State Street Global Advisors Launches Pooled Asset Liability Matching Solution.

BOSTON and LONDON -- Groundbreaking strategy enables pension funds to match future liabilities within different inflation environments through a flexible pooled vehicle

State Street Global Advisors (SSgA), the investment management arm of State Street Corporation (NYSE: STT) and the largest institutional fund manager in the world, announced today the launch of its Pooled Asset Liability Matching Solution (PALMs). PALMs enables pension funds to match their projected future liabilities within different inflation environments using a flexible and cost-effective pooled vehicle.

New regulatory and accounting changes have prompted U.K. pension funds to put more focus on matching the liabilities in their funds and as a result, many have increased their allocations to conventional and index-linked gilts to reduce risk. But due to the scarcity of long-dated gilts, there is often a mismatch between a fund's cash flows and the liabilities, which in turn results in inefficient portfolio risk budgeting. Changes in inflation further compound the problem.

With PALMs, State Street Global Advisors has created a highly effective solution to address the real-world needs of pension funds. The new product provides access to nine pooled funds holding different maturity Limited Price Inflation swaps (LPI, or inflation-linked securities) to protect assets and preserve pensioners' purchasing power in both high and low inflation environments. Pension funds with varying liability requirements can purchase different allocations of the nine funds, which are divided into five-year increments reaching out to 40 years that individually deliver annual cash flows when they are needed.

The benefit of the LPI swaps lies in their ability to reshape the return from assets by exchanging cash flows. As the liabilities of pension funds are usually linked to future earnings in the form of inflation, PALMs delivers future projected cash flows (or pensions payable) linked to their projected LPI liabilities at the maturity of each of the LPI swaps.

"PALMs represents a generational change in investment management strategy for pension plans," said Alan Brown, group chief investment officer for State Street Global Advisors. "By recognising that liabilities, not market benchmarks, are the correct measure of a pension plan's ability to meet its obligations to pensioners, we can more closely match the client's liabilities over time, reducing the risk of over- or under-funding. We expect this concept to grow in popularity because it places more investment control back in the hands of trustees."

State Street Global Advisors' PALMs offers institutional investors additional benefits over liability matching solutions currently available in the market, including transparent pricing, flexibility to adjust investment allocations across the maturity spectrum, fixed entry and exit spreads, and monthly valuations. By contrast, alternative approaches suffer from high costs, lack of flexibility, time consuming processes and a level of complexity that contributes to pension fund trustees' lack of understanding of these products.

Additionally, the flexibility of the underlying structure of PALMs allows pension plans to adopt different liability matching strategies and re-spend the pension funds' risk budget for more reward. For example, a pension plan can choose to incorporate alpha-generating strategies such as the use of credit markets to add extra yield.

The new pooled funds will be managed by State Street Global Advisors' London-based Global Fixed Income management team. State Street Global Advisors will provide market data on each of the nine funds to the pension fund's consultant so they can recommend any necessary changes in allocation weights in order to meet liabilities. To determine liabilities, pension funds will continue to rely on their consultants to provide actuarial advice.

About State Street Global Advisors

State Street Global Advisors, the investment management group of State Street Corporation, delivers investment strategies and integrated solutions to clients worldwide across every asset class, investment approach and style. With $1.2 trillion in investment programs and portfolios, State Street Global Advisors has investment centers in Boston, Hong Kong, Tokyo, Singapore, London, Paris, Montreal, Munich, and Sydney, and offices in 28 cities worldwide.

For more information, visit State Street Global Advisors at www.ssga.com

This news announcement contains forward-looking statements as defined by United States securities laws, including statements about the financial outlook and business environment. Those statements are based on current expectations and involve a number of risks and uncertainties, including those related to the pace at which State Street adds new clients or at which existing clients use additional services, the value of global and regional financial markets, the pace of cross-border investment activity, changes in interest rates, the pace of worldwide economic growth and rates of inflation, the extent of volatility in currency markets, consolidations among clients and competitors, State Street's business mix, the dynamics of markets State Street serves, and State Street's success at integrating and converting acquisitions into its business. Other important factors that could cause actual results to differ materially from those indicated by any forward-looking statements are set forth in State Street's 2003 annual report and subsequent SEC filings. State Street encourages investors to read the corporation's annual report, particularly the section on factors that may affect financial results, and its subsequent SEC filings for additional information with respect to any forward-looking statements and prior to making any investment decision. The forward-looking statements contained in this press release speak only as of the date hereof, January 10, 2005, and the company will not undertake efforts to revise those forward-looking statements to reflect events after this date.