The Strategy will invest in a combination of cash investments and derivatives, primarily in the form of zero coupon interest rate swaps, in seeking to provide the desired market exposure. Each Portfolio will enter into a series of zero coupon swaps that attempts to match the market weighted exposures at each point within the maturity date range of the benchmark (2036-2040), resulting in equal fixed rate payments at each of the five maturity dates. The present value notional amount of the swaps entered into by a Portfolio will seek to be as close as practicable to the value of such Portfolio's assets at the time the swaps are entered into in order to maintain a target of no leverage within the Portfolio.
The Portfolio typically invests cash in an Enhanced U.S. Dollar 3-Month LIBOR strategy managed by SSGA or an affiliate - which in turn invests in an underlying portfolio of investment-grade securitized debt. Those cash investments are typically less liquid than the cash investments made by other non-enhanced LIBOR strategies; as such, the investments are potentially more volatile, but also offer the potential for higher expected returns. The cash capital within a Portfolio will also be used to meet the collateral and margin requirements of such Portfolio's derivative obligations, which will affect the amount of cash available to be invested in an Enhanced U.S. Dollar 3-Month LIBOR strategy.
SSGA anticipates that, shortly following the Portfolio's final maturity date, the Portfolio will distribute to investors an amount equal to all payments received by the Portfolio from its swap counterparties and all other assets held by the Portfolio (less all expenses and any amounts SSGA considers necessary or appropriate in light of known or anticipated liabilities of the Portfolio). There can be no assurance that the Strategy will provide its anticipated return or any return.
Although SSGA may consider the factors described above in purchasing or selling investments for the Portfolio, SSGA may purchase, sell, or continue to hold an investment for the Portfolio whenever it believes that doing so may benefit the Portfolio, on the basis of any of the factors described above or any other factors it may in its discretion consider.
*SSGA together with a third party vendor has constructed a custom benchmark for the Strategy that is comprised of five fully funded zero coupon swaps with fixed maturity dates, one for each year within the Strategy's maturity date range. In addition, the custom benchmark is designed to reflect the fact that cash in the Portfolio is assumed to earn a return equivalent to that of the 3 month LIBOR rate over each monthly performance period.
There are risks involved with investing, including possible loss of principal. You should refer to the Strategy's Disclosure Document (SDD) for a complete description of the risks of investing in the Strategy. Please contact SSGA's relationship management team for a copy of the SDD.