<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER __, 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. 1 [X]
-----
Post-Effective Amendment No. [ ]
-----
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1
---
(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
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------ ---------
<S> <C> <C>
(PART A)
Item 1. Cover Page
Item 2. Synopsis
Item 3. Condensed Financial Information
Item 4. General Description of Registrant
Item 5. Management of the Fund
Item 5A. Management's Discussion of Fund Performance
Item 6. Capital Stock and Other Securities
Item 7. Purchase of Securities Being Offered
Item 8. Redemption or Repurchase
Item 9. Legal Proceedings
(PART B)
Item 10. Cover Page
Item 11. Table of Contents
Item 12. General Information and History
Item 13. Investment Objectives and Policies
Item 14. Management of the Registrant
Item 15. Control Persons and Principal Holders of Securities
Item 16. Investment Advisory and Other Services
Item 17. Brokerage Allocation
Item 18. Capital Stock and Other Securities
Item 19. Purchase, Redemption and Pricing of Securities Being Offered
Item 20. Tax Status
Item 21. Underwriters
Item 22. Calculations of Performance Data
Item 23. Financial Statements
(PART C)
Item 24. Financial Statements and Exhibits
Item 25. Persons Controlled by or Under Common Control
Item 27. Number of Holders of Securities
Item 27. Indemnification
Item 29. Business and Other Connections of Investment Adviser
Item 30. Location of Accounts and Records
Item 31. Management Services
Item 32. Undertakings
</TABLE>
2
<PAGE> 3
SUBJECT TO COMPLETION; DATED OCTOBER __, 1998
THE SELECT SECTOR SPDR 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 Sector Select 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 (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.
This Prospectus (dated ___________, 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.
A Statement of Additional Information (dated _____________, 1998), which
has been filed with the Securities and Exchange Commission (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.
3
<PAGE> 4
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY 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.
- --------------------------------------------------------------------------------
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.
"S&P"(R), "Standard & Poor's"(R), "Standard & Poor's 500"(R), "S&P
500"(R), "500", "Standard & Poor's Depositary Receipts", "SPDRs"(R), "Select
Sector SPDR" and "Select Sector SPDRs" are trademarks of The McGraw-Hill
Companies Inc. which have been licensed for use by the American Stock Exchange
and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). The
Trust will use these trademarks pursuant to a sub-license agreement. The Trust,
however, is not sponsored by or affiliated with Standard & Poor's, the AMEX or
Merrill Lynch.
------------------------------
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
Prospectus Summary............................................................................ 8
Summary of Select Sector SPDR Fund Expenses.................................................. 12
The Select Sector SPDR Funds and their Investment Objectives................................. 15
Who Should Invest?........................................................................... 16
Investment Policies and Strategies........................................................... 16
Investment Limitations....................................................................... 21
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
Investment Considerations and Risks.......................................................... 22
Management ................................................................................. 27
Shareholder Guide............................................................................ 28
Determination of Net Asset Value................................................. 28
Buying and Selling Select Sector SPDRs........................................... 29
Creation and Redemption of Creation Units........................................ 30
Distributions.................................................................... 32
Tax Matters ..................................................................... 33
General Information.............................................................. 34
Additional Information........................................................... 35
</TABLE>
EACH SELECT SECTOR INDEX IS BASED ON EQUITY SECURITIES OF PUBLIC COMPANIES
THAT ARE COMPONENTS OF THE STANDARD & POOR'S 500 COMPOSITE STOCK INDEX, SELECTED
ON THE BASIS OF GENERAL INDUSTRIAL CLASSIFICATION, AND INCLUDED AS CONSTITUENT
SECURITIES OF A PARTICULAR SELECT SECTOR INDEX BY MERRILL LYNCH (SOMETIMES
REFERRED TO AS THE "INDEX COMPILATION AGENT"). THE AMEX ACTS AS "INDEX
CALCULATION AGENT" IN CONNECTION WITH THE CALCULATION AND DISSEMINATION OF EACH
SELECT SECTOR INDEX.
THE SHARES ARE NOT SPONSORED, SOLD OR PROMOTED BY THE AMEX AND ARE NOT
SPONSORED OR PROMOTED BY THE INDEX COMPILATION AGENT.
THE AMEX MAKES NO 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 ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE SHARES
OF ANY SELECT SECTOR SPDR FUND PARTICULARLY. NEITHER THE AMEX 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 AMEX 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 AMEX AND THE INDEX COMPILATION AGENT HAVE NO
OBLIGATION OR LIABILITY TO OWNERS OF THE SHARES OF ANY
5
<PAGE> 6
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 AMEX DO
NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE COMPONENT DATA OF ANY
SELECT SECTOR INDEX OBTAINED FROM INDEPENDENT SOURCES. THE INDEX COMPILATION
AGENT AND THE AMEX 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 AMEX 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 AMEX 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.
SELECT SECTOR SPDRS ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY
STANDARD & POOR'S ("S&P"), A DIVISION OF THE MCGRAW-HILL COMPANIES, INC. 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
SELECT SECTOR INDEXES REPRESENTED IN THE STOCK MARKET. THE STOCKS INCLUDED IN
EACH SELECT SECTOR INDEX WERE SELECTED BY THE INDEX COMPILATION AGENT FROM A
UNIVERSE OF COMPANIES REPRESENTED BY THE S&P 500 INDEX. THE COMPOSITION AND
WEIGHTINGS OF THE 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 INDEX WHICH IS
DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO THE INDEX
COMPILATION AGENT OR A 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,
6
<PAGE> 7
COMPOSING OR CALCULATING THE S&P 500 INDEX. 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
INDEX, THE SELECT SECTOR INDICES 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 INDEX, THE SELECT SECTOR INDICES 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 INDEX, THE SELECT SECTOR INDICES
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.
7
<PAGE> 8
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Select Sector SPDR Funds The Select Sector SPDR Funds
and their Investment Objectives . . . . 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 Standard &
Poor's 500 Composite Stock Index
(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 "Description of the
Select Sector Indexes-Construction
and Maintenance Standards for the
Select Sector Indexes," "The Select
Sector SPDR Funds and their
Investment Objectives," and
"Investment Policies and
Strategies."
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE> 9
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Exchange-Traded Shares The Shares have been approved for
and Creation Units . . . . 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 $27, 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:
Select Sector SPDR Fund Trading Symbol
----------------------- --------------
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
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 THE SELECT SECTOR
SPDR FUNDS. See "Buying and Selling
Exchange-Traded Shares" and
"Creation and Redemption of
Creation Units."
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE> 10
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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
Funds' 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.
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE> 11
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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 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."
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE> 12
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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. State Street serves as
the Custodian for the cash and
portfolio securities of 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."
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF SELECT SECTOR SPDR FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Exchange-Traded Shares. When buying or selling exchange-listed Shares, you
will incur customary brokerage commissions and charges.
Creation Units. In order to create (i.e., purchase) Creation Units, an
investor must deposit a designated portfolio of equity securities included in
the relevant Select Sector Index and generally 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 October 9, 1998,
the approximate value of the securities comprising a deposit of designated
equity securities necessary for an in-kind purchase of a Creation Unit was, for
each Select Sector SPDR Fund, between $850,000 and $1,350,000 (assuming the
inclusion of all stocks in the relevant Select Sector Index in their exact
weighting). A fixed transaction fee of $1,000 is applicable to each creation or
12
<PAGE> 13
redemption transaction regardless of the number of Creation Units created or
redeemed in the transaction. An additional charge of three (3) times the fixed
transaction fee (for a total charge of $4,000) may be charged with respect to
transactions effected outside the Continuous Net Settlement System of the
National Securities Clearing Corporation (discussed below) and in the limited
circumstances in which cash may be used in lieu of securities to create Creation
Units or cash is received upon redemption.
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 (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 (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.
13
<PAGE> 14
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses The Basic The Consumer The Consumer The The Energy
(as a percentage of average net Industries Services Select Staples Select Cyclical/ Select Sector
assets) Select Sector Sector SPDR Sector SPDR Transpor- SPDR Fund
SPDR Fund Fund Fund tation
Select
Sector
SPDR
Fund
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees .05% .05% .05% .05% .05%
12b-1 Fees* .25% .25% .25% .25% .25%
Other Estimated Operating .35% .35% .35% .35% .35%
Expenses ---- ---- ---- ---- ----
Total Expenses .65% .65% .65% .65% .65%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Annual Fund Operating Expenses The The Industrial The The Utilities
(as a percentage of average net Financial Select Sector Technology Select Sector
assets) Select SPDR Fund Select Sector SPDR Fund
Sector SPDR Fund
SPDR
Fund
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .05% .05% .05% .05%
12b-1 Fees* .25% .25% .25% .25%
Other Estimated Operating .35% .35% .35% .35%
Expenses ---- ---- ---- ----
Total Expenses .65% .65% .65% .65%
- ---------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------
(*) Subject to an aggregate maximum of .25% per annum of the
average net assets of any Select Sector SPDR Fund, the
Distributor will receive a distribution fee pursuant to each
Select Sector SPDR Fund's Rule 12b-1 plan (adopted by the
Board of Trustees) pursuant to which the Distributor will be
compensated for certain distribution-related services and paid
an asset-based fee for its administrative services with
respect to the Rule 12b-1 plans and will be reimbursed for
certain expenditures related to the distribution of Shares
as described under "Management -- Distributor" in this
Prospectus. In addition, the Distributor may enter into
agreements whereby certain broker-dealers or other persons may
receive a portion of the Rule 12b-1 fee not to exceed , in the
case of any such broker-dealer or other entity, .10% of a
Select Sector SPDR Fund's average daily net assets to
compensate them for services provided by them to shareholders
and educational and promotional services relating to the
Shares. 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.
14
<PAGE> 15
EXAMPLES OF EXPENSES.
Shares in less than Creation Unit aggregations are not redeemable. 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. 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 (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
15
<PAGE> 16
selected on the basis of general 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.
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
16
<PAGE> 17
Index by investing in a portfolio of stocks that 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 weightings 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 options,
futures and/or structured notes or other investment techniques in seeking to
track accurately the benchmark Select Sector Index. 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
"expected 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%. An expected 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 and in the event that tracking error exceeds the "expected tracking
error", 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.
Each Select Sector SPDR Fund may invest its remaining assets in money
market instruments or funds which invest exclusively in money market
instruments, in repurchase agreements, in stocks that are in the relevant market
but not the relevant Select Sector Index, and 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, and exchange traded options on futures, stock or stock indexes as well
as options on the Shares.
17
<PAGE> 18
These investments may be made 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 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 to be under 50%, a generally lower turnover
rate than for many other investment companies. Sales as a result of Select
Sector Index changes could result in the realization of short or long-term
capital gains in a Select Sector SPDR Fund resulting in tax liability for
shareholders subject to capital gains taxes. (See "Tax Matters"). 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 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 enables 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 on the day loaned. 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.
18
<PAGE> 19
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 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.
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 Standard & Poor's,
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. Standard & Poor's 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,
Standard & Poor's 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" in the Statement of Additional Information.
THE BASIC INDUSTRIES SELECT SECTOR INDEX
19
<PAGE> 20
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 August 14, 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 services, lodging and gaming. This Index was composed of 45 component
stocks as of August 14, 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 68 component stocks as of August 14, 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 August 14, 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 34 component stocks as of August 14, 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 74
component stocks as of August 14, 1998.
THE INDUSTRIAL SELECT SECTOR INDEX
20
<PAGE> 21
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 August 14, 1998.
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 78 component stocks as of August 14, 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 August 14,
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.
21
<PAGE> 22
INVESTMENT CONSIDERATIONS AND RISKS
GENERAL RISKS
You can lose money by investing in a Select Sector SPDR Fund.
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 Funds'
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.
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.
There can be no assurance that the requirements of the AMEX necessary to
maintain the listings of Shares will continue to be met or will remain
unchanged. There can also be no
22
<PAGE> 23
assurance that an active trading market will develop or can be maintained for
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.
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 receives
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 bears 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 any increase or decrease in the market value of a Select Sector SPDR Fund's
portfolio securities.
- --------------------------
(**) DIAMONDS is a service mark of Dow Jones, Inc.
(***) WEBS and World Equity Benchmark Shares are service marks of Morgan
Stanley Group, Inc.
23
<PAGE> 24
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
industrial 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.
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.
24
<PAGE> 25
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 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".
25
<PAGE> 26
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 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.
26
<PAGE> 27
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 June 30, 1998, the Adviser
managed approximately $470.3 billion in assets, including $225.2 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.
Administrator, Custodian, and Transfer Agent. State Street is the
administrator (the "Administrator") for each Select Sector SPDR Fund, the
custodian (the "Custodian") of each Select Sector SPDR Fund's assets, and
provides transfer agency services (the "Transfer Agent") to the Select Sector
SPDR Funds. State Street is paid a "unitary fee" for these services. See "Annual
Fund Operating 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 (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 (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, the lending agent for the Trust, will 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 will receive a portion of the net
investment income 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
27
<PAGE> 28
dealer agreements with other broker-dealers or other qualified financial
institutions for the sale of Creation Units of Shares. As noted below, the
Shares are traded on the AMEX. 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 the Select Sector SPDR Fund's 12b-1 plan,
each Fund is authorized to pay an amount up to .25% of its average daily net
assets 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 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 $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 12b-1 plans, additional fees not to exceed .25% of average
daily net assets 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% per annum of a Fund's average daily net assets. To the extent any
additional payments may be made without exceeding .25% of average daily net
assets 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 and the production and
distribution of advertisement 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. The Distributor's principal
business address is 370 17th Street, Suite 3100, Denver, CO 80202.
INDEX LICENSE
Standard & Poor's, 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
28
<PAGE> 29
agreement, the Trust will enter into a sub-license agreement and pay a
sub-license fee per annum (i) to Standard & Poor's equal to the greater of .03%
of the aggregate net assets of the Trust or $450,000, and (ii) to Merrill Lynch
equal to .03% of the aggregate net assets of the Trust. Each Select Sector SPDR
Fund will pay its proportionate share of the sub-license fee based on the
relative net assets of such Fund.
SHAREHOLDER GUIDE
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., Eastern 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.
The AMEX disseminates every fifteen (15) seconds through the facilities of
the Consolidated Tape Association 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 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.
The Depository Trust Corporation ("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
29
<PAGE> 30
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, each 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
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
National Securities Clearing Corporation, immediately prior to the opening of
business on the AMEX.
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 Continuous Net Settlement
30
<PAGE> 31
System of the National Securities Clearing Corporation (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 determined on such date.
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 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 three (3) times the fixed transaction fee
(for a total charge of $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 cash can be used in lieu of Deposit Securities to create Creation Units.
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 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 New York Stock Exchange and the AMEX are open for business.
The Custodian makes available immediately prior to the opening of business on
the AMEX 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
31
<PAGE> 32
redemption fee. Should the Fund Securities have a value greater than the net
asset value of the Shares, a cash payment 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. 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. 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 three (3) times the fixed transaction fee
(for a total charge of $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 cash in lieu of securities
is received upon redemption.
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, subject to sufficient liquidity in the public market to assemble the
required number of Shares and to brokerage and other costs in doing so. See
"Shareholder Transaction Expenses" under "Summary of Select Sector 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, at the Fund's
discretion, be entitled to receive 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
32
<PAGE> 33
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 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 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 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. 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.
33
<PAGE> 34
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.
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. 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.
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 entitled to one vote. Annual meetings of shareholders will
be held so long as the Shares continue to be listed on the AMEX and the AMEX
continues to require listed companies to hold annual meetings. 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
commencement of trading in the Fund's Shares, it will have one shareholder
holding more than 5% of its outstanding Shares. The Select Sector SPDR Funds
cannot predict the length of time that any such person
34
<PAGE> 35
will remain a control person of the Fund. As of the date of this Prospectus, the
sole shareholder of each Select Sector SPDR Fund is ______________, 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://(i)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 Fund Services, Inc. at 370 17th Street, Suite 3100,
Denver, CO 80202.
35
<PAGE> 36
THE SELECT SECTOR SPDR(R) TRUST
PROSPECTUS -- _____________ 1998
36
<PAGE> 37
SUBJECT TO COMPLETION; DATED OCTOBER __, 1998
PART B
THE SELECT SECTOR SPDR(R) TRUST
STATEMENT OF ADDITIONAL INFORMATION
Dated _______, 1998
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the Prospectus dated, 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.
"S&P"(R), "Standard & Poor's"(R), "Standard & Poor's 500"(R), "S&P
500"(R), "500", "Standard & Poor's Depositary Receipts", "SPDRs"(R), "Select
Sector SPDR" and "Select Sector SPDRs" are trademarks of The McGraw-Hill
Companies Inc. which have been licensed for use by the American Stock Exchange
and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). The
Trust will use these trademarks pursuant to a sub-license agreement. The Trust,
however, is not sponsored by or affiliated with Standard & Poor's, the AMEX or
Merrill Lynch.
RED HERRING
<PAGE> 38
TABLE OF CONTENTS
General Description of the Trust....................................... 6
Investment Policies and Restrictions.................................. 24
Special Considerations and Risks...................................... 29
Exchange Listing and Trading.......................................... 33
Management of the Trust............................................... 33
Brokerage Transactions................................................ 39
Book Entry Only System................................................ 40
Creation and Redemption of Creation Units............................. 42
Determination of Net Asset Value...................................... 50
Dividends and Distributions........................................... 51
Taxes................................................................. 52
Capital Stock and Shareholder Reports................................. 52
Performance and Other Information..................................... 54
Counsel and Independent Auditors...................................... 56
Financial Statements.................................................. 58
Exhibit A............................................................. 59
---------------------------------
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
COMPANIES THAT ARE COMPONENTS OF THE STANDARD & POOR'S 500
2
<PAGE> 39
COMPOSITE STOCK INDEX, SELECTED ON THE BASIS OF GENERAL INDUSTRIAL
CLASSIFICATION, AND INCLUDED AS CONSTITUENT SECURITIES OF A PARTICULAR SELECT
SECTOR INDEX BY MERRILL LYNCH (SOMETIMES REFERRED TO AS THE "INDEX COMPILATION
AGENT"). THE AMEX ACTS AS "INDEX CALCULATION AGENT" IN CONNECTION WITH THE
CALCULATION AND DISSEMINATION OF EACH SELECT SECTOR INDEX.
THE SHARES ARE NOT SPONSORED, SOLD OR PROMOTED BY THE AMEX AND ARE NOT
SPONSORED OR PROMOTED BY THE INDEX COMPILATION AGENT.
THE AMEX MAKES NO 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 ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE SHARES
OF ANY SELECT SECTOR SPDR FUND PARTICULARLY. NEITHER THE AMEX 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 AMEX 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 AMEX 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 AMEX DO
NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE COMPONENT DATA OF ANY
SELECT SECTOR INDEX OBTAINED FROM INDEPENDENT SOURCES. THE INDEX COMPILATION
AGENT AND THE AMEX 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 AMEX MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EACH HEREBY EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO
3
<PAGE> 40
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 AMEX 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.
SELECT SECTOR SPDRS ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY
STANDARD & POOR'S ("S&P"), A DIVISION OF THE MCGRAW-HILL COMPANIES, INC. 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
SELECT SECTOR INDEXES REPRESENTED IN THE STOCK MARKET. THE STOCKS INCLUDED IN
EACH SELECT SECTOR INDEX WERE SELECTED BY THE INDEX COMPILATION AGENT FROM A
UNIVERSE OF COMPANIES REPRESENTED BY THE S&P 500 INDEX. THE COMPOSITION AND
WEIGHTINGS OF THE 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 INDEX WHICH IS
DETERMINED, COMPOSED AND CALCULATED BY S&P WITHOUT REGARD TO THE INDEX
COMPILATION AGENT OR A 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 INDEX. 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
INDEX, THE SELECT SECTOR INDICES 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 INDEX, THE SELECT SECTOR INDICES 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 INDEX, THE SELECT SECTOR INDICES
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY
4
<PAGE> 41
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
5
<PAGE> 42
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. In each instance of such cash creations or
redemptions, the Trust may impose transaction fees based on transaction expenses
in the particular exchange 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 Standard & Poor's 500
Composite Stock Index ("S&P 500") and are included in specific sectors.
6
<PAGE> 43
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 Standard & Poor's, 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. Standard
& Poor's 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, Standard & Poor's 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 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
7
<PAGE> 44
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 August 14, 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 3.69%
The Consumer Services Select Sector Index 5.99%
The Consumer Staples Select Sector Index 22.52%
The Cyclical/Transportation Select Sector Index 8.91%
The Energy Select Sector Index 7.54%
The Financial Select Sector Index 17.02%
The Industrial Select Sector Index 6.70%
The Technology Select Sector Index 20.98%
The Utilities Select Sector Index 6.65%
-------------
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.
8
<PAGE> 45
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 Standard & Poor's 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
Standard & Poor's 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 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, weighting changes, etc.).
9
<PAGE> 46
- 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 Standard & Poor's. 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 Standard &
Poor's against the shares outstanding used to actually calculate
the S&P 500. Any difference of 5% or more is screened for review
by Standard & Poor's. If appropriate, a share change will be
implemented by Standard & Poor's 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
Standard & Poor's 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 Standard & Poor's in
shares outstanding will result in a corresponding adjustment to
each affected Select Sector Index.
- Standard & Poor's 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 Standard & Poor's 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
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 the millions.)
10
<PAGE> 47
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 August 14, 1998 is attached as Exhibit A.
Constituent Stocks and Industries/Sectors
Summary:
- ------------------------------------------ ----------------------------------
Aggregate Market Capitalization (8/14/98): $312,566.66
- ------------------------------------------ ----------------------------------
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.) $60,092.73 19.23% 19.23% 19.23%
- ------------------------------ -------------- ---------- ---------- -----------
MONSANTO CO $33,240.67 10.63% 10.63% 29.86%
- ------------------------------ -------------- ---------- ---------- -----------
DOW CHEMICAL $19,248.02 6.16% 6.16% 36.02%
- ------------------------------ -------------- ---------- ---------- -----------
INTL PAPER $12,837.62 4.11% 4.11% 40.13%
- ------------------------------ -------------- ---------- ---------- -----------
ALUMINUM CO. OF AMERICA $11,800.52 3.78% 3.78% 43.90%
- ------------------------------ -------------- ---------- ---------- -----------
PPG INDUSTRIES $10,021.07 3.21% 3.21% 47.11%
- ------------------------------ -------------- ---------- ---------- -----------
AIR PRODUCTS & CHEMICALS $7,934.34 2.54% 2.54% 49.65%
- ------------------------------ -------------- ---------- ---------- -----------
WEYERHAEUSER $7,685.45 2.46% 2.46% 52.10%
- ------------------------------ -------------- ---------- ---------- -----------
PRAXAIR $6,765.98 2.16% 2.16% 54.27%
- ------------------------------ -------------- ---------- ---------- -----------
AVERY DENNISON CORP $6,407.08 2.05% 2.05% 56.32%
- ------------------------------ -------------- ---------- ---------- -----------
</TABLE>
10 Largest Industries (% Index Weight):
11
<PAGE> 48
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
MAJOR CHEMICALS $130,202.42 41.66% 41.66% 41.66%
- ------------------------------ -------------- ---------- ---------- ------------
SPECIALTY CHEM. $52,818.24 16.90% 16.90% 58.55%
- ------------------------------ -------------- ---------- ---------- ------------
PAPER & FOREST PROD. $45,894.53 14.68% 14.68% 73.24%
- ------------------------------ -------------- ---------- ---------- ------------
ALUMINUM $20,784.24 6.65% 6.65% 79.89%
- ------------------------------ -------------- ---------- ---------- ------------
GOLD MINING $14,313.87 4.58% 4.58% 84.47%
- ------------------------------ -------------- ---------- ---------- ------------
PACKAGING $13,971.87 4.47% 4.47% 88.94%
- ------------------------------ -------------- ---------- ---------- ------------
STEEL $12,209.73 3.91% 3.91% 92.84%
- ------------------------------ -------------- ---------- ---------- ------------
NON-FEROUS METALS $9,068.80 2.90% 2.90% 95.74%
- ------------------------------ -------------- ---------- ---------- ------------
GLASS CONTAINERS $6,073.67 1.94% 1.94% 97.69%
- ------------------------------ -------------- ---------- ---------- ------------
METAL CONTAINERS $5,819.85 1.86% 1.86% 99.55%
- ------------------------------ -------------- ---------- ---------- ------------
</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 August 14, 1998 is attached as Exhibit A.
Constituent Stocks and Industries/Sectors
Summary:
- ------------------------------------------ ----------------------------------
Aggregate Market Capitalization (8/14/98): $508,326.05
- ------------------------------------------ ----------------------------------
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
DISNEY (WALT) $64,935.07 12.77% 12.77% 12.77%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
12
<PAGE> 49
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
TIME WARNER INC $52,803.29 10.39% 10.39% 23.16%
- ------------------------------ -------------- ---------- ---------- ------------
MCDONALD'S CORP $44,597.02 8.77% 8.77% 31.94%
- ------------------------------ -------------- ---------- ---------- ------------
MEDIAONE GROUP $28,922.42 5.69% 5.69% 37.63%
- ------------------------------ -------------- ---------- ---------- ------------
VIACOM INC $21,619.60 4.25% 4.25% 41.88%
- ------------------------------ -------------- ---------- ---------- ------------
CBS CORP $20,466.28 4.03% 4.03% 45.90%
- ------------------------------ -------------- ---------- ---------- ------------
TELE-COMM TCI GRP - SER A $18,480.66 3.64% 3.64% 49.54%
- ------------------------------ -------------- ---------- ---------- ------------
GANNETT CO $17,972.42 3.54% 3.54% 53.08%
- ------------------------------ -------------- ---------- ---------- ------------
COMCAST CORP $16,410.13 3.23% 3.23% 56.30%
- ------------------------------ -------------- ---------- ---------- ------------
COLUMBIA/HCA HLTHCR $15,283.67 3.01% 3.01% 59.31%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
10 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
ENTERTAINMENT $139,357.96 27.42% 27.42% 27.42%
- ------------------------------ -------------- ---------- ---------- ------------
MEDIA BROADCASTING $99,102.97 19.50% 19.50% 46.91%
- ------------------------------ -------------- ---------- ---------- ------------
NEWS - INFO SERVICES $72,989.05 14.36% 14.36% 61.27%
- ------------------------------ -------------- ---------- ---------- ------------
RESTAURANTS $54,835.99 10.79% 10.79% 72.06%
- ------------------------------ -------------- ---------- ---------- ------------
LODGING & CRUISE $29,066.10 5.72% 5.72% 77.78%
- ------------------------------ -------------- ---------- ---------- ------------
HOSPITAL MANAGEMENT $25,139.33 4.95% 4.95% 82.72%
- ------------------------------ -------------- ---------- ---------- ------------
HEALTH CARE INFO TECH $23,049.15 4.53% 4.53% 87.26%
- ------------------------------ -------------- ---------- ---------- ------------
HMOs $18,329.51 3.61% 3.61% 90.86%
- ------------------------------ -------------- ---------- ---------- ------------
ADVERTISING & MARKETING $17,206.67 3.38% 3.38% 94.25%
- ------------------------------ -------------- ---------- ---------- ------------
DEATH CARE $9,759.96 1.92% 1.92% 96.17%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
13
<PAGE> 50
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 68 Component Stocks included in the Index as of August
14, 1998 is attached as Exhibit A.
Constituent Stocks and Industries/Sectors
Summary:
- ------------------------------------------ ----------------------------------
Aggregate Market Capitalization (8/14/98): $1,910,625.50
- ------------------------------------------ ----------------------------------
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
COCA-COLA $189,676.33 9.93% 9.93% 9.93%
- ------------------------------ -------------- ---------- ---------- ------------
MERCK & CO $152,246.12 7.97% 7.97% 17.90%
- ------------------------------ -------------- ---------- ---------- ------------
PFIZER $132,113.54 6.91% 6.91% 24.81%
- ------------------------------ -------------- ---------- ---------- ------------
BRISTOL MYERS SQUIBB $105,874.40 5.54% 5.54% 30.35%
- ------------------------------ -------------- ---------- ---------- ------------
PROCTER & GAMBLE CO $105,267.09 5.51% 5.51% 35.86%
- ------------------------------ -------------- ---------- ---------- ------------
PHILIP MORRIS $102,640.76 5.37% 5.37% 41.23%
- ------------------------------ -------------- ---------- ---------- ------------
JOHNSON & JOHNSON $100,849.88 5.28% 5.28% 46.51%
- ------------------------------ -------------- ---------- ---------- ------------
LILLY (ELI) $75,997.04 3.98% 3.98% 50.49%
- ------------------------------ -------------- ---------- ---------- ------------
SCHERING-PLOUGH $69,515.04 3.64% 3.64% 54.13%
- ------------------------------ -------------- ---------- ---------- ------------
AMERICAN HOME PRODUCTS $66,368.79 3.47% 3.47% 57.60%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
10 Largest Industries (% Index Weight):
14
<PAGE> 51
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
DRUGS $688,633.04 36.04% 36.04% 36.04%
- ------------------------------ -------------- ---------- ---------- ------------
MEDICAL SUPPLIES $268,346.41 14.04% 14.04% 50.09%
- ------------------------------ -------------- ---------- ---------- ------------
BEVERAGES - SOFTDRINK $240,185.04 12.57% 12.57% 62.66%
- ------------------------------ -------------- ---------- ---------- ------------
HOUSEHOLD PRODUCTS $212,907.91 11.14% 11.14% 73.80%
- ------------------------------ -------------- ---------- ---------- ------------
FOODS $165,199.20 8.65% 8.65% 82.45%
- ------------------------------ -------------- ---------- ---------- ------------
TOBACCO $107,617.69 5.63% 5.63% 88.08%
- ------------------------------ -------------- ---------- ---------- ------------
COSMETIC & PERSONAL CARE $74,732.95 3.91% 3.91% 91.99%
- ------------------------------ -------------- ---------- ---------- ------------
FOOD RETAILER $55,627.38 2.91% 2.91% 94.90%
- ------------------------------ -------------- ---------- ---------- ------------
RETAIL - DRUG STORES $50,519.73 2.64% 2.64% 97.55%
- ------------------------------ -------------- ---------- ---------- ------------
BEVERAGES - BREWERS $46,856.14 2.45% 2.45% 100.00%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
THE CYCLICAL/TRANSPORTATION SELECT SECTOR INDEX
General Background
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 August 14, 1998 is attached as Exhibit A.
Constituent Stocks and Industries/Sectors
Summary:
- ------------------------------------------ ----------------------------------
Aggregate Market Capitalization (8/14/98): $755,356.95
- ------------------------------------------ ----------------------------------
10 Largest Components by Market Capitalization:
15
<PAGE> 52
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
WAL-MART STORES $140,088.45 18.55% 18.55% 18.55%
- ------------------------------ -------------- ---------- ---------- ------------
HOME DEPOT $61,721.52 8.17% 8.17% 26.72%
- ------------------------------ -------------- ---------- ---------- ------------
FORD MOTOR $59,284.84 7.85% 7.85% 34.57%
- ------------------------------ -------------- ---------- ---------- ------------
GENERAL MOTORS CORP $45,324.79 6.00% 6.00% 40.57%
- ------------------------------ -------------- ---------- ---------- ------------
CHRYSLER CORP $37,035.05 4.90% 4.90% 45.47%
- ------------------------------ -------------- ---------- ---------- ------------
GAP INC $24,742.81 3.28% 3.28% 48.74%
- ------------------------------ -------------- ---------- ---------- ------------
DAYTON HUDSON CORP $19,888.69 2.63% 2.63% 51.38%
- ------------------------------ -------------- ---------- ---------- ------------
SEARS ROEBUCK & CO $18,868.31 2.50% 2.50% 53.88%
- ------------------------------ -------------- ---------- ---------- ------------
BURLINGTON NTHRN SANTA FE $14,960.82 1.98% 1.98% 55.86%
- ------------------------------ -------------- ---------- ---------- ------------
MAY DEPT STORES $14,313.13 1.89% 1.89% 57.75%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
10 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
RETAIL - MASS MERCHANDISE $186,251.04 24.66% 24.66% 24.66%
- ------------------------------ -------------- ---------- ---------- ------------
AUTO $141,644.67 18.75% 18.75% 43.41%
- ------------------------------ -------------- ---------- ---------- ------------
RETAIL - BUILDING MATERIALS $74,904.76 9.92% 9.92% 53.33%
- ------------------------------ -------------- ---------- ---------- ------------
RETAIL - DEPT STORES $66,638.22 8.82% 8.82% 62.15%
- ------------------------------ -------------- ---------- ---------- ------------
RAILROAD $44,190.96 5.85% 5.85% 68.00%
- ------------------------------ -------------- ---------- ---------- ------------
RETAIL - APPAREL $38,434.58 5.09% 5.09% 73.09%
- ------------------------------ -------------- ---------- ---------- ------------
AIRLINE $33,194.06 4.39% 4.39% 77.48%
- ------------------------------ -------------- ---------- ---------- ------------
SPECIALTY RETAIL $22,814.84 3.02% 3.02% 80.50%
- ------------------------------ -------------- ---------- ---------- ------------
BUILDING MATERIALS $16,675.77 2.21% 2.21% 82.71%
- ------------------------------ -------------- ---------- ---------- ------------
TOYS $15,921.37 2.11% 2.11% 84.82%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
16
<PAGE> 53
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 34 Component Stocks included in the Index
as of August 14, 1998 is attached as Exhibit A.
Constituent Stocks and Industries/Sectors
Summary:
- ------------------------------------------ ----------------------------------
Aggregate Market Capitalization (8/14/98): $639,450.71
- ------------------------------------------ ----------------------------------
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
EXXON CORP $167,299.40 26.16% 24.67% 24.67%
- ------------------------------ -------------- ---------- ---------- ------------
ROYAL DUTCH $94,617.06 14.80% 15.02% 39.69%
- ------------------------------ -------------- ---------- ---------- ------------
MOBIL CORP $56,259.72 8.80% 8.96% 48.64%
- ------------------------------ -------------- ---------- ---------- ------------
AMOCO CORP $48,041.38 7.51% 6.19% 54.83%
- ------------------------------ -------------- ---------- ---------- ------------
TEXACO $32,636.00 5.10% 5.22% 60.05%
- ------------------------------ -------------- ---------- ---------- ------------
CHEVRON $52,405.68 8.20% 4.96% 65.02%
- ------------------------------ -------------- ---------- ---------- ------------
SCHLUMBERGER LTD. $26,124.70 4.09% 3.94% 68.96%
- ------------------------------ -------------- ---------- ---------- ------------
ATLANTIC RICHFIELD $21,819.30 3.41% 3.66% 72.62%
- ------------------------------ -------------- ---------- ---------- ------------
ENRON CORP $15,356.72 2.40% 2.63% 75.25%
- ------------------------------ -------------- ---------- ---------- ------------
WILLIAMS CO $12,480.35 1.95% 2.18% 77.43%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
17
<PAGE> 54
6 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
INTL' OIL $403,217.86 63.06% 58.83% 58.83%
- ------------------------------ -------------- ---------- ---------- ------------
DOMESTIC OIL $114,957.91 17.98% 18.42% 77.24%
- ------------------------------ -------------- ---------- ---------- ------------
OIL SERVICES $49,755.01 7.78% 8.81% 86.05%
- ------------------------------ -------------- ---------- ---------- ------------
NATURAL GAS PIPELINE $47,114.51 7.37% 8.69% 94.74%
- ------------------------------ -------------- ---------- ---------- ------------
OIL & GAS PRODUCER $16,945.59 2.65% 3.61% 98.35%
- ------------------------------ -------------- ---------- ---------- ------------
OIL REFINING & MARKETING $7,459.84 1.16% 1.64% 100.00%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
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 74 Component Stocks included in the Index as of August 14, 1998 is
attached as Exhibit A.
Constituent Stocks and Industries/Sectors
Summary:
- ------------------------------------------ ----------------------------------
Aggregate Market Capitalization (8/14/98): $1,443,866.35
- ------------------------------------------ ----------------------------------
10 Largest Components by Market Capitalization:
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
AMER INTL GROUP $92,679.64 6.42% 6.42% 6.42%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
18
<PAGE> 55
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
COMPANY NAME CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
NATIONSBANK $67,111.54 4.65% 4.65% 11.07%
- ------------------------------ -------------- ---------- ---------- ------------
TRAVELERS GROUP $64,402.63 4.46% 4.46% 15.53%
- ------------------------------ -------------- ---------- ---------- ------------
CITICORP $62,761.84 4.35% 4.35% 19.87%
- ------------------------------ -------------- ---------- ---------- ------------
FANNIE MAE $60,464.23 4.19% 4.19% 24.06%
- ------------------------------ -------------- ---------- ---------- ------------
CHASE MANHATTAN $54,940.46 3.81% 3.81% 27.87%
- ------------------------------ -------------- ---------- ---------- ------------
BANKAMERICA $54,189.63 3.75% 3.75% 31.62%
- ------------------------------ -------------- ---------- ---------- ------------
FIRST UNION $51,723.15 3.58% 3.58% 35.20%
- ------------------------------ -------------- ---------- ---------- ------------
MORGAN STANLEY DEAN WITTER $46,125.46 3.19% 3.19% 38.40%
- ------------------------------ -------------- ---------- ---------- ------------
AMERICAN EXPRESS $43,203.62 2.99% 2.99% 41.39%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
10 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
REGIONAL BANK $493,537.17 34.18% 34.18% 34.18%
- ------------------------------ -------------- ---------- ---------- ------------
MULTINATIONAL BANK $198,865.95 13.77% 13.77% 47.95%
- ------------------------------ -------------- ---------- ---------- ------------
INSURANCE - SPECIALTY $118,977.41 8.24% 8.24% 56.19%
- ------------------------------ -------------- ---------- ---------- ------------
INSURANCE - MULTILINE $108,722.84 7.53% 7.53% 63.72%
- ------------------------------ -------------- ---------- ---------- ------------
BROKERAGE $98,187.24 6.80% 6.80% 70.53%
- ------------------------------ -------------- ---------- ---------- ------------
GOV'T SPONSORED AGENCY $96,774.71 6.70% 6.70% 77.23%
- ------------------------------ -------------- ---------- ---------- ------------
INSURANCE - P&C $67,523.55 4.68% 4.68% 81.90%
- ------------------------------ -------------- ---------- ---------- ------------
INSURANCE - LIFE $66,823.97 4.63% 4.63% 86.53%
- ------------------------------ -------------- ---------- ---------- ------------
DIVERSIFIED FINANCIALS $61,906.99 4.29% 4.29% 90.82%
- ------------------------------ -------------- ---------- ---------- ------------
FINANCIAL - CONSUMER $48,655.89 3.37% 3.37% 94.19%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
19
<PAGE> 56
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 August 14, 1998 is attached as
Exhibit A.
Constituent Stocks and Industries/Sectors
Summary:
- ------------------------------------------ ----------------------------------
Aggregate Market Capitalization (8/14/98): $568,412.05
- ------------------------------------------ ----------------------------------
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 $284,873.39 50.12% 23.65% 23.65%
- ------------------------------ -------------- ---------- ---------- ------------
TYCO INTL $32,507.66 5.72% 6.61% 30.26%
- ------------------------------ -------------- ---------- ---------- ------------
MINNESOTA MINING & MFG $30,567.37 5.38% 6.29% 36.55%
- ------------------------------ -------------- ---------- ---------- ------------
EMERSON ELECTRIC $27,475.75 4.83% 5.82% 42.37%
- ------------------------------ -------------- ---------- ---------- ------------
WASTE MANAGEMENT $29,766.70 5.24% 5.36% 47.73%
- ------------------------------ -------------- ---------- ---------- ------------
ALLIEDSIGNAL $20,952.17 3.69% 4.48% 52.22%
- ------------------------------ -------------- ---------- ---------- ------------
CATERPILLAR $17,734.61 3.12% 3.97% 56.19%
- ------------------------------ -------------- ---------- ---------- ------------
ILLINOIS TOOL WORKS $13,665.70 2.40% 3.16% 59.35%
- ------------------------------ -------------- ---------- ---------- ------------
TEXTRON $10,951.78 1.93% 2.77% 62.11%
- ------------------------------ -------------- ---------- ---------- ------------
HONEYWELL $10,382.98 1.83% 2.71% 64.82%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
20
<PAGE> 57
10 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
ELECTRICAL EQUIP. $312,349.14 54.94% 29.47% 29.47%
- ------------------------------ -------------- ---------- ---------- ------------
CONGLOMERATE $103,923.34 18.28% 23.30% 52.77%
- ------------------------------ -------------- ---------- ---------- ------------
INDUSTRIAL MACHINERY $31,714.24 5.58% 9.65% 62.42%
- ------------------------------ -------------- ---------- ---------- ------------
HEAVY DUTY TRUCKS $20,512.49 3.61% 8.64% 71.06%
- ------------------------------ -------------- ---------- ---------- ------------
MACHINERY - AG. $31,544.81 5.55% 8.35% 79.41%
- ------------------------------ -------------- ---------- ---------- ------------
POLLUTION CONTROL $36,073.84 6.35% 7.34% 86.75%
- ------------------------------ -------------- ---------- ---------- ------------
PROCESS CONTROLS $14,697.14 2.59% 5.27% 92.02%
- ------------------------------ -------------- ---------- ---------- ------------
SPECIALTY MACHINERY $12,947.34 2.28% 5.14% 97.16%
- ------------------------------ -------------- ---------- ---------- ------------
ENGINEERING & CONSTRUCTION $3,750.55 0.66% 1.88% 99.04%
- ------------------------------ -------------- ---------- ---------- ------------
MACHINE TOOLS $899.17 0.16% 0.96% 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 78 Component Stocks included in the Index as
of August 14, 1998 is attached as Exhibit A.
Constituent Stocks and Industries/Sectors
Summary:
- ------------------------------------------ ----------------------------------
Aggregate Market Capitalization (8/14/98): $1,779,948.99
- ------------------------------------------ ----------------------------------
21
<PAGE> 58
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 $256,879.51 14.43% 14.43% 14.43%
- ------------------------------ -------------- ---------- ---------- ------------
INTEL CORP $146,174.00 8.21% 8.21% 22.64%
- ------------------------------ -------------- ---------- ---------- ------------
INTL BUSINESS MACHINES $118,216.34 6.64% 6.64% 29.29%
- ------------------------------ -------------- ---------- ---------- ------------
LUCENT TECHNOLOGIES $112,665.77 6.33% 6.33% 35.62%
- ------------------------------ -------------- ---------- ---------- ------------
AT&T $100,350.46 5.64% 5.64% 41.25%
- ------------------------------ -------------- ---------- ---------- ------------
CISCO SYSTEMS $98,654.31 5.54% 5.54% 46.80%
- ------------------------------ -------------- ---------- ---------- ------------
DELL COMPUTER $68,022.50 3.82% 3.82% 50.62%
- ------------------------------ -------------- ---------- ---------- ------------
COMPAQ COMPUTER $57,535.18 3.23% 3.23% 53.85%
- ------------------------------ -------------- ---------- ---------- ------------
HEWLETT-PACKARD $54,640.09 3.07% 3.07% 56.92%
- ------------------------------ -------------- ---------- ---------- ------------
WORLDCOM $51,797.87 2.91% 2.91% 59.83%
- ------------------------------ -------------- ---------- ---------- ------------
</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 $307,090.24 17.25% 17.25% 17.25%
- ------------------------------ -------------- ---------- ---------- ------------
TELECOM-LONG DISTANCE $226,535.72 12.73% 12.73% 29.98%
- ------------------------------ -------------- ---------- ---------- ------------
COMPUTER SYSTEMS $209,977.49 11.80% 11.80% 41.78%
- ------------------------------ -------------- ---------- ---------- ------------
SEMICONDUCTOR $197,641.55 11.10% 11.10% 52.88%
- ------------------------------ -------------- ---------- ---------- ------------
TELECOM-EQUIPMENT $171,325.24 9.63% 9.63% 62.51%
- ------------------------------ -------------- ---------- ---------- ------------
PC-WORKSTATION $159,517.45 8.96% 8.96% 71.47%
- ------------------------------ -------------- ---------- ---------- ------------
TELECOM-NETWORK $121,049.52 6.80% 6.80% 78.27%
- ------------------------------ -------------- ---------- ---------- ------------
TELECOM-WIRELESS $70,090.25 3.94% 3.94% 82.21%
- ------------------------------ -------------- ---------- ---------- ------------
COMPUTER SERVICES $66,735.72 3.75% 3.75% 85.96%
- ------------------------------ -------------- ---------- ---------- ------------
AEROSPACE $65,760.54 3.69% 3.69% 89.65%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
22
<PAGE> 59
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 August 14, 1998 is attached as Exhibit A.
Constituent Stocks and Industries/Sectors
Summary:
- ------------------------------------------ ----------------------------------
Aggregate Market Capitalization (8/14/98): $564,353.82
- ------------------------------------------ ----------------------------------
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 $71,485.06 12.67% 12.71% 12.71%
- ------------------------------ -------------- ---------- ---------- ------------
BELL SOUTH $66,707.65 11.82% 11.86% 24.58%
- ------------------------------ -------------- ---------- ---------- ------------
BELL ATLANTIC $63,841.71 11.31% 11.35% 35.93%
- ------------------------------ -------------- ---------- ---------- ------------
GTE CORP $47,106.36 8.35% 8.38% 44.31%
- ------------------------------ -------------- ---------- ---------- ------------
AMERITECH $52,342.34 9.27% 5.06% 49.36%
- ------------------------------ -------------- ---------- ---------- ------------
U.S. WEST $25,612.08 4.54% 4.68% 54.05%
- ------------------------------ -------------- ---------- ---------- ------------
DUKE ENERGY CORP $21,264.37 3.77% 3.90% 57.95%
- ------------------------------ -------------- ---------- ---------- ------------
SOUTHERN CO $18,306.25 3.24% 3.37% 61.31%
- ------------------------------ -------------- ---------- ---------- ------------
PG&E CORP $11,849.54 2.10% 2.22% 63.54%
- ------------------------------ -------------- ---------- ---------- ------------
TEXAS UTILITIES $11,337.10 2.01% 2.13% 65.67%
- ------------------------------ -------------- ---------- ---------- ------------
</TABLE>
23
<PAGE> 60
4 Largest Industries (% Index Weight):
<TABLE>
<CAPTION>
- ------------------------------ -------------- ---------- ---------- ------------
CUMULATIVE
MARKET MARKET INDEX INDEX
INDUSTRY CAPITALIZATION WEIGHT WEIGHT WEIGHT
- ------------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
TELECOM - LOCAL $343,970.60 60.95% 57.28% 57.28%
- ------------------------------ -------------- ---------- ---------- ------------
ELECTRIC UTILITY $215,403.39 38.17% 41.40% 98.68%
- ------------------------------ -------------- ---------- ---------- ------------
NATURAL GAS DISTRIBUTORS $4,143.76 0.73% 1.06% 99.74%
- ------------------------------ -------------- ---------- ---------- ------------
NATURAL GAS PIPELINE $836.07 0.15% 0.26% 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 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 enables 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 pays 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.
24
<PAGE> 61
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 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 Trust's custodian bank 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 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 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. While the Trust's management acknowledges these risks, it is
expected that they can be controlled through careful monitoring procedures.
FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS
Each Select Sector SPDR Fund may utilize exchange traded futures and
options contracts and swap agreements. 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 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. Each Select Sector SPDR Fund may use futures contracts, and
options contracts based on indexes or combinations of indexes that the Adviser
believes to be representative of the relevant Select Sector Index. At present,
there are no exchange traded futures or options with respect to the Select
Sector Indexes but these investments may be available in the future.
25
<PAGE> 62
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. Each Select
Sector SPDR Fund expects 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 futures contracts and options,
together with positions in cash and money market instruments, to simulate full
investment in the underlying Select Sector Index. Futures 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.
RESTRICTIONS ON THE USE OF FUTURES AND OPTIONS
A Select Sector SPDR Fund will 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 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 will 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
26
<PAGE> 63
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.
FUTURE DEVELOPMENTS
Each Select Sector SPDR Fund may take advantage of opportunities in the
area of options, futures contracts, options on futures contracts, options on the
Select Sector SPDR Funds, warrants and swaps. In addition, other investments
which are not presently contemplated for use or which are not currently
available, but which may be developed, may be utilized to the extent such
investments are considered suitable for the Select Sector SPDR Fund by the
Adviser.
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 Investment Company Act of
1940, as amended ("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;
27
<PAGE> 64
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 buy and sell currencies and forward contracts
with respect thereto, and may transact in futures contracts on
securities, stock indexes and currencies 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 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
28
<PAGE> 65
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 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 Standard & Poor's 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
29
<PAGE> 66
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 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 contracts in a manner designed to limit their risk
exposure to that which is comparable to what they would have
30
<PAGE> 67
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, the 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 the Fund's rights as a creditor.
FEDERAL TAX TREATMENT OF FUTURES 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. A Select Sector SPDR
Fund may be required to defer the recognition of losses on futures contracts to
the extent of any unrecognized gains on related 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 contracts
will be considered gain from the
31
<PAGE> 68
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 of the Select Sector SPDR Fund's fiscal
year) on futures 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.
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
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 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 the 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.
<PAGE> 69
EXCHANGE LISTING AND TRADING
A discussion of exchange listing and trading matters associated with
an investment in the Select Sector SPDR Funds is contained under the headings
"Investment Considerations and Risks", "Determination of Net Asset Value," and
"Buying and Selling Select Sector SPDR Funds." 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.
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 of Trustees 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 __ Trustees.
33
<PAGE> 70
<TABLE>
<CAPTION>
Name/Address/Age Position with the Principal Occupations
Trust During the Past Five Years
====================================================================================================================================
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 71
REMUNERATION OF TRUSTEES AND OFFICERS
The following table sets forth the estimated remuneration of
Trustees and officers of the Trust for the fiscal year ended October 31, 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>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
No officer of the Trust is entitled to any compensation, and no
officer or Trustee is entitled to any pension or retirement benefits, from the
Trust.
THE INVESTMENT ADVISER
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
$470.3 billion (U.S.) under management as of June 30, 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,
35
<PAGE> 72
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.
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" in the Prospectus for a
description of the unitary fee. Each Select Sector SPDR Fund will also bear all
other expenses of its operation.
36
<PAGE> 73
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 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 an agreement with the Trust
which will continue for two years from its effective date, and which is
renewable annually thereafter (the "Distribution Agreement"), pursuant to which
it distributes Trust Shares. 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 a 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
37
<PAGE> 74
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 as
described below, has adopted distribution plans pursuant to Rule 12b-1 under the
1940 Act (the "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 Funds to which
the Plan applies, and all material amendments of the Plan also require Board
approval. The Plan may be terminated at any time, without penalty, by vote of a
majority of the Independent Trustees, or, with respect to any Select Sector SPDR
Fund, by a vote of a majority of the outstanding voting securities of such
Select Sector SPDR Fund (as such vote is defined in the 1940 Act). If a Plan is
terminated (or not renewed) with respect to any one or more Select Sector SPDR
Fund, it may continue in effect with respect to any Select Sector SPDR Fund as
to which it has not been terminated (or has been renewed). 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).
The allocation among the Select Sector SPDR Funds of fees and
expenses payable under the Distribution Agreement and the Investor Services
Agreements referred to below will be made pro rata in accordance with the daily
net assets of the respective Funds.
Pursuant to agreements entered into with such persons, each Select
Sector SPDR Fund will make payments under its Plan to certain broker-dealers or
other persons ("Investor Services Organizations") that enter into investor
services agreements with the Distributor in the form approved by the Board of
Trustees to provide stockholder services to such Fund ("Investor Services
Agreements"). Each of the Investor Services Agreement will be a "related
agreement" under the Plan of such Select Sector SPDR Fund. No Investor Services
Agreement will provide
38
<PAGE> 75
for annual fees of more than 0.10% of the average daily net assets of all Select
Sector SPDR Funds subject to the applicable Investor Services Agreement.
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 will 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' 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 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.
ADDITIONAL EXPENSES
Standard & Poor's, 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 will enter into a
sub-license agreement and pay a sub-license fee per annum (i) to Standard &
Poor's equal to the greater of .03% of the aggregate net assets of the Trust or
$450,000, and (ii) to Merrill Lynch equal to .03% of the aggregate net assets of
the Trust. Each Select Sector SPDR Fund will pay its proportionate share of the
sub-license fee based on the relative net assets of such Fund.
BROKERAGE TRANSACTIONS
When selecting broker-dealers to handle the purchase and sale of
portfolio securities, the
39
<PAGE> 76
Adviser looks for prompt execution of the order at a favorable price. Generally,
the Adviser works with recognized dealers in these securities, except when a
better price and execution of the order can be obtained elsewhere. The Select
Sector SPDR Funds will not deal with affiliates in principal transactions unless
permitted by exemptive order or applicable rule or regulation. Since the
investment objective of each Select Sector SPDR Fund is investment performance
that corresponds to that of a Select Sector Index, the Adviser does not intend
to select brokers and dealers for the purpose of receiving research services in
addition to a favorable price and prompt execution either from that broker or an
unaffiliated third party.
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 SPDR Funds."
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.
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
40
<PAGE> 77
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 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 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.
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
41
<PAGE> 78
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 and the AMEX are open for business. As of the date of the
Prospectus, the NYSE and the AMEX observe 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 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
42
<PAGE> 79
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 Fund Deposit composition 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.
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 Shares of each Select Sector SPDR Fund.
43
<PAGE> 80
PROCEDURES FOR CREATION OF CREATION UNITS
To be eligible to place orders with the Distributor to create Select
Sector SPDR Funds in Creation Units, an entity or person either 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 determined on such date. The date on which an
order to create Creation Units (or an order to redeem Creation Units as
discussed below) is placed is herein referred to as the "Transmittal Date".
Orders must be transmitted 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. 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 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
44
<PAGE> 81
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 with the
Distributor, the Trust and Transfer Agent (as the same may from time to time be
amended in accordance with its terms). 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.
The Trust reserves the right in the future to require a purchaser of
one or more Creation Units to post collateral with the Trust of up to 115% of
the value of Deposit Securities.
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
Distributor, the Trust 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. 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
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. on the next Business Day immediately
following such Transmittal Date.
45
<PAGE> 82
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 in a timely
fashion 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.
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 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 Trust 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.
CASH CREATION METHOD
Although the Trust does not currently permit cash creations of
Creation Units, when cash
46
<PAGE> 83
creations of Creation Units are available or specified for a Select Sector SPDR
Fund, they will be effected in essentially the same manner as in-kind creations
thereof. In the case of a cash creation, the investor must pay the cash
equivalent of the Deposit Securities it would otherwise be required to provide
through an in-kind creation, plus the same Cash Component required to be paid by
an in-kind creation.
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
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 $4,000. With respect to
cash creations, i.e., where the Trust permits an investor to substitute cash in
lieu of depositing a portion of the Deposit Securities, the investor may be
assessed the additional charge on the "cash in lieu" portion of his or her
investment. Investors are responsible for the costs of transferring the
securities constituting the Deposit Securities to the account of the Trust.
REDEMPTION
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 October 9, 1998, a Creation Unit of each Select Sector SPDR Fund
will range in cost from $850,000 to $1,350,000.
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, Eastern 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
47
<PAGE> 84
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 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 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 to effect a redemption of a Creation Unit may be charged
a fee for such services.
PLACEMENT OF REDEMPTION ORDERS USING CLEARING PROCESS
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 with the Distributor, the Trust and the
Transfer Agent (as from time to time amended in accordance with its terms). 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. 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. 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 with the Distributor, the Trust and the
Transfer Agent. 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
48
<PAGE> 85
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. 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. 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 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 Transfer Agent 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
49
<PAGE> 86
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.
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 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., Eastern 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.
50
<PAGE> 87
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 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 distribution may
result in a return of capital for tax purposes for certain 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 minimum 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 such Select Sector SPDR
Funds through DTC Participants for reinvestment of their dividend distributions.
If this service is 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.
51
<PAGE> 88
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.
A Select Sector SPDR Fund will be subject to a 4% excise tax on
certain undistributed 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 October 31
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."
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.
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
52
<PAGE> 89
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
commencement of trading in the Fund's Shares, it will have one shareholder
holding more than 5% of its outstanding Shares. The Select Sector SPDR Funds
cannot predict the length of time that any such person will remain a control
person of the Fund.
The Trust does not have information concerning the beneficial
ownership of the Shares held in the names of such 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
53
<PAGE> 90
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 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 = 2[(a-b/cd + 1)(6)-1] (where
a = dividends and
54
<PAGE> 91
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 Trust with performance quoted with respect to other
investment companies or types of investments.
From time to time, in advertising and marketing literature, the
Trust's 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 Trust
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.
In addition, in connection with the communication of its performance
to 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 sector subsidiary.
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
55
<PAGE> 92
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 organization 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 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 financial journalism.
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.
56
<PAGE> 93
PricewaterhouseCoopers LLP serves as the independent auditors of the
Trust.
57
<PAGE> 94
FINANCIAL STATEMENTS
58
<PAGE> 95
EXHIBIT A
Select Sector SPDRs
<TABLE>
<CAPTION>
SYMBOL INDEX MARKET CAPITALIZATION 8/14/98 WEIGHT COMPONENTS
<S> <C> <C> <C> <C>
IXB Basic Industries Sector $312,566.66 3.68% 58
IXE Energy Sector $639,450.71 7.54% 34
IXI Industrial Sector $568,412.05 6.70% 35
IXM Financial Sector $1,443,866.35 17.02% 74
IXR Consumer Staples Sector $1,910,625.50 22.52% 68
IXT Technology Sector $1,779,948.99 20.98% 78
IXU Utilties Sector $564,353.82 6.65% 39
IXV Consumer Services Sector $508,326.05 5.99% 45
IXY Cyclical/Transportation Sector $755,356.95 8.90% 69
$8,482,907.08 100.00% 500
</TABLE>
Page 1
<PAGE> 96
Select Sector SPDRs - History
<TABLE>
<CAPTION>
DATE IXB IXE IXI IXM IXR IXT IXU IXV IXY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/98 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00
7/1/98 252.37 254.50 252.35 255.23 251.81 253.15 252.11 255.36 252.15
7/2/98 250.75 254.97 251.02 256.86 252.72 249.42 251.92 253.73 252.30
7/6/98 252.60 253.92 251.97 260.22 255.80 251.12 252.26 255.88 257.54
7/7/98 250.63 249.39 251.65 261.10 255.07 252.08 250.62 255.38 256.23
7/8/98 251.20 250.30 252.89 266.18 255.38 256.55 250.42 258.04 259.88
7/9/98 242.38 246.24 251.82 263.76 253.38 257.41 249.82 258.21 256.71
7/10/98 238.95 245.65 252.32 266.40 255.80 258.28 250.44 260.55 256.44
7/13/98 238.87 240.45 251.66 266.20 255.59 262.53 250.24 260.75 255.25
7/14/98 242.21 245.59 255.79 269.82 258.82 262.92 249.92 261.28 260.05
7/15/98 241.63 246.54 254.17 266.23 257.01 267.62 248.00 261.22 256.82
7/16/98 245.09 246.97 256.58 267.39 259.81 269.28 250.37 261.03 260.69
7/17/98 244.78 246.22 256.68 268.68 259.18 271.35 250.43 264.05 259.82
7/20/98 243.66 242.31 254.65 267.20 259.26 273.73 250.76 261.70 258.58
7/21/98 241.69 240.33 250.59 259.75 253.98 269.53 250.36 258.29 256.02
7/22/98 240.00 244.20 248.61 259.34 254.93 267.06 254.97 256.19 257.10
7/23/98 234.15 237.37 244.34 255.10 249.76 262.23 249.81 250.60 248.93
7/24/98 233.69 237.50 243.58 252.73 251.93 261.68 252.66 250.79 248.05
7/27/98 234.20 238.68 244.16 254.52 253.57 263.69 253.24 250.88 248.65
7/28/98 231.52 235.18 241.70 249.68 250.03 259.28 248.46 248.42 246.76
7/29/98 232.44 236.13 240.12 248.97 248.63 256.59 250.32 249.62 242.69
7/30/98 233.90 239.15 242.72 252.63 250.97 264.41 250.89 251.57 248.26
7/31/98 229.81 233.77 237.57 249.85 244.87 258.69 247.49 247.31 243.54
8/3/98 228.13 228.54 238.18 246.45 244.28 256.98 250.19 243.58 240.62
8/4/98 223.11 223.07 229.68 234.32 237.01 247.57 241.41 235.49 231.27
8/5/98 223.96 220.32 230.78 237.09 240.08 251.07 240.67 235.11 234.34
8/6/98 225.40 216.31 233.37 238.43 239.51 257.27 242.38 235.54 239.06
8/7/98 227.66 223.20 233.77 236.42 239.00 256.59 239.93 235.44 239.53
8/10/98 226.06 219.76 232.25 233.38 239.03 255.79 238.75 234.87 238.76
8/11/98 220.76 221.50 229.66 227.22 236.89 250.88 238.85 230.73 235.52
8/12/98 223.56 222.59 233.25 231.35 238.79 254.54 241.84 236.50 240.78
8/13/98 217.55 223.76 231.71 227.94 237.88 251.51 243.79 234.22 237.44
8/14/98 212.25 223.79 228.76 224.52 235.82 249.64 241.10 230.77 232.21
</TABLE>
Page 2
<PAGE> 97
IXB Component Weights
8/14/98
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
SYMBOL COMPANY NAME CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C> <C>
1 DD DU PONT (E I) DE NEMOURS $60,092.73 19.23% $60,092.73 19.23% 19.23%
2 MTC MONSANTO CO $33,240.67 10.63% $33,240.67 10.63% 29.86%
3 DOW DOW CHEMICAL $19,248.02 6.16% $19,248.02 6.16% 36.02%
4 IP INTL PAPER CO $12,837.62 4.11% $12,837.62 4.11% 40.13%
5 AA ALUMINUM CO OF AMERICA $11,800.52 3.78% $11,800.52 3.78% 43.90%
6 PPG PPG INDUSTRIES INC $10,021.07 3.21% $10,021.07 3.21% 47.11%
7 APD AIR PRODUCTS & CHEMICALS INC $7,934.34 2.54% $7,934.34 2.54% 49.65%
8 WY WEYERHAEUSER CO $7,685.45 2.46% $7,685.45 2.46% 52.10%
9 PX PRAXAIR INC $6,765.98 2.16% $6,765.98 2.16% 54.27%
10 AVY AVERY DENNISON CORP $6,407.08 2.05% $6,407.08 2.05% 56.32%
11 UK UNION CARBIDE CORP $6,273.30 2.01% $6,273.30 2.01% 58.33%
12 OI OWENS-ILLINOIS INC $6,073.67 1.94% $6,073.67 1.94% 60.27%
13 ABX BARRICK GOLD CORPORATION $5,804.81 1.86% $5,804.81 1.86% 62.13%
14 TEN TENNECO INC $5,598.15 1.79% $5,598.15 1.79% 63.92%
15 ROH ROHM & HAAS CO $5,459.67 1.75% $5,459.67 1.75% 65.66%
16 AL ALCAN ALUMINIUM LTD $5,217.07 1.67% $5,217.07 1.67% 67.33%
17 CCK CROWN CORK & SEAL CO INC $4,502.81 1.44% $4,502.81 1.44% 68.77%
18 GP GEORGIA-PACIFIC GROUP $4,498.35 1.44% $4,498.35 1.44% 70.21%
19 EMN EASTMAN CHEMICAL CO $4,396.05 1.41% $4,396.05 1.41% 71.62%
20 ECL ECOLAB INC $3,814.31 1.22% $3,814.31 1.22% 72.84%
21 RLM REYNOLDS METALS CO $3,766.66 1.21% $3,766.66 1.21% 74.04%
22 CHA CHAMPION INTERNATIONAL CORP $3,571.28 1.14% $3,571.28 1.14% 75.19%
23 NUE NUCOR CORP $3,538.67 1.13% $3,538.67 1.13% 76.32%
24 SEE SEALED AIR CORP $3,528.68 1.13% $3,528.68 1.13% 77.45%
25 ALT ALLEGHENY TELEDYNE INC $3,440.94 1.10% $3,440.94 1.10% 78.55%
26 PD PHELPS DODGE CORP $3,201.24 1.02% $3,201.24 1.02% 79.57%
27 MII MORTON INTERNATIONAL INC $3,096.03 0.99% $3,096.03 0.99% 80.56%
28 WLL WILLAMETTE INDUSTRIES $3,000.60 0.96% $3,000.60 0.96% 81.52%
29 EC ENGELHARD CORP $2,999.39 0.96% $2,999.39 0.96% 82.48%
30 MEA MEAD CORP $2,991.93 0.96% $2,991.93 0.96% 83.44%
31 HPC HERCULES INC $2,888.64 0.92% $2,888.64 0.92% 84.36%
32 UCC UNION CAMP CORP $2,844.97 0.91% $2,844.97 0.91% 85.27%
33 TIN TEMPLE-INLAND INC $2,803.25 0.90% $2,803.25 0.90% 86.17%
34 SIAL SIGMA-ALDRICH $2,752.91 0.88% $2,752.91 0.88% 87.05%
35 NEM NEWMONT MINING CORP $2,641.14 0.84% $2,641.14 0.84% 87.90%
36 PDG PLACER DOME INC $2,562.66 0.82% $2,562.66 0.82% 88.72%
37 FCX FREEPRT MCMOR COP&GLD -CL B $2,419.59 0.77% $2,419.59 0.77% 89.49%
38 W WESTVACO CORP $2,390.49 0.76% $2,390.49 0.76% 90.26%
39 GLK GREAT LAKES CHEMICAL CORP $2,350.49 0.75% $2,350.49 0.75% 91.01%
40 HM HOMESTAKE MINING $2,256.80 0.72% $2,256.80 0.72% 91.73%
41 X USX-U S STEEL GROUP $2,198.04 0.70% $2,198.04 0.70% 92.43%
42 LPX LOUISIANA-PACIFIC CORP $2,175.73 0.70% $2,175.73 0.70% 93.13%
43 NLC NALCO CHEMICAL CO $2,122.28 0.68% $2,122.28 0.68% 93.81%
44 BMS BEMIS CO $2,041.79 0.65% $2,041.79 0.65% 94.46%
45 FMC FMC CORP $1,924.41 0.62% $1,924.41 0.62% 95.08%
46 N INCO LTD $1,618.69 0.52% $1,618.69 0.52% 95.60%
47 BCC BOISE CASCADE CORP $1,534.83 0.49% $1,534.83 0.49% 96.09%
48 TKR TIMKEN CO $1,409.44 0.45% $1,409.44 0.45% 96.54%
49 STO STONE CONTAINER CORP $1,335.40 0.43% $1,335.40 0.43% 96.96%
50 BLL BALL CORP $1,317.04 0.42% $1,317.04 0.42% 97.39%
51 WTHG WORTHINGTON INDUSTRIES $1,305.77 0.42% $1,305.77 0.42% 97.80%
52 GRA GRACE (W R) & CO $1,233.31 0.39% $1,233.31 0.39% 98.20%
53 BS BETHLEHEM STEEL CORP $1,146.63 0.37% $1,146.63 0.37% 98.57%
</TABLE>
Page 3
<PAGE> 98
IXB Component Weights
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
54 BMG BATTLE MTN GOLD CO $1,048.45 0.34% $1,048.45 0.34% 98.90%
55 CYM CYPRUS AMAX MINERALS CO $1,036.07 0.33% $1,036.07 0.33% 99.23%
56 PCH POTLATCH CORP $1,027.90 0.33% $1,027.90 0.33% 99.56%
57 AR ASARCO INC $793.22 0.25% $793.22 0.25% 99.81%
58 AS ARMCO INC $579.68 0.19% $579.68 0.19% 100.00%
$312,566.66 $312,566.66
</TABLE>
Page 4
<PAGE> 99
IXE Component Weights
8/14/98
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
SYMBOL COMPANY NAME CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C> <C>
1 XON EXXON CORP $167,299.40 26.16% $155,855.30 24.67% 24.67%
2 RD ROYAL DUTCH PET -NY REG $94,617.06 14.80% $94,899.66 15.02% 39.69%
3 MOB MOBIL CORP $56,259.72 8.80% $56,589.58 8.96% 48.64%
4 AN AMOCO CORP $48,041.38 7.51% $39,100.13 6.19% 54.83%
5 TX TEXACO INC $32,636.00 5.10% $32,990.73 5.22% 60.05%
6 CHV CHEVRON CORP $52,405.68 8.20% $31,360.50 4.96% 65.02%
7 SLB SCHLUMBERGER LTD $26,124.70 4.09% $24,925.49 3.94% 68.96%
8 ARC ATLANTIC RICHFIELD CO $21,819.30 3.41% $23,115.50 3.66% 72.62%
9 ENE ENRON CORP $15,356.72 2.40% $16,644.50 2.63% 75.25%
10 WMB WILLIAMS COS INC $12,480.35 1.95% $13,779.27 2.18% 77.43%
11 P PHILLIPS PETROLEUM CO $11,714.57 1.83% $13,101.41 2.07% 79.51%
12 MRO USX-MARATHON GROUP $8,531.46 1.33% $9,811.80 1.55% 81.06%
13 UCL UNOCAL CORP $7,965.18 1.25% $9,339.83 1.48% 82.54%
14 OXY OCCIDENTAL PETROLEUM CORP $8,104.17 1.27% $9,321.05 1.48% 84.01%
15 HAL HALLIBURTON CO $7,889.85 1.23% $8,892.40 1.41% 85.42%
16 BHI BAKER-HUGHES INC $7,048.46 1.10% $8,837.99 1.40% 86.82%
17 CGP COASTAL CORP $6,572.67 1.03% $7,892.56 1.25% 88.07%
18 BR BURLINGTON RESOURCES INC $5,866.31 0.92% $7,011.85 1.11% 89.18%
19 DI DRESSER INDUSTRIES INC $5,154.99 0.81% $6,147.79 0.97% 90.15%
20 CNG CONSOLIDATED NATURAL GAS CO $4,748.38 0.74% $6,002.04 0.95% 91.10%
21 AHC AMERADA HESS CORP $4,592.35 0.72% $5,970.16 0.94% 92.05%
22 CG COLUMBIA ENERGY GROUP $4,393.28 0.69% $5,805.52 0.92% 92.97%
23 ASH ASHLAND INC $3,883.71 0.61% $5,358.49 0.85% 93.81%
24 APC ANADARKO PETROLEUM CORP $3,885.97 0.61% $5,321.15 0.84% 94.66%
25 SUN SUN CO INC $3,576.13 0.56% $5,038.95 0.80% 95.45%
26 SNT SONAT INC $3,563.10 0.56% $4,811.33 0.76% 96.21%
27 UPR UNION PACIFIC RESOURCES GRP $3,012.73 0.47% $4,030.27 0.64% 96.85%
28 APA APACHE CORP $2,501.92 0.39% $3,701.56 0.59% 97.44%
29 KMG KERR-MCGEE CORP $2,204.58 0.34% $3,393.05 0.54% 97.98%
30 PZL PENNZOIL CO $1,984.93 0.31% $3,209.39 0.51% 98.48%
31 ORX ORYX ENERGY CO $1,678.66 0.26% $2,742.97 0.43% 98.92%
32 MDR MCDERMOTT INTL INC $1,471.45 0.23% $2,525.51 0.40% 99.32%
33 HP HELMERICH & PAYNE $952.46 0.15% $2,219.96 0.35% 99.67%
34 RDC ROWAN COS INC $1,113.10 0.17% $2,094.73 0.33% 100.00%
$639,450.71 $631,842.40
</TABLE>
Page 5
<PAGE> 100
IXI Component Weights
8/14/98
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
SYMBOL COMPANY NAME CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C> <C>
1 GE GENERAL ELECTRIC CO $284,873.39 50.12% $131,219.48 23.65% 23.65%
2 TYC TYCO INTERNATIONAL LTD $32,507.66 5.72% $36,669.76 6.61% 30.26%
3 MMM MINNESOTA MINING & MFG CO $30,567.37 5.38% $34,891.60 6.29% 36.55%
4 EMR EMERSON ELECTRIC CO $27,475.75 4.83% $32,310.57 5.82% 42.37%
5 WMI WASTE MANAGEMENT INC $29,766.70 5.24% $29,766.70 5.36% 47.73%
6 ALD ALLIEDSIGNAL INC $20,952.17 3.69% $24,880.47 4.48% 52.22%
7 CAT CATERPILLAR INC $17,734.61 3.12% $22,037.69 3.97% 56.19%
8 ITW ILLINOIS TOOL WORKS $13,665.70 2.40% $17,522.72 3.16% 59.35%
9 TXT TEXTRON INC $10,951.78 1.93% $15,343.50 2.77% 62.11%
10 HON HONEYWELL INC $10,382.98 1.83% $15,015.99 2.71% 64.82%
11 DE DEERE & CO $10,434.07 1.84% $14,175.63 2.55% 67.37%
12 DCN DANA CORP $7,668.45 1.35% $14,039.63 2.53% 69.90%
13 IR INGERSOLL-RAND CO $7,137.49 1.26% $11,740.78 2.12% 72.02%
14 BFI BROWNING-FERRIS INDS $6,307.14 1.11% $10,942.82 1.97% 73.99%
15 GLW CORNING INC $6,875.46 1.21% $10,885.16 1.96% 75.95%
16 DOV DOVER CORP $6,243.64 1.10% $10,088.72 1.82% 77.77%
17 CBE COOPER INDUSTRIES INC $5,606.07 0.99% $9,581.73 1.73% 79.50%
18 ETN EATON CORP $4,596.38 0.81% $8,490.64 1.53% 81.03%
19 JCI JOHNSON CONTROLS INC $4,293.70 0.76% $8,467.62 1.53% 82.56%
20 PCAR PACCAR INC $3,553.78 0.63% $7,649.53 1.38% 83.93%
21 PLL PALL CORP $2,636.93 0.46% $7,512.37 1.35% 85.29%
22 PH PARKER-HANNIFIN CORP $3,365.72 0.59% $7,120.70 1.28% 86.57%
23 FLR FLUOR CORP $3,159.89 0.56% $6,710.46 1.21% 87.78%
24 GSX GENERAL SIGNAL CORP $1,677.22 0.30% $6,699.04 1.21% 88.99%
25 CR CRANE CO $2,123.54 0.37% $6,621.09 1.19% 90.18%
26 NSI NATIONAL SERVICE INDS INC $2,068.90 0.36% $6,575.81 1.19% 91.37%
27 CUM CUMMINS ENGINE $1,927.20 0.34% $6,533.05 1.18% 92.54%
28 BGG BRIGGS & STRATTON $1,011.28 0.18% $6,279.99 1.13% 93.68%
29 NAV NAVISTAR INTERNATIONL $1,850.28 0.33% $6,217.68 1.12% 94.80%
30 CSE CASE CORP $2,303.61 0.41% $5,313.28 0.96% 95.75%
31 CMZ CINCINNATI MILACRON INC $899.17 0.16% $5,300.26 0.96% 96.71%
32 NC NACCO INDUSTRIES -CL A $916.41 0.16% $5,001.15 0.90% 97.61%
33 HPH HARNISCHFEGER INDUSTRIES INC $1,072.51 0.19% $4,799.90 0.87% 98.48%
34 ANV AEROQUIP-VICKERS INC $1,214.45 0.21% $4,684.06 0.84% 99.32%
35 FWC FOSTER WHEELER CORP $590.66 0.10% $3,771.94 0.68% 100.00%
$568,412.05 $554,861.50
</TABLE>
Page 6
<PAGE> 101
IXM Component Weights
8/14/98
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
SYMBOL COMPANY NAME CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C> <C>
1 AIG AMERICAN INTERNATIONAL GROUP $92,679.64 6.42% $92,679.64 6.42% 6.42%
2 NB NATIONSBANK CORP $67,111.54 4.65% $67,111.54 4.65% 11.07%
3 TRV TRAVELERS GROUP INC $64,402.63 4.46% $64,402.63 4.46% 15.53%
4 CCI CITICORP $62,761.84 4.35% $62,761.84 4.35% 19.87%
5 FNM FANNIE MAE $60,464.23 4.19% $60,464.23 4.19% 24.06%
6 CMB CHASE MANHATTAN CORP $54,940.46 3.81% $54,940.46 3.81% 27.87%
7 BAC BANKAMERICA CORP $54,189.63 3.75% $54,189.63 3.75% 31.62%
8 FTU FIRST UNION CORP (N C) $51,723.15 3.58% $51,723.15 3.58% 35.20%
9 MWD MORGAN STANLY DEAN WITTER&CO $46,125.46 3.19% $46,125.46 3.19% 38.40%
10 AXP AMERICAN EXPRESS $43,203.62 2.99% $43,203.62 2.99% 41.39%
11 ALL ALLSTATE CORP $35,422.14 2.45% $35,422.14 2.45% 43.84%
12 ONE BANC ONE CORP $31,712.09 2.20% $31,712.09 2.20% 46.04%
13 USB U S BANCORP/DE $29,623.18 2.05% $29,623.18 2.05% 48.09%
14 FRE FED HOME LOAN MTG CO $29,222.73 2.02% $29,222.73 2.02% 50.11%
15 MER MERRILL LYNCH & CO $29,063.33 2.01% $29,063.33 2.01% 52.13%
16 WFC WELLS FARGO & CO $27,221.95 1.89% $27,221.95 1.89% 54.01%
17 NOB NORWEST CORP $24,689.88 1.71% $24,689.88 1.71% 55.72%
18 AFS ASSOC FST CAPITAL CP -CL A $23,823.87 1.65% $23,823.87 1.65% 57.37%
19 JPM MORGAN (J P) & CO $22,637.04 1.57% $22,637.04 1.57% 58.94%
20 BK BANK OF NEW YORK CO INC $22,037.37 1.53% $22,037.37 1.53% 60.47%
21 FLT FLEET FINANCIAL GROUP INC $21,401.40 1.48% $21,401.40 1.48% 61.95%
22 FCN FIRST CHICAGO NBD CORP $21,180.12 1.47% $21,180.12 1.47% 63.42%
23 NCC NATIONAL CITY CORP $20,574.29 1.42% $20,574.29 1.42% 64.84%
24 HI HOUSEHOLD INTERNATIONAL INC $20,110.40 1.39% $20,110.40 1.39% 66.23%
25 GRN GENERAL RE CORP $18,027.67 1.25% $18,027.67 1.25% 67.48%
26 WB WACHOVIA CORP $17,057.34 1.18% $17,057.34 1.18% 68.66%
27 AGC AMERICAN GENERAL CORP $16,838.01 1.17% $16,838.01 1.17% 69.83%
28 MEL MELLON BANK CORP $16,035.44 1.11% $16,035.44 1.11% 70.94%
29 KRB MBNA CORP $15,223.59 1.05% $15,223.59 1.05% 71.99%
30 FITB FIFTH THIRD BANCORP $14,762.80 1.02% $14,762.80 1.02% 73.02%
31 MMC MARSH & MCLENNAN COS $14,596.40 1.01% $14,596.40 1.01% 74.03%
32 PNC PNC BANK CORP $14,476.48 1.00% $14,476.48 1.00% 75.03%
33 WAMU WASHINGTON MUTUAL INC $14,080.47 0.98% $14,080.47 0.98% 76.01%
34 STI SUNTRUST BANKS INC $13,827.51 0.96% $13,827.51 0.96% 76.96%
35 KEY KEYCORP $13,559.69 0.94% $13,559.69 0.94% 77.90%
36 CI CIGNA CORP $13,351.82 0.92% $13,351.82 0.92% 78.83%
37 BKB BANKBOSTON CORP $13,307.83 0.92% $13,307.83 0.92% 79.75%
38 CNC CONSECO INC $12,817.48 0.89% $12,817.48 0.89% 80.64%
39 CB CHUBB CORP $11,839.06 0.82% $11,839.06 0.82% 81.46%
40 HIG HARTFORD FINL SVCS GRP INC $11,724.98 0.81% $11,724.98 0.81% 82.27%
41 SAI SUNAMERICA INC $11,650.13 0.81% $11,650.13 0.81% 83.08%
42 AOC AON CORP $11,194.21 0.78% $11,194.21 0.78% 83.85%
43 STT STATE STREET CORP $10,046.40 0.70% $10,046.40 0.70% 84.55%
44 BEN FRANKLIN RESOURCES INC $10,039.71 0.70% $10,039.71 0.70% 85.24%
45 LTR LOEWS CORP $10,026.56 0.69% $10,026.56 0.69% 85.94%
46 BT BANKERS TRUST CORP $9,712.76 0.67% $9,712.76 0.67% 86.61%
47 BBK BB&T CORP $9,547.77 0.66% $9,547.77 0.66% 87.27%
48 SCH SCHWAB (CHARLES) CORP $9,359.16 0.65% $9,359.16 0.65% 87.92%
49 LNC LINCOLN NATIONAL CORP $9,216.84 0.64% $9,216.84 0.64% 88.56%
50 CMA COMERICA INC $9,200.96 0.64% $9,200.96 0.64% 89.19%
51 PGR PROGRESSIVE CORP-OHIO $8,270.10 0.57% $8,270.10 0.57% 89.77%
52 SPC ST PAUL COS $8,151.83 0.56% $8,151.83 0.56% 90.33%
53 NTRS NORTHERN TRUST CORP $7,778.45 0.54% $7,778.45 0.54% 90.87%
</TABLE>
Page 7
<PAGE> 102
IXM Component Weights
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
54 LEH LEHMAN BROTHERS HOLDINGS INC $7,645.51 0.53% $7,645.51 0.53% 91.40%
55 COF CAPITAL ONE FINL CORP $7,480.56 0.52% $7,480.56 0.52% 91.92%
56 SUB SUMMIT BANCORP $7,367.41 0.51% $7,367.41 0.51% 92.43%
57 TA TRANSAMERICA CORP $7,300.69 0.51% $7,300.69 0.51% 92.93%
58 MTL MERCANTILE BANCORPORATION $7,200.57 0.50% $7,200.57 0.50% 93.43%
59 SLM SLM HLDG CORP $7,087.75 0.49% $7,087.75 0.49% 93.92%
60 PVN PROVIDIAN FINANCIAL CORP $7,083.46 0.49% $7,083.46 0.49% 94.41%
61 AHM AHMANSON (H F) & CO $6,549.93 0.45% $6,549.93 0.45% 94.87%
62 SAFC SAFECO CORP $6,503.47 0.45% $6,503.47 0.45% 95.32%
63 UNM UNUM CORP $6,498.50 0.45% $6,498.50 0.45% 95.77%
64 JP JEFFERSON-PILOT CORP $6,396.40 0.44% $6,396.40 0.44% 96.21%
65 MBI MBIA INC $6,253.65 0.43% $6,253.65 0.43% 96.64%
66 BSC BEAR STEARNS COMPANIES INC $5,993.78 0.42% $5,993.78 0.42% 97.06%
67 HBAN HUNTINGTON BANCSHARES $5,712.28 0.40% $5,712.28 0.40% 97.45%
68 CINF CINCINNATI FINANCIAL CORP $5,607.04 0.39% $5,607.04 0.39% 97.84%
69 RNB REPUBLIC NEW YORK CORP $5,596.37 0.39% $5,596.37 0.39% 98.23%
70 TMK TORCHMARK CORP $5,539.99 0.38% $5,539.99 0.38% 98.61%
71 SNV SYNOVUS FINANCIAL CP $5,409.13 0.37% $5,409.13 0.37% 98.99%
72 MTG MGIC INVESTMENT CORP/WI $5,149.03 0.36% $5,149.03 0.36% 99.35%
73 GDW GOLDEN WEST FINANCIAL CORP $4,725.77 0.33% $4,725.77 0.33% 99.67%
74 CCR COUNTRYWIDE CREDIT IND INC $4,721.62 0.33% $4,721.62 0.33% 100.00%
$1,443,866.35 $1,443,866.35
</TABLE>
Page 8
<PAGE> 103
IXR Component Weights
8/14/98
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
SYMBOL COMPANY NAME CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C> <C>
1 KO COCA-COLA CO $189,676.33 9.93% $189,676.33 9.93% 9.93%
2 MRK MERCK & CO $152,246.12 7.97% $152,246.12 7.97% 17.90%
3 PFE PFIZER INC $132,113.54 6.91% $132,113.54 6.91% 24.81%
4 BMY BRISTOL MYERS SQUIBB $105,874.40 5.54% $105,874.40 5.54% 30.35%
5 PG PROCTER & GAMBLE CO $105,267.09 5.51% $105,267.09 5.51% 35.86%
6 MO PHILIP MORRIS COS INC $102,640.76 5.37% $102,640.76 5.37% 41.23%
7 JNJ JOHNSON & JOHNSON $100,849.88 5.28% $100,849.88 5.28% 46.51%
8 LLY LILLY (ELI) & CO $75,997.04 3.98% $75,997.04 3.98% 50.49%
9 SGP SCHERING-PLOUGH $69,515.04 3.64% $69,515.04 3.64% 54.13%
10 AHP AMERICAN HOME PRODUCTS CORP $66,368.79 3.47% $66,368.79 3.47% 57.60%
11 ABT ABBOTT LABORATORIES $62,900.80 3.29% $62,900.80 3.29% 60.89%
12 WLA WARNER-LAMBERT CO $57,927.49 3.03% $57,927.49 3.03% 63.93%
13 G GILLETTE CO $56,170.80 2.94% $56,170.80 2.94% 66.87%
14 PEP PEPSICO INC $50,508.71 2.64% $50,508.71 2.64% 69.51%
15 UN UNILEVER N V -NY SHARES $42,090.78 2.20% $42,090.78 2.20% 71.71%
16 MDT MEDTRONIC INC $26,468.74 1.39% $26,468.74 1.39% 73.10%
17 CL COLGATE-PALMOLIVE CO $25,225.21 1.32% $25,225.21 1.32% 74.42%
18 BUD ANHEUSER-BUSCH COS INC $24,448.20 1.28% $24,448.20 1.28% 75.70%
19 SLE SARA LEE CORP $22,916.31 1.20% $22,916.31 1.20% 76.90%
20 CPB CAMPBELL SOUP CO $22,735.08 1.19% $22,735.08 1.19% 78.09%
21 KMB KIMBERLY-CLARK CORP $22,703.58 1.19% $22,703.58 1.19% 79.27%
22 WAG WALGREEN CO $22,412.05 1.17% $22,412.05 1.17% 80.45%
23 PNU PHARMACIA & UPJOHN INC $22,129.58 1.16% $22,129.58 1.16% 81.61%
24 HNZ HEINZ (H J) CO $18,901.09 0.99% $18,901.09 0.99% 82.60%
25 CVS CVS CORP $16,384.37 0.86% $16,384.37 0.86% 83.45%
26 BAX BAXTER INTERNATIONAL INC $16,019.05 0.84% $16,019.05 0.84% 84.29%
27 BSX BOSTON SCIENTIFIC CORP $15,163.04 0.79% $15,163.04 0.79% 85.08%
28 BFO BESTFOODS $14,998.67 0.79% $14,998.67 0.79% 85.87%
29 CAH CARDINAL HEALTH INC $12,695.38 0.66% $12,695.38 0.66% 86.53%
30 KR KROGER CO $12,322.60 0.64% $12,322.60 0.64% 87.18%
31 K KELLOGG CO $12,096.89 0.63% $12,096.89 0.63% 87.81%
32 ABS ALBERTSONS INC $11,891.64 0.62% $11,891.64 0.62% 88.43%
33 CAG CONAGRA INC $11,649.92 0.61% $11,649.92 0.61% 89.04%
34 GDT GUIDANT CORP $11,499.42 0.60% $11,499.42 0.60% 89.65%
35 VO SEAGRAM CO LTD $11,211.49 0.59% $11,211.49 0.59% 90.23%
36 CLX CLOROX CO/DE $10,940.07 0.57% $10,940.07 0.57% 90.81%
37 RAD RITE AID CORP $10,699.61 0.56% $10,699.61 0.56% 91.37%
38 BDX BECTON DICKINSON & CO $10,248.08 0.54% $10,248.08 0.54% 91.90%
39 AVP AVON PRODUCTS $10,242.79 0.54% $10,242.79 0.54% 92.44%
40 WWY WRIGLEY (WM) JR CO $9,805.64 0.51% $9,805.64 0.51% 92.95%
41 ADM ARCHER-DANIELS-MIDLAND CO $9,699.20 0.51% $9,699.20 0.51% 93.46%
42 GIS GENERAL MILLS INC $9,583.17 0.50% $9,583.17 0.50% 93.96%
43 HSY HERSHEY FOODS CORP $8,812.24 0.46% $8,812.24 0.46% 94.42%
44 RAL RALSTON PURINA CO $8,573.40 0.45% $8,573.40 0.45% 94.87%
45 ASC AMERICAN STORES CO $7,926.51 0.41% $7,926.51 0.41% 95.29%
46 PHB PIONEER HI-BRED INTERNATIONL $7,815.74 0.41% $7,815.74 0.41% 95.69%
47 OAT QUAKER OATS CO $7,611.87 0.40% $7,611.87 0.40% 96.09%
48 SYY SYSCO CORP $7,553.40 0.40% $7,553.40 0.40% 96.49%
49 FJ FORT JAMES CORP $6,681.18 0.35% $6,681.18 0.35% 96.84%
50 FMY MEYER (FRED) INC $6,280.96 0.82% $6,280.96 0.82% 83.43%
51 WIN WINN-DIXIE STORES INC $5,820.75 0.30% $5,820.75 0.30% 83.74%
52 FO FORTUNE BRANDS INC $5,491.67 0.29% $5,491.67 0.29% 84.02%
53 UST UST INC $4,976.94 0.26% $4,976.94 0.26% 84.29%
</TABLE>
Page 9
<PAGE> 104
IXR Component Weights
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
54 IFF INTL FLAVORS & FRAGRANCES $4,512.66 0.24% $4,512.66 0.24% 84.52%
55 BFB BROWN-FORMAN -CL B $4,276.56 0.22% $4,276.56 0.22% 84.75%
56 AGN ALLERGAN INC $3,274.28 0.17% $3,274.28 0.17% 84.92%
57 USS U S SURGICAL CORP $3,200.47 0.17% $3,200.47 0.17% 85.08%
58 BMET BIOMET INC $3,197.63 0.17% $3,197.63 0.17% 85.25%
59 AZA ALZA CORP $3,186.77 0.17% $3,186.77 0.17% 85.42%
60 SVU SUPERVALU INC $2,772.39 0.15% $2,772.39 0.15% 85.56%
61 BOL BAUSCH & LOMB INC $2,498.97 0.13% $2,498.97 0.13% 85.69%
62 BCR BARD (C.R.) INC $2,232.56 0.12% $2,232.56 0.12% 85.81%
63 STJ ST JUDE MEDICAL INC $2,078.83 0.11% $2,078.83 0.11% 85.92%
64 MKG MALLINCKRODT INC $1,792.54 0.09% $1,792.54 0.09% 86.01%
65 ACCOB COORS (ADOLPH) -CL B $1,428.21 0.07% $1,428.21 0.07% 86.09%
66 ACV ALBERTO-CULVER CO -CL B $1,307.73 0.07% $1,307.73 0.07% 86.16%
67 GAP GREAT ATLANTIC & PAC TEA CO $1,059.13 0.06% $1,059.13 0.06% 86.21%
68 LDG LONGS DRUG STORES INC $1,023.70 0.05% $1,023.70 0.05% 86.21%
$1,910,625.50 $1,910,625.50
</TABLE>
Page 10
<PAGE> 105
IXT Component Weights
8/14/98
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
SYMBOL COMPANY NAME CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C> <C>
1 MSFT MICROSOFT CORP $256,879.51 14.43% $256,879.51 14.43% 14.43%
2 INTC INTEL CORP $146,174.00 8.21% $146,174.00 8.21% 22.64%
3 IBM INTL BUSINESS MACHINES CORP $118,216.34 6.64% $118,216.34 6.64% 29.29%
4 LU LUCENT TECHNOLOGIES INC $112,665.77 6.33% $112,665.77 6.33% 35.62%
5 T AT&T CORP $100,350.46 5.64% $100,350.46 5.64% 41.25%
6 CSCO CISCO SYSTEMS INC $98,654.31 5.54% $98,654.31 5.54% 46.80%
7 DELL DELL COMPUTER CORP $68,022.50 3.82% $68,022.50 3.82% 50.62%
8 CPQ COMPAQ COMPUTER CORP $57,535.18 3.23% $57,535.18 3.23% 53.85%
9 HWP HEWLETT-PACKARD CO $54,640.09 3.07% $54,640.09 3.07% 56.92%
10 WCOM WORLDCOM INC/GA -CL A $51,797.87 2.91% $51,797.87 2.91% 59.83%
11 MCIC MCI COMMUNICATIONS $44,142.03 2.48% $44,142.03 2.48% 62.31%
12 BA BOEING CO $37,194.10 2.09% $37,194.10 2.09% 64.40%
13 ATI AIRTOUCH COMMUNICATIONS INC $33,558.18 1.89% $33,558.18 1.89% 66.28%
14 XRX XEROX CORP $32,659.28 1.83% $32,659.28 1.83% 68.12%
15 FON SPRINT CORP $30,245.36 1.70% $30,245.36 1.70% 69.82%
16 MOT MOTOROLA INC $29,734.38 1.67% $29,734.38 1.67% 71.49%
17 EK EASTMAN KODAK CO $26,621.60 1.50% $26,621.60 1.50% 72.98%
18 NT NORTHERN TELECOM LTD $26,351.33 1.48% $26,351.33 1.48% 74.47%
19 EMC EMC CORP/MA $25,940.94 1.46% $25,940.94 1.46% 75.92%
20 ORCL ORACLE CORP $23,180.56 1.30% $23,180.56 1.30% 77.22%
21 TXN TEXAS INSTRUMENTS INC $23,162.24 1.30% $23,162.24 1.30% 78.53%
22 AUD AUTOMATIC DATA PROCESSING $20,544.96 1.15% $20,544.96 1.15% 79.68%
23 UTX UNITED TECHNOLOGIES CORP $19,996.23 1.12% $19,996.23 1.12% 80.80%
24 EDS ELECTRONIC DATA SYSTEMS CORP $19,913.45 1.12% $19,913.45 1.12% 81.92%
25 CA COMPUTER ASSOCIATES INTL INC $19,794.31 1.11% $19,794.31 1.11% 83.03%
26 LMT LOCKHEED MARTIN CORP $18,136.34 1.02% $18,136.34 1.02% 84.05%
27 SUNW SUN MICROSYSTEMS INC $17,780.44 1.00% $17,780.44 1.00% 85.05%
28 RTN.B RAYTHEON CO -CL B $17,745.28 1.00% $17,745.28 1.00% 86.05%
29 AMGN AMGEN INC $17,689.62 0.99% $17,689.62 0.99% 87.04%
30 PBI PITNEY BOWES INC $14,225.59 0.80% $14,225.59 0.80% 87.84%
31 AMAT APPLIED MATERIALS INC $11,400.03 0.64% $11,400.03 0.64% 88.48%
32 TLAB TELLABS INC $11,241.55 0.63% $11,241.55 0.63% 89.11%
33 FDC FIRST DATA CORP $11,050.28 0.62% $11,050.28 0.62% 89.74%
34 COMS 3COM CORP $10,379.83 0.58% $10,379.83 0.58% 90.32%
35 CSC COMPUTER SCIENCES CORP $9,061.92 0.51% $9,061.92 0.51% 90.83%
36 ASND ASCEND COMMUNICATIONS INC $8,907.21 0.50% $8,907.21 0.50% 91.33%
37 GTW GATEWAY 2000 INC $8,820.69 0.50% $8,820.69 0.50% 91.82%
38 AMP AMP INC $8,625.79 0.48% $8,625.79 0.48% 92.31%
39 ROK ROCKWELL INTL CORP $7,098.89 0.40% $7,098.89 0.40% 92.71%
40 MU MICRON TECHNOLOGY INC $7,060.21 0.40% $7,060.21 0.40% 93.10%
41 NXTL NEXTEL COMMUNICATIONS $6,797.69 0.38% $6,797.69 0.38% 93.49%
42 UIS UNISYS CORP $6,677.76 0.38% $6,677.76 0.38% 93.86%
43 BAY BAY NETWORKS INC $6,656.58 0.37% $6,656.58 0.37% 94.23%
44 SEG SEAGATE TECHNOLOGY $6,623.33 0.37% $6,623.33 0.37% 94.61%
45 EFX EQUIFAX INC $6,165.12 0.35% $6,165.12 0.35% 94.95%
46 TRW TRW INC $6,086.51 0.34% $6,086.51 0.34% 95.30%
47 GD GENERAL DYNAMICS CORP $5,821.38 0.33% $5,821.38 0.33% 95.62%
48 AAPL APPLE COMPUTER INC $5,388.16 0.30% $5,388.16 0.30% 95.92%
49 NOC NORTHROP GRUMMAN CORP $4,758.82 0.27% $4,758.82 0.27% 96.19%
50 GWW GRAINGER (W W) INC $4,074.70 0.23% $4,074.70 0.23% 96.42%
51 PMTC PARAMETRIC TECHNOLOGY CORP $3,956.71 0.22% $3,956.71 0.22% 96.64%
52 GIC GENERAL INSTRUMENT CORP $3,950.30 0.22% $3,950.30 0.22% 96.87%
53 CEN CERIDIAN CORP $3,949.47 0.22% $3,949.47 0.22% 97.09%
</TABLE>
Page 11
<PAGE> 106
IXT Component Weights
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
54 NOVL NOVELL INC $3,845.93 0.22% $3,845.93 0.22% 97.30%
55 DIGI DSC COMMUNICATIONS CORP $3,466.69 0.19% $3,466.69 0.19% 97.50%
56 TMO THERMO ELECTRON CORP $3,306.06 0.19% $3,306.06 0.19% 97.68%
57 PKN PERKIN-ELMER CORP $3,005.59 0.17% $3,005.59 0.17% 97.85%
58 HRS HARRIS CORP $2,885.18 0.16% $2,885.18 0.16% 98.01%
59 LSI LSI LOGIC CORP $2,665.62 0.15% $2,665.62 0.15% 98.16%
60 RYC RAYCHEM CORP $2,588.41 0.15% $2,588.41 0.15% 98.31%
61 AMD ADVANCED MICRO DEVICES $2,580.57 0.14% $2,580.57 0.14% 98.46%
62 GR GOODRICH (B F) CO $2,483.70 0.14% $2,483.70 0.14% 98.59%
63 KLAC KLA-TENCOR CORP $2,443.30 0.14% $2,443.30 0.14% 98.73%
64 TNB THOMAS & BETTS CORP $2,196.07 0.12% $2,196.07 0.12% 98.86%
65 NSM NATIONAL SEMICONDUCTOR CORP $2,155.57 0.12% $2,155.57 0.12% 98.98%
66 SGI SILICON GRAPHICS INC $1,970.49 0.11% $1,970.49 0.11% 99.09%
67 SFA SCIENTIFIC-ATLANTA INC $1,857.22 0.10% $1,857.22 0.10% 99.19%
68 ADBE ADOBE SYSTEMS INC $1,794.68 0.10% $1,794.68 0.10% 99.29%
69 PRD POLAROID CORP $1,582.63 0.09% $1,582.63 0.09% 99.38%
70 CS CABLETRON SYSTEMS $1,512.86 0.08% $1,512.86 0.08% 99.47%
71 ADSK AUTODESK INC $1,484.47 0.08% $1,484.47 0.08% 99.55%
72 TEK TEKTRONIX INC $1,446.31 0.08% $1,446.31 0.08% 99.63%
73 ANDW ANDREW CORP $1,405.65 0.08% $1,405.65 0.08% 99.71%
74 IKN IKON OFFICE SOLUTIONS $1,345.50 0.08% $1,345.50 0.08% 99.79%
75 EGG EG&G INC $1,288.74 0.07% $1,288.74 0.07% 99.86%
76 MIL MILLIPORE CORP $1,095.20 0.06% $1,095.20 0.06% 99.92%
77 MCL MOORE CORP LTD $884.49 0.05% $884.49 0.05% 99.97%
78 DGN DATA GENERAL CORP $552.89 0.03% $552.89 0.03% 100.00%
$1,779,948.99 $1,779,948.99
</TABLE>
Page 12
<PAGE> 107
IXU Component Weights
8/14/98
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
SYMBOL COMPANY NAME CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C> <C>
1 SBC SBC COMMUNICATIONS INC $71,485.06 12.67% $71,485.06 12.71% 12.71%
3 BLS BELLSOUTH CORP $66,707.65 11.82% $66,707.65 11.86% 24.58%
2 BEL BELL ATLANTIC CORP $63,841.71 11.31% $63,841.71 11.35% 35.93%
4 GTE GTE CORP $47,106.36 8.35% $47,106.36 8.38% 44.31%
5 AIT AMERITECH CORP $52,342.34 9.27% $28,426.67 5.06% 49.36%
6 USW U S WEST INC $25,612.08 4.54% $26,333.10 4.68% 54.05%
7 DUK DUKE ENERGY CORP $21,264.37 3.77% $21,925.22 3.90% 57.95%
8 SO SOUTHERN CO $18,306.25 3.24% $18,935.45 3.37% 61.31%
10 PCG PG&E CORP $11,849.54 2.10% $12,502.68 2.22% 63.54%
11 TXU TEXAS UTILITIES CO $11,337.10 2.01% $11,983.81 2.13% 65.67%
12 FPL FPL GROUP INC $11,161.14 1.98% $11,809.00 2.10% 67.77%
9 AT ALLTEL CORP $11,086.26 1.96% $11,663.40 2.07% 69.84%
13 ED CONSOLIDATED EDISON INC $10,596.96 1.88% $11,245.31 2.00% 71.84%
14 EIX EDISON INTERNATIONAL $10,165.00 1.80% $10,794.98 1.92% 73.76%
15 HOU HOUSTON INDUSTRIES INC $8,334.99 1.48% $8,940.88 1.59% 75.35%
16 AEP AMERICAN ELECTRIC POWER $8,295.52 1.47% $8,932.67 1.59% 76.94%
18 D DOMINION RESOURCES INC $8,154.95 1.45% $8,833.88 1.57% 78.51%
17 PEG PUBLIC SERVICE ENTRP $7,741.60 1.37% $8,384.78 1.49% 80.00%
19 UCM UNICOM CORP $7,401.92 1.31% $8,047.83 1.43% 81.43%
25 PE PECO ENERGY CO $6,898.96 1.22% $7,603.83 1.35% 82.79%
21 ETR ENTERGY CORP $6,699.00 1.19% $7,326.59 1.30% 84.09%
20 FE FIRSTENERGY CORP $6,644.91 1.18% $7,266.75 1.29% 85.38%
22 PPW PACIFICORP $6,428.12 1.14% $7,062.44 1.26% 86.64%
24 CPL CAROLINA POWER & LIGHT $6,167.11 1.09% $6,790.60 1.21% 87.85%
26 DTE DTE ENERGY CO $5,902.74 1.05% $6,571.53 1.17% 89.01%
23 SRE SEMPRA ENERGY $5,921.88 1.05% $6,513.79 1.16% 90.17%
30 FRO FRONTIER CORP $5,789.14 1.03% $6,501.52 1.16% 91.33%
27 CSR CENTRAL & SOUTH WEST CORP $5,453.25 0.97% $6,087.58 1.08% 92.41%
29 AEE AMEREN CORP $5,308.51 0.94% $5,954.42 1.06% 93.47%
28 CIN CINERGY CORP $5,009.01 0.89% $5,611.04 1.00% 94.47%
31 GPU GPU INC $4,811.30 0.85% $5,471.66 0.97% 95.44%
32 BGE BALTIMORE GAS & ELECTRIC $4,500.70 0.80% $5,151.01 0.92% 96.36%
34 PPL PP&L RESOURCES INC $4,178.58 0.74% $4,908.05 0.87% 97.23%
33 NSP NORTHERN STATES POWER/MN $4,013.40 0.71% $4,630.69 0.82% 98.05%
35 NMK NIAGARA MOHAWK POWER $2,856.61 0.51% $3,534.16 0.63% 98.68%
36 GAS NICOR INC $1,853.03 0.33% $2,491.88 0.44% 99.13%
37 PGL PEOPLES ENERGY CORP $1,231.12 0.22% $1,830.35 0.33% 99.45%
38 OKE ONEOK INC $1,059.60 0.19% $1,618.20 0.29% 99.74%
39 EFU EASTERN ENTERPRISES $836.07 0.15% $1,469.73 0.26% 100.00%
$564,353.82 $562,296.24
</TABLE>
Page 13
<PAGE> 108
IXV Component Weights
8/14/98
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
SYMBOL COMPANY NAME CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C> <C>
1 DIS DISNEY (WALT) COMPANY $64,935.07 12.77% $64,935.07 12.77% 12.77%
2 TWX TIME WARNER INC $52,803.29 10.39% $52,803.29 10.39% 23.16%
3 MCD MCDONALDS CORP $44,597.02 8.77% $44,597.02 8.77% 31.94%
4 UMG MEDIAONE GROUP INC $28,922.42 5.69% $28,922.42 5.69% 37.63%
5 VIA.B VIACOM INC -CL B $21,619.60 4.25% $21,619.60 4.25% 41.88%
6 CBS CBS CORP $20,466.28 4.03% $20,466.28 4.03% 45.90%
7 TCOMA TELE-COMM TCI GRP -SER A $18,480.66 3.64% $18,480.66 3.64% 49.54%
8 GCI GANNETT CO $17,972.42 3.54% $17,972.42 3.54% 53.08%
9 CMCSK COMCAST CORP -CL A SPL $16,410.13 3.23% $16,410.13 3.23% 56.30%
10 COL COLUMBIA/HCA HLTHCR -VTG $15,283.67 3.01% $15,283.67 3.01% 59.31%
11 CD CENDANT CORP $14,524.21 2.86% $14,524.21 2.86% 62.17%
12 CCU CLEAR CHANNEL COMMUNICATIONS $12,922.31 2.54% $12,922.31 2.54% 64.71%
13 HBOC HBO & CO $11,734.87 2.31% $11,734.87 2.31% 67.02%
14 AET AETNA INC $9,819.56 1.93% $9,819.56 1.93% 68.95%
15 SRV SERVICE CORP INTERNATIONAL $9,759.96 1.92% $9,759.96 1.92% 70.87%
16 RX IMS HEALTH INC $9,689.52 1.91% $9,689.52 1.91% 72.78%
17 OMC OMNICOM GROUP $9,160.66 1.80% $9,160.66 1.80% 74.58%
18 HRC HEALTHSOUTH CORP $9,000.37 1.77% $9,000.37 1.77% 76.35%
19 MAR MARRIOTT INTL INC $8,526.21 1.68% $8,526.21 1.68% 78.03%
20 MHP MCGRAW-HILL COMPANIES $8,264.72 1.63% $8,264.72 1.63% 79.65%
21 TRB TRIBUNE CO $8,164.90 1.61% $8,164.90 1.61% 81.26%
22 IPG INTERPUBLIC GROUP OF COS $8,046.01 1.58% $8,046.01 1.58% 82.84%
23 THC TENET HEALTHCARE CORP $7,937.54 1.56% $7,937.54 1.56% 84.40%
24 NYT NEW YORK TIMES CO -CL A $6,133.06 1.21% $6,133.06 1.21% 85.61%
25 UNH UNITED HEALTHCARE CORP $6,034.04 1.19% $6,034.04 1.19% 86.80%
26 HLT HILTON HOTELS CORP $6,015.68 1.18% $6,015.68 1.18% 87.98%
27 DNY DONNELLEY (R R) & SONS CO $5,817.90 1.14% $5,817.90 1.14% 89.12%
28 TMC TIMES MIRROR COMPANY -SER A $5,462.56 1.07% $5,462.56 1.07% 90.20%
29 YUM TRICON GLOBAL RESTAURANTS $5,225.83 1.03% $5,225.83 1.03% 91.23%
30 DJ DOW JONES & CO INC $4,989.29 0.98% $4,989.29 0.98% 92.21%
31 HRB BLOCK H & R INC $4,454.38 0.88% $4,454.38 0.88% 93.08%
32 DNB DUN & BRADSTREET CORP $4,441.86 0.87% $4,441.86 0.87% 93.96%
33 KRI KNIGHT-RIDDER INC $3,830.07 0.75% $3,830.07 0.75% 94.71%
34 MIR MIRAGE RESORTS INC $3,276.62 0.64% $3,276.62 0.64% 95.36%
35 AM AMERICAN GREETINGS -CL A $3,093.66 0.61% $3,093.66 0.61% 95.97%
36 WEN WENDY'S INTERNATIONAL INC $2,666.69 0.52% $2,666.69 0.52% 96.49%
37 DLX DELUXE CORP $2,657.19 0.52% $2,657.19 0.52% 97.01%
38 HUM HUMANA INC $2,475.90 0.49% $2,475.90 0.49% 97.50%
39 DRI DARDEN RESTAURANTS INC $2,346.45 0.46% $2,346.45 0.46% 97.96%
40 MDP MEREDITH CORP $2,161.42 0.43% $2,161.42 0.43% 98.39%
41 HET HARRAHS ENTERTAINMENT INC $1,920.88 0.38% $1,920.88 0.38% 98.76%
42 MNR MANOR CARE INC $1,918.12 0.38% $1,918.12 0.38% 99.14%
43 KWP KING WORLD PRODUCTIONS INC $1,901.17 0.37% $1,901.17 0.37% 99.52%
44 SMS SHARED MEDICAL SYSTEMS CORP $1,624.77 0.32% $1,624.77 0.32% 99.84%
45 JOS JOSTENS INC $837.10 0.16% $837.10 0.16% 100.00%
$508,326.05 $508,326.05
</TABLE>
Page 14
<PAGE> 109
IXY Component Weights
8/14/98
<TABLE>
<CAPTION>
MARKET MARKET INDEX MARKET INDEX CUMULATIVE
SYMBOL COMPANY NAME CAPITALIZATION WEIGHT CAPITALIZATION WEIGHT INDEX WEIGHT
<S> <C> <C> <C> <C> <C> <C>
1 WMT WAL-MART STORES $140,088.45 18.55% $140,088.45 18.55% 18.55%
2 HD HOME DEPOT INC $61,721.52 8.17% $61,721.52 8.17% 26.72%
3 F FORD MOTOR CO $59,284.84 7.85% $59,284.84 7.85% 34.57%
4 GM GENERAL MOTORS CORP $45,324.79 6.00% $45,324.79 6.00% 40.57%
5 C CHRYSLER CORP $37,035.05 4.90% $37,035.05 4.90% 45.47%
6 GPS GAP INC $24,742.81 3.28% $24,742.81 3.28% 48.74%
7 DH DAYTON HUDSON CORP $19,888.69 2.63% $19,888.69 2.63% 51.38%
8 S SEARS ROEBUCK & CO $18,868.31 2.50% $18,868.31 2.50% 53.88%
9 BNI BRLNGTN NTHRN SANTA FE $14,960.82 1.98% $14,960.82 1.98% 55.86%
10 MAY MAY DEPARTMENT STORES CO $14,313.13 1.89% $14,313.13 1.89% 57.75%
11 JCP PENNEY (J C) CO $14,024.63 1.86% $14,024.63 1.86% 59.61%
12 LOW LOWES COS $13,183.24 1.75% $13,183.24 1.75% 61.35%
13 COST COSTCO COMPANIES INC $11,914.77 1.58% $11,914.77 1.58% 62.93%
14 NKE NIKE INC -CL B $11,401.18 1.51% $11,401.18 1.51% 64.44%
15 MAT MATTEL INC $11,171.91 1.48% $11,171.91 1.48% 65.92%
16 AMR AMR CORP/DE $11,008.90 1.46% $11,008.90 1.46% 67.38%
17 NSC NORFOLK SOUTHERN CORP $10,723.10 1.42% $10,723.10 1.42% 68.80%
18 FD FEDERATED DEPT STORES $10,385.46 1.37% $10,385.46 1.37% 70.17%
19 UNP UNION PACIFIC CORP $9,551.69 1.26% $9,551.69 1.26% 71.44%
20 MAS MASCO CORP $9,412.81 1.25% $9,412.81 1.25% 72.68%
21 CSX CSX CORP $8,955.34 1.19% $8,955.34 1.19% 73.87%
22 KSS KOHLS CORP $8,942.67 1.18% $8,942.67 1.18% 75.05%
23 DAL DELTA AIR LINES INC $8,743.93 1.16% $8,743.93 1.16% 76.21%
24 GT GOODYEAR TIRE & RUBBER CO $8,481.08 1.12% $8,481.08 1.12% 77.33%
25 KM K MART CORP $8,447.24 1.12% $8,447.24 1.12% 78.45%
26 FDX FDX CORP $7,991.22 1.06% $7,991.22 1.06% 79.51%
27 TJX TJX COMPANIES INC $7,605.33 1.01% $7,605.33 1.01% 80.51%
28 NWL NEWELL COMPANIES $7,558.12 1.00% $7,558.12 1.00% 81.52%
29 U US AIRWAYS GROUP INC $6,746.62 0.89% $6,746.62 0.89% 82.41%
30 LUV SOUTHWEST AIRLINES $6,694.62 0.89% $6,694.62 0.89% 83.29%
31 LTD LIMITED INC $6,086.44 0.81% $6,086.44 0.81% 84.10%
32 GPC GENUINE PARTS CO $5,861.63 0.78% $5,861.63 0.78% 84.88%
33 TAN TANDY CORP $5,747.36 0.76% $5,747.36 0.76% 85.64%
34 TOY TOYS R US INC $5,580.82 0.74% $5,580.82 0.74% 86.38%
35 NOBE NORDSTROM INC $5,414.39 0.72% $5,414.39 0.72% 87.09%
36 VFC VF CORP $5,368.69 0.71% $5,368.69 0.71% 87.80%
37 SHW SHERWIN-WILLIAMS CO $5,053.27 0.67% $5,053.27 0.67% 88.47%
38 DG DOLLAR GENERAL $4,822.43 0.64% $4,822.43 0.64% 89.11%
39 BDK BLACK & DECKER CORP $4,761.72 0.63% $4,761.72 0.63% 89.74%
40 HAS HASBRO INC $4,749.46 0.63% $4,749.46 0.63% 90.37%
41 AZO AUTOZONE INC $4,700.76 0.62% $4,700.76 0.62% 90.99%
42 RBD RUBBERMAID INC $4,456.79 0.59% $4,456.79 0.59% 91.58%
43 WHR WHIRLPOOL CORP $4,258.85 0.56% $4,258.85 0.56% 92.15%
44 IIN ITT INDUSTRIES INC $4,175.19 0.55% $4,175.19 0.55% 92.70%
45 MYG MAYTAG CORP $4,121.49 0.55% $4,121.49 0.55% 93.24%
46 CC CIRCUIT CITY STR CRCT CTY GP $3,962.30 0.52% $3,962.30 0.52% 93.77%
47 H HARCOURT GENERAL INC $3,906.05 0.52% $3,906.05 0.52% 94.29%
48 DDS DILLARDS INC -CL A $3,787.83 0.50% $3,787.83 0.50% 94.79%
49 SWK STANLEY WORKS $3,655.43 0.48% $3,655.43 0.48% 95.27%
50 CNS CONSOLIDATED STORES CORP $3,615.69 0.48% $3,615.69 0.48% 95.75%
51 LDW LAIDLAW INC $3,081.28 0.41% $3,081.28 0.41% 96.16%
52 CTX CENTEX CORP $2,468.09 0.33% $2,468.09 0.33% 96.49%
53 LIZ LIZ CLAIBORNE INC $2,269.92 0.30% $2,269.92 0.30% 96.79%
</TABLE>
Page 15
<PAGE> 110
IXY Component Weights
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
54 ACK ARMSTRONG WORLD INDS INC $2,221.78 0.29% $2,221.78 0.29% 97.08%
55 OWC OWENS CORNING $2,209.68 0.29% $2,209.68 0.29% 97.37%
56 R RYDER SYSTEM INC $1,964.78 0.26% $1,964.78 0.26% 97.63%
57 SNA SNAP-ON INC $1,923.58 0.25% $1,923.58 0.25% 97.89%
58 FTL FRUIT OF THE LOOM INC -CL A $1,906.22 0.25% $1,906.22 0.25% 98.14%
59 BC BRUNSWICK CORP $1,764.99 0.23% $1,764.99 0.23% 98.37%
60 Z VENATOR GROUP INC $1,703.55 0.23% $1,703.55 0.23% 98.60%
61 TUP TUPPERWARE CORP $1,473.42 0.20% $1,473.42 0.20% 98.79%
62 PHM PULTE CORP $1,396.53 0.18% $1,396.53 0.18% 98.98%
63 CTB COOPER TIRE & RUBBER $1,378.46 0.18% $1,378.46 0.18% 99.16%
64 FLE FLEETWOOD ENTERPRISES $1,345.80 0.18% $1,345.80 0.18% 99.34%
65 RML RUSSELL CORP $1,117.02 0.15% $1,117.02 0.15% 99.49%
66 PBY PEP BOYS-MANNY MOE & JACK $1,094.87 0.14% $1,094.87 0.14% 99.63%
67 RBK REEBOK INTERNATIONAL LTD $1,063.34 0.14% $1,063.34 0.14% 99.77%
68 KBH KAUFMAN & BROAD HOME $1,012.60 0.13% $1,012.60 0.13% 99.91%
69 SMI SPRINGS INDUSTRIES -CL A $702.20 0.09% $702.20 0.09% 100.00%
$755,356.95 $755,356.95
</TABLE>
Page 16
<PAGE> 111
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 $130,202.42 41.66% $130,202.42 41.66% 41.66%
Specialty Chem. $52,818.24 16.90% $52,818.24 16.90% 58.55%
Paper & Forest Prod $45,894.53 14.68% $45,894.53 14.68% 73.24%
Aluminum $20,784.24 6.65% $20,784.24 6.65% 79.89%
Gold Mining $14,313.87 4.58% $14,313.87 4.58% 84.47%
Packaging $13,971.87 4.47% $13,971.87 4.47% 88.94%
Steel $12,209.73 3.91% $12,209.73 3.91% 92.84%
Non-Ferous Metals $9,068.80 2.90% $9,068.80 2.90% 95.74%
Glass Container $6,073.67 1.94% $6,073.67 1.94% 97.69%
Metal Containers $5,819.85 1.86% $5,819.85 1.86% 99.55%
Metal Fabricators $1,409.44 0.45% $1,409.44 0.45% 100.00%
TOTAL $312,566.66 100.00% $312,566.66 100.00%
</TABLE>
Page 17
<PAGE> 112
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 $403,217.86 63.06% $371,695.77 58.83% 58.83%
Domestic Oil $114,957.91 17.98% $116,362.30 18.42% 77.24%
Oil Services $49,755.01 7.78% $55,643.87 8.81% 86.05%
Natural Gas Pipeline $47,114.51 7.37% $54,935.21 8.69% 94.74%
Oil & Gas Producer $16,945.59 2.65% $22,807.80 3.61% 98.35%
Oil Refining & Marketing $7,459.84 1.17% $10,397.44 1.65% 100.00%
TOTAL $639,450.71 100.00% $631,842.40 100.00%
</TABLE>
Page 18
<PAGE> 113
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. $312,349.14 54.95% $163,530.06 29.47% 29.47%
Conglomerate $103,923.34 18.28% $129,246.30 23.29% 52.77%
Industrial Machinery $31,714.24 5.58% $53,592.82 9.66% 62.42%
Heavy Duty Trucks $20,512.49 3.61% $47,931.67 8.64% 71.06%
Machinery - Ag. $31,544.81 5.55% $46,326.50 8.35% 79.41%
Pollution Control $36,073.84 6.35% $40,709.52 7.34% 86.75%
Process Controls $14,697.14 2.59% $29,227.39 5.27% 92.02%
Specialty Machinery $12,947.34 2.28% $28,514.57 5.14% 97.16%
Engineering & Construc. $3,750.55 0.66% $10,482.40 1.89% 99.04%
Machine Tools $899.17 0.16% $5,300.26 0.96% 100.00%
TOTAL $568,412.05 100.00% $554,861.50 100.00%
</TABLE>
Page 19
<PAGE> 114
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 $493,537.17 34.18% $493,537.17 34.18% 34.18%
Multinational Bank $198,865.95 13.77% $198,865.95 13.77% 47.95%
Insurance - Specialty $118,977.41 8.24% $118,977.41 8.24% 56.19%
Insurance - Multiline $108,722.84 7.53% $108,722.84 7.53% 63.72%
Brokerage $98,187.24 6.80% $98,187.24 6.80% 70.53%
Govt Sponsored Agency $96,774.71 6.70% $96,774.71 6.70% 77.23%
Insurance - P&C $67,523.55 4.68% $67,523.55 4.68% 81.90%
Insurance - Life $66,823.97 4.63% $66,823.97 4.63% 86.53%
Diversified Financials $61,906.99 4.29% $61,906.99 4.29% 90.82%
Financial - Consumer $48,655.89 3.37% $48,655.89 3.37% 94.19%
Insurance - Broker $25,790.61 1.79% $25,790.61 1.79% 95.98%
Savings & Loan $25,356.16 1.76% $25,356.16 1.76% 97.73%
Credit Card $22,704.15 1.57% $22,704.15 1.57% 99.30%
Investment Advisors $10,039.71 0.70% $10,039.71 0.70% 100.00%
TOTAL $1,443,866.35 100.00% $1,443,866.35 100.00%
</TABLE>
Page 20
<PAGE> 115
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 $688,633.04 36.04% $688,633.04 36.04% 36.04%
Medical Supplies $268,346.41 14.04% $268,346.41 14.04% 50.09%
Beverages - Softdrink $240,185.04 12.57% $240,185.04 12.57% 62.66%
Household Products $212,907.91 11.14% $212,907.91 11.14% 73.80%
Foods $165,199.20 8.65% $165,199.20 8.65% 82.45%
Tobacco $107,617.69 5.63% $107,617.69 5.63% 88.08%
Cosmetic & Personal Care $74,732.95 3.91% $74,732.95 3.91% 91.99%
Food Retailer $55,627.38 2.91% $55,627.38 2.91% 94.90%
Retail - Drug Stores $50,519.73 2.64% $50,519.73 2.64% 97.55%
Beverages - Brewers $46,856.14 2.45% $46,856.14 2.45% 100.00%
TOTAL $1,910,625.50 100.00% $1,910,625.50 100.00%
</TABLE>
Page 21
<PAGE> 116
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 $307,090.24 17.25% $307,090.24 17.25% 17.25%
Telecom - Long Distance $226,535.72 12.73% $226,535.72 12.73% 29.98%
Computer Systems $209,977.49 11.80% $209,977.49 11.80% 41.78%
Semiconductor $197,641.55 11.10% $197,641.55 11.10% 52.88%
Telecom - Equipment $171,325.24 9.63% $171,325.24 9.63% 62.51%
PC - Workstation $159,517.45 8.96% $159,517.45 8.96% 71.47%
Telecom - Network $121,049.52 6.80% $121,049.52 6.80% 78.27%
Telecom - Wireless $70,090.25 3.94% $70,090.25 3.94% 82.21%
Computer Services $66,735.72 3.75% $66,735.72 3.75% 85.96%
Aerospace $65,760.54 3.69% $65,760.54 3.69% 89.65%
Defense Electronics $54,849.44 3.08% $54,849.44 3.08% 92.73%
Office Equipment $49,114.86 2.76% $49,114.86 2.76% 95.49%
Imaging $28,204.23 1.58% $28,204.23 1.58% 97.08%
Biotech $17,689.62 0.99% $17,689.62 0.99% 98.07%
Connectors $17,484.97 0.98% $17,484.97 0.98% 99.05%
Electronics - Instrumentation $8,853.15 0.50% $8,853.15 0.50% 99.55%
Info Processing - Peripherials $6,623.33 0.37% $6,623.33 0.37% 99.92%
Wireless Equipment $1,405.65 0.08% $1,405.65 0.08% 100.00%
TOTAL $1,779,948.99 100.00% $1,779,948.99 100.00%
</TABLE>
Page 22
<PAGE> 117
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 $343,970.60 60.95% $322,065.46 57.28% 57.28%
Electric Utility $215,403.39 38.17% $232,820.62 41.41% 98.68%
Natural Gas Distributors $4,143.76 0.73% $5,940.42 1.06% 99.74%
Natural Gas Pipeline $836.07 0.15% $1,469.73 0.26% 100.00%
TOTAL $564,353.82 100.00% $562,296.24 100.00%
</TABLE>
Page 23
<PAGE> 118
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 $139,357.96 27.42% $139,357.96 27.42% 27.42%
Media Broadcasting $99,102.97 19.50% $99,102.97 19.50% 46.91%
News - Info Services $72,989.05 14.36% $72,989.05 14.36% 61.27%
Restaurants $54,835.99 10.79% $54,835.99 10.79% 72.06%
Lodging & Cruise $29,066.10 5.72% $29,066.10 5.72% 77.78%
Hospital Management $25,139.33 4.95% $25,139.33 4.95% 82.72%
Health Care Info Tech $23,049.15 4.53% $23,049.15 4.53% 87.26%
HMOs $18,329.51 3.61% $18,329.51 3.61% 90.86%
Advertising & Marketing $17,206.67 3.38% $17,206.67 3.38% 94.25%
Death Care $9,759.96 1.92% $9,759.96 1.92% 96.17%
Alternative Site Care $9,000.37 1.77% $9,000.37 1.77% 97.94%
Misc. Service $5,291.48 1.04% $5,291.48 1.04% 98.98%
Gaming - Casino $5,197.50 1.02% $5,197.50 1.02% 100.00%
TOTAL $508,326.05 100.00% $508,326.05 100.00%
</TABLE>
Page 24
<PAGE> 119
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 $186,251.04 24.66% $186,251.04 24.66% 24.66%
Auto $141,644.67 18.75% $141,644.67 18.75% 43.41%
Retail - Building Materials $74,904.76 9.92% $74,904.76 9.92% 53.33%
Retail - Dept. Stores $66,638.22 8.82% $66,638.22 8.82% 62.15%
Railroad $44,190.96 5.85% $44,190.96 5.85% 68.00%
Retail - Apparel $38,434.58 5.09% $38,434.58 5.09% 73.09%
Airline $33,194.06 4.39% $33,194.06 4.39% 77.48%
Specialty Retail $22,814.84 3.02% $22,814.84 3.02% 80.50%
Building Materials $16,675.77 2.21% $16,675.77 2.21% 82.71%
Toys $15,921.37 2.11% $15,921.37 2.11% 84.82%
Housewares $13,488.33 1.79% $13,488.33 1.79% 86.60%
Shoes $12,464.52 1.65% $12,464.52 1.65% 88.25%
Auto Parts $11,960.39 1.58% $11,960.39 1.58% 89.84%
Apparel Manufacturers $10,661.86 1.41% $10,661.86 1.41% 91.25%
Tires $9,859.54 1.31% $9,859.54 1.31% 92.55%
Retail - Consumer Elec. $9,709.66 1.29% $9,709.66 1.29% 93.84%
Hardware & Tools $8,417.16 1.11% $8,417.16 1.11% 94.95%
Appliances $8,380.34 1.11% $8,380.34 1.11% 96.06%
Airfreight $7,991.22 1.06% $7,991.22 1.06% 97.12%
Retail - Auto Parts $5,795.63 0.77% $5,795.63 0.77% 97.89%
Truckers $5,046.06 0.67% $5,046.06 0.67% 98.56%
Home Builders $4,877.21 0.65% $4,877.21 0.65% 99.20%
Home Furnishings $2,221.78 0.29% $2,221.78 0.29% 99.50%
Rec. Equipment $1,764.99 0.23% $1,764.99 0.23% 99.73%
Manufactured Housing $1,345.80 0.18% $1,345.80 0.18% 99.91%
Textiles $702.20 0.09% $702.20 0.09% 100.00%
TOTAL $755,356.95 100.00% $755,356.95 100.00%
</TABLE>
Page 25
<PAGE> 120
REPORT OF INDEPENDENT AUDITORS
60
<PAGE> 121
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
(a) Financial Statements:
Part A:
Part B:
<S> <C>
(b) Exhibits:
(1) (a) Declaration of Trust**
(b) Amendment No. 1 to 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.*
(7) Not applicable
(8) (A) Custodian Agreement between the Trust and State Street Bank
and Trust Company.*
(8) (B) Lending Agreement between the Trust and .*
-------------------
(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 and Merrill Lynch and the AMEX.*
(10) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein.*
(11) Opinion and consent of PricewaterhouseCoopers, LLP.*
(12) Not applicable.
(13) Subscription Agreement(s) between the Trust and ALPS Mutual Funds Services, Inc.*
(14) Not applicable.
(15) Form of 12b-1 Plan.*
(16) Not applicable
</TABLE>
61
<PAGE> 122
(17) Financial Data Schedule.*
(18) Not applicable.
- -------------------
* To be filed by amendment.
** Previously filed.
62
<PAGE> 123
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Immediately prior to the contemplated public offering of the Trust
Shares, the following persons may be deemed individually to control each Select
Sector SPDR Fund of the Trust:
[To be completed by amendment]
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of _______________, 1998, the holders of beneficial interest, par
value $.001 per share, of each of the initial nine Select Sector SPDR Funds of
the Trust were:
[To be completed by amendment]
ITEM 27. INDEMNIFICATION
The Trust will indemnify any person who is, or has been, a Trustee,
officer, employee or agent of the Trustee 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.
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
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.
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.
63
<PAGE> 124
(b) The following is a list of the executive officers and directors of ALPS
Mutual Funds Services, Inc.:
<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
- --------------------------------------------------------------------------------------------------------
Chad Christensen Vice President None
- --------------------------------------------------------------------------------------------------------
Edmund J. Burke Executive Vice President President, Treasurer
- --------------------------------------------------------------------------------------------------------
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.
- -------------------------------
* All addresses are 370 Seventeenth Street, Suite 3100, Denver,
Colorado 80202.
64
<PAGE> 125
ITEM 31. MANAGEMENT SERVICES
Not applicable.
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.
65
<PAGE> 126
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. 1 to Registrant's Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver and State of
Colorado on the 16th day of October 1998.
THE SELECT SECTOR SPDR(R) TRUST
By /s/ Edmund J. Burke
---------------------------
Edmund J. Burke
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registrant's Registration Statement has been signed below by
the following person in the capacities and on the date indicated.
Signature Title Date
/s/ Edmund J. Burke President, Treasurer October 16, 1998
--------------------- and Sole Trustee
Edmund J. Burke
<PAGE> 127
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
1.(b) Amendment No. 1 to the Declaration of Trust
</TABLE>
<PAGE> 1
Exhibit 1(b)
THE SECTOR SPDR TRUST
AMENDMENT NO. 1 TO DECLARATION OF TRUST
AMENDMENT No. 1 to the Declaration of Trust of The Sector SPDR Trust made
the 8th day of October 1998 by the sole Trustee hereunder.
WHEREAS, Section 9.3 of the Declaration of Trust of The Sector SPDR Trust
(the "Trust") provides that the Declaration of Trust may be amended by an
instrument in writing signed by a majority of the Trustees of the Trust to
change the name of the Trust; and
WHEREAS, the sole Trustee desires to amend the Declaration of Trust to
change the name of the Trust from "The Sector SPDR Trust" to "The Select Sector
SPDR Trust".
NOW THEREFORE, the undersigned, being the sole Trustee of the Trust, does
hereby state:
Section 1.1 of the Declaration of Trust is hereby amended in its entirety
to read as follows:
Section 1.1 Name. The name of the trust created hereby is "The Select
Sector SPDR(R) Trust," and so far as may be practicable the Trustees shall
conduct the Trust's activities, execute all documents and sue or be sued
under that name, which name (and the word "Trust" wherever herein used)
shall refer to the Trustees as Trustees, and not as individuals, or
personally, and shall not refer to the officers, agents, employees or
Shareholders of the Trust. Should the Trustees determine that the use of
such name is not advisable, they may use such other name for the Trust as
they deem proper and the Trust may hold its property and conduct its
activities under such other name.
IN WITNESS WHEREOF, the undersigned hereunto has set his hand in the City
of Denver, State of Colorado as of the 8th day of October 1998.
/s/ EDMUND J. BURKE
---------------------------
Edmund J. Burke, as Trustee
