State Street Bank and Trust Company SSgA Target Retirement 2015 Non-Lending Series Fund Financial Statements December 31, 2014

Transcription

1 Financial Statements

2 Independent Auditor's Report To the Trustee of State Street Bank and Trust Company We have audited the accompanying financial statements of State Street Bank and Trust Company SSgA Target Retirement 2015 Non-Lending Series Fund ("the Fund"), which comprise the statement of assets and liabilities, including the schedule of investments as of December 31, 2014, and the related statements of operations and of changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are hereafter collectively referred to as "financial statements". Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of State Street Bank and Trust Company at, and the results of its operations and changes in its net assets and the financial highlights for the year then ended, in accordance with accounting principles generally accepted in the United States of America. April 10, 2015 PricewaterhouseCoopers LLP, 125 High Street, Boston, MA T: (617) , F: (617) ,

3 Statement of Assets and Liabilities Assets Investments in securities, at value (cost $1,100,672,747) $ 1,190,018,297 Due from Trustee 3,453 Receivable for Fund units issued 1,684,629 Receivable for investments sold 19,095,412 Total assets 1,210,801,791 Liabilities Payable for Fund units redeemed 450,854 Payable for investments purchased 20,313,506 Accrued expenses 73,713 Total liabilities 20,838,073 Net Assets, at value $ 1,189,963,718 The accompanying notes are an integral part of these financial statements. 2

4 Statement of Assets and Liabilities (continued) - Class A (27,375,922 units outstanding, at $16.19 per unit net asset value) $ 443,333,104 - Class C (16,620,751 units outstanding, at $17.98 per unit net asset value) 298,772,208 - Class D (1,181,769 units outstanding, at $14.89 per unit net asset value) 17,598,532 - Class K (16,895,571 units outstanding, at $10.88 per unit net asset value) 183,759,017 - Class M (24,037,659 units outstanding, at $10.25 per unit net asset value) 246,500,857 $ 1,189,963,718 The accompanying notes are an integral part of these financial statements. 3

5 Statement of Operations Year Ended Investment income Total investment income $ - Expenses Management 593,948 Administrative service fee 47,905 Administration 118,766 Audit 11,100 Other 2,200 Total expenses 773,919 Waivers and reimbursements (32,293) Net expenses 741,626 Net investment income (loss) (741,626) Net realized and unrealized gain (loss): Net realized gain (loss): Investments 40,645,470 Net change in unrealized appreciation (depreciation): Investments 7,196,991 Net realized and unrealized gain (loss) 47,842,461 Net increase (decrease) in net assets resulting from operations $ 47,100,835 The accompanying notes are an integral part of these financial statements. 4

6 Statement of Changes in Net Assets Year Ended From operations Net investment income (loss) $ (741,626) Net realized gain (loss) 40,645,470 Net change in unrealized appreciation (depreciation) 7,196,991 Net increase (decrease) in net assets resulting from operations 47,100,835 Net increase (decrease) in net assets resulting from participant transactions 387,854,036 Net increase (decrease) in net assets 434,954,871 Net Assets Beginning of year 755,008,847 End of year $ 1,189,963,718 The accompanying notes are an integral part of these financial statements. 5

7 Statement of Changes in Net Assets (continued) Year Ended Units Amount Units of Participation Participant transactions for the Fund were as follows: Class A Units issued 11,019,743 $ 175,848,735 Units redeemed (12,345,836) (195,288,482) (1,326,093) (19,439,747) Class C Units issued 7,013,045 $ 125,236,610 Units redeemed (5,186,171) (91,688,644) 1,826,874 33,547,966 Class D Units issued 566,366 $ 8,160,731 Units redeemed (667,850) (9,905,938) (101,484) (1,745,207) Class K Units issued 15,599,826 $ 166,477,334 Units redeemed (2,898,234) (31,305,019) 12,701, ,172,315 Class M 1 Units issued 26,171,263 $ 262,179,780 Units redeemed (2,133,604) (21,861,071) 24,037, ,318,709 Net increase (decrease) $ 387,854,036 1 The Class commenced operations on April 1, The accompanying notes are an integral part of these financial statements. 6

8 - Class A Financial Highlights Year Ended (For a Unit of Participation Outstanding Throughout the Year) Selected Per Unit Data Net asset value, beginning of year $ Net investment income (loss) 1, 2 (0.00) Net realized and unrealized gain (loss) 0.83 Total from investment operations 0.83 Net asset value, end of year $ Total return (%) Ratios to Average Net Assets 4 Ratio of expenses (%) 2, Ratio of net investment income (loss) (%) 2 (0.00) Net investment income (loss) per unit has been calculated based upon an average of daily units outstanding. Zero amounts represent those which are less than $0.005 or 0.005% or ($0.005) or (0.005%) if negative. Calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Class. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. Calculations include only those expenses charged directly to the Fund (direct expenses) and do not include expenses charged to the funds in which the Fund invests (indirect expenses). Please refer to the Additional Expense Information in the accompanying notes for further disclosures regarding expenses. The accompanying notes are an integral part of these financial statements. 7

9 - Class C Financial Highlights Year Ended (For a Unit of Participation Outstanding Throughout the Year) Selected Per Unit Data Net asset value, beginning of year $ Net investment income (loss) 1 (0.03) Net realized and unrealized gain (loss) 0.93 Total from investment operations 0.90 Net asset value, end of year $ Total return (%) Ratios to Average Net Assets 3 Ratio of expenses (%) Ratio of net investment income (loss) (%) (0.15) Net investment income (loss) per unit has been calculated based upon an average of daily units outstanding. Calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Class. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. Calculations include only those expenses charged directly to the Fund (direct expenses) and do not include expenses charged to the funds in which the Fund invests (indirect expenses). Please refer to the Additional Expense Information in the accompanying notes for further disclosures regarding expenses. The accompanying notes are an integral part of these financial statements. 8

10 - Class D Financial Highlights Year Ended (For a Unit of Participation Outstanding Throughout the Year) Selected Per Unit Data Net asset value, beginning of year $ Net investment income (loss) 1 (0.06) Net realized and unrealized gain (loss) 0.77 Total from investment operations 0.71 Net asset value, end of year $ Total return (%) Ratios to Average Net Assets 3 Ratio of expenses (%) 4, Ratio of net investment income (loss) (%) (0.40) Net investment income (loss) per unit has been calculated based upon an average of daily units outstanding. Calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Class. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. Total return would have been lower had certain expenses not been waived or reimbursed by the Trustee (Note 2). Calculations include only those expenses charged directly to the Fund (direct expenses) and do not include expenses charged to the funds in which the Fund invests (indirect expenses). Calculations may include the effects of reimbursements or waivers of both direct and indirect expenses. Please refer to the Additional Expense Information in the accompanying notes for further disclosures regarding expenses. The ratio of expenses to average daily net assets would have been approximately 0.12% higher had the Trustee not waived or reimbursed certain expenses for the year ended (Note 2). The accompanying notes are an integral part of these financial statements. 9

11 - Class K Financial Highlights Year Ended (For a Unit of Participation Outstanding Throughout the Year) Selected Per Unit Data Net asset value, beginning of year $ Net investment income (loss) 1 (0.01) Net realized and unrealized gain (loss) 0.56 Total from investment operations 0.55 Net asset value, end of year $ Total return (%) Ratios to Average Net Assets 3 Ratio of expenses (%) 4, Ratio of net investment income (loss) (%) (0.10) Net investment income (loss) per unit has been calculated based upon an average of daily units outstanding. Calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning and end of the year. The calculation includes only those expenses charged directly to the Class. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. Total return would have been lower had certain expenses not been waived or reimbursed by the Trustee (Note 2). Calculations include only those expenses charged directly to the Fund (direct expenses) and do not include expenses charged to the funds in which the Fund invests (indirect expenses). Calculations may include the effects of reimbursements or waivers of both direct and indirect expenses. Please refer to the Additional Expense Information in the accompanying notes for further disclosures regarding expenses. The ratio of expenses to average daily net assets would have been approximately 0.01% higher had the Trustee not waived or reimbursed certain expenses for the year ended (Note 2). The accompanying notes are an integral part of these financial statements. 10

12 - Class M Financial Highlights Period Ended 1 (For a Unit of Participation Outstanding Throughout the Period) Selected Per Unit Data Net asset value, beginning of period $ Net investment income (loss) 2, 3 (0.00) Net realized and unrealized gain (loss) 0.25 Total from investment operations 0.25 Net asset value, end of period $ Total return (%) Ratios to Average Net Assets 5, 6 Ratio of expenses (%) Ratio of net investment income (loss) (%) (0.05) The Class commenced operations on April 1, Net investment income (loss) per unit has been calculated based upon an average of daily units outstanding. Zero amounts represent those which are less than $0.005 or 0.005% or ($0.005) or (0.005%) if negative. Calculation (not annualized) is based on the value of a single unit of participation outstanding throughout the period. It represents the percentage change in the net asset value per unit between the beginning and end of the period. The calculation includes only those expenses charged directly to the Class. The result may be reduced by any administrative or other fees which are incurred in the management or maintenance of individual participant accounts. Calculations include only those expenses charged directly to the Fund (direct expenses) and do not include expenses charged to the funds in which the Fund invests (indirect expenses). Not annualized. Please refer to the Additional Expense Information in the accompanying notes for further disclosures regarding expenses. The accompanying notes are an integral part of these financial statements. 11

13 Schedule of Investments (showing percentage of total value of investments) State Street Bank and Trust Company Collective Investment Funds % Units Value ($) SSgA 1-10 Year U.S. Treasury Inflation Protected Securities (TIPS) Index Non-Lending Series Fund - Class A 1 21,177, ,824,696 SSgA Global All Cap Equity Ex-U.S. Index Non-Lending Series Fund - Class A 1 15,350, ,484,839 SSgA Global Real Estate Securities Index Non-Lending Series Fund - Class A 1 3,422,305 58,928,668 SSgA Russell Small/Mid Cap Index Non-Lending Series Fund - Class A 1 1,149,153 46,041,945 SSgA S&P 500 Index Non-Lending Series Fund - Class A 1 6,265, ,650,081 SSgA U.S. Bond Index Non-Lending Series Fund - Class A 1 22,955, ,207,883 SSgA U.S. High Yield Bond Index Non-Lending Series Fund - Class A 1 5,638,797 83,691,020 SSgA U.S. Short-Term Government/Credit Bond Index Non-Lending Series Fund - Class A 1 2,813,148 29,915,018 State Street Bloomberg Roll Select Commodity Index (sm) Non-Lending Series Fund - Class A 1 5,040,809 41,274,147 Total State Street Bank and Trust Company Collective Investment Funds (Cost $1,100,672,747) 1,190,018,297 TOTAL INVESTMENTS % (Cost $1,100,672,747) 1,190,018,297 1 Collective investment fund advised by State Street Global Advisors. The accompanying notes are an integral part of these financial statements. 12

14 Notes to Financial Statements 1. Fund Organization and Investment Objective State Street Bank and Trust Company ("State Street Bank") (the "Fund") was formed by State Street Bank under the State Street Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans Declaration of Trust (the "Trust"). State Street Bank is Trustee, Custodian, and Recordkeeper of the Fund and, as Trustee, has exclusive management and control of the Trust. State Street Global Advisors ("SSgA"), a division of State Street Bank, is the Fund's Investment Manager. The Fund is operated pursuant to the provisions of the Trust and other governing documents, which are available from the Trustee. The investment objective of the Fund is to approximate, as closely as practicable, before expenses, the performance of a custom benchmark index over the long term, while providing participants the ability to purchase and redeem units on an "as of" basis. The Fund attempts to achieve its investment objective by investing in other collective investment funds (each an underlying fund), managed by the Trustee, which have characteristics consistent with the Fund's overall investment objective. Refer to the financial statements of each underlying fund, which are available upon request from the Trustee, for disclosure of its accounting policies and investment holdings. The Trustee has the authority to establish unlimited classes of units of the Fund (each a "Class") and issue an unlimited number of units of any such Class of the Fund. The following Classes of units of the Fund have been established and are currently funded: Class A, Class C, Class D, Class K and Class M. 2. Summary of Significant Accounting Policies The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The policies described below are followed consistently in the preparation of the financial statements. A. Valuation Governance and Oversight The Trustee and the Investment Manager assign valuation oversight responsibility to SSgA's regional valuation committees for the assigned products managed within each specific region. These regional valuation committees are generally comprised of senior officers from the compliance, credit, information technology, investment operations, portfolio management, risk management, and trading areas. These committees, or employees tasked with assisting the committees, perform a variety of functions including, but not limited to: Responding to circumstances that require fair valuation and determining the fair value of portfolio instruments for which market quotations are not readily available, including where available market quotations are deemed unreliable; Maintaining a list of all pricing services and sources and any applicable changes; Recommending and monitoring pricing services used, including evaluating the pricing methodologies these pricing services employ; Reviewing valuation challenges; Reviewing results of fair value determinations; and Maintaining valuation records. The regional valuation committees inquire of members of the investment team for input on an as-needed basis. SSgA s North America Valuation Committee is responsible for valuation oversight of the Fund. SSgA regularly performs various controls and procedures to assess the appropriateness of the valuation of portfolio investments and other financial instruments. These controls and procedures include, but are not limited to, reviewing for occurrences where market quotations are not readily available, validating stale priced holdings, comparing executed 13

15 Notes to Financial Statements trades to vendor prices, analyzing vendor-to-vendor valuation comparisons and reviewing market data and news to identify potential fair valuation considerations. These procedures and the results of these controls are reviewed periodically by SSgA s North America Valuation Committee. B. Security Valuation The investment valuation policy of the Fund is to value investments at fair value, which is generally defined as the price that could reasonably be expected to be realized from an orderly transaction to sell an asset or paid to transfer a liability between market participants. By its nature, a fair value price is a good faith estimate of the valuation in a current sale and may not reflect an actual market price. Investments and other portfolio instruments are generally valued using a market approach. Short-term investments (with a remaining maturity of 60 days or less at the time of purchase and not credit impaired), if any, are stated at amortized cost, which approximates fair value, and are classified within Level 2 of the fair value hierarchy. Investments in registered investment companies (other than those that are exchange traded) or collective investment funds, if any, are valued at their respective net asset value and are classified within Level 2 of the fair value hierarchy. With respect to underlying funds, equity investments for which market quotations are readily available are valued at the last reported sale price on their principal exchange, market or system on valuation date, or official close price for certain markets. If no sales are reported for that day, investments are valued at the last published sale price or at fair value as determined in good faith by the Trustee. In addition, the underlying funds invest in fixed income investments which are valued on the basis of valuations furnished by independent pricing services. These services determine valuations for normal institutional-size trading units of such securities using valuation models or matrix pricing, which incorporates yield and/or price with respect to bonds that are considered comparable in characteristics such as rating, interest rate and maturity date and quotations from securities dealers to determine current value. If these valuations are not readily available or deemed unreliable, the fair value will be determined in good faith by the Trustee. The Fund may invest, either directly or indirectly, in securities with contractual cash flows, such as mortgage and asset backed securities, collateralized mortgage obligations and commercial mortgage backed securities. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate values, changes in interest rates, delinquencies and/or defaults, and may be adversely affected by shifts in the market's perception of the issuers, including the issuers' creditworthiness. Early repayment of principal on some mortgage-related securities may expose the underlying fund to a lower rate of return upon reinvestment of principal. Fair Value Hierarchy The Fund values its assets and liabilities at fair value using a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements) when market prices are not readily available or reliable. The three levels of the hierarchy are described below: Level 1 Level 2 Level 3 Unadjusted quoted prices in active markets for identical assets or liabilities. Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in valuing a portfolio instrument. These may include quoted prices for similar investments, interest rates, foreign exchange rates, prepayment speeds, credit risk and others. Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Trustee's own assumptions about the factors market participants would use in valuing a portfolio instrument, and would be based on the best information available. 14

16 Notes to Financial Statements Changes in valuation techniques may result in transfers in or out of an investment's assigned level within the hierarchy. Transfers between fair value hierarchy levels are recognized at the end of the period. The following is a summary of the inputs used, as of, involving the Fund's assets and liabilities carried at fair value. The inputs or methodologies used for valuing investments and other financial instruments may not be an indication of the risk associated with investing in those securities. Level 1 Level 2 Level 3 Total Investments in securities, long - Assets Collective Investment Funds $ - $ 1,190,018,297 $ - $ 1,190,018,297 Please refer to the Schedule of Investments for additional information regarding composition of amounts listed above. C. Security Transactions and Investment Income Security transactions are accounted for as of the trade date. Realized gains and losses from investment transactions are determined using the average cost method. Distributions received from underlying funds, if any, are recorded on the exdividend date and retain the character of income as earned by the underlying funds. Dividend income, if any, is recorded on the ex-dividend date. Non-cash dividends, if any, are recorded at the fair value of the securities received. Interest income earned on securities, if any, is recorded on the accrual basis. Interest income includes accretion of discounts and amortization of premiums, if any. The underlying funds may retain investment income and net realized gains. Accordingly, realized and unrealized gains and losses reported by the Fund may include a component attributable to earnings of the underlying funds. Investment income and unrealized and realized gains or losses are allocated daily to each Class of the Fund based upon the relative proportion of net assets of each Class. D. Taxes It is the Fund's policy to comply with the requirements of Section 501(a) of the Internal Revenue Code relating to collective investment of employee benefit funds. Accordingly, the Fund is exempt from federal and state taxes and no federal or state tax provision is required. The Trustee has reviewed the Fund's tax positions for all open tax periods (current and prior tax periods) and has determined that no provision for income taxes is required in the Fund's financial statements. The Fund may have indirect exposure to deferred country-specific capital gains tax payable by the underlying funds. Such deferred country-specific capital gains tax payables, if any, are recorded by the underlying funds based upon the Trustee's interpretation of country-specific taxation of capital gains, which may be subject to change based upon changes in the Trustee's interpretation of country-specific taxation of capital gains or changes to country-specific tax regulations. E. Issuances and Redemptions of Units of Participation The per unit net asset value of each Class is determined each business day. Issuances and redemptions of Class units may be made on such days, based upon the net asset value per unit as of the Class' valuation date last preceding the date on which such order to contribute or redeem assets is received. The Trustee, in its sole discretion, reserves the right to value any contribution or redemption as of the next succeeding valuation date or another date as the Trustee deems appropriate. The issuance and redemption terms of the Fund are consistent with those of the underlying funds. Additional terms of participation are detailed in the Trust and the Fund s other governing documents. Such terms may be implemented pursuant to the Trustee's prudent determination. 15

17 Notes to Financial Statements F. Expenses Under the Trust, the Fund may pay certain expenses for services received. Each Class is charged its allocable share of the fees and expenses borne by the Fund that are not specifically allocated to one or more of the Classes. The Fund indirectly bears the expenses incurred by the underlying funds, if any. The Investment Manager charges a management fee to the Classes at the following rate of average daily net asset value: Class Rate (%) Management Fees Class C 0.14 $ 364,179 Class D ,827 Class K ,243 Class M ,699 Total Management Fees $ 593,948 Class A is not charged a direct management fee. SSgA receives investment fees from the Class participants and therefore, the Class makes no payments for these services. The Trustee charges an annual administration fee of $25,000 to each Class. This administration fee relates to the provision of bookkeeping and accounting services, shareholder servicing, transfer agency and other services that the Trustee may from time to time consider necessary or appropriate. During the period ended, the following amounts were incurred by each Class: Class Administration Fees Class A $ 25,000 Class C 25,000 Class D 25,000 Class K 25,000 Class M 18,766 Total Administration Fees $ 118,766 The following Classes are charged an administrative service fee, as a percentage of average daily net assets, which compensates third parties or intermediaries for services including, but not limited to, record keeping, asset servicing, subaccounting and communication services: Class Rate (%) Administrative Service Fees Class D 0.25 $ 47,905 Total Administrative Service Fees $ 47,905 16

18 Notes to Financial Statements During the period ended, certain direct and/or indirect expenses incurred by the Fund were contractually or voluntarily waived and/or reimbursed by the Trustee: Total Annual Operating Expense Ratio (%) Waivers and/or Reimbursements Class Class D 0.42 $ 23,061 Class K ,232 Total Waivers and Reimbursements $ 32,293 Please refer to the Additional Expense Information footnote for further disclosures regarding expenses. G. Treatment of Net Investment Income and Net Realized Gains Net investment income and net realized gains are retained by the Fund. 3. Concentration of Ownership The following information illustrates concentration of ownership of holders owning units in excess of 10% of total units outstanding as well as units owned by other State Street Bank Collective Investment Funds. 10% or Greater Participants % of Units Outstanding held by other # of Participants % of Units held State Street Bank Collective Investment Funds Class A 2 52% - % Class C 3 48% - % Class D 4 89% - % Class K 4 84% - % Class M 1 100% - % 4. Risks and Uncertainties A. Market and Credit Risk In the normal course of business, primarily via its investments in underlying funds, the Fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the counterparty to the transaction to perform (credit risk). The Fund may be exposed to additional credit risk that an institution or other entity with which the Fund has unsettled or open transactions will default. Additionally, if a counterparty is in bankruptcy, reorganization proceedings, becomes insolvent or otherwise fails to perform its obligations, the Fund may experience significant delays in obtaining any recovery. B. Underlying Funds As this Fund may make investments in underlying funds, participants should consider the methods used to value the underlying funds' investments. C. Emerging Markets As some of the underlying funds invest in markets which are developing, their investments in securities may involve greater risks than investments in more developed markets and the prices of such investments may be volatile. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of the investments and the income they generate, as well as the ability to repatriate such amounts. 17

19 Notes to Financial Statements D. Derivative Contracts The underlying funds use of derivative instruments involves risks different from, and possibly greater than, the risks associated with investing directly in securities and other more traditional investments. Derivatives are instruments whose values are derived from underlying assets, indices, reference rates or a combination of these factors. Derivatives are subject to a number of risks, such as potential changes in value in response to interest rate changes, other market developments or as a result of changes in credit quality of the underlying funds counterparty to the derivative transaction. Over the counter ( OTC ) derivatives usually do not have publicly available price sources and therefore there may be differences between bespoke valuation offers by dealers. Furthermore, there are risks that changes in the value of a derivative may not correlate as anticipated with respect to the change in the value of the asset, rate, or index underlying the derivative. Derivative transactions can create investment leverage and may be highly volatile. Use of derivatives other than for hedging purposes may be considered speculative. When the underlying funds invest in a derivative instrument, the future exposure is potentially unlimited. The value of a derivative instrument will depend on the ability and the willingness of the underlying funds derivative counterparty to perform its obligations under the transaction. A liquid secondary market may not always exist for the underlying funds' derivative positions at any time and may impact the underlying funds ability to establish the fair market value of a derivative transaction and close out derivative positions. Although the use of derivatives is intended to complement the underlying funds performance, it may instead reduce returns and increase volatility. The measurement of the risks associated with derivative instruments is meaningful only when all related and offsetting transactions are considered. The underlying funds must set aside liquid assets or engage in other appropriate measures to cover its obligations under these derivative instruments. Regulations recently adopted or proposed by regulators in the U.S. and other countries may substantially affect the markets in which derivatives are traded, including requiring central clearing and reporting of transactions that may not have been previously required to be reported or cleared. These regulations may require, among other things, that the underlying funds post greater amounts of collateral or margin than the amounts currently posted by the underlying funds on a bilateral basis with its derivatives counterparties or with derivatives clearing organizations. In addition, the regulations may make certain types of derivatives uneconomical or unavailable to the underlying funds, and they may substantially reduce the liquidity of some derivatives. The full extent of the new regulations and their effects on the derivatives markets are not known at this time. The underlying funds value derivatives at fair value and recognize changes in fair value currently in their results of operations. Accordingly, the underlying funds do not follow hedge accounting, even for derivatives employed as economic hedges. Derivative instruments outstanding at period end, if any, are disclosed in the underlying funds' Schedule of Investments. Swap Contracts The underlying funds may invest in total return, interest rate or credit default swap contracts. Entering into a swap contract involves, to varying degrees, elements of credit, market and interest rate risk in excess of the amounts reported in the underlying funds Statement of Assets and Liabilities. Notional principal amounts are used to express the extent of involvement in the transactions, but are not delivered under the contracts. Accordingly, credit risk is limited to any amounts receivable from the counterparty. To reduce credit risk from potential counterparty default, the underlying funds enter into swap contracts with counterparties whose creditworthiness has been approved by the Trustee. The underlying funds bear the market risk arising from any change in index or security values or interest rates. The underlying funds' International Swap and Derivatives Association Master Agreements (Master Agreements), which are separately negotiated with each counterparty, may contain provisions allowing, absent other considerations, a counterparty to exercise rights, to the extent not otherwise waived, against the underlying funds in the event the underlying funds' net assets decline over a period of time by a predetermined percentage or decrease below a predetermined floor amount. The Master Agreements also contain certain provisions, absent other conditions, for the underlying funds to exercise rights, to the extent not otherwise waived, against counterparties, such as a decline in a counterparty s credit rating below a specified level. Such rights for both the counterparty and the underlying funds often include the ability to terminate (i.e., close out) open contracts at prices which may favor the counterparty, which could 18

20 Notes to Financial Statements have an adverse effect to the underlying funds. The Master Agreements with certain counterparties allow the underlying funds and counterparty to offset certain derivative instruments receivables or payables with collateral posted to a segregated custody account. Futures Contracts The underlying funds may use futures contracts to manage exposure to the market. Futures contracts involve, to varying degrees, credit and market risks. The underlying funds enter into futures contracts only on exchanges or boards of trade where the exchange or board of trade acts as the counterparty to the transaction. Thus, credit risk on such transactions is limited to the failure of the exchange or board of trade. Losses in value may arise from changes in the value of the underlying instruments or if there is an illiquid secondary market for the contracts. In addition, there is the risk that there may not be an exact correlation between a futures contract and the underlying instrument. Forward Foreign Currency Contracts The underlying funds may use forward foreign currency contracts to facilitate transactions in foreign securities, to gain exposure to foreign currency or as a hedge against the foreign currency exposure of either specific transactions or portfolio positions. When entering into a forward foreign currency contract, the underlying funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed-upon future date. Such contracts are valued based upon the difference in the forward exchange rates at the dates of entry into the contracts and the forward rates at the reporting date. Most forward foreign currency contract transactions are entered into OTC. The Fund assumes the risk of unfavorable or unanticipated changes in the values of the currencies underlying the transactions. OTC currency transactions are typically uncollateralized, and the Fund may not be able to recover all or any of its loss on such transactions if the counterparty should default. Many types of currency transactions are expected to continue to be traded OTC even after implementation of the clearing requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act. E. Delayed Delivery Commitments The underlying funds may purchase or sell securities on a delayed delivery, when issued, or a forward commitment basis. Payment and delivery may take place one month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The underlying securities are valued at current fair value with daily fluctuations in the fair value recorded as unrealized gains or losses. Losses may arise due to changes in the fair value of the underlying securities, if the counterparty does not perform under contract or if the issuer does not issue the securities due to political, economic or other factors. F. Commodities The underlying funds may invest in commodity markets. Commodity prices may be volatile and are affected by a wide range of factors, including changes in overall market movements, real or perceived inflationary trends, commodity index volatility, changes in interest rates or foreign currency exchange rates, population growth and changing demographics, international economic, political and regulatory developments and developments affecting a particular region, industry or commodity, such as droughts, floods or other weather conditions, livestock disease, trade embargoes, competition from substitute products, transportation bottlenecks or shortages, fluctuations in supply and demand and tariffs. G. Real Estate Investment Trusts (REITs) Because the underlying funds may invest substantially all or a portion of their assets in REITs, the underlying funds may be subject to certain risks associated with direct investment in REITs. REITs may be affected by changes in the value of their underlying properties and by defaults by borrowers or tenants as well as other risks similar to those associated with direct ownership in real estate, including losses from casualty or condemnation and changes in local and general economic conditions, supply and demand, interest rates, zoning laws, regulatory limitations on rents, property taxes and operating expenses. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in financing limited number of projects. REITs depend generally on their 19

21 Notes to Financial Statements ability to generate cash flow to make distributions to shareholders, and certain REITs have self-liquidation provisions by which mortgages held may be paid in full and distributions of capital returns may be made at any time. 5. Indemnifications In the normal course of business, the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Trustee expects the risk of loss to be remote. 6. Recent Accounting Pronouncements In August 2014, the Financial Accounting Standards Board ( FASB ) issued an amendment to U.S. GAAP which clarifies that management would be responsible for evaluating and disclosing conditions or events that raise substantial doubt about an entity s ability to continue as a going concern. The amendment is effective for the Fund on January 1, The Trustee does not anticipate that the adoption of the amendment will have a material impact on the Fund s financial statements. In June 2014, the FASB issued an amendment to U.S. GAAP that expands secured borrowing accounting and introduces new disclosures for certain repurchase agreements and similar transactions. The amendment is effective for the Fund on January 1, The Trustee does not anticipate that the adoption of the amendment will have a material impact on the Fund s financial statements. In June 2013, the FASB issued an amendment to U.S. GAAP which sets forth a new approach for determining whether an entity is an investment company. The amendment clarifies the characteristics and sets certain measurement and disclosure requirements for an investment company. The adoption of the amendment on January 1, 2014 did not impact the Fund s financial statements. 7. Other SSgA is involved in various industry-related and other regulatory, governmental and law enforcement inquiries and subpoenas. The Trustee has reviewed these matters in connection with these financial statements. Based upon that review, the Trustee has determined that no accrual or loss contingency is required on the Fund's financial statements. 8. Subsequent Events The Trustee has evaluated subsequent events after through April 10, 2015, the date the financial statements were available to be issued, and has concluded that there is no impact requiring adjustment or disclosure in the financial statements, except for: Effective January 1, 2015, Class K will have a Total Annual Operating Expense Ratio equal to 0.12% of the Class' average daily net asset value. Effective January 1, 2015, Class M will have a Total Annual Operating Expense Ratio equal to 0.08% of the Class' average daily net asset value. 20

22 Notes to Financial Statements 9. Additional Expense Information During the period ended, the Fund incurred expenses directly for certain services received and indirectly through its investments in underlying funds, if any. As applicable, the Trustee contractually or voluntarily waived and/or reimbursed the Classes to the extent the total annual gross operating expenses, as a percentage of average daily net assets, exceeded the total annual operating expense ratio. In certain instances, the waivers and/or reimbursements from the Trustee to the Class may exceed the Class' total direct expenses incurred. Ratios of expense classifications as a % of average daily net assets TAOER DE IE TAGOE W/R TANOE Class A Class C Class D (0.12) 0.42 Class K (0.01) 0.12 Class M * * The ratios for Class M are annualized, as the Class commenced operations on April 1, Total Annual Operating Expense Ratio ("TAOER") Direct Expenses ("DE") Indirect Expenses ("IE") Total Annual Gross Operating Expense ("TAGOE") Waivers and/or Reimbursements ("W/R") Total Annual Net Operating Expense ("TANOE") Limitation on the total direct and indirect expenses the Fund may incur, as set forth in the Fund s governing documents. Fees and expenses directly incurred by the Fund which may include administration, audit, legal and management fees, if any. Proportionate amount of fees and expenses indirectly incurred by the Fund as a result of its investment in underlying funds which may include administration, audit and legal fees, if any. Total direct and indirect expenses incurred, prior to the application of any waivers and/or reimbursements, if any. Amounts waived and/or reimbursed by the Trustee to the extent the total direct and indirect expenses of the Fund exceeded the total annual operating expense ratio, as described in the Fund s governing documents. Total direct and indirect expenses incurred, net of waivers and/or reimbursements, if any. The total annual net operating expense ratio presented above may not correlate to the Class' ratio of expenses to average daily net assets as presented in the Financial Highlights, as the ratio of expenses presented in the Financial Highlights does not reflect indirect expenses and is not annualized. 1 Zero amounts represent those which are less than 0.005% or (0.005%) if negative. 21