1. How do you add value? + State Street 2005 1 value defined 8
shareholder letter 14 customer value 36 financial summary 48
corporate information 49 board of directors 50 executive leadership
52 worldwide locations State Street Corporation How do you add
value? State Street is the worlds leading provider of financial
services to institutional investors. Our broad and integrated range
of State Street Financial Center services spans the entire
investment spectrum including research, investment management,
trading services and investment One Lincoln Street servicing. Our
competitive advantage lies in our focus and the commitment of more
than 20,000 employees operating in 26 State Street 2005 Boston,
Massachusetts 02111-2900 countries around the world. Because of
this focus, we can continually invest in our business and build
dynamic, long-term +1 617 786 3000 relationships with our
customers. In doing so, we deliver a value and service that
customers cannot get anywhere else. www.statestreet.com For more
information, visit www.statestreet.com. Design and content by State
Street Global Marketing 05-STT0423 Photography by Andy Ryan, Tom
Kates and Getty Images 2006 STATE STREET CORPORATION
2. 2005 Financial Highlights $ millions, except per share data
2005(1) 2004(2) $ Change % Change Total revenue(3) $ 4,951 $ 522
11% $ 5,473 Total operating expenses 3,759 282 8 4,041 Income from
continuing operations 798 147 18 945 Net income 798 40 5 838
Earnings per share from continuing operations: Basic $ 2.38 $ .48
20 $ 2.86 Diluted 2.35 .47 20 2.82 Earnings per share: Basic $ 2.38
$ .15 6 $ 2.53 Diluted 2.35 .15 6 2.50 Cash dividends declared per
share .64 .08 13 .72 Return on shareholders equity from continuing
operations 13.3% 15.3% Return on shareholders equity 13.3 13.6
Diluted Earnings Per Share Total Revenue 2005 was a year of goals
set and met. From Continuing Operations (1) In 2005, we recorded a
loss from discontinued operations of $107 million (2) In 2004,
operating expenses included $62 million, or $.12 per share, of (1)
2002 earnings per share included the gain on the sale of the
divested (3) 2004 earnings per share included GSS acquisition
merger and integration (charge of $165 million reduced by related
tax benefit of $58 million), merger and integration costs related
to the acquisition of a substantial Corporate Trust business of
$.90 per share. costs of $.12 per share. or $.32 per share, related
to a plan to divest our ownership interest in Bel portion of the
Global Securities Services, or GSS, business of Deutsche (2) 2003
earnings per share included the combined gains on sales of the (4)
2002 total revenue included the gain on the sale of the divested
Corporate Air Investment Advisors LLC. Bank AG. Excluding these
costs, diluted earnings per share from continuing divested
Corporate Trust and Private Asset Management businesses of Trust
business of $495 million. operations for 2004 were $2.47. $.68 per
share, and combined charges for divestiture costs, GSS acquisition
(5) 2003 total revenue included the combined gains on sales of the
divested (3) On a taxable-equivalent basis, total revenue for 2005
of $5.52 billion merger and integration costs, restructuring
expenses, settlement of a state Corporate Trust and Private Asset
Management businesses of $345 million increased $519 million, or
10%, from $5.00 billion in 2004. tax matter and a loss on certain
real estate sold equal to $.86 per share. and a loss on certain
real estate sold of $13 million.
3. Value is more than just numbers.
4. More than late nights at the office. STT 2
5. Bigger than ideas. STT 3
6. It transcends geographies. STT 4
7. And lines of communication. STT 5
8. 28 consecutive years of operating earnings per share growth
+ operations in U.K. authority wins + 2.4 million trade settlements
averaged per month + 9 new + 6,000 employees involved in volunteer
projects + more than 10 years in hedge on FX Connect + serving 37%
of the U.S. pension and tax-exempt market + years in business + No.
1 manager of institutional assets worldwide + more 19 percent of
retail and institutional fund assets in Germany + more than 3,200
operating expenses invested in technology + new regional data
within State + $382 billion in transition management assets +
double-digit growth in fee and Exchange Trading Platform +
servicing $2.8 trillion in assets for investment quantitative
investment management approach + more than 20,000 employees of
exchange-traded funds worldwide + $1.4 million donated to global
disaster under management + enhanced my.statestreet.com + 27
consecutive years management + up to 23,000 foreign exchange trades
per week matched by GTSS than $640 billion assets under
administration in Asia-Pacific + top rated in + 34,000 hours of
community service invested by employees + 13 independent products +
No. 1 investment manager in Europe + custody services for more 35
countries + 414,000 Fed wire transfers averaged per month + Global
Alpha + Worlds Best Bank in Asset Management + 4 new offices opened
in 2005 of trust assets in Japan held by non-domestic banks + 31%
of U.S. mutual portfolios measured by WM Performance Services +
$130 billion in hedge STT 6
9. 26 countries + more than $10 trillion in assets under
custody + 4 new local exchange-traded funds launched + 80% of new
revenue from existing customers fund servicing + exceeded $45
billion in daily foreign exchange trading volume trust and
valuation services for more than 4,500 daily priced portfolios +
213 than $500 billion offshore assets serviced + Depotbank services
for more than information technology professionals worldwide +
20-25 percent of annual Street Investor Confidence Index + 37% of
workforce outside the United States total revenue + 40% of U.S.
mutual funds serviced + Best Multibank Foreign manager operations
outsourcing + 51 active stock selection strategies with worldwide +
19% of U.K. pension fund assets serviced + Second largest manager
relief efforts + 834 investment servicing wins + more than $1.4 in
trillion assets of biannual dividend increases + 27% growth in
global equity assets under + 4.1 million automated clearinghouse
transactions averaged per month + more hedge fund administration +
57 billion in quantitative active equity strategies directors + top
100 customers average a 14-year relationship and use 12.8 than 20%
of fund assets in Canada + securities finance customers in more
than Plus investment strategy launched + 39% of revenue generated
outside the U.S. + Best Custodian + 837 portfolio transitions
completed + more than 36% fund net assets values published daily to
the NASDAQ + 5,000 investment fund assets under administration +
1,252 new investment management wins Its more. STT 7
10. 2005 Headlines 01.06.05 Named Investment Service Provider
to Mexicos Profuturo GNP + 01.10.05 State Street Global Advisors To
Our Shareholders + Joseph C. Antonellis + Ronald E. Logue + William
W. Hunt + Joseph L. Hooley Executive Vice President and Chairman
and Executive Vice President, Executive Vice President, Chief
Information Officer, Chief Executive Officer, State Street
Corporation; Global Head of Investor Services, State Street
Corporation State Street Corporation President and Chief Executive
Officer, State Street Corporation State Street Global Advisors STT
8
11. Launched Pooled Asset Liability Matching Solution +
01.11.05 Ranked First by International Securities Finance Magazine
in its 2004 Combined Beneficial State Street delivered value in
2005. We delivered value to our shareholders, our customers, our
employees and the communities in which we operate. We achieved this
value by focusing on delivering for our customers, executing our
plan against our goals, performing consistently for our
shareholders, providing more opportunities for our employees, and
continuing to give back to the communities where we do business.
Our goals for 2005 included growth in operating earnings per share
of between 10 and 15 percent, growth in operating revenue of
between 8 and 12 percent, and operating return on shareholders
equity of between 14 and 17 percent. We achieved these goals,
increasing operating earnings per share from continuing operations
by 14 percent and operating revenue by 10 percent and recording
return on shareholders equity from continuing operations of 15.3
percent. Assets under custody hit an all-time high of $10.1
trillion and assets under management rose to a record $1.4
trillion. 2005 was our 28th consecutive year of operating earnings
per share growth and our 27th consec- utive year of dividend
increases, which rose 12 percent. We also repurchased 13 million
shares of our stock, putting our share count at 334 million shares
outstanding, just as it was at the end of 2004. I measure the years
achievements in four ways. Financial We remained focused on the
bottom line in 2005, carefully balancing revenue growth with
contin- ued expense management. This focus allowed us to generate
positive operating leverage for the year, an objective I set out to
accomplish when I took over as chairman and chief executive officer
in July 2004, and one that I continue to target. I view our 2005
results as a start, and an indication that we are heading in the
right direction. Business growth across the company helped fuel our
revenue increase in 2005. We added more than 2,000 new investment
servicing and investment management wins in 2005, a result of our
strong sales culture and our ability to execute. State Street
Global Advisors (SSgA), our investment management arm and the
largest institutional asset manager in the world, also posted
significant growth in 2005 and improved its contribution to State
Street overall. SSgA now represents 21 percent of State Streets
total pretax income, up from 17 percent a year ago. We continued to
deepen existing customer relationships and expand new product
capabilities. These factors, combined with new business growth,
enabled us to deliver what I consider to be better top-line
performance than our peers. STT 9
12. Owner and Borrower Rankings Assessment + 01.14.05 Received
$2 Billion Pension Plan Business from ChevronTexaco Corp. +
01.31.05 Celebrated 10 Years We continue to see significant
opportunities for growth outside of the United States, which
accounted for 39 percent of State Streets revenue in 2005, up from
37 percent at the end of 2004. I have set a goal of increasing this
number to 50 percent over time, fueled in part by the growth of
savings and retirement assets in Europe and the Asia-Pacific region
and the globalization of investing. In addition to revenue growth,
positive operating leverage was achieved through expense control.
By monitoring our headcount, adding mainly to support new business
wins and by better aligning our real estate portfolio with our
needs, we slowed our rate of expense growth. Our strengthened and
more cost-effective global servicing model, shaped in part by new
regulatory requirements, helped us to better serve our customers in
the locations where they do business. We now have processing hubs
in multiple locations around the world including Canada and India.
The centralized treasury group that we formed early in 2005 has
improved management of our balance sheet, which is driven by
customer liabilities. To better position State Street for rising
interest rates, in 2005 we expanded the investment portfolio and
adjusted the mix of investments to include higher yielding
floating-rate securities, ending the year with a conservatively
invested portfolio, 95 percent of which was AA rated or better.
Customer State Streets singular focus on providing large, global
institutional investors with unparalleled service and value
remained a differentiator for our company in 2005. Our ability to
handle complex transactions, create innovative solutions and
improve efficiencies helped us to attract new customers and add
significant value to our existing customer relationships around the
world. 2,086 14% growth in operating earnings per share new
investment servicing and from continuing operations investment
management wins STT 10
13. in Kansas City + 02.22.05 Appointed by Brandywine Asset
Management to Provide Managed Account Outsourcing Services +
02.25.05 Named Best Custodian Major wins that fell into the
expanded business category in 2005 included a landmark investment
manager operations outsourcing renewal from Scottish Widows
Investment Partnership in Edinburgh, extending our relationship
with this customer well into a second decade. The years biggest
investment servicing win, from Columbia Management Advisors, LLC,
the asset management arm of Bank of America, gave State Street a
key role in one of the largest fund integrations in the history of
the mutual fund industry. This piece of business expands upon our
existing relationship with a fund family that was acquired by Bank
of America and illustrates our ability to earn the trust and
confidence of our customers, as does another investment servicing
appointment from Charles Schwab Investment Management for $149
billion in assets. Two wins from Volkswagen Group one in the United
Kingdom and the other in Germany are further proof of our ability
to expand many of the custody and accounting relationships we
established years ago. We also established many new customer
relationships in 2005 in all major geographies and across all our
capabilities. These relationships include conducting one of the
largest-ever portfolio transitions for a customer in Japan and
providing servicing and management for a wide range of pension and
investment schemes in Europe and Asia-Pacific. State Streets
ability to develop new products and services for both new and
existing customers continues to set us apart. State Street Global
Advisors played an important role during the year in helping to
enhance Asias bond markets as manager of the ABF Pan Asia Bond
Index Fund, a key component of the Asian Bond Fund 2, an initiative
developed by a group of 11 central banks and monetary authorities
designed to provide governments with an additional source of
credit. The fund invests in the local currency debt of eight
countries in Asia, increasing investors access to this vital region
of the world. 28 10% consecutive years of growth in increase in
operating revenue operating earnings per share STT 11
14. by The Asset magazine + 02.28.05 Named European Mutual Fund
Administrator of The Year by ICFA magazine + 03.01.05 State Street
Global Advisors Product innovation continues to be a focus for us.
State Street Global Advisors developed several new strategies
including Global Alpha Plus, an innovative investment strategy
designed to achieve consistent excess returns. It also launched a
number of liability-driven investment strategies aimed at better
matching assets to liabilities for pension funds. SSgAs growing
active product array contributed to more than half of its net new
revenue in 2005. With a renewed focus on exchange-traded funds,
SSgA also launched nine new ETFs during the year, including the
SPDR Dividend, and saw strong growth in some of its innovative
approaches such as the streetTRACKS Gold Shares. Our research and
trading capabilities, including foreign exchange, equity execution,
transition management and securities finance activities, also
posted record results in 2005. Daily trading volume on FX Connect,
our multibank electronic trading system, surpassed $45 billion and
State Street remained the unmatched leader in transition
management, managing more than $380 billion in portfolio
transitions during the year. Continued demand for our quantitative
investment research led us to expand our successful State Street
Investor Confidence Index, which now includes regional views for
Europe, North America and the Asia-Pacific region. As we advance
our effort to serve customers in all the markets where they do
business, we strengthened our presence in 2005 in Switzerland, the
Netherlands and Hong Kong, and opened a representative office in
Beijing, China. These markets will play an important role in our
goal to increase revenue outside the United States. Governance
State Street has made several recent changes to its corporate
governance policies. First, we created a new chief compliance
officer position charged with centralizing and overseeing State
Streets compliance program. Our board of directors 13 out of 14 of
whom qualify as independent under the New York Stock Exchange
listing standards are now elected annually, eliminating three-year
terms of the past. Shareholders also now annually ratify the
appointment of our auditors, Ernst & Young LLP. In 2005, the
board adopted a majority voting standard requiring a director or
nominee who receives a withhold vote from the majority of
outstanding shares in an uncontested election of directors to
submit his or her resignation, to be considered by the Nominating
and Corporate Governance Committee. STT 12
15. Named Best of the Best by Asia Asset Management Magazine +
03.03.05 Received Top Honors for the Third Consecutive Year in
International Fund Talent Great companies are built around
extraordinary individual execution. We must continue to invest in
State Streets future by developing and leveraging our deep pool of
talented professionals. Today, we are investing in our employees at
a higher level than ever before. In 2005, we added more training,
enhanced our salary and promotions process, and undertook several
initiatives to move executives within State Street globally to
provide a deeper bench of talent that supports our succession
planning. One such example is the appointment in 2005 of Bill Hunt,
an 11-year company veteran, to lead State Street Global Advisors.
State Street employees continue to give their time and money to
improve the communities where we live and work. In a year of
unprecedented natural disasters around the world, State Street
colleagues offered their help and support to a variety of relief
efforts, while continuing to support local charitable endeavors.
More than a quarter of our workforce invested approximately 30,000
hours of volunteer time around the globe last year. Giving back is
an inherent part of the State Street culture and a source of great
corporate pride. In 2005, I believe State Street became a stronger,
more efficient and more focused company. As we move into 2006, Im
encouraged that our business pipeline remains strong, and that were
executing well against our strategic objectives. For 2006, we have
once again set financial goals of achieving revenue growth between
8 and 12 percent, earnings per share growth between 10 and 15
percent and return on shareholders equity between 14 and 17
percent. We are currently targeting the middle of those ranges. In
my 18 months as State Streets chairman and CEO, conversations with
our customers have assured me of one thing: When customers come to
State Street, they get a value they cannot find anywhere else. We
delivered that value in 2005, and I will keep working to build on
that value for all of our stakeholders in the future. Sincerely,
Ronald E. Logue Chairman and Chief Executive Officer STT 13
16. Investment Weeklys European ETF Awards + 03.08.05 Won
Investment Servicing Business from Bank of Americas Asset
Management Arm, Columbia FOCUSEFFICIEN SERVICEEXPERI COMMITMENTC
INTEGRATIONAC INNOVATIONEXP At State Street, delivering value is
the bottom line. It lies at the heart of For one customer, it may
represent streamlined operations or an innovative returns and
creates growth. We measure value in our customers success STT
14
17. Management + 03.30.05 Achieved Top Rankings in Global
Investors 2005 Foreign Exchange Survey + 04.21.05 Opened State
Street Financial Center CYLEADERSHIP NCESOLUTIONS USTOMIZATION
CURACYDEPTH ERTISERETURN everything we do. Its definition is as
unique as each customers objectives. trading solution. For another,
its a complex investment strategy that boosts and deliver value to
our shareholders because of it. Our value starts here. STT 15
18. in Zurich, Switzerland + 05.02.05 Retained by Oregon State
Treasury to Service $60 Billion in Assets + 05.11.05 Celebrated 15
Years in Canada Scottish Widows Investment Partnership STT 16
19. + 05.12.05 Named to Manage $1 Billion ABF Pan Asia Bond
Index Fund + 05.26.05 Expanded Reporting and Analysis Capabilities
for Securities Finance 27,000 holdings 4,000 asset lines 500
unitized prices generated daily 5 year partnership + 8 year
contract renewal The value we deliver lies in our unwavering
commitment. In 2000, Scottish Widows Investment Partnership (SWIP),
one of Europes largest investment managers, sought to integrate its
investment manager operations following a large consolidation at
parent company Lloyds TSB. State Streets relationship with Lloyds
TSB as primary custodian was transformed into a landmark
outsourcing arrangement with SWIP to provide global custody, fund
accounting, trustee/depository and investment manager operations
services on its entire range of life, pension and investment
products. The arrangement was renewed in 2005, a testament to our
commitment to SWIP and our collective success in the growing
investment manager operations outsourcing market. STT 17
20. Customers + 05.26.05 Opened Beijing Office + 06.06.05 Won
Seven Best in Class Honors in PlanSponsor Magazines 2005 Transition
Management + Janette Allen Outsource Relationship Manager, Scottish
Widows Investment Partnership + Charlie Hogg Senior Manager,
Process Improvement Team, Scottish Widows Investment Partnership +
Derek Crooks Business Systems Manager, Scottish Widows Investment
Partnership + Alan Robertson Head of Outsource Relationship
Management, Scottish Widows Investment Partnership Following its
acquisition by Lloyds TSB, Edinburgh-based SWIP wanted to integrate
the investment administration functions of its four component
businesses. At the time, SWIP employed seven third-party providers,
five processing centers and operated eight different systems
platforms. Outsourcing its investment manager operations to a third
party gave SWIP the ability to better focus on its core capability
investment management and accurately forecast its operational
costs. State Street consolidated SWIPs operations and shifted
assets to a single platform in 11 months six months ahead of
schedule. Support was also provided for the launch of 220 new funds
and various fund conversions. Today more than 500 unitized prices
are being generated daily for SWIP funds. Administration costs have
been reduced and are now more predictable. STT 18
21. Survey + 06.08.05 Named Worlds Largest Institutional Fund
Manager by Pensions & Investments Magazine + 06.16.05 Announced
$.01 Increase in + Alison McDonald Vice President, + John Lyons
Institutional Fund Services, Head of Investment Support &
Control, State Street Scottish Widows Investment Partnership +
David Calderwood Vice President, Collective Fund Services, State
Street + Ian Kennedy Head of Investment Accounting, Scottish Widows
Investment Partnership The partnership weve had with State Street
has helped us to be very flexible about new products that we would
like to bring to market and changes we want to make to respond to
our clients changing needs. Chris Phillips, Chief Executive of
Scottish Widows Investment Partnership + Alan Findlay Vice
President and Department Head, Collective Fund Services, State
Street When the outsourcing contract came up for renewal, SWIP did
a comprehensive market search, but chose to remain with State
Street. Together, State Street and SWIP are shaping a new aspect of
the outsourcing industry and finding more efficient ways to deliver
information and services to fund investors and institutional
clients. Common goals, vision and commitment have allowed that to
happen. STT 19
22. Quarterly Dividend, to $.18 per share + 06.23.05 Appointed
to Service New United Kingdom Pension Protection Fund + 06.27.05
Named Among Best + Daniel Kern, CFA Vice President, Charles Schwab
Investment Management + David Rosenberg Vice President, Charles
Schwab Investment Management + Mei-Luh Lee Director, Charles Schwab
Investment Management Charles Schwab Investment Management STT
20
23. Places to Work in Information Technology by Computerworld +
07.11.05 Received Top Rankings in Global Custodian Hedge Fund
Administration Survey $149B in assets serviced 67 funds managed 105
share classes + 1 leading provider Our customers find value in
increased efficiency. When Charles Schwab Investment Management
(CSIM) sought to streamline its complex back-office accounting and
administration functions, it turned to State Street. Our integrated
fund accounting and custody services, along with our experience
across all asset types, enabled one of the largest U.S. mutual fund
firms to run a more efficient operation that included improved
reporting for its shareholders. STT 21
24. + 07.15.05 Named Best at Investor Services in North America
by Euromoney Magazine + 07.21.05 FX Connect Named Best Multibank
Foreign Exchange + John D. Fitch Vice President, U.S. Mutual Fund
Accounting, State Street + Kyle F. Moran Vice President, U.S.
Mutual Fund Administration, State Street Years of excellent service
helped turn an existing relationship into one of State Streets
largest wins last year. In the late 1980s, State Street began
providing custody services to a California investment firm that
later became AXA Rosenberg Group. In 2004, when CSIM became the
funds new investment advisor and launched a new fund family called
the Laudus Funds, State Street continued as one of CSIMs seven
service providers. STT 22
25. Trading Platform for Institutional Investors by FXWeek
Magazine + 08.02.05 Won Staffordshire County Council $600 Million
Investment Servicing + Thresa B. Dewar Vice President, U.S. Mutual
Fund Administration, State Street + John J. Cronin Assistant Vice
President, U.S. Mutual Fund Custody, State Street We needed to
consolidate a very complex model with a variety of service
providers I cant think of anything we are doing or will do that
State Street hasnt seen. Dan Kern, Vice President, Charles Schwab
Investment Management When multiple service relationships proved
inefficient for CSIM, it decided to create a new and simplified
servicing structure. State Streets breadth of integrated product
offerings, our expertise in servicing complex mutual funds and
strong technology infrastructure helped CSIM create the efficiency
it wanted. Today, CSIM has a provider servicing $149 billion of
assets, a simpler and scalable operating structure, a more
efficient shareholder reporting process and a long-lasting
partnership that is delivering value. STT 23
26. Business + 08.22.05 Awarded a 75 Million Investment
Management Contract from RAC Pension Scheme + 08.24.05 Appointed
Service Provider to Volkswagen Group STT 24
27. Four Local UK Pension Fund Authorities + 08.30.05 Selected
to Manage $330 Million for Assuranceforeningen Skuld of Norway +
09.06.05 Reappointed 1.4B portfolio transition 80 transition
management professionals 70M asset management win + 8 year
partnership Value can be defined by experience. Institutional
investors operating in todays evolving regulatory environment need
a partner who knows the territory. As a global investment manager
and investment service provider, State Street helped Europes
largest carmaker execute two pension fund strategies designed to
improve investment returns. In each case, a combination of
extensive industry knowledge and experience with global pension
funds led Volkswagen to choose State Street. STT 25
28. Global Custodian by Liontrust Asset Management PLC +
09.08.05 Named to Service $3.3 Billion for Banco de Guatemala +
09.13.05 Named + Louisa Vincent Vice President, Client Service,
State Street Global Advisors State Street has provided depotbank
services in Germany to Volkswagens corporate treasury funds since
1997. During this time, the relationship has expanded to include
additional services such as commission recapture, which has helped
the carmaker increase operational efficiency and save on brokerage
fees. In 2001, Volkswagen became the first German company to launch
a defined contribution pension plan. Over the next four years,
State Street administered the plan while the company continually
looked for ways to improve returns. When Volkswagen decided to
change its asset allocation and investment management strategy,
State Streets transition management team provided the solutions and
resources needed to restructure the portfolio. State Street is the
leading provider of transition management services to institutional
investors, with teams throughout Europe, North America and
Asia-Pacific. STT 26
29. Worlds Best Bank in Asset Management by Global Finance
Magazine + 09.19.05 Completed 1.4 Billion Portfolio Transition for
Volkswagen Pension + Kevin Anderson Vice President, Global Fixed
Income, State Street Global Advisors + Simon Roe Vice President,
Enhanced Equity, State Street Global Advisors State Street Global
Advisors had the strength, resources and experience to provide us
with the solutions aligned with our investment goals. Roy Platten,
Staff Benefits & Policy Manager for Volkswagen Group United
Kingdom Ltd. To effectively transition its portfolio, Volkswagen
needed access to advanced trading strategies and high-quality
liquidity. State Street Global Markets, State Streets research and
trading arm, provided those resources and seamlessly executed the
1.4 billion transition, helping Volkswagen gain access to a new,
more appropriate investment strategy. A separate piece of business
last year in London enabled us to further expand our relationship
with this key customer. State Street Global Advisors, our
investment management arm, was appointed manager of 70 million of
assets in Volkswagens pension scheme for workers in the United
Kingdom. The win consisted of an enhanced U.K. equity strategy and
a passive U.K. fixed income strategy. State Street Global Advisors
experience with a range of passive and active, including enhanced,
investment strategies will help Volkswagen add value while
controlling investment risk. STT 27
30. Fund + 09.27.05 Renewed Landmark Investment Manager
Operations Outsourcing Contract with Scottish Widows Investment
Partnership + 09.27.05 + Kate Thompson + Mike Clarke + Kevin
Connaughton Assistant Treasurer, Columbia Funds Chief Accounting
Officer, Columbia Funds CFO and Treasurer, Columbia Funds + Jeff
Coleman + Mary Beth Pilat + Regina Mak Deputy Treasurer, Columbia
Funds Assistant Treasurer, Columbia Funds Technology Manager,
Columbia Funds Columbia Management Advisors, LLC STT 28
31. Named to Service $21 Billion for State of Connecticut +
10.05.05 Launched Global Alpha Plus Investment Strategy + 10.06.05
Appointed by Sanofi 290 accounting conversions 227 custody
conversions 89 fund mergers 5 year relationship + $250B asset
servicing contract Value is delivered through integrated solutions.
In 2005, State Street began servicing $250 billion in assets for
Columbia Management, the asset management arm of Bank of America.
This important win followed a series of mergers involving the
Liberty Funds Group, and later Columbia Management, which had been
a State Street customer for four years. When Bank of America
decided to consolidate operations for three of its fund families
into Columbia Management, it chose State Street to help complete
one of the largest integrations in mutual fund history. STT 29
32. Aventis to Manage an 800 Million Currency Overlay Strategy
+ 10.06.05 Renewed Investment Servicing Contract with Halliburton +
10.03.05 + Edward J. McKenzie Vice President and Department Head,
U.S. Mutual Fund Servicing, State Street + Shawn M. Alarie Vice
President, U.S. Mutual Fund Accounting, State Street Our four-year
relationship with Boston-based Liberty Funds, and later Columbia
Management, provided plenty of time to prove that State Street has
the solutions to help any large asset manager integrate and convert
disparate systems into a single operations platform. In 2000,
Liberty Funds chose State Street to run the fund accounting and
financial reporting operations for $40 billion in assets. A
successful, year-long conversion led to more business, and State
Street also consolidated custody servicing for the funds. When the
former FleetBoston Financial Corporations asset management arm,
which included its Galaxy and Columbia funds, acquired Liberty
Funds in 2002, State Street retained the Liberty business and added
the servicing of Galaxy. By 2004, State Street supported 59 fund
mergers, 190 accounting conversions and 127 custody conversions.
STT 30
33. International Fund Services Named Best Fund Administrator
in ALPHA Magazines Hedge Fund Service Provider Awards + 10.17.05
Selected by + Janine M. Donovan Vice President, U.S. Mutual Fund
Custody, State Street State Street is uniquely positioned to
provide what we need. Reducing the number of vendors allowed us to
capitalize on efficiencies, build consistent internal controls, and
pass along savings to our shareholders. Christopher L. Wilson,
President, Columbia Management That year, another merger brought
the fund groups under Bank of America, which began to consolidate
the fund operations under the Columbia name. The company reduced
the number of funds it offered and cut fund expenses by switching
to a single service provider. State Street had the relationship,
the track record and the integrated service solutions to make that
happen. STT 31
34. Gallaher Pensions Limited to Run a 50 Million Active U.K.
Equity Mandate + 10.27.05 Named to Provide Investment Servicing for
Charles Schwab Reserve Bank of Australia Peoples Bank of China Hong
Kong Monetary Authority Bank Indonesia Bank of Japan Bank of Korea
Bank Negara Malaysia Reserve Bank of New Zealand Bangko Sentral ng
Pilipinas Monetary Authority of Singapore Bank of Thailand ABF Pan
Asia Bond Index Fund STT 32
35. Investment Management funds + 10.31.05 Reappointed by
Lloyds TSB Group Pension Schemes to Provide Investment Services for
the Schemes Assets 11 central banks and monetary authorities 20
years experience in the Asia-Pacific market $550B under management
in global fixed income products 6 exchange-traded funds launched in
Asia + $1B ABF Pan Asia Bond Index Fund We deliver value through
our expertise. In the wake of the 1997 Asian financial crisis,
central bankers across the region recognized the need to provide
Asian companies with better access to capital. The Executives
Meeting of East Asia and Pacific Central Banks (EMEAP) Group, which
comprises 11 central banks and monetary authorities in the region,
developed the Asian Bond Fund Initiative to improve the bond
markets and offer investors more innovative, cost-efficient and
diversified products. In 2005, during the second stage of the
initiative, the $2 billion Asian Bond Fund 2 (ABF2) was launched by
the EMEAP Group. The Group chose State Street to play an important
role in bringing the ABF Pan Asia Bond Index Fund (PAIF), a $1
billion component fund of ABF2, to market. STT 33
36. + 11.15.05 SSgA Launched Nine New ETFs + 11.16.05 Awarded
$4 Billion Investment Servicing Business from California State
Automobile Association + Yan-Yan Li Principal, Head of Legal and
Compliance, State Street Global Advisors Asia Ltd. State Street has
been a pioneer in the Asia-Pacific marketplace for two decades, and
in 1999 was named to manage the regions first exchange-traded fund
(ETF) Tracker Fund of Hong Kong. We have also collaborated with
local fund managers and stock exchanges and successfully launched
ETFs in China, Korea, Singapore and Taiwan. Our relationships and
experience were some of the reasons why we were chosen to play a
key advisory role in PAIF, which enabled investors to diversify
risk across eight Asian bond and currency markets in a single
transaction. STT 34
37. + 12.05.05 Named to Manage $100 Million Socially
Responsible Investing Portfolio for Arkitekternas Pensionskassa +
12.15.05 Announced $.01 Increase + Cecilia Chin Principal, Director
of Marketing, State Street Global Advisors Asia Ltd. From an
investors perspective, the passively managed ABF2 funds represent
low-cost and efficient vehicles for investing in local currency-
denominated bonds in Asia. In the context of bond market
development... it will help contribute to the broadening and
deepening of bond markets in the region over time. Executives
Meeting of East Asia and Pacific Central Banks + Hon Cheung
Principal, Managing Director, State Street Global Advisors
Singapore Ltd. State Street Global Advisors was named to manage
PAIF, an open-ended listed bond fund investing across the region.
Modeled on the cost-effective and efficient structure of ETFs, PAIF
invests in domestic currency-denominated sovereign and
quasi-sovereign bonds issued in eight Asian markets. PAIF was
listed on the Hong Kong Stock Exchange in July 2005 and had $1.1
billion in assets at year end. The fund is registered in Japan and
Singapore. It is also available to eligible institutional investors
in Thailand. State Streets global experience and broad knowledge
base helped ensure the success of this important economic
milestone. STT 35
38. in Quarterly Dividend, to $.19 Per Share + 12.21.05 Awarded
C$870 Million Currency Hedging Mandate from Workers Compensation
Board-Alberta $5.5B total revenue 4.6B total fee revenue 945M
income from continuing operations 2.82 diluted earnings per share
from continuing operations + 15.3% return on shareholders equity
from continuing operations STT 36
39. + 01.18.06 Announced 10% Increase in Operating Revenue and
14% Increase in Earnings Per Share from Continuing Operations in
2005 38 selected financial data 39 summary of operations 45 report
of independent registered public accounting firm 46 condensed
consolidated financial statements 2005 Financial Summary STT
37
40. Selected Financial Data $ millions, except per share data
or where otherwise indicated 2005 2004 2003 2002 2001 Years ended
December 31, Total fee revenue $ 4,048 $ 3,556 $ 2,850 $ 2,769 $
4,551 Net interest revenue 859 810 979 1,025 907 Provision for loan
losses (18) - 4 10 - (Losses) gains on sales of available-for-sale
investment securities, net 26 23 76 43 (1) Gain on sale of Private
Asset Management business, net of exit and other associated costs -
285 - - 16 Gain on sale of Corporate Trust business, net of exit
and other associated costs - - 60 495 - Total revenue 4,951 4,734
4,396 3,827 5,473 Total operating expenses 3,759 3,622 2,841 2,897
4,041 Income from continuing operations before income tax expense
1,192 1,112 1,555 930 1,432 Income tax expense from continuing
operations 394 390 540 302 487 Income from continuing operations
798 722 1,015 628 945 Net loss from discontinued operations - - - -
(107) Net income 838 $ 798 $ 722 $ 1,015 $ 628 $ Per common share
Basic earnings: Continuing operations $ 2.38 $ 2.18 $ 3.14 $ 1.94 $
2.86 Net income 2.38 2.18 3.14 1.94 2.53 Diluted earnings:
Continuing operations $ 2.35 $ 2.15 $ 3.10 $ 1.90 $ 2.82 Net income
2.35 2.15 3.10 1.90 2.50 Cash dividends declared .64 .56 .48 .41
.72 Closing price of common stock 49.12 52.08 39.00 52.25 55.44 As
of December 31, Investment securities $ 37,571 $ 38,215 $ 28,071 $
20,781 $ 59,870 Total assets 94,040 87,534 85,794 69,850 97,968
Deposits 55,129 47,516 45,468 38,559 59,646 Long-term debt 2,458
2,222 1,270 1,217 2,659 Shareholders equity 6,159 5,747 4,787 3,845
6,367 Assets under custody (in billions) $ 9,497 $ 9,370 $ 6,171 $
6,203 $ 10,121 Assets under management (in billions) 1,354 1,106
763 775 1,441 Number of employees 19,668 19,850 19,501 19,753
20,965 Ratios Continuing operations: Return on shareholders equity
13.3% 13.9% 24.1% 17.3% 15.3% Return on average assets .84 .87 1.28
.88 .95 Dividend payout 26.9 25.9 15.4 21.0 25.3 Net income: Return
on shareholders equity 13.3 13.9 24.1 17.3 13.6 Return on average
assets .84 .87 1.28 .88 .84 Dividend payout 26.9 25.9 15.4 21.0
28.5 Average shareholders equity to average assets 6.3 6.3 5.3 5.1
6.2 Tier 1 risk-based capital 13.3 14.0 17.1 13.6 11.7 Total
risk-based capital 14.7 15.8 18.0 14.5 14.0 Tier 1 leverage ratio
5.5 5.6 5.6 5.4 5.6 Tangible common equity to adjusted total assets
4.5 4.5 4.9 4.7 4.8 STT 38
41. Summary of Operations Overview State Street Corporation and
its subsidiaries report two lines of business. Investment Servicing
provides services for mutual funds and collective investment funds,
corporate and public retirement plans, insurance companies,
foundations, endowments, and other investment pools worldwide.
Products include custody, product- and participant-level
accounting, daily pricing and administration; master trust and
master custody; recordkeeping; foreign exchange, brokerage and
other trading services; securities nance; deposit and short-term
investment facilities; loans and lease nancing; investment manager
and hedge fund manager operations outsourcing; and performance,
risk and compliance analytics to support institutional investors.
Investment Management offers a broad array of services for managing
nancial assets, including investment management and investment
research services, primarily for institutional investors worldwide.
These services include passive and active U.S. and non-U.S. equity
and xed income strategies, and other related services, such as
securities nance. For nancial information about these business
lines, see the Line of Business Information section of Managements
Discussion and Analysis of Financial Condition and Results of
Operations included in our 2005 Form 10-K. This Summary of
Operations should be read in conjunction with the Consolidated
Financial Statements, which are prepared in accordance with
accounting principles generally accepted in the United States, or
GAAP, and the related Notes to Consolidated Financial Statements,
included in our 2005 Form 10-K. Certain previously reported amounts
presented in this Summary of Operations have been reclassied to
conform to current period classications. The preparation of nancial
statements requires management to make estimates and assumptions in
the application of certain accounting policies that materially
affect the reported amounts of assets, liabilities, revenue and
expenses. Actual results could differ from those estimates. Unless
otherwise indicated or unless the context requires otherwise, all
references in this Summary of Operations to State Street, we, us,
our or similar terms mean State Street Corporation and its
subsidiaries on a consolidated basis. STT 39
42. From time to time, in executing our strategic plan, we may
enter into business acquisitions and strategic alliances, and may
divest non-strategic operations. We continuously review and assess
various business opportunities related to this strategy. For more
nancial information about our acquisition and divestiture
activities, see Note 2 of the Notes to Consolidated Financial
Statements included in our 2005 Form 10-K under Item 8. This
Summary of Operations contains statements that are considered
forward-looking statements within the meaning of U.S. federal
securities laws. Forward-looking statements include statements
about our condence and strategies and our expectations about
revenue and market growth, acquisitions and divestitures, new
technologies, services and opportunities, and earnings. These
forward-looking statements involve certain risks and 2002
uncertainties which could cause actual results to differ 3.10(1)
2005 materially. Additional information about forward-looking 2.82
statements and related risks and uncertainties is included in our
2005 Form 10-K under Item 1A. 2004 2.35(3) 2003 Financial
Highlights 2.15(2) 2001 For 2005, we recorded net income from
continuing 1.90 operations of $945 million, up $147 million, or
18%, from net income of $798 million in 2004. Fully-diluted
earnings per share from continuing operations were $2.82 in 2005,
up 20% from $2.35 in 2004. Earnings per share for 2004 included $62
million, or $.12 per share, of merger and integration costs
associated with the 2003 acquisition of a substantial portion of
the Global Securities Services, or GSS, business of Deutsche Bank
AG. Dollars Diluted Earnings Per Share From Continuing Operations
(1) 2002 earnings per share included the gain on the sale of
divestiture costs, GSS acquisition merger and integration the
divested Corporate Trust business of $.90 per share. costs,
restructuring expenses, settlement of a state tax matter (2) 2003
earnings per share included the combined gains on sales and a loss
on certain real estate sold equal to $.86 per share. of the
divested Corporate Trust and Private Asset Management (3) 2004
earnings per share included GSS acquisition merger businesses of
$.68 per share, and combined charges for and integration costs of
$.12 per share. STT 40
43. We remained focused on achieving our previously disclosed
nancial goals in 2005, carefully balancing revenue growth with
continued expense management. This focus allowed us to generate
positive operating leverage for the year, which we dene as a rate
of total revenue growth that exceeds the rate of growth of total
operating expenses. Total revenue for 2005 grew 11% while total
operating expenses increased only 8%. We continued to deepen
existing customer relationships and expand new product
capabilities. These factors, combined with new business growth,
enabled us to achieve our nancial goals in moderately improving
nancial markets. We continue to see the most signicant
opportunities for growth outside of the U.S. For 2005, 39% of our
total revenue was from non-U.S. activities, up from 37% for 2004,
and approximately 7,800 employees worked outside the U.S. We expect
that eventually, we will derive 50% of total revenue from outside
the United States, as a result of the growth of savings and
retirement assets in Europe and the Asia-Pacic region. We managed
our balance sheet to better position State Street for rising
interest rates during 2005. We expanded our investment securities
portfolio and adjusted the mix of investments to include higher
yielding, oating-rate securities. As a result, net interest revenue
in 2005 increased by 6% from 2004. Including taxable-equivalent
adjustments for 2005 and 2004 of $42 million and $45 million,
respectively, net interest revenue increased by 5% from 2004.
Positive operating leverage was also generated through expense
control. Managing our expenses involved careful allocation of
headcount, realignment of our real estate portfolio and the
establishment of other cost-efciency measures. STT 41
44. Revenue Total revenue for 2005 was $5.47 billion, an
increase of $522 million from $4.95 billion in 2004. Revenue growth
from 2004 reected growth in servicing, management, trading and
securities nance fees, as well as higher net interest revenue.
Collectively, servicing and management fees for 2005 were up $339
million, or 12%, from 2004. The increases were attributable to new
business from existing and new customers and higher equity market
valuations. Assets under custody increased to a record level of
$10.12 trillion, up $624 billion from $9.50 trillion a year ago.
Assets under management also increased to a record level of $1.44
trillion, up $87 billion from $1.35 trillion a year ago. Trading
services revenue was $694 million, up $99 million 2005 compared to
$595 million a year ago, reecting a higher dollar- 5.47 volume of
foreign exchange trades for customers and a higher 2004 2003 4.95
volume of transition management business. Securities nance 4.73(2)
2002 fees were $330 million for 2005, an improvement of $71 million
4.40(1) from $259 million in 2004, beneting from improved spreads
2001 and an increase in average loan volume. Processing fees 3.83
and other revenue was $302 million in 2005, compared with $308
million in 2004. Net interest revenue for 2005 was $907 million, an
increase of $48 million from $859 million in 2004, due to an
increase in average balance sheet size and changes in U.S. Non-U.S.
balance sheet mix, somewhat offset by increased funding costs and a
atter yield curve. $ Billions Total Revenue (1) 2002 total revenue
included the gain on the sale of the (2) 2003 total revenue
included the combined gains on sales of divested Corporate Trust
business of $495 million. the divested Corporate Trust and Private
Asset Management businesses of $345 million and a loss on certain
real estate sold of $13 million. STT 42
45. Operating Expenses Operating expenses were $4.04 billion
for 2005, up $282 million from 2004. Expense growth in 2005 was
driven in part by higher salaries and employee benets expense,
primarily from increased stafng levels to accommodate new business
and higher incentive compensation expense due to improved earnings.
Additionally, expense growth reected an increase in transaction
processing expense related to higher transaction volumes and higher
subcustodian fees resulting from higher net asset values. Higher
occupancy expense in 2005 reected a $26 million charge related to a
long-term sub-lease agreement, somewhat offset by a $16 million
charge in 2004, and higher occupancy costs in Europe associated
with new business. Higher ot