Communication Services Select Sector SPDR Fund (XLC) and Select Sector SPDR Fund Rebalancing - SPDR ETFs

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Communication Services Select
Sector SPDR® Fund (XLC) and
Select Sector SPDR Fund Rebalancing
Frequently Asked Questions

S&P Dow Jones Indices and MSCI announced major changes           GICS Structure Change and Effects on Select
to the Global Industry Classification Standard (GICS®)           Sector SPDR Funds
structure following their annual review in 2017. Effective
at the close of business on September 21, 2018, the              1. Why rebalance the exposures?
Telecommunication Services sector will be expanded                  Given that three funds are affected, we will make the
to include selected companies from the Information                  transition a rebalancing of the exposures.
Technology and Consumer Discretionary sectors and
                                                                   Through rebalancing, we will leverage our capabilities as
renamed Communication Services. In addition, online
                                                                   the third largest asset manager in the world: steward of
marketplaces for consumer products and services will
                                                                   $2.72 trillion in assets,1 more than 25 years of managing
be moved from the Information Technology sector to
                                                                   ETFs and an experienced global trading desk that
the Consumer Discretionary sector.
                                                                   executed trades for over $400 billion in global equities
As a result, S&P Dow Jones Indices launched the                    last year.2 We seek to:
Communication Services Select Sector Index on April
                                                                   • Mitigate costs and tracking error on the funds, as well
30, 2018. The Technology and Consumer Discretionary
                                                                     as minimize market disruption.
Select Sector Indices will also be impacted by the GICS
structure changes, resulting in select companies being             • Offer shareholders the solutions necessary to obtain
reclassified at the close of business on September 21, 2018.         exposure to the full GICS landscape.
See Figure 1 for the areas affected by the GICS sector             • Allow investors full control over their own
changes, as well as Appendix A for information on the                sector rebalancing.
specific securities moving.
                                                                 2. W hy are S&P Dow Jones Indices and MSCI changing
As a leading provider and innovator of sector-based                  the GICS Structure?
solutions, State Street Global Advisors launched the
                                                                   The Telecommunication Services sector is changing as
Communication Services Select Sector SPDR Fund (XLC)
                                                                   people have moved away from land lines towards the
on June 19, 2018 to provide full coverage of S&P 500® sectors
                                                                   internet and new media to communicate, connect and
aligned with the new GICS structure. Additionally, in
                                                                   access information. Adapting to the industry changes,
accordance with the constituent changes for the existing
                                                                   telecommunication companies are diversifying into
Information Technology and Consumer Discretionary
                                                                   internet services, cable, media content and other areas.
sectors, State Street Global Advisors will perform a standard
                                                                   After consulting with members of the investment
rebalance of the Technology Select Sector SPDR Fund (XLK)
                                                                   community last year, S&P Dow Jones Indices and MSCI
and the Consumer Discretionary Select Sector SPDR Fund
                                                                   decided to broaden the sector definition and rename as
(XLY) to reflect the underlying index changes effective at the
                                                                   the Communication Services Sector to reflect the evolving
close of business on September 21, 2018.
                                                                   sector landscape.
Communication Services Select Sector SPDR® Fund (XLC) and Select Sector SPDR Fund Rebalancing
Frequently Asked Questions

Figure 1: GICS Changes Illustration

                                                             Telecommunication
                                                                  Services

                                                             Telecommunication
                                                                    Services
                                                                Industry Group
                                                             (e.g., AT&T, Verizon)

                  Information                                  Communication                               Consumer
                  Technology                                     Services                                 Discretionary

          Interactive Media &                                                                                Media
          Services Companies                                                                      (e.g., Comcast, News Corp.,
       (e.g., Alphabet, Facebook)                                                                     Omnicom, CBS Corp.)

            Interactive Home                                                                        Movie & Entertainment
        Entertainment Companies                                Entertainment                               Companies
              (e.g., Activision)                                                                   (e.g., Netflix, Walt Disney)

          Online Marketplaces
               (e.g., eBay)

Source: State Street Global Advisors, as of July 31, 2018.

3. How would the Technology and Consumer                                 5. W hat does the new Communication Services Sector
    Discretionary Select Sectors have historically                            look like now, and what would it have looked like
    looked and performed based on the new                                     under these classification rules?
    stock classifications?                                                  The composition of the new sector reflects a growth
  We worked with S&P Global to create a data package                        oriented exposure with 61% of constituents classified as
  showing historical performance and constituent data.                      “growth” stocks by Morningstar4 as well as the weighted
  Please reach out to your SPDR Sales Representative                        average historical earnings growth rates being higher
  or call 866.787.2257 for more detailed information.                       than the broader market.5
4. W hat will the Technology and Consumer                                  For historical information we worked with S&P Global to
    Discretionary Select Sectors look like after                            create a data package showing historical performance and
    the rebalance?                                                          constituent data. Please reach out to your SPDR Sales
  The changes will not completely remove growth exposure                    Representative or call 866.787.2257 for more
  from the Technology and Consumer Discretionary Select                     detailed information.
  Sectors, as they will still have a higher allocation to
  growth stocks than the broader market post rebalancing.3
  Please reach out to your SPDR Sales Representative or call
  866.787.2257 for more detailed information.

State Street Global Advisors                                                                                                           2
Communication Services Select Sector SPDR® Fund (XLC) and Select Sector SPDR Fund Rebalancing
Frequently Asked Questions

6. W hat information is available for investors to                  Consensus Long-Term Growth (LTG) expectations of
    understand the impact of the changes on the                      stocks in Communication Services are the third highest
    sector landscape?                                                in new sector landscape and above the broader market.6
  We have published materials including an infographic,              If investors do hold XLK and XLY, to align sector
  blog posts, and an in-depth research article, “GICS                exposures to the S&P 500 sector market cap weight after
  Sector Structure Changes: What Do They Mean                        the GICS structure changes, they may need to reduce
  for Investors,” to explore the potential impact on                 their positions by around 25% and 22% respectively
  sector fundamentals and sector investing. It is all                and use the proceeds to add the Communication
  available on spdrs.com. If you have further questions              Services sector. Failing to rebalance the portfolio will
  about the upcoming GICS sector changes and its impact              result in active industry risks and stock specific risks
  on sector investing, please reach out to your SPDR                 by overweighting stocks staying in the Tech (e.g. Apple
  Sales Representative or call 866.787.2257 for more                 and Microsoft) and Cons. Disc. (e.g. Home Depot and
  detailed information.                                              McDonald’s) while having no exposures to stocks that
7. How will these changes impact the Select Sector                  are moving to Communication Services.(e.g. Facebook
    SPDR® Fund suite?                                                and Google).
   To keep the Select Sector SPDR suite aligned with the new      10. How will the GICS structure changes impact the
   GICS structure, we launched the Communication Services              SPDR Industry ETF lineup?
   Select Sector SPDR Fund (XLC) on June 19, 2018. XLC                Based on the most current information available, the
   seeks to provide an effective representation of the                SPDR S&P Software & Services ETF (XSW), the SPDR
   Communication Services sector of the S&P 500 Index                 S&P Internet ETF (XWEB) and the SPDR Retail ETF
   by tracking the new Communication Services Select                  (XRT) will undergo a standard rebalance when their
   Sector Index.                                                      respective index (the S&P Software & Services Select
  The existing Technology Select Sector SPDR Fund (XLK)               Industry Index, the S&P Internet Select Industry Index
  and the Consumer Discretionary Select Sector SPDR                   and the S&P Retail Select Industry Index) changes take
  Fund (XLY) will continue following their respective                 place at the close of business on September 21, 2018. We
  indices, which will reflect the announced security                  are not expecting any changes to the index constituents
  reclassifications by S&P Dow Jones Indices and MSCI                 of the benchmark of the SPDR Telecom ETF (XTL),
  after the rebalancing occurs.                                       but existing Telecom names will be reclassified as
                                                                      Communication Services at the sector level
8. W hy did you launch XLC before the effective date                 after September 21, 2018.
    of the new Communication Services GICS Sector?
  Introducing XLC in June has provided investors with                Please reach out to your SPDR Sales Representative
  access to the Communication Services sector, helping               or call 866.787.2257 for more detailed information.
  them prepare for the upcoming GICS changes through the          11. W hy not convert the SPDR S&P Telecom
  ability to perform due diligence on the fund, investment             ETF (XTL)?
  objective and established trading history prior to the               XTL tracks the S&P Telecom Select Industry Index
  realignment in September 2018.                                       comprised of telecommunications companies within
9. W hat are potential implications for investors’                    the S&P TMI universe, covering mid and small-cap
    sector portfolios after the changes effective on                   securities and providing little overlap with the new
    September 21, 2018?                                                large cap Communication Services sector.
   If investors do not hold technology or consumer                12. What is the expense ratio of XLC?
   discretionary positions and are looking to add a growth-           The expense ratio of XLC is capped so as not to
   oriented allocation to portfolios, XLC may be a useful             exceed 0.1345% to align with the gross expense
   position to add to portfolios. As shown in Appendix A,             ratio of all other Select Sector SPDR Funds.
   some of the securities involved in this reclassification are
   well-known firms with lines of business fueling secular
   shifts towards a more inter-connected world through
   innovative technological advancements, ultimately
   providing future growth opportunities.

State Street Global Advisors                                                                                                     3
Communication Services Select Sector SPDR® Fund (XLC) and Select Sector SPDR Fund Rebalancing
Frequently Asked Questions

Select Sector SPDR Rebalance and                                 4. Rather than rebalancing when the reclassifications
                                                                     became effective, why didn’t you seek to track
Impact Information
                                                                     transition indices over a period of months?
1. How will the fund manager effect the rebalance of               Seeking to track transition indices that periodically
    XLK and XLY?                                                    rebalance would result in our Information Technology
   XLK and XLY are expected to rebalance their respective           and Consumer Discretionary Select Sector Funds not
   portfolios on or around September 21, 2018, leveraging           adhering to any current GICS classification. This would
   State Street Global Advisors’ equity execution expertise         create misweights to systemically important names,
   and more than 25 years of experience managing ETFs,              creating potential tracking error for investors seeking
   aiming to minimize transaction costs, tracking error             to manage pure sector exposures.
   and market impact.
                                                                   For example, tracking error could be caused by selling a
2. W hat is the expected tax impact?                              stock like Netflix, the third largest holding in the current
  The rebalance is not expected to result in capital gain          Consumer Discretionary sector and the best performing
  distributions to existing shareholders of the fund.              stock in the S&P 500 in 2018, before the exposure change.7
  Although unlikely, if there are any resulting capital gain
                                                                   By rebalancing on a single date we are seeking to
  distribution requirements, estimates will be provided in
                                                                   mitigate costs where possible, and tracking error is
  early November.
                                                                   a cost to investors, while providing precise sector
3. W hy didn’t you distribute XLC through a special               exposures through and beyond the transition.
    distribution of XLK and XLY similar to the XLF
                                                                 5. How will the rebalance affect Net Asset Value,
    distribution of XLRE?
                                                                     total net assets, or shares outstanding of XLK,
  The constituents of the new index, which XLC seeks to              XLY, and XLC?
  track, draw from both XLK and XLY. A distribution from
                                                                   We do not anticipate any operational impact to Net Asset
  multiple funds would result in complex transactions,
                                                                   Value, total net assets, or shares outstanding of these
  potentially leading to uncertainty in fund exposure as
                                                                   three funds as a result of the rebalance.
  well as confusion about fund pricing and tracking error
  for market participants and clients.                           6. What is the expected turnover of XLY and XLK?
  Additionally, if shareholders of XLK were to receive a            The expected one-way turnover of XLY and XLK is
  distribution of XLC, the weighted composition of XLC              estimated to be around 23% and 27%, respectively.
  could differ materially from the client’s existing holdings,     We will continue to provide information with respect
  causing an unintended exposure (e.g., they would have            to share amounts and taxation once available. Please
  exposure to legacy Consumer Discretionary stocks where           reach out to your SPDR Sales Representative or call
  previously they did not). Ultimately, rebalancing XLK            866.787.2257 for more detailed information.
  and XLY independently allows shareholders to have
  full control of their desired exposure and any potential
  tax consequences.

State Street Global Advisors                                                                                                  4
Communication Services Select Sector SPDR® Fund (XLC) and Select Sector SPDR Fund Rebalancing
Frequently Asked Questions

Appendix A: List of Impacted Constituents of Consumer Discretionary Select
Sector and Technology Select Sector Indices

                                                                           Weight in the Current
                                                                         Select Sector Index (%)
Ticker               Name                                                        as of 07/31/2018    Current Industry Group       Current Sub-Industry

From Consumer Discretionary Select Sector Index to Communication Services Select Sector Index

OMC                  Omnicom Group Inc                                                      0.52     Media                        Advertising
IPG                  Interpublic Group of Cos Inc/The                                       0.29     Media                        Advertising
CBS                  CBS Corp                                                               0.59     Media                        Broadcasting
DISCK                Discovery Communications Inc — Class C                                 0.28     Media                        Broadcasting
DISCA                Discovery Communications Inc — Class A                                 0.14     Media                        Broadcasting
CMCSA                Comcast Corp                                                           5.43     Media                        Cable & Satellite
CHTR                 Charter Communications Inc                                             1.86     Media                        Cable & Satellite
DISH                 DISH Network Corp                                                      0.24     Media                        Cable & Satellite
DIS                  Walt Disney Co/The                                                     5.58     Media                        Movies & Entertainment
FOXA                 Twenty-First Century Fox Inc — Class A                                 1.57     Media                        Movies & Entertainment
FOX                  Twenty-First Century Fox Inc — Class B                                 0.64     Media                        Movies & Entertainment
VIAB                 Viacom Inc                                                             0.34     Media                        Movies & Entertainment
NWSA                 News Corp — Class A                                                    0.19     Media                        Publishing
NWS                  News Corp — Class B                                                    0.06     Media                        Publishing
NFLX                 Netflix Inc                                                            4.85     Retailing                    Internet & Direct Marketing Retail
TRIP                 TripAdvisor Inc                                                        0.21     Retailing                    Internet & Direct Marketing Retail
                     Total Weight                                                          22.77
                     Total Number of Securities                                               16

From Technology Select Sector Index to Communication Services Select Sector Index

ATVI                 Activision Blizzard Inc                                                0.85     Software & Services          Home Entertainment Software
EA                   Electronic Arts Inc                                                    0.60     Software & Services          Home Entertainment Software
TTWO                 TAKE-TWO INTERACTIVE SOFTWRE                                           0.20     Software & Services          Home Entertainment Software
FB                   Facebook Inc                                                           6.31     Software & Services          Internet Software & Services
GOOG                 Alphabet Inc — Class C                                                 5.63     Software & Services          Internet Software & Services
GOOGL                Alphabet Inc — Class A                                                 5.58     Software & Services          Internet Software & Services
TWTR                 Twitter Inc                                                            0.32     Software & Services          Internet Software & Services
VZ                   VERIZON COMMUNICATIONS INC                                             3.25     Telecommunication Services   Telecommunication Services
T                    AT&T INC                                                               3.54     Telecommunication Services   Telecommunication Services
CTL                  CENTURYLINK INC                                                        0.28     Telecommunication Services   Telecommunication Services
                     Total Weight                                                          26.56
                     Total Number of Securities                                               10

From Technology Select Sector Index to Consumer Discretionary Select Sector Index

EBAY                 eBay Inc                                                               0.47    Software & Services           Internet Software & Services

Source: S&P Dow Jones Indices, as of 07/31/2018.

State Street Global Advisors                                                                                                                                           5
Communication Services Select Sector SPDR® Fund (XLC) and Select Sector SPDR Fund Rebalancing
Frequently Asked Questions

1
  Source: State Street Global Advisors, 06/30/2018.                                       Glossary
2
  Source: State Street Global Advisors, as of 12/31/2017.                                 GICS, or Global Industry Classification Standard A financial-industry guide for
3
  Source: Morningstar, as of 07/31/2018.                                                  classifying industries that is used by investors around the world.
4
  Source: Morningstar, as of 07/31/2018.                                                  S&P 500 Index A popular benchmark for U.S. large-cap equities that includes 500
5
  Source: FactSet, as of 07/31/2018.                                                      companies from leading industries and captures approximately 80% coverage of
6
  Source: FactSet, as of 05/31/2018                                                       available market capitalization.
7
  Source: Bloomberg Finance L.P., as of 09/05/2018.

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State Street Global Advisors One Iron Street, Boston MA 02210.                            Non-diversified funds that focus on a relatively small number of securities tend to
T: +1 866 787 2257.                                                                       be more volatile than diversified funds and the market as a whole.
Important Risk Information                                                                While the shares of ETFs are tradable on secondary markets, they may not readily
The information provided does not constitute investment advice and it should not          trade in all market conditions and may trade at significant discounts in periods of
be relied on as such. It should not be considered a solicitation to buy or an offer to    market stress.
sell a security. It does not take into account any investor’s particular investment       Because of their narrow focus, sector funds tend to be more volatile than funds that
objectives, strategies, tax status or investment horizon. You should consult your         diversify across many sectors and companies.
tax and financial advisor.                                                                Intellectual Property Information:
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contained herein.                                                                         they have any liability in relation thereto, including for any errors, omissions, or
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applicable index.                                                                         Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA,
Although ETF shares may be bought and sold on the exchange through any brokerage          SIPC, an indirect wholly owned subsidiary of State Street Corporation. References
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acquire ETFs and tender them for redemption through the Fund in Creation Unit             Street affiliates provide services and receive fees from the SPDR ETFs.
Aggregations only. Please see the prospectus for more details.                            ALPS Portfolio Solutions Distributor, Inc. is distributor for Select Sector SPDRs. ALPS
Select Sector SPDR Funds bear a higher level of risk than more broadly                    Portfolio Solutions Distributor, Inc. is not affiliated with State Street Global Advisors
diversified funds.                                                                        Funds Distributors, LLC.
Equity securities may fluctuate in value in response to the activities of individual      Before investing, consider the funds’ investment objectives,
companies and general market and economic conditions.                                     risks, charges and expenses. To obtain a prospectus or summary
                                                                                          prospectus which contains this and other information, call
                                                                                          866.787.2257 or visit spdrs.com. Read it carefully.

                                                                                                                       © 2018 State Street Corporation. All Rights Reserved.
State Street Global Advisors                                                                            ID14204-2146554.2.1.NA.RTL 0918 Exp. Date: 08/31/2019 SSL000958
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