<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1998
REGISTRATION NOS.: 333-57791
811-08837
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 3 [X]
Post-Effective Amendment No. ___ [ ]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3
(Check appropriate box or boxes)
THE SELECT SECTOR SPDR(R) TRUST
(Exact Name of Registrant as Specified in Charter)
225 Franklin Street
Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Registrant's Telephone Number: (303) 623-2577
Joseph J. McBrien, Esq.
Vice President and Counsel
State Street Bank and Trust Company
1776 Heritage Drive, A4N
North Quincy, Massachusetts 02171-2197
(Name and Address of Agent for Service)
Copies to:
Stuart M. Strauss, Esq.
Gordon Altman Butowsky Weitzen Shalov & Wein
147 West 47th Street, 20th Floor
New York, New York 10036
Kathleen H. Moriarty, Esq.
Carter Ledyard & Milburn
2 Wall Street
New York, NY 10005
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this registration
statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
CROSS-REFERENCE SHEET
Form N-1A
Item
----
PART A
Prospectus
Item 1. Cover Page
Item 2. Prospectus Summary; Summary of Select Sector SPDR Fund
Expenses
Item 3. Summary of Select Sector SPDR Fund Expenses
Item 4. The Select Sector SPDR Funds and their Investment
Objectives; Who Should Invest?; Investment Policies and
Strategies; Description of the Select Sector Indexes;
Investment Limitations; Investment Considerations and
Risks; Management; Cover Page
Item 5. Management
Item 5A. Not applicable
Item 6. Distributions; Tax Matters; General Information;
Additional Information
Item 7. Buying and Selling Select Sector SPDRs; Creation and
Redemption of Creation Units; Determination of Net Asset
Value; Management; Summary of Select Sector SPDR Fund
Expenses; Prospectus Summary
Item 8. Creation and Redemption of Creation Units; Summary of
Select Sector SPDR Fund Expenses; Prospectus Summary
Item 9. Not applicable
PART B
Statement of Additional Information
Item 10. Cover Page
Item 11. Table of Contents
Item 12. Not applicable
Item 13. Investment Policies and Restrictions; Special
Considerations and Risks
Item 14. Management of the Trust
Item 15. Capital Stock and Shareholder Reports; Management of the
Trust
Item 16. Management of the Trust; The Investment Adviser; The
Administrator; Custodian and Transfer Agent; The Distributor
Item 17. Brokerage Transactions
Item 18. Capital Stock and Shareholder Reports; Book Entry Only
System
Item 19. Exchange Listing and Trading; Book Entry Only System;
Creation and Redemption of Creation Units; Determination of
Net Asset Value
Item 20. Taxes; Dividends and Distributions
Item 21. Continuous Offering
Item 22. Performance and Other Information
Item 23. Report of Independent Accountants
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
3
<PAGE> 3
THE SELECT SECTOR SPDR(R) TRUST
The Select Sector SPDR Trust (the "Trust") is an "index fund" consisting of
a number of separate investment portfolios (each a "Select Sector SPDR Fund" or
a "Fund" and collectively the "Select Sector SPDR Funds" or the "Funds"). The
Funds offered by this Prospectus are: The Basic Industries Select Sector SPDR
Fund; The Consumer Services Select Sector SPDR Fund; The Consumer Staples Select
Sector SPDR Fund; The Cyclical/Transportation Select Sector SPDR Fund; The
Energy Select Sector SPDR Fund; The Financial Select Sector SPDR Fund; The
Industrial Select Sector SPDR Fund; The Technology Select Sector SPDR Fund; and
The Utilities Select Sector SPDR Fund.
The investment objective of each Select Sector SPDR Fund is to provide
investment results that, before expenses, correspond generally to the price and
yield performance of publicly traded equity securities of companies in a
particular sector or group of industries, as represented by a specified market
sector index (each a "Select Sector Index"). Each Select Sector SPDR Fund is
managed by State Street Bank and Trust Company.
Each Select Sector SPDR Fund's shares of beneficial interest (the "Shares"
or "Select Sector SPDRs") have been approved for listing on the American Stock
Exchange LLC (the "AMEX"), subject to notice of issuance. The Select Sector
SPDRs will trade on the AMEX at market prices. These prices may differ to some
degree from the Select Sector SPDRs' net asset value. There is no assurance that
active trading for Shares of a Select Sector SPDR Fund will develop. The Select
Sector SPDR Funds' distributor, ALPS Mutual Funds Services, Inc. (the
"Distributor"), will not maintain a secondary market in Shares of the Funds.
Each Select Sector SPDR Fund issues and redeems Shares on a continuous
basis -- at net asset value -- only in a large specified number of Shares called
a "Creation Unit" principally in kind for securities included in the relevant
Select Sector Index. EXCEPT WHEN AGGREGATED IN CREATION UNITS, THE SHARES ARE
NOT REDEEMABLE SECURITIES OF THE SELECT SECTOR SPDR FUNDS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES IN EACH SELECT SECTOR SPDR FUND ARE NOT GUARANTEED OR INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT, NOR ARE SHARES DEPOSITS OR OBLIGATIONS OF ANY BANK.
This Prospectus (dated December 16, 1998) explains concisely the information
you ought to know before investing in the Select Sector SPDR Funds. We suggest
that you keep it for future reference.
[SELECT SECTOR SPDRS LOGO]
A Statement of Additional Information (dated December 16, 1998), which has
been filed with the SEC, provides more information about each Select Sector SPDR
Fund. The Statement of Additional Information is incorporated herein by
reference (i.e., is legally part of this Prospectus). It may be obtained without
charge by writing to the Distributor, ALPS Mutual Funds Services, Inc., at 370
17th Street, Suite 3100, Denver, CO 80202, or by calling the following number:
Investor Information: (800) 843-2639
<PAGE> 4
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500(R)",
"500", "Standard & Poor's Depositary Receipts(R)", "SPDRs(R)", "Select Sector
SPDR", "Select Sector SPDRs" and "Select Sector Standard & Poor's Depositary
Receipts" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use in connection with the listing and trading of Select Sector
SPDRs on the AMEX. The stocks included in each Select Sector Index (upon which
the Select Sector SPDRs are based) were selected by Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch" and sometimes referred to as the
"Index Compilation Agent") in consultation with Standard & Poor's ("S&P") from
the universe of companies represented by the Standard & Poor's 500 Composite
Stock Index ("S&P 500"). The composition and weighting of the stocks included in
each Select Sector Index can be expected to differ from the composition and
weighting of stocks included in any similar S&P 500 sector index that is
published and disseminated by S&P.
EACH SELECT SECTOR INDEX IS BASED ON EQUITY SECURITIES OF PUBLIC COMPANIES
THAT ARE COMPONENTS OF THE S&P 500, SELECTED ON THE BASIS OF GENERAL INDUSTRY
CLASSIFICATION, AND INCLUDED AS CONSTITUENT SECURITIES OF A PARTICULAR SELECT
SECTOR INDEX BY THE INDEX COMPILATION AGENT IN CONSULTATION WITH S&P, A DIVISION
OF THE MCGRAW-HILL COMPANIES, INC. THE AMEX ACTS AS "INDEX CALCULATION AGENT" IN
CONNECTION WITH THE CALCULATION AND DISSEMINATION OF EACH SELECT SECTOR INDEX.
SELECT SECTOR SPDRS ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY S&P.
S&P MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF
THE SELECT SECTOR SPDRS OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY
OF INVESTING IN SECURITIES GENERALLY OR IN THE SELECT SECTOR SPDRS PARTICULARLY
OR THE ABILITY OF A SELECT SECTOR SPDR FUND TO TRACK THE PERFORMANCE OF THE
VARIOUS SECTORS REPRESENTED IN THE STOCK MARKET. THE STOCKS INCLUDED IN EACH
SELECT SECTOR INDEX WERE SELECTED BY THE INDEX COMPILATION AGENT IN CONSULTATION
WITH S&P FROM A UNIVERSE OF COMPANIES REPRESENTED BY THE S&P 500. THE
COMPOSITION AND WEIGHTING OF STOCKS INCLUDED IN EACH SELECT SECTOR INDEX CAN BE
EXPECTED TO DIFFER FROM THE COMPOSITION AND WEIGHTING OF STOCKS INCLUDED IN THE
CORRESPONDING S&P 500 SECTOR INDEX THAT IS PUBLISHED AND DISSEMINATED BY S&P.
S&P'S ONLY RELATIONSHIP TO THE INDEX COMPILATION AGENT IS THE LICENSING OF
CERTAIN TRADEMARKS AND TRADE NAMES OF S&P AND OF THE S&P 500 WHICH IS
DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO THE INDEX
COMPILATION AGENT OR ANY SELECT SECTOR SPDR FUND. S&P HAS NO OBLIGATION TO TAKE
THE NEEDS OF THE INDEX COMPILATION AGENT, THE TRUST OR THE OWNERS OF THE SELECT
SECTOR SPDRS INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE S&P
500. S&P IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN ANY DETERMINATION OR
CALCULATION MADE WITH RESPECT TO ISSUANCE OR REDEMPTION OF THE SELECT SECTOR
SPDRS. S&P HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION,
MARKETING OR TRADING OF THE SELECT SECTOR SPDRS.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR COMPLETENESS OF THE S&P 500, THE
SELECT SECTOR INDEXES OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE INDEX COMPILATION AGENT,
THE TRUST, OWNERS OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE S&P 500, THE SELECT SECTOR INDEXES OR ANY DATA INCLUDED THEREIN IN
CONNECTION WITH THE RIGHTS LICENSED UNDER THE LICENSE AGREEMENT OR FOR ANY OTHER
USE. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE S&P 500, THE SELECT SECTOR INDEXES OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY
FOR ANY SPECIAL, PUNITIVE, INDIRECT OR
<PAGE> 5
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
THE SHARES ARE NOT SPONSORED OR PROMOTED BY EITHER THE INDEX CALCULATION
AGENT OR THE INDEX COMPILATION AGENT.
NEITHER THE INDEX CALCULATION AGENT NOR THE INDEX COMPILATION AGENT MAKES
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE SHARES
OF ANY SELECT SECTOR SPDR FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ABILITY
OF THE INDEXES IDENTIFIED HEREIN TO TRACK STOCK MARKET PERFORMANCE. THE SELECT
SECTOR INDEXES IDENTIFIED HEREIN ARE DETERMINED, COMPOSED AND CALCULATED WITHOUT
REGARD TO THE SHARES OF ANY SELECT SECTOR SPDR FUND OR THE ISSUER THEREOF. THE
INDEX CALCULATION AGENT AND THE INDEX COMPILATION AGENT ARE NOT RESPONSIBLE FOR,
NOR HAVE THEY PARTICIPATED IN, THE DETERMINATION OF THE TIMING OF, PRICES OF, OR
QUANTITIES OF THE SHARES OF ANY SELECT SECTOR SPDR FUND TO BE ISSUED, NOR IN THE
DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE SHARES ARE REDEEMABLE.
THE INDEX CALCULATION AGENT AND THE INDEX COMPILATION AGENT HAVE NO OBLIGATION
OR LIABILITY TO OWNERS OF THE SHARES OF ANY SELECT SECTOR SPDR FUND IN
CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE SHARES OF ANY
SELECT SECTOR SPDR FUND.
ALTHOUGH MERRILL LYNCH -- AS THE INDEX COMPILATION AGENT -- SHALL OBTAIN AND
PROVIDE INFORMATION TO THE AMEX -- AS THE INDEX CALCULATION AGENT -- FROM
SOURCES WHICH IT CONSIDERS RELIABLE, THE INDEX COMPILATION AGENT AND THE INDEX
CALCULATION AGENT DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF ANY
SELECT SECTOR INDEX OR ANY DATA INCLUDED THEREIN. THE INDEX COMPILATION AGENT
AND THE INDEX CALCULATION AGENT MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY THE TRUST AS LICENSEE, LICENSEE'S CUSTOMERS AND
COUNTERPARTIES, OWNERS OF THE SHARES, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE SELECT SECTOR INDEXES OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE
RIGHTS LICENSED AS DESCRIBED HEREIN OR FOR ANY OTHER USE. THE INDEX COMPILATION
AGENT AND THE INDEX CALCULATION AGENT MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND
EACH HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE WITH RESPECT TO THE SELECT SECTOR INDEXES OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE
INDEX COMPILATION AGENT OR THE INDEX CALCULATION AGENT HAVE ANY LIABILITY FOR
ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES
(INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE> 6
PROSPECTUS SUMMARY
The Select Sector SPDR
Funds and their
Investment Objectives.... The Select Sector SPDR Funds offered by this
Prospectus are: The Basic Industries Select
Sector SPDR Fund; The Consumer Services Select
Sector SPDR Fund; The Consumer Staples Select
Sector SPDR Fund; The Cyclical/Transportation
Select Sector SPDR Fund; The Energy Select
Sector SPDR Fund; The Financial Select Sector
SPDR Fund; The Industrial Select Sector SPDR
Fund; The Technology Select Sector SPDR Fund;
and The Utilities Select Sector SPDR Fund.
Each Select Sector SPDR Fund is a separate
investment portfolio of the Trust.
The investment objective of each Select Sector
SPDR Fund is to provide investment results
that, before expenses, correspond generally to
the price and yield performance of publicly
traded equity securities of companies in a
particular sector or group of industries as
represented by a specified Select Sector Index
published by the AMEX. The companies included
in each Select Sector Index are selected on
the basis of general industry classification
from a universe of companies defined by the
S&P 500. The nine Select Sector Indexes upon
which the Select Sector SPDR Funds are based
together comprise all of the companies that
are included in the S&P 500. See "Construction
and Maintenance Standards for the Select
Sector Indexes" under "DESCRIPTION OF THE
SELECT SECTOR INDEXES," "THE SELECT SECTOR
SPDR FUNDS AND THEIR INVESTMENT OBJECTIVES,"
and "INVESTMENT POLICIES AND STRATEGIES."
1
<PAGE> 7
Exchange-Traded Shares and
Creation Units........... The Shares have been approved for listing on
the AMEX, subject to notice of issuance. The
Shares will trade on the AMEX at market
prices. These prices may differ from the
Shares' net asset value. The initial price per
Share of each Select Sector SPDR Fund is
expected to be between $17 and $30, although
there can be no assurance that Shares will
trade in this range or that an active trading
market will develop.
Trading of Select Sector
SPDR Fund Shares on the
AMEX...................... The respective AMEX trading symbols of the
Select Sector SPDR Funds are as follows:
<TABLE>
<CAPTION>
TRADING
SELECT SECTOR SPDR FUND SYMBOL
----------------------- -------
<S> <C>
The Basic Industries Select Sector
SPDR Fund.......................... XLB
The Consumer Services Select Sector
SPDR Fund.......................... XLV
The Consumer Staples Select Sector
SPDR Fund.......................... XLP
The Cyclical/Transportation Select
Sector SPDR Fund................... XLY
The Energy Select Sector SPDR Fund... XLE
The Financial Select Sector SPDR
Fund............................... XLF
The Industrial Select Sector SPDR
Fund............................... XLI
The Technology Select Sector SPDR
Fund............................... XLK
The Utilities Select Sector SPDR
Fund............................... XLU
</TABLE>
Creation and Redemption
of Creation Units....... Each Select Sector SPDR Fund issues and
redeems Shares at their net asset value only
in a large specified number of Shares called a
"Creation Unit." A Creation Unit of each
Select Sector SPDR Fund consists of 50,000
Shares. Each Select Sector SPDR Fund generally
issues and redeems Creation Units only in kind
in exchange for a designated portfolio of
equity securities included in its Select
Sector Index and a relatively small cash
payment. EXCEPT WHEN AGGREGATED IN CREATION
UNITS, THE SHARES ARE NOT REDEEMABLE
SECURITIES OF
2
<PAGE> 8
THE SELECT SECTOR SPDR FUNDS. See "BUYING AND
SELLING SELECT SECTOR SPDRs" AND "CREATION AND
REDEMPTION OF CREATION UNITS."
Risks...................... Unlike many investment companies, the Select
Sector SPDR Funds are not actively "managed."
Therefore, a Select Sector SPDR Fund would not
sell a stock because the stock's issuer was in
financial trouble, unless that stock is
removed from the Select Sector SPDR Fund's
benchmark Select Sector Index. An investment
in a Select Sector SPDR Fund involves risks
similar to those of investing in any fund of
equity securities traded on exchanges, such as
market fluctuations caused by such factors as
economic and political developments, changes
in interest rates and perceived trends in
stock prices. You should anticipate that the
value of the Shares will decline, more or
less, in correspondence with any decline in
value of the Select Sector SPDR Fund's
applicable Select Sector Index. Select Sector
SPDR Funds are subject to certain other risks,
described under "INVESTMENT CONSIDERATIONS AND
RISKS." Among other things, each Select Sector
SPDR Fund is subject to the additional risks
associated with concentrating its investments
in companies in the market sector that its
benchmark Select Sector Index targets.
Who Should Invest?......... Each Select Sector SPDR Fund is designed
for investors who seek a relatively low-cost
"passive" approach for investing in a
portfolio of equity securities of companies in
a particular sector or group of industries as
represented by a specified Select Sector
Index.
Taken together, the Select Sector SPDR Funds
are designed to represent all of the 500
stocks included in the S&P 500. Bought and
sold separately, the Select Sector SPDR
3
<PAGE> 9
Funds are designed to enable investors to
tailor asset allocations within the universe
of S&P 500 companies to fit their particular
investment needs. Each Select Sector SPDR Fund
seeks to provide investment results that,
before expenses, correspond generally to the
price and yield performance of its benchmark
Select Sector Index. See "WHO SHOULD INVEST?"
and "INVESTMENT CONSIDERATIONS AND RISKS."
Management of the Trust.... Adviser. State Street Bank and Trust Company
("State Street" or the "Adviser") is the
investment adviser to each Select Sector SPDR
Fund. The Adviser is responsible for the
investment management of each Select Sector
SPDR Fund, subject to the supervision of the
Trust's Board of Trustees.
Administrator. State Street is the
Administrator of each Select Sector SPDR Fund
and will perform certain clerical, fund
accounting, recordkeeping and bookkeeping
services in such capacity.
Custodian and Transfer Agent. State Street
serves as the Custodian for the cash and
portfolio securities of each Select Sector
SPDR Fund. State Street also serves as the
Transfer Agent for each Select Sector SPDR
Fund.
Distributor. ALPS Mutual Funds Services, Inc.
serves as the principal underwriter and
Distributor of each Select Sector SPDR Fund's
Creation Units. The Distributor does not
maintain a secondary market in the Shares. See
"INVESTMENT CONSIDERATIONS AND RISKS" and
"MANAGEMENT."
4
<PAGE> 10
SUMMARY OF SELECT SECTOR SPDR FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Exchange-Traded Shares. When buying or selling exchange-traded Shares, you
will incur customary brokerage commissions and charges.
Creation Units. In order to create (i.e., purchase) Creation Units of
Shares, an investor generally must deposit a designated portfolio of equity
securities included in the relevant Select Sector Index and make a small cash
payment. See "CREATION AND REDEMPTION OF CREATION UNITS" in this Prospectus and
in the Statement of Additional Information for more detail. As of December 14,
1998, the value of the securities comprising a deposit of designated equity
securities necessary for an in-kind purchase of a Creation Unit for each Select
Sector SPDR Fund was as follows: The Basic Industries Select Sector SPDR
Fund -- $1,055,050; The Consumer Services Select Sector SPDR Fund -- $1,180,250;
The Consumer Staples Select Sector SPDR Fund -- $1,284,550; The
Cyclical/Transportation Select Sector SPDR Fund -- $1,196,650; The Energy Select
Sector SPDR Fund -- $1,154,300; The Financial Select Sector SPDR
Fund -- $1,072,350; The Industrial Select Sector SPDR Fund -- $1,131,300; The
Technology Select Sector SPDR Fund -- $1,476,250; and The Utilities Select
Sector SPDR Fund -- $1,432,600. A fixed transaction fee of $1,000 is applicable
to each creation or redemption transaction regardless of the number of Creation
Units created or redeemed in the transaction. An additional charge of up to
three (3) times the fixed transaction fee (for a total charge of up to $4,000)
may be charged with respect to transactions effected outside the Continuous Net
Settlement System of the National Securities Clearing Corporation (the "NSCC")
(discussed under "CREATION AND REDEMPTION OF CREATION UNITS") and in the limited
circumstances in which any cash may be used in lieu of securities to create or
redeem Creation Units.
ANNUAL FUND OPERATING EXPENSES
"ANNUAL FUND OPERATING EXPENSES" ARE THE ESTIMATED EXPENSES YOU WOULD INCUR
AS A SHAREHOLDER OF A SELECT SECTOR SPDR FUND. ACTUAL EXPENSES MAY VARY.
"Management Fees" are paid to the Adviser by each Select Sector SPDR Fund to
provide the Fund with investment management services. In addition, a "unitary"
fee is paid by each Select Sector SPDR Fund to State Street for the
administration, custody and transfer agency services it provides to the Funds.
The unitary fee is calculated based upon the aggregate net assets of the Trust
and allocated pro rata to each Select Sector SPDR Fund based upon the relative
net assets of each Fund. The unitary fee is equal to the greater of: (a) a
sliding scale fee calculated as follows: (i) .10% of average daily net assets of
the Trust up to the first $4.5 billion of net assets (such $4.5 billion to be
increased by $500 million each time a new Select Sector SPDR Fund is added);
(ii) .08% of average daily net
5
<PAGE> 11
assets up to the next $4.5 billion of net assets of the Trust (such $4.5 billion
to be increased by $500 million each time a new Select Sector SPDR Fund is
added); and (iii) .06% of average daily net assets on the remainder of net
assets; or (b) a minimum fee of $3.15 million increased by $350,000 each time a
new Select Sector SPDR Fund is added. The minimum fee will not be in effect for
the first two years of the Trust's operation. Each Select Sector SPDR Fund will
also bear all other expenses of its operation.
6
<PAGE> 12
<TABLE>
<CAPTION>
THE BASIC THE CONSUMER THE CONSUMER THE CYCLICAL/
INDUSTRIES SELECT SERVICES SELECT STAPLES SELECT TRANSPORTATION
SECTOR SECTOR SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND
----------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
I. SHAREHOLDER TRANSACTION EXPENSES
A. CREATION TRANSACTION EXPENSES
Through NSCC(a)............................... $1,000 $1,000 $1,000 $1,000
Outside NSCC(a)............................... Up to Up to Up to Up to
$4,000 $4,000 $4,000 $4,000
B. REDEMPTION TRANSACTION EXPENSES
Through NSCC(b)............................... $1,000 $1,000 $1,000 $1,000
Outside NSCC(b)............................... Up to Up to Up to Up to
$4,000 $4,000 $4,000 $4,000
II. ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................... .05% .05% .05% .05%
12b-1 Fees(c)................................. .25% .25% .25% .25%
Other Estimated Operating Expenses............ .35% .35% .35% .35%
------ ------ ------ ------
Total Expenses................................ .65% .65% .65% .65%
<CAPTION>
THE
THE ENERGY THE FINANCIAL THE INDUSTRIAL TECHNOLOGY THE UTILITIES
SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND SPDR FUND
------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
I. SHAREHOLDER TRANSACTION EXPENSES
A. CREATION TRANSACTION EXPENSES
Through NSCC(a)............................... $1,000 $1,000 $1,000 $1,000 $1,000
Outside NSCC(a)............................... Up to Up to Up to Up to Up to
$4,000 $4,000 $4,000 $4,000 $4,000
B. REDEMPTION TRANSACTION EXPENSES
Through NSCC(b)............................... $1,000 $1,000 $1,000 $1,000 $1,000
Outside NSCC(b)............................... Up to Up to Up to Up to Up to
$4,000 $4,000 $4,000 $4,000 $4,000
II. ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................... .05% .05% .05% .05% .05%
12b-1 Fees(c)................................. .25% .25% .25% .25% .25%
Other Estimated Operating Expenses............ .35% .35% .35% .35% .35%
------ ------ ------ ------ ------
Total Expenses................................ .65% .65% .65% .65% .65%
</TABLE>
- ---------------
(a) The creation transaction fee is the same regardless of the number of
Creation Units being purchased pursuant to any one creation order. One
Creation Unit consists of 50,000 Shares.
(b) The redemption transaction fee is the same regardless of the number of
Creation Units being redeemed pursuant to any one redemption order. One
Creation Unit consists of 50,000 Shares.
(c) Subject to an aggregate maximum of .25% per annum of the average net assets
of each Select Sector SPDR Fund, the Distributor (i) will receive a
distribution fee pursuant to such Select Sector SPDR Fund's Rule 12b-1 plan
(adopted by the Board of Trustees) as compensation for certain
distribution-related services, will be paid an asset-based fee for its
administrative services with respect to the Rule 12b-1 plan and will be
reimbursed for certain expenditures related to the distribution of Shares;
and (ii) may enter into agreements whereby certain broker-dealers or other
persons may receive a portion of the Rule 12b-1 fee(s) not to exceed , in
the case of any such broker-dealer or other entity, .10% of such Select
Sector SPDR Fund's average daily net assets per annum attributable to Shares
subject to such agreement, as compensation for services provided to
shareholders and educational and promotional services relating to the
Shares. See "Management -- Distributor" in this Prospectus. A long-term
shareholder of a Select Sector SPDR Fund may pay more in total sales charges
than the economic equivalent of the maximum front-end sales charges
otherwise permitted by the rules of the National Association of Securities
Dealers, Inc.
7
<PAGE> 13
EXAMPLES OF EXPENSES
Each Select Sector SPDR Fund sells and redeems Shares in Creation Units
principally on an in-kind basis for portfolio securities of the relevant Select
Sector Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE.
An investor purchasing a Creation Unit on an in-kind basis would pay the
following expenses on a $10,000 investment (payment with a deposit of securities
included in the relevant Select Sector Index), assuming a 5% annual return.
INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A
CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE
SELECT SECTOR SPDR FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND
ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE
CONSIDERED INDICATIONS OF EXPECTED SELECT SECTOR SPDR FUND EXPENSES OR
PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
An investor would pay the following expenses, assuming no redemptions:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
($) ($)
------ -------
<S> <C> <C>
The Basic Industries Select Sector SPDR
Fund........................................ 66.63 208.66
The Consumer Services Select Sector SPDR
Fund........................................ 66.63 208.66
The Consumer Staples Select Sector SPDR
Fund........................................ 66.63 208.66
The Cyclical/Transportation Select Sector SPDR
Fund........................................ 66.63 208.66
The Energy Select Sector SPDR Fund............ 66.63 208.66
The Financial Select Sector SPDR Fund......... 66.63 208.66
The Industrial Select Sector SPDR Fund........ 66.63 208.66
The Technology Select Sector SPDR Fund........ 66.63 208.66
The Utilities Select Sector SPDR Fund......... 66.63 208.66
</TABLE>
THE SELECT SECTOR SPDR FUNDS
AND THEIR INVESTMENT OBJECTIVES
Each Select Sector SPDR Fund is a separate investment portfolio of the
Trust, which is an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). Each Select Sector
SPDR Fund is classified as a "non-diversified" investment company under the 1940
Act.
The investment objective of each Select Sector SPDR Fund is to provide
investment results that, before expenses, correspond generally to the price and
yield performance of publicly traded securities in a particular sector or group
of industries as represented by a specified Select Sector Index published by the
AMEX. The companies included in each Select Sector Index are selected on the
basis of general
8
<PAGE> 14
industry classification from the universe of companies defined by the S&P 500.
The nine Select Sector Indexes upon which the Select Sector SPDR Funds are based
together comprise all of the companies that are included in the S&P 500. Each
Select Sector SPDR Fund's investment objective is a fundamental policy and
cannot be changed unless a majority of shareholders approves the change.
There can be no assurance that a Select Sector SPDR Fund will achieve its
investment objective. In this regard, please refer to the "INVESTMENT POLICIES
AND STRATEGIES" and "INVESTMENT CONSIDERATIONS AND RISKS" sections in this
Prospectus and the Statement of Additional Information.
WHO SHOULD INVEST?
Each Select Sector SPDR Fund is designed for investors who seek a
relatively low-cost "passive" approach for investing in a portfolio of equity
securities of companies in a particular sector or group of industries
represented by a specified market Select Sector Index published by the AMEX.
Taken together, the Select Sector SPDR Funds are designed to represent each of
the 500 stocks included in the S&P 500. Bought and sold separately, the Select
Sector SPDR Funds are intended to enable investors to tailor asset allocations
within the universe of S&P 500 companies to fit their particular investment
needs. Unlike actively managed equity mutual funds that attempt to "beat" market
averages, each Select Sector SPDR Fund seeks to provide investment results that,
before expenses, correspond generally to the price and yield performance of its
benchmark Select Sector Index.
Select Sector SPDR Funds may be suitable for long term investment in the
market or market segment represented in the relevant Select Sector Index. Shares
of each Select Sector SPDR Fund may also be used as an asset allocation tool or
as a speculative trading instrument. Unlike many conventional mutual funds which
are only bought and sold at closing net asset values, each Select Sector SPDR
Fund's Shares have been designed to be tradable in a secondary market on the
AMEX on an intraday basis and to be created and redeemed principally in kind in
Creation Units at each day's next calculated net asset value. These arrangements
are designed to protect ongoing shareholders from adverse effects on the
portfolio of a Select Sector SPDR Fund that could arise from frequent cash
creation and redemption transactions that affect the net asset value of such
Fund. Moreover, in contrast to conventional mutual funds where redemptions can
have an adverse tax impact on taxable shareholders because of the need to sell
portfolio securities which, in turn, may generate taxable gain, the in-kind
redemption mechanism of the Select Sector SPDR Funds generally will not lead to
a tax event for ongoing shareholders.
9
<PAGE> 15
INVESTMENT POLICIES AND STRATEGIES
Indexing Investment Approach. The Select Sector SPDR Funds are not managed
according to traditional methods of "active" investment management, which
involve the buying and selling of securities based upon economic, financial and
market analysis and investment judgment. Instead, each Select Sector SPDR Fund,
utilizing a "passive" or indexing investment approach, attempts to approximate
the investment performance of its benchmark Select Sector Index by investing in
a portfolio of stocks that seeks to replicate the relevant Select Sector Index
or through the use of quantitative analytical procedures to approximate Select
Sector Index performance.
The Adviser anticipates that, generally, each of the Select Sector SPDR
Funds will hold all of the securities which comprise its benchmark Select Sector
Index. There may, however, be instances where a stock in the applicable Select
Sector Index is not held or is not held in the same weighting as in the Select
Sector Index. In certain instances, the Adviser may choose to overweight another
stock in the Select Sector Index, purchase securities not included within the
Select Sector Index which the Adviser believes are appropriate to substitute for
the Select Sector Index securities or utilize various combinations of other
available investment techniques in seeking to track accurately the benchmark
Select Sector Index or for the reasons described below. To the extent that a
Select Sector SPDR Fund does not invest in every component security of its
applicable Select Sector Index in the proportions dictated by the Select Sector
Index, it may not track the Select Sector Index with the same degree of accuracy
as an investment vehicle which does. The Adviser believes that, over time, the
"tracking error" of a Select Sector SPDR Fund relative to the performance of its
benchmark Select Sector Index, adjusted for the effect of Fund expenses, will be
less than 5%. A tracking error of 5% means that there is a 68% probability that
the net asset value of each Select Sector SPDR Fund (adjusted for the effect of
Fund expenses) will be within plus or minus 5% of the relevant Select Sector
Index level after one year, without modifying (or "rebalancing") the Select
Sector Index or the Select Sector SPDR Fund's portfolio composition. Over time,
the securities holdings of each Select Sector SPDR Fund may be rebalanced to
reflect changes in the composition of the relevant Select Sector Index. A Select
Sector SPDR Fund would incur transaction costs and other expenses as a result of
a rebalancing. Factors such as timing differences on rebalancing, Fund expenses,
taxes, the need to comply with the diversification and other requirements of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and the
existence of uninvested assets in a Select Sector SPDR Fund may also impact a
Select Sector SPDR Fund's performance in tracking the Select Sector Index. The
Adviser regularly monitors the correlation between each Select Sector SPDR Fund
and its benchmark Select Sector Index
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<PAGE> 16
and in the event that tracking error exceeds 5%, the Adviser will determine
what, if any, additional investment changes may need to be made.
Each Select Sector SPDR Fund has the policy to remain as fully invested as
practicable in a pool of equity securities. Each Select Sector SPDR Fund will
normally invest at least 95% of its total assets in common stocks that comprise
the relevant Select Sector Index. A lesser percentage may be so invested to the
extent that the Adviser needs additional flexibility to comply with the
requirements of the Internal Revenue Code and other regulatory requirements or,
in limited circumstances, to assist in meeting shareholder redemptions of
Creation Units.
Each Select Sector SPDR Fund may invest its remaining assets in money
market instruments or funds which invest exclusively in money market instruments
(subject to applicable limitations under the 1940 Act), in repurchase
agreements, in stocks that are in the relevant market but not the relevant
Select Sector Index (as indicated above), in convertible securities, structured
notes (notes on which the amount of principal repayment and interest payments
are based on the movement of one or more specified factors such as the movement
of a particular stock or stock index), exchange-traded stock index futures,
exchange-traded options on futures, stock or stock indexes as well as options on
the Shares. These investments may also be made temporarily to invest uncommitted
cash balances or, in limited circumstances, to assist in meeting shareholder
redemptions of Creation Units. See "INVESTMENT POLICIES AND RESTRICTIONS" in the
Statement of Additional Information for a discussion of the risks of these
investments. At present, there are no exchange-traded futures or options on the
Select Sector Indexes but these investments may be available in the future. The
AMEX has advised the Trust that it currently anticipates that options on the
Shares will be listed on the AMEX at the same time that the Shares are available
for trading, although there is no assurance in this regard. The Select Sector
SPDR Funds will not use these instruments to leverage their securities holdings
or for speculative purposes. Certain of the risks typically associated with such
contracts, e.g., that the portfolio manager's view of future market movements
may be mistaken, therefore, would not be applicable to the Trust. The Select
Sector SPDR Funds also will not invest in money market instruments as part of a
temporary defensive strategy to protect against potential stock market declines.
Although the Select Sector Index underlying each Select Sector SPDR Fund
will generally not be subject to frequent or large changes, giving the
underlying portfolio many of the characteristics of a long-term investment,
periodic changes in the Select Sector Index may occur as a result of capital
changes, e.g., mergers, spin-offs, or a change in the business or character of a
component company, or additions to, or removals from, the S&P 500. Because of
the passive investment management approach of each Select Sector SPDR Fund, the
portfolio turnover rate is expected
11
<PAGE> 17
to be under 50%, a generally lower turnover rate than for many other investment
companies. The Adviser anticipates that it will take approximately three
business days for additions and deletions to the S&P 500 to be reflected in the
portfolio composition of each Select Sector SPDR Fund.
Lending Securities. Each Select Sector SPDR Fund may in the future lend
securities from its holdings to brokers, dealers and other financial
institutions desiring to borrow securities to complete transactions and for
other purposes. Because U.S. government securities or other assets that are
pledged as collateral to the Select Sector SPDR Funds in connection with these
loans generate income, securities lending may enable each Select Sector SPDR
Fund to earn income that may partially offset its expenses. This may reduce the
effect that expenses have on a Select Sector SPDR Fund's ability to provide
investment results that correspond generally to the performance of its benchmark
Select Sector Index. Each Select Sector SPDR Fund will receive collateral equal
to at least 100% of the current market value of the loaned securities. The
Select Sector SPDR Funds may invest cash collateral in high quality short-term
debt securities or in funds which invest exclusively in such securities.
Borrowing Money. Each Select Sector SPDR Fund may borrow money from a bank
up to a limit of 10% of the value of its assets, but only for temporary or
emergency purposes. To the extent that a Select Sector SPDR Fund borrows money,
it may be leveraged; at such times, the Select Sector SPDR Fund may appreciate
or depreciate in value more rapidly than its benchmark Select Sector Index.
Investment Concentration. Each Select Sector SPDR Fund will concentrate
its investments in an industry to the extent that its relevant Select Sector
Index concentrates in such industry.
Fundamental Policies. The concentration policy of each Select Sector SPDR
Fund is a fundamental policy that may be changed only with shareholder approval.
Each of the other investment policies is a non-fundamental policy that may be
changed by the Board of Trustees of the Trust without shareholder approval.
However, shareholders would be notified prior to any material change in these
policies.
DESCRIPTION OF THE SELECT SECTOR INDEXES
Each Select Sector Index is intended to give investors an efficient,
modified market capitalization-based way to track the movement of baskets of the
equity securities of public companies that are components of the S&P 500
selected on the basis of general industry classification.
12
<PAGE> 18
CONSTRUCTION AND MAINTENANCE STANDARDS FOR THE SELECT SECTOR INDEXES
Each Select Sector Index has been developed and will be maintained in
accordance with the following criteria:
- Each of the component securities in a Select Sector Index will be a
constituent company of the S&P 500.
- Each stock in the S&P 500 will be allocated to one and only one of the
Select Sector Indexes.
- Each constituent stock of the S&P 500 has been assigned to a Select
Sector Index by the Index Compilation Agent. The Index Compilation Agent,
after consultation with S&P, assigns a company's stock to a particular
Select Sector Index on the basis of such company's sales and earnings
composition and the sensitivity of the company's stock price and business
results to the common factors that affect other companies in each Select
Sector Index. S&P has sole control over the removal of stocks from the
S&P 500 and the selection of replacement stocks to be added to the S&P
500. However, S&P plays only a consulting role in the Select Sector Index
assignment of the S&P 500 component stocks, which is the sole
responsibility of the Index Compilation Agent.
- Each Select Sector Index is calculated by the AMEX's Index Services Group
using a modified "market capitalization" methodology. This design ensures
that each of the component stocks within a Select Sector Index is
represented in a proportion consistent with its percentage with respect
to the total market capitalization of such Select Sector Index. Under
certain conditions, however, the number of shares of a component stock
within the Select Sector Index may be adjusted to conform to Internal
Revenue Code requirements. See "Construction and Maintenance Standards
for the Select Sector Indexes" under "GENERAL DESCRIPTION OF THE TRUST"
in the Statement of Additional Information.
THE BASIC INDUSTRIES SELECT SECTOR INDEX
The Basic Industries Select Sector Index consists of certain public
companies that are components of the S&P 500 and that are in basic industries.
Basic Industries include integrated steel products, chemicals, fibers, paper and
gold. This Index was composed of 58 component stocks as of September 30, 1998.
THE CONSUMER SERVICES SELECT SECTOR INDEX
The Consumer Services Select Sector Index consists of certain public
companies that are components of the S&P 500 and that are consumer services
firms. Consumer services include entertainment and publishing, prepared foods,
medical
13
<PAGE> 19
services, lodging and gaming. This Index was composed of 45 component stocks as
of September 30, 1998.
THE CONSUMER STAPLES SELECT SECTOR INDEX
The Consumer Staples Select Sector Index consists of certain public
companies that are components of the S&P 500 and that are involved in the
development and production of consumer staples. Consumer staples include
cosmetic and personal care, pharmaceuticals, soft drinks, tobacco and food
products. This Index was composed of 69 component stocks as of September 30,
1998.
THE CYCLICAL/TRANSPORTATION SELECT SECTOR INDEX
The Cyclical/Transportation Select Sector Index consists of certain public
companies that are components of the S&P 500 and that are in the development and
production of cyclical products or the transportation industry. Cyclical and
transportation products include building materials, retailers, appliances,
housewares, air transportation, automotive manufacturing, shipping and trucking.
This Index was composed of 69 component stocks as of September 30, 1998.
THE ENERGY SELECT SECTOR INDEX
The Energy Select Sector Index consists of certain public companies that
are components of the S&P 500 and that are involved in the development and
production of energy products. Energy companies in the Index develop and produce
crude oil and natural gas, and provide drilling and other energy related
services. This Index was composed of 33 component stocks as of September 30,
1998.
THE FINANCIAL SELECT SECTOR INDEX
The Financial Select Sector Index consists of certain public companies that
are components of the S&P 500 and that are involved in the development and
production of financial products. Companies in the Index include a wide array of
diversified financial services firms whose business lines range from investment
management to commercial and business banking. This Index was composed of 75
component stocks as of September 30, 1998.
THE INDUSTRIAL SELECT SECTOR INDEX
The Industrial Select Sector Index consists of certain public companies
that are components of the S&P 500 and that are involved in the development and
production of industrial products, including electrical equipment, construction
equipment, waste management services and industrial machinery products. This
Index was composed of 35 component stocks as of September 30, 1998.
14
<PAGE> 20
THE TECHNOLOGY SELECT SECTOR INDEX
The Technology Select Sector Index consists of certain public companies
that are components of the S&P 500 and that are involved in the development and
production of technology products. Technology products include products
developed by defense manufacturers, telecommunications equipment, microcomputer
components, integrated computer circuits and process monitoring systems. This
Index was composed of 77 component stocks as of September 30, 1998.
THE UTILITIES SELECT SECTOR INDEX
The Utilities Select Sector Index consists of certain public companies that
are components of the S&P 500 and are in the utilities industry. Utilities
include communication services, electrical power providers and natural gas
distributors. This Index was composed of 39 component stocks as of September 30,
1998.
INVESTMENT LIMITATIONS
Each Select Sector SPDR Fund intends to observe certain limitations on its
investment practices. Generally, a Select Sector SPDR Fund may not:
- lend cash or other assets, except that a Select Sector SPDR Fund may lend
its securities holdings in an amount not to exceed 33% of the value of
its total assets;
- borrow money, except from banks for temporary or emergency purposes in an
amount up to 10% of the value of its total assets, and a Select Sector
SPDR Fund will not purchase securities while borrowings in excess of 5%
of its total assets are outstanding (this limitation on purchases does
not apply to acceptance by the Select Sector SPDR Fund of a deposit
principally of securities included in the relevant Select Sector Index
for creation of Creation Units);
- pledge or otherwise encumber its assets, except to secure permitted
borrowings (for these purposes collateral arrangements with respect to
options and futures are not deemed to involve a pledge of assets).
These investment limitations and certain additional limitations described
in the Statement of Additional Information may be changed only with shareholder
approval.
INVESTMENT CONSIDERATIONS AND RISKS
General Risks
You can lose money by investing in a Select Sector SPDR Fund.
15
<PAGE> 21
Unlike many investment companies, the Select Sector SPDR Funds are not
actively "managed." Therefore, a Select Sector SPDR Fund would not sell a stock
because the stock's issuer was in financial trouble, unless that stock is
removed from the Select Sector SPDR Fund's benchmark Select Sector Index. An
investment in a Select Sector SPDR Fund involves risks similar to those of
investing in any fund of equity securities traded on exchanges, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in stock prices. You should
anticipate that the value of the Shares will decline, more or less, in
correspondence with any decline in value of the Select Sector SPDR Fund's
applicable Select Sector Index.
Lack of Diversification. Each Select Sector SPDR Fund intends to maintain
the required level of diversification so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code, in order to avoid
liability for federal income tax to the extent that its earnings are distributed
to shareholders. Compliance with the diversification requirements of the
Internal Revenue Code could limit the investment flexibility of a Select Sector
SPDR Fund.
The stocks of particular issuers, or of issuers in particular industries,
may represent a large portion of a Select Sector Index. Consequently, a Select
Sector SPDR Fund may be more adversely affected by the performance of one
security (or group of securities) and be subject to greater price volatility
than a more diversified investment company. Also, a Select Sector SPDR Fund may
be more susceptible to any single economic, political or regulatory occurrence
than the securities holdings of an investment company that is more broadly
diversified than the Select Sector SPDR Fund.
Absence of Prior Active Market. Each Select Sector SPDR Fund is a newly
organized series of an investment company with no operating history. While the
Shares have been approved for listing on the AMEX, subject to notice of
issuance, there can be no assurance that active trading markets for the Shares
will develop or be maintained. The Distributor does not maintain a secondary
market in the Shares. The fact that a number of similar products, such as SPDRs,
MidCap SPDRs, DIAMONDS(SM)* and 17 series of World Equity Benchmark Shares(SM)
("WEBS")**, have traded on the AMEX for varying periods of time (up to five and
one half years) may or may not be indicative of the chances for active trading
and liquidity in the Shares of the Funds described herein.
- ---------------
* DIAMONDS is a service mark of Dow Jones, Inc.
** WEBS and World Equity Benchmark Shares are service marks of Morgan
Stanley Group, Inc.
16
<PAGE> 22
Trading Issues. Trading in Shares on the AMEX may be halted due to market
conditions or for reasons that, in the view of the AMEX, make trading in Shares
inadvisable. In addition, trading in Shares on the AMEX is subject to trading
halts caused by extraordinary market volatility pursuant to AMEX "circuit
breaker" rules. There can be no assurance that the requirements of the AMEX
necessary to maintain the listing of a Select Sector SPDR Fund will continue to
be met or will remain unchanged.
Fluctuation of Net Asset Value. The net asset value of the Shares will
fluctuate with changes in the market value of a Select Sector SPDR Fund's
securities holdings. The market prices of Shares will fluctuate in accordance
with changes in net asset value and supply and demand on the AMEX. The Adviser
cannot predict whether Shares will trade below, at or above their net asset
value. Price differences may be due, in large part, to the fact that supply and
demand forces at work in the secondary trading market for Shares will be closely
related to, but not identical to, the same forces influencing the prices of the
stocks of the Select Sector Index trading individually or in the aggregate at
any point in time. However, given that Shares can be created and redeemed in
Creation Units (unlike shares of many closed-end funds, which frequently trade
at appreciable discounts from, and sometimes at premiums to, their net asset
value), the Adviser believes that large discounts or premiums to the net asset
value of Shares should not be sustained.
Foreign Investments. Each Select Sector SPDR Fund may invest in foreign
securities or American Depository Receipts, if any, included in its benchmark
Select Sector Index. Foreign investments may involve additional risks and
considerations. These risks include, for example, fluctuations in foreign
currency, as well as the political and economic risks of an issuer's country.
Securities of foreign companies may be more volatile than securities of U.S.
companies. In addition, many European countries are about to adopt a single
European currency, the euro (the "Euro Conversion"). The consequences of the
Euro Conversion for foreign exchange rates, interest rates and the value of
European securities eligible for purchase by a Select Sector SPDR Fund are
presently unclear. Such consequences may adversely affect the value and/or
increase the volatility of securities held by a Select Sector SPDR Fund.
Lending of Securities. Although each Select Sector SPDR Fund that may lend
its portfolio securities will receive collateral in connection with all loans of
its securities holdings, a Select Sector SPDR Fund would be exposed to a risk of
loss should a borrower default on its obligation to return the borrowed
securities (e.g., the loaned securities may have appreciated beyond the value of
the collateral held by the Fund). In addition, a Select Sector SPDR Fund will
bear the risk of loss of any cash collateral that it invests.
Leverage. To the extent that a Select Sector SPDR Fund borrows money, it
may be leveraged. Leveraging generally exaggerates the effect on net asset value
of
17
<PAGE> 23
any increase or decrease in the market value of a Select Sector SPDR Fund's
portfolio securities.
Year 2000. The services provided to the Select Sector SPDR Funds by their
various service providers depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Select Sector
SPDR Funds' service providers have been working actively on necessary changes to
their own computer systems to prepare for the year 2000 and expect that their
systems will be adapted before that date, but there can be no assurance that
they will be successful, or that interaction with other non-complying computer
systems will not impair their services at that time.
ADDITIONAL RISKS OF EACH SELECT SECTOR SPDR FUND
Each Select Sector SPDR Fund is subject to the additional risks associated
with concentrating its investments in companies in the market sector that its
benchmark Select Sector Index targets. These risks include:
The Basic Industries Select Sector SPDR Fund. Basic industries in this
Select Sector Index include integrated steel products, chemicals, fibers, paper
and gold. Many companies in this sector are significantly affected by the level
and volatility of commodity prices, the exchange value of the dollar, import
controls, and worldwide competition. At times, worldwide production of
industrial materials has exceeded demand as a result of over-building or
economic downturns, leading to poor investment returns or losses. Other risks
may include liability for environmental damage, depletion of resources, and
mandated expenditures for safety and pollution control. The success of equipment
manufacturing and distribution companies is closely tied to overall capital
spending levels, which are influenced by an individual company's profitability
and broader factors such as interest rates and cross-border competition. The
basic industries sector may also be affected by economic cycles, technical
progress, labor relations, and government regulations.
The Consumer Services Select Sector SPDR Fund. The success of consumer
product manufacturers and retailers is tied closely to the performance of the
overall domestic and international economy, interest rates, competition, and
consumer confidence. Success depends heavily on disposable household income and
consumer spending. Changes in demographics and consumer tastes can also affect
the demand for, and success of, consumer products in the marketplace.
The Consumer Staples Select Sector SPDR Fund. Companies in this Select
Sector Index are involved in the development and production of consumer staples.
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<PAGE> 24
These products include cosmetic and personal care, pharmaceuticals, soft drinks,
tobacco and food products. Such companies are subject to government regulation
affecting the permissibility of using various food additives and production
methods, which regulations could affect company profitability. Tobacco companies
may be adversely affected by the adoption of proposed legislation and/or by
litigation. Also, the success of food, soft drink, and fashion-related products
may be strongly affected by fads, marketing campaigns and other factors
affecting supply and demand.
The Cyclical/Transportation Select Sector SPDR Fund. Companies in this
Select Sector Index are in the transportation industry or involved in the
development of cyclical products. These products include building materials,
retailers, appliances, housewares, air transportation, automotive manufacturing,
shipping and trucking. Companies involved in the building industry may be
affected by a variety of factors such as government spending on housing
subsidies, public works, and transportation facilities. Other factors include
changes in interest rates, consumer confidence and spending, taxation,
demographic patterns, the level of new and existing home sales and other
economic activity. Transportation stocks are cyclical and have occasional sharp
price movements which may result from changes in the economy, fuel prices, labor
agreements and insurance costs. The United States has been deregulating these
industries but it is uncertain whether this trend will continue and what its
effect will be. See also "The Consumer Services Select Sector SPDR Fund".
The Energy Select Sector SPDR Fund. Energy companies in this Select Sector
Index develop and produce crude oil and natural gas and provide drilling and
other energy resources production and distribution related services. Stock
prices for these types of companies are affected by supply and demand both for
their specific product or service and for energy products in general. The price
of oil and gas, exploration and production spending, government regulation,
world events and economic conditions will likewise affect the performance of
these companies. Correspondingly, securities of companies in the energy field
are subject to swift price and supply fluctuations caused by events relating to
international politics, energy conservation, the success of exploration
projects, and tax and other governmental regulatory policies. Weak demand for
the companies' products or services or for energy products and services in
general, as well as negative developments in these other areas, would adversely
impact this Select Sector SPDR Fund's performance.
The Financial Select Sector SPDR Fund. Companies in this Select Sector
Index include a wide array of diversified financial services firms whose
business lines range from investment management to commercial and business
banking. Financial services companies are subject to extensive governmental
regulation which may limit both the amounts and types of loans and other
financial commitments they can
19
<PAGE> 25
make, and the interest rates and fees they can charge. Profitability is largely
dependent on the availability and cost of capital funds, and can fluctuate
significantly when interest rates change. Credit losses resulting from financial
difficulties of borrowers can negatively impact the sector. Insurance companies
may be subject to severe price competition. Legislation is currently being
considered that would reduce the separation between commercial and investment
banking businesses. If enacted, this legislation could significantly impact the
sector and the Fund.
The Industrial Select Sector SPDR Fund. Companies in this Select Sector
Index are involved in the development and production of industrial products,
including construction equipment, waste management services, and industrial
machinery products. Stock prices for these types of companies are affected by
supply and demand both for their specific product or service and for industrial
sector products in general. Government regulation, world events and economic
conditions will likewise affect the performance of these companies. See also
"The Basic Industries Select Sector SPDR Fund", "The Consumer Services Select
Sector SPDR Fund" and "The Cyclical/Transportation Select Sector SPDR Fund".
The Technology Select Sector SPDR Fund. Technology companies in this
Select Sector Index include companies that are involved in the development and
production of technology products. Those products include products developed by
defense manufacturers, telecommunications equipment, microcomputer components,
integrated computer circuits and process monitoring systems. The financial
condition of, and investor interest in, defense companies are heavily influenced
by governmental defense spending policies. Defense spending is under pressure
from efforts to control the U.S. budget. Competitive pressures may have a
significant effect on the financial condition of companies in the technology
sector. Also, many of the products and services offered by technology companies
are subject to the risk of rapid obsolescence.
The Utilities Select Sector SPDR Fund. Utilities included in this Select
Sector Index include communication services, electrical power providers and
natural gas distributors. The rates that traditional regulated utility companies
may charge their customers generally are subject to review and limitation by
governmental regulatory commissions. Although rate changes of a utility usually
fluctuate in approximate correlation with financing costs due to political and
regulatory factors, rate changes ordinarily occur only following a delay after
the changes in financing costs. This factor will tend to favorably affect a
regulated utility company's earnings and dividends in times of decreasing costs,
but conversely, will tend to affect adversely earnings and dividends when costs
are rising. The value of regulated utility debt securities (and, to a lesser
extent, equity securities) tends to have an inverse relationship to the movement
of interest rates. Certain utility companies have experienced full or partial
deregulation in recent years. These utility companies are
20
<PAGE> 26
frequently more similar to industrial companies in that they are subject to
greater competition and have been permitted by regulators to diversify outside
of their original geographic regions and their traditional lines of business.
These opportunities may permit certain utility companies to earn more than their
traditional regulated rates of return. Some companies, however, may be forced to
defend their core business and may be less profitable.
Among the risks that may affect utility companies are the following: risks
of increases in fuel and other operating costs; the high cost of borrowing to
finance capital construction during inflationary periods; restrictions on
operations and increased costs and delays associated with compliance with
environmental and nuclear safety regulations; and the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices. Other risks include those related to the construction and
operation of nuclear power plants; the effects of energy conservation and the
effects of regulatory changes, such as the possible adverse effects on profits
of recent increased competition among telecommunications companies and the
uncertainties resulting from such companies' diversification into new domestic
and international businesses, as well as agreements by any such companies
linking future rate increases to inflation or other factors not directly related
to the actual operating profits of the enterprise.
You should consider the risks of investing in each Select Sector SPDR Fund
that are more fully discussed in the Statement of Additional Information.
MANAGEMENT
Board of Trustees. The Board of Trustees of the Trust has responsibility
for the overall management of each Select Sector SPDR Fund, including general
supervision of the Adviser and other service providers. A list of the Trustees
and the Trust officers, and their present positions and principal occupations
are provided in the Statement of Additional Information.
Adviser. Under the terms of an Investment Advisory Agreement, State Street
serves as the Adviser to each Select Sector SPDR Fund and, subject to the
supervision of the Board of Trustees, will be responsible for the investment
management of the Select Sector SPDR Funds. As of October 31, 1998, the Adviser
managed approximately $461.9 billion in assets, including approximately $187.6
billion in index funds. The Adviser's principal business address is 225 Franklin
Street, Boston, Massachusetts 02210.
For the services provided to the Select Sector SPDR Funds under the
Investment Advisory Agreement, each Fund will pay the Adviser monthly fees based
on a percentage of each Fund's average daily net assets at the annual rate of
.05%. From time to time, the Adviser may waive all or a portion of its fee.
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Administrator, Custodian, and Transfer Agent. State Street is the
Administrator for each Select Sector SPDR Fund, the Custodian of each Select
Sector SPDR Fund's assets, and serves as the Transfer Agent to the Select Sector
SPDR Funds. State Street is paid a "unitary fee" for these services. See "Annual
Fund Operating Expenses" under "SUMMARY OF SELECT SECTOR SPDR FUND EXPENSES."
The unitary fee is equal to the greater of: (a) a sliding scale fee calculated
as follows: (i) .10% of average daily net assets of the Trust up to the first
$4.5 billion of net assets (such $4.5 billion to be increased by $500 million
each time a new Select Sector SPDR Fund is added); (ii) .08% of average daily
net assets up to the next $4.5 billion of net assets of the Trust (such $4.5
billion to be increased by $500 million each time a new Select Sector SPDR Fund
is added); and (iii) .06% of average daily net assets on the remainder of net
assets; or (b) a minimum fee of $3.15 million increased by $350,000 each time a
new Select Sector SPDR Fund is added. The minimum fee will not be in effect for
the first two years of the Trust's operation. Each Select Sector SPDR Fund will
also bear all other expenses of its operation.
Lending Agent. State Street is expected to be designated as the lending
agent for the Trust. In such capacity, it would cause the delivery of loaned
securities from each Select Sector SPDR Fund to borrowers, arrange for the
return of loaned securities to the Select Sector SPDR Fund at the termination of
the loans, request deposit of collateral, monitor daily the value of the loaned
securities and collateral, request that borrowers add to the collateral when
required by the loan agreements, and provide recordkeeping and accounting
services necessary for the operation of the program. For its services, the
lending agent would typically receive a portion of the net investment income, if
any, earned on the collateral for the securities loaned.
Distributor. ALPS Mutual Funds Services, Inc. is the Distributor of each
Select Sector SPDR Fund's Shares. The Distributor will not distribute Shares in
less than Creation Units, and it does not maintain a secondary market in the
Shares. The Distributor may enter into selected dealer agreements with other
broker-dealers or other qualified financial institutions for the sale of
Creation Units of Shares.
The Board of Trustees of the Trust has adopted for each Select Sector SPDR
Fund a distribution plan pursuant to Rule 12b-1 under the 1940 Act. In
accordance with its Rule 12b-1 plan, each Fund is authorized to pay an amount up
to .25% of its average daily net assets per annum for certain
distribution-related activities. Payments will be made by each Select Sector
SPDR Fund to compensate the Distributor for distribution-related services in an
amount calculated daily and payable monthly as follows: (1) the Fund's allocable
portion of the amount of $225,000 per annum for acting as agent of the Fund with
respect to the sale of Creation Units of its Shares; and (2) for administering
the Select Sector SPDR Funds' 12b-1 plans, each Fund's allocable portion of .01%
per annum of the average
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aggregate daily net assets of all Funds that have adopted a 12b-1 plan up to and
including aggregate net assets of $1 billion; plus .0075% per annum of aggregate
net assets in excess of $1 billion up to and including $2.5 billion; plus .005%
per annum of aggregate net assets in excess of $2.5 billion up to and including
$5 billion plus .0025% of aggregate net assets in excess of $5 billion. Subject
to the approval of the Board of Trustees of the Trust, including a majority of
the Trustees who are not "interested persons" of the Trust (as such term is
defined in the 1940 Act) and have no direct or indirect financial interest in
the operation of the Rule 12b-1 plans, additional fees not to exceed .25% of
average daily net assets per annum after taking into account the compensation
payments to the Distributor (described above) may be paid pursuant to investor
services agreements entered into by the Distributor with broker-dealers or other
financial institutions to provide distribution assistance and shareholder
support, account maintenance and educational and promotional services (which may
include compensation and sales incentives to the registered brokers or other
sales personnel of the broker-dealer or other financial entity that is a party
to an investor services agreement). Fees paid to any one broker-dealer or
financial institution pursuant to an investor services agreement may not exceed
.10% of a Fund's average daily net assets per annum attributable to the Shares
subject to such agreement. To the extent any additional payments may be made
without exceeding .25% of average daily net assets per annum after taking into
account compensation payments to the Distributor and payments pursuant to
investor services agreements, payments may be made to reimburse the Distributor
or another party pursuant to arrangements with the Distributor for promotional
and marketing activities related to the sale of Shares including, but not
limited to, printing and distribution of prospectuses and statements of
additional information for investors (except for such printing and distribution
costs as are incurred by a Select Sector SPDR Fund directly in connection with
prospectuses and statements of additional information required to be sent to
existing shareholders) and the production and distribution of advertisements and
other promotional, sales and marketing materials relating to the sale of Shares.
Distribution expenses incurred in any one year in excess of .25% of a Fund's
average daily net assets may be reimbursed in subsequent years subject to the
annual .25% limit. The fees paid by a Select Sector SPDR Fund under its 12b-1
plan as compensation for distribution, marketing or shareholder services for
that Fund may exceed the expenses actually incurred by the recipients of such
fees. Each 12b-1 plan and related agreement is subject to approval annually by
the Board of Trustees in accordance with the requirements of Rule 12b-1. For
additional information, see "THE DISTRIBUTOR" under "MANAGEMENT OF THE TRUST" in
the Statement of Additional Information. The Distributor's principal business
address is 370 17th Street, Suite 3100, Denver, CO 80202.
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<PAGE> 29
INDEX LICENSE
S&P, the AMEX and Merrill Lynch have entered into a license agreement with
respect to each Select Sector SPDR Fund's Select Sector Index. Pursuant to such
license agreement, the Trust has entered into a sub-license agreement which
provides that each Select Sector SPDR Fund will pay a one time fee to S&P of
$5,000 (the "One Time Fee"). In addition, the Trust will pay a sub-license fee
per annum (i) to S&P equal to the greater of .03% of the aggregate net assets of
the Trust or $450,000 (the "Minimum Annual Fee"), and (ii) to Merrill Lynch
equal to .03% of the aggregate net assets of the Trust. The Minimum Annual Fee
(plus the One Time Fee) is payable in full to S&P during the first year of the
sub-license agreement six months from the date after the first day of trading of
any Select Sector SPDR Fund on the AMEX (the "First Trading Day"). Thereafter,
the Minimum Annual Fee is payable in full on each anniversary of the First
Trading Day. The fee to Merrill Lynch is payable on a quarterly basis. Each
Select Sector SPDR Fund will pay its proportionate share of the annual
sub-license fees based on the relative net assets of such Fund.
DETERMINATION OF NET ASSET VALUE
Net asset value per Share for each Select Sector SPDR Fund is computed by
dividing the value of the net assets of such Select Sector SPDR Fund (i.e., the
value of its total assets less total liabilities) by its total number of Shares
outstanding. Expenses and fees, including the management, administration and
distribution fees, are accrued daily and taken into account for purposes of
determining net asset value. The net asset value of each Select Sector SPDR Fund
is calculated by the Custodian and determined each business day after the close
of trading (ordinarily 4:00 p.m., New York time) of the New York Stock Exchange
("NYSE").
BUYING AND SELLING SELECT SECTOR SPDRS
The Select Sector SPDRs have been approved for listing and secondary
trading on the AMEX, subject to notice of issuance. If you buy or sell Select
Sector SPDRs in the secondary market, you will incur customary brokerage
commissions and charges and may pay some or all of the spread between the bid
and the offered price in the secondary market on each leg of a round trip
(purchase and sale) transaction. The Select Sector SPDRs will trade on the AMEX
at prices that may differ to varying degrees from the daily net asset values of
the Shares. Given, however, that Select Sector SPDRs can be issued and redeemed
in Creation Units, the Adviser believes that large discounts and premiums to net
asset value should not be sustained for very long.
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<PAGE> 30
It is believed desirable for the net asset value per Share of each Select
Sector SPDR Fund initially offered to the public to be approximately one-tenth
( 1/10) of the value of its respective Select Sector Index. To accomplish this,
if required, a one-time stock split or reverse stock split may be effected with
respect to the Shares of one or more Select Sector SPDR Funds held by the sole
shareholder of the Funds (see "GENERAL INFORMATION" in this Prospectus and the
audited balance sheet of the Trust and the Funds included in the Statement of
Additional Information) prior to the public offering of Creation Units of
Shares. The one-time stock split or reverse stock split will have no effect on
the net assets of any Select Sector SPDR Fund. The number of Shares constituting
a Creation Unit in the case of each Select Sector SPDR Fund will remain 50,000.
See "Shareholder Transaction Expenses" under "SUMMARY OF SELECT SECTOR SPDR FUND
EXPENSES" for the cost of the securities comprising a deposit of designated
equity securities necessary for an in-kind purchase of a Creation Unit for each
Select Sector SPDR Fund as of December 14, 1998.
The AMEX disseminates every fifteen (15) seconds through the facilities of
the Consolidated Tape Association the value of each Select Sector Index and an
amount representing on a per Share basis the sum of the "Dividend Equivalent
Payment" effective through and including the previous business day, plus the
current value of the "Deposit Securities" (see "CREATION AND REDEMPTION OF
CREATION UNITS"). The Select Sector SPDR Funds are not involved in, or
responsible for, the calculation or dissemination of such amount and make no
warranty as to its accuracy.
The Depository Trust Company ("DTC") serves as securities depository for
the Shares. The Shares may be held only in book-entry form; stock certificates
will not be issued. DTC, or its nominee, is the record or registered owner of
all outstanding Select Sector SPDR Fund Shares. Beneficial ownership of Shares
will be shown on the records of DTC or its participants (described below).
Beneficial owners of Shares are not entitled to have Shares registered in their
names, will not receive or be entitled to receive physical delivery of
certificates in definitive form and are not considered the registered holder
thereof. Accordingly, to exercise any rights of a holder of Shares, a beneficial
owner must rely on the procedures of (i) DTC; (ii) "DTC Participants", i.e.,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives) own
DTC; and (iii) "Indirect Participants", i.e., brokers, dealers, banks and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly, through which such beneficial owner
holds its interests. The Trust understands that under existing industry
practice, in the event the Trust requests any action of holders of Shares, or a
beneficial owner desires to take any action that DTC, as the record owner of all
outstanding Shares, is entitled to take, DTC would authorize the DTC
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<PAGE> 31
Participants to take such action and that the DTC Participants would authorize
the Indirect Participants and beneficial owners acting through such DTC
Participants to take such action and would otherwise act upon the instructions
of beneficial owners owning through them. As described above, the Trust
recognizes DTC or its nominee as the owner of all Shares for all purposes. For
more information, see the section entitled "BOOK ENTRY ONLY SYSTEM" in the
Statement of Additional Information.
The Trust will issue through DTC Participants to its shareholders
semi-annual reports containing unaudited financial statements and annual reports
containing financial statements audited by independent auditors approved by the
Trust's Trustees and by the shareholders when meetings are held and such other
information as may be required by applicable laws, rules and regulations.
Beneficial owners also receive annually notification as to the tax status of the
Trust's distributions.
CREATION AND REDEMPTION OF CREATION UNITS
Each Select Sector SPDR Fund issues Shares (through the Distributor) and
redeems Shares (through the Transfer Agent) only in Creation Units (50,000
Shares per Creation Unit) at their net asset value on a continuous basis. Set
forth below is a brief description of the procedures applicable to creation and
redemption of Creation Units. For more detailed information, see "CREATION AND
REDEMPTION OF CREATION UNITS" in the Statement of Additional Information.
Creation
In order to create (i.e., purchase) Creation Units of a Select Sector SPDR
Fund, an investor must deposit a designated portfolio of equity securities
constituting a substantial replication, or a representation, of the stocks
included in the relevant Select Sector SPDR Fund's Select Sector Index (the
"Deposit Securities") and generally make a small cash payment referred to as the
"Cash Component." The list of the names and the number of shares of the Deposit
Securities is made available by the Custodian through the facilities of the
NSCC, immediately prior to the opening of business on the AMEX. The Cash
Component represents the difference between the net asset value of a Creation
Unit and the market value of the Deposit Securities, and includes the Dividend
Equivalent Payment. The Dividend Equivalent Payment is an amount intended to
enable a Select Sector SPDR Fund to make a distribution of dividends on the next
dividend payment date as if all the portfolio securities of the Fund had been
held for the entire dividend period. See the Statement of Additional Information
for a description as to the manner in which the Dividend Equivalent Payment is
calculated.
Orders must be placed in proper form by or through either (i) a
"Participating Party", i.e., a broker-dealer or other participant in the
clearing process of the
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Continuous Net Settlement System of the NSCC (the "Clearing Process"); or
(ii) a DTC Participant, that, in either case, has entered into an agreement with
the Trust, the Distributor and the Transfer Agent, with respect to creations and
redemptions of Creation Units ("Participant Agreement"). Investors should
contact the Distributor for the names of Participating Parties and/or DTC
Participants that have signed a Participant Agreement. All orders must be placed
for one or more whole Creation Units of Shares of a Select Sector SPDR Fund and
must be received by the Distributor in proper form no later than the closing
time of the NYSE (ordinarily 4:00 p.m., New York time) ("Closing Time") in order
to be effected based on the net asset value of Shares of such Select Sector SPDR
Fund as next determined on such date following receipt of such order in proper
form.
Orders may be effected through the Clearing Process or outside the Clearing
Process. An order to create Creation Units through the Clearing Process (through
a Participating Party), or outside the Clearing Process (through a DTC
Participant), is deemed received by the Distributor on the date transmitted if
the order is received by the Distributor no later than the Closing Time on such
date and all other procedures set forth in the Participant Agreement are
followed. However, in the case of orders effected outside the Clearing Process,
if the Custodian does not receive the requisite Deposit Securities and the Cash
Component by 11:00 a.m. and 2:00 p.m., New York time, respectively, on the next
business day immediately following the transmittal date, the order will be
cancelled. Any order may be rejected under certain limited circumstances which
are specified in the Statement of Additional Information.
A fixed transaction fee of $1,000 is applicable to each creation
transaction regardless of the number of Creation Units created in the
transaction. An additional charge of up to three (3) times the fixed transaction
fee (for a total charge of up to $4,000) may be imposed with respect to
transactions effected outside the Clearing Process (through a DTC Participant)
and in the limited circumstances specified in the Statement of Additional
Information in which any cash can be used in lieu of Deposit Securities to
create Creation Units. Shares may be issued in advance of receipt of Deposit
Securities subject to various conditions including a requirement to maintain on
deposit with the Trust cash at least equal to 115% of the market value of the
missing Deposit Securities. Any such transaction effected must be effected
outside the Clearing Process. See "CREATION AND REDEMPTION OF CREATION UNITS" in
the Statement of Additional Information.
Legal Restrictions on Transactions in Certain Stocks. An investor subject
to a legal restriction with respect to a particular stock required to be
deposited in connection with the creation of a Creation Unit may, at the Fund's
discretion, be permitted to deposit an equivalent amount of cash in substitution
for any stock
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which would otherwise be included in the Deposit Securities applicable to the
creation of a Creation Unit.
Redemption
Shares may be redeemed only in Creation Units at their net asset value and
only on a day the NYSE is open for business. The Custodian makes available
immediately prior to the opening of business on the AMEX, through the facilities
of the NSCC, the list of the names and the number of Shares of each Select
Sector SPDR Fund's portfolio securities that will be applicable that day to
redemption requests in proper form ("Fund Securities"). Fund Securities received
on redemption may not be identical to Deposit Securities which are applicable to
creations of Creation Units. Unless cash redemptions are available or specified
for a particular Select Sector SPDR Fund, the redemption proceeds consist of the
Fund Securities, plus cash in an amount equal to the difference between the net
asset value of the Shares being redeemed as next determined after receipt of a
redemption request in proper form, and the value of the Fund Securities (the
"Cash Redemption Amount"), less the applicable redemption fee. Should the Fund
Securities have a value greater than the net asset value of the Shares, a
compensating cash payment to the Trust equal to the differential will be
required to be arranged for by or on behalf of the redeeming shareholder by the
Participating Party or DTC Participant, as the case may be. The calculation of
the value of the Fund Securities and the Cash Redemption Amount to be delivered
to the redeeming shareholder(s) will be made by the Custodian according to
procedures set forth herein under "DETERMINATION OF NET ASSET VALUE" (and in the
Statement of Additional Information) computed on the business day on which a
redemption order is deemed received by the Transfer Agent. For more detail, see
"CREATION AND REDEMPTION OF CREATION UNITS" in the Statement of Additional
Information.
Orders to redeem Creation Units of a Select Sector SPDR Fund may only be
effected by or through a Participating Party (with respect to redemptions
through the Clearing Process) or a DTC Participant (with respect to redemptions
outside the Clearing Process). An order to redeem through the Clearing Process
is deemed received on the date of transmittal if such order is received by the
Transfer Agent prior to the Closing Time on the date of transmittal and all
other procedures set forth in the Participant Agreement are properly followed.
An order to redeem outside the Clearing Process is deemed received by the
Transfer Agent on the date of transmittal if: (i) such order is received by the
Transfer Agent no later than 4:00 p.m., New York time, on the transmittal date;
(ii) such order is accompanied or proceeded by the requisite number of Shares
specified in the order, which delivery must be made through DTC to the Custodian
no later than 11:00 a.m.,
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New York time, on the next business day after the transmittal date; and (iii)
all other procedures set forth in the Participant Agreement are followed.
A fixed transaction fee of $1,000 is applicable to each redemption
transaction regardless of the number of Creation Units redeemed in the
transaction. An additional charge of up to three (3) times the fixed transaction
fee (for a total charge of up to $4,000) may be charged with respect to
transactions effected outside the Clearing Process and in the limited
circumstances specified in the Statement of Additional Information in which any
cash may be used in lieu of securities to redeem Creation Units.
Investors must accumulate enough Shares of a Select Sector SPDR Fund in the
secondary market to constitute a Creation Unit in order to redeem such Shares.
The accumulation of such Shares requires that there be sufficient liquidity in
the public market to assemble the required number of Shares and will be subject
to brokerage and other costs. See "Shareholder Transaction Expenses" under
"SUMMARY OF SELECT SECTOR SPDR FUND EXPENSES" for the approximate cost of a
Creation Unit of Shares.
Legal Restrictions on Transactions in Certain Stocks. An investor subject
to a legal restriction with respect to a particular stock included in the Fund
Securities applicable to the redemption of a Creation Unit may be paid an
equivalent amount of cash.
DISTRIBUTIONS
Dividends and Capital Gains. As a Select Sector SPDR Fund shareholder, you
are entitled to your share of the Fund's income and net realized gains on its
investments. Each Select Sector SPDR Fund pays out substantially all of its net
earnings to its shareholders as "distributions."
Each Select Sector SPDR Fund typically earns income dividends from stocks
and interest from debt securities. These amounts, net of expenses, are passed
along to Fund shareholders as "income dividend distributions." Each Select
Sector SPDR Fund realizes capital gains or losses whenever it sells securities.
Net capital gains are distributed to shareholders as "capital gain
distributions."
Income dividends, if any, are distributed to shareholders quarterly. Net
capital gains are distributed at least annually. Dividends may be declared and
paid more frequently to improve Select Sector Index tracking or to comply with
the distribution requirements of the Internal Revenue Code. In addition, each
Select Sector SPDR Fund intends to distribute at least annually amounts
representing the full dividend yield net of expenses on the underlying
investment securities, as if the Select Sector SPDR Fund owned the underlying
investment securities for the entire
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dividend period. As a result, some portion of each distribution may result in a
return of capital. You will be notified regarding the portion of the
distribution which represents a return of capital.
Distributions in cash may be reinvested automatically in additional whole
Shares only if the broker through which you purchased Shares makes such option
available.
TAX MATTERS
As with any investment, you should consider how your Select Sector SPDR
Fund investment will be taxed. The tax information in this Prospectus is
provided as general information. You should consult your own tax professional
about the tax consequences of an investment in a Select Sector SPDR Fund.
Unless your investment in a Select Sector SPDR Fund is through a tax-exempt
entity or taxed-deferred retirement account, such as a 401(k) plan, you need to
be aware of the possible tax consequences when:
- The Select Sector SPDR Fund makes distributions,
- You sell Shares listed on the AMEX, and
- You create or redeem Creation Units.
Taxes on Distributions. Each Select Sector SPDR Fund will distribute any
net investment income quarterly, and any net realized long-term or short-term
capital gains annually. Each Select Sector SPDR Fund may also pay a special
distribution at the end of the calendar year to comply with federal tax
requirements. In general, your distributions are subject to federal income tax
when they are paid, whether you take them in cash or reinvest them in a Select
Sector SPDR Fund. Dividends paid out of a Select Sector SPDR Fund's income and
net short-term gains, if any, are taxable as ordinary income. Distributions of
net long-term capital gains, if any, in excess of net short-term capital losses
are taxable as long-term capital gains, regardless of how long you have held the
Shares.
Distributions in excess of a Select Sector SPDR Fund's current and
accumulated earnings and profits are treated as a tax-free return of capital to
the extent of your basis in the Shares, and as capital gain thereafter. A
distribution will reduce a Select Sector SPDR Fund's net asset value per Share
and may be taxable to you as ordinary income or capital gain even though, from
an investment standpoint, it may constitute a return of capital.
If you are neither a lawful permanent resident nor a citizen of the United
States or if you are a foreign entity, each Select Sector SPDR Fund's ordinary
income dividends (which include distributions of net short-term capital gains)
will generally be subject to a 30% U.S. withholding tax, unless a lower treaty
rate applies.
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Dividends and interest received by each Select Sector SPDR Fund may give
rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
By law, your Select Sector SPDR Fund must withhold 31% of your
distributions and proceeds if you have not provided a taxpayer identification
number or social security number.
Taxes on AMEX-Listed Share Sales. Currently, any capital gain or loss
realized upon a sale of Shares is generally treated as long-term capital gain or
loss if the Shares have been held for more than one year and as short-term
capital gain or loss if the Shares have been held for one year or less.
Taxes on Creations and Redemptions of Creation Units. A person who
exchanges equity securities for Creation Units generally will recognize a gain
or loss. The gain or loss will be equal to the difference between the market
value of the Creation Units at the time and the exchanger's aggregate basis in
the securities surrendered and the Cash Component paid. A person who exchanges
Creation Units for equity securities will generally recognize a gain or loss
equal to the difference between the exchanger's basis in the Creation Units and
the aggregate market value of the securities received and the Cash Redemption
Amount. The Internal Revenue Service, however, may assert that a loss realized
upon an exchange of securities for Creation Units cannot be deducted currently
under the rules governing "wash sales," or on the basis that there has been no
significant change in economic position. Persons exchanging securities should
consult their own tax advisor with respect to whether wash sale rules apply and
when a loss might be deductible.
Under current federal tax laws, any capital gain or loss realized upon a
redemption of Creation Units is generally treated as long-term capital gain or
loss if the Shares have been held for more than one year and as a short-term
capital gain or loss if the Shares have been held for one year or less.
If you create or redeem Creation Units, you will be sent a confirmation
statement showing how many Shares you purchased or sold and at what price.
The foregoing discussion summarizes some of the consequences under current
federal tax law of an investment in a Select Sector SPDR Fund. It is not a
substitute for personal tax advice. Consult your personal tax adviser about the
potential tax consequences of an investment in a Select Sector SPDR Fund under
all applicable tax laws.
GENERAL INFORMATION
The Trust was organized as a Massachusetts business trust on June 10, 1998.
If shareholders are required to vote on any matters, each Share outstanding
would be
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entitled to one vote. Annual meetings of shareholders will not be held except as
required by the 1940 Act and other applicable law. See the Statement of
Additional Information for more information concerning the Trust's form of
organization.
For purposes of the 1940 Act, Shares of the Select Sector SPDR Funds are
issued by the respective Funds and the acquisition of Shares by investment
companies is subject to the restrictions of section 12(d)(1) of the Act.
Each Select Sector SPDR Fund expects that, immediately prior to the date of
this Prospectus, ALPS Mutual Funds Services, Inc. will be the sole shareholder
of its outstanding Shares. Following the creation of the initial Creation
Unit(s) of Shares of a Select Sector SPDR Fund and immediately prior to the
commencement of trading in such Fund's Shares, a holder of Shares may be a
"control person" of the Fund. A Select Sector SPDR Fund cannot predict the
length of time that one or more shareholders may remain a control person of the
Fund.
From time to time, the Select Sector SPDR Funds advertise yield and total
return figures. Yield is an historical measure of dividend income, and total
return is a measure of past dividend income (assuming that it has been
reinvested) plus capital appreciation. Neither yield nor total return should be
used to predict the future performance of a Select Sector SPDR Fund. For a more
detailed description of how each Select Sector SPDR Fund computes its
performance figures and how these numbers may be used in advertisements, please
consult the Statement of Additional Information.
Gordon Altman Butowsky Weitzen Shalov & Wein serve as counsel to the Trust,
including each Select Sector SPDR Fund. PricewaterhouseCoopers LLP serves as
independent accountants and will audit each Fund's financial statement annually.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information included in the
Registration Statement filed with the SEC with respect to each Select Sector
SPDR Fund's Shares. The Registration Statement, including this Prospectus, the
Statement of Additional Information, and the exhibits may be examined at the
offices of the SEC (450 Fifth Street, N.W., Washington D.C. 20549) or at the
SEC's Web site (http://(1)www.sec.gov). These documents and other information
concerning the Trust also may be inspected at the offices of the AMEX (86
Trinity Place, New York, New York 10006).
Shareholder inquiries may be directed to the Select Sector SPDR Funds in
writing to ALPS Mutual Funds Services, Inc. at 370 17th Street, Suite 3100,
Denver, CO 80202.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER OF A SELECT SECTOR SPDR FUND'S SHARES, AND, IF GIVEN OR MADE, THE
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE TRUST OR ANY SELECT SECTOR SPDR FUND. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE OF SHARES SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE AFTER THE DATE OF THIS
PROSPECTUS.
DEALERS EFFECTING TRANSACTIONS IN A SELECT SECTOR SPDR FUND'S SHARES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, ARE GENERALLY REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO ANY OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Summary of Select Sector SPDR Fund
Expenses............................ 5
The Select Sector SPDR Funds and
their Investment Objectives......... 8
Who Should Invest?................... 9
Investment Policies and Strategies... 10
Description of the Select Sector
Indexes............................. 12
Investment Limitations............... 15
Investment Considerations and
Risks............................... 15
Management........................... 21
Index License........................ 24
Determination of Net Asset Value..... 24
Buying and Selling Select Sector
SPDRs............................... 24
Creation and Redemption of Creation
Units............................... 26
Distributions........................ 29
Tax Matters.......................... 30
General Information.................. 31
Additional Information............... 32
</TABLE>
THE SELECT
SECTOR
SPDR(R) TRUST
-------------------
PROSPECTUS
-------------------
DECEMBER 16, 1998
[SELECT SECTOR SPDRS LOGO]
<PAGE> 39
PART B
THE SELECT SECTOR SPDR(R) TRUST
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 16, 1998
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the Prospectus dated December 16, 1998 (the
"Prospectus") for The Select Sector SPDR Trust (the "Trust"), as it may be
revised from time to time. Capitalized terms used herein that are not defined
have the same meaning as in the Prospectus, unless otherwise noted. A copy of
the Prospectus for the Trust may be obtained without charge by writing to the
Trust's Distributor, ALPS Mutual Funds Services, Inc., at 370 17th Street, Suite
3100, Denver, CO 80202.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's
500(R)", "500", "Standard & Poor's Depositary Receipts(R)", "SPDRs(R)", "Select
Sector SPDR", "Select Sector SPDRs" and "Select Sector Standard & Poor's
Depositary Receipts" are trademarks of The McGraw-Hill Companies, Inc. and have
been licensed for use in connection with the listing and trading of Select
Sector SPDRs on the American Stock Exchange LLC (the "AMEX"). The stocks
included in each Select Sector Index (upon which the Select Sector SPDRs are
based) were selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch" and sometimes referred to as the "Index Compilation Agent") in
consultation with Standard & Poor's ("S&P") from the universe of companies
represented by the Standard & Poor's 500 Composite Stock Index ("S&P 500"). The
composition and weighting of the stocks included in each Select Sector Index can
be expected to differ from the composition and weighting of stocks included in
any similar S&P 500 sector index that is published and disseminated by S&P.
<PAGE> 40
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
General Description of the Trust..................................................................................6
Investment Policies and Restrictions.............................................................................25
Special Considerations and Risks.................................................................................30
Exchange Listing and Trading.....................................................................................31
Management of the Trust..........................................................................................32
Brokerage Transactions...........................................................................................40
Book Entry Only System...........................................................................................41
Creation and Redemption of Creation Units........................................................................43
Determination of Net Asset Value.................................................................................52
Dividends and Distributions......................................................................................52
Taxes ........................................................................................................53
Capital Stock and Shareholder Reports............................................................................56
Performance and Other Information................................................................................57
Counsel and Independent Auditors.................................................................................60
Report of Independent Accountants................................................................................61
Exhibit A........................................................................................................66
</TABLE>
-----------------------------------------------------
The information contained herein regarding the Select Sector Indexes,
securities markets and The Depository Trust Company ("DTC") was obtained from
publicly available sources.
EACH SELECT SECTOR INDEX IS BASED ON EQUITY SECURITIES OF PUBLIC
<PAGE> 41
COMPANIES THAT ARE COMPONENTS OF THE S&P 500, SELECTED ON THE BASIS OF GENERAL
INDUSTRIAL CLASSIFICATION, AND INCLUDED AS CONSTITUENT SECURITIES OF A
PARTICULAR SELECT SECTOR INDEX BY THE INDEX COMPILATION AGENT IN CONSULTATION
WITH S&P, A DIVISION OF THE MCGRAW-HILL COMPANIES, INC. THE AMERICAN STOCK
EXCHANGE ACTS AS "INDEX CALCULATION AGENT" IN CONNECTION WITH THE CALCULATION
AND DISSEMINATION OF EACH SELECT SECTOR INDEX.
SELECT SECTOR SPDRS ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY
S&P. S&P MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS
OF THE SELECT SECTOR SPDRS OR ANY MEMBER OF THE PUBLIC REGARDING THE
ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE SELECT SECTOR SPDRS
PARTICULARLY OR THE ABILITY OF A SELECT SECTOR SPDR FUND TO TRACK THE
PERFORMANCE OF THE VARIOUS SECTORS REPRESENTED IN THE STOCK MARKET. THE STOCKS
INCLUDED IN EACH SELECT SECTOR INDEX WERE SELECTED BY THE INDEX COMPILATION
AGENT IN CONSULTATION WITH S&P FROM A UNIVERSE OF COMPANIES REPRESENTED BY THE
S&P 500. THE COMPOSITION AND WEIGHTING OF STOCKS INCLUDED IN EACH SELECT
SECTOR INDEX CAN BE EXPECTED TO DIFFER FROM THE COMPOSITION AND WEIGHTING OF
STOCKS INCLUDED IN THE CORRESPONDING S&P 500 SECTOR INDEX THAT IS PUBLISHED AND
DISSEMINATED BY S&P. S&P'S ONLY RELATIONSHIP TO THE INDEX COMPILATION AGENT IS
THE LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES OF S&P AND OF THE S&P 500
WHICH IS DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO THE INDEX
COMPILATION AGENT OR ANY SELECT SECTOR SPDR FUND. S&P HAS NO OBLIGATION TO TAKE
THE NEEDS OF THE INDEX COMPILATION AGENT, THE TRUST OR THE OWNERS OF THE SELECT
SECTOR SPDRS INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE S&P
500. S&P IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN ANY DETERMINATION OR
CALCULATION MADE WITH RESPECT TO ISSUANCE OR REDEMPTION OF THE SELECT SECTOR
SPDRS. S&P HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION,
MARKETING OR TRADING OF THE SELECT SECTOR SPDRS.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR COMPLETENESS OF THE S&P 500,
THE SELECT SECTOR INDEXES OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE INDEX COMPILATION AGENT,
THE TRUST, OWNERS OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE S&P 500, THE SELECT SECTOR INDEXES OR ANY DATA INCLUDED THEREIN IN
CONNECTION WITH THE RIGHTS LICENSED UNDER THE LICENSE AGREEMENT OR FOR ANY OTHER
USE. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE S&P 500,
3
<PAGE> 42
THE SELECT SECTOR INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF
THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
THE SHARES ARE NOT SPONSORED OR PROMOTED BY EITHER THE INDEX
CALCULATION AGENT OR THE INDEX COMPILATION AGENT.
NEITHER THE INDEX CALCULATION AGENT NOR THE INDEX COMPILATION AGENT
MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE
SHARES OF ANY SELECT SECTOR SPDR FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE
ABILITY OF THE INDEXES IDENTIFIED HEREIN TO TRACK STOCK MARKET PERFORMANCE. THE
SELECT SECTOR INDEXES IDENTIFIED HEREIN ARE DETERMINED, COMPOSED AND CALCULATED
WITHOUT REGARD TO THE SHARES OF ANY SELECT SECTOR SPDR FUND OR THE ISSUER
THEREOF. THE INDEX CALCULATION AGENT AND THE INDEX COMPILATION AGENT ARE NOT
RESPONSIBLE FOR, NOR HAVE THEY PARTICIPATED IN, THE DETERMINATION OF THE TIMING
OF, PRICES OF, OR QUANTITIES OF THE SHARES OF ANY SELECT SECTOR SPDR FUND TO BE
ISSUED, NOR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE
SHARES ARE REDEEMABLE. THE INDEX CALCULATION AGENT AND THE INDEX COMPILATION
AGENT HAVE NO OBLIGATION OR LIABILITY TO OWNERS OF THE SHARES OF ANY SELECT
SECTOR SPDR FUND IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF
THE SHARES OF ANY SELECT SECTOR SPDR FUND.
ALTHOUGH MERRILL LYNCH -- AS THE INDEX COMPILATION AGENT -- SHALL
OBTAIN AND PROVIDE INFORMATION TO THE AMEX -- AS THE INDEX CALCULATION AGENT --
FROM SOURCES WHICH IT CONSIDERS RELIABLE, THE INDEX COMPILATION AGENT AND THE
INDEX CALCULATION AGENT DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
ANY SELECT SECTOR INDEX OR ANY DATA INCLUDED THEREIN. THE INDEX COMPILATION
AGENT AND THE INDEX CALCULATION AGENT MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS
TO RESULTS TO BE OBTAINED BY THE TRUST AS LICENSEE, LICENSEE'S CUSTOMERS AND
COUNTERPARTIES, OWNERS OF THE SHARES, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE SELECT SECTOR INDEXES OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE
RIGHTS LICENSED AS DESCRIBED HEREIN OR FOR ANY OTHER USE. THE INDEX COMPILATION
AGENT AND THE INDEX CALCULATION AGENT MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND
EACH HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE WITH RESPECT TO THE SELECT SECTOR INDEXES OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE
INDEX COMPILATION AGENT OR THE INDEX CALCULATION AGENT HAVE ANY
4
<PAGE> 43
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
5
<PAGE> 44
GENERAL DESCRIPTION OF THE TRUST
The Trust is an open-end management investment company. The Trust
currently consists of nine investment series (each, a "Select Sector SPDR Fund"
or "Fund" and collectively the "Select Sector SPDR Funds" or "Funds"). The Trust
was organized as a Massachusetts business trust on June 10, 1998. The shares of
each Select Sector SPDR Fund are referred to herein as "Shares." The Select
Sector SPDR Funds offered by the Trust are: The Basic Industries Select Sector
SPDR Fund; The Consumer Services Select Sector SPDR Fund; The Consumer Staples
Select Sector SPDR Fund; The Cyclical/Transportation Select Sector SPDR Fund;
The Energy Select Sector SPDR Fund; The Financial Select Sector SPDR Fund; The
Industrial Select Sector SPDR Fund; The Technology Select Sector SPDR Fund; and
The Utilities Select Sector SPDR Fund. The investment objective of each Select
Sector SPDR Fund is to provide investment results that, before expenses,
correspond generally to the price and yield performance of publicly traded
equity securities of companies in a particular sector or group of industries, as
represented by a specified market sector index (each a "Select Sector Index").
Each Select Sector SPDR Fund is managed by State Street Bank and Trust Company
("State Street" or the "Adviser").
Each Select Sector SPDR Fund offers and issues Shares at their net
asset value only in aggregations of a specified number of Shares (each, a
"Creation Unit") generally in exchange for a basket of equity securities
included in its Select Sector Index ("Deposit Securities") together with the
deposit of a specified cash payment ("Cash Component"). The Shares have been
approved for listing and secondary trading on the AMEX, subject to notice of
issuance. The Shares will trade on the AMEX at market prices. These prices may
differ from the Shares' net asset value. The Shares are also redeemable only in
Creation Unit aggregations, and generally in exchange for portfolio securities
and a specified cash payment. A Creation Unit of each Select Sector SPDR Fund
consists of 50,000 Shares.
The Trust reserves the right to offer a "cash" option for creations and
redemptions of Shares (subject to applicable legal requirements) although it has
no current intention of doing so. Shares may be issued in advance of receipt of
Deposit Securities subject to various conditions including a requirement to
maintain on deposit with the Trust cash at least equal to 115% of the market
value of the missing Deposit Securities. See "CREATION AND REDEMPTION OF
CREATION UNITS." In each instance of such cash creations or redemptions, the
Trust may impose transaction fees that will be higher than the transaction fees
associated with in-kind creations or redemptions. In all cases, such fees will
be limited in accordance with the requirements of the Securities and Exchange
Commission (the "SEC") applicable to management investment companies offering
redeemable securities.
THE SELECT SECTOR INDEXES AND RELEVANT EQUITY MARKETS
Each of the nine Select Sector Indexes which is the benchmark for a
Select Sector SPDR Fund is intended to give investors an efficient, modified
market capitalization-based way to track the movement of baskets of equity
securities of public companies that are components of the S&P 500 and are
included in specific sectors.
6
<PAGE> 45
CONSTRUCTION AND MAINTENANCE STANDARDS FOR THE SELECT SECTOR INDEXES
SELECTION CRITERIA
Each Select Sector Index has been developed and will be maintained in
accordance with the following criteria:
- Each of the component stocks in a Select Sector Index (the
"Component Stocks") has been selected from the universe of
companies defined by the S&P 500.
- The nine Select Sector Indexes together will include all of
the companies represented in the S&P 500 and each of the
stocks in the S&P 500 will be allocated to one and only one of
the Select Sector Indexes.
- The Component Stocks have been assigned to a Select Sector
Index by the Index Compilation Agent. The Index Compilation
Agent, after consultation with S&P, assigns Component Stocks
to a particular Select Sector Index on the basis of such
company's sales and earnings composition and the sensitivity
of the company's stock price and business results to the
common factors that affect other companies in such Select
Sector Index. S&P has sole control over the removal of stocks
from the S&P 500 and the selection of replacement stocks to be
added to the S&P 500. However, S&P plays only a consulting
role in the assignment of the S&P 500 component securities to
any Select Sector Index, which is the sole responsibility of
the Index Compilation Agent.
- Each Select Sector Index is weighted based on the market
capitalization of each of the Component Stocks, subject to the
following asset diversification requirements: (i) the market
capitalization-based weighted value of any single Component
Stock measured on the last day of a calendar quarter may not
exceed 24.99% of the total value of its respective Select
Sector Index; and (ii) with respect to 50% of the total value
of the Select Sector Index, the market capitalization-based
weighted value of the Component Stocks must be diversified so
that no single Component Stock measured on the last day of a
calendar quarter represents more than 4.99% of the total value
of its respective Select Sector Index.
- Rebalancing the Select Sector Indexes to meet the asset
diversification requirements will be the responsibility of the
American Stock Exchange Index Services Group ("ISG"). If
shortly prior to the last business day of any
7
<PAGE> 46
calendar quarter (a "Quarterly Qualification Date"), a
Component Stock (or two or more Component Stocks) approaches
the maximum allowable value limits set forth above (the "Asset
Diversification Limits"), the percentage that such Component
Stock (or Component Stocks) represents in the Select Sector
Index will be reduced and the market capitalization-based
weighted value of such Component Stock (or Component Stocks)
will be redistributed across the Component Stocks that do not
closely approach the Asset Diversification Limits in
accordance with the following methodology: First, each
Component Stock that exceeds 24% of the total value of the
Select Sector Index will be reduced to 23% of the total value
of the Select Sector Index and the aggregate amount by which
all Component Stocks exceed 24% will be redistributed equally
across the remaining Component Stocks that represent less than
23% of the total value of the Select Sector Index. If as a
result of this redistribution, another Component Stock then
exceeds 24%, the redistribution will be repeated as necessary.
Second, with respect to the 50% of the value of the Select
Sector Index accounted for by the lowest weighted Component
Stocks, each Component Stock that exceeds 4.8% of the total
value of the Select Sector Index will be reduced to 4.6% and
the aggregate amount by which all Component Stocks exceed 4.8%
will be distributed equally across all remaining Component
Stocks that represent less than 4.6% of the total value of the
Select Sector Index. If as a result of this redistribution
another Component Stock that did not previously exceed 4.8% of
the Select Sector Index value then exceeds 4.8%, the
redistribution will be repeated as necessary until at least
50% of the value of the Select Sector Index is accounted for
by Component Stocks representing no more than 4.8% of the
total value of the Select Sector Index. If necessary, this
reallocation process may take place more than once prior to a
Quarterly Qualification Date to insure that the Select Sector
Index and the Select Sector SPDR Fund portfolio based upon it
conform to the requirements for qualification of the Fund as a
regulated investment company.
- As detailed below, the Select Sector Indexes are calculated
and disseminated by ISG. As of the market close on September
30, 1998, the weighting of each Select Sector Index in the S&P
500 based on the capitalization of the stocks in the index was
as follows:
<TABLE>
<CAPTION>
LIST OF THE INDEXES WEIGHTING
------------------- ---------
<S> <C>
The Basic Industries Select Sector Index 3.82%
The Consumer Services Select Sector Index 5.69%
The Consumer Staples Select Sector Index 23.16%
The Cyclical/Transportation Select Sector Index 8.08%
The Energy Select Sector Index 8.22%
The Financial Select Sector Index 15.37%
The Industrial Select Sector Index 6.41%
The Technology Select Sector Index 21.61%
</TABLE>
8
<PAGE> 47
<TABLE>
<CAPTION>
<S> <C>
The Utilities Select Sector Index 7.64%
-------
100.00%
</TABLE>
- Periodically, the Index Compilation Agent will supply ISG with
sector designations for a number of stocks deemed likely
candidates for replacement selection by the Standard & Poor's
500 Index Committee. If a replacement not on the current list
is selected by the Standard & Poor's 500 Index Committee, ISG
will ask the Index Compilation Agent to assign the stock to
one of the nine sectors promptly. AMEX will disseminate
information on this assignment and on consequent changes in
the Select Sector Index(es).
- The Index Compilation Agent at any time may determine that a
Component Stock which has been assigned to one Select Sector
Index has undergone such a transformation in the composition
of its business that it should be removed from that Select
Sector Index and assigned to a different Select Sector Index.
In the event that the Index Compilation Agent notifies ISG
that a Component Stock's Select Sector Index assignment should
be changed, the AMEX will disseminate notice of the change
following its standard procedure for announcing index changes
and will implement the change in the affected Select Sector
Indexes on a date no less than one week after the initial
dissemination of information on the sector change to the
maximum extent practicable. It is not anticipated that
Component Stocks will change sectors frequently.
- Component Stocks removed from and added to the S&P 500 will be
deleted from and added to the appropriate Select Sector Index
on the same schedule used by S&P for additions and deletions
from the S&P 500 insofar as practicable.
Select Sector Index Calculations
With the exception of the weighting constraints described above, each
Select Sector Index is calculated using the same methodology utilized by
S&P in calculating the S&P 500. In particular:
- Each Select Sector Index is calculated using a base-weighted
aggregate methodology; that means the level of the Select
Sector Index reflects the total market value of all of its
Component Stocks relative to a particular base period.
Statisticians refer to this type of index, one with a set of
combined variables (such as price and number of shares), as a
composite index.
- Total market value of a company is determined by multiplying
the price of the stock by the number of common shares
outstanding. An indexed number is used to represent the
results of the aggregate market value calculation in order
9
<PAGE> 48
to make the value easier to work with and track over time.
- The daily calculation of each Select Sector Index is computed
by dividing the total market value of the companies in the
Select Sector Index by a number called the "Index Divisor." By
itself, the Index Divisor is an arbitrary number. However, in
the context of the calculation of the Select Sector Index, it
is the only link to the original base period value of the
Select Sector Index. The Index Divisor keeps the Select Sector
Index comparable over time and adjustments to the Index
Divisor ensure that there are no changes in the Select Sector
Index level as a result of non-market forces (corporate
actions, replacements of stocks in a Select Sector Index,
weighting changes, etc.).
- Four times a year on a Friday close to the end of each
calendar quarter, the share totals of the companies in the S&P
500 are updated by S&P. This information is utilized to update
the share totals of companies in each Select Sector Index.
After the totals are updated, the Index Divisor is adjusted to
compensate for the net change in the market value of the
Select Sector Index.
- Once a week the database containing the current common shares
outstanding for the S&P 500 companies is compared by S&P
against the shares outstanding used to actually calculate the
S&P 500. Any difference of 5% or more is screened for review
by S&P. If appropriate, a share change will be implemented by
S&P after the close of trading on the following Wednesday.
Preannounced corporate actions such as restructurings and
recapitalizations can significantly change a company's shares
outstanding. Any changes over 5% are reviewed by S&P and, when
appropriate, an immediate adjustment is made to the number of
shares outstanding used to calculate the Select Sector Index.
Any adjustment made by S&P in shares outstanding will result
in a corresponding adjustment to each affected Select Sector
Index.
- S&P will advise ISG regarding the handling of nonroutine
corporate actions which may arise from time to time and which
may have an impact on the calculation of the S&P 500 and,
consequently, on the calculation of the Select Sector Indexes.
Corporate actions such as a merger or acquisition, stock
splits, routine spin-offs, etc., which require adjustments in
the Select Sector Index calculation, will be handled by the
AMEX staff and Index Divisor adjustments calculated when
necessary in the same manner they are handled by S&P in its
maintenance of the S&P 500. In the event a merger or
acquisition changes the relative importance of a company's
participation in two or more sectors in a major way, the
Select Sector Index assignment of the stock may change. In any
event, a new Index Divisor for affected Select Sector Indexes
will be disseminated promptly by ISG.
Select Sector Index Dissemination
10
<PAGE> 49
Similar to other stock index values published by the AMEX, the value of
each Select Sector Index will be calculated continuously and disseminated every
15 seconds over the Consolidated Tape Association's Network B. The major
electronic financial data vendors - Bloomberg, Quotron, Reuters and Bridge
Information Systems - are expected to publish information on each Select Sector
Index for their subscribers.
Brief descriptions of the Select Sector Indexes on which the Select
Sector SPDR Funds are based and the equity markets in which the Select Sector
SPDR Funds are invested are provided below. (All dollar figures reflected in the
tables below are in millions.)
THE BASIC INDUSTRIES SELECT SECTOR INDEX
General Background
The Basic Industries Select Sector Index is intended to give investors
an efficient, modified market capitalization-based way to track the movements of
certain public companies that are components of the S&P 500 and are in basic
industries. Basic industries include integrated steel products, chemicals,
fibers, paper and gold. A list of the 58 Component Stocks included in the Index
as of September 30, 1998 is included in Exhibit A hereto.
Constituent Stocks and Industries/Sectors
Summary:
Aggregate Market Capitalization (9/30/98): $310,836.38
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
DUPONT (EI.) $63,655.93 20.48% 20.48% 20.48%
MONSANTO CO $33,800.34 10.87% 10.87% 31.35%
DOW CHEMICAL $19,148.17 6.16% 6.16% 37.51%
INTL PAPER $14,325.44 4.61% 4.61% 42.12%
ALUMINUM CO. OF AMERICA $13,259.53 4.27% 4.27% 46.39%
PPG INDUSTRIES $9,657.07 3.11% 3.11% 49.49%
WEYERHAEUSER $8,395.02 2.70% 2.70% 52.20%
</TABLE>
11
<PAGE> 50
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
BARRICK GOLD CORP $7,460.00 2.40% 2.40% 54.60%
AIR PRODUCTS AND CHEMICALS $6,885.34 2.22% 2.22% 56.81%
UNION CARBIDE $5,833.48 1.88% 1.88% 58.69%
</TABLE>
10 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
MAJOR CHEMICALS $132,794.01 42.72% 42.72% 42.72%
SPECIALTY CHEM. $47,228.79 15.19% 15.19% 57.92%
PAPER & FOREST PROD. $46,942.00 15.10% 15.10% 73.02%
ALUMINUM $22,296.29 7.17% 7.17% 80.19%
GOLD MINING $18,662.47 6.00% 6.00% 86.19%
PACKAGING $12,764.59 4.11% 4.11% 90.30%
STEEL $12,007.79 3.86% 3.86% 94.16%
NON-FEROUS METALS $8,910.95 2.87% 2.87% 97.03%
METAL CONTAINERS $4,402.98 1.42% 1.42% 98.45%
GLASS CONTAINERS $3,883.65 1.25% 1.25% 99.70%
</TABLE>
THE CONSUMER SERVICES SELECT SECTOR INDEX
General Background
The Consumer Services Select Sector Index is intended to give investors
an efficient, modified market capitalization-based way to track the movements of
certain public companies that are components of the S&P 500 and are consumer
services firms. Consumer services include entertainment and publishing, prepared
foods, medical services, lodging and gaming. A list of the 45 Component Stocks
included in the Index as of September 30, 1998 is included in Exhibit A hereto.
12
<PAGE> 51
Constituent Stocks and Industries/Sectors
Summary:
Aggregate Market Capitalization (9/30/98): $462,325.04
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
TIME WARNER INC $52,476.56 11.35% 11.35% 11.35%
WALT DISNEY CO $51,985.51 11.24% 11.24% 22.59%
MCDONALD'S CORP $40,863.79 8.84% 8.84% 31.43%
MEDIAONE GROUP $27,080.43 5.86% 5.86% 37.29%
VIACOM INC $20,764.23 4.49% 4.49% 41.78%
TELE-COMM TCI GRP $20,475.83 4.43% 4.43% 46.21%
CBS CORP $17,361.13 3.76% 3.76% 49.97%
COMCAST CORP $17,330.17 3.75% 3.75% 53.71%
GANNETT INC $15,243.62 3.30% 3.30% 57.01%
COLUMBIA/HCA HLTHCR $12,947.05 2.80% 2.80% 59.81%
</TABLE>
10 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
ENTERTAINMENT $125,226.30 27.09% 27.09% 27.09%
MEDIA BROADCASTING $95,955.09 20.75% 20.75% 47.84%
</TABLE>
13
<PAGE> 52
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
NEWS - INFO SERVICES $63,224.82 13.68% 13.68% 61.52%
RESTAURANTS $51,881.55 11.22% 11.22% 72.74%
HOSPITAL MANAGEMENT $24,989.65 5.41% 5.41% 78.14%
HEALTH CARE INFO TECH $24,143.23 5.22% 5.22% 83.37%
LODGING & CRUISE $20,143.46 4.36% 4.36% 87.72%
HMOs $19,603.99 4.24% 4.24% 91.96%
ADVERTISING & MARKETING $14,982.73 3.24% 3.24% 95.20%
DEATH CARE $8,200.16 1.77% 1.77% 96.98%
</TABLE>
THE CONSUMER STAPLES SELECT SECTOR INDEX
General Background
The Consumer Staples Select Sector Index is intended to give investors
an efficient, modified market capitalization-based way to track the movements of
certain public companies that are components of the S&P 500 and are involved in
the development and production of consumer products. Consumer staples include
cosmetic and personal care, pharmaceuticals, soft drinks, tobacco and food
products. A list of the 69 Component Stocks included in the Index as of
September 30, 1998 is included in Exhibit A hereto.
Constituent Stocks and Industries/Sectors
Summary:
Aggregate Market Capitalization (9/30/98): $1,883,115.93
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
MERCK & CO $154,298.31 8.19% 8.19% 8.19%
COCA COLA CO $142,074.09 7.54% 7.54% 15.74%
</TABLE>
14
<PAGE> 53
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
PFIZER $138,172.42 7.34% 7.34% 23.08%
PHILIP MORRIS COMPANIES $112,484.21 5.97% 5.97% 29.05%
JOHNSON & JOHNSON $105,237.56 5.59% 5.59% 34.64%
BRISTOL MEYERS SQUIBB $103,325.40 5.49% 5.49% 40.12%
PROCTER AND GAMBLE $95,377.34 5.06% 5.06% 45.19%
LILLY (ELI) $86,246.50 4.58% 4.58% 49.77%
SCHERING-PLOUGH $76,106.63 4.04% 4.04% 53.81%
AMERICAN HOME PRODUCTS $69,244.76 3.68% 3.68% 57.49%
</TABLE>
10 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
DRUGS $722,441.40 38.36% 38.36% 38.36%
MEDICAL SUPPLIES $272,171.68 14.56% 14.56% 52.92%
HOUSEHOLD PRODUCTS $192,894.78 10.24% 10.24% 63.17%
BEVERAGES - SOFTDRINK $185,430.73 9.85% 9.85% 73.01%
FOODS $178,060.62 9.46% 9.46% 82.47%
TOBACCO $117,975.32 6.26% 6.26% 88.73%
FOOD RETAILER $58,180.69 3.09% 3.09% 91.82%
COSMETIC & PERSONAL CARE $57,368.60 3.05% 3.05% 94.87%
RETAIL - DRUG STORES $49,714.34 2.64% 2.64% 97.51%
BEVERAGES - BREWERS $46,877.77 2.49% 2.49% 100.00%
</TABLE>
THE CYCLICAL/TRANSPORTATION SELECT SECTOR INDEX
General Background
15
<PAGE> 54
The Cyclical/Transportation Select Sector Index is intended to give
investors an efficient, modified market capitalization-based way to track the
movements of certain public companies that are components of the S&P 500 and are
involved in the development and production of cyclical products or the
transportation industry. Cyclical and transportation products include building
materials, retailers, appliances, housewares, air transportation, automotive
manufacturing, shipping and trucking. A list of the 69 Component Stocks included
in the Index as of September 30, 1998 is included in Exhibit A hereto.
Constituent Stocks and Industries/Sectors
Summary:
Aggregate Market Capitalization (9/30/98): $657,412.97
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
WAL-MART STORES $122,125.71 18.58% 18.58% 18.58%
HOME DEPOT $58,047.62 8.83% 8.83% 27.41%
FORD MOTOR $56,946.66 8.66% 8.66% 36.07%
GENERAL MOTORS CORP $35,899.28 5.46% 5.46% 41.53%
CHRYSLER CORP $30,962.20 4.71% 4.71% 46.24%
GAP INC $20,722.47 3.15% 3.15% 49.39%
SEARS ROEBUCK & CO $17,337.36 2.64% 2.64% 52.03%
DAYTON HUDSON CORP $15,696.72 2.39% 2.39% 54.42%
BURLINGTON NTHRN SANTA FE $15,255.54 2.32% 2.32% 56.74%
MAY DEPT STORES $11,896.09 1.81% 1.81% 58.55%
</TABLE>
10 Largest Industries (% Index Weight):
16
<PAGE> 55
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
RETAIL - MASS MERCHANDISE $161,617.84 24.58% 24.58% 24.58%
AUTO $123,808.14 18.83% 18.83% 43.42%
RETAIL - BUILDING MATERIALS $69,238.18 10.53% 10.53% 53.95%
RETAIL - DEPT STORES $51,673.64 7.86% 7.86% 61.81%
RAILROAD $46,006.85 7.00% 7.00% 68.81%
RETAIL - APPAREL $31,370.81 4.77% 4.77% 73.58%
AIRLINE $29,025.97 4.42% 4.42% 77.99%
SPECIALTY RETAIL $18,041.23 2.74% 2.74% 80.74%
BUILDING MATERIALS $13,938.48 2.12% 2.12% 82.86%
TOYS $12,082.79 1.84% 1.84% 84.70%
</TABLE>
THE ENERGY SELECT SECTOR INDEX
General Background
The Energy Select Sector Index is intended to give investors an
efficient, modified market capitalization-based way to track the movements of
certain public companies that are components of the S&P 500 and are involved in
the development and production of energy products. Energy companies in the Index
develop and produce crude oil and natural gas and provide drilling and other
energy related services. A list of the 33 Component Stocks included in the Index
as of September 30, 1998 is included in Exhibit A hereto.
Constituent Stocks and Industries/Sectors
Summary:
Aggregate Market Capitalization (9/30/98): $668,171.67
10 Largest Components by Market Capitalization:
17
<PAGE> 56
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
EXXON CORP $171,145.69 25.61% 23.00% 23.00%
ROYAL DUTCH $102,122.10 15.28% 15.28% 38.37%
MOBIL CORP $59,360.88 8.88% 8.97% 47.33%
AMOCO CORP $51,407.31 7.69% 4.60% 51.93%
CHEVRON $55,013.19 8.23% 4.60% 56.53%
TEXACO INC $33,591.66 5.03% 4.60% 61.13%
SCHLUMBERGER LTD. $27,382.73 4.10% 4.45% 65.59%
ATLANTIC RICHFIELD $22,780.80 3.41% 3.77% 69.35%
ENRON CORP $17,400.72 2.60% 2.96% 72.31%
HALLIBURTON CO $12,537.40 1.88% 2.23% 74.54%
</TABLE>
6 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
INTL' OIL $377,725.89 56.53% 63.04% 63.04%
DOMESTIC OIL $119,923.41 17.95% 18.20% 81.24%
NATURAL GAS PIPELINE $64,452.71 9.65% 7.51% 88.75%
OIL SERVICES $64,437.96 9.64% 7.51% 96.26%
OIL & GAS PRODUCER $30,349.64 4.54% 2.76% 99.02%
OIL REFINING & MARKETING $11,282.07 1.69% 0.98% 100.00%
</TABLE>
18
<PAGE> 57
THE FINANCIAL SELECT SECTOR INDEX
General Background
The Financial Select Sector Index is intended to give investors an
efficient, modified market capitalization-based way to track the movements of
certain public companies that are components of the S&P 500 and are involved in
the development and production of financial products. Companies in the Index
include a wide array of diversified financial services firms whose business
lines range from investment management to commercial and business banking. A
list of the 75 Component Stocks included in the Index as of September 30, 1998
is included in Exhibit A hereto.
Constituent Stocks and Industries/Sectors
Summary:
Aggregate Market Capitalization (9/30/98): $1,275,141.52
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
BANKAMERICA CORP $92,952.61 7.29% 7.29% 7.29%
AMERICAN INT'L GROUP INC $82,293.91 6.45% 6.45% 13.74%
FEDERAL NAT'L MORTGAGE ASSN $66,620.83 5.22% 5.22% 18.97%
FIRST UNION CORP $49,603.35 3.89% 3.89% 22.86%
TRAVELERS GROUP INC $43,356.56 3.40% 3.40% 26.26%
CITICORP $42,029.68 3.30% 3.30% 29.55%
CHASE MANHATTAN $36,934.71 2.90% 2.90% 32.45%
AMERICAN EXPRESS $35,426.65 2.78% 2.78% 35.23%
ALLSTATE $34,383.62 2.70% 2.70% 37.93%
FREDDIE MAC $33,676.12 2.64% 2.64% 40.57%
</TABLE>
19
<PAGE> 58
10 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
REGIONAL BANK $467,640.79 36.67% 36.67% 36.67%
MULTINATIONAL BANK $144,009.40 11.29% 11.29% 47.97%
INSURANCE - SPECIALTY $105,843.23 8.30% 8.30% 56.27%
GOV'T SPONSORED AGENCY $105,729.45 8.29% 8.29% 64.56%
INSURANCE - MULTILINE $86,414.20 6.78% 6.78% 71.34%
INSURANCE - LIFE $68,606.76 5.38% 5.38% 76.72%
INSURANCE - P&C $63,516.84 4.98% 4.98% 81.70%
BROKERAGE $59,084.78 4.63% 4.63% 86.33%
DIVERSIFIED FINANCIALS $51,565.86 4.04% 4.04% 90.38%
FINANCIAL - CONSUMER $45,682.92 3.58% 3.58% 93.96%
</TABLE>
THE INDUSTRIAL SELECT SECTOR INDEX
General Background
The Industrial Select Sector Index is intended to give investors an
efficient, modified market capitalization-based way to track the movements of
certain public companies that are components of the S&P 500 and are industrials.
Industrials include electrical equipment, construction equipment, waste
management services and industrial machinery products. A list of the 35
Component Stocks included in the Index as of September 30, 1998 is included in
Exhibit A hereto.
Constituent Stocks and Industries/Sectors
Summary:
Aggregate Market Capitalization (9/30/98): $521,114.30
20
<PAGE> 59
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
GENERAL ELECTRIC $258,871.31 49.68% 23.71% 23.71%
TYCO INTL $32,356.72 6.21% 7.26% 30.97%
MINNESOTA MINING & MFG $29,760.76 5.71% 6.76% 37.72%
EMERSON ELECTRIC $27,418.51 5.26% 6.41% 44.14%
WASTE MANAGEMENT $27,481.61 5.27% 5.46% 49.60%
ALLIEDSIGNAL $19,854.75 3.81% 4.69% 54.29%
CATERPILLAR $16,254.35 3.12% 4.02% 58.30%
ILLINOIS TOOL WORKS $13,623.15 2.61% 3.47% 61.78%
TEXTRON $9,935.23 1.91% 2.77% 64.55%
HONEYWELL $8,081.16 1.55% 2.32% 66.87%
</TABLE>
10 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
ELECTRICAL EQUIP. $286,289.82 54.94% 30.12% 30.12%
CONGLOMERATE $100,055.34 19.20% 24.45% 54.58%
INDUSTRIAL MACHINERY $29,564.82 5.67% 9.90% 64.48%
HEAVY DUTY TRUCKS $17,326.10 3.32% 7.93% 72.41%
POLLUTION CONTROL $32,738.06 6.28% 7.28% 79.69%
MACHINERY - AG. $25,817.77 4.95% 7.24% 86.93%
SPECIALTY MACHINERY $12,599.18 2.42% 5.22% 92.15%
</TABLE>
21
<PAGE> 60
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
PROCESS CONTROLS $12,315.67 2.36% 5.06% 97.21%
ENGINEERING & CONSTRUCTION $3,802.26 0.73% 2.08% 99.29%
MACHINE TOOLS $605.54 0.12% 0.71% 100.00%
</TABLE>
THE TECHNOLOGY SELECT SECTOR INDEX
General Background
The Technology Select Sector Index is intended to give investors an
efficient, modified market capitalization-based way to track the movements of
certain public companies that are components of the S&P 500 and are involved in
the development and production of technology products. Technology products
include products developed by defense manufacturers, telecommunications
equipment, microcomputer components, integrated computer circuits and process
monitoring systems. A list of the 77 Component Stocks included in the Index as
of September 30, 1998 is included in Exhibit A hereto.
Constituent Stocks and Industries/Sectors
Summary:
Aggregate Market Capitalization (9/30/98): $1,757,522.37
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
MICROSOFT CORP $271,201.92 15.43% 15.43% 15.43%
INTEL CORP $144,060.00 8.20% 8.20% 23.63%
INTL BUSINESS MACHINES $119,898.60 6.82% 6.82% 30.45%
AT&T $105,557.88 6.01% 6.01% 36.46%
CISCO SYSTEMS INC $96,107.56 5.47% 5.47% 41.92%
</TABLE>
22
<PAGE> 61
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
LUCENT TECHNOLOGIES INC $91,062.71 5.18% 5.18% 47.11%
MCI WORLDCOM INC $86,803.42 4.94% 4.94% 52.04%
DELL COMPUTER CORP $83,233.71 4.74% 4.74% 56.78%
HEWLETT-PACKARD $55,026.25 3.13% 3.13% 59.91%
COMPAQ COMPUTER CORP $52,845.38 3.01% 3.01% 62.92%
</TABLE>
10 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
COMPUTER SOFTWARE $339,014.33 19.29% 19.29% 19.29%
TELECOM - LONG DISTANCE $223,326.84 12.71% 12.71% 32.00%
COMPUTER SYSTEMS $214,067.84 12.18% 12.18% 44.18%
SEMICONDUCTOR $188,672.59 10.74% 10.74% 54.91%
PC - WORKSTATION $170,000.23 9.67% 9.67% 64.58%
TELECOM - EQUIPMENT $136,173.46 7.75% 7.75% 72.33%
TELECOM - NETWORK $113,075.51 6.43% 6.43% 78.77%
COMPUTER SERVICES $71,638.81 4.08% 4.08% 82.84%
TELECOM - WIRELESS $64,122.36 3.65% 3.65% 86.49%
AEROSPACE $59,947.28 3.41% 3.41% 89.90%
</TABLE>
THE UTILITIES SELECT SECTOR INDEX
General Background
The Utilities Select Sector Index is intended to give investors an
efficient, modified market capitalization-based way to track the movements of
certain public companies that are components of the S&P 500 and are in the
utilities industry. Utilities include communication services, electrical power
providers and natural gas distributors. A list of the 39 Component Stocks
included in the Index as of September 30, 1998 is included in Exhibit A hereto.
23
<PAGE> 62
Constituent Stocks and Industries/Sectors
Summary:
Aggregate Market Capitalization (9/30/98): $621,375.49
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
------------ -------------- ------ ------ ------
<S> <C> <C> <C> <C>
SBC COMMUNICATIONS $81,529.66 13.12% 13.13% 13.13%
BELL ATLANTIC $75,246.40 12.11% 12.12% 25.25%
BELLSOUTH CORP $74,023.73 11.91% 11.92% 37.17%
GTE CORP $53,021.71 8.53% 8.54% 45.71%
AMERITECH $52,363.72 8.43% 4.58% 50.29%
U.S. WEST $26,333.06 4.24% 4.36% 54.65%
DUKE ENERGY CORP $23,899.25 3.85% 3.97% 58.62%
SOUTHERN CO $20,541.46 3.31% 3.42% 62.04%
TEXAS UTILITIES $13,014.03 2.09% 2.22% 64.25%
ALTEL CORP $12,919.70 2.08% 2.19% 66.44%
</TABLE>
3 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
TELECOM - LOCAL $380,132.73 61.18% 57.69% 57.69%
ELECTRIC UTILITY $236,057.90 37.99% 41.07% 98.76%
</TABLE>
24
<PAGE> 63
<TABLE>
<CAPTION>
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
-------- -------------- ------ ------ ------
<S> <C> <C> <C> <C>
NATURAL GAS DISTRIBUTORS $5,184.86 0.83% 1.24% 100.00%
</TABLE>
INVESTMENT POLICIES AND RESTRICTIONS
LENDING PORTFOLIO SECURITIES
Each Select Sector SPDR Fund may lend portfolio securities to brokers,
dealers and other financial institutions needing to borrow securities to
complete transactions and for other purposes. Because the U.S. government
securities or other assets that are pledged as collateral to each Select Sector
SPDR Fund in connection with these loans generate income, securities lending may
enable a Select Sector SPDR Fund to earn additional income that may partially
offset the expenses of such Select Sector SPDR Fund, and thereby reduce the
effect that expenses have on such Select Sector SPDR Fund's ability to provide
investment results that substantially correspond to the price and yield
performance of its respective Select Sector Index.
Loans of portfolio securities may not exceed 33% of a Select Sector
SPDR Fund's total assets. The documentation for these loans provides that a
Select Sector SPDR Fund will receive collateral equal to at least 100% of the
current market value of the loaned securities, as marked to market each day that
the net asset value of the Select Sector SPDR Fund is determined. Each Select
Sector SPDR Fund will pay reasonable administrative and custodial fees in
connection with the loan of securities and invests collateral in money market
instruments or funds which invest exclusively in money market instruments.
Each Select Sector SPDR Fund will comply with the conditions for
lending established by the SEC. Although each Select Sector SPDR Fund will
receive collateral in connection with all loans of portfolio securities, and
such collateral will be marked to market, each Select Sector SPDR Fund will be
exposed to the risk of loss should a borrower default on its obligation to
return the borrowed securities (e.g., the loaned securities may have appreciated
beyond the value of the collateral held by the Select Sector SPDR Fund). In
addition, each Select Sector SPDR Fund bears the risk of loss of any cash
collateral that it invests in money market instruments.
REPURCHASE AGREEMENTS
Each Select Sector SPDR Fund may invest in repurchase agreements with
commercial banks, brokers or dealers to generate income from its excess cash
balances and to invest securities lending cash collateral. A repurchase
agreement is an agreement under which a Select Sector SPDR Fund acquires a money
market instrument (generally a security issued by the U.S. Government or an
agency thereof, a banker's acceptance or a certificate of deposit) from a
seller, subject to resale to the seller at an agreed upon price and date
(normally, the next business day). A repurchase agreement may be considered a
loan collateralized by securities. The resale price
25
<PAGE> 64
reflects an agreed upon interest rate effective for the period the instrument is
held by a Select Sector SPDR Fund and is unrelated to the interest rate on the
underlying instrument.
In these repurchase agreement transactions, the securities acquired by
a Select Sector SPDR Fund (including accrued interest earned thereon) must have
a total value in excess of the value of the repurchase agreement and are held by
the Custodian until repurchased. In addition, the Trust's Board of Trustees
("Board" or "Trustees") monitors each Select Sector SPDR Fund's repurchase
agreement transactions generally and has established guidelines and standards
for review of the creditworthiness of any bank, broker or dealer counterparty to
a repurchase agreement with a Select Sector SPDR Fund. No more than an aggregate
of 15% of each Select Sector SPDR Fund's net assets will be invested in illiquid
securities, including repurchase agreements having maturities longer than seven
days and securities subject to legal or contractual restrictions on resale, or
for which there are no readily available market quotations.
The use of repurchase agreements involves certain risks. For example,
if the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, a
Select Sector SPDR Fund may incur a loss upon disposition of the security. If
the other party to the agreement becomes insolvent and subject to liquidation or
reorganization under the U.S. Bankruptcy Code or other laws, a court may
determine that the underlying security is collateral for a loan by a Select
Sector SPDR Fund not within the control of the Select Sector SPDR Fund and,
therefore, the Select Sector SPDR Fund may not be able to substantiate its
interest in the underlying security and may be deemed an unsecured creditor of
the other party to the agreement.
OTHER MONEY MARKET INSTRUMENTS
In addition to repurchase agreements, other money market instruments in
which the Select Sector SPDR Funds may invest are certificates of deposit of
U.S. domestic banks with assets of $1 billion or more, bankers' acceptances,
time deposits, U.S. Government and U.S. Government agency securities, or
commercial paper rated within the two highest grades by S&P or Moody's Investors
Service, Inc., or, if not rated, are of comparable quality as determined by the
Adviser, and which mature within one year from the date of purchase, and
investment companies which invest exclusively in such money market instruments
(subject to applicable limitations under Section 12(d)(1) of the Investment
Company Act of 1940, as amended ("1940 Act").
FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS
Each Select Sector SPDR Fund may utilize exchange-traded futures and
options contracts and swap agreements.
FUTURES CONTRACTS AND OPTIONS
Futures contracts generally provide for the future sale by one party
and purchase by another party of a specified commodity at a specified future
time and at a specified price. Stock
26
<PAGE> 65
index futures contracts are settled daily with a payment by one party to the
other of a cash amount based on the difference between the level of the stock
index specified in the contract from one day to the next. Futures contracts are
standardized as to maturity date and underlying instrument and are traded on
futures exchanges.
Futures traders are required to make a good faith margin deposit in
cash or U.S. government securities with a broker or custodian to initiate and
maintain open positions in futures contracts. A margin deposit is intended to
assure completion of the contract (delivery or acceptance of the underlying
commodity or payment of the cash settlement amount) if it is not terminated
prior to the specified delivery date. Brokers may establish deposit requirements
which are higher than the exchange minimums. Futures contracts are customarily
purchased and sold on margin deposits which may range upward from less than 5%
of the value of the contract being traded.
After a futures contract position is opened, the value of the contract
is marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. In such case,
a Select Sector SPDR Fund would expect to earn interest income on its margin
deposits. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold," or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract position is
opened or closed.
Each Select Sector SPDR Fund may use exchange-traded futures and
options, together with positions in cash and money market instruments, to
simulate full investment in the underlying Select Sector SPDR Index. Exchange-
traded futures and options contracts are not currently available for the Select
Sector Indexes. Under such circumstances, the Adviser may seek to utilize other
instruments that it believes to be correlated to the underlying Select Sector
Index components or a subset of the components. The AMEX currently anticipates
that options on the Shares will be listed on the AMEX at the same time that the
Shares are available for trading although there is no assurance in this regard.
RESTRICTIONS ON THE USE OF FUTURES AND OPTIONS
A Select Sector SPDR Fund would not enter into futures contract
transactions for purposes other than hedging to the extent that, immediately
thereafter, the sum of its initial margin deposits on open contracts exceeds 5%
of the market value of a Select Sector SPDR
27
<PAGE> 66
Fund's total assets after taking into account unrealized gains and unrealized
losses on such contracts it has entered into. Each Select Sector SPDR Fund would
take steps to prevent its futures positions from "leveraging" its securities
holdings. When it has a long futures position, it will maintain with its
custodian bank, cash or liquid securities having a value equal to the notional
value of the contract (less any margin deposited in connection with the
position). When it has a short futures position, it will maintain with its
custodian bank assets substantially identical to those underlying the contract
or cash and liquid securities (or a combination of the foregoing) having a value
equal to the net obligation of the Select Sector SPDR Fund under the contract
(less the value of any margin deposits in connection with the position).
SWAP AGREEMENTS
Swap agreements are contracts between parties in which one party agrees
to make payments to the other party based on the change in market value or level
of a specified rate, index or asset. In return, the other party agrees to make
payments to the first party based on the return of a different specified rate,
index or asset. Swap agreements will usually be done on a net basis, i.e., where
the two parties make net payments with the Select Sector SPDR Fund receiving or
paying, as the case may be, only the net amount of the two payments. The net
amount of the excess, if any, of a Select Sector SPDR Fund's obligations over
its entitlements with respect to each swap is accrued on a daily basis and an
amount of cash or high liquid securities having an aggregate value at least
equal to the accrued excess is maintained in an account at the Trust's custodian
bank.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions as
fundamental policies with respect to each Select Sector SPDR Fund. These
restrictions cannot be changed with respect to a Select Sector SPDR Fund without
the approval of the holders of a majority of such Select Sector SPDR Fund's
outstanding voting securities. For purposes of the 1940 Act, a majority of the
outstanding voting securities of a Select Sector SPDR Fund means the vote, at an
annual or a special meeting of the security holders of the Trust, of the lesser
of (1) 67% or more of the voting securities of the Select Sector SPDR Fund
present at such meeting, if the holders of more than 50% of the outstanding
voting securities of such Select Sector SPDR Fund are present or represented by
proxy, or (2) more than 50% of the outstanding voting securities of the Select
Sector SPDR Fund. Except with the approval of a majority of the outstanding
voting securities, a Select Sector SPDR Fund may not:
1. Change its investment objective;
2. Lend any funds or other assets except through the purchase of
all or a portion of an issue of securities or obligations of
the type in which it is permitted to invest (including
participation interests in such securities or obligations) and
except that a Select Sector SPDR Fund may lend its portfolio
securities in an amount not to exceed 33% of the value of its
total assets;
28
<PAGE> 67
3. Issue senior securities or borrow money, except borrowings
from banks for temporary or emergency purposes in an amount up
to 10% of the value of the Select Sector SPDR Fund's total
assets (including the amount borrowed), valued at market, less
liabilities (not including the amount borrowed) valued at the
time the borrowing is made, and the Select Sector SPDR Fund
will not purchase securities while borrowings in excess of 5%
of the Select Sector SPDR Fund's total assets are outstanding,
provided, that for purposes of this restriction, short-term
credits necessary for the clearance of transactions are not
considered borrowings (this limitation on purchases does not
apply to acceptance by the Select Sector SPDR Fund of a
deposit principally of securities included in the relevant
Select Sector Index for creation of Creation Units);
4. Pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings. (The deposit of
underlying securities and other assets in escrow and
collateral arrangements with respect to initial or variation
margin for futures contracts or options contracts will not be
deemed to be pledges of the Select Sector SPDR Fund's assets);
5. Purchase, hold or deal in real estate, or oil, gas or mineral
interests or leases, but a Select Sector SPDR Fund may
purchase and sell securities that are issued by companies that
invest or deal in such assets;
6. Act as an underwriter of securities of other issuers, except
to the extent the Select Sector SPDR Fund may be deemed an
underwriter in connection with the sale of securities in its
portfolio;
7. Purchase securities on margin, except for such short-term
credits as are necessary for the clearance of transactions,
except that a Select Sector SPDR Fund may make margin deposits
in connection with transactions in options, futures and
options on futures;
8. Sell securities short; or
9. Invest in commodities or commodity contracts, except that a
Select Sector SPDR Fund may transact in exchange traded
futures contracts on securities, stock indexes and options on
such futures contracts and make margin deposits in connection
with such contracts.
In addition to the investment restrictions adopted as fundamental
policies as set forth above, each Select Sector SPDR Fund observes the following
restrictions, which may be changed by the Board of Trustees without a
shareholder vote. A Select Sector SPDR Fund will not:
1. Invest in the securities of a company for the purpose of
exercising management or
29
<PAGE> 68
control, or in any event purchase and hold more than 10% of
the securities of a single issuer, provided that the Trust may
vote the investment securities owned by each Select Sector
SPDR Fund in accordance with its views; or
2. Hold illiquid assets in excess of 15% of its net assets. An
illiquid asset is any asset which may not be sold or disposed
of in the ordinary course of business within seven days at
approximately the value at which the Select Sector SPDR Fund
has valued the investment.
If a percentage limitation is adhered to at the time of investment or
contract, a later increase or decrease in percentage resulting from any change
in value or total or net assets will not result in a violation of such
restriction, except that the percentage limitations with respect to the
borrowing of money and illiquid securities will be observed continuously.
SPECIAL CONSIDERATIONS AND RISKS
A discussion of the risks associated with an investment in a Select
Sector SPDR Fund is contained in the Prospectus under the heading "INVESTMENT
CONSIDERATIONS AND RISKS." The discussion below supplements, and should be read
in conjunction with, such section of the Prospectus.
GENERAL
Investment in a Select Sector SPDR Fund should be made with an
understanding that the value of a Select Sector SPDR Fund's portfolio securities
may fluctuate in accordance with changes in the financial condition of the
issuers of the portfolio securities, the value of common stocks generally and
other factors.
An investment in a Select Sector SPDR Fund should also be made with an
understanding of the risks inherent in an investment in equity securities,
including the risk that the financial
30
<PAGE> 69
condition of issuers may become impaired or that the general condition of the
stock market may deteriorate (either of which may cause a decrease in the value
of the portfolio securities and thus in the value of Shares). Common stocks are
susceptible to general stock market fluctuations and to volatile increases and
decreases in value as market confidence in and perceptions of their issuers
change. These investor perceptions are based on various and unpredictable
factors including expectations regarding government, economic, monetary and
fiscal policies, inflation and interest rates, economic expansion or
contraction, and global or regional political, economic and banking crises.
While S&P often chooses a replacement company for the S&P
500 with some characteristics in common with a company or companies removed from
the index, it is not uncommon for a replacement company to have little in common
with the company it replaces. Consequently, the removal of one company and its
replacement by another may affect two Select Sector Indexes and two Select
Sector SPDR Funds, one of which included a company now removed from the S&P 500
and another which may have a company added to it.
Holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners of the
issuer, have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors of, or holders of debt obligations or
preferred stocks issued by, the issuer. Further, unlike debt securities which
typically have a stated principal amount payable at maturity (whose value,
however, will be subject to market fluctuations prior thereto), or preferred
stocks which typically have a liquidation preference and which may have stated
optional or mandatory redemption provisions, common stocks have neither a fixed
principal amount nor a maturity. Common stock values are subject to market
fluctuations as long as the common stock remains outstanding.
Although most of the securities in the Select Sector Indexes are listed
on a national securities exchange, the principal trading market for some may be
in the over-the-counter market. The existence of a liquid trading market for
certain securities may depend on whether dealers will make a market in such
securities. There can be no assurance that a market will be made or maintained
or that any such market will be or remain liquid. The price at which securities
may be sold and the value of a Select Sector SPDR Fund's Shares will be
adversely affected if trading markets for a Select Sector SPDR Fund's portfolio
securities are limited or absent or if bid/ask spreads are wide.
FUTURES AND OPTIONS TRANSACTIONS
Positions in futures contracts and options may be closed out only on an
exchange which provides a secondary market therefor. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract or option at any specific time. Thus, it may not be possible to close a
futures or options position. In the event of adverse price movements, a Select
Sector SPDR Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Select Sector SPDR Fund
has insufficient cash, it may have to sell portfolio securities to meet daily
margin requirements at a time when it may be disadvantageous to do so. In
addition, a Select Sector SPDR Fund may be required to make delivery of the
instruments underlying futures contracts it has sold.
A Select Sector SPDR Fund will minimize the risk that it will be unable
to close out a futures or options contract by only entering into futures and
options for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts or uncovered call options
in some strategies (e.g., selling uncovered stock index futures contracts) is
potentially unlimited. The Select Sector SPDR Funds do not plan to use futures
and options contracts, when available, in this way. The risk of a futures
position may still be large as traditionally measured due to the low margin
deposits required. In many cases, a relatively small price movement in a futures
contract may result in immediate and substantial loss or gain to the investor
relative to the size of a required margin deposit. The Select Sector SPDR Funds,
however, intend to utilize futures and options
31
<PAGE> 70
contracts in a manner designed to limit their risk exposure to that which is
comparable to what they would have incurred through direct investment in stocks.
Utilization of futures transactions by a Select Sector SPDR Fund
involves the risk of imperfect or even negative correlation to the benchmark
Select Sector Index if the index underlying the futures contracts differs from
the benchmark Select Sector Index. There is also the risk of loss by a Select
Sector SPDR Fund of margin deposits in the event of bankruptcy of a broker with
whom a Select Sector SPDR Fund has an open position in the futures contract or
option.
Certain financial futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF SWAP AGREEMENTS
Swap agreements are subject to the risk that the swap counterparty will
default on its obligations. If such a default occurs, a Select Sector SPDR Fund
will have contractual remedies pursuant to the agreements related to the
transaction, but such remedies may be subject to bankruptcy and insolvency laws
which could affect such Fund's rights as a creditor.
CONTINUOUS OFFERING
The method by which Creation Units of Shares are created and traded may
raise certain issues under applicable securities laws. Because new Creation
Units of Shares are issued and sold by the Trust on an ongoing basis, at any
point a "distribution," as such term is used in the Securities Act of 1933 (the
"Securities Act"), may occur. Broker-dealers and other persons are cautioned
that some activities on their part may, depending on the circumstances, result
in their being deemed participants in a distribution in a manner which could
render them statutory underwriters and subject them to the prospectus delivery
and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a
statutory underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent Shares, and sells such Shares
directly to customers, or if it chooses to couple the creation of a supply of
new Shares with an active selling effort involving solicitation of secondary
32
<PAGE> 71
market demand for Shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a categorization
as an underwriter.
Broker-dealer firms should also note that dealers who are not
"underwriters" but are effecting transactions in Shares, whether or not
participating in the distribution of Shares, are generally required to deliver a
prospectus. This is because the prospectus delivery exemption in Section 4(3) of
the Securities Act is not available in respect of such transactions as a result
of Section 24(d) of the 1940 Act. Firms that incur a prospectus-delivery
obligation with respect to Shares of a Select Sector SPDR Fund are reminded that
under Securities Act Rule 153, a prospectus-delivery obligation under Section
5(b)(2) of the Securities Act owed to an exchange member in connection with a
sale on the AMEX is satisfied by the fact that such Select Sector SPDR Fund's
prospectus is available at the AMEX upon request. The prospectus delivery
mechanism provided in Rule 153 is only available with respect to transactions on
an exchange.
EXCHANGE LISTING AND TRADING
A discussion of exchange listing and trading matters associated with an
investment in the Select Sector SPDR Funds is contained in the Prospectus under
the headings "INVESTMENT CONSIDERATIONS AND RISKS", "DETERMINATION OF NET ASSET
VALUE," and "BUYING AND SELLING SELECT SECTOR SPDRs." The discussion below
supplements, and should be read in conjunction with, such sections of the
Prospectus.
The Shares of each Select Sector SPDR Fund have been approved for
listing and trading on the AMEX, subject to notice of issuance. The Shares will
trade on the AMEX at prices that may differ to some degree from their net asset
value. There can be no assurance that the requirements of the AMEX necessary to
maintain the listing of Shares of any Select Sector SPDR Fund will continue to
be met.
The AMEX may but is not required to remove the Shares of a Select
Sector SPDR Fund from listing if (1) following the initial twelve-month period
beginning upon the commencement of trading of a Select Sector SPDR Fund, there
are fewer than 50 beneficial holders of the Shares for 30 or more consecutive
trading days; (2) the value of the underlying Select Sector Index or portfolio
of securities on which such Select Sector SPDR Fund is based is no longer
calculated or available; or (3) such other event shall occur or condition exists
that, in the opinion of the AMEX, makes further dealings on the AMEX
inadvisable. In addition, the AMEX will remove the Shares from listing and
trading upon termination of the Trust.
As in the case of other stocks traded on the AMEX, brokers' commissions
on transactions will be based on negotiated commission rates at customary
levels.
It is believed desirable for the net asset value per Share of each
Select Sector SPDR Fund initially offered to the public to be approximately
one-tenth (1/10) of the value of its respective Select Sector Index. To
accomplish this, if required, a one-time stock split or reverse stock split may
be effected with respect to the Shares of one or more Select Sector SPDR Funds
held by the sole shareholder of the Funds (see the audited balance sheet of the
Trust and the Funds included in this Statement of Additional Information) prior
to the public offering of Creation Units of the Shares. The one-time stock split
or reverse stock split will have no effect on the net assets of any Select
Sector SPDR Fund. The number of Shares constituting a Creation Unit in the case
of each Select Sector SPDR Fund will remain 50,000. See "CREATION AND REDEMPTION
OF CREATION UNITS" for the cost of the securities comprising a deposit of
designated equity securities necessary for an in-kind purchase of a Creation
Unit for each Select Sector SPDR Fund as of December 14, 1998.
33
<PAGE> 72
MANAGEMENT OF THE TRUST
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "MANAGEMENT."
TRUSTEES AND OFFICERS OF THE TRUST
The Board has responsibility for the overall management and operations
of the Trust, including general supervision of the duties performed by the
Adviser and other service providers. The Board currently consists of six (6)
Trustees, none of whom is an "interested person" (as defined in the 1940 Act)
of the Trust or any of the Select Sector SPDR Funds.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME/ADDRESS/AGE POSITION WITH THE PRINCIPAL OCCUPATIONS
TRUST DURING THE PAST FIVE YEARS
======================================================================================================================
<S> <C> <C>
John W. English Trustee Private Investor, Chairman of the Board of The
P.O. Box 640 China Fund, Inc. (1992 to present); Trustee of
Summit, New Jersey Northern Trust Company's Institutional Funds
07902-0640 (1993 to present); Trustee of Washington Mutual's
Age 65 WM Funds (1994 to present); Chairman of the
Advisory Board of Andrew M. Carter & Company, an
investment adviser (1995 to present); Director, Adviser
or Trustee for numerous not-for-profit organizations
(1989 to present); formerly Vice President and Chief
Investment Officer of the Ford Foundation (1981-1993).
- ----------------------------------------------------------------------------------------------------------------------
George R. Gaspari Trustee Consultant to various financial services
100-38 75th Avenue organizations (1996 to present); Senior Vice
Forest Hills, New York President and Chief Financial and Administrative
11375 Officer of Evergreen Asset Management Co. , a
Age 58 subsidiary of First Union Corp. (1987-1996).
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 73
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME/ADDRESS/AGE POSITION WITH THE PRINCIPAL OCCUPATIONS
TRUST DURING THE PAST FIVE YEARS
======================================================================================================================
<S> <C> <C>
Burton G. Malkiel Trustee Director of Baker Fentress & Company, a closed-
Department of Economics end investment company traded on the New York
Princeton University Stock Exchange (1980 to present), Director of
Princeton, New Jersey Prudential Insurance Company of America (1977
08544 to present); Director of The Vanguard Group of
Age 66 Investment Companies (1977 to present);
Professor of Economics at Princeton University
(1964 to present); formerly Dean of Yale School
of Management (1981-1988); formerly Chairman
of the Economics Department and Director of the
Financial Research Center at Princeton University
(1974-1975 and 1977-1981); formerly Member,
President's Council of Economic Advisors (1975-
1977).
- ----------------------------------------------------------------------------------------------------------------------
Ernest J. Scalberg Trustee Dean of the Graduate School of Business
Fordham Graduate School Administration and Dean of Faculty of the School
of Business of Business at Fordham University (April 1994 to
113 West 60th Street present); Director, Adviser or Trustee to numerous
New York, New York non-profit organizations (1974 to present);
10023 formerly Founding Dean, School of Business and
Age 53 Management, Hong Kong University of Science
and Technology (1991-1993); formerly Associate
Dean of UCLA Graduate School of Management
(1981-1994).
- ----------------------------------------------------------------------------------------------------------------------
R. Charles Tschampion Trustee Managing Director of Investment Strategy and
General Motors Investment Asset Allocation, General Motors Investment
Management Corp. Management Corporation (1994 to present); Vice
767 Fifth Avenue Chairman of the Association for Investment
New York, New York Management Research (1989 to present);
10153 Governor of the Association for Investment
Age 52 Management Research (1995 to present); Director
of the India Magnum Fund (1994 to present),
Trustee of Lehigh University and Member of the
Investment Sub-Committee for the Lehigh
University Endowment Fund (October 1998 to
present).
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 74
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME/ADDRESS/AGE POSITION WITH THE PRINCIPAL OCCUPATIONS
TRUST DURING THE PAST FIVE YEARS
======================================================================================================================
<S> <C> <C>
Cheryl Burgermeister Trustee Director and Chief Officer of Finance of The
The Crabbe Huson Group, Crabbe Huson Group and Treasurer of the Crabbe
Inc. Huson Family of Funds (1987 to present);
121 S.W. Morrison formerly Senior Auditor at KPMG Peat Marwick
Suite 1400 (1982-1986).
Portland, Oregon 97204
Age 47
- ----------------------------------------------------------------------------------------------------------------------
Howard H. Fairweather, President and Retired; formerly Executive Vice President of
4 Parsons Street Secretary State Street Bank and Trust Company (1977 to
Newburyport, MA 02110 September 1996); formerly Vice President and
Age 60 head of the New England Division of Commercial
Lending and head of the National Division at State
Street Bank and Trust Company (1972-1977); formerly
Commercial Lending Officer at State Street Bank and
Trust Company (1965-1972).
- ----------------------------------------------------------------------------------------------------------------------
E. Davis Hawkes, Jr. Treasurer and Retired; formerly Vice President of State Street
47 Washington Street Assistant Secretary Bank and Trust Company (1954-1990).
Marblehead, MA 01945
Age 67
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
REMUNERATION OF TRUSTEES AND OFFICERS
The Trust pays each Trustee an annual fee of $12,000 plus a per meeting
fee of $2,000 for meetings of the Board of Trustees attended by the Trustee. The
Trust also reimburses each Trustee for travel and other out-of-pocket expenses
incurred by him/her in connection with attending such meetings.
Assuming that four (4) meetings of the Board of Trustees are held
annually, it is estimated that the compensation paid to each Trustee during the
fiscal year ended September 30, 1999 will be:
<TABLE>
<CAPTION>
Name of Trustee Aggregate Compensation from Trust
--------------- ---------------------------------
<S> <C>
John W. English $20,000
George R. Gaspari $20,000
Burton G. Malkiel $20,000
Ernest J. Scalberg $20,000
R. Charles Tschampion $20,000
Cheryl Burgermeister $20,000
</TABLE>
36
<PAGE> 75
The following table sets forth the total (estimated) remuneration of
Trustees and officers of the Trust for the fiscal year ended September 30, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Name/ Aggregate Pension or Estimated Annual Total
Position Compensation from Retirement Benefits Upon Compensation
Trust Benefits Accrued Retirement from Trust &
as Part of Trust Trust Complex
Expenses paid to Trustees
==================================================================================================================
<S> <C> <C> <C> <C>
John W. English, $20,000 $0 $0 $20,000
Trustee
- ------------------------------------------------------------------------------------------------------------------
George R. $20,000 $0 $0 $20,000
Gaspari, Trustee
- ------------------------------------------------------------------------------------------------------------------
Burton G. $20,000 $0 $0 $20,000
Malkiel, Trustee
- ------------------------------------------------------------------------------------------------------------------
Ernest J. $20,000 $0 $0 $20,000
Scalberg,
Trustee
- ------------------------------------------------------------------------------------------------------------------
R. Charles $20,000 $0 $0 $20,000
Tschampion,
Trustee
- ------------------------------------------------------------------------------------------------------------------
Cheryl $20,000 $0 $0 $20,000
Burgermeister,
Trustee
- ------------------------------------------------------------------------------------------------------------------
Howard H. $20,000 $0 $0 $20,000
Fairweather,
President and
Secretary
- ------------------------------------------------------------------------------------------------------------------
E Davis Hawkes, $20,000 $0 $0 $20,000
Jr., Treasurer
and Assistant
Secretary
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
No Trustee or officer is entitled to any pension or retirement benefits
from the Trust.
THE INVESTMENT ADVISER
37
<PAGE> 76
State Street, through its State Street Global Advisors division, acts
as investment adviser to the Trust and, subject to the supervision of the Board,
is responsible for the investment management of each Select Sector SPDR Fund.
State Street is a wholly owned subsidiary of State Street Boston Corporation, a
publicly held bank holding company. State Street, with over $461.9 billion
(U.S.) under management as of October 31, 1998, provides complete global
investment management services from offices in the U.S., London, Sydney, Hong
Kong, Tokyo, Toronto, Luxembourg, Montreal, Paris, Dublin, Munich and Brussels.
The Adviser serves as investment adviser to each Select Sector SPDR
Fund pursuant to an Investment Advisory Agreement between the Trust and the
Adviser. Under the Investment Advisory Agreement, the Adviser, subject to the
supervision of the Board and in conformity with the stated investment policies
of each Select Sector SPDR Fund, manages the investment of each Select Sector
SPDR Fund's assets. The Adviser is responsible for placing purchase and sale
orders and providing continuous supervision of the investment portfolio of each
Select Sector SPDR Fund.
Pursuant to the Investment Advisory Agreement, the Trust has agreed to
indemnify the Adviser for certain liabilities, including certain liabilities
arising under the federal securities laws, unless such loss or liability results
from willful misfeasance, bad faith or gross negligence in the performance of
its duties or the reckless disregard of its obligations and duties.
THE ADMINISTRATOR
In addition to serving as Adviser to each Select Sector SPDR Fund,
State Street, through its Global Investors Services Group, serves as
Administrator for the Trust pursuant to an Administrative Services Agreement.
Under the Administrative Services Agreement, State Street is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees of the Trust reasonably deems necessary for the proper administration
of the Trust and each Select Sector SPDR Fund. State Street will generally
assist in all aspects of the Trust's and the Select Sector SPDR Funds'
operations; supply and maintain office facilities (which may be in State
Street's own offices), statistical and research data, data processing services,
clerical, accounting, bookkeeping and record keeping services (including without
limitation the maintenance of such books and records as are required under the
1940 Act and the rules thereunder, except as maintained by other agents),
internal auditing, executive and administrative services, and stationery and
office supplies; prepare reports to shareholders or investors; prepare and file
tax returns; supply financial information and supporting data for reports to and
filings with the SEC and various state Blue Sky authorities; supply supporting
documentation for meetings of the Board of Trustees; provide monitoring reports
and assistance regarding compliance with the Declaration of Trust, by-laws,
investment objectives and policies and with federal and state securities laws;
arrange for appropriate insurance coverage; and negotiate arrangements with, and
supervise and coordinate the activities of, agents and others to supply
services.
38
<PAGE> 77
Pursuant to the Administrative Services Agreement, the Trust has agreed
to indemnify the Administrator for certain liabilities, including certain
liabilities arising under the federal securities laws, unless such loss or
liability results from gross negligence or willful misconduct in the performance
of its duties.
CUSTODIAN AND TRANSFER AGENT
State Street also serves as Custodian for the Select Sector SPDR Funds
pursuant to a Custodian Agreement. As Custodian, State Street holds the Select
Sector SPDR Funds' assets, calculates the net asset value of the Shares and
calculates net income and realized capital gains or losses. State Street also
serves as Transfer Agent of the Select Sector SPDR Funds pursuant to a Transfer
Agency Agreement. State Street may be reimbursed by the Select Sector SPDR Funds
for its out-of-pocket expenses. State Street and the Trust will comply with the
self-custodian provisions of Rule 17f-2 under the 1940 Act.
Compensation. As compensation for its services under the Investment
Advisory Agreement, State Street is paid a monthly fee based on a percentage of
each Select Sector SPDR Fund's average daily net assets at the annual rate of
.05%. From time to time, the Adviser may waive all or a portion of its fee. As
compensation for its services under the Administrative Services Agreement, the
Custodian Agreement and the Transfer Agency Agreement, State Street is paid a
"unitary fee." See "Annual Fund Operating Expenses" under "SUMMARY OF SELECT
SECTOR SPDR FUND EXPENSES" in the Prospectus for a description of the unitary
fee. Each Select Sector SPDR Fund will also bear all other expenses of its
operation.
Term. The Investment Advisory Agreement with respect to each Select
Sector SPDR Fund continues in effect for two years from its effective date, and
thereafter is subject to annual approval by (1) the Board of Trustees or (2)
vote of a majority of the outstanding voting securities (as defined in the 1940
Act) of the Select Sector SPDR Fund, provided that in either event such
continuance also is approved by a majority of the Board of Trustees who are not
interested persons (as defined in the 1940 Act) of the Trust by a vote cast in
person at a meeting called for the purpose of voting on such approval. The
Investment Advisory Agreement with respect to each Select Sector SPDR Fund is
terminable without penalty, on 60 days notice, by the Board of Trustees or by a
vote of the holders of a majority (as defined in the 1940 Act) of the applicable
Select Sector SPDR Fund's outstanding voting securities. The Investment Advisory
Agreement is also terminable upon 60 days notice by the Adviser and will
terminate automatically in the event of its assignment (as defined in the 1940
Act).
BANKING AND REGULATORY MATTERS
State Street has been advised by its counsel that, in counsel's
opinion, State Street currently may perform the services for the Trust and the
Select Sector SPDR Funds contemplated by the Investment Advisory Agreement and
other activities for the Trust and the Select Sector
39
<PAGE> 78
SPDR Funds described in the Prospectus and this Statement of Additional
Information without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. However, counsel has pointed out that future
changes in either federal or state statutes and regulations concerning the
permissible activities of banks or trust companies, as well as future judicial
or administrative decisions or interpretations of present and future statutes
and regulations, might prevent State Street from continuing to perform those
services for the Trust and the Select Sector SPDR Funds. State laws on this
issue may differ from the interpretations of relevant federal law and banks and
financial institutions may be required to register as dealers pursuant to state
securities law. If the circumstances described above should change, the Board of
Trustees would review the relationships with State Street and consider taking
all actions necessary in the circumstances.
THE DISTRIBUTOR
ALPS Mutual Funds Services, Inc. is the principal underwriter and
Distributor of Shares. Its principal address is 370 17th Street, Suite 3100,
Denver, CO 80202. Investor information can be obtained by calling
1-800-843-2639. The Distributor has entered into a Distribution Agreement with
the Trust pursuant to which it distributes Shares of each Select Sector SPDR
Fund. The Distribution Agreement will continue for two years from its effective
date and is renewable annually thereafter. Shares will be continuously offered
for sale by the Trust through the Distributor only in Creation Units, as
described in the Prospectus and below under "CREATION AND REDEMPTION OF CREATION
UNITS." Shares in less than Creation Units are not distributed by the
Distributor. The Distributor will deliver the Prospectus and Statement of
Additional Information to persons purchasing Creation Units and will maintain
records of both orders placed with it and confirmations of acceptance furnished
by it. The Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of the National
Association of Securities Dealers, Inc. ("NASD"). The Distributor has no role in
determining the investment policies of the Trust or which securities are to be
purchased or sold by the Trust.
The Board of Trustees, consisting of Independent Trustees described
below, has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act
(each, a "Plan") for each Select Sector SPDR Fund. The terms of each Plan are
described in the Prospectus.
Under its terms, each Select Sector SPDR Fund's Plan remains in effect
from year to year, provided such continuance is approved annually by vote of the
Board, including a majority of the "Independent Trustees" (Trustees who are not
interested persons of the Fund (as defined in the 1940 Act) and have no direct
or indirect financial interest in the operation of the Plan or any agreement
related to the Plan). The Plan may not be amended to increase materially the
amount to be spent for the services provided by the Distributor without approval
by the shareholders of the Select Sector SPDR Fund to which the Plan applies,
and all material amendments of the Plan also require Board approval (as
described above). Each Plan may be terminated at any time, without penalty, by
vote of a majority of the Independent Trustees, or, by a vote of a majority of
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the outstanding voting securities of such Select Sector SPDR Fund (as such vote
is defined in the 1940 Act). Pursuant to the Distribution Agreement, the
Distributor will provide the Board with periodic reports of any amounts expended
under the Plan and the purpose for which such expenditures were made.
The Distribution Agreement provides that it may be terminated at any
time, without the payment of any penalty, as to each Select Sector SPDR Fund:
(i) by vote of a majority of the Independent Trustees or (ii) by vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Select Sector SPDR Fund, on at least 60 days written notice to the
Distributor. The Distribution Agreement is also terminable upon 60 days notice
by the Distributor and will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
Pursuant to agreements entered into with such persons, the Distributor will
make payments under each Select Sector SPDR Fund's Plan to certain
broker-dealers or other persons ("Investor Services Organizations") that enter
into agreements with the Distributor in the form approved by the Board of
Trustees to provide distribution assistance and shareholder support, account
maintenance and educational and promotional services (which may include
compensation and sales incentives to the registered brokers or other sales
personnel of the broker-dealer or other financial entity that is a party to an
investor services agreement) ("Investor Services Agreements"). Each Investor
Services Agreement will be a "related agreement" under the Plan of the relevant
Select Sector SPDR Fund. No Investor Services Agreement will provide for annual
fees of more than 0.10% of a Select Sector SPDR Fund's average daily net assets
per annum attributable to Shares subject to such agreement.
Subject to an aggregate limitation of .25% of a Select Sector SPDR
Fund's average net assets per annum, the fees paid by a Select Sector SPDR Fund
under its Plan will be compensation for distribution, investor services or
marketing services for that Fund. To the extent the Plan fees aggregate less
than .25% per annum of the average daily net assets of a Select Sector SPDR
Fund, each Fund may also reimburse the Distributor and other persons for their
respective costs incurred in printing prospectuses and producing advertising or
marketing material prepared at the request of the Fund. The aggregate payments
under each Plan will not exceed, on an annualized basis, .25% of average daily
net assets of any Select Sector SPDR Fund.
The continuation of the Distribution Agreement, any Investor Services
Agreements and any other related agreements is subject to annual approval of the
Board, including by a majority of the Independent Trustees, as described above.
Each of the Investor Services Agreements will provide that it may be
terminated at any time, without the payment of any penalty, (i) by vote of a
majority of the Independent Trustees or (ii) by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the relevant
Select Sector SPDR Fund, on at least 60 days' written notice to the other party.
Each of the Distribution Agreement and the Investor Services Agreements is also
terminable upon 60 days'
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notice by the Distributor and will terminate automatically in the event of its
assignment (as defined in the 1940 Act). Each Investor Services Agreement is
also terminable by the applicable Investor Service Organization upon 60 days'
notice to the other party thereto.
The allocation among the Select Sector SPDR Funds of fees and expenses
payable under the Distribution Agreement and the Investor Services Agreements
will be made pro rata in accordance with the daily net assets of the respective
Funds.
The Distributor may also enter into agreements with securities dealers
("Soliciting Dealers") who will solicit purchases of Creation Unit aggregations
of Select Sector SPDR Fund Shares. Such Soliciting Dealers may also be
Participating Parties (as defined below), DTC Participants (as defined below)
and/or Investor Services Organizations.
Pursuant to the Distribution Agreement, the Trust has agreed to
indemnify the Distributor, and may indemnify Soliciting Dealers entering into
agreements with the Distributor, for certain liabilities, including certain
liabilities arising under the federal securities laws, unless such loss or
liability results from willful misfeasance, bad faith or gross negligence in the
performance of its duties or the reckless disregard of its obligations and
duties under the Distribution Agreement or other agreement, as applicable.
ADDITIONAL EXPENSES
S&P, the AMEX and Merrill Lynch have entered into a license agreement
with respect to each Select Sector SPDR Fund's Select Sector Index. Pursuant to
such license agreement, the Trust has entered into a sub-license agreement which
provides that each Select Sector SPDR Fund will pay a one time fee to S&P of
$5,000 (the "One Time Fee"). In addition, the Trust will pay a sub-license fee
per annum (i) to S&P equal to the greater of .03% of the aggregate net assets of
the Trust or $450,000 (the "Minimum Annual Fee"), and (ii) to Merrill Lynch
equal to .03% of the aggregate net assets of the Trust. The Minimum Annual Fee
(plus the One Time Fee) is payable in full to S&P during the first year of the
sub-license agreement six months from the date after the first day of trading of
any Select Sector SPDR Fund on the Amex (the "First Trading Day"). Thereafter,
the Minimum Annual Fee is payable in full on each anniversary of the First
Trading Day. The fee to Merrill Lynch is payable on a quarterly basis. Each
Select Sector SPDR Fund will pay its proportionate share of the annual
sub-license fees based on the relative net assets of such Fund.
BROKERAGE TRANSACTIONS
The policy of the Trust regarding purchases and sales of securities for
the Select Sector SPDR Funds is that primary consideration will be given to
obtaining the most favorable prices and efficient executions of transactions.
Consistent with this policy, when securities transactions are effected on a
stock exchange, the Trust's policy is to pay commissions which are considered
fair and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Trust believes that a requirement
always to seek the lowest possible commission cost could impede effective
portfolio management and preclude the Select Sector SPDR Funds and the Adviser
from obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any transaction,
the Adviser relies upon its experience and knowledge regarding commissions
generally charged by
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various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
In seeking to implement the Trust's policies, the Adviser effects
transactions with those brokers and dealers who the Adviser believes provides
the most favorable prices and are capable of providing efficient executions. If
the Adviser believes such price and execution are obtainable from more than one
broker or dealer, it may give consideration to placing portfolio transactions
with those brokers and dealers who also furnish research and other services to
the Select Sector SPDR Funds or the Adviser. Such services may include, but are
not limited to, information as to the availability of securities for purchase or
sale and statistical information pertaining to corporate actions affecting
stocks, including but not limited to, stocks within the S&P 500.
The Select Sector SPDR Funds will not deal with affiliates in principal
transactions unless permitted by exemptive order or applicable rule or
regulation.
The Adviser assumes general supervision over placing orders on behalf
of the Trust for the purchase or sale of portfolio securities. If purchases or
sales of portfolio securities of the Trust and one or more other investment
companies or clients supervised by the Adviser are considered at or about the
same time, transactions in such securities are allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Adviser. In some cases, this procedure could have a detrimental effect on the
price or volume of the security so far as the Trust is concerned. However, in
other cases, it is possible that the ability to participate in volume
transactions and to negotiate lower brokerage commissions will be beneficial to
the Trust. The primary consideration is prompt execution of orders at the most
favorable net price.
Portfolio turnover may vary from year to year, as well as within a
year. High turnover rates are likely to result in comparatively greater
brokerage expenses. The portfolio turnover rate for each Select Sector SPDR Fund
is expected to be under 50%. See "INVESTMENT POLICIES AND STRATEGIES" in the
Prospectus. The overall reasonableness of brokerage commissions is evaluated by
the Adviser based upon its knowledge of available information as to the general
level of commissions paid by other institutional investors for comparable
services.
BOOK ENTRY ONLY SYSTEM
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "BUYING AND SELLING SELECT SECTOR
SPDRs."
DTC acts as securities depositary for the Shares. Shares of each Select
Sector SPDR Fund are represented by securities registered in the name of DTC or
its nominee and deposited with, or on behalf of, DTC. Except in the limited
circumstance provided below, certificates will not be issued for Shares.
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DTC, a limited-purpose trust company, was created to hold securities of
its participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
a number of its DTC Participants and by the New York Stock Exchange ("NYSE"),
the AMEX and the NASD. Access to the DTC system is also available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
(the "Indirect Participants").
Beneficial ownership of Shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in Shares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase of Shares.
Conveyance of all notices, statements and other communications to
Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement
between the Trust and DTC, DTC is required to make available to the Trust upon
request and for a fee to be charged to the Trust a listing of the Shares of each
Fund held by each DTC Participant. The Trust shall inquire of each such DTC
Participant as to the number of Beneficial Owners holding Shares, directly or
indirectly, through such DTC Participant. The Trust shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trust shall pay to each such DTC Participant a fair and
reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as
the registered holder of all Shares. DTC or its nominee, upon receipt of any
such distributions, shall credit immediately DTC Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
Shares of each Fund as shown on the records of DTC or its nominee. Payments by
DTC Participants to Indirect Participants and Beneficial Owners of Shares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants.
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The Trust has no responsibility or liability for any aspects of the
records relating to or notices to Beneficial Owners, or payments made on account
of beneficial ownership interests in such Shares, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue providing its service with respect to
Shares at any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action either to find a replacement for DTC
to perform its functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing ownership of
Shares, unless the Trust makes other arrangements with respect thereto
satisfactory to the AMEX.
CREATION AND REDEMPTION OF CREATION UNITS
CREATION
The Trust issues and sells Shares of each Select Sector SPDR Fund only
in Creation Units on a continuous basis through the Distributor, without a sales
load, at their net asset value next determined after receipt, on any Business
Day (as defined below), of an order in proper form.
A "Business Day" with respect to each Select Sector SPDR Fund is any
day on which the NYSE is open for business. As of the date of the Prospectus,
the NYSE observes the following holidays: New Year's Day, Martin Luther King,
Jr. Day, President's Day (Washington's Birthday), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
FUND DEPOSIT
The consideration for purchase of a Creation Unit of a Select Sector
SPDR Fund generally consists of the in-kind deposit of a designated portfolio of
equity securities -- the "Deposit Securities" -- per each Creation Unit
constituting a substantial replication, or a representation, of the stocks
included in the relevant Select Sector SPDR Fund's Select Sector Index and an
amount of cash -- the "Cash Component" -- computed as described below. Together,
the Deposit Securities and the Cash Component constitute the "Fund Deposit,"
which represents the minimum initial and subsequent investment amount for a
Creation Unit of any Select Sector SPDR Fund. The Cash Component is an amount
equal to the Dividend Equivalent Payment (as defined below), plus or minus, as
the case may be, a Balancing Amount (as defined below). The "Dividend Equivalent
Payment" enables each Fund to make a complete distribution of dividends on the
next dividend payment date, and is an amount equal, on a per Creation Unit
basis, to the dividends on all the portfolio securities of the Fund ("Fund
Securities") with ex-dividend dates within the
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accumulation period for such distribution (the "Accumulation Period"), net of
expenses and liabilities for such period, as if all of the Fund Securities had
been held by the Fund for the entire Accumulation Period. The Accumulation
Period begins on the ex-dividend date for each Fund and ends on the next
ex-dividend date. The "Balancing Amount" is an amount equal to the difference
between the net asset value of the Shares (per Creation Unit) and the "Deposit
Amount" -- an amount equal to the sum of the market value of the Deposit
Securities and the Dividend Equivalent Payment. If the Balancing Amount is a
positive number (i.e., the net asset value per Creation Unit exceeds the Deposit
Amount), the Cash Component shall be increased by such positive amount. If the
Balancing Amount is a negative number (i.e., the net asset value per Creation
Unit is less than the Deposit Amount), the Cash Component shall be decreased by
such negative amount. If the negative number is greater than the Dividend
Equivalent Payment, the creator will be entitled to receive cash in an amount
equal to the differential. The Balancing Amount serves the function of
compensating for any differences between the net asset value per Creation Unit
and the Deposit Amount.
The Custodian, through the National Securities Clearing Corporation
("NSCC") (discussed below), makes available on each Business Day, immediately
prior to the opening of business on the AMEX (currently 9:30 a.m., New York
time), the list of the names and the required number of shares of each Deposit
Security to be included in the current Fund Deposit (based on information at the
end of the previous Business Day) for each Select Sector SPDR Fund. Such Fund
Deposit is applicable, subject to any adjustments as described below, in order
to effect creations of Creation Units of a given Select Sector SPDR Fund until
such time as the next-announced composition of the Deposit Securities is made
available.
The identity and number of shares of the Deposit Securities required
for a Fund Deposit for each Select Sector SPDR Fund changes as rebalancing
adjustments and corporate action events are reflected from time to time by the
Adviser with a view to the investment objective of the Select Sector SPDR Fund.
The composition of the Deposit Securities may also change in response to
adjustments to the weighting or composition of the Component Stocks of the
relevant Select Sector Index. In addition, the Trust reserves the right to
permit or require the substitution of an amount of cash -- i.e., a "cash in
lieu" amount -- to be added to the Cash Component to replace any Deposit
Security which may not be available in sufficient quantity for delivery or which
may not be eligible for transfer through the Clearing Process (discussed below),
or which may not be eligible for trading by an Authorized Participant (as
defined below) or the investor for which it is acting. Brokerage commissions
incurred in connection with acquisition of Deposit Securities not eligible for
transfer through the systems of DTC and hence not eligible for transfer through
the Clearing Process (discussed below) will be at the expense of the Fund and
will affect the value of all Shares; but the Adviser, subject to the approval of
the Board of Trustees, may adjust the transaction fee within the parameters
described above to protect ongoing shareholders. The adjustments described above
will reflect changes, known to the Adviser on the date of announcement to be in
effect by the time of delivery of the Fund Deposit, in the composition of the
subject Select Sector Index being tracked by the relevant Select Sector SPDR
Fund or resulting from certain corporate actions.
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In addition to the list of names and numbers of securities constituting
the current Deposit Securities of a Fund Deposit, the Custodian, through the
NSCC, also makes available on each Business Day, the Dividend Equivalent
Payment, effective through and including the previous Business Day, per
outstanding Share of each Select Sector SPDR Fund.
PROCEDURES FOR CREATION OF CREATION UNITS
To be eligible to place orders with the Distributor to create a
Creation Unit of a Select Sector SPDR Fund, an entity must be (i) a
"Participating Party", i.e., a broker-dealer or other participant in the
clearing process through the Continuous Net Settlement System of the NSCC (the
"Clearing Process"), a clearing agency that is registered with the SEC; or (ii)
a DTC Participant (see "BOOK ENTRY ONLY SYSTEM"), and, in each case, must have
executed an agreement with the Trust, the Distributor and the Transfer Agent
with respect to creations and redemptions of Creation Units ("Participant
Agreement") (discussed below). A Participating Party and DTC Participant are
collectively referred to as an "Authorized Participant". Investors should
contact the Distributor for the names of Authorized Participants that have
signed a Participant Agreement. All Shares of Select Sector SPDR Funds, however
created, will be entered on the records of DTC in the name of Cede & Co. for the
account of a DTC Participant.
All orders to create Select Sector SPDR Funds must be placed for one or
more Creation Unit size aggregations of Shares (50,000 in the case of each
Fund). All orders to create Creation Units, whether through the Clearing Process
(through a Participating Party) or outside the Clearing Process (through a DTC
Participant), must be received by the Distributor no later than the closing time
of the regular trading session on the NYSE ("Closing Time") (ordinarily 4:00
p.m., New York time) in each case on the date such order is placed in order for
creation of Creation Units to be effected based on the net asset value of Shares
of each Select Sector SPDR Fund as next determined on such date after receipt of
the order in proper form. The date on which an order to create Creation Units
(or an order to redeem Creation Units as discussed below) is placed is referred
to as the "Transmittal Date". Orders must be transmitted by an Authorized
Participant by telephone or other transmission method acceptable to the
Distributor pursuant to procedures set forth in the Participant Agreement, as
described below (see "Placement of Creation Orders Using Clearing Process" and
"Placement of Creation Orders Outside Clearing Process"). Severe economic or
market disruptions or changes, or telephone or other communication failure, may
impede the ability to reach the Distributor or an Authorized Participant.
Orders to create Creation Units of Select Sector SPDR Funds shall be
placed with an Authorized Participant, as applicable, in the form required by
such Authorized Participant. In addition, the Authorized Participant may request
the investor to make certain representations or enter into agreements with
respect to the order, e.g., to provide for payments of cash, when required.
Investors should be aware that their particular broker may not have executed a
Participant Agreement, and that, therefore, orders to create Creation Units of
Select Sector SPDR Funds have to be placed by the investor's broker through an
Authorized Participant that has
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executed a Participant Agreement. At any given time there may be only a limited
number of broker-dealers that have executed a Participant Agreement. Those
placing orders for Creation Units through the Clearing Process should afford
sufficient time to permit proper submission of the order to the Distributor
prior to the Closing Time on the Transmittal Date.
Orders for creation that are effected outside the Clearing Process are
likely to require transmittal by the DTC Participant earlier on the Transmittal
Date than orders effected using the Clearing Process. Those persons placing
orders outside the Clearing Process should ascertain the deadlines applicable to
DTC and the Federal Reserve Bank wire system by contacting the operations
department of the broker or depository institution effectuating such transfer of
Deposit Securities and Cash Component.
PLACEMENT OF CREATION ORDERS USING CLEARING PROCESS
The Clearing Process is the process of creating or redeeming Creation
Units through the Continuous Net Settlement System of the NSCC. Fund Deposits
made through the Clearing Process must be delivered through a Participating
Party that has executed a Participant Agreement. The Participant Agreement
authorizes the Distributor to transmit through the Transfer Agent to NSCC, on
behalf of the Participating Party, such trade instructions as are necessary to
effect the Participating Party's creation order. Pursuant to such trade
instructions to NSCC, the Participating Party agrees to deliver the requisite
Deposit Securities and the Cash Component to the Trust, together with such
additional information as may be required by the Distributor. An order to create
Select Sector SPDR Funds in Creation Units through the Clearing Process is
deemed received by the Distributor on the Transmittal Date if (i) such order is
received by the Distributor not later than the Closing Time on such Transmittal
Date and (ii) all other procedures set forth in the Participant Agreement are
properly followed.
PLACEMENT OF CREATION ORDERS OUTSIDE CLEARING PROCESS
Fund Deposits made outside the Clearing Process must be delivered
through a DTC Participant that has executed a Participant Agreement with the
Trust, the Distributor and the Transfer Agent. A DTC Participant who wishes to
place an order creating Creation Units to be effected outside the Clearing
Process need not be a Participating Party, but such orders must state that the
DTC Participant is not using the Clearing Process and that the creation of
Creation Units will instead be effected through a transfer of securities and
cash directly through DTC. The Fund Deposit transfer must be ordered by the DTC
Participant on the Transmittal Date in a timely fashion so as to ensure the
delivery of the requisite number of Deposit Securities through DTC to the
account of the Trust by no later than 11:00 a.m., New York time, of the next
Business Day immediately following the Transmittal Date. All questions as to the
number of Deposit Securities to be delivered, and the validity, form and
eligibility (including time of receipt) for the deposit of any tendered
securities, will be determined by the Trust, whose determination shall be final
and binding. The cash equal to the Cash Component must be transferred directly
to the Custodian
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through the Federal Reserve wire system in a timely manner so as to be received
by the Custodian no later than 2:00 p.m., New York time, on the next Business
Day immediately following such Transmittal Date. An order to create Creation
Units of Select Sector SPDR Funds outside the Clearing Process is deemed
received by the Distributor on the Transmittal Date if (i) such order is
received by the Distributor not later than the Closing Time on such Transmittal
Date; and (ii) all other procedures set forth in the Participant Agreement are
properly followed. However, if the Custodian does not receive both the requisite
Deposit Securities and the Cash Component by 11:00 a.m. and 2:00 p.m.,
respectively, on the next Business Day immediately following the Transmittal
Date, such order will be cancelled. Upon written notice to the Distributor, such
cancelled order may be resubmitted the following Business Day using a Fund
Deposit as newly constituted to reflect the then current net asset value of the
Fund. The delivery of Creation Units of Select Sector SPDR Funds so created will
occur no later than the third (3rd) Business Day following the day on which the
purchase order is deemed received by the Distributor.
Creation Units of Select Sector SPDR Funds may be created in advance of
receipt by the Trust of all or a portion of the applicable Deposit Securities as
described below. In these circumstances, the initial deposit will have a value
greater than the net asset value of the Shares on the date the order is placed
in proper form since in addition to available Deposit Securities, cash must be
deposited in an amount equal to the sum of (i) the Cash Component, plus (ii)
115% of the market value of the undelivered Deposit Securities (the "Additional
Cash Deposit"). The order shall be deemed to be received on the Business Day on
which the order is placed provided that the order is placed in proper form prior
to 4:00 p.m., New York time, on such date and federal funds in the appropriate
amount are deposited with the Trust's Custodian by 11:00 a.m., New York time,
the following Business Day. If the order is not placed in proper form by 4:00
p.m. or federal funds in the appropriate amount are not received by 11:00 a.m.
the next Business Day, then the order may be deemed to be rejected and the
investor shall be liable to the Trust for losses, if any, resulting therefrom.
An additional amount of cash shall be required to be deposited with the Trust,
pending delivery of the missing Deposit Securities to the extent necessary to
maintain the Additional Cash Deposit with the Trust in an amount at least equal
to 115% of the daily marked to market value of the missing Deposit Securities.
To the extent that missing Deposit Securities are not received by 1:00 p.m., New
York time, on the third Business Day following the day on which the purchase
order is deemed received by the Distributor or in the event a mark to market
payment is not made within one Business Day following notification by the
Distributor that such a payment is required, the Trust may use the cash on
deposit to purchase the missing Deposit Securities. Authorized Participants will
be liable to the Trust for the costs incurred by the Trust in connection with
any such purchases. These costs will be deemed to include the amount by which
the actual purchase price of the Deposit Securities exceeds the market value of
such Deposit Securities on the day the purchase order was deemed received by the
Distributor plus the brokerage and related transaction costs associated with
such purchases. The Trust will return any unused portion of the Additional Cash
Deposit once all of the missing Deposit Securities have been properly received
by the Custodian or purchased by the Trust and deposited into the Trust. In
addition, a transaction fee of $4,000 will be charged in all cases. The delivery
of Creation Units of Select Sector SPDR Funds so created will occur no later
than the third Business Day following the day on which the purchase order is
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deemed received by the Distributor.
ACCEPTANCE OF ORDERS FOR CREATION UNITS
The Trust reserves the absolute right to reject a creation order
transmitted to it by the Distributor in respect of any Select Sector SPDR Fund
if (a) the order is not in proper form; (b) the investor(s), upon obtaining the
Shares ordered, would own 80% or more of the currently outstanding Shares of any
Select Sector SPDR Fund; (c) the Deposit Securities delivered are not as
disseminated through the facilities of the AMEX for that date by the Custodian,
as described above; (d) acceptance of the Deposit Securities would have certain
adverse tax consequences to the Select Sector SPDR Fund; (e) the acceptance of
the Fund Deposit would, in the opinion of counsel, be unlawful; (f) the
acceptance of the Fund Deposit would otherwise, in the discretion of the Trust
or the Adviser, have an adverse effect on the Trust or the rights of beneficial
owners; or (g) in the event that circumstances outside the control of the Trust,
the Distributor and the Adviser make it for all practical purposes impossible to
process creation orders. Examples of such circumstances include acts of God or
public service or utility problems such as fires, floods, extreme weather
conditions and power outages resulting in telephone, telecopy and computer
failures; market conditions or activities causing trading halts; systems
failures involving computer or other information systems affecting the Trust,
the Adviser, the Distributor, DTC, NSCC or any other participant in the creation
process, and similar extraordinary events. The Distributor shall notify a
prospective creator of a Creation Unit and/or the Authorized Participant acting
on behalf of the creator of a Creation Unit of its rejection of the order of
such person. The Trust, the Transfer Agent, the Custodian and the Distributor
are under no duty, however, to give notification of any defects or
irregularities in the delivery of Fund Deposits nor shall either of them incur
any liability for the failure to give any such notification.
All questions as to the number of shares of each security in the
Deposit Securities and the validity, form, eligibility and acceptance for
deposit of any securities to be delivered shall be determined by the Trust, and
the Trust's determination shall be final and binding.
CREATION TRANSACTION FEE
To compensate the Trust for transfer and other transaction costs
involved in creation transactions, investors will be required to pay a fixed
creation transaction fee of $1,000 payable to the Trust. An additional charge of
up to three (3) times the fixed transaction fee (expressed as a percentage of
the value of the Deposit Securities) may be imposed for (i) creations effected
outside the Clearing Process; and (ii) cash creations (to offset the Trust's
brokerage and other transaction costs associated with using cash to purchase the
requisite Deposit Securities), for a total charge of up to $4,000. Investors are
responsible for the costs of transferring the securities constituting the
Deposit Securities to the account of the Trust.
REDEMPTION
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Shares may be redeemed only in Creation Units at their net asset value
next determined after receipt of a redemption request in proper form by the
Select Sector SPDR Fund through the Transfer Agent and only on a Business Day.
THE TRUST WILL NOT REDEEM SHARES IN AMOUNTS LESS THAN CREATION UNITS. Beneficial
Owners must accumulate enough Shares in the secondary market to constitute a
Creation Unit in order to have such Shares redeemed by the Trust. There can be
no assurance, however, that there will be sufficient liquidity in the public
trading market at any time to permit assembly of a Creation Unit. Investors
should expect to incur brokerage and other costs in connection with assembling a
sufficient number of Shares to constitute a redeemable Creation Unit. As of
December 14, 1998, the value of the securities comprising a deposit of
designated equity securities necessary for an in-kind purchase of a Creation
Unit for each Select Sector SPDR Fund was as follows: The Basic Industries
Select Sector SPDR Fund - $1,055,050; The Consumer Services Select Sector SPDR
Fund - $1,180,250; The Consumer Staples Select Sector SPDR Fund - $1,284,550;
The Cyclical/Transportation Select Sector SPDR Fund - $1,196,650; The Energy
Select Sector SPDR Fund - $1,154,300; The Financial Select Sector SPDR Fund -
$1,072,350; The Industrial Select Sector SPDR Fund - $1,131,300; The Technology
Select Sector SPDR Fund - $1,476,250; and The Utilities Select Sector SPDR Fund
- - $1,432,600.
With respect to each Select Sector SPDR Fund, the Custodian, through
the NSCC, makes available immediately prior to the opening of business on the
AMEX (currently 9:30 am, New York time) on each Business Day, the Fund
Securities that will be applicable (subject to possible amendment or correction)
to redemption requests received in proper form (as defined below) on that day.
Fund Securities received on redemption may not be identical to Deposit
Securities which are applicable to creations of Creation Units.
Unless cash redemptions are available or specified for a Select Sector
SPDR Fund, the redemption proceeds for a Creation Unit generally consist of Fund
Securities -- as announced by the Custodian on the Business Day of the request
for redemption received in proper form -- plus cash in an amount equal to the
difference between the net asset value of the Shares being redeemed, as next
determined after a receipt of a request in proper form, and the value of the
Fund Securities (the "Cash Redemption Amount"), less a redemption transaction
fee of $1,000. In the event that the Fund Securities have a value greater than
the net asset value of the Shares, a compensating cash payment equal to the
differential is required to be made by or through an Authorized Participant by
the redeeming shareholder.
REDEMPTION TRANSACTION FEE
A redemption transaction fee of $1,000 is paid to the Trust to offset
transfer and other transaction costs that may be incurred in connection with the
redemption of Creation Units. The redemption transaction fee is the same no
matter how many Creation Units are being redeemed pursuant to any one redemption
request. The Select Sector SPDR Funds, subject to approval by the Board of
Trustees, may adjust the fee from time to time based upon actual experience. An
additional charge for cash redemptions or partial cash redemptions (when cash
redemptions are available) for each Select Sector SPDR Fund may be imposed.
Investors who use the services of a broker or other such intermediary in
addition to an Authorized Participant to effect a redemption of a Creation Unit
may be charged a fee for such services.
PLACEMENT OF REDEMPTION ORDERS USING CLEARING PROCESS
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Orders to redeem Creation Units of Select Sector SPDR Funds through the
Clearing Process must be delivered through a Participating Party that has
executed the Participant Agreement. An order to redeem Creation Units of Select
Sector SPDR Funds using the Clearing Process is deemed received on the
Transmittal Date if (i) such order is received by the Transfer Agent not later
than 4:00 p.m., New York time, on such Transmittal Date; and (ii) all other
procedures set forth in the Participant Agreement are properly followed; such
order will be effected based on the net asset value of the Fund as next
determined. An order to redeem Creation Units of a Select Sector SPDR Fund using
the Clearing Process made in proper form but received by the Fund after 4:00
p.m., New York time, will be deemed received on the next Business Day
immediately following the Transmittal Date and will be effected at the net asset
value next determined on such Business Day. The requisite Fund Securities and
the Cash Redemption Amount will be transferred by the third (3rd) NSCC Business
Day following the date on which such request for redemption is deemed received.
PLACEMENT OF REDEMPTION ORDERS OUTSIDE CLEARING PROCESS
Orders to redeem Creation Units of Select Sector SPDR Funds outside the
Clearing Process must be delivered through a DTC Participant that has executed
the Participant Agreement. A DTC Participant who wishes to place an order for
redemption of Creation Units of Select Sector SPDR Funds to be effected outside
the Clearing Process need not be a Participating Party, but such orders must
state that the DTC Participant is not using the Clearing Process and that
redemption of Creation Units will instead be effected through transfer of Shares
directly through DTC. An order to redeem Creation Units of Select Sector SPDR
Funds outside the Clearing Process is deemed received by the Transfer Agent on
the Transmittal Date if (i) such order is received by the Transfer Agent not
later than 4:00 p.m., New York time, on such Transmittal Date; (ii) such order
is accompanied or proceeded by the requisite number of Shares of Select Sector
SPDR Funds specified in such order, which delivery must be made through DTC to
the Custodian no later than 11:00 a.m., New York time, on the next Business Day
following such Transmittal Date (the "DTC Cut-Off-Time"); and (iii) all other
procedures set forth in the Participant Agreement are properly followed.
After the Transfer Agent has deemed an order for redemption outside the
Clearing Process received, the Transfer Agent will initiate procedures to
transfer the requisite Fund Securities which are expected to be delivered within
three Business Days and the Cash Redemption Amount to the Authorized Participant
on behalf of the redeeming Beneficial Owner by the third Business Day following
the Transmittal Date on which such redemption order is deemed received by the
Transfer Agent.
The calculation of the value of the Fund Securities and the Cash
Redemption Amount to be delivered upon redemption will be made by the Custodian
according to the procedures set forth under "DETERMINATION OF NET ASSET VALUE"
computed on the Business Day on which a redemption order is deemed received by
the Transfer Agent. Therefore, if a redemption order in proper form is submitted
to the Transfer Agent by a DTC Participant not later than the Closing Time on
the
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Transmittal Date, and the requisite number of Shares of the relevant Select
Sector SPDR Fund are delivered to the Custodian prior to the DTC Cut-Off-Time,
then the value of the Fund Securities and the Cash Redemption Amount to be
delivered will be determined by the Custodian on such Transmittal Date. If,
however, a redemption order is submitted to the Distributor by a DTC Participant
not later than the Closing Time on the Transmittal Date but either (1) the
requisite number of Shares of the relevant Select Sector SPDR Fund are not
delivered by the DTC Cut-Off-Time as described above on the next Business Day
following the Transmittal Date or (2) the redemption order is not submitted in
proper form, then the redemption order will not be deemed received as of the
Transmittal Date. In such case, the value of the Fund Securities and the Cash
Redemption Amount to be delivered will be computed on the Business Day that such
order is deemed received by the Transfer Agent, i.e., the Business Day on which
the Shares of the relevant Select Sector SPDR Funds are delivered through DTC to
the Custodian by the DTC Cut-Off-Time on such Business Day pursuant to a
properly submitted redemption order.
If it is not possible to effect deliveries of the Fund Securities, the
Trust may in its discretion exercise its option to redeem such Shares in cash,
and the redeeming Beneficial Owner will be required to receive its redemption
proceeds in cash. In addition, an investor may request a redemption in cash
which the Select Sector SPDR Fund may, in its sole discretion, permit. In either
case, the investor will receive a cash payment equal to the net asset value of
its Shares based on the net asset value of Shares of the relevant Select Sector
SPDR Fund next determined after the redemption request is received in proper
form (minus a redemption transaction fee and additional charge for requested
cash redemptions specified above, to offset the Trust's brokerage and other
transaction costs associated with the disposition of Fund Securities). The
Select Sector SPDR Fund may also, in its sole discretion, upon request of a
shareholder, provide such redeemer a portfolio of securities which differs from
the exact composition of the Fund Securities but does not differ in net asset
value.
Redemptions of Shares for Fund Securities will be subject to compliance
with applicable federal and state securities laws and each Select Sector SPDR
Fund (whether or not it otherwise permits cash redemptions) reserves the right
to redeem Creation Units for cash to the extent that the Select Sector SPDR Fund
could not lawfully deliver specific Fund Securities upon redemptions or could
not do so without first registering the Fund Securities under such laws. An
Authorized Participant or an investor for which it is acting subject to a legal
restriction with respect to a particular stock included in the Fund Securities
applicable to the redemption of a Creation Unit may be paid an equivalent amount
of cash. The Authorized Participant may request the redeeming Beneficial Owner
of the Shares to complete an order form or to enter into agreements with respect
to such matters as compensating cash payment, beneficial ownership of Shares or
delivery instructions.
The right of redemption may be suspended or the date of payment
postponed with respect to any Select Sector SPDR Fund (1) for any period during
which the NYSE is closed (other than customary weekend and holiday closings);
(2) for any period during which trading on the NYSE is suspended or restricted;
(3) for any period during which an emergency exists as a result of
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which disposal of the Shares of the Select Sector SPDR Fund or determination of
the Shares' net asset value is not reasonably practicable; or (4) in such other
circumstance as is permitted by the SEC.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "DETERMINATION OF NET ASSET VALUE."
Net asset value per Share for each Select Sector SPDR Fund of the Trust
is computed by dividing the value of the net assets of such Select Sector SPDR
Fund (i.e., the value of its total assets less total liabilities) by the total
number of Shares outstanding, rounded to the nearest cent. Expenses and fees,
including the management, administration and distribution fees, are accrued
daily and taken into account for purposes of determining net asset value. The
net asset value of each Select Sector SPDR is calculated by the Custodian and
determined as of the close of the regular trading session on the NYSE
(ordinarily 4:00 p.m., New York time) on each day that such exchange is open.
In computing a Select Sector SPDR Fund's net asset value per Share, the
Select Sector SPDR Fund's securities holdings are valued based on their last
quoted current price. Price information on listed securities is taken from the
exchange where the security is primarily traded. Securities regularly traded in
an over-the-counter market are valued at the latest quoted bid price in such
market. Other portfolio securities and assets for which market quotations are
not readily available are valued based on fair value as determined in good faith
by the Adviser in accordance with procedures adopted by the Board.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "DISTRIBUTIONS."
GENERAL POLICIES
Dividends from net investment income, if any, are declared and paid
quarterly by each Select Sector SPDR Fund. Distributions of net realized
securities gains, if any, generally are declared and paid once a year, but the
Trust may make distributions on a more frequent basis for certain Select Sector
SPDR Funds to improve index tracking or to comply with the distribution
requirements of the Internal Revenue Code, in all events in a manner consistent
with the provisions of the 1940 Act. In addition, the Trust intends to
distribute at least annually amounts representing the full dividend yield on the
underlying portfolio securities of each Fund, net of expenses of such Select
Sector SPDR, as if such Select Sector SPDR Fund owned such underlying portfolio
securities for the entire dividend period. As a result, some portion of each
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distribution may result in a return of capital for tax purposes for
shareholders.
Dividends and other distributions on Shares are distributed, as
described below, on a pro rata basis to Beneficial Owners of such Shares.
Dividend payments are made through DTC Participants and Indirect Participants to
Beneficial Owners then of record with proceeds received from the Trust.
The Trust makes additional distributions to the extent necessary (i) to
distribute the entire annual taxable income of the Trust, plus any net capital
gains and (ii) to avoid imposition of the excise tax imposed by Section 4982 of
the Internal Revenue Code. Management of the Trust reserves the right to declare
special dividends if, in its reasonable discretion, such action is necessary or
advisable to preserve the status of each Select Sector SPDR Fund as a regulated
investment company ("RIC") or to avoid imposition of income or excise taxes on
undistributed income.
DIVIDEND REINVESTMENT SERVICE
Broker-dealers may make available the DTC book-entry Dividend
Reinvestment Service for use by Beneficial Owners of Select Sector SPDR Funds
through DTC Participants for reinvestment of their dividend distributions. If
this service is available and used, dividend distributions of both income and
realized gains will be automatically reinvested in additional whole Shares
purchased in the secondary market of the same Select Sector SPDR Fund.
TAXES
The following information also supplements and should be read in
conjunction with the section in the Prospectus entitled "TAX MATTERS."
Each Select Sector SPDR Fund intends to qualify for and to elect
treatment as a separate RIC under Subchapter M of the Internal Revenue Code. To
qualify for treatment as a RIC, a company must annually distribute at least 90%
of its net investment company taxable income (which includes dividends, interest
and net short-term capital gains) and meet several other requirements.
Each Select Sector SPDR Fund is treated as a separate corporation for
federal income tax purposes. Each Fund therefore is considered to be a separate
entity in determining its treatment under the rules for RICs described herein
and in the Prospectus. Losses in one Select Sector SPDR Fund do not offset gains
in another and the requirements (other than certain organizational requirements)
for qualifying RIC status are determined at the Fund level rather than at the
Trust level.
A Select Sector SPDR Fund will be subject to a 4% excise tax on certain
undistributed
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income if it does not distribute to its shareholders in each calendar year at
least 98% of its ordinary income for the calendar year plus 98% of its capital
gain net income for the twelve months ended September 30 of such year. Each
Select Sector SPDR Fund intends to declare and distribute dividends and
distributions in the amounts and at the times necessary to avoid the application
of this 4% excise tax.
As a result of tax requirements, the Trust on behalf of each Select
Sector SPDR Fund has the right to reject an order to purchase Shares if the
purchaser (or group of purchasers) would, upon obtaining the Shares so ordered,
own 80% or more of the outstanding Shares of a given Select Sector SPDR Fund and
if, pursuant to section 351 of the Internal Revenue Code, the respective Select
Sector SPDR Fund would have a basis in the Deposit Securities different from the
market value of such securities on the date of deposit. The Trust also has the
right to require information necessary to determine beneficial share ownership
for purposes of the 80% determination. See "CREATION AND REDEMPTION OF CREATION
UNITS."
Dividends and interest received by a Select Sector SPDR Fund may give
rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
Each Select Sector SPDR Fund will report to shareholders annually the
amounts of dividends received from ordinary income, the amount of distributions
received from capital gains and the portion of dividends which may qualify for
the dividends received deduction.
A loss realized on a sale or exchange of Shares of a Select Sector SPDR
Fund will be disallowed if other Fund Shares are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a sixty-one (61) day
period beginning thirty (30) days before and ending thirty (30) days after the
date that the Shares are disposed of. In such a case, the basis of the Shares
acquired will be adjusted to reflect the disallowed loss. Any loss upon the sale
or exchange of Shares held for six (6) months or less will be treated as
long-term capital loss to the extent of any capital gain dividends received by
the shareholders.
Distribution of ordinary income and capital gains may also be subject
to state and local taxes.
Distributions reinvested in additional Shares of a Select Sector SPDR
Fund through the means of the service (see "DIVIDEND REINVESTMENT SERVICE") will
nevertheless be taxable dividends to Beneficial Owners acquiring such additional
Shares to the same extent as if such dividends had been received in cash.
Distributions of ordinary income paid to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% United States
withholding tax unless a reduced rate of withholding or a withholding exemption
is provided under applicable treaty law. Nonresident
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shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
Some shareholders may be subject to a 31% withholding tax on
distributions of ordinary income, capital gains and any cash received on
redemption of Creation Units ("backup withholding"). Generally, shareholders
subject to backup withholding will be those for whom no certified taxpayer
identification number is on file with the Select Sector SPDR Fund or who, to the
Fund's knowledge, have furnished an incorrect number. When establishing an
account, an investor must certify under penalty of perjury that such number is
correct and that such investor is not otherwise subject to backup withholding.
The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Purchasers of Shares of the Trust should
consult their own tax advisors as to the tax consequences of investing in such
shares, including under state, local and other tax laws. Finally, the foregoing
discussion is based on applicable provisions of the Internal Revenue Code,
regulations, judicial authority and administrative interpretations in effect on
the date hereof. Changes in applicable authority could materially affect the
conclusions discussed above, and such changes often occur.
FEDERAL TAX TREATMENT OF FUTURES AND OPTIONS CONTRACTS
Each Select Sector SPDR Fund is required for federal income tax
purposes to mark to market and recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts as of the end of the
year as well as those actually realized during the year. Gain or loss from
futures and options contracts on broad-based indexes required to be marked to
market will be 60% long-term and 40% short-term capital gain or loss.
Application of this rule may alter the timing and character of distributions to
shareholders. A Select Sector SPDR Fund may be required to defer the recognition
of losses on futures contracts, option contracts and swaps to the extent of any
unrecognized gains on offsetting positions held by the Select Sector SPDR Fund.
In order for a Select Sector SPDR Fund to continue to qualify for
federal income tax treatment as a regulated investment company, at least 90% of
its gross income for a taxable year must be derived from qualifying income,
i.e., dividends, interest, income derived from loans of securities, gains from
the sale of securities or of foreign currencies or other income derived with
respect to the Select Sector SPDR Fund's business of investing in securities. It
is anticipated that any net gain realized from the closing out of futures or
options contracts will be considered gain from the sale of securities and
therefore will be qualifying income for purposes of the 90% requirement.
Each Select Sector SPDR Fund distributes to shareholders annually any
net capital gains which have been recognized for federal income tax purposes
(including unrealized gains at the end
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of the Select Sector SPDR Fund's fiscal year) on futures or options
transactions. Such distributions are combined with distributions of capital
gains realized on the Select Sector SPDR Fund's other investments and
shareholders are advised on the nature of the distributions.
CAPITAL STOCK AND SHAREHOLDER REPORTS
The Trust currently is comprised of nine Select Sector SPDR Funds. Each
Select Sector SPDR Fund issues shares of beneficial interest, par value $.001
per Share. The Board of Trustees may designate additional Select Sector SPDR
Funds.
Each Share issued by the Trust has a pro rata interest in the assets of
the corresponding Select Sector SPDR Fund. Shares have no preemptive, exchange,
subscription or conversion rights and are freely transferable. Each Share is
entitled to participate equally in dividends and distributions declared by the
Board with respect to the relevant Select Sector SPDR Fund, and in the net
distributable assets of such Select Sector SPDR Fund on liquidation.
Each Share has one vote with respect to matters upon which a
shareholder vote is required consistent with the requirements of the 1940 Act
and the rules promulgated thereunder. Shares of all Select Sector SPDR Funds
vote together as a single class except that if the matter being voted on affects
only a particular Select Sector SPDR Fund it will be voted on only by that
Select Sector SPDR Fund and if a matter affects a particular Select Sector SPDR
Fund differently from other Select Sector SPDR Funds, that Select Sector SPDR
Fund will vote separately on such matter. Under Massachusetts law, the Trust is
not required to hold an annual meeting of shareholders unless required to do so
under the 1940 Act. The policy of the Trust is not to hold an annual meeting of
shareholders unless required to do so under the 1940 Act. All Shares of the
Trust (regardless of the Select Sector SPDR Fund) have noncumulative voting
rights for the election of Trustees. Under Massachusetts law, Trustees of the
Trust may be removed by vote of the shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for obligations of
the Trust. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust, requires that Trust
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Trust's property for any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of each Fund's assets and operations, the risk to shareholders of
personal liability is believed to be remote.
Each Select Sector SPDR Fund expects that, immediately prior to the
date of the Prospectus and this Statement of Additional Information, ALPS
Mutual Funds Services, Inc. will be the sole shareholder of its outstanding
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Shares. Following the creation of the initial Creation Unit(s) of Shares of a
Select Sector SPDR Fund and immediately prior to the commencement of trading in
such Fund's Shares, a holder of Shares may be a "control person" of the Fund. A
Select Sector SPDR Fund cannot predict the length of time that one or more
shareholders may remain a control person of the Fund.
The Trust does not have information concerning the beneficial ownership
of the Shares held by any DTC Participants.
Shareholder inquiries may be made by writing to the Trust, c/o the
Distributor, ALPS Mutual Funds Services, Inc., at 370 17th Street, Suite 3100,
Denver, CO 80202.
Absent an applicable exemption or other relief from the SEC or its
staff, officers and directors of the Trust and beneficial owners of 10% of the
Shares of a Select Sector SPDR Fund ("Insiders") would be subject to the insider
reporting, short-swing profit and short sale provisions in Section 16 of the
Exchange Act and the SEC's rules thereunder. The Trust has applied for a "no
action letter" seeking advice from the SEC staff that it will not recommend SEC
enforcement action if Insiders do not file reports required by Section 16(a) of
the Exchange Act and the rules thereunder with respect to transactions in a
substantially similar investment product. There is no assurance that the SEC
staff will issue the requested relief. Insiders should consult with their own
legal counsel concerning their obligations under Section 16 of the Exchange Act,
and should note that the no action letter does not address other requirements
under the Exchange Act, including those imposed by Section 13(d) thereof and the
rules thereunder.
PERFORMANCE AND OTHER INFORMATION
The performance of a Select Sector SPDR Fund may be quoted in
advertisements, sales literature or reports to shareholders in terms of average
annual total return, cumulative total return and yield.
Quotations of average annual total return are expressed in terms of the
average annual rate of return of a hypothetical investment in a Select Sector
SPDR Fund over periods of 1, 5 and 10 years (or the life of a Select Sector SPDR
Fund, if shorter). Such total return figures will reflect the deduction of a
proportional share of such Select Sector SPDR Fund's expenses on an annual
basis, and will assume that all dividends and distributions are reinvested when
paid.
Total return is calculated according to the following formula:
P(1 + T)(n) = ERV (where P = a hypothetical initial payment of $1,000, T = the
average annual total return, n = the number of years and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
1, 5 or 10 year period).
Quotations of a cumulative total return will be calculated for any
specified period by assuming a hypothetical investment in a Select Sector SPDR
Fund on the date of the commencement of the period and will assume that all
dividends and distributions are reinvested on ex date. The net increase or
decrease in the value of the investment over the period will be
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divided by its beginning value to arrive at cumulative total return. Total
return calculated in this manner will differ from the calculation of average
annual total return in that it is not expressed in terms of an average rate of
return.
The yield of a Select Sector SPDR Fund is the net annualized yield
based on a specified 30-day (or one month) period assuming a semiannual
compounding of income. Included in net investment income is the amortization of
market premium or accretion of market and original issue discount on bonds.
Yield is calculated by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of the
period, according to the following formula: YIELD = (a-b) divided by
2[(cd + 1)(6)-1] (where a = dividends and interest earned during the period, b =
expenses accrued for the period (net of reimbursements), c = the average daily
number of shares outstanding during the period that were entitled to receive
dividends, and d = the maximum offering price per share on the last day of the
period).
Quotations of cumulative total return, average annual total return or
yield reflect only the performance of a hypothetical investment in a Select
Sector SPDR Fund during the particular time period on which the calculations are
based. Such quotations for a Select Sector SPDR Fund will vary based on changes
in market conditions and the level of such Select Sector SPDR Fund's expenses,
and no reported performance figure should be considered an indication of
performance which may be expected in the future.
The cumulative and average total returns and yields do not take into
account federal or state income taxes which may be payable by shareholders;
total returns and yields would, of course, be lower if such charges were taken
into account.
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods for calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Funds with performance quoted with respect to other
investment companies or types of investments.
From time to time, in advertising and marketing literature, the Funds'
performance may be compared to the performance of broad groups of open-end and
closed-end investment companies with similar investment goals, as tracked by
independent organizations such as Investment Company Data, Inc., Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc.,
Value Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Funds will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk.
Information may be provided to investors regarding capital gains
distributions by one or more Select Sector SPDR Funds. Comparisons between the
Select Sector SPDR Funds and other investment vehicles such as conventional
mutual funds may be made regarding such capital gains distributions, as well as
relative tax efficiencies between the Funds and such other investment vehicles
(e.g., realization of capital gains or losses to a Fund and to such other
investment vehicles in connection with redemption of their respective
securities).
Investors may be informed that, while no unequivocal statement can be
made as to the net tax impact on a mutual fund resulting from the purchases and
sales of its portfolio stocks over a period of time, conventional mutual funds
that have accumulated substantial unrealized capital gains, if they experience
net redemptions and do not have sufficient available cash, may be required to
sell appreciated securities and make taxable capital gains distributions that
are generated by changes in such fund's portfolio. In contrast to conventional
mutual funds where redemption transactions that effect an adverse tax impact on
taxable shareholders because of the need to sell portfolio securities which, in
turn, may generate taxable gain, the in-kind redemption mechanism of the Select
Sector SPDR Funds generally will not lead to a tax event for ongoing
shareholders. Since shareholders are generally required to pay tax on capital
gains distributions, the smaller the amount of such distributions, the less
taxes that are payable currently. To the extent that a Select Sector SPDR Fund
is not required to recognize capital gains, a shareholder of such Fund is able,
in effect, to defer tax on such gains until he sells or otherwise disposes of
his shares. If such holder retains his shares until his death, under current law
the tax basis of such shares would be adjusted to their then fair market value.
In addition, in connection with the communication of the performance of
the Funds to
60
<PAGE> 99
current or prospective shareholders, the Trust also may compare those figures to
the performance of certain unmanaged indexes which may assume the reinvestment
of dividends or interest but generally do not reflect deductions for
administrative and management costs. Examples of such indexes include, but are
not limited to the following: Dow Jones Industrial Average; Consumer Price
Index; Standard & Poor's 500 Composite Stock Price Index (S&P 500); Russell 1000
& NASDAQ non-financial 100 and their subsidiary sector indexes.
Performance of an index is historical and does not represent
performance of the Trust, and is not a guarantee of future results.
In addition, information may be presented to current or prospective
shareholders regarding the purchase of Select Sector SPDR Funds in the secondary
market, such as margin requirements, types of orders that may be entered and
information concerning short sales.
Evaluation of each Fund's performance or other relevant statistical
information made by independent sources may also be used in advertisements and
sales literature concerning the Trust, including reprints of, or selections
from, editorials or articles about the Trust. Sources for Trust performance
information and articles about the Trust include, but are not limited to, the
following: American Association of Individual Investors' Journal, a monthly
publication of the AAII that includes articles on investment analysis
techniques; Barron's, a Dow Jones and Company, Inc. business and financial
weekly that periodically reviews investment company performance data; Business
Week, a national business weekly that periodically reports the performance
rankings of investment companies; CDA Investment Technologies, an organization
that provides performance and ranking information through examining the dollar
results of hypothetical mutual fund investments and comparing these results
against appropriate indexes; Forbes, a national business publication that from
time to time reports the performance of specific investment companies; Fortune,
a national business publication that periodically rates the performance of a
variety of investment companies; The Frank Russell Company, a West-Coast
investment management firm that periodically evaluates international stock
markets and compares foreign equity market performance to U.S. stock market
performance; Ibbotson Associates, Inc., a company specializing in investment
research and data; Investment Company Data, Inc., an independent organization
that provides performance ranking information for broad classes of mutual funds;
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news; Kiplinger's Personal Finance Magazine, a monthly investment
advisory publication that periodically features the performance of a variety of
securities; Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis,
a weekly publication of industry-wide mutual fund averages by type of fund;
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole; The New York Times, a nationally
distributed newspaper that regularly covers financial news; Smart Money, a
national personal finance magazine published monthly by Dow Jones & Company,
Inc. and The Hearst Corporation that focuses on ideas for investing, spending
and saving; Value Line Mutual Fund Survey, an independent publication that
provides biweekly performance and other information on mutual funds; The Wall
Street Journal, a Dow Jones and Company, Inc. newspaper that regularly covers
financial news; Wiesenberger
61
<PAGE> 100
Investment Companies Services, an annual compendium of information about mutual
funds and other investment companies, including comparative data on funds'
backgrounds, management policies, salient features, management results, income
and dividend records and price ranges; Worth, a national publication distributed
ten times per year by Capital Publishing Company that focuses on personal
finance.
COUNSEL AND INDEPENDENT AUDITORS
Gordon Altman Butowsky Weitzen Shalov & Wein, 114 West 47th Street, New
York, New York 10036, are counsel to the Trust and have passed upon the validity
of the Trust's shares.
PricewaterhouseCoopers LLP serves as the independent auditors of the
Trust.
62
<PAGE> 101
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
of The Select Sector SPDR Trust
In our opinion, the accompanying statements of assets and liabilities present
fairly, in all material respects, the financial position of The Basic Industries
Select Sector SPDR Fund, The Consumer Services Select Sector SPDR Fund, The
Consumer Staples Select Sector SPDR Fund, The Cyclical/Transportation Select
Sector SPDR Fund, The Energy Select Sector SPDR Fund, The Financial Select
Sector SPDR Fund, The Industrial Select Sector SPDR Fund, The Technology Select
Sector SPDR Fund and The Utilities Select Sector SPDR Fund (the "Trust") at
December 14, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 1998
63
<PAGE> 102
THE SELECT SECTOR SPDR TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 14, 1998
<TABLE>
<CAPTION>
THE BASIC THE CONSUMER THE CONSUMER THE CYCLICAL/
INDUSTRIES SERVICES STAPLES TRANSPORTATION THE ENERGY THE FINANCIAL
SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND SPDR FUND SPDR FUND
------------- ------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash .............. $11,111 $11,111 $11,111 $11,111 $11,111 $11,111
------- ------- ------- ------- ------- -------
Total assets .. 11,111 11,111 11,111 11,111 11,111 11,111
------- ------- ------- ------- ------- -------
NET ASSETS ........ $11,111 $11,111 $11,111 $11,111 $11,111 $11,111
======= ======= ======= ======= ======= =======
NET ASSETS
Paid-in-capital ... $11,111 $11,111 $11,111 $11,111 $11,111 $11,111
------- ------- ------- ------- ------- -------
NET ASSETS ........ $11,111 $11,111 $11,111 $11,111 $11,111 $11,111
======= ======= ======= ======= ======= =======
Shares outstanding
(unlimited amount
authorized, $0.001
par value) ........ 1,111 1,111 1,111 1,111 1,111 1,111
Net asset value
per Select
Sector SPDR ....... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
</TABLE>
<TABLE>
<CAPTION>
THE INDUSTRIAL THE TECHNOLOGY THE UTILITIES
SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Cash .............. $11,111 $11,111 $11,112
------- ------- -------
Total assets .. 11,111 11,111 11,112
------- ------- -------
NET ASSETS ........ $11,111 $11,111 $11,112
======= ======= =======
NET ASSETS
Paid-in-capital ... $11,111 $11,111 $11,112
------- ------- -------
NET ASSETS ........ $11,111 $11,111 $11,112
======= ======= =======
Shares outstanding
(unlimited amount
authorized, $0.001
par value) ........ 1,111 1,111 1,111
Net asset value
per Select
Sector SPDR ....... $ 10.00 $ 10.00 $ 10.00
</TABLE>
The accompanying notes are an integral part of the financial statements.
64
<PAGE> 103
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 14, 1998
NOTE 1: ORGANIZATION
The Select Sector SPDR Trust (the "Trust"), which is registered under the
Investment Company Act of 1940, as amended, is an open-end, non-diversified
management investment company that was organized as a Massachusetts business
trust on June 10, 1998. The Trust currently consists of nine portfolios, The
Basic Industry Select Sector SPDR Fund, The Consumer Services Select Sector SPDR
Fund, The Consumer Staples Select Sector SPDR Fund, The Cyclical/Transportation
Select Sector SPDR Fund, The Energy Select Sector SPDR Fund, The Financial
Select Sector SPDR Fund, The Industrial Select Sector SPDR Fund, The Technology
Select Sector SPDR Fund, and The Utilities Select Sector SPDR Fund, each of
which represents a separate series of beneficial interest in the Trust. The
Trust has had no operations to date other than matters relating to its
organization and registration and the sale of its shares to ALPS Mutual Funds
Services, Inc., the sole shareholder of each of the Funds. The financial
statements have been prepared in conformity with generally accepted accounting
principles which require management to make certain estimates and assumptions at
the date of the financial statements.
NOTE 2: FEES AND EXPENSES
It is anticipated that the Trust will pay the expenses of its operation,
including payments to Standard & Poor's and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Index Compilation Agent") for a sub-license to use the S&P
marks and certain Index Compilation Agent trademarks in connection with the
marketing, promotion, and disclosure related to the Trust and each Fund.
Expenses not specifically attributable to a particular Fund are apportioned to
each portfolio of the Trust based on relative net assets. State Street Bank and
Trust Company ("State Street"), the Trust's advisor and administrator, has
agreed to bear the initial costs of organization of the Trust. State Street is
responsible for determining the composition of the portfolio securities which
must be delivered in exchange for the issuance of Creation Units and for
adjusting the composition of each of the portfolios of the Trust to conform to
changes in the composition of the relevant Select Sector Index. For these
services, State Street receives a fee based on the average daily net assets of
the Trust.
NOTE 3: CAPITAL
Shares are created and redeemed by the Trust only in Creation Unit size
aggregations of 50,000. Transaction fees at scheduled amounts ranging from
$1,000 to $4,000 per Creation Unit are charged to those persons creating or
redeeming Creation Units. Such transactions are generally permitted only on an
in-kind basis, with a separate cash payment equivalent to the undistributed net
investment income per unit (income equalization) and a balancing cash component
to equate the transaction to the net asset value per unit of each portfolio of
the Trust on the transaction date.
NOTE 4: SUBSEQUENT EVENT
The Trust expects to effect a stock split or reverse stock split with a record
date of December 15, 1998 and an effective date of the date the initial creation
orders are placed, in order to adjust the net asset value per share of each
portfolio to be approximately 1/10th of the value of its respective Select
Sector Index. All capital share activity and per share data for each of the
portfolios will be restated to reflect the stock split or reverse stock split.
65
<PAGE> 104
EXHIBIT A
SELECT SECTOR INDEXES
<TABLE>
<CAPTION>
SYMBOL INDEX COMPONENTS
<S> <C> <C>
IXB Basic Industries Sector 58
IXE Energy Sector 33
IXI Industrial Sector 35
IXM Financial Sector 75
IXR Consumer Staples Sector 69
IXT Technology Sector 77
IXU Utilties Sector 39
IXV Consumer Services Sector 45
IXY Cyclical/Transportation Sector 69
500
</TABLE>
Page 1
<PAGE> 105
IXB COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
1 Du Pont EI de Nemours DD 131,661,000 1.00000 56.2500 $63,655.93
2 Monsanto Co MTC 600,895,000 1.00000 56.2500 $33,800.34
3 Dow Chemical Co DOW 224,119,000 1.00000 85.4375 $19,148.17
4 International Paper Co IP 307,248,000 1.00000 46.6250 $14,325.44
5 Aluminum Company of America AA 186,754,000 1.00000 71.0000 $13,259.53
6 PPG Industries Inc PPG 176,991,000 1.00000 54.5625 $9,657.07
7 Weyerhaeuser Co WY 198,993,000 1.00000 42.1875 $8,395.02
8 Barrick Gold Corp ABX 373,000,000 1.00000 20.0000 $7,460.00
9 Air Products and Chemicals Inc APD 231,440,000 1.00000 29.7500 $6,885.34
10 Union Carbide Corp UK 135,269,000 1.00000 43.1250 $5,833.48
11 Tenneco Inc TEN 169,641,000 1.00000 32.8750 $5,576.95
12 Alcan Aluminium Ltd AL 227,538,000 1.00000 23.4375 $5,332.92
13 Praxair Inc PX 158,169,000 1.00000 32.6875 $5,170.15
14 Avery Dennison Corp AVY 117,011,000 1.00000 43.6875 $5,111.92
15 Rohm and Haas Co ROH 178,236,000 1.00000 27.8125 $4,957.19
16 Georgia Pacific GP 93,271,000 1.00000 45.6250 $4,255.49
17 Eastman Chemical Co EMN 79,241,000 1.00000 50.4375 $3,996.72
18 Owens Illinois Inc OI 155,346,000 1.00000 25.0000 $3,883.65
19 Newmont Mining Corp NEM 156,512,000 1.00000 24.2500 $3,795.42
20 Reynolds Metals Co RLM 72,094,000 1.00000 51.3750 $3,703.83
21 Ecolab Inc ECL 129,641,000 1.00000 28.4375 $3,686.67
22 Nucor Corp NUE 88,070,000 1.00000 40.6250 $3,577.84
23 Allegheny Teledyne ALT 197,030,000 1.00000 17.8125 $3,509.60
24 Placer Dome Inc PDG 250,018,000 1.00000 13.8125 $3,453.37
25 Crown Cork and Seal Company Inc CCK 124,411,000 1.00000 26.7500 $3,327.99
26 Willamette Industries Inc WLL 111,433,000 1.00000 28.6875 $3,196.73
27 Phelps Dodge Corp PD 58,674,000 1.00000 52.1875 $3,062.05
28 Mead Corp MEA 103,849,000 1.00000 29.4375 $3,057.05
29 Champion International Corp CHA 95,635,000 1.00000 31.3125 $2,994.57
30 Sigma Aldrich Corp SIAL 100,589,000 1.00000 28.8750 $2,904.51
31 Morton International Inc MII 130,359,000 1.00000 21.8750 $2,851.60
32 Hercules Inc HPC 94,567,000 1.00000 30.0625 $2,842.92
33 Union Camp Corp UCC 69,334,000 1.00000 39.3750 $2,730.03
34 Temple Inland Inc TIN 55,597,000 1.00000 47.8750 $2,661.71
35 Sealed Air Corp SEE 83,272,000 1.00000 31.8750 $2,654.30
36 Homestake Mining Co HM 211,184,000 1.00000 12.1250 $2,560.61
37 Engelhard Corp EC 144,508,000 1.00000 17.6875 $2,555.99
38 Westvaco Corp W 101,314,000 1.00000 24.0000 $2,431.54
39 Great Lakes Chemical Corp GLK 59,072,000 1.00000 38.8750 $2,296.42
40 Louisiana Pacific Corp LPX 109,778,000 1.00000 20.3750 $2,236.73
41 Freeport McMoran Copper Gold FCX 179,873,000 1.00000 11.9375 $2,147.23
42 USX US Steel Group X 88,099,000 1.00000 23.8750 $2,103.36
43 Nalco Chemical Co NLC 65,903,000 1.00000 29.5000 $1,944.14
44 Bemis Company Inc BMS 53,380,000 1.00000 35.0625 $1,871.64
45 FMC Corp FMC 34,527,000 1.00000 51.5625 $1,780.30
46 Inco Ltd N 166,059,000 1.00000 10.2500 $1,702.10
47 Boise Cascade Corp BCC 56,330,000 1.00000 25.3125 $1,425.85
48 Battle Mountain Gold Co BMG 229,785,000 1.00000 6.0625 $1,393.07
49 Cyprus Amax Minerals Co CYM 93,664,000 1.00000 13.2500 $1,241.05
50 Worthington Industries Inc WTHG 96,657,000 1.00000 12.5000 $1,208.21
51 Ball Corp BLL 30,496,000 1.00000 35.2500 $1,074.98
52 Bethlehem Steel Corp BS 129,622,000 1.00000 8.2500 $1,069.38
53 Potlatch Corp PCH 29,009,000 1.00000 34.0625 $988.12
54 WR Grace and Co GRA 75,896,000 1.00000 12.4375 $943.96
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C> <C>
1 Du Pont EI de Nemours 20.48% $63,655.93 20.48% 20.48%
2 Monsanto Co 10.87% $33,800.34 10.87% 31.35%
3 Dow Chemical Co 6.16% $19,148.17 6.16% 37.51%
4 International Paper Co 4.61% $14,325.44 4.61% 42.12%
5 Aluminum Company of America 4.27% $13,259.53 4.27% 46.39%
6 PPG Industries Inc 3.11% $9,657.07 3.11% 49.49%
7 Weyerhaeuser Co 2.70% $8,395.02 2.70% 52.20%
8 Barrick Gold Corp 2.40% $7,460.00 2.40% 54.60%
9 Air Products and Chemicals Inc 2.22% $6,885.34 2.22% 56.81%
10 Union Carbide Corp 1.88% $5,833.48 1.88% 58.69%
11 Tenneco Inc 1.79% $5,576.95 1.79% 60.48%
12 Alcan Aluminium Ltd 1.72% $5,332.92 1.72% 62.20%
13 Praxair Inc 1.66% $5,170.15 1.66% 63.86%
14 Avery Dennison Corp 1.64% $5,111.92 1.64% 65.50%
15 Rohm and Haas Co 1.59% $4,957.19 1.59% 67.10%
16 Georgia Pacific 1.37% $4,255.49 1.37% 68.47%
17 Eastman Chemical Co 1.29% $3,996.72 1.29% 69.75%
18 Owens Illinois Inc 1.25% $3,883.65 1.25% 71.00%
19 Newmont Mining Corp 1.22% $3,795.42 1.22% 72.22%
20 Reynolds Metals Co 1.19% $3,703.83 1.19% 73.42%
21 Ecolab Inc 1.19% $3,686.67 1.19% 74.60%
22 Nucor Corp 1.15% $3,577.84 1.15% 75.75%
23 Allegheny Teledyne 1.13% $3,509.60 1.13% 76.88%
24 Placer Dome Inc 1.11% $3,453.37 1.11% 77.99%
25 Crown Cork and Seal Company Inc 1.07% $3,327.99 1.07% 79.06%
26 Willamette Industries Inc 1.03% $3,196.73 1.03% 80.09%
27 Phelps Dodge Corp 0.99% $3,062.05 0.99% 81.08%
28 Mead Corp 0.98% $3,057.05 0.98% 82.06%
29 Champion International Corp 0.96% $2,994.57 0.96% 83.02%
30 Sigma Aldrich Corp 0.93% $2,904.51 0.93% 83.96%
31 Morton International Inc 0.92% $2,851.60 0.92% 84.88%
32 Hercules Inc 0.91% $2,842.92 0.91% 85.79%
33 Union Camp Corp 0.88% $2,730.03 0.88% 86.67%
34 Temple Inland Inc 0.86% $2,661.71 0.86% 87.53%
35 Sealed Air Corp 0.85% $2,654.30 0.85% 88.38%
36 Homestake Mining Co 0.82% $2,560.61 0.82% 89.20%
37 Engelhard Corp 0.82% $2,555.99 0.82% 90.03%
38 Westvaco Corp 0.78% $2,431.54 0.78% 90.81%
39 Great Lakes Chemical Corp 0.74% $2,296.42 0.74% 91.55%
40 Louisiana Pacific Corp 0.72% $2,236.73 0.72% 92.27%
41 Freeport McMoran Copper Gold 0.69% $2,147.23 0.69% 92.96%
42 USX US Steel Group 0.68% $2,103.36 0.68% 93.63%
43 Nalco Chemical Co 0.63% $1,944.14 0.63% 94.26%
44 Bemis Company Inc 0.60% $1,871.64 0.60% 94.86%
45 FMC Corp 0.57% $1,780.30 0.57% 95.43%
46 Inco Ltd 0.55% $1,702.10 0.55% 95.98%
47 Boise Cascade Corp 0.46% $1,425.85 0.46% 96.44%
48 Battle Mountain Gold Co 0.45% $1,393.07 0.45% 96.89%
49 Cyprus Amax Minerals Co 0.40% $1,241.05 0.40% 97.29%
50 Worthington Industries Inc 0.39% $1,208.21 0.39% 97.68%
51 Ball Corp 0.35% $1,074.98 0.35% 98.02%
52 Bethlehem Steel Corp 0.34% $1,069.38 0.34% 98.37%
53 Potlatch Corp 0.32% $988.12 0.32% 98.68%
54 WR Grace and Co 0.30% $943.96 0.30% 98.99%
</TABLE>
Page 2
<PAGE> 106
IXB COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
55 Timken Co TKR 62,338,000 1.00000 15.1250 $942.86
56 Stone Container Corp STO 104,978,000 1.00000 8.6250 $905.44
57 Asarco Inc AR 39,661,000 1.00000 19.1250 $758.52
58 Armco Inc AS 107,879,000 1.00000 5.0000 $539.40
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C> <C>
55 Timken Co 0.30% $942.86 0.30% 99.29%
56 Stone Container Corp 0.29% $905.44 0.29% 99.58%
57 Asarco Inc 0.24% $758.52 0.24% 99.83%
58 Armco Inc 0.17% $539.40 0.17% 100.00%
</TABLE>
Page 3
<PAGE> 107
IXE COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
1 Exxon Corp XON 2,438,407,000 0.89795 70.1875 $171,145.69
2 Royal Dutch Petroleum RD 2,144,296,000 1.00534 47.6250 $102,122.10
3 Mobil Corp MOB 781,707,000 1.00919 75.9375 $ 59,360.88
4 Amoco Corp AN 954,196,000 0.59789 53.8750 $ 51,407.31
5 Chevron Corp CHV 654,432,000 0.55870 84.0625 $ 55,013.19
6 Texaco Inc TX 535,859,000 0.91499 62.6875 $ 33,591.66
7 Schlumberger Ltd SLB 544,253,000 1.08681 50.3125 $ 27,382.73
8 Atlantic Richfield Co ARC 321,139,000 1.10434 70.9375 $ 22,780.80
9 Enron Corp ENE 329,481,000 1.13660 52.8125 $ 17,400.72
10 Halliburton Co HAL 438,946,000 1.18959 28.5625 $ 12,537.40
11 Williams Companies Inc WMB 424,859,000 1.19460 28.7500 $ 12,214.70
12 Phillips Petroleum Co P 258,385,000 1.20387 45.1250 $ 11,659.62
13 USX Marathon Group ..Marathon Oil Bd MRO 290,589,000 1.23083 35.4375 $ 10,297.75
14 Unocal Corporation Delaware UCL 241,360,000 1.27168 36.2500 $ 8,749.30
15 Occidental Petroleum Corp OXY 353,034,000 1.31317 21.5000 $ 7,590.23
16 Coastal Corp CGP 212,590,000 1.33129 33.7500 $ 7,174.91
17 Baker Hughes Inc BHI 317,709,000 1.35733 20.9375 $ 6,652.03
18 Burlington Resources Inc BR 177,493,000 1.35832 37.3750 $ 6,633.80
19 Amerada Hess Corp AHC 90,958,000 1.45301 57.6875 $ 5,247.14
20 Consolidated Natural Gas Co CNG 95,880,000 1.45489 54.5000 $ 5,225.46
21 Columbia Energy Group CG 83,371,000 1.48633 58.6250 $ 4,887.62
22 Anadarko Petroleum Corp APC 120,083,000 1.50352 39.3125 $ 4,720.76
23 Ashland Inc ASH 76,470,000 1.67209 46.2500 $ 3,536.74
24 Sonat Inc SNT 110,035,000 1.72309 29.8750 $ 3,287.30
25 Union Pacific Resources Group Inc UPR 251,111,000 1.76881 12.3125 $ 3,091.80
26 Sun Company Inc SUN 93,479,000 1.79463 32.0000 $ 2,991.33
27 Apache Corp APA 98,605,000 1.89907 26.8125 $ 2,643.85
28 Kerr McGee Corp KMG 47,741,000 2.09428 45.5000 $ 2,172.22
29 Pennzoil Co PZL 47,756,000 2.41958 35.0625 $ 1,674.44
30 McDermott International Inc MDR 59,199,000 2.49059 26.9375 $ 1,594.67
31 Oryx Energy Co ORX 106,235,000 2.72946 12.9375 $ 1,374.42
32 Helmerich and Payne HP 50,299,000 3.25035 21.0000 $ 1,056.28
33 Rowan Companies Inc RDC 85,170,000 3.49465 11.1875 $ 952.84
$668,171.67
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C>
1 Exxon Corp 25.61% $153,679.48 23.00% 23.00%
2 Royal Dutch Petroleum 15.28% $102,667.92 15.37% 38.37%
3 Mobil Corp 8.88% $ 59,906.69 8.97% 47.33%
4 Amoco Corp 7.69% $ 30,735.90 4.60% 51.93%
5 Chevron Corp 8.23% $ 30,735.90 4.60% 56.53%
6 Texaco Inc 5.03% $ 30,735.90 4.60% 61.13%
7 Schlumberger Ltd 4.10% $ 29,759.73 4.45% 65.59%
8 Atlantic Richfield Co 3.41% $ 25,157.80 3.77% 69.35%
9 Enron Corp 2.60% $ 19,777.72 2.96% 72.31%
10 Halliburton Co 1.88% $ 14,914.40 2.23% 74.54%
11 Williams Companies Inc 1.83% $ 14,591.70 2.18% 76.73%
12 Phillips Petroleum Co 1.75% $ 14,036.62 2.10% 78.83%
13 USX Marathon Group ..Marathon Oil Bd 1.54% $ 12,674.75 1.90% 80.72%
14 Unocal Corporation Delaware 1.31% $ 11,126.30 1.67% 82.39%
15 Occidental Petroleum Corp 1.14% $ 9,967.23 1.49% 83.88%
16 Coastal Corp 1.07% $ 9,551.91 1.43% 85.31%
17 Baker Hughes Inc 1.00% $ 9,029.03 1.35% 86.66%
18 Burlington Resources Inc 0.99% $ 9,010.80 1.35% 88.01%
19 Amerada Hess Corp 0.79% $ 7,624.14 1.14% 89.15%
20 Consolidated Natural Gas Co 0.78% $ 7,602.46 1.14% 90.29%
21 Columbia Energy Group 0.73% $ 7,264.63 1.09% 91.38%
22 Anadarko Petroleum Corp 0.71% $ 7,097.76 1.06% 92.44%
23 Ashland Inc 0.53% $ 5,913.74 0.89% 93.32%
24 Sonat Inc 0.49% $ 5,664.30 0.85% 94.17%
25 Union Pacific Resources Group Inc 0.46% $ 5,468.81 0.82% 94.99%
26 Sun Company Inc 0.45% $ 5,368.33 0.80% 95.79%
27 Apache Corp 0.40% $ 5,020.85 0.75% 96.54%
28 Kerr McGee Corp 0.33% $ 4,549.22 0.68% 97.23%
29 Pennzoil Co 0.25% $ 4,051.45 0.61% 97.83%
30 McDermott International Inc 0.24% $ 3,971.67 0.59% 98.43%
31 Oryx Energy Co 0.21% $ 3,751.42 0.56% 98.99%
32 Helmerich and Payne 0.16% $ 3,433.28 0.51% 99.50%
33 Rowan Companies Inc 0.14% $ 3,329.84 0.50% 100.00%
$668,171.67
</TABLE>
Page 4
<PAGE> 108
IXI COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
1 General Electric Co GE 3,253,685,000 0.46062 79.5625 $258,871.31
2 Tyco International TYC 585,642,000 1.12803 55.2500 $32,356.72
3 Minnesota Mining and Manufacturing MMM 403,878,000 1.14147 73.6875 $29,760.76
4 Emerson Electric Co EMR 440,458,000 1.17597 62.2500 $27,418.51
5 Waste Management Inc WMI 571,789,000 1.00000 48.0625 $27,481.61
6 AlliedSignal Inc ALD 561,265,000 1.18749 35.3750 $19,854.75
7 Caterpillar Inc CAT 364,754,000 1.24264 44.5625 $16,254.35
8 Illinois Tool Works Inc ITW 249,966,000 1.28224 54.5000 $13,623.15
9 Textron Inc TXT 163,880,000 1.40100 60.6250 $9,935.23
10 Honeywell Inc HON 126,145,000 1.44621 64.0625 $8,081.16
11 Dana Corp DCN 164,913,000 1.83083 37.3125 $6,153.32
12 Dover Corp DOV 223,115,000 1.61584 30.8750 $6,888.68
13 Corning Inc GLW 231,898,000 1.58319 29.4375 $6,826.50
14 Ingersoll Rand IR 165,246,000 1.64495 37.9375 $6,269.02
15 Deere and Co DE 244,854,000 1.35859 30.2500 $7,406.83
16 Browning Ferris Industries Inc BFI 173,767,000 1.73499 30.2500 $5,256.45
17 Eaton Corp ETN 71,400,000 1.84725 62.6875 $4,475.89
18 Cooper Industries Inc CBE 116,392,000 1.70917 40.7500 $4,742.97
19 Pall Corp PLL 123,996,000 2.84890 22.1875 $2,751.16
20 Johnson Controls Inc JCI 84,688,000 1.97210 46.5000 $3,937.99
21 Parker Hannifin Corp PH 110,578,000 2.11565 29.6875 $3,282.78
22 PACCAR Inc PCAR 78,124,000 2.15251 41.1875 $3,217.73
23 Fluor Corp FLR 78,956,000 2.12364 41.0625 $3,242.13
24 Briggs and Stratton Corp BGG 24,114,000 6.20993 41.1250 $991.69
25 General Signal GSX 43,708,000 3.99413 33.9375 $1,483.34
26 Navistar International Corp Holding NAV 67,067,000 3.36041 22.6250 $1,517.39
27 Crane Co CR 68,762,000 3.11795 23.5000 $1,615.91
28 Nacco Industries Inc Holding Co Cl A NC 8,164,000 5.45733 100.0000 $816.40
29 National Service Industries Inc NSI 41,447,000 3.17841 31.8750 $1,321.12
30 Cummins Engine Company Inc CUM 38,500,000 3.38992 29.7500 $1,145.38
31 Case Corporation CSE 74,445,000 2.30650 21.7500 $1,619.18
32 Foster Wheeler Corp FWC 40,737,000 6.38600 13.7500 $560.13
33 Milacron Inc MZ 39,225,000 5.89461 15.4375 $605.54
34 Aeroquip Vickers Inc ANV 28,237,000 3.85694 28.7500 $811.81
35 Harnischfeger Industries Inc HPH 47,770,000 4.47538 11.2500 $537.41
$521,114.30
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C>
1 General Electric Co 49.68% $119,242.31 23.71% 23.71%
2 Tyco International 6.21% $36,499.50 7.26% 30.97%
3 Minnesota Mining and Manufacturing 5.71% $33,970.88 6.76% 37.72%
4 Emerson Electric Co 5.26% $32,243.26 6.41% 44.14%
5 Waste Management Inc 5.27% $27,481.61 5.46% 49.60%
6 AlliedSignal Inc 3.81% $23,577.30 4.69% 54.29%
7 Caterpillar Inc 3.12% $20,198.26 4.02% 58.30%
8 Illinois Tool Works Inc 2.61% $17,468.16 3.47% 61.78%
9 Textron Inc 1.91% $13,919.30 2.77% 64.55%
10 Honeywell Inc 1.55% $11,687.07 2.32% 66.87%
11 Dana Corp 1.18% $11,265.67 2.24% 69.11%
12 Dover Corp 1.32% $11,131.00 2.21% 71.32%
13 Corning Inc 1.31% $10,807.64 2.15% 73.47%
14 Ingersoll Rand 1.20% $10,312.19 2.05% 75.52%
15 Deere and Co 1.42% $10,062.86 2.00% 77.52%
16 Browning Ferris Industries Inc 1.01% $9,119.89 1.81% 79.34%
17 Eaton Corp 0.86% $8,268.07 1.64% 80.98%
18 Cooper Industries Inc 0.91% $8,106.54 1.61% 82.59%
19 Pall Corp 0.53% $7,837.79 1.56% 84.15%
20 Johnson Controls Inc 0.76% $7,766.12 1.54% 85.70%
21 Parker Hannifin Corp 0.63% $6,945.24 1.38% 87.08%
22 PACCAR Inc 0.62% $6,926.19 1.38% 88.45%
23 Fluor Corp 0.62% $6,885.12 1.37% 89.82%
24 Briggs and Stratton Corp 0.19% $6,158.32 1.22% 91.05%
25 General Signal 0.28% $5,924.66 1.18% 92.23%
26 Navistar International Corp Holding 0.29% $5,099.05 1.01% 93.24%
27 Crane Co 0.31% $5,038.32 1.00% 94.24%
28 Nacco Industries Inc Holding Co Cl A 0.16% $4,455.36 0.89% 95.13%
29 National Service Industries Inc 0.25% $4,199.07 0.83% 95.96%
30 Cummins Engine Company Inc 0.22% $3,882.73 0.77% 96.74%
31 Case Corporation 0.31% $3,734.63 0.74% 97.48%
32 Foster Wheeler Corp 0.11% $3,577.02 0.71% 98.19%
33 Milacron Inc 0.12% $3,569.40 0.71% 98.90%
34 Aeroquip Vickers Inc 0.16% $3,131.12 0.62% 99.52%
35 Harnischfeger Industries Inc 0.10% $2,405.12 0.48% 100.00%
$502,896.75
</TABLE>
Page 5
<PAGE> 109
IXM COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
1 BankAmerica Corp BAC 1,737,432,000 1.00000 53.5000 $92,952.61
2 American International Group Inc AIG 1,050,002,000 1.00000 78.3750 $82,293.91
3 Federal National Mortgage Assn FNM 1,036,900,000 1.00000 64.2500 $66,620.83
4 First Union Corp FTU 969,052,000 1.00000 51.1875 $49,603.35
5 Travelers Group Inc TRV 1,156,175,000 1.00000 37.5000 $43,356.56
6 Citicorp CCI 451,932,000 1.00000 93.0000 $42,029.68
7 Chase Manhattan Corp CMB 856,457,000 1.00000 43.1250 $36,934.71
8 American Express Co AXP 456,382,000 1.00000 77.6250 $35,426.65
9 Allstate Corp ALL 828,521,000 1.00000 41.5000 $34,383.62
10 Freddie Mac FRE 678,612,000 1.00000 49.6250 $33,676.12
11 Wells Fargo and Co WFC 85,137,000 1.00000 355.0000 $30,223.64
12 Bank One Corp ONE 704,861,000 1.00000 42.4375 $29,912.54
13 Norwest Corp NOB 765,783,000 1.00000 36.0000 $27,568.19
14 US Bancorp USB 742,901,000 1.00000 35.6250 $26,465.85
15 Morgan Stanley Dean Witter and Co MWD 585,695,000 1.00000 43.1250 $25,258.10
16 Associates First Capital Corp AFS 346,286,000 1.00000 65.2500 $22,595.16
17 National City Corp NCC 329,711,000 1.00000 65.9375 $21,740.32
18 Fleet Financial Group FLT 567,850,000 1.00000 36.7188 $20,850.74
19 Bank of New York Co Inc BK 747,294,000 1.00000 27.3750 $20,457.17
20 Washington Mutual WAMU 592,852,000 1.00000 33.7500 $20,008.76
21 First Chicago NBD Corp FCN 287,743,000 1.00000 68.5000 $19,710.40
22 Household International HI 492,408,000 1.00000 37.5000 $18,465.30
23 Wachovia Corp WB 206,623,000 1.00000 85.2500 $17,614.61
24 Merrill Lynch and Co Inc MER 348,251,000 1.00000 47.1875 $16,433.09
25 American General Corp AGC 253,099,000 1.00000 63.8750 $16,166.70
26 Fifth Third Bancorp FITB 267,896,000 1.00000 57.5000 $15,404.02
27 General Re Corp GRN 75,652,000 1.00000 203.0000 $15,357.36
28 JP Morgan and Co Inc JPM 176,560,000 1.00000 84.6250 $14,941.39
29 MBNA Corp KRB 751,782,000 1.00000 19.0833 $14,346.50
30 Mellon Bank Corp MEL 260,708,000 1.00000 55.0000 $14,338.94
31 Cigna Corp CI 212,280,000 1.00000 66.1250 $14,037.02
32 PNC Bank Corp PNC 301,538,000 1.00000 45.0000 $13,569.21
33 Suntrust Banks Inc STI 208,888,000 1.00000 62.0000 $12,951.06
34 Marsh and Mclennan Companies Inc MMC 255,664,000 1.00000 49.7500 $12,719.28
35 Keycorp KEY 439,868,000 1.00000 28.8750 $12,701.19
36 SunAmerica Inc SAI 195,742,000 1.00000 61.0000 $11,940.26
37 Hartford Financial Services Group HIG 233,443,000 1.00000 47.4375 $11,073.95
38 AON Corp AOC 168,857,000 1.00000 64.5000 $10,891.28
39 Charles Schwab Corp SCH 266,931,000 1.00000 39.3750 $10,510.41
40 Chubb Corp CB 165,613,000 1.00000 63.0000 $10,433.62
41 BankBoston Corp BKB 294,181,000 1.00000 33.0000 $9,707.97
42 Loews Corp LTR 114,711,000 1.00000 84.3750 $9,678.74
43 Conseco Inc CNC 312,423,000 1.00000 30.5625 $9,548.43
44 State Street Corp STT 161,486,000 1.00000 54.5625 $8,811.08
45 BB and T Corp BBK 286,210,000 1.00000 29.9375 $8,568.41
46 Comerica Inc CMA 155,455,000 1.00000 54.8125 $8,520.88
47 Lincoln National Corp LNC 100,522,000 1.00000 82.2500 $8,267.93
48 Progressive Corp PGR 72,656,000 1.00000 112.7500 $8,191.96
49 Providian Financial Corp PVN 95,024,000 1.00000 84.8125 $8,059.22
50 Regions Financial Corp RGBK 214,101,000 1.00000 36.2500 $7,761.16
51 St Paul Companies Inc SPC 236,103,000 1.00000 32.5000 $7,673.35
52 Northern Trust Corp NTRS 111,307,000 1.00000 68.2500 $7,596.70
53 Franklin Resources Inc BEN 253,031,000 1.00000 29.8750 $7,559.30
54 Mercantile Bancorporation Inc MTL 151,984,000 1.00000 48.3750 $7,352.23
55 Unum Corp UNM 138,286,000 1.00000 49.6875 $6,871.09
56 Capital One Financial Corp COF 66,074,000 1.00000 103.0625 $6,809.75
57 Transamerica Corp TA 62,554,000 1.00000 106.0000 $6,630.72
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C> <C>
1 BankAmerica Corp 7.29% $92,952.61 7.29% 7.29%
2 American International Group Inc 6.45% $82,293.91 6.45% 13.74%
3 Federal National Mortgage Assn 5.22% $66,620.83 5.22% 18.97%
4 First Union Corp 3.89% $49,603.35 3.89% 22.86%
5 Travelers Group Inc 3.40% $43,356.56 3.40% 26.26%
6 Citicorp 3.30% $42,029.68 3.30% 29.55%
7 Chase Manhattan Corp 2.90% $36,934.71 2.90% 32.45%
8 American Express Co 2.78% $35,426.65 2.78% 35.23%
9 Allstate Corp 2.70% $34,383.62 2.70% 37.93%
10 Freddie Mac 2.64% $33,676.12 2.64% 40.57%
11 Wells Fargo and Co 2.37% $30,223.64 2.37% 42.94%
12 Bank One Corp 2.35% $29,912.54 2.35% 45.28%
13 Norwest Corp 2.16% $27,568.19 2.16% 47.44%
14 US Bancorp 2.08% $26,465.85 2.08% 49.52%
15 Morgan Stanley Dean Witter and Co 1.98% $25,258.10 1.98% 51.50%
16 Associates First Capital Corp 1.77% $22,595.16 1.77% 53.27%
17 National City Corp 1.70% $21,740.32 1.70% 54.98%
18 Fleet Financial Group 1.64% $20,850.74 1.64% 56.61%
19 Bank of New York Co Inc 1.60% $20,457.17 1.60% 58.22%
20 Washington Mutual 1.57% $20,008.76 1.57% 59.79%
21 First Chicago NBD Corp 1.55% $19,710.40 1.55% 61.33%
22 Household International 1.45% $18,465.30 1.45% 62.78%
23 Wachovia Corp 1.38% $17,614.61 1.38% 64.16%
24 Merrill Lynch and Co Inc 1.29% $16,433.09 1.29% 65.45%
25 American General Corp 1.27% $16,166.70 1.27% 66.72%
26 Fifth Third Bancorp 1.21% $15,404.02 1.21% 67.93%
27 General Re Corp 1.20% $15,357.36 1.20% 69.13%
28 JP Morgan and Co Inc 1.17% $14,941.39 1.17% 70.30%
29 MBNA Corp 1.13% $14,346.50 1.13% 71.43%
30 Mellon Bank Corp 1.12% $14,338.94 1.12% 72.55%
31 Cigna Corp 1.10% $14,037.02 1.10% 73.65%
32 PNC Bank Corp 1.06% $13,569.21 1.06% 74.72%
33 Suntrust Banks Inc 1.02% $12,951.06 1.02% 75.73%
34 Marsh and Mclennan Companies Inc 1.00% $12,719.28 1.00% 76.73%
35 Keycorp 1.00% $12,701.19 1.00% 77.73%
36 SunAmerica Inc 0.94% $11,940.26 0.94% 78.66%
37 Hartford Financial Services Group 0.87% $11,073.95 0.87% 79.53%
38 AON Corp 0.85% $10,891.28 0.85% 80.38%
39 Charles Schwab Corp 0.82% $10,510.41 0.82% 81.21%
40 Chubb Corp 0.82% $10,433.62 0.82% 82.03%
41 BankBoston Corp 0.76% $9,707.97 0.76% 82.79%
42 Loews Corp 0.76% $9,678.74 0.76% 83.55%
43 Conseco Inc 0.75% $9,548.43 0.75% 84.30%
44 State Street Corp 0.69% $8,811.08 0.69% 84.99%
45 BB and T Corp 0.67% $8,568.41 0.67% 85.66%
46 Comerica Inc 0.67% $8,520.88 0.67% 86.33%
47 Lincoln National Corp 0.65% $8,267.93 0.65% 86.98%
48 Progressive Corp 0.64% $8,191.96 0.64% 87.62%
49 Providian Financial Corp 0.63% $8,059.22 0.63% 88.25%
50 Regions Financial Corp 0.61% $7,761.16 0.61% 88.86%
51 St Paul Companies Inc 0.60% $7,673.35 0.60% 89.46%
52 Northern Trust Corp 0.60% $7,596.70 0.60% 90.06%
53 Franklin Resources Inc 0.59% $7,559.30 0.59% 90.65%
54 Mercantile Bancorporation Inc 0.58% $7,352.23 0.58% 91.23%
55 Unum Corp 0.54% $6,871.09 0.54% 91.76%
56 Capital One Financial Corp 0.53% $6,809.75 0.53% 92.30%
57 Transamerica Corp 0.52% $6,630.72 0.52% 92.82%
</TABLE>
Page 1
<PAGE> 110
IXM COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
58 Summit Bancorp Inc SUB 173,805,000 1.00000 37.5000 $6,517.69
59 Jefferson Pilot JP 106,090,000 1.00000 60.5000 $6,418.45
60 Union Planters Corp UPC 127,129,000 1.00000 50.2500 $6,388.23
61 SAFECO Corp SAFC 141,188,000 1.00000 41.6875 $5,885.77
62 Bankers Trust Corp BT 96,169,000 1.00000 59.0000 $5,673.97
63 SLM Holding Corp SLM 167,476,000 1.00000 32.4375 $5,432.50
64 MBIA Inc MBI 99,261,000 1.00000 53.6875 $5,329.07
65 Huntington Bancshares Inc HBAN 211,689,000 1.00000 25.1250 $5,318.69
66 Synovus Financial Corp SNV 263,367,000 1.00000 19.7500 $5,201.50
67 Cincinnati Financial Corp CINF 167,170,000 1.00000 30.7500 $5,140.48
68 Torchmark Corp TMK 140,262,000 1.00000 35.9375 $5,040.67
69 Golden West Financial Corp GDW 57,600,000 1.00000 81.8125 $4,712.40
70 Countrywide Credit Industries CCR 111,050,000 1.00000 41.6250 $4,622.46
71 Provident Co Inc PVT 135,169,000 1.00000 33.7500 $4,561.95
72 Republic New York Corp RNB 107,901,000 1.00000 39.5000 $4,262.09
73 MGIC Investment Corp MTG 113,340,000 1.00000 36.8750 $4,179.41
74 Bear Stearns Companies Inc BSC 113,761,000 1.00000 31.0000 $3,526.59
75 Lehman Brothers Holdings Inc LEH 118,294,000 1.00000 28.3750 $3,356.59
$1,275,141.52
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C> <C>
58 Summit Bancorp Inc 0.51% $6,517.69 0.51% 93.33%
59 Jefferson Pilot 0.50% $6,418.45 0.50% 93.83%
60 Union Planters Corp 0.50% $6,388.23 0.50% 94.33%
61 SAFECO Corp 0.46% $5,885.77 0.46% 94.80%
62 Bankers Trust Corp 0.44% $5,673.97 0.44% 95.24%
63 SLM Holding Corp 0.43% $5,432.50 0.43% 95.67%
64 MBIA Inc 0.42% $5,329.07 0.42% 96.08%
65 Huntington Bancshares Inc 0.42% $5,318.69 0.42% 96.50%
66 Synovus Financial Corp 0.41% $5,201.50 0.41% 96.91%
67 Cincinnati Financial Corp 0.40% $5,140.48 0.40% 97.31%
68 Torchmark Corp 0.40% $5,040.67 0.40% 97.71%
69 Golden West Financial Corp 0.37% $4,712.40 0.37% 98.08%
70 Countrywide Credit Industries 0.36% $4,622.46 0.36% 98.44%
71 Provident Co Inc 0.36% $4,561.95 0.36% 98.80%
72 Republic New York Corp 0.33% $4,262.09 0.33% 99.13%
73 MGIC Investment Corp 0.33% $4,179.41 0.33% 99.46%
74 Bear Stearns Companies Inc 0.28% $3,526.59 0.28% 99.74%
75 Lehman Brothers Holdings Inc 0.26% $3,356.59 0.26% 100.00%
$1,275,141.52
</TABLE>
Page 2
<PAGE> 111
IXR COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
1 Merck and Company Inc MRK 1,190,918,000 1.00000 129.5625 $154,298.31
2 Coca Cola Co KO 2,465,494,000 1.00000 57.6250 $142,074.09
3 Pfizer Inc PFE 1,306,595,000 1.00000 105.7500 $138,172.42
4 Philip Morris Companies Inc MO 2,432,091,000 1.00000 46.2500 $112,484.21
5 Johnson and Johnson JNJ 1,344,889,000 1.00000 78.2500 $105,237.56
6 Bristol Myers Squibb Co BMY 994,709,000 1.00000 103.8750 $103,325.40
7 Procter and Gamble Co PG 1,340,982,000 1.00000 71.1250 $95,377.34
8 Eli Lilly and Company LLY 1,101,312,000 1.00000 78.3125 $86,246.50
9 Schering Plough Corp SGP 734,000,000 1.00000 103.6875 $76,106.63
10 American Home Products Corp AHP 1,315,815,000 1.00000 52.6250 $69,244.76
11 Abbott Laboratories ABT 1,539,855,000 1.00000 43.4375 $66,887.45
12 Warner Lambert Co WLA 820,899,000 1.00000 75.5000 $61,977.87
13 Pepsico Inc PEP 1,472,837,000 1.00000 29.4375 $43,356.64
14 Gillette Co G 1,122,903,000 1.00000 38.2500 $42,951.04
15 Unilever NV UN 640,164,000 1.00000 61.2500 $39,210.05
16 Medtronic Inc MDT 469,351,000 1.00000 58.0000 $27,222.36
17 Anheuser Busch Companies Inc BUD 482,140,000 1.00000 54.0000 $26,035.56
18 Pharmacia and UpJohn Inc PNU 508,046,000 1.00000 50.1875 $25,497.56
19 Sara Lee Corp SLE 467,084,000 1.00000 54.0000 $25,222.54
20 Campbell Soup Co CPB 449,068,000 1.00000 50.1875 $22,537.60
21 Kimberly Clark Corp KMB 547,404,000 1.00000 40.5000 $22,169.86
22 Walgreen Co WAG 497,457,000 1.00000 44.0625 $21,919.20
23 Colgate Palmolive Co CL 295,702,000 1.00000 68.7500 $20,329.51
24 HJ Heinz Co HNZ 362,051,000 1.00000 51.2500 $18,555.11
25 CVS Corp CVS 389,337,000 1.00000 43.8125 $17,057.83
26 Baxter International Inc BAX 285,405,000 1.00000 59.6875 $17,035.11
27 Bestfoods BFO 287,435,000 1.00000 48.4375 $13,922.63
28 Cardinal Health Inc CAH 133,304,000 1.00000 103.2500 $13,763.64
29 Kellogg Co K 407,075,000 1.00000 32.9375 $13,408.03
30 Albertsons Inc ABS 245,822,000 1.00000 54.1250 $13,305.12
31 ConAgra Inc CAG 487,961,000 1.00000 26.9375 $13,144.45
32 Kroger Co KR 256,525,000 1.00000 50.0000 $12,826.25
33 Guidant Corp GDT 150,798,000 1.00000 74.2500 $11,196.75
34 General Mills Inc GIS 154,800,000 1.00000 70.0000 $10,836.00
35 Becton Dickinson and Co BDX 247,232,000 1.00000 41.1250 $10,167.42
36 Boston Scientific Corp BSX 195,702,000 1.00000 51.3750 $10,054.19
37 Archer Daniels Midland Co ADM 599,068,000 1.00000 16.7500 $10,034.39
38 Seagram Company Ltd VO 346,301,000 1.00000 28.6875 $9,934.51
39 Hershey Foods Corp HSY 143,116,000 1.00000 68.4375 $9,794.50
40 Rite Aid Corp RAD 258,414,000 1.00000 35.5000 $9,173.70
41 Ralston-Ralston Purina Group RAL 312,218,000 1.00000 29.2500 $9,132.38
42 American Stores Co ASC 274,522,000 1.00000 32.1875 $8,836.18
43 Wm Wrigley Jr Co WWY 116,214,000 1.00000 76.0000 $8,832.26
44 Clorox Co CLX 103,882,000 1.00000 82.5000 $8,570.27
45 RJR Nabisco Holdings Corp RN 324,813,000 1.00000 25.1875 $8,181.23
46 Quaker Oats Co OAT 136,314,000 1.00000 59.0000 $8,042.53
47 Sysco Corp SYY 337,582,000 1.00000 23.5625 $7,954.28
48 Avon Products Inc AVP 263,378,000 1.00000 28.0625 $7,391.05
49 Fort James Corp FJ 220,579,000 1.00000 32.8125 $7,237.75
50 Pioneer Hi Bred Intl Inc PHB 241,580,000 1.00000 26.5625 $6,416.97
51 Fred Meyer Inc Holding Co FMY 154,019,000 1.00000 38.8750 $5,987.49
52 Winn Dixie Stores Inc WIN 148,531,000 1.00000 37.1875 $5,523.50
53 UST Inc UST 185,746,000 1.00000 29.5625 $5,491.12
54 Fortune Brands Inc FO 172,792,000 1.00000 29.6250 $5,118.96
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C>
1 Merck and Company Inc 8.19% $154,298.31 8.19% 8.19%
2 Coca Cola Co 7.54% $142,074.09 7.54% 15.74%
3 Pfizer Inc 7.34% $138,172.42 7.34% 23.08%
4 Philip Morris Companies Inc 5.97% $112,484.21 5.97% 29.05%
5 Johnson and Johnson 5.59% $105,237.56 5.59% 34.64%
6 Bristol Myers Squibb Co 5.49% $103,325.40 5.49% 40.12%
7 Procter and Gamble Co 5.06% $95,377.34 5.06% 45.19%
8 Eli Lilly and Company 4.58% $86,246.50 4.58% 49.77%
9 Schering Plough Corp 4.04% $76,106.63 4.04% 53.81%
10 American Home Products Corp 3.68% $69,244.76 3.68% 57.49%
11 Abbott Laboratories 3.55% $66,887.45 3.55% 61.04%
12 Warner Lambert Co 3.29% $61,977.87 3.29% 64.33%
13 Pepsico Inc 2.30% $43,356.64 2.30% 66.63%
14 Gillette Co 2.28% $42,951.04 2.28% 68.91%
15 Unilever NV 2.08% $39,210.05 2.08% 71.00%
16 Medtronic Inc 1.45% $27,222.36 1.45% 72.44%
17 Anheuser Busch Companies Inc 1.38% $26,035.56 1.38% 73.82%
18 Pharmacia and UpJohn Inc 1.35% $25,497.56 1.35% 75.18%
19 Sara Lee Corp 1.34% $25,222.54 1.34% 76.52%
20 Campbell Soup Co 1.20% $22,537.60 1.20% 77.72%
21 Kimberly Clark Corp 1.18% $22,169.86 1.18% 78.89%
22 Walgreen Co 1.16% $21,919.20 1.16% 80.06%
23 Colgate Palmolive Co 1.08% $20,329.51 1.08% 81.14%
24 HJ Heinz Co 0.99% $18,555.11 0.99% 82.12%
25 CVS Corp 0.91% $17,057.83 0.91% 83.03%
26 Baxter International Inc 0.90% $17,035.11 0.90% 83.93%
27 Bestfoods 0.74% $13,922.63 0.74% 84.67%
28 Cardinal Health Inc 0.73% $13,763.64 0.73% 85.40%
29 Kellogg Co 0.71% $13,408.03 0.71% 86.11%
30 Albertsons Inc 0.71% $13,305.12 0.71% 86.82%
31 ConAgra Inc 0.70% $13,144.45 0.70% 87.52%
32 Kroger Co 0.68% $12,826.25 0.68% 88.20%
33 Guidant Corp 0.59% $11,196.75 0.59% 88.79%
34 General Mills Inc 0.58% $10,836.00 0.58% 89.37%
35 Becton Dickinson and Co 0.54% $10,167.42 0.54% 89.91%
36 Boston Scientific Corp 0.53% $10,054.19 0.53% 90.44%
37 Archer Daniels Midland Co 0.53% $10,034.39 0.53% 90.98%
38 Seagram Company Ltd 0.53% $9,934.51 0.53% 91.50%
39 Hershey Foods Corp 0.52% $9,794.50 0.52% 92.02%
40 Rite Aid Corp 0.49% $9,173.70 0.49% 92.51%
41 Ralston-Ralston Purina Group 0.48% $9,132.38 0.48% 93.00%
42 American Stores Co 0.47% $8,836.18 0.47% 93.47%
43 Wm Wrigley Jr Co 0.47% $8,832.26 0.47% 93.93%
44 Clorox Co 0.46% $8,570.27 0.46% 94.39%
45 RJR Nabisco Holdings Corp 0.43% $8,181.23 0.43% 94.82%
46 Quaker Oats Co 0.43% $8,042.53 0.43% 95.25%
47 Sysco Corp 0.42% $7,954.28 0.42% 95.67%
48 Avon Products Inc 0.39% $7,391.05 0.39% 96.07%
49 Fort James Corp 0.38% $7,237.75 0.38% 96.45%
50 Pioneer Hi Bred Intl Inc 0.34% $6,416.97 0.34% 96.79%
51 Fred Meyer Inc Holding Co 0.32% $5,987.49 0.32% 97.11%
52 Winn Dixie Stores Inc 0.29% $5,523.50 0.29% 97.40%
53 UST Inc 0.29% $5,491.12 0.29% 97.69%
54 Fortune Brands Inc 0.27% $5,118.96 0.27% 97.97%
</TABLE>
Page 8
<PAGE> 112
IXR COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
55 Brown Forman Corp BF.B 68,686,000 1.00000 60.0000 $4,121.16
56 Biomet Inc BMET 112,123,000 1.00000 34.6875 $3,889.27
57 Allergan Inc AGN 65,373,000 1.00000 58.3750 $3,816.15
58 Alza Corp AZA 86,589,000 1.00000 43.3750 $3,755.80
59 International Flavors and Fragrances IFF 107,199,000 1.00000 33.0000 $3,537.57
60 United States Surgical USS 77,139,000 1.00000 41.6875 $3,215.73
61 Supervalu Inc SVU 120,976,000 1.00000 23.3125 $2,820.25
62 Bausch and Lomb Inc BOL 55,888,000 1.00000 39.3750 $2,200.59
63 CR Bard Inc BCR 56,128,000 1.00000 36.8750 $2,069.72
64 St Jude Medical Inc STJ 84,165,000 1.00000 23.1250 $1,946.32
65 Adolph Coors Co ACCOB 36,301,000 1.00000 45.9375 $1,667.58
66 Longs Drug Stores Corp LDG 38,908,000 1.00000 40.1875 $1,563.62
67 Mallinckrodt Inc MKG 73,165,000 1.00000 20.3125 $1,486.16
68 Alberto Culver Co ACV 55,117,000 1.00000 23.3750 $1,288.36
69 Great Atlantic and Pacific Tea Co GAP 38,253,000 1.00000 24.2500 $927.64
$1,883,115.93
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C>
55 Brown Forman Corp 0.22% $4,121.16 0.22% 98.18%
56 Biomet Inc 0.21% $3,889.27 0.21% 98.39%
57 Allergan Inc 0.20% $3,816.15 0.20% 98.59%
58 Alza Corp 0.20% $3,755.80 0.20% 98.79%
59 International Flavors and Fragrances 0.19% $3,537.57 0.19% 98.98%
60 United States Surgical 0.17% $3,215.73 0.17% 99.15%
61 Supervalu Inc 0.15% $2,820.25 0.15% 99.30%
62 Bausch and Lomb Inc 0.12% $2,200.59 0.12% 99.42%
63 CR Bard Inc 0.11% $2,069.72 0.11% 99.53%
64 St Jude Medical Inc 0.10% $1,946.32 0.10% 99.63%
65 Adolph Coors Co 0.09% $1,667.58 0.09% 99.72%
66 Longs Drug Stores Corp 0.08% $1,563.62 0.08% 99.80%
67 Mallinckrodt Inc 0.08% $1,486.16 0.08% 99.88%
68 Alberto Culver Co 0.07% $1,288.36 0.07% 99.95%
69 Great Atlantic and Pacific Tea Co 0.05% $927.64 0.05% 100.00%
$1,883,115.93
</TABLE>
Page 9
<PAGE> 113
IXT COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
1 Microsoft Corp MSFT 2,464,072,000 1.00000 110.0625 $271,201.92
2 Intel Corp INTC 1,680,000,000 1.00000 85.7500 $144,060.00
3 International Business Machines IBM IBM 933,063,000 1.00000 128.5000 $119,898.60
4 AT and T Corp T 1,806,338,000 1.00000 58.4375 $105,557.88
5 Cisco Systems Inc CSCO 1,554,824,000 1.00000 61.8125 $96,107.56
6 Lucent Technologies Inc LU 1,314,985,000 1.00000 69.2500 $91,062.71
7 MCI WorldCom Inc WCOM 1,776,029,000 1.00000 48.8750 $86,803.42
8 Dell Computer Corp DELL 1,265,912,000 1.00000 65.7500 $83,233.71
9 Hewlett-Packard Co HWP 1,039,457,000 1.00000 52.9375 $55,026.25
10 Compaq Computer Corp CPQ 1,671,000,000 1.00000 31.6250 $52,845.38
11 Boeing Co BA 1,010,704,000 1.00000 34.3125 $34,679.78
12 Airtouch Communications ATI 573,866,000 1.00000 57.0000 $32,710.36
13 Sprint Corp FON 430,077,000 1.00000 72.0000 $30,965.54
14 EMC Corp EMC 499,511,000 1.00000 57.3750 $28,659.44
15 Oracle Corporation ORCL 973,337,000 1.00000 29.1250 $28,348.44
16 Xerox Corp XRX 328,598,000 1.00000 84.7500 $27,848.68
17 Motorola Inc MOT 598,117,000 1.00000 42.8750 $25,644.27
18 Eastman Kodak Co EK 322,778,000 1.00000 76.8750 $24,813.56
19 Automatic Data Processing Inc AUD 301,025,000 1.00000 74.7500 $22,501.62
20 Northern Telecom Ltd NT 652,132,000 1.00000 32.0625 $20,908.98
21 Computer Associates International CA 561,254,000 1.00000 37.0000 $20,766.40
22 Texas Instruments Inc TXN 390,130,000 1.00000 53.0000 $20,676.89
23 Lockheed Martin Corp LMT 195,719,000 1.00000 100.8125 $19,730.92
24 Amgen Inc AMGN 253,927,000 1.00000 75.5625 $19,187.36
25 Sun Microsystems Inc SUNW 378,811,000 1.00000 49.8125 $18,869.52
26 Raytheon Co RTN.B 338,812,000 1.00000 53.9375 $18,274.67
27 United Technologies Corp UTX 228,030,000 1.00000 76.4375 $17,430.04
28 Electronic Data Systems Corp EDS 492,175,000 1.00000 33.1875 $16,334.06
29 Pitney Bowes Inc PBI 274,446,000 1.00000 52.5625 $14,425.57
30 Bmc Software Inc BMCS 206,338,000 1.00000 60.0625 $12,393.18
31 3Com Corp COMS 358,870,000 1.00000 30.0625 $10,788.53
32 First Data Corp FDC 446,808,000 1.00000 23.5000 $10,499.99
33 Applied Materials Inc AMAT 366,266,000 1.00000 25.2500 $9,248.22
34 Ascend Communications Inc ASND 197,824,000 1.00000 45.5000 $9,000.99
35 Computer Sciences Corp CSC 157,938,000 1.00000 54.5000 $8,607.62
36 Paychex Inc PAYX 163,188,000 1.00000 51.5625 $8,414.38
37 Gateway 2000 Inc GTW 155,768,000 1.00000 52.3125 $8,148.61
38 AMP Inc AMP 218,601,000 1.00000 35.7500 $7,814.99
39 Tellabs Inc TLAB 193,725,000 1.00000 39.8125 $7,712.68
40 Rockwell International ROK 191,193,000 1.00000 36.2500 $6,930.75
41 Micron Technology Inc MU 213,084,000 1.00000 30.4375 $6,485.74
42 General Dynamics Corp GD 126,573,000 1.00000 50.2500 $6,360.29
43 Seagate Technology Inc SEG 243,058,000 1.00000 25.0625 $6,091.64
44 Unisys Corp UIS 254,321,000 1.00000 22.7500 $5,785.80
45 Nextel Communications Inc NXTL 285,708,000 1.00000 20.1875 $5,767.73
46 TRW Inc TRW 121,910,000 1.00000 44.3750 $5,409.76
47 Equifax Inc EFX 147,983,000 1.00000 35.6875 $5,281.14
48 Apple Computer Inc AAPL 134,639,000 1.00000 38.1250 $5,133.11
49 Northrop Grumman Corporation NOC 68,796,000 1.00000 73.0000 $5,022.11
50 Novell Inc NOVL 353,436,000 1.00000 12.2500 $4,329.59
51 Ceridian Corp CEN 72,549,000 1.00000 57.3750 $4,162.50
52 WW Grainger Inc GWW 97,702,000 1.00000 42.1250 $4,115.70
53 Perkin Elmer Corp PKN 49,121,000 1.00000 68.6875 $3,374.00
54 General Instrument Corp GIC 150,883,000 1.00000 21.6250 $3,262.84
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C> <C>
1 Microsoft Corp 15.43% $271,201.92 15.43% 15.43%
2 Intel Corp 8.20% $144,060.00 8.20% 23.63%
3 International Business Machines IBM 6.82% $119,898.60 6.82% 30.45%
4 AT and T Corp 6.01% $105,557.88 6.01% 36.46%
5 Cisco Systems Inc 5.47% $96,107.56 5.47% 41.92%
6 Lucent Technologies Inc 5.18% $91,062.71 5.18% 47.11%
7 MCI WorldCom Inc 4.94% $86,803.42 4.94% 52.04%
8 Dell Computer Corp 4.74% $83,233.71 4.74% 56.78%
9 Hewlett-Packard Co 3.13% $55,026.25 3.13% 59.91%
10 Compaq Computer Corp 3.01% $52,845.38 3.01% 62.92%
11 Boeing Co 1.97% $34,679.78 1.97% 64.89%
12 Airtouch Communications 1.86% $32,710.36 1.86% 66.75%
13 Sprint Corp 1.76% $30,965.54 1.76% 68.51%
14 EMC Corp 1.63% $28,659.44 1.63% 70.14%
15 Oracle Corporation 1.61% $28,348.44 1.61% 71.76%
16 Xerox Corp 1.58% $27,848.68 1.58% 73.34%
17 Motorola Inc 1.46% $25,644.27 1.46% 74.80%
18 Eastman Kodak Co 1.41% $24,813.56 1.41% 76.21%
19 Automatic Data Processing Inc 1.28% $22,501.62 1.28% 77.49%
20 Northern Telecom Ltd 1.19% $20,908.98 1.19% 78.68%
21 Computer Associates International 1.18% $20,766.40 1.18% 79.86%
22 Texas Instruments Inc 1.18% $20,676.89 1.18% 81.04%
23 Lockheed Martin Corp 1.12% $19,730.92 1.12% 82.16%
24 Amgen Inc 1.09% $19,187.36 1.09% 83.26%
25 Sun Microsystems Inc 1.07% $18,869.52 1.07% 84.33%
26 Raytheon Co 1.04% $18,274.67 1.04% 85.37%
27 United Technologies Corp 0.99% $17,430.04 0.99% 86.36%
28 Electronic Data Systems Corp 0.93% $16,334.06 0.93% 87.29%
29 Pitney Bowes Inc 0.82% $14,425.57 0.82% 88.11%
30 Bmc Software Inc 0.71% $12,393.18 0.71% 88.82%
31 3Com Corp 0.61% $10,788.53 0.61% 89.43%
32 First Data Corp 0.60% $10,499.99 0.60% 90.03%
33 Applied Materials Inc 0.53% $9,248.22 0.53% 90.55%
34 Ascend Communications Inc 0.51% $9,000.99 0.51% 91.07%
35 Computer Sciences Corp 0.49% $8,607.62 0.49% 91.56%
36 Paychex Inc 0.48% $8,414.38 0.48% 92.03%
37 Gateway 2000 Inc 0.46% $8,148.61 0.46% 92.50%
38 AMP Inc 0.44% $7,814.99 0.44% 92.94%
39 Tellabs Inc 0.44% $7,712.68 0.44% 93.38%
40 Rockwell International 0.39% $6,930.75 0.39% 93.78%
41 Micron Technology Inc 0.37% $6,485.74 0.37% 94.14%
42 General Dynamics Corp 0.36% $6,360.29 0.36% 94.51%
43 Seagate Technology Inc 0.35% $6,091.64 0.35% 94.85%
44 Unisys Corp 0.33% $5,785.80 0.33% 95.18%
45 Nextel Communications Inc 0.33% $5,767.73 0.33% 95.51%
46 TRW Inc 0.31% $5,409.76 0.31% 95.82%
47 Equifax Inc 0.30% $5,281.14 0.30% 96.12%
48 Apple Computer Inc 0.29% $5,133.11 0.29% 96.41%
49 Northrop Grumman Corporation 0.29% $5,022.11 0.29% 96.70%
50 Novell Inc 0.25% $4,329.59 0.25% 96.94%
51 Ceridian Corp 0.24% $4,162.50 0.24% 97.18%
52 WW Grainger Inc 0.23% $4,115.70 0.23% 97.41%
53 Perkin Elmer Corp 0.19% $3,374.00 0.19% 97.61%
54 General Instrument Corp 0.19% $3,262.84 0.19% 97.79%
</TABLE>
Page 10
<PAGE> 114
IXT COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
55 Parametric Technology Corp PMTC 272,220,000 1.00000 10.0625 $2,739.21
56 Advanced Micro Devices Inc AMD 143,856,000 1.00000 18.5625 $2,670.33
57 Harris Corp HRS 80,005,000 1.00000 32.0000 $2,560.16
58 Thermo Electron Corp TMO 166,054,000 1.00000 15.0625 $2,501.19
59 BF Goodrich Co GR 73,987,000 1.00000 32.8125 $2,427.70
60 Adobe Systems Inc ADBE 67,198,000 1.00000 34.6875 $2,330.93
61 KLA-Tencor Corp KLAC 86,873,000 1.00000 24.8750 $2,160.97
62 Thomas and Betts Corp TNB 56,731,000 1.00000 38.0625 $2,159.32
63 Raychem Corp RYC 83,835,000 1.00000 24.3750 $2,043.48
64 Cabletron Systems Inc CS 164,429,000 1.00000 11.2500 $1,849.83
65 LSI Logic Corp LSI 140,945,000 1.00000 12.6250 $1,779.43
66 Silicon Graphics Inc SGI 188,789,000 1.00000 9.3750 $1,769.90
67 Scientific Atlanta Inc SFA 78,821,000 1.00000 21.1250 $1,665.09
68 National Semiconductor Corp NSM 164,234,000 1.00000 9.6875 $1,591.02
69 Autodesk Inc ADSK 47,019,000 1.00000 26.2500 $1,234.25
70 Andrew Corp ANDW 86,104,000 1.00000 13.2500 $1,140.88
71 Polaroid Corp PRD 44,109,000 1.00000 24.5625 $1,083.43
72 EG and G Inc EGG 45,957,000 1.00000 22.6250 $1,039.78
73 Ikon Office Solutions Inc IKN 135,556,000 1.00000 7.1875 $974.31
74 Moore Corporation Ltd MCL 88,449,000 1.00000 10.5625 $934.24
75 Millipore Corp MIL 43,852,000 1.00000 19.0625 $835.93
76 Tektronix Inc TEK 50,345,000 1.00000 15.5000 $780.35
77 Data General Corp DGN 49,502,000 1.00000 10.8125 $535.24
$1,757,522.37
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C> <C>
55 Parametric Technology Corp 0.16% $2,739.21 0.16% 97.95%
56 Advanced Micro Devices Inc 0.15% $2,670.33 0.15% 98.10%
57 Harris Corp 0.15% $2,560.16 0.15% 98.25%
58 Thermo Electron Corp 0.14% $2,501.19 0.14% 98.39%
59 BF Goodrich Co 0.14% $2,427.70 0.14% 98.53%
60 Adobe Systems Inc 0.13% $2,330.93 0.13% 98.66%
61 KLA-Tencor Corp 0.12% $2,160.97 0.12% 98.78%
62 Thomas and Betts Corp 0.12% $2,159.32 0.12% 98.90%
63 Raychem Corp 0.12% $2,043.48 0.12% 99.02%
64 Cabletron Systems Inc 0.11% $1,849.83 0.11% 99.13%
65 LSI Logic Corp 0.10% $1,779.43 0.10% 99.23%
66 Silicon Graphics Inc 0.10% $1,769.90 0.10% 99.33%
67 Scientific Atlanta Inc 0.09% $1,665.09 0.09% 99.42%
68 National Semiconductor Corp 0.09% $1,591.02 0.09% 99.51%
69 Autodesk Inc 0.07% $1,234.25 0.07% 99.58%
70 Andrew Corp 0.06% $1,140.88 0.06% 99.65%
71 Polaroid Corp 0.06% $1,083.43 0.06% 99.71%
72 EG and G Inc 0.06% $1,039.78 0.06% 99.77%
73 Ikon Office Solutions Inc 0.06% $974.31 0.06% 99.82%
74 Moore Corporation Ltd 0.05% $934.24 0.05% 99.88%
75 Millipore Corp 0.05% $835.93 0.05% 99.93%
76 Tektronix Inc 0.04% $780.35 0.04% 99.97%
77 Data General Corp 0.03% $535.24 0.03% 100.00%
$1,757,522.37
</TABLE>
Page 11
<PAGE> 115
IXU COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
1 SBC Communications Inc SBC 1,837,288,000 1.00000 44.3750 $81,529.66
2 Bell Atlantic Corp BEL 1,553,474,000 1.00000 48.4375 $75,246.40
3 Bellsouth Corp BLS 983,704,000 1.00000 75.2500 $74,023.73
4 GTE Corp GTE 964,031,000 1.00000 55.0000 $53,021.71
5 Ameritech Corp AIT 1,102,394,000 0.54309 47.5000 $52,363.72
6 US West Inc USW 501,582,000 1.02815 52.5000 $26,333.06
7 Duke Energy Corp DUK 361,084,000 1.03108 66.1875 $23,899.25
8 Southern Co SO 697,799,000 1.03437 29.4375 $20,541.46
9 Texas Utilities Co TXU 279,496,000 1.05704 46.5625 $13,014.03
10 Alltel Corp AT 274,158,000 1.05206 47.1250 $12,919.70
11 FPL Group Inc FPL 181,217,000 1.05805 69.6875 $12,628.56
12 Consolidated Edison Inc ED 233,829,000 1.06118 52.0000 $12,159.11
13 PG and E Corp PCG 381,992,000 1.05512 31.8750 $12,176.00
14 American Electric Power Co Inc AEP 190,884,000 1.07681 48.8125 $9,317.53
15 Houston Industries Inc HOU 296,040,000 1.07269 31.1250 $9,214.25
16 Public Service Enterprise Group Inc PEG 231,958,000 1.08308 39.3125 $9,118.85
17 Edison International Inc EIX 353,639,000 1.06198 25.6875 $9,084.10
18 Dominion Resources Inc D 196,508,000 1.08325 44.6250 $8,769.17
19 Peco Energy Co PE 222,896,000 1.10217 36.7500 $8,191.43
20 Unicom Corp UCM 217,013,000 1.08726 37.3750 $8,110.86
21 Entergy Corp ETR 246,602,000 1.09368 30.7500 $7,583.01
22 FirstEnergy Corp FE 237,069,000 1.09358 31.0625 $7,363.96
23 Carolina Power and Light Co CPL 151,331,000 1.10110 46.1875 $6,989.60
24 DTE Energy Holding Co DTE 145,075,000 1.11330 45.1875 $6,555.58
25 Sempra Energy SRE 240,808,000 1.09995 26.0625 $6,276.06
26 CINergy Corp CIN 158,535,000 1.12019 38.2500 $6,063.96
27 Central and South West Corp CSR 212,456,000 1.11632 28.6250 $6,081.55
28 Ameren Corp AEE 137,215,000 1.12168 41.9375 $5,754.45
29 Pacificorp PPW 297,269,000 1.09868 19.2500 $5,722.43
30 GPU Inc GPU 127,927,000 1.13725 42.5000 $5,436.90
31 Baltimore Gas and Electric Co BGE 148,673,000 1.14449 33.3750 $4,961.96
32 Frontier Corp FRO 171,499,000 1.12305 27.3750 $4,694.79
33 Northern States Power Co NSP 151,416,000 1.15381 28.0625 $4,249.11
34 PP and L Resources Holding Co PPL 151,266,000 1.17457 25.8750 $3,914.01
35 Niagara Mohawk Power Corp NMK 187,365,000 1.23718 15.3750 $2,880.74
36 Nicor Inc ..Bd Northern I GAS 47,751,000 1.34476 41.4375 $1,978.68
37 Peoples Energy Corp PGL 35,387,000 1.48673 36.0000 $1,273.93
38 Oneok Inc OKE 31,516,000 1.52717 34.0000 $1,071.54
39 Eastern Enterprises EFU 20,432,000 1.75791 42.1250 $860.70
$621,375.49
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C> <C>
1 SBC Communications Inc 13.12% $81,529.66 13.13% 13.13%
2 Bell Atlantic Corp 12.11% $75,246.40 12.12% 25.25%
3 Bellsouth Corp 11.91% $74,023.73 11.92% 37.17%
4 GTE Corp 8.53% $53,021.71 8.54% 45.71%
5 Ameritech Corp 8.43% $28,438.27 4.58% 50.29%
6 US West Inc 4.24% $27,074.37 4.36% 54.65%
7 Duke Energy Corp 3.85% $24,641.99 3.97% 58.62%
8 Southern Co 3.31% $21,247.48 3.42% 62.04%
9 Texas Utilities Co 2.09% $13,756.41 2.22% 64.25%
10 Alltel Corp 2.08% $13,592.27 2.19% 66.44%
11 FPL Group Inc 2.03% $13,361.59 2.15% 68.59%
12 Consolidated Edison Inc 1.96% $12,903.03 2.08% 70.67%
13 PG and E Corp 1.96% $12,847.13 2.07% 72.74%
14 American Electric Power Co Inc 1.50% $10,033.17 1.62% 74.36%
15 Houston Industries Inc 1.48% $9,884.05 1.59% 75.95%
16 Public Service Enterprise Group Inc 1.47% $9,876.45 1.59% 77.54%
17 Edison International Inc 1.46% $9,647.10 1.55% 79.09%
18 Dominion Resources Inc 1.41% $9,499.23 1.53% 80.62%
19 Peco Energy Co 1.32% $9,028.35 1.45% 82.08%
20 Unicom Corp 1.31% $8,818.64 1.42% 83.50%
21 Entergy Corp 1.22% $8,293.42 1.34% 84.83%
22 FirstEnergy Corp 1.19% $8,053.09 1.30% 86.13%
23 Carolina Power and Light Co 1.12% $7,696.25 1.24% 87.37%
24 DTE Energy Holding Co 1.06% $7,298.34 1.18% 88.54%
25 Sempra Energy 1.01% $6,903.37 1.11% 89.66%
26 CINergy Corp 0.98% $6,792.79 1.09% 90.75%
27 Central and South West Corp 0.98% $6,788.97 1.09% 91.84%
28 Ameren Corp 0.93% $6,454.63 1.04% 92.88%
29 Pacificorp 0.92% $6,287.11 1.01% 93.90%
30 GPU Inc 0.87% $6,183.13 1.00% 94.89%
31 Baltimore Gas and Electric Co 0.80% $5,678.91 0.91% 95.81%
32 Frontier Corp 0.76% $5,272.50 0.85% 96.66%
33 Northern States Power Co 0.68% $4,902.65 0.79% 97.44%
34 PP and L Resources Holding Co 0.63% $4,597.29 0.74% 98.19%
35 Niagara Mohawk Power Corp 0.46% $3,564.00 0.57% 98.76%
36 Nicor Inc ..Bd Northern I 0.32% $2,660.85 0.43% 99.19%
37 Peoples Energy Corp 0.21% $1,893.99 0.31% 99.49%
38 Oneok Inc 0.17% $1,636.43 0.26% 99.76%
39 Eastern Enterprises 0.14% $1,513.03 0.24% 100.00%
$620,941.79
</TABLE>
Page 12
<PAGE> 116
IXV COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
1 Time Warner Inc TWX 599,304,000 1.00000 87.5625 52,476.56
2 Walt Disney Co DIS 2,048,690,000 1.00000 25.3750 51,985.51
3 McDonalds Corp MCD 684,629,000 1.00000 59.6875 40,863.79
4 MediaOne Group Inc UMG 609,405,000 1.00000 44.4375 27,080.43
5 Viacom Inc VIA.B 358,004,000 1.00000 58.0000 20,764.23
6 Tele Communications Inc TCI Group TCOMA 523,344,000 1.00000 39.1250 20,475.83
7 CBS Corp CBS 715,923,000 1.00000 24.2500 17,361.13
8 Comcast Corp CMCSK 369,218,000 1.00000 46.9375 17,330.17
9 Gannett Inc GCI 284,595,000 1.00000 53.5625 15,243.62
10 Columbia HCA Healthcare Corp COL 645,336,000 1.00000 20.0625 12,947.05
11 HBO and Co HBOC 430,993,000 1.00000 28.8750 12,444.92
12 Clear Channel Communications Inc CCU 248,333,000 1.00000 47.5000 11,795.82
13 IMS Health Inc RX 166,077,000 1.00000 61.9375 10,286.39
14 Aetna Inc AET 144,369,000 1.00000 69.5000 10,033.65
15 Cendant Corp CD 857,984,000 1.00000 11.6250 $9,974.06
16 Tenet Healthcare Corp THC 308,254,000 1.00000 28.7500 $8,862.30
17 Service Corporation International SRV 257,260,000 1.00000 31.8750 $8,200.16
18 McGraw Hill Co Inc MHP 99,300,000 1.00000 79.2500 $7,869.53
19 Omnicom Group Inc OMC 169,718,000 1.00000 45.0000 $7,637.31
20 Interpublic Group of Companies Inc IPG 136,184,000 1.00000 53.9375 $7,345.42
21 United Healthcare Corp UNH 195,331,000 1.00000 35.0000 $6,836.59
22 Tribune Co TRB 121,949,000 1.00000 50.3125 $6,135.56
23 Marriott International Inc MAR 250,133,000 1.00000 23.8750 $5,971.93
24 Tricon Global Restaurants Inc YUM 152,524,000 1.00000 39.1250 $5,967.50
25 New York Times Co NYT 189,516,000 1.00000 27.5000 $5,211.69
26 RR Donnelley and Sons Co DNY 139,150,000 1.00000 35.1875 $4,896.34
27 Dun and Bradstreet Corp. DNB 170,870,000 1.00000 27.0000 $4,613.49
28 Times Mirror Co TMC 86,737,000 1.00000 53.1250 $4,607.90
29 Healthsouth Corporation HRC 422,618,000 1.00000 10.5000 $4,437.49
30 H and R Block Inc HRB 106,515,000 1.00000 41.3750 $4,407.06
31 Dow Jones And Company Inc DJ 93,729,000 1.00000 46.5000 $4,358.40
32 Hilton Hotels Corp HLT 246,910,000 1.00000 17.0000 $4,197.47
33 Knight Ridder Inc KRI 78,827,000 1.00000 44.5000 $3,507.80
34 HCR Manor Care Inc HCR 108,496,000 1.00000 29.3125 $3,180.29
35 Mirage Resorts Inc MIR 179,735,000 1.00000 16.7500 $3,010.56
36 Wendys International Inc WEN 127,248,000 1.00000 22.1875 $2,823.32
37 American Greetings Corp AM 70,616,000 1.00000 39.5625 $2,793.75
38 Humana Inc HUM 166,947,000 1.00000 16.3750 $2,733.76
39 Deluxe Corp DLX 80,781,000 1.00000 28.4375 $2,297.21
40 Darden Restaurants Inc DRI 139,184,000 1.00000 16.0000 $2,226.94
41 King World Productions Inc KWP 73,175,000 1.00000 26.1250 $1,911.70
42 Meredith Corp MDP 52,798,000 1.00000 32.0000 $1,689.54
43 Shared Medical Systems Corp SMS 26,546,000 1.00000 53.1875 $1,411.92
44 Harrahs Entertainment Inc HET 101,287,000 1.00000 13.3750 $1,354.71
45 Jostens Inc JOS 36,831,000 1.00000 20.7500 $764.24
$462,325.04
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C> <C>
1 Time Warner Inc 11.35% $52,476.56 11.35% 11.35%
2 Walt Disney Co 11.24% $51,985.51 11.24% 22.59%
3 McDonalds Corp 8.84% $40,863.79 8.84% 31.43%
4 MediaOne Group Inc 5.86% $27,080.43 5.86% 37.29%
5 Viacom Inc 4.49% $20,764.23 4.49% 41.78%
6 Tele Communications Inc TCI Group 4.43% $20,475.83 4.43% 46.21%
7 CBS Corp 3.76% $17,361.13 3.76% 49.97%
8 Comcast Corp 3.75% $17,330.17 3.75% 53.71%
9 Gannett Inc 3.30% $15,243.62 3.30% 57.01%
10 Columbia HCA Healthcare Corp 2.80% $12,947.05 2.80% 59.81%
11 HBO and Co 2.69% $12,444.92 2.69% 62.50%
12 Clear Channel Communications Inc 2.55% $11,795.82 2.55% 65.06%
13 IMS Health Inc 2.22% $10,286.39 2.22% 67.28%
14 Aetna Inc 2.17% $10,033.65 2.17% 69.45%
15 Cendant Corp 2.16% $9,974.06 2.16% 71.61%
16 Tenet Healthcare Corp 1.92% $8,862.30 1.92% 73.53%
17 Service Corporation International 1.77% $8,200.16 1.77% 75.30%
18 McGraw Hill Co Inc 1.70% $7,869.53 1.70% 77.00%
19 Omnicom Group Inc 1.65% $7,637.31 1.65% 78.65%
20 Interpublic Group of Companies Inc 1.59% $7,345.42 1.59% 80.24%
21 United Healthcare Corp 1.48% $6,836.59 1.48% 81.72%
22 Tribune Co 1.33% $6,135.56 1.33% 83.05%
23 Marriott International Inc 1.29% $5,971.93 1.29% 84.34%
24 Tricon Global Restaurants Inc 1.29% $5,967.50 1.29% 85.63%
25 New York Times Co 1.13% $5,211.69 1.13% 86.76%
26 RR Donnelley and Sons Co 1.06% $4,896.34 1.06% 87.82%
27 Dun and Bradstreet Corp. 1.00% $4,613.49 1.00% 88.81%
28 Times Mirror Co 1.00% $4,607.90 1.00% 89.81%
29 Healthsouth Corporation 0.96% $4,437.49 0.96% 90.77%
30 H and R Block Inc 0.95% $4,407.06 0.95% 91.72%
31 Dow Jones And Company Inc 0.94% $4,358.40 0.94% 92.67%
32 Hilton Hotels Corp 0.91% $4,197.47 0.91% 93.57%
33 Knight Ridder Inc 0.76% $3,507.80 0.76% 94.33%
34 HCR Manor Care Inc 0.69% $3,180.29 0.69% 95.02%
35 Mirage Resorts Inc 0.65% $3,010.56 0.65% 95.67%
36 Wendys International Inc 0.61% $2,823.32 0.61% 96.28%
37 American Greetings Corp 0.60% $2,793.75 0.60% 96.89%
38 Humana Inc 0.59% $2,733.76 0.59% 97.48%
39 Deluxe Corp 0.50% $2,297.21 0.50% 97.98%
40 Darden Restaurants Inc 0.48% $2,226.94 0.48% 98.46%
41 King World Productions Inc 0.41% $1,911.70 0.41% 98.87%
42 Meredith Corp 0.37% $1,689.54 0.37% 99.24%
43 Shared Medical Systems Corp 0.31% $1,411.92 0.31% 99.54%
44 Harrahs Entertainment Inc 0.29% $1,354.71 0.29% 99.83%
45 Jostens Inc 0.17% $764.24 0.17% 100.00%
$462,325.04
</TABLE>
Page 13
<PAGE> 117
IXY COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
1 Wal-Mart Stores Inc WMT 2,235,711,000 1.00000 54.6250 $122,125.71
2 Home Depot Inc HD 1,469,560,000 1.00000 39.5000 $58,047.62
3 Ford Motor Company F 1,211,631,000 1.00000 47.0000 $56,946.66
4 General Motors Corp GM 654,201,000 1.00000 54.8750 $35,899.28
5 Chrysler Corporation C 646,730,000 1.00000 47.8750 $30,962.20
6 Gap Inc GPS 392,843,000 1.00000 52.7500 $20,722.47
7 Sears Roebuck and Co S 392,359,000 1.00000 44.1875 $17,337.36
8 Dayton Hudson Corp DH 439,069,000 1.00000 35.7500 $15,696.72
9 Burlington Northern Santa Fe Corp BNI 473,040,000 1.00000 32.2500 $15,255.54
10 May Department Stores Co MAY 230,992,000 1.00000 51.5000 $11,896.09
11 JC Penney Company Inc JCP 253,074,000 1.00000 44.9375 $11,372.51
12 Lowes Companies Inc LOW 351,766,000 1.00000 31.8125 $11,190.56
13 Norfolk Southern Corp NSC 378,951,000 1.00000 29.0625 $11,013.26
14 Nike Inc NKE 287,727,000 1.00000 36.8125 $10,591.95
15 Union Pacific Corp UNP 247,307,000 1.00000 42.6250 $10,541.46
16 Costco Companies Inc COST 216,477,000 1.00000 47.3750 $10,255.60
17 AMR Corp AMR 182,343,000 1.00000 55.4375 $10,108.64
18 CSX Corp CSX 218,641,000 1.00000 42.0625 $9,196.59
19 Masco Corp MAS 340,161,000 1.00000 24.7500 $8,418.98
20 Mattel Inc MAT 292,654,000 1.00000 28.0000 $8,194.31
21 Goodyear Tire and Rubber Co GT 157,009,000 1.00000 51.5000 $8,085.96
22 Federated Department Stores Inc FD 210,865,000 1.00000 36.3750 $7,670.21
23 Newell Co NWL 162,623,000 1.00000 46.0625 $7,490.82
24 Delta Air Lines Inc DAL 75,746,000 1.00000 97.2500 $7,366.30
25 Southwest Airlines Co LUV 335,774,000 1.00000 20.2500 $6,799.42
26 FDX Corp Holding Co FDX 147,450,000 1.00000 44.8125 $6,607.60
27 Kohls Corp KSS 157,987,000 1.00000 39.0000 $6,161.49
28 Kmart Corp KM 492,348,000 1.00000 12.0000 $5,908.18
29 TJX Companies Inc TJX 317,162,000 1.00000 17.8125 $5,649.45
30 Genuine Parts Co GPC 178,689,000 1.00000 30.0625 $5,371.84
31 Tandy Corp TAN 100,367,000 1.00000 53.5000 $5,369.63
32 Limited Inc LTD 227,870,000 1.00000 21.9375 $4,998.90
33 Dollar General Corp DG 184,799,000 1.00000 26.3750 $4,874.07
34 US Airways Group Inc U 93,859,000 1.00000 50.6250 $4,751.61
35 VF Corporation VFC 121,469,000 1.00000 37.5000 $4,555.09
36 Toys R Us Holding Co TOY 275,794,000 1.00000 16.1875 $4,464.42
37 Maytag Corp MYG 91,465,000 1.00000 47.7500 $4,367.45
38 ITT Industries Inc Indiana IIN 118,445,000 1.00000 33.8750 $4,012.32
39 Hasbro Inc HAS 131,534,000 1.00000 29.5625 $3,888.47
40 Black and Decker Corp BDK 92,957,000 1.00000 41.6250 $3,869.34
41 Autozone Inc AZO 152,734,000 1.00000 24.6250 $3,761.07
42 Sherwin Williams Co SHW 172,895,000 1.00000 21.7500 $3,760.47
43 Nordstrom Inc NOBE 148,786,000 1.00000 24.7500 $3,682.45
44 Rubbermaid Inc RBD 149,950,000 1.00000 23.9375 $3,589.43
45 Whirlpool Corp WHR 75,993,000 1.00000 47.0000 $3,571.67
46 Harcourt General Inc H 70,865,000 1.00000 48.3750 $3,428.09
47 Circuit City Stores Circuit City Grp CC 100,005,000 1.00000 33.3125 $3,331.42
48 Dillards Inc DDS 110,855,000 1.00000 28.3125 $3,138.58
49 Laidlaw Inc LDW 329,774,000 1.00000 9.4375 $3,112.24
50 Stanley Works SWK 88,773,000 1.00000 29.7500 $2,641.00
51 Consolidated Stores Corp CNS 109,346,000 1.00000 19.6250 $2,145.92
52 Armstrong World Industries Inc ACK 40,015,000 1.00000 53.5000 $2,140.80
53 Centex Corp CTX 59,613,000 1.00000 34.5000 $2,056.65
54 Snap On Inc SNA 59,117,000 1.00000 30.8125 $1,821.54
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C> <C>
1 Wal-Mart Stores Inc 18.58% $122,125.71 18.58% 18.58%
2 Home Depot Inc 8.83% $58,047.62 8.83% 27.41%
3 Ford Motor Company 8.66% $56,946.66 8.66% 36.07%
4 General Motors Corp 5.46% $35,899.28 5.46% 41.53%
5 Chrysler Corporation 4.71% $30,962.20 4.71% 46.24%
6 Gap Inc 3.15% $20,722.47 3.15% 49.39%
7 Sears Roebuck and Co 2.64% $17,337.36 2.64% 52.03%
8 Dayton Hudson Corp 2.39% $15,696.72 2.39% 54.42%
9 Burlington Northern Santa Fe Corp 2.32% $15,255.54 2.32% 56.74%
10 May Department Stores Co 1.81% $11,896.09 1.81% 58.55%
11 JC Penney Company Inc 1.73% $11,372.51 1.73% 60.28%
12 Lowes Companies Inc 1.70% $11,190.56 1.70% 61.98%
13 Norfolk Southern Corp 1.68% $11,013.26 1.68% 63.65%
14 Nike Inc 1.61% $10,591.95 1.61% 65.26%
15 Union Pacific Corp 1.60% $10,541.46 1.60% 66.87%
16 Costco Companies Inc 1.56% $10,255.60 1.56% 68.43%
17 AMR Corp 1.54% $10,108.64 1.54% 69.97%
18 CSX Corp 1.40% $9,196.59 1.40% 71.36%
19 Masco Corp 1.28% $8,418.98 1.28% 72.65%
20 Mattel Inc 1.25% $8,194.31 1.25% 73.89%
21 Goodyear Tire and Rubber Co 1.23% $8,085.96 1.23% 75.12%
22 Federated Department Stores Inc 1.17% $7,670.21 1.17% 76.29%
23 Newell Co 1.14% $7,490.82 1.14% 77.43%
24 Delta Air Lines Inc 1.12% $7,366.30 1.12% 78.55%
25 Southwest Airlines Co 1.03% $6,799.42 1.03% 79.58%
26 FDX Corp Holding Co 1.01% $6,607.60 1.01% 80.59%
27 Kohls Corp 0.94% $6,161.49 0.94% 81.52%
28 Kmart Corp 0.90% $5,908.18 0.90% 82.42%
29 TJX Companies Inc 0.86% $5,649.45 0.86% 83.28%
30 Genuine Parts Co 0.82% $5,371.84 0.82% 84.10%
31 Tandy Corp 0.82% $5,369.63 0.82% 84.92%
32 Limited Inc 0.76% $4,998.90 0.76% 85.68%
33 Dollar General Corp 0.74% $4,874.07 0.74% 86.42%
34 US Airways Group Inc 0.72% $4,751.61 0.72% 87.14%
35 VF Corporation 0.69% $4,555.09 0.69% 87.83%
36 Toys R Us Holding Co 0.68% $4,464.42 0.68% 88.51%
37 Maytag Corp 0.66% $4,367.45 0.66% 89.18%
38 ITT Industries Inc Indiana 0.61% $4,012.32 0.61% 89.79%
39 Hasbro Inc 0.59% $3,888.47 0.59% 90.38%
40 Black and Decker Corp 0.59% $3,869.34 0.59% 90.97%
41 Autozone Inc 0.57% $3,761.07 0.57% 91.54%
42 Sherwin Williams Co 0.57% $3,760.47 0.57% 92.11%
43 Nordstrom Inc 0.56% $3,682.45 0.56% 92.67%
44 Rubbermaid Inc 0.55% $3,589.43 0.55% 93.22%
45 Whirlpool Corp 0.54% $3,571.67 0.54% 93.76%
46 Harcourt General Inc 0.52% $3,428.09 0.52% 94.28%
47 Circuit City Stores Circuit City Grp 0.51% $3,331.42 0.51% 94.79%
48 Dillards Inc 0.48% $3,138.58 0.48% 95.27%
49 Laidlaw Inc 0.47% $3,112.24 0.47% 95.74%
50 Stanley Works 0.40% $2,641.00 0.40% 96.14%
51 Consolidated Stores Corp 0.33% $2,145.92 0.33% 96.47%
52 Armstrong World Industries Inc 0.33% $2,140.80 0.33% 96.79%
53 Centex Corp 0.31% $2,056.65 0.31% 97.11%
54 Snap On Inc 0.28% $1,821.54 0.28% 97.38%
</TABLE>
Page 14
<PAGE> 118
IXY COMPONENT WEIGHTS
<TABLE>
<CAPTION>
PRICE MARKET
COMPANY NAME TICKER SHARES MULTIPLIER 9/30/98 CAPITALIZATION
<S> <C> <C> <C> <C> <C>
55 Ryder System Inc R 73,225,000 1.00000 24.8750 $1,821.47
56 Owens Corning Inc OWC 54,020,000 1.00000 32.5625 $1,759.03
57 Liz Claiborne Inc LIZ 66,034,000 1.00000 26.1875 $1,729.27
58 Cooper Tire And Rubber Co CTB 77,442,000 1.00000 18.0000 $1,393.96
59 Brunswick Corp BC 99,074,000 1.00000 13.0000 $1,287.96
60 Venator Group Inc Z 135,286,000 1.00000 8.6875 $1,175.30
61 Fruit of The Loom Inc FTL 72,093,000 1.00000 15.0625 $1,085.90
62 Pulte Corp PHM 43,115,000 1.00000 24.6875 $1,064.40
63 Fleetwood Enterprises Inc FLE 34,427,000 1.00000 30.1875 $1,039.27
64 Russell Corp RML 36,218,000 1.00000 26.2500 $950.72
65 Kaufman and Broad Home Corp KBH 39,854,000 1.00000 23.4375 $934.08
66 Pep Boys Manny Moe and Jack PBY 63,775,000 1.00000 13.6250 $868.93
67 Reebok International Ltd RBK 56,445,000 1.00000 13.5625 $765.54
68 Tupperware Corp TUP 57,722,000 1.00000 11.7500 $678.23
69 Springs Industries Inc SMI 18,460,000 1.00000 34.7500 $641.49
$657,412.97
</TABLE>
<TABLE>
<CAPTION>
MARKET INDEX MARKET INDEX CUMULATIVE
COMPANY NAME WEIGHT CAPITALIZATION WEIGHT WEIGHT
<S> <C> <C> <C> <C>
55 Ryder System Inc 0.28% $1,821.47 0.28% 97.66%
56 Owens Corning Inc 0.27% $1,759.03 0.27% 97.93%
57 Liz Claiborne Inc 0.26% $1,729.27 0.26% 98.19%
58 Cooper Tire And Rubber Co 0.21% $1,393.96 0.21% 98.40%
59 Brunswick Corp 0.20% $1,287.96 0.20% 98.60%
60 Venator Group Inc 0.18% $1,175.30 0.18% 98.78%
61 Fruit of The Loom Inc 0.17% $1,085.90 0.17% 98.94%
62 Pulte Corp 0.16% $1,064.40 0.16% 99.11%
63 Fleetwood Enterprises Inc 0.16% $1,039.27 0.16% 99.26%
64 Russell Corp 0.14% $950.72 0.14% 99.41%
65 Kaufman and Broad Home Corp 0.14% $934.08 0.14% 99.55%
66 Pep Boys Manny Moe and Jack 0.13% $868.93 0.13% 99.68%
67 Reebok International Ltd 0.12% $765.54 0.12% 99.80%
68 Tupperware Corp 0.10% $678.23 0.10% 99.90%
69 Springs Industries Inc 0.10% $641.49 0.10% 100.00%
$657,412.97
</TABLE>
Page 15
<PAGE> 119
IXB INDUSTRY GROUPS
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
INDUSTRY CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C>
Major Chemicals $132,794.01 42.72% $132,794.01 42.72% 42.72%
Specialty Chem. $47,228.79 15.19% $47,228.79 15.19% 57.92%
Paper & Forest Prod $46,942.00 15.10% $46,942.00 15.10% 73.02%
Aluminum $22,296.29 7.17% $22,296.29 7.17% 80.19%
Gold Mining $18,662.47 6.00% $18,662.47 6.00% 86.19%
Packaging $12,764.59 4.11% $12,764.59 4.11% 90.30%
Steel $12,007.79 3.86% $12,007.79 3.86% 94.16%
Non-Ferous Metals $8,910.95 2.87% $8,910.95 2.87% 97.03%
Metal Containers $4,402.98 1.42% $4,402.98 1.42% 98.45%
Glass Container $3,883.65 1.25% $3,883.65 1.25% 99.70%
Metal Fabricators $942.86 0.30% $942.86 0.30% 100.00%
TOTAL $310,836.38 100.00% $310,836.38 100.00%
</TABLE>
Page 16
<PAGE> 120
IXE INDUSTRY GROUPS
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
INDUSTRY CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C>
Intl' Oil $377,725.89 56.53% $421,233.51 63.04% 63.04%
Domestic Oil $119,923.41 17.95% $121,578.81 18.20% 81.24%
Natural Gas Pipeline $64,452.71 9.65% $50,190.70 7.51% 88.75%
Oil Services $64,437.96 9.64% $50,175.95 7.51% 96.26%
Oil & Gas Producer $30,349.64 4.54% $18,464.63 2.76% 99.02%
Oil Refining & Marketing $11,282.07 1.69% $6,528.07 0.98% 100.00%
TOTAL $668,171.67 100.00% $668,171.67 100.00%
</TABLE>
Page 17
<PAGE> 121
IXI INDUSTRY GROUPS
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
INDUSTRY CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C>
Electrical Equip. $286,289.82 54.94% $151,485.57 30.12% 30.12%
Conglomerate $100,055.08 19.20% $122,973.68 24.45% 54.58%
Industrial Machinery $29,564.82 5.67% $49,811.33 9.90% 64.48%
Heavy Duty Trucks $17,326.10 3.32% $39,897.07 7.93% 72.41%
Pollution Control $32,738.06 6.28% $36,601.50 7.28% 79.69%
Machinery - Ag. $25,817.77 4.95% $36,400.87 7.24% 86.93%
Specialty Machinery $12,599.18 2.42% $26,245.67 5.22% 92.15%
Process Controls $12,315.67 2.36% $25,449.52 5.06% 97.21%
Engineering & Construc. $3,802.26 0.73% $10,462.13 2.08% 99.29%
Machine Tools $605.54 0.12% $3,569.40 0.71% 100.00%
TOTAL $521,114.30 100.00% $502,896.75 100.00%
</TABLE>
Page 18
<PAGE> 122
IXM INDUSTRY GROUPS
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
INDUSTRY CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C>
Regional Bank $467,640.79 36.67% $467,640.79 36.67% 36.67%
Multinational Bank $144,009.40 11.29% $144,009.40 11.29% 47.97%
Insurance - Specialty $105,843.23 8.30% $105,843.23 8.30% 56.27%
Govt Sponsored Agency $105,729.45 8.29% $105,729.45 8.29% 64.56%
Insurance - Multiline $86,414.20 6.78% $86,414.20 6.78% 71.34%
Insurance - Life $68,606.76 5.38% $68,606.76 5.38% 76.72%
Insurance - P&C $63,516.84 4.98% $63,516.84 4.98% 81.70%
Brokerage $59,084.78 4.63% $59,084.78 4.63% 86.33%
Diversified Financials $51,565.86 4.04% $51,565.86 4.04% 90.38%
Financial - Consumer $45,682.92 3.58% $45,682.92 3.58% 93.96%
Savings & Loan $24,721.16 1.94% $24,721.16 1.94% 95.90%
Insurance - Broker $23,610.56 1.85% $23,610.56 1.85% 97.75%
Credit Card $21,156.26 1.66% $21,156.26 1.66% 99.41%
Investment Advisors $7,559.30 0.59% $7,559.30 0.59% 100.00%
TOTAL $1,275,141.52 100.00% $1,275,141.52 100.00%
</TABLE>
Page 3
<PAGE> 123
IXR INDUSTRY GROUPS
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
INDUSTRY CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C>
Drugs $722,441.40 38.36% $722,441.40 38.36% 38.36%
Medical Supplies $274,171.68 14.56% $274,171.68 14.56% 52.92%
Household Products $192,894.78 10.24% $192,894.78 10.24% 63.17%
Beverages - Softdrink $185,430.73 9.85% $185,430.73 9.85% 73.01%
Foods $178,060.62 9.46% $178,060.62 9.46% 82.47%
Tobacco $117,975.32 6.26% $117,975.32 6.26% 88.73%
Food Retailer $58,180.69 3.09% $58,180.69 3.09% 91.82%
Cosmetic & Personal Care $57,368.60 3.05% $57,368.60 3.05% 94.87%
Retail - Drug Stores $49,714.34 2.64% $49,714.34 2.64% 97.51%
Beverages - Brewers $46,877.77 2.49% $46,877.77 2.49% 100.00%
GRAND TOTAL $1,883,115.93 100.00% $1,883,115.93 100.00%
</TABLE>
Page 20
<PAGE> 124
IXT INDUSTRY GROUPS
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
INDUSTRY CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C>
Computer Software $339,014.33 19.29% $339,014.33 19.29% 19.29%
Telecom - Long Distance $223,326.84 12.71% $223,326.84 12.71% 32.00%
Computer Systems $214,067.84 12.18% $214,067.84 12.18% 44.18%
Semiconductor $188,672.59 10.74% $188,672.59 10.74% 54.91%
PC - Workstation $170,000.23 9.67% $170,000.23 9.67% 64.58%
Telecom - Equipment $136,173.46 7.75% $136,173.46 7.75% 72.33%
Telecom - Network $113,075.51 6.43% $113,075.51 6.43% 78.77%
Computer Services $71,638.81 4.08% $71,638.81 4.08% 82.84%
Telecom - Wireless $64,122.36 3.65% $64,122.36 3.65% 86.49%
Aerospace $59,947.28 3.41% $59,947.28 3.41% 89.90%
Defense Electronics $57,358.52 3.26% $57,358.52 3.26% 93.17%
Office Equipment $44,182.80 2.51% $44,182.80 2.51% 95.68%
Imaging $25,896.99 1.47% $25,896.99 1.47% 97.15%
Biotech $19,187.36 1.09% $19,187.36 1.09% 98.24%
Connectors $16,133.48 0.92% $16,133.48 0.92% 99.16%
Electronics - Instrumentation $7,491.46 0.43% $7,491.46 0.43% 99.59%
Info Processing - Peripherials $6,091.64 0.35% $6,091.64 0.35% 99.94%
Wireless Equipment $1,140.88 0.06% $1,140.88 0.06% 100.00%
TOTAL $1,757,522.37 100.00% $1,757,522.37 100.00%
</TABLE>
Page 21
<PAGE> 125
IXU INDUSTRY GROUPS
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
INDUSTRY CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C>
Telecom - Local $380,132.73 61.18% $358,198.90 57.69% 57.69%
Electric Utility $236,057.90 37.99% $255,038.58 41.07% 98.76%
Natural Gas Distributors $5,184.86 0.83% $7,704.31 1.24% 100.00%
TOTAL $621,375.49 100.00% $620,941.79 100.00%
</TABLE>
Page 22
<PAGE> 126
IXV INDUSTRY GROUPS
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
INDUSTRY CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C>
Entertainment $125,226.30 27.09% $125,226.30 27.09% 27.09%
Media Broadcasting $95,955.09 20.75% $95,955.09 20.75% 47.84%
News - Info Services $63,224.82 13.68% $63,224.82 13.68% 61.52%
Restaurants $51,881.55 11.22% $51,881.55 11.22% 72.74%
Hospital Management $24,989.65 5.41% $24,989.65 5.41% 78.14%
Health Care Info Tech $24,143.23 5.22% $24,143.23 5.22% 83.37%
Lodging & Cruise $20,143.46 4.36% $20,143.46 4.36% 87.72%
HMOs $19,603.99 4.24% $19,603.99 4.24% 91.96%
Advertising & Marketing $14,982.73 3.24% $14,982.73 3.24% 95.20%
Death Care $8,200.16 1.77% $8,200.16 1.77% 96.98%
Misc. Service $5,171.30 1.12% $5,171.30 1.12% 98.10%
Alternative Site Care $4,437.49 0.96% $4,437.49 0.96% 99.06%
Gaming - Casino $4,365.27 0.94% $4,365.27 0.94% 100.00%
TOTAL $462,325.04 100.00% $462,325.04 100.00%
</TABLE>
Page 23
<PAGE> 127
IXY INDUSTRY GROUPS
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
INDUSTRY CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C>
Retail - Mass Merchandize $161,617.84 24.58% $161,617.84 24.58% 24.58%
Auto $123,808.14 18.83% $123,808.14 18.83% 43.42%
Retail - Building Materials $69,238.18 10.53% $69,238.18 10.53% 53.95%
Retail - Dept. Stores $51,673.64 7.86% $51,673.64 7.86% 61.81%
Railroad $46,006.85 7.00% $46,006.85 7.00% 68.81%
Retail - Apparel $31,370.81 4.77% $31,370.81 4.77% 73.58%
Airline $29,025.97 4.42% $29,025.97 4.42% 77.99%
Specialty Retail $18,041.23 2.74% $18,041.23 2.74% 80.74%
Building Materials $13,938.48 2.12% $13,938.48 2.12% 82.86%
Toys $12,082.79 1.84% $12,082.79 1.84% 84.70%
Housewares $11,758.48 1.79% $11,758.48 1.79% 86.48%
Shoes $11,357.49 1.73% $11,357.49 1.73% 88.21%
Auto Parts $11,205.71 1.70% $11,205.71 1.70% 89.92%
Tires $9,479.92 1.44% $9,479.92 1.44% 91.36%
Retail - Consumer Elec. $8,701.05 1.32% $8,701.05 1.32% 92.68%
Apparel Manufacturers $8,320.98 1.27% $8,320.98 1.27% 93.95%
Appliances $7,939.12 1.21% $7,939.12 1.21% 95.16%
Airfreight $6,607.60 1.01% $6,607.60 1.01% 96.16%
Hardware & Tools $6,510.33 0.99% $6,510.33 0.99% 97.15%
Truckers $4,933.71 0.75% $4,933.71 0.75% 97.90%
Retail - Auto Parts $4,630.01 0.70% $4,630.01 0.70% 98.61%
Home Builders $4,055.13 0.62% $4,055.13 0.62% 99.22%
Home Furnishings $2,140.80 0.33% $2,140.80 0.33% 99.55%
Rec. Equipment $1,287.96 0.20% $1,287.96 0.20% 99.74%
Manufactured Housing $1,039.27 0.16% $1,039.27 0.16% 99.90%
Textiles $641.49 0.10% $641.49 0.10% 100.00%
TOTAL $657,412.97 100.00% $657,412.97 100.00%
</TABLE>
Page 24
<PAGE> 128
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITs
(a) Financial Statements:
Part B: Statements of Assets and Liabilities as of December 14, 1998
(b) Exhibits:
(1) Amended and Restated Declaration of Trust.*
(2) By-Laws of the Trust.*
(3) Not applicable.
(4) Form of global certificate evidencing shares
of the Beneficial Interest, $.001 par value,
of each Select Sector SPDR Fund.*
(5) Investment Advisory Agreement between the
Trust and State Street Bank and Trust
Company.*
(6)(a) Distribution Agreement between the Trust
and ALPS Mutual Funds Services, Inc.*
(6)(b) Form of Participant Agreement.*
(6)(c) Form of Investor Services Agreement.*
(6)(d) Forms of Soliciting Dealer Agreement.*
(7) Not applicable.
(8) Custodian Agreement between the Trust and
State Street Bank and Trust Company.*
(9)(a) Administration Agreement between the Trust
and State Street Bank and Trust Company.*
(9)(b) Transfer Agency Services Agreement between
the Trust and State Street Bank and Trust
Company.*
(9)(c) Sub-License Agreement between the Trust,
Merrill Lynch and Standard & Poor's.
(9)(d) Form of DTC Letter of Representation.*
(10) Opinion of Gordon Altman Butowsky Weitzen
Shalov & Wein.*
(11) Consent of Independent Accountants.
(12) Not applicable.
(13) Form of Subscription Agreement(s) between
the Trust and ALPS Mutual Funds Services,
Inc.
1
<PAGE> 129
(14) Not applicable.
(15) Form of 12b-1 Plan.*
(16) Not applicable
(17) Not applicable.
(18) Not applicable.
Other Powers of Attorney.*
* Previously filed.
2
<PAGE> 130
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Immediately prior to the contemplated public offering of the Trust Shares,
ALPS Mutual Funds Services, Inc. will be the sole shareholder of each Select
Sector SPDR Fund of the Trust.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 15, 1998, the sole holder of beneficial interest, par value
$.001 per share, of each of the initial nine Select Sector SPDR Funds of the
Trust was ALPS Mutual Funds Services, Inc.
ITEM 27. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Amended and Restated Declaration
of Trust and under Section 4.8 of the Registrant's By-Laws, the Trust will
indemnify any person who is, or has been, a Trustee, officer, employee or agent
of the Trust against all expenses reasonably incurred or paid by him/her in
connection with any claim, action, suit or proceeding in which he/she becomes
involved as a party or otherwise by virtue of his/her being or having been a
Trustee, officer, employee or agent and against amounts paid or incurred by
him/her in the settlement thereof, if he/she acted in good faith and in a manner
he/she reasonably believed to be in or not opposed to the best interests of the
Trust, and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his/her conduct was unlawful. In addition, indemnification is
permitted only if it is determined that the actions in question did not render
him/her liable by reason of willful misfeasance, bad faith or gross negligence
in the performance of his/her duties or by reason of reckless disregard of
his/her obligations and duties to the Registrant. The Registrant may also
advance money for litigation expenses provided that Trustees, officers,
employees and/or agents give their undertakings to repay the Registrant unless
their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Amended and Restated Declaration
of Trust, no Trustee, officer, employee or agent of the Registrant shall be
liable for any action or failure to act, except in the case of willful
misfeasance, bad faith or gross negligence or reckless disregard of duties to
the Registrant. Pursuant to paragraph 9 of the Registrant's Investment Advisory
Agreement, the Adviser shall not be liable for any action or failure to act,
except in the case of willful misfeasance, bad faith or gross negligence or
reckless disregard of duties to the Registrant.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of Rule 484 under the Act, or otherwise,
the registrant has been advised that in the opinion of the
3
<PAGE> 131
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
The Registrant maintains insurance on behalf of any person who is or was a
Trustee, officer, employee or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him/her and
incurred by him/her or arising out of his/her position. However, in no event
will Registrant maintain insurance to indemnify any such person for any act for
which Registrant itself is not permitted to indemnify him/her.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "MANAGEMENT OF THE TRUST" in the Statement of Additional Information.
Neither the investment adviser of the Registrant nor any director, officer or
partner of the investment adviser is, or has been, at any time during the past
two years, engaged for his own account or in the capacity of director, officer,
employee, partner or trustee, in any other business, profession, vocation or
employment of a substantial nature.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) ALPS Mutual Funds Services, Inc. is the Trust's principal
underwriter/distributor. ALPS also acts as a principal
underwriter/distributor for various other unrelated investment
companies.
(b) The following is a list of the executive officers and directors of ALPS
Mutual Funds Services, Inc.:
4
<PAGE> 132
<TABLE>
<CAPTION>
Name Positions and Offices Positions and Offices
and Principal Business Address * with Underwriter with Registrant
================================= ================================= ============================
<S> <C> <C>
W. Robert Alexander Chairman and Chief Executive None
Officer
Arthur J. L. Lucey President and Secretary None
Thomas A. Carter Vice President and Chief None
Financial Officer
Edmund J. Burke Executive Vice President None
James V. Hyatt General Counsel None
Jeremy O. May Vice President None
William N. Paston Vice President None
John S. Hannon, Jr. Director None
Rick A. Pederson Director None
Chris Woessner Director None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder will be maintained at the offices
of the Administrator, State Street Bank & Trust Company, 1776 Heritage Drive,
AFB-4, North Quincy, Massachusetts
02171.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
- --------
* All addresses are 370 Seventeenth Street, Suite 3100, Denver, Colorado
80202.
5
<PAGE> 133
ITEM 32. UNDERTAKINGS
The Trust hereby undertakes that it will file an amendment to the
registration statement with certified financial statements showing the initial
capital received before accepting subscriptions from any persons in excess of 25
if the Trust proposes to raise its initial capital pursuant to Section 14(a)(3)
of the 1940 Act (15 U.S.C. 80a-14(a)(3)).
The Trust hereby undertakes to call a meeting of the shareholders for the
purpose of voting upon the question of removal of any Trustee when requested in
writing to do so by the holders of at least 10% of the Trust's outstanding
shares of common stock and, in connection with such meeting, to comply with the
provisions of Section 16(c) of the 1940 Act relating to shareholder
communications.
6
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
No. 3 to Registrant's Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of
New York on the 14th day of December 1998.
THE SELECT SECTOR SPDR(R) TRUST
By
Howard H. Fairweather*
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registrant's Registration Statement has been signed below by the
following person in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
1. Principal Executive Officer
---------------------------
Howard H. Fairweather* President and December 14, 1998
Secretary
2. Principal Financial Officer Treasurer and
--------------------------- Assistant Secretary
E. Davis Hawkes, Jr.* December 14, 1998
3. Majority of Trustees
---------------------------
John W. English* Trustee December 14, 1998
George R. Gaspari* Trustee December 14, 1998
*By: /s/ Stuart M. Strauss
---------------------
Stuart M. Strauss, Esq.
Attorney-in-Fact
</TABLE>
Power of Attorney Dated: October 26, 1998
<PAGE> 135
SIGNATURE TITLE DATE
/s/ Burton G. Malkiel* Trustee December 14, 1998
/s/ Ernest J. Scalberg* Trustee December 14, 1998
/s/ R. Charles Tschampion* Trustee December 14, 1998
/s/ Cheryl Burgermeister* Trustee December 14, 1998
*By: /s/ Stuart M. Strauss
- ---------------------------
Stuart M. Strauss, Esq
Attorney-in-Fact
Power of Attorney Dated: October 26, 1998
<PAGE> 136
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
(9)(c) Form of Sub-License Agreement between the Trust,
Merrill Lynch and Standard & Poor's.
(11) Consent of Independent Accountants.
(13) Form of Subscription Agreement(s) between the Trust
and ALPS Mutual Funds Services, Inc.
<PAGE> 1
EXHIBIT 9(c)
Memorandum of Agreement (the "Agreement") dated this ____ day of ________
1998, by and among The Select Sector SPDR Trust, a Massachusetts business trust
(the "TRUST"); Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MERRILL
LYNCH"), and Standard & Poor's, a division of The McGraw-Hill Companies, Inc., a
New York corporation ("S&P").
WITNESSETH:
WHEREAS, pursuant to an Agreement dated November __, 1998 by and among
MERRILL LYNCH, American Stock Exchange LLC ("AMEX"), PDR Services LLC and S&P
(the "License Agreement"), S&P has granted MERRILL LYNCH a license to use the
S&P 500 Index and the S&P Marks in connection with the issuance, exchange
trading, marketing and/or promotion of, or making disclosure relating to, the
specific Products described in Appendix A, attached hereto and incorporated
herein (the "Products"); and
WHEREAS, the TRUST wishes to issue the Products and, in connection
therewith, to use and refer to the S&P Marks and certain MERRILL LYNCH
trademarks in connection with the marketing and promotion of, and making
disclosure relating to, the Products; and
WHEREAS, all capitalized and undefined terms used herein have the
meanings assigned to them in the License Agreement.
NOW, THEREFORE, pursuant to Subsection 1(e) of the License Agreement, the
parties thereto agree as follows:
1. Pursuant to and subject to the rights and conditions provided in the
License Agreement, MERRILL LYNCH hereby grants to the TRUST the non-exclusive
and non-transferable right to issue the Products and to use the S&P Marks and
MERRILL LYNCH trademarks in connection with the formation, issuance, marketing,
and/or promotion of, or disclosure related to, the Products.
2. The TRUST represents and warrants that the Products shall, unless
otherwise consented to by S&P, MERRILL LYNCH and AMEX in writing (which consent
shall not be unreasonably withheld), at all times comply in all material
respects with the description set forth in Appendix A hereto.
3. The TRUST represents and warrants that the Products shall not
violate in any material respect any applicable laws, rules or regulations,
including but not limited to banking, commodities and securities laws.
4. The TRUST shall pay S&P license fees as follows:
a. A one time fee of $5,000 for each Select Sector SPDR, or $45,000,
(the "One-Time Fee"), such fee to be paid in full on the date that is six (6)
months after the first day of trading of any Select Sector SPDR on the AMEX
(the first day of trading of any Select Sector SPDR on the AMEX referred to
herein as the "First Trading Day").
<PAGE> 2
b. A license fee at a rate of three (3) basis points (.0003) per annum
of the average aggregate daily net assets of each Select Sector SPDR based upon
net asset value as described in the TRUST prospectus (the "Asset-Based Fee").
The Asset-Based Fee shall be computed and paid at the end of each quarter of the
Computation Year (as defined below).
c. The cumulative Asset-Based Fee for all Select Sector SPDR Funds, as
computed, will be subject to a guaranteed minimum annual amount of $450,000 (the
"Minimum Annual Fee") for each twelve (12) month period from the First Trading
Day (each such 12 month period hereafter defined as a "Computation Year").
d. During the first Computation Year of this Agreement, the Minimum
Annual Fee, plus the One-Time Fee, shall be payable in full on the date that is
six (6) months after the First Trading Day; thereafter, the Minimum Annual Fee
shall be payable in full on each anniversary of the First Trading Day. At end of
each quarter of each Computation Year, the amounts derived from the calculations
described in subsection (b) above shall be compared to total payments previously
paid by the TRUST to S&P for the Computation Year, including the payment of the
Minimum Annual Fee. To the extent that the calculated fee is less than the
Minimum Annual Fee, no additional payment is required for that quarter. If the
calculated fee exceeds the Minimum Annual Fee, the difference shall be paid
within thirty (30) days after the close of that quarter. To the extent that
after the fourth quarter of thc Computation Year it is determined that the TRUST
has paid in excess of both the calculated sum and the Minimum Annual Fee, S&P
shall refund to the TRUST an amount equal to the difference between the amount
paid and the higher of the calculated sum or the Minimum Annual Fee.
e. Any payment made hereunder shall be accompanied by a statement
setting forth the calculations on which the payment is based.
5. The TRUST shall pay to MERRILL LYNCH license fees as follows:
a. A license fee at a rate of three (3) basis points (.0003) per annum
of the Asset-Based Fee. The Asset-Based Fee shall be computed and paid the end
of each quarter of the Computation Year .
b. MERRILL LYNCH agrees that, during each Computation Year, it shall
not be entitled to any License Fee from the TRUST unless and until the Minimum
Annual Fee has been fully paid to S&P.
6. Amounts due S&P and MERRILL LYNCH pursuant to the preceding
paragraphs 4 and 5 shall be payable within forty-five (45) days after the end
of each calendar quarter. Each such payment shall be accompanied by a statement
setting forth the calculations on which the payment is based.
7. This Agreement is subject to the terms and conditions provided in
the License Agreement. The TRUST acknowledges that it has received and read a
copy of the License Agreement and agrees to be bound by the terms of the License
Agreement as they relate to the Trust and/or the Products as well as to the
extent the License Agreement imposes any obligations on MERRILL LYNCH (including
without limitation the obligations imposed on MERRILL LYNCH pursuant
<PAGE> 3
to Section 6 and the indemnification obligations in Section 10 insofar as
obligations arise out of or relate to the Products); provided, however, that the
TRUST shall have no indemnification obligations to S&P arising out of the acts
or omissions of MERRILL LYNCH and the TRUST shall not be subject to any
obligations imposed in the Agreement on MERRILL LYNCH to the extent that the
relevant provisions of the Agreement relating to such obligations, by their
context, apply solely to MERRILL LYNCH and no other party. Any termination of
the License Agreement shall automatically terminate this Agreement. Furthermore,
subject to S&P's written consent (not to be unreasonably withheld), MERRILL
LYNCH may terminate or modify this Agreement upon 30 days written notice to the
TRUST upon the happening of any of the events listed in Sections 4(a), 4(b), 4
(c) or 4(d) of the License Agreement.
8. In the event of termination of this Agreement, Licensee Fees payable
by the TRUST to the date of such termination shall be computed by prorating the
amount of the applicable annual License Fees on the basis of the number of
elapsed days in the current year. Any excess License Fees paid for the year
shall be refunded by S&P and Merrill Lynch, as the case may be.
9. The TRUST shall provide to MERRILL LYNCH for its review and approval
all prospectuses, registration statements, advertisements, brochures and
promotional materials (including documents required to be filed with
governmental or regulatory agencies) concerning the Products to the extent such
informational materials are prepared by or on behalf of the TRUST. MERRILL
LYNCH's approval shall be required only with respect to the use and description
of MERRILL LYNCH, MERRILL LYNCH's trademarks and the Select Sector Indices, such
approval not to be unreasonably withheld. MERRILL LYNCH shall provide notice
regarding approval or disapproval of informational material in the same manner
as S&P accomplishes same pursuant to Section 6 of the License Agreement. MERRILL
LYNCH shall retain ownership of its trademarks and intellectual property and
there is no intention, expressed or implied, to transfer such ownership rights
to the TRUST and the TRUST shall make no claim of ownership rights in such
intellectual property other than the limited rights granted by MERRILL LYNCH in
this Agreement.
10. The Trust shall indemnify and hold harmless MERRILL LYNCH, its
affiliates and their officers, directors, employee and agents against any and
all judgements, damages, costs or losses of any kind (including but not limited
to reasonable attorneys', experts' fees and indemnification costs) as a result
of any claim made or proceeding instituted against MERRILL LYNCH or its
affiliate(s) arising from or relating to the acts of the TRUST or any breach by
the Trust of any of its obligations, representations or warranties under this
Agreement. provided, however, in any case that (a) MERRILL LYNCH notifies the
TRUST promptly of any such claim, action, or proceeding; (b) MERRILL LYNCH
grants the TRUST control of its defense and/or settlement; and (c) MERRILL LYNCH
cooperates with the TRUST in the defense thereof. The TRUST shall periodically
reimburse MERRILL LYNCH for its reasonable expenses incurred under this
Paragraph 10. MERRILL LYNCH shall have the right, at its own expense, to
participate in the defense of any claim, action or proceeding against which it
is indemnified hereunder; provided, however, it shall have no right to control
the defense, consent to judgment, or agree to settle any such claim, action, or
proceeding, without the written consent of the TRUST without waiving the
indemnity hereunder. The TRUST, in the defense of any such claim, action, or
proceeding except with the written consent of MERRILL LYNCH, shall not consent
to entry of any judgment or enter into any settlement which either does not
include, as an unconditional term, the grant by the claimant to MERRILL LYNCH of
a release of all
<PAGE> 4
liabilities in respect of such claims or (y) otherwise adversely affects the
rights of MERRILL LYNCH. This provision shall survive the termination or
expiration of this Agreement.
11. The Trust agrees that its obligations under the License Agreement
pursuant to Section 7 hereof are as a principal and shall be unaffected by any
defense or claim that MERRILL LYNCH may have against S&P.
12. This Memorandum of Agreement shall be construed in accordance with
the laws of New York State.
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum of
Agreement as of the date first set forth above.
THE SELECT SECTOR SPDR TRUST
By:
----------------------------
MERRILL LYNCH, PIERCE, FENNER &
SMITH, INCORPORATED
By:
----------------------------
STANDARD & POOR'S
By:
----------------------------
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 3 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
December 14, 1998, relating to the financial statement of each of the portfolios
of The Select Sector SPDR Trust, which appears in such Statement of Additional
Information. We also consent to the references to us under the headings "General
Information" in the Prospectus and "Counsel and Independent Auditors" in the
Statement of Additional Information.
/s/ Pricewaterhouse Coopers LLP
- ---------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 1998
<PAGE> 1
EXHIBIT 13
THE SELECT SECTOR SPDR TRUST
1. Share Purchase. ALPS Mutual Funds Services, Inc. ("ALPS") hereby purchases
from The Select Sector SPDR Trust (the "Trust"), a series-type investment
company having nine investment portfolios (the "Funds"), the following shares of
beneficial interest ("Shares") of the below named Funds at the per-share
purchase price indicated below, on the terms and conditions set forth herein and
in the registration statement described below:
<TABLE>
<CAPTION>
Amount Price Shares
Funds Purchased Per Share Purchased
- ----- --------- --------- ---------
<S> <C> <C> <C>
The Basic Industries Select Sector SPDR Fund $11,111.00 $10.00 1,111.000
The Consumer Services Select Sector SPDR Fund $11,111.00 $10.00 1,111.000
The Consumer Staples Select Sector SPDR Fund $11,111.00 $10.00 1,111.000
The Cyclical/Transportation Select Sector SPDR Fund $11,111.00 $10.00 1,111.000
The Energy Select Sector SPDR Fund $11,111.00 $10.00 1,111.000
The Financial Select Sector SPDR Fund $11,111.00 $10.00 1,111.000
The Industrial Select Sector SPDR Fund $11,111.00 $10.00 1,111.000
The Technology Select Sector SPDR Fund $11,111.00 $10.00 1,111.000
The Utilities Select Sector SPDR Fund $11,112.00 $10.00 1,112.000
</TABLE>
ALPS hereby acknowledges receipt of a purchase confirmation reflecting the
purchase of the Shares, and the Trust hereby acknowledges receipt from ALPS of
funds in the amount of $100,000 in full payment of the Shares.
ALPS understands that the Trust has filed with the Securities and Exchange
Commission a Registration Statement which contains the prospectus describing the
Trust and the Shares to be issued thereunder. By its signature hereto, the
undersigned hereby acknowledges receipt of a copy of the Registration Statement.
2. Representations and Warranties. ALPS hereby represents and warrants to the
Trust as follows:
(a) It is aware that no federal or state agency has made any findings or
determinations as to the fairness for investment, nor any
recommendations or endorsement, of the Trust's shares;
(b) It has such knowledge and experience of financial and business
matters as will enable it to utilize the information made available
to it in connection with the offering described in the Trust's
Registration Statement, to evaluate the merits and risks of the
prospective investment and to make an informed investment decision;
(c) It recognizes that the Trust has only recently been organized and
has no financial or operating history and, further, that investment
in the Trust involves certain risks related to the purchase of the
Trust's shares, and it acknowledges that it has suitable financial
resources and anticipated income to bear the economic risk of such
an investment;
<PAGE> 2
(d) It is purchasing the Shares for its own account, for investment, in
order to provide initial capital or "seed money," for each of the
Funds and not with any intent to distribute or resell the Shares,
either in whole or in part, and with no present intent to sell or
otherwise dispose of the Shares, either in whole or in part;
(e) It will not sell the Shares purchased by it without registration of
such Shares under the Securities Act of 1933 except in reliance upon
an exemption therefrom;
(f) It has been furnished with, and has carefully read, this purchase
agreement and the Registration Statement and such material documents
relating to the Trust as its has requested and as have been provided
to it by the Trust; and
(g) It has had the opportunity to ask questions of, and receive answers
from, the Trust concerning each Fund and the terms of the offering.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of December
11, 1998.
ALPS Mutual Funds Services, Inc.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
The Select Sector SPDR Trust
By:__________________________________________
E. Davis Hawkes, Jr.
Treasurer
