<PAGE> 1
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THE SELECT SECTOR SPDR TRUST
[LOGO]
ANNUAL REPORT
=============
SEPTEMBER 30, 1999
==================
SELECT SECTOR
SPDRS(R)
Benchmark Sector-Based Equity Portfolios of Companies in the S&P 500(R)
<PAGE> 2
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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SELECT SECTOR SPDR FUNDS
Select Sector SPDR Funds are unique investments that unbundle the benchmark S&P
500 and give you ownership in particular sectors or groups of industries that
are represented by a specified Select Sector Index. Through a single share,
investors can buy or sell any of nine major industry sectors that make up the
S&P 500 much as they buy or sell a share of stock. Select Sector SPDR Fund
shares are different from the shares of conventional mutual funds. Select Sector
SPDRs trade on the American Stock Exchange.
NINE SELECT SECTOR SPDR FUNDS
Shares are available for exchange trading in the following Funds of the Select
Sector SPDR Trust:
<TABLE>
<S> <C>
THE BASIC INDUSTRIES SELECT SECTOR SPDR FUND XLB
THE CONSUMER SERVICES SELECT SECTOR SPDR FUND XLV
THE CONSUMER STAPLES SELECT SECTOR SPDR FUND XLP
THE CYCLICAL/TRANSPORTATION SELECT SECTOR SPDR FUND XLY
THE ENERGY SELECT SECTOR SPDR FUND XLE
THE FINANCIAL SELECT SECTOR SPDR FUND XLF
THE INDUSTRIAL SELECT SECTOR SPDR FUND XLI
THE TECHNOLOGY SELECT SECTOR SPDR FUND XLK
THE UTILITIES SELECT SECTOR SPDR FUND XLU
</TABLE>
Each of these Funds is designed to, before expenses, closely track the price
performance and dividend yield of a Select Sector Index. Each Fund's portfolio
is comprised principally of shares of constituent companies in the S&P 500. Each
stock in the S&P 500 is allocated to only one Select Sector Index. The combined
companies of the nine Select Sector Indexes represent all of the companies in
the S&P 500. Of course, each Select Sector SPDR Fund can be expected to move up
or down in value with its underlying Select Sector Index.
OBJECTIVE
Select Sector SPDR Funds are designed to provide investors with an affordable
way to invest in a portfolio of equity securities in a sector or group of
industries in a single trade. Select Sector SPDR Funds allow you to custom
tailor asset allocations to fit your particular investment needs or goals. One
Fund may complement another; individual Select Sector SPDR Funds can be used to
increase exposure to certain industries that may be outperforming the market or
to hedge other holdings in your portfolio. Although an individual Select Sector
SPDR Fund may bear a higher level of risk than a broad-market fund, because of
less diversity, sector investments may also offer opportunities for returns
greater than an investment in the entire S&P 500 Index.
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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CHAIRMAN'S LETTER TO SHAREHOLDERS
DEAR SHAREHOLDERS:
We are pleased to present the first annual report for The Select Sector SPDR
Trust. Since the launch of the Trust on December 16, 1998, net assets have grown
to $1.4 billion at September 30, 1999. Our largest fund, The Technology Select
Sector SPDR Fund, achieved net assets of $731.7 million as of September 30,
1999. The significant level of Trust assets has effectively resulted in expense
ratios of between 0.56% and 0.58% on each of the Funds. These figures are well
below the estimated expense ratios of 0.65% at the launch of the Trust.
The financial markets crisis in Asia and Russia that dominated last year's
headlines did not materialize into the crushing blow to the U.S. stock market
that many predicted. The first two quarters of the year were strong ones for the
U.S. equity markets, and the S&P 500 Index posted a six-month calendar return of
12.38%. However, the negative returns in the third quarter took some air out of
the lofty return of the index as it posted a return of -6.25% for the quarter.
As of September 30, 1999, the S&P 500 Index's year-to-date return was 5.36%. The
Federal Reserve took preemptive action twice this year, raising the federal
funds rate 25 basis points in both June and August. These attempts to control
inflation prompted many investors to move toward companies that are more likely
to continue posting strong earnings.
Driven by the largest companies in the S&P 500, including Microsoft Corp., IBM
Corp., America Online, Inc., and Lucent Technologies Inc., the Technology Sector
was the best performing sector over the past nine months. The large index weight
of the Technology Sector helped to drive the S&P 500's success. The weakest
performing sector for the year to date was the Consumer Staples Sector.
As anticipated, each Fund achieved a relatively low portfolio turnover for the
period through September 30, 1999. These turnover levels resulted from
securities sales principally in response to changes in the Select Sector
Indexes. In turn, the low portfolio turnovers enabled tax efficiency as minimal
capital gains were generated for distribution to shareholders.
In the Management's Discussion and Analysis pages that follow, we have provided
a brief overview of the performance of each of The Select Sector SPDR Funds. We
continue to appreciate your support of The Select Sector SPDR Trust and look
forward to serving your investment needs in the upcoming year.
Sincerely,
/s/ John W. English
John W. English
Chairman of the Board
1
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
THE BASIC INDUSTRIES SELECT SECTOR SPDR FUND
The Basic Industries Select Sector SPDR Fund seeks to replicate the total return
of the Basic Industries Select Sector of the S&P 500 Index. To accomplish this,
the Basic Industries Select Sector SPDR Fund utilizes a "passive" investment
approach and attempts to approximate the investment performance of its benchmark
Select Sector Index, before expenses, by investing in a portfolio of stocks that
seek to replicate its relevant Select Sector Index. The Basic Industries Select
Sector Index has been a strong performer relative to the overall S&P 500 Index
although the third quarter saw some weakening in returns as investors pulled
back in response to inflation fears. From its inception on December 16, 1998
through September 30, 1999, the Fund gained 15.59% as compared to the Basic
Industries Select Sector Index return of 15.84% and the S&P 500 Index return of
11.52%. The strongest performing industry over the entire year was
Metals/Mining. One such company in the Metals/Mining industry, Inco Limited, has
done very well during 1999 with a return of 104% through the end of September.
ASARCO Inc., and Cyprus Amax also provided impressive returns within the
Metals/Mining industry. The worst performing industry group within the Basic
Industries Select Sector Index was Construction, followed closely by Containers/
Packaging. The Basic Industries Select Sector SPDR Fund consisted of 53
companies as of September 30, 1999.
2
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
[COMPARISON OF CHANGE IN VALUE CHART]
<TABLE>
<CAPTION>
BASIC INDUSTRIES SELECT SECTOR
SPDR FUND S&P 500 INDEX
------------------------------ -------------
<S> <C> <C>
12/16/98 10000.00 10000.00
12/31/98 10429.00 10584.00
03/31/99 10567.00 11111.00
06/30/99 12639.00 11895.00
09/30/99 11559.00 11152.00
</TABLE>
Top Five Holdings
<TABLE>
<CAPTION>
DESCRIPTION DUPONT (E.I.) DE DOW ALCOA MONSANTO INTERNATIONAL
NEMOURS & CO. CHEMICAL CO. INCORPORATED COMPANY PAPER CO.
<S> <C> <C> <C> <C> <C>
VALUE $14,470,901 $6,099,276 $5,553,104 $5,519,678 $4,850,564
% OF 17.67% 7.45% 6.78% 6.74% 5.92%
NET ASSETS
</TABLE>
3
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
THE CONSUMER SERVICES SELECT SECTOR SPDR FUND
The Consumer Services Select Sector SPDR Fund seeks to replicate the total
return of the Consumer Services Select Sector of the S&P 500 Index. To
accomplish this, the Consumer Services Select Sector SPDR Fund utilizes a
"passive" or indexing investment approach and attempts to approximate the
investment performance of its benchmark Select Sector Index, before expenses, by
investing in a portfolio of stocks that seek to replicate the relevant Select
Sector Index. Over the past year, this sector has slightly outperformed the S&P
500 Index. From its inception on December 16, 1998 through September 30, 1999,
the Fund gained 12.03% as compared to the Consumer Services Select Sector Index
return of 12.77% and the S&P 500 Index return of 11.52%. MediaOne and CBS were
two of the larger capitalized names that outperformed both the S&P 500 Index and
the Consumer Services Select Sector Index. CBS's impending merger with Viacom
was the impetus for most of its positive performance. Factors that subtracted
from this fund's performance included concerns regarding the level of consumer
debt, fears of potentially higher interest rates, and concerns of falling
margins due to increased competition. The two largest stocks in this Fund, Time
Warner (-1.9% ytd return) & Walt Disney Co. (-13.3% ytd return), under-
performed both the S&P 500 Index and the Consumer Services Select Sector Index.
The worst performing stock in this sector was HealthSouth Corp., which had an
approximate year-to-date return of -60.2%. Most of this decline was a result of
investor reaction to HealthSouth's September 1999 earnings announcement. As of
September 30, 1999, the Consumer Services Select Sector SPDR Fund consisted of
46 companies.
4
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
[COMPARISON CHANGE IN VALUE CHART]
<TABLE>
<CAPTION>
CONSUMER SERVICES SELECT SECTOR
SPDR FUND S&P 500 INDEX
------------------------------- -------------
<S> <C> <C>
12/16/98 10000.00 10000.00
12/31/98 10817.00 10584.00
03/31/99 11659.00 11111.00
06/30/99 12297.00 11895.00
09/30/99 11203.00 11152.00
</TABLE>
Top Five Holdings
<TABLE>
<CAPTION>
DESCRIPTION DUPONT (E.I.) DE DOW ALCOA MONSANTO INTERNATIONAL
NEMOURS & CO. CHEMICAL CO. INCORPORATED COMPANY PAPER CO.
<S> <C> <C> <C> <C> <C>
VALUE $14,470,901 $6,099,276 $5,553,104 $5,519,678 $4,850,564
% OF 17.67% 7.45% 6.78% 6.74% 5.92%
NET ASSETS
</TABLE>
5
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
THE CONSUMER STAPLES SELECT SECTOR SPDR FUND
The Consumer Staples Select Sector SPDR Fund seeks to replicate the total return
of the Consumer Staples Select Sector of the S&P 500 Index. To accomplish this,
the Consumer Staples Select Sector SPDR Fund utilizes a "passive" or indexing
investment approach and attempts to approximate the investment performance of
its benchmark Select Sector Index, before expenses, by investing in a portfolio
of stocks that seek to replicate the relevant Select Sector Index. The Consumer
Staples Select Sector SPDR Fund underperformed the S&P 500 Index during the
period. From its inception on December 16, 1998 through September 30, 1999, the
Fund lost -12.45% as compared to the Consumer Staples Select Sector Index return
of -12.38% and the S&P 500 Index return of 11.52%. This was mainly due to
general disinterest in the sector as investors continued to be attracted to
glamorous, high-flying computer, internet, and telecommunications issues.
Meanwhile, the constituents in the Consumer Staples Select Sector were further
stung by accounting problems with Rite-Aid and McKesson HBOC, and a major
product recall for Coca-Cola in Europe. In addition to these three companies,
notable underperformers in the sector included Avon Products, Safeway, Biomet,
Becton Disckinson, and Clorox. The period also saw some consolidation among the
large supermarket chains as Kroger Company acquired Fred Meyer in June 1999 and
Albertson's took over American Stores in May 1999. As of September 30, 1999, the
Consumer Staples Select Sector SPDR Fund consisted of 68 companies.
6
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
[COMPARISON CHANGE IN VALUE CHART]
<TABLE>
<CAPTION>
CONSUMER STAPLES SELECT SECTOR
SPDR FUND S&P 500 INDEX
------------------------------ -------------
<S> <C> <C>
12/16/98 10000.00 10000.00
12/31/98 10451.00 10584.00
03/31/99 10193.00 11111.00
06/30/99 9890.00 11895.00
09/30/99 8755.00 11152.00
</TABLE>
Top Five Holdings
<TABLE>
<CAPTION>
DESCRIPTION MERCK AND PFIZER BRISTOL-MYERS PROCTER AND JOHNSON &
COMPANY, INC. INCORPORATED SQUIBB CO. GAMBLE CO. JOHNSON CO.
<S> <C> <C> <C> <C> <C>
VALUE $9,492,698 $8,696,695 $8,365,747 $7,772,437 $7,710,609
% OF 8.07% 7.39% 7.11% 6.61% 6.55%
NET ASSETS
</TABLE>
7
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
THE CYCLICAL/TRANSPORTATION SELECT SECTOR SPDR FUND
The Cyclical/Transportation Select Sector SPDR Fund seeks to replicate the total
return of the Cyclical/Transportation Select Sector of the S&P 500 Index. To
accomplish this, the Cyclical/ Transportation Select Sector SPDR Fund utilizes a
"passive" or indexing investment approach and attempts to approximate the
investment performance of its benchmark Select Sector Index, before expenses, by
investing in a portfolio of stocks that seek to replicate the relevant Select
Sector Index. The Fund's performance has been slightly favorable for 1999 as the
Cyclical/Transportation Select Sector was able to enjoy high earnings growth in
the first quarter. From its inception on December 16, 1998 through September 30,
1999, the Fund gained 7.17% as compared to the Cyclical/Transportation Select
Sector Index return of 7.30% and the S&P 500 Index return of 11.52%. This was
mainly due to high demand for women's fashion apparel, which has since
diminished slightly. Some of the larger specialty retail stores, such as Best
Buy, Circuit City and Tandy Corp. have shown strong returns this year. These
gains were offset by some less favorable returns for the larger department
stores and a minor slow down for homebuilding stores. The recent problems
experienced by Airlines and Railroads have caused a slow down in growth for the
Cyclical/ Transportation Select Sector overall. As of September 30, 1999, the
Cyclical/Transportation Select Sector SPDR Fund consisted of 71 companies.
8
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
[COMPARISON CHANGE IN VALUE CHART]
<TABLE>
<CAPTION>
CYCLICALS/TRANSPORTATION SELECT
SECTOR SPDR FUND S&P 500 INDEX
------------------------------- -------------
<S> <C> <C>
12/16/98 10000.00 10000.00
12/31/98 10705.00 10584.00
03/31/99 11652.00 11111.00
06/30/99 12145.00 11895.00
09/30/99 10717.00 11152.00
</TABLE>
Top Five Holdings
<TABLE>
<CAPTION>
DESCRIPTION WAL-MART STORES HOME DEPOT FORD MOTOR GENERAL GAP
INCORPORATED INCORPORATED COMPANY MOTORS INCORPORATED
CORPORATION
<S> <C> <C> <C> <C> <C>
VALUE $ 8,105,601 $4,209,389 $2,512,386 $1,684,271 $1,140,480
% OF 22.95% 11.92% 7.11% 4.77% 3.23%
NET ASSETS
</TABLE>
9
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
THE ENERGY SELECT SECTOR SPDR FUND
The Energy Select Sector SPDR Fund seeks to replicate the total return of the
Energy Select Sector of the S&P 500 Index. To accomplish this, the Energy Select
Sector SPDR Fund utilizes a "passive" or indexing investment approach and
attempts to approximate the investment performance of its benchmark Select
Sector Index, before expenses, by investing in a portfolio of stocks that seek
to replicate the relevant Select Sector Index. The Energy Select Sector SPDR
Fund was one of the top three performers of the nine Select Sector SPDR Funds
from its inception on December 16, 1998 through September 30, 1999. During that
period, the Fund gained 17.91% as compared to the Energy Select Sector Index
return of 17.99% and the S&P 500 Index return of 11.52%. The Fund was led by a
strong performance from Royal Dutch Petroleum which posted a 25.20% year to date
return. Other top performers included Enron Corp (50.3% ytd return),
Schlumberger Ltd. (35.1% ytd return), and Atlantic Richfield (39.2% ytd return).
Union Pacific Corp. recorded the highest gain of all the Energy stocks on an
absolute basis, returning a lofty year to date 78.5%. In fact, only four
securities in the Fund had negative returns during this time period: Ashland,
Inc (-29.7% ytd return), McDermott Intl (-18.6% ytd return), Sunoco (-12.5% ytd
return), and Burlington Resources (-2.5% ytd return).
The Energy Select Sector had suffered through a long 15-month slide in oil
prices that lasted from October 1997 to December 1998. After bottoming out at
close to $10 per barrel in December 1998, oil prices have since more than
doubled, rising to over $22 per barrel. In March 1999, the members of OPEC
agreed to cut back their daily production by 2.5%. Worldwide consumption began
to rise as a result of the strong United States economy combined with the
recovery of the Asian economies. The increase in consumption and prices helped
to bolster the performance of the Energy Select Sector as a whole during the
second quarter of 1999. However, declining margins led to a pull back in the
third quarter, which was a tough period for the entire stock market. Margins in
the United States were cut in half, to $2.10 per barrel, down from $4.20 a
barrel a year ago.
As of September 30, 1999, the Energy Select Sector SPDR Fund consisted of 32
companies.
10
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
[COMPARISON CHANGE IN VALUE CHART]
<TABLE>
<CAPTION>
ENERGY SELECT SECTOR SPDR FUND S&P 500 INDEX
------------------------------ -------------
<S> <C> <C>
12/16/98 10000.00 10000.00
12/31/98 9835.00 10584.00
03/31/99 10483.00 11111.00
06/30/99 11993.00 11895.00
09/30/99 11791.00 11152.00
</TABLE>
Top Five Holdings
<TABLE>
<CAPTION>
DESCRIPTION EXXON ROYAL DUTCH TEXACO ENRON MOBIL
CORPORATION PETROLEUM INCORPORATED CORPORATION CORPORATION
CORPORATION
<S> <C> <C> <C> <C> <C>
VALUE $31,638,980 $25,575,657 $7,191,642 $6,951,161 $6,738,598
% OF 21.14% 17.09% 4.81% 4.65% 4.53%
NET ASSETS
</TABLE>
11
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FINANCIAL SELECT SECTOR SPDR FUND
The Financial Select Sector SPDR Fund seeks to replicate the total return of the
Financial Select Sector of the S&P 500 Index. To accomplish this, the Financial
Select Sector SPDR Fund utilizes a "passive" investment approach and attempts to
approximate the investment performance of its benchmark Select Sector Index,
before expenses, by investing in a portfolio of stocks that seek to replicate
the relevant Select Sector Index. The Financial Select Sector SPDR Fund has
underperformed the overall S&P 500 Index and has provided some of the weakest
returns of all the Select Sector SPDR Funds on both a year-to-date and
inception-to-date basis. From its inception on December 16, 1998 through
September 30, 1999, the Fund gained 0.97% as compared to the Financial Select
Sector Index return of 0.86% and the S&P 500 Index return of 11.52%.
While several of the industries within the Financial Select Sector, such as
Investment Banking/ Brokerage have done well year-to-date as of September 30,
1999, all of the financial industries were hard hit during the second half of
the year as the market reacted to two separate interest rate hikes by the
Federal Reserve Bank. Banc One Corp and the insurance companies, UNUM Provident
and Progressive Corp., all posted negative third quarter returns in excess of
40%. However, several companies within the Financial Select Sector continue to
fare well year-to-date relative to the overall S&P 500. Citigroup, in
particular, has been a star performer with a September 30, 1999 year-to-date
return of 12.85%. As of September 30, 1999, the Financial Select Sector SPDR
Fund consisted of 71 companies.
12
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
[COMPARISON CHANGE IN VALUE CHART]
<TABLE>
<CAPTION>
FINANCIAL SELECT SECTOR SPDR
FUND S&P 500 INDEX
---------------------------- -------------
<S> <C> <C>
12/16/98 10000.00 10000.00
12/31/98 10597.00 10584.00
03/31/99 11371.00 11111.00
06/30/99 11925.00 11895.00
09/30/99 10097.00 11152.00
</TABLE>
Top Five Holdings
<TABLE>
<CAPTION>
DESCRIPTION CITIGROUP AMERICAN BANK AMERICA WELLS FARGO FANNIE
INCORPORATED INTERNATIONAL CORPORATION AND COMPANY MAE
GROUP INCORPORATED
<S> <C> <C> <C> <C> <C>
VALUE $12,328,272 $11,168,774 $7,985,922 $5,423,830 $5,337,026
% OF 9.99% 9.05% 6.47% 4.40% 4.32%
NET ASSETS
</TABLE>
13
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
THE INDUSTRIAL SELECT SECTOR SPDR FUND
The Industrial Select Sector SPDR Fund seeks to replicate the total return of
the Industrial Select Sector of the S&P 500 Index. To accomplish this, the
Industrial Select Sector SPDR Fund utilizes a "passive" or indexing investment
approach and attempts to approximate the investment performance of its benchmark
Select Sector Index, before expenses, by investing in a portfolio of stocks that
seek to replicate the relevant Select Sector Index. On both a year-to-date and
inception-to-date basis, the Industrial Select Sector SPDR Fund has outperformed
the S&P 500 Index. From its inception on December 16, 1998 through September 30,
1999, the Fund gained 27.40% as compared to the Industrial Select Sector Index
return of 27.74% and the S&P 500 Index return of 11.52%. This is mainly the
result of several broad economic events that had an impact on this Fund's
return. Two of these occurred during the first half of the year. These were
better than expected housing starts and stronger than anticipated industrial
orders. During the third quarter, this sector's return was buoyed by a resurgent
Asian economy. This resurgence increased investor confidence in future demand
for many of the companies in this Fund.
The three largest stocks in the Industrial Select Sector, GE (17.27% ytd
return), Tyco (37% ytd return), and 3M (37.4% ytd return), were significant
contributors to this Fund's performance. The best performing stock was Case Corp
(129% ytd return). The worst performing stock in the Industrial Select Sector
was Waste Management Inc (WMI), which had a year-to-date return of -58.7%. Most
of the decline was caused by investor reaction to WMI's failure to meet its
earnings target. As of September 30, 1999, the Industrial Select Sector SPDR
Fund consisted of 33 companies.
14
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
[COMPARISON CHANGE IN VALUE CHART]
<TABLE>
<CAPTION>
INDUSTRIAL SELECT SECTOR SPDR
FUND S&P 500 INDEX
----------------------------- -------------
<S> <C> <C>
12/16/98 10000.00 10000.00
12/31/98 10759.00 10584.00
03/31/99 11010.00 11111.00
06/30/99 13153.00 11895.00
09/30/99 12740.00 11152.00
</TABLE>
Top Five Holdings
<TABLE>
<CAPTION>
DESCRIPTION GENERAL TYCO MINNESOTA MINING ALLIED EMERSON
ELECTRIC LABORATORIES AND MANUFACTURING SIGNAL ELECTRIC
COMPANY INCORPORATED COMPANY INCORPORATED COMPANY
<S> <C> <C> <C> <C> <C>
VALUE $14,832,050 $ 8,115,656 $3,965,652 $3,461,570 $2,975,752
% OF 22.49% 12.30% 6.01% 5.25% 4.51%
NET ASSETS
</TABLE>
15
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THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS
THE TECHNOLOGY SELECT SECTOR SPDR FUND
The Technology Select Sector SPDR Fund seeks to replicate the total return of
the Technology Select Sector of the S&P 500 Index. To accomplish this, the
Technology Select Sector SPDR Fund utilizes a "passive" or indexing investment
approach and attempts to approximate the investment performance of its benchmark
Select Sector Index, before expenses, by investing in a portfolio of stocks that
seek to replicate the relevant Select Sector Index. The Technology Select Sector
SPDR Fund has been the best performing Fund among the nine Select Sector SPDR
Funds, posting a 9.6% higher return than the Industrial Select Sector SPDR Fund,
the next best performing Fund. From its inception on December 16, 1998 through
September 30, 1999, the Fund gained 37.00% as compared to the Technology Select
Sector Index return of 37.17% and the S&P 500 Index return of 11.52%. Indeed,
the Technology Select Sector has been the driving force behind the returns of
the S&P 500 Index. When the sector is taken out of the S&P 500 Index, the S&P
500 Index return for the year-to-date ending September 30, 1999 actually becomes
slightly negative.
The return for the Technology Select Sector has been mainly driven by some of
the largest companies in the S&P 500. For example, Microsoft, Cisco, IBM, Intel
and Sun Microsystems are all components of the Technology Select Sector as well
as some of the largest stocks in the full S&P 500 Index. Microsoft, as the
largest stock in the Fund has the most significant impact on the sector's
return. Since the Fund's inception on December 16, 1998, Microsoft has gained
35.4%. Despite that lofty return, Microsoft was not the best performing stock.
LSI Logic and Sprint have been the best performing stocks in 1999 in the entire
S&P 500 Index, as well as in the Fund. The two firms posted returns of 222.48%
and 222.43%, respectively, for the calendar year ending September 30, 1999 and a
return of 200.36% and 353.61%, respectively, since the inception of the Select
Sector SPDR Funds.
Not every firm in the Technology Select Sector had stellar performance over the
past year. In fact, several firms experienced difficulty or fell from investor's
favor. Compaq Computer reported disappointing earnings. In the first quarter
1999, Compaq's earnings came in at half of Wall Street expectations, which sent
the stock price plummeting as investors reacted harshly to the news. Additional
poor performers were Autodesk and Advanced Micro Devices, which recorded returns
since inception of the Technology Select Sector SPDR Fund of -41.86% and
- -37.36%, respectively. As of September 30, 1999, the Technology Select Sector
SPDR Fund consisted of 84 companies.
16
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MANAGEMENT'S DISCUSSION AND ANALYSIS
[COMPARISON CHANGE IN VALUE CHART]
<TABLE>
<CAPTION>
TECHNOLOGY SELECT SECTOR SPDR
FUND S&P 500 INDEX
----------------------------- -------------
<S> <C> <C>
12/16/98 10000.00 10000.00
12/31/98 10851.00 10584.00
03/31/99 12189.00 11111.00
06/30/99 13445.00 11895.00
09/30/99 13700.00 11152.00
</TABLE>
Top Five Holdings
<TABLE>
<CAPTION>
DESCRIPTION MICROSOFT INTEL CISCO SYSTEMS INTERNATIONAL LUCENT
CORPORATION CORPORATION INCORPORATED BUSINESS MACHINES TECHNOLOGIES
CORPORATION INCORPORATED
<S> <C> <C> <C> <C> <C>
VALUE $105,646,228 $56,185,378 $50,945,366 $50,187,834 $45,435,466
% OF 14.44% 7.68% 6.96% 6.86% 6.21%
NET ASSETS
</TABLE>
17
<PAGE> 20
- --------------------------------------------------------------------------------
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE UTILITIES SELECT SECTOR SPDR FUND
The Utilities Select Sector SPDR Fund seeks to replicate the total return of the
Utilities Select Sector of the S&P 500 Index. To accomplish this, the Utilities
Select Sector SPDR Fund utilizes a "passive" or indexing investment approach and
attempts to approximate the investment performance of its benchmark Select
Sector Index, before expenses, by investing in a portfolio of stocks that seek
to replicate the relevant Select Sector Index. Performance has been less than
favorable throughout the year as the Utilities Select Sector was affected by
problems with Telephone and Electric Companies. From its inception on December
16, 1998 through September 30, 1999, the Fund gained 3.66% as compared to the
Utilities Select Sector Index return of 3.26% and the S&P 500 Index return of
11.52%. Although there has been some growth in data & wireless sales, the main
reason for the Fund's less than favorable performance was a slowdown in
traditional long distance revenues among telecommunications providers.
Unfortunately, such companies as SBC Communications Inc., BellSouth Corp. and
Southern Co. make up a large part of this sector, and have experienced negative
year to date returns of -2.98%, -8.63% and -7.94% respectively. Fortunately, as
predicted, Bell Atlantic Corp. and GTE Corp. have each continued their growth
for the year, both enjoying returns of over 20%. As of September 30, 1999, the
Utilities Select Sector SPDR Fund consisted of 42 companies.
18
<PAGE> 21
- --------------------------------------------------------------------------------
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
[COMPARISON CHANGE IN VALUE CHART]
<TABLE>
<CAPTION>
UTILITIES SELECT SECTOR SPDR
FUND S&P 500 INDEX
---------------------------- -------------
<S> <C> <C>
12/16/98 10000.00 10000.00
12/31/98 10369.00 10584.00
03/31/99 9239.00 11111.00
06/30/99 10818.00 11895.00
09/30/99 10366.00 11152.00
</TABLE>
TOP FIVE HOLDINGS
<TABLE>
<CAPTION>
DESCRIPTION BELL SBC BELLSOUTH AMERITECH GTE
ATLANTIC COMMUNICATIONS CORPORATION CORPORATION CORPORATION
CORPORATION INCORPORATED
<S> <C> <C> <C> <C> <C>
VALUE $11,887,590 $11,426,000 $9,652,950 $3,817,459 $3,806,619
% OF 14.65% 14.08% 11.89% 4.70% 4.69%
NET ASSETS
</TABLE>
19
<PAGE> 22
THE BASIC INDUSTRIES SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS--100.1%
ALUMINUM--10.0%
Alcan Aluminum Ltd. ........... 55,160 $ 1,723,750
Alcoa, Inc. ................... 89,476 5,553,104
Reynolds Metals Co. ........... 15,372 928,085
-------------
8,204,939
-------------
CHEMICALS--50.0%
Air Products & Chemicals, Inc.. 55,984 1,627,035
Dow Chemical Co. .............. 53,679 6,099,276
DuPont (E.I.) de Nemours ...... 237,715 14,470,901
Eastman Chemical Co. .......... 19,071 762,840
Ecolab, Inc. .................. 31,695 1,081,592
Engelhard Corp. ............... 30,736 559,011
FMC Corp. (a) ................. 7,803 376,495
Great Lakes Chemical Corp. .... 14,305 544,484
Hercules, Inc. ................ 25,877 740,729
Monsanto Co. .................. 154,667 5,519,678
PPG Industries, Inc. .......... 42,409 2,544,540
Praxair, Inc. ................. 38,911 1,789,906
Rohm & Haas Co. ............... 53,142 1,919,755
Sigma-Aldrich Corp. ........... 24,679 783,558
Union Carbide Corp. ........... 32,513 1,847,145
W.R. Grace & Co. (a) .......... 17,349 278,668
-------------
40,945,613
-------------
CONSTRUCTION--1.1%
Vulcan Materials Co. .......... 24,450 895,481
-------------
CONTAINERS--3.8%
Ball Corp. .................... 7,482 329,675
Bemis Co., Inc. ............... 12,730 431,229
Crown Cork & Seal Co., Inc. ... 29,944 726,142
Owens-Illinois, Inc. (a) ...... 38,103 754,916
Temple-Inland, Inc. ........... 13,672 827,156
-------------
3,069,118
-------------
GOLD--6.0%
Barrick Gold Corp. ............ 95,195 2,070,491
Homestake Mining Co. .......... 63,477 583,195
Newmont Mining Corp. .......... 40,968 1,060,047
Placer Dome, Inc. ............. 79,566 1,183,544
-------------
4,897,277
-------------
MANUFACTURING--3.9%
Avery Dennison Corp. .......... 27,757 1,464,182
Sealed Air Corp. (a) .......... 20,357 1,044,568
Tenneco, Inc. ................. 41,570 706,690
-------------
3,215,440
-------------
MACHINERY--0.3%
Timken Co. .................... 15,158 $ 244,423
-------------
METALS/MINING--3.8%
ASARCO, Inc. .................. 9,756 261,583
Cyprus Amax Minerals Co. ...... 22,028 432,300
Freeport-McMoran Copper &
Gold, Inc................. 39,859 620,306
Inco Ltd. ..................... 46,934 1,003,214
Phelps Dodge Corp. ............ 14,133 778,198
-------------
3,095,601
-------------
PAPER & FOREST PRODUCTS--17.6%
Boise Cascade Corp. ........... 13,964 508,813
Champion International Corp. .. 23,400 1,202,175
Georgia-Pacific Corp. ......... 41,930 1,698,165
International Paper Co. ....... 100,922 4,850,564
Louisiana-Pacific Corp. ....... 26,244 410,063
Mead Corp. .................... 24,958 857,931
Potlatch Corp. ................ 7,016 288,972
Westvaco Corp. ................ 24,475 627,172
Weyerhaeuser Co. .............. 49,124 2,830,770
Willamette Industries, Inc. ... 27,241 1,174,768
-------------
14,449,393
-------------
STEEL--3.6%
Allegheny Teledyne, Inc. ...... 46,479 784,333
Bethlehem Steel Corp. (a) ..... 31,902 235,277
Nucor Corp. ................... 21,359 1,017,222
USX-U.S. Steel Group .......... 21,582 555,737
Worthington Industries, Inc. .. 22,414 381,038
-------------
2,973,607
-------------
TOTAL COMMON STOCKS--
(Cost $92,196,886) 81,990,892
-------------
SHORT TERM INVESTMENTS--0.3%
MONEY MARKET FUND--0.3%
AIM Short Term Investment Class
Prime Fund (Cost $216,664) 216,664 216,664
-------------
TOTAL INVESTMENTS--100.4%
(Cost $92,413,550) 82,207,556
OTHER ASSETS AND LIABILITIES--(0.4)% (320,508)
-------------
NET ASSETS--100.0% $ 81,887,048
=============
</TABLE>
(a) Non-income producing security.
See accompanying notes to financial statements
20
<PAGE> 23
THE CONSUMER SERVICES SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS--100.1%
ENTERTAINMENT--30.6%
King World Productions, Inc. (a)... 7,211 $ 270,413
Seagram Co. Ltd. (The) ............ 43,505 1,979,478
Time Warner, Inc. ................. 130,124 7,905,033
Viacom, Inc. (a) .................. 70,153 2,963,964
Walt Disney Co. ................... 207,396 5,366,371
-----------
18,485,259
-----------
FINANCIAL SERVICES--2.8%
Cendant Corp. (a) ................. 72,488 1,286,662
H&R Block, Inc. ................... 9,886 429,423
-----------
1,716,085
-----------
HOTELS--7.3%
Carnival Corp. .................... 61,688 2,683,428
Harrah's Entertainment, Inc. (a)... 12,940 359,085
Hilton Hotels Corp. ............... 25,657 253,363
Marriott International, Inc. ...... 24,975 816,370
Mirage Resorts, Inc. (a) .......... 20,117 282,895
-----------
4,395,141
-----------
INFORMATION SERVICES--6.5%
Dun & Bradstreet Corp. ............ 16,239 485,140
IMS Health, Inc. .................. 31,421 716,792
Interpublic Group of Cos., Inc..... 28,332 1,165,153
Omnicom Group, Inc. ............... 17,877 1,415,635
Shared Medical Systems ............ 2,699 126,178
-----------
3,908,898
-----------
MEDIA--21.8%
CBS Corp. (a) ..................... 70,879 3,278,154
Clear Channel Communications,
Inc. (a)...................... 33,948 2,711,597
Comcast Corp. ..................... 75,262 3,001,072
MediaOne Group, Inc. (a) .......... 61,008 4,167,609
-----------
13,158,432
-----------
MEDICAL PROVIDERS--7.5%
Aetna, Inc. ....................... 14,170 697,873
Columbia/HCA Healthcare Corp. ..... 56,706 1,201,458
HCR Manor Care, Inc. (a) .......... 10,799 185,608
Healthsouth Corp. (a) ............. 42,018 254,734
Humana, Inc. (a) .................. 16,869 115,974
MEDICAL PROVIDERS--(CONTINUED)
Service Corp. International ....... 27,519 $ 290,670
Tenet Healthcare Corp. (a) ........ 31,444 552,235
United Healthcare Corp. ........... 17,484 851,252
Wellpoint Health Networks, Inc.(a). 6,598 376,086
-----------
4,525,890
-----------
PUBLISHING--11.9%
American Greetings Corp. .......... 6,871 176,928
Deluxe Corp. ...................... 7,622 259,148
Dow Jones & Co., Inc. ............. 9,128 487,207
Gannett Co., Inc. ................. 28,118 1,945,414
Jostens, Inc. ..................... 3,597 68,793
Knight Ridder, Inc. ............... 8,114 445,256
McGraw-Hill, Inc. ................. 19,812 958,405
Meredith Corp. .................... 5,257 190,895
New York Times Co. ................ 17,462 654,825
R.R. Donnelley & Sons Co. ......... 12,847 370,957
Times Mirror Co. .................. 7,250 477,141
Tribune Co. ....................... 23,792 1,183,652
-----------
7,218,621
-----------
RESTAURANTS--11.7%
Darden Restaurants, Inc. .......... 13,262 259,438
McDonalds Corp. ................... 136,225 5,857,675
Tricon Global Restaurants, Inc.(a). 15,402 630,519
Wendy's International, Inc. ....... 12,255 323,226
-----------
7,070,858
-----------
TOTAL COMMON STOCKS--
(Cost $59,121,789) 60,479,184
-----------
SHORT TERM INVESTMENTS--0.0%(b)
MONEY MARKET FUND--0.0%(b)
AIM Short Term Investment Class
Prime Fund (Cost $10,879) 10,879 10,879
-----------
TOTAL INVESTMENTS--100.1%
(Cost $59,132,668)............ 60,490,063
OTHER ASSETS AND LIABILITIES--(0.1)% (70,505)
-----------
NET ASSETS--100.0% $60,419,558
===========
</TABLE>
(a) Non-income producing security.
(b) Amount shown represents less than 0.01%.
See accompanying notes to financial statements
21
<PAGE> 24
THE CONSUMER STAPLES SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS--99.5%
AGRICULTURE--0.4%
Archer Daniels Midland Co. .... 38,513 $ 469,377
-------------
ALCOHOL--2.1%
Adolph Coors Co. (Class B) .... 2,288 123,838
Anheuser-Busch Cos., Inc. ..... 29,169 2,043,653
Brown-Forman Corp. (Class B) .. 4,325 269,772
-------------
2,437,263
-------------
DRUGS--38.9%
Allergan Pharmaceuticals, Inc. 4,158 457,380
ALZA Corp. (Class A) (a) ...... 6,392 273,658
American Home Products Corp. .. 81,620 3,387,230
Bristol-Myers Squibb Co. ...... 123,937 8,365,747
Cardinal Health, Inc. ......... 16,971 924,920
Eli Lilly & Co. ............... 68,221 4,366,144
Mckesson HBOC, Inc. ........... 17,562 509,298
Merck & Co., Inc. ............. 146,464 9,492,698
Pfizer, Inc. .................. 241,995 8,696,695
Pharmacia & Upjohn, Inc. ...... 31,630 1,569,639
Schering-Plough Corp. ......... 91,706 4,000,674
Warner-Lambert Co. ............ 53,403 3,544,624
Watson Pharmaceuticals, Inc. (a) 5,998 183,314
-------------
45,772,021
-------------
FOOD AND BEVERAGES--19.6%
Bestfoods ..................... 17,449 846,276
Campbell Soup Co. ............. 27,149 1,062,205
Coca-Cola Co. ................. 154,121 7,407,441
Coca-Cola Enterprises, Inc. ... 26,545 598,922
ConAgra, Inc. ................. 30,491 687,953
General Mills, Inc. ........... 9,532 773,283
H.J. Heinz Co. ................ 22,402 963,286
Hershey Foods Corp. ........... 8,689 423,046
Kellogg Co. ................... 25,339 948,629
PepsiCo, Inc. ................. 91,305 2,761,976
Quaker Oats Co. ............... 8,379 518,451
Ralston-Ralston Purina Co. .... 20,264 563,592
RJR Nabisco Holdings Corp. .... 20,272 304,080
Sara Lee Corp. ................ 56,357 1,320,867
SUPERVALU, Inc. ............... 8,715 190,096
SYSCO Corp. ................... 20,647 723,935
Unilever N.V. (N.Y. Shares) ... 35,642 2,428,111
W.M. Wrigley Jr. Co. .......... 7,239 498,134
-------------
23,020,283
-------------
GROCERY--3.2%
Albertson's, Inc. ............. 26,220 $ 1,037,329
Great Atlantic & Pacific Tea Co. 2,392 72,507
Kroger Co. (a) ................ 51,760 1,141,955
Safeway, Inc. (a) ............. 31,842 1,211,986
Winn-Dixie Stores, Inc. ....... 9,286 275,678
-------------
3,739,455
-------------
HOME PRODUCTS--11.3%
Alberto-Culver Co. (Class B) .. 3,507 81,099
Avon Products, Inc. ........... 16,333 405,263
Clorox Co. .................... 14,741 563,843
Colgate-Palmolive Co. ......... 36,374 1,664,110
Fortune Brands, Inc. .......... 10,446 336,884
Gillette Co. .................. 67,763 2,299,707
International Flavors &
Fragrances, Inc........... 6,615 228,218
Procter & Gamble Co. .......... 82,906 7,772,437
-------------
13,351,561
-------------
HOUSEHOLD PRODUCTS--1.8%
Fort James Corp. .............. 13,761 367,247
Kimberly-Clark Corp. .......... 33,278 1,747,095
-------------
2,114,342
-------------
MEDICAL PRODUCTS--15.2%
Abbott Laboratories ........... 95,020 3,491,985
Bausch & Lomb, Inc. ........... 3,536 233,155
Baxter International, Inc. .... 18,221 1,097,815
Becton, Dickinson & Co. ....... 15,605 437,915
Biomet, Inc. .................. 7,040 185,240
Boston Scientific Corp. (a) ... 25,795 636,814
C.R. Bard, Inc. ............... 3,184 149,847
Guidant Corp. ................. 18,812 1,008,794
Johnson & Johnson Co........... 83,925 7,710,609
Mallinckrodt, Inc. ............ 4,436 133,912
Medtronic, Inc. ............... 73,186 2,598,103
St. Jude Medical Center, Inc. (a) 5,272 166,068
-------------
17,850,257
-------------
SPECIALTY RETAIL--2.4%
CVS Corp. ..................... 24,486 999,335
Longs Drug Stores Corp. ....... 2,461 73,523
Rite Aid Corp. ................ 16,111 222,533
Walgreen Co. .................. 62,654 1,589,845
-------------
2,885,236
-------------
</TABLE>
See accompanying notes to financial statements
22
<PAGE> 25
THE CONSUMER STAPLES SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
TOBACCO--4.6%
Philip Morris Cos., Inc. ...... 149,212 $ 5,101,185
UST, Inc. ..................... 10,932 330,010
-------------
5,431,195
-------------
TOTAL COMMON STOCKS--
(Cost $135,658,441) 117,070,990
-------------
SHORT TERM INVESTMENTS--0.2%
MONEY MARKET FUND--0.2%
AIM Short Term Investment Class
Prime Fund (Cost $216,356) 216,356 216,356
-------------
TOTAL INVESTMENTS--99.7%
(Cost $135,874,797)....... 117,287,346
OTHER ASSETS AND LIABILITIES--0.3% 363,206
-------------
NET ASSETS--100.0% $ 117,650,552
=============
</TABLE>
(a) Non-income producing security.
See accompanying notes to financial statements
23
<PAGE> 26
THE CYCLICAL/TRANSPORTATION SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS--100.1%
AIRLINES--3.0%
AMR Corp. (a) ................. 6,410 $ 349,345
Delta Air Lines, Inc. ......... 5,954 288,769
Southwest Airlines Co. ........ 21,368 324,526
US Airways Group, Inc. (a) .... 3,302 86,678
-------------
1,049,318
-------------
APPAREL--8.1%
Gap, Inc. ..................... 35,640 1,140,480
Limited, Inc. ................. 9,065 346,737
Liz Claiborne, Inc. ........... 2,854 88,474
Nike, Inc., Class B ........... 11,736 667,485
Reebok International Ltd. (a) . 3,101 33,142
Russell Corp. ................. 1,942 27,552
Springs Industries, Inc. ...... 956 32,444
TJX Cos., Inc. ................ 13,392 375,813
V.F. Corp. .................... 5,223 161,913
-------------
2,874,040
-------------
CONSTRUCTION--2.6%
Armstrong World Industries, Inc. 1,798 80,797
Centex Corp. .................. 2,733 80,794
Fleetwood Enterprises, Inc. ... 1,781 35,954
Kaufman & Broad Home Corp. .... 2,478 51,109
Masco Corp. ................... 18,609 576,879
Owens Corning ................. 2,606 56,518
Pulte Corp. ................... 2,232 48,546
-------------
930,597
-------------
CONSUMER DURABLES--2.0%
Black & Decker Corp. .......... 3,761 171,831
Maytag Corp. .................. 3,833 127,687
Snap-on, Inc. ................. 2,986 97,045
Stanley Works ................. 3,980 100,246
Whirlpool Corp. ............... 3,244 211,874
-------------
708,683
-------------
DEPARTMENT STORES--36.1%
Costco Wholesale Corp. (a) .... 9,202 662,544
Dayton Hudson Corp. ........... 18,437 1,107,372
Dillard's, Inc. ............... 4,843 98,374
Federated Department Stores, Inc. (a) 8,824 385,499
Harcourt General, Inc. ........ 3,127 130,161
J.C. Penney Co., Inc. ......... 11,077 380,772
KMart Corp. (a) ............... 21,166 247,378
Kohl's Corp. (a) .............. 6,817 450,774
May Department Stores Co. ..... 14,014 510,635
Nordstrom, Inc. ............... 6,111 164,997
Sears, Roebuck & Co. .......... 16,029 502,910
Wal-Mart Stores, Inc. ......... 170,420 8,105,601
-------------
12,747,017
-------------
HOUSEWARES--1.1%
Newell Rubbermaid, Inc. ....... 11,908 $ 340,122
Tupperware Corp. .............. 2,852 57,753
-------------
397,875
-------------
INDUSTRIAL SERVICES--0.2%
Ryder System, Inc. ............ 3,256 66,341
-------------
LEISURE TIME--1.7%
Brunswick Corp. ............... 4,132 102,783
Hasbro, Inc. .................. 8,388 179,818
Mattel, Inc. .................. 17,707 336,433
-------------
619,034
-------------
MOTOR VEHICLES--15.0%
Cooper Tire & Rubber Co. ...... 3,623 63,855
Delphi Automotive Systems Corp. 23,827 382,721
Ford Motor Co. ................ 50,060 2,512,386
General Motors Corp. .......... 26,761 1,684,271
Genuine Parts Co. ............. 7,694 204,372
Goodyear Tire & Rubber Co. .... 6,660 320,513
ITT Industries, Inc. .......... 3,862 122,860
-------------
5,290,978
-------------
RAILROADS--5.8%
Burlington Northern Santa Fe Corp. 19,509 536,497
CSX Corp. ..................... 9,215 390,486
Kansas City Southern Industries, Inc. 4,788 222,343
Norfolk Southern Corp. ........ 16,064 393,568
Union Pacific Corp. ........... 10,421 500,859
-------------
2,043,753
-------------
SPECIALTY RETAIL--22.8%
AutoZone, Inc. (a) ............ 6,500 182,406
Bed Bath & Beyond, Inc. (a) ... 5,800 202,154
Best Buy Co., Inc. (a) ........ 8,570 531,876
Circuit City Stores Inc........ 8,478 357,666
Consolidated Stores Corp. (a) . 4,957 109,364
Dollar General Corp. .......... 9,572 295,535
Home Depot, Inc. (The) ........ 61,339 4,209,389
Lowes Cos., Inc. .............. 15,951 777,611
Office Depot, Inc. (a) ........ 16,248 165,527
Pep Boys - Manny, Moe & Jack .. 2,822 41,977
Sherwin-Williams Co. .......... 7,459 156,173
Staples, Inc. (a) ............. 19,556 426,565
Tandy Corp. ................... 8,124 419,909
Toys R Us, Inc. (a) ........... 10,840 162,600
-------------
8,038,752
-------------
</TABLE>
See accompanying notes to financial statements
24
<PAGE> 27
THE CYCLICAL/TRANSPORTATION SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
TRUCKING AND FREIGHT--1.7%
FDX Corp. (a) ................. 12,568 $ 487,010
Laidlaw, Inc. ................. 14,939 100,838
-------------
587,848
-------------
TOTAL COMMON STOCKS--
(Cost $37,430,662) 35,354,236
-------------
SHORT TERM INVESTMENTS--0.1%
MONEY MARKET FUND--0.1%
AIM Short Term Investment Class
Prime Fund (Cost $30,000) 30,000 30,000
-------------
TOTAL INVESTMENTS--100.2%
(Cost $37,460,662)........ 35,384,236
OTHER ASSETS AND LIABILITIES--(0.2)% (59,942)
-------------
NET ASSETS--100.0% $ 35,324,294
=============
</TABLE>
(a) Non-income producing security.
See accompanying notes to financial statements
25
<PAGE> 28
THE ENERGY SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS--100.2%
ENERGY RESOURCES--74.1%
Amerada Hess Corp. ............ 34,125 $ 2,090,156
Anadarko Petroleum Corp. ...... 47,529 1,452,605
Apache Corp. .................. 56,031 2,419,839
Atlantic Richfield Co. ........ 76,295 6,761,644
Burlington Resources, Inc. .... 54,749 2,012,026
Chevron Corp. ................. 69,214 6,142,743
Conoco, Inc. Class B .......... 125,669 3,440,189
Exxon Corp. ................... 416,645 31,638,980
Kerr-McGee Corp. .............. 40,157 2,211,145
Mobil Corp. ................... 67,331 6,783,598
Occidental Petroleum Corp. .... 114,914 2,657,386
Phillips Petroleum Co. ........ 67,521 3,291,649
Royal Dutch Petroleum Co. ..... 433,027 25,575,657
Texaco, Inc. .................. 113,927 7,191,642
Union Pacific Resources Group, Inc. 121,589 1,953,023
Unocal Corp. .................. 70,186 2,601,269
USX-Marathon Group ............ 90,173 2,637,560
------------
110,861,111
------------
INDUSTRIAL PRODUCTS--0.6%
McDermott International, Inc. . 41,948 849,447
------------
NATURAL GAS--13.0%
Coastal Corp. ................. 65,036 2,662,411
Columbia Energy Group ......... 31,394 1,738,443
Consolidated Natural Gas Co. .. 34,236 2,135,470
Enron Corp. ................... 168,513 6,951,161
Sonat, Inc. ................... 47,800 1,897,063
Williams Cos., Inc. (The) ..... 107,148 4,011,353
------------
19,395,901
------------
OIL AND GAS REFINING--1.9%
Ashland, Inc. ................. 31,965 $ 1,074,823
Sunoco, Inc. .................. 38,878 1,064,285
Tosco Corp. ................... 29,960 756,490
------------
2,895,598
------------
OIL AND GAS SERVICES--10.6%
Baker Hughes, Inc. ............ 99,043 2,872,247
Halliburton Co. ............... 108,740 4,458,340
Helmerich & Payne, Inc. ....... 43,318 1,096,487
Rowan Cos., Inc. (a) .......... 75,751 1,230,954
Schlumberger Ltd. ............. 100,868 6,285,337
------------
15,943,365
------------
TOTAL COMMON STOCKS--
(Cost $140,474,151) 149,945,422
------------
SHORT TERM INVESTMENTS--0.3%
MONEY MARKET FUND--0.3%
AIM Short Term Investment Class
Prime Fund (Cost $487,097) 487,097 487,097
------------
TOTAL INVESTMENTS--100.5%
(Cost $140,961,248)....... 150,432,519
OTHER ASSETS AND LIABILITIES--(0.5)% (796,627)
------------
NET ASSETS--100.0% $149,635,892
============
</TABLE>
(a) Non-income producing security.
See accompanying notes to financial statements
26
<PAGE> 29
THE FINANCIAL SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS--100.1%
BANKS--42.0%
AmSouth Bancorp ............... 14,627 $ 342,820
Banc One Corp. ................ 97,356 3,389,206
Bank America Corp. ............ 143,406 7,985,922
Bank of New York, Inc. ........ 61,062 2,041,761
BankBoston Corp. .............. 24,733 1,072,794
BB&T Corp. .................... 26,543 859,330
Chase Manhattan Corp. ......... 69,066 5,205,850
Comerica, Inc. ................ 12,922 654,176
Fifth Third Bancorp ........... 22,522 1,370,323
First Union Corp. ............. 79,431 2,824,765
Firstar Corp. ................. 81,750 2,094,844
Fleet Financial Group, Inc. ... 47,213 1,729,176
Huntington Bancshares, Inc. ... 19,071 506,573
J.P. Morgan & Co., Inc. ....... 14,607 1,668,850
KeyCorp ....................... 37,222 960,793
Mellon Bank Corp. ............. 42,665 1,439,944
National City Corp. ........... 51,330 1,369,869
Northern Trust Corp. .......... 9,274 774,379
PNC Bank Corp. ................ 25,272 1,331,518
Regions Financial Corp. ....... 18,533 555,990
Republic New York Corp. ....... 8,742 537,087
SouthTrust Corp. .............. 13,859 497,192
State Street Corp. ............ 13,339 862,033
Summit Bancorp ................ 14,689 476,474
SunTrust Banks, Inc. .......... 26,695 1,755,196
Synovus Financial Corp. ....... 22,391 418,432
U.S. Bancorp .................. 60,803 1,835,490
Union Planters Corp. .......... 11,879 484,069
Wachovia Corp. ................ 16,820 1,322,472
Wells Fargo & Co. ............. 136,879 5,423,830
-------------
51,791,158
-------------
CONSUMER FINANCE--4.0%
Capital One Financial Corp. ... 16,341 637,299
Countrywide Credit Industries, Inc. 9,358 301,796
Household International, Inc. . 39,688 1,592,481
MBNA Corp. .................... 66,488 1,516,757
Providian Financial Corp. ..... 11,807 934,967
-------------
4,983,300
-------------
FINANCIAL SERVICES--28.2%
American Express Co. .......... 37,266 $ 5,016,935
Aon Corp. ..................... 21,361 631,485
Associates First Capital Corp.
(Class A)................. 60,430 2,175,480
Citigroup, Inc. ............... 280,188 12,328,272
Fannie Mae .................... 85,137 5,337,026
Freddie Mac ................... 57,696 3,000,192
Marsh & McLennan Cos., Inc. ... 21,897 1,499,945
Morgan Stanley, Dean Witter,
Discover and Co. ......... 47,352 4,223,206
SLM Holding Corp. ............. 13,409 576,587
-------------
34,789,128
-------------
LIFE INSURANCE--3.9%
Aflac, Inc. ................... 22,122 926,359
American General Corp. ........ 20,698 1,307,855
Conseco, Inc. ................. 27,152 524,373
Jefferson-Pilot Corp. ......... 8,772 554,281
Lincoln National Corp. ........ 16,533 621,021
Torchmark Corp. ............... 10,987 284,288
UnumProvident Corp. ........... 19,800 582,862
-------------
4,801,039
-------------
PROPERTY INSURANCE--15.3%
Allstate Corp. ................ 66,279 1,652,833
American International Group, Inc. 128,469 11,168,774
Chubb Corp. ................... 14,573 725,918
CIGNA Corp. ................... 16,547 1,286,529
Cincinnati Financial Corp. .... 13,673 513,165
Hartford Financial Services
Group, Inc................ 18,777 767,510
Loews Corp. ................... 8,986 630,705
MBIA, Inc. .................... 8,316 387,733
MGIC Investment Corp. ......... 9,047 431,994
Progressive Corp. ............. 6,047 493,964
SAFECO Corp. .................. 10,934 306,152
St. Paul Cos., Inc. ........... 18,833 517,907
-------------
18,883,184
-------------
SAVINGS AND LOANS--1.5%
Golden West Financial Corp. ... 4,634 455,291
Washington Mutual, Inc. ....... 48,074 1,406,164
-------------
1,861,455
-------------
</TABLE>
See accompanying notes to financial statements
27
<PAGE> 30
THE FINANCIAL SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS-(CONTINUED)
SECURITY DEALERS/
ASSET MANAGEMENT--5.2%
Bear Stearns Cos., Inc. ....... 9,631 $ 370,192
Franklin Resources, Inc. ...... 21,027 646,580
Lehman Brothers Holdings, Inc. 9,924 578,693
Merrill Lynch & Co., Inc. ..... 30,636 2,058,356
Paine Webber Group, Inc. ...... 12,055 436,994
Schwab (Charles) Corp. ........ 67,936 2,288,594
-------------
6,379,409
-------------
TOTAL COMMON STOCKS--
(Cost $140,286,562) 123,488,673
-------------
SHORT TERM INVESTMENTS--0.3%
MONEY MARKET FUND--0.3%
AIM Short Term Investment Class
Prime Fund (Cost $418,629) 418,629 418,629
-------------
TOTAL INVESTMENTS--100.4%
(Cost $140,705,191)....... 123,907,302
OTHER ASSETS AND LIABILITIES--(0.4)% (498,338)
-------------
NET ASSETS--100.0% $ 123,408,964
=============
</TABLE>
See accompanying notes to financial statements
28
<PAGE> 31
THE INDUSTRIAL SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS--100.0%
ELECTRICAL EQUIPMENT--31.3%
Cooper Industries, Inc. ....... 20,810 $ 972,868
Emerson Electric Co. .......... 47,094 2,975,752
General Electric Co. .......... 125,099 14,832,050
Honeywell, Inc. ............... 16,527 1,839,662
-------------
20,620,332
-------------
ENGINEERING &
CONSTRUCTION--2.3%
Fluor Corp. ................... 21,409 861,712
Foster Wheeler Corp. .......... 54,640 659,095
-------------
1,520,807
-------------
MANUFACTURING--43.9%
Allied Signal, Inc. ........... 57,753 3,461,570
Briggs & Stratton Corp. ....... 12,324 719,414
Corning, Inc. ................. 30,329 2,079,432
Crane Co. ..................... 32,684 733,347
Danaher Corp. ................. 24,183 1,274,142
Eaton Corp. ................... 13,042 1,125,688
Illinois Tool Works, Inc. ..... 29,851 2,225,765
Johnson Controls, Inc. ........ 16,329 1,082,817
Minnesota Mining &
Manufacturing Co. ........ 41,282 3,965,652
National Service Industries, Inc. 21,631 681,377
Pall Corp. .................... 36,896 855,526
Parker-Hannifin Corp. ......... 22,756 1,019,753
Textron, Inc. ................. 20,866 1,614,507
Tyco Laboratories, Inc. ....... 78,602 8,115,656
-------------
28,954,646
-------------
MACHINERY-DIVERSIFIED--13.2%
Case Corp. .................... 19,068 949,825
Caterpillar, Inc. ............. 41,945 2,299,110
Deere & Co. ................... 35,553 1,375,457
Dover Corp. ................... 33,385 1,364,612
MACHINERY-DIVERSIFIED--(CONTINUED)
Ingersoll-Rand Co. ............ 25,397 $ 1,395,247
Milacron, Inc. ................ 37,585 667,134
Nacco Industries, Inc. (Class A) 9,416 657,943
-------------
8,709,328
-------------
MOTOR VEHICLES--5.7%
Cummins Engine Co., Inc. ...... 15,503 772,243
Dana Corp. .................... 30,342 1,126,447
Navistar International Corp. (a) 19,214 893,451
PACCAR, Inc. .................. 19,094 971,407
-------------
3,763,548
-------------
WASTE MANAGEMENT--3.6%
Allied Waste Industries, Inc. (a) 63,000 736,312
Waste Management, Inc. ........ 84,923 1,634,768
-------------
2,371,080
-------------
TOTAL COMMON STOCKS--
(Cost $64,558,907) 65,939,741
-------------
SHORT TERM INVESTMENTS--0.0%(B)
MONEY MARKET FUND--0.0%(B)
AIM Short Term Investment Class
Prime Fund (Cost $18,027) 18,027 18,027
-------------
TOTAL INVESTMENTS--100.0%
(Cost $64,576,934) 65,957,768
OTHER ASSETS AND LIABILITIES--0.0%(B) 5,214
-------------
NET ASSETS--100.0% $ 65,962,982
=============
</TABLE>
(a) Non-income producing security.
(b) Amount shown represents less than 0.01%.
See accompanying notes to financial statements
29
<PAGE> 32
THE TECHNOLOGY SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS--100.1%
BIOTECHNOLOGY--1.3%
Amgen, Inc. (a) ............... 118,566 $ 9,663,129
-------------
COMMUNICATIONS EQUIPMENT--13.2%
Adaptec, Inc. (a) ............. 23,600 933,675
ADC Telecommunications, Inc. (a) 30,992 1,299,727
Andrew Corp. (a) .............. 25,131 436,651
General Instrument Corp. (a) .. 42,527 2,046,612
Global Crossing Ltd. (a) ...... 175,600 4,653,400
Harris Corp. .................. 21,236 586,644
Lucent Technologies, Inc. ..... 700,354 45,435,466
Motorola, Inc. ................ 140,033 12,322,904
Nortel Networks Corp. ......... 306,055 15,608,805
QUALCOMM, Inc. ................ 36,676 6,938,641
Scientific-Atlanta, Inc. ...... 20,868 1,034,270
Tellabs, Inc. (a) ............. 91,264 5,196,344
-------------
96,493,139
-------------
COMPUTER HARDWARE--28.0%
3Com Corp. (a) ................ 85,962 2,471,407
Apple Computer, Inc. (a) ...... 39,531 2,502,806
Cabletron Systems, Inc. (a) ... 48,928 767,558
Cisco Systems, Inc. (a) ....... 743,050 50,945,366
Compaq Computer Corp. ......... 393,659 9,029,553
Data General Corp. (a) ........ 19,754 416,069
Dell Computer Corp. (a) ....... 583,863 24,412,772
EMC Corp. (a) ................. 233,794 16,701,659
Gateway 2000, Inc. (a) ........ 75,341 3,347,966
Hewlett-Packard Co. ........... 232,809 21,418,428
International Business
Machines Corp. ........... 413,494 50,187,834
Lexmark International Group, Inc.
Class A (a) .............. 29,456 2,371,208
Network Appliance, Inc. (a) ... 19,058 1,365,029
Seagate Technology, Inc. (a) .. 54,801 1,688,556
Silicon Graphics, Inc. (a) .... 50,997 557,780
Sun Microsystems, Inc. (a) .... 178,686 16,617,798
-------------
204,801,789
-------------
COMPUTER SOFTWARE--23.3%
Adobe Systems, Inc. ........... 15,347 1,741,885
America Online, Inc. .......... 254,408 26,458,432
Autodesk, Inc. ................ 17,555 384,016
BMC Software, Inc. (a) ........ 57,124 4,087,936
Computer Associates
International, Inc. ...... 125,092 7,661,885
Compuware Corp. (a) ........... 85,439 2,226,754
COMPUTER SOFTWARE--(CONTINUED)
Microsoft Corp. (a) ........... 1,166,556 $ 105,646,228
Novell, Inc. (a) .............. 81,170 1,679,204
Oracle Corp. (a) .............. 332,175 15,113,962
Parametric Technology Corp. (a) 69,386 936,711
PeopleSoft, Inc. .............. 62,769 1,063,150
Unisys Corp. (a) .............. 73,391 3,311,769
-------------
170,311,932
-------------
DEFENSE/AEROSPACE--2.9%
B.F. Goodrich Co. ............. 29,267 848,743
Boeing Co. .................... 222,125 9,468,078
General Dynamics Corp. ........ 48,131 3,005,179
Lockheed Martin Corp. ......... 93,568 3,058,504
Northrop Grumman Corp. ........ 17,681 1,123,849
Raytheon Co. (Class B) ........ 78,838 3,912,336
-------------
21,416,689
-------------
ELECTRICAL EQUIPMENT--1.1%
Rockwell International Corp. .. 45,664 2,397,360
Solectron Corp. (a) ........... 63,580 4,565,839
Thomas & Betts Corp. .......... 15,526 791,826
-------------
7,755,025
-------------
ELECTRONICS--0.5%
EG & G, Inc. .................. 14,163 563,864
PE Corp. - PE Biosystems Group 25,338 1,830,671
Tektronix, Inc. ............... 14,621 489,804
W.W. Grainger, Inc. ........... 23,447 1,126,921
-------------
4,011,260
-------------
INFORMATION SERVICES--3.2%
Automatic Data Processing, Inc. 144,234 6,436,442
Ceridian Corp. (a) ............ 36,638 911,370
Computer Sciences Corp. ....... 38,409 2,700,633
Electronic Data Systems Corp. . 114,716 6,072,778
Equifax, Inc. ................. 36,106 1,015,481
First Data Corp. .............. 100,563 4,412,202
Paychex, Inc. ................. 59,910 2,044,429
-------------
23,593,335
-------------
MANUFACTURING--1.1%
Millipore Corp. ............... 13,405 503,525
Thermo Electron Corp. (a) ..... 42,079 565,437
United Technologies Corp. ..... 111,832 6,633,036
-------------
7,701,998
-------------
</TABLE>
See accompanying notes to financial statements
30
<PAGE> 33
THE TECHNOLOGY SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS --(CONTINUED)
MOTOR VEHICLES--0.2%
TRW, Inc. ..................... 29,875 $ 1,486,281
-------------
OFFICE EQUIPMENT & SUPPLIES--0.5%
Pitney Bowes, Inc. ............ 62,987 3,838,270
-------------
PHOTOGRAPHY/IMAGING--1.8%
Eastman Kodak Co. ............. 73,915 5,575,963
IKON Office Solutions, Inc. ... 41,957 448,415
Polaroid Corp. ................ 14,497 376,922
Xerox Corp. ................... 153,632 6,442,942
-------------
12,844,242
-------------
SEMI-CONDUCTORS--11.9%
Advanced Micro Devices, Inc. (a) 40,327 693,120
Applied Materials, Inc. (a) ... 87,565 6,802,706
Intel Corp. ................... 756,069 56,185,378
KLA-Tencor Corp. (a) .......... 22,105 1,436,825
LSI Logic Corp. (a) ........... 36,342 1,871,613
Micron Technology, Inc. (a) ... 60,110 4,001,072
National Semiconductor Corp. (a) 42,963 1,310,371
Texas Instruments, Inc. ....... 181,276 14,909,951
-------------
87,211,036
-------------
TELEPHONE--9.3%
AT&T Corp. .................... 730,368 31,771,008
CenturyTel, Inc. .............. 34,794 1,413,506
MCI WorldCom, Inc. (a) ........ 336,699 24,200,241
Sprint Corp. .................. 200,360 10,869,530
-------------
68,254,285
-------------
WIRELESS COMMUNICATIONS--1.8%
Nextel Communications, Inc.
(Class A) (a) ............ 78,560 $ 5,327,350
Sprint Corp. (PCS Group) (a) .. 102,546 7,646,086
-------------
12,973,436
-------------
TOTAL COMMON STOCKS--
(Cost $663,703,414) 732,355,846
-------------
SHORT TERM INVESTMENTS--0.1%
MONEY MARKET FUNDS--0.1%
AIM Short Term Investment Class
Prime Fund............... 441,233 441,233
Federated Prime Obligations Fund 25,396 25,396
-------------
TOTAL SHORT TERM INVESTMENTS--
(Cost $466,629) 466,629
-------------
TOTAL INVESTMENTS--100.2%
(Cost $664,170,043) 732,822,475
OTHER ASSETS AND LIABILITIES--(0.2)% (1,103,658)
-------------
NET ASSETS--100.0% $ 731,718,817
=============
</TABLE>
(a) Non-income producing security.
See accompanying notes to financial statements
31
<PAGE> 34
THE UTILITIES SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCKS--100.2%
COMMUNICATIONS EQUIPMENT--0.0%(B)
Global Crossing Ltd. (a) ...... 923 $ 24,470
-------------
ELECTRIC UTILITIES--39.6%
AES Corp. (a) ................. 25,647 1,513,173
Ameren Corp. .................. 22,030 833,009
American Electric Power Co., Inc. 29,023 990,410
Carolina Power & Light Co. .... 25,093 887,665
Central & South West Corp. .... 35,572 751,459
Cinergy Corp. ................. 26,643 754,330
CMS Energy Corp. .............. 20,416 692,868
Consolidated Edison, Inc. ..... 30,946 1,284,259
Constellation Energy Group, Inc. 25,736 723,825
Dominion Resources, Inc. ...... 27,220 1,228,302
DTE Energy Co. ................ 23,143 836,041
Duke Energy Corp. ............. 46,089 2,540,656
Edison International .......... 49,818 1,211,200
Entergy Corp. ................. 36,415 1,053,759
FirstEnergy Corp. ............. 36,084 920,142
Florida Progress Corp. ........ 16,500 763,125
FPL Group, Inc. ............... 25,198 1,269,349
GPU, Inc. ..................... 21,641 706,038
New Century Energies, Inc. .... 20,313 679,216
Niagara Mohawk Holdings, Inc. (a) 37,164 573,719
Northern States Power Co. ..... 28,530 615,178
PacifiCorp .................... 46,031 926,374
Peco Energy Co. ............... 27,804 1,042,650
PG&E Corp. .................... 53,200 1,376,550
PP&L Resources, Inc. .......... 27,117 733,854
Public Service Enterprise, Inc. 31,331 1,210,160
Reliant Energy, Inc. .......... 42,712 1,155,894
Southern Co. .................. 87,147 2,244,035
Texas Utilities Co. ........... 38,192 1,425,039
Unicom Corp.................... 31,252 1,154,371
-------------
32,096,650
-------------
NATURAL GAS--2.9%
Eastern Enterprises ........... 8,373 $ 388,821
NICOR, Inc. ................... 11,923 443,386
ONEOK, Inc. ................... 11,484 348,109
Peoples Energy Corp. .......... 11,059 389,139
Sempra Energy ................. 39,171 815,246
-------------
2,384,701
-------------
TELEPHONE--57.7%
ALLTEL Corp. .................. 38,232 2,690,577
Ameritech Corp. ............... 56,818 3,817,459
Bell Atlantic Corp. ........... 176,603 11,887,590
BellSouth Corp. ............... 214,510 9,652,950
GTE Corp. ..................... 49,517 3,806,619
SBC Communications, Inc. ...... 223,765 11,426,000
U.S. West, Inc. ............... 61,864 3,530,115
-------------
46,811,310
-------------
TOTAL COMMON STOCKS--
(Cost $83,459,260) 81,317,131
-------------
SHORT TERM INVESTMENTS--0.2%
MONEY MARKET FUND--0.2%
AIM Short Term Investment Class
Prime Fund (Cost $175,000) 175,000 175,000
-------------
TOTAL INVESTMENTS--100.4%
(Cost $83,634,260)........ 81,492,131
OTHER ASSETS AND LIABILITIES--(0.4)% (324,136)
-------------
NET ASSETS--100.0% $ 81,167,995
=============
</TABLE>
(a) Non-income producing security.
(b) Amount shown represents less than 0.01%
See accompanying notes to financial statements
32
<PAGE> 35
(This page has been left blank intentionally.)
33
<PAGE> 36
THE SELECT SECTOR SPDR TRUST
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
THE BASIC THE CONSUMER THE CONSUMER THE CYCLICAL/
INDUSTRIES SERVICES STAPLES TRANSPORTATION
SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (Note 2) ...... $ 82,207,556 $ 60,490,063 $ 117,287,346 $ 35,384,236
Cash .............................................. 10,587 8,942 23,919 3,494
Receivable for investments sold ................... -- -- 595,400 816,410
Receivable for income delivered for Select Sector
SPDRs purchased in-kind ......................... -- -- -- --
Dividends receivable (Note 2) ..................... 91,198 13,496 214,616 26,349
Prepaid expenses .................................. 478 356 706 207
------------- ------------- ------------- -------------
TOTAL ASSETS .................................... 82,309,819 60,512,857 118,121,987 36,230,696
------------- ------------- ------------- -------------
LIABILITIES
Payable for investments purchased ................. -- -- -- 799,661
Payable for income delivered for Select Sector
SPDRs redeemed in-kind .......................... -- -- -- --
Distributions payable (Note 2) .................... 297,221 -- 287,929 50,523
Accrued advisory fees (Note 3) .................... 3,711 2,531 5,113 1,456
Accrued trustees fees (Note 3) .................... 3,367 -- 3,185 264
Accrued distribution fees (Note 3) ................ 69,257 58,060 112,881 30,886
Accrued expenses and other liabilities ............ 49,215 32,708 62,327 23,612
------------- ------------- ------------- -------------
TOTAL LIABILITIES ............................... 422,771 93,299 471,435 906,402
------------- ------------- ------------- -------------
NET ASSETS ...................................... $ 81,887,048 $ 60,419,558 $ 117,650,552 $ 35,324,294
============= ============= ============= =============
NET ASSETS REPRESENTED BY:
Paid in surplus (Note 4) .......................... $ 91,952,997 $ 58,763,557 $ 136,409,425 $ 37,702,902
Undistributed (distribution in excess of)
net investment income ........................... 35,341 (16,064) 38,749 (7,853)
Accumulated net realized gain (loss) on investments 104,704 314,670 (210,171)
(294,329)
Net unrealized appreciation (depreciation)
on investments .................................. (10,205,994) 1,357,395 (18,587,451) (2,076,426)
------------- ------------- ------------- -------------
NET ASSETS .................................... $ 81,887,048 $ 60,419,558 $ 117,650,552 $ 35,324,294
============= ============= ============= =============
NET ASSET VALUE PER SELECT SECTOR SPDR
Net asset value per Select Sector SPDR ............ $ 23.74 $ 26.85 $ 22.63 $ 26.17
============= ============= ============= =============
Shares outstanding (unlimited amount authorized,
$0.001 par value) ............................... 3,450,000 2,250,000 5,200,015 1,350,000
============= ============= ============= =============
Cost of investments ............................... $ 92,413,550 $ 59,132,668 $ 135,874,797 $ 37,460,662
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements
34
<PAGE> 37
<TABLE>
<CAPTION>
THE ENERGY THE FINANCIAL THE INDUSTRIAL THE TECHNOLOGY THE UTILITIES
SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND SPDR FUND
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 150,432,519 $ 123,907,302 $ 65,957,768 $ 732,822,475 $ 81,492,131
10,000 10,000 9,464 57,738 670
-- -- 3,652,716 5,021,273 6,060,377
455 36,575 -- -- --
123,285 150,676 80,974 314,434 234,160
873 714 382 4,136 481
------------- ------------- ------------- ------------- -------------
150,567,132 124,105,267 69,701,304 738,220,056 87,787,819
------------- ------------- ------------- ------------- -------------
-- 146,575 3,533,656 5,532,113 5,910,189
-- -- -- 48,647 --
717,405 374,004 123,294 -- 612,160
6,474 4,858 2,742 28,799 3,294
6,855 -- -- 29,727 --
124,318 110,281 43,342 554,082 57,190
76,188 60,585 35,288 307,871 36,991
------------- ------------- ------------- ------------- -------------
931,240 696,303 3,738,322 6,501,239 6,619,824
------------- ------------- ------------- ------------- -------------
$ 149,635,892 $ 123,408,964 $ 65,962,982 $ 731,718,817 $ 81,167,995
============= ============= ============= ============= =============
$ 140,940,014 $ 140,474,261 $ 64,432,397 $ 665,097,343 $ 82,812,551
(40,553) 7,621 44,830 (95,374) 20,865
(734,840) (275,029) 104,921 (1,935,584) 476,708
9,471,271 (16,797,889) 1,380,834 68,652,432 (2,142,129)
------------- ------------- ------------- ------------- -------------
$ 149,635,892 $ 123,408,964 $ 65,962,982 $ 731,718,817 $ 81,167,995
============= ============= ============= ============= =============
$ 27.46 $ 22.04 $ 28.68 $ 41.22 $ 29.52
============= ============= ============= ============= =============
5,450,000 5,600,087 2,300,000 17,750,000 2,750,000
============= ============= ============= ============= =============
$ 140,961,248 $ 140,705,191 $ 64,576,934 $ 664,170,043 $ 83,634,260
============= ============= ============= ============= =============
</TABLE>
35
<PAGE> 38
THE SELECT SECTOR SPDR TRUST
STATEMENTS OF OPERATIONS
FOR THE PERIOD DECEMBER 16, 1998* THROUGH SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
THE BASIC THE CONSUMER THE CONSUMER THE CYCLICAL/
INDUSTRIES SERVICES STAPLES TRANSPORTATION
SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income (Note 2) ........................... $ 985,182 $ 220,150 $ 1,501,976 $ 256,945
Foreign taxes withheld ............................. (5,493) (2,986) (36,016) (228)
------------ ------------ ------------ ------------
TOTAL INVESTMENT INCOME .......................... 979,689 217,164 1,465,960 256,717
------------ ------------ ------------ ------------
EXPENSES
Advisory fee (Note 3) .............................. 24,410 23,284 43,859 11,951
Distribution fee (Note 3) .......................... 122,051 116,422 219,296 59,754
Administration, custody
and transfer agency fee (Note 3) ................. 48,821 46,569 87,718 23,902
License fee (Note 3) ............................... 31,098 30,748 53,245 18,091
SEC registration expense ........................... 19,402 19,719 36,761 9,940
Professional fees .................................. 11,895 12,089 22,538 6,094
Printing and postage expense ....................... 7,137 7,254 13,523 3,657
Trustee fees (Note 3) .............................. 8,987 9,134 17,028 4,604
Insurance expense .................................. 881 895 1,670 451
Blue sky fees ...................................... 950 950 950 950
Miscellaneous expenses ............................. 249 500 500 251
------------ ------------ ------------ ------------
TOTAL EXPENSES ................................... 275,881 267,564 497,088 139,645
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ..................... 703,808 (50,400) 968,872 117,072
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on investment transactions ....... 5,078,135 1,454,676 1,143,552 322,104
Net change in unrealized appreciation (depreciation) (10,205,994) 1,357,395 (18,587,451) (2,076,426)
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS ..................... (5,127,859) 2,812,071 (17,443,899) (1,754,322)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $ (4,424,051) $ 2,761,671 $(16,475,027) $ (1,637,250)
============ ============ ============ ============
</TABLE>
*Commencement of investment operations
See accompanying notes to financial statements
36
<PAGE> 39
<TABLE>
<CAPTION>
THE ENERGY THE FINANCIAL THE INDUSTRIAL THE TECHNOLOGY THE UTILITIES
SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND SPDR FUND
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$ 2,230,713 $ 1,436,229 $ 529,599 $ 1,726,532 $ 1,554,932
(100,475) -- -- (5,001) --
-------------- -------------- --------------- -------------- --------------
2,130,238 1,436,229 529,599 1,721,531 1,554,932
-------------- -------------- --------------- -------------- --------------
46,387 42,155 17,525 212,816 24,357
231,936 210,775 87,624 1,064,079 121,787
92,775 84,310 35,050 425,631 48,715
55,477 51,331 23,729 236,472 31,366
37,894 35,325 13,888 174,234 19,836
23,232 21,657 8,515 106,819 12,162
13,939 12,994 5,109 64,091 7,297
17,554 16,363 6,433 80,708 9,188
1,721 1,604 631 7,912 901
950 950 950 950 950
250 750 500 750 500
-------------- -------------- --------------- -------------- --------------
522,115 478,214 199,954 2,374,462 277,059
-------------- -------------- --------------- -------------- --------------
1,608,123 958,015 329,645 (652,931) 1,277,873
-------------- -------------- --------------- -------------- --------------
8,728,547 4,854,084 2,128,356 41,270,030 457,587
9,471,271 (16,797,889) 1,380,834 68,652,432 (2,142,129)
-------------- -------------- --------------- -------------- --------------
18,199,818 (11,943,805) 3,509,190 109,922,462 (1,684,542)
-------------- -------------- --------------- -------------- --------------
$ 19,807,941 $ (10,985,790) $ 3,838,835 $ 109,269,531 $ (406,669)
============== ============== =============== ============== ==============
</TABLE>
37
<PAGE> 40
THE SELECT SECTOR SPDR TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD DECEMBER 16, 1998* THROUGH SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
THE BASIC THE CONSUMER THE CONSUMER THE CYCLICAL/
INDUSTRIES SERVICES STAPLES TRANSPORTATION
SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income (loss) ............... $ 703,808 $ (50,400) $ 968,872 $ 117,072
Net realized gain on investment transactions 5,078,135 1,454,676 1,143,552 322,104
Net change in unrealized appreciation
(depreciation) ........................... (10,205,994) 1,357,395 (18,587,451) (2,076,426)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................ (4,424,051) 2,761,671 (16,475,027) (1,637,250)
------------- ------------- ------------- -------------
UNDISTRIBUTED NET INVESTMENT INCOME INCLUDED IN
PRICE OF UNITS ISSUED AND REDEEMED, NET ...... 12,794 (16,064) 59,660 10,947
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income ...................... (681,486) -- (968,872) (117,072)
In excess of net investment income ...... -- -- (20,911) (18,800)
------------- ------------- ------------- -------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS .......... (681,486) -- (989,783) (135,872)
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS FROM
SPDRS TRANSACTIONS (NOTE 4) .................. 86,968,680 57,662,840 135,044,591 37,075,358
------------- ------------- ------------- -------------
Net increase in net assets during period ... 81,875,937 60,408,447 117,639,441 35,313,183
Net assets at beginning of period .......... 11,111 11,111 11,111 11,111
------------- ------------- ------------- -------------
NET ASSETS END OF PERIOD (1) ...................... $ 81,887,048 $ 60,419,558 $ 117,650,552 $ 35,324,294
============= ============= ============= =============
(1) Including undistributed (distribution
in excess of) net investment income .......... $ 35,341 $ (16,064) $ 38,749 $ (7,853)
============= ============= ============= =============
</TABLE>
*Commencement of investment operations
38
<PAGE> 41
<TABLE>
<CAPTION>
THE ENERGY THE FINANCIAL THE INDUSTRIAL THE TECHNOLOGY THE UTILITIES
SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND SPDR FUND
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$ 1,608,123 $ 958,015 $ 329,645 $ (652,931) $ 1,277,873
8,728,547 4,854,084 2,128,356 41,270,030 457,587
9,471,271 (16,797,889) 1,380,834 68,652,432 (2,142,129)
------------- ------------- ------------- ------------- -------------
19,807,941 (10,985,790) 3,838,835 109,269,531 (406,669)
------------- ------------- ------------- ------------- -------------
378,336 32,335 (8,091) (95,374) 124,047
------------- ------------- ------------- ------------- -------------
(1,608,123) (958,015) (277,354) -- (1,277,873)
(418,950) (24,867) -- -- (104,158)
------------- ------------- ------------- ------------- -------------
(2,027,073) (982,882) (277,354) -- (1,382,031)
------------- ------------- ------------- ------------- -------------
131,465,577 135,334,190 62,398,481 622,533,549 82,821,537
------------- ------------- ------------- ------------- -------------
149,624,781 123,397,853 65,951,871 731,707,706 81,156,884
11,111 11,111 11,111 11,111 11,111
------------- ------------- ------------- ------------- -------------
$ 149,635,892 $ 123,408,964 $ 65,962,982 $ 731,718,817 $ 81,167,995
============= ============= ============= ============= =============
$ (40,553) $ 7,621 $ 44,830 $ (95,374) $ 20,865
============= ============= ============= ============= =============
</TABLE>
39
<PAGE> 42
THE SELECT SECTOR SPDR TRUST
FINANCIAL HIGHLIGHTS
For a Select Sector SPDR outstanding for the period
December 16, 1998(1) through September 30, 1999
<TABLE>
<CAPTION>
THE BASIC THE CONSUMER THE CONSUMER THE CYCLICAL/
INDUSTRIES SERVICES STAPLES TRANSPORTATION
SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.72 $ 23.97 $ 26.06 $ 24.51
---------- ---------- ----------- ----------
Net investment income (loss) 0.24 (0.02) 0.20 0.09
Net realized and unrealized gain (loss) 3.01(2) 2.90 (3.44) 1.66(2)
---------- ---------- ----------- ----------
Total from investment operations 3.25 2.88 (3.24) 1.75
---------- ---------- ----------- ----------
Undistributed net investment income included
in price of units issued and redeemed -- -- 0.01 0.01
---------- ---------- ----------- ----------
Distributions to shareholders from:
Net investment income (0.23) -- (0.20) (0.09)
In excess of net investment income -- -- -- (0.01)
---------- ---------- ----------- ----------
Total distributions (0.23) -- (0.20) (0.10)
---------- ---------- ----------- ----------
Net asset value, end of period $ 23.74 $ 26.85 $ 22.63 $ 26.17
========== ========== =========== ==========
Total return (3) 15.59% 12.03% (12.45)% 7.17%
Net assets, end of period (in 000's) $ 81,887 $ 60,420 $ 117,651 $ 35,324
Ratio of expenses to average net assets (4) 0.56% 0.57% 0.57% 0.58%
Ratio of net investment income (loss)
to average net assets (4) 1.44% (0.11)% 1.10% 0.49%
Portfolio turnover rate (5) 9.70% 14.56% 2.91% 9.56%
</TABLE>
(1) Investment operations commenced on December 16, 1998.
(2) The amounts shown at this caption for a share outstanding may not accord
with the change in aggregate gains and losses in securities for the fiscal
period because of the timing of sales and repurchases of Fund shares in
relation to fluctuating market values for the Fund.
(3) Total return is calculated assuming a purchase of shares at net asset value
per share on the first day and a sale at net asset value per share on the
last day of each period reported. Distributions are assumed, for the
purposes of this calculation, to be reinvested at the net asset value per
share on the respective payment dates of each Fund. Total return for a
period of less than one year is not annualized. Broker commission charges
are not included in the calculation.
(4) Annualized.
(5) Portfolio turnover rate excludes securities received or delivered from
processing creations or redemptions on Select Sector SPDRs.
The beginning net asset values shown above have been adjusted to reflect reverse
stock splits which were effective on December 16, 1998, in order to adjust the
net asset value per share of each Fund to be approximately 1/10th of the value
of its respective Select Sector Index. The ratio of the reverse stock split for
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 was 1 for 2.072, 1 for 2.397, 1 for 2.606, 1 for 2.451, 1 for 2.359, 1
for 2.202, 1 for 2.266, 1 for 3.009,and 1 for 2.906, respectively.
40
<PAGE> 43
<TABLE>
<CAPTION>
THE ENERGY THE FINANCIAL THE INDUSTRIAL THE TECHNOLOGY THE UTILITIES
SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR SELECT SECTOR
SPDR FUND SPDR FUND SPDR FUND SPDR FUND SPDR FUND
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$ 23.59 $ 22.02 $ 22.66 $ 30.09 $ 29.06
----------- ----------- ---------- ----------- ----------
0.29 0.21 0.21 (0.04) 0.56
3.88 0.02(2) 6.00 11.18 0.45(2)
----------- ----------- ---------- ----------- ----------
4.17 0.23 6.21 11.14 1.01
----------- ----------- ---------- ----------- ----------
0.07 0.01 -- (0.01) 0.05
----------- ----------- ---------- ----------- ----------
(0.29) (0.21) (0.19) -- (0.56)
(0.08) (0.01) -- -- (0.04)
----------- ----------- ---------- ----------- ----------
(0.37) (0.22) (0.19) -- (0.60)
----------- ----------- ---------- ----------- ----------
$ 27.46 $ 22.04 $ 28.68 $ 41.22 $ 29.52
=========== =========== ========== =========== ==========
17.91% 0.97% 27.40% 37.00% 3.66%
$ 149,636 $ 123,409 $ 65,963 $ 731,719 $ 81,168
0.56% 0.57% 0.57% 0.56% 0.57%
1.73% 1.14% 0.94% (0.15)% 2.62%
20.15% 5.71% 12.42% 21.23% 38.86%
</TABLE>
41
<PAGE> 44
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION
The Select Sector SPDR Trust (the "Trust") was organized in the Commonwealth of
Massachusetts on June 10, 1998 and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end management investment
company. The Trust was created to provide investors with the opportunity to
purchase a security representing a proportionate undivided interest in a
portfolio of securities consisting of substantially all of the common stocks in
substantially the same weighting, in a particular sector or group of industries
as specified by a specified market sector index (each a "Select Sector Index").
Each of the nine Select Sector Indexes represents a basket of equity securities
of public companies that are components of the S & P 500 Index and are included
in a specific sector. The Trust is comprised of nine funds (collectively the
"Funds" and each individually a "Fund") as follows: 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 Fund operates as a
non-diversified investment company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Trust in the preparation of its financial statements:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
SECURITY VALUATION
Portfolio securities are valued based on the closing sale price on the exchange
which is deemed to be the principal market for the security. If there is no
closing sale price then the security is valued at the closing bid price on the
exchange which is deemed the principal market for the security. 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 Advisor in accordance with procedures approved
by the Board of Trustees.
FEDERAL INCOME TAX
The Funds intend to qualify for and elect treatment as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying and electing, each Fund will not be subject to federal income
taxes to the extent they distribute their taxable income, including any net
realized capital gains, for each fiscal year. In addition, by distributing
during each calendar year substantially all of their net investment income and
capital gains, if any, the Funds will not be subject to federal excise tax.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These book-tax differences are primarily due to differing treatments for income
equalization, in-kind transactions and losses deferred due to wash sales. At
September 30, 1999, none of the Funds had capital loss carryforwards.
42
<PAGE> 45
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
During the fiscal period ended September 30, 1999, the Funds reclassified
non-taxable security gains and losses realized in the in-kind redemption of
Creation Units (Note 4) as an increase or decrease to paid in surplus in the
Statements of Assets and Liabilities as follows:
<TABLE>
<CAPTION>
NET GAIN (LOSS)
RECLASS AMOUNT
- ----------------------------------------------------------------------------
<S> <C>
The Basic Industries Select Sector SPDR Fund $ 4,973,431
The Consumer Services Select Sector SPDR Fund 1,140,006
The Consumer Staples Select Sector SPDR Fund 1,353,723
The Cyclical/Transportation Select Sector SPDR Fund 616,433
The Energy Select Sector SPDR Fund 9,463,387
The Financial Select Sector SPDR Fund 5,129,113
The Industrial Select Sector SPDR Fund 2,023,435
The Technology Select Sector SPDR Fund 43,205,614
The Utilities Select Sector SPDR Fund (19,121)
</TABLE>
INVESTMENT INCOME
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. The value of additional securities received as dividend
payments is recorded as income and as the cost basis of such securities.
EXPENSES
Expenses of the Trust, which are directly identifiable to a specific Fund, are
allocated to that Fund. Expenses, which are not readily identifiable to a
specific Fund, are allocated in such a manner as deemed equitable, taking into
consideration the nature and type of expense and the relative net assets of the
Funds.
INVESTMENT TRANSACTIONS
Investment transactions are recorded on the trade date. Realized gains and
losses from the sale or disposition of securities are recorded on the identified
cost basis. Corporate actions (including cash dividends) are recorded net of
nonreclaimable tax withholdings on the ex-dividend date.
DISTRIBUTIONS
The Trust declares and distributes dividends from net investment income to its
shareholders quarterly. The Trust will distribute net realized capital gains, if
any, at least annually.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with commercial banks. In a
repurchase agreement, a Fund buys a security and the seller simultaneously
agrees to repurchase the security on a specified future date at an agreed-upon
price. The repurchase price reflects an agreed-upon interest rate during the
time the Fund's money is invested in the security. Because the security
constitutes collateral for the repurchase obligation, a repurchase agreement can
be considered a collateralized loan. The Fund's risk is the ability of the
seller to pay the agreed-upon price on the maturity date. If the seller is
unable to make a timely repurchase, the Fund could experience delays in the
receipt of expected proceeds, suffer a loss in principal or current interest, or
incur costs in liquidating the collateral. At September 30, 1999, the Trust had
no open repurchase agreements.
43
<PAGE> 46
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
OTHER
Each of the Select Sector SPDR Funds concentrates its investments in certain
industries, subjecting them to greater risk than funds that invest in a wider
range of industries.
3. FEES AND COMPENSATION PAID TO AFFILIATES AND OTHER PARTIES
ADVISORY FEE
Each Fund has entered into an Investment Advisory Agreement with State Street
Global Advisors ("The Advisor"). As compensation for the services rendered,
facilities furnished, and expenses borne by the Advisor, each Fund pays the
Advisor a fee accrued daily and paid monthly, at the annualized rate of 0.05% of
average daily net assets of each of the Funds.
UNITARY FEE
A "Unitary" Fee is paid by each of the Funds to State Street Bank 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) 0.10% of average daily net assets
of the Trust up to the first $4.5 billion of net assets (such $4.5 billion to be
increased by $500 million each time a new Select Sector SPDR Fund is added):
(ii) 0.08% of average daily net assets up to the next $4.5 billion of net assets
of the Trust (such $4.5 billion to be increased by $500 million each time a new
Select Sector SPDR Fund is added): and (iii) 0.06% of average daily net assets
on the remainder of net assets; or (b) a minimum annual 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.
DISTRIBUTOR
ALPS Mutual Fund Services, Inc. (the "Distributor") serves as the distributor of
the shares of each Fund pursuant to a Distribution Plan and Agreement, pursuant
to Rule 12b-1 under the 1940 Act, between the Distributor and the Trust. The
Rule 12b-1 Plan and Agreement provides for payment of a fee to the Distributor
at an annualized rate of 0.25% of the average daily net assets of each of the
Funds.
ADDITIONAL EXPENSES
Standard and Poor's ("S&P"), the American Stock Exchange LLC (the "AMEX"), and
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") have
entered into a license agreement with respect to each Select Sector SPDR Fund's
Select Sector Index. Pursuant to such license agreement, the Trust has entered
into a sub-license agreement which required that each Select Sector SPDR Fund
pay a one time fee to S&P of $5,000 (the "One Time Fee"). In addition, the Trust
will pay a sub-license fee per annum (i) to S&P equal to the greater of 0.03% of
the aggregate net assets of the Trust or $450,000 (the "Minimum Annual Fee"),
and (ii) to Merrill Lynch equal to 0.03% of the aggregate net assets of the
Trust. The Minimum Annual Fee (plus the One Time Fee) is payable in full to S&P
during the first year of the sub-license agreement six months from the date
after the first day of trading of any Select Sector SPDR Fund on the AMEX (the
"First Trading Day"). Thereafter, the Minimum Annual Fee is payable in full on
each anniversary of the First Trading Day. The fee to Merrill Lynch is payable
on a quarterly basis. Each Select Sector SPDR Fund will pay its proportionate
share of the annual sub-license fees based on the relative net assets of such
Fund.
44
<PAGE> 47
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
TRUSTEES FEES
Trustees receive an annual fee of $12,000, and a meeting fee of $2,000 per
meeting attended. The Funds will reimburse the Trustees for any out of pocket
expenses related to attending meetings of the Board of Trustees.
4. SHAREHOLDER TRANSACTIONS IN SELECT SECTOR SPDR FUNDS WERE AS FOLLOWS FOR
THE PERIOD* ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
THE BASIC INDUSTRIES SELECT SECTOR SPDR FUND THE CONSUMER SERVICES SELECT SECTOR SPDR FUND
Select Sector Select Sector
SPDRs Amount SPDRs Amount
------------- ------ ------------- ------
<S> <C> <C> <S> <C> <C>
SPDRs sold 5,850,000 $ 146,774,271 SPDRs sold 2,550,000 $ 65,900,180
Dividend reinvestment Dividend reinvestment
SPDRs issued -- -- SPDRs issued -- --
SPDRs redeemed (2,400,536) (59,792,797) SPDRs redeemed (300,463) (8,253,404)
Net income equalization -- (12,794) Net income equalization -- 16,064
------------ ------------- ------------- ------------
Net increase 3,449,464 $ 86,968,680 Net increase 2,249,537 $ 57,662,840
============ ============= ============= ============
THE CONSUMER STAPLES SELECT SECTOR SPDR FUND THE CYCLICAL/TRANSPORTATION SELECT SECTOR SPDR FUND
Select Sector Select Sector
SPDRs Amount SPDRs Amount
------------- ------ ------------- ------
SPDRs sold 5,800,000 $ 151,491,269 SPDRs sold 1,600,000 $ 43,843,191
Dividend reinvestment Dividend reinvestment
SPDRs issued 15 369 SPDRs issued -- --
SPDRs redeemed (600,426) (16,387,387) SPDRs redeemed (250,453) (6,756,886)
Net income equalization -- (59,660) Net income equalization -- (10,947)
------------ -------------- ------------- -------------
Net increase 5,199,589 $ 135,044,591 Net increase 1,349,547 $ 37,075,358
============ ============= ============= ============
THE ENERGY SELECT SECTOR SPDR FUND THE FINANCIAL SELECT SECTOR SPDR FUND
Select Sector Select Sector
SPDRs Amount SPDRs Amount
------------- ------ ------------- ------
SPDRs sold 8,500,000 $ 210,151,861 SPDRs sold 7,850,000 $ 191,079,196
Dividend reinvestment Dividend reinvestment
SPDRs issued -- -- SPDRs issued 87 2,198
SPDRs redeemed (3,050,471) (78,307,948) SPDRs redeemed (2,250,504) (55,714,869)
Net income equalization -- (378,336) Net income equalization -- (32,335)
------------ --------------- ------------- --------------
Net increase 5,449,529 $ 131,465,577 Net increase 5,599,583 $ 135,334,190
============ ============== ============= =============
</TABLE>
45
<PAGE> 48
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
THE INDUSTRIAL SELECT SECTOR SPDR FUND THE TECHNOLOGY SELECT SECTOR SPDR FUND
Select Sector Select Sector
SPDRs Amount SPDRs Amount
------------- ------ -------------- ------
<S> <C> <C> <C> <C>
SPDRs sold 2,600,000 $ 71,284,580 SPDRs sold 26,750,000 $ 952,061,444
Dividend reinvestment Dividend reinvestment
SPDRs issued -- -- SPDRs issued -- --
SPDRs redeemed (300,490) (8,894,190) SPDRs redeemed (9,000,369) (329,623,269)
Net income equalization - 8,091 Net income equalization -- 95,374
------------ -------------- ------------- -------------
Net increase 2,299,510 $ 62,398,481 Net increase 17,749,631 $ 622,533,549
============ ============== ============= =============
THE UTILITIES SELECT SECTOR SPDR FUND
Select Sector
SPDRs Amount
------------- ------
SPDRs sold 2,900,000 $ 87,250,000
Dividend reinvestment
SPDRs issued -- --
SPDRs redeemed (150,382) (4,304,416)
Net income equalization -- (124,047)
------------ --------------
Net increase 2,749,618 $ 82,821,537
============ ==============
</TABLE>
* Funds commenced investment operations on December 16, 1998.
Except for under the Trust's dividend reinvestment plan, Select Sector SPDRs are
issued and redeemed by a Fund only in Creation Unit size aggregations of 50,000
Select Sector SPDRs. Such transactions are only permitted on an in-kind basis,
with a separate cash payment which is equivalent to the undistributed net
investment income per Select Sector SPDR (income equalization) and a balancing
cash component to equate the transaction to the net asset value per unit of the
Fund on the transaction date. Transaction fees at scheduled amounts ranging from
$1,000 to $4,000 per Creation Unit are charged to those persons creating or
redeeming Creation Units. Transaction fees are received by the Transfer Agent
and used to offset the expense of processing orders.
5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION
The identified cost of investments in securities owned by each Fund for both
financial statement and federal income tax purposes, and their respective gross
unrealized appreciation and depreciation at September 30, 1999 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
IDENTIFIED UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Basic Industries Select Sector SPDR Fund $ 92,470,370 $ 870,645 $ 11,133,459 $ (10,262,814)
The Consumer Services Select Sector SPDR Fund 59,190,702 6,040,460 4,741,099 1,299,361
The Consumer Staples Select Sector SPDR Fund 136,038,939 2,219,429 20,971,022 (18,751,593)
The Cyclical/Transportation Select Sector SPDR Fund 37,560,909 1,761,286 3,937,959 (2,176,673)
The Energy Select Sector SPDR Fund 141,001,461 11,169,130 1,738,072 9,431,058
The Financial Select Sector SPDR Fund 140,831,106 1,007,870 17,931,674 (16,923,804)
The Industrial Select Sector SPDR Fund 64,616,068 5,128,394 3,786,694 1,341,700
The Technology Select Sector SPDR Fund 665,108,423 96,906,868 29,192,816 67,714,052
The Utilities Select Sector SPDR Fund 83,715,156 2,689,657 4,912,682 (2,223,025)
</TABLE>
46
<PAGE> 49
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
6. INVESTMENT TRANSACTIONS
For the period* ended September 30, 1999, the Trust had in-kind contributions
and in-kind redemptions as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
The Basic Industries Select Sector SPDR Fund $ 146,621,821 $ 59,643,947
The Consumer Services Select Sector SPDR Fund 65,929,140 8,246,049
The Consumer Staples Select Sector SPDR Fund 147,471,806 12,418,796
The Cyclical/Transportation Select Sector SPDR Fund 43,836,425 6,744,670
The Energy Select Sector SPDR Fund 209,674,661 78,194,979
The Financial Select Sector SPDR Fund 185,561,155 52,431,775
The Industrial Select Sector SPDR Fund 71,279,937 8,868,351
The Technology Select Sector SPDR Fund 937,124,535 314,558,364
The Utilities Select Sector SPDR Fund 87,101,737 4,264,464
</TABLE>
For the period* ended September 30, 1999, the Trust had purchases and sales of
investment securities as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
The Basic Industries Select Sector SPDR Fund $ 7,199,071 $ 6,306,741
The Consumer Services Select Sector SPDR Fund 9,128,906 9,144,830
The Consumer Staples Select Sector SPDR Fund 3,513,048 3,455,688
The Cyclical/Transportation Select Sector SPDR Fund 3,086,119 3,069,236
The Energy Select Sector SPDR Fund 25,493,310 25,227,371
The Financial Select Sector SPDR Fund 8,780,462 6,470,969
The Industrial Select Sector SPDR Fund 7,226,320 5,977,011
The Technology Select Sector SPDR Fund 78,127,219 78,710,848
The Utilities Select Sector SPDR Fund 9,383,178 9,218,778
</TABLE>
*The Funds commenced investment operations on December 16, 1998.
7. INITIAL CAPITALIZATION AND OFFERING OF SHARES
During the period from December 14, 1998 to the commencement of investment
operations for each of the Funds, each Fund had no operations other than those
related to organizational matters, including the initial capital contribution of
$11,111 for each Fund and the issuance of 1,111 shares for each of the Funds. On
December 16, 1998 (commencement of investment operations) the Board of Trustees
declared reverse stock splits with an effective date of December 16, 1998 in
order to adjust the net asset value per share of each portfolio to be
approximately 1/10th of the value of its respective Select Sector Index. All
capital share activity and per share data have been restated to reflect the
reverse stock split. The ratio of the reverse stock split for 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 was 1 for
2.072, 1 for 2.397, 1 for 2.606, 1 for 2.451, 1 for 2.359, 1 for 2.202, 1 for
2.266, 1 for 3.009,and 1 for 2.906, respectively.
47
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of The Select Sector SPDR Trust,
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the nine funds (each a
"Fund") comprising The Select Sector SPDR Trust (the "Trust") at September 30,
1999, and the results of each Fund's operations, the changes in each Fund's net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1999 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 22, 1999
48
<PAGE> 51
CATEGORICALLY UNIQUE
INDEX FUNDS(SM)
SELECT SECTOR
SPDRS(R)
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard and Poor's 500(R),"
"500(R)," "Standard and Poor's Depository Receipts(R)," "SPDRs(R)," "Select
Sector SPDR," Select Sector SPDRs" and "Select Sector Standard and Poor's
Depository Receipts" are trademarks of The McGraw-Hill Companies, Inc. and have
been licensed for use in connection with the listing and trading of Select
Sector SPDRs on the AMEX. The stocks included in each Select Sector Index (upon
which the Products are based) were selected by the index compilation agent in
consultation with S&P from the universe of companies represented by the S&P 500
Index. The composition and weighting of stocks included in each Select Sector
Index can be expected to differ from the composition and weighting of stocks
included in any similar S&P 500 sector index that is published and disseminated
by S&P.
<PAGE> 52
- --------------------------------------------------------------------------------
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
- --------------------------------------------------------------------------------
TRUSTEES
JOHN W. ENGLISH, CHAIRMAN
CHERYL BURGERMEISTER
GEORGE R. GASPARI
BURTON G. MALKIEL
ERNEST J. SCALBERG
R. CHARLES TSCHAMPION
OFFICERS
HOWARD H. FAIRWEATHER, PRESIDENT AND SECRETARY
E. DAVIS HAWKES, JR., TREASURER AND ASSISTANT SECRETARY
INVESTMENT MANAGER
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
DISTRIBUTOR
ALPS MUTUAL FUNDS SERVICES
370 17TH STREET, SUITE 3100
DENVER, COLORADO 80202
CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
LEGAL COUNSEL
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019
INDEPENDENT PUBLIC ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
160 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
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The Select Sector SPDR Trust is distributed by ALPS Mutual Funds Services,
Inc., a member of the NASD.
The information contained in this report is intended for the general
information of shareholders of the Trust. This report is not authorized
for distribution to prospective investors unless preceded or accompanied
by a current Trust prospectus which contains important information
concerning the Trust. You may obtain a current prospectus from the
Distributor. Please read the prospectus carefully before you invest.
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