What You Need to Know About the GICS Sector Changes and XLF

SPDR SPOTLIGHT What You Need to Know About the GICS Sector Changes and XLF by David B. Mazza, Head of Research, Matthew Bartolini, CFA, Research Strategist, and Jared Rowley, CFA, Research Strategist, SPDR ETFs and SSGA Funds October 2015 Introducing the Financial Services Select Sector SPDR Fund (XLFS) and Real Estate Select Sector SPDR Fund (XLRE). Key Takeaways S&P Dow Jones Indices has launched two new sector indices that break out financial services companies and real estate firms from within the existing S&P Financials Select Sector Index. We have launched the Financial Services Select Sector SPDR Fund (XLFS) and Real Estate Select Sector SPDR Fund (XLRE) to help clients prepare for the upcoming GICS sector changes in August 2016. The existing Financial Select Sector SPDR Fund (XLF), which provides the most liquid exposure 1 to the broader financial sector, will not be impacted by the change. Both real estate and financials will continue to be covered in XLF and remain an option for investors looking for broad-based exposure to financials. Splitting the Financial Sector: What s Happening In August 2015, S&P Dow Jones Indices (S&P DJI) launched the S&P Real Estate Select Sector Index and S&P Financial Services Select Sector Index. The move came after an annual review of the Global Industry Classification Standard (GICS ) in 2014. By splitting the broader financial sector into financial services and real estate, the total number of GICS sectors will increase from 10 to 11. These changes are being implemented at the end of August 2016. However, we have launched the Financial Services Select Sector SPDR Fund (XLFS) and the Real Estate Select Sector SPDR Fund (XLRE) to give investors an early start to manage the transition and perform the necessary due diligence, particularly if they adhere to a strict GICS sector benchmark policy within their asset allocation strategies. Essentially, real estate is being elevated from an industry to form a new stand-alone sector within the GICS classification hierarchy. With this change, there will now be a financial services and a separate real estate sector. Prior to this change, both market segments were captured broadly in benchmarks such as the S&P Financials Select Sector Index, which was launched in 1996 and will remain intact and unadjusted as the index for the current Financial Select Sector SPDR Fund (XLF). What is GICS? The Global Industry Classification Standard was created by MSCI and Standard & Poor s in 1999 and is a four-tired, hierarchical classification system. GICS allows investors to identify and analyze a customized group of companies using a common global standard. Hierarchy 11* Sectors 24 Industry Groups 67 Industries 156 Sub-Industries Sources: spindices.com, msci.com, as of August 31, 2015. *The total number of GICS sectors will increase to 11 on August 31, 2016.

Figure 1: Financials Splitting into Two New GICS Sector Indices BROAD S&P FINANCIALS SELECT SECTOR 88 Stocks XLF Index NEW SECTOR S&P REAL ESTATE SELECT SECTOR 25 Stocks XLRE Index NEW SECTOR S&P FINANCIAL SERVICES SELECT SECTOR 63 Stocks XLFS Index Source: spindices.com, index holdings data as of August 31, 2015. A New Real Estate Sector Index and ETF Under the GICS methodology, real estate companies had existed as an industry within the broader financials sector. However, S&P DJI and MSCI the index providers who jointly maintain the GICS methodology decided to create a standalone real estate sector. The rationale was that investors were increasingly viewing real estate as its own distinct asset class, rather than a sub-industry within the wider financial sector. In other words, GICS determined real estate companies have significant differences from other traditional financial services firms and therefore justify their own unique sector. Figure 2: The Select Sector SPDR ETF Family In terms of market capitalization, the 25 real estate companies represent approximately 16 percent of the S&P Financials Select Sector Index, the benchmark for XLF. 2 The ongoing specialization of real estate companies and their ensuing performance after the financial crisis were key drivers behind the decision to elevate them to their own sector. Real estate is also the least correlated group within the financial sector when compared to other industry groups, such as banks, diversified financials and insurance. 3 In terms of holdings, the S&P Real Estate Select Sector Index will include real estate investment trusts (REITs) 4 as well as real estate management and development companies. The Other New GICS Sector and ETF: Financial Services Aside from elevating real estate as a new GICS sector, S&P DJI has also created a new sector index for financial services firms. This new benchmark contains all the stocks in the existing broad financial sector and found in XLF minus the firms that are now in the new real estate index. This new financial services index will include diversified financial services, mortgage REITs, consumer finance and capital market firms such as asset managers, custody banks, investment banks and brokerage firms. Much like the existing nine Select Sector SPDR ETFs, the newly minted Real Estate Select Sector SPDR Fund (XLRE) and Financial Services Select Sector SPDR Fund (XLFS) will seek to provide efficient beta exposure to their respective GICS sector. XLRE XLV XLE XLB XLI Source: State Street Global Advisors, as of September 30, 2015. XLF XLFS XLK XLP XLY XLU What are the S&P Select Sector and Select Industry Indices? The S&P Select Sector Indices break up companies in the S&P 500 into various sectors such as financials, energy, industrials and health care. They are weighted by market cap. The S&P Select Industry Indices are designed to measure the performance of narrower GICS industries within broader sectors and are based on the S&P Total Market Index, which has 3,886 constituents.* These industry indices are equal weighted, which reduces stock specific risk and provides deeper market cap segmentation to large-, mid-, and small-cap firms. *spindices.com, as of August 31, 2015. State Street Global Advisors 2

Figure 3: Holdings Information of the S&P Financials, Financial Services and Real Estate Select Sector Indices S&P Financials Select Sector Index S&P Financial Services Select Sector Index S&P Real Estate Select Sector Index Number of Firms 88 63 25 Top 10 Holdings Source: spindices, as of August 31, 2015. Wells Fargo & Co Berkshire Hathaway B JP Morgan Chase & Co Bank of America Corp Citigroup Inc American Intl Group Inc Goldman Sachs Group Inc US Bancorp American Express Co Metlife Inc Wells Fargo & Co Berkshire Hathaway B JP Morgan Chase & Co Bank of America Corp Citigroup Inc American Intl Group Inc Goldman Sachs Group Inc US Bancorp American Express Co Metlife Inc Simon Property Group Inc American Tower Corp Public Storage Crown Castle Intl Corp Equity Residential Health Care Reit Inc Avalonbay Communities Inc Prologis Inc Boston Properties Inc Ventas Inc XLF Will Not Be Affected Financial Select Sector SPDR Fund (XLF) is the largest and most highly traded ETF tracking the broader financial sector. XLF trades over 10 times more than its three competitors, combined, 5 and has assets under management (AUM) of $17.7 billion. 6 Investors in XLF will not be impacted by the aforementioned index changes, and the fund will continue to seek to provide efficient beta exposure to the S&P Financial Services Select Sector Index, as it has since the ETF s inception in 1998. XLF will remain unchanged for investors who want to hold both large-cap real estate and financial services firms in one liquid vehicle. The liquidity profile of XLF relative to its competitors (financials ETFs managed by BlackRock, Vanguard and First Trust) is emblematic of the strength of the entire Select Sector SPDR family. As shown in Figure 4, the Select Sector SPDR family is $60 billion larger than its closest competitor family in terms of AUM. On average, it trades nine times more than the next three largest sector competitor families combined. 7 In addition, the SPDR suite trades at a bid-ask spread that is 63 percent lower than the average of the three competitors, as outlined in Figure 4 below. Precise Exposure to Sectors and Industries We believe sector and industry investing is an important strategy that allows investors to achieve targeted exposure to macro based themes, more so than traditional methods of style-based investing. We feel implementing a sector based rotation strategy is a more flexible and efficient approach than using traditional styles (value and growth) to harness market themes, cultivate potential diversification and generate alpha generation opportunities within a core US equity portfolio. We remain committed to providing investors with precise and liquid tools for sectors and industries, all at a relatively low total cost of ownership. This commitment continues with the introduction of XLRE and XLFS to help investors transition to the index change before its implementation in August 2016. Additionally, XLF will remain open for trading even after the change to the GICS sectors. There will be no impact on XLF s underlying portfolio for investors who wish to maintain broad financial sector exposure while going beyond large-cap firms for a real estate allocation. For sector rotators and asset allocators who adhere to the GICS methodology, XLRE and XLFS will allow investors to track, overweight and underweight these new GICS sectors with the efficiency that the Select Sector SPDR family has offered over the last 17 years. If investors want to be more exact in their exposures to large-cap financials, they can utilize XLRE and XLFS. If they want to combine real estate and financial services, then XLF is still available to them. Additionally, for investors who want to drill down even more into the broader financial sector and harness distinct industry Figure 4: Select Sector SPDR ETF Family Size and Liquidity Advantages 8 Firm Assets Under Management ($) Average Share Volume Average Dollar Traded Volume ($) Average Bid-Ask Spread (%) State Street Global Advisors 88,179,343,000 13,143,593 649,099,530 0.02 Vanguard 28,548,599,900 251,172 25,383,901 0.05 First Trust 10,754,951,000 361,133 30,900,202 0.05 BlackRock 11,721,075,200 464,001 15,320,052 0.08 Source: Bloomberg, SSGA. Period Measured: August 31, 2014 August 31, 2015. State Street Global Advisors 3

or macro trends that are propelling the sector forward, they can use specific industry ETFs that target sub-sectors within financials: SPDR S&P Bank ETF (KBE), SPDR S&P Capital Markets ETF (KCE), SPDR S&P Insurance ETF (KIE) and SPDR S&P Regional Banking ETF (KRE). These industry ETFs are part of the 19 fund SPDR ETF Industry suite, which encompasses segments of the US market from banks to biotech to telecom. Each ETF is based on an equal weighted index that offers investors diversified and comprehensive market cap coverage in the industry with little overlap to a broader sector, each at an attractive cost of 0.35 percent, or 35 basis points. 1 Based on trading volume. Source: Bloomberg, as of September 30, 2015. 2 Bloomberg, SSGA, as of September 14, 2015. 3 Consultation on Potential Changes to the GICS Structure in 2015, MSCI and S&P Dow Jones Indices, June 2, 2014. 4 The existing SPDR Dow Jones REIT ETF (RWR) contains only US-based real estate investment trusts and has 94 holdings with 43 percent in non-large cap firms. (Source: SSGA as of September 14, 2015.) 5 Bloomberg, as of August 31, 2015. 6 spdrs.com, as of September 14, 2015. 7 As measured by average daily trading volume over the last three months vs. competitors per Bloomberg as of September 14, 2015. XLF: $948M, IYF ishares US Financials ETF: $47M, VFH Vanguard Financials ETF: $26M. 8 Vanguard: 10 US Sector ETFs BlackRock: 10 US Sector ETFs First Trust: 10 US Sector ETFs SSGA has 9 US Sector ETFs as SSGA combines technology and telecom into a single sector. Source: SSGA, as of September 24, 2015. In summary, we believe sectors and industries let investors target discrete exposures with specific risk and return profiles. When compared to styles, sectors and industries have had a relatively high level of performance dispersion along with low levels of correlation to the broader market. That provides potential diversification benefits and the potential for generating alpha through sector rotation strategies. Additionally, the behavior of sectors and industries can vary significantly depending on the current phase of the economic cycle. The introduction of XLRE and XLFS to help investors transition to a GICS index change before it happens is just the latest example of our commitment to providing investors with precise tools to implement their sector and industry strategies, and do more for a core US equity portfolio. State Street Global Advisors 4

Definitions Alpha A gauge of risk-adjusted outperformance relative to a benchmark. Asset Class Distinct groups of investments that have similar characteristics and past performance, such as stocks, bonds, real estate and commodities. Asset classes can also be further segmented such as emerging market stocks and US corporate bonds. Beta Measures the volatility of a security or portfolio in relation to a market, measured by an index. A beta of 1 indicates the security will move with the index. A beta of 1.3 means the security is expected to be 30% more than the index, while a beta of 0.8 means the security is expected to be 20% less volatile than the index. Correlation The historical tendency of two investments to move together. Investors often combine investments with low correlations to diversify portfolios. Diversification A strategy of combining a broad mix of investments and asset classes to potentially limit risk, although diversification does not guarantee protecting against a loss in falling markets. Economic Cycle Periods of growth or contraction in the economy, typically called periods of expansion or recession. Different sectors and industries typically perform differently based on particular phases of the cycle. ETF Exchange-traded fund. A basket of securities that trades on an exchange like an individual stock. Global Industry Classification Standard (GICS) A classification system for sectors and industries that allows investors to identify and analyze a customized group of companies using a common global standard. Growth In style investing, a strategy that focuses on companies that have the potential to grow their earnings at a high rate. Liquidity The ability to quickly buy or sell an investment in the market without impacting its price. Trading volume is a primary determinant of liquidity. Market Capitalization A measure of a company s market value that is determined by multiplying the share price by the total number of shares outstanding. Mortgage REIT Companies that specialize in originating and purchasing mortgages and mortgage-backed securities. MSCI A provider of research-based indices and analytics, including the MSCI EAFE Index, a popular equity benchmark for international developed markets. Real Estate Investment Trust (REIT) Companies that own and operate commercial properties such as office buildings and apartment complexes. S&P 500 Index A benchmark composed of five hundred (500) selected stocks, all of which are listed on national stock exchanges and represent over 25 separate industry groups. S&P Dow Jones Indices An index provider that manages popular benchmarks such as the S&P 500 Index and the Dow Jones Industrial Average. S&P Financials Select Sector Index A benchmark that includes companies from the following industries: diversified financial services; insurance; commercial banks; capital markets; real estate investment trusts; thrift and mortgage finance; consumer finance; and real estate management and development. S&P Financial Services Select Sector Index A benchmark comprised of the GICS Financials Sector that includes mortgage REITs but excludes the real estate industry group. S&P Real Estate Select Sector Index A benchmark that includes the GICS real estate industry group, excluding mortgage REITs. S&P Select Industry Indices Designed to measure the performance of narrow sub-industries on the basis of general industry classification. Constituents are members of the S&P Total Market Index, which includes all common equities listed on the NYSE and NASDAQ exchanges. S&P Select Sector Indices The companies included in each Select Sector Index are chosen on the basis of general industry classification from a universe of companies defined by the S&P 500 Index. Value In style investing, a strategy that focuses on companies that may be priced below intrinsic value. State Street Global Advisors 5

ssga.com spdrs.com For public use. State Street Global Advisors One Lincoln Street, Boston, MA 02111-2900. T: +1 866 787 2257 Important Risk Information ETFs trade like stocks, fluctuate in market value and may trade at prices above or below In general, ETFs can be expected to move up or down in value with the value of the applicable index. Although ETF shares may be bought and sold on the exchange through any brokerage account, ETF shares are not individually redeemable from the Fund. Investors may acquire ETFs and tender them for redemption through the Fund in Creation Unit Aggregations only. Please see the prospectus for more details. Financial Services Select Sector SPDR Fund (XLFS) and Real Estate Select Sector SPDR Fund (XLRE): ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF s net asset value. Brokerage commissions will reduce returns. Index-based ETFs are passively managed and seek to track an index of securities. Expenses may cause the ETF s returns to deviate from the returns of the index. Equity Securities may increase or decrease as a result of market fluctuations, changes in interest rates and perceived trends in stock prices. Non-diversified funds invest a greater portion of assets in fewer securities and therefore may be more vulnerable to adverse changes in the market. Financial Services Select Sector SPDR Fund (XLFS): Financial Services Sector concentration are subject to government regulation, deterioration of credit markets, losses resulting from financial difficulties of borrowers and losses resulting from investment activities. Select Sector SPDR Funds bear a higher level of risk than more broadly diversified funds. All ETFs are subject to risk, including the possible loss of principal. Sector ETFs products are also subject to sector risk and non-diversification risk, which generally results in greater price fluctuations than the overall market. Real Estate Select Sector SPDR Fund (XLRE): Real Estate Investment Trusts (REITS) investing may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrowers. SPDR S&P Bank ETF (KBE), SPDR S&P Capital Markets ETF (KCE), SPDR S&P Insurance ETF (KIE) and SPDR S&P Regional Banking ETF (KRE): Industry funds bear a higher level of risk and tend to be more volatile than more broadly diversified funds because of their narrow focus. All ETFs are subject to risk, including the possible loss of principal. Industry funds are also subject to industry risk and non-diversification risk, which generally results in greater price fluctuations than the overall market. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress. The views expressed in this material are the views of the SPDR ETF and SSGA Funds Research Team through the period ended September 30, 2015 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. All the index performance results referred to are provided exclusively for comparison purposes only. It should not be assumed that they represent the performance of any particular investment. Standard & Poor s, S&P and SPDR are registered trademarks of Standard & Poor s Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation s financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index. ALPS Portfolio Solutions Distributor, Inc. is distributor for Select Sector SPDRs. ALPS Portfolio Solutions Distributor, Inc. is not affiliated with State Street Global Markets, LLC. Before investing, consider the funds investment objectives, 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. Not FDIC Insured No Bank Guarantee May Lose Value 2015 State Street Corporation. All Rights Reserved. ID5063-IBG-16440 0915 Exp. Date: 09/30/2016 SSL000605