As filed with the Securities and Exchange Commission on January 25, 2008
Registration Numbers: 333-57791; 811-08837

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 13

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 16

THE SELECT SECTOR SPDR ^® TRUST

(Exact Name of Registrant as Specified in Charter)

One Lincoln Street
Boston, Massachusetts 02111
(Address of Principal Executive Offices)

Registrant’s Telephone Number: (303) 623-2577

(Name and Address of Agent for Service)
Ryan M. Louvar, Esq.
State Street Bank and Trust Company
One Lincoln Street/LCC6
Boston, Massachusetts 02111

Copy to:
Stuart M. Strauss, Esq.
Clifford Chance US LLP
31 West 52 ^nd Street,
New York, New York 10119

It is proposed that this filing will become effective:

o		immediately upon filing pursuant to Rule 485, paragraph (b)
þ		on January 31, 2008 pursuant to Rule 485, paragraph (b)
o		60 days after filing pursuant to Rule 485, paragraph (a)(1)
o		on ______________ pursuant to Rule 485, paragraph (a)(1)
o		75 days after filing pursuant to Rule 485, paragraph (a)(2)
o		on ______________ pursuant to Rule 485, paragraph (a)(2)
o		this post-effective amendment designates a new effective date for a previously filed post-effective amendment.

 

 

SELECT SECTOR SPDRS(R) LOGO

 

Prospectus

 

The Consumer Discretionary Select Sector SPDR ^® Fund
The Consumer Staples Select Sector SPDR ^® Fund
The Energy Select Sector SPDR ^® Fund
The Financial Select Sector SPDR ^® Fund
The Health Care Select Sector SPDR ^® Fund
The Industrial Select Sector SPDR ^® Fund
The Materials Select Sector SPDR ^® Fund
The Technology Select Sector SPDR ^® Fund
The Utilities Select Sector SPDR ^® Fund
January 31, 2008

 

 

The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense. Shares in the Funds are not guaranteed or insured by the Federal Deposit Insurance Corporation or any other agency of the U.S. Government, nor are Shares deposits or obligations of any bank. Such Shares in the Funds involve investment risks, including the loss of principal.

 

 

The Select Sector SPDR ^® Trust consists of nine separate investment portfolios (each a “Select Sector SPDR Fund” or a “Fund” and collectively the “Select Sector SPDR Funds” or the “Funds”). Each Select Sector SPDR Fund is an “index fund” that invests in a particular sector or group of industries represented by a specified Select Sector Index. The companies included in each Select Sector Index are selected on the basis of general industry classification from a universe of companies defined by the Standard & Poor’s 500 Composite Stock Index (“S&P 500”)* . The nine Select Sector Indexes (each a “Select Sector Index”) upon which the Funds are based together comprise all of the companies in the S&P 500. The investment objective of each Fund is to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in a particular sector or group of industries, as represented by a specified market sector index. SSgA Funds Management, Inc. (the “Adviser”) manages each Fund.

 

The shares of each Select Sector SPDR Fund (the “Shares”) are listed on a national securities exchange (the “Exchange”). The Shares trade on the Exchange at market prices that may differ to some degree from the Shares’ net asset values. Each Select Sector SPDR Fund issues and redeems Shares on a continuous basis — at net asset value — only in a large, specified number of Shares called a “Creation Unit.”**  Creation Units are issued and redeemed principally in-kind for securities included in the relevant Select Sector Index. Except when aggregated in Creation Units, the Shares are not redeemable securities of the Select Sector SPDR Funds.

 

Each Select Sector SPDR Fund is designed for investors who seek a relatively low-cost “passive” approach for investing in a portfolio of equity securities of companies in a particular sector or group of industries as represented by a specified Select Sector Index. Taken together, the Select Sector SPDR Funds are

 

 

         *  “Standard & Poor’s ^® ”, “S&P ^® ”, “S&P 500 ^® ”, “Standard & Poor’s 500”, “500”, “Standard & Poor’s Depositary Receipts ^® ”, “SPDR ^® ”, “Select Sector SPDR”, “Select Sector SPDRs” and “Select Sector Standard & Poor’s Depositary Receipts” are trademarks of The McGraw-Hill Companies, Inc.

         ** Except that under the “Dividend Reinvestment Service” described further in the Statement of Additional Information, Shares may be created in less than a Creation Unit and upon termination of a Fund, Shares may be redeemed in less than a Creation Unit.

designed to represent all 500 stocks included in the S&P 500. Bought and sold separately, the Select Sector SPDR Funds are designed to enable investors to tailor asset allocations within the universe of S&P 500 companies to fit their particular investment needs.

 

Select Sector SPDR Funds may be suitable for long-term investment in the market or market segment represented in the relevant Select Sector Index. Shares of each Select Sector SPDR Fund may also be used as an asset allocation tool or as a speculative trading instrument. Unlike conventional mutual funds which are only bought and sold at closing net asset values, each Select Sector SPDR Fund’s Shares have been designed to be tradable in a secondary market on the Exchange on an intraday basis and to be created and redeemed principally in-kind in Creation Units at each day’s next calculated net asset value. These arrangements are designed to protect ongoing shareholders from adverse effects on the portfolio of a Select Sector SPDR Fund that could arise from frequent cash creation and redemption transactions that may affect the net asset value of such Fund. Moreover, in contrast to conventional mutual funds where portfolio securities may need to be sold to fund redemptions, potentially generating taxable gains for shareholders, the in-kind redemption mechanism of the Select Sector SPDR Funds generally will not lead to a tax event for ongoing shareholders who remain invested in the applicable Fund.

The Funds, Their Ticker Symbols and Their Investment Objective

 

Each Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond to the price and yield performance of its benchmark Select Sector Index. The Funds and the Select Sector Indexes are as follows:

 

The Consumer Discretionary Select Sector SPDR Fund (Symbol: XLY)

 

The Consumer Discretionary Select Sector Index includes companies from the following industries: retail (specialty, multi-line, internet and catalog); media; hotels, restaurants & leisure; household durables; textiles, apparel & luxury goods; automobiles, auto components and distributors; leisure equipment & products; and diversified consumer services.

 

The Consumer Staples Select Sector SPDR Fund (Symbol: XLP)

 

The Consumer Staples Select Sector Index includes companies from the following industries: food & staples retailing; household products; food products; beverages; tobacco; and personal products.

The Energy Select Sector SPDR Fund (Symbol: XLE)

 

The Energy Select Sector Index includes companies from the following industries: oil, gas & consumable fuels and energy equipment & services.

 

The Financial Select Sector SPDR Fund (Symbol: XLF)

 

The Financial Select Sector Index includes companies from the following industries: diversified financial services; insurance; commercial banks; capital markets; real estate investment trusts (“REITs”); thrift & mortgage finance; consumer finance; and real estate management & development.

 

The Health Care Select Sector SPDR Fund (Symbol: XLV)

 

The Health Care Select Sector Index includes companies from the following industries: pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology.

 

The Industrial Select Sector SPDR Fund (Symbol: XLI)

 

The Industrial Select Sector Index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors.

 

The Materials Select Sector SPDR Fund (Symbol: XLB)

 

The Materials Select Sector Index includes companies from the following industries: chemicals; metals & mining; paper & forest products; containers & packaging; and construction materials.

 

The Technology Select Sector SPDR Fund (Symbol: XLK)

 

The Technology Select Sector Index includes companies from the following industries: computers & peripherals; software; diversified telecommunication services; communications equipment; semiconductor & semiconductor equipment; internet software & services; IT services; wireless telecommunication services; electronic equipment & instruments; and office electronics.

 

The Utilities Select Sector SPDR Fund (Symbol: XLU)

 

The Utilities Select Sector Index includes companies from the following industries: electric utilities; multi-utilities; independent power producers & energy traders; and gas utilities.

 

Each Fund utilizes a low cost “passive” or “indexing” investment approach to attempt to approximate the investment performance of its benchmark Select Sector Index. The Adviser believes that over time the correlation between each Fund’s performance and that of its Select Sector Index, before expenses, will be 95% or better, although there is no guarantee that such correlation will be achieved. A figure of 100% will indicate perfect correlation.

 

Each Fund generally will hold all of the securities which comprise its Select Sector Index. There may, however, be instances where the Adviser may choose to overweight another stock in a Select Sector Index, purchase securities not included within a Select Sector Index which the Adviser believes are appropriate to substitute for Select Sector Index securities or utilize various combinations of other available investment techniques in seeking to accurately track a Select Sector Index.

 

Each Fund will normally invest at least 95% of its total assets in common stocks that comprise its Select Sector Index. The Funds have adopted an investment policy that requires each Fund to provide shareholders with at least 60 days notice prior to any material change in a Fund’s 95% investment policy or its Select Sector Index. The Board of Trustees of the Trust (the “Board”) may change a Fund’s investment strategy and other policies without shareholder approval, except as otherwise indicated. The Board may not change a Fund’s investment objective without shareholder approval.

 

Each Fund’s Shares will change in value, and you could lose money by investing in a Fund. A Fund may not achieve its objective. An investment in a Fund is not a deposit with a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

 

 

Index Risk:   Unlike many investment companies, the Funds are not actively “managed.” Therefore, a Fund may not sell a stock because the stock’s issuer is in financial trouble, unless that stock is removed from the relevant Select Sector Index. A Fund may not perform the same as its benchmark Select Sector Index due to tracking error.

 

Market Risk:   An investment in a Fund involves risks similar to those of investing in any fund of equity securities traded on exchanges, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. You should anticipate that the value of the Shares will decline, more or less, in correlation with any decline in value of the Fund’s applicable Select Sector Index. The value of equity securities could decline generally or could underperform other investments.

 

Management Risk:   Because a Fund may, under certain circumstances, hold less than the total number of stocks in its benchmark Index, the Fund is subject to management risk. This is the risk that the Adviser’s security selection

process, which is subject to a number of constraints, may not produce the intended results.

 

Non-Diversification Risk:   Each Fund is non-diversified and, as a result, may have greater exposure to volatility than other funds. Because a non-diversified fund may invest a larger percentage of its assets in securities of a single company or a single industry than diversified funds, the performance of that company or industry can have a substantial impact on a Select Sector SPDR Fund’s share price. Each Select Sector SPDR Fund intends to maintain the required level of diversification so as to qualify as a “regulated investment company” for purposes of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), in order to avoid liability for federal income tax to the extent that its earnings are distributed to shareholders. Compliance with diversification requirements of the Internal Revenue Code could limit the investment flexibility of a Fund.

 

Index Tracking Risk:   Each Fund’s return may not match the return of its respective benchmark Select Sector Index as a result of Fund expenses and other factors. For example, a Fund incurs a number of operating expenses not applicable to the Fund’s relevant Select Sector Index, and incurs costs in buying and selling securities, especially when rebalancing a Fund’s securities holdings to reflect changes in the composition of the relevant Select Sector Index, or representative sample of the relevant Select Sector Index. A Fund may not be fully invested at times, either as a result of cash flows into the Fund or reserves of cash held by the Fund to meet redemptions and pay expenses.

 

Concentration Risk:   Each Fund’s assets may be concentrated in an industry or group of industries to the extent that the applicable Select Sector Index concentrates in a particular industry or group of industries. By concentrating its assets in a single industry or group of industries, a Fund is subject to the risk that economic, political or other conditions that have a negative effect on that industry or group of industries will negatively impact the Fund to a greater extent than if the Fund’s assets were invested in a wider variety of industries.

 

Each Fund is subject to the additional risks associated with concentrating its investments in companies in the market sector that its benchmark Select Sector Index targets. Additional Fund specific risks include:

 

Consumer Discretionary Sector Risk ( The Consumer Discretionary Select Sector SPDR Fund ):  The success of consumer product manufacturers and retailers is tied closely to the performance of the overall domestic and international economy, interest rates, competitive and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in

demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace.

 

Consumer Staples Sector Risk ( The Consumer Staples Select Sector SPDR Fund ):  Companies in this Select Sector Index are subject to government regulation affecting the permissibility of using various food additives and production methods, which regulations could affect company profitability. Tobacco companies may be adversely affected by the adoption of proposed legislation and/or by litigation. Also, the success of food, beverage, household and personal products companies may be strongly affected by fads, marketing campaigns and other factors affecting supply and demand.

 

Energy Sector Risk ( The Energy Select Sector SPDR Fund ):  Energy companies in this Select Sector Index develop and produce crude oil and natural gas and provide drilling and other energy resources production and distribution related services. Stock prices for these types of companies are affected by supply and demand both for their specific product or service and for energy products in general. The price of oil and gas, exploration and production spending, government regulation, world events and economic conditions will likewise affect the performance of these companies. Correspondingly, securities of companies in the energy field are subject to swift price and supply fluctuations caused by events relating to international politics, energy conservation, the success of exploration projects, and tax and other governmental regulatory policies. Weak demand for the companies’ products or services or for energy products and services in general, as well as negative developments in these other areas, would adversely impact this Select Sector SPDR Fund’s performance.

 

Financial Sector Risk ( The Financial Select Sector SPDR Fund ):  Financial services companies are subject to extensive governmental regulation which may limit both the amounts and types of loans and other financial commitments they can make, and the interest rates and fees they can charge. Profitability is largely dependent on the availability and cost of capital funds, and can fluctuate significantly when interest rates change or due to increased competition. Credit losses resulting from financial difficulties of borrowers and financial losses associated with investment activities can negatively impact the sector. Insurance companies may be subject to severe price competition. Adverse economic, business or political developments affecting real estate could have a major effect on the value of real estate securities (which include REITs).

 

Health Care Sector Risk ( The Health Care Select Sector SPDR Fund ):  Companies in the healthcare sector are heavily dependent on patent protection. The expiration of patents may adversely affect the profitability of the companies. Health care companies are also subject to extensive litigation based on product

liability and similar claims. Many new products are subject to approval of the Food and Drug Administration. The process of obtaining such approval can be long and costly. Health care companies are also subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting.

 

Industrial Sector Risk ( The Industrial Select Sector SPDR Fund ):  Stock prices for the types of companies included in this industry are affected by supply and demand both for their specific product or service and for industrial sector products in general. Government regulation, world events and economic conditions will likewise affect the performance of these companies. Transportation stocks are cyclical and have occasional sharp price movements which may result from changes in the economy, fuel prices, labor agreement and insurance costs. The Fund may also be susceptible to the same risks as the Materials Select Sector SPDR Fund.

 

Materials Sector Risk ( The Materials Select Sector SPDR Fund ):  Many companies in this sector are significantly affected by the level and volatility of commodity prices, the exchange value of the dollar, import controls, and worldwide competition. At times, worldwide production of industrial materials has exceeded demand as a result of over-building or economic downturns, leading to poor investment returns or losses. Other risks may include liability for environmental damage, depletion of resources, and mandated expenditures for safety and pollution control. The success of equipment manufacturing and distribution companies is closely tied to overall capital spending levels, which are influenced by an individual company’s profitability and broader factors such as interest rates and cross-border competition. The basic industries sector may also be affected by economic cycles, technical progress, labor relations, and government regulations.

 

Technology Sector Risk ( The Technology Select Sector SPDR Fund ):  Products included in this Select Sector Index include software, including internet software, communications equipment, computers and peripherals, electronic equipment, office electronics and instruments and semiconductor equipment and products. The financial condition of, and investor interest in, defense companies are heavily influenced by governmental defense spending policies. Defense spending is under pressure from efforts to control the U.S. budget. Competitive pressures may have a significant effect on the financial condition of companies in the technology sector. Also, many of the products and services offered by technology companies are subject to the risk of rapid obsolescence. The Fund may also be susceptible to the same risks as the Utilities Select Sector SPDR Fund. Other risks include those related to regulatory changes such as the possible adverse effects on profits of recent increased competition among technology companies and the uncertainties resulting from such companies’

diversification into new domestic and international businesses, as well as agreements by any such companies linking future rate increases to inflation or other factors not directly related to the actual operating profits of the enterprise.

 

Utilities Sector Risk ( The Utilities Select Sector SPDR Fund ):  The rates that traditional regulated utility companies may charge their customers generally are subject to review and limitation by governmental regulatory commissions. Although rate changes of a utility usually fluctuate in approximate correlation with financing costs due to political and regulatory factors, rate changes ordinarily occur only following a delay after the changes in financing costs. This factor will tend to favorably affect a regulated utility company’s earnings and dividends in times of decreasing costs, but conversely, will tend to adversely affect earnings and dividends when costs are rising. The value of regulated utility debt securities (and, to a lesser extent, equity securities) tends to have an inverse relationship to the movement of interest rates. Certain utility companies have experienced full or partial deregulation in recent years. These utility companies are frequently more similar to industrial companies in that they are subject to greater competition and have been permitted by regulators to diversify outside of their original geographic regions and their traditional lines of business. These opportunities may permit certain utility companies to earn more than their traditional regulated rates of return. Some companies, however, may be forced to defend their core business and may be less profitable.

 

Among the risks that may affect utility companies are the following: risks of increases in fuel and other operating costs; the high cost of borrowing to finance capital construction during inflationary periods; restrictions on operations and increased costs and delays associated with compliance with environmental and nuclear safety regulations; and the difficulties involved in obtaining natural gas for resale or fuel for generating electricity at reasonable prices. Other risks include those related to the construction and operation of nuclear power plants; the effects of energy conservation and the effects of regulatory changes.

 

The bar charts and tables below provide some indication of the risks of investing in the Funds by showing the variability of the Funds’ returns based on net assets and comparing the Funds’ performance to a broad measure of market performance. Past performance (both before and after taxes) is not necessarily an indication of how the Funds will perform in the future. The after-tax returns presented below are calculated using highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your specific tax situation and may differ from those shown below. After-tax returns are not relevant to investors who hold their Shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns may be higher than before-tax returns due to an assumed benefit from capital losses that would have been realized had Shares been sold at the end of the relevant periods.

 

The Consumer Discretionary Select Sector SPDR Fund

 

 

During the periods shown above, the highest quarterly return for the Fund was 24.72% for the quarter ended December 31, 2001, and the lowest quarterly return was −17.25% for the quarter ended September 30, 2002.

 

 

 

 

 

 

 

 

 

 

 

ADDITIONAL INVESTMENT STRATEGIES,
RISKS AND OTHER CONSIDERATIONS

Additional Investment Strategies

 

Each Select Sector SPDR Fund may invest its remaining assets in money market instruments, including repurchase agreements, or funds that invest exclusively in money market instruments, including: affiliated money market funds (subject to applicable limitations under the Investment Company Act of 1940, as amended (“1940 Act”), in convertible securities, structured notes (notes on which the amount of principal repayment and interest payments are based on the movement of one or more specified factors such as the movement of a particular stock or stock index), swaps and in options and futures contracts. Swaps, options and futures contracts, convertible securities and structured notes may be used by a Fund in seeking performance that corresponds to its benchmark Select Sector Index and in managing cash flows. Each Fund will not take temporary defensive positions. The Adviser anticipates that, under normal circumstances, it may take approximately five business days for additions and deletions to the S&P 500 to be reflected in the portfolio composition of each Fund.

 

Borrowing Money.   Each Select Sector SPDR Fund may borrow money from a bank up to a limit of 10% of the value of its assets, but only for temporary or emergency purposes.

 

Lending Securities.   Each Select Sector SPDR Fund may lend securities from its holdings via a securities lending program through State Street Bank and Trust Company (“State Street”) to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. A securities lending program allows a Fund to receive a portion of the income generated by lending its securities and investing the respective collateral. A Fund will receive collateral for each loaned security which is marked to market each trading day. In the securities lending program, the borrower generally has the right to vote the loaned securities, however a Fund may call loans to vote proxies if a material issue affecting the investment is to be voted upon. Such loans may be terminated at any time by a Fund.

 

Trading Issues.   Although Shares are listed for trading on the Exchange, there can be no assurance that an active trading market for such Shares will develop or be maintained. Trading in Shares on the Exchange may be halted due to market conditions or for reasons that, in the view of the Exchange, make trading in Shares inadvisable. In addition, trading in Shares on the Exchange is

subject to trading halts caused by extraordinary market volatility pursuant to Exchange “circuit breaker” rules. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of a Select Sector SPDR Fund will be met, continue to be met or will remain unchanged.

 

Fluctuation of Net Asset Value.   The net asset value of the Shares will generally fluctuate with changes in the market value of a Select Sector SPDR Fund’s securities holdings. The market prices of Shares will generally fluctuate in accordance with changes in a Fund’s net asset value and supply and demand of Shares on the Exchange. It can not be predicted whether Shares will trade below, at or above their net asset value. Price differences may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for Shares will be closely related to, but not identical to, the same forces influencing the prices of the securities of the applicable Select Sector Index trading individually or in the aggregate at any point in time. However, given that Shares can be created and redeemed in Creation Units (unlike shares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes at premiums to, their net asset value), the Adviser believes that large discounts or premiums to the net asset value of Shares should not be sustained. While the creation/redemption feature is designed to make it likely that Shares normally trade close to the applicable Fund’s net asset value, disruptions to creations and redemptions may result in trading prices that differ significantly from such Fund’s net asset value.

 

Lending of Securities.   Although each Select Sector SPDR Fund that may lend its portfolio securities will receive collateral in connection with all loans of its securities holdings, a Select Sector SPDR Fund would be exposed to a risk of loss should a borrower default on its obligation to return the borrowed securities (e.g., the loaned securities may have appreciated beyond the value of the collateral held by the Fund). In addition, a Select Sector SPDR Fund will bear the risk of loss of any cash collateral that it may invest.

 

Continuous Offering.   The method by which Creation Units are purchased and traded may raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by each Fund on an ongoing basis, at any point a “distribution,” as such term is used in the Securities Act of 1933, as amended (the “Securities Act”), may occur.

 

Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act.

For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the principal underwriter, breaks them down into individual Shares, and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to categorization as an underwriter.

 

Broker-dealer firms should also note that dealers who are not “underwriters” but are effecting transactions in Shares, whether or not participating in the distribution of Shares, are generally required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available with respect to such transactions as a result of Section 24(d) of the 1940 Act. The Trust, however, has received exemptive relief from Section 4(3) of the Securities Act. Dealers who are not underwriters are exempt from the prospectus delivery obligations subject to certain terms and conditions which have been set forth in a Securities and Exchange Commission (“SEC”) exemptive order issued to the Trust.

 

Leverage.   To the extent that a Select Sector SPDR Fund borrows money, it may be leveraged. Leveraging generally exaggerates the effect on net asset value of any increase or decrease in the market value of a Select Sector SPDR Fund’s portfolio securities.

 

Other Considerations

 

Construction and Maintenance Standards for the Select Sector Indexes

 

Each Select Sector Index is developed and maintained in accordance with the following criteria:

 

Sector Index on the basis of such company’s sales and earnings composition and the sensitivity of the company’s stock price and business results to the common factors that affect other companies in each Select Sector Index. S&P has sole control over the removal of stocks from the S&P 500 and the selection of replacement stocks to be added to the S&P 500. However, S&P plays only a consulting role in the Select Sector Index assignment of the S&P 500 component stocks, which is the sole responsibility of the Index Compilation Agent.

 

 

Adviser.   SSgA Funds Management, Inc. serves as the Adviser to the Trust and, subject to the supervision of the Board, is responsible for the investment management of the Select Sector SPDR Funds. The Adviser provides an investment management program for each Fund and manages the investment of each Fund’s assets. The Adviser and other affiliates of State Street Corporation make up State Street Global Advisors (“SSgA”), the investment management arm of State Street Corporation. As of December 31, 2007, the Adviser managed approximately $144 billion in assets. As of December 31, 2007, SSgA managed approximately $1.98 trillion in assets, including approximately $367 billion in equity index funds. The Adviser’s principal business address is State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111.

 

For the services provided to the Select Sector SPDR Funds under the Investment Advisory Agreement, for the fiscal year ended September 30, 2007, each Fund paid the Adviser a monthly fee based on the Trust’s average daily net assets computed and accrued daily and payable monthly at the following annual rates: 0.05% for the first $12.5 billion of average daily net assets of the Trust and 0.04% thereafter. Accordingly, for the year ended September 30, 2007, the fee pursuant to the Investment Advisory Agreement was equivalent to an effective rate of 0.047% of the Funds’ average daily net assets. From time to time, the Adviser may waive all or a portion of its fee.

 

For a discussion regarding the Board’s consideration of the previous year’s Investment Advisory Agreement, please see the Trust’s Semi-Annual Report for the period ended March 31, 2007.

 

Portfolio Managers.   The Adviser manages the Select Sector SPDR Funds using a team of investment professionals. The team approach is used to create an environment that encourages the flow of investment ideas. The portfolio managers within each team work together in a cohesive manner to develop and enhance techniques that drive the investment process for the respective investment strategy. This approach requires portfolio managers to share a variety of responsibilities including investment strategy and analysis while retaining responsibility for the implementation of the strategy within any particular portfolio. The approach also enables the team to draw upon the resources of other groups within SSgA. Each portfolio management team is overseen by the SSgA Investment Committee.

 

Key professionals primarily involved in the day-to-day portfolio management for each Select Sector SPDR Fund include Lynn Blake and John Tucker.

Ms. Blake, CFA, is a Managing Director of SSgA and a Principal of the Adviser. She joined the firm in 1987 and is the Head of Non-US Markets in the Global Structured Products Group. Ms. Blake received a Bachelor of Science degree from the School of Management at Boston College and an MBA degree in Finance from Northeastern University. She is a member of the Boston Security Analysts Society.

 

Mr. Tucker, CFA, is a Vice President of SSgA and a Principal of the Adviser. He joined the firm in 1988 and is the Unit Head for the firm’s Exchange Traded Funds Management Team. Mr. Tucker received a BA in Economics from Trinity College and an MS in Finance from Boston College. He is a member of the Boston Security Analysts Society.

 

Additional information about the portfolio managers’ compensation, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of securities in the Funds is available in the SAI.

 

Administrator, Custodian, and Transfer Agent.   State Street, part of State Street Corporation, is the Administrator for each Select Sector SPDR Fund, the Custodian of each Select Sector SPDR Fund’s assets, and serves as the Transfer Agent to the Select Sector SPDR Funds.

 

Lending Agent.   State Street is the securities lending agent for the Trust. For its services, the lending agent receives a portion of the net investment income, if any, earned on the collateral for the securities loaned.

 

Distributor.   ALPS Distributors, Inc. is the Distributor of each Select Sector SPDR Fund’s Shares. The Distributor will not distribute Shares in less than Creation Units, and it does not maintain a secondary market in the Shares. The Distributor may enter into agreements with other broker-dealers or other qualified financial institutions for the sale of Creation Units of Shares.

 

The Board has adopted for each Select Sector SPDR Fund a distribution plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, each Fund is authorized to pay an amount up to 0.25% of its average daily net assets per annum for certain distribution related activities. Each Fund has limited its 12b-1 fee to 0.07% of its average daily net assets at least through January 31, 2009. Because these fees are paid out of each Fund’s assets, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

 

The Trust pays an annual licensing fee to (i) S&P equal to the greater of 0.03% of the aggregate net assets of the Trust or $450,000 (the “S&P Fee”), and

(ii) Merrill Lynch equal to 0.03% of the aggregate net assets of the Trust. The S&P Fee is payable in full on each anniversary of the first day of trading, December 22, 1998. The fee to Merrill Lynch is payable on a quarterly basis. Each Select Sector SPDR Fund will pay its proportionate share of the fees based on the relative net assets of such Fund.

DETERMINATION OF NET ASSET VALUE

 

Net asset value per Share for each Select Sector SPDR Fund is computed by dividing the value of the net assets of such Select Sector SPDR Fund (i.e., the value of its total assets less total liabilities) by its total number of Shares outstanding. Expenses and fees, including the management fees, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of each Select Sector SPDR Fund is calculated by the Custodian and determined each business day, normally at the close of regular trading of the New York Stock Exchange (“NYSE”) (ordinarily 4:00 p.m., New York time) (“Closing Time”).

 

In computing a Select Sector SPDR Fund’s net asset value per Share, the Select Sector SPDR Fund’s securities holdings, except for those traded on the NASDAQ, are valued based on their last sale price. Price information on listed securities is taken from the exchange where the security is primarily traded. Securities traded on the NASDAQ are valued at the NASDAQ official close price. 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 Pricing and Investment Committee in accordance with procedures adopted by the Board. In these cases, a Select Sector SPDR Fund’s net asset value may reflect certain portfolio securities’ fair values rather than their market prices. Fair value pricing involves subjective judgments and it is possible that the fair value determination for a security is materially different than the value that could be realized upon the sale of the security.

 

The Select Sector SPDR Fund Shares are listed for secondary trading on the Exchange. If you buy or sell Select Sector SPDR Fund Shares in the secondary market, you may incur customary brokerage commissions and charges and may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase and sale) transaction. The Select Sector SPDR Fund Shares will trade on the Exchange at prices that may differ to varying degrees from the daily net asset values of the Shares. Given, however, that Select Sector SPDR Fund Shares can be issued and

redeemed daily in Creation Units, the Adviser believes that large discounts and premiums to net asset value should not be sustained for very long.

PURCHASE AND REDEMPTION OF CREATION UNITS

 

Except for the purpose of dividend reinvestment, each Select Sector SPDR Fund issues Shares and redeems Shares only in Creation Units (50,000 Shares per Creation Unit) at their net asset value on a continuous basis only on a day the Exchange is open for business.

 

The Funds impose no restrictions on the frequency of creations (i.e., purchases) and redemptions. The Board evaluated the risks of market timing activities by the Funds’ shareholders when they considered that no restriction or policy was necessary. The Board considered that, unlike traditional mutual funds, each Select Sector SPDR Fund issues and redeems its shares at net asset value per share for a basket of securities intended to represent a Fund’s portfolio, plus a small amount of cash, and a Fund’s shares may be purchased and sold on the exchange at prevailing market prices. Given this structure, the Board determined that it is unlikely that (a) market timing would be attempted by the Funds’ shareholders or (b) any attempts to market time the Funds by shareholders would result in negative impact to the Funds or their shareholders.

 

Investors such as market-makers, large investors and institutions may wish to transact in Creation Units directly with a Fund. Set forth below is a brief description of the procedures applicable to creation and redemption of Creation Units. For more detailed information, see “PURCHASE AND REDEMPTION OF CREATION UNITS” in the SAI.

 

Creation

 

In order to create (i.e., purchase) Creation Units of a Select Sector SPDR Fund, an investor must deposit a designated portfolio of equity securities constituting a substantial replication, or a representation, of the stocks included in the relevant Select Sector SPDR Fund’s Select Sector Index (the “Deposit Securities”) and generally make a small cash payment referred to as the “Cash Component.” The list of the names and the number of shares of the Deposit Securities are made available by the Custodian through the facilities of the National Securities Clearing Corporation (“NSCC”), immediately prior to the opening of business each day of the Exchange. The Cash Component represents the difference between the net asset value of a Creation Unit and the market value of the Deposit Securities, and includes the Dividend Equivalent Payment. In the case of custom orders, cash-in-lieu may be added to the Cash Component, at a Fund’s discretion, to replace any Deposit Securities that the Authorized Participant (as defined below) may not be eligible to trade. The

Dividend Equivalent Payment is an amount intended to enable a Select Sector SPDR Fund to make a distribution of dividends on the next dividend payment date as if all the portfolio securities of the Fund had been held for the entire dividend period. See the SAI for a description as to the manner in which the Dividend Equivalent Payment is calculated.

 

Orders must be placed in proper form by or through either (i) a “Participating Party”, i.e., a broker-dealer or other participant in the clearing process of the Continuous Net Settlement System of the NSCC (the “Clearing Process”); or (ii) a DTC Participant, that, in either case, has entered into an agreement with the Distributor and the Transfer Agent, subject to acceptance by the Trust, with respect to creations and redemptions of Creation Units (“Participant Agreement”). The Distributor maintains a list of the names of Participants who have signed a Participant Agreement (each, an “Authorized Participant” and collectively, the “Authorized Participants”).

 

The Participant Agreement sets forth the time(s) associated with order placement and other terms and conditions associated with placing an order. Due to the rebalancing of an Index or other reasons beyond the Trust’s control, Authorized Participants may be notified that the cut-off time for an order may be earlier on a particular business day. Such notification will be made as far in advance as possible.

 

A fixed transaction fee of $500 is applicable to each creation transaction regardless of the number of Creation Units created in the transaction. An additional charge of up to three (3) times the fixed transaction fee (for a total charge of up to $2,000) may be imposed with respect to transactions effected outside the Clearing Process (through a DTC Participant) and in the limited circumstances specified in the SAI in which any cash can be used in lieu of Deposit Securities to create Creation Units.

 

Shares may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit with the Trust cash at least equal to 115% of the market value of the missing Deposit Securities. Any such transaction effected must be effected outside the Clearing Process. See “PURCHASE AND REDEMPTION OF CREATION UNITS” in the SAI.

 

Legal Restrictions on Transactions in Certain Stocks (Purchase).   An investor subject to a legal restriction with respect to a particular stock required to be deposited in connection with the creation of a Creation Unit may, at the Fund’s discretion, be permitted to submit a custom order, as further described in the SAI, and deposit an equivalent amount of cash in substitution for any stock which would otherwise be included in the Deposit Securities applicable to the creation of a Creation Unit.

Redemption

 

The Custodian makes available immediately prior to the opening of business on the Exchange, through the facilities of the NSCC, the list of the names and the number of Shares of each Select Sector SPDR Fund’s portfolio securities that will be applicable that day to redemption requests in proper form (“Fund Securities”). Fund Securities received on redemption may not be identical to Deposit Securities which are applicable to creations of Creation Units. The redemption proceeds generally consist of the Fund Securities, plus cash in an amount equal to the difference between the net asset value of the Shares being redeemed as next determined after receipt by the Transfer Agent of a redemption request in proper form, and the value of the Fund Securities (the “Cash Redemption Amount”), less the applicable transaction fee and, if applicable, any transfer taxes. Should the Fund Securities have a value greater than the net asset value of the Shares, a compensating cash payment to the Trust equal to the differential will be required to be arranged for by, or on behalf of, the redeeming shareholder by the Participating Party or DTC Participant, as the case may be. For more detail, see “PURCHASE AND REDEMPTION OF CREATION UNITS” in the SAI.

 

Orders to redeem Creation Units of a Select Sector SPDR Fund may only be effected by or through a Participating Party (with respect to redemptions through the Clearing Process) or a DTC Participant (with respect to redemptions outside the Clearing Process) at the time(s) and in accordance with the other terms and conditions set forth in the Participant Agreement. Due to the rebalancing of a Select Sector Index or other reasons beyond the Trust’s control, Authorized Participants may be notified that the cut-off time for an order may be earlier on a particular business day. Such notification will be as far in advance as possible.

 

A fixed transaction fee of $500 is applicable to each redemption transaction regardless of the number of Creation Units redeemed in the transaction. An additional charge of up to three (3) times the fixed transaction fee (for a total charge of up to $2,000) may be charged with respect to transactions effected outside the Clearing Process and in the limited circumstances specified in the SAI in which any cash may be used in lieu of securities to redeem Creation Units.

 

Legal Restrictions on Transactions in Certain Stocks.   An investor subject to a legal restriction with respect to a particular stock included in the Fund Securities applicable to the redemption of a Creation Unit may, at the Fund’s discretion, be paid an equivalent amount of cash. See “PURCHASE AND REDEMPTION OF CREATION UNITS” in the SAI for information on other situations where cash may be substituted for stock(s).

 

Dividends and Capital Gains.   As a Select Sector SPDR Fund shareholder, you are entitled to your share of the Fund’s income and net realized gains on its investments. Each Select Sector SPDR Fund pays out substantially all of its net earnings to its shareholders as “distributions.”

 

Each Select Sector SPDR Fund typically earns income dividends from stocks and interest from debt securities. These amounts, net of expenses and taxes (if applicable), are passed along to Fund shareholders as “income dividend distributions.” Each Select Sector SPDR Fund realizes capital gains or losses whenever it sells securities. Net long-term capital gains are distributed to shareholders as “capital gain distributions.”

 

Income dividend distributions, if any, for the Funds are distributed to shareholders quarterly. Net capital gains are distributed at least annually. Dividends may be declared and paid more frequently to improve Select Sector Index tracking or to comply with the distribution requirements of the Internal Revenue Code. In addition, each Select Sector SPDR Fund intends to distribute at least annually amounts representing the full dividend yield net of expenses on the underlying investment securities as if the Select Sector SPDR Fund owned the underlying investment securities for the entire dividend period. As a result, some portion of each distribution may result in a return of capital. You will be notified regarding the portion of the distribution which represents a return of capital.

 

Distributions in cash may be reinvested automatically in additional whole Shares only if the broker through whom you purchased Shares makes such option available.

 

A description of the Trust’s policies and procedures with respect to the disclosure of each Select Sector SPDR Fund’s portfolio securities is available in the SAI.

 

As with any investment, you should consider how your Select Sector SPDR Fund investment will be taxed. The tax information in this Prospectus is provided as general information. You should consult your own tax professional about the tax consequences of an investment in a Select Sector SPDR Fund.

Unless your investment in a Select Sector SPDR Fund is through a tax-exempt entity or tax-deferred retirement account, such as a 401(k) plan, you need to be aware of the possible tax consequences when:

 

 

Taxes on Distributions.   Each Select Sector SPDR Fund will distribute any net investment income quarterly, and any net realized long-term or short-term capital gains annually. Each Select Sector SPDR Fund may also pay a special distribution at the end of the calendar year to comply with federal tax requirements. In general, your distributions are subject to federal income tax when they are paid, whether you take them in cash or reinvest them in a Select Sector SPDR Fund. The income dividends and short-term capital gains distributions you receive from the Funds will be taxed as either ordinary income or qualified dividend income. Dividends that are designated as qualified dividend income are eligible for the reduced maximum rate to individuals of 15% (5% for individuals in lower tax brackets) to the extent that a Fund receives qualified dividend income and subject to certain limitations. Long-term capital gains distributions will result from gains on the sale or exchange of capital assets held by a Fund for more than one year. Any long-term capital gains distributions you receive from the Funds are taxable as long-term capital gain regardless of how long you have owned your shares. Long-term capital gains are currently taxed at a maximum of 15%. Absent further legislation, the maximum 15% tax rate on qualified dividend income and long-term capital gains will cease to apply to taxable years beginning after December 31, 2010.

 

Distributions paid by a Select Sector SPDR Fund in January that are declared and have a record date in October, November or December of the previous year will be treated for Federal tax purposes as having been paid on December 31 of the previous year. The Funds will inform you of the amount of your ordinary income dividends, qualified dividend income and capital gain distributions shortly after the close of each calendar year.

 

Distributions in excess of a Select Sector SPDR Fund’s current and accumulated earnings and profits are treated as a tax-free return of capital to the extent of your basis in the Shares, and as capital gain thereafter. A distribution will reduce a Select Sector SPDR Fund’s net asset value per Share and may be taxable to you as ordinary income or capital gain even though, from an investment standpoint, the distribution may constitute a return of capital.

 

Foreign Income Taxes.   Investment income received by the Select Sector SPDR Funds from sources within foreign countries may be subject to foreign

income taxes withheld at the source. The U.S. has entered into tax treaties with many foreign countries which would entitle the Funds to a reduced rate of such taxes or exemption from taxes on such income. It is impossible to determine the effective rate of foreign tax for the Funds in advance since the amount of the assets to be invested within various countries is not known.

 

Non-U.S. Investors.   If you are not a citizen or permanent resident of the United States, each Fund’s ordinary income dividends will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies or unless such income is effectively connected with your conduct of a U.S. trade or business. A Fund may, under certain circumstances, designate all or a portion of a dividend as an “interest-related dividend” or as a “qualified short-term capital gain dividend,” provided that such income would not be subject to federal income tax if earned directly by the non-U.S. shareholders. The Fund would not be required to withhold amounts in respect of U.S. tax on such payments. These rules apply to dividends with respect to taxable years of the Fund beginning before January 1, 2008. Distributions of a Fund attributable to gains from sales or exchanges of “U.S. real property interests,” as defined in the Code and Treasury Regulations (including gains on the sale or exchange of shares in certain U.S. real property holding corporations, which may include certain REITs, and certain REIT capital gain dividends) will generally be subject to federal withholding tax and may give rise to an obligation on the part of the non-US shareholder to file a federal tax return. Also, such gain may be subject to a 30% branch profits tax in the hands of a foreign shareholder that is a corporation.

 

Non-U.S. investors are encouraged to review the SAI for additional discussion of these issues. Prospective investors are urged to consult their tax advisors regarding the specific tax consequences relating to the proposed legislation.

 

Taxes on Exchange-Listed Share Sales.   Currently, any capital gain or loss realized upon a sale of Shares is generally treated as long-term capital gain or loss if the Shares have been held for more than one year and as short-term capital gain or loss if the Shares have been held for one year or less, except that any capital loss on the sale of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid with respect to such Shares.

 

Taxes on Creations and Redemptions of Creation Units.   A person who exchanges equity securities for Creation Units generally will recognize a gain or loss. The gain or loss will be equal to the difference between the market value of the Creation Units at the time and the exchanger’s aggregate basis in the securities surrendered and the Cash Component paid. A person who exchanges Creation Units for equity securities will generally recognize a gain or loss equal

to the difference between the exchanger’s basis in the Creation Units and the aggregate market value of the securities received and the Cash Redemption Amount. The Internal Revenue Service, however, may assert that a loss realized upon an exchange of securities for Creation Units cannot be deducted currently under the rules governing “wash sales,” or on the basis that there has been no significant change in economic position. Persons exchanging securities should consult their own tax advisor with respect to whether wash sale rules apply and when a loss might be deductible.

 

Under current federal tax laws, any capital gain or loss realized upon a redemption of Creation Units is generally treated as long-term capital gain or loss if the Shares have been held for more than one year and as a short-term capital gain or loss if the Shares have been held for one year or less.

 

If you create or redeem Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price.

 

Backup Withholding.   The Select Sector SPDR Funds will be required in certain cases to withhold at applicable withholding rates and remit to the United States Treasury the amount withheld on amounts payable to any shareholder who (1) has provided the Funds either an incorrect tax identification number or no number at all, (2) who is subject to backup withholding by the Internal Revenue Service for failure to properly report payments of interest or dividends, (3) who has failed to certify to the Funds that such shareholder is not subject to backup withholding, or (4) has not certified that such shareholder is a U.S. person (including a U.S. resident alien).

 

The foregoing discussion summarizes some of the consequences under current federal tax law of an investment in a Select Sector SPDR Fund. It is not a substitute for personal tax advice. Consult your personal tax adviser about the potential tax consequences of an investment in a Select Sector SPDR Fund under all applicable tax laws.

ADDITIONAL INFORMATION CONCERNING THE ROLE OF
S&P, MERRILL LYNCH AND THE EXCHANGE

 

The stocks included in each Select Sector Index are selected by Merrill Lynch acting as Index Compilation Agent in consultation with S&P from the universe of companies represented by the S&P 500. The composition and weighting of the stocks included in each Select Sector Index will likely 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. The Exchange acts as “index calculation agent” in connection with the calculation and dissemination of each Select Sector Index.

S&P does not sponsor, endorse, sell or promote the Shares. Additionally, Merrill Lynch and the Exchange do not sponsor or promote the Shares.

 

Neither S&P, Merrill Lynch nor the Exchange make any representation or warranty, express or implied, to the owners of Shares of the Select Sector SPDR Funds or any member of the public regarding the ability of a Select Sector SPDR Fund to track the performance of the various sectors represented in the stock market. Additionally, S&P does not make any representation or warranty, express or implied, to the owners of the Shares or any member of the public regarding the advisability of investing in securities generally or in the Shares particularly.

 

S&P’s only relationship to the Index Compilation Agent is the licensing of certain trademarks and trade names of S&P and of the S&P 500 which is determined, composed and calculated by S&P without regard to Merrill Lynch or any Select Sector SPDR Fund. S&P has no obligation to take the needs of the Index Compilation Agent, the Trust or the owners of Shares of the Select Sector SPDR Funds into consideration in determining, composing or calculating the S&P 500.

 

S&P does not guarantee the accuracy and/or completeness of the S&P 500, the Select Sector Indexes or any data included therein. S&P makes no warranty, express or implied, as to results to be obtained by Merrill Lynch, the Trust, owners of the product, or any other person or entity from the use of the S&P 500, the Select Sector Indexes or any data included therein in connection with the rights licensed under the license agreement or for any other use. S&P makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the S&P 500, the Select Sector Indexes or any data included therein. Without limiting any of the foregoing, in no event shall S&P have any liability for any special, punitive, indirect or consequential damages (including lost profits), even if notified of the possibility of such damages.

 

The Select Sector Indexes identified herein are determined, composed and calculated without regard to the shares of any Select Sector SPDR Fund or the issuer thereof. Merrill Lynch and the Exchange are not responsible for, nor have they participated in, the determination of the timing of, prices of, or quantities of the shares of any Select Sector SPDR Fund to be issued, nor in the determination or calculation of the equation by which the shares are redeemable.

 

Although Merrill Lynch seeks to obtain and provide information to the Exchange from sources which it considers reliable, Merrill Lynch and the Exchange do not guarantee the accuracy and/or the completeness of any Select Sector Index or any data included therein. Merrill Lynch and the Exchange make no warranty, express or implied, as to results to be obtained by the Trust as

licensee, licensee’s customers and counterparties, owners of the shares, or any other person or entity from the use of the Select Sector Indexes or any data included therein in connection with the rights licensed as described herein or for any other use. Merrill Lynch and the Exchange make no express or implied warranties, and each hereby expressly disclaim all warranties of merchantability or fitness for a particular purpose with respect to the Select Sector Indexes or any data included therein. Without limiting any of the foregoing, in no event shall Merrill Lynch or the Exchange have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

 

The Trust was organized as a Massachusetts business trust on June 10, 1998. If shareholders of a Fund are required to vote on any matters, shareholders are entitled to one vote for each Share they own. Annual meetings of shareholders will not be held except as required by the 1940 Act and other applicable law. See the SAI for more information concerning the Trust’s form of organization.

 

For purposes of the 1940 Act, Shares of the Trust are issued by the respective Select Sector SPDR Funds and the acquisition of Shares by investment companies is subject to the restrictions of section 12(d)(1) of the 1940 Act. The Trust has received exemptive relief from Section 12(d)(1) to allow registered investment companies to invest in the Select Sector SPDR Funds beyond the limits set forth in Section 12(d)(1), subject to certain terms and conditions as set forth in an SEC exemptive order issued to the Trust, including that such investment companies enter into an agreement with the Trust.

 

From time to time, the Select Sector SPDR Funds may advertise yield and total return figures. Yield is a historical measure of dividend income, and total return is a measure of past dividend income (assuming that it has been reinvested) plus capital appreciation. Neither yield nor total return should be used to predict the future performance of a Select Sector SPDR Fund.

 

Clifford Chance US LLP serves as counsel to the Trust, including each Select Sector SPDR Fund. PricewaterhouseCoopers LLP serves as the independent registered public accounting firm and will audit each Fund’s financial statements annually.

 

The financial highlights tables are intended to help you understand each Fund’s financial performance for the past five fiscal years. Certain information reflects the performance results for a single Fund Share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in each Fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, the Trust’s independent registered public accounting firm, whose report, along with each Fund’s financial highlights and financial statements, are included in the 2007 Annual Report to Shareholders of each of the Funds, which is available upon request.