<PAGE> 1
================================================================================
THE SELECT SECTOR SPDR TRUST
ANNUAL REPORT
S E P T E M B E R 3 0, 2 0 0 0
[SELECT SECTOR SPDRs(R) LOGO]
Benchmark Sector-Based Equity Portfolios of Companies in the S&P 500(R)
<PAGE> 2
--------------------------------------------------------------------------------
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
--------------------------------------------------------------------------------
[LOGO]
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:
The Basic Industries Select Sector SPDR Fund XLB
The Consumer Services Select Sector SPDR Fund XLV
The Consumer Staples Select Sector SPDR Fund XLP
The Cyclical/Transportation Select Sector SPDR Fund XLY
The Energy Select Sector SPDR Fund XLE
The Financial Select Sector SPDR Fund XLF
The Industrial Select Sector SPDR Fund XLI
The Technology Select Sector SPDR Fund XLK
The Utilities Select Sector SPDR Fund XLU
Each 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.
<PAGE> 3
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
CHAIRMAN'S LETTER TO SHAREHOLDERS
DEAR SHAREHOLDERS:
We are pleased to present the annual report for The Select Sector SPDR Trust. As
of September 30, 2000 Trust net assets totaled over $2.3 billion. This value
represents growth of more than 60% during the last year. While many of the
Select Sector SPDR Funds experienced growth, it was the Financial Select Sector
SPDR Fund which led the pack with an increase in assets of over $300 million or
248%. As a result of the Trust's continued success, management lowered the
Trust's expenses. Effective May 17, 2000, each Fund's expenses were reduced by
approximately 20 basis points. When these expense reductions are applied to the
Fund's net assets as of September 30, 2000, the expenses for each Fund range
from 36 to 37 basis points on an annualized basis.
Despite ongoing inflation and interest rate concerns, the US equity market rally
that began back in 1994 continued for much of the past fiscal year. The S&P 500
Index total return was a very respectable 13.28% for the twelve month period
ended September 30, 2000. Over this period, however, the winning and losing
sectors within the S&P 500 Index shifted frequently and significantly. During
the third quarter -- for the first time in over a year -- large-cap value stocks
outperformed large-cap growth stocks. Investors initiated a shift toward the
"old economy" stocks.
Technology stocks that were strong performers during the end of 1999 and the
beginning of 2000 began experiencing difficulties during the last two quarters
of the Trust's fiscal year, and were actually the worst performing sector stocks
during the quarter ended September 30, 2000. Companies such as Intel, Microsoft,
Lucent, Cisco and Dell all suffered during the quarter ended September 30, 2000.
As the technology sector stumbled, however, the financial sector emerged as the
leading index sector. Firms such as Associates First Capital, Capital One, and
Lehman Brothers posted strong third quarter returns helping to lead the
financial sector. In addition, some health care companies such as Manor Care and
Humana Inc supplied third quarter returns in excess of 100%.
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
appreciate your continued 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
<PAGE> 4
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
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. For the twelve month period
ending September 30, 2000, the Fund had a return of -22.48% as compared to the
Basic Industries Select Sector Index return of -22.06% and the S&P 500 Index
return of 13.28%. The Basic Industries Select Sector Index did not fare well
over the past twelve months. Only a handful of companies within the index posted
positive returns. Of these, one of the strongest performers, Air Products &
Chemicals attributed its outperformance not to fundamental or economic reasons,
but primarily to a price bounce-back from depressed levels experienced during
its now defunct merger discussions with BOC Group PLC. Most of the industries
within the sector experienced negative returns for the twelve month period.
Steel companies were particularly hard-hit. Most steel companies -- like many of
the companies in the overall sector -- faced increasing foreign competition,
rising costs and shared a tendency to be out of favor in a market currently
rewarding growth. The Basic Industries Select Sector SPDR Fund consisted of 48
companies as of September 30, 2000.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
BASIC INDUSTRIES SELECT SECTOR SPDR FUND
<TABLE>
<CAPTION>
BASIC INDUSTRIES SELECT SECTOR
SPDR FUND S&P 500 INDEX
------------------------------ -------------
<S> <C> <C>
12/16/98 10000 10000
12/31/98 10429 10584
3/31/99 10567 11111
6/30/99 12639 11895
9/30/99 11559 11152
12/31/99 12949 12811
3/31/00 11342 13104
6/30/00 9749 12756
9/30/00 8961 12631
</TABLE>
2
<PAGE> 5
THE SELECT SECTOR SPDR TRUST [LOGO] ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
PERFORMANCE AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
NET ASSET MARKET BASIC INDUSTRIES
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 -22.48% -21.83% -22.06%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) -10.39% -10.19% -9.71%
---------------------------------------------------------------------------------
<CAPTION>
------------------------- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
NET ASSET MARKET BASIC INDUSTRIES
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 -22.48% -21.83% -22.06%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) -5.94% -5.84% -5.54%
---------------------------------------------------------------------------------
</TABLE>
(1) Investment operations commenced on December 16, 1998. Trading on the AMEX
commenced December 22, 1998
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
DESCRIPTION DU PONT (E.I.) DE ALCOA DOW INTERNATIONAL WEYERHAEUSER
NEMOURS & COMPANY INCORPORATED CHEMICAL COMPANY PAPER COMPANY COMPANY
--------------------------------------------------------------------------------------------------------------------
MARKET VALUE $10,854,843 5,505,848 4,247,953 3,483,236 2,233,141
--------------------------------------------------------------------------------------------------------------------
% OF 19.12 9.70 7.48 6.13 3.93
NET ASSETS
--------------------------------------------------------------------------------------------------------------------
</TABLE>
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
CLOSING PRICE VS. NAV AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
>50 BASIS >100 BASIS >200 BASIS <-50 BASIS <-100 BASIS <-200 BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/98* 2 1 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/99 4 1 0 8 3 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/99 6 0 0 7 2 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/99 7 0 0 12 2 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/99 12 2 0 11 1 0
------------------------------------------------------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/00 13 2 0 3 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/00 9 1 0 6 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/00 7 1 0 4 0 0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Trading on the AMEX commenced on December 22, 1998
3
<PAGE> 6
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
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. For the twelve month period ending September 30, 2000, the Fund
had a return of 8.84% as compared to the Consumer Services Select Sector Index
return of 8.90% and the S&P 500 Index return of 13.28%. The leading performers
in the Fund were firms from the health care sector. Five of these firms, Humana
Inc, Wellpoint Health Networks Inc., HCA-The Healthcare Co., UnitedHealth Group
Inc., and Tenet Healthcare Corp. had returns of over 50% for the twelve month
period ending September 30, 2000. The driving force behind this group's return
was rising profits which generally exceeded analyst's expectations. These
profits were primarily caused by increased member activity. There were also a
number of stocks in the Consumer Services Select Sector SPDR Fund that had
negative returns during this time period. McDonald's and Wendy's were two of the
poorer performers. These two stocks were impacted by fears of a profit squeeze
caused by both rising employee wages and higher energy costs. These two factors
combined with concerns of a slowdown in consumer spending were the causes behind
the decline of many of the securities in this sector. Markets as a whole have
been very volatile and the Consumer Services Select Sector is not an exception
to these broad market swings. In fact, declining and gaining issues were nearly
equally split in this Fund. The Consumer Services Select Sector SPDR Fund
consisted of 41 companies as of September 30, 2000.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
CONSUMER SERVICES SELECT SECTOR SPDR FUND
[LINE GRAPH]
<TABLE>
<CAPTION>
CONSUMER SERVICES SELECT SECTOR
SPDR FUND S&P 500 INDEX
------------------------------- -------------
<S> <C> <C>
12/16/98 10000.0 10000.0
12/31/98 10817.0 10584.0
3/31/99 11659.0 11111.0
6/30/99 12297.0 11895.0
9/30/99 11203.0 11152.0
12/31/99 12988.0 12811.0
3/31/00 12937.0 13104.0
6/30/00 12352.0 12756.0
9/30/00 12193.0 12631.0
</TABLE>
4
<PAGE> 7
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
PERFORMANCE AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
NET ASSET MARKET CONSUMER SERVICES
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 8.84% 9.03% 8.90%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 21.93% 16.79% 22.81%
---------------------------------------------------------------------------------
<CAPTION>
------------------------- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
NET ASSET MARKET CONSUMER SERVICES
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 8.84% 9.03% 8.90%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 11.70% 9.07% 12.15%
---------------------------------------------------------------------------------
</TABLE>
(1) Investment operations commenced on December 16, 1998. Trading on the AMEX
commenced December 22, 1998
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
DESCRIPTION TIME WARNER VIACOM WALT DISNEY CLEAR CHANNEL COMCAST
INCORPORATED INCORPORATED COMPANY COMMUNICATIONS INC. CORPORATION
---------------------------------------------------------------------------------------------------------------------
MARKET VALUE $12,874,864 11,029,999 9,910,346 4,210,154 3,807,965
---------------------------------------------------------------------------------------------------------------------
% OF 16.11 13.80 12.40 5.27 4.77
NET ASSETS
---------------------------------------------------------------------------------------------------------------------
</TABLE>
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
CLOSING PRICE VS. NAV AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
>50 BASIS >100 BASIS >200 BASIS <-50 BASIS <-100 BASIS <-200 BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/98* 1 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/99 11 0 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/99 0 0 0 5 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/99 1 0 0 2 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/99 4 0 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/00 2 1 0 10 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/00 2 1 0 7 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/00 0 0 0 8 0 0
</TABLE>
* Trading on the AMEX commenced on December 22, 1998
5
<PAGE> 8
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
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. For the
twelve month period ending September 30, 2000, the Fund had a return of 11.92%
as compared to the Consumer Staples Select Sector Index return of 12.23% and the
S&P 500 Index return of 13.28%. The positive performance can be attributed to
investors seeking defensive stocks, solid growth and good valuations. Despite
many underperforming "New Economy" issues during the last part of 1999 and the
beginning of 2000, "Old Economy" companies -- many of which may be found in the
Consumer Staples Select Sector -- came roaring back in the second and third
quarters of 2000. These stocks include Watson Pharmaceuticals Inc., Alza
Corporation, and Biomet Inc. Each of these companies had twelve month returns
over 100% due in large part to successful product launches and better-than-
expected earnings. Additionally, nearly two thirds of the constituents in the
sector had positive performance, many with 12-month returns exceeding the S&P
500 Index return during the same period. Nevertheless, the sector also had its
share of underperformers. In fact, two securities were dropped from the S&P 500
Index due to poor performance. These include Rite-Aid, which was down over 60%
when removed in July, and Great Atlantic & Pacific, down 53% when removed in
August. Other negative performers included International Flavors & Fragrances
and Albertson's. International Flavors & Fragrances realized a decline of over
40% in third quarter earnings compared to a year ago and Albertson's continued
to struggle after its merger with American Stores. There were two major mergers
and acquisitions during the last twelve months. Pharmacia Upjohn merged with
Monsanto to form Pharmacia Corporation in April and Pfizer acquired Warner
Lambert in June. The Consumer Staples Select Sector SPDR Fund consisted of 68
companies as of September 30, 2000.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
CONSUMER SERVICES SELECT SECTOR SPDR FUND
[LINE GRAPH]
<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
3/31/99 10193.00 11111.00
6/30/99 9890.00 11895.00
9/30/99 8755.00 11152.00
12/31/99 8916.00 12811.00
3/31/00 8228.00 13104.00
6/30/00 9875.00 12756.00
9/30/00 9797.00 12631.00
</TABLE>
6
<PAGE> 9
THE SELECT SECTOR SPDR TRUST [LOGO] ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
PERFORMANCE AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
NET ASSET MARKET CONSUMER STAPLES
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 11.92% 11.15% 12.23%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) -2.03% -3.81% -1.67%
---------------------------------------------------------------------------------
<CAPTION>
------------------------- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
NET ASSET MARKET CONSUMER STAPLES
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 11.92% 11.15% 12.23%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) -1.14% -2.15% -0.94%
---------------------------------------------------------------------------------
</TABLE>
(1) Investment operations commenced on December 16, 1998. Trading on the AMEX
commenced December 22, 1998
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
DESCRIPTION PFIZER MERCK & COMPANY COCA-COLA JOHNSON & JOHNSON BRISTOL-MYERS
INCORPORATED INCORPORATED COMPANY COMPANY SQUIBB COMPANY
------------------------------------------------------------------------------------------------------------------------
MARKET VALUE $20,145,796 12,155,346 9,692,904 9,273,604 7,971,565
------------------------------------------------------------------------------------------------------------------------
% OF 12.88 7.77 6.20 5.93 5.10
NET ASSETS
------------------------------------------------------------------------------------------------------------------------
</TABLE>
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
CLOSING PRICE VS. NAV AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
>50 BASIS >100 BASIS >200 BASIS <-50 BASIS <-100 BASIS <-200 BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/98* 0 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/99 3 0 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/99 11 1 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/99 15 1 0 3 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/99 9 1 0 3 0 0
------------------------------------------------------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/00 9 1 0 6 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/00 7 0 0 9 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/00 3 0 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Trading on the AMEX commenced on December 22, 1998
7
<PAGE> 10
THE SELECT SECTOR SPDR TRUST [LOGO] ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE CYCLICAL/TRANSPORTATION SELECT SECTOR SPDR FUND
The Cyclical/Transportation Select Sector SPDR Fund seeks to replicate the
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. For the twelve month period ending September 30, 2000, the Fund
had a return of -4.12% as compared to the Cyclical/Transportation Select Sector
Index return of -3.58% and the S&P 500 Index return of 13.28%. The Fund's
performance has been negative over the last twelve months as the
Cyclical/Transportation Select Sector Index was unable to maintain the higher
earnings growth obtained in previous periods. The primary reason for the
negative performance of the sector over the last twelve months was a lack of
consumer confidence, which translated into weak growth for retail and cyclical
stocks. After a strong holiday season, retail stocks have been hurt by interest
rate hikes, stock market volatility and an unseasonably cool spring in parts of
the Midwest and Northeast. All this has taken a particularly high toll on
consumer sales activity. Gap Inc., JC Penney Co., and Circuit City Stores Inc.
led the slowdown in the retail group each with returns below -35.00%. More
diversified retailers partially offset the returns of the group as a whole with
Home Depot Inc. and Kohl's Corp. both showing solid positive gains. Railroad
stocks continued their weak growth while construction stocks were also hurt as
the uncertainties in the economy continue to affect consumer spending. The
Cyclical/Transportation Select Sector SPDR Fund consisted of 70 companies as of
September 30, 2000.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
CYCLICAL/TRANSPORTATION SELECT SECTOR SPDR FUND
[LINE GRAPH]
<TABLE>
<CAPTION>
CYCLICAL/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
3/31/99 11652.00 11111.00
6/30/99 12145.00 11895.00
9/30/99 10717.00 11152.00
12/31/99 12675.00 12811.00
3/31/00 11973.00 13104.00
6/30/00 10611.00 12756.00
9/30/00 10275.00 12631.00
</TABLE>
8
<PAGE> 11
THE SELECT SECTOR SPDR TRUST [LOGO] ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
PERFORMANCE AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
NET ASSET MARKET CYCLICAL/TRANSPORTATION
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 -4.12% -3.82% -3.58%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 2.75% -1.14% 3.46%
---------------------------------------------------------------------------------
<CAPTION>
------------------------- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
NET ASSET MARKET CYCLICAL/TRANSPORTATION
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 -4.12% -3.82% -3.58%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 1.53% -0.64% 1.92%
---------------------------------------------------------------------------------
</TABLE>
(1) Investment operations commenced on December 16, 1998. Trading on the AMEX
commenced December 22, 1998
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
DESCRIPTION WAL-MART STORES HOME DEPOT FORD MOTOR GENERAL MOTORS TARGET
INCORPORATED INCORPORATED COMPANY CORPORATION CORPORATION
-------------------------------------------------------------------------------------------------------------------
MARKET VALUE $18,041,726 13,763,935 5,421,533 3,970,135 2,680,196
-------------------------------------------------------------------------------------------------------------------
% OF 20.13 15.36 6.05 4.43 2.99
NET ASSETS
-------------------------------------------------------------------------------------------------------------------
</TABLE>
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
CLOSING PRICE VS. NAV AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
>50 BASIS >100 BASIS >200 BASIS <-50 BASIS <-100 BASIS <-200 BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/98* 1 0 0 0 1 0
------------------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/99 9 2 0 4 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/99 2 0 0 9 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/99 2 2 0 6 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/99 8 3 0 2 2 0
------------------------------------------------------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/00 4 0 0 6 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/00 7 2 0 3 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/00 5 0 0 3 1 0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Trading on the AMEX commenced on December 22, 1998
9
<PAGE> 12
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
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" 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. For the twelve month period ending September
30, 2000, the Fund had a return of 21.38% as compared to the Energy Select
Sector Index return of 22.04% and the S&P 500 Index return of 13.28%. The Fund's
performance benefitted from sizeable merger activity within the sector
(Exxon/Mobil, BPAmoco/Atlantic Richfield) as well as escalating oil prices that
reached their highest levels in several years. The securities that contributed
significantly to the Fund's performance during the year ended September 30,
2000, included Anadarko Petroleum (+118.11%), Enron Corp. (+114.61%), Coastal
Corp. (+81.68%), and Rowan Companies (+78.46%). The worst performing securities
included McDermott International (-44.94%) and Texaco Inc. (-13.98%). Only 7 of
the securities in the Fund had negative returns for the period. The Energy
Select Sector SPDR Fund consisted of 29 companies as of September 30, 2000.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
ENERGY SELECT SECTOR SPDR FUND
<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
3/31/99 10483.00 11111.00
6/30/99 11993.00 11895.00
9/30/99 11791.00 11152.00
12/31/99 11707.00 12811.00
3/31/00 12672.00 13104.00
6/30/00 13098.00 12756.00
9/30/00 14314.00 12631.00
</TABLE>
10
<PAGE> 13
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
PERFORMANCE AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
NET ASSET MARKET ENERGY
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 21.38% 21.27% 22.04%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 43.14% 44.90% 44.00%
---------------------------------------------------------------------------------
<CAPTION>
------------------------- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
ENERGY
NET ASSET MARKET SELECT SECTOR INDEX
VALUE VALUE ----------------------
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 21.38% 21.27% 22.04%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 22.15% 23.07% 22.56%
---------------------------------------------------------------------------------
</TABLE>
(1) Investment operations commenced on December 16, 1998. Trading on the AMEX
commenced December 22, 1998
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
DESCRIPTION EXXON MOBIL ROYAL DUTCH ENRON SCHLUMBERGER CHEVRON
CORPORATION PETROLEUM CORPORATION LIMITED CORPORATION
CORPORATION
-----------------------------------------------------------------------------------------------------------------------
MARKET VALUE $67,645,518 45,192,515 23,459,403 13,720,341 13,475,041
-----------------------------------------------------------------------------------------------------------------------
% OF 23.17 15.48 8.03 4.70 4.62
NET ASSETS
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
CLOSING PRICE VS. NAV AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
>50 BASIS >100 BASIS >200 BASIS <-50 BASIS <-100 BASIS <-200 BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/98* 1 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/99 7 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/99 2 0 0 5 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/99 0 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/99 1 0 0 2 0 0
------------------------------------------------------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/00 5 1 0 4 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/00 4 0 0 5 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/00 0 0 0 2 0 0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Trading on the AMEX commenced on December 22, 1998
11
<PAGE> 14
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
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. For the twelve month period ending September
30, 2000, the Fund had a return of 33.24% as compared to the Financial Select
Sector Index return of 33.73% and the S&P 500 Index return of 13.28%. Despite
ongoing inflation and interest rate concerns, the US equity market rally that
began back in 1994 limped forward for much of the past twelve months. Most of
this outperformance occurred during the last quarter. Although the Financial
Select Sector SPDR Fund did provide positive returns for two of the first three
quarters of the fiscal year, it either underperformed or, at best, matched the
return of the overall S&P 500 Index for each of those quarters. It was not until
the last quarter that the Financial Select Sector SPDR Fund came into its own as
concerns over interest rates subsided -- at least temporarily. The Fund returned
23.70% versus an overall S&P 500 Index return for the quarter ended September
30, 2000 of -0.97%. The big winners in terms of individual companies were spread
out over the different financial industries. The banking industry's strong
showing was due in large part to Northern Trust Corporation's twelve month
return of over 114%. At the same time, however, other banks (such as AmSouth
Bancorp. and Huntington Bancshares Inc.) did not fare well at all -- posting
negative year to date total returns. In general, the insurance industry was one
of the strongest industries in the Financial Select Sector, but there were a few
troubled companies even within this industry. Conseco Inc, for example, suffered
greatly and returned -59% for the year. The Financial Select Sector SPDR Fund
consisted of 74 companies as of September 30, 2000.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FINANCIAL SELECT SECTOR SPDR FUND
<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
3/31/99 11371.00 11111.00
6/30/99 11925.00 11895.00
9/30/99 10097.00 11152.00
12/31/99 10956.00 12811.00
3/31/00 11195.00 13104.00
6/30/00 10885.00 12756.00
9/30/00 13446.00 12631.00
</TABLE>
12
<PAGE> 15
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
PERFORMANCE AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
NET ASSET MARKET FINANCIAL
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 33.24% 32.92% 33.73%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 34.46% 27.25% 34.89%
<CAPTION>
------------------------- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
NET ASSET MARKET FINANCIAL
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 33.24% 32.92% 33.73%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 17.96% 14.44% 18.17%
</TABLE>
(1) Investment operations commenced on December 16, 1998. Trading on the AMEX
commenced December 22, 1998
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
DESCRIPTION CITIGROUP AMERICAN MORGAN STANLEY, BANK OF AMERICAN
INCORPORATED INTERNATIONAL DEAN WITTER, AMERICA EXPRESS
GROUP DISCOVER AND CORPORATION COMPANY
INCORPORATED COMPANY
------------------------------------------------------------------------------------------------------------
MARKET VALUE $52,854,690 48,121,435 22,360,218 18,696,670 17,582,690
------------------------------------------------------------------------------------------------------------
% OF 12.29 11.19 5.20 4.35 4.09
NET ASSETS
------------------------------------------------------------------------------------------------------------
</TABLE>
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
CLOSING PRICE VS. NAV AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
>50 BASIS >100 BASIS >200 BASIS <-50 BASIS <-100 BASIS <-200 BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/98* 1 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/99 3 0 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/99 1 0 0 3 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/99 1 0 0 2 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/99 5 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/00 1 0 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/00 2 1 1 6 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/00 1 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Trading on the AMEX commenced on December 22, 1998
13
<PAGE> 16
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
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. For the twelve month period
ending September 30, 2000, the Fund had a return of 7.10% as compared to the
Industrial Select Sector Index return of 7.68% and the S&P 500 Index return of
13.28%. This sector was marked by a significant disparity between the best
performer, Corning Inc. with a return of over 334%, and its worst performer,
Raytheon Co. with a return of nearly -42%. The majority of declining names were
hard goods manufacturers. This area of the economy continues to be beset by
excess capacity, limited pricing power, and slow growth. Despite the posting of
negative returns over the last twelve months by nearly 60% of the sector's
constituents, the Fund was still able to post a positive return courtesy of the
performance of its two largest stocks, Corning Inc. and General Electric
Co.("GE"). Corning's performance was attributed primarily by the continued
growth of fiber optics as a means of data transmission whereas GE's performance
can be attributed to the broad dramatic success of nearly all of its divisions.
For the other constituents that had positive returns during this period, two of
the factors that contributed to the returns were increasing positive perceptions
regarding the future of the medical device industry and expectations that
whoever wins the upcoming presidential election will likely increase defense
spending. The Industrial Select Sector SPDR Fund consisted of 42 companies as of
September 30, 2000.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
INDUSTRIAL SELECT SECTOR SPDR FUND
[Performance 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
3/31/99 11010.00 11111.00
6/30/99 13153.00 11895.00
9/30/99 12740.00 11152.00
12/31/99 13223.00 12811.00
3/31/00 13001.00 13104.00
6/30/00 12786.00 12756.00
9/30/00 13645.00 12631.00
</TABLE>
14
<PAGE> 17
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
PERFORMANCE AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
NET ASSET MARKET INDUSTRIAL
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 7.10% 7.79% 7.68%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 36.45% 34.02% 37.55%
---------------------------------------------------------------------------------
<CAPTION>
------------------------- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
NET ASSET MARKET INDUSTRIAL
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 7.10% 7.79% 7.68%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 18.93% 17.81% 19.47%
---------------------------------------------------------------------------------
</TABLE>
(1) Investment operations commenced on December 16, 1998. Trading on the AMEX
commenced December 22, 1998
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
DESCRIPTION GENERAL ELECTRIC CORNING TYCO LABORATORIES, BOEING EMERSON ELECTRIC
COMPANY INCORPORATED INCORPORATED COMPANY COMPANY
--------------------------------------------------------------------------------------------------------------------------
MARKET VALUE $10,427,246 4,878,225 4,611,791 2,651,922 2,068,692
--------------------------------------------------------------------------------------------------------------------------
% OF 20.86 9.76 9.23 5.30 4.14
NET ASSETS
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
CLOSING PRICE VS. NAV AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
>50 BASIS >100 BASIS >200 BASIS <-50 BASIS <-100 BASIS <-200 BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/98* 2 0 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/99 5 2 0 4 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/99 3 0 0 2 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/99 1 1 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/99 2 1 0 2 0 0
------------------------------------------------------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/00 7 0 0 2 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/00 9 2 0 9 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/00 4 0 0 4 1 0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Trading on the AMEX commenced on December 22, 1998
15
<PAGE> 18
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
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. For the twelve month period
ending September 30, 2000, the Fund had a return of 12.67% as compared to the
Technology Select Sector Index return of 13.03% and the S&P 500 Index return of
13.28%. The Technology Select Sector was the dominant sector in the S&P 500
Index during 1999 and the first quarter of 2000. However, the market's
uncertainty of continued performance for the sector coupled with doubts about
the near term future of the US economy added increased volatility to the sector.
For the nine months ended September 30, 2000, the sector is down -14.15%. A
significant portion of the negative return is due to the poor performance of
some of the largest, most well know securities in the sector. Lucent
Technologies experienced a rough time early in the year when the company failed
to reach Wall Street expectations in January. As a result, Lucent has spent 2000
looking for ways to return to past glory. Over the last twelve months Lucent has
returned -52.77%. In addition to Lucent, Microsoft has not had a pleasant new
millennium. The well documented anti-trust troubles have kept Microsoft down for
the year. As the market tries to determine where the litigation will lead, the
stock continues to struggle, down 33.40% over the past year. Not every security
in the Technology Select Sector did poorly. Indeed, there have been some
spectacular returns posted by some lesser know companies in the sector. For
example, the best performing security in the sector for the past twelve months
was Network Appliance, up an amazing 611.34%. Network Appliance is a leader in
file storage and content delivery. Another strong performer was Siebel Systems,
a leading provider of E-business applications software, returning an impressive
568.29%. The Technology Select Sector SPDR Fund consisted of 88 companies as of
September 30, 2000.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
TECHNOLOGY SELECT SECTOR SPDR FUND
<TABLE>
<CAPTION>
TECHNOLOGY SELECT SECTOR SPDR
FUND S&P 500 INDEX
----------------------------- -------------
<S> <C> <C>
12/16/98 10000 10000
12/31/98 10851 10584
3/31/99 12189 11111
6/30/99 13445 11895
9/30/99 13700 11152
12/31/99 18011 12811
3/31/00 20021 13104
6/30/00 17985 12756
9/30/00 15435 12631
</TABLE>
16
<PAGE> 19
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
PERFORMANCE AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
NET ASSET MARKET TECHNOLOGY
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 12.67% 12.43% 13.03%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 54.35% 44.71% 55.05%
---------------------------------------------------------------------------------
<CAPTION>
------------------------- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
NET ASSET MARKET TECHNOLOGY
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 12.67% 12.43% 13.03%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 27.40% 22.98% 27.72%
---------------------------------------------------------------------------------
</TABLE>
(1) Investment operations commenced on December 16, 1998. Trading on the AMEX
commenced December 22, 1998
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
DESCRIPTION CISCO SYSTEMS MICROSOFT INTEL ORACLE EMC
INCORPORATED CORPORATION CORPORATION CORPORATION CORPORATION
--------------------------------------------------------------------------------------------------------------
MARKET VALUE $99,190,270 80,294,514 70,597,148 56,627,392 55,179,220
--------------------------------------------------------------------------------------------------------------
% OF 9.51 7.70 6.77 5.43 5.29
NET ASSETS
--------------------------------------------------------------------------------------------------------------
</TABLE>
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
CLOSING PRICE VS. NAV AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
>50 BASIS >100 BASIS >200 BASIS <-50 BASIS <-100 BASIS <-200 BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/98* 0 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/99 1 0 0 3 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/99 2 0 0 2 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/99 0 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/99 1 0 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/00 1 0 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/00 1 0 1 0 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/00 1 0 0 0 0 0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Trading on the AMEX commenced on December 22, 1998
17
<PAGE> 20
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[LOGO]
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. For the twelve month period
ending September 30, 2000, the Fund had a return of 13.21% as compared to the
Basic Industries Select Sector Index return of 13.40% and the S&P 500 Index
return of 13.28%. Performance for the Utilities Select Sector has been quite
favorable for the year ended September 30, 2000, thanks to a strong rebound
during the third quarter of the calendar year. Between June 30, 2000 and
September 30, 2000, the Fund gained 17.92% as compared to the negative S&P 500
Index return of -.97%. In September alone, the Fund's return was 13.19%, while
the S&P 500 Index return was -5.28%. The sector was strongly affected by
problems with Telephone and Electric Utilities Companies early in the year, but
was able to recover as a result of higher returns from some of the larger
stocks. SBC Communications Inc. experienced a price return of over 15% between
June 30, 2000 and September 30, 2000. Since SBC makes up over 21% of the sector
as of September 30, 2000, the Fund enjoyed an added 3% of positive performance
from this stock's rise alone. Despite problems with this summer's employee
strike, the successful merger of Bell Atlantic and GTE, both within the
Utilities Sector, to form Verizon Communications had a positive effect on the
Fund as well. In addition, the stellar performance of AES Corp. added many
percentage points to the overall Fund return, as AES experienced a 132% return
on its stock price over the entire year. Coupled with an additional 5.55% return
in Duke Energy Co. during the same period, the Utilities Sector was able to
enjoy a strong finish. The Utilities Select Sector SPDR Fund consisted of 40
companies as of September 30, 2000.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
UTILITIES SELECT SECTOR SPDR FUND
<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
3/31/99 9239.00 11111.00
6/30/99 10818.00 11895.00
9/30/99 10366.00 11152.00
12/31/99 10022.00 12811.00
3/31/00 9490.00 13104.00
6/30/00 9789.00 12756.00
9/30/00 11731.00 12631.00
</TABLE>
18
<PAGE> 21
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
[GRAPHIC]
PERFORMANCE AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
-------------------------------------------------------
NET ASSET MARKET UTILITIES
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 13.21% 12.35% 13.40%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 17.31% 14.48% 17.12%
---------------------------------------------------------------------------------
<CAPTION>
---------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------
NET ASSET MARKET UTILITIES
VALUE VALUE SELECT SECTOR INDEX
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
ONE YEAR ENDED 9/30/00 13.21% 12.35% 13.40%
---------------------------------------------------------------------------------
SINCE INCEPTION (1) 9.32% 7.86% 9.22%
---------------------------------------------------------------------------------
</TABLE>
(1) Investment operations commenced on December 16, 1998. Trading on the AMEX
commenced December 22, 1998
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
DESCRIPTION SBC VERIZON AES DUKE BELLSOUTH
COMMUNICATIONS COMMUNICATIONS CORPORATION ENERGY CORPORATION
INCORPORATED CORPORATION CORPORATION
------------------------------------------------------------------------------------------------------------------
MARKET VALUE $23,571,350 18,309,133 5,175,243 5,061,479 3,647,294
------------------------------------------------------------------------------------------------------------------
% OF 21.82 16.95 4.79 4.69 3.38
NET ASSETS
------------------------------------------------------------------------------------------------------------------
</TABLE>
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
CLOSING PRICE VS. NAV AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
>50 BASIS >100 BASIS >200 BASIS <-50 BASIS <-100 BASIS <-200 BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/98* 1 0 0 0 1 0
------------------------------------------------------------------------------------------------------------------------------
1999
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/99 3 0 0 3 0 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/99 3 0 0 5 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/99 5 1 0 4 0 1
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 12/31/99 5 0 0 1 0 0
------------------------------------------------------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 03/31/00 6 0 0 11 1 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 06/30/00 2 1 0 6 2 0
------------------------------------------------------------------------------------------------------------------------------
QUARTER ENDING: 09/30/00 2 1 0 1 1 0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Trading on the AMEX commenced on December 22, 1998
19
<PAGE> 22
THE BASIC INDUSTRIES SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCKS -- 100.5%
ALUMINUM -- 12.5%
Alcan Aluminum Ltd.................... 55,009 $ 1,591,823
Alcoa, Inc............................ 217,515 5,505,848
-----------
7,097,671
-----------
CHEMICALS -- 48.8%
Air Products & Chemicals, Inc......... 57,587 2,073,132
Dow Chemical Co....................... 170,344 4,247,953
Du Pont (E.I.) de Nemours............. 261,957 10,854,843
Eastman Chemical Co................... 19,295 712,709
Ecolab, Inc........................... 32,139 1,159,013
Engelhard Corp........................ 32,045 520,731
FMC Corp. (a)......................... 7,633 511,888
Great Lakes Chemical Corp............. 13,108 384,228
Hercules, Inc......................... 27,012 381,545
PPG Industries, Inc................... 43,652 1,732,439
Praxair, Inc.......................... 39,748 1,485,582
Rohm & Haas Co........................ 54,382 1,580,477
Sigma-Aldrich Corp.................... 20,276 669,108
Union Carbide Corp.................... 33,901 1,279,763
W.R. Grace & Co. (a).................. 16,743 115,108
-----------
27,708,519
-----------
CONSTRUCTION -- 1.8%
Vulcan Materials Co................... 25,340 1,018,351
-----------
CONTAINERS -- 4.1%
Ball Corp............................. 7,416 234,995
Bemis Co., Inc........................ 13,379 429,800
Crown Cork & Seal Co., Inc............ 32,029 342,310
Owens-Illinois, Inc. (a).............. 36,520 337,810
Pactiv Corp. (a)...................... 42,582 476,386
Temple-Inland, Inc.................... 12,797 484,686
-----------
2,305,987
-----------
GOLD -- 5.9%
Barrick Gold Corp..................... 99,375 1,515,469
Homestake Mining Co................... 65,902 341,866
Newmont Mining Corp................... 42,157 716,669
Placer Dome, Inc...................... 82,265 776,376
-----------
3,350,380
-----------
MACHINERY -- 0.4%
Timken Co............................. 15,168 207,612
-----------
MANUFACTURING -- 4.0%
Avery Dennison Corp................... 27,973 1,297,248
Sealed Air Corp. (a).................. 21,079 953,825
-----------
2,251,073
-----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
METALS/MINING -- 3.3%
Freeport-McMoRan Copper & Gold, Inc.
(Class B) (a)....................... 38,260 $ 337,166
Inco Ltd. (a)......................... 45,635 735,864
Phelps Dodge Corp..................... 19,786 826,066
-----------
1,899,096
-----------
PAPER & FOREST PRODUCTS -- 16.9%
Boise Cascade Corp.................... 14,438 383,510
Georgia-Pacific Corp.................. 42,767 1,005,025
International Paper Co................ 121,420 3,483,236
Louisiana-Pacific Corp................ 26,198 240,694
Mead Corp............................. 25,771 602,397
Potlatch Corp......................... 7,160 226,435
Westvaco Corp......................... 25,261 674,153
Weyerhaeuser Co....................... 55,310 2,233,141
Willamette Industries, Inc............ 27,395 767,060
-----------
9,615,651
-----------
STEEL -- 2.8%
Allegheny Technologies, Inc........... 20,378 369,351
Bethlehem Steel Corp. (a)............. 32,812 98,436
Nucor Corp............................ 20,413 614,942
USX-U.S. Steel Group.................. 22,285 338,453
Worthington Industries, Inc........... 21,356 200,213
-----------
1,621,395
-----------
TOTAL COMMON STOCKS --
(Cost $91,437,751).................. 57,075,735
-----------
SHORT TERM INVESTMENTS -- 0.2%
MONEY MARKET FUND -- 0.2%
AIM Short Term Investment Class Prime
Fund (Cost $100,298)................ 100,298 100,298
-----------
TOTAL INVESTMENTS -- 100.7%
(Cost $91,538,049).................. 57,176,033
OTHER ASSETS AND
LIABILITIES -- (0.7)%............... (390,650)
-----------
NET ASSETS -- 100.0%.................. $56,785,383
===========
</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, 2000
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCKS -- 99.9%
ENTERTAINMENT -- 46.3%
Disney (Walt) Co. (The)............... 259,094 $ 9,910,346
Seagram Co. Ltd. (The)................ 55,424 3,183,416
Time Warner, Inc...................... 164,535 12,874,864
Viacom, Inc. (a)...................... 188,547 11,029,999
-----------
36,998,625
-----------
FINANCIAL SERVICES -- 2.0%
Cendant Corp. (a)..................... 95,773 1,041,531
H&R Block, Inc........................ 14,398 533,626
-----------
1,575,157
-----------
HOTELS -- 5.2%
Carnival Corp......................... 76,828 1,891,889
Harrah's Entertainment, Inc. (a)...... 17,694 486,585
Hilton Hotels Corp.................... 53,296 616,235
Marriott International, Inc........... 31,832 1,159,879
-----------
4,154,588
-----------
INFORMATION SERVICES -- 6.5%
Dun & Bradstreet Corp................. 22,678 780,973
IMS Health, Inc....................... 41,421 859,486
Interpublic Group of Cos., Inc........ 39,869 1,358,038
Omnicom Group, Inc.................... 22,866 1,667,789
Young & Rubicam, Inc.................. 10,463 517,918
-----------
5,184,204
-----------
MEDIA -- 10.1%
Clear Channel Communications, Inc.
(a)................................. 74,516 4,210,154
Comcast Corp. (Class A) (a)........... 93,019 3,807,965
-----------
8,018,119
-----------
MEDICAL PROVIDERS -- 12.1%
Aetna, Inc............................ 18,683 1,084,782
HCA-The Healthcare Co................. 71,661 2,660,414
Healthsouth Corp. (a)................. 57,464 466,895
Humana, Inc. (a)...................... 34,733 373,380
Manor Care, Inc. (a).................. 23,370 366,617
Quintiles Transnational Corp. (a)..... 19,782 315,276
Tenet Healthcare Corp................. 41,638 1,514,582
UnitedHealth Group, Inc............... 20,903 2,064,171
Wellpoint Health Networks, Inc.(a).... 8,825 847,200
-----------
9,693,317
-----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
PUBLISHING -- 10.6%
American Greetings Corp. (Class A).... 11,960 $ 209,300
Deluxe Corp........................... 12,057 244,908
Dow Jones & Co., Inc.................. 11,796 713,658
Gannett Co., Inc...................... 34,006 1,802,318
Knight Ridder, Inc.................... 10,677 542,525
McGraw-Hill, Inc...................... 25,484 1,619,827
Meredith Corp......................... 8,619 254,261
New York Times Co. (The) (Class A).... 22,468 883,273
R.R. Donnelley & Sons Co.............. 18,224 447,627
Tribune Co............................ 40,354 1,760,443
-----------
8,478,140
-----------
RESTAURANTS -- 7.1%
Darden Restaurants, Inc............... 19,637 408,695
McDonald's Corp....................... 107,758 3,252,945
Starbucks Corp.(a).................... 25,193 1,009,295
Tricon Global Restaurants, Inc.(a).... 20,933 641,073
Wendy's International, Inc............ 18,135 363,833
-----------
5,675,841
-----------
TOTAL COMMON STOCKS --
(Cost $87,278,438).................. 79,777,991
-----------
SHORT TERM INVESTMENTS -- 0.2%
MONEY MARKET FUND -- 0.2%
AIM Short Term Investment Class Prime
Fund (Cost $176,407)................ 176,407 176,407
-----------
TOTAL INVESTMENTS -- 100.1%
(Cost $87,454,845).................. 79,954,398
OTHER ASSETS AND LIABILITIES --
(0.1)%.............................. (43,703)
-----------
NET ASSETS -- 100.0%.................. $79,910,695
===========
</TABLE>
(a) Non-income producing security
See accompanying notes to financial statements.
21
<PAGE> 24
THE CONSUMER STAPLES SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCKS -- 100.3%
AGRICULTURE -- 0.2%
Archer-Daniels-Midland Co............ 44,816 $ 386,538
------------
ALCOHOL -- 2.0%
Adolph Coors Co. (Class B)........... 2,606 164,667
Anheuser-Busch Cos., Inc............. 64,405 2,725,137
Brown-Forman Corp. (Class B)......... 4,898 268,165
------------
3,157,969
------------
BIOTECHNOLOGY -- 4.4%
Amgen, Inc. (a)...................... 73,008 5,098,011
Biogen, Inc. (a)..................... 10,496 640,256
MedImmune, Inc. (a).................. 14,847 1,146,931
------------
6,885,198
------------
DRUGS -- 42.7%
Allergan Pharmaceuticals, Inc........ 9,340 788,646
ALZA Corp. (Class A) (a)............. 8,204 709,646
American Home Products Corp.......... 92,609 5,238,197
Bristol-Myers Squibb Co.............. 139,546 7,971,565
Cardinal Health, Inc................. 19,737 1,740,557
Eli Lilly & Co....................... 80,161 6,503,061
Mckesson HBOC, Inc................... 20,184 616,874
Merck & Co., Inc..................... 163,296 12,155,346
Pfizer, Inc.......................... 448,307 20,145,796
Pharmacia Corp....................... 92,168 5,547,361
Schering-Plough Corp................. 103,985 4,835,302
Watson Pharmaceuticals, Inc. (a)..... 7,280 472,290
------------
66,724,641
------------
FOOD AND BEVERAGES -- 17.7%
Bestfoods............................ 19,710 1,433,903
Campbell Soup Co..................... 29,920 774,180
Coca-Cola Co......................... 175,835 9,692,904
Coca-Cola Enterprises, Inc........... 29,744 474,045
ConAgra, Inc......................... 37,868 759,727
General Mills, Inc................... 20,226 718,023
H.J. Heinz Co........................ 24,687 914,962
Hershey Foods Corp................... 9,730 526,636
Kellogg Co........................... 28,796 696,503
Nabisco Group Holdings Corp.......... 23,192 660,972
PepsiCo, Inc......................... 102,446 4,712,516
Quaker Oats Co....................... 9,462 748,681
Ralston Purina Group................. 21,821 516,885
Sara Lee Corp........................ 61,828 1,255,881
SUPERVALU, Inc....................... 9,393 141,482
SYSCO Corp........................... 23,659 1,095,707
Unilever N.V. (N.Y. Shares).......... 40,600 1,958,950
W.M. Wrigley Jr. Co.................. 8,105 606,862
------------
27,688,819
------------
GROCERY -- 2.4%
Albertson's, Inc..................... 30,058 631,218
Kroger Co. (a)....................... 58,596 1,322,072
Safeway, Inc. (a).................... 35,323 1,649,143
Winn-Dixie Stores, Inc............... 9,984 143,520
------------
3,745,953
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
HOME PRODUCTS -- 3.9%
Alberto-Culver Co. (Class B)......... 3,897 $ 112,282
Avon Products, Inc................... 16,842 688,417
Clorox Co............................ 16,661 659,151
Colgate-Palmolive Co................. 40,785 1,925,052
Fortune Brands, Inc.................. 11,126 294,839
Gillette Co.......................... 74,797 2,309,358
International Flavors & Fragrances,
Inc................................ 7,037 128,425
------------
6,117,524
------------
HOUSEHOLD PRODUCTS -- 5.6%
Fort James Corp...................... 14,543 444,470
Kimberly-Clark Corp.................. 38,198 2,131,926
Procter & Gamble Co.................. 92,900 6,224,300
------------
8,800,696
------------
MEDICAL PRODUCTS -- 15.6%
Abbott Laboratories.................. 110,079 5,235,632
Bausch & Lomb, Inc................... 3,789 147,534
Baxter International, Inc............ 20,761 1,656,987
Becton, Dickinson & Co............... 18,045 477,065
Biomet, Inc.......................... 12,622 441,770
Boston Scientific Corp. (a).......... 28,935 475,619
C.R. Bard, Inc....................... 3,611 152,565
Guidant Corp. (a).................... 21,796 1,540,705
Johnson & Johnson Co................. 98,721 9,273,604
Mallinckrodt, Inc.................... 4,825 220,141
Medtronic, Inc....................... 85,048 4,406,549
St. Jude Medical Center, Inc. (a).... 5,986 305,286
------------
24,333,457
------------
SPECIALTY RETAIL -- 2.6%
CVS Corp............................. 27,738 1,284,616
Longs Drug Stores Corp............... 2,686 51,370
Walgreen Co.......................... 71,717 2,720,764
------------
4,056,750
------------
TOBACCO -- 3.2%
Philip Morris Cos., Inc.............. 159,889 4,706,732
UST, Inc............................. 11,480 262,605
------------
4,969,337
------------
TOTAL COMMON STOCKS --
(Cost $154,757,005)................ 156,866,882
------------
SHORT TERM INVESTMENTS -- 0.1%
MONEY MARKET FUND -- 0.1%
AIM Short Term Investment Class Prime
Fund (Cost $137,448)............... 137,448 137,448
------------
TOTAL INVESTMENTS -- 100.4%
(Cost $154,894,453)................ 157,004,330
OTHER ASSETS AND
LIABILITIES -- (0.4)%.............. (610,735)
------------
NET ASSETS -- 100.0%................. $156,393,595
============
</TABLE>
(a) Non-income producing security
See accompanying notes to financial statements.
22
<PAGE> 25
THE CYCLICAL/TRANSPORTATION SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCKS -- 100.1%
AIRLINES -- 3.6%
AMR Corp.............................. 18,585 $ 607,497
Delta Air Lines, Inc. ................ 15,890 705,119
Southwest Airlines Co. ............... 62,920 1,525,810
US Airways Group, Inc. (a)............ 11,016 335,299
-----------
3,173,725
-----------
APPAREL -- 7.6%
Gap, Inc. (The)....................... 97,133 1,954,802
Limited, Inc. (The)................... 53,698 1,184,712
Liz Claiborne, Inc.................... 8,752 336,952
Nike, Inc. (Class B).................. 32,282 1,293,298
Reebok International Ltd. (a)......... 21,411 402,794
Russell Corp.......................... 11,186 177,578
Springs Industries, Inc. ............. 5,093 143,559
TJX Cos., Inc. (The).................. 38,296 861,660
V.F. Corp............................. 16,549 408,553
-----------
6,763,908
-----------
CONSTRUCTION -- 2.4%
Armstrong Holdings, Inc. ............. 8,310 99,201
Centex Corp........................... 11,766 377,983
Kaufman & Broad Home Corp. ........... 10,685 287,827
Masco Corp. .......................... 55,941 1,041,901
Pulte Corp. .......................... 9,911 327,063
-----------
2,133,975
-----------
CONSUMER DURABLES -- 1.6%
Black & Decker Corp................... 11,595 396,404
Maytag Corp. ......................... 11,004 341,812
Stanley Works (The)................... 13,430 309,730
Whirlpool Corp. ...................... 9,749 378,992
-----------
1,426,938
-----------
DEPARTMENT STORES -- 32.3%
Costco Wholesale Corp. (a)............ 52,377 1,829,921
Dillard's, Inc. (Class A)............. 15,723 167,057
Federated Department Stores, Inc.
(a)................................. 25,602 668,852
J.C. Penney Co., Inc.................. 35,700 421,706
KMart Corp. (a)....................... 64,876 389,256
Kohl's Corp. (a)...................... 40,111 2,313,903
May Department Stores Co.............. 39,107 801,693
Nordstrom, Inc. ...................... 18,856 293,447
Sears, Roebuck & Co................... 41,833 1,356,226
Target Corp. ......................... 104,593 2,680,196
Wal-Mart Stores, Inc. ................ 374,893 18,041,726
-----------
28,963,983
-----------
HOUSEWARES -- 1.6%
Leggett & Platt, Inc.................. 27,751 438,813
Newell Rubbermaid, Inc................ 33,482 763,808
Tupperware Corp....................... 13,720 246,960
-----------
1,449,581
-----------
LEISURE TIME -- 1.3%
Brunswick Corp........................ 14,903 271,980
Hasbro, Inc........................... 25,053 286,544
Mattel, Inc........................... 57,147 639,332
-----------
1,197,856
-----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
MANUFACTURING -- 0.5%
ITT Industries, Inc. ................. 13,392 $ 434,403
-----------
MOTOR VEHICLES -- 15.1%
Cooper Tire & Rubber Co............... 15,602 156,995
Delphi Automotive Systems Corp........ 70,180 1,061,473
Ford Motor Co. ....................... 214,184 5,421,533
General Motors Corp. ................. 61,079 3,970,135
Genuine Parts Co. .................... 24,166 460,664
Goodyear Tire & Rubber Co. (The)...... 22,014 396,252
Harley-Davidson, Inc. ................ 33,654 1,611,185
Snap-on, Inc.......................... 11,087 261,237
Visteon Corp. ........................ 14,496 219,252
-----------
13,558,726
-----------
PUBLISHING -- 0.7%
Harcourt General, Inc................. 11,262 664,458
-----------
RAILROADS -- 4.0%
Burlington Northern Santa Fe Corp. ... 49,437 1,065,985
CSX Corp.............................. 28,121 613,389
Norfolk Southern Corp................. 48,518 709,576
Union Pacific Corp. .................. 30,388 1,181,334
-----------
3,570,284
-----------
SPECIALTY RETAIL -- 27.5%
AutoZone, Inc. (a).................... 17,571 398,642
Bed Bath & Beyond, Inc. (a)........... 38,948 949,966
Best Buy Co., Inc. (a)................ 25,676 1,633,635
Circuit City Stores, Inc.............. 25,657 590,111
Consolidated Stores Corp. (a)......... 20,222 272,997
Dollar General Corp. ................. 43,245 724,354
Home Depot, Inc....................... 259,391 13,763,935
Lowes Cos., Inc....................... 44,571 2,000,124
Office Depot, Inc. (a)................ 44,723 349,398
RadioShack Corp. ..................... 23,093 1,492,385
Sherwin-Williams Co. ................. 24,010 513,214
Staples, Inc. (a)..................... 56,163 796,812
Tiffany & Co.......................... 16,154 622,939
Toys "R" Us, Inc. (a)................. 31,608 513,630
-----------
24,622,142
-----------
TRUCKING AND FREIGHT FORWARD -- 1.9%
FedEx Corp. (a)....................... 34,450 1,527,513
Ryder System, Inc..................... 11,368 209,597
-----------
1,737,110
-----------
TOTAL COMMON STOCKS --
(Cost $115,185,347)................. 89,697,089
-----------
SHORT TERM INVESTMENTS -- 0.2%
MONEY MARKET FUND -- 0.2%
AIM Short Term Investment Class Prime
Fund (Cost $144,719)................ 144,719 144,719
-----------
TOTAL INVESTMENTS -- 100.3%
(Cost $115,330,066)................. 89,841,808
OTHER ASSETS AND LIABILITIES --
(0.3)%.............................. (227,050)
-----------
NET ASSETS -- 100.0%.................. $89,614,758
===========
</TABLE>
(a) Non-income producing security
See accompanying notes to financial statements.
23
<PAGE> 26
THE ENERGY SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCKS -- 100.3%
ENERGY RESOURCES -- 66.9%
Amerada Hess Corp...................... 57,806 $ 3,869,389
Anadarko Petroleum Corp................ 110,852 7,367,224
Apache Corp............................ 71,298 4,215,494
Burlington Resources, Inc.............. 121,137 4,459,356
Chevron Corp. ......................... 158,065 13,475,041
Conoco, Inc. (Class B)................. 282,021 7,596,941
Devon Energy Corp. .................... 73,383 4,413,987
Exxon Mobil Corp. ..................... 758,996 67,645,518
Kerr-McGee Corp. ...................... 59,356 3,932,335
Occidental Petroleum Corp.............. 206,801 4,510,847
Phillips Petroleum Co. ................ 115,080 7,221,270
Royal Dutch Petroleum Co............... 753,994 45,192,515
Texaco, Inc. .......................... 223,137 11,714,693
Unocal Corp. .......................... 133,349 4,725,555
USX-Marathon Group..................... 170,643 4,841,995
------------
195,182,160
------------
INDUSTRIAL PRODUCTS -- 0.7%
McDermott International, Inc........... 184,680 2,031,480
------------
NATURAL GAS -- 16.9%
Coastal Corp........................... 97,450 7,223,481
Columbia Energy Group.................. 51,798 3,677,658
El Paso Energy Corp. .................. 108,102 6,661,786
Enron Corp. ........................... 267,725 23,459,403
Williams Cos., Inc. (The).............. 193,778 8,187,121
------------
49,209,449
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
OIL AND GAS REFINING -- 2.9%
Ashland, Inc. ......................... 78,965 $ 2,660,134
Sunoco, Inc............................ 94,857 2,555,210
Tosco Corp. ........................... 105,536 3,291,404
------------
8,506,748
------------
OIL AND GAS SERVICES -- 12.9%
Baker Hughes, Inc. .................... 161,816 6,007,419
Halliburton Co. ....................... 189,012 9,249,775
Rowan Cos., Inc. (a)................... 94,439 2,738,731
Schlumberger Ltd....................... 166,686 13,720,341
Transocean Sedco Forex, Inc. .......... 102,734 6,022,781
------------
37,739,047
------------
TOTAL COMMON STOCKS --
(Cost $279,265,418).................. 292,668,884
------------
SHORT TERM INVESTMENTS -- 0.2%
MONEY MARKET FUND -- 0.2%
AIM Short Term Investment Class Prime
Fund (Cost $638,609)................. 638,609 638,609
------------
TOTAL INVESTMENTS -- 100.5%
(Cost $279,904,027).................. 293,307,493
OTHER ASSETS AND LIABILITIES --
(0.5)%............................... (1,332,925)
------------
NET ASSETS -- 100.0%................... $291,974,568
============
</TABLE>
(a) Non-income producing security
See accompanying notes to financial statements.
24
<PAGE> 27
THE FINANCIAL SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCKS -- 100.1%
BANKS -- 31.9%
AmSouth Bancorp........................ 81,817 $ 1,022,713
Banc One Corp.......................... 251,105 9,698,931
Bank of America Corp................... 356,977 18,696,670
Bank of New York, Inc.................. 160,466 8,996,125
BB&T Corp.............................. 86,820 2,615,453
Chase Manhattan Corp................... 284,398 13,135,633
Comerica, Inc.......................... 34,091 1,992,193
Fifth Third Bancorp.................... 101,126 5,448,163
First Union Corp....................... 214,096 6,891,215
Firstar Corp........................... 208,040 4,654,895
FleetBoston Financial Corp............. 196,151 7,649,889
Huntington Bancshares, Inc............. 54,582 801,667
KeyCorp................................ 93,428 2,364,896
Mellon Financial Corp.................. 105,995 4,915,518
National City Corp..................... 132,163 2,924,106
Northern Trust Corp.................... 48,174 4,281,464
Old Kent Financial Corp................ 29,947 866,591
PNC Financial Services Group........... 62,762 4,079,530
Regions Financial Corp................. 47,516 1,078,019
SouthTrust Corp........................ 36,771 1,155,988
State Street Corp...................... 35,052 4,556,760
Summit Bancorp......................... 37,813 1,304,549
SunTrust Banks, Inc.................... 64,720 3,223,865
Synovus Financial Corp................. 61,760 1,308,540
U.S. Bancorp........................... 161,890 3,682,998
Union Planters Corp.................... 29,311 969,095
Wachovia Corp.......................... 44,167 2,503,717
Wells Fargo & Co....................... 357,848 16,438,642
------------
137,257,825
------------
CONSUMER FINANCE -- 4.8%
Capital One Financial Corp............. 42,714 2,992,650
Countrywide Credit Industries, Inc..... 24,781 935,483
Household International, Inc........... 102,660 5,813,122
MBNA Corp.............................. 185,123 7,127,235
Providian Financial Corp............... 31,005 3,937,635
------------
20,806,125
------------
FINANCIAL SERVICES -- 33.5%
American Express Co.................... 289,427 17,582,690
Aon Corp............................... 55,366 2,173,115
Associates First Capital Corp. (Class
A)................................... 158,265 6,014,070
CIT Group, Inc. (The) (Class A)........ 57,215 1,001,263
Citigroup, Inc......................... 977,659 52,854,690
Fannie Mae............................. 218,961 15,655,711
Freddie Mac............................ 151,018 8,164,411
Marsh & McLennan Cos., Inc............. 58,975 7,828,931
Morgan (J.P.) & Co., Inc............... 34,573 5,648,364
Morgan Stanley, Dean Witter, Discover
and Co............................... 244,541 22,360,218
Stilwell Financial, Inc. (a)........... 48,854 2,125,149
T. Rowe Price Associates, Inc.......... 26,303 1,234,597
USA Education, Inc..................... 33,683 1,623,100
------------
144,266,309
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
LIFE INSURANCE -- 3.3%
Aflac, Inc............................. 57,607 $ 3,690,449
American General Corp.................. 54,883 4,280,874
Conseco, Inc........................... 70,816 539,972
Jefferson-Pilot Corp................... 22,478 1,525,694
Lincoln National Corp.................. 41,470 1,995,744
Torchmark Corp......................... 28,014 779,139
UnumProvident Corp..................... 52,413 1,428,254
------------
14,240,126
------------
PROPERTY INSURANCE -- 17.3%
Allstate Corp.......................... 159,434 5,540,331
American International Group, Inc...... 502,902 48,121,435
Chubb Corp............................. 37,935 3,001,607
CIGNA Corp............................. 34,224 3,572,986
Cincinnati Financial Corp.............. 35,056 1,244,488
Hartford Financial Services
Group, Inc. (The).................... 48,774 3,557,454
Loews Corp............................. 21,523 1,794,480
MBIA, Inc.............................. 21,461 1,526,414
MGIC Investment Corp................... 23,053 1,409,115
Progressive Corp....................... 15,949 1,305,824
SAFECO Corp............................ 27,823 758,177
St. Paul Cos., Inc..................... 48,545 2,393,875
------------
74,226,186
------------
SAVINGS AND LOANS -- 1.8%
Charter One Financial, Inc............. 45,551 1,110,309
Golden West Financial Corp............. 34,390 1,844,164
Washington Mutual, Inc................. 116,978 4,657,187
------------
7,611,660
------------
SECURITY DEALERS/
ASSET MANAGEMENT -- 7.5%
Bear Stearns Cos., Inc................. 23,312 1,468,656
Franklin Resources, Inc................ 53,077 2,358,211
Lehman Brothers Holdings, Inc.......... 26,421 3,903,703
Merrill Lynch & Co., Inc............... 179,272 11,831,952
Paine Webber Group, Inc................ 32,084 2,185,722
Schwab (Charles) Corp.................. 300,014 10,650,497
------------
32,398,741
------------
TOTAL COMMON STOCKS --
(Cost $376,133,497).................. 430,806,972
------------
SHORT TERM INVESTMENTS -- 0.2%
MONEY MARKET FUND -- 0.2%
AIM Short Term Investment Class Prime
Fund (Cost $719,409)................. 719,409 719,409
------------
TOTAL INVESTMENTS -- 100.3%
(Cost $376,852,906).................. 431,526,381
OTHER ASSETS AND LIABILITIES --
(0.3)%............................... (1,385,038)
------------
NET ASSETS -- 100.0%................... $430,141,343
============
</TABLE>
(a) Non-income producing security
See accompanying notes to financial statements.
25
<PAGE> 28
THE INDUSTRIAL SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCKS -- 100.2%
DEFENSE/AEROSPACE -- 9.6%
B.F. Goodrich Co. (The)................. 4,708 $ 184,495
Boeing Co............................... 42,094 2,651,922
General Dynamics Corp................... 9,254 581,267
Lockheed Martin Corp.................... 20,032 660,254
Northrop Grumman Corp................... 3,352 304,613
Raytheon Co. (Class B).................. 15,842 450,507
-----------
4,833,058
-----------
ELECTRICAL EQUIPMENT -- 27.3%
American Power Conversion Corp. (a)..... 9,066 173,954
Cooper Industries, Inc.................. 19,879 700,735
Emerson Electric Co..................... 30,876 2,068,692
General Electric Co..................... 180,754 10,427,246
Rockwell International Corp............. 8,700 263,175
-----------
13,633,802
-----------
ELECTRONICS -- 2.8%
PE Corp. -- PE Biosystems Group......... 9,790 1,140,535
PerkinElmer, Inc........................ 2,340 244,238
-----------
1,384,773
-----------
ENGINEERING & CONSTRUCTION -- 1.2%
Fluor Corp.............................. 19,827 594,810
-----------
MACHINERY-DIVERSIFIED -- 6.9%
Caterpillar, Inc........................ 29,293 988,639
Deere & Co.............................. 25,056 833,112
Dover Corp.............................. 20,719 972,498
Ingersoll-Rand Co....................... 19,881 673,469
-----------
3,467,718
-----------
MANUFACTURING -- 43.9%
Briggs & Stratton Corp.................. 13,307 503,171
Corning, Inc............................ 16,425 4,878,225
Crane Co................................ 23,437 536,121
Danaher Corp............................ 18,276 909,231
Eaton Corp.............................. 10,269 632,827
Honeywell International, Inc............ 48,471 1,726,779
Illinois Tool Works, Inc................ 23,287 1,301,161
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
MANUFACTURING -- (CONTINUED)
Johnson Controls, Inc................... 13,317 $ 708,298
Millipore Corp.......................... 2,208 106,950
Minnesota Mining & Manufacturing Co..... 20,817 1,896,949
National Service Industries, Inc........ 26,353 515,531
Pall Corp............................... 28,188 561,998
Parker-Hannifin Corp.................... 17,970 606,488
Textron, Inc............................ 15,287 705,113
Thermo Electron Corp. (a)............... 8,066 209,716
Tyco Laboratories, Inc.................. 88,902 4,611,791
United Technologies Corp................ 21,978 1,521,977
-----------
21,932,326
-----------
MOTOR VEHICLES -- 4.4%
Cummins Engine Co., Inc................. 15,767 472,024
Dana Corp............................... 24,300 522,450
Navistar International Corp. (a)........ 15,078 451,398
PACCAR, Inc............................. 14,463 536,035
TRW, Inc................................ 5,826 236,681
-----------
2,218,588
-----------
WASTE MANAGEMENT -- 4.1%
Allied Waste Industries, Inc. (a)....... 95,198 874,632
Waste Management, Inc................... 66,838 1,165,487
-----------
2,040,119
-----------
TOTAL COMMON STOCKS --
(Cost $54,889,921).................... 50,105,194
-----------
SHORT TERM INVESTMENTS -- 0.2%
MONEY MARKET FUND -- 0.2%
AIM Short Term Investment Class Prime
Fund (Cost $81,530)................... 81,530 81,530
-----------
TOTAL INVESTMENTS -- 100.4%
(Cost $54,971,451).................... 50,186,724
OTHER ASSETS AND LIABILITIES --
(0.4)%................................ (197,518)
-----------
NET ASSETS -- 100.0%.................... $49,989,206
===========
</TABLE>
(a) Non-income producing security
See accompanying notes to financial statements.
26
<PAGE> 29
THE TECHNOLOGY SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCKS -- 100.0%
COMMUNICATIONS EQUIPMENT -- 13.5%
ADC Telecommunications, Inc.
(a)............................. 178,573 $ 4,801,940
Andrew Corp. (a).................. 27,452 718,899
Comverse Technology, Inc. (a)..... 38,864 4,197,312
JDS Uniphase Corp. (a)............ 236,787 22,420,769
Lucent Technologies, Inc.......... 844,803 25,819,292
Motorola, Inc..................... 556,768 15,728,696
Nortel Networks Corp.............. 762,525 45,417,895
QUALCOMM, Inc. (a)................ 188,670 13,442,737
Scientific-Atlanta, Inc........... 48,294 3,072,706
Tellabs, Inc. (a)................. 106,090 5,065,798
--------------
140,686,044
--------------
COMPUTER HARDWARE -- 32.8%
Apple Computer, Inc. (a).......... 88,909 2,289,407
Cabletron Systems, Inc. (a)....... 56,936 1,672,495
Cisco Systems, Inc. (a)........... 1,795,299 99,190,270
Compaq Computer Corp.............. 435,778 12,018,757
Dell Computer Corp. (a)........... 657,980 20,274,009
EMC Corp. (a)..................... 556,663 55,179,220
Gateway 2000, Inc. (a)............ 86,138 4,026,951
Hewlett-Packard Co................ 253,601 24,599,297
International Business Machines
Corp............................ 445,475 50,115,937
Lexmark International, Inc. (Class
A) (a).......................... 32,779 1,229,213
NCR Corp. (a)..................... 24,170 913,928
Network Appliance, Inc. (a)....... 89,657 11,420,060
Palm, Inc. (a).................... 143,458 7,594,308
Seagate Technology, Inc. (a)...... 62,115 4,285,935
Sun Microsystems, Inc. (a)........ 405,369 47,326,831
--------------
342,136,618
--------------
COMPUTERS SOFTWARE -- 22.0%
Adobe Systems, Inc................ 33,419 5,188,300
America Online, Inc. (a).......... 586,766 31,538,673
Autodesk, Inc..................... 19,312 490,042
BMC Software, Inc. (a)............ 64,804 1,239,377
Citrix Systems, Inc. (a).......... 47,061 944,161
Computer Associates, International
Inc............................. 152,311 3,836,333
Compuware Corp. (a)............... 95,792 802,258
Mercury Interactive Corp. (a)..... 20,171 3,161,804
Microsoft Corp. (a)............... 1,331,308 80,294,514
Novell, Inc. (a).................. 88,725 881,705
Oracle Corp. (a).................. 719,078 56,627,392
Parametric Technology Corp. (a)... 79,139 865,583
PeopleSoft, Inc. (a).............. 79,215 2,213,069
Sapient Corp. (a)................. 29,874 1,215,498
Siebel Systems, Inc. (a).......... 105,365 11,728,442
Unisys Corp. (a).................. 83,145 935,381
VERITAS Software Corp. (a)........ 101,670 14,437,140
Yahoo!, Inc. (a).................. 139,013 12,650,183
--------------
229,049,855
--------------
ELECTRICAL EQUIPMENT -- 1.3%
Molex, Inc........................ 49,830 2,712,621
Sanmina Corp. (a)................. 37,666 3,526,479
Solectron Corp. (a)............... 156,644 7,225,204
Thomas & Betts Corp............... 17,591 306,743
--------------
13,771,047
--------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
ELECTRONICS -- 0.7%
Agilent Technologies, Inc. (a).... 115,077 $ 5,631,581
Tektronix, Inc.................... 16,670 1,280,464
W.W. Grainger, Inc................ 26,304 692,124
--------------
7,604,169
--------------
INFORMATION SERVICES -- 3.2%
Automatic Data Processing, Inc.... 161,773 10,818,569
Ceridian Corp. (a)................ 40,856 1,146,521
Computer Sciences Corp. (a)....... 44,697 3,318,752
Convergys Corp. (a)............... 38,947 1,514,065
Electronic Data Systems Corp...... 120,582 5,004,153
Equifax, Inc...................... 39,425 1,062,011
First Data Corp................... 105,237 4,110,820
Paychex, Inc...................... 100,498 5,276,145
Sabre Holdings Corp............... 32,807 949,353
--------------
33,200,389
--------------
OFFICE EQUIPMENT & SUPPLIES -- 0.2%
Pitney Bowes, Inc................. 67,421 2,658,916
--------------
PHOTOGRAPHY/IMAGING -- 0.6%
Eastman Kodak Co.................. 79,659 3,256,062
Polaroid Corp..................... 16,259 218,480
Xerox Corp........................ 171,643 2,585,373
--------------
6,059,915
--------------
SEMI-CONDUCTORS -- 16.3%
Adaptec, Inc. (a)................. 26,469 529,380
Advanced Micro Devices, Inc.
(a)............................. 93,353 2,205,465
Altera Corp. (a).................. 101,164 4,830,581
Analog Devices, Inc. (a).......... 89,971 7,428,231
Applied Materials, Inc. (a)....... 209,441 12,422,469
Broadcom Corp. (Class A) (a)...... 56,169 13,691,194
Conexant Systems, Inc. (a)........ 57,610 2,412,419
Intel Corp........................ 1,698,578 70,597,148
KLA-Tencor Corp. (a).............. 51,946 2,139,526
Linear Technology Corp............ 79,057 5,118,941
LSI Logic Corp. (a)............... 84,094 2,459,749
Maxim Integrated Products, Inc.
(a)............................. 71,513 5,752,327
Micron Technology, Inc. (a)....... 150,138 6,906,348
National Semiconductor Corp.
(a)............................. 50,240 2,022,160
Novellus Systems, Inc. (a)........ 33,233 1,547,412
Teradyne, Inc. (a)................ 43,989 1,539,615
Texas Instruments, Inc............ 441,427 20,829,836
Xilinx, Inc. (a).................. 83,127 7,117,749
--------------
169,550,550
--------------
TELEPHONE -- 7.7%
AT & T Corp....................... 950,240 27,913,300
CenturyTel, Inc................... 38,962 1,061,714
Global Crossing Ltd. (a).......... 222,725 6,904,475
Qwest Communications
International, Inc. (a)......... 420,153 20,193,604
Sprint Corp....................... 225,581 6,612,343
WorldCom, Inc. (a)................ 571,551 17,360,862
--------------
80,046,298
--------------
</TABLE>
27
<PAGE> 30
THE TECHNOLOGY SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
WIRELESS COMMUNICATIONS -- 1.7%
Nextel Communications, Inc. (Class
A) (a).......................... 200,156 $ 9,357,293
Sprint Corp. (PCS Group) (a)...... 239,465 8,396,241
--------------
17,753,534
--------------
TOTAL COMMON STOCKS --
(Cost $1,163,430,525)........... 1,042,517,335
--------------
SHORT TERM INVESTMENTS -- 0.0%(b)
MONEY MARKET FUNDS -- 0.0%(b)
AIM Short Term Investment Class
Prime Fund...................... 411,256 411,256
Federated Prime Obligations
Fund............................ 175,360 175,360
--------------
TOTAL SHORT TERM INVESTMENTS --
(Cost $586,616)................. 586,616
--------------
TOTAL INVESTMENTS -- 100.0%
(Cost $1,164,017,141)........... 1,043,103,951
OTHER ASSETS AND
LIABILITIES -- 0.0% (b)......... (439,402)
--------------
NET ASSETS -- 100.0%.............. $1,042,664,549
==============
</TABLE>
(a) Non-income producing security
(b) Amount shown represents less than 0.01%.
See accompanying notes to financial statements.
28
<PAGE> 31
THE UTILITIES SELECT SECTOR SPDR FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
COMMON STOCKS -- 100.6%
ELECTRIC UTILITIES -- 51.8%
AES Corp. (a)........................ 75,551 $ 5,175,243
Ameren Corp.......................... 32,042 1,341,759
American Electric Power Co., Inc..... 67,048 2,623,253
Cinergy Corp......................... 41,241 1,363,531
CMS Energy Corp...................... 35,238 949,224
Consolidated Edison, Inc............. 42,722 1,457,888
Constellation Energy Group, Inc...... 33,940 1,688,515
CP&L, Energy, Inc.................... 34,502 1,438,302
Dominion Resources, Inc.............. 43,820 2,544,299
DTE Energy Co........................ 32,774 1,253,606
Duke Energy Corp..................... 59,026 5,061,479
Edison International................. 68,224 1,317,576
Entergy Corp......................... 48,899 1,821,488
FirstEnergy Corp..................... 51,468 1,386,419
Florida Progress Corp................ 22,333 1,182,253
FPL Group, Inc....................... 33,333 2,191,645
GPU, Inc............................. 31,697 1,028,171
Niagara Mohawk Holdings, Inc. (a).... 48,277 760,363
Peco Energy Co....................... 33,377 2,021,395
PG&E Corp............................ 72,555 1,754,924
Pinnacle West Capital Corp........... 26,422 1,344,219
PPL Corp............................. 39,824 1,662,652
Public Service Enterprise, Inc....... 43,575 1,947,258
Reliant Energy, Inc.................. 58,866 2,737,269
Southern Co.......................... 107,742 3,494,881
TXU Corp............................. 49,597 1,965,281
Unicom Corp.......................... 33,121 1,860,986
Xcel Energy, Inc..................... 92,963 2,556,480
------------
55,930,359
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
-------------------- ------ -----
<S> <C> <C>
NATURAL GAS -- 4.2%
Eastern Enterprises.................. 10,416 $ 664,671
KeySpan Corp......................... 18,661 748,773
NICOR, Inc........................... 18,419 666,537
ONEOK, Inc........................... 19,781 786,295
Peoples Energy Corp.................. 19,286 643,670
Sempra Energy........................ 51,382 1,069,388
------------
4,579,334
------------
TELEPHONE -- 44.6%
ALLTEL Corp.......................... 50,370 2,628,684
BellSouth Corp....................... 90,616 3,647,294
SBC Communications, Inc.............. 471,427 23,571,350
Verizon Communications............... 377,995 18,309,133
------------
48,156,461
------------
TOTAL COMMON STOCKS --
(Cost $100,763,094)................ 108,666,154
------------
SHORT TERM INVESTMENTS -- 0.1%
MONEY MARKET FUND -- 0.1%
AIM Short Term Investment Class Prime
Fund (Cost $150,205)............... 150,205 150,205
------------
TOTAL INVESTMENTS -- 100.7%
(Cost $100,913,299)................ 108,816,359
OTHER ASSETS AND
LIABILITIES -- (0.7)%.............. (804,907)
------------
NET ASSETS -- 100.0%................. $108,011,452
============
</TABLE>
(a) Non-income producing security
See accompanying notes to financial statements.
29
<PAGE> 32
THE SELECT SECTOR SPDR TRUST
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
<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)......... $ 57,176,033 $79,954,398 $157,004,330 $ 89,841,808
Cash................................................. 15,000 10,000 35,200 28,643
Receivable for investments sold...................... -- -- -- 37,050
Dividends receivable (Note 2)........................ 100,812 22,606 308,969 93,880
Prepaid expenses..................................... 569 595 1,418 845
------------ ----------- ------------ ------------
TOTAL ASSETS.................................. 57,292,414 79,987,599 157,349,917 90,002,226
------------ ----------- ------------ ------------
LIABILITIES
Payable for investments purchased.................... -- -- -- --
Payable for income delivered for Select Sector SPDRS
redeemed in-kind................................... 7,320 324 1,071 391
Distributions payable (Note 2)....................... 395,467 -- 767,248 287,613
Accrued advisory fees (Note 3)....................... 1,808 2,479 4,846 2,637
Accrued trustees fees (Note 3)....................... 1,146 983 2,377 1,163
Accrued distribution fees (Note 3)................... 80,008 50,566 132,826 65,600
Accrued Administration, Custodian and Transfer Agent
Fees (Note 3)...................................... 4,211 5,777 11,297 6,146
Accrued expenses and other liabilities............... 17,071 16,775 36,657 23,918
------------ ----------- ------------ ------------
TOTAL LIABILITIES............................. 507,031 76,904 956,322 387,468
------------ ----------- ------------ ------------
NET ASSETS.................................... $ 56,785,383 $79,910,695 $156,393,595 $ 89,614,758
============ =========== ============ ============
NET ASSETS REPRESENTED BY:
Paid in surplus (Note 4)............................. $ 88,884,930 $89,153,714 $160,338,071 $116,119,648
Undistributed (distribution in excess of) net
investment income.................................. 256,312 28,560 37,904 (7,313)
Accumulated net realized gain (loss) on
investments........................................ 2,006,157 (1,771,132) (6,092,257) (1,009,319)
Net unrealized appreciation (depreciation) on
investments........................................ (34,362,016) (7,500,447) 2,109,877 (25,488,258)
------------ ----------- ------------ ------------
NET ASSETS.................................... $ 56,785,383 $79,910,695 $156,393,595 $ 89,614,758
============ =========== ============ ============
NET ASSET VALUE PER SELECT SECTOR SPDR
Net asset value per Select Sector SPDR............... $ 18.03 $ 29.06 $ 25.02 $ 24.89
============ =========== ============ ============
Shares outstanding (unlimited amount authorized,
$0.001 par value).................................. 3,150,000 2,750,000 6,250,044 3,600,000
============ =========== ============ ============
Cost of investments.................................. $ 91,538,049 $87,454,845 $154,894,453 $115,330,066
============ =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 33
<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>
$293,307,493 $431,526,381 $50,186,724 $1,043,103,951 $108,816,359
42,426 10,000 10,000 76,446 77,104
13,957,647 -- -- -- --
133,155 462,415 71,702 381,186 161,193
1,011 1,891 624 5,765 1,376
------------ ------------ ----------- -------------- ------------
307,441,732 432,000,687 50,269,050 1,043,567,348 109,056,032
------------ ------------ ----------- -------------- ------------
14,197,018 -- -- -- --
-- 48,482 -- 5,864 1,077
1,093,775 1,468,801 234,754 -- 967,951
5,741 11,709 1,637 27,498 2,727
2,272 7,162 895 12,460 1,034
117,459 184,409 24,709 573,143 52,803
13,389 27,312 3,810 64,079 6,354
37,510 111,469 14,039 219,755 12,634
------------ ------------ ----------- -------------- ------------
15,467,164 1,859,344 279,844 902,799 1,044,580
------------ ------------ ----------- -------------- ------------
$291,974,568 $430,141,343 $49,989,206 $1,042,664,549 $108,011,452
============ ============ =========== ============== ============
$280,038,423 $379,293,468 $60,065,909 $1,182,037,371 $100,494,622
(234,843) (19,094) 112,796 -- 571,506
(1,232,478) (3,806,506) (5,404,772) (18,459,632) (957,736)
13,403,466 54,673,475 (4,784,727) (120,913,190) 7,903,060
------------ ------------ ----------- -------------- ------------
$291,974,568 $430,141,343 $49,989,206 $1,042,664,549 $108,011,452
============ ============ =========== ============== ============
$ 32.81 $ 28.96 $ 30.30 $ 46.44 $ 32.24
============ ============ =========== ============== ============
8,900,005 14,850,598 1,650,000 22,450,003 3,350,012
============ ============ =========== ============== ============
$279,904,027 $376,852,906 $54,971,451 $1,164,017,141 $100,913,299
============ ============ =========== ============== ============
</TABLE>
31
<PAGE> 34
THE SELECT SECTOR SPDR TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
<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)............................. $ 2,202,227 $ 486,894 $ 3,526,826 $ 1,305,458
Foreign taxes withheld............................... (12,970) (6,316) (10,625) --
------------ ----------- ----------- ------------
TOTAL INVESTMENT INCOME............................ 2,189,257 480,578 3,516,201 1,305,458
------------ ----------- ----------- ------------
EXPENSES
Advisory fee (Note 3)................................ 50,800 47,033 108,712 53,279
Distribution fee (Note 3)............................ 193,462 169,526 403,249 200,225
License fee (Note 3)................................. 60,976 56,455 130,602 64,040
Administration, custody and transfer agency fee (Note
3)................................................. 101,599 94,065 217,424 106,558
Professional fees.................................... 7,671 6,353 14,899 7,312
Trustee fees (Note 3)................................ 7,442 10,561 15,869 7,825
SEC registration expense............................. 11,342 9,017 22,631 11,750
Printing and postage expense......................... 13,889 12,501 29,386 20,402
Insurance expense.................................... 1,558 1,471 3,373 1,779
Miscellaneous expenses............................... 4,001 2,871 6,599 3,938
------------ ----------- ----------- ------------
TOTAL EXPENSES BEFORE WAIVERS...................... 452,740 409,853 952,744 477,108
------------ ----------- ----------- ------------
Expenses waived by Advisor (Note 3).................. (7,122) (7,723) (16,507) (7,785)
Expenses waived by Administrator, Custodian and
Transfer Agent (Note 3)............................ (10,675) (11,578) (24,749) (11,672)
------------ ----------- ----------- ------------
NET EXPENSES......................................... 434,943 390,552 911,488 457,651
------------ ----------- ----------- ------------
NET INVESTMENT INCOME (LOSS)......................... 1,754,314 90,026 2,604,713 847,807
------------ ----------- ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment
transactions....................................... (8,480,118) 9,840,996 (8,819,744) 1,217,773
Net change in unrealized appreciation
(depreciation)..................................... (24,156,022) (8,857,842) 20,697,328 (23,411,832)
------------ ----------- ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS...................................... (32,636,140) 983,154 11,877,584 (22,194,059)
------------ ----------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS........................................... $(30,881,826) $ 1,073,180 $14,482,297 $(21,346,252)
============ =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 35
<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>
$ 4,690,284 $ 6,957,748 $ 1,237,235 $ 2,998,360 $ 3,773,526
(147,103) -- -- (8,274) --
------------ ------------ ----------- ------------ ------------
4,543,181 6,957,748 1,237,235 2,990,086 3,773,526
------------ ------------ ----------- ------------ ------------
106,967 184,323 40,199 572,484 49,010
380,616 636,894 156,985 2,087,969 173,042
128,431 221,507 48,255 687,224 58,812
213,933 368,647 80,397 1,144,967 98,020
14,959 44,089 6,279 81,286 7,151
12,898 48,035 8,492 68,452 9,387
22,429 73,417 9,184 124,785 5,808
28,812 104,850 10,799 183,288 11,935
2,790 4,286 1,546 15,089 2,220
11,944 21,045 3,467 34,804 1,965
------------ ------------ ----------- ------------ ------------
923,779 1,707,093 365,603 5,000,348 417,350
------------ ------------ ----------- ------------ ------------
(18,144) (33,497) (5,178) (91,112) (8,472)
(27,207) (50,228) (7,758) (136,422) (12,687)
------------ ------------ ----------- ------------ ------------
878,428 1,623,368 352,667 4,772,814 396,191
------------ ------------ ----------- ------------ ------------
3,664,753 5,334,380 884,568 (1,782,728) 3,377,335
------------ ------------ ----------- ------------ ------------
46,936,320 30,727,316 4,346,248 257,293,910 1,145,901
3,932,195 71,471,364 (6,165,561) (189,565,622) 10,045,189
------------ ------------ ----------- ------------ ------------
50,868,515 102,198,680 (1,819,313) 67,728,288 11,191,090
------------ ------------ ----------- ------------ ------------
$ 54,533,268 $107,533,060 $ (934,745) $ 65,945,560 $ 14,568,425
============ ============ =========== ============ ============
</TABLE>
33
<PAGE> 36
THE SELECT SECTOR SPDR TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
THE BASIC INDUSTRIES THE CONSUMER SERVICES
SELECT SECTOR SPDR FUND SELECT SECTOR SPDR FUND
---------------------------- --------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
9/30/2000 9/30/1999* 9/30/2000 9/30/1999*
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss).......................... $ 1,754,314 $ 703,808 $ 90,026 $ (50,400)
Net realized gain (loss) on investment transactions... (8,480,118) 5,078,135 9,840,996 1,454,676
Net change in unrealized appreciation
(depreciation)...................................... (24,156,022) (10,205,994) (8,857,842) 1,357,395
------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... (30,881,826) (4,424,051) 1,073,180 2,761,671
------------ ------------ ----------- -----------
UNDISTRIBUTED NET INVESTMENT INCOME INCLUDED IN PRICE OF
UNITS ISSUED AND REDEEMED, NET........................ (206,612) 12,794 (18,303) (16,064)
------------ ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................. (1,520,549) (681,486) -- --
In excess of net investment income.................... -- -- -- --
Net realized gain..................................... (177,307) -- (414,000) --
------------ ------------ ----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS................... (1,697,856) (681,486) (414,000) --
------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM SPDRS
TRANSACTIONS (NOTE 4)................................. 7,684,629 86,968,680 18,850,260 57,662,840
------------ ------------ ----------- -----------
Net increase (decrease) in net assets during period... (25,101,665) 81,875,937 19,491,137 60,408,447
Net assets at beginning of period..................... 81,887,048 11,111 60,419,558 11,111
------------ ------------ ----------- -----------
NET ASSETS END OF PERIOD(1)............................. $ 56,785,383 $ 81,887,048 $79,910,695 $60,419,558
============ ============ =========== ===========
(1) Including undistributed (distribution in excess of)
net investment income............................. $ 256,312 $ 35,341 $ 28,560 $ (16,064)
============ ============ =========== ===========
</TABLE>
* Commencement of operations was on December 16, 2000.
See accompanying notes to financial statements.
34
<PAGE> 37
<TABLE>
<CAPTION>
THE CONSUMER STAPLES THE CYCLICAL/TRANSPORTATION THE ENERGY
SELECT SECTOR SPDR FUND SELECT SECTOR SPDR FUND SELECT SECTOR SPDR FUND
--------------------------- ---------------------------- ---------------------------
YEAR PERIOD YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
9/30/2000 9/30/1999* 9/30/2000 9/30/1999* 9/30/2000 9/30/1999*
------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,604,713 $ 968,872 $ 847,807 $ 117,072 $ 3,664,753 $ 1,608,123
(8,819,744) 1,143,552 1,217,773 322,104 46,936,320 8,728,547
20,697,328 (18,587,451) (23,411,832) (2,076,426) 3,932,195 9,471,271
------------ ------------ ------------ ----------- ------------ ------------
14,482,297 (16,475,027) (21,346,252) (1,637,250) 54,533,268 19,807,941
------------ ------------ ------------ ----------- ------------ ------------
(97,717) 59,660 (10,234) 10,947 (89,067) 378,336
------------ ------------ ------------ ----------- ------------ ------------
(2,545,898) (968,872) (836,321) (117,072) (3,562,020) (1,608,123)
-- (20,911) -- (18,800) -- (418,950)
-- -- -- -- -- --
------------ ------------ ------------ ----------- ------------ ------------
(2,545,898) (989,783) (836,321) (135,872) (3,562,020) (2,027,073)
------------ ------------ ------------ ----------- ------------ ------------
26,904,361 135,044,591 76,483,271 37,075,358 91,456,495 131,465,577
------------ ------------ ------------ ----------- ------------ ------------
38,743,043 117,639,441 54,290,464 35,313,183 142,338,676 149,624,781
117,650,552 11,111 35,324,294 11,111 149,635,892 11,111
------------ ------------ ------------ ----------- ------------ ------------
$156,393,595 $117,650,552 $ 89,614,758 $35,324,294 $291,974,568 $149,635,892
============ ============ ============ =========== ============ ============
$ 37,904 $ 38,749 $ (7,313) $ (7,853) $ (234,843) $ (40,553)
============ ============ ============ =========== ============ ============
</TABLE>
35
<PAGE> 38
THE SELECT SECTOR SPDR TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
THE FINANCIAL THE INDUSTRIAL
SELECT SECTOR SPDR FUND SELECT SECTOR SPDR FUND
---------------------------- ---------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
9/30/2000 9/30/1999* 9/30/2000 9/30/1999*
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss)......................... $ 5,334,380 $ 958,015 $ 884,568 $ 329,645
Net realized gain (loss) on investment
transactions....................................... 30,727,316 4,854,084 4,346,248 2,128,356
Net change in unrealized appreciation
(depreciation)..................................... 71,471,364 (16,797,889) (6,165,561) 1,380,834
------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS......................................... 107,533,060 (10,985,790) (934,745) 3,838,835
------------ ------------ ------------ -----------
UNDISTRIBUTED NET INVESTMENT INCOME INCLUDED IN PRICE
OF UNITS ISSUED AND REDEEMED, NET.................... 59,578 32,335 (67,171) (8,091)
------------ ------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ (5,328,760) (958,015) (824,693) (277,354)
In excess of net investment income................... -- (24,867) -- --
Net realized gain.................................... -- -- (147,640) --
In excess of net realized gain....................... -- -- -- --
------------ ------------ ------------ -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS.................. (5,328,760) (982,882) (972,333) (277,354)
------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM SPDRS
TRANSACTIONS (NOTE 4)................................ 204,468,501 135,334,190 (13,999,527) 62,398,481
------------ ------------ ------------ -----------
Net increase (decrease) in net assets during
period............................................. 306,732,379 123,397,853 (15,973,776) 65,951,871
Net assets at beginning of period.................... 123,408,964 11,111 65,962,982 11,111
------------ ------------ ------------ -----------
NET ASSETS END OF PERIOD(1)............................ $430,141,343 $123,408,964 $ 49,989,206 $65,962,982
============ ============ ============ ===========
(1) Including undistributed (distribution in excess of)
net investment income................................ $ (19,094) $ 7,621 $ 112,796 $ 44,830
============ ============ ============ ===========
</TABLE>
* Commencement of operations was on December 16, 1998.
See accompanying notes to financial statements.
36
<PAGE> 39
<TABLE>
<CAPTION>
THE TECHNOLOGY THE UTILITIES
SELECT SECTOR SPDR FUND SELECT SECTOR SPDR FUND
------------------------------ ---------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
9/30/2000 9/30/1999* 9/30/2000 9/30/1999*
-------------- ------------ ------------ -----------
<S> <C> <C> <C>
$ (1,782,728) $ (652,931) $ 3,377,335 $ 1,277,873
257,293,910 41,270,030 1,145,901 457,587
(189,565,622) 68,652,432 10,045,189 (2,142,129)
-------------- ------------ ------------ -----------
65,945,560 109,269,531 14,568,425 (406,669)
-------------- ------------ ------------ -----------
(250,593) (95,374) (553,032) 124,047
-------------- ------------ ------------ -----------
-- -- (2,814,765) (1,277,873)
(24,681) -- -- (104,158)
-- -- (446,091) --
-- -- -- --
-------------- ------------ ------------ -----------
(24,681) -- (3,260,856) (1,382,031)
-------------- ------------ ------------ -----------
245,275,446 622,533,549 16,088,920 82,821,537
-------------- ------------ ------------ -----------
310,945,732 731,707,706 26,843,457 81,156,884
731,718,817 11,111 81,167,995 11,111
-------------- ------------ ------------ -----------
$1,042,664,549 $731,718,817 $108,011,452 $81,167,995
============== ============ ============ ===========
$ -- $ (95,374) $ 571,506 $ 20,865
============== ============ ============ ===========
</TABLE>
37
<PAGE> 40
THE SELECT SECTOR SPDR TRUST
FINANCIAL HIGHLIGHTS
FOR A SELECT SECTOR SPDR OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE BASIC INDUSTRIES THE CONSUMER SERVICES
SELECT SECTOR SPDR FUND SELECT SECTOR SPDR FUND
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 (1) 2000 1999 (1)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 23.74 $ 20.72 $ 26.85 $ 23.97
------- ------- ------- -------
Net investment income (loss)....................... 0.45 0.24 0.03 (0.02)
Net realized and unrealized gain (loss) (2)........ (5.66) 3.01 2.37 2.90
------- ------- ------- -------
Total from investment operations................... (5.21) 3.25 2.40 2.88
------- ------- ------- -------
Undistributed net investment income included in
price of units issued and redeemed, net.......... (0.07) -- (0.01) --
------- ------- ------- -------
Distributions to shareholders from:
Net investment income.............................. (0.37) (0.23) -- --
In excess of net investment income................. -- -- -- --
Net realized gains................................. -- -- (0.18) --
In excess of net realized gains.................... (0.06) -- -- --
------- ------- ------- -------
Total distributions to shareholders................ (0.43) (0.23) (0.18) --
------- ------- ------- -------
Net asset value, end of period..................... $ 18.03 $ 23.74 $ 29.06 $ 26.85
======= ======= ======= =======
Total return (3)................................... (22.48)% 15.59% 8.84% 12.03%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............... $56,785 $81,887 $79,911 $60,420
Ratio of expenses to average net assets............ 0.43% 0.56%(4) 0.42% 0.57%(4)
Ratio of expenses to average net assets before
waivers.......................................... 0.51% 0.56%(4) 0.51% 0.57%(4)
Ratio of net investment income (loss) to average
net assets....................................... 1.73% 1.44%(4) 0.10% (0.11)%(4)
Portfolio turnover rate (5)........................ 19.18% 9.70% 21.88% 14.56%
</TABLE>
(1) Commencement of investment operations was 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 for the period ended September 30, 1999 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.
38
<PAGE> 41
THE SELECT SECTOR SPDR TRUST
FINANCIAL HIGHLIGHTS
FOR A SELECT SECTOR SPDR OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE CONSUMER STAPLES THE CYCLICAL/TRANSPORTATION
SELECT SECTOR SPDR FUND SELECT SECTOR SPDR FUND
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999(1) 2000 1999(1)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................. $ 22.63 $ 26.06 $ 26.17 $ 24.51
-------- ------- ------- -------
Net investment income (loss).......................... 0.30 0.20 0.22 0.09
Net realized and unrealized gain (loss) (2)........... 2.39 (3.44) (1.29) 1.66
-------- ------- ------- -------
Total from investment operations...................... 2.69 (3.24) (1.07) 1.75
-------- ------- ------- -------
Undistributed net investment income included in price
of units issued and redeemed, net................... (0.02) 0.01 0.00 0.01
-------- ------- ------- -------
Distributions to shareholders from:
Net investment income................................. (0.28) (0.20) (0.21) (0.09)
In excess of net investment income.................... -- -- -- (0.01)
Net realized gains.................................... -- -- -- --
In excess of net realized gains....................... -- -- -- --
-------- ------- ------- -------
Total distributions to shareholders................... (0.28) (0.20) (0.21) (0.10)
-------- ------- ------- -------
Net asset value, end of period........................ $ 25.02 $ 22.63 $ 24.89 $ 26.17
======== ======= ======= =======
Total return (3)...................................... 11.92% (12.45)% (4.12)% 7.17%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................. $156,394 $117,651 $89,615 $35,324
Ratio of expenses to average net assets............... 0.42% 0.57%(4) 0.43% 0.58%(4)
Ratio of expenses to average net assets before
waivers............................................. 0.50% 0.57%(4) 0.51% 0.58%(4)
Ratio of net investment income (loss) to average net
assets.............................................. 1.20% 1.10%(4) 0.80% 0.49%(4)
Portfolio turnover rate (5)........................... 9.77% 2.91% 16.28% 9.56%
</TABLE>
(1) Commencement of investment operations was 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 for the period ended September 30, 1999 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.
39
<PAGE> 42
THE SELECT SECTOR SPDR TRUST
FINANCIAL HIGHLIGHTS
FOR A SELECT SECTOR SPDR OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE ENERGY THE FINANCIAL
SELECT SECTOR SPDR FUND SELECT SECTOR SPDR FUND
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 (1) 2000 1999 (1)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 27.46 $ 23.59 $ 22.04 $ 22.02
-------- -------- -------- --------
Net investment income (loss)............................ 0.55 0.29 0.35 0.21
Net realized and unrealized gain (loss) (2)............. 5.28 3.88 6.91 0.02
-------- -------- -------- --------
Total from investment operations........................ 5.83 4.17 7.26 0.23
-------- -------- -------- --------
Undistributed net investment income included in price of
units issued and redeemed, net........................ (0.01) 0.07 0.00 0.01
-------- -------- -------- --------
Distributions to shareholders from:
Net investment income................................... (0.47) (0.29) (0.34) (0.21)
In excess of net investment income...................... -- (0.08) -- (0.01)
Net realized gains...................................... -- -- -- --
In excess of net realized gains......................... -- -- -- --
-------- -------- -------- --------
Total distributions to shareholders..................... (0.47) (0.37) (0.34) (0.22)
-------- -------- -------- --------
Net asset value, end of period.......................... $ 32.81 $ 27.46 $ 28.96 $ 22.04
======== ======== ======== ========
Total return (3)........................................ 21.38% 17.91% 33.24% 0.97%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................... $291,975 $149,636 $430,141 $123,409
Ratio of expenses to average net assets................. 0.41% 0.56%(4) 0.44% 0.57%(4)
Ratio of expenses to average net assets before
waivers............................................... 0.50% 0.56%(4) 0.54% 0.57%(4)
Ratio of net investment income (loss) to average net
assets................................................ 1.71% 1.73%(4) 1.45% 1.14%(4)
Portfolio turnover rate (5)............................. 30.76% 20.15% 7.02% 5.71%
</TABLE>
(1) Commencement of investment operations was 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 for the period ended September 30, 1999 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
THE SELECT SECTOR SPDR TRUST
FINANCIAL HIGHLIGHTS
FOR A SELECT SECTOR SPDR OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE INDUSTRIAL THE TECHNOLOGY
SELECT SECTOR SPDR FUND SELECT SECTOR SPDR FUND
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 (1) 2000 1999 (1)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 28.68 $ 22.66 $ 41.22 $ 30.09
------- ------- ---------- --------
Net investment income (loss)............................ 0.35 0.21 (0.08) (0.04)
Net realized and unrealized gain (loss) (2)............. 1.70 6.00 5.31 11.18
------- ------- ---------- --------
Total from investment operations........................ 2.05 6.21 5.23 11.14
------- ------- ---------- --------
Undistributed net investment income included in price of
units issued and redeemed, net........................ (0.04) -- (0.01) (0.01)
------- ------- ---------- --------
Distributions to shareholders from:
Net investment income................................... (0.31) (0.19) -- --
In excess of net investment income...................... -- -- -- --
Net realized gains...................................... (0.08) -- -- --
In excess of net realized gains......................... -- -- -- --
------- ------- ---------- --------
Total distributions to shareholders..................... (0.39) (0.19) -- --
------- ------- ---------- --------
Net asset value, end of period.......................... $ 30.30 $ 28.68 $ 46.44 $ 41.22
======= ======= ========== ========
Total return (3)........................................ 7.10% 27.40% 12.67% 37.00%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's).................... $49,989 $65,963 $1,042,665 $731,719
Ratio of expenses to average net assets................. 0.44% 0.57%(4) 0.42% 0.56%(4)
Ratio of expenses to average net assets before
waivers............................................... 0.51% 0.57%(4) 0.50% 0.56%(4)
Ratio of net investment income (loss) to average net
assets................................................ 1.10% 0.94%(4) (0.16)% (0.15)%(4)
Portfolio turnover rate (5)............................. 42.37% 12.42% 24.34% 21.23%
</TABLE>
(1) Commencement of investment operations was 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 for the period ending September 30, 1999 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.
41
<PAGE> 44
THE SELECT SECTOR SPDR TRUST
FINANCIAL HIGHLIGHTS
FOR A SELECT SECTOR SPDR OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE UTILITIES
SELECT SECTOR SPDR FUND
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 (1)
------------- -------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 29.52 $ 29.06
-------- -------
Net investment income (loss)................................ 1.06 0.56
Net realized and unrealized gain (loss) (2)................. 2.86 0.45
-------- -------
Total from investment operations............................ 3.92 1.01
-------- -------
Undistributed net investment income included in price of
units issued and redeemed, net............................ (0.17) 0.05
-------- -------
Distributions to shareholders from:
Net investment income....................................... (0.85) (0.56)
In excess of net investment income.......................... -- (0.04)
Net realized gains.......................................... (0.18)
In excess of net realized gains............................. -- --
-------- -------
Total distributions to shareholders......................... (1.03) (0.60)
-------- -------
Net asset value, end of period.............................. $ 32.24 $ 29.52
======== =======
Total return (3)............................................ 13.21% 3.66%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................ $108,011 $81,168
Ratio of expenses to average net assets..................... 0.40% 0.57%(4)
Ratio of expenses to average net assets before waivers...... 0.50% 0.57%(4)
Ratio of net investment income (loss) to average net
assets.................................................... 3.45% 2.62%(4)
Portfolio turnover rate (5)................................. 44.57% 38.86%
</TABLE>
(1) Commencement of investment operations was 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 for the period ending September 30, 1999 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.
42
<PAGE> 45
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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 previous closing sale
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 it distributes it's 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, 2000, the Funds had capital loss carryforwards which may be
utilized to offset any net realized capital gains through September 30, 2008 as
follows:
<TABLE>
<CAPTION>
CAPITAL LOSS CARRY FORWARD
----------------------------------------------------------------------------------------
<S> <C>
The Consumer Staples Select Sector SPDR Fund $ 32,935
The Cyclical/Transportation Select Sector SPDR Fund 234,327
The Energy Select Sector SPDR Fund 748,469
The Financial Select Sector SPDR Fund 310,711
The Technology Select Sector SPDR Fund 1,441,975
</TABLE>
43
<PAGE> 46
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEDERAL INCOME TAX -- (CONTINUED)
During the fiscal period ended September 30, 2000, 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 $(10,558,878)
The Consumer Services Select Sector SPDR Fund 11,574,264
The Consumer Staples Select Sector SPDR Fund (2,937,658)
The Cyclical/Transportation Select Sector SPDR Fund 1,932,763
The Energy Select Sector SPDR Fund 47,433,958
The Financial Select Sector SPDR Fund 34,258,563
The Industrial Select Sector SPDR Fund 9,708,301
The Technology Select Sector SPDR Fund 273,817,958
The Utilities Select Sector SPDR Fund 2,022,136
</TABLE>
The Funds incurred the following losses during the period November 1, 1999
through September 30, 1999 that are deferred for tax purposes until fiscal 2001:
<TABLE>
<CAPTION>
DEFERRED LOSSES
----------------------------------------------------------------------------
<S> <C>
The Basic Industries Select Sector SPDR Fund $ 290,002
The Consumer Services Select Sector SPDR Fund 1,337,335
The Consumer Staples Select Sector SPDR Fund 5,712,232
The Cyclical/Transportation Select Sector SPDR Fund 319,780
The Energy Select Sector SPDR Fund 266,522
The Financial Select Sector SPDR Fund 2,890,975
The Industrial Select Sector SPDR Fund 5,203,117
The Technology Select Sector SPDR Fund 13,358,359
The Utilities Select Sector SPDR Fund 957,305
</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 an increase to the cost basis of such
securities.
EXPENSES
Expenses of the Trust, which are directly identifiable to a specific Fund, are
applied 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 foreign 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.
44
<PAGE> 47
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REPURCHASE AGREEMENTS -- (CONTINUED)
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,
2000, the Trust had no open repurchase agreements.
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. Effective May 17, 2000, pursuant
to a voluntary fee waiver, State Street Global Advisors has agreed to reduce the
Advisory Fee from 0.05% of average daily net assets to 0.03% of average daily
net assets for each of the Funds. The foregoing fee reduction will remain in
effect for at least a 12-month period. There is no assurance that the fee
reductions will remain in effect for more than one year. The waiver amounts for
the Advisor's Fees for the year ended September 30, 2000 were as follows:
<TABLE>
<CAPTION>
WAIVER AMOUNT
-------------
<S> <C>
The Basic Industries Select Sector SPDR Fund $ 7,122
The Consumer Services Select Sector SPDR Fund 7,723
The Consumer Staples Select Sector SPDR Fund 16,507
The Cyclical/Transportation Select Sector SPDR Fund 7,785
The Energy Select Sector SPDR Fund 18,144
The Financial Select Sector SPDR Fund 33,497
The Industrial Select Sector SPDR Fund 5,178
The Technology Select Sector SPDR Fund 91,112
The Utilities Select Sector SPDR Fund 8,472
</TABLE>
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 average daily 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. Effective May 17, 2000, pursuant to a voluntary fee waiver, State
Street has agreed to reduce the Unitary Fee from 0.10% for the first $500
million per Fund, 0.08% for the next $500 million per Fund, and 0.06% thereafter
of the average daily net assets to 0.07% for the first $500 million per Fund,
0.05% for the next $500 million per Fund and 0.03% thereafter of average daily
net assets and continue to waive the minimum fee. The foregoing fee reduction
will remain in effect for at least a 12-month period. There is no
45
<PAGE> 48
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
UNITARY FEE -- (CONTINUED)
assurance that the fee reductions will remain in effect for more than one year.
The waiver amounts for the Unitary Fee for the year ended September 30, 2000
were as follows:
<TABLE>
<CAPTION>
WAIVER AMOUNT
-------------
<S> <C>
The Basic Industries Select Sector SPDR Fund $ 10,675
The Consumer Services Select Sector SPDR Fund 11,578
The Consumer Staples Select Sector SPDR Fund 24,749
The Cyclical/Transportation Select Sector SPDR Fund 11,672
The Energy Select Sector SPDR Fund 27,207
The Financial Select Sector SPDR Fund 50,228
The Industrial Select Sector SPDR Fund 7,758
The Technology Select Sector SPDR Fund 136,422
The Utilities Select Sector SPDR Fund 12,687
</TABLE>
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. Effective May 17, 2000, the Board of Trustees has limited each Fund's
12b-1 fee to 0.08% of its average daily net assets.
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 each
Fund.
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.
46
<PAGE> 49
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHAREHOLDER TRANSACTIONS IN SELECT SECTOR SPDR FUNDS WERE AS FOLLOWS FOR:
THE BASIC INDUSTRIES SELECT SECTOR SPDR FUND
<TABLE>
<CAPTION>
YEAR ENDED 2000
SELECT SECTOR
SPDRS AMOUNT
------------- -------------
<S> <C> <C>
SPDRs sold 5,750,000 $ 141,028,135
Dividend reinvestment SPDRs
issued -- --
SPDRs redeemed (6,050,000) (133,550,118)
Net income equalization -- 206,612
----------- -------------
Net increase (decrease) (300,000) $ 7,684,629
=========== =============
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED 1999*
SELECT SECTOR
SPDRS AMOUNT
------------- -------------
<S> <C> <C>
SPDRs sold 5,850,000 $ 146,774,271
Dividend reinvestment SPDRs
issued -- --
SPDRs redeemed (2,400,536) (59,792,797)
Net income equalization -- (12,794)
----------- -------------
Net increase (decrease) 3,449,464 $ 86,968,680
=========== =============
</TABLE>
THE CONSUMER SERVICES SELECT SECTOR SPDR FUND
<TABLE>
<CAPTION>
YEAR ENDED 2000
SELECT SECTOR
SPDRS AMOUNT
------------- -------------
<S> <C> <C>
SPDRs sold 4,150,000 $ 124,366,264
Dividend reinvestment SPDRs
issued -- --
SPDRs redeemed (3,650,000) (105,534,307)
Net income equalization -- 18,303
----------- -------------
Net increase (decrease) 500,000 $ 18,850,260
=========== =============
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED 1999*
SELECT SECTOR
SPDRS AMOUNT
------------- -------------
<S> <C> <C>
SPDRs sold 2,550,000 $ 65,900,180
Dividend reinvestment SPDRs
issued -- --
SPDRs redeemed (300,463) (8,253,404)
Net income equalization -- 16,064
----------- -------------
Net increase (decrease) 2,249,537 $ 57,662,840
=========== =============
</TABLE>
THE CONSUMER STAPLES SELECT SECTOR FUND
<TABLE>
<CAPTION>
YEAR ENDED 2000
SELECT SECTOR
SPDRS AMOUNT
------------- -------------
<S> <C> <C>
SPDRs sold 12,350,000 $ 284,927,060
Dividend reinvestment SPDRs
issued 29 682
SPDRs redeemed (11,300,000) (258,121,098)
Net income equalization -- 97,717
----------- -------------
Net increase (decrease) 1,050,029 $ 26,904,361
=========== =============
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED 1999*
SELECT SECTOR
SPDRS AMOUNT
------------- -------------
<S> <C> <C>
SPDRs sold 5,800,000 $ 151,491,269
Dividend reinvestment SPDRs
issued 15 369
SPDRs redeemed (600,426) (16,387,387)
Net income equalization -- (59,660)
----------- -------------
Net increase (decrease) 5,199,589 $ 135,044,591
=========== =============
</TABLE>
THE CYCLICAL/TRANSPORTATION SELECT SECTOR SPDR FUND
<TABLE>
<CAPTION>
YEAR ENDED 2000
SELECT SECTOR
SPDRS AMOUNT
------------- -------------
<S> <C> <C>
SPDRs sold 10,200,000 $ 287,416,953
Dividend reinvestment SPDRs
issued -- --
SPDRs redeemed (7,950,000) (210,943,916)
Net income equalization -- 10,234
----------- -------------
Net increase (decrease) 2,250,000 $ 76,483,271
=========== =============
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED 1999*
SELECT SECTOR
SPDRS AMOUNT
------------- -------------
<S> <C> <C>
SPDRs sold 1,600,000 $ 43,843,191
Dividend reinvestment SPDRs
issued -- --
SPDRs redeemed (250,453) (6,756,886)
Net income equalization -- (10,947)
----------- -------------
Net increase (decrease) 1,349,547 $ 37,075,358
=========== =============
</TABLE>
47
<PAGE> 50
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THE ENERGY SELECT SECTOR SPDR FUND
<TABLE>
<CAPTION>
YEAR ENDED 2000
SELECT SECTOR
SPDRS AMOUNT
------------- --------------
<S> <C> <C>
SPDRs sold 17,600,000 $ 512,673,590
Dividend reinvestment SPDRs
issued 5 147
SPDRs redeemed (14,150,000) (421,306,309)
Net income equalization -- 89,067
----------- --------------
Net increase (decrease) 3,450,005 $ 91,456,495
=========== ==============
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED 1999*
SELECT SECTOR
SPDRS AMOUNT
------------- --------------
<S> <C> <C>
SPDRs sold 8,500,000 $ 210,151,861
Dividend reinvestment SPDRs
issued -- --
SPDRs redeemed (3,050,471) (78,307,948)
Net income equalization -- (378,336)
----------- --------------
Net increase (decrease) 5,449,529 $ 131,465,577
=========== ==============
</TABLE>
THE FINANCIAL SELECT SECTOR SPDR FUND
<TABLE>
<CAPTION>
YEAR ENDED 2000
SELECT SECTOR
SPDRS AMOUNT
------------- --------------
<S> <C> <C>
SPDRs sold 24,200,000 $ 573,497,218
Dividend reinvestment SPDRs
issued 511 12,539
SPDRs redeemed (14,950,000) (368,981,678)
Net income equalization -- (59,578)
----------- --------------
Net increase (decrease) 9,250,511 $ 204,468,501
=========== ==============
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED 1999*
SELECT SECTOR
SPDRS AMOUNT
------------- --------------
<S> <C> <C>
SPDRs sold 7,850,000 $ 191,079,196
Dividend reinvestment SPDRs
issued 87 2,198
SPDRs redeemed (2,250,504) (55,714,869)
Net income equalization -- (32,335)
----------- --------------
Net increase (decrease) 5,599,583 $ 135,334,190
=========== ==============
</TABLE>
THE INDUSTRIAL SELECT SECTOR SPDR FUND
<TABLE>
<CAPTION>
YEAR ENDED 2000
SELECT SECTOR
SPDRS AMOUNT
------------- --------------
<S> <C> <C>
SPDRs sold 5,500,000 $ 159,880,217
Dividend reinvestment SPDRs
issued -- --
SPDRs redeemed (6,150,000) (173,946,915)
Net income equalization -- 67,171
----------- --------------
Net increase (decrease) (650,000) $ (13,999,527)
=========== ==============
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED 1999*
SELECT SECTOR
SPDRS AMOUNT
------------- --------------
<S> <C> <C>
SPDRs sold 2,600,000 $ 71,284,580
Dividend reinvestment SPDRs
issued -- --
SPDRs redeemed (300,490) (8,894,190)
Net income equalization -- 8,091
----------- --------------
Net increase (decrease) 2,299,510 $ 62,398,481
=========== ==============
</TABLE>
THE TECHNOLOGY SELECT SECTOR SPDR FUND
<TABLE>
<CAPTION>
YEAR ENDED 2000
SELECT SECTOR
SPDRS AMOUNT
------------- --------------
<S> <C> <C>
SPDRs sold 22,150,000 $1,142,952,403
Dividend reinvestment SPDRs
issued 3 151
SPDRs redeemed (17,450,000) (897,927,701)
Net income equalization -- 250,593
----------- --------------
Net increase (decrease) 4,700,003 $ 245,275,446
=========== ==============
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED 1999*
SELECT SECTOR
SPDRS AMOUNT
------------- --------------
<S> <C> <C>
SPDRs sold 26,750,000 $ 952,061,444
Dividend reinvestment SPDRs
issued -- --
SPDRs redeemed (9,000,369) (329,623,269)
Net income equalization -- 95,374
----------- --------------
Net increase (decrease) 17,749,631 $ 622,533,549
=========== ==============
</TABLE>
48
<PAGE> 51
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THE UTILITIES SELECT SECTOR SPDR FUND
<TABLE>
<CAPTION>
YEAR ENDED 2000
SELECT SECTOR
SPDRs AMOUNT
------------- --------------
<S> <C> <C>
SPDRs sold 19,800,000 $ 556,369,802
Dividend reinvestment SPDRs
issued 12 331
SPDRs redeemed (19,200,000) (540,834,245)
Net income equalization -- 553,032
----------- --------------
Net increase (decrease) 600,012 $ 16,088,920
=========== ==============
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED 1999*
SELECT SECTOR
SPDRs AMOUNT
------------- --------------
<S> <C> <C>
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 (decrease) 2,749,618 $ 82,821,537
=========== ==============
</TABLE>
* The 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 federal
income tax purposes, and their respective gross unrealized appreciation and
depreciation at September 30, 2000 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 $ 91,626,616 $ 6,915 $ 34,457,498 $ (34,450,583)
The Consumer Services Select Sector SPDR Fund 87,903,746 2,400,359 10,349,707 (7,949,348)
The Consumer Staples Select Sector SPDR Fund 154,894,453 13,648,382 11,538,505 2,109,877
The Cyclical/Transportation Select Sector SPDR Fund 115,785,277 144,939 26,088,408 (25,943,469)
The Energy Select Sector SPDR Fund 280,121,513 14,438,352 1,252,372 13,185,980
The Financial Select Sector SPDR Fund 377,457,726 66,233,688 12,165,033 54,068,655
The Industrial Select Sector SPDR Fund 55,173,107 2,372,982 7,359,365 (4,986,383)
The Technology Select Sector SPDR Fund 1,167,676,438 97,302,351 221,874,838 (124,572,487)
The Utilities Select Sector SPDR Fund 102,094,002 11,286,184 4,563,827 6,722,357
</TABLE>
49
<PAGE> 52
THE SELECT SECTOR SPDR TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT TRANSACTIONS
For the year ended September 30, 2000, 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 $ 119,634,703 $111,950,669
The Consumer Services Select Sector SPDR Fund 124,415,516 105,564,091
The Consumer Staples Select Sector SPDR Fund 288,071,266 261,160,236
The Cyclical/Transportation Select Sector SPDR Fund 258,264,976 181,752,344
The Energy Select Sector SPDR Fund 478,183,636 387,354,175
The Financial Select Sector SPDR Fund 518,944,421 318,156,927
The Industrial Select Sector SPDR Fund 159,879,786 173,801,902
The Technology Select Sector SPDR Fund 1,074,423,073 829,185,334
The Utilities Select Sector SPDR Fund 445,344,987 428,668,458
</TABLE>
For the year ended September 30, 2000, 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 $ 18,801,097 $ 18,764,126
The Consumer Services Select Sector SPDR Fund 22,600,440 20,439,537
The Consumer Staples Select Sector SPDR Fund 21,900,612 20,893,266
The Cyclical/Transportation Select Sector SPDR Fund 19,689,098 16,773,029
The Energy Select Sector SPDR Fund 67,028,668 66,003,163
The Financial Select Sector SPDR Fund 31,578,892 25,653,943
The Industrial Select Sector SPDR Fund 34,306,381 34,349,999
The Technology Select Sector SPDR Fund 275,081,684 277,886,062
The Utilities Select Sector SPDR Fund 49,180,833 49,699,328
</TABLE>
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.
50
<PAGE> 53
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,
2000, and the results of each Fund's operations for the year then ended, and the
changes in each Fund's net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. 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 audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, 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
audits, which included confirmation of securities at September 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 20, 2000
51
<PAGE> 54
--------------------------------------------------------------------------------
THE SELECT SECTOR SPDR TRUST ANNUAL REPORT
--------------------------------------------------------------------------------
[LOGO]
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
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
<PAGE> 55
CATEGORICALLY UNIQUE
INDEX FUNDS(SM)
[SELECT SECTOR SPDRs(R) LOGO]
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard and Poor's 500(R),"
"500(R)," "Standard and Poor's Depositary Receipts(R) ," "SPDRs(R)," "Select
Sector SPDR," "Select Sector SPDRs" and "Select Sector Standard and Poor's
Depositary Receipts" are trademarks of The McGraw-Hill Companies, Inc. and have
been licensed for use in connection with the listing and trading of Select
Sector SPDRs on the AMEX. The stocks included in each Select Sector Index (upon
which the 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.
