investment objective that is consistent with the trust client s investment strategy. Who can invest in a Common Trust Fund? The following can invest in SSGA s CTFs: (i) an entity exempt from US income tax under any provisions of the Code and/ or any employee benefit or similar plan created by such entity; or (ii) any entity that is otherwise not subject to US income tax and/or any employee benefit or similar plan created by such entity (except any such plan that consists of assets that are participant-directed). This generally includes foundations, endowments and other charitable organizations under Code 501(c)(3), voluntary employee beneficiary associations ( VEBAs ) under Code 501(c)(9), certain employee health and welfare plans, and foreign governments and entities not taxable in the US. Can non-us entities invest in the Commingled Funds? The ERISA Funds are limited to Benefit Plan Investors. However, assets of trusts created by non-us institutional investors that are generally not subject to US taxation may be invested in the CTFs. Please see What are Tax Considerations with Respect to Investments in a Commingled Fund? below for a discussion of some of the tax considerations relevant to a non-us investor. Who owns the assets of a Commingled Fund? SSGA serves as the trustee of each Commingled Fund and holds title to the assets in each Commingled Fund for the exclusive benefit of the beneficial owners (i.e., its clients). Each beneficial owner owns an undivided interest in the Commingled Fund s assets, but no beneficial owner directly owns any particular security, instrument or other asset in which the Commingled Fund has invested. Who manages the assets in a Commingled Fund? SSGA manages each Commingled Fund s assets according to the terms of the particular Commingled Fund s Governing Documents (discussed in more detail above). In the case of certain Commingled Funds, SSGA as trustee may either delegate investment advisory services to affiliates of SSGA, or may hire affiliates of SSGA as sub-advisers to provide investment advisory services to such Commingled Funds. In either case, any such delegation to, or hiring of, an affiliate of SSGA to provide investment advisory services to a Commingled Fund is subject to SSGA s approval and continuing oversight. The following list includes US and non-us affiliates of SSGA that currently provide investment advisory services for certain Commingled Funds: State Street Global Advisors Limited, a limited liability company incorporated under the laws of England and Wales. State Street Global Advisors Asia Limited State Street Global Advisors France S.A. How does a Commingled Fund implement its investment strategy? Commingled Funds may implement a variety of investment strategies. These may include direct and indirect investment in securities and other instruments or assets (e.g., futures and swaps) subject to compliance with the Commingled Fund s Governing Documents. These strategies may also include investment in units of other Commingled Funds whose investment objectives fit within the investing Commingled Fund s objectives, including the investment of assets of certain ERISA Funds in CTFs with complementary investment strategies. Depending on a Commingled Fund s investment strategy, investing in the units of other Commingled Funds may provide for greater efficiencies in the management of the particular 8

9 Commingled Fund. In addition, a Commingled Fund may invest in other funds that are registered under the Investment Company Act and advised by affiliates of SSGA subject to compliance with applicable laws (including ERISA) and the Commingled Fund s Governing Documents. The Commingled Fund would have a pro rata exposure to the investments and risks of any other commingled or registered fund in which it invests and bear a proportionate share of fees and expenses. In accordance with its Governing Documents, a Commingled Fund also may directly invest in cash or other short-term fixed income investments. Certain Commingled Funds may engage in securities lending and may invest cash collateral received from the borrowers in a series of cash collateral pools managed by SSGA ( Cash Collateral Funds ) in accordance with the Governing Documents. (Please see the discussion below under Do the Commingled Funds participate in securities lending programs? for additional information.) How and when may I invest in or withdraw from a Commingled Fund? Please refer to Fund Operating Guidelines for SSGA US Bank Maintained Commingled Funds-CTF & DB/ERISA Fund Edition or the Fund Operating Guidelines for the SSGA US Bank Maintained Commingled Funds-Defined Contribution Series Fund Edition (collectively and individually, the Fund Operating Guidelines ), as applicable, for answers to this and other operations-specific questions. In the case of existing investors only, copies of the Fund Operating Guidelines are available on Client s Corner (ssga.com). You may also request a copy of the Fund Operating Guidelines from your SSGA relationship manager. What fees and expenses are associated with an investment in a Commingled Fund? Investment management fees SSGA generally charges clients directly for providing fiduciary and investment management services and such fees are usually negotiated directly with the client. However, SSGA also charges investment management fees directly to specified ERISA Funds, particularly those utilized by participant directed plans (e.g., 401(k) plans). Where SSGA charges a Commingled Fund investing in another Commingled Fund an investment management fee, an investment management fee is not also charged at the underlying Commingled Fund level, although the Cash Collateral Funds managed by SSGA may charge their own investment management fees. Subject to applicable laws (including ERISA), certain Commingled Funds may be permitted to invest in money market funds registered under the Investment Company Act and advised by an SSGA affiliate. In such cases, any investment management fee charged by the investing Commingled Fund will not be applied to the portion of the Fund s assets invested in any such money market fund. Other fees and expenses Each Commingled Fund may be charged an administration fee and transaction costs. The administration fee includes fees and expenses paid by the fund to SSBT or its affiliates for custodial, bookkeeping and accounting, transfer agency and related shareholder services provided to the Commingled Fund, such as the calculation of the net asset value. These amounts are disclosed in each Commingled Fund s Governing Documents and audited financial statement. For more information regarding SSBT s custodial services, please see the section entitled Who provides custody for the Commingled Funds?. Commingled Funds may also incur certain expenses and fees related to purchases and redemptions of units, including transaction costs as well as an annual audit fee and index fees (except to the extent that expenses and the other effects of transacting are charged directly to the underlying clients), and third party service fees paid to third parties and intermediaries for services such as record keeping and sub-accounting. Additionally, please refer to the appropriate Fund Declaration for further detail about fees and expenses associated with an investment in a Commingled Fund. A summary of these fees and information regarding externalization of transaction costs (also known as market effect ) can also be found in the Fund Operating Guidelines. Certain Commingled Funds offer classes of shares that charge different fees that are lower or higher than another class. A client may be offered or invest in a class based upon SSGA s consideration of a variety of factors, including investment amount in the Commingled Fund, total client or plan size, services provided to the client, and aggregate business relationship with SSGA or State Street. It is the responsibility of the client or the client s independent fiduciary to determine, on an ongoing basis, whether fees are 9

10 reasonable. When SSGA is establishing a new relationship with a client with respect to an investment strategy, SSGA is not a fiduciary to the client at the time of contract negotiation (including the fee it will receive for its services) with the client. In addition, each client should understand when investing in a Commingled Fund that there may be other investments, including funds maintained by entities other than SSGA, in which a client could be invested, which would have fees, expenses and performance that differ from that Commingled Fund. Do the Commingled Funds participate in securities lending programs? As permitted under the Governing Documents, depending on the particular investment strategy, SSGA offers both Securities Lending and Non-Lending Commingled Funds. SSBT acts as the securities lending agent for the Commingled Funds pursuant to a securities lending authorization agreement between SSGA on behalf of the Commingled Funds and SSBT as securities lending agent. Securities Lending Commingled Funds make securities available to other entities who borrow them for their own investment strategies or business needs. In most cases, a securities borrower is a financial intermediary, such as a broker, dealer or market maker. In exchange for borrowing the securities, borrowers post collateral of between 102% and 105% of the value of the loaned securities. The posted collateral is typically in the form of cash but in certain instances may be in the form of non-cash collateral. The collateral is returned when the borrower returns the loaned securities. The collateral amount is marked-to-market daily, which means the amount of collateral is reconciled every day. If collateral levels are insufficient for a particular loan (i.e., under the 102% or 105% limit), the borrower is required to provide more collateral. If the loan is over-collateralized, the lending agent returns some of the collateral to the borrower. SSGA invests cash collateral received by the Securities Lending Commingled Funds in the Cash Collateral Funds also managed by SSGA. The investment return from these Cash Collateral Funds is split among: (i) the borrower, who receives a rebate (i.e., an interest rate paid to the borrower on cash collateral, which is typically below the risk-free rate and reflects the demand value of the loaned securities), (ii) the beneficial owners of the Securities Lending Commingled Funds (or the Series Fund itself, as defined in the paragraph below), and (iii) SSGA. The investment return from the Cash Collateral Funds after payment of the rebate is generally split 70%/30% between the beneficial owners of the Securities Lending Commingled Funds (70%) (or directly in the case of the Series Funds), and SSGA (30%). In certain cases, clients may negotiate a different fee split arrangement with SSGA. Any non-cash collateral that is posted may include, among other things, government debt, corporate debt, equities and bank instruments. If the borrower posts non-cash collateral, the Securities Lending Commingled Funds receive a fee or loan premium from the borrower. The loan premium is calculated on a daily basis by reference to the market value of the borrowed securities. In cases where a loan premium is paid to a Securities Lending Commingled Fund, it is generally split in the same proportion as the investment return from the Cash Collateral Funds. SSGA and SSBT have no obligation to effect a lending transaction that may be profitable to a Securities Lending Commingled Fund, but would, after bearing the costs of the transaction, not be profitable to SSGA or SSBT. SSGA may from time-to-time establish minimum income thresholds for lending transactions for a Securities Lending Commingled Fund. The Securities Lending Commingled Funds portion of the investment return from the Cash Collateral Funds is distributed directly to the beneficial owners and is not reflected as income to the Securities Lending Commingled Funds. SSGA believes this is an important factor in determining investment performance and that using returns from a securities lending program could skew performance and tracking error, and may obscure transparent, accurate reporting of performance. Typically, SSGA s clients utilize the income they earn from securities lending to offset management fees. If the income earned exceeds the management fee, the excess balance may be wired out to the client or reinvested by the client into the Commingled Fund. The primary exception to this option is in SSGA s ERISA Funds that are available to defined contribution plans ( Series Funds ), where, due to operational barriers, the portion of the investment return from the Cash Collateral Funds earned by the Series Funds is included in the performance of the Series Funds (i.e., the portion of the investment return earned by the Series 10

11 Funds is reflected as income to the Series Fund and is additive to the net asset value of the Series Fund). Due to the operational nature of the securities lending program and the investments that may be held in the Cash Collateral Funds, there is a risk that in the event of market disruption and illiquidity, SSGA may need to implement measures to protect the interests of all investors in the Securities Lending Commingled Funds, as was the case during the most recent financial crisis. Existing investors in the Securities Lending Commingled Funds (including the Series Funds) can find important information on Client s Corner (ssga.com) regarding the securities lending program, including information on risks and the Cash Collateral Funds and those Funds portfolio holdings, characteristics, and net asset value. For additional information about the Commingled Funds securities lending program, please also see SSGA s securities lending disclosure package which is provided prior to clients investment in a Securities Lending Fund as well as available upon request from your relationship manager. What is SSGA s policy on proxy voting for the Commingled Funds? It is SSGA s policy to vote proxies of securities held by the Commingled Funds. SSGA seeks to vote proxies for the Commingled Funds in the best economic interests of its clients and make proxy voting decisions SSGA believes will most likely protect and promote the long-term economic value of client accounts. Excluding unusual circumstances, SSGA will vote proxies in the same way for all clients, regardless of a client s investment style or strategy. SSGA takes the view that voting in a manner consistent with maximizing the monetary value of clients holdings will benefit clients and, indirectly, any ultimate owners and beneficiaries of those clients (e.g., Benefit Plan Investors). SSGA retains an independent, external firm with expertise in proxy voting and corporate governance to support its proxy voting process. The external firm acts as SSGA s voting agent, providing SSGA with vote execution and administration services, and provides research and analysis relating to general corporate governance issues and specific proxy items. SSGA uses this along with other information and analyses to make proxy voting decisions. SSGA retains an independent fiduciary to direct the voting of State Street stock held by any Commingled Fund on any matter in which shareholders of State Street stock are required or permitted to vote. For additional information, please refer to SSGA s Global Proxy Voting and Engagement Principles, available on Client s Corner (ssga.com) for existing investors, or upon request from your SSGA relationship manager. What is SSGA s practice regarding filing of class action claims involving securities held by a Commingled Fund? SSGA partners with the Commingled Funds custodian, State Street, for the filing of claims related to class action lawsuits in the United States involving securities held by a Commingled Fund. State Street will use reasonable efforts to file applicable proofs of claim on behalf of the Commingled Fund. Settlement proceeds received as a result of our filings will be added to the Commingled Fund s assets and contribute to the Commingled Fund s current net asset value and unit price. Due to procedural and other legal differences that may be associated with participating as a plaintiff in securities lawsuits in jurisdictions outside the United States, the uncertain outcome of these lawsuits, and the potential financial implications of participating in these lawsuits, SSGA s general approach is to not participate in such non-us securities litigation. In the event that a Commingled Fund has closed, any settlement proceeds received by the Commingled Fund subsequent to its closure will be allocated and distributed to the Commingled Fund s final participants according to SSGA s policies and procedures. Who provides custodial services for the Commingled Funds? As trustee of the Commingled Funds, SSBT provides custodial services for all assets held in the Commingled Funds. SSBT in turn uses its worldwide network of sub-custodians to hold certain non-us securities and cash. Assets of the Commingled Funds and Separately Managed Accounts are held segregated from, and are not commingled with, any of SSGA s own assets. What are tax considerations with respect to an investment in a Commingled Fund? Typically, the Commingled Funds are tax-exempt under applicable provisions of the Code or administrative rulings and are available for investment only to entities that are not subject to US income taxes. Non-US investors engaged in a trade or business in the US are taxed on their income that is effectively connected with that business, often referred to as effectively connected income 11

12 or ECI. SSGA typically manages the Commingled Funds with no intent to generate ECI with the conduct of a US trade or business, as defined by the Code. As such, SSGA does not intend to pass on ECI to its non-us investors such that they would be required to file a US income tax return. In most cases, withholding taxes, as set forth in the bilateral tax treaties between the investor and the US, and between the US and the nation of the locality of the investment corpus, are the primary taxes associated with investment in a CTF. Non-US investors are not permitted to invest in SSGA s ERISA Funds. However, due to the complex nature of the investments made by some CTFs, such as partnerships or real estate, there can be no guarantee that some form of ECI is not generated from the investments. Accordingly, if a non-us client is particularly sensitive to ECI matters, the client should consult with a tax adviser prior to participating in a CTF. SSGA typically manages the Commingled Funds with no intent to generate unrelated business taxable income ( UBTI ). However, there can be no guarantee that UBTI does not periodically occur. Income generated from some forms of leverage, such as reverse repurchase agreements or purchases on margin and swaps with significant non-periodic payments, as well as some investments in partnerships, may generate UBTI by passing along operating income to US tax exempt clients. If a client is particularly sensitive to UBTI matters, the client should consult with a tax adviser prior to participating in a Commingled Fund. In addition to the above, the following tax considerations are specific to the ERISA Funds and the Common Trust Funds: ERISA Funds Internal Revenue Ruling , C.B. 326 ( Rev. Ruling ) provides that group trusts, such as the ERISA Funds, holding assets of pension, profit sharing and stock bonus plans are exempt from US income tax under Code 501(a) if certain conditions are met. Among other conditions, Rev. Ruling requires that plans participating in an ERISA Fund adopt the Fund s governing document(s), establishing the group trust as part of the plan s own trust document. Moreover, Rev. Ruling requires that if an ERISA Fund incurs UBTI, the ERISA Fund, and not any employee benefit plans participating in it, must file the tax return and pay any income tax on account of the UBTI. Common Trust Funds The CTFs are exempt from US income taxes pursuant to Code 584, which requires compliance with applicable regulations of the federal Office of the Comptroller of the Currency (the OCC ). However, each client investing in a CTF must include its proportionate share of income, gains and losses of the CTF, whether distributed or not, in computing its taxable income. Essentially, the CTF is treated as a look-through vehicle for US income tax purposes and is treated as such for tax reporting purposes as well. Clients that invest in a CTF will have their respective proportionate share of taxable income or loss generated by such CTF reported annually on their Schedule K-1. A participating trust in a CTF will have allocated to it its proportionate share of the UBTI earned by the CTF and will be required to take any such UBTI into account in calculating its own UBTI. The participating trusts in the CTFs are trusts created between SSGA, as trustee, and the entity with authority to direct the investment of the client s assets, as settlor. The participating trust is considered a grantor trust under the Code and, as such, the income of the grantor trust is treated as the income of the grantor. A client s participating trust is required to report income, including gross sales proceeds from the sale of CTF units, on its annual income tax return, where applicable. Information required by participating trusts is found on IRS Schedule K-1 and on Client s Corner (ssga.com) for existing investors in CTFs. Clients investing in a CTF are required to track their cost basis for investing in the CTF. Additional information pertaining to Commingled Funds resides in Section III of this brochure. 12

13 Section II. SSGA US-Managed Separately Managed Accounts What are the governing documents for SSGA s US-managed Separately Managed Accounts? Each US-managed Separately Managed Account is a separate client account that is managed for the benefit of a single client where the single client owns the assets of the underlying portfolio. A Separately Managed Account may have investment strategies that permit the Separately Managed Account to hold units in a Commingled Fund, hold interests in a commingled vehicle managed by or affiliated with an SSGA entity, hold interests in commingled vehicles that are not managed by an SSGA entity and also hold securities and/or other instruments directly. Each Separately Managed Account is governed by a written agreement between SSGA and the client. This typically takes the form of an investment management or similar agreement detailing the terms and conditions pursuant to which SSGA will manage the Separately Managed Account. In cases where a Separately Managed Account holds units in a Commingled Fund, the client also may be required to sign an agreement of trust or participation agreement. Additional information about investment policies, principal investment strategies and risks associated with the investment objectives of a Separately Managed Account can be found in the current Strategy Disclosure Document(s) (SDD) that relates to the investment objectives, if applicable. This document was developed by SSGA for its clients to provide additional transparency into information regarding core characteristics, attributes and risks associated with the investment strategies of its Commingled Funds and Separately Managed Accounts. (Please refer to Section I. of this brochure for more information about SSGA s Strategy Disclosure Documents.) Who manages the assets in a Separately Managed Account? Advice regarding securities and other instruments (other than commodities as defined below) Depending on the status of the client and the nature of the investment mandate, any one of several different entities, including SSGA, could serve as investment manager of a Separately Managed Account where the strategy involves the buying and selling of securities or other instruments other than commodities (see the section below entitled Advice regarding Futures, Options on Futures and Swaps (together commodities ) to Separately Managed Accounts for advice relating to commodities). In addition, as investment manager or sub-adviser to certain Separately Managed Accounts, SSGA may delegate, consistent with the relevant investment management agreement, certain of its functions, duties and/or obligations to another entity, including an affiliated entity. These arrangements may be reflected in the investment management agreement or in an addendum thereto. As described above, SSGA is the asset management business of State Street and serves as the investment manager of the Commingled Funds, as required by the applicable regulatory structure. The regulatory structure governing the Commingled Funds generally does not apply to a Separately Managed Account. 13

14 Advice regarding futures, options on futures and swaps (together commodities ) to Separately Managed Accounts SSGA generally delegates commodities management for Separately Managed Accounts to SSGA Funds Management, Inc. ( SSGA FM ) in cases where either the commodities transaction is traded on a US exchange, the Separately Managed Account client is a US client and/or SSGA as a division of SSBT is the investment manager or sub-adviser for such Separately Managed Account. SSGA FM is a wholly-owned subsidiary of State Street Corporation and an affiliate of SSGA. SSGA FM is also registered as a commodity trading advisor ( CTA ) with the US Commodity Futures Trading Commission ( CFTC ) and is regulated by the National Futures Association ( NFA ). SSGA FM is also registered with the SEC as an investment adviser. Irrespective of this delegation, SSGA remains the named investment manager or sub-adviser for such Separately Managed Accounts and continues to be responsible for the overall management of the relevant Separately Managed Accounts. In addition, all employees of SSGA FM also serve as employees of SSGA. Therefore, the investment personnel who manage your Separately Managed Account with respect to commodities will be the same personnel who manage that Account with respect to securities or other instruments. SSGA FM is also subject generally to (i) internal oversight and (ii) the policies described below in Section III. How does a Separately Managed Account implement its investment strategy? Separately Managed Accounts may utilize a variety of investment strategies as agreed upon by SSGA and the client and memorialized in the investment management agreement. These may include direct and indirect investment in securities and other instruments or assets. SSGA works with its clients to help them determine the most appropriate assets or asset classes in which to invest and to describe the particular investment strategy in the investment guidelines, which form part of the investment management agreement. How do I invest in or withdraw from a Separately Managed Account? May contributions or withdrawals be made in-kind? For answers on the above questions and others of an operational nature, please refer to the SSGA Operating Guidelines for US-Managed Separately Managed Accounts, which are available to existing clients on Client s Corner at ssga.com. You may request a copy of the SSGA Operating Guidelines for US-Managed Separately Managed Accounts from your SSGA relationship manager. What fees and expenses are associated with an investment in a Separately Managed Account? Please describe investment management fees. SSGA generally charges its clients directly for providing investment management services for a Separately Managed Account. The terms and payment schedule of such fees are detailed in the investment management agreement with the client. What types of other investment expenses does a Separately Managed Account typically incur? Expenses related to investments may include, but are not limited to, brokerage commissions and spreads on certain types of transactions. There are other non-investment related expenses that may be incurred by a Separately Managed Account and you should consult with your custodian for further information regarding such expenses. It is the responsibility of the client or the client s independent fiduciary to determine, on an ongoing basis, whether fees are reasonable. When SSGA is establishing a new relationship with a client with respect to an investment strategy, SSGA is not a fiduciary to the client at the time of contract negotiation (including the fee it will receive for its services) with the client. Can Separately Managed Accounts participate in securities lending programs? Yes. A Separately Managed Account client may enter into an arrangement (outside of the investment management agreement) with a securities lending agent for lending securities held in a Separately Managed Account. The lending agent 14

15 may or may not be SSBT. SSGA relationship managers can discuss securities lending options with you. For additional information regarding how SSGA s securities lending activities operate generally, please refer to the section entitled Do the Commingled Funds participate in securities lending programs?. Who provides custodial services for a Separately Managed Account? The client determines who will serve as custodian for its Separately Managed Account. Generally, SSGA can work with any custodian. SSGA s Client Advocacy Team in Investment Operations has built relationships with many of the industry s major custodian banks, including Northern Trust, BNY Mellon, JPMorgan, and SSBT. The team s existing partnerships with these custodians is founded upon open lines of communication, including regularly scheduled service calls to ensure that any issues are resolved in a way that rarely requires the client s intervention. With this partnership with the banks comes considerable experience in acting as a resource and escalation point for the banks (if necessary), and the ability to compile assessment scores and feedback from SSGA s Investment Operations Teams to distribute to custodians for their review and action. To the extent that a client does not have an established custody relationship or would otherwise like information regarding SSBT s custody services, please contact your SSGA relationship manager for details. What is SSGA s policy on proxy voting for Separately Managed Accounts? In accordance with the terms of the investment management agreement, SSGA is typically responsible for voting of proxies for the securities held by a Separately Managed Account. It is SSGA s policy to vote proxies in accordance with its own proxy voting policy, a copy of which is available upon request from your SSGA relationship manager. However, a client can indicate to SSGA that it will vote proxies itself, in which case the investment management agreement will need to reflect this understanding. SSGA generally is unable to implement a client s own customized voting policy on the client s behalf. Rather, clients must make arrangements outside of SSGA to have a custom voting policy applied. (Please see the previous section entitled What is SSGA s policy on voting proxies for the Commingled Funds? for more information about SSGA s proxy voting policy.) What is SSGA s practice regarding filing of class action claims involving securities held by a Separately Managed Account? SSGA, as investment manager for the assets in a client s Separately Managed Account, can assist with, but does not file, proofs of claim for securities-related litigation cases. Rather, the custodian of the client s assets is typically charged with this responsibility by the owner of the assets (our clients). Does SSGA have a UBTI policy for Separately Managed Accounts? There can be no guarantee that UBTI will not be generated in your Separately Managed Account. If you have a concern regarding whether your Separately Managed Account will generate UBTI, please consult your tax adviser. 15

16 Section III. General Information Relating to US-Domiciled Commingled Funds and US-Managed Separately Managed Accounts and Information Regarding SSGA s Policies Who oversees SSGA s actions regarding US-domiciled Commingled Funds and US-managed Separately Managed Accounts? Please describe external oversight. SSGA s activities are overseen by the Federal Reserve, which evaluates the overall safety and soundness of SSBT. This evaluation includes an assessment of SSGA s risk-management systems, financial condition, and compliance with applicable banking laws and regulations. As a state chartered bank, SSGA generally seeks to maintain its Common Trust Funds in conformity with the rules and regulations of the Office of the Comptroller of the Currency applicable to national associations pertaining to the collective investment of trust funds. SSGA owes a fiduciary duty to the Commingled Funds and Separately Managed Accounts that it manages. The US Department of Labor ( DOL ) is responsible for setting the rules and regulations that govern SSGA in its role as trustee and investment manager of the ERISA Funds and any Separately Managed Account of a client that is subject to ERISA. In addition, the DOL may oversee a Common Trust Fund if any assets regulated by ERISA are invested in the Common Trust Fund (i.e., Benefit Plan Investor assets). SSGA is subject to DOL inspections from time to time. It is important to note that the SEC generally does not oversee SSGA s activities regarding Commingled Funds because interests in the ERISA Funds and CTFs are exempt from the registration requirements of the US Securities Act of 1933, as amended, the US Securities Exchange Act of 1934, as amended, and the Investment Company Act. The placement of client assets in the Commingled Funds, however, is subject to general anti-fraud provisions of the US federal securities laws. SSGA may also conduct certain investment and trading functions of the Commingled Funds and Separately Managed Accounts in each of its investment centers in Dublin, London, Paris, Hong Kong, Singapore, Sydney and Tokyo locations, which may be subject to regulation by local authorities. Pursuant to the Governing Documents for the Commingled Funds, SSGA is required to have auditors responsible only to SSBT s board of directors audit annually each of the Commingled Funds. The Commingled Funds are audited annually by an independent external auditor and operate on a December 31 fiscal year end schedule. The audited financial statements are generally expected to be available during mid-april of the following year and are sent to clients and posted on Client s Corner (ssga.com) soon thereafter. SSGA s internal controls, discussed 16

17 below, are audited annually by an independent external auditor for the 12-month period ended June 30. SSGA s SSAE 16/ SOC 1 report (previously SAS-70 Type II), the report on which the independent auditor evaluates certain of SSGA s internal controls, is typically available in late August of each year. Copies may be obtained by contacting your SSGA relationship manager. Please describe internal oversight and executive management structure. SSGA s governance structure is designed to support its business functions primary responsibility of effective decision making and enhance management oversight practices. SSGA s governance structure consists of an Executive Management Group, which is composed of SSGA s most senior leadership serving as a consultative and decision-making body for the benefit of SSGA s CEO. The Executive Management Group is responsible for overall firm governance and oversees the activities of the four senior committees whose chairs are appointed by SSGA s CEO: The Investment Committee is responsible for providing oversight of SSGA s investment philosophy, oversight of investment strategies and ensuring that SSGA s investment discipline remains consistent with its mission. The Global Fiduciary Committee oversees and addresses fiduciary matters, including potential conflicts inherent in SSGA s investment strategies or products. It also provides a forum for review of. The Global Product Committee oversees product development and management processes across all business units and geographies. It has authority over SSGA s new product approval policy and coordinates any additional product approvals required by State Street. The Global Operations and Compliance Committee provides oversight of SSGA s infrastructure and compliance functions across all business units globally. These senior committees and their various subcommittees help ensure a consistent approach to the creation and implementation of policies and provide broad oversight of the business functions. An Internal Governance Oversight Team was created to administer SSGA s committee structure with a particular focus on promoting efficiency, clarity and accountability with respect to decision rights and firmwide oversight. The guiding principles embodied by SSGA s governance structure and under which the Internal Governance Oversight Team operates are: Promote a culture of efficient and effective decision making; Reinforce ownership of and accountability for decision making and management of key risks by business leaders; and Enhance accountability for adherence to policies and decision making protocol in support of SSGA s client service objectives and SSGA s leadership reputation. In addition to outside, governmental oversight, SSGA s internal controls and the governance structure described above seek to ensure that it upholds its fiduciary duties with respect to the Commingled Funds and Separately Managed Accounts. Heads of several business units within SSGA, including Risk Management, Compliance, Legal, Finance, HR, and IT, report to the Executive Vice Presidents of their respective units at State Street. In addition, all of the major business areas of SSGA are subject to periodic review by State Street s Corporate Audit Division. Corporate Audit performs, at a minimum, annual risk assessments of the audit universe. Audit frequencies tie directly to the outcome of the risk assessment process and historical audit results and may periodically be modified to meet regulatory requirements, independent public accountants and management requests. Individual audits are conducted using the principles outlined in the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as the basis for evaluating internal control frameworks. The methodology for an individual audit encompasses the identification of business objectives, the risks associated with achieving the objectives and the controls management must implement to ensure that the risks are effectively managed. Please describe SSGA s global firm footprint and operating model. At SSGA we operate via a unified global investment platform through which we seek to leverage the expertise and skills that reside in our various global affiliates and subsidiaries. In certain cases, SSGA utilizes employees of its affiliates around the globe to perform a wide range of functions associated with the ongoing management, servicing and oversight of the Commingled Funds and Separately Managed Accounts. This may include, but is not limited to: certain billing functions; certain portfolio administration functions, such as daily position 17