XLF Financial Select Sector

Select Sector SPDRs, a family of exchange traded funds (ETFs) that divide the S&P 500 into nine individual sector funds, saw its collective assets under management climb by 51.95% or $8.87 billion in 2007. This brings Select Sector SPDRs� total assets to $25.9 billion, expanding its position as the leading sector ETF family. Launched in 1998, Select Sector SPDRs is the oldest brand name in sector exchange-traded funds. Leading the Sector SPDRs asset gainers for 2007 was Financials (XLF), which soared a dramatic 122.94% to end the year with $5.02 billion. The Energy SPDR ETF (XLE) rose 86.41% to finish at $7 billion. The Materials (XLB), Healthcare (XLV), Consumer Staples (XLP), Industrials (XLI) and Technology SPDRs (XLK) all posted double-digit gains, followed by the Consumer Discretionary SPDR (XLY), which ended the year up 8.56%. Only the Utility SPDR (XLU) ended 2007 in a negative position, with an asset decline of 16.80% for the year. �Two thousand and seven was another extremely strong year of asset growth for us, driven both by professional investors using Sector SPDRs for long or short purposes, and individual investors looking to augment their portfolios with the specific sectors they feel bullish about,� said Dan Dolan, Director � Wealth Management Strategies, Select Sector SPDR Trust. �While most ETF providers continue to position their products as substitutes for traditional mutual funds, an attribute from which we also benefit, we�re seeing increased usage of Select Sector SPDRs as substitutes for equities, to reduce single stock exposure.� Shorts Turn to Financials Select Sector SPDRs are used by many professional investors to hedge portfolio positions. Short sellers(1) had an especially active 2007, ratcheting up their positions across all but two of the nine sectors by an aggregate 78% or a 111 million share increase in short positions since the end of December 2006. Leading the short interest position gainers among the sectors was Financials which rose by a blistering 417%, or more than 115 million shares shorted in 2007, followed by Consumer Discretionary (XLY), which saw its short positions increase by 186% or 14 million shares. Technology (XLK) took a distant third place, rising 32% for a total of nine million shares shorted. (1) Short Selling is the practice of selling financial securities the seller does not then own, in the hope of repurchasing them later at a lower price. This is done in an attempt to profit from an expected decline in price of a security. Short positions represent the total amount of shares of a given security that has been sold short and not covered, as of a particular date. The following charts show individual Select Sector SPDRs asset flows, 12/31/06 � 12/31/07, and short interest positions for all nine sectors for the same period. SPDR � Ticker � Assets 12/31/06 � Assets 12/31/07 � Net Assets % Change Mater- ials XLB $1,023,901,340 $1,421,970,000 $398,068,660 38.88% Energy XLE $3,758,769,300 $7,006,605,000 $3,247,835,700 86.41% Indus- trials XLI $1,068,120,090 $1,664,300,000 $$596,179,910 55.82% Util- ities XLU $2,994,112,080 $2,491,120,500 ($502,991,580) -16.80% Tech- nology XLK $2,007,431,040 $3,013,913,000 $1,006,481,960 50.14% Health Care XLV $1,842,117,450 $2,450,514,000 $608,396,550 33.03% Consumer Staples XLP $1,490,276,600 $2,188,800,000 $698,523,400 46.87% Consumer Discret- ionary XLY $652,158,360 $707,955,000 $55,796640 8.56% Finan- cials XLF $2,252,749,840 $5,022,248,000 $2,769,498,160 122.94% Total � $17,089,636,100 $25,967,425,500 $8,877,789,400 51.95% SPDR Ticker Short Interest 12/31/06 (Shares) � Short Interest 12/31/07 (Shares) � Short Interest % Change Utilities XLU 15688000 13339882 -14.97 Financials XLF 22358000 115718121 417.56% Technology XLK 6806000 8979913 31.94% Energy XLE 54118000 55876065 3.25% Materials XLB 13972000 17084007 22.27% Consumer Staples XLP 4178000 4655897 11.44% Health Care XLV 10015000 7758905 -22.53% Industrials XLI 7767000 8856424 14.03% Consumer Discretionary XLY 7772000 22198962 185.63% Total � 142,674,000 254,468,176 78.36% About Select Sector SPDRs Select Sector SPDRs are ETFs (Exchange Traded Funds) that divide the S&P 500 into nine sector index funds: Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Materials, Technology and Utilities. Select Sector SPDRs allow investors to customize their portfolios by picking and weighting the sectors to meet specific investment goals. Select Sector SPDR shares are actively traded on the American Stock Exchange throughout the trading day. SSgA Funds Management, Inc. serves as the Adviser to the Trust and, subject to the supervision of the Board of Trustees, is responsible for the investment management of the Select Sector SPDR Funds. For more information see http://sectorspdrs.com . ALPS Distributors Inc., a registered broker-dealer, is the distributor for the Select Sector SPDR Trust. An investor should consider investment objectives, risks, charges, and expenses carefully before investing. To obtain a prospectus which contains this and other information, visit www.spdrindex.com/common/prospectus.pdf. Please read the prospectus carefully before investing. All ETFs are subject to risk, including possible loss of principal. Sector ETF products are also subject to sector risks and non-diversification risks, which may result in greater fluctuations than the overall stock market. Select Sector SPDRs are subject to risk similar to those of stocks including those regarding short-selling and margin account maintenance. The Select Sector SPDR is a trademark of the McGraw-Hill Companies, Inc. and has been licensed for use. The stocks included in each Select Sector Index were selected by the compilation agent. The composition and weighting of each Index can be expected to differ to that of any similar index that is published by Standard & Poor�s. Select Sector SPDRs bear a higher level of risk than more broadly diversified funds. SEL00314 Expiration Date � 3/31/08