Prospectus. January 31, 2012

Transcription

1 Prospectus The Consumer Discretionary Select Sector SPDR» Fund (XLY) The Consumer Staples Select Sector SPDR» Fund (XLP) The Energy Select Sector SPDR» Fund (XLE) The Financial Select Sector SPDR» Fund (XLF) The Health Care Select Sector SPDR» Fund (XLV) The Industrial Select Sector SPDR» Fund (XLI) The Materials Select Sector SPDR» Fund (XLB) The Technology Select Sector SPDR» Fund (XLK) The Utilities Select Sector SPDR» Fund (XLU) Principal U.S. Listing Exchange for each Select Sector SPDR» Fund: NYSE Arca, Inc. January 31, 2012 The U.S. Securities and Exchange Commission has not approved or disapproved these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense. Shares in the Funds are not guaranteed or insured by the Federal Deposit Insurance Corporation or any other agency of the U.S. Government, nor are Shares deposits or obligations of any bank. Such Shares in the Funds involve investment risks, including the loss of principal.

2 Table of Contents FUND SUMMARIES The Consumer Discretionary Select Sector SPDR Fund The Consumer Staples Select Sector SPDR Fund The Energy Select Sector SPDR Fund The Financial Select Sector SPDR Fund The Health Care Select Sector SPDR Fund The Industrial Select Sector SPDR Fund The Materials Select Sector SPDR Fund The Technology Select Sector SPDR Fund The Utilities Select Sector SPDR Fund Summary Information About Purchases, Sales and Taxes Additional Strategies Information Additional Risk Information Management Additional Index Information Additional Purchase and Sale Information Other Considerations Distributions Portfolio Holdings Additional Tax Information General Information Premium/Discount Information Financial Highlights Where To Learn More About the Funds Back Cover

3 The Consumer Discretionary Select Sector SPDR Fund Investment Objective The Consumer Discretionary Select Sector SPDR Fund (the Fund ) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in The Consumer Discretionary Select Sector Index (the Index ). Fees and Expenses of the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund ( Shares ). This table and the example below do not reflect brokerage commissions you may pay on purchases and sales of the Fund s Shares. Annual Fund Operating Expenses* (expenses that you pay each year as a percentage of the value of your investment): Management Fees % Distribution and Service (12b-1) Fees % Other Expenses % Total Annual Fund Operating Expenses % * Restated to reflect current fees. Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated, and then sell all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: $18 $58 $101 $230 Portfolio Turnover: The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected 1

4 in annual fund operating expenses or in the example, affect the Fund s performance. During the most recent fiscal year, the Fund s portfolio turnover rate was 6.76% of the average value of its portfolio. The Fund s Principal Investment Strategy In seeking to track the performance of the Index, the Fund employs a replication strategy, which means that the Fund typically invests in substantially all of the securities represented in the Index in approximately the same proportions as the Index. Under normal market conditions, the Fund generally invests substantially all, but at least 95%, of its total assets in the securities comprising the Index. The Fund will provide shareholders with at least 60 days notice prior to any material change in this 95% investment policy. In addition, the Fund may invest in cash and cash equivalents or money market instruments, such as repurchase agreements and money market funds (including money market funds advised by SSgA Funds Management, Inc. ( SSgA FM or the Adviser ), the investment adviser to the Fund). The Index includes companies from the following industries: media; retail (specialty, multiline, internet & catalog); hotels, restaurants & leisure; textiles, apparel & luxury goods; household durables; automobiles; auto components; distributors; leisure equipment & products; and diversified consumer services. The Index is one of nine Select Sector Indexes developed and maintained in accordance with the following criteria: (1) each of the component securities in the Index is a constituent company of the S&P 500 Index; (2) each stock in the S&P 500 Index is allocated to one and only one of the Select Sector Indexes; and (3) the Index is calculated by Standard & Poor s (the Index Provider ) using a modified market capitalization methodology. This design ensures that each of the component stocks within a Select Sector Index is represented in a proportion consistent with its percentage with respect to the total market capitalization of such Select Sector Index. Under certain conditions, however, the weighting of a component stock within the Select Sector Index may be adjusted to conform to Internal Revenue Code requirements. As of December 31, 2011, the Index was comprised of 80 stocks. 2

5 The Index is sponsored by the Index Provider and compiled by BofA Merrill Lynch Research (the Index Compilation Agent or BofA Merrill Lynch ). Neither entity is affiliated with the Fund or the Adviser. The Index Compilation Agent, in consultation with the Index Provider, determines the composition of the Index and relative weightings of the securities in the Index. The Index Provider publishes information regarding the market value of the Index. Principal Risks of Investing in the Fund As with all investments, there are certain risks of investing in the Fund, and you could lose money on an investment in the Fund. Passive Strategy/Index Risk: The Fund is managed with a passive investment strategy, attempting to track the performance of an unmanaged index of securities. This differs from an actively managed fund, which typically seeks to outperform a benchmark index. As a result, the Fund may hold constituent securities of the Index regardless of the current or projected performance of a specific security or a particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of individual securities could cause the Fund s return to be lower than if the Fund employed an active strategy. Index Tracking Risk: While the Adviser seeks to track the performance of the Index as closely as possible (i.e., achieve a high degree of correlation with the Index), the Fund s return may not match or achieve a high degree of correlation with the return of the Index due to operating expenses, transaction costs, cash flows, regulatory requirements and operational inefficiencies. For example, the Adviser anticipates that it may take several business days for additions and deletions to the Index to be reflected in the portfolio composition of the Fund. Consumer Discretionary Sector Risk: The Fund s assets will be concentrated in the consumer discretionary sector, which means the Fund will be more affected by the performance of the consumer discretionary sector than a fund that was more diversified. The success of consumer product manufacturers and retailers is tied closely to the performance of the overall domestic and international economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household 3

6 income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace. Equity Investing Risk: An investment in the Fund involves risks similar to those of investing in any fund of equity securities, such as market fluctuations, changes in interest rates and perceived trends in stock prices. Non-Diversification Risk: The Fund is non-diversified and may invest a larger percentage of its assets in securities of a few issuers or even a single issuer than that of a diversified fund. As a result, the Fund s performance may be disproportionately impacted by the performance of relatively few securities. Fund Performance The following bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund s performance from year to year and by showing how the Fund s average annual returns for certain time periods compare with the average annual returns of the Index. The Fund s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Updated performance information is available online at Annual Total Return (years ended 12/31) Annual Return 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% % % % % % 2006 Highest Quarterly Return: 19.24% (Q3, 2009) Lowest Quarterly Return: % (Q4, 2008) % % % 27.39% %

7 Average Annual Total Returns (for periods ending 12/31/11) The after-tax returns presented in the table below are calculated using highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your specific tax situation and may differ from those shown below. After-tax returns are not relevant to investors who hold shares of the Fund through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The returns after taxes can exceed the return before taxes due to an assumed tax benefit for a shareholder from realizing a capital loss on a sale of Fund shares. Prior to June 21, 2002, the Fund s investment strategy sought to track the performance of the Cyclical/Transportation Select Sector Index (the predecessor to the Fund s underlying index). Performance of the Fund and Index prior to June 21, 2002 is therefore based on the Fund s investment strategy to track the prior index. One Five s Ten s Return Before Taxes % 1.90% 4.31% Return After Taxes on Distributions % 1.65% 4.10% Return After Taxes on Distributions and Sale of Fund Shares % 1.56% 3.69% The Consumer Discretionary Select Sector Index % 2.06% 4.51% (Index returns reflect no deduction for fees, expenses or taxes) Portfolio Management Investment Adviser SSgA FM serves as the investment adviser to the Fund. Portfolio Managers The professionals primarily responsible for the day-to-day management of the Fund are Mike Feehily and John Tucker. 5

8 Mike Feehily, CFA, is a Managing Director of the Adviser. He joined the Adviser in 1997, moved to State Street Global Markets LLC in 2006 and rejoined the Adviser in John Tucker, CFA, is a Managing Director of the Adviser. He joined the Adviser in For important information about the purchase and sale of Fund shares and tax information, please turn to Summary Information about Purchases, Sales and Taxes on page 52 of this Prospectus. 6

9 The Consumer Staples Select Sector SPDR Fund Investment Objective The Consumer Staples Select Sector SPDR Fund (the Fund ) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in The Consumer Staples Select Sector Index (the Index ). Fees and Expenses of the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund ( Shares ). This table and the example below do not reflect brokerage commissions you may pay on purchases and sales of the Fund s Shares. Annual Fund Operating Expenses* (expenses that you pay each year as a percentage of the value of your investment): Management Fees % Distribution and Service (12b-1) Fees % Other Expenses % Total Annual Fund Operating Expenses % * Restated to reflect current fees. Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated, and then sell all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: $18 $58 $101 $230 Portfolio Turnover: The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when 7

10 Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund s performance. During the most recent fiscal year, the Fund s portfolio turnover rate was 3.64% of the average value of its portfolio. The Fund s Principal Investment Strategy In seeking to track the performance of the Index, the Fund employs a replication strategy, which means that the Fund typically invests in substantially all of the securities represented in the Index in approximately the same proportions as the Index. Under normal market conditions, the Fund generally invests substantially all, but at least 95%, of its total assets in the securities comprising the Index. The Fund will provide shareholders with at least 60 days notice prior to any material change in this 95% investment policy. In addition, the Fund may invest in cash and cash equivalents or money market instruments, such as repurchase agreements and money market funds (including money market funds advised by SSgA Funds Management, Inc. ( SSgA FM or the Adviser ), the investment adviser to the Fund). The Index includes companies from the following industries: food & staples retailing; household products; food products; beverages; tobacco; and personal products. The Index is one of nine Select Sector Indexes developed and maintained in accordance with the following criteria: (1) each of the component securities in the Index is a constituent company of the S&P 500 Index; (2) each stock in the S&P 500 Index is allocated to one and only one of the Select Sector Indexes; and (3) the Index is calculated by Standard & Poor s (the Index Provider ) using a modified market capitalization methodology. This design ensures that each of the component stocks within a Select Sector Index is represented in a proportion consistent with its percentage with respect to the total market capitalization of such Select Sector Index. Under certain conditions, however, the weighting of a component stock within the Select Sector Index may be adjusted to conform to Internal Revenue Code requirements. As of December 31, 2011, the Index was comprised of 42 stocks. The Index is sponsored by the Index Provider and compiled by BofA Merrill Lynch Research (the Index Compilation Agent or BofA Merrill Lynch ). 8

11 Neither entity is affiliated with the Fund or the Adviser. The Index Compilation Agent, in consultation with the Index Provider, determines the composition of the Index and relative weightings of the securities in the Index. The Index Provider publishes information regarding the market value of the Index. Principal Risks of Investing in the Fund As with all investments, there are certain risks of investing in the Fund, and you could lose money on an investment in the Fund. Passive Strategy/Index Risk: The Fund is managed with a passive investment strategy, attempting to track the performance of an unmanaged index of securities. This differs from an actively managed fund, which typically seeks to outperform a benchmark index. As a result, the Fund may hold constituent securities of the Index regardless of the current or projected performance of a specific security or a particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of individual securities could cause the Fund s return to be lower than if the Fund employed an active strategy. Index Tracking Risk: While the Adviser seeks to track the performance of the Index as closely as possible (i.e., achieve a high degree of correlation with the Index), the Fund s return may not match or achieve a high degree of correlation with the return of the Index due to operating expenses, transaction costs, cash flows, regulatory requirements and operational inefficiencies. For example, the Adviser anticipates that it may take several business days for additions and deletions to the Index to be reflected in the portfolio composition of the Fund. Consumer Staples Sector Risk: The Fund s assets will be concentrated in the consumer staples sector, which means the Fund will be more affected by the performance of the consumer staples sector than a fund that was more diversified. Companies in the Index are subject to government regulation affecting their products which may negatively impact such companies performance. For instance, government regulations may affect the permissibility of using various food additives and production methods of companies that make food products, which could affect company profitability. Tobacco companies may be adversely affected 9

12 by the adoption of proposed legislation and/or by litigation. Also, the success of food, beverage, household and personal products companies may be strongly affected by consumer interest, marketing campaigns and other factors affecting supply and demand, including performance of the overall domestic and international economy, interest rates, competition and consumer confidence and spending. Equity Investing Risk: An investment in the Fund involves risks similar to those of investing in any fund of equity securities, such as market fluctuations, changes in interest rates and perceived trends in stock prices. Non-Diversification Risk: The Fund is non-diversified and may invest a larger percentage of its assets in securities of a few issuers or even a single issuer than that of a diversified fund. As a result, the Fund s performance may be disproportionately impacted by the performance of relatively few securities. Fund Performance The following bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund s performance from year to year and by showing how the Fund s average annual returns for certain time periods compare with the average annual returns of the Index. The Fund s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Updated performance information is available online at Annual Total Return (years ended 12/31) 30% Annual Return 20% 10% 0% -10% -20% -30% % % 10.92% 12.49% 14.21% 13.86% 14.00% 7.80% 2.85% Highest Quarterly Return: 11.46% (Q3, 2009) Lowest Quarterly Return: % (Q2, 2002) %

13 Average Annual Total Returns (for periods ending 12/31/11) The after-tax returns presented in the table below are calculated using highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your specific tax situation and may differ from those shown below. After-tax returns are not relevant to investors who hold shares of the Fund through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The returns after taxes can exceed the return before taxes due to an assumed tax benefit for a shareholder from realizing a capital loss on a sale of Fund shares. One Five s Ten s Return Before Taxes % 7.23% 4.80% Return After Taxes on Distributions % 6.80% 4.40% Return After Taxes on Distributions and Sale of Fund Shares % 6.17% 4.05% The Consumer Staples Select Sector Index % 7.44% 5.04% (Index returns reflect no deduction for fees, expenses or taxes) Portfolio Management Investment Adviser SSgA FM serves as the investment adviser to the Fund. Portfolio Managers The professionals primarily responsible for the day-to-day management of the Fund are Mike Feehily and John Tucker. Mike Feehily, CFA, is a Managing Director of the Adviser. He joined the Adviser in 1997, moved to State Street Global Markets LLC in 2006 and rejoined the Adviser in John Tucker, CFA, is a Managing Director of the Adviser. He joined the Adviser in For important information about the purchase and sale of Fund shares and tax information, please turn to Summary Information about Purchases, Sales and Taxes on page 52 of this Prospectus. 11

14 The Energy Select Sector SPDR Fund Investment Objective The Energy Select Sector SPDR Fund (the Fund ) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in The Energy Select Sector Index (the Index ). Fees and Expenses of the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund ( Shares ). This table and the example below do not reflect brokerage commissions you may pay on purchases and sales of the Fund s Shares. Annual Fund Operating Expenses* (expenses that you pay each year as a percentage of the value of your investment): Management Fees % Distribution and Service (12b-1) Fees % Other Expenses % Total Annual Fund Operating Expenses % * Restated to reflect current fees. Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated, and then sell all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: $18 $58 $101 $230 Portfolio Turnover: The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when 12

15 Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund s performance. During the most recent fiscal year, the Fund s portfolio turnover rate was 3.48% of the average value of its portfolio. The Fund s Principal Investment Strategy In seeking to track the performance of the Index, the Fund employs a replication strategy, which means that the Fund typically invests in substantially all of the securities represented in the Index in approximately the same proportions as the Index. Under normal market conditions, the Fund generally invests substantially all, but at least 95%, of its total assets in the securities comprising the Index. The Fund will provide shareholders with at least 60 days notice prior to any material change in this 95% investment policy. In addition, the Fund may invest in cash and cash equivalents or money market instruments, such as repurchase agreements and money market funds (including money market funds advised by SSgA Funds Management, Inc. ( SSgA FM or the Adviser ), the investment adviser to the Fund). The Index includes companies from the following industries: oil, gas & consumable fuels; and energy equipment & services. The Index is one of nine Select Sector Indexes developed and maintained in accordance with the following criteria: (1) each of the component securities in the Index is a constituent company of the S&P 500 Index; (2) each stock in the S&P 500 Index is allocated to one and only one of the Select Sector Indexes; and (3) the Index is calculated by Standard & Poor s (the Index Provider ) using a modified market capitalization methodology. This design ensures that each of the component stocks within a Select Sector Index is represented in a proportion consistent with its percentage with respect to the total market capitalization of such Select Sector Index. Under certain conditions, however, the weighting of a component stock within the Select Sector Index may be adjusted to conform to Internal Revenue Code requirements. As of December 31, 2011, the Index was comprised of 42 stocks. The Index is sponsored by the Index Provider and compiled by BofA Merrill Lynch Research (the Index Compilation Agent or BofA Merrill Lynch ). 13

16 Neither entity is affiliated with the Fund or the Adviser. The Index Compilation Agent, in consultation with the Index Provider, determines the composition of the Index and relative weightings of the securities in the Index. The Index Provider publishes information regarding the market value of the Index. Principal Risks of Investing in the Fund As with all investments, there are certain risks of investing in the Fund, and you could lose money on an investment in the Fund. Passive Strategy/Index Risk: The Fund is managed with a passive investment strategy, attempting to track the performance of an unmanaged index of securities. This differs from an actively managed fund, which typically seeks to outperform a benchmark index. As a result, the Fund may hold constituent securities of the Index regardless of the current or projected performance of a specific security or a particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of individual securities could cause the Fund s return to be lower than if the Fund employed an active strategy. Index Tracking Risk: While the Adviser seeks to track the performance of the Index as closely as possible (i.e., achieve a high degree of correlation with the Index), the Fund s return may not match or achieve a high degree of correlation with the return of the Index due to operating expenses, transaction costs, cash flows, regulatory requirements and operational inefficiencies. For example, the Adviser anticipates that it may take several business days for additions and deletions to the Index to be reflected in the portfolio composition of the Fund. Energy Sector Risk: The Fund s assets will be concentrated in the energy sector, which means the Fund will be more affected by the performance of the energy sector than a fund that was more diversified. Energy companies in the Index develop and produce oil, gas and consumable fuels and provide drilling and other energy resources production and distribution related services. Stock prices for these types of companies are affected by supply and demand, exploration and production spending, world events and economic conditions, swift price and supply fluctuations, energy conservation, the success of exploration projects, liabilities for 14

17 environmental damage and general civil liabilities and tax and other governmental regulatory policies. Weak demand for energy companies products or services or for energy products and services in general, as well as negative developments in these other areas, including natural disasters or terrorist attacks, would adversely impact the Fund s performance. Equity Investing Risk: An investment in the Fund involves risks similar to those of investing in any fund of equity securities, such as market fluctuations, changes in interest rates and perceived trends in stock prices. Non-Diversification Risk: The Fund is non-diversified and may invest a larger percentage of its assets in securities of a few issuers or even a single issuer than that of a diversified fund. As a result, the Fund s performance may be disproportionately impacted by the performance of relatively few securities. Fund Performance The following bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund s performance from year to year and by showing how the Fund s average annual returns for certain time periods compare with the average annual returns of the Index. The Fund s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Updated performance information is available online at Annual Total Return (years ended 12/31) Annual Return 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% % % 33.41% 40.20% 36.34% % 2006 Highest Quarterly Return: 22.12% (Q4, 2010) Lowest Quarterly Return: % (Q3, 2008) % % 21.72% %

18 Average Annual Total Returns (for periods ending 12/31/11) The after-tax returns presented in the table below are calculated using highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your specific tax situation and may differ from those shown below. After-tax returns are not relevant to investors who hold shares of the Fund through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The returns after taxes can exceed the return before taxes due to an assumed tax benefit for a shareholder from realizing a capital loss on a sale of Fund shares. One Five s Ten s Return Before Taxes % 4.93% 11.73% Return After Taxes on Distributions % 4.68% 11.41% Return After Taxes on Distributions and Sale of Fund Shares % 4.21% 10.41% The Energy Select Sector Index % 5.13% 11.98% (Index returns reflect no deduction for fees, expenses or taxes) Portfolio Management Investment Adviser SSgA FM serves as the investment adviser to the Fund. Portfolio Managers The professionals primarily responsible for the day-to-day management of the Fund are Mike Feehily and John Tucker. Mike Feehily, CFA, is a Managing Director of the Adviser. He joined the Adviser in 1997, moved to State Street Global Markets LLC in 2006 and rejoined the Adviser in John Tucker, CFA, is a Managing Director of the Adviser. He joined the Adviser in For important information about the purchase and sale of Fund shares and tax information, please turn to Summary Information about Purchases, Sales and Taxes on page 52 of this Prospectus. 16

19 The Financial Select Sector SPDR Fund Investment Objective The Financial Select Sector SPDR Fund (the Fund ) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in The Financial Select Sector Index (the Index ). Fees and Expenses of the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund ( Shares ). This table and the example below do not reflect brokerage commissions you may pay on purchases and sales of the Fund s Shares. Annual Fund Operating Expenses* (expenses that you pay each year as a percentage of the value of your investment): Management Fees % Distribution and Service (12b-1) Fees % Other Expenses % Total Annual Fund Operating Expenses % * Restated to reflect current fees. Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated, and then sell all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: $18 $58 $101 $230 Portfolio Turnover: The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when 17

20 Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund s performance. During the most recent fiscal year, the Fund s portfolio turnover rate was 7.07% of the average value of its portfolio. The Fund s Principal Investment Strategy In seeking to track the performance of the Index, the Fund employs a replication strategy, which means that the Fund typically invests in substantially all of the securities represented in the Index in approximately the same proportions as the Index. Under normal market conditions, the Fund generally invests substantially all, but at least 95%, of its total assets in the securities comprising the Index. The Fund will provide shareholders with at least 60 days notice prior to any material change in this 95% investment policy. In addition, the Fund may invest in cash and cash equivalents or money market instruments, such as repurchase agreements and money market funds (including money market funds advised by SSgA Funds Management, Inc. ( SSgA FM or the Adviser ), the investment adviser to the Fund). The Index includes companies from the following industries: diversified financial services; insurance; commercial banks; capital markets; real estate investment trusts ( REITs ); consumer finance; thrifts & mortgage finance; and real estate management & development. The Index is one of nine Select Sector Indexes developed and maintained in accordance with the following criteria: (1) each of the component securities in the Index is a constituent company of the S&P 500 Index; (2) each stock in the S&P 500 Index is allocated to one and only one of the Select Sector Indexes; and (3) the Index is calculated by Standard & Poor s (the Index Provider ) using a modified market capitalization methodology. This design ensures that each of the component stocks within a Select Sector Index is represented in a proportion consistent with its percentage with respect to the total market capitalization of such Select Sector Index. Under certain conditions, however, the weighting of a component stock within the Select Sector Index may be adjusted to conform to Internal Revenue Code requirements. As of December 31, 2011, the Index was comprised of 80 stocks. 18

21 The Index is sponsored by the Index Provider and compiled by BofA Merrill Lynch Research (the Index Compilation Agent or BofA Merrill Lynch ). Neither entity is affiliated with the Fund or the Adviser. The Index Compilation Agent, in consultation with the Index Provider, determines the composition of the Index and relative weightings of the securities in the Index. The Index Provider publishes information regarding the market value of the Index. Principal Risks of Investing in the Fund As with all investments, there are certain risks of investing in the Fund, and you could lose money on an investment in the Fund. Passive Strategy/Index Risk: The Fund is managed with a passive investment strategy, attempting to track the performance of an unmanaged index of securities. This differs from an actively managed fund, which typically seeks to outperform a benchmark index. As a result, the Fund may hold constituent securities of the Index regardless of the current or projected performance of a specific security or a particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of individual securities could cause the Fund s return to be lower than if the Fund employed an active strategy. Index Tracking Risk: While the Adviser seeks to track the performance of the Index as closely as possible (i.e., achieve a high degree of correlation with the Index), the Fund s return may not match or achieve a high degree of correlation with the return of the Index due to operating expenses, transaction costs, cash flows, regulatory requirements and operational inefficiencies. For example, the Adviser anticipates that it may take several business days for additions and deletions to the Index to be reflected in the portfolio composition of the Fund. Financial Sector Risk: The Fund s assets will be concentrated in the financial sector, which means the Fund will be more affected by the performance of the financial sector than a fund that was more diversified. Financial services companies are subject to extensive governmental regulation which may limit both the amounts and types of loans and other financial commitments they can make, the interest rates and fees they can charge, the scope of their activities, the prices they can charge and the 19

22 amount of capital they must maintain. Profitability is largely dependent on the availability and cost of capital funds, and can fluctuate significantly when interest rates change or due to increased competition. In addition, the recent deterioration of the credit markets generally has caused an adverse impact in a broad range of markets, including U.S. and international credit and interbank money markets generally, thereby affecting a wide range of financial institutions and markets. Recent events in the financial sector have resulted, and may continue to result, in an unusually high degree of volatility in the financial markets, both domestic and foreign, and cause certain financial services companies to incur large losses. Numerous financial services companies have experienced substantial declines in the valuations of their assets, taken action to raise capital (such as the issuance of debt or equity securities), or even ceased operations. Credit losses resulting from financial difficulties of borrowers and financial losses associated with investment activities can negatively impact the sector. Insurance companies may be subject to severe price competition. Adverse economic, business or political developments affecting real estate could have a major effect on the value of real estate securities (which include REITs). Declining real estate values could adversely affect financial institutions engaged in mortgage finance or other lending or investing activities directly or indirectly connected to the value of real estate. Equity Investing Risk: An investment in the Fund involves risks similar to those of investing in any fund of equity securities, such as market fluctuations, changes in interest rates and perceived trends in stock prices. Non-Diversification Risk: The Fund is non-diversified and may invest a larger percentage of its assets in securities of a few issuers or even a single issuer than that of a diversified fund. As a result, the Fund s performance may be disproportionately impacted by the performance of relatively few securities. Fund Performance The following bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund s performance from year to year and by showing how the Fund s average annual returns for certain time periods compare with the average annual returns of the Index. The Fund s past 20

23 performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Updated performance information is available online at Annual Total Return (years ended 12/31) 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% Annual Return % % 18.84% 10.63% 6.19% Highest Quarterly Return: 35.82% (Q2, 2009) Lowest Quarterly Return: % (Q4, 2008) % % % 11.98% % Average Annual Total Returns (for periods ending 12/31/11) The after-tax returns presented in the table below are calculated using highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your specific tax situation and may differ from those shown below. After-tax returns are not relevant to investors who hold shares of the Fund through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The returns after taxes can exceed the return before taxes due to an assumed tax benefit for a shareholder from realizing a capital loss on a sale of Fund shares. One 2011 Five s Ten s Return Before Taxes % % -4.74% Return After Taxes on Distributions % % -5.17% Return After Taxes on Distributions and Sale of Fund Shares % % -3.84% The Financial Select Sector Index % % -4.57% (Index returns reflect no deduction for fees, expenses or taxes) 21

24 Portfolio Management Investment Adviser SSgA FM serves as the investment adviser to the Fund. Portfolio Managers The professionals primarily responsible for the day-to-day management of the Fund are Mike Feehily and John Tucker. Mike Feehily, CFA, is a Managing Director of the Adviser. He joined the Adviser in 1997, moved to State Street Global Markets LLC in 2006 and rejoined the Adviser in John Tucker, CFA, is a Managing Director of the Adviser. He joined the Adviser in For important information about the purchase and sale of Fund shares and tax information, please turn to Summary Information about Purchases, Sales and Taxes on page 52 of this Prospectus. 22

25 The Health Care Select Sector SPDR Fund Investment Objective The Health Care Select Sector SPDR Fund (the Fund ) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in The Health Care Select Sector Index (the Index ). Fees and Expenses of the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund ( Shares ). This table and the example below do not reflect brokerage commissions you may pay on purchases and sales of the Fund s Shares. Annual Fund Operating Expenses* (expenses that you pay each year as a percentage of the value of your investment): Management Fees % Distribution and Service (12b-1) Fees % Other Expenses % Total Annual Fund Operating Expenses % * Restated to reflect current fees. Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated, and then sell all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: $18 $58 $101 $230 Portfolio Turnover: The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when 23

26 Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund s performance. During the most recent fiscal year, the Fund s portfolio turnover rate was 6.99% of the average value of its portfolio. The Fund s Principal Investment Strategy In seeking to track the performance of the Index, the Fund employs a replication strategy, which means that the Fund typically invests in substantially all of the securities represented in the Index in approximately the same proportions as the Index. Under normal market conditions, the Fund generally invests substantially all, but at least 95%, of its total assets in the securities comprising the Index. The Fund will provide shareholders with at least 60 days notice prior to any material change in this 95% investment policy. In addition, the Fund may invest in cash and cash equivalents or money market instruments, such as repurchase agreements and money market funds (including money market funds advised by SSgA Funds Management, Inc. ( SSgA FM or the Adviser ), the investment adviser to the Fund). The Index includes companies from the following industries: pharmaceuticals; health care equipment & supplies; health care providers & services; biotechnology; life sciences tools & services; and health care technology. The Index is one of nine Select Sector Indexes developed and maintained in accordance with the following criteria: (1) each of the component securities in the Index is a constituent company of the S&P 500 Index; (2) each stock in the S&P 500 Index is allocated to one and only one of the Select Sector Indexes; and (3) the Index is calculated by Standard & Poor s (the Index Provider ) using a modified market capitalization methodology. This design ensures that each of the component stocks within a Select Sector Index is represented in a proportion consistent with its percentage with respect to the total market capitalization of such Select Sector Index. Under certain conditions, however, the weighting of a component stock within the Select Sector Index may be adjusted to conform to Internal Revenue Code requirements. As of December 31, 2011, the Index was comprised of 52 stocks. 24

27 The Index is sponsored by the Index Provider and compiled by BofA Merrill Lynch Research (the Index Compilation Agent or BofA Merrill Lynch ). Neither entity is affiliated with the Fund or the Adviser. The Index Compilation Agent, in consultation with the Index Provider, determines the composition of the Index and relative weightings of the securities in the Index. The Index Provider publishes information regarding the market value of the Index. Principal Risks of Investing in the Fund As with all investments, there are certain risks of investing in the Fund, and you could lose money on an investment in the Fund. Passive Strategy/Index Risk: The Fund is managed with a passive investment strategy, attempting to track the performance of an unmanaged index of securities. This differs from an actively managed fund, which typically seeks to outperform a benchmark index. As a result, the Fund may hold constituent securities of the Index regardless of the current or projected performance of a specific security or a particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of individual securities could cause the Fund s return to be lower than if the Fund employed an active strategy. Index Tracking Risk: While the Adviser seeks to track the performance of the Index as closely as possible (i.e., achieve a high degree of correlation with the Index), the Fund s return may not match or achieve a high degree of correlation with the return of the Index due to operating expenses, transaction costs, cash flows, regulatory requirements and operational inefficiencies. For example, the Adviser anticipates that it may take several business days for additions and deletions to the Index to be reflected in the portfolio composition of the Fund. Health Care Sector Risk: The Fund s assets will be concentrated in the health care sector, which means the Fund will be more affected by the performanceofthehealthcaresectorthanafundthatwasmorediversified. Companies in the health care sector are subject to extensive government regulation and their profitability can be significantly affected by restrictions on government reimbursement for medical expenses, rising costs of medical products and services, pricing pressure (including price discounting), limited 25

28 product lines and an increased emphasis on the delivery of healthcare through outpatient services. Companies in the health care sector are heavily dependent on obtaining and defending patents, which may be time consuming and costly, and the expiration of patents may also adversely affect the profitability of the companies. Health care companies are also subject to extensive litigation based on product liability and similar claims. In addition, their products can become obsolete due to industry innovation, changes in technologies or other market developments. Many new products in the health care sector require significant research and development and may be subject to regulatory approvals, all of which may be time consuming and costly with no guarantee that any product will come to market. Equity Investing Risk: An investment in the Fund involves risks similar to those of investing in any fund of equity securities, such as market fluctuations, changes in interest rates and perceived trends in stock prices. Non-Diversification Risk: The Fund is non-diversified and may invest a larger percentage of its assets in securities of a few issuers or even a single issuer than that of a diversified fund. As a result, the Fund s performance may be disproportionately impacted by the performance of relatively few securities. Fund Performance The following bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund s performance from year to year and by showing how the Fund s average annual returns for certain time periods compare with the average annual returns of the Index. The Fund s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Updated performance information is available online at 26