-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C7jY7XKvD9fG2L+dMylTYtGs6f/HqVU31TgiUPIhFdJGP1rZLC7W94vaQqroP3H4 3u+Ok5R5xrwEE7Uhut47vw== /in/edgar/work/0000950135-00-004453/0000950135-00-004453.txt : 20000930 0000950135-00-004453.hdr.sgml : 20000930 ACCESSION NUMBER: 0000950135-00-004453 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STREETTRACKS SERIES TRUST CENTRAL INDEX KEY: 0001064642 STANDARD INDUSTRIAL CLASSIFICATION: [ ] STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 333-57793 FILM NUMBER: 730917 BUSINESS ADDRESS: STREET 1: 225 FRANKLIN ST STREET 2: C/O STATE STREET BANK & TRUST CO CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 2126260890 MAIL ADDRESS: STREET 1: 225 FRANKLIN STREET CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: INDEX EXCHANGE LISTED SECURITIES TRUST DATE OF NAME CHANGE: 19980622 497 1 b36800sse497.txt STREETTRACKS SERIES TRUST 1 [STREETTRACKS LOGO] PROSPECTUS streetTRACKS(SM) DOW JONES U.S. LARGE CAP VALUE INDEX FUND streetTRACKS(SM) DOW JONES U.S. LARGE CAP GROWTH INDEX FUND streetTRACKS(SM) DOW JONES U.S. SMALL CAP VALUE INDEX FUND streetTRACKS(SM) DOW JONES U.S. SMALL CAP GROWTH INDEX FUND streetTRACKS(SM) DOW JONES GLOBAL TITANS INDEX FUND streetTRACKS(SM) WILSHIRE REIT INDEX FUND streetTRACKS(SM) MORGAN STANLEY HIGH TECH 35 INDEX FUND streetTRACKS(SM) MORGAN STANLEY INTERNET INDEX FUND SEPTEMBER 25, 2000 streetTRACKS(SM) Series Trust is an "index fund" consisting of ten separate investment portfolios. This Prospectus describes streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund, streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund, streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund, streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund, streetTRACKS(SM) Dow Jones Global Titans Index Fund, streetTRACKS(SM) Wilshire REIT Index Fund, streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund and streetTRACKS(SM) Morgan Stanley Internet Index Fund (each a "Fund" and collectively the "Funds"). The investment objective of each Fund is to provide investment results that, before expenses, correspond generally to the total return of a particular index (each an "Index"). State Street Bank and Trust Company, through its State Street Global Advisors division, manages each Fund. The shares of each Fund (the "Shares") described in this Prospectus will be listed on the American Stock Exchange (the "Exchange"). The Shares trade on the Exchange at market prices that may differ to some degree from the Shares' net asset value. Each Fund issues and redeems Shares on a continuous basis -- at net asset value -- only in a large specified number of Shares called a "Creation Unit," principally in-kind for securities included in the relevant Index. EXCEPT WHEN AGGREGATED IN CREATION UNITS, THE SHARES ARE NOT REDEEMABLE SECURITIES OF THE FUNDS. 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 EACH FUND ARE NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT, NOR ARE SHARES DEPOSITS OR OBLIGATIONS OF ANY BANK. SUCH SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE LOSS OF PRINCIPAL. 2 TABLE OF CONTENTS streetTRACKS(SM) Series Trust............................... 1 Who Should Invest......................................... 1 streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund................................................... 3 streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund................................................... 7 streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund................................................... 11 streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund................................................... 16 streetTRACKS(SM) Dow Jones Global Titans Index Fund....... 20 streetTRACKS(SM) Wilshire REIT Index Fund................. 25 streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund... 30 streetTRACKS(SM) Morgan Stanley Internet Index Fund....... 34 Additional Investment Strategies, Risks and Other Considerations............................................ 37 Additional Investment Strategies.......................... 37 Additional Risks.......................................... 38 Other Considerations...................................... 39 Management.................................................. 39 Index Licenses.............................................. 40 Determination of Net Asset Value............................ 43 Buying and Selling the Funds................................ 43 Creation and Redemption of Creation Units................... 43 Distributions............................................... 47 Tax Matters................................................. 48 General Information......................................... 49
i 3 streetTRACKS(SM) SERIES TRUST streetTRACKS(SM) Series Trust (the "Trust") is an "index fund" consisting of ten separate investment portfolios (each a "Fund" and collectively the "Funds"). The Funds offered by this Prospectus are: streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund, streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund, streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund, streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund, streetTRACKS(SM) Dow Jones Global Titans Index Fund, streetTRACKS(SM) Wilshire REIT Index Fund, streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund and streetTRACKS(SM) Morgan Stanley Internet Index Fund. FORTUNE 500(R) Index Fund and FORTUNE e-50(TM) Index Fund are offered in a separate prospectus. The investment objective of each Fund is to provide investment results that, before expenses, correspond generally to the total return of a specified market index (each an "Index"). State Street Bank and Trust Company, through its State Street Global Advisors division (the "Adviser"), manages each Fund. The shares of each Fund (the "Shares") described in this Prospectus will be listed on the American Stock Exchange (the "Exchange"). The Shares trade on the Exchange at market prices that may differ to some degree from the Shares' net asset value. Each Fund issues and redeems Shares on a continuous basis -- at net asset value -- only in a large specified number of Shares called a "Creation Unit," principally in-kind for securities included in the relevant Index. EXCEPT WHEN AGGREGATED IN CREATION UNITS, THE SHARES ARE NOT REDEEMABLE SECURITIES OF THE FUNDS. WHO SHOULD INVEST Each 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 specified Index. The Funds may be suitable for long-term investment in the market represented in the relevant Index. Shares of each Fund may also be used as an asset allocation tool or as a speculative trading instrument. Unlike many conventional mutual funds which are only bought and sold at closing net asset values, each 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 Fund that could arise from frequent cash creation and redemption transactions that 1 4 affect the net asset value of such Fund. Moreover, in contrast to conventional mutual funds where redemptions can have an adverse tax impact on taxable shareholders because of the need to sell portfolio securities which, in turn, may generate taxable gain, the in-kind redemption mechanism of the Funds generally will not lead to a tax event for ongoing shareholders. 2 5 streetTRACKS(SM) DOW JONES U.S. LARGE CAP VALUE INDEX FUND (SYMBOL: ELV) This section describes streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund's investment objective, principal investment strategies, risks and expenses. Investment Objective. The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of the Dow Jones U.S. Large Cap Value Index (the "Large Cap Value Index" or the "Index"). There is no assurance that the Fund will achieve its investment objective. Principal Investment Strategies. The Fund uses a passive management strategy designed to track the performance of the Large Cap Value Index. The Index includes 100-250 common stocks, which are chosen by Dow Jones & Company, Inc. ("Dow Jones") based upon certain float-adjusted market capitalization and value characteristics. The Fund, using an "indexing" investment approach, attempts to replicate, before expenses, the performance of the Large Cap Value Index. The Adviser seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Fund generally will invest in all of the stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Adviser to replicate generally the performance of the Index as a whole. There may also be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for the Index Securities, or utilize various combinations of other available investment techniques, in seeking to track accurately the Index. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. The Fund will normally invest at least 95% of its total assets in common stocks that comprise the Index. Principal risks of investing in the Fund. Unlike many investment companies, the Fund is not actively "managed." Therefore, it would not sell a stock because the stock's issuer was in financial trouble, unless that stock is removed from the Index. An investment in the Fund involves risks similar to those of 3 6 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 Index. - Stock values could decline generally or could underperform other investments. - A "value" style of investing emphasizes undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on "value" equity securities are less than returns on other styles of investing or the overall stock market. Different types of stocks tend to shift in and out of favor depending on market and economic conditions. Thus, the value of the Fund's investments will vary and at times may be lower or higher than that of other types of investments. - Returns on investments in stocks of large U.S. companies could trail the returns on investments in stocks of smaller companies. - The Fund's return may not match the return of the Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. The 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. If the Fund utilizes a sampling approach, or futures or other derivative positions its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index. THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN THE 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. OTHER INVESTMENT CONSIDERATIONS AND RISKS. The Large Cap Value Index. The Large Cap Value Index is composed of between 100-250 common stocks, which are chosen by Dow Jones, based upon float-adjusted market capitalization and value characteristics. Each year, Dow Jones selects the largest U.S. stocks by market capitalization in order to create the large cap universe, which represents approximately 60% of the total U.S. equity market. After the initial list of eligible large cap stocks is determined, Dow Jones uses a proprietary model to identify the value stocks within 4 7 the large cap universe. Thus, the Large Cap Value Index is a subset representing anywhere between 30 to 70% of the large cap universe. The purpose of the Index is to provide an effective representation of the U.S. large cap value segment of the equity market. The inclusion of a stock in the Index in no way implies that Dow Jones believes the stock to be an attractive investment, nor is Dow Jones a sponsor or in any way affiliated with the Fund. Most of the Index securities trade on the New York Stock Exchange and NASDAQ, representing approximately 30-40% of the market value of all U.S. common stocks. Each stock in the Index is weighted by its float-adjusted market capitalization. That is, each security is weighted by its float-adjusted market value relative to the total float-adjusted market values of all the securities in the Index. The Index only includes common stocks domiciled in the U.S. and its territories. You should also be aware that Dow Jones has retained editorial control over the Index and has reserved the right to modify the Index and/or its methodology at any time. Changes in policies. The Trust's Trustees may change the Fund's investment strategies and other policies without shareholder approval, except as otherwise indicated. The Trustees will not materially change the Fund's investment objective without shareholder approval. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund.(1) SHAREHOLDER FEES (fees paid directly from your investment, but see "Creation and Redemption of Creation Units" for a discussion of Creation and Redemption Transaction Fees)................................................ 0.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from the Fund's assets)(2) Management Fees...................................... 0.20% Distribution and Services (12b-1) Fees(3)............ 0.00% Other Expenses(4).................................... 0.00% ----- TOTAL ANNUAL FUND OPERATING EXPENSES................... 0.20% =====
5 8 -------------------- (1) You will incur customary brokerage commissions when buying and selling shares of the Fund. (2) Expressed as a percentage of average daily net assets. (3) The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to 0.25% of average daily net assets may be made, however, no such payments will be made for the first 12 months of operation. (4) The Trust's Investment Advisory Agreement provides that the Adviser will pay the operating expenses of the Trust, except for the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. EXAMPLE The streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Funds' operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
YEAR EXPENSES - ---- -------- 1................................................... $21 3................................................... $64
6 9 streetTRACKS(SM) DOW JONES U.S. LARGE CAP GROWTH INDEX FUND (SYMBOL: ELG) This section describes the streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund's goals, principal investment strategies, risks and expenses. Investment Objective. The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of the Dow Jones U.S. Large Cap Growth Index (the "Large Cap Growth Index" or the "Index"). There is no assurance that the Fund will achieve its investment objective. Principal Investment Strategies. The Fund uses a passive management strategy designed to track the performance of the Large Cap Growth Index. The Index includes 100-250 common stocks, which are chosen by Dow Jones based upon certain float-adjusted market capitalization and growth characteristics. The Fund, using an "indexing" investment approach, attempts to replicate, before expenses, the performance of the Large Cap Growth Index. The Adviser seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Fund generally will invest in all of the stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Adviser to replicate generally the performance of the Index as a whole. There may also be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for the Index Securities, or utilize various combinations of other available investment techniques, in seeking to track accurately the Index. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. The Fund will normally invest at least 95% of its total assets in common stocks that comprise the Index. Principal risks of investing in the Fund. Unlike many investment companies, the Fund is not actively "managed." Therefore, it would not sell a stock because the stock's issuer was in financial trouble, unless that stock is removed from the Index. An investment in the Fund involves risks similar to those of 7 10 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 Index. - Stock values could decline generally or could underperform other investments. - Returns on investments in stocks of large U.S. companies could trail the returns on investments in stocks of smaller companies. - The Fund emphasizes a "growth" style of investing. The market values of such securities may be more volatile than other types of investments. The returns on "growth" securities may or may not move in tandem with the returns on other styles of investing or the overall stock markets. - The Fund's return may not match the return of the Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. The 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. If the Fund utilizes a sampling approach, or futures or other derivative positions its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index. THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN THE 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. OTHER INVESTMENT CONSIDERATIONS AND RISKS. The Large Cap Growth Index. The Large Cap Growth Index is composed of between 100-250 common stocks, which are chosen by Dow Jones, based upon float-adjusted market capitalization and growth characteristics. Each year, Dow Jones selects the largest U.S. stocks by market capitalization in order to create the large cap universe, which represents approximately 60% of the total U.S. equity market. After the initial list of eligible large cap stocks is determined, Dow Jones uses a proprietary model to identify the growth stocks within the large cap universe. Thus, the Large Cap Growth Index is a subset representing anywhere between 30 to 70% of the large cap universe. The purpose of the Index is to provide an effective representation of the U.S. large 8 11 cap growth segment of the equity market. The inclusion of a stock in the Index in no way implies that Dow Jones believes the stock to be an attractive investment, nor is Dow Jones a sponsor or in any way affiliated with the Fund. Most of the Index securities trade on the New York Stock Exchange and NASDAQ, representing approximately 30-40% of the market value of all U.S. common stocks. Each stock in the Index is weighted by its float-adjusted market capitalization. That is, each security is weighted by its float-adjusted market value relative to the total float-adjusted market values of all the securities in the Index. The Index only includes common stocks domiciled in the U.S. and its territories. You should also be aware that Dow Jones has retained editorial control over the Index and has reserved the right to modify the Index and/or its methodology at any time. Changes in policies. The Trust's Trustees may change the Fund's investment strategies and other policies without shareholder approval, except as otherwise indicated. The Trustees will not materially change the Fund's investment objective without shareholder approval. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund.(1) SHAREHOLDER FEES (fees paid directly from your investment, but see "Creation and Redemption of Creation Units" for a discussion of Creation and Redemption Transaction Fees)................................................ 0.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from the Fund's assets)(2) Management Fees...................................... 0.20% Distribution and Services (12b-1) Fees(3)............ 0.00% Other Expenses(4).................................... 0.00% ----- TOTAL ANNUAL FUND OPERATING EXPENSES................... 0.20% =====
-------------------- (1) You will incur customary brokerage commissions when buying and selling shares of the Fund. (2) Expressed as a percentage of average daily net assets. (3) The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to 0.25% of average daily net assets may be made, however, no such payments will be made for the first 12 months of operation. 9 12 (4) The Trust's Investment Advisory Agreement provides that the Adviser will pay the operating expenses of the Trust, except for the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. EXAMPLE The streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Funds' operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
YEAR EXPENSES - ---- -------- 1................................................... $21 3................................................... $64
10 13 streetTRACKS(SM) DOW JONES U.S. SMALL CAP VALUE INDEX FUND (SYMBOL: DSV) This section describes the streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund's goals, principal investment strategies, risks, expenses and performance. Investment Objective. The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of the Dow Jones U.S. Small Cap Value Index (the "Small Cap Value Index" or the "Index"). There is no assurance that the Fund will achieve its investment objective. Principal Investment Strategies. The Fund uses a passive management strategy designed to track the performance of the Small Cap Value Index. The Index includes 350-700 common stocks, which are chosen by Dow Jones based upon certain float-adjusted market capitalization and value characteristics. The Fund, using an "indexing" investment approach, attempts to replicate, before expenses, the performance of the Small Cap Value Index. The Adviser seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Fund generally will invest in all of the stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Adviser to replicate generally the performance of the Index as a whole. There may also be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for the Index Securities, or utilize various combinations of other available investment techniques, in seeking to track accurately the Index. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. The Fund will normally invest at least 95% of its total assets in common stocks that comprise the Index. Principal risks of investing in the Fund. Unlike many investment companies, the Fund is not actively "managed." Therefore, it would not sell a stock because the stock's issuer was in financial trouble, unless that stock is removed from the Index. An investment in the Fund involves risks similar to those of 11 14 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 Index. - Stock values could decline generally, or could underperform other investments. - Returns on investments in stocks of small U.S. companies could trail the returns on investments in stocks of larger companies. - A "value" style of investing emphasizes undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on "value" equity securities are less than returns on other styles of investing or the overall stock market. Different types of stocks tend to shift in and out of favor depending on market and economic conditions. Thus, the value of the Fund's investments will vary and at times may be lower or higher than that of other types of investments. - Small companies may be more likely than mid-cap and large-cap companies to have relatively limited product lines, markets or financial resources, or depend on a few key employees. - The Fund's return may not match the return of the Index for a number of reasons. For example, the return on the securities and other investments selected by the Adviser may not correlate precisely with the return on the Index. The Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. The 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. If the Fund utilizes a sampling approach, or futures or other derivative positions its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index. THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN THE 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. 12 15 OTHER INVESTMENT CONSIDERATIONS AND RISKS. The Small Cap Value Index. The Small Cap Value Index is composed of between 300-750 common stocks, which are chosen by Dow Jones, based upon float-adjusted market capitalization and value characteristics. Each year, Dow Jones selects the smallest U.S. stocks by market capitalization in order to create the small cap universe, which represents approximately 8-10% of the total U.S. equity market. After the initial list of eligible small cap stocks is determined, Dow Jones uses a proprietary model to identify value stocks within the small cap universe. Thus, the Small Cap Value Index is a subset representing anywhere between 30 to 70% of the small cap universe. The purpose of the Index is to provide an effective representation of the U.S. small cap value segment of the equity market. The inclusion of a stock in the Index in no way implies that Dow Jones believes the stock to be an attractive investment, nor is Dow Jones a sponsor or in any way affiliated with the Fund. Most of the Index securities trade on the New York Stock Exchange and NASDAQ, representing approximately 4-6% of the market value of all U.S. common stocks. Each stock in the Index is weighted by its float-adjusted market capitalization. That is, each security is weighted by its float-adjusted market value relative to the total float-adjusted market values of all the securities in the Index. The Index only includes common stocks domiciled in the U.S. and its territories. You should also be aware that Dow Jones has retained editorial control over the Index and has reserved the right to modify the Index and/or its methodology at any time. Changes in policies. The Trust's Trustees may change the Fund's investment strategies and other policies without shareholder approval, except as otherwise indicated. The Trustees will not materially change the Fund's investment objective without shareholder approval. 13 16 FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund.(1) SHAREHOLDER FEES (fees paid directly from your investment, but see "Creation and Redemption of Creation Units" for a discussion of Creation and Redemption Transaction Fees)................................................ 0.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from the Fund's assets)(2) Management Fees...................................... 0.25% Distribution and Services (12b-1) Fees(3)............ 0.00% Other Expenses(4).................................... 0.00% TOTAL ANNUAL FUND OPERATING EXPENSES................... 0.25%
-------------------- (1) You will incur customary brokerage commissions when buying and selling shares of the Fund. (2) Expressed as a percentage of average daily net assets. (3) The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to 0.25% of average daily net assets may be made, however, no such payments will be made for the first 12 months of operation. (4) The Trust's Investment Advisory Agreement provides that the Adviser will pay the operating expenses of the Trust, except for the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. EXAMPLE The streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Funds' operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND 14 17 ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
YEAR EXPENSES - ---- -------- 1................................................... $26 3................................................... $81
15 18 STREETTRACKS(SM) DOW JONES U.S. SMALL CAP GROWTH INDEX FUND (SYMBOL: DSG) This section describes the streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund's goals, principal investment strategies, risks, expenses and performance. Investment Objective. The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of the Dow Jones U.S. Small Cap Growth Index (the "Small Cap Growth Index" or the "Index"). There is no assurance that the Fund will achieve its investment objective. Principal Investment Strategies. The Fund uses a passive management strategy designed to track the performance of the Small Cap Growth Index. The Index includes 350-700 common stocks, which are chosen by Dow Jones based upon certain float-adjusted market capitalization and growth characteristics. The Fund, using an "indexing" investment approach, attempts to replicate, before expenses, the performance of the Small Cap Value Index. The Adviser seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Fund generally will invest in all of the stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Adviser to replicate generally the performance of the Index as a whole. There may also be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for the Index Securities, or utilize various combinations of other available investment techniques, in seeking to track accurately the Index. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. The Fund will normally invest at least 95% of its total assets in common stocks that comprise the Index. Principal risks of investing in the Fund. Unlike many investment companies, the Fund is not actively "managed." Therefore, it would not sell a stock because the stock's issuer was in financial trouble, unless that stock is removed from the Index. An investment in the Fund involves risks similar to those of 16 19 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 Index. - Stock values could decline generally, or could underperform other investments. - Returns on investments in stocks of small U.S. companies could trail the returns on investments in stocks of larger companies. - The Fund emphasizes a "growth" style of investing. The market values of such securities may be more volatile than other types of investments. The returns on "growth" securities may or may not move in tandem with the returns on other styles of investing or the overall stock markets. - Small companies may be more likely than mid-cap and large-cap companies to have relatively limited product lines, markets or financial resources, or depend on a few key employees. - The Fund's return may not match the return of the Index for a number of reasons. For example, the return on the securities and other investments selected by the Adviser may not correlate precisely with the return on the Index. The Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. The 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. If the Fund utilizes a sampling approach, or futures or other derivative positions its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index. THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN THE 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. OTHER INVESTMENT CONSIDERATIONS AND RISKS. The Small Cap Growth Index. The Small Cap Growth Index is composed of between 300-750 common stocks, which are chosen by Dow Jones, based upon float-adjusted market capitalization and growth characteristics. Each year, Dow Jones selects the smallest U.S. stocks by market capitalization in order to create the small cap universe, which represents approximately 8-10% 17 20 of the total U.S. equity market. After the initial list of eligible small cap stocks is determined, Dow Jones uses a proprietary model to identify growth stocks within the small cap universe. Thus, the Small Cap Growth Index is a subset representing anywhere between 30 to 70% of the small cap universe. The purpose of the Index is to provide an effective representation of the U.S. small cap growth segment of the equity market. The inclusion of a stock in the Index in no way implies that Dow Jones believes the stock to be an attractive investment, nor is Dow Jones a sponsor or in any way affiliated with the Fund. Most of the Index securities trade on the New York Stock Exchange and NASDAQ, representing approximately 4-6% of the market value of all U.S. common stocks. Each stock in the Index is weighted by its float-adjusted market capitalization. That is, each security is weighted by its float-adjusted market value relative to the total float-adjusted market values of all the securities in the Index. The Index only includes common stocks domiciled in the U.S. and its territories. You should also be aware that Dow Jones has retained editorial control over the Index and has reserved the right to modify the Index and/or its methodology at any time. Changes in policies. The Trust's Trustees may change the Fund's investment strategies and other policies without shareholder approval, except as otherwise indicated. The Trustees will not materially change the Fund's investment objective without shareholder approval. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund.(1) SHAREHOLDER FEES (fees paid directly from your investment, but see "Creation and Redemption of Creation Units" for a discussion of Creation and Redemption Transaction Fees)................................................ 0.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from the Fund's assets)(2) Management Fees...................................... 0.25% Distribution and Services (12b-1) Fees(3)............ 0.00% Other Expenses(4).................................... 0.00% ----- TOTAL ANNUAL FUND OPERATING EXPENSES................... 0.25% =====
-------------------- (1) You will incur customary brokerage commissions when buying and selling shares of the Fund. (2) Expressed as a percentage of average daily net assets. 18 21 (3) The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to 0.25% of average daily net assets may be made, however, no such payments will be made for the first 12 months of operation. (4) The Trust's Investment Advisory Agreement provides that the Adviser will pay the operating expenses of the Trust, except for the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. EXAMPLE The streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Funds' operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
YEAR EXPENSES - ---- -------- 1................................................... $26 3................................................... $81
19 22 streetTRACKS(SM) DOW JONES GLOBAL TITANS INDEX FUND (SYMBOL: DGT) This section describes the streetTRACKS(SM) Dow Jones Global Titans Index Fund's goals, principal investment strategies, risks, expenses and performance. Investment Objective. The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of the Dow Jones Global Titans Index U.S. Close (the "Global Titans Index" or the "Index"). There is no assurance that the Fund will achieve its investment objective. Principal Investment Strategies. The Fund uses a passive management strategy designed to track the performance of the Global Titans Index. The Index includes 50 stocks, which are chosen by Dow Jones based on the combination of market data and fundamental data. The Fund, using an "indexing" investment approach, attempts to replicate, before expenses, the performance of the Global Titans Index. The Adviser seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Fund generally will invest in all of the stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Adviser to replicate generally the performance of the Index as a whole. There may also be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for the Index Securities, or utilize various combinations of other available investment techniques, in seeking to track accurately the Index. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. The Fund will normally invest at least 95% of its total assets in common stocks that comprise the Index. Principal risks of investing in the Fund. Unlike many investment companies, the Fund is not actively "managed." Therefore, it would not sell a stock because the stock's issuer was in financial trouble, unless that stock is removed from the Index. An investment in the 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, 20 23 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 Index. - Stock values could decline generally or could underperform other investments. - Returns on investments in foreign stocks could be more volatile than, or trail the returns on, investments in U.S. stocks. - Returns on investments in stocks of large companies could trail the returns on investments in stocks of smaller companies. - The Fund's return may not match the return of the Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. The 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. If the Fund utilizes a sampling approach, or futures or other derivative positions its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index. THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN THE 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. OTHER INVESTMENT CONSIDERATIONS AND RISKS. The Global Titans Index. The Global Titans Index is composed of 50 common stocks, which are chosen by Dow Jones. The stock must, in the opinion of Dow Jones, meet all four of the following criteria to qualify as a candidate for the index: (1) It must be a well established company with a solid financial situation and a broad client base; (2) It must be well known to global investors for either its long history of success or its widely used products or services; (3) It must be a market leader in its industry with either a dominant position or a competitive advantage; (4) It must be among the largest of blue-chip companies in the global arena. In constructing the Global Titans Index, a unique multi-factor methodology is adopted. First the 5,000 stocks of the Dow Jones Global Indexes are used as the Initial Pool with a view towards ensuring that all candidates are investable, liquid and representative of the global markets. Market capitalization is then used as the first screen to create the Final Pool by selecting the top 100 companies. Dow Jones's rationale for this step is that market value is a universal measurement across industries, and also 21 24 that its use is most appropriate for an index built for investment purposes. Every company in the final pool of 100 must derive some revenue from outside its home country. This screen is instituted to ensure that all of the Titans selected are truly Global companies. The next step in index construction is to combine the Final Pool components' market capitalization rankings with their rankings according to four other indicators of size and leadership. These four indicators, two from the balance sheet and two from the income statement, are assets, book value, sales/revenue, and net profit. The combined rankings of these four fundamental factors determine the fundamental rank of each company. The fundamental rank and the market cap rank are used equally as the basis for selecting the index components. The inclusion of a stock in the Index in no way implies that Dow Jones believes the stock to be an attractive investment, nor is Dow Jones a sponsor or in any way affiliated with the Fund. For purposes of calculation of the Index value, securities for which the primary market is outside of the U.S. are valued based on the last sale price on the primary market. During periods when the primary market is closed, these securities are valued based on the last sale price, if any, of any corresponding ADR. You should also be aware that Dow Jones has retained editorial control over the Index and has reserved the right to modify the Index and/or its methodology at any time. Foreign Securities. The Fund will invest in foreign securities, including non-U.S. dollar-denominated securities traded outside of the United States and dollar-denominated securities of foreign issuers traded in the United States. Foreign securities also include investments such as American Depository Receipts ("ADRs") which are U.S. dollar-denominated receipts representing shares of foreign-based corporations. ADRs are issued by U.S. banks or trust companies, and entitle the holder to all dividends and capital gains that are paid out on the underlying foreign shares. Investment in ADRs may be less liquid than the liquidity of the underlying shares in their primary trading market. Foreign securities involve special risks and costs. Investment in foreign securities may involve higher costs than investment in U.S. securities, including higher transaction and custody costs as well as the imposition of additional taxes by foreign governments. Foreign investments may also involve risks associated with the level of currency exchange rates, less complete financial information about the issuers, less market liquidity, more market volatility and political instability. Future political and economic developments, the possible imposition of withholding taxes on dividend income, the possible seizure or nationalization of foreign holdings, the possible establishment of exchange controls or freezes on the convertibility of currency, or the adoption of other governmental restrictions might adversely affect an investment in foreign 22 25 securities. Additionally, foreign issuers may be subject to less stringent regulation, and to different accounting, auditing and recordkeeping requirements. Forward Currency Exchange Contracts. The Fund may enter into forward currency exchange contracts for hedging purposes to help reduce the risks and volatility caused by changes in foreign currency exchange rates. Foreign currency exchange contracts will be used at the discretion of the Adviser, and the Fund is not required to hedge its foreign currency positions. A forward currency contract is an obligation to exchange one currency for another on a future date at a specified exchange rate. Forward currency contracts are privately negotiated transactions, and can have substantial price volatility. When used for hedging purposes, they tend to limit any potential gain that may be realized if the value of the Fund's foreign holdings increases because of currency fluctuations. Changes in policies. The Trust's Trustees may change the Fund's investment strategies and other policies without shareholder approval, except as otherwise indicated. The Trustees will not materially change the Fund's investment objective without shareholder approval. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the streetTRACKS(SM) Dow Jones Global Titans Index Fund.(1) SHAREHOLDER FEES (fees paid directly from your investment, but see "Creation and Redemption of Creation Units" for a discussion of Creation and Redemption Transaction Fees)................................................ 0.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from the Fund's assets)(2) Management Fees...................................... 0.50% Distribution and Services (12b-1) Fees(3)............ 0.00% Other Expenses(4).................................... 0.00% ----- TOTAL ANNUAL FUND OPERATING EXPENSES................... 0.50% =====
23 26 -------------------- (1) You will incur customary brokerage commissions when buying and selling shares of the Fund. (2) Expressed as a percentage of average daily net assets. (3) The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to 0.25% of average daily net assets may be made, however, no such payments will be made for the first 12 months of operation. (4) The Trust's Investment Advisory Agreement provides that the Adviser will pay the operating expenses of the Trust, except for the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. EXAMPLE The streetTRACKS(SM) Dow Jones Global Titans Index Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Funds' operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
YEAR EXPENSES - ---- -------- 1................................................... $ 51 3................................................... $161
24 27 streetTRACKS(SM) WILSHIRE REIT INDEX FUND (SYMBOL: RWR) This section describes the streetTRACKS(SM) Wilshire REIT Index Fund's goals, principal investment strategies, risks, expenses and performance. Investment Objective. The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of the Wilshire REIT Index (the "Wilshire REIT Index" or the "Index"). There is no assurance that the Fund will achieve its investment objective. Principal Investment Strategies. The Fund uses a passive management strategy designed to track the performance of the Wilshire REIT Index. The Index is a market capitalization weighted index of publicly traded Real Estate Investment Trusts ("REITs"). The Index is comprised of companies whose charters are the equity ownership and operation of commercial real estate. As of June 30, 2000, the Index was composed of 104 REITs. The Fund, using an "indexing" investment approach, attempts to replicate, before expenses, the performance of the Wilshire REIT Index. The Adviser seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Fund generally will invest in all of the REITs comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those REITs in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Adviser to replicate generally the performance of the Index as a whole. There may also be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for the Index Securities, or utilize various combinations of other available investment techniques, in seeking to track accurately the Index. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. The Fund will normally invest at least 95% of its total assets in REITs that comprise the Index. Principal risks of investing in the Fund. Unlike many investment companies, the Fund is not actively "managed." Therefore, it would not sell a stock because the stock's issuer was in financial trouble, unless that stock is removed from the Index. An investment in the Fund involves risks similar to those of investing in any fund of equity securities traded on exchanges, such as market 25 28 fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. You should anticipate that the value of the Shares will decline, more or less, in correspondence with any decline in value of the Index. - The Fund will concentrate its investments in the real estate industry sector. Adverse economic, business or political developments affecting that industry sector could have a major effect on the value of the Fund's investments. - Investment in REITs may subject the Fund to risks associated with the direct ownership of real estate, such as decreases in real estate values, overbuilding, increased competition and other risks related to local or general economic conditions, increases in operating costs and property taxes, changes in zoning laws, casualty or condemnation losses, possible environmental liabilities, regulatory limitations on rent and fluctuations in rental income. Equity REITs generally experience these risks directly through fee or leasehold interests, whereas mortgage REITs generally experience these risks indirectly through mortgage interests, unless the mortgage REIT forecloses on the underlying real estate. - Changes in interest rates may also affect the value of the Fund's investment in REITs. For instance, during periods of declining interest rates, certain mortgage REITs may hold mortgages that the mortgagors elect to prepay, which prepayment may diminish the yield on securities issued by those REITs. - Certain REITs have a relatively small market capitalization, which may tend to increase the volatility of the market price of their securities. - REITs are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in operating and financing a limited number of projects. - REITs are also subject to heavy cash flow dependency, defaults by borrowers and the possibility of failing to qualify for tax-free pass- through of income under the Internal Revenue Code of 1986, as amended (the "Code") and to maintain exemption from the registration requirements of the 1940 Act. - The Fund's return may not match the return of the Index for a number of reasons. For example, the return on the securities and other investments selected by the Adviser may not correlate precisely with the return on the Index. The Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. The Fund may not be 26 29 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. If the Fund utilizes a sampling approach, or futures or other derivative positions its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index. - The 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 the 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 the fund's share price. THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN THE 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. OTHER INVESTMENT CONSIDERATIONS AND RISKS. The Wilshire REIT Index. The Wilshire REIT Index is comprised of companies whose charters are the equity ownership and operation of commercial real estate and which operate under the REIT Act of 1960. The Index was composed of 104 components with a total market capitalization of $110 billion as of June 30, 2000. The Index is generally rebalanced monthly, and returns are calculated on a buy and hold basis except as necessary to reflect the occasional occurrence of Index changes in the middle of a month. The inclusion of a REIT in the Index in no way implies that Wilshire Associates believes the stock to be an attractive investment, nor is Wilshire Associates a sponsor or in any way affiliated with the Fund. Each REIT in the Index is weighted by its market capitalization. That is, each security is weighted by its market value relative to the total market values of all the securities in the Index. Changes in policies. The Trust's Trustees may change the Fund's investment strategies and other policies without shareholder approval, except as otherwise indicated. The Trustees will not materially change the Fund's investment objective without shareholder approval. 27 30 FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the streetTRACKS(SM) Wilshire REIT Index Fund.(1) SHAREHOLDER FEES (fees paid directly from your investment, but see "Creation and Redemption of Creation Units" for a discussion of Creation and Redemption Transaction Fees)................................................ 0.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from the Fund's assets)(2) Management Fees...................................... 0.25% Distribution and Services (12b-1) Fees(3)............ 0.00% Other Expenses(4).................................... 0.00% ----- TOTAL ANNUAL FUND OPERATING EXPENSES................... 0.25% =====
-------------------- (1) You will incur customary brokerage commissions when buying and selling shares of the Fund. (2) Expressed as a percentage of net assets. (3) The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to 0.25% may be made, however, no such payments will be made for the first 12 months of operation. (4) The Trust's Investment Advisory Agreement provides that the Adviser will pay the operating expenses of the Trust, except for the advisory fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. EXAMPLE The streetTRACKS(SM) Wilshire REIT Index Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Funds' operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF 28 31 EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
YEAR EXPENSES - ---- -------- 1................................................... $26 3................................................... $81
29 32 streetTRACKS(SM) MORGAN STANLEY HIGH-TECH 35 INDEX FUND (SYMBOL: MTK) This section describes the streetTRACKS(SM) Morgan Stanley High-Tech 35 Index Fund's goals, principal investment strategies, risks, expenses and performance. Investment Objective. The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of the Morgan Stanley High-Tech 35 Index (the "High-Tech 35 Index" or the "Index"). There is no assurance that the Fund will achieve its investment objective. Principal Investment Strategies. The Fund uses a passive management strategy designed to track the performance of the High-Tech 35 Index. The Index is composed of 35 electonics-based technology companies. The Exchange calculates the Index. Morgan Stanley & Co. Incorporated acts as consultant to the Exchange in connection with the Exchange's maintenance of the Index. The Fund, using an "indexing" investment approach, attempts to replicate, before expenses, the performance of the High-Tech 35 Index. The Adviser seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Fund generally will invest in all of the stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Adviser to replicate generally the performance of the Index as a whole. There may also be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for the Index Securities, or utilize various combinations of other available investment techniques, in seeking to track accurately the Index. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. The Fund will normally invest at least 95% of its total assets in common stocks that comprise the Index. Principal risks of investing in the Fund. Unlike many investment companies, the Fund is not actively "managed." Therefore, it would not sell a stock because the stock's issuer was in financial trouble, unless that stock is removed from the Index. An investment in the Fund involves risks similar to those of 30 33 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 Index. - Stock values could decline generally, or could underperform other investments. - The Fund will concentrate in the technology industry. Market or economic factors impacting that industry sector could have a major effect on the value of the Fund's investments. The value of stocks of technology companies is particularly vulnerable to rapid changes in technology product cycles, government regulation and competition. Technology stocks, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market. - The Fund's return may not match the return of the Index for a number of reasons. For example, the return on the securities and other investments selected by the Adviser may not correlate precisely with the return on the Index. The Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. The 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. If the Fund utilizes a sampling approach, or futures or other derivative positions its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index. - The 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 the 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 the fund's share price. THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN THE 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. OTHER INVESTMENT CONSIDERATIONS AND RISKS. The Morgan Stanley High-Tech 35 Index. The Index is composed purely of electronics-based technology companies. The Index was the first listed 31 34 broad-market technology barometer dedicated exclusively to the electronics- based technology industry. The Index comprises American companies drawn from the following 11 technology sub-sectors: computer & business services; technical software (CAD/CAM, EDA); enterprise software; Internet and PC software; telecom equipment; wireline/wireless; data networking/data security; server & enterprise hardware; PC hardware & data storage; connectors/electronics manufacturing services; semi-conductor capital equipment; and semiconductors. The Exchange calculates the Index. Morgan Stanley & Co. Incorporated acts as consultant to the Exchange in connection with the Exchange's maintenance of the Index. The Index is equal-dollar-weighted to ensure that each of its component securities is represented in approximate equal dollar value. To ensure that each component stock continues to represent approximate equal market value in the Index, adjustments, if necessary, are made annually after the close of trading on the third Friday of December. As of June 30, 2000, the Morgan Stanley High-Tech 35 Index consisted of 35 components with a total market capitalization of $3,653 billion. Changes in policies. The Trust's Trustees may change the Fund's investment strategies and other policies without shareholder approval, except as otherwise indicated. The Trustees will not materially change the Fund's investment objective without shareholder approval. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund.(1) SHAREHOLDER FEES (fees paid directly from your investment, but see "Creation and Redemption of Creation Units" for a discussion of Creation and Redemption Transaction Fees)................................................ 0.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from the Fund's assets)(2) Management Fees...................................... 0.50% Distribution and Services (12b-1) Fees(3)............ 0.00% Other Expenses(4).................................... 0.00% ----- TOTAL ANNUAL FUND OPERATING EXPENSES................... 0.50% =====
-------------------- (1) You will incur customary brokerage commissions when buying and selling shares of the Fund. (2) Expressed as a percentage of average daily net assets. 32 35 (3) The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to 0.25% of average daily net assets may be made, however, no such payments will be made for the first 12 months of operation. (4) The Trust's Investment Advisory Agreement provides that the Adviser will pay the operating expenses of the Trust, except for the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. EXAMPLE The streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Funds' operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
YEAR EXPENSES - ---- -------- 1................................................... $ 51 3................................................... $161
33 36 streetTRACKS(SM) MORGAN STANLEY INTERNET INDEX FUND (SYMBOL: MII) This section describes the streetTRACKS(SM) Morgan Stanley Internet Index Fund's goals, principal investment strategies, risks, expenses and performance. Investment Objective. The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of the Morgan Stanley Internet Index (the "Internet Index" or the "Index"). There is no assurance that the Fund will achieve its investment objective. Principal Investment Strategies. The Fund uses a passive management strategy designed to track the performance of the Internet Index. The Index is composed of companies that are driving the growth of Internet usage. The Exchange calculates the Index. Morgan Stanley & Co. Incorporated acts as consultant to the Exchange in connection with the Exchange's maintenance of the Index. The Fund, using an "indexing" investment approach, attempts to replicate, before expenses, the performance of the Internet Index. The Adviser seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation. The Fund generally will invest in all of the stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Adviser to replicate generally the performance of the Index as a whole. There may also be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for the Index Securities, or utilize various combinations of other available investment techniques, in seeking to track accurately the Index. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. The Fund will normally invest at least 95% of its total assets in common stocks that comprise the Index. Principal risks of investing in the Fund. Unlike many investment companies, the Fund is not actively "managed." Therefore, it would not sell a stock because the stock's issuer was in financial trouble, unless that stock is removed from the Index. An investment in the Fund involves risks similar to those of investing in any fund of equity securities traded on exchanges, such as market 34 37 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 Index. - Stock values could decline generally, or could underperform other investments. - The Fund will invest primarily in companies engaged in Internet and Intranet related activities. The value of such companies is particularly vulnerable to rapidly changing technology, extensive government regulation and relatively high risk of obsolescence caused by scientific and technological advances. The value of the Fund's shares may fluctuate more than shares of a fund investing in a broader range of industries. - The Fund's return may not match the return of the Index for a number of reasons. For example, the return on the securities and other investments selected by the Adviser may not correlate precisely with the return on the Index. The Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. The 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. If the Fund utilizes a sampling approach, or futures or other derivative positions its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index. - The 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 the 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 the fund's share price. THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN THE 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. OTHER INVESTMENT CONSIDERATIONS AND RISKS. The Morgan Stanley Internet Index. The Index is composed of companies that are driving the growth of Internet usage. The Index comprises American companies drawn from seven Internet sub-sectors: Internet data services, Internet infrastructure, Internet services/consulting, portals, vertical portals, e-commerce and Internet investment companies. The companies are 35 38 selected based on a demonstration of current leadership, business momentum, market share and market capitalization. The number of companies in the Index may be increased as Internet-related businesses evolve. The Exchange calculates the Index. Morgan Stanley & Co. Incorporated acts as consultant to the Exchange in connection with the Exchange's maintenance of the Index. The Index is equal-dollar-weighted so that each of its component securities is represented in approximate equal dollar value. To ensure that these weightings remain equal, adjustments, if necessary, are made quarterly after the close of trading on the third Friday of March, June, September, and December. As of June 30, 2000, the Morgan Stanley Internet Index consisted of 28 components with a total market capitalization of $1,815 billion. Changes in policies. The Trust's Trustees may change the Fund's investment strategies and other policies without shareholder approval, except as otherwise indicated. The Trustees will not materially change the Fund's investment objective without shareholder approval. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the streetTRACKS(SM) Morgan Stanley Internet Index Fund.(1) SHAREHOLDER FEES (fees paid directly from your investment, but see "Creation and Redemption of Creation Units" for a discussion of Creation and Redemption Transaction Fees)................................................ 0.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from the Fund's assets)(2) Management Fees...................................... 0.50% Distribution and Services (12b-1) Fees(3)............ 0.00% Other Expenses(4).................................... 0.00% ----- TOTAL ANNUAL FUND OPERATING EXPENSES................... 0.50% =====
-------------------- (1) You will incur customary brokerage commissions when buying and selling shares of the Fund. (2) Expressed as a percentage of average daily net assets. (3) The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to 0.25% of average daily net assets may be made, however, no such payments will be made for the first 12 months of operation. 36 39 (4) The Trust's Investment Advisory Agreement provides that the Adviser will pay the operating expenses of the Trust, except for the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. EXAMPLE The streetTRACKS(SM) Morgan Stanley Internet Index Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Funds' operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
YEAR EXPENSES - ---- -------- 1................................................... $ 51 3................................................... $161
ADDITIONAL INVESTMENT STRATEGIES, RISKS AND OTHER CONSIDERATIONS ADDITIONAL INVESTMENT STRATEGIES Each Fund may invest its remaining assets in money market instruments including repurchase agreements or funds which invest exclusively in money market instruments (subject to applicable limitations under the 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) and in options and futures contracts. Options and futures contracts (and convertible securities and structured notes) may be used by a Fund in seeking performance that corresponds to its benchmark Index and in managing cash flows. The Funds will not invest in money market instruments as part of a temporary defensive strategy to protect against potential stock market de- 37 40 clines. The Adviser anticipates that it will take approximately three business days for additions and deletions to the Index to be reflected in the portfolio composition of each Fund. Borrowing Money. Each 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. ADDITIONAL RISKS Lack of Diversification. Each Fund intends to maintain the required level of diversification so as to qualify as a "regulated investment company" for purposes of the Internal Revenue Code, in order to avoid liability for federal income tax to the extent that its earnings are distributed to shareholders. Compliance with the diversification requirements of the Internal Revenue Code could limit the investment flexibility of a Fund. Trading Issues. 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 Fund will 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 Fund's securities holdings. The market prices of Shares will generally fluctuate in accordance with changes in net asset value and supply and demand on the Exchange. The Adviser cannot predict whether Shares will trade below, at or above their net asset value. Price differences may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for Shares will be closely related to, but not identical to, the same forces influencing the prices of the stocks of the 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. Lending of Securities. Although each Fund that lends its portfolio Securities will receive collateral in connection with all loans of its securities holdings, a 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 38 41 may have appreciated beyond the value of the collateral held by the Fund). In addition, a Fund will bear the risk of loss of any cash collateral that it invests. OTHER CONSIDERATIONS Distribution and Service Plan. Each Fund has adopted a Distribution and Service Plan pursuant to which payments of up to 0.25% of average daily net assets may be made. No payments pursuant to the Distribution and Service Plan will be made for the first twelve (12) months of operation. MANAGEMENT Adviser. State Street serves as the Adviser to each Fund and, subject to the supervision of the Board of Trustees, is responsible for the investment management of the Funds. As of March 31, 2000, the Adviser managed approximately $723.3 billion in assets, including approximately $376 billion in index funds. The Adviser's principal business address is 225 Franklin Street, Boston, Massachusetts 02210. For the services provided to the Funds under the Investment Advisory Agreement, each Fund pays the Adviser monthly fees based on a percentage of each Fund's average daily net assets as shown in the following table.
FUND MANAGEMENT FEE - ---- -------------- streetTRACKS(SM) Dow Jones U.S. Large-Cap Value Fund................................. 0.20% streetTRACKS(SM) Dow Jones U.S. Large-Cap Growth Fund................................ 0.20% streetTRACKS(SM) Dow Jones U.S. Small-Cap Value Fund................................. 0.25% streetTRACKS(SM) Dow Jones U.S. Small-Cap Growth Fund................................ 0.25% streetTRACKS(SM) Dow Jones Global Titans Index Fund................................. 0.50% streetTRACKS(SM) Wilshire REIT Index Fund.... 0.25% streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund................................. 0.50% streetTRACKS(SM) Morgan Stanley Internet Index Fund................................. 0.50%
From time to time, the Adviser may waive all or a portion of its fee. The Adviser pays all expenses of each Fund other than the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees 39 42 (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. Administrator, Custodian and Transfer Agent. State Street is Administrator for each Fund, the Custodian for each Fund's assets and serves as Transfer Agent to each Fund. Lending Agent. State Street may act as a lending agent for the Trust. For its services, the lending agent would typically receive a portion of the net investment income, if any, earned on the collateral for the securities loaned. Distributor. State Street Capital Markets, LLC is the Distributor of each Fund's Shares. The Distributor will not distribute Shares in less than Creation Units, and it does not maintain a secondary market in the Shares. The Distributor may enter into selected dealer agreements with other broker-dealers or other qualified financial institutions for the sale of Creation Units of Shares. INDEX LICENSES Dow Indices. The streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund, streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund, streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund, streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund and streetTRACKS(SM) Dow Jones Global Titans Index Fund are not sponsored, endorsed, sold or promoted by Dow Jones. Dow Jones makes no representation or warranty, express or implied, to the owners of the Funds or any member of the public regarding the advisability of trading in the Funds. Dow Jones' only relationship to the Adviser is the licensing of certain trademarks and trade names of Dow Jones and of the Dow Jones U.S. Large Cap Growth Index, the Dow Jones U.S. Large Cap Value Index, the Dow Jones U.S. Small Cap Growth Index, the Dow Jones U.S. Small Cap Value Index and the Dow Jones Global Titans Index which are determined, composed and calculated by Dow Jones without regard to the adviser or the Funds, Dow Jones has no obligation to take the needs of the Adviser or the owners of the Funds into consideration in determining, composing or calculating the Dow Jones U.S. Large Cap Growth Index, the Dow Jones U.S. Large Cap Value Index, the Dow Jones U.S. Small Cap Growth Index, the Dow Jones U.S. Small Cap Value Index and the Dow Jones Global Titans Index. Dow Jones in not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the Funds to be listed or in the determination of calculation of the equation by which the Funds are to be converted into cash. Dow Jones has no obligation 40 43 or liability in connection with the administration, marketing or trading of the Funds. Dow Jones does not guarantee the accuracy and/or the completeness of the Dow Jones U.S. Large Cap Growth Index, the Dow Jones U.S. Large Cap Value Index, the Dow Jones U.S. Small Cap Growth Index, the Dow Jones U.S. Small Cap Value Index and the Dow Jones Global Titans Index or any data included therein and Dow Jones shall have no liability for any errors, omissions or interruptions therein. Dow Jones makes no warranty, express or implied, as to results to be obtained by the Adviser, owners of the Funds or any other person or entity from the use of the Dow Jones U.S. Large Cap Growth Index, the Dow Jones U.S. Large Cap Value Index, the Dow Jones U.S. Small Cap Growth Index, the Dow Jones U.S. Small Cap Value Index and the Dow Jones Global Titans Index or any data included therein. Dow Jones makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Dow Jones U.S. Large Cap Growth Index, the Dow Jones U.S. Large Cap Value Index, the Dow Jones U.S. Small Cap Growth Index, the Dow Jones U.S. Small Cap Value Index and the Dow Jones Global Titans Index or any data included therein, without limiting any of the foregoing, in no event shall Dow Jones have any liability for any lost profits or indirect, punitive, special or consequential damages (including lost profits), even if notified of the possibility of such damages. There are no third party beneficiaries of any agreements or arrangements between Dow Jones and the Adviser. Wilshire REIT Index. The streetTRACKS(SM) Wilshire REIT Index Fund is not sponsored, endorsed, sold or promoted by Wilshire Associates Incorporated ("Wilshire") or any affiliate of the Wilshire. Neither Wilshire nor any other party makes any representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of investing in funds generally or in the Fund particularly or the ability of the Wilshire REIT Index to track general stock market performance. Wilshire is the licensor of certain trademarks, service marks, and trade names of Wilshire and of the Wilshire REIT Index which is determined, composed and calculated by Wilshire without regard to the issuer of this Fund. Wilshire has no obligation to take the needs of the issuer of this Fund or the owners of this Fund into consideration in determining, composing or calculating the Wilshire REIT Index. Wilshire is not responsible for and has not participated in the determination of the timing of, prices, or quantities of this Fund to be issued or in the determination or calculation of the equation by which this Fund is redeemable for cash. Neither Wilshire nor any other party has any obligation or liability to owners of this Fund in connection with the administration, marketing or trading of this Fund. 41 44 Wilshire does not guarantee the accuracy and/or the completeness of the Wilshire REIT Index or any data included therein and Wilshire shall have no liability for any errors, omissions or interruptions therein. Wilshire makes no warranty, express or implied, as to results to be obtained by the Adviser, owners of the Fund, or any other person or entity from the use of the Wilshire REIT Index or any data included therein. Wilshire makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Wilshire REIT Index or any data included therein, without limiting any of the foregoing. In no event shall Wilshire have any liability for any lost profits or indirect, punitive, special or consequential damages (including lost profits), even if notified of the possibility of such damages. There are no third party beneficiaries of any agreements or arrangements between Wilshire and the Adviser. Morgan Stanley Indices. The streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund and the streetTRACKS(SM) Morgan Stanley Internet Index Fund are not sponsored, endorsed, sold or promoted by Morgan Stanley Dean Witter & Co. or any of its affiliates (collectively "MSDW"). Neither MSDW nor any other party makes any representation or warranty, express or implied, to the owners of this fund or any member of the public regarding the advisability of investing in funds generally or in this fund particularly or the ability of the Morgan Stanley High Tech 35 Index and the Morgan Stanley Internet Index to track general stock market performance. MSDW is the licensor of certain trademarks, service marks and trade names of MSDW and of the Morgan Stanley High Tech 35 Index and the Morgan Stanley Internet Index which are determined, composed and calculated by the Exchange without regard to the issuer of these Funds or these Funds. Neither the Exchange nor MSDW has any obligation to take the needs of the issuer of these Funds or the owners of these Funds into consideration in determining, composing or calculating the Morgan Stanley High Tech 35 Index of the Morgan Stanley Internet Index. MSDW is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of these Funds to be issued or in determination or calculation of the equation by which these Funds are redeemable for cash. Neither MSDW nor any other party has any obligation or liability to owners of these Funds in connection with the administration, marketing or trading of these Funds. Although the Exchange and MSDW shall obtain information for inclusion in or for use in the calculation of the Indexes from sources which they consider reliable, neither the Exchange, MSDW nor any other party guarantees the accuracy and/or the completeness of Indexes or any data included therein. Neither the Exchange, MSDW nor any other party makes any warranty, express or implied, as to results to be obtained by the Adviser, the Adviser's 42 45 customers and counterparties, owners of the Funds, or any other person or entity from the use of the Indexes or any data included therein in connection with the rights licensed hereunder or for any other use. Neither MSDW nor any other party makes any express or implied warranties, and MSDW hereby expressly disclaims all warranties or merchantability or fitness for a particular purpose with respect to the Indexes or any data included therein. Without limiting any of the foregoing, in no event shall MSDW or any other party 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. DETERMINATION OF NET ASSET VALUE Net asset value per Share for each Fund is computed by dividing the value of the net assets of such 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 and distribution fees, if any, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of each Fund is calculated by the Custodian and determined each business day at the close of regular trading of the New York Stock Exchange ("NYSE") (ordinarily 4:00 p.m. New York time). BUYING AND SELLING THE FUNDS The Shares are listed for secondary trading on the Exchange. If you buy or sell Shares in the secondary market, you will incur customary brokerage commissions and charges and may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase and sale) transaction. The 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 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. CREATION AND REDEMPTION OF CREATION UNITS Each 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. Set forth below is a brief description of the procedures applicable to creation and redemption of Creation Units. For more detailed information, see "CREATION AND REDEMPTION OF CREATION UNITS" in the Statement of Additional Information. 43 46 Creation. In order to create (i.e., purchase) Creation Units of a Fund, an investor must generally deposit a designated portfolio of equity securities constituting a substantial replication, or a representation, of the stocks included in the relevant Fund's Index (the "Deposit Securities") and generally make a small cash payment referred to as the "Cash Component." The list of the names and the number of shares of the Deposit Securities is made available by the Custodian through the facilities of the NSCC immediately prior to the opening of business on the Exchange. The Cash Component represents the difference between the net asset value of a Creation Unit and the market value of the Deposit Securities. 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 Trust, the Distributor and the Transfer Agent, with respect to creations and redemptions of Creation Units ("Participant Agreement"). Investors should contact the Distributor for the names of Participating Parties and/or DTC Participants that have signed a Participant Agreement. All orders must be placed for one or more whole Creation Units of Shares of a Fund and must be received by the Distributor in proper form no later than the close of regular trading on the NYSE (ordinarily 4:00 p.m., New York time) ("Closing Time") in order to receive that day's closing net asset value per Share. Orders may be effected through the Clearing Process or outside the Clearing Process. An order to create Creation Units through the Clearing Process (through a Participating Party), or outside the Clearing Process (through a DTC Participant), is considered received by the Distributor on the date transmitted if the order is received by the Distributor no later than the Closing Time on such date and all other procedures set forth in the Participant Agreement are followed. However, in the case of orders effected outside the Clearing Process, if the Custodian does not receive the requisite Deposit Securities and the Cash Component by 11:00 a.m. and 2:00 p.m., New York time, respectively, on the next business day immediately following the transmittal date, the order will be canceled. Any order may be rejected under certain limited circumstances which are specified in the Statement of Additional Information. A fixed transaction fee, in the amount described below, 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 may be imposed with respect to transactions effected outside the Clearing Process (through a DTC Participant) and in the limited circum- 44 47 stances specified in the Statement of Additional Information in which any cash can be used in lieu of Deposit Securities to create Creation Units.
OUTSIDE THE TRANSACTION CLEARING FUND FEE PROCESS - ---- ----------- ------------- streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund...... $1,000 up to $4,000 streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund..... $1,000 up to $4,000 streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund...... $1,500 up to $6,000 streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund..... $1,500 up to $6,000 streetTRACKS(SM) Dow Jones Global Titans Index Fund............... $1,000 up to $4,000 streetTRACKS(SM) Wilshire REIT Index Fund...................... $1,000 up to $4,000 streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund......... $ 500 up to $2,000 streetTRACKS(SM) Morgan Stanley Internet Index Fund............. $ 500 up to $2,000
Shares may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit with the Trust cash at least equal to 115% of the market value of the missing Deposit Securities. Any such transaction effected must be effected outside the Clearing Process. See "CREATION AND REDEMPTION OF CREATION UNITS" in the Statement of Additional Information. Legal Restrictions on Transactions in Certain Stocks. An investor subject to a legal restriction with respect to a particular stock required to be deposited in connection with the creation of a Creation Unit may, at the Fund's discretion, be permitted to deposit an equivalent amount of cash in substitution for any stock which would otherwise be included in the Deposit Securities applicable to the creation of a Creation Unit. Redemption. Shares may be redeemed only in Creation Units at their net asset value and only on a day the NYSE is open for business. The Custodian makes available immediately prior to the opening of business on the Exchange, through the facilities of the NSCC, the list of the names and the number of Shares of each 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 45 48 which are applicable to creations of Creation Units. Unless cash redemptions are available or specified for a particular Fund, the redemption proceeds consist of the Fund Securities, plus cash in an amount equal to the difference between the net asset value of the Shares being redeemed as next determined after receipt 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 redemption fee. Should the Fund Securities have a value greater than the net asset value of the Shares, a compensating cash payment to the Trust equal to the differential will be required to be arranged for by or on behalf of the redeeming shareholder by the Participating Party or DTC Participant, as the case may be. For more detail, see "CREATION AND REDEMPTION OF CREATION UNITS" in the Statement of Additional Information. Orders to redeem Creation Units of a Fund may only be effected by or through a Participating Party (with respect to redemptions through the Clearing Process) or a DTC Participant (with respect to redemptions outside the Clearing Process). An order to redeem through the Clearing Process is deemed received on the date of transmittal if such order is received by the Transfer Agent prior to the Closing Time on the date of transmittal and all other procedures set forth in the Participant Agreement are properly followed. An order to redeem outside the Clearing Process is considered received by the Transfer Agent on the date of transmittal if: (i) such order is received by the Transfer Agent no later than the close of regular trading on the NYSE (ordinarily 4:00 p.m. New York time) on the transmittal date; (ii) such order is accompanied or proceeded by the requisite number of Shares specified in the order, which delivery must be made through DTC to the Custodian no later than 11:00 a.m., New York time, on the next business day after the transmittal date; and (iii) all other procedures set forth in the Participant Agreement are followed. A fixed transaction fee, described below, 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 may be charged with respect to transactions effected outside the Clearing Process and in the limited circumstances specified in the Statement of Additional Information in which any cash may be used in lieu of securities to redeem Creation Units. 46 49
OUTSIDE THE TRANSACTION CLEARING FUND FEE PROCESS - ---- ----------- ------------- streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund.... $1,000 up to $4,000 streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund... $1,000 up to $4,000 streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund.... $1,500 up to $6,000 streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund... $1,500 up to $6,000 streetTRACKS(SM) Dow Jones Global Titans Index Fund...... $1,000 up to $4,000 streetTRACKS(SM) Wilshire REIT Index Fund.................... $1,000 up to $4,000 streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund....... $ 500 up to $2,000 streetTRACKS(SM) Morgan Stanley Internet Index Fund........... $ 500 up to $2,000
Legal Restrictions on Transactions in Certain Stocks. An investor subject to a legal restriction with respect to a particular stock included in the Fund Securities applicable to the redemption of a Creation Unit may be paid an equivalent amount of cash. DISTRIBUTIONS Dividends and Capital Gains. As a Fund shareholder, you are entitled to your share of the Fund's income and net realized gains on its investments. Each Fund pays out substantially all of its net earnings to its shareholders as "distributions." Each Fund typically earns income dividends from stocks and interest from debt securities. These amounts, net of expenses, are passed along to Fund shareholders as "income dividend distributions." Each 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, are distributed to shareholders quarterly. Net capital gains are distributed at least annually. Dividends may be declared and paid more frequently to improve Index tracking or to comply with the distribution requirements of the Internal Revenue Code. 47 50 Distributions in cash may be reinvested automatically in additional whole Shares only if the broker through which you purchased Shares makes such option available. TAX MATTERS As with any investment, you should consider how your 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 Fund. Unless your investment in a Fund is through a tax-exempt entity or taxed- deferred retirement account, such as a 401(k) plan, you need to be aware of the possible tax consequences when: - The Fund makes distributions, - You sell Shares listed on the Exchange, and - You create or redeem Creation Units. Taxes on Distributions. Each Fund will distribute any net investment income quarterly, and any net realized long-term or short-term capital gains annually. Each 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 Fund. Dividends paid out of a Fund's income and net short-term gains, if any, are taxable as ordinary income. Distributions of net long-term capital gains, if any, in excess of net short-term capital losses are taxable as long-term capital gains, regardless of how long you have held the Shares. Distributions in excess of a 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 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. If you are not a citizen of the United States, or if you are a foreign entity or if you are not a permanent resident of the United States, each Fund's ordinary income dividends (which include distributions of net short-term capital gains) will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies. 48 51 Dividends and interest received by each Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. By law, your Fund must withhold 31% of your distributions and proceeds if you have not provided a taxpayer identification number or social security number. 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. 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 adviser with respect to whether wash sale rules apply and when a loss might be deductible. Under current federal tax laws, any capital gain or loss realized upon a redemption of Creation Units is generally treated as long-term capital gain or loss if the Shares have been held for more than one year and as a short-term capital gain or loss if the Shares have been held for one year or less. If you create or redeem Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price. The foregoing discussion summarizes some of the consequences under current federal tax law of an investment in a 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 Fund under all applicable tax laws. GENERAL INFORMATION The Trust was organized as a Massachusetts business trust on June 12, 1998. If shareholders are required to vote on any matters, you are entitled to 49 52 one vote for each dollar of net asset value you own. Annual meetings of shareholders will not be held except as required by the 1940 Act and other applicable law. See the Statement of Additional Information for more information concerning the Trust's form of organization. For purposes of the 1940 Act, Shares of the Funds are issued by the respective Funds and the acquisition of Shares by investment companies is subject to the restrictions of section 12(d)(1) of the Act. From time to time, Funds advertise yield and total return figures. Yield is an historical measure of dividend income, and total return is a measure of past dividend income (assuming that it has been reinvested) plus capital appreciation. Neither yield nor total return should be used to predict the future performance of a Fund. For a more detailed description of how each Fund computes its performance figures and how these numbers may be used in advertisements, please consult the Statement of Additional Information. Mayer, Brown & Platt serve as counsel to the Trust, including each Fund. Ernst & Young, LLP serves as independent auditors and will audit each Fund's financial statements annually. 50 53 [This page intentionally left blank] 51 54 [This page intentionally left blank] 52 55 [This page intentionally left blank] 53 56 This Prospectus does not contain all the information included in the Registration Statement filed with the SEC with respect to each Fund's Shares. A Statement of Additional Information (dated September 25, 2000) and the annual and semi-annual reports to shareholders, each of which will be filed with the SEC, provide more information about each Fund. The Statement of Additional Information and the financial statements included in the Trust's most recent annual reports to shareholders are incorporated herein by reference (i.e., is legally part of this Prospectus). These materials may be obtained without charge by writing to the Distributor, State Street Capital Markets, LLC, 225 Franklin Street, Boston, Massachusetts 02110, or by calling the following number: Investor Information: 1-866-787-2257 The Registration Statement, including this Prospectus, the Statement of Additional Information, and the exhibits as well as the reports may be reviewed and copied at the SEC's Public Reference Room (450 Fifth Street, N.W., Washington D.C. 20549) or on the EDGAR Database on the SEC's Web site (http://www.sec.gov). Information on the operation of the public reference room may be obtained by calling the SEC at 1-202-942-8090. You may get copies of this and other information after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the SEC, Washington, D.C. 20549-0102. Shareholder inquiries may be directed to the Funds in writing to State Street Capital Markets, LLC, 225 Franklin Street, Boston, Massachusetts 02110. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER OF A FUND'S SHARES, AND, IF GIVEN OR MADE, THE INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR ANY FUND. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF SHARES SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE AFTER THE DATE OF THIS PROSPECTUS. DEALERS EFFECTING TRANSACTIONS IN A FUND'S SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, ARE GENERALLY REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO ANY OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS. 57 [STREETTRACKS LOGO] PROSPECTUS FORTUNE 500(R) INDEX FUND FORTUNE E-50(TM) INDEX FUND SEPTEMBER 25, 2000 streetTRACKS(SM) Series Trust is an "index fund" consisting of ten separate investment portfolios. This prospectus describes the FORTUNE 500(R) Index Fund and the FORTUNE e-50(TM) Index Fund (each a "Fund" and collectively the "Funds"). The investment objective of each Fund is to provide investment results that, before expenses, correspond generally to the total return of a particular index (each an "Index"). State Street Bank and Trust Company, through its State Street Global Advisors division, manages each Fund. The shares of the FORTUNE 500(R) Index Fund (the "FORTUNE 500(R) Index Tracking Stock") and the FORTUNE e-50(TM) Index Fund (the "FORTUNE e-50(TM) Tracking Stock") will be listed on the American Stock Exchange (the "Exchange"). The shares of the Funds (the "Shares") trade on the Exchange at market prices that may differ to some degree from the Shares' net asset value. Each Fund issues and redeems Shares on a continuous basis -- at net asset value -- only in a large specified number of Shares called a "Creation Unit," principally in-kind for securities included in the relevant Index. EXCEPT WHEN AGGREGATED IN CREATION UNITS, THE SHARES ARE NOT REDEEMABLE SECURITIES OF THE FUNDS. ------------------------ 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 EACH FUND ARE NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT, NOR ARE SHARES DEPOSITS OR OBLIGATIONS OF ANY BANK. SUCH SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE LOSS OF PRINCIPAL. 58 TABLE OF CONTENTS streetTRACKS(SM) Series Trust............................... 1 Who Should Invest......................................... 1 FORTUNE 500(R) Index Fund................................. 3 FORTUNE e-50(TM) Index Fund............................... 8 Additional Investment Strategies and Risks.................. 13 Additional Investment Strategies.......................... 13 Additional Risks.......................................... 13 Management.................................................. 14 Index License............................................... 15 Determination of Net Asset Value............................ 16 Buying and Selling the Funds................................ 16 Creation and Redemption of Creation Units................... 16 Distributions............................................... 19 Tax Matters................................................. 20 General Information......................................... 22
i 59 STREETTRACKS(SM) SERIES TRUST streetTRACKS(SM) Series Trust (the "Trust") is an "index fund" consisting of ten separate investment portfolios. The Funds offered by this Prospectus are: FORTUNE 500(R) Index Fund and FORTUNE e-50(TM) Index Fund(1) (each a "Fund" and collectively the "Funds"). streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund, streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund, streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund, streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund, streetTRACKS(SM) Dow Jones Global Titans Index Fund, streetTRACKS(SM) Wilshire REIT Index Fund, streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund and streetTRACKS(SM) Morgan Stanley Internet Index Fund are offered in a separate prospectus. The investment objective of each Fund is to provide investment results that, before expenses, correspond generally to the total return of a specified market index (each an "Index"). State Street Bank and Trust Company, through its State Street Global Advisors division (the "Adviser"), manages each Fund. The shares of the Funds (the "Shares") will be listed on the American Stock Exchange (the "Exchange"). The Shares trade on the Exchange at market prices that may differ to some degree from the Shares' net asset value. Each Fund issues and redeems Shares on a continuous basis -- at net asset value -- only in a large specified number of Shares called a "Creation Unit," principally in-kind for securities included in the relevant Index. EXCEPT WHEN AGGREGATED IN CREATION UNITS, THE SHARES ARE NOT REDEEMABLE SECURITIES OF THE FUNDS. WHO SHOULD INVEST Each 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 specified Index. The Funds may be suitable for long-term investment in the market represented in the relevant Index. Shares of each Fund may also be used as an asset allocation tool or as a speculative trading instrument. Unlike many conventional mutual funds which are only bought and sold at closing net asset values, each 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 - --------------- (1) FORTUNE 500(R) and FORTUNE e-50(TM) are trademarks of Time Inc. Used under license. 1 60 ongoing shareholders from adverse effects on the portfolio of a Fund that could arise from frequent cash creation and redemption transactions that affect the net asset value of such Fund. Moreover, in contrast to conventional mutual funds where redemptions can have an adverse tax impact on taxable shareholders because of the need to sell portfolio securities which, in turn, may generate taxable gain, the in-kind redemption mechanism of the Funds generally will not lead to a tax event for ongoing shareholders. 2 61 THE FORTUNE 500(R) INDEX FUND (SYMBOL: FFF) This section describes The FORTUNE 500(R) Index Fund's investment objective, principal investment strategies, risks and expenses. Investment Objective. The Fund's investment objective is to replicate as closely as possible, before expenses, the total return performance of the FORTUNE 500(R) Index. There is no assurance that the Fund will achieve its investment objective. Principal Investment Strategies. The FORTUNE 500(R) Index Fund uses a passive management strategy designed to track the total return performance of the FORTUNE 500(R) Index. The FORTUNE 500(R) Index is a capitalization-weighted Index that tracks the price-only and total return performance of an investable subset of the annual FORTUNE 500(R) List of the largest companies in the U.S. ranked by revenues. As of June 19, 2000, the Index was comprised of 433 component companies representing 438 issues. The Fund, using an "indexing" investment approach, attempts to replicate, before expenses, the total return performance of the FORTUNE 500(R) Index. The Adviser seeks a correlation of 0.95 or better between the Fund's performance and the total return performance of the Index; a figure of 1.00 would represent perfect correlation. The Fund generally will invest in all of the stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Adviser to replicate generally the performance of the Index as a whole. There may also be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for the Index Securities, or utilize various combinations of other available investment techniques, in seeking to track accurately the Index. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. The Fund will normally invest at least 95% of its total assets in common stocks that comprise the Index. Principal risks of investing in the Fund. Unlike many investment companies, the Fund is not actively "managed." Therefore, it would not sell a stock because the stock's issuer was in financial trouble, unless that stock is removed from the Index. An investment in the Fund involves risks similar to those of investing in any fund of equity securities traded on exchanges, such as market 3 62 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 Index. - Stock values could decline generally or could underperform other investments. - Returns on investments in stocks of large U.S. companies could trail the returns on investments in stocks of smaller companies. - The Fund's return may not match the return of the Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. The 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. If the Fund utilizes a sampling approach, or futures or other derivative positions its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index. THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN THE 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. Other investment considerations and risks. FORTUNE 500(R) Index. The FORTUNE 500(R) Index is a capitalization- weighted Index that tracks the price-only and total return performance of an investable subset of the annual FORTUNE 500(R) List of largest companies in the U.S. ranked by revenues. The Index was first calculated by FORTUNE in December of 1999. At $11.4 trillion, the market capitalization of the Index represents 69.5% of the market valuation of shares listed on the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the Nasdaq National Market, combined. Index policies and procedures are established by the FORTUNE Index Committee, from time to time, and address eligibility standards, stock selection, Index-calculation methodology, scheduling, and pre-announcement of Index adjustments, and the specific handling of Index adjustments in the context of various corporate actions. 4 63 The administration of the FORTUNE 500(R) Index includes dealing with stock additions, deletions, or corporate actions -- including stock splits, rights offerings, share issuances or repurchases, special cash dividends, stock dividends, spin-offs, and corporate mergers. The FORTUNE 500(R) List, on which the FORTUNE 500(R) Index is predicated, is compiled each year by FORTUNE based on the latest financial data reported to a government agency through January 31 of the year in which the FORTUNE 500(R) List is compiled. Only domestic, U.S.-based companies that are not majority-owned by another company qualify for inclusion in the FORTUNE 500(R) List. The List is compiled on the basis of the following criteria: 1. Total operating revenue, determined on the basis of a company's latest fiscal year. Revenues are as reported, including revenues from discontinued operations when they are published (except when the divested company's revenues equal 50% or more of the surviving company's revenues on an annualized basis). The revenues for commercial banks and savings institutions are interest and non-interest revenues. Such figures for insurance companies include premium and annuity income, investment income, and capital gains or losses, but exclude deposits. Revenue figures for all companies include consolidated subsidiaries and exclude excise taxes. 2. Companies must file an Annual Report to Shareholders (Form 10-K). Private companies and cooperatives that produce a Form 10-K are included, while subsidiaries of foreign companies incorporated in the U.S. are excluded. Mutual insurance companies qualify, as their statutory reports are deemed equivalent to a Form 10-K. The FORTUNE 500(R) Index consists of the subset of companies, and their publicly listed shares, that are selected from the FORTUNE 500(R) List on the basis of the following additional guidelines: 1. A company's stock must be traded on the NYSE, AMEX, or Nasdaq National Market. 2. A company's daily closing share price must be equal to or in excess of $5.00 during the period of 25 consecutive trading days preceding initial inclusion. 3. A company's shares must evidence a minimum average daily trading volume of 100,000 shares during the period of 25 consecutive trading days preceding initial inclusion. 4. A company's shares must have a minimum market capitalization equal to or in excess of $100 million at the time of inclusion. 5 64 Tracking stocks with separate listings are eligible for inclusion in the Index. As of June 19, 2000, five companies with tracking stocks were included (after applying the additional guidelines noted above) in the Index. On the basis of price, trading volume, and market-value guidelines, 22 companies and 22 stocks that otherwise comprised the FORTUNE 500(R) List of companies as of June 19, 2000, were excluded from the FORTUNE 500(R) Index. The FORTUNE Index Committee also reserves the authority to periodically modify any of these eligibility standards. Changes in policies. The Trust's Trustees may change the Fund's investment strategies and other policies without shareholder approval, except as otherwise indicated. The Trustees will not materially change the Fund's investment objective without shareholder approval. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the FORTUNE 500(R) Index Fund.(1) SHAREHOLDER FEES (fees paid directly from your investment, but see "Creation and Redemption of Creation Units" for a discussion of Creation and Redemption Transaction Fees)................................................. 0.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from the Fund's assets)(2) Management Fees....................................... 0.20% Other Expenses(3)..................................... 0.00% ---- TOTAL ANNUAL FUND OPERATING EXPENSES.................... 0.20% ====
- --------------- (1) You will incur customary brokerage commissions when buying and selling shares of the Fund. (2) Expressed as a percentage of average daily net assets. (3) The Trust's Investment Advisory Agreement provides that the Adviser will pay the operating expenses of the Trust, except for the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. 6 65 EXAMPLE The FORTUNE 500(R) Index Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Funds' operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
YEAR EXPENSES - ---- -------- 1.................................................... $21 3.................................................... $64
7 66 THE FORTUNE E-50(TM) INDEX FUND (SYMBOL: FEF) This section describes the FORTUNE e-50(TM) Index Fund's goals, principal investment strategies, risks and expenses. Investment Objective. The Fund's investment objective is to replicate as closely as possible, before expenses, the total return performance of the FORTUNE e-50(TM) Index. There is no assurance that the Fund will achieve its investment objective. Principal Investment Strategies. The Fund uses a passive management strategy designed to track the total return performance of the FORTUNE e-50(TM) Index. The Index is a modified capitalization-weighted Index which includes 50 companies selected from the following subsectors: E-Companies, Internet Communications Companies, Internet Hardware Companies, and Internet Software and Services Companies. The Fund, using an "indexing" investment approach, attempts to replicate, before expenses, the total return performance of the FORTUNE e-50(TM) Index. The Adviser seeks a correlation of 0.95 or better between the Fund's performance and the total return performance of the Index; a figure of 1.00 would represent perfect correlation. The Fund generally will invest in all of the stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all of those stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by the Adviser to replicate generally the performance of the Index as a whole. There may also be instances in which the Adviser may choose to overweight another stock in the Index, purchase securities not in the Index which the Adviser believes are appropriate to substitute for the Index Securities, or utilize various combinations of other available investment techniques, in seeking to track accurately the Index. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index. The Fund will normally invest at least 95% of its total assets in common stocks that comprise the Index. Principal risks of investing in the Fund. Unlike many investment companies, the Fund is not actively "managed." Therefore, it would not sell a stock because the stock's issuer was in financial trouble, unless that stock is removed from the Index. An investment in the Fund involves risks similar to those of 8 67 investing in any fund of equity securities traded on exchanges, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. You should anticipate that the value of the Shares will decline, more or less, in correspondence with any decline in value of the Index. - Stock values could decline generally or could underperform other investments. - The Fund will invest primarily in E-Companies, Internet Communications Companies, Internet Hardware Companies, and Internet Software and Services Companies. The value of such companies is particularly vulnerable to rapidly changing technology, extensive government regulation and relatively high risk of obsolescence caused by scientific and technological advances. The value of the Fund's shares may fluctuate more than shares of a fund investing in a broader range of industries. - The 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 the 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 the fund's share price. - The Fund's return may not match the return of the Index for a number of reasons. For example, the Fund incurs a number of operating expenses not applicable to the Index, and incurs costs in buying and selling securities, especially when rebalancing the Fund's securities holdings to reflect changes in the composition of the Index. The 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. If the Fund utilizes a sampling approach, or futures or other derivative positions its return may not correlate as well with the return on the Index, as would be the case if it purchased all of the stocks in the Index. THE FUND'S SHARES WILL CHANGE IN VALUE, AND YOU COULD LOSE MONEY BY INVESTING IN THE FUND. THE FUND MAY NOT ACHIEVE ITS OBJECTIVE. AN INVESTMENT IN THE 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. Other investment considerations and risks. The FORTUNE e-50(TM) Index. The FORTUNE e-50(TM) Index currently includes 50 companies selected from the following subsectors: E-Companies, Internet Communications Companies, Internet Hardware Companies, and Internet Software and Services Companies. These companies are listed on the 9 68 New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) or the Nasdaq National Market. The Index was first calculated by FORTUNE in December of 1999. Index policies and procedures are established by the FORTUNE Index Committee, from time to time, and address eligibility standards, stock selection, Index-calculation methodology, scheduling, and pre-announcement of Index adjustments, and the specific handling of Index adjustments in the context of various corporate actions. The administration of the FORTUNE e-50(TM) Index includes dealing with stock additions, deletion, or corporate actions -- including stock splits, rights offerings, share issuances or repurchases, special cash dividends, stock dividends, spin-offs, and corporate mergers. To be eligible for Index inclusion, a company must generate a minimum of 10% of its total revenues from Internet activities, broadly defined. The number of Index components and the identification of the four principal Internet subsectors, among other factors, may change over time, but no such change is currently anticipated. Issuers must have principal operations in the U.S., and component stocks must be duly U.S.-registered or be subject to the ordinary reporting requirements of U.S.-registered securities. ADRs, foreign securities, and global shares are ordinarily ineligible for inclusion. All Index components must be listed for trading on the NYSE, AMEX or the Nasdaq National Market. Generally, FORTUNE will only consider stocks for Index inclusion if they have a trading history of at least six months on one of these marketplaces. However, if the trading history of a stock is shorter than six months but no shorter than three months, FORTUNE may still determine to include the stock in the Index if it would otherwise meet the initial inclusion requirements. Index components must meet the following minimum price-level, trading-volume and market-value requirements. For initial inclusion in the Index, a stock must have had a minimum $5.00 daily closing price during the 25 days preceding initial inclusion, a minimum average daily trading volume of 100,000 shares during the 25 days preceding initial inclusion, and a minimum $100 million market value during the 25 days preceding initial inclusion. Selections are made by the FORTUNE Index Committee. Generally, the FORTUNE Index Committee chooses those companies that it believes best represent the Internet economy, broadly defined. In making its selection decisions, the FORTUNE Index Committee considers the largest companies that operate in the Internet economy based on total revenues as reported in 10 69 recent 10-K/10-Q filings with the SEC. The FORTUNE Index Committee may also consider other factors, such as trading on the U.S. options markets. Once included in the Index, a component stock will generally remain in the Index unless it falls below a price level of $5.00 per share, a daily trading volume of 100,000 shares, and/or a total market capitalization of $100 million for 25 consecutive trading days, in which case such stock will ordinarily be removed from the Index. These stated eligibility requirements notwithstanding, the FORTUNE Index Committee reserves the authority to add one or more Index-eligible stocks at any time or to remove one or more component stocks at any time if it believes such stock(s) no longer provide(s) adequate representation of the Internet economy or no longer maintain(s) the quality and/or character of the Index. In the case of a stock removal, the FORTUNE Index Committee may choose to replace such stock with an Index-eligible stock at any time but is not required to do so. The FORTUNE Index Committee also reserves the authority to periodically modify any of these eligibility standards to better represent the Internet economy as it evolves. The FORTUNE Index Committee maintains a proprietary list of publicly traded companies determined to be operating in the Internet economy, broadly defined. This proprietary list serves as the basis for an information and trading market database, which is used for ongoing monitoring and screening purposes. Stocks in the database include current Index component stocks, otherwise-eligible non-Index stocks, and other stocks in the Internet economy that are not currently eligible for Index inclusion. From among the otherwise-eligible non-Index stocks, the FORTUNE Index Committee identifies the leading potential replacement stocks in each of the four principal Internet subsectors and assigns a priority ranking for the order in which such stocks would enter the Index as necessary. Changes in policies. The Trust's Trustees may change the Fund's investment strategies and other policies without shareholder approval, except as otherwise indicated. The Trustees will not materially change the Fund's investment objective without shareholder approval. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the FORTUNE e-50(TM) Index Fund.(1) 11 70 SHAREHOLDER FEES (fees paid directly from your investment, but see "Creation and Redemption of Creation Units" for a discussion of Creation and Redemption Transaction Fees)................................................. 0.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from the Fund's assets)(2) Management Fees....................................... 0.20% Other Expenses(3)..................................... 0.00% ---- TOTAL ANNUAL FUND OPERATING EXPENSES.................... 0.20% ====
- --------------- (1) You will incur customary brokerage commissions when buying and selling shares of the Fund. (2) Expressed as a percentage of average daily net assets. (3) The Trust's Investment Advisory Agreement provides that the Adviser will pay the operating expenses of the Trust, except for the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. EXAMPLE The FORTUNE e-50(TM) Index Fund sells and redeems Shares in Creation Units principally on an in-kind basis for portfolio securities of the relevant Index. SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. An investor purchasing a Creation Unit on an in-kind basis would pay the following expenses on a $10,000 investment (payment with a deposit of securities included in the relevant Index), assuming a 5% annual return and that the Funds' operating expenses remain the same. INVESTORS SHOULD NOTE THAT THE PRESENTATION BELOW OF A $10,000 INVESTMENT IN A CREATION UNIT IS FOR ILLUSTRATION PURPOSES ONLY, AS SHARES WILL BE ISSUED BY THE FUNDS ONLY IN CREATION UNITS. FURTHER, THE RETURN OF 5% AND ESTIMATED EXPENSES ARE FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED INDICATIONS OF EXPECTED FUND EXPENSES OR PERFORMANCE, WHICH MAY BE GREATER OR LESSER THAN THE ESTIMATES.
YEAR EXPENSES - ---- -------- 1................................................... $21 3................................................... $64
12 71 ADDITIONAL INVESTMENT STRATEGIES AND RISKS ADDITIONAL INVESTMENT STRATEGIES Each Fund may invest its remaining assets in money market instruments including repurchase agreements or funds which invest exclusively in money market instruments (subject to applicable limitations under the 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) and in options and futures contracts. Options and futures contracts (and convertible securities and structured notes) may be used by a Fund in seeking performance that corresponds to its benchmark Index and in managing cash flows. The Funds will not invest in money market instruments as part of a temporary defensive strategy to protect against potential stock market declines. The Adviser anticipates that it will take approximately three business days for additions and deletions to the Index to be reflected in the portfolio composition of each Fund. Borrowing Money. Each 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. ADDITIONAL RISKS Lack of Diversification. Each Fund intends to maintain the required level of diversification so as to qualify as a "regulated investment company" for purposes of the Internal Revenue Code, in order to avoid liability for federal income tax to the extent that its earnings are distributed to shareholders. Compliance with the diversification requirements of the Internal Revenue Code could limit the investment flexibility of a Fund. Trading Issues. 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 Fund will 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 Fund's securities holdings. The market prices of Shares will fluctuate in accordance with changes in net asset value and supply and demand on the Exchange. The 13 72 Adviser cannot predict whether Shares will trade below, at or above their net asset value. Price differences may be due, in large part, to the fact that supply and demand forces at work in the secondary trading market for Shares will be closely related to, but not identical to, the same forces influencing the prices of the stocks of the 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. Lending of Securities. Although each Fund that lends its portfolio Securities will receive collateral in connection with all loans of its securities holdings, a 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 Fund will bear the risk of loss of any cash collateral that it invests. MANAGEMENT Adviser. State Street serves as the Adviser to each Fund and, subject to the supervision of the Board of Trustees, is responsible for the investment management of the Funds. As of March 31, 2000, the Adviser managed approximately $723.3 billion in assets, including approximately $376 billion in index funds. The Adviser's principal business address is 225 Franklin Street, Boston, Massachusetts 02210. For the services provided to the Funds under the Investment Advisory Agreement, each Fund pays the Adviser monthly fees based on a percentage of each Fund's average daily net assets as shown in the following table.
FUND MANAGEMENT FEE - ---- -------------- FORTUNE 500(R) Index Fund.................... 0.20% FORTUNE e-50(TM) Index Fund.................. 0.20%
From time to time, the Adviser may waive all or a portion of its fee. The Adviser pays all expenses of each Fund other than the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. Administrator, Custodian and Transfer Agent. State Street is Administrator for each Fund, the Custodian for each Fund's assets and serves as Transfer Agent to each Fund. 14 73 Lending Agent. State Street may act as a lending agent for the Trust. For its services, the lending agent would typically receive a portion of the net investment income, if any, earned on the collateral for the securities loaned. Distributor. State Street Capital Markets, LLC is the Distributor of each Fund's Shares. The Distributor will not distribute Shares in less than Creation Units, and it does not maintain a secondary market in the Shares. The Distributor may enter into selected dealer agreements with other broker-dealers or other qualified financial institutions for the sale of Creation Units of Shares. INDEX LICENSE FORTUNE Indices. Neither The FORTUNE 500(R) Index Fund nor The FORTUNE e-50(TM) Index Fund (the "FORTUNE Funds") nor the shares of the FORTUNE Funds are sponsored, endorsed, sold or promoted by FORTUNE. FORTUNE makes no representation or warranty, express or implied, to the owners of the FORTUNE Funds or any member of the public regarding the advisability of investing in securities generally or in the shares of each FORTUNE Fund particularly or the ability of the FORTUNE 500(R) Index and the FORTUNE e-50(TM) Index (collectively the "FORTUNE Stock Indices") to track general stock market performance. FORTUNE's only relationship to the Adviser is the licensing of certain trademarks of FORTUNE and the FORTUNE Stock Indices, which are determined compiled and calculated by FORTUNE without regard to the Adviser, the FORTUNE Funds or the FORTUNE Funds' shares. FORTUNE has no obligation to take the needs of the Adviser or the owners of the FORTUNE Funds into consideration in determining, compiling or calculating the FORTUNE Stock Indices. FORTUNE is not responsible for and has not participated in any determination or calculation made with respect to issuance, trading or redemption of the FORTUNE Funds' shares. FORTUNE has no obligation or liability in connection with the FORTUNE Funds or the FORTUNE Funds' shares including but not limited to, the creating, promoting, marketing, trading or managing of the FORTUNE Funds or the FORTUNE Funds' shares. FORTUNE does not guarantee the accuracy and/or the completeness of the FORTUNE Stock Indices or any data included therein. FORTUNE makes no warranty, express or implied, as to results to be obtained by the Adviser, owners of the product, or any other person or entity from the use of the FORTUNE Stock Indices or any data included therein in connection with the rights licensed hereunder or for any other use. FORTUNE makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the FOR- 15 74 TUNE Stock Indices or any data included therein. Without limiting any of the foregoing, in no event shall FORTUNE have any liability for any damages, including but not limited to, special, punitive, indirect or consequential damages (including loss of profits), even if notified of the possibility of such damages. DETERMINATION OF NET ASSET VALUE Net asset value per Share for each Fund is computed by dividing the value of the net assets of such 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 fee, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of each Fund is calculated by the Custodian and determined each business day at the close of regular trading of the New York Stock Exchange ("NYSE") (ordinarily 4:00 p.m. New York time). BUYING AND SELLING THE FUNDS The Shares are listed for secondary trading on the Exchange. If you buy or sell Shares in the secondary market, you will incur customary brokerage commissions and charges and may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase and sale) transaction. The 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 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. CREATION AND REDEMPTION OF CREATION UNITS Each 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. Set forth below is a brief description of the procedures applicable to creation and redemption of Creation Units. For more detailed information, see "CREATION AND REDEMPTION OF CREATION UNITS" in the Statement of Additional Information. Creation. In order to create (i.e., purchase) Creation Units of a Fund, an investor must generally deposit a designated portfolio of equity securities constituting a substantial replication, or a representation, of the stocks included in the relevant Fund's Index (the "Deposit Securities") and generally 16 75 make a small cash payment referred to as the "Cash Component." The list of the names and the number of shares of the Deposit Securities is made available by the Custodian through the facilities of the NSCC immediately prior to the opening of business on the Exchange. The Cash Component represents the difference between the net asset value of a Creation Unit and the market value of the Deposit Securities. 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 Trust, the Distributor and the Transfer Agent, with respect to creations and redemptions of Creation Units ("Participant Agreement"). Investors should contact the Distributor for the names of Participating Parties and/or DTC Participants that have signed a Participant Agreement. All orders must be placed for one or more whole Creation Units of Shares of a Fund and must be received by the Distributor in proper form no later than the close of regular trading on the NYSE (ordinarily 4:00 p.m., New York time) ("Closing Time") in order to receive that day's closing net asset value per Share. Orders may be effected through the Clearing Process or outside the Clearing Process. An order to create Creation Units through the Clearing Process (through a Participating Party), or outside the Clearing Process (through a DTC Participant), is considered received by the Distributor on the date transmitted if the order is received by the Distributor no later than the Closing Time on such date and all other procedures set forth in the Participant Agreement are followed. However, in the case of orders effected outside the Clearing Process, if the Custodian does not receive the requisite Deposit Securities and the Cash Component by 11:00 a.m. and 2:00 p.m., New York time, respectively, on the next business day immediately following the transmittal date, the order will be canceled. Any order may be rejected under certain limited circumstances which are specified in the Statement of Additional Information. A fixed transaction fee, described below, 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 may be imposed with respect to transactions effected outside the Clearing Process (through a DTC Participant) and in the limited circumstances specified in the Statement of Additional Information in which any cash can be used in lieu of Deposit Securities to create Creation Units. 17 76
OUTSIDE THE TRANSACTION CLEARING FUND FEE PROCESS ---- ----------- ------------- FORTUNE 500(R) Index Fund....... $2,000 up to $8,000 FORTUNE e-50(TM) Index Fund..... $500 up to $2,000
Shares may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit with the Trust cash at least equal to 115% of the market value of the missing Deposit Securities. Any such transaction effected must be effected outside the Clearing Process. See "CREATION AND REDEMPTION OF CREATION UNITS" in the Statement of Additional Information. Legal Restrictions on Transactions in Certain Stocks. An investor subject to a legal restriction with respect to a particular stock required to be deposited in connection with the creation of a Creation Unit may, at the Fund's discretion, be permitted to deposit an equivalent amount of cash in substitution for any stock which would otherwise be included in the Deposit Securities applicable to the creation of a Creation Unit. Redemption. Shares may be redeemed only in Creation Units at their net asset value and only on a day the NYSE is open for business. The Custodian makes available immediately prior to the opening of business on the Exchange, through the facilities of the NSCC, the list of the names and the number of Shares of each Fund's portfolio securities that will be applicable that day to redemption requests in proper form ("Fund Securities"). Fund Securities received on redemption may not be identical to Deposit Securities which are applicable to creations of Creation Units. Unless cash redemptions are available or specified for a particular Fund, the redemption proceeds consist of the Fund Securities, plus cash in an amount equal to the difference between the net asset value of the Shares being redeemed as next determined after receipt 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 redemption fee. Should the Fund Securities have a value greater than the net asset value of the Shares, a compensating cash payment to the Trust equal to the differential will be required to be arranged for by or on behalf of the redeeming shareholder by the Participating Party or DTC Participant, as the case may be. For more detail, see "CREATION AND REDEMPTION OF CREATION UNITS" in the Statement of Additional Information. Orders to redeem Creation Units of a 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 18 77 Clearing Process). An order to redeem through the Clearing Process is deemed received on the date of transmittal if such order is received by the Transfer Agent prior to the Closing Time on the date of transmittal and all other procedures set forth in the Participant Agreement are properly followed. An order to redeem outside the Clearing Process is considered received by the Transfer Agent on the date of transmittal if: (i) such order is received by the Transfer Agent no later than the close of regular trading on the NYSE (ordinarily 4:00 p.m. New York time) on the transmittal date; (ii) such order is accompanied or proceeded by the requisite number of Shares specified in the order, which delivery must be made through DTC to the Custodian no later than 11:00 a.m., New York time, on the next business day after the transmittal date; and (iii) all other procedures set forth in the Participant Agreement are followed. A fixed transaction fee, described below, 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 may be charged with respect to transactions effected outside the Clearing Process and in the limited circumstances specified in the Statement of Additional Information in which any cash may be used in lieu of securities to redeem Creation Units.
OUTSIDE THE TRANSACTION CLEARING FUND FEE PROCESS - ---- ----------- ------------- FORTUNE 500(R) Index Fund....... $2,000 up to $8,000 FORTUNE e-50(TM) Index Fund..... $500 up to $2,000
Legal Restrictions on Transactions in Certain Stocks. An investor subject to a legal restriction with respect to a particular stock included in the Fund Securities applicable to the redemption of a Creation Unit may be paid an equivalent amount of cash. DISTRIBUTIONS Dividends and Capital Gains. As a Fund shareholder, you are entitled to your share of the Fund's income and net realized gains on its investments. Each Fund pays out substantially all of its net earnings to its shareholders as "distributions." Each Fund typically earns income dividends from stocks and interest from debt securities. These amounts, net of expenses, are passed along to Fund shareholders as "income dividend distributions." Each Fund realizes capital 19 78 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, are distributed to shareholders quarterly. Net capital gains are distributed at least annually. Dividends may be declared and paid more frequently to improve Index tracking or to comply with the distribution requirements of the Internal Revenue Code. Distributions in cash may be reinvested automatically in additional whole Shares only if the broker through which you purchased Shares makes such option available. TAX MATTERS As with any investment, you should consider how your 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 Fund. Unless your investment in a Fund is through a tax-exempt entity or taxed- deferred retirement account, such as a 401(k) plan, you need to be aware of the possible tax consequences when: - The Fund makes distributions, - You sell Shares listed on the Exchange, and - You create or redeem Creation Units. Taxes on Distributions. Each Fund will distribute any net investment income quarterly, and any net realized long-term or short-term capital gains annually. Each 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 Fund. Dividends paid out of a Fund's income and net short-term gains, if any, are taxable as ordinary income. Distributions of net long-term capital gains, if any, in excess of net short-term capital losses are taxable as long-term capital gains, regardless of how long you have held the Shares. Distributions in excess of a 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 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. 20 79 If you are not a citizen of the United States, or if you are a foreign entity or if you are not a permanent resident of the United States, each Fund's ordinary income dividends (which include distributions of net short-term capital gains) will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies. Dividends and interest received by each Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. By law, your Fund must withhold 31% of your distributions and proceeds if you have not provided a taxpayer identification number or social security number. 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. 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 adviser with respect to whether wash sale rules apply and when a loss might be deductible. Under current federal tax laws, any capital gain or loss realized upon a redemption of Creation Units is generally treated as long-term capital gain or loss if the Shares have been held for more than one year and as a short-term capital gain or loss if the Shares have been held for one year or less. If you create or redeem Creation Units, you will be sent a confirmation statement showing how many Shares you purchased or sold and at what price. The foregoing discussion summarizes some of the consequences under current federal tax law of an investment in a Fund. It is not a substitute for 21 80 personal tax advice. Consult your personal tax adviser about the potential tax consequences of an investment in a Fund under all applicable tax laws. GENERAL INFORMATION The Trust was organized as a Massachusetts business trust on June 12, 1998. If shareholders are required to vote on any matters, you are entitled to one vote for each dollar of net asset value you own. Annual meetings of shareholders will not be held except as required by the 1940 Act and other applicable law. See the Statement of Additional Information for more information concerning the Trust's form of organization. For purposes of the 1940 Act, Shares of the Funds are issued by the respective Funds and the acquisition of Shares by investment companies is subject to the restrictions of section 12(d)(1) of the Act. From time to time, Funds advertise yield and total return figures. Yield is an historical measure of dividend income, and total return is a measure of past dividend income (assuming that it has been reinvested) plus capital appreciation. Neither yield nor total return should be used to predict the future performance of a Fund. For a more detailed description of how each Fund computes its performance figures and how these numbers may be used in advertisements, please consult the Statement of Additional Information. Mayer, Brown & Platt serve as counsel to the Trust, including each Fund. Ernst & Young, LLP serves as independent auditors and will audit each Fund's financial statements annually. 22 81 [This page intentionally left blank] 23 82 [This page intentionally left blank] 24 83 [This page intentionally left blank] 25 84 [This page intentionally left blank] 26 85 [This page intentionally left blank] 27 86 [This page intentionally left blank] 28 87 [This page intentionally left blank] 29 88 This Prospectus does not contain all the information included in the Registration Statement filed with the SEC with respect to each Fund's Shares. A Statement of Additional Information (dated September 25, 2000) and the annual and semi-annual reports to shareholders, each of which will be filed with the SEC, provide more information about each Fund. The Statement of Additional Information and the financial statements included in the Trust's most recent annual reports to shareholders are incorporated herein by reference (i.e., is legally part of this Prospectus). These materials may be obtained without charge by writing to the Distributor, State Street Capital Markets, LLC at 225 Franklin Street, Boston, Massachusetts 02110: Investor Information: 1-866-787-2257 The Registration Statement, including this Prospectus, the Statement of Additional Information, and the exhibits as well as the reports may be reviewed and copied at the SEC's Public Reference Room (450 Fifth Street, N.W., Washington D.C. 20549) or on the EDGAR Database on the SEC's Web site (http://www.sec.gov). Information on the operation of the public reference room may be obtained by calling the SEC at 1-202-942-8090. You may get copies of this and other information after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the SEC, Washington, D.C. 20549-0102. Shareholder inquiries may be directed to the Funds in writing to State Street Capital Markets, LLC at 225 Franklin Street, Boston, Massachusetts 02110. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER OF A FUND'S SHARES, AND, IF GIVEN OR MADE, THE INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR ANY FUND. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF SHARES SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE AFTER THE DATE OF THIS PROSPECTUS. DEALERS EFFECTING TRANSACTIONS IN A FUND'S SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, ARE GENERALLY REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO ANY OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS. 89 STREETTRACKS(SM) SERIES TRUST STATEMENT OF ADDITIONAL INFORMATION DATED September 25, 2000 This Statement of Additional Information is not a Prospectus. It should be read in conjunction with the Prospectus dated September 25, 2000 (the "Prospectus") for the streetTRACKS(SM) Series Trust (the "Trust"), as it may be revised from time to time. Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. A copy of the Prospectus for the Trust may be obtained without charge by writing to the Trust's Distributor, State Street Capital Markets, LLC at 225 Franklin Street, Boston, Massachusetts 02110. TABLE OF CONTENTS General Description of the Trust........................................ Investment Policies and Restrictions.................................... Special Considerations and Risks........................................ Exchange Listing and Trading............................................ Management of the Trust................................................. Brokerage Transactions.................................................. Book Entry Only System.................................................. Creation and Redemption of Creation Units............................... Determination of Net Asset Value........................................ Dividends and Distributions............................................. Taxes................................................................... Capital Stock and Shareholder Reports................................... Performance and Other Information....................................... Counsel and Independent Auditors........................................ Report of Independent Auditors.......................................... Exhibit A
1 90 GENERAL DESCRIPTION OF THE TRUST The Trust is an open-end management investment company. The Trust currently consists of ten investment series (each a "Fund" and collectively the "Funds"). The Trust was organized as a Massachusetts business trust on June 12, 1998. The shares of each Fund are referred to herein as "Shares." The Funds offered by the Trust are: the streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund, the streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund, the streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund, the streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund, the streetTRACKS(SM) Dow Jones Global Titans Fund, the streetTRACKS(SM) Wilshire REIT Index Fund, the streetTRACKS(SM) Morgan Stanley High-Tech 35 Index Fund, streetTRACKS(SM) Morgan Stanley Internet Index Fund, FORTUNE 500(R) Index Fund and FORTUNE e-50(TM) Index Fund. The investment objective of each Fund is to provide investment results that, before expenses, correspond generally to the total return of a specified market index (each an "Index"). State Street Bank and Trust Company, through its State Street Global Advisors division ("State Street" or the "Adviser"), manages each Fund. Each Fund offers and issues Shares at their net asset value only in aggregations of a specified number of Shares (each, a "Creation Unit") generally in exchange for a basket of equity securities included in its Index ("Deposit Securities") together with the deposit of a specified cash payment ("Cash Component"). The Shares have been approved for listing and secondary trading on the American Stock Exchange (the "Exchange"), subject to notice of issuance. The Shares will trade on the Exchange at market prices. These prices may differ from the Shares' net asset values. The Shares are also redeemable only in Creation Unit aggregations, and generally in exchange for portfolio securities and a specified cash payment. A Creation Unit of each Fund consists of 50,000 Shares. The Trust reserves the right to offer a "cash" option for creations and redemptions of Shares (subject to applicable legal requirements) although it has no current intention of doing so. Shares may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit with the Trust cash at least equal to 115% of the market value of the missing Deposit Securities. See "CREATION AND REDEMPTION OF CREATION UNITS." In each instance of such cash creations or redemptions, the Trust may impose transaction fees that will be higher than the transaction fees associated with in-kind creations or redemptions. In all cases, such fees will be limited in accordance with the requirements of the Securities and Exchange Commission (the "SEC") applicable to management investment companies offering redeemable securities. 2 91 INVESTMENT POLICIES AND RESTRICTIONS LENDING PORTFOLIO SECURITIES Each Fund may lend portfolio securities to brokers, dealers and other financial institutions needing to borrow securities to complete transactions and for other purposes. Because the U.S. government securities or other assets that are pledged as collateral to each Fund in connection with these loans generate income, securities lending may enable a Fund to earn additional income that may partially offset the expenses of such Fund, and thereby reduce the effect that expenses have on such Fund's ability to provide investment results that substantially correspond to the price and yield performance of its respective Index. Loans of portfolio securities may not exceed 33% of a Fund's total assets. The documentation for these loans provides that a Fund will receive collateral equal to at least 100% of the current market value of the loaned securities, as marked to market each day that the net asset value of the Fund is determined. Each Fund will pay reasonable administrative and custodial fees in connection with the loan of securities and invests collateral in money market instruments or funds which invest exclusively in money market instruments. Each Fund will comply with the conditions for lending established by the SEC. Although each Fund will receive collateral in connection with all loans of portfolio securities, and such collateral will be marked to market, each Fund will be exposed to the risk of loss should a borrower default on its obligation to return the borrowed securities (e.g., the loaned securities may have appreciated beyond the value of the collateral held by the Fund). In addition, each Fund bears the risk of loss of any cash collateral that it invests in money market instruments. REPURCHASE AGREEMENTS Each Fund may invest in repurchase agreements with commercial banks, brokers or dealers to generate income from its excess cash balances and to invest securities lending cash collateral. A repurchase agreement is an agreement under which a Fund acquires a money market instrument (generally a security issued by the U.S. Government or an agency thereof, a banker's acceptance or a certificate of deposit) from a seller, subject to resale to the seller at an agreed upon price and date (normally, the next business day). A repurchase agreement may be considered a loan collateralized by securities. The resale price reflects an agreed upon interest rate effective for the period the instrument is held by a Fund and is unrelated to the interest rate on the underlying instrument. In these repurchase agreement transactions, the securities acquired by a Fund (including accrued interest earned thereon) must have a total value in excess of the value of the repurchase agreement and are held by the Custodian until repurchased. No more than an aggregate of 15% of each Fund's net assets will be invested in illiquid securities, including repurchase agreements having maturities longer than seven days and securities 3 92 subject to legal or contractual restrictions on resale, or for which there are no readily available market quotations. The use of repurchase agreements involves certain risks. For example, if the other party to the agreement defaults on its obligation to repurchase the underlying security at a time when the value of the security has declined, a Fund may incur a loss upon disposition of the security. If the other party to the agreement becomes insolvent and subject to liquidation or reorganization under the U.S. Bankruptcy Code or other laws, a court may determine that the underlying security is collateral for a loan by a Fund not within the control of the Fund and, therefore, the Fund may not be able to substantiate its interest in the underlying security and may be deemed an unsecured creditor of the other party to the agreement. OTHER MONEY MARKET INSTRUMENTS In addition to repurchase agreements, other money market instruments in which the Funds may invest are certificates of deposit of U.S. domestic banks with assets of $1 billion or more, bankers' acceptances, time deposits, U.S. Government and U.S. Government agency securities, or commercial paper rated within the two highest grades by S&P or Moody's Investors Service, Inc., or, if not rated, are of comparable quality as determined by the Adviser, and which mature within one year from the date of purchase, and investment companies which invest exclusively in such money market instruments (subject to applicable limitations under Section 12(d)(1) of the Investment Company Act of 1940, as amended ("1940 Act"). FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS Each Fund may utilize exchange-traded futures and options contracts and swap agreements. FUTURES CONTRACTS AND OPTIONS Futures contracts generally provide for the future sale by one party and purchase by another party of a specified commodity at a specified future time and at a specified price. Stock index futures contracts are settled daily with a payment by one party to the other of a cash amount based on the difference between the level of the stock index specified in the contract from one day to the next. Futures contracts are standardized as to maturity date and underlying instrument and are traded on futures exchanges. Futures traders are required to make a good faith margin deposit in cash or U.S. government securities with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying commodity or payment of the cash settlement amount) if it is not terminated prior to the specified delivery date. Brokers may establish deposit requirements which are higher than the exchange minimums. Futures contracts 4 93 are customarily purchased and sold on margin deposits which may range upward from less than 5% of the value of the contract being traded. After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy margin requirements, payment of additional "variation" margin will be required. Conversely, change in the contract value may reduce the required margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. In such case, a Fund would expect to earn interest income on its margin deposits. Closing out an open futures position is done by taking an opposite position ("buying" a contract which has previously been "sold," or "selling" a contract previously "purchased") in an identical contract to terminate the position. Brokerage commissions are incurred when a futures contract position is opened or closed. Each Fund may use exchange-traded futures and options, together with positions in cash and money market instruments, to simulate full investment in the underlying Index. Exchange-traded futures and options contracts are not currently available for all of the Indexes. Under such circumstances, the Adviser may seek to utilize other instruments that it believes to be correlated to the underlying Index components or a subset of the components. The Exchange currently anticipates that options on the Shares will be listed on the Exchange at the same time that the Shares are available for trading although there is no assurance in this regard. RESTRICTIONS ON THE USE OF FUTURES AND OPTIONS A Fund would not enter into futures contract transactions for purposes other than hedging to the extent that, immediately thereafter, the sum of its initial margin deposits on open contracts exceeds 5% of the market value of a Fund's total assets after taking into account unrealized gains and unrealized losses on such contracts it has entered into. Each Fund would take steps to prevent its futures positions from "leveraging" its securities holdings. When it has a long futures position, it will maintain with its custodian bank, cash or liquid securities having a value equal to the notional value of the contract (less any margin deposited in connection with the position). When it has a short futures position, it will maintain with its custodian bank assets substantially identical to those underlying the contract or cash and liquid securities (or a combination of the foregoing) having a value equal to the net obligation of the Fund under the contract (less the value of any margin deposits in connection with the position). SWAP AGREEMENTS Swap agreements are contracts between parties in which one party agrees to make payments to the other party based on the change in market value or level of a specified rate, index or asset. In return, the other party agrees to make payments to the first party based on the return of a different specified rate, index or asset. Swap agreements will usually be done on a net basis, i.e., where the two parties make net payments with the 5 94 Fund receiving or paying, as the case may be, only the net amount of the two payments. The net amount of the excess, if any, of a Fund's obligations over its entitlements with respect to each swap is accrued on a daily basis and an amount of cash or high liquid securities having an aggregate value at least equal to the accrued excess is maintained in an account at the Trust's custodian bank. INVESTMENT RESTRICTIONS The Trust has adopted the following investment restrictions as fundamental policies with respect to each Fund. These restrictions cannot be changed with respect to a Fund without the approval of the holders of a majority of such Fund's outstanding voting securities. For purposes of the 1940 Act, a majority of the outstanding voting securities of a Fund means the vote, at an annual or a special meeting of the security holders of the Trust, of the lesser of (1) 67% or more of the voting securities of the Fund present at such meeting, if the holders of more than 50% of the outstanding voting securities of such Fund are present or represented by proxy, or (2) more than 50% of the outstanding voting securities of the Fund. Except with the approval of a majority of the outstanding voting securities, a Fund may not: 1. Lend any funds or other assets except through the purchase of all or a portion of an issue of securities or obligations of the type in which it is permitted to invest (including participation interests in such securities or obligations) and except that a Fund may lend its portfolio securities in an amount not to exceed 33% of the value of its total assets; 2. Issue senior securities or borrow money, except borrowings from banks for temporary or emergency purposes in an amount up to 10% of the value of the Fund's total assets (including the amount borrowed), valued at market, less liabilities (not including the amount borrowed) valued at the time the borrowing is made, and the Fund will not purchase securities while borrowings in excess of 5% of the Fund's total assets are outstanding, provided, that for purposes of this restriction, short-term credits necessary for the clearance of transactions are not considered borrowings (this limitation on purchases does not apply to acceptance by the Fund of a deposit principally of securities included in the relevant Index for creation of Creation Units); 3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to secure permitted borrowings. (The deposit of underlying securities and other assets in escrow and collateral arrangements with respect to initial or variation margin for futures contracts or options contracts will not be deemed to be pledges of the Fund's assets); 4. Purchase, hold or deal in real estate, or oil, gas or mineral interests or leases, but a Fund may purchase and sell securities that are issued by companies that invest or deal in such assets; 5. Act as an underwriter of securities of other issuers, except to the extent the Fund may be deemed an underwriter in connection with the sale of securities in its portfolio; 6 95 6. Purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions, except that a Fund may make margin deposits in connection with transactions in options, futures and options on futures; 7. Sell securities short; 8. Invest in commodities or commodity contracts, except that a Fund may transact in exchange traded futures contracts on securities, stock indexes and options on such futures contracts and make margin deposits in connection with such contracts; or 9. Change its investment objective. In addition to the investment restrictions adopted as fundamental policies as set forth above, each Fund observes the following restrictions, which may be changed by the Board of Trustees without a shareholder vote. A Fund will not: 1. Invest in the securities of a company for the purpose of exercising management or control, or in any event purchase and hold more than 10% of the securities of a single issuer, provided that the Trust may vote the investment securities owned by each Fund in accordance with its views; or 2. Hold illiquid assets in excess of 15% of its net assets. An illiquid asset is any asset which may not be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the Fund has valued the investment. If a percentage limitation is adhered to at the time of investment or contract, a later increase or decrease in percentage resulting from any change in value or total or net assets will not result in a violation of such restriction, except that the percentage limitations with respect to the borrowing of money and illiquid securities will be observed continuously. SPECIAL CONSIDERATIONS AND RISKS A discussion of the risks associated with an investment in a Fund is contained in the Prospectus under the heading "INVESTMENT CONSIDERATIONS AND RISKS." The discussion below supplements, and should be read in conjunction with, such section of the Prospectus. GENERAL Investment in a Fund should be made with an understanding that the value of a Fund's portfolio securities may fluctuate in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of common stocks generally and other factors. 7 96 An investment in a Fund should also be made with an understanding of the risks inherent in an investment in equity securities, including the risk that the financial condition of issuers may become impaired or that the general condition of the stock market may deteriorate (either of which may cause a decrease in the value of the portfolio securities and thus in the value of Shares). Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change. These investor perceptions are based on various and unpredictable factors including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic and banking crises. Holders of common stocks incur more risk than holders of preferred stocks and debt obligations because common stockholders, as owners of the issuer, have generally inferior rights to receive payments from the issuer in comparison with the rights of creditors of, or holders of debt obligations or preferred stocks issued by, the issuer. Further, unlike debt securities which typically have a stated principal amount payable at maturity (whose value, however, will be subject to market fluctuations prior thereto), or preferred stocks which typically have a liquidation preference and which may have stated optional or mandatory redemption provisions, common stocks have neither a fixed principal amount nor a maturity. Common stock values are subject to market fluctuations as long as the common stock remains outstanding. Although most of the securities in the Indexes are listed on a national securities exchange, the principal trading market for some may be in the over-the-counter market. The existence of a liquid trading market for certain securities may depend on whether dealers will make a market in such securities. There can be no assurance that a market will be made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of a Fund's Shares will be adversely affected if trading markets for a Fund's portfolio securities are limited or absent or if bid/ask spreads are wide. FUTURES AND OPTIONS TRANSACTIONS Positions in futures contracts and options may be closed out only on an exchange which provides a secondary market therefor. However, there can be no assurance that a liquid secondary market will exist for any particular futures contract or option at any specific time. Thus, it may not be possible to close a futures or options position. In the event of adverse price movements, a Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if a Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, a Fund may be required to make delivery of the instruments underlying futures contracts it has sold. A Fund will minimize the risk that it will be unable to close out a futures or options contract by only entering into futures and options for which there appears to be a liquid secondary market. 8 97 The risk of loss in trading futures contracts or uncovered call options in some strategies (e.g., selling uncovered stock index futures contracts) is potentially unlimited. The Funds do not plan to use futures and options contracts, when available, in this way. The risk of a futures position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. The Funds, however, intend to utilize futures and options contracts in a manner designed to limit their risk exposure to that which is comparable to what they would have incurred through direct investment in stocks. Utilization of futures transactions by a Fund involves the risk of imperfect or even negative correlation to the benchmark Index if the index underlying the futures contracts differs from the benchmark Index. There is also the risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker with whom a Fund has an open position in the futures contract or option. Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. RISKS OF SWAP AGREEMENTS Swap agreements are subject to the risk that the swap counterparty will default on its obligations. If such a default occurs, a Fund will have contractual remedies pursuant to the agreements related to the transaction, but such remedies may be subject to bankruptcy and insolvency laws which could affect such Fund's rights as a creditor. CONTINUOUS OFFERING The method by which Creation Units of Shares are created and traded may raise certain issues under applicable securities laws. Because new Creation Units of Shares are issued and sold by the Trust on an ongoing basis, at any point a "distribution," as such term is used in the Securities Act of 1933 (the "Securities Act"), may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act. 9 98 For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent Shares, and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter. Broker-dealer firms should also note that dealers who are not "underwriters" but are effecting transactions in Shares, whether or not participating in the distribution of Shares, are generally required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. Firms that incur a prospectus-delivery obligation with respect to Shares of a Fund are reminded that under Securities Act Rule 153, a prospectus-delivery obligation under Section 5(b)(2) of the Securities Act owed to an exchange member in connection with a sale on the Exchange is satisfied by the fact that such Fund's prospectus is available at the Exchange upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on an exchange. EXCHANGE LISTING AND TRADING A discussion of exchange listing and trading matters associated with an investment in the Funds is contained in the Prospectus under the "DETERMINATION OF NET ASSET VALUE" and "BUYING AND SELLING THE FUNDS." The discussion below supplements, and should be read in conjunction with, such sections of the Prospectus. The Shares of each Fund are approved for listing and trading on the Exchange, subject to notice of issuance. The Shares trade on the Exchange at prices that may differ to some degree from their net asset value. There can be no assurance that the requirements of the Exchange necessary to maintain the listing of Shares of any Fund will continue to be met. The Exchange may, but is not required to, remove the Shares of a Fund from listing if (1) following the initial twelve-month period beginning upon the commencement of trading of a Fund, there are fewer than 50 beneficial holders of the Shares for 30 or more consecutive trading days; (2) the value of the underlying Index or portfolio of securities on which such Fund is based is no longer calculated or available; or (3) such other event shall occur or condition exists that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable. In addition, the Exchange will remove the Shares from listing and trading upon termination of the Trust or a Fund. As in the case of other stocks traded on the Exchange, brokers' commissions on transactions will be based on negotiated commission rates at customary levels. 10 99 MANAGEMENT OF THE TRUST The following information supplements and should be read in conjunction with the section in the Prospectus entitled "MANAGEMENT." TRUSTEES AND OFFICERS OF THE TRUST The Board has responsibility for the overall management and operations of the Trust, including general supervision of the duties performed by the Adviser and other service providers. The Board currently consists of five Trustees, two of whom are "interested persons" (as defined in the 1940 Act) of the Trust. TRUSTEES AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------ NAME/ADDRESS/AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS - ------------------------------------------------------------------------------------------------------------------------------ TIMOTHY B. HARBERT Trustee (Chairman) President of State Street Global Advisors (1990-present); State Street Global Advisors Executive Vice President of State Street Corporation 2 International Place (1996-present); Member, Executive Operating Boston, Massachusetts 02110 Group of State Street Corporation (1995-present). Age: 49 - --------------------------------------------------------------------------------------------------------------------------- DAVID M. KELLY Trustee President and Chief Executive Officer, 4 Jodi Lane NSCC (1980 - February 2000). Chatham, NJ 07928 Age: 61 - --------------------------------------------------------------------------------------------------------------------------- NICHOLAS A. LOPARDO Trustee Chairman and Chief Executive Officer, State Street State Street Global Advisors Global Advisors (1990-present); Vice Chairman, 2 International Place State Street Corporation (1998 - present); Boston, Massachusetts 02110 Chairman, Advisory Board at the Weis School of Age: 53 Business at Susquehanna University (1991 - present); Chairman, the Landmark School (1994 - present); Board Member, Boston Stock Exchange (1992 - present); Board Member, Whitehead Institute for Biomedical Research (1995 present). Board Member, CitiStreet LLC (2000- present); Board Member, American Bankers Association Investment & Trust Services Advisory Board (1998 - present); Board Member, Boston Partners in
11 100
- --------------------------------------------------------------------------------------------------------------------------- NAME/ADDRESS/AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS - --------------------------------------------------------------------------------------------------------------------------- Education (1998 - present); Board Member, the Hockey Humanitarian Foundation (1992 present); Advisory Board Member, the Salvation Army (1998 - present) Director, the Team Harmony Foundation (1997 - present); Board Member, the Massachusetts Sports Partnership, Inc. (1999 present). - --------------------------------------------------------------------------------------------------------------------------- FRANK NESVET Trustee Chief Executive Officer, Libra Group, Inc. 63 Eliot Hill Road (1998-present); Managing Director, Senior Vice Natick, Massachusetts 01760 President and Fund Treasurer, New England Funds Age: 57 (1993-1998). - --------------------------------------------------------------------------------------------------------------------------- HELEN F. PETERS Trustee Dean, Carroll School of Management, Boston College 133 South Street (August 2000 - Present); Needham, Massachusetts 02492 Partner, Samuelson Peters, LLC (1999-present); Age: 52 Director of Global Bond Group, Scudder Kemper Investments (1998-1999); Chief Investment Officer, Colonial Management (1991-1998). - --------------------------------------------------------------------------------------------------------------------------- AGUSTIN J. FLEITES President Principal, State Street Global Advisors State Street Global Advisors (1987-present); Member SSgA Investment Committee 2 International Place (1994-present). Boston, Massachusetts 02110 Age: 34 - --------------------------------------------------------------------------------------------------------------------------- JAMES E. ROSS Vice President Principal, State Street Global Advisors (March State Street Global Advisors 2000 to present); Vice President, State Street 2 International Place Bank and Trust Company (June 1998-March 2000); Boston, Massachusetts 02110 Assistant Vice President, State Street Bank and Age: 35 Trust Company (June 1996-June 1998), Assistant Secretary, State Street Bank and Trust Company (May 1995-June 1996). - --------------------------------------------------------------------------------------------------------------------------- KATHLEEN C. CUOCOLO Treasurer Executive Vice President, State Street Bank & Trust State Street Bank and Trust Company Company (March 2000 - Present); Senior Vice President 2 Avenue de Lafayette (1995 - March 2000); Executive Operating Group Boston, Massachusetts 02111 (1999 - Present); CPA in Massachusetts. Age: 48 - --------------------------------------------------------------------------------------------------------------------------- DONALD A. GIGNAC Assistant Treasurer Vice President, State Street Bank and Trust State Street Bank and Trust Company Company (1993-present). 2 Avenue de Lafayette Boston, Massachusetts 02111 Age: 35 - --------------------------------------------------------------------------------------------------------------------------- GEORGE O. MARTINEZ Secretary State Street Bank and Trust - ---------------------------------------------------------------------------------------------------------------------------
12 101
- ------------------------------------------------------------------------------------------------------------------------------ NAME/ADDRESS/AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS DURING THE PAST FIVE YEARS - ------------------------------------------------------------------------------------------------------------------------------ Company Senior Vice President and Senior Managing Counsel, State 2 Avenue de Lafayette Street Bank and Trust Company (July 2000 - present); Boston, Massachusetts 02111 National Director, Investment Management Consulting Age: 41 Group, Arthur Anderson LLP (1998 - 2000); Senior Vice President & Director of Administration of Regulatory Services BYSIS Fund Services, Inc. 1995 - 1998. - ------------------------------------------------------------------------------------------------------------------------------ MICHAEL E. GILLESPIE Assistant Secretary Vice President and Associate Counsel, State Street State Street Bank and Trust Company Bank and Trust (1998-present); Senior Counsel and 2 Avenue de Lafayette Director of Compliance, The Pioneer Group Boston, Massachusetts 02111 (1985-1998). Age: 42 - ------------------------------------------------------------------------------------------------------------------------------
REMUNERATION OF TRUSTEES AND OFFICERS The Trust pays each Trustee an annual fee of $12,000 plus $2,000 for each meeting of the Board of Trustees attended in person for the first twelve months of operations and then $4,500 per in person meeting attended thereafter. A Trustee will receive $500 for each meeting attended via telephone or video conference. The Trust also reimburses each Trustee for travel and other out-of-pocket expenses incurred by him/her in connection with attending such meetings. Assuming that four (4) in person meetings of the Board of Trustees are held annually and attended in person, it is estimated that the compensation paid to each Trustee will be:
- -------------------------------------------------------------------------------- NAME OF TRUSTEE AGGREGATE COMPENSATION FROM TRUST - -------------------------------------------------------------------------------- David M. Kelly $20,000 (for the first twelve months of operation); $30,000 (thereafter) - -------------------------------------------------------------------------------- Frank Nesvet $20,000 (for the first twelve months of operation); $30,000 (thereafter) - -------------------------------------------------------------------------------- Helen F. Peters $20,000 (for the first twelve months of operation); $30,000 (thereafter) - --------------------------------------------------------------------------------
No Trustee or officer is entitled to any pension or retirement benefits from the Trust. As of September 25, 2000, the Trustees and officers of the Trust as a group owned less than 1% of the outstanding shares of each Fund. THE INVESTMENT ADVISER State Street, through its State Street Global Advisors division, acts as investment adviser to the Trust and, subject to the supervision of the Board, is responsible for the investment 13 102 management of each Fund. State Street is a wholly owned subsidiary of State Street Boston Corporation, a publicly held bank holding company. State Street, with over $723.3 billion (U.S.) under management as of March 31, 2000, provides complete global investment management services from offices in the U.S., London, Sydney, Hong Kong, Tokyo, Toronto, Luxembourg, Montreal, Paris, Dublin, Munich and Brussels. The Adviser serves as investment adviser to each Fund pursuant to an Investment Advisory Agreement between the Trust and the Adviser. Under the Investment Advisory Agreement, the Adviser, subject to the supervision of the Board and in conformity with the stated investment policies of each Fund, manages the investment of each Fund's assets. The Adviser is responsible for placing purchase and sale orders and providing continuous supervision of the investment portfolio of each Fund. Pursuant to the Investment Advisory Agreement, the Trust has agreed to indemnify the Adviser for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its obligations and duties. For the services provided to the Funds under the Investment Advisory Agreement, each Fund pays the Adviser monthly fees based on a percentage of each Fund's average daily net assets as shown in the following table.
FUND MANAGEMENT FEE - ------------------------------------------------------------------------------- streetTRACKS(SM) Dow Jones U.S. Large-Cap Value Fund 0.20% streetTRACKS(SM) Dow Jones U.S. Large-Cap Growth Fund 0.20% streetTRACKS(SM) Dow Jones U.S. Small-Cap Value Fund 0.25% streetTRACKS(SM) Dow Jones U.S. Small-Cap Growth Fund 0.25% streetTRACKS(SM) Dow Jones Global Titans Index Fund 0.50% streetTRACKS(SM) Wilshire REIT Index Fund 0.25% streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund 0.50% streetTRACKS(SM) Morgan Stanley Internet Index Fund 0.50% FORTUNE 500(R) Index Fund 0.20% FORTUNE e-50(TM) Index Fund 0.20%
From time to time, the Adviser may waive all or a portion of its fee. The Adviser pays all expenses of each Fund other than the management fee, brokerage, taxes, interest, fees and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. The Investment Advisory Agreement with respect to each Fund continues in effect for two years from its effective date, and thereafter is subject to annual approval by (1) the Board of Trustees or (2) vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, provided that in either event such continuance also is approved by a majority of the Board of Trustees who are not interested persons (as 14 103 defined in the 1940 Act) of the Trust by a vote cast in person at a meeting called for the purpose of voting on such approval. The Investment Advisory Agreement with respect to each Fund is terminable without penalty, on 60 days notice, by the Board of Trustees or by a vote of the holders of a majority (as defined in the 1940 Act) of the applicable Fund's outstanding voting securities. The Investment Advisory Agreement is also terminable upon 60 days notice by the Adviser and will terminate automatically in the event of its assignment (as defined in the 1940 Act). THE ADMINISTRATOR In addition to serving as Adviser to each Fund, State Street, through its Global Investors Services Group, serves as Administrator for the Trust pursuant to an Administrative Services Agreement. Under the Administrative Services Agreement, State Street is obligated on a continuous basis to provide such administrative services as the Board of Trustees of the Trust reasonably deems necessary for the proper administration of the Trust and each Fund. State Street will generally assist in all aspects of the Trust's and the Funds' operations; supply and maintain office facilities (which may be in State Street's own offices), statistical and research data, data processing services, clerical, accounting, bookkeeping and record keeping services (including without limitation the maintenance of such books and records as are required under the 1940 Act and the rules thereunder, except as maintained by other agents), internal auditing, executive and administrative services, and stationery and office supplies; prepare reports to shareholders or investors; prepare and file tax returns; supply financial information and supporting data for reports to and filings with the SEC and various state Blue Sky authorities; supply supporting documentation for meetings of the Board of Trustees; provide monitoring reports and assistance regarding compliance with the Declaration of Trust, by-laws, investment objectives and policies and with federal and state securities laws; arrange for appropriate insurance coverage; and negotiate arrangements with, and supervise and coordinate the activities of, agents and others to supply services. Pursuant to the Administrative Services Agreement, the Trust has agreed to indemnify the Administrator for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from gross negligence or willful misconduct in the performance of its duties. CUSTODIAN AND TRANSFER AGENT State Street, 225 Franklin Street, Boston, Massachusetts 02110, also serves as Custodian for the Funds pursuant to a Custodian Agreement. As Custodian, State Street holds the Funds' assets, calculates the net asset value of the Shares and calculates net income and realized capital gains or losses. State Street also serves as Transfer Agent of the Funds pursuant to a Transfer Agency Agreement. State Street may be reimbursed by the Funds for its out-of-pocket expenses. State Street and the Trust will comply with the self-custodian provisions of Rule 17f-2 under the 1940 Act. THE DISTRIBUTOR 15 104 State Street Capital Markets, LLC is the principal underwriter and Distributor of Shares. Its principal address is 225 Franklin Street, Boston, Massachusetts 02110. Investor information can be obtained by calling 1-866-787-2257. The Distributor has entered into a Distribution Agreement with the Trust pursuant to which it distributes Shares of each Fund. The Distribution Agreement will continue for two years from its effective date and is renewable annually thereafter. Shares will be continuously offered for sale by the Trust through the Distributor only in Creation Units, as described in the Prospectus and below under "CREATION AND REDEMPTION OF CREATION UNITS." Shares in less than Creation Units are not distributed by the Distributor. The Distributor will deliver the Prospectus to persons purchasing Creation Units and will maintain records of both orders placed with it and confirmations of acceptance furnished by it. The Distributor is a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the National Association of Securities Dealers, Inc. ("NASD"). The Distributor has no role in determining the investment policies of the Trust or which securities are to be purchased or sold by the Trust. Each Fund, except for the FORTUNE 500(R) Index Fund and the FORTUNE e-50(TM) Index Fund, has adopted a Distribution and Service Plan (a "Plan") pursuant to which payments of up to 0.25% may be made. No payments pursuant to the Plan will be made for the first twelve (12) months of operation. Under its terms, each Fund's Plan remains in effect from year to year, provided such continuance is approved annually by vote of the Board, including a majority of the "Independent Trustees" (Trustees who are not interested persons of the Fund (as defined in the 1940 Act) and have no direct or indirect financial interest in the operation of the Plan or any agreement related to the Plan). The Plan may not be amended to increase materially the amount to be spent for the services provided by the Distributor without approval by the shareholders of the relevant Fund to which the Plan applies, and all material amendments of the Plan also require Board approval (as described above). Each Plan may be terminated at any time, without penalty, by vote of a majority of the Independent Trustees, or, by a vote of a majority of the outstanding voting securities of such Fund (as such vote is defined in the 1940 Act). Pursuant to the Distribution Agreement, the Distributor will provide the Board with periodic reports of any amounts expended under the Plan and the purpose for which such expenditures were made. The Distribution Agreement provides that it may be terminated at any time, without the payment of any penalty, as to each Fund: (i) by vote of a majority of the Independent Trustees or (ii) by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, on at least 60 days written notice to the Distributor. The Distribution Agreement is also terminable upon 60 days notice by the Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act). Pursuant to agreements entered into with such persons, the Distributor will make payments under each Plan to certain broker-dealers or other persons ("Investor Services Organizations") that enter into agreements with the Distributor in the form approved by the Board of Trustees to provide distribution assistance and shareholder support, account 16 105 maintenance and educational and promotional services (which may include compensation and sales incentives to the registered brokers or other sales personnel of the broker-dealer or other financial entity that is a party to an investor services agreement) ("Investor Services Agreements"). No such Investor Services Agreements will be entered into during the first twelve months of operation. Each Investor Services Agreement will be a "related agreement" under the Plan of the relevant Fund. No Investor Services Agreement will provide for annual fees of more than 0.25% of a Fund's average daily net assets per annum attributable to Shares subject to such agreement. Subject to an aggregate limitation of 0.25% of a Fund's average net assets per annum, the fees paid by a Fund under its Plan will be compensation for distribution, investor services or marketing services for that Fund. To the extent the Plan fees aggregate less than 0.25% per annum of the average daily net assets of a Fund, each Fund may also reimburse the Distributor and other persons for their respective costs incurred in printing prospectuses and producing advertising or marketing material prepared at the request of the Fund. The aggregate payments under each Plan will not exceed, on an annualized basis, 0.25% of average daily net assets of any Fund. The continuation of the Distribution Agreement, any Investor Services Agreements and any other related agreements is subject to annual approval of the Board, including by a majority of the Independent Trustees, as described above. Each of the Investor Services Agreements will provide that it may be terminated at any time, without the payment of any penalty, (i) by vote of a majority of the Independent Trustees or (ii) by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the relevant Fund, on at least 60 days' written notice to the other party. Each of the Distribution Agreement and the Investor Services Agreements is also terminable upon 60 days' notice by the Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act). Each Investor Services Agreement is also terminable by the applicable Investor Service Organization upon 60 days' notice to the other party thereto. The allocation among the Funds of fees and expenses payable under the Distribution Agreement and the Investor Services Agreements will be made pro rata in accordance with the daily net assets of the respective Funds. The Distributor may also enter into agreements with securities dealers ("Soliciting Dealers") who will solicit purchases of Creation Unit aggregations of Fund Shares. Such Soliciting Dealers may also be Participating Parties (as defined in the "Book Entry Only System" section below), DTC Participants (as defined below) and/or Investor Services Organizations. Pursuant to the Distribution Agreement, the Trust has agreed to indemnify the Distributor, and may indemnify Soliciting Dealers entering into agreements with the Distributor, for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or 17 106 gross negligence in the performance of its duties or the reckless disregard of its obligations and duties under the Distribution Agreement or other agreement, as applicable. BROKERAGE TRANSACTIONS The policy of the Trust regarding purchases and sales of securities for the Funds is that primary consideration will be given to obtaining the most favorable prices and efficient executions of transactions. Consistent with this policy, when securities transactions are effected on a stock exchange, the Trust's policy is to pay commissions which are considered fair and reasonable without necessarily determining that the lowest possible commissions are paid in all circumstances. The Trust believes that a requirement always to seek the lowest possible commission cost could impede effective portfolio management and preclude the Funds and the Adviser from obtaining a high quality of brokerage and research services. In seeking to determine the reasonableness of brokerage commissions paid in any transaction, the Adviser relies upon its experience and knowledge regarding commissions generally charged by various brokers and on its judgment in evaluating the brokerage and research services received from the broker effecting the transaction. Such determinations are necessarily subjective and imprecise, as in most cases an exact dollar value for those services is not ascertainable. In seeking to implement the Trust's policies, the Adviser effects transactions with those brokers and dealers who the Adviser believes provides the most favorable prices and are capable of providing efficient executions. If the Adviser believes such price and execution are obtainable from more than one broker or dealer, it may give consideration to placing portfolio transactions with those brokers and dealers who also furnish research and other services to the Funds or the Adviser. Such services may include, but are not limited to, information as to the availability of securities for purchase or sale and statistical information pertaining to corporate actions affecting stocks, including but not limited to, stocks within one or more of the Indexes. The Funds will not deal with affiliates in principal transactions unless permitted by exemptive order or applicable rule or regulation. The Adviser assumes general supervision over placing orders on behalf of the Trust for the purchase or sale of portfolio securities. If purchases or sales of portfolio securities of the Trust and one or more other investment companies or clients supervised by the Adviser are considered at or about the same time, transactions in such securities are allocated among the several investment companies and clients in a manner deemed equitable to all by the Adviser. In some cases, this procedure could have a detrimental effect on the price or volume of the security so far as the Trust is concerned. However, in other cases, it is possible that the ability to participate in volume transactions and to negotiate lower brokerage commissions will be beneficial to the Trust. The primary consideration is prompt execution of orders at the most favorable net price. 18 107 Portfolio turnover may vary from year to year, as well as within a year. High turnover rates are likely to result in comparatively greater brokerage expenses. The portfolio turnover rate for each Fund is expected to be under 50%. See "INVESTMENT POLICIES AND STRATEGIES" in the Prospectus. The overall reasonableness of brokerage commissions is evaluated by the Adviser based upon its knowledge of available information as to the general level of commissions paid by other institutional investors for comparable services. BOOK ENTRY ONLY SYSTEM The following information supplements and should be read in conjunction with the section in the Prospectus entitled "BUYING AND SELLING." DTC acts as securities depositary for the Shares. Shares of each Fund are represented by securities registered in the name of DTC or its nominee, Cede & Co., and deposited with, or on behalf of, DTC. Except in the limited circumstance provided below, certificates will not be issued for Shares. DTC, a limited-purpose trust company, was created to hold securities of its participants (the "DTC Participants") and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange ("NYSE"), the AMEX and the NASD. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (the "Indirect Participants"). Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as "Beneficial Owners") is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of Shares. Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Trust and DTC, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of the Shares of each Fund held by each DTC Participant. The Trust shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant. The Trust shall 19 108 provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements. Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt of any such distributions, shall credit immediately DTC Participants' accounts with payments in amounts proportionate to their respective beneficial interests in Shares of each Fund as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a "street name," and will be the responsibility of such DTC Participants. The Trust has no responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants. DTC may determine to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange. CREATION AND REDEMPTION OF CREATION UNITS CREATION The Trust issues and sells Shares of each Fund only in Creation Units on a continuous basis through the Distributor, without a sales load, at their net asset value next determined after receipt, on any Business Day (as defined below), of an order in proper form. A "Business Day" with respect to each Fund is any day on which the NYSE is open for business. As of the date of the Prospectus, the NYSE observes the following holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day (Washington's Birthday), Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 20 109 FUND DEPOSIT The consideration for purchase of a Creation Unit of a Fund generally consists of an in-kind deposit of a designated portfolio of equity securities -- the "Deposit Securities" -- per each Creation Unit constituting a substantial replication, or a representation, of the stocks included in the relevant Fund's Index and an amount of cash -- the "Cash Component" -- computed as described below. Together, the Deposit Securities and the Cash Component constitute the "Fund Deposit," which represents the minimum initial and subsequent investment amount for a Creation Unit of any Fund. The Cash Component is an amount equal to the difference between the net asset value of the Shares (per Creation Unit) and the market value of the Deposit Securities. If the Cash Component is a positive number (i.e., the net asset value per Creation Unit exceeds the market value of the Deposit Securities), the Cash Component shall be such positive amount. If the Cash Component is a negative number (i.e., the net asset value per Creation Unit is less than the market value of the Deposit Securities), the Cash Component shall be such negative amount and the creator will be entitled to receive cash in an amount equal to the Cash Component. The Cash Component serves the function of compensating for any differences between the net asset value per Creation Unit and the market value of the Deposit Securities. The Custodian, through the National Securities Clearing Corporation ("NSCC") (discussed below), makes available on each Business Day, immediately prior to the opening of business on the New York Stock Exchange (currently 9:30 a.m., New York time), the list of the names and the required number of shares of each Deposit Security to be included in the current Fund Deposit (based on information at the end of the previous Business Day) for each Fund. Such Fund Deposit is applicable, subject to any adjustments as described below, in order to effect creations of Creation Units of a given Fund until such time as the next-announced composition of the Deposit Securities is made available. The identity and number of shares of the Deposit Securities required for a Fund Deposit for each Fund changes as rebalancing adjustments and corporate action events are reflected from time to time by the Adviser with a view to the investment objective of the Fund. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the Component Stocks of the relevant Index. In addition, the Trust reserves the right to permit or require the substitution of an amount of cash -- i.e., a "cash in lieu" amount -- to be added to the Cash Component to replace any Deposit Security which may not be available in sufficient quantity for delivery or which may not be eligible for transfer through the Clearing Process (discussed below), or which may not be eligible for trading by an Authorized Participant (as defined below) or the investor for which it is acting. Brokerage commissions incurred in connection with acquisition of Deposit Securities not eligible for transfer through the systems of DTC and hence not eligible for transfer through the Clearing Process (discussed below) will be at the expense of the Fund and will affect the value of all Shares; but the Adviser, subject to the approval of the Board of Trustees, may adjust the 21 110 transaction fee within the parameters described above to protect ongoing shareholders. The adjustments described above will reflect changes, known to the Adviser on the date of announcement to be in effect by the time of delivery of the Fund Deposit, in the composition of the subject Index being tracked by the relevant Fund or resulting from certain corporate actions. In addition to the list of names and numbers of securities constituting the current Deposit Securities of a Fund Deposit, the Custodian, through the NSCC, also makes available on each Business Day, the estimated Cash Component, effective through and including the previous Business Day, per outstanding Share of each Fund. PROCEDURES FOR CREATION OF CREATION UNITS To be eligible to place orders with the Distributor to create a Creation Unit of a Fund, an entity must be (i) a "Participating Party", i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the NSCC (the "Clearing Process"), a clearing agency that is registered with the SEC; or (ii) a DTC Participant (see "BOOK ENTRY ONLY SYSTEM"), and, in each case, must have executed an agreement with the Trust, the Distributor and the Transfer Agent with respect to creations and redemptions of Creation Units ("Participant Agreement") (discussed below). A Participating Party and DTC Participant are collectively referred to as an "Authorized Participant". Investors should contact the Distributor for the names of Authorized Participants that have signed a Participant Agreement. All Shares of Funds, however created, will be entered on the records of DTC in the name of Cede & Co. for the account of a DTC Participant. All orders to create Funds must be placed for one or more Creation Unit size aggregations of Shares (50,000 in the case of each Fund). All orders to create Creation Units, whether through the Clearing Process (through a Participating Party) or outside the Clearing Process (through a DTC Participant), must be received by the Distributor no later than the close of the regular trading session on the NYSE (ordinarily 4:00 p.m. New York time)("Closing Time") in each case on the date such order is placed in order for the creation of Creation Units to be effected based on the net asset value of Shares of each Fund as next determined on such date after receipt of the order in proper form. The date on which an order to create Creation Units (or an order to redeem Creation Units as discussed below) is placed is referred to as the "Transmittal Date". Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement, as described below (see "Placement of Creation Orders Using Clearing Process" and "Placement of Creation Orders Outside Clearing Process"). Severe economic or market disruptions or changes, or telephone or other communication failure, may impede the ability to reach the Distributor or an Authorized Participant. Orders to create Creation Units of Funds shall be placed with an Authorized Participant, as applicable, in the form required by such Authorized Participant. In addition, the Authorized Participant may request the investor to make certain representations or enter 22 111 into agreements with respect to the order, e.g., to provide for payments of cash, when required. Investors should be aware that their particular broker may not have executed a Participant Agreement, and that, therefore, orders to create Creation Units of Funds have to be placed by the investor's broker through an Authorized Participant that has executed a Participant Agreement. At any given time there may be only a limited number of broker-dealers that have executed a Participant Agreement. Those placing orders for Creation Units through the Clearing Process should afford sufficient time to permit proper submission of the order to the Distributor prior to the Closing Time on the Transmittal Date. Orders for creation that are effected outside the Clearing Process are likely to require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the Clearing Process. Those persons placing orders outside the Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire system by contacting the operations department of the broker or depository institution effectuating such transfer of Deposit Securities and Cash Component. PLACEMENT OF CREATION ORDERS USING CLEARING PROCESS The Clearing Process is the process of creating or redeeming Creation Units through the Continuous Net Settlement System of the NSCC. Fund Deposits made through the Clearing Process must be delivered through a Participating Party that has executed a Participant Agreement. The Participant Agreement authorizes the Distributor to transmit through the Transfer Agent to NSCC, on behalf of the Participating Party, such trade instructions as are necessary to effect the Participating Party's creation order. Pursuant to such trade instructions to NSCC, the Participating Party agrees to deliver the requisite Deposit Securities and the Cash Component to the Trust, together with such additional information as may be required by the Distributor. An order to create Funds in Creation Units through the Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than the Closing Time on such Transmittal Date and (ii) all other procedures set forth in the Participant Agreement are properly followed. PLACEMENT OF CREATION ORDERS OUTSIDE CLEARING PROCESS Fund Deposits made outside the Clearing Process must be delivered through a DTC Participant that has executed a Participant Agreement with the Trust, the Distributor and the Transfer Agent. A DTC Participant who wishes to place an order creating Creation Units to be effected outside the Clearing Process need not be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that the creation of Creation Units will instead be effected through a transfer of securities and cash directly through DTC. The Fund Deposit transfer must be ordered by the DTC Participant on the Transmittal Date in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities through DTC to the account of the Trust by no later than 11:00 a.m., New York time, of the next Business Day immediately following the Transmittal Date. All questions as to the number of Deposit Securities to be delivered, 23 112 and the validity, form and eligibility (including time of receipt) for the deposit of any tendered securities, will be determined by the Trust, whose determination shall be final and binding. The cash equal to the Cash Component must be transferred directly to the Custodian through the Federal Reserve wire system in a timely manner so as to be received by the Custodian no later than 2:00 p.m., New York time, on the next Business Day immediately following such Transmittal Date. An order to create Creation Units of Funds outside the Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than the Closing Time on such Transmittal Date; and (ii) all other procedures set forth in the Participant Agreement are properly followed. However, if the Custodian does not receive both the requisite Deposit Securities and the Cash Component by 11:00 a.m. and 2:00 p.m., respectively, on the next Business Day immediately following the Transmittal Date, such order will be cancelled. Upon written notice to the Distributor, such cancelled order may be resubmitted the following Business Day using a Fund Deposit as newly constituted to reflect the then current net asset value of the Fund. The delivery of Creation Units of Funds so created will occur no later than the third (3rd) Business Day following the day on which the purchase order is deemed received by the Distributor. Creation Units of Funds may be created in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities as described below. In these circumstances, the initial deposit will have a value greater than the net asset value of the Shares on the date the order is placed in proper form since in addition to available Deposit Securities, cash must be deposited in an amount equal to the sum of (i) the Cash Component, plus (ii) 115% of the market value of the undelivered Deposit Securities (the "Additional Cash Deposit"). The order shall be deemed to be received on the Business Day on which the order is placed provided that the order is placed in proper form prior to 4:00 p.m., New York time, on such date and federal funds in the appropriate amount are deposited with the Trust's Custodian by 11:00 a.m., New York time, the following Business Day. If the order is not placed in proper form by 4:00 p.m. or federal funds in the appropriate amount are not received by 11:00 a.m. the next Business Day, then the order may be deemed to be rejected and the investor shall be liable to the Trust for losses, if any, resulting therefrom. An additional amount of cash shall be required to be deposited with the Trust, pending delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to 115% of the daily marked to market value of the missing Deposit Securities. To the extent that missing Deposit Securities are not received by 1:00 p.m., New York time, on the third Business Day following the day on which the purchase order is deemed received by the Distributor or in the event a mark to market payment is not made within one Business Day following notification by the Distributor that such a payment is required, the Trust may use the cash on deposit to purchase the missing Deposit Securities. Authorized Participants will be liable to the Trust for the costs incurred by the Trust in connection with any such purchases. These costs will be deemed to include the amount by which the actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the day the purchase order was deemed received by the Distributor plus the brokerage and related transaction costs associated with such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit 24 113 Securities have been properly received by the Custodian or purchased by the Trust and deposited into the Trust. In addition, a transaction fee will be charged in all cases. The delivery of Creation Units of Funds so created will occur no later than the third Business Day following the day on which the purchase order is deemed received by the Distributor. ACCEPTANCE OF ORDERS FOR CREATION UNITS The Trust reserves the absolute right to reject a creation order transmitted to it by the Distributor in respect of any Fund if (a) the order is not in proper form; (b) the investor(s), upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares of any Fund; (c) the Deposit Securities delivered are not as disseminated through the facilities of the Exchange for that date by the Custodian, as described above; (d) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (e) the acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance of the Fund Deposit would otherwise, in the discretion of the Trust or the Adviser, have an adverse effect on the Trust or the rights of beneficial owners; or (g) in the event that circumstances outside the control of the Trust, the Distributor and the Adviser make it for all practical purposes impossible to process creation orders. Examples of such circumstances include acts of God or public service or utility problems such as fires, floods, extreme weather conditions and power outages resulting in telephone, telecopy and computer failures; market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the Trust, the Adviser, the Distributor, DTC, NSCC or any other participant in the creation process, and similar extraordinary events. The Distributor shall notify a prospective creator of a Creation Unit and/or the Authorized Participant acting on behalf of the creator of a Creation Unit of its rejection of the order of such person. The Trust, the Transfer Agent, the Custodian and the Distributor are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall either of them incur any liability for the failure to give any such notification. All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trust's determination shall be final and binding. CREATION TRANSACTION FEE To compensate the Trust for transfer and other transaction costs involved in creation transactions through the Clearing Process, investors will be required to pay a fixed creation transaction fee, described below, payable to the Trust regardless of the number of creations made each day. An additional charge of up to three (3) times the fixed transaction fee (expressed as a percentage of the value of the Deposit Securities) may be imposed for (i) creations effected outside the Clearing Process; and (ii) cash creations (to offset the Trust's brokerage and other transaction costs associated with using cash to purchase the requisite Deposit Securities). Investors are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Trust. 25 114
FUND TRANSACTION FEE OUTSIDE THE CLEARING PROCESS streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund $1,000 up to $4,000 streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund $1,000 up to $4,000 streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund $1,500 up to $6,000 streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund $1,500 up to $6,000 streetTRACKS(SM) Dow Jones Global Titans Index Fund $1,000 up to $4,000 streetTRACKS(SM) Wilshire REIT Index Fund $1,000 up to $4,000 streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund $ 500 up to $2,000 streetTRACKS(SM) Morgan Stanley Internet Index Fund $ 500 up to $2,000 FORTUNE 500(R) Index Fund $2,000 up to $8,000 FORTUNE e-50(TM) Index Fund $ 500 up to $2,000
REDEMPTION Shares may be redeemed only in Creation Units at their net asset value next determined after receipt of a redemption request in proper form by the Fund through the Transfer Agent and only on a Business Day. THE TRUST WILL NOT REDEEM SHARES IN AMOUNTS LESS THAN CREATION UNITS. Beneficial Owners must accumulate enough Shares in the secondary market to constitute a Creation Unit in order to have such Shares redeemed by the Trust. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation Unit. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Shares to constitute a redeemable Creation Unit. As of September 14, 2000, the value of the securities comprising a deposit of designated equity securities necessary for an in-kind purchase of a Creation Unit for each Fund was as follows: streetTRACKS(SM) Dow Jones Large Cap Value Index Fund, $6,504,500; streetTRACKS(SM) Dow Jones Large Cap Growth Index Fund, $5,056,825; streetTRACKS(SM) Dow Jones Small Cap Value Index Fund, $5,381,650; streetTRACKS(SM) Dow Jones Small Cap Growth Index Fund, $5,258,900; streetTRACKS(SM) Dow Jones Global Titans Index Fund, $6,504,500; streetTRACKS(SM) Wilshire REIT Index Fund, $5,450,000; streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund, $5,188,900; streetTRACKS(SM) Morgan Stanley Internet Index Fund, $3,792,000; FORTUNE 500(R) Index Fund, $5,042,000; FORTUNE e-50(TM) Index Fund, $4,777,200. With respect to each Fund, the Custodian, through the NSCC, makes available immediately prior to the opening of business on the New York Stock Exchange (currently 9:30 am, New York time) on each Business Day, the Fund Securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day. Fund Securities received on redemption may not be identical to Deposit Securities which are applicable to creations of Creation Units. 26 115 Unless cash redemptions are available or specified for a Fund, the redemption proceeds for a Creation Unit generally consist of Fund Securities -- as announced by the Custodian on the Business Day of the request for redemption received in proper form -- plus cash in an amount equal to the difference between the net asset value of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities (the "Cash Redemption Amount"), less a redemption transaction fee described below in the section entitled "REDEMPTION TRANSACTION FEE". In the event that the Fund Securities have a value greater than the net asset value of the Shares, a compensating cash payment equal to the differential is required to be made by or through an Authorized Participant by the redeeming shareholder. REDEMPTION TRANSACTION FEE A redemption transaction fee, described below, is paid to the Trust to offset transfer and other transaction costs that may be incurred in connection with the redemption of Creation Units. The redemption transaction fee is the same no matter how many Creation Units are being redeemed pursuant to any one redemption request. An additional charge of up to three (3) times the fixed transaction fee may be charged with respect to transactions effected outside the Clearing Process.
FUND TRANSACTION FEE OUTSIDE THE CLEARING PROCESS streetTRACKS(SM) Dow Jones U.S. Large Cap Value Index Fund $1,000 up to $4,000 streetTRACKS(SM) Dow Jones U.S. Large Cap Growth Index Fund $1,000 up to $4,000 streetTRACKS(SM) Dow Jones U.S. Small Cap Value Index Fund $1,500 up to $6,000 streetTRACKS(SM) Dow Jones U.S. Small Cap Growth Index Fund $1,500 up to $6,000 streetTRACKS(SM) Dow Jones Global Titans Index Fund $1,000 up to $4,000 streetTRACKS(SM) Wilshire REIT Index Fund $1,000 up to $4,000 streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund $ 500 up to $2,000 streetTRACKS(SM) Morgan Stanley Internet Index Fund $ 500 up to $2,000 FORTUNE 500(R) Index Fund $2,000 up to $8,000 FORTUNE e-50(TM) Index Fund $ 500 up to $2,000
The Funds, subject to approval by the Board of Trustees, may adjust the fee from time to time based upon actual experience. An additional charge for cash redemptions or partial cash redemptions (when cash redemptions are available) for each Fund may be imposed. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit may be charged a fee for such services. PLACEMENT OF REDEMPTION ORDERS USING CLEARING PROCESS 27 116 Orders to redeem Creation Units of Funds through the Clearing Process must be delivered through a Participating Party that has executed the Participant Agreement. An order to redeem Creation Units of Funds using the Clearing Process is deemed received on the Transmittal Date if (i) such order is received by the Transfer Agent not later than 4:00 p.m., New York time, on such Transmittal Date; and (ii) all other procedures set forth in the Participant Agreement are properly followed; such order will be effected based on the net asset value of the Fund as next determined. An order to redeem Creation Units of a Fund using the Clearing Process made in proper form but received by the Fund after 4:00 p.m., New York time, will be deemed received on the next Business Day immediately following the Transmittal Date and will be effected at the net asset value next determined on such Business Day. The requisite Fund Securities and the Cash Redemption Amount will be transferred by the third (3rd) NSCC Business Day following the date on which such request for redemption is deemed received. PLACEMENT OF REDEMPTION ORDERS OUTSIDE CLEARING PROCESS Orders to redeem Creation Units of Funds outside the Clearing Process must be delivered through a DTC Participant that has executed the Participant Agreement. A DTC Participant who wishes to place an order for redemption of Creation Units of Funds to be effected outside the Clearing Process need not be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that redemption of Creation Units will instead be effected through transfer of Shares directly through DTC. An order to redeem Creation Units of Funds outside the Clearing Process is deemed received by the Transfer Agent on the Transmittal Date if (i) such order is received by the Transfer Agent not later than 4:00 p.m., New York time, on such Transmittal Date; (ii) such order is accompanied or proceeded by the requisite number of Shares of Funds specified in such order, which delivery must be made through DTC to the Custodian no later than 11:00 a.m., New York time, on the next Business Day following such Transmittal Date (the "DTC Cut-Off-Time"); and (iii) all other procedures set forth in the Participant Agreement are properly followed. After the Transfer Agent has deemed an order for redemption outside the Clearing Process received, the Transfer Agent will initiate procedures to transfer the requisite Fund Securities which are expected to be delivered within three Business Days and the Cash Redemption Amount to the Authorized Participant on behalf of the redeeming Beneficial Owner by the third Business Day following the Transmittal Date on which such redemption order is deemed received by the Transfer Agent. The calculation of the value of the Fund Securities and the Cash Redemption Amount to be delivered upon redemption will be made by the Custodian according to the procedures set forth under "DETERMINATION OF NET ASSET VALUE" computed on the Business Day on which a redemption order is deemed received by the Transfer Agent. Therefore, if a redemption order in proper form is submitted to the Transfer Agent by a DTC Participant not later than the Closing Time on the Transmittal Date, and the requisite number of Shares of the relevant Fund are delivered to the Custodian prior to the DTC Cut-Off-Time, then the value of the Fund Securities and the Cash Redemption 28 117 Amount to be delivered will be determined by the Custodian on such Transmittal Date. If, however, a redemption order is submitted to the Transfer Agent by a DTC Participant not later than the Closing Time on the Transmittal Date but either (1) the requisite number of Shares of the relevant Fund are not delivered by the DTC Cut-Off-Time as described above on the next Business Day following the Transmittal Date or (2) the redemption order is not submitted in proper form, then the redemption order will not be deemed received as of the Transmittal Date. In such case, the value of the Fund Securities and the Cash Redemption Amount to be delivered will be computed on the Business Day that such order is deemed received by the Transfer Agent, i.e., the Business Day on which the Shares of the relevant Funds are delivered through DTC to the Custodian by the DTC Cut-Off-Time on such Business Day pursuant to a properly submitted redemption order. If it is not possible to effect deliveries of the Fund Securities, the Trust may in its discretion exercise its option to redeem such Shares in cash, and the redeeming Beneficial Owner will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash which the Fund may, in its sole discretion, permit. In either case, the investor will receive a cash payment equal to the net asset value of its Shares based on the net asset value of Shares of the relevant Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee and additional charge for requested cash redemptions specified above, to offset the Trust's brokerage and other transaction costs associated with the disposition of Fund Securities). The Fund may also, in its sole discretion, upon request of a shareholder, provide such redeemer a portfolio of securities which differs from the exact composition of the Fund Securities but does not differ in net asset value. Redemptions of Shares for Fund Securities will be subject to compliance with applicable federal and state securities laws and each Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Fund could not lawfully deliver specific Fund Securities upon redemptions or could not do so without first registering the Fund Securities under such laws. An Authorized Participant or an investor for which it is acting subject to a legal restriction with respect to a particular stock included in the Fund Securities applicable to the redemption of a Creation Unit may be paid an equivalent amount of cash. The Authorized Participant may request the redeeming Beneficial Owner of the Shares to complete an order form or to enter into agreements with respect to such matters as compensating cash payment, beneficial ownership of Shares or delivery instructions. The right of redemption may be suspended or the date of payment postponed with respect to any Fund (1) for any period during which the NYSE is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the NYSE is suspended or restricted; (3) for any period during which an emergency exists as a result of which disposal of the Shares of the Fund or determination of the Shares' net asset value is not reasonably practicable; or (4) in such other circumstance as is permitted by the SEC. DETERMINATION OF NET ASSET VALUE 29 118 The following information supplements and should be read in conjunction with the section in the Prospectus entitled "DETERMINATION OF NET ASSET VALUE." Net asset value per Share for each Fund of the Trust is computed by dividing the value of the net assets of such Fund (i.e., the value of its total assets less total liabilities) by the total number of Shares outstanding, rounded to the nearest cent. Expenses and fees, including the management fees, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of each Fund is calculated by the Custodian and determined at the close of the regular trading session on the NYSE (ordinarily 4:00 p.m. New York time) on each day that such exchange is open. In computing a Fund's net asset value per Share, the Fund's securities holdings 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 regularly traded in an over-the-counter market are valued at the last sale price in such market. Other portfolio securities and assets for which market quotations are not readily available are valued based on fair value as determined in good faith by the Adviser in accordance with procedures adopted by the Board. DIVIDENDS AND DISTRIBUTIONS The following information supplements and should be read in conjunction with the section in the Prospectus entitled "DISTRIBUTIONS." GENERAL POLICIES Dividends from net investment income, if any, are declared and paid quarterly by each Fund. Distributions of net realized securities gains, if any, generally are declared and paid once a year, but the Trust may make distributions on a more frequent basis for certain Funds to improve index tracking or to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner consistent with the provisions of the 1940 Act. Dividends and other distributions on Shares are distributed, as described below, on a pro rata basis to Beneficial Owners of such Shares. Dividend payments are made through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received from the Trust. The Trust makes additional distributions to the extent necessary (i) to distribute the entire annual taxable income of the Trust, plus any net capital gains and (ii) to avoid imposition of the excise tax imposed by Section 4982 of the Internal Revenue Code. Management of the Trust reserves the right to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve the status of each Fund as a regulated investment company ("RIC") or to avoid imposition of income or excise taxes on undistributed income. 30 119 DIVIDEND REINVESTMENT SERVICE Broker-dealers may make available the DTC book-entry Dividend Reinvestment Service for use by Beneficial Owners of Funds through DTC Participants for reinvestment of their dividend distributions. If this service is available and used, dividend distributions of both income and realized gains will be automatically reinvested in additional whole Shares issued by the same Fund based on a payable date NAV. TAXES The following information also supplements and should be read in conjunction with the section in the Prospectus entitled "TAX MATTERS." Each Fund intends to qualify for and to elect treatment as a separate RIC under Subchapter M of the Internal Revenue Code. To qualify for treatment as a RIC, a company must annually distribute at least 90% of its net investment company taxable income (which includes dividends, interest and net short-term capital gains) and meet several other requirements. Each Fund is treated as a separate corporation for federal income tax purposes. Each Fund therefore is considered to be a separate entity in determining its treatment under the rules for RICs described herein and in the Prospectus. Losses in one Fund do not offset gains in another and the requirements (other than certain organizational requirements) for qualifying RIC status are determined at the Fund level rather than at the Trust level. A Fund will be subject to a 4% excise tax on certain undistributed income if it does not distribute to its shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98% of its capital gain net income for the twelve months ended October 31 of such year. Each Fund intends to declare and distribute dividends and distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax. As a result of tax requirements, the Trust on behalf of each Fund has the right to reject an order to purchase Shares if the purchaser (or group of purchasers) would, upon obtaining the Shares so ordered, own 80% or more of the outstanding Shares of a given Fund and if, pursuant to section 351 of the Internal Revenue Code, the respective Fund would have a basis in the Deposit Securities different from the market value of such securities on the date of deposit. The Trust also has the right to require information necessary to determine beneficial share ownership for purposes of the 80% determination. See "CREATION AND REDEMPTION OF CREATION UNITS." Dividends and interest received by a Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. 31 120 Each Fund will report to shareholders annually the amounts of dividends received from ordinary income, the amount of distributions received from capital gains and the portion of dividends which may qualify for the dividends received deduction. A loss realized on a sale or exchange of Shares of a Fund may be disallowed if other Fund Shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a sixty-one (61) day period beginning thirty (30) days before and ending thirty (30) days after the date that the Shares are disposed of. In such a case, the basis of the Shares acquired will be adjusted to reflect the disallowed loss. Any loss upon the sale or exchange of Shares held for six (6) months or less will be treated as long-term capital loss to the extent of any capital gain dividends received by the shareholders. Distribution of ordinary income and capital gains may also be subject to state and local taxes. Distributions reinvested in additional Shares of a Fund through the means of the service (see "DIVIDEND REINVESTMENT SERVICE") will nevertheless be taxable dividends to Beneficial Owners acquiring such additional Shares to the same extent as if such dividends had been received in cash. Distributions of ordinary income paid to shareholders who are nonresident aliens or foreign entities will be subject to a 30% United States withholding tax unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident shareholders are urged to consult their own tax advisors concerning the applicability of the United States withholding tax. Some shareholders may be subject to a 31% withholding tax on distributions of ordinary income, capital gains and any cash received on redemption of Creation Units ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not otherwise subject to backup withholding. The foregoing discussion is a summary only and is not intended as a substitute for careful tax planning. Purchasers of Shares of the Trust should consult their own tax advisors as to the tax consequences of investing in such shares, including under state, local and other tax laws. Finally, the foregoing discussion is based on applicable provisions of the Internal Revenue Code, regulations, judicial authority and administrative interpretations in effect on the date hereof. Changes in applicable authority could materially affect the conclusions discussed above, and such changes often occur. FEDERAL TAX TREATMENT OF FUTURES AND OPTIONS CONTRACTS Each Fund is required for federal income tax purposes to mark to market and recognize as income for each taxable year its net unrealized gains and losses on certain futures 32 121 contracts as of the end of the year as well as those actually realized during the year. Gain or loss from futures and options contracts on broad-based indexes required to be marked to market will be 60% long-term and 40% short-term capital gain or loss. Application of this rule may alter the timing and character of distributions to shareholders. A Fund may be required to defer the recognition of losses on futures contracts, option contracts and swaps to the extent of any unrecognized gains on offsetting positions held by the Fund. In order for a Fund to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income, i.e., dividends, interest, income derived from loans of securities, gains from the sale of securities or of foreign currencies or other income derived with respect to the Fund's business of investing in securities. It is anticipated that any net gain realized from the closing out of futures or options contracts will be considered gain from the sale of securities and therefore will be qualifying income for purposes of the 90% requirement. Each Fund distributes to shareholders annually any net capital gains which have been recognized for federal income tax purposes (including unrealized gains at the end of the Fund's fiscal year) on futures or options transactions. Such distributions are combined with distributions of capital gains realized on the Fund's other investments and shareholders are advised on the nature of the distributions. CAPITAL STOCK AND SHAREHOLDER REPORTS The Trust currently is comprised of ten Funds. Each Fund issues shares of beneficial interest, par value $.01 per Share. The Board of Trustees may designate additional Funds. Each Share issued by the Trust has a pro rata interest in the assets of the corresponding Fund. Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each Share is entitled to participate equally in dividends and distributions declared by the Board with respect to the relevant Fund, and in the net distributable assets of such Fund on liquidation. Each Share has one vote with respect to matters upon which a shareholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder. Shares of all Funds vote together as a single class except that if the matter being voted on affects only a particular Fund it will be voted on only by that Fund and if a matter affects a particular Fund differently from other Funds, that Fund will vote separately on such matter. Under Massachusetts law, the Trust is not required to hold an annual meeting of shareholders unless required to do so under the 1940 Act. The policy of the Trust is not to hold an annual meeting of shareholders unless required to do so under the 1940 Act. All Shares of the Trust (regardless of the Fund) have noncumulative voting rights for the election of Trustees. Under Massachusetts law, Trustees of the Trust may be removed by vote of the shareholders. 33 122 Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable as partners for obligations of the Trust. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust, requires that Trust obligations include such disclaimer, and provides for indemnification and reimbursement of expenses out of the Trust's property for any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations. Given the above limitations on shareholder personal liability, and the nature of each Fund's assets and operations, the risk to shareholders of personal liability is believed to be remote. Shareholder inquiries may be made by writing to the Trust, c/o the Distributor, State Street Brokerage Services at 225 Franklin Street, 19th Floor, Boston, Massachusetts 02110. PERFORMANCE AND OTHER INFORMATION The performance of a Fund may be quoted in advertisements, sales literature or reports to shareholders in terms of average annual total return, cumulative total return and yield. Quotations of average annual total return are expressed in terms of the average annual rate of return of a hypothetical investment in a Fund over periods of 1, 5 and 10 years (or the life of a Fund, if shorter). Such total return figures will reflect the deduction of a proportional share of such Fund's expenses on an annual basis, and will assume that all dividends and distributions are reinvested when paid. Total return is calculated according to the following formula: P(1 + T)(n) = ERV (where P = a hypothetical initial payment of $1,000, T = the average annual total return, n = the number of years and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10 year period). Quotations of a cumulative total return will be calculated for any specified period by assuming a hypothetical investment in a Fund on the date of the commencement of the period and will assume that all dividends and distributions are reinvested on ex date. The net increase or decrease in the value of the investment over the period will be divided by its beginning value to arrive at cumulative total return. Total return calculated in this manner will differ from the calculation of average annual total return in that it is not expressed in terms of an average rate of return. The yield of a Fund is the net annualized yield based on a specified 30-day (or one month) period assuming a semiannual compounding of income. Included in net investment income is the amortization of market premium or accretion of market and original issue discount on bonds. Yield is calculated by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: YIELD = (a-b) divided by 2[(cd + 1)(6)-1] (where a = dividends and interest earned during the period, b = expenses 34 123 accrued for the period (net of reimbursements), c = the average daily number of shares outstanding during the period that were entitled to receive dividends, and d = the maximum offering price per share on the last day of the period). Quotations of cumulative total return, average annual total return or yield reflect only the performance of a hypothetical investment in a Fund during the particular time period on which the calculations are based. Such quotations for a Fund will vary based on changes in market conditions and the level of such Fund's expenses, and no reported performance figure should be considered an indication of performance which may be expected in the future. The cumulative and average total returns and yields do not currently take into account federal or state income taxes which may be payable by shareholders; total returns and yields would, of course, be lower if such charges were taken into account. A comparison of the quoted non-standard performance offered for various investments is valid only if performance is calculated in the same manner. Since there are different methods for calculating performance, investors should consider the effects of the methods used to calculate performance when comparing performance of the Funds with performance quoted with respect to other investment companies or types of investments. From time to time, in advertising and marketing literature, the Funds' performance may be compared to the performance of broad groups of open-end and closed-end investment companies with similar investment goals, as tracked by independent organizations such as Investment Company Data, Inc., Lipper Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc., Value Line Mutual Fund Survey and other independent organizations. When these organizations' tracking results are used, the Funds will be compared to the appropriate fund category, that is, by fund objective and portfolio holdings, or to the appropriate volatility grouping, where volatility is a measure of a fund's risk. Information may be provided to investors regarding capital gains distributions by one or more Funds. Comparisons between the Funds and other investment vehicles such as conventional mutual funds may be made regarding such capital gains distributions, as well as relative tax efficiencies between the Funds and such other investment vehicles (e.g., realization of capital gains or losses to a Fund and to such other investment vehicles in connection with redemption of their respective securities). Investors may be informed that, while no unequivocal statement can be made as to the net tax impact on a mutual fund resulting from the purchases and sales of its portfolio stocks over a period of time, conventional mutual funds that have accumulated substantial unrealized capital gains, if they experience net redemptions and do not have sufficient available cash, may be required to sell appreciated securities and make taxable capital gains distributions that are generated by changes in such fund's portfolio. In contrast to conventional mutual funds where redemption transactions that effect an adverse tax impact on taxable shareholders because of the need to sell portfolio securities which, in 35 124 turn, may generate taxable gain, the in-kind redemption mechanism of the Funds generally will not lead to a tax event for ongoing shareholders. Since shareholders are generally required to pay tax on capital gains distributions, the smaller the amount of such distributions, the less taxes that are payable currently. To the extent that a Fund is not required to recognize capital gains, a shareholder of such Fund is able, in effect, to defer tax on such gains until he sells or otherwise disposes of his shares. If such holder retains his shares until his death, under current law the tax basis of such shares would be adjusted to their then fair market value. In addition, in connection with the communication of the performance of the Funds to current or prospective shareholders, the Trust also may compare those figures to the performance of certain unmanaged indexes which may assume the reinvestment of dividends or interest but generally do not reflect deductions for administrative and management costs. Examples of such indexes include, but are not limited to the following: Dow Jones Industrial Average; Consumer Price Index; Standard & Poor's 500 Composite Stock Price Index (S&P 500); Russell 1000 & NASDAQ non-financial 100 and their subsidiary sector indexes. Performance of an index is historical and does not represent performance of the Trust, and is not a guarantee of future results. In addition, information may be presented to current or prospective shareholders regarding the purchase of Funds in the secondary market, such as margin requirements, types of orders that may be entered and information concerning short sales. Evaluation of each Fund's performance or other relevant statistical information made by independent sources may also be used in advertisements and sales literature concerning the Trust, including reprints of, or selections from, editorials or articles about the Trust. Sources for Trust performance information and articles about the Trust include, but are not limited to, the following: American Association of Individual Investors' Journal, a monthly publication of the AAII that includes articles on investment analysis techniques; Barron's, a Dow Jones and Company, Inc. business and financial weekly that periodically reviews investment company performance data; Business Week, a national business weekly that periodically reports the performance rankings of investment companies; CDA Investment Technologies, an organization that provides performance and ranking information through examining the dollar results of hypothetical mutual fund investments and comparing these results against appropriate indexes; Forbes, a national business publication that from time to time reports the performance of specific investment companies; FORTUNE, a national business publication that periodically rates the performance of a variety of investment companies; The Frank Russell Company, a West-Coast investment management firm that periodically evaluates international stock markets and compares foreign equity market performance to U.S. stock market performance; Ibbotson Associates, Inc., a company specializing in investment research and data; Investment Company Data, Inc., an independent organization that provides performance ranking information for broad classes of mutual funds; Investor's Business Daily, a daily newspaper that features financial, economic, and business news; 36 125 Kiplinger's Personal Finance Magazine, a monthly investment advisory publication that periodically features the performance of a variety of securities; Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly publication of industry-wide mutual fund averages by type of fund; Money, a monthly magazine that from time to time features both specific funds and the mutual fund industry as a whole; The New York Times, a nationally distributed newspaper that regularly covers financial news; Smart Money, a national personal finance magazine published monthly by Dow Jones & Company, Inc. and The Hearst Corporation that focuses on ideas for investing, spending and saving; Value Line Mutual Fund Survey, an independent publication that provides biweekly performance and other information on mutual funds; The Wall Street Journal, a Dow Jones and Company, Inc. newspaper that regularly covers financial news; Wiesenberger Investment Companies Services, an annual compendium of information about mutual funds and other investment companies, including comparative data on funds' backgrounds, management policies, salient features, management results, income and dividend records and price ranges; Worth, a national publication distributed ten times per year by Capital Publishing Company that focuses on personal finance. COUNSEL AND INDEPENDENT AUDITORS Mayer, Brown & Platt serves as counsel to the Trust. Ernst & Young, LLP serve as the independent auditors of the Trust. 37 126 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Trustees and Shareholder of streetTracks Series Trust: We have audited the accompanying statements of assets and liabilities of streetTracks Series Trust (comprising, respectively, streetTracks Dow Jones U.S. Large Cap Growth Index Fund, streetTracks Dow Jones U.S. Large Cap Value Index Fund, streetTracks Dow Jones U.S. Small Cap Growth Index Fund, streetTracks Dow Jones U.S. Small Cap Value Index Fund, streetTracks Dow Jones Global Titans Index Fund, streetTracks Wilshire REIT Index Fund, streetTracks Morgan Stanley High Tech 35 Index Fund, streetTracks Morgan Stanley Internet Index Fund, FORTUNE 500 Index Fund, FORTUNE e-50 Index Fund) as of September 20, 2000. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above presents fairly, in all material respects, the financial position of the aforementioned Funds of streetTracks Series Trust at September 20, 2000 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP ---------------------- Ernst & Young LLP Boston, Massachusetts September 21, 2000 38 127 STREETTRACKS(SM) SERIES TRUST Statements of Assets and Liabilities SEPTEMBER 20, 2000
STREETTRACKS(SM) STREETTRACKS(SM) STREETTRACKS(SM) STREETTRACKS(SM) STREETTRACKS(SM) STREETTRACKS(SM) DOW JONES US DOW JONES US DOW JONES US DOW JONES US DOW JONES WILSHIRE LARGE CAP GROWTH LARGE CAP SMALL CAP GROWTH SMALL CAP GLOBAL TITANS REIT INDEX FUND VALUE INDEX FUND INDEX FUND VALUE INDEX FUND INDEX FUND INDEX FUND - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash ............... $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 ------- ------- ------- ------- ------- ------- Total assets ..... 10,000 10,000 10,000 10,000 10,000 10,000 ------- ------- ------- ------- ------- ------- NET ASSETS ......... $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 ======= ======= ======= ======= ======= ======= NET ASSETS Paid-in-capital .... $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 ------- ------- ------- ------- ------- ------- NET ASSETS ......... $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 ======= ======= ======= ======= ======= ======= Shares outstanding (unlimited amount authorized, $0.01 par value) ......... 1,000 1,000 1,000 1,000 1,000 1,000 Net asset value per streetTRACK Share .. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
STREETTRACKS(SM) STREETTRACKS(SM) MORGAN STANLEY MORGAN STANLEY FORTUNE FORTUNE HIGH TECH 35 INTERNET 500(R) E-50(TM) INDEX FUND INDEX FUND INDEX FUND INDEX FUND - --------------------------------------------------------------------------------- ASSETS Cash ............... $10,000 $10,000 $10,000 $10,000 ------- ------- ------- ------- Total assets ..... 10,000 10,000 10,000 10,000 ------- ------- ------- ------- NET ASSETS ......... $10,000 $10,000 $10,000 $10,000 ======= ======= ======= ======= NET ASSETS Paid-in-capital .... $10,000 $10,000 $10,000 $10,000 ------- ------- ------- ------- NET ASSETS ......... $10,000 $10,000 $10,000 $10,000 ======= ======= ======= ======= Shares outstanding (unlimited amount authorized, $0.01 par value) ......... 1,000 1,000 1,000 1,000 Net asset value per streetTRACK Share .. $ 10.00 $ 10.00 $ 10.00 $ 10.00
The accompanying notes are an integral part of the financial statements. 39 128 STREETTRACKS(SM) SERIES TRUST NOTES TO FINANCIAL STATEMENTS SEPTEMBER 20, 2000 - -------------------------------------------------------------------------------- NOTE 1: ORGANIZATION The streetTRACKS(SM) Series Trust (the "Trust"), which is registered under the Investment Company Act of 1940, as amended, is an open-end, non-diversified management investment company that was organized as a Massachusetts business trust on June 12, 1998. The Trust currently consists of ten portfolios, streetTRACKS(SM) Dow Jones US Large Cap Growth Index Fund, streetTRACKS(SM) Dow Jones US Large Cap Value Index Fund, streetTRACKS(SM) Dow Jones US Small Cap Growth Index Fund, streetTRACKS(SM) Dow Jones US Small Cap Value Index Fund, streetTRACKS(SM) Dow Jones Global Titans Index Fund, streetTRACKS(SM) Wilshire REIT Index Fund, streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund, streetTRACKS(SM) Morgan Stanley Internet Index Fund, FORTUNE 500(R) Index Fund and FORTUNE e-50(TM) Index Fund, each of which represents a separate series of beneficial interest in the Trust. The Trust has had no operations to date other than matters relating to its organization and registration and the sale of its shares to State Street Capital Markets, LLC, the sole shareholder of each of the Portfolios. The financial statements have been prepared in conformity with generally accepted accounting principles which require management to make certain estimates and assumptions at the date of the financial statements. NOTE 2: FEES AND EXPENSES State Street Bank and Trust Company ("State Street"), the Trust's Adviser, has agreed to bear the initial costs of organization of the Trust. State Street is responsible for determining the composition of the portfolio of securities which must be delivered in exchange for the issuance of Creation Units and for adjusting the composition of each of the portfolios of the Trust to conform to changes in the composition of the relevant Indexes. For these services, State Street receives an advisory fee based on the average daily net assets of the Trust as follows:
Portfolio Annual Rate - --------- ----------- streetTRACKS(SM) Dow Jones US Large Cap Growth Index Fund 0.20% streetTRACKS(SM) Dow Jones US Large Cap Value Index Fund 0.20 streetTRACKS(SM) Dow Jones US Small Cap Growth Index Fund 0.25 streetTRACKS(SM) Dow Jones US Small Cap Value Index Fund 0.25 streetTRACKS(SM) Dow Jones Global Titans Index Fund 0.50 streetTRACKS(SM) Wilshire REIT Index Fund 0.25 streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund 0.50 streetTRACKS(SM) Morgan Stanley Internet Index Fund 0.50 FORTUNE 500(R) Index Fund 0.20 FORTUNE e-50(TM) Index Fund 0.20
The Adviser will pay the operating expenses of the Trust, except for the management fee, brokerage, taxes, interest, and expenses of the Independent Trustees (including any Trustee's counsel fees), litigation expenses and other extraordinary expenses. NOTE 3: CAPITAL Shares are created and redeemed by the Trust only in Creation Unit size aggregations of 50,000. Transaction fees at scheduled amounts ranging from $1,000 to $10,000 per Creation Unit are charged to those persons creating or redeeming Creation Units. Such transactions are generally permitted only on an in-kind basis, with a balancing cash component to equate the transaction to the net asset value per unit of each portfolio of the Trust on the transaction date. NOTE 4: SUBSEQUENT EVENT 40 129 streetTRACKS(SM) SERIES TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 20, 2000 The Trust expects to effect a stock split or reverse stock split with a record date of September 22, 2000 and an effective date of the date the initial creation orders are placed, in order to adjust the net asset value per share of each portfolio to a proportion of the value of its respective Index as follows:
Portfolio Ratio - --------- ----- streetTRACKS(SM) Dow Jones US Large Cap Growth Index Fund 1/20 streetTRACKS(SM) Dow Jones US Large Cap Value Index Fund 1/10 streetTRACKS(SM) Dow Jones US Small Cap Growth Index Fund 1/20 streetTRACKS(SM) Dow Jones US Small Cap Value Index Fund 1/10 streetTRACKS(SM) Dow Jones Global Titans Index Fund 1/3 streetTRACKS(SM) Wilshire REIT Index Fund 1 streetTRACKS(SM) Morgan Stanley High Tech 35 Index Fund 1/10 streetTRACKS(SM) Morgan Stanley Internet Index Fund 1 Fortune 500(R) Index Fund 1/10 Fortune e-50(TM) Index Fund 1/10
All capital share activity and per share data for each of the portfolios will be restated to reflect the stock split or reverse stock split. 41 -----END PRIVACY-ENHANCED MESSAGE-----