Filed Pursuant to Rule 485(a)
As filed with the Securities and Exchange Commission on April 10, 1997
Registration No. 33-19229; 811-5430
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( X )
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Pre-Effective Amendment No. ( )
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Post-Effective Amendment No. 40 ( X )
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( X )
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Amendment No. 42 ( X )
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(Check appropriate box or boxes)
SSgA FUNDS
(Exact Name of Registrant as Specified in Charter)
909 A Street
Tacoma, Washington 98402
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (206) 627-7001
Name and Address of
Agent for Service: Copies to:
- ------------------- ----------
Karl J. Ege Philip H. Newman, Esq.
Secretary and General Counsel Goodwin, Procter & Hoar
Frank Russell Investment Management Company Exchange Place
909 A Street Boston, Massachusetts 02109
Tacoma, Washington 98402
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective under Rule 485:
( ) immediately upon filing pursuant to paragraph (b)
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( ) on (date) pursuant to paragraph (b)
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( ) 60 days after filing pursuant to paragraph (a)
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( ) on (date) pursuant to paragraph (a)(1)
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( X ) 75 days after filing pursuant to paragraph (a)(2)
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( ) on (date) pursuant to paragraph (a)(2) of Rule 485
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If appropriate, check the following:
( ) This post-effective amendment designates a new effective
--- date for a previously filed post-effective amendment.
DECLARATION PURSUANT TO RULE 24f-2
Registrant has declared its intention to register under the Securities Act
of 1933 an indefinite number of shares of beneficial interest, par value of
$.001, of the SSgA Funds pursuant to Rule 24f-2(a)(1) under the Investment
Company Act of 1940, as amended. The Registrant filed its Rule 24f-2 notice for
the fiscal year ended August 31, 1996 on October 29, 1996.
<PAGE>
SSgA FUNDS
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No.
and Caption Prospectus Caption
----------- ------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Table of Contents; and
Fund Operating Expenses
3. Condensed Financial Information Fund Operating Expenses
4. General Description of Registrant
(a)(i) Summary (Classes B and C only);
SSgA Funds;
Highlights (Life Solutions Funds only);
Additional Information -
Organization, Capitalization and
Voting
(a)(ii), (b) Summary (Classes B and C only);
Investment Objectives and Policies;
Investment Restrictions and
Policies; and Portfolio Maturity;
Investment Objectives and Asset
Allocation of the SSgA Life Solutions
Funds (Life Solutions Funds only)
(c) Investment Restrictions and Policies;
Life Solutions Funds: Special Risk
Considerations (Life Solutions Funds
only)
5. Management of the Fund Summary (Classes B and C only);
General Management; Fund
Operating Expenses; and Portfolio
Maturity
6. Capital Stock and Other Securities
(a) Additional Information -
Organization, Capitalization and
Voting
<PAGE>
(b) General Management
(c) Not Applicable
(d) Summary (Classes B and C only);
Additional Information - Organization,
Capitalization and Voting
(e) Additional information - Reports
to Shareholders and Shareholder
Inquiries
(f) Dividends and Distributions
(g) Taxes
7. Purchase of Securities Being Offered
(a) Summary (Classes B and C only);
General Management - Distribution
Services and Shareholder Servicing
Arrangements
(b) Valuation of Fund Shares;
Purchase of Fund Shares
(c) Not Applicable
(d) Manner of Offering; Purchase
of Fund Shares
(e), (f) General Management - Distribution
Services and Shareholder Servicing
Arrangements
8. Redemption or Repurchase
(a) Summary (Classes B and C only);
Redemption of Fund Shares
(b) Not Applicable
(c) Manner of Offering;
Redemption of Fund Shares
(d) Redemption of Fund Shares
9. Pending Legal Proceedings Not Applicable
<PAGE>
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies
(a), (b), (c) Investments
(d) (Prospectus) - Portfolio
Maturity
14. Management of the Fund
(a), (b) Structure and Governance -
Trustees and Officers
(c) Not Applicable
15. Control Persons and Principal Holders
of Securities
(a), (b) Structure and Governance -
Controlling Shareholders;
Additional Information -
Organization, Capitalization and
Voting (Prospectus)
(c) Structure and Governance -
Controlling Shareholders
16. Investment Advisory and Other Services
(a), (b) Operation of Investment Company -
Adviser; General Management -
Advisory Agreement (Prospectus)
(c) Not Applicable
(d) Operation of Investment Company -
Administrator
(e) Not Applicable
(f) Operation of Investment Company -
<PAGE>
Distribution Plan
(g) Not Applicable
(h), (i) Operation of Investment Company -
Custodian and Transfer Agent;
Additional Information - Custodian,
Transfer Agent and Accountants
(Prospectus)
17. Brokerage Allocation
and Other Practices
(a), (b), (c) Operation of Investment Company -
Brokerage Practices
(d) Not Applicable
(e) Operation of Investment Company -
Brokerage Practices
18. Capital Stock and Other Securities
(a) Structure and Governance -
Organization and Business History
(b) Not Applicable
19. Purchase, Redemption and Pricing of
Securities Being Offered
(a), (b), (c) Operation of Investment Company -
Valuation of Fund Shares;
(Prospectus) - Valuation of Fund
Shares; Redemption of Shares;
Purchase of Fund Shares
20. Tax Status Taxes
21. Underwriters
(a) Operation of Investment Company -
Distribution Plan
(b), (c) Not Applicable
22. Calculation of Performance Data
Operation of Investment Company -
Yield and Total Return Quotations
23. Financial Statements Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
SSgA FUNDS
Contents of Registration Statement
This Registration Statement consists of the following papers and documents:
Cover Sheet
Form N-1A Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Pages
Exhibits
<PAGE>
SSgA(SM)
LIFE SOLUTIONS(SM) FUNDS
P R O S P E C T U S
___________________, 1997
Life Solutions Income and Growth Fund
Life Solutions Balanced Fund
Life Solutions Growth Fund
SSgA Life Solutions Funds are comprised of combinations of SSgA Funds
PROSPECTUS BEGINS ON PAGE 1
<PAGE>
Filed pursuant to Rule 485(a)
File Nos. 33-19229; 811-5430
SSgA(SM) LIFE SOLUTIONS(SM) FUNDS
Two International Place, 35th Floor
Boston, Massachusetts 02110
(800) 647-7327
SSgA Funds (the "Investment Company") is a registered, open-end investment
company with multiple investment portfolios. Life Solutions Funds (the "Life
Solutions Funds") are diversified and professionally managed portfolios of the
Investment Company, each with a distinct investment objective. Each Life
Solutions Fund attempts to meet its investment objective by investing in a
different combination of the Investment Company's portfolios (the "Underlying
Funds"). Initially, each Life Solutions Fund will invest in at least six of the
Investment Company's Underlying Funds, but the Board of Trustees has approved
investment in all of the Underlying Funds described in this Prospectus. The Life
Solutions Funds do not invest in a portfolio of securities but invest in shares
of the Underlying Funds. The Investment Company believes that these combinations
offer varying degrees of potential risk and reward. This Prospectus describes
the Life Solutions Funds listed below:
Life Solutions Income and Growth Fund seeks income and, secondarily,
long-term growth of capital.
Life Solutions Balanced Fund seeks a balance of growth of capital and
income.
Life Solutions Growth Fund seeks long-term growth of capital.
The Life Solutions Funds are designed primarily for tax-advantaged
retirement accounts and other long-term investment strategies. The Life
Solutions Funds are expected to incur distribution expenses pursuant to a Rule
12b-1 Plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THE LIFE SOLUTIONS FUNDS ARE NEITHER INSURED NOR GUARANTEED
BY THE US GOVERNMENT. SHARES IN THE LIFE SOLUTIONS FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, STATE STREET BANK AND TRUST
COMPANY, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND INVOLVE
INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus contains concise information about Life Solutions Funds;
prospective investors should consider this information carefully before
investing. Therefore, please read and retain this document for future reference.
Additional information about Life Solutions Funds has been filed with the
Securities and Exchange Commission in a Statement of Additional Information
dated _________, 1997. The Statement of Additional Information ("SAI") is
incorporated herein by reference and is available without charge from the
Distributor at its address noted below or by calling (800) 647-7327. This
Prospectus, the Funds' SAI and material incorporated by reference into these
documents, and other information regarding the Investment Company and the Life
Solutions Funds is maintained electronically with the SEC at its World Wide Web
site (http://www.sec.gov).
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Russell Fund Distributors, Inc. Frank Russell Investment
Company Two International Place, 35th Fl. Management Company
225 Franklin Street Boston, Massachusetts 02110 909 A Street
Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED ______________________, 1997
1
<PAGE>
TABLE OF CONTENTS
Page
----
Highlights................................................................
Annual Fund Operating Expenses............................................
SSgA Life Solutions Funds.................................................
Manner of Offering........................................................
Investment Objectives and Asset Allocation of the Life Solutions Funds....
Life Solutions Funds: Special Risk Considerations........................
Portfolio Turnover........................................................
Investment Restrictions...................................................
Description of the Underlying Funds.......................................
Dividends and Distributions...............................................
Taxes.....................................................................
Valuation of Life Solutions and Underlying Fund Shares....................
Purchase of Life Solutions Fund Shares....................................
Redemption of Life Solutions Fund Shares..................................
General Management........................................................
Life Solutions Fund Expenses..............................................
Performance Calculations..................................................
Additional Information....................................................
Appendix..................................................................
2
<PAGE>
HIGHLIGHTS
Operating Expenses summarize the fees paid by shareholders in each Life
Solutions Fund and the effect of these fees on a $1,000 investment over time.
Page __.
Eligible Investors are principally those US or foreign institutional and retail
investors which invest for their own accounts or in a fiduciary or agency
capacity. The Life Solutions Funds are especially useful for participants in
tax-advantaged retirement plans. The minimum initial investment is $1,000 ($250
for IRA accounts), minimum subsequent investments are $100, and the minimum
account size (except for IRA accounts) is $1,000. Page __.
Investment Objectives and Asset Allocation of the Life Solutions Funds are
designed to meet the long-term investment goals of Eligible Investors. While the
Life Solutions Funds invest primarily in the Underlying Funds, each Life
Solutions Fund pursues a different, nonfundamental, investment objective by
allocating its assets among a number of Underlying Funds which pursue a variety
of different objectives. Page __.
Special Risk Considerations apply to all Life Solutions Funds. The assets of
each Life Solutions Fund are invested in certain Underlying Funds, so each Life
Solutions Fund's investment performance is directly related to the investment
performance of the Underlying Funds held. The ability of each Portfolio to meet
its investment objective is directly related to the ability of the Underlying
Fund held to meet their objectives as well as the allocation among those
Underlying Funds by the Advisor. There can be no assurance that the investment
objective of any Life Solutions Fund or Underlying Fund will be achieved. Page
__. There are investment risks to the Underlying Fund's use of futures contracts
and options as a hedging technique. The Underlying Fund's investments in foreign
securities, foreign currency and emerging markets countries also pose special
risk of which the investors should be aware. Page ___.
Investment Policies, Restrictions and Risks of the Life Solutions Funds should
be considered in deciding whether to invest in a Life Solutions Fund.
"Fundamental" investment objectives, policies and restrictions may not be
changed without the approval of a majority of the shareholders of an affected
Life Solutions Fund. The Life Solutions Funds invest in shares of the Underlying
Funds, all of which have fundamental and nonfundamental investment policies and
restrictions. Page ___. Risks associated with certain investment policies of the
Underlying Funds should be considered when investing in the Life Solutions
Funds. Page ___.
Dividends and Distributions will be reinvested in additional shares unless a
shareholder elects to receive them in cash. Dividends from net investment income
are declared and paid annually. Distributions from net realized short- and
long-term capital gains (if any) are declared at least annually. Page __.
Taxes on the Life Solutions Funds should be none. Taxable US shareholders of the
Life Solutions Funds will be subject to federal taxes on dividends and capital
gains distributions, and may be subject to state or local taxes. Page __.
Valuation of Life Solutions Fund Shares occurs once each business day at the
close of business of the New York Stock Exchange by appraising each Life
Solutions Fund's investment in the Underlying Funds. Page __.
Purchase of Life Solutions Fund Shares includes no sales commission. The
purchase price is the next computed net asset value. Shares are offered and
orders to purchase are accepted on each business day. However, certain
distribution expenses of the Underlying Funds may be reimbursed to Russell Fund
Distributors, Inc., the Funds' distributor, under an existing 12b-1 plan. Page
__.
Redemption of Life Solutions Fund Shares may be requested on any business day.
There is no redemption charge. The redemption price is the next computed net
asset value. Page __.
3
<PAGE>
General Management is provided by Frank Russell Investment Management Company,
as the administrator, which is responsible for supervising the Life Solutions
and Underlying Funds' operations; State Street Bank and Trust Company provides
investment advisory services. Page __.
Life Solutions Fund Expenses are borne by each Life Solutions Fund, with the
primary expenses being custodian, transfer agent, audit, legal, 12b-1 and
shareholder servicing fees. The Advisor will not charge an advisory fee. Page
__.
Additional Information is also included in this Prospectus concerning the
custodian, transfer agent and independent accountants; and organization,
capitalization and voting. Page __.
4
<PAGE>
ANNUAL LIFE SOLUTIONS FUND OPERATING EXPENSES
(AFTER FEE REIMBURSEMENT)
The following expense table lists the various costs and expenses that an
investor in the Life Solutions Funds will incur directly or indirectly. In
addition to the expenses identified below, each Life Solutions Fund will
indirectly bear its pro rata share of the expense of the Underlying Funds in
which the Life Solutions Fund invests. The amounts shown are based on estimates
of each Life Solutions Fund's operating expenses for its first full year of
operation. The examples should not be considered a statement of actual past or
future expenses. Actual expenses may be greater or less than those shown. For
additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Income and
Growth Balanced Growth
---------- -------- ------
Sales Charge Imposed on Purchases None None None
Sales Charge Imposed on Reinvested Dividends None None None
Deferred Sales Charge None None None
Redemption Fees None None None
Exchange Fee None None None
Annual Life Solutions Fund Operating Expenses:
- ----------------------------------------------
(as a percentage of average daily net assets)
Advisory Fees None None None
12b-1 Fees1,2 .00% .00% .00%
Other Expenses (After Fee Reimbursement)(1,3) .30 .30 .30
---- ---- ---
Total Operating Expenses3 .30% .30% .30%
==== ==== ====
- -------------------------
(1) The ratios for 12b-1 Fees and Other Expenses are based upon estimated
amounts for the current year, assuming annual average net assets of $15
million for the Income and Growth Fund, $20 million for the Balanced Fund,
and $35 million for the Growth Fund. The Rule 12b-1 Plan permits charges of
up to .25% in distribution and shareholder servicing fees; however, for the
current fiscal year, there will be no distribution and shareholder
servicing expenses incurred.
(2) Rule 12b-1 Fees may include expenses for shareholder servicing activities.
Investors purchasing Life Solutions Fund shares through a financial
intermediary, such as a bank or an investment advisor, may also be required
to pay additional fees for services provided by the intermediary. Such
investors should contact the intermediary for information concerning what
additional fees, if any, will be charged.
(3) The Advisor has voluntarily agreed to cap Life Solutions Funds' expenses
(except for 12b-1 expenses) at .30%. The Other Expenses and Total Operating
Expenses of the Life Solutions Income and Growth, Balanced and Growth Funds
absent the reimbursement would be .67%, .60% and .41%, respectively, of
average daily net assets on an annual basis. The fee reimbursement
agreement will be in effect for the current fiscal year.
Long-term shareholders of the Life Solutions Funds may pay more in Rule 12b-1
fees that the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
5
<PAGE>
While the Life Solutions Funds are expected to operate at a .30% expense
cap after payment of 12b-1 fees, shareholders in a Life Solutions Fund will bear
indirectly the proportionate expenses of the Underlying Funds in which the Life
Solutions Fund invests. The following table provides the expense ratios for each
of the Underlying Funds in which the Life Solutions Funds may invest (based on
information as of December 31, 1996). Where applicable, expense ratios are
restated to reflect current fees and give effect to all waiver and reimbursement
arrangements. As explained in this Prospectus, each Life Solutions Fund intends
to invest in some, but not all, of the Underlying Funds.
Expense Ratio Before Fee Expense Ratio After Fee
Waivers and/or Expense Waivers and/or Expense
Underlying Fund Reimbursements Reimbursements
--------------- -------------- --------------
S&P 500 Index 0.26% 0.16%
Matrix Equity 0.94% 0.57%
Small Cap 1.00% 1.00%
Growth and Income 1.23% 0.95%
Active International 1.30% 1.00%
Emerging Markets 1.54% 1.25%
Bond Market 0.73% 0.50%
Intermediate 1.28% 0.60%
Yield Plus 0.37% 0.37%
Money Market 0.38% 0.38%
US Gov't Money Market 0.43% 0.42%
Each Life Solutions Fund will indirectly bear the expenses of its shares of
the Underlying Funds. Based on current expectations and the weighted exposure to
the Underlying Funds, the following is the expense ratio (before and after fee
waivers and or expense reimbursements) of each Life Solutions Fund:
Average Expense Ratios Before and After
Fee Waiver and/or Expense Reimbursement
---------------------------------------
Life Solutions Fund Before After
------------------- ------ -----
Income and Growth Fund 0.77% 0.52%
Balanced Fund 0.82% 0.57%
Growth Fund 0.87% 0.69%
Examples:
- ---------
Using the above indirect and direct expense ratios for the Life Solutions Funds,
you would pay the following expenses on a $1,000 investment, assuming: (i) 5%
annual return; and (ii) redemption at the end of each time period:
1 year 3 years
------ -------
Life Solutions Income and Growth Fund $8 $26
Life Solutions Balanced Fund $9 $27
Life Solutions Growth Fund $9 $28
6
<PAGE>
SSgA LIFE SOLUTIONS FUNDS
The SSgA Funds (the "Investment Company") is a diversified, open-end
management investment company organized as a Massachusetts business trust. The
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in the portfolios comprising the series, each of
which is commonly referred to as a mutual fund. The SSgA Life Solutions Funds
(referred to as the "Life Solutions Funds") are diversified, professionally
managed mutual funds. State Street Bank and Trust Company ("State Street"),
through its division, State Street Global Advisors ("Advisor" or "SSgA"), is the
Funds' Advisor. Through this Prospectus, the Investment Company offers the
investor three Life Solutions Funds, which are comprised of various combinations
of the Investment Company's portfolios (the "Underlying Funds"). Initially, each
of the Life Solutions Funds will invest in at least six of the Underlying Funds.
The Board of Trustees has approved investment in all of the Underlying Fund
described in this Prospectus.
MANNER OF OFFERING
Distribution and Eligible Investors. The Life Solutions Funds have been
organized to provide a simple and effective means for eligible investors to
structure a diversified mutual fund investment allocation program that is suited
to long-term investment goals. Shares of the Life Solutions Funds are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), the Life Solutions and Underlying Funds' distributor. The Life
Solutions Funds are designed primarily for tax-advantaged retirement accounts
and other long-term investment strategies. The Life Solutions Funds are expected
to incur distribution expenses under their Rule 12b-1 plan. See "General
Management -- Distribution Services and Shareholder Servicing Arrangements."
INVESTMENT OBJECTIVES AND ASSET ALLOCATION
OF THE SSgA LIFE SOLUTIONS FUNDS
Each Life Solutions Fund seeks to achieve its investment objective by
diversifying its assets in shares of the Investment Company's Underlying Funds.
Each Life Solutions Fund's investment objective is nonfundamental, and may be
changed by a vote of a majority of the Board of Trustees. There can be no
assurance that any Fund will meet its stated investment objective:
Life Solutions Income and Growth Fund seeks income and, secondarily,
long-term growth of capital.
Life Solutions Balanced Fund seeks a balance of growth of capital and
income.
Life Solutions Growth Fund seeks long-term growth of capital.
The Life Solutions Funds are not designed as market timing vehicles, but rather
as a simple approach to help investors meet retirement and other long-term
goals. Investors may choose to invest in one or more of the Life Solutions Funds
based on their personal investment goals, risk tolerance and financial
circumstances. The chart below illustrates the relative degree to which each
Life Solutions Fund (compared to the other Life Solutions Funds) seeks to obtain
capital appreciation, income and stability of principal, within the parameters
of each of their investment objectives:
7
<PAGE>
Capital
Life Solutions Fund Appreciation Income Volatility
------------------- ------------ ------ ----------
Income and Growth Low High Low
Balanced Medium Medium Medium
Growth High Low High
Each Life Solutions Fund allocates its assets by investing in shares of a
combination of the Underlying Funds. In investing in the Underlying Funds, the
Life Solutions Funds seek to maintain different allocations between classes of
equity, international equity, fixed income and short-term assets funds
(including money market funds) depending on the Life Solutions Fund's investment
objective and risk profile. Allocating investments this way permits each Life
Solutions Fund to attempt to optimize performance consistent with its investment
objective. The table below illustrates the equity, bond and short-term fund
asset allocation ranges for each Life Solutions Fund. Although the Underlying
Funds invest primarily in securities within the asset class under which they are
listed, they may also invest from time to time in other types of securities
consistent with each of their investment objectives.
Asset Class/Underlying Fund Income and Growth Balanced Growth
--------------------------- ----------------- -------- ------
Equities 20-60% 40-80% 60-100%
--------
US Equities
SSgA S&P 500 Index Fund
SSgA Matrix Equity Fund
SSgA Small Cap Fund
SSgA Growth and Income Fund
International Equities* 15%* 20%* 25%*
SSgA Active International Fund
SSgA Emerging Markets Fund
Bonds 40-80% 20-60% 0-40%
-----
SSgA Bond Market Fund
SSgA Intermediate Fund
Short Term Assets 0-20% 0-20% 0-20%
----------------
SSgA Yield Plus Fund
SSgA Money Market Fund
SSgA US Government Money
Market Fund
- ------------
* International equities are included in the total equity exposure indicated
above and will not exceed the listed percentages.
The asset allocation range for each Life Solutions Fund has been approved
by the Board of Trustees of the Investment Company and may be changed at any
time by the Board without shareholder approval. Within the asset allocation
range for each Life Solutions Fund, the Advisor will establish specific
percentage targets for each asset class and each Underlying Fund to be held by
the Life Solutions Fund based on the Advisor's outlook for the economy,
financial markets and relative market valuation of each Underlying Fund. Each
Life Solutions Fund may temporarily deviate from its asset allocation range for
defensive purposes.
8
<PAGE>
The percentage allocation of a Life Solutions Fund's assets could from time
to time deviate from its asset allocation range as a result of appreciation or
depreciation of the shares of the Underlying Funds in which a Life Solutions
Fund is invested. The Life Solutions Funds have adopted certain policies to
reduce the likelihood of such an occurrence. First, the Advisor will rebalance
each Life Solution Fund's holdings at least quarterly, or more frequently as the
Advisor in its discretion determines is appropriate. Rebalancing is the process
of bringing the asset allocation of a Life Solutions Fund back into alignment
with its asset allocation range. In addition, the Advisor will not allocate any
new investment dollars to any Underlying Fund in an asset class whose maximum
percentage has been exceeded. Finally, the Advisor will allocate new investment
dollars on a priority basis to Underlying Funds in any asset class whose minimum
percentage has not been achieved.
LIFE SOLUTIONS FUNDS: SPECIAL RISK CONSIDERATIONS
Investing in Underlying Funds. The investments of each Life Solutions Fund
are concentrated in the Underlying Funds, so each Life Solutions Fund's
investment performance is directly related to the investment performance of the
Underlying Funds that it holds. The ability of each Life Solutions Fund to meet
its investment objective is directly related to the ability of the Underlying
Funds to meet their objectives and to the allocation among the Underlying Funds
by the Advisor. There can be no assurance that the investment objective of any
Life Solutions Fund or Underlying Fund will be achieved. For information about
the investment objectives, techniques and risks involved in of each of the
Underlying Funds, please refer to "Description of the Underlying Funds" below,
the Appendix to this Prospectus and the SAI.
Affiliated Persons. SSgA and the officers and trustees of the Life
Solutions Funds also serve as investment advisor, officers and trustees,
respectively, of the Underlying Funds. Therefore, conflicts may arise as these
persons fulfill their fiduciary responsibilities to the Life Solutions Funds and
the Underlying Funds. The Trustees believe they have structured the Life
Solutions Funds to avoid these concerns. If a situation arises that may result
in a conflict, the Trustees and officers of the Life Solutions Funds will
carefully analyze the situation and take all necessary steps to minimize or
eliminate the potential conflicts.
Investment Practices of Underlying Funds. In addition to their principal
investments, certain Underlying Funds may invest a portion of their assets in
foreign securities; enter into forward currency transactions; lend their
portfolio securities, enter into stock index, interest rate and currency futures
contracts, and options on such contracts; engage in options transactions; make
short sales; purchase zero coupon bonds and payment-in-kind bonds; purchase
restricted and illiquid securities; enter into forward roll transactions;
purchase securities on a when-issued or delayed delivery basis; enter into
repurchase or reverse repurchase agreements; borrow money; and engage in various
other investment practices. All Life Solutions Funds may invest in Underlying
Funds that in turn invest in international securities or emerging markets and
thus are subject to additional risks of these investments, including changes in
foreign currency exchange rates and political risk. For more details, see
"Description of the Underlying Funds," the Appendix and the SAI.
PORTFOLIO TURNOVER
Each Life Solutions Fund's turnover rate is not expected to exceed 50%
annually. A Life Solutions Fund may purchase or sell securities to: (a)
accommodate purchases and sales of its shares; (b) change the percentages of its
assets invested in each of the Underlying Funds in response to market
conditions; and (c) maintain or modify the allocation of its assets among the
Underlying Funds within the percentage limits described above. For information
on the portfolio turnover rates of the Underlying Funds, please see the SAI.
9
<PAGE>
INVESTMENT RESTRICTIONS
The Life Solutions and the Underlying Funds have fundamental investment
restrictions, which may be changed only with the approval of a majority of the
respective Fund's shareholders as defined in the 1940 Act. A more detailed
discussion of the Life Solutions Funds' investment restrictions and policies
appears in the Statement of Additional Information. Unless otherwise noted, the
fundamental restrictions apply at the time an investment is made. Each Life
Solutions Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
companies primarily engaged in any one industry (other than the US
Government, its agencies or instrumentalities and shares of the
Underlying Funds or other investment companies). Concentration may
occur as a result of changes in the market value of portfolio
securities, but may not result from investment.
2. Borrow money (including reverse repurchase agreements), except as a
temporary measure for extraordinary or emergency purposes or to
facilitate redemptions (not for leveraging or investment), provided
that borrowings do not exceed an amount equal to 33-1/3% of the
current value of the Life Solutions Fund's assets taken at market
value, less liabilities other than borrowings. If at any time the Life
Solutions Fund's borrowings exceed this limitation due to a decline in
net assets, such borrowings will within three days be reduced to the
extent necessary to comply with this limitation. A Life Solutions Fund
will not purchase additional investments if borrowed funds (including
reverse repurchase agreements) exceed 5% of total assets.
3. Pledge, mortgage, or hypothecate its assets. However, a Life Solutions
Fund may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Life Solutions Fund's
total assets to secure permitted borrowings.
DESCRIPTION OF THE UNDERLYING FUNDS
The following describes the investment objectives and practices for each of
the Underlying Funds in which the Life Solutions Funds may invest. There can be
no assurance that the investment objectives of the Underlying Funds will be met.
Additional information regarding the investment practices of the Underlying
Funds is located in the Appendix to this Prospectus, in the SAI and in the
prospectuses of each of the Underlying Funds. No offer is made in this
Prospectus of any of the Underlying Funds. The Underlying Funds' Prospectuses
are available without charge by calling the Distributor at (800) 647-7327, or
online through the SSgA Funds' website at http://www.SSgAfunds.com.
Investment Objectives and Policies
- ----------------------------------
US Equities. The following Underlying Funds invest primarily in US equity
securities. However, consistent with each Underlying Fund's investment
objective, it may invest in other types of securities or asset classes from time
to time.
S&P 500 Index Fund ("Index Fund"). The fundamental investment objective is
to seek to replicate the total return of the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500 Index").
The Index Fund is not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial and market analysis and investment judgment. Instead,
the Index Fund utilizes a "passive" investment approach, attempting to duplicate
the investment performance of its benchmark index through automated statistical
analytic procedures.
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Matrix Equity Fund ("Matrix Fund"). The fundamental investment objective is
to provide total returns that exceed over time the S&P 500 Index through
investment in equity securities.
Equity securities will be selected by the Matrix Fund on the basis of a
proprietary analytical model of the Advisor. Each security will be ranked
according to two separate and uncorrelated measures: value and the momentum of
Wall Street sentiment. The value measure compares a company's assets, projected
earnings growth and cash flow growth with its stock price within the context of
its historical valuation. The measure of Wall Street sentiment examines changes
in Wall Street analysts' earnings estimates and ranks stocks by the strength and
consistency of those changes. These two measures are combined to create a single
composite score of each stock's attractiveness. These scores are then plotted on
a matrix according to their relative attractiveness. Sector weights are
maintained at a similar level to that of the S&P 500 Index to avoid unintended
exposure to factors such as the direction of the economy, interest rates, energy
prices and inflation.
Small Cap Fund. The nonfundamental investment objective is to maximize
total return through investment in equity securities; under normal market
conditions, at least 65% of total assets will be invested in securities of
smaller capitalized issuers.
The Small Cap Fund will invest primarily in a portfolio of smaller domestic
companies. Smaller companies will include those stocks with market
capitalization generally ranging in value from $50 million to $3 billion.
Investments in smaller companies may involve greater risks because these
companies generally have a limited track record and often experience higher
price volatility.
Growth and Income Fund. The fundamental investment objective is to achieve
long-term capital growth, current income and growth of income primarily through
investments in equity securities.
The Fund's goal is to provide greater long-term returns than the overall US
equity market without incurring greater risks than those commonly associated
with investments in equity securities. For this purpose, the Fund will measure
its performance against the S&P 500 Index.
The Fund's portfolio strategy combines market economics with fundamental
research. The Adviser begins by assessing current economic conditions and
forecasting economic expectations for the coming months. The industry sectors of
the S&P 500 Index are examined to determine the sector's market capitalized
weighting and to identify the performance of each sector relative to the Index
as a whole. A balance is determined for the portfolio, giving greater weight to
market sectors that are expected to outperform the overall market. Stocks are
then selected for each sector of the Fund's portfolio based on the issuer's
industry classification, the stock's historical sensitivity to changing economic
events and conditions and an assessment of the stock's current valuation.
International Equities. The following Underlying Funds invest primarily in
international equity securities. However, consistent with each Underlying Fund's
investment objective, it may invest in other types of securities or asset
classes from time to time.
Active International Fund. The nonfundamental investment objective is to
provide long-term capital growth by investing primarily in securities of foreign
issuers.
The Active International Fund will attempt to meet its objective through
the active selection of countries, currencies and securities. The selection of
investments will be made through a proprietary, quantitative process developed
by the Advisor. Investments will be made in, but not limited to, countries
included in the Morgan Stanley Capital International Europe, Australia, Far East
("MSCI EAFE") Index. The MSCI EAFE Index is described in more detail in the SAI.
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The Active International Fund may invest in common and preferred equity
securities publicly traded in the United States or in foreign countries. The
Active International Fund's equity securities may be denominated in foreign
currencies and may be held outside the United States. The risks associated with
investment in securities issued by foreign governments and companies are
described in the Appendix under "Foreign Securities."
Emerging Markets Fund. The fundamental investment objective is to provide
maximum total return, primarily through capital appreciation, by investing
primarily in securities of foreign issuers.
Under normal circumstances, the Fund will invest primarily in equity
securities issued by companies domiciled, or doing a substantial portion of
their business, in countries determined by the Advisor to have a developing or
emerging economy or securities market. The Fund will diversify investments
across many countries (typically at least 10) in order to reduce the volatility
associated with specific markets. The countries in which the Fund invests will
be expanded over time as the stock markets in other countries evolve and in
countries for which subcustodian arrangements are approved by the Fund's Board
of Trustees. Nearly all of the Fund's assets will be invested in equity
securities of emerging market countries (i.e., typically over 95%). Currently,
the definition of an emerging market is that gross domestic product per capita
is less than $8,000 per year. However, due to the status of a country's stock
market, the country may still qualify as an emerging market even if it exceeds
this amount. In determining securities in which to invest, the Advisor will
evaluate the countries' economic and political climates and take into account
traditional securities valuation methods, including (but not limited to) an
analysis of price in relation to assets, earnings, cash flows, projected
earnings growth, inflation, and interest rates. Liquidity and transaction costs
will also be considered.
The Fund may invest in common and preferred equity securities publicly
traded in the United States or in foreign countries on developed or emerging
markets. The Fund's equity securities may be denominated in foreign currencies
and may be held outside the United States. Certain emerging markets are closed
in whole or part to the direct purchase of equity securities by foreigners. In
these markets, the Fund may be able to invest in equity securities solely or
primarily through foreign government authorized pooled investment vehicles.
Risks associated with investment in foreign companies are noted in the Appendix
under "Emerging Markets." The risks associated with investment in securities
issued by foreign governments and companies are described in the Appendix under
"Foreign Government Securities."
Bonds. The following Underlying Funds invest primarily in fixed income
securities, although they may purchase other types of securities consistent with
their investment objectives.
Bond Market Fund ("Bond Fund"). The nonfundamental investment objective is
to maximize total return by investing in fixed income securities, including, but
not limited to, those represented by the Lehman Brothers Aggregate Bond Index
(the "LBAB Index"). The LBAB Index is described in more detail in the SAI.
Under normal market conditions, the Bond Fund attempts to meet its
objective by investing at least 65% of its total assets in debt securities. The
Bond Fund may make direct investments in: (1) US Government securities,
including US Treasury securities and other obligations issued or guaranteed as
to interest and principal by the US Government and its agencies and
instrumentalities; (2) corporate debt securities; (3) asset-backed securities;
(4) mortgage-backed securities including, but not limited to, collateralized
mortgage obligations and real estate mortgage investment conduits; (5)
repurchase agreements; (6) commercial paper, notes and bonds (including
convertible bonds) issued by foreign and domestic corporations; (7)
mortgage-related pass-through securities; (8) instruments of US and foreign
banks, including Eurodollar Certificates of Deposit, Eurodollar Time Deposits
and Yankee Certificates of Deposit, certificates of deposit, time deposits,
letters of credit and banker's acceptances; (9) financial futures and option
contracts; (10) interest rate exchange agreements and other swap agreements;
(11) supranational and sovereign debt obligations including subdivisions and
agencies; and (12) other securities and instruments deemed by the Advisor to
have characteristics consistent with the Bond Fund's investment objective.
Securities may be either fixed income, zero coupon or variable or floating-rate
and may be denominated in US dollars or selected foreign currencies. As
indicated above, the Bond Fund may invest in derivative
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<PAGE>
securities, including futures and options, interest rate exchange agreements and
other swap agreements and collateralized mortgage obligations.
Intermediate Fund. The fundamental investment objective is to seek a high
level of current income while preserving principal by investing primarily in a
diversified portfolio of debt securities with a dollar-weighted average maturity
between three and ten years.
The Fund is structured around the Lehman Brothers Intermediate
Government/Corporate Bond Index (the "LBIGC Index"). The LBIGC Index is
described in more detail in the SAI. Under normal market conditions, the Fund
attempts to meet its objective by investing at least 65% of its total assets in:
(1) US Government securities (including repurchase and reverse repurchase
agreements relating to such securities); (2) commercial paper, notes and bonds
(including convertible bonds) issued by foreign and domestic corporations; (3)
mortgage-related pass-through securities; (4) asset-backed securities; and (5)
instruments of US and foreign banks, including Eurodollar Time Deposits,
Eurodollar Certificates of Deposit, Yankee Certificates of Deposit, certificates
of deposit, time deposits, letters of credit and banker's acceptances.
Short Term Assets. The following Underlying Funds are used primarily as a
means to invest the cash reserve portion of each Life Solutions Fund. A reserve
position provides flexibility in meeting redemptions, expenses and the timing of
new investments, and serves as a short-term defense during periods of unusual
volatility.
Yield Plus Fund. The nonfundamental investment objective is to seek high
current income and liquidity by investing primarily in a diversified portfolio
of high-quality debt securities and by maintaining a portfolio duration of one
year or less.
The Yield Plus Fund attempts to meet its objective by investing primarily
in: (1) US Government securities (including repurchase agreements relating to
such securities); (2) instruments of US and foreign banks, including ETDs, ECDs,
YCDs, certificates of deposit, time deposits, letters of credit and banker's
acceptances; (3) commercial paper, notes and bonds issued by foreign and
domestic corporations; (4) securities of foreign governments, agencies and
subdivisions of foreign governments and supranational organizations (such as the
World Bank); (5) asset-backed securities; (6) mortgage-related pass-through
securities; and (7) interest rate swaps.
The Yield Plus Fund will maintain a portfolio duration of one year or less.
Duration is a measure of the price sensitivity of a security to changes in
interest rates. Unlike maturity, which measures the period of time until final
payment is to be made on a security, duration measures the dollar-weighted
average maturity of a security's expected cash flows (i.e., interest and
principal payments), discounted to their present values, after giving effect to
all maturity shortening features, such as call or redemption rights. With
respect to a variable or floating-rate instrument, duration is adjusted to
indicate the price sensitivity of the instrument to changes in the interest rate
in effect until the next reset date. For substantially all securities, the
duration of a security is equal to or less than its stated maturity.
Money Market Fund. The fundamental investment objective is to maximize
current income, to the extent consistent with the preservation of capital and
liquidity and the maintenance of a stable $1.00 per share net asset value, by
investing in dollar denominated securities with remaining maturities of one year
or less.
The Fund has adopted certain investment policies to assure that, to the
extent reasonably possible, the Fund's price per share will not change from
$1.00, although no assurance can be given that this goal will be achieved on a
continuous basis.
The Fund attempts to meet its investment objective by investing in high
quality money market instruments. Such instruments include: (1) US Treasury
bills, notes and bonds; (2) other obligations issued or guaranteed as to
interest and principal by the US Government, its agencies, or instrumentalities;
(3) instruments of
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US and foreign banks, including certificates of deposit, banker's acceptances
and time deposits; these instruments may include Eurodollar Certificates of
Deposit, Eurodollar Time Deposits and Yankee Certificates of Deposit; (4)
commercial paper of US and foreign companies; (5) asset-backed securities; (6)
corporate obligations; (7) variable amount master demand notes; and (8)
repurchase agreements.
US Government Money Market Fund ("Government Fund"). The fundamental
investment objective is to maximize current income to the extent consistent with
the preservation of capital and liquidity, and the maintenance of a stable $1.00
per share net asset value, by investing in obligations of the US Government or
its agencies or instrumentalities with remaining maturities of one year or less.
The Government Fund has adopted certain investment policies to assure that,
to the extent reasonably possible, the Fund's price per share will not change
from $1.00, although no assurance can be given that this goal will be achieved
on a continuous basis.
The Government Fund attempts to meet its investment objective by investing
in obligations issued or guaranteed as to principal and interest by the US
Government or its agencies or instrumentalities or in repurchase agreements
secured by such instruments. Under normal market conditions, the Government
Money Market Fund will be 100% invested in such securities.
Performance of the Underlying Funds
The following chart shows the average annual total returns for each of the
Underlying Funds in which the Funds may invest for the most recent one-, five-
and ten-year periods (or since inception if shorter) and the 30-day yields for
income-oriented funds, for the period ended February 28, 1997.
<TABLE>
<CAPTION>
30-day Yield
7-day Yield for for period
Assets as of Inception Since period ended ended
Underlying Fund 2/28/97 Date 1 Yr. 5 Yr. 10 Yr. Inception 2/28/97 2/28/97
--------------- ------------ ---------- ----- ----- ------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index $995,125,891 12/30/92 25.69% -- -- 18.04% -- --
Matrix 335,822,447 5/4/92 23.33 -- -- 16.42 -- --
Small Cap 88,574,851 11/23/94 21.87 -- -- 31.27 -- --
Growth and Income 61,446,543 9/1/93 23.29 -- -- 16.06 -- --
Active International 61,951,848 3/7/95 (0.77) -- -- 7.55 -- --
Emerging Markets 188,690,723 3/1/94 20.58 -- -- 8.99 -- --
Bond 44,299,273 2/7/96 4.60 -- -- 2.65 -- 6.33%
Intermediate 43,933,207 9/1/93 4.66 -- -- 4.19 -- 5.84
Yield Plus 975,741,414 11/9/92 5.53 -- -- 4.86 -- 5.36
Money Market 5,072,785,990 5/2/88 5.17 -- -- 5.86 5.05% 5.06
Government 788,674,674 3/1/91 5.11 -- -- 4.52 5.01 4.99
</TABLE>
The performance data relating to the Underlying Funds set forth above is
not, and should not be viewed as, indicative of the future performance of either
the Underlying Funds or the Life Solutions Funds.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to authorize the Life Solutions Funds declare
and pay dividends annually from net investment income, if any. The Board of
Trustees intends to authorize distributions of net short-term and long-term
capital gains annually, generally in late October. Distributions will be
declared from net short-and long-term capital gains, if any. It is intended that
an additional distribution may be declared and paid in December if required for
the Life Solutions Funds to avoid the imposition of a 4% federal excise tax on
undistributed capital gains.
Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed for Federal income tax
purposes to have been paid by the Life Solutions Funds and received by
shareholders on December 31 of that year if the dividend is paid prior to
February 1 of the following year.
In addition, the LifeSolutions Funds receive capital gain distributions
from the Underlying Funds. Capital gain distributions may be expected to vary
considerably from time to time.
Income dividend and capital gain distributions will be reinvested in
additional shares at their net asset value on the record date unless the
shareholder has elected to receive them in cash. Such election may be made by
giving 30 days' written notice to the Transfer Agent. If it is determined that
the US Postal Service cannot properly deliver Life Solutions Fund mailings to an
investor, the Life Solutions Fund will terminate the investor's election to
receive dividends and other distributions in cash. Thereafter, subsequent
dividends and other distributions will be automatically reinvested in additional
shares of the relevant Life Solutions Fund until the investor notifies the
Investment Company in writing of the correct address and request in writing that
the election to receive dividends and other distributions in cash be reinstated.
Any dividend or capital gain distribution paid by the Life Solutions Fund
shortly after a purchase of shares will reduce the per share net asset value of
the Life Solutions Funds by the amount of the dividend or distribution. In
effect, the payment will represent a return of capital to the shareholder.
However, the shareholder will be subject to taxes with respect to such dividend
or distribution.
Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:
-- Reinvestment Option--Income dividend and capital gain distributions
will be automatically reinvested in additional shares of a Life
Solutions Fund. If the investor does not indicate a choice on the
Application, this option will be assigned.
-- Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each income dividend
distribution.
-- Cash Option--A check or wire will be sent for each income dividend and
capital gain distribution.
-- Direct Dividends Option--Income dividend and capital gain
distributions will be automatically invested in an identically
registered Life Solutions Fund of your choice.
TAXES
The following discussion is only a summary of certain federal income tax
issues generally affecting the Life Solutions Funds and their shareholders.
Circumstances among investors may vary and each investor is encouraged to
discuss investment in a Life Solutions Fund with the investor's tax advisor.
The Life Solutions Funds intend to qualify as a regulated investment
company ("RIC") under Subchapter M of the Internal Revenue Code, as amended (the
"Code"). As RICs, the Life Solutions Funds will not
15
<PAGE>
be subject to federal income taxes to the extent they distribute their net
investment income and capital gain net income (capital gains in excess of
capital losses) to shareholders. The Board intends to distribute each year
substantially all of the Life Solutions Funds' net investment income and capital
gain net income. The Life Solutions Funds may be subject to nominal, if any,
state and local taxes.
For Taxable Shareholders
- ------------------------
Dividends from net investment income and distributions of net short-term
capital gains are taxable to shareholders as ordinary income under federal
income tax laws whether paid in cash or in additional shares. Distributions from
net long-term capital gains are taxable as long-term capital gains regardless of
the length of time a shareholder has held such shares and whether paid in cash
or additional shares. The Life Solutions Funds may incur additional capital
gains on the sale of their investments in the Underlying Funds if the Life
Solutions Funds rebalance their portfolios. Dividends and distributions may also
be subject to state or local taxes.
The sale of Life Solutions Fund shares by a shareholder is a taxable event
and may result in capital gain or loss. A capital gain or loss may be realized
from an ordinary redemption of shares or an exchange of shares between two
mutual funds (or two series of Life Solutions Funds of a mutual fund). Any loss
incurred on the sale or exchange of Life Solutions Fund shares held for one year
or more will be treated as a long-term capital loss to the extent of capital
gain dividends received with respect to such shares.
Each Life Solutions Fund is required to withhold a legally determined
portion of all taxable dividends, distributions, and redemption proceeds payable
to any noncorporate shareholder that does not provide the Funds with the
shareholder's correct taxpayer identification number or certification that the
shareholder is not subject to backup withholding.
Foreign Income Taxes (Active International and Emerging Markets only).
Investment income received by the Underlying Funds from sources within foreign
countries may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
would entitle a Fund to a reduced rate of such taxes or exemption from taxes on
such income. It is impossible to determine the effective rate of foreign tax for
a Fund in advance since the amount of the assets to be invested within various
countries is not known.
Foreign shareholders should consult with their tax advisors as to if and
how the federal income tax and its withholding requirements applies to them.
VALUATION OF LIFE SOLUTIONS AND UNDERLYING FUND SHARES
Net Asset Value Per Share of the Life Solutions Funds. Net asset value per
share is computed by dividing the current value of the Life Solutions Funds'
assets, less its liabilities, by the number of shares of the Life Solutions
Funds outstanding and rounding to the nearest cent. The Life Solutions Funds
determine net asset value once each business day as of the close of the regular
trading session of the New York Stock Exchange (ordinarily 4 p.m. Eastern time).
A business day is one on which the New York Stock Exchange is open for business.
Frequency of Valuation of Underlying Fund Securities. Except as noted
below, the Underlying Funds determine net asset value once each business day as
of the close of the regular trading session of the New York Stock Exchange
(ordinarily 4 p.m. Eastern time). A business day is one on which the New York
Stock Exchange is open for business.
The Government Fund determines net asset value twice each business day, as
of 12:00 noon Eastern time and as of the close of the regular trading session of
the New York Stock Exchange (ordinarily 4 p.m. Eastern time). A business day for
the Money Market and Government Funds is one on which the New York Stock
Exchange and Federal Reserve are open for business.
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<PAGE>
Valuation of Non-Money Market Underlying Fund Securities. With the
exceptions noted below, the Underlying Funds value portfolio securities at
"market value." This generally means that the equity and fixed income securities
listed and traded principally on any national securities exchange are valued on
the basis of the last sale price or, lacking any sales, at the closing bid
price, on the primary exchange on which the security is traded. United States
equity and fixed income securities traded principally over-the-counter and
options are valued on the basis of the last reported bid price. Futures
contracts are valued on the basis of the last reported sale price.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Fixed income securities therefore may
be valued using prices provided by a pricing service when such prices are
determined by Custodian to reflect the market value of such securities.
International securities traded on a national securities exchange are
valued on the basis of the last sale price. International securities traded
over-the-counter are valued on the basis of best bid or official bid, as
determined by the relevant securities exchange. In the absence of a last sale,
best or official bid price, such securities may be valued on the basis of prices
provided by a pricing service if those prices are believed to reflect the market
value of such securities.
Debt obligation securities maturing within 60 days of the valuation date
are valued at amortized cost unless the Board determines that amortized cost
does not represent their market value. The amortized cost valuation procedure
initially prices an instrument at its cost and thereafter assumes a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While the
amortized cost method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price a Fund would receive if it sold the instrument.
The Funds value securities for which market quotations are not readily
available at "fair value," as determined in good faith pursuant to procedures
established by the Board of Trustees.
Valuation of Underlying Money Market Fund Securities. The Money Market and
Government Funds seek to maintain a $1.00 per share net asset value and,
accordingly, use the amortized cost valuation procedure to value their portfolio
instruments. The "amortized cost" valuation procedure initially prices an
instrument at its cost and thereafter assumes a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument.
PURCHASE OF LIFE SOLUTIONS FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. Each Life
Solutions Fund requires a minimum initial investment of $1,000, with the
exception of IRA accounts, for which the minimum initial investment is $250.
Subsequent investments must be at least $100. An investment in a Life Solutions
Fund may be subject to redemption at the Life Solutions Fund's discretion if the
account balance is less than $1,000 as a result of shareholder redemptions. The
Transfer Agent will give shareholders 60 days' notice that the account will be
closed unless an investment is made to increase the account balance to the
$1,000 minimum. Failure to bring the account balance to $1,000 may result in the
Transfer Agent closing the account at the net asset value ("NAV") next
determined on the day the account is closed and mailing the proceeds to the
shareholder's address shown on the Transfer Agent's records. IRA accounts are
not subject to the $1,000 minimum account balance requirement. The Life
Solutions Funds reserve the right to reject any purchase order. Investors
purchasing Life Solutions Fund assets through a pension or other participation
plan should contact their plan administrator for further information on
purchases.
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<PAGE>
Offering Dates and Times. Life Solutions Fund shares may be purchased on
any business day without a sales commission. All purchases must be made in US
dollars. To be effective on the date received, purchase orders in good form
(described below) and payments for Fund shares in Federal funds (or converted to
Federal funds) must be received by the Transfer Agent prior to 4:00 p.m. Eastern
time (or, if pursuant to a shareholder servicing arrangement, prior to 9:00 a.m.
Eastern time on the next succeeding business day).
The Life Solutions Funds reserve the right to reject any purchase order if
payment for Fund shares has not been received by the Transfer Agent prior to
4:00 p.m. Eastern time (or, if pursuant to a shareholder servicing arrangement,
prior to 9:00 a.m. Eastern time on the next succeeding business day).
Order and Payment Procedures. There are several ways to invest in the Life
Solutions Funds. The Life Solutions Funds require a purchase order in good form,
which consists of a completed and signed Application for each new account
regardless of the investment method. For additional information, including the
IRA package, additional Applications or other forms, call the Customer Service
Department at (800) 647-7327, or write: SSgA Funds, P.O. Box 8317, Boston, MA
02266-8317.
Mail. For new accounts, please mail the completed Application and check in
the return envelope provided. Additional investments should also be made by
check. Investors must include the Life Solutions Fund name and account number on
their checks, or use the remittance form attached to the confirmation statement
(in the return envelope provided). All checks should be made payable to the SSgA
Funds (or in the case of a retirement account, the check should be payable to
the account's custodian or trustee). All purchase requests should be mailed to
one of the following addresses:
Regular Mail: Registered, Express or Certified Mail:
SSgA Funds SSgA Funds
P.O. Box 8317 2 Heritage Drive
Boston, MA 02266-8317 North Quincy, MA 02171
All purchases made by check should be in US dollars from a US bank. Third
party checks and checks drawn on credit card accounts will not be accepted.
Normally, checks are converted to Federal funds within two business days
following receipt of the check. A purchase cannot be effective until Federal
funds are received. When purchases are made by check or periodic account
investment, payment for redemptions will be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Life Solutions Funds' minimum
investment requirement, investors may exchange a minimum of $100 of their Life
Solutions Fund shares without charge for shares of any other SSgA Fund. To use
this option, contact the Customer Service Department at (800) 647-7327. Shares
are exchanged on the basis of relative net asset value per share. Exchanges may
be made over the phone if the registrations of the two accounts are identical.
If the shares of the Life Solutions Fund were purchased by check, the shares
must have been present in an account for 15 days before the exchange is made.
The exchange privilege will only be available in states which permit exchanges
and may be modified or terminated by the Life Solutions Fund upon 60 days'
written notice to shareholders. For Federal income tax purposes, an exchange
constitutes a sale of shares, which may result in a capital gain or loss to the
shareholder.
Federal Funds Wire. An investor may purchase shares by wiring federal funds
to State Street, as Transfer Agent, by:
1. Telephoning the Customer Service Department at (800) 647-7327 between
the hours of 8 a.m. and 4 p.m. Eastern time, and stating: (a) the
investor's account registration number, address and social security or
tax identification number; (b) the name of the Life Solutions Fund in
which the investment is to be made and the account number; and (c) the
amount being wired.
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2. Instructing the wiring bank to wire federal funds to:
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
ABA #0110-0002-8
DDA #9904-631-0
SSgA Life Solutions (Name of Fund) Fund(s)
Account Number and Registration
Failure to properly identify all wires, checks and transfers as indicated
above may cause the Transfer Agent to delay, reject and or incorrectly apply the
settlement of an investor's purchase.
Systematic Investment Plan. Investors can make regular investments in the
Life Solutions Funds with the Systematic Investment Plan by completing the
appropriate section of the Application and attaching a voided personal check.
Investors may make investments monthly, quarterly or annually by deducting $100
or more from their bank checking accounts. An investor may change the amount or
stop systematic purchase at any time by calling the Customer Service Department
at (800) 647-7327. Investors must meet the minimum initial requirement per Fund
before establishing the Systematic Investment Plan. Shares will be purchased at
the offering price next determined following receipt of the order by the
Transfer Agent.
Systematic Exchange. The Life Solutions Funds offer the option of having a
set amount exchanged within the SSgA Funds for accounts with identical
registrations. Investors can choose the date, the frequency (monthly, quarterly
or annually) and the amount. Exchanges may be done among the SSgA Funds once the
initial investment per Life Solutions Fund has been satisfied.
Third Party Transactions. Investors purchasing Life Solutions Fund shares
through a program of services offered by a financial intermediary, such as a
bank, broker-dealer, investment advisor or others, may be required by the
intermediary to pay additional fees. Investors should contact the intermediary
for information concerning what additional fees, if any, may be charged.
REDEMPTION OF LIFE SOLUTIONS FUND SHARES
Life Solutions Fund shares may be redeemed on any business day at the net
asset value next determined after the receipt of a redemption request by
following one of the methods described below. Redemption requests must be
received prior to 4:00 p.m. Eastern time (or, if pursuant to a shareholder
servicing arrangement, prior to 9:00 a.m. Eastern time on the next succeeding
business day) in order be effective on the date received. Payments will be made
as soon as possible (but will ordinarily not exceed seven days) and will be
mailed to the shareholder's address of record. Upon request, redemption proceeds
will be wire transferred to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System. Payment for redemption of
shares by check may be withheld for up to 15 days after the date or purchase to
assure that the check is honored.
Telephone Redemption. Shareholders may normally redeem Life Solutions Fund
shares by telephoning the Customer Service Department at (800) 647-7327 between
8:00 a.m. and 4:00 p.m. Eastern time. Shareholders must complete the appropriate
section of the application and attach a voided check (if applicable) before
utilizing this feature. The Life Solutions Fund and the Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are properly authorized. The Life Solutions Fund and the Transfer
Agent will not be liable for executing instructions that are deemed to be
authorized after following reasonable procedures. These procedures include
recording telephonic instructions, mailing to the shareholder a written
confirmation of the transaction, performing a personal identity test with
private information not likely to be known by other individuals, and restricting
mailing of redemptions to the shareholder's address of record, if the address
has not been changed within 60 days of the redemption request.
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<PAGE>
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Requests must be received prior to 4:00 p.m.
Eastern time. The shares will be redeemed using that day's closing price, and
the proceeds will be wired the following business day. Although the Life
Solutions Funds do not charge a fee for this feature, the investor's bank may
charge a fee for receiving the wire. Investors are advised to check with their
bank before requesting this feature.
Check. Proceeds less than $50,000 may be mailed only to the address shown
on the Transfer Agent's registration record, provided that the address has not
been changed within 60 days of the redemption request. Shares will be redeemed
using that day's closing price (NAV). All proceeds by check will normally be
sent the following business day. During periods of drastic economic or market
changes, shareholders using this method may encounter delays. In such event,
shareholders should consider using the mail redemption procedure described
below.
Mail. In certain circumstances, a shareholder will need to make a request
to sell shares in writing (please use the addresses for purchases by mail listed
under "Purchase of Life Solutions Fund Shares"). The shareholder may need to
include additional items with the request, as shown in the table below.
Shareholders may need to include a signature guarantee, which protects them
against fraudulent orders. A signature guarantee will be required if:
1. The shareholder's address of record has changed within the past 60
days;
2. The shareholder is redeeming more than $50,000 worth of shares; or
3. The shareholder is requesting payment other than by a check mailed to
the address of record and payable to the registered owner(s).
Signature guarantees can usually be obtained from the following sources:
1. A broker or securities dealer, registered with a domestic stock
exchange;
2. A federal savings, cooperative or other type of bank;
3. A savings and loan or other thrift institution;
4. A credit union; or
5. A securities exchange or clearing agency.
Please check with the institution prior to signing to ensure that they are
an acceptable signature guarantor. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE
GUARANTEE. Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
------ ---------------------------------
<S> <C>
Owner of individual, -- Letter of instruction, signed by all persons
joint, sole authorized to sign for the account stating general
proprietorship, UGMA/UTMA titles/capacity, exactly as the account is
(custodial accounts for registered; and
minors) or general partner -- Signature guarantee, if applicable (see above).
accounts
20
<PAGE>
<CAPTION>
Seller Requirements for Written Requests
------ ---------------------------------
<S> <C>
Owners of corporate or -- Letter of instruction signed by authorized
association accounts person(s), stating capacity as indicated by the
corporate resolution;
-- Corporate resolution, certified within the past 90
days; and
-- Signature guarantee, if applicable (see above).
Owners or trustees of -- Letter of instruction, signed by all trustees;
trust accounts If the trustees are not named in the registration,
please provide a copy of the trust document certified
within the past 60 days; and
-- Signature guarantee, if applicable (see above).
Joint tenancy shareholders -- Letter of instruction signed by surviving tenant(s);
whose co-tenants -- Certified copy of the death certificate; and
are deceased -- Signature guarantee, if applicable (see above).
</TABLE>
The Life Solutions Funds reserve the right to suspend the right of
redemption or postpone the date of payment if emergency conditions, as specified
in the 1940 Act or as determined by the Securities and Exchange Commission,
should exist.
GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs of
the Life Solutions and Underlying Funds and has approved contracts with various
financial organizations to provide, among other services, day-to-day management.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to each Life Solutions and Underlying Fund. State Street is
one of the largest providers of securities processing and recordkeeping services
for US mutual funds and pension funds. State Street is a wholly owned subsidiary
of State Street Boston Corporation, a publicly held bank holding company. State
Street, with over $_____ billion (US) under management as of
___________________, provides complete global investment management services
from offices in the United States, London, Sydney, Hong Kong, Tokyo, Toronto,
Luxembourg, Montreal, Paris, Dubai, Munich and Brussels.
The Advisor, subject to Board supervision, directs the investments of each
Life Solutions and Underlying Fund in accordance with their investment
objectives, policies and restrictions. The Life Solutions Funds will not be
charged a fee by the Advisor. However, each Life Solutions Fund, as a
shareholder in the Underlying Funds, will bear its proportionate share of any
investment advisory fees and other expenses paid by the Underlying Funds. Each
Underlying Fund pays the Advisor a fee, calculated daily and paid monthly, that
on an annual basis is equal to a certain percentage of each Underlying Fund's
average daily net assets. However, the Advisory has voluntarily
21
<PAGE>
agreed to waive or reimburse its fees for certain Underlying Funds. The
following table indicates the Advisory fees paid by each Underlying Fund as a
percentage of average daily net assets (net of waivers and reimbursements) and
the percentage which each Underlying Fund would have paid absent a waiver or
reimbursement for the fiscal year ended August 31, 1996:
Advisory Fees (% of Average Daily Net Assets) for the
Fiscal Year Ended August 31, 1996:
-----------------------------------------------------------
Net of Advisory Fee Waivers or Absent the Advisory Fee
Underlying Fund Reimbursements Waivers or Reimbursements
- --------------- -------------- -------------------------
S&P 500 Index 0.00% 0.10%
Matrix Equity 0.375% 0.75%
Small Cap 0.57% 0.75%
Growth and Income 0.40% 0.85%
Active International 0.28% 0.75%
Emerging Markets 0.36% 0.75%
Bond Market 0.00% 0.30%
Intermediate 0.02% 0.80%
Yield Plus 0.25% 0.25%
Money Market 0.25% 0.25%
US Gov't Money Market 0.25% 0.25%
The Glass-Steagall Act prohibits a depository state chartered bank such as
the Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of the Advisor in informing its
customers of the Life Solutions and Underlying Funds, performing investment and
redemption services and providing custodian, transfer, shareholder servicing,
dividend disbursing and investment advisory services may raise issues under
these provisions. the Advisor has been advised by its counsel that its
activities in connection with the Investment Company are consistent with its
statutory and regulatory obligations. The shares offered by this Prospectus are
not endorsed or guaranteed by State Street or its affiliates, are not deposits
or obligations of State Street or its affiliates, and are not insured by the
Federal Deposit Insurance Corporation or any other governmental agency.
Changes in federal or state statutes and regulations relating to the
permissible activities of banks and their affiliates, as well as judicial or
administrative decisions or interpretations of such or future statutes and
regulations, could prevent the Advisor from continuing to perform all or a part
of the above services for its customers and/or the Life Solutions Funds. If the
Advisor were prohibited from serving the Life Solutions Funds in any of its
present capacities, the Board of Trustees would seek an alternative provider(s)
of such services. In such event, changes in the operation of the Life Solutions
Funds may occur. It is not expected by the Advisor that existing shareholders
would suffer any adverse financial consequences (if another advisor with
equivalent abilities is found) as a result of any of these occurrences.
State Street may from time to time have discretionary authority over
accounts which invest in Investment Company shares. These accounts include
accounts maintained for securities lending clients and accounts which permit the
use of Underlying Funds as short-term cash sweep investments. Shares purchased
for all discretionary accounts are held of record by State Street, who retains
voting control of such shares. As of _________, 1997 [date not more than 30 days
from effective date], State Street held of record less than 25% [or _______%] of
the aggregate issued and outstanding shares of the Underlying Funds of the
Investment Company in connection with its discretionary accounts. Consequently,
State Street is not [or is] deemed to be a controlling person of Investment
Company for purposes of the 1940 Act.
Under the Advisor's Code of Ethics, the Advisor's employees in Boston where
investment management operations are conducted are only permitted to engage in
personal securities transactions which do not involve
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<PAGE>
securities which the Advisor had recommended for purchase or sale, or purchased
or sold, on behalf of its clients. Such employees must report their personal
securities transactions quarterly and supply broker confirmations to the
Advisor.
Life Solutions Fund Management. Agustin J. Fleites, Principal, has primary
responsibility for the day-to-day management of each Life Solutions Fund. Mr.
Fleites joined State Street in 1987 and is presently head of the Boston Asset
Allocation group with responsibilities for portfolio management, research and
product development. Mr. Fleites is a member of the SSgA Investment Committee.
He established SSgA's Australia office in 1991 where, as Managing Director, he
provided portfolio management services, client support, and developed new client
relationships. Prior to moving to Australia, Mr. Fleites was a portfolio manager
in the active international equity group where he was responsible for managing
several commingled and separately managed active equity funds and global equity
derivatives. Mr. Fleites is credited with the successful development and
implementation of SSgA's asset allocation strategy. He is a graduate of the
Wharton School of the University of Pennsylvania with a concentration in finance
and multinational management and received his MBA in Finance from Babson
College. There is one other person who assists in the management of the Life
Solutions Funds.
Administration Agreement. Frank Russell Investment Management Company
("FRIMCo" or "Administrator") serves as the Life Solutions and Underlying Funds'
administrator. The Administrator currently serves as investment manager and
administrator to 27 mutual funds with assets of $____ billion as of _________,
and acts as administrator to 20 mutual funds, including the Life Solutions Funds
presented in this Prospectus, with assets of $___ billion as of ________.
Pursuant to the Administration Agreement with Investment Company, the
Administrator will: (1) supervise all aspects of the Life Solutions Funds'
operations; (2) provide the Life Solutions Funds with administrative and
clerical services, including the maintenance of certain of the Life Solutions
Funds' books and records; (3) arrange the periodic updating of the Life
Solutions Funds' prospectuses and any supplements thereto; (4) provide proxy
materials and reports to Life Solutions Fund shareholders and the Securities and
Exchange Commission; and (5) provide the Life Solutions Funds with adequate
office space and all necessary office equipment and services, including
telephone service, heat, utilities, stationery supplies and similar items. For
these services, the Underlying Funds pay the Administrator a combined fee that
on an annual basis is equal to the percentages stated below of their average
aggregate daily net assets. The Life Solutions Funds will not be charged a fee
by the Administrator. Instead, the Administrator will assess administration fees
on the Underlying Funds. Each Life Solutions Fund will pay indirectly its
proportionate share of the following:
-- All Underlying Funds (except Active International and Emerging
Markets)
-- To and including $500 million--.06%;
-- Over $500 million to and including $1 billion--.05%; and
-- Over $1 billion--.03%.
-- Active International and Emerging Markets
-- To and including $500 million--.07%;
-- Over $500 million to and including $1 billion--.06%;
-- Over $1 billion to and including $1.5 billion--.04%; and
-- Over $1.5 billion--.03%.
The percentage of the fee paid by the each Underlying Fund is equal to the
percentage of average aggregate daily net assets that are attributable to that
Underlying Fund. Administrator will also receive reimbursement of expenses it
incurs in connection with establishing new investment portfolios, including the
Life
23
<PAGE>
Solutions Funds. Further, the administration fee paid by the Underlying
Funds will be reduced by the sum of certain distribution related expenses (up to
a maximum of 10% of the asset-based administration fee listed above).
The Administrator also provides administrative services in connection with
the registration of shares of the Life Solutions Funds and the Underlying Funds
with those states in which its shares are offered or sold. Compensation for such
services is on a "time spent" basis. Investment Company will pay all
registration, exemptive application, renewal and related fees and reasonable
out-of-pocket expenses.
Officers and employees of the Administrator and Distributor are permitted
to engage in personal securities transactions subject to restrictions and
procedures set forth in the Confidentiality Manual and Code of Ethics adopted by
the Investment Company, Administrator and Distributor. Such restrictions and
procedures include substantially all of the recommendations of the Advisory
Group of the Investment Company Institute and comply with Securities and
Exchange Commission rules and regulations.
Distribution Services and Shareholder Servicing Arrangements. Pursuant to
the Distribution Agreement with Investment Company, Russell Fund Distributors,
Inc. ("Distributor"), a wholly owned subsidiary of the Administrator, serves as
distributor for all Investment Company portfolio shares, including the Life
Solutions Funds.
The Life Solutions and Underlying Funds have also adopted a distribution
plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. The purpose of the
Plan is to provide for the payment of certain Investment Company distribution
and shareholder servicing expenses. Under the Plan, Distributor will be
reimbursed in an amount up to .25% of the Life Solutions and Underlying Funds'
average annual net assets for distribution-related and shareholder servicing
expenses. Payments under the Plan will be made to Distributor to finance
activity that is intended to result in the sale and retention of Life Solutions
and Underlying Fund shares including: (1) payments made to certain
broker-dealers, investments advisors and other third party intermediaries; (2)
the costs of prospectuses, reports to shareholders and sales literature; (3)
advertising; and (4) expenses incurred in connection with the promotion and sale
of shares, including Distributor's overhead expenses for rent, office supplies,
equipment, travel, communication, compensation and benefits of sales personnel.
Under the Plan, the Life Solutions Funds may also enter into agreements
("Service Agreements") with financial institutions, which may include the
Advisor ("Service Organizations"), to provide shareholder servicing with respect
to Life Solutions Fund shares held by or for the customers of the Service
Organizations. Under the Service Agreements, the Service Organizations may
provide various services for such customers including: (1) answering inquiries
regarding a Life Solutions Fund; (2) assisting customers in changing dividend
options, account designations and addresses; (3) performing subaccounting for
such customers; (4) establishing and maintaining customer accounts and records;
(5) processing purchase and redemption transactions; (6) providing periodic
statements showing customers' account balances and integrating such statements
with those of other transactions and balances in the customers' other accounts
serviced by the Service Organizations; (7) arranging for bank wires transferring
customers' funds; and (8) such other services as the customers may request in
connection with the Life Solutions Fund, to the extent permitted by applicable
statute, rule or regulation. Service Organizations may receive from a Life
Solutions Fund, for shareholder servicing, a monthly fee at a rate that shall
not exceed .20% per annum of the average daily net asset value of a Life
Solutions Fund's shares owned by or for shareholders with whom the Service
Organization has a servicing relationship. Banks and other financial service
firms may be subject to various state laws, and may be required to register as
dealers pursuant to state law.
Payments to Distributor, as well as payments to Service Organizations from
a Life Solutions Fund, are not permitted by the Plan to exceed .25% of a Life
Solutions Fund's average net asset value per year. Any payments that are
required to be made by the Distribution Agreement and any Service Agreement but
could not be made because of the .25% limitation may be carried forward and paid
in subsequent years so long as the Plan is in effect. A Life Solutions Fund's
liability for any such expenses carried forward shall terminate at the end of
two years
24
<PAGE>
following the year in which the expenditure was incurred. Service
Organizations will be responsible for prompt transmission of purchase and
redemption orders and may charge fees for their services.
LIFE SOLUTIONS FUND EXPENSES
The Life Solutions Funds will pay all of their expenses other than those
expressly assumed by the Advisor and the Administrator. Expenses include: (1)
distribution and shareholder servicing; (2) amortization of deferred
organizational costs; (3) taxes, if any; (4) expenses for legal, auditing and
financial accounting services; (5) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (6) custodian fees; (7) expense of issuing and redeeming Life
Solutions Fund shares; (8) the cost of registering Life Solutions Fund shares
under federal and state laws; (9) shareholder meetings and related proxy
solicitation expenses; (10) the fees, travel expenses and other out-of-pocket
expenses of Trustees who are not affiliated with Advisor or any of its
affiliates; (11) insurance, interest, brokerage and litigation costs; (12)
extraordinary expenses as may arise, including expenses incurred in connection
with litigation proceedings and claims and the legal obligations of Investment
Company to indemnify its Trustees, officers, employees, shareholders,
distributors and agents; and (13) other expenses properly payable by the Life
Solutions Funds. Certain expenses not directly attributable to any one Life
Solutions Fund but applicable to all Life Solutions Funds, such as Trustee fees,
insurance, legal and other expenses will be allocated to each Life Solutions
Fund based on each Life Solutions Fund's net assets.
PERFORMANCE CALCULATIONS
Yield
The Money Market, Government, Yield Plus, Bond and Intermediate Funds may
from time to time advertise their yields. Yield for each Fund is calculated as
follows:
Money Market and Government Funds. The yield of each Fund refers
to the income generated by an investment in shares of these Funds over a
seven-day period (which period will be stated in the advertisement). This income
is then annualized. That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment in a Fund is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
From time to time, the Money Market and Government Funds may also
report yield and effective yield as calculated over a one-month period (which
period will also be stated in the advertisement). These one-month periods will
be annualized using the same method as described above for yields calculated on
the basis of seven-day periods. From time to time, yields calculated on a
monthly basis may also be linked to provide yield figures for periods greater
than one month.
Bond, Yield Plus and Intermediate Funds. Yield is calculated by dividing
the net investment income per share earned during the most recent 30-day (or
one-month) period by the maximum offering price per share on the last day of the
month. This income is then annualized. That is, the amount of income generated
by the investment during that 30-day period is assumed to be generated each
month over a 12-month period and is shown as a percentage of the investment. For
purposes of the yield calculation, interest income is computed based on the
yield to maturity of each debt obligation and dividend income is computed based
upon the stated dividend rate of each security in the Fund's portfolio. The
calculation includes all recurring fees that are charged to all shareholder
accounts.
25
<PAGE>
Total Return
- ------------
From time to time, each Life Solutions Fund may advertise its total return.
The total return of a Life Solutions Fund is the average annual compounded rate
of return from a hypothetical investment in the Life Solutions Fund over
one-year, five-year and ten-year periods or for the life of the Life Solutions
Fund (as stated in the advertisement), assuming the reinvestment of all dividend
and capital gains distributions.
Comparative performance information may be used from time to time in
advertising or marketing Life Solutions Fund shares, including data (as
applicable to each respective Life Solutions Fund) from Lipper Analytical
Services, Inc., the Bank Rate Monitor, Wall Street Journal Score Card,
Morningstar, Inc., S&P 500 Index, Russell 2000 Index, MSCI EAFE Index, LBAB
Index or other industry publications, business periodicals, rating services and
market indices. The Life Solutions Funds may also advertise nonstandardized
performance information which is for periods in addition to those required to be
presented.
Quoted yields, returns and other performance figures are based on
historical earnings and are not indications of future performance.
ADDITIONAL INFORMATION
Custodian, Transfer Agent and Independent Accountants. State Street holds
all portfolio securities and cash assets of the Life Solutions Funds and
Underlying Funds, provides Life Solutions Fund and Underlying Fund recordkeeping
services and serves as the Life Solutions Funds' and Underlying Funds' transfer
agent ("Transfer Agent") and custodian ("Custodian"). State Street is authorized
to deposit securities in securities depositories or to use the services of
subcustodians. State Street has no responsibility for the supervision and
management of each Life Solutions Fund and each of the Underlying Funds except
as investment advisor. Coopers & Lybrand L.L.P., Boston, Massachusetts, is
Investment Company's independent accountants.
Reports to Shareholders and Shareholder Inquiries. Shareholders will
receive unaudited semiannual financial statements and annual financial
statements audited by Investment Company's independent accountants. Shareholder
inquiries regarding the Prospectus, financial statements and shareholder
balances may be made by calling the Distributor at (800) 647-7327.
Organization, Capitalization and Voting. The Investment Company was
organized as a Massachusetts business trust on October 3, 1987, and operates
under a First Amended and Restated Master Trust Agreement dated October 13,
1993, as amended. The Investment Company issues shares divisible into an
unlimited number of series (or funds), each of which is a separate trust under
Massachusetts law.
Each Life Solutions Fund share represents an equal proportionate interest
in a Life Solutions Fund, has a par value of $.001 per share and is entitled to
such relative rights and preferences and dividends and distributions earned on
assets of the Life Solutions Fund as may be declared by the Board of Trustees.
Life Solutions Fund shares are fully paid and nonassessable by the Investment
Company and have no preemptive rights.
Each Life Solutions Fund share has one vote. There are no cumulative voting
rights. There is no annual meeting of shareholders, but special meetings may be
held. On any matter that affects only a particular investment fund, only
shareholders of that fund may vote unless otherwise required by the 1940 Act or
the Master Trust Agreement. The Trustees hold office for the life of the Trust.
A Trustee may resign or retire, and may be removed at any time by a vote of
two-thirds of Investment Company shares or by a vote of a majority of the
Trustees. The Trustees shall promptly call and give notice of a meeting of
shareholders for the purpose of voting upon removal of any Trustee when
requested to do so in writing by holders of not less than 10% of the shares then
outstanding. A vacancy on the Board of Trustees may be filled by the vote of a
majority of the remaining Trustees, provided that immediately thereafter at
least two-thirds of the Trustees have been elected by shareholders.
26
<PAGE>
The Investment Company does not issue share certificates for the Life
Solutions Funds. The Transfer Agent sends shareholders statements concurrent
with any transaction activity, confirming all investments in or redemptions from
their accounts. Each statement also sets forth the balance of shares held in the
account.
27
<PAGE>
SSgA LIFE SOLUTIONS FUNDS
Two International Place, 35th Floor
Boston, Massachusetts 02110
CUSTOMER SERVICE: (800) 647-7327
INVESTMENT ADVISOR, CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
DISTRIBUTOR
Russell Fund Distributors, Inc.
One International Place
Boston, Massachusetts 02110
ADMINISTRATOR
Frank Russell Investment Management Company
909 A Street
Tacoma, Washington 98402
LEGAL COUNSEL
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
28
<PAGE>
APPENDIX
Investment Policies of the Underlying Funds
- -------------------------------------------
The investment policies described below reflect the Underlying and Life
Solutions Funds' current policies, are not fundamental and may be changed by the
Board of Trustees without shareholder approval. Descriptions below are of
policies which will from time to time e used by at least 5% of a Life Solutions
and Underlying Funds' net assets. For more information about some of the
investment policies described below, or for information about other policies
that may be used by less than 5% of the Life Solutions Funds' or the Underlying
Funds' net assets, see the SAI. To the extent consistent with each Life
Solutions Fund's investment objective and restrictions, the Life Solutions and
Underlying Funds (as indicated) may invest in the following instruments and may
use the following investment techniques:
US Government Securities (all Underlying Funds except Active International
and Emerging Markets). US Government securities include US Treasury bills,
notes, and bonds and other obligations issued or guaranteed as to interest and
principal by the US Government and its agencies or instrumentalities.
Obligations issued or guaranteed as to interest and principal by the US
Government, its agencies or instrumentalities include securities that are
supported by the full faith and credit of the United States Treasury, securities
that are supported by the right of the issuer to borrow from the United States
Treasury, discretionary authority of the US Government agency or
instrumentality, and securities supported solely by the creditworthiness of the
issuer.
Repurchase Agreements (all Underlying Funds). Each Underlying Fund may
enter into repurchase agreements with banks and other financial institutions,
such as broker-dealers. In substance, a repurchase agreement is a loan for which
the Underlying Fund receives securities as collateral. Under a repurchase
agreement, an Underlying Fund purchases securities from a financial institution
that agrees to repurchase the securities at the Underlying Fund's original
purchase price plus interest within a specified time (normally one business
day). No Underlying Fund will invest more than 10% of its net assets (taken at
current market value) in repurchase agreements maturing in more than seven days.
The Underlying Funds will limit repurchase transactions to those member banks of
the Federal Reserve System and broker-dealers whose creditworthiness the Advisor
considers satisfactory. Should the counterparty to a transaction fail
financially, an Underlying Fund may encounter delay and incur costs before being
able to sell the securities. Further, the amount realized upon the sale of the
securities may be less than that necessary to fully compensate an Underlying
Fund.
Forward Commitments (all Underlying Funds except Emerging Markets). The
Underlying Funds may contract to purchase securities for a fixed price at a
future date beyond customary settlement time. When effecting such transactions,
cash or marketable securities held by a portfolio of a dollar amount sufficient
to make payment for the portfolio securities to be purchased will be segregated
on a portfolio's records at the trade date and maintained until the transaction
is settled. The failure of the other party to the transaction to complete the
transaction may cause an Underlying Fund to miss an advantageous price or yield.
Forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, or if the other party fails to
complete the transaction.
When-Issued Transactions (all Underlying Funds except Active International
and Emerging Markets). The Underlying Funds may purchase securities on a
when-issued basis. In these transactions, an Underlying Fund purchases
securities with payment and delivery scheduled for a future time. Until
settlement, an Underlying Fund segregates cash and marketable securities equal
in value to its when-issued commitments. Between the trade and settlement dates,
an Underlying Fund bears the risk of any fluctuation in the value of the
securities. These transactions involve the additional risk that the other party
may fail to complete the transaction and cause an Underlying Fund to miss a
price or yield considered advantageous. An Underlying Fund will engage in
when-issued transactions only for the
29
<PAGE>
purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. An Underlying Fund will
invest no more than 25% of its net assets in when-issued securities.
Variable Amount Master Demand Notes (all Underlying Funds except Active
International and Emerging Markets). Variable amount master demand notes are
unsecured obligations that are redeemable upon demand and are typically unrated.
These instruments are issued pursuant to written agreements between their
issuers and holders. The agreements permit the holders to increase (subject to
an agreed maximum) and the holders and issuers to decrease the principal amount
of the notes, and specify that the rate of interest payable on the principal
fluctuates according to an agreed formula.
Asset-Backed Securities (Money Market, Bond Yield Plus and Intermediate
only). Asset-backed securities represent undivided fractional interests in pools
of instruments, such as consumer loans, and are similar in structure to
mortgage-related pass-through securities described below. Payments of principal
and interest are passed through to holders of the securities and are typically
supported by some form of credit enhancement, such as a letter of credit, surety
bond, limited guarantee by another entity or by priority to certain of the
borrower's other securities. The degree of credit enhancement varies, generally
applying only until exhausted and covering only a fraction of the security's par
value. If the credit enhancement of an asset-backed security held by the Yield
Plus Fund has been exhausted, and if any required payments of principal and
interest are not made with respect to the underlying loans, the Yield Plus Fund
may experience loss or delay in receiving payment and a decrease in the value of
the security. The value of asset-backed securities is affected by changes in the
market's perception of the asset backing the security, changes in the
creditworthiness of the servicing agent for the instrument pool, the originator
of the instruments or the financial institution providing any credit
enhancement, and the expenditure of any portion of any credit enhancement. The
risks of investing in asset-backed securities are ultimately dependent upon
payment of the underlying instruments by the obligors, and the Yield Plus Fund
would generally have no recourse against the obligee of the instruments in the
event of default by an obligor. The underlying instruments are subject to
prepayments.
Mortgage-Related Pass-Through Securities (Money Market, Government Money
Market, Bond, Yield Plus and Intermediate only). The Underlying Funds stated
above may invest in mortgage-related securities, including Government National
Mortgage Association ("GNMA") Certificates ("Ginnie Maes"), Federal Home Loan
Mortgage Corporation ("FHLMC") Mortgage Participation Certificates ("Freddie
Macs") and Federal National Mortgage Association ("FNMA") Guaranteed Mortgage
Pass-Through Certificates ("Fannie Maes"). Mortgage pass-through certificates
are mortgage-backed securities representing undivided fractional interests in
pools of mortgage-backed loans. These loans are made by mortgage bankers,
commercial banks, savings and loan associations and other lenders. Ginnie Maes
are guaranteed by the full faith and credit of the US Government, but Freddie
Macs and Fannie Maes are not.
Zero Coupon Securities (Money Market, Government Money Market Bond, Yield
Plus and Intermediate only). Zero coupon securities are notes, bonds and
debentures that: (1) do not pay current interest and are issued at a substantial
discount from par value; (2) have been stripped of their unmatured interest
coupons and receipts; or (3) pay no interest until a stated date one or more
years into the future. These securities also include certificates representing
interests in such stripped coupons and receipts. Generally, changes in interest
rates will have a greater impact on the market value of a zero coupon security
than on the market value of comparable securities that pay interest periodically
during the life of the instrument.
Variable and Floating Rate Securities (Money Market, Government Money
Market, Bond, Yield Plus and Intermediate only). A floating rate security
provides for the automatic adjustment of its interest rate whenever a specified
interest rate changes. A variable rate security provides for the automatic
establishment of a new interest rate on set dates. Interest rates on these
securities are ordinarily tied to,
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and are a percentage of, a widely recognized interest rate, such as the yield on
90-day US Treasury bills or the prime rate of a specified bank. These rates may
change as often as twice daily. Generally, changes in interest rates will have a
smaller effect on the market value of variable and floating rate securities than
on the market value of comparable fixed income obligations. Thus, investing in
variable and floating rate securities generally allows less opportunity for
capital appreciation and depreciation than investing in comparable fixed income
securities.
Eurodollar Certificates of Deposit (ECDs), Eurodollar Time Deposits (ETDs)
and Yankee Certificates of Deposit (YCDs) (Money Market, Bond, Yield Plus and
Intermediate only). ECDs are US dollar denominated certificates of deposit
issued by foreign branches of domestic banks. ETDs are US dollar denominated
deposits in foreign branches of US banks and foreign banks. YCDs are US dollar
denominated certificates of deposit issued by US branches of foreign banks.
Different risks than those associated with the obligations of domestic
banks may exist for ECDs, ETDs and YCDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks, such as loan
limitations, examinations and reserve, accounting, auditing, recordkeeping and
public reporting requirements.
Securities Lending (all Underlying Funds except Emerging Markets). The
Underlying Funds may lend portfolio securities with a value of up to 33-1/3% of
each of their total assets. Such loans may be terminated at any time. An
Underlying Fund will receive cash or US Treasury bills, notes and bonds in an
amount equal to at least 100% of the current market value (on a daily
marked-to-market basis) of the loaned securities plus accrued interest. In a
loan transaction, as compensation for lending it securities, an Underlying Fund
will receive a portion of the dividends or interest accrued on the securities
held as collateral or, in the case of cash collateral, a portion of the income
from the investment of such cash. In addition, an Underlying Fund will receive
the amount of all dividends, interest and other distributions on the loaned
securities. However, the borrower has the right to vote the loaned securities.
an Underlying Fund will call loans to vote proxies if a material issue affecting
the investment is to be voted upon. Should the borrower of the securities fail
financially, an Underlying Fund may experience delays in recovering the
securities or exercising its rights in the collateral. Loans are made only to
borrowers that are deemed by the Advisor to be of good financial standing. In a
loan transaction, an Underlying Fund will also bear the risk of any decline in
value of securities acquired with cash collateral. An Underlying Fund will
minimize this risk by limiting the investment of cash collateral to high quality
instruments of short maturity.
Futures Contracts and Options on Futures (all Underlying Funds except Money
Market). For hedging purposes, including protecting the price or interest rate
of a security that an Underlying Fund intends to buy, an Underlying Fund may
enter into futures contracts that relate to securities in which it may directly
invest and indices comprised of such securities and may purchase and write call
and put options on such contracts.
A financial futures contract is a contract to buy or sell a specified
quantity of financial instruments such as US Treasury bills, notes and bonds,
commercial paper and bank certificates of deposit or the cash value of a
financial instrument index at a specified future date at a price agreed upon
when the contract is made. Under such contracts no delivery of the actual
securities making up the index takes place. Rather, upon expiration of the
contract, settlement is made by exchanging cash in an amount equal to the
difference between the contract price and the closing price of the index at
expiration, net of variation margin previously paid.
Substantially all futures contracts are closed out before settlement date
or called for cash settlement. A futures contract is closed out by buying or
selling an identical offsetting futures contract.
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<PAGE>
Upon entering into a futures contract, an Underlying Fund is required to deposit
an initial margin with Custodian for the benefit of the futures broker. The
initial margin serves as a "good faith" deposit that an Underlying Fund will
honor its futures commitments. Subsequent payments (called "variation margin")
to and from the broker are made on a daily basis as the price of the underlying
investment fluctuates.
Options on futures contracts give the purchaser the right to assume a
position at a specified price in a futures contract at any time before
expiration of the option contract.
When trading futures contracts, an Underlying Fund will not commit more
than 5% of the market value of its total assets to initial margin deposits on
futures and premiums paid for options on futures.
Options on Securities and Securities Indices (all Underlying Funds except
Money Market). The Underlying Funds may write and purchase covered put and call
options on securities in which it may directly invest. Option transactions of an
Underlying Fund will be conducted so that the total amount paid on premiums for
all put and call options outstanding will not exceed 5% of the value of the
Underlying Fund's total assets. Further, an Underlying Fund will not write a put
or call option or combination thereof if, as a result, the aggregate value of
all securities or collateral used to cover its outstanding options would exceed
25% of the value of the Underlying Fund's total assets.
The Underlying Funds may purchase or sell options on securities indices
that are comprised of securities in which the Underlying Funds may directly
invest, subject to the limitations set forth above and provided such options are
traded on a national securities exchange or in the over-the-counter market.
Options on securities indices are similar to options on securities except there
is no transfer of a security and settlement is in cash. A call option on a
securities index grants the purchaser of the call, for a premium paid to the
seller, the right to receive in cash an amount equal to the difference between
the closing value of the index and the exercise price of the option times a
multiplier established by the exchange upon which the option is traded.
Risk Factors of the Underlying Funds
- ------------------------------------
Futures and Options Contracts. There are certain investment risks in using
futures contracts and options as a hedging technique. Such risks may include:
(1) the inability to close out a futures contract or option caused by the
nonexistence of a liquid secondary market; and (2) an imperfect correlation
between price movements of the futures contracts or option with price movements
of the portfolio securities or securities index subject to the hedge.
Foreign Investments. Investment in securities of non-US issuers and
securities denominated in foreign currencies involve investment risks that are
different from those of US issuers. Investors should consider carefully the
substantial risks involved in securities of companies and governments of foreign
nations, including: uncertain future political, diplomatic and economic
developments; possible imposition of exchange controls or other governmental
restrictions; less publicly available information; lack of uniform accounting,
auditing and financial reporting standards, practices and requirements; lower
trading volume, less liquidity and more volatility for securities; less
government regulation of securities exchanges, brokers and listed companies;
political or social instability; and the possibility of expropriation or
confiscatory taxation, each of which could adversely affect investments in such
securities. Commission rates in foreign countries, which may be fixed rather
than subject to negotiation as in the US, are likely to be higher. In many
foreign countries there is less government supervision and regulation of
securities exchanges, brokers and listed companies than in the US, and capital
requirements for brokerage firms are generally lower. Settlement of transactions
in foreign securities may, in some instances, be subject to delays
32
<PAGE>
and related administrative uncertainties. ADRs are subject to all of the above
risks, except the imposition of exchange controls, and currency fluctuations
during the settlement period.
Foreign Currency. A Fund may be affected either favorably or unfavorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, exchange control regulations and indigenous economic and
political developments. The Underlying Funds endeavor to buy and sell foreign
currencies on favorable terms. Such price spread on currency exchange (to cover
service charges) may be incurred, particularly when the Fund changes investments
from one country to another or when proceeds from the sale of shares in US
dollars are used for the purchase of securities in foreign countries. Also, some
countries may adopt policies which would prevent the Fund from repatriating
invested capital and dividends, withhold portions of interest and dividends at
the source, or impose other taxes, with respect to the Fund's investments in
securities of issuers of that country. There also is the possibility of
expropriation, nationalization, confiscatory or other taxation, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability, or diplomatic developments that could adversely affect investments
in securities of issuers in those nations.
Emerging Markets. Investments in companies domiciled in emerging market
countries may be subject to additional risks. (1) Volatile social, political and
economic conditions can cause investments in emerging or developing markets
exposure to economic structures that are generally less diverse and mature.
Emerging market countries may have political systems which are less stable than
those of more developed countries. The possibility may exist that recent
favorable economic developments in certain emerging market countries may be
suddenly slowed or reversed by unanticipated political or social events in such
countries. Moreover, the economies of individual emerging market countries may
differ favorably or unfavorably from the US economy in such respects as the rate
of growth in gross domestic product, the rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. (2)
The small current size of the markets for these securities and the low or
nonexistent volume of trading may result in a lack of liquidity and in greater
price volatility. Until recently, there has been an absence of a capital market
structure or market-oriented economy in certain emerging market countries.
Because the Active International and Emerging Markets Funds invest in securities
generally denominated in foreign currencies, the Life Solutions Funds investing
in them may be affected by changes in currency exchange rates and exchange
control regulations. A change in the value of a foreign currency against the US
dollar will result in a corresponding change in the US dollar value of the
Active International and Emerging Markets Funds' securities. In addition, some
emerging market countries may have fixed or managed currencies which are not
free-floating against the US dollar. Some emerging market currencies may not be
internationally traded. Further, some emerging market currencies have
experienced a steady devaluation relative to the US dollar. Many emerging
markets countries have experienced substantial, and in some periods extremely
high, rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had, and may continue to have, negative effects on the
economies and securities markets of certain emerging market countries. (3) The
existence of national policies may restrict the Active International and
Emerging Markets Funds' investment opportunities and may include restrictions on
investment in issuers or industries deemed sensitive to national interests. (4)
Some emerging markets countries may not have developed structures governing
private or foreign investment and may not allow for judicial redress for injury
to private property.
33
<PAGE>
SSgA(SM) LIFE SOLUTIONS(SM) FUNDS
TWO INTERNATIONAL PLACE, 35TH FLOOR
BOSTON, MA 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
____________, 1997
SSgA Funds (the "Investment Company") is a single legal entity organized as a
Massachusetts business trust. The Investment Company operates multiple, separate
investment portfolios.
This Statement of Additional Information ("SAI") describes the three portfolios
listed below (the "Life Solutions Funds"), each of which invests in different
combinations of other Investment Company portfolios (the "Underlying Funds").
The Underlying Funds each invest in different combinations of stocks, bonds and
cash equivalents. As of the date of this SAI, the Investment Company offers in a
single prospectus dated ____________, 1997, the following Life Solutions Funds:
Life Solutions Income and Growth Fund
Life Solutions Balanced Fund
Life Solutions Growth Fund
This SAI supplements or describes in greater detail information concerning the
Investment Company, the Life Solutions Funds and the Underlying Funds contained
in the Prospectus of the Life Solutions Funds. This SAI is not a prospectus; the
SAI should be read in conjunction with the Life Solutions Funds' Prospectus. The
Prospectus may be obtained without charge by telephoning or writing the
Investment Company at the number or address shown above.
Capitalized terms not otherwise defined in this SAI shall have the meanings
assigned to them in the Prospectus.
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<PAGE>
TABLE OF CONTENTS
Page
STRUCTURE AND GOVERNANCE.................................................
Organization and Business History....................................
Shareholder Meetings.................................................
Controlling Shareholders.............................................
Principal Shareholders...............................................
Trustees and Officers................................................
OPERATION OF THE INVESTMENT COMPANY......................................
Service Providers....................................................
Advisor..............................................................
Administrator........................................................
Money Managers.......................................................
Distributor..........................................................
Custodian and Transfer Agent.........................................
Independent Accountants..............................................
Distribution Plan....................................................
Federal Law Affecting State Street...................................
Valuation of the Life Solutions Fund Shares..........................
Brokerage Practices..................................................
Portfolio Turnover Rates.............................................
Total Return Quotations..............................................
Yield................................................................
INVESTMENTS
Investment Restrictions..............................................
Investment Practices of the Underlying Funds.........................
Investment Policies..................................................
Hedging Strategies and Related Investment Techniques.................
TAXES....................................................................
APPENDIX: DESCRIPTION OF SECURITIES RATINGS.............................
2
<PAGE>
STRUCTURE AND GOVERNANCE
Organization and Business History. Investment Company was organized as a
Massachusetts business trust on October 3, 1987, and operates under a First
Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended.
Investment Company is authorized to issue shares of beneficial interest, par
value $.001 per share, which may be divided into one or more series, each of
which evidences pro rata ownership interest in a different investment portfolio,
or "Fund." The Trustees may create additional Life Solutions and Underlying
Funds at any time without shareholder approval.
The Life Solutions Funds were not offered for public investment prior to
the date of this SAI. The Underlying Funds commenced operations on the date set
forth opposite the respective Fund's name:
Underlying Fund Inception Date
--------------- --------------
SSgA S&P 500 Index Fund December 30, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Matrix Equity Fund May 4, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Emerging Markets Fund March 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Intermediate Fund September 1, 1993
SSgA Yield Plus Fund November 9, 1992
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
As of the date of this SAI, in addition to the Underlying Funds, the
Investment Company is comprised of the following additional investment
portfolios, each of which commenced operations on the date set forth opposite
the portfolio's name:
Additional Investment Company Portfolios Inception Date
---------------------------------------- --------------
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
SSgA Real Estate Equity Fund *
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
The Investment Company offers shares of beneficial interest in its other
portfolios, including the Underlying Funds, in prospectuses separate from this
SAI. Prospectuses for all Investment Company portfolios may be obtained by
calling the distributor, Russell Fund Distributors, Inc., at (800) 647-7327 or
at its Internet Web Site at http://www.SSgAfunds.com.
Investment Company is authorized to divide shares of any series into two or
more classes of shares. The shares of each Life Solutions and Underlying Fund
may have such rights and preferences as the Trustees may establish from time to
time, including the right of redemption (including the price, manner and terms
of redemption), special and relative rights as to dividends and distributions,
liquidation rights, sinking or purchase fund provisions and conditions under
which any Life Solutions and Underlying Fund may have separate voting rights or
no voting rights. Each class of shares of a Life Solutions or Underlying Fund is
entitled to the same rights and privileges as all other classes of that Life
Solutions or Underlying Fund, except that each class bears the
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<PAGE>
expenses associated with the distribution and shareholder servicing
arrangements of that class, as well as other expenses attributable to the class
and unrelated to the management of the Life Solutions and Underlying Fund's
portfolio securities. Shares of the Money Market and US Government Money Market
Funds are divided into Classes A, B and C. As of the date of this SAI, Classes B
and C are not operational or offered for sale to the public.
Any amendment to the Master Trust Agreement that would materially and
adversely affect shareholders of Investment Company as a whole, or shareholders
of a particular Life Solutions or Underlying Fund, must be approved by the
holders of a majority of the shares of Investment Company or the Fund,
respectively. All other amendments may be effected by Investment Company's Board
of Trustees.
Under certain unlikely circumstances, and as is the case with any
Massachusetts business trust, a shareholder of a Life Solutions or Underlying
Fund may be held personally liable for the obligations of a Life Solutions or
Underlying Fund. The Master Trust Agreement provides that shareholders shall not
be subject to any personal liability for the acts or obligations of a Fund and
that every written agreement, obligation, or other undertaking of the Life
Solutions or Underlying Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Life Solutions or Underlying Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Life Solutions or Underlying Fund and satisfy any judgment
thereon. Thus, the risk to shareholders of incurring financial loss beyond their
investments is limited to circumstances in which the Life Solutions or
Underlying Fund itself would be unable to meet its obligations.
Shareholder Meetings. Investment Company will not have an Annual Meeting of
Shareholders. Special Meetings may be convened: (1) by the Board of Trustees;
(2) upon written request to the Board by the holders of at least 10% of the
outstanding shares; or (3) upon the Board's failure to honor the shareholders'
request described above, by holders of at least 10% of the outstanding shares
giving notice of the special meeting to the shareholders.
Controlling Shareholders. The Trustees have the authority and
responsibility to manage the business of Investment Company. Trustees hold
office until they resign or are removed by, in substance, a vote of two-thirds
of Investment Company shares outstanding. However, in connection with State
Street Bank and Trust Company's ("State Street") securities lending program and
investment accounts over which State Street has discretionary authority, State
Street holds certain collateral on behalf of its securities lending clients to
secure the return of loaned securities. Such collateral may be invested in
Investment Company shares from time to time. Shares representing such
investments are held of record by State Street, who retains voting control of
such shares. As of __________, 1997, State Street held beneficially and of
record _____% [or less than 25%] of Investment Company's shares in connection
with various lending portfolios and, consequently, is [not] deemed to be a
controlling person of Investment Company for purposes of the 1940 Act. State
Street also acts as Investment Company's investment advisor, transfer agent and
custodian.
Principal Shareholders. As of February 28, 1997, the following shareholders
owned of record 5% or more of the issued and outstanding shares of the
Underlying Funds:
SSgA S&P 500 Index Fund:
-- Energy Insurance Mutual Limited, 6200 Courtney Campbell Cswy, Suite
510, Tampa, FL 33607-5900--14.68%;
-- American Home Assurance Co., AIG Global Investors Inc., 1 World
Financial Center, 200 Liberty Street, 19th Floor, New York, NY
10281-1003--15.16%;
-- Scudder Trust Co. TTEE Scudder Stock Index Fund, Scudder Trust Co.
Trust Department, Two International Place, Boston, MA
02110-4104--7.04%;
-- State Street Bank and Trust Company, TTEE Alcatel Network System, One
Enterprise Drive, Quincy, MA 02171-2126--6.50%.
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<PAGE>
SSgA Small Cap Fund:
-- State Street Bank and Trust Company, TTEE State Street Solutions Q3N,
PO Box 1389, Boston, MA 02104-1389--13.14%;
-- State Street Retirement CM01, 661, PO Box 351, Boston, MA
02101-0351--17.97%.
SSgA Matrix Equity Fund:
-- State Street Bank and Trust Company, TTEE FBO Workers Rehab and Comp
Corp., Two International Place, 34th Floor, Boston, MA 02110--8.23%;
-- Royal Trust Corp. Of Canada, TTEE Xerox Canada Inc. Employee
Retirement Plan, 77 King Street W., 7th Floor, Toronto, Ontario,
Canada M5W1P9--7.48%;
-- State Street Bank and Trust Company, TTEE State Street Solutions Q3N,
PO Box 1389, Boston, MA 02104-1389--10.85%;
-- State Street Bank and Trust Company, TTEE Alcatel Network System, One
Enterprise Drive, Quincy, MA 02171-2126--14.27%;
-- Boston Edison VEBA, P156, 800 Boyleston St. P354, Boston, MA
02199-8001--12.07%.
SSgA Growth and Income Fund:
-- State Street Bank and Trust Company, TTEE State Street Solutions Q3N,
PO Box 1389, Boston, MA 02104-1389--22.88%;
-- State Street Bank and Trust Company, IA06 SSPLAN 661, 225 Franklin
Street, Quincy, MA 02169-7833--23.01%.
SSgA Emerging Markets Fund:
-- Charles Schwab & Co., Inc. 101 Montgomery St., San Francisco, CA
94104-4122--58.74%.
SSgA Active International Fund:
-- State Street Bank and Trust Company, TTEE State Street Solutions Q3N,
PO Box 1389, Boston, MA 02104-1389--10.29%.
SSgA Bond Market Fund:
-- State Street Bank and Trust Company, Agent, Bryn Mawr Gift Annuity
Fund, PO Box 9842, Boston, MA 02209-9242--5.19%;
-- State Street Bank and Trust Company, Agent, Wellesley College TTEE,
Wellesley College Give Annuity, 225 Franklin St., M/3, Boston, MA
02110-2804--9.63%;
-- State Street Bank and Trust Company, Agent, Lafayette College GAF, PO
Box 9242, Boston, MA 02209-9242--7.63%.
SSgA Intermediate Fund:
-- Boston Latin School Foundation, 41 West St., 6th Fl., Boston, MA
02111--5.45%; -- State Street Bank and Trust Company, TTEE State
Street Solutions Q3N, PO Box 1389, Boston, MA 02104-1389--26.67%;
-- Julie Lane Gay/Craig M. Gay JTWROS, 3420 East 43rd Ave, Vancouver, BC
Canada V6N3J7--5.27%.
SSgA Yield Plus Fund:
-- International Clearing Stock Loan, Russell Fund Distributors, Inc.,
Two International Place, Boston, MA 02110-4104--16.82%;
-- SSgA CM18, 225 Franklin Street, Boston, MA 02110-2804--55.96%.
SSgA Money Market Fund:
-- Ameritech VEBA Trust, 225 West Randolph St., Chicago, IL
60606-1824--9.72%.
5
<PAGE>
SSgA US Government Money Market Fund:
-- State Street Bank and Trust Company, Attn: Marie Tardif, Newport
Office Park, 108 Myrtle St AH3, N. Quincy, MA 02171-1753--11.48%
(2345148-7); 5.32% (2347512-0); 21.34% (2348606-7);
-- Algemeenburgerlijk Pension Fund 5H03 105, 1 Enterprise Drive, N.
Quincy, MA 02171-2126--14.11%;
-- Pru Welfare Union Fixed BR15 PFIA 700, 2 Concourse Parkway,
Suite 500; Atlanta, GA 30328-5586--6.85%.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. Investment Company officers, all of whom are
employed by, and are officers of, Administrator or its affiliates, are
responsible for the day-to-day management and administration of the Life
Solutions and Underlying Funds' operations. Investment Company's officers and
employees are paid by Administrator or its affiliates.
The Board of Trustees is responsible for overseeing generally the operation
of the Life Solutions and Underlying Funds. Trustees who are not officers or
employees of State Street or its affiliates are paid an annual fee and are
reimbursed for travel and other expenses they incur in attending Board meetings.
As of the date of this SAI, the Trustees were not paid pension or retirement
benefits as part of Investment Company expenses. The table below shows the
compensation paid to Trustees by Investment Company:
Total Annual Compensation
Trustee from Investment Company
------- -----------------------
Lynn L. Anderson $0
William L. Marshall $49,000
Steven J. Mastrovich $49,000
Patrick J. Riley $49,000
Richard D. Shirk $49,000
Bruce D. Taber $49,000
Henry W. Todd $49,000
The following lists Investment Company's Trustees and officers, their
positions with Investment Company, their present and principal occupations
during the past five years and the mailing addresses of Trustees who are not
affiliated with Investment Company. The mailing address for all Trustees and
officers affiliated with Investment Company is the SSgA Funds, 909 A Street,
Tacoma, WA 98402.
An asterisk (*) indicates that a Trustee is an "interested person" of the
Investment Company, as defined in the 1940 Act.
*Lynn L. Anderson, Trustee, Chairman of the Board and President. Born
4/22/39. Chairman of the Board and Chief Executive Officer, Frank Russell
Investment Management Company and Russell Fund Distributors, Inc.; Director,
President and Chief Executive Officer, Frank Russell Investment Company and
Frank Russell Trust Company; Director and President, Russell Insurance Funds;
Director and Chairman, Frank Russell Company (Delaware); Director, Frank Russell
Investments (Ireland) Limited and Frank Russell Investment Company PLC.
William L. Marshall, Trustee. Born 12/12/42. 33 West Court Street,
Doylestown, PA 18901. Chief Executive Officer and President, Wm. L. Marshall
Associates, Inc. (a registered investment advisor and provider of financial and
related consulting services); Certified Financial Planner; Member, Registry of
Financial Planning
6
<PAGE>
Practitioners; and Advisory Committee, International Association for Financial
Planning Broker-Dealer Program. Member, Institute of Certified Financial
Planners. Registered Representative for Securities with FSC Securities Corp.,
Marietta, Georgia.
*Steven J. Mastrovich, Trustee. Born 11/3/56. 1 Financial Center, Boston,
MA 02109. Partner, Brown, Rudnick, Freed & Gesmer (law firm). 1990 to 1994,
Partner, Warner & Stackpole (law firm).
Patrick J. Riley, Trustee. Born 11/30/48. 21 Custom House Street, Boston,
MA 02110. Partner, Riley, Burke & Donahue (law firm).
Richard D. Shirk, Trustee. Born 10/31/45. 3350 Peachtree Road, N.E.,
Atlanta, GA 30326. President and Chief Executive Officer, Blue Cross/Blue Shield
of Georgia.
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Senior Application Engineer, General Electric Industrial Systems. Prior
to that, President, A.B. Reed, Inc. - Engineers, Architects, Planners. Prior to
that, Vice President, Instrumentation and Controls, A.B. Reed., Inc.
Henry W. Todd, Trustee. Born 5/4/47. 111 Commerce Drive, Montgomeryville,
PA 18936. President and Director, Zink & Triest Co., Inc. (dealer in vanilla
flavor materials); Director, A.M. Todd Co., and Flavorite Laboratories.
J. David Griswold, Vice President and Secretary. Born 8/24/57. Assistant
Secretary and Associate General Counsel, Frank Russell Investment Management
Company, Russell Fund Distributors, Inc., Frank Russell Capital Inc., Frank
Russell Company and Russell Fiduciary Services Company; Director, Secretary and
Associate General Counsel, Frank Russell Securities, Inc.; Secretary, Frank
Russell Canada Limited/Limitee.
George W. Weber, Senior Vice President, Fund Treasurer and Principal
Accounting Officer. Born 6/3/51. From March 1993 to January 1996, Vice President
of Operations and Fund Management of J.P. Morgan; from December 1985 to March
1993, Senior Vice President of Operations of Frank Russell Investment Company,
the Laurel Funds and the Seven Seas Series Fund; Director of Operations, Frank
Russell Investment Management Company, Frank Russell Trust Company and Russell
Fund Distributors, Inc.
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the Life Solutions and Underlying Fund's
necessary day-to-day operations are performed by separate business organizations
under contract to Investment Company. The principal service providers are:
Investment Advisor, Custodian
and Transfer Agent: State Street Bank and Trust Company
- ------------------------------ -----------------------------------
Administrator: Frank Russell Investment Management Company
Distributor: Russell Fund Distributors, Inc.
Independent Accountants: Coopers & Lybrand, L.L.P.
Each Life Solutions Fund, as a shareholder of the Underlying Funds, will
bear its proportionate share of any investment advisory fees and other expenses
paid by the Underlying Funds.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Life Solutions and Underlying Funds' investment Advisor pursuant
to an Advisory Agreement dated April 12, 1988 ("Advisory Agreement"). State
Street Bank and Trust Company is a wholly owned subsidiary of State Street
Boston Corporation, a publicly held bank holding company. State Street's address
is 225 Franklin Street, Boston, MA 02110.
7
<PAGE>
Under the Advisory Agreement, Advisor directs the Life Solutions Fund's
investments in accordance with their investment objectives, policies and
limitations. The Life Solutions Funds do not pay Advisory fees. However, as
consideration for the Advisor's services to the Underlying Funds, the Advisor
receives from each of the Underlying Funds an annual advisory fee, accrued daily
at the rate of 1/365th of the applicable advisory fee rate and payable monthly
on the first business day of each month, of the following annual percentages of
each Underlying Fund's average daily net assets during the month:
SSgA S&P 500 Index Fund 0.10%
SSgA Small Cap Fund 0.75%
SSgA Matrix Equity Fund 0.75%
SSgA Growth and Income Fund 0.85%
SSgA Emerging Markets Fund 0.75%
SSgA Active International Fund 0.75%
SSgA Bond Market Fund 0.30%
SSgA Intermediate Fund 0.80%
SSgA Yield Plus Fund 0.25%
SSgA Money Market Fund 0.25%
SSgA US Government Money 0.25%
Market Fund
The following table shows the expenses accrued by the Underlying Funds for
Advisory services for the past three fiscal years:
Advisory Expenses Accrued by Underlying Funds
for the Fiscal Years Ended August 31:
---------------------------------------------
Underlying Fund 1994 1995 1996
--------------- ---- ---- ----
SSgA S&P 500 Index Fund $ 312,299 $ 391,746 $ 609,089
SSgA Small Cap Fund 66,689 71,087 276,229
SSgA Matrix Equity Fund 763,198 1,198,153 1,755,268
SSgA Growth and Income Fund 152,809 280,417 437,548
SSgA Emerging Markets Fund 63,417 321,920 709,651
SSgA Active International Fund -- 46,488 294,486
SSgA Bond Market Fund -- -- 38,564
SSgA Intermediate Fund 116,810 198,032 332,599
SSgA Yield Plus Fund 3,112,787 3,256,063 3,461,407
SSgA Money Market Fund 7,225,807 6,981,114 8,559,529
SSgA US Government Money
Market Fund 748,629 970,313 1,546,062
The Advisor has voluntarily agreed to waive or reimburse its Advisory fee
for some of the Underlying Funds, which amounted to the following percentages of
average daily net assets for the fiscal year ended August 31, 1996:
8
<PAGE>
SSgA S&P 500 Index Fund .00%
SSgA Small Cap Fund .57
SSgA Matrix Equity Fund .375
SSgA Growth and Income Fund .40
SSgA Emerging Markets Fund .36
SSgA Active International Fund .28
SSgA Bond Market Fund .00
SSgA Intermediate Fund .02
SSgA Yield Plus Fund .25
SSgA Money Market Fund .25
SSgA US Government Money Market Fund .25
The following table shows Advisory fees waived, if any, for the Underlying
Funds by the Advisor for the past three fiscal years:
Advisory Expenses Waived by the Advisor for the Underlying Funds
for the Fiscal Years Ended August 31:
----------------------------------------------------------------
Underlying Fund 1994 1995 1996
--------------- ---- ---- ----
SSgA S&P 500 Index Fund 97,333 $391,746 $609,089
SSgA Small Cap Fund 9,647 17,654 --
SSgA Matrix Equity Fund 381,959 599,077 877,634
SSgA Active International Fund -- 46,488 186,020
SSgA Bond Market Fund -- -- 38,564
The following table shows Advisory fees reimbursed, if any, for the
Underlying Funds by the Advisor for the past three fiscal years:
Advisory Expenses Reimbursed by the Advisor for the Underlying Funds
for the Fiscal Years Ended August 31:
--------------------------------------------------------------------
Underlying Fund 1994 1995 1996
--------------- ---- ---- ----
SSgA S&P 500 Index Fund $157,253 -- --
SSgA Small Cap Fund 218,188 $ 57,869 $ 66,461
SSgA Growth and Income Fund 87,592 216,126 233,947
SSgA Emerging Markets Fund 48,835 169,331 366,588
SSgA Intermediate Fund 133,196 263,571 322,501
SSgA US Government Money
Market Fund 41,975 -- --
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Life Solutions
Fund and either a majority of all Trustees or a majority of the shareholders of
the Life Solutions Fund approve its continuance. The Agreement may be terminated
by Advisor or the Life Solutions Fund without penalty upon sixty days' notice
and will terminate automatically upon its assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Life Solutions and Underlying Funds'
Administrator, pursuant to an Administration Agreement dated April 12, 1988
9
<PAGE>
("Administration Agreement"). The Life Solutions Funds do not pay the
Administrator a fee. However, each Underlying Fund pays the Administrator for
its services. A description of the services provided under the Administration
Agreement and the basis for computing the administration fee is provided in the
Life Solutions Fund's Prospectus. The following table shows the expenses accrued
by the Underlying Funds for administration services for the past three fiscal
years:
Administration Expenses Accrued by Underlying Funds
for the Fiscal Years Ended August 31:
---------------------------------------------------
Underlying Fund 1994 1995 1996
--------------- ---- ---- ----
SSgA S&P 500 Index Fund $ 92,892 $115,292 $171,521
SSgA Small Cap Fund 9,938 3,463 10,629
SSgA Matrix Equity Fund 29,884 47,220 73,095
SSgA Growth and Income Fund 5,222 9,796 14,921
SSgA Emerging Markets Fund 5,168 25,877 57,122
SSgA Active International Fund -- 3,720 23,662
SSgA Bond Market Fund -- -- 3,000
SSgA Intermediate Fund 4,232 7,344 12,048
SSgA Yield Plus Fund 366,814 384,923 384,596
SSgA Money Market Fund 856,897 827,164 996,454
SSgA US Government Money
Market Fund 88,242 113,825 179,304
The following table shows the Administration fees of the Underlying Funds
waived, if any, by the Administrator, for the past three fiscal years:
Administration Expenses Waived by Administrator for the
Underlying Funds for the Fiscal Years Ended August 31:
-------------------------------------------------------
Underlying Fund 1994 1995 1996
--------------- ---- ---- ----
SSgA Growth and Income Fund $412 -- --
SSgA Active International Fund -- $502 --
SSgA Bond Market Fund -- -- $673
SSgA Intermediate Fund 323 -- --
The Administration Agreement will continue from year to year provided that
a majority of the Trustees and a majority of the Trustees who are not interested
persons of the Life Solutions Fund and who have no direct or indirect financial
interest in the operation of the Distribution Plan described below or the
Administration Agreement approve its continuance. The Agreement may be
terminated by Administrator or the Life Solutions Funds without penalty upon
sixty days' notice and will terminate automatically upon its assignment.
Administrator is a wholly owned subsidiary of Frank Russell Company. Frank
Russell Company was founded in 1936 and has provided comprehensive asset
management consulting services since 1969 for institutional pools of investment
assets, principally those of large corporate employee benefit plans. Frank
Russell Company and its affiliates have offices in Tacoma, Seattle, New York
City, Toronto, London, Tokyo, Sydney, Zurich, Paris and Auckland, and have
approximately 1,100 officers and employees. Administrator's and Frank Russell
Company's mailing address is 909 A Street, Tacoma, WA 98402.
Distributor. Russell Fund Distributors, Inc. ("Distributor") serves as the
distributor of Life Solutions and Underlying Fund shares pursuant to a
Distribution Agreement dated April 12, 1988 ("Distribution Agreement").
Distributor is a wholly owned subsidiary of Administrator. Distributor's mailing
address is Two International Place, 35th Floor, Boston, MA 02110.
10
<PAGE>
Custodian and Transfer Agent. State Street serves as the custodian
("Custodian") and transfer agent ("Transfer Agent") for Investment Company.
State Street also provides the basic portfolio recordkeeping required by
Investment Company for regulatory and financial reporting purposes. For these
services, State Street is paid an annual fee in accordance with the following
with respect to the Underlying Funds: custody services--a fee payable monthly on
a pro rata basis, based on the following percentages of average daily net assets
of each Underlying Fund: $0 up to $1.5 billion--0.02%, over $1.5 billion--0.015%
(for purposes of calculating the break point, the assets of all Investment
Company portfolios are aggregated); securities transaction charges from $6.00 to
$25.00 per transaction; Eurodollar transaction fees ranging from $110.00 to
$125.00 per transaction; monthly pricing fees of $375.00 per Investment
Portfolio and from $4.00 to $16.00 per security, depending on the type of
instrument and the pricing service used; transfer agent services of $1.50 per
shareholder transaction and a multiple class fee of $18,000 per year for each
additional class of shares; and yield calculation fees of $350.00 per non-money
market portfolio per year. With respect to the Life Solutions Funds, the
Custodian is paid the following fees: Accounting fee, daily priced-$1,000 per
month; Accounting fee, monthly priced-$500.00 per month; and Transactions-$5.00
each. Additionally, a balance credit will be applied against the above fees
(excluding out-of-pocket expenses). The credit is based on 50% of the average
90-day Treasury Bill rate for the month, times the average collected balance in
the custodian demand deposit account for the month billed. State Street is
reimbursed by the Life Solutions and Underlying Funds for supplying certain
out-of-pocket expenses including postage, transfer fees, stamp duties, taxes,
wire fees, telexes, and freight.
Independent Accountants. Coopers & Lybrand L.L.P. serves as the Investment
Company's independent accountants. Coopers & Lybrand L.L.P. is responsible for
performing annual audits of the financial statements and financial highlights in
accordance with generally accepted auditing standards, a review of federal tax
returns, and, pursuant to Rule 17f-2 of the 1940 Act, three security counts. The
mailing address of Coopers & Lybrand L.L.P. is One Post Office Square, Boston,
MA 02109.
Distribution Plan. Under the 1940 Act, the Securities and Exchange
Commission has adopted Rule 12b-1, which regulates the circumstances under which
the Life Solutions Funds may, directly or indirectly, bear distribution and
shareholder servicing expenses. The Rule provides that the Life Solutions Funds
may pay for such expenses only pursuant to a plan adopted in accordance with the
Rule. Accordingly, the Life Solutions Funds have adopted an active distribution
plan (the "Plan"), which is described in the Life Solutions Fund's Prospectus.
Further, the Underlying Funds have adopted an active distribution plan.
The Plan provides that the Life Solutions Fund may spend annually, directly
or indirectly, up to 0.25% of the value of its average net assets for
distribution and shareholder servicing services. The Plan does not provide for
the Funds to be charged for interest, carrying or any other financing charges on
any distribution expenses carried forward to subsequent years. A quarterly
report of the amounts expended under the Plan, and the purposes for which such
expenditures were incurred, must be made to the Trustees for their review. The
Plan may not be amended without shareholder approval to increase materially the
distribution or shareholder servicing costs that the Funds may pay. The Plan and
material amendments to it must be approved annually by all of the Trustees and
by the Trustees who are neither "interested persons" (as defined in the 1940
Act) of the Funds nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
The following table shows the expenses accrued by the Underlying Funds to
Russell Fund Distributors, Inc., as Distributor, for the past three fiscal years
ended August 31:
11
<PAGE>
Distribution Expenses Accrued by Underlying Funds
for the Fiscal Years Ended August 31:
-------------------------------------------------
Underlying Fund 1994 1995 1996
--------------- ---- ---- ----
SSgA S&P 500 Index Fund $121,802 $153,822 $134,689
SSgA Small Cap Fund 18,203 25,754 25,184
SSgA Matrix Equity Fund 52,392 94,034 103,500
SSgA Growth and Income Fund 13,540 33,428 21,617
SSgA Emerging Markets Fund 1,215 95,484 210,030
SSgA Active International Fund -- 3,988 10,949
SSgA Bond Market Fund -- -- 2,738
SSgA Intermediate Fund 12,543 27,531 22,007
SSgA Yield Plus Fund 402,343 261,109 256,977
SSgA Money Market Fund 888,413 326,928 817,506
SSgA US Government Money
Market Fund 100,965 87,798 106,509
For fiscal 1996, this amount is reflective of the following individual
payments:
<TABLE>
<CAPTION>
Printing of Compensation to Compensation to
Underlying Fund Advertising Prospectuses Dealers Sales Personnel Other* Total
- --------------- ----------- ------------ ------- --------------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Index $4,997 8,717 22,478 55,382 43,115 $134,689
========
Small Cap $259 2,729 3,114 1,213 17,869 $25,184
========
Matrix $1,919 158 20,239 21,143 60,041 $103,500
========
Growth and Income $437 46 6 4,721 16,407 $21,617
========
Emerging Markets $12,704 4,658 2,000 8,105 182,563 $210,030
========
Active International $290 2,397 3,326 -- 4,936 $10,949
========
Bond Market $20 -- -- 900 1,818 $2,738
========
Intermediate $360 130 -- 3,796 17,721 $22,007
========
Yield Plus $12,618 2,096 316 133,497 108,450 $256,977
========
Money Market $28,605 554 9,175 310,197 468,975 $817,506
========
Government $4,903 1,285 -- 55,738 44,583 $106,509
========
</TABLE>
- -----------------
* Other expenses may include such items as compensation for travel,
conferences and seminars for staff, subscriptions, office charges and
professional fees.
Under the Plan, the Underlying Funds may also enter into agreements
("Service Agreements") with financial institutions, which may include Advisor
("Service Organizations"), to provide shareholder servicing with respect to
Underlying Fund shares held by or for the customers of the Service
Organizations. Such arrangements are more fully described in each Underlying
Fund's prospectus under "Distribution and Shareholder Servicing."
The following table shows the expenses accrued, if any, by the Underlying
Funds to the Advisor, under a Service Agreement pursuant to Rule 12b-1, for the
past three fiscal years ended August 31:
12
<PAGE>
Expenses Accrued by Underlying Funds to Advisor
Pursuant to a Service Agreement
for the Fiscal Years Ended August 31:
-----------------------------------------------
Underlying Fund 1994 1995 1996
--------------- ---- ---- ----
SSgA S&P 500 Index Fund $ 22,939 $103,181 $199,851
SSgA Small Cap Fund 11,505 6,245 11,505
SSgA Matrix Equity Fund 7,456 37,186 82,427
SSgA Growth and Income Fund 1,316 10,370 13,646
SSgA Emerging Markets Fund 1,228 11,820 26,521
SSgA Active International Fund -- 1,550 10,086
SSgA Bond Market Fund -- -- 3,214
SSgA Intermediate Fund 1,069 7,921 10,699
SSgA Yield Plus Fund 91,143 506,798 320,725
SSgA Money Market Fund 211,573 1,198,500 1,268,824
SSgA US Government Money
Market Fund 21,920 127,241 241,584
Federal Law Affecting State Street. The Glass-Steagall Act of 1933
prohibits state chartered banks such as State Street from engaging in the
business of underwriting, selling or distributing securities, and prohibits a
member bank of the Federal Reserve System from having certain affiliations with
an entity engaged principally in that business. The activities of State Street
in informing its customers of the Life Solutions Funds, performing investment
and redemption services, providing custodian, transfer, shareholder servicing,
dividend disbursing, agent servicing and investment advisory services, may raise
issues under these provisions. State Street has been advised by its counsel that
its activities in connection with the Funds contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Life Solutions Fund Shares. Net asset value per share is
calculated once each business day for the Life Solutions Funds as of the close
of the regular trading session on the New York Stock Exchange (currently 4:00
p.m. Eastern time). A business day is one on which the New York Stock Exchange
is open for business. Currently, the New York Stock Exchange is open for trading
every weekday except New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The Life Solutions Funds' net asset value is determined by appraising each
Fund's underlying investment (i.e., the Underlying Funds as the current net
asset value per share of the Underlying Fund). Trading may occur in the
Underlying Funds in debt securities and in foreign securities at times when the
New York Stock Exchange is closed (including weekends and holidays or after 4:00
p.m., Eastern time, on a regular business day). Because the net asset value of
the Underlying Funds will not be calculated at such times, if securities held in
the Underlying Funds are traded at such times, the Underlying Funds' net asset
value per share may be significantly affected at times when shareholders do not
have the ability to purchase or redeem shares, which in turn affects the net
asset value of the Life Solutions Funds. Moreover, trading in securities on
European and Asian exchanges and in the over-the-counter market is normally
completed before the close of the New York Stock Exchange. Events affecting the
values of foreign securities traded in foreign markets that occur between the
time their prices are determined and the close of the New York Stock Exchange
will not be reflected in the Underlying Fund's calculation of its net asset
value unless the Board of Trustees determines that the particular event would
materially affect the Underlying Fund's net asset value, in which case an
adjustment would be made.
With the exceptions noted below, the Underlying Funds value portfolio
securities at market value. This generally means that equity securities and
fixed income securities listed and traded principally on any national securities
exchange are valued on the basis of the last sale price or, lacking any sales,
at the closing bid price, on the primary exchange on which the security is
traded. United States equity and fixed-income securities traded
13
<PAGE>
principally over-the-counter and options are valued on the basis of the last
reported bid price. Futures contracts are valued on the basis of the last
reported sell price.
The Underlying Funds value securities maturing within 60 days of the
valuation date at amortized cost unless the Board determines that the amortized
cost method does not represent fair value. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, even though the portfolio security may
increase or decrease in market value generally in response to changes in
interest rates. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Underlying Fund would receive if it sold the
instrument.
For example, in periods of declining interest rates, the daily yield on
Underlying Fund shares computed by dividing the annualized daily income of the
Underlying Fund's portfolio by the net asset value based upon the amortized cost
valuation method may tend to be higher than a similar computation made by using
a method of valuation based upon market prices and estimates. In periods of
rising interest rates, the daily yield on Underlying Fund shares computed the
same way may tend to be lower than a similar computation made by using a method
of calculation based upon market prices and estimates.
Brokerage Practices. Since the Life Solutions Funds purchase only shares of
the Underlying Funds, such transactions are effected through the Funds' Transfer
Agent and are not effected through a broker. However, all portfolio transactions
are placed on behalf of the Underlying Fund by Advisor. Advisor ordinarily pays
commissions when it executes transactions on a securities exchange. In contrast,
there is generally no stated commission on the purchase or sale of securities
traded in the over-the-counter markets, including most debt securities and money
market instruments. Rather, the price of such securities includes an undisclosed
commission in the form of a mark-up or mark-down. The cost of securities
purchased from underwriters includes an underwriting commission or concession.
Subject to the arrangements and provisions described below, the selection
of a broker or dealer to execute portfolio transactions is usually made by
Advisor. The Advisory Agreement provides, in substance and subject to specific
directions from officers of Investment Company, that in executing portfolio
transactions and selecting brokers or dealers, the principal objective is to
seek the best overall terms available to the Underlying Fund. Ordinarily,
securities will be purchased from primary markets, and Advisor shall consider
all factors it deems relevant in assessing the best overall terms available for
any transaction, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer, and the reasonableness of the commission, if any, for the specific
transaction and other transactions on a continuing basis.
The Advisory Agreement authorizes Advisor to select brokers or dealers to
execute a particular transaction, including principal transactions, and in
evaluating the best overall terms available, to consider the "brokerage and
research services" (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Underlying Fund and/or Advisor
(or its affiliates). Advisor is authorized to cause the Underlying Fund to pay a
commission to a broker or dealer who provides such brokerage and research
services for executing a portfolio transaction which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction. The Underlying Fund or Advisor, as appropriate, must determine in
good faith that such commission was reasonable in relation to the value of the
brokerage and research services provided--viewed in terms of that particular
transaction or in terms of all the accounts over which Advisor exercises
investment discretion.
The Trustees periodically review the Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Underlying Funds and review the prices paid by the Underlying
Funds over representative periods of time to determine if such prices are
reasonable in relation to the benefits provided to the Underlying Funds. Certain
services received by Advisor attributable to a particular Underlying Fund
transaction may benefit one or more other accounts for which Advisor exercises
investment discretion, or an
14
<PAGE>
investment portfolio other than that for which the transaction was effected.
Advisor's fees are not reduced by Advisor's receipt of such brokerage and
research services.
The following table shows the brokerage commissions paid by the Underlying
Funds for the past three fiscal years:
Brokerage Commissions Paid by Underlying Funds
for the Fiscal Years Ended August 31:
----------------------------------------------
Underlying Fund 1994 1995 1996
--------------- ---- ---- ----
SSgA S&P 500 Index Fund $ 72,218 $139,786 $ 59,139
SSgA Small Cap Fund 29,889 35,824 83,140
SSgA Matrix Equity Fund 253,652 415,381 615,372
SSgA Growth and Income Fund -- 43,993 39,435
SSgA Emerging Markets Fund 93,931 260,143 205,687
SSgA Active International Fund -- 21,872 66,505
SSgA Bond Market Fund -- -- --
SSgA Intermediate Fund -- -- --
SSgA Yield Plus Fund -- -- --
SSgA Money Market Fund -- -- --
SSgA US Government Money
Market Fund -- -- --
Of the total brokerage commissions paid by the Underlying Funds, the
following table shows the amount of commissions received, if any, by an
affiliated broker/dealer for the past three fiscal years:
Brokerage Commissions Received by Affiliated Broker/Dealers
for the Fiscal Years Ended August 31:
-----------------------------------------------------------
Underlying Fund 1994 1995 1996
--------------- ---- ---- ----
SSgA S&P 500 Index Fund $ 61,638 $ 74,061 $ 11,820
SSgA Small Cap Fund 17,635 11,696 38,694
SSgA Matrix Equity Fund 92,923 116,157 143,583
SSgA Growth and Income Fund -- -- 15,495
SSgA Emerging Markets Fund -- -- 2,726
SSgA Active International Fund -- 306 --
SSgA Bond Market Fund -- -- --
SSgA Intermediate Fund -- -- --
SSgA Yield Plus Fund -- -- --
SSgA Money Market Fund -- -- --
SSgA US Government Money
Market Fund -- -- --
The following table shows: (1) the percentage of brokerage commissions
received by affiliated broker/dealers (in relation to the total brokerage
commissions paid by the Underlying Fund); and (2) the percentage of trading
activity transactions effected through an affiliated broker/dealer (in relation
to total transactions effected by the Underlying Funds) for the fiscal year
ended August 31, 1996:
15
<PAGE>
<TABLE>
<CAPTION>
Total Brokerage Commissions Total Transactions Effected
Underlying Fund Received by Affiliated B/Ds (%) Through Affiliated B/Ds (%)
--------------- ------------------------------- ---------------------------
<S> <C> <C>
SSgA S&P 500 Index Fund 19.99 11.17
SSgA Small Cap Fund 46.54 32.80
SSgA Matrix Equity Fund 23.33 18.13
SSgA Growth and Income Fund 39.29 40.44
SSgA Emerging Markets Fund 1.33 2.76
SSgA Active International Fund -- --
SSgA Bond Market Fund -- --
SSgA Intermediate Fund -- --
SSgA Yield Plus Fund -- --
SSgA Money Market Fund -- --
SSgA US Government Money
Market Fund -- --
</TABLE>
During the fiscal year ended August 31, 1996, the Underlying Funds
purchased securities issued by the following regular brokers or dealers, as
defined by Rule 10b-1 of the 1940 Act, each of which is one of each Underlying
Fund's 10 largest brokers or dealers by dollar amounts of securities executed or
commissions received on behalf of each Underlying Fund. The holdings of the
Underlying Fund's top 10 broker/dealers as of August 31, 1996, is as follows:
[TO BE FILED BY AMENDMENT]
<TABLE>
<CAPTION>
Bear Daiwa Goldman Merrill Morgan Paine Salomon
Underlying Fund Stearns Securities Sachs & Co. Lynch Stanley Webber Brothers
- --------------- ------- ---------- ----------- ----- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
S&P 500 Index
Matrix Equity
Small Cap
Emerging Markets
Bond Market
Yield Plus
Money Market
Government
</TABLE>
As of August 31, 1996, the Underlying Funds did not have any holdings in
the following top 10 broker/dealers:
[TO BE FILED BY AMENDMENT]
During the fiscal year ended August 31, 1996, the Active International,
Growth and Income, Intermediate, and Emerging Markets Funds did not purchase
securities issued by the regular brokers or dealers of the Fund, as defined by
Rule 10b-1 of the 1940 Act.
Portfolio Turnover Rate. The portfolio turnover rates for the Life
Solutions Fund is calculated by dividing the lesser of purchases or sales of
portfolio securities for the particular year, by the monthly average value of
the portfolio securities owned by the Fund during the year. For purposes of
determining the rate, all short-term securities, including options, futures,
forward contracts and repurchase agreements, are excluded. Each Life Solutions
Fund's portfolio turnover rate is expected to be low. The following are the
expected annual portfolio turnover rates for each Life Solutions Fund: Income
and Growth Fund, ___%; Balanced Fund, ___%; and Growth Fund, ___%.
16
<PAGE>
The following table shows the portfolio turnover rate for the Underlying
Funds for each of the fiscal years ended August 31:
Portfolio Turnover Rates
------------------------
Underlying Fund 1994 1995 1996
--------------- ---- ---- ----
(%) (%) (%)
SSgA S&P 500 Index Fund 7.97 38.56 28.72
SSgA Small Cap Fund 44.86 142.88 76.85
SSgA Matrix Equity Fund 127.20 129.98 150.68
SSgA Growth and Income Fund 36.48 39.3 38.34
SSgA Emerging Markets Fund -- 19.77 4.36
SSgA Active International Fund -- 7.17* 22.02
SSgA Bond Market Fund -- -- 313.85*
SSgA Intermediate Fund 15.70 26.31 221.73
SSgA Yield Plus Fund -- -- --
SSgA Money Market Fund -- -- --
SSgA US Government Money
Market Fund -- -- --
- ---------------
* Turnover rates of less than one year are annualized.
A high turnover rate (over 100%) will: (1) increase transaction expenses
which could adversely affect a Life Solutions Fund's performance; and (2) result
in increased brokerage commissions, custodian fees and other transaction costs,
and the possibility of realized capital gains or losses.
Total Return Quotations. The Life Solutions Funds compute average annual
total return by using a standardized method of calculation required by the
Securities and Exchange Commission. Average annual total return is computed by
finding the average annual compounded rates of return on a hypothetical initial
investment of $1,000 over the one-year, five-year and ten-year periods (or life
of the fund as appropriate), that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
P(1+T)(n) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a $1,000 payment made at the
beginning of the 1-year, 5-year and 10-year periods at the
end of the year or period
The calculation assumes that all dividends and distributions of the Life
Solutions Funds are reinvested at the price stated in the Prospectus on the
dividend dates during the period, and includes all recurring and nonrecurring
fees that are charged to all shareholder accounts.
The average annual total return for each applicable Underlying Fund is as
follows:
17
<PAGE>
Average Annual Total Return
---------------------------
One Year Ending Inception Date to
Underlying Fund August 31, 1996 (%): August 31, 1996 (%)*:
--------------- -------------------- ---------------------
SSgA S&P 500 Index Fund 18.46 14.30
SSgA Small Cap Fund 23.14 19.16
SSgA Matrix Equity Fund 14.67 13.50
SSgA Growth and Income Fund 13.57 11.75
SSgA Emerging Markets Fund
SSgA Active International Fund 6.22 10.33
SSgA Bond Market Fund -- (2.19)
SSgA Intermediate Fund 4.12 3.43
SSgA Yield Plus Fund 5.73 4.79
- ---------------
* Periods less than one year are not annualized.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
Yield
Some of the Underlying Funds compute yields. Yields are computed by using
standardized methods of calculation required by the Securities and Exchange
Commission. Yields are calculated by dividing the net investment income per
share earned during a 30-day (or one month) period by the maximum offering price
per share on the last day of the period, according to the following formula:
YIELD = 2[(a-b +1)(6)-1]
---
cd
where: a = dividends and interests earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
The current annualized yield of the applicable Underlying Funds may be
quoted in published material. The yield is calculated daily based upon the seven
days ending on the date of calculation ("base period"). The yields are computed
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the base period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts and dividing the net change in the account value by the
value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by (365/7) with the
resulting yield figure carried to the nearest hundredth of one percent. An
effective yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then compounding the base period return by adding 1, raising
the sum to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)(365/7)]-1
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The following table shows the current 30-day yield (annualized), or current
and effective 7-day yields, for the period ended August 31, 1996, for each
Underlying Fund (as applicable):
Current Current Effective
Underlying Fund 30-day Yield (%) 7-day Yield (%) 7-day Yield (%)
--------------- ---------------- --------------- ---------------
SSgA Bond Market Fund 6.05 -- --
SSgA Intermediate Fund 6.05 -- --
SSgA Yield Plus Fund 5.52 --
SSgA Money Market Fund -- 5.07 5.20
SSgA US Government Money
Market Fund -- 4.99 5.12
The yield quoted is not indicative of future results. Yields will depend on
the type, quality, and maturity and interest rate of instruments held by the
Underlying Fund.
INVESTMENTS
The fundamental investment objective of each of the Life Solutions Funds is
set forth in their Prospectus. In addition to those investment objectives, each
Life Solutions Fund also has certain "fundamental" investment restrictions,
which may be changed only with the approval of a majority of the shareholders of
the Life Solutions Funds, and certain nonfundamental investment restrictions and
policies, which may be changed by the Life Solutions Funds without shareholder
approval.
Investment Restrictions
- -----------------------
The Life Solutions Funds are subject to the following investment
restrictions, restrictions 1 through 11 are fundamental and restrictions 12
through 14 are nonfundamental. Unless otherwise noted, these restrictions apply
at the time an investment is made. No Life Solutions Fund will:
(1) Invest 25% or more of the value of its total assets in securities of
companies primarily engaged in any one industry (other than the US Government,
its agencies and instrumentalities and shares of the Underlying Funds or other
investment companies). Concentration may occur as a result of changes in the
market value of portfolio securities, but may not result from investment.
(2) Borrow money (including reverse repurchase agreements), except as a
temporary measure for extraordinary or emergency purposes or to facilitate
redemptions (not for leveraging or investment), provided that borrowings do not
exceed an amount equal to 33-1/3% of the current value of a Life Solutions
Fund's assets taken at market value, less liabilities other than borrowings. If
at any time a Life Solutions Fund's borrowings exceed this limitation due to a
decline in net assets, such borrowings will within three days be reduced to the
extent necessary to comply with this limitation. A Life Solutions Fund will not
purchase investments once borrowed funds (including reverse repurchase
agreements) exceed 5% of its total assets.
(3) Pledge, mortgage or hypothecate its assets. However, a Life Solutions
Fund may pledge securities having a market value at the time of the pledge not
exceeding 33-1/3% of the value of its total assets to secure borrowings
permitted by paragraph (2) above.
(4) With respect to 75% of its total assets, invest in securities of any
one issuer (other than securities issued by the US Government, its agencies, and
instrumentalities and shares of the Underlying Funds), if immediately after and
as a result of such investment the current market value of a Life Solutions
Fund's holdings in the securities of such issuer exceeds 5% of the value of its
assets.
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<PAGE>
(5) Make loans to any person or firm; provided, however, that the making of
a loan shall not include (i) the acquisition for investment of bonds,
debentures, notes or other evidences of indebtedness of any corporation or
government which are publicly distributed or of a type customarily purchased by
institutional investors, or (ii) the entry into repurchase agreements or reverse
repurchase agreements. A Life Solutions Fund may lend its portfolio securities
to broker-dealers or other institutional investors if the aggregate value of all
securities loaned does not exceed 33-1/3% of the value of its total assets.
(6) Purchase or sell commodities or commodity futures contracts except that
the Life Solutions Funds may enter into futures contracts and options thereon to
the extent provided in their Prospectus.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Life Solutions Funds may invest in securities secured by real
estate or interests therein or issued by companies which invest in real estate
or interests therein.
(8) Engage in the business of underwriting securities issued by others,
except that the Life Solutions Funds will not be deemed to be an underwriter or
to be underwriting on account of the purchase of securities subject to legal or
contractual restrictions on disposition.
(9) Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the 1940 Act.
(10) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof, if as a result of such purchase the value of a Life
Solutions Fund's aggregate investment in such securities would exceed 5% of the
Fund's total assets.
(11) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions. The Life Solutions Funds may make initial margin deposits and
variation margin payments in connection with transactions in futures contracts
and related options.
(12) Purchase from or sell portfolio securities to its officers or
directors or other interested persons (as defined in the 1940 Act) of the Life
Solutions Funds, including their investment advisors and affiliates, except as
permitted by the 1940 Act and exemptive rules or orders thereunder.
(13) Invest more than 10% of its net assets in the aggregate in illiquid
securities or securities that are not readily marketable, including repurchase
agreements and time deposits of more than seven days' duration.
(14) Make investments for the purpose of gaining control of an issuer's
management.
Investment Practices of the Underlying Funds
- --------------------------------------------
In addition to the information contained in the Life Solutions Funds'
Prospectus, and each Underlying Fund's Prospectus, the following describes the
investment practices for each of the Underlying Funds in which the Life
Solutions Funds may invest.
S&P 500 Index Fund ("Index Fund"). To the extent that the Index Fund seeks
to replicate the S&P 500 Index using such sampling techniques, a close
correlation between the Index Fund's performance and the performance of the
Index is anticipated in both rising and falling markets. The Index Fund will
attempt to achieve a correlation between the performance of its portfolio and
that of the Index of at least 0.95, before deduction of portfolio expenses. A
correlation of 1.00 would represent perfect correlation between portfolio and
index performance. It is anticipated that the correlation of the Index Fund's
performance to that of the Index will increase as the size of the portfolio
increases. The Index Fund's ability to achieve significant correlation between
portfolio and Index performance may be affected by changes in securities
markets, changes in the composition of the Index and the timing of purchases and
redemptions of portfolio shares. The Advisor will monitor correlation.
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<PAGE>
Should the Index Fund fail to achieve an appropriate level of correlation, the
Advisor will report to the Board of Trustees, which will consider alternative
arrangements.
The Index Fund will be substantially invested in the securities included in
the S&P 500 Index. However, the Index Fund may invest in cash reserves. (See
"Cash Reserves" in "Investment Policies.") The Index Fund may also invest
temporarily in investment grade debt securities for defensive purposes,
including convertible debt securities. Other debt will typically represent less
than 10% of the Fund's assets.
Matrix Equity Fund ("Matrix Fund"). Under normal market conditions, the
Matrix Fund will invest at least 65% of its total assets in equity securities.
However, the Matrix Fund may invest in cash reserves. (See "Cash Reserves" in
"Investment Policies.")
In addition to the policies noted above, the Matrix Fund may invest in
obligations of foreign issuers which are US dollar denominated, American
Depository Receipts (ADRs), corporate bonds, debentures, notes and warrants.
Investment in each of these instruments will not exceed 5% of the Fund's total
assets.
Small Cap Fund. Equity securities will be selected by the Small Cap Fund on
the basis of a proprietary analytical model of Advisor. Each security will be
ranked on the basis of a single measure: the momentum of Wall Street sentiment.
The measure examines changes in Wall Street analyst's earnings estimates and
ranks stocks by the strength and consistency of those changes. Sector and
industry weight are maintained at a similar level to that of the Russell 2000(R)
Index to avoid unintended exposure to factors such as the direction of the
economy, interest rates, energy prices and inflation. The Russell 2000 Index is
described in more detail in the "Investment Policies."
Under normal market conditions, the Small Cap Fund will invest at least 65%
of its total assets in securities of smaller companies. However, the Small Cap
Fund may invest in other equity securities and may also invest in cash reserves.
(See "Cash Reserves" in "Investment Policies.") The Small Cap Fund may also
invest temporarily in investment grade debt securities for defensive purposes,
including convertible debt securities. Other debt will typically represent less
than 10% of the Small Cap Fund's total assets.
Growth and Income Fund. The Fund will invest at least 65% of its total
assets in equity securities. The Fund may invest in common and preferred stock,
convertible securities, rights and warrants. The Fund will invest in publicly
traded companies that are generally well-established, but may invest up to 5% of
its total assets in securities of any issuer which has been in operation for
less than three years. The balance of the Fund's assets may be invested in
American Depository Receipts, corporate bonds, debentures and notes and other
debt securities. Debt securities may include obligations of foreign issuers that
are US-dollar denominated. Except for convertible securities, any debt
securities purchased will have a dollar-weighted average maturity of 10 years or
less. The Fund will invest in investment grade bonds rated as such by an
independent rating agency or if unrated, of comparable quality as determined by
the Advisor. In addition, the Fund may invest in cash reserves. (See "Cash
Reserves" in "Investment Policies.")
The Fund's portfolio strategy combines market economics with fundamental
research. The Advisor begins by assessing current economic conditions and
forecasting economic expectations for the coming months. The industry sectors of
the S&P 500 Index are examined to determine the sector's market capitalized
weighting and to identify the performance of each sector relative to the Index
as a whole. A balance is determined for the portfolio, giving greater weight to
market sectors that are expected to outperform the overall market. Stocks are
then selected for each sector of the Fund's portfolio based on the issuer's
industry classification, the stock's historical sensitivity to changing economic
events and conditions and an assessment of the stock's current valuation.
Active International Fund ("Active International Fund"). The Active
International Fund will invest at least 65% of its total assets in equity
securities of foreign issuers. In addition to investment in equities, the Active
International Fund may hold fixed-income instruments (including convertibles),
forward contracts, cash, and cash equivalents as well as derivatives, including
options on securities and securities indices and futures contracts and
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<PAGE>
options on futures. However, the Active International Fund may invest in
cash reserves. (See "Cash Reserves" in the "Investment Policies.")
Of the fixed-income instruments used by the Active International Fund, less
than 5% will be considered lower than investment-grade. Such securities are
regarded as speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. These lower
rated debt securities may include obligations that are in default or that face
the risk of default with respect to principal or interest. Therefore, such
securities are sometimes referred to as "junk bonds."
Emerging Markets Fund. The Fund may invest in debt securities, including
instruments issued by emerging market companies, governments and their agencies,
and convertible debt securities. Debt securities will typically represent less
than 10% of Fund assets. The Fund is likely to purchase debt securities which
are not investment grade debt, since much of the emerging market debt falls in
this category. These securities are subject to market and credit risk. These
lower rated debt securities (also referred to as "junk bonds") may include
obligations that are in default or that face the risk of default with respect to
principal or interest.
Bond Market Fund ("Bond Fund"). The Bond Fund may invest in fixed-income
securities to achieve its investment objective. In periods of declining interest
rates, the Bond Fund's yield (its income from portfolio investments over a
stated period of time) may tend to be higher than prevailing market rates, and
in periods of rising interest rates, the yield of the Bond Fund may tend to be
lower. Also when interest rates are falling, the inflow of new money to the Bond
Fund from the continuous sales of its shares will likely be invested in
portfolio instruments producing lower yield than the balance of the Bond Fund's
portfolio, thereby reducing the yield of the portfolio. In periods of rising
interest rates, the opposite can be true. The net asset value of the Bond Fund
investing in fixed-income securities also may change as general levels of
interest rates fluctuate. When interest rates increase, the value of a portfolio
of fixed-income securities can be expected to decline. Conversely, when interest
rates decline, the value of a portfolio of fixed-income securities can be
expected to increase.
The Bond Fund limits its portfolio investments in corporate notes and bonds
to those that are rated investment-grade by an NRSRO or, if unrated, are
determined by the Advisor to be of comparable quality. Commercial paper must be
rated in one of the two highest categories by at least one NRSRO or, if unrated,
are determined by the Advisor to be of comparable quality. Investment-grade
securities include securities rated Baa3 by Moody's or BBB- by Standard & Poor's
("S&P") (and securities of comparable quality), which securities have
speculative characteristics. If a security is downgraded and is no longer
investment grade, the Bond Fund may continue to hold the security if the Advisor
determines that such action is in the best interest of the Bond Fund and if the
portfolio would not, as a result thereby, have more than 5% of its assets
invested in noninvestment-grade securities.
Intermediate Fund. The Intermediate Fund limits its portfolio investments
in commercial paper and corporate notes and bonds to those that, at the time of
acquisition: (1) are rated in one of the four highest categories (or in the case
of commercial paper, in the two highest categories) by at least one NRSRO; or
(2) if not rated, are of comparable quality, as determined by the Advisor.
The Fund will measure its performance against the LBIGC Index. The Fund
also intends to maintain an average maturity and duration similar to that of the
LBIGC Index. The duration of the LBIGC Index as of August 31, 1996 was 3.30
years. The LBIGC Index is described in more detail in "Investment Policies."
Yield Plus Fund. The Yield Plus Fund limits its investments to bank
instruments, mortgage-related pass-through securities, asset-backed securities,
commercial paper, corporate notes and bonds and obligations of foreign
governments and agencies and subdivisions of foreign governments and
supranational organizations that, at the time of acquisition: (1) are rated in
one of the four highest categories (or in the case of commercial paper, in the
two highest categories) by at least one NRSRO; or (2) if not rated, are of
comparable quality, as determined by the Advisor, in accordance with procedures
established by the Board of Trustees. All securities may be either fixed
22
<PAGE>
income, zero coupon or variable- or floating-rate securities and may be
denominated in US dollars or selected foreign currencies.
Money Market Fund. The Fund will limit its portfolio investments to those
United States dollar-denominated instruments which at the time of acquisition
the Advisor determines present minimal credit risk and which qualify as
"eligible" securities under the Securities and Exchange Commission rules
applicable to money market mutual funds. In general, eligible securities include
securities that: (1) are rated in the highest category by least two Nationally
Recognized Statistical Rating Organizations ("NRSRO"); (2) by one NRSRO, if only
one rating service has rated the security; or (3) if unrated, are of comparable
quality, as determined by the Advisor in accordance with procedures established
by the Board of Trustees. See the Appendix for a description of the securities
ratings of debt instruments and commercial paper by NRSROs.
US Government Money Market Fund ("Government Fund"). The Government Fund
attempts to meet its investment objective by investing in obligations issued or
guaranteed as to principal and interest by the US Government or its agencies or
instrumentalities or in repurchase agreements secured by such instruments. Under
normal market conditions, the Government Money Market Fund will be 100% invested
in such securities.
Investment Policies
- -------------------
The Underlying Funds use certain investment instruments and techniques,
consistent with each Underlying Fund's investment objective and policies. The
principal practices are the following:
Repurchase Agreements (all Underlying Funds). The Underlying Funds may
enter into repurchase agreements with financial institutions. Under repurchase
agreements, these parties sell securities to a fund and agree to repurchase the
securities at the fund's cost plus interest within a specified time (normally
one day). The securities purchased by the fund have a total value in excess of
the purchase price paid by the fund and are held by Custodian until repurchased.
Repurchase agreements assist the Life Solutions Funds and the Underlying Funds
in being invested fully while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. The Life Solutions Funds and the Underlying
Funds will limit repurchase transactions to those member banks of the Federal
Reserve System and broker-dealers whose creditworthiness is continually
monitored and found satisfactory by Advisor.
Reverse Repurchase Agreements (all Underlying Funds). The Underlying Funds
may enter into reverse repurchase agreements under the circumstances described
in "Investment Restrictions." Under reverse repurchase agreements, a fund
transfers possession of portfolio securities to financial institutions in return
for cash in an amount equal to a percentage of the portfolio securities' market
value and agrees to repurchase the securities at a future date by repaying the
cash with interest. A fund retains the right to receive interest and principal
payments from the securities while they are in the possession of the financial
institutions. Cash or liquid high quality debt obligations from a fund's
portfolio equal in value to the repurchase price including any accrued interest
will be segregated by Custodian on the fund's records while a reverse repurchase
agreement is in effect.
Money Market Instruments. Each Life Solutions Fund may invest in securities
with maturities of 397 days or less at the time from the trade date or such
other date upon which a Life Solutions Fund's interest in a securities is
subject to market action. Each Life Solutions Fund will follow procedures
reasonable designed to assure that the process so determined approximates the
current market value of the Life Solutions Fund's securities. The procedures
also address such matters as diversification and credit quality of the
securities of the Life Solutions Funds' purchase, and were designed to ensure
compliance by the Life Solutions Funds with the requirements of Rule 2a-7 of the
1940 Act.
Lower Grade Debt Instruments. The Life Solutions Funds may also invest in
an Underlying Fund that invests in high-yield, high-risk securities, commonly
referred to as junk bonds. As a result, the Life Solutions Funds may be subject
to some of the risks resulting from high yield investing. Further, each of the
Life Solutions Funds may invest in Underlying Funds that invest in medium-grade
bonds. If these bonds are downgraded,
23
<PAGE>
the Life Solutions Funds will consider whether to increase or decrease their
investment in the affected Underlying Fund. Lower quality debt instruments
generally offer a higher current yield than that available from higher grade
issues, but typically involve greater risk. Lower rated and comparable unrated
securities are especially subject to adverse changes in general economic
conditions, to changes in the financial condition of their issuers, and to price
fluctuation in response to changes in interest rates. During periods of economic
downturn or rising interest rates, issuers of these instruments may experience
financial stress that could adversely affect their ability to make payments of
principal and interest and increase the possibility of default.
US Government Obligations (all Underlying Funds except Active International
and Emerging Markets). The types of US Government obligations in which the
Underlying Funds may at times invest include: (1) A variety of US Treasury
obligations, which differ only in their interest rates, maturities and times of
issuance; and (2) obligations issued or guaranteed by US Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the US Treasury, (b) the right of the issuer to borrow an
amount limited to a specific line of credit from the US Treasury, (c)
discretionary authority of the US Government agency or instrumentality or (d)
the credit of the instrumentality (examples of agencies and instrumentalities
are: Federal Land Banks, Federal Housing Administration, Farmers Home
Administration, Export--Import Bank of the United States, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
General Services Administration, Maritime Administration, Tennessee Development
Bank, Asian-American Development Bank, Student Loan Marketing Association,
International Bank for Reconstruction and Development and Federal National
Mortgage Association). No assurance can be given that in the future the US
Government will provide financial support to such US Government agencies or
instrumentalities described in (2)(b), (2)(c) and (2)(d), other than as set
forth above, since it is not obligated to do so by law. The Underlying Funds may
purchase US Government obligations on a forward commitment basis.
Forward Commitments (all Underlying Funds except Emerging Markets). The
Underlying Funds may contract to purchase securities for a fixed price at a
future date beyond customary settlement time consistent with an Underlying
Fund's ability to manage its investment portfolio, maintain a stable net asset
value and meet redemption requests. The Underlying Funds may dispose of a
commitment prior to settlement if it is appropriate to do so and realize
short-term profits or losses upon such sale. When effecting such transactions,
cash or liquid high quality debt obligations held by the Underlying Funds of a
dollar amount sufficient to make payment for the portfolio securities to be
purchased will be segregated on the Underlying Fund's records at the trade date
and maintained until the transaction is settled. Forward commitments involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, or if the other party fails to complete the transaction.
When-Issued Transactions (all Underlying Funds except Active International
and Emerging Markets). New issues of securities are often offered on a
when-issued basis. This means that delivery and payment for the securities
normally will take place several days after the date the buyer commits to
purchase them. The payment obligation and the interest rate that will be
received on securities purchased on a when-issued basis are each fixed at the
time the buyer enters into the commitment.
The Underlying Funds will make commitments to purchase when-issued
securities only with the intention of actually acquiring the securities, but the
Underlying Funds may sell these securities or dispose of the commitment before
the settlement date if it is deemed advisable as a matter of investment
strategy. Cash or marketable high quality debt securities equal to the amount of
the above commitments will be segregated on the Underlying Fund's records. For
the purpose of determining the adequacy of these securities the segregated
securities will be valued at market. If the market value of such securities
declines, additional cash or securities will be segregated on the Underlying
Fund's records on a daily basis so that the market value of the account will
equal the amount of such commitments by the Underlying Funds. No Underlying Fund
will invest more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and the securities held by the
Underlying Funds are subject to changes in market value based upon the public's
perception of changes in the level of interest rates. Generally, the value of
such securities will fluctuate inversely to changes in interest rates -- i.e.,
they will appreciate in value
24
<PAGE>
when interest rates decline and decrease in value when interest rates rise.
Therefore, if in order to achieve higher interest income an Underlying Fund
remains substantially fully invested at the same time that it has purchased
securities on a "when-issued" basis, there will be a greater possibility of
fluctuation in the Underlying Fund's net asset value.
When payment for when-issued securities is due, an Underlying Fund will
meet its obligations from then-available cash flow, the sale of segregated
securities, the sale of other securities or, and although it would not normally
expect to do so, from the sale of the when-issued securities themselves (which
may have a market value greater or less than the Underlying Fund's payment
obligation). The sale of securities to meet such obligations carries with it a
greater potential for the realization of capital gains, which are subject to
federal income taxes.
Section 4(2) Commercial Paper. The Underlying Funds may invest in
commercial paper issued in reliance on the so-called "private placement"
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 ("Section 4(2) paper"). Section 4(2) paper is restricted as to disposition
under the federal securities laws, and generally is sold to investors who agree
that they are purchasing the paper for an investment and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper is normally resold to other investors through or
with the assistance of the issuer or investment dealers who make a market in
Section 4(2) paper, thus providing liquidity. Pursuant to guidelines established
by the Board of Trustees, Advisor may determine that Section 4(2) paper is
liquid for the purposes of complying with the Underlying Fund's investment
restriction relating to investments in illiquid securities.
Warrants (Small Cap, Active International, Growth and Income and Emerging
Markets). The Underlying Funds may invest in warrants which entitle the holder
to buy equity securities at a specific price for a specific period of time.
Warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the securities which may be purchased nor do they represent any
rights in the assets of the issuing company. Also, the value of the warrant does
not necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date. No
Underlying Fund will more than 5% of the value of its net assets in warrants, or
more than 2% in warrants which are not listed on the New York or American Stock
Exchange.
Convertible Securities (Small Cap, International Growth and Income and
Emerging Markets only). The Underlying Funds may invest in convertible
securities of foreign or domestic issues. A convertible security is a
fixed-income security (a bond or preferred stock) which may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible securities are
senior to common stocks in a corporation's capital structure but are usually
subordinated to similar nonconvertible securities. Convertible securities
provide, through their conversion feature, an opportunity to participate in
capital appreciation resulting from a market price advance in a convertible
security's underlying common stock. The price of a convertible security is
influenced by the market value of the underlying common stock and tends to
increase as the market value of the underlying stock rises, whereas it tends to
decrease as the market value of the underlying stock declines.
American Depository Receipts (ADRs) (Index, Matrix, Small Cap,
International and Emerging Markets only) and European Depository Receipts (EDRs)
(International and Emerging Markets only). The Underlying Funds may invest in
securities of foreign issuers in the form of ADRs, EDRs and similar instruments,
or other securities convertible into securities of eligible issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. Generally, ADRs, in registered form,
are designed for use in the US securities markets, and EDRs are issued for
trading primarily in European securities markets. ADRs are receipts typically
issued by a US bank or trust company evidencing ownership of the underlying
securities. ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. ADRs do not eliminate the
risk inherent in investing in the securities of foreign issuers. In general,
there is a large liquid market in the US for many ADRs. The information
available for ADRs is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting than those to which
25
<PAGE>
many foreign issuers are subject. For purposes of an Underlying Fund's
investment policies, An Underlying Fund's investments in ADRs, EDRs and similar
instruments will be deemed to be investments in the equity securities
representing securities of foreign issuers into which they may be converted.
Treasury Inflation-Protection Securities (Money Market, Government and
Yield Plus). Inflation-Protection Securities ("IPS") are a type of
inflation-indexed Treasury security. IPS provide for semiannual payments of
interest and a payment of principal at maturity. In general, each payment will
be adjusted to take into account any inflation or deflation that occurs between
the issue date of the security and the payment date based on the Consumer Price
Index for All Urban Consumers ("CPI-U").
Each semiannual payment of interest will be determined by multiplying a
single fixed rate of interest by the inflation-adjusted principal amount of the
security for the date of the interest payment. Thus, although the interest rate
will be fixed, the amount of each interest payment will vary with changes in the
principal of the security as adjusted for inflation and deflation.
IPS also provide for an additional payment (a "minimum guarantee payment")
at maturity if the security's inflation-adjusted principal amount for the
maturity date is less than the security's principal amount at issuance. The
amount of the additional payment will equal the excess of the security's
principal amount at issuance over the security's inflation-adjusted principal
amount for the maturity date.
Variable and Floating Rate Securities (Money Market, Government, Bond,
Yield Plus and Intermediate only). The Underlying Funds may purchase variable
rate US Government obligations which are instruments issued or guaranteed by the
US Government, or an agency or instrumentality thereof, that have a rate of
interest subject to adjustment at regular intervals but less frequently than
annually. Variable rate US Government obligations whose interest is readjusted
no less frequently than annually will be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
Asset-Backed Securities (Money Market, Bond, Yield Plus and Intermediate
only). The value of asset-backed securities is affected by changes in the
market's perception of the asset backing the security, changes in the
creditworthiness of the servicing agent for the instrument pool, the originator
of the instruments or the financial institution providing any credit enhancement
and the expenditure of any portion of any credit enhancement. The risks of
investing in asset-backed securities are ultimately dependent upon payment of
the underlying instruments by the obligors, and an Underlying Fund would
generally have no recourse against the obligee of the instruments in the event
of default by an obligor. The underlying instruments are subject to prepayments
which shorten the weighted average life of asset-backed securities and may lower
their return, in the same manner as described below for prepayments of pools of
mortgage loans underlying mortgage-backed securities.
Mortgage-Related Pass-Through Securities (Money Market, Government, Bond,
Yield Plus and Intermediate only). Mortgage pass-through certificates are issued
by governmental, government-related and private organizations and are backed by
pools of mortgage loans. These mortgage loans are made by savings and loan
associations, mortgage bankers, commercial banks and other lenders to
residential home buyers throughout the United States. The securities are
"pass-through" securities because they provide investors with monthly payments
of principal and interest that, in effect, are a "pass-through" of the monthly
payments made by the individual borrowers on the underlying mortgage loans, net
of any fees paid to the issuer or guarantor of the pass-through certificates.
The principal governmental issuer of such securities is the Government National
Mortgage Association ("GNMA"), which is a wholly-owned US Government corporation
within the Department of Housing and Urban Development. Government-related
issuers include the Federal Home Loan Mortgage Corporation ("FHLMC"), a
corporate instrumentality of the United States created pursuant to an act of
Congress which is owned entirely by the Federal Home Loan Banks, and the Federal
National Mortgage Association ("FNMA"), a government sponsored corporation owned
entirely by private stockholders. Commercial banks, savings and loan
associations, private mortgage insurance companies, mortgage bankers and other
secondary market issuers also
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create pass-through pools of conventional residential mortgage loans. Such
issuers may be the originators of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities.
(1) GNMA Mortgage Pass-Through Certificates ("Ginnie Maes"). Ginnie Maes
represent an undivided interest in a pool of mortgage loans that are insured by
the Federal Housing Administration or the Farmers Home Administration or
guaranteed by the Veterans Administration. Ginnie Maes entitle the holder to
receive all payments (including prepayments) of principal and interest owed by
the individual mortgagors, net of fees paid to GNMA and to the issuer which
assembles the loan pool and passes through the monthly mortgage payments to the
certificate holders (typically, a mortgage banking firm), regardless of whether
the individual mortgagor actually makes the payment. Because payments are made
to certificate holders regardless of whether payments are actually received on
the underlying loans, Ginnie Maes are of the "modified pass-through" mortgage
certificate type. GNMA is authorized to guarantee the timely payment of
principal and interest on the Ginnie Maes as securities backed by an eligible
pool of mortgage loans. The GNMA guaranty is backed by the full faith and credit
of the United States, and GNMA has unlimited authority to borrow Underlying
Funds from the US Treasury to make payments under the guaranty. The market for
Ginnie Maes is highly liquid because of the size of the market and the active
participation in the secondary market by securities dealers and a variety of
investors.
(2) FHLMC Mortgage Participation Certificates ("Freddie Macs"). Freddie
Macs represent interests in groups of specified first lien residential
conventional mortgage loans underwritten and owned by FHLMC. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by FHLMC.
FHLMC guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. In cases where FHLMC has not
guaranteed timely payment of principal, FHLMC may remit the amount due on
account of its guarantee of ultimate payment of principal at any time after
default on an underlying loan, but in no event later than one year after it
becomes payable. Freddie Macs are not guaranteed by the United States or by any
of the Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. The secondary market for Freddie
Macs is highly liquid because of the size of the market and the active
participation in the secondary market by FHLMC, securities dealers and a variety
of investors.
(3) FNMA Guaranteed Mortgage Pass-Through Certificates ("Fannie Maes").
Fannie Maes represent an undivided interest in a pool of conventional mortgage
loans secured by first mortgages or deeds of trust, on one-family to four-family
residential properties. FNMA is obligated to distribute scheduled monthly
installments of principal and interest on the loans in the pool, whether or not
received, plus full principal of any foreclosed or otherwise liquidated loans.
The obligation of FNMA under its guaranty is solely the obligation of FNMA and
is not backed by, nor entitled to, the full faith and credit of the United
States.
The market value of mortgage-related securities depends on, among other
things, the level of interest rates, the certificates' coupon rates and the
payment history of the underlying borrowers.
Although the mortgage loans in a pool underlying a mortgage pass-through
certificate will have maturities of up to 30 years, the average life of a
mortgage pass-through certificate will be substantially less because the loans
will be subject to normal principal amortization and also may be prepaid prior
to maturity. Prepayment rates vary widely and may be affected by changes in
mortgage interest rates. In periods of falling interest rates, the rate of
prepayment on higher interest mortgage rates tends to increase, thereby
shortening the actual average life of the mortgage pass-through certificate.
Conversely, when interest rates are rising, the rate of prepayment tends to
decrease, thereby lengthening the average life of the mortgage pass-through
certificate. Accordingly, it is not possible to predict accurately the average
life of a particular pool. However, based on current statistics, it is
conventional to quote yields on mortgage pass-through certificates based on the
assumption that they have effective maturities of 12 years. Reinvestment of
prepayments may occur at higher or lower rates than the original yield on the
certificates. Due to the prepayment feature and the need to reinvest prepayments
of principal at current rates, mortgage pass-through certificates with
underlying loans bearing interest rates in excess of the market rate can be less
effective than typical noncallable bonds with similar maturities at "locking in"
yields during periods of declining interest rates, although they may have
comparable risks of declining in value during periods of rising interest rates.
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Mortgage-Backed Security Rolls (Bond and Intermediate only). The Underlying
Funds may enter into "forward roll" transactions with respect to mortgage-backed
securities it holds. In a forward roll transaction, the Underlying Funds will
sell a mortgage security to a bank or other permitted entity and simultaneously
agree to repurchase a similar security from the institution at a later date at
an agreed upon price. The mortgage securities that are repurchased will bear the
same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories than those
sold. Risks of mortgage-backed security rolls include: (1) the risk of
prepayment prior to maturity; (2) the possibility that the Underlying Funds may
not be entitled to receive interest and principal payments on the securities
sold and that the proceeds of the sale may have to be invested in money market
instruments (typically repurchase agreements) maturing not later than the
expiration of the roll; and (3) the risk that the market value of the securities
sold by the Underlying Funds may decline below the price at which the Underlying
Funds are obligated to purchase the securities. Upon entering into a
mortgage-backed security roll, the Underlying Funds will place cash, US
Government securities or other high-grade debt securities in a segregated
account with Custodian in an amount equal to its obligation under the roll.
Interest Rate Swaps (Bond, Yield Plus and Intermediate Only). The
Underlying Funds may enter into interest rate swap transactions with respect to
any security they are entitled to hold. Interest rate swaps involve the exchange
by the Underlying Funds with another party of their respective rights to receive
interest, e.g., an exchange of floating rate payments for fixed rate payments.
The Underlying Funds expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio and to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Underlying Funds intends to use
these transactions as a hedge and not as a speculative investment.
Preferred Stocks (All Underlying Funds except Yield Plus and Money Market).
Preferred stock, unlike common stock, generally confers a stated dividend rate
payable from the corporation's earnings. Such preferred stock dividends may be
cumulative or noncumulative, fixed, participating, auction rate or other. If
interest rates rise, a fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline either absolutely
or relative to alternative investments. Preferred stock may have mandatory
sinking Underlying Funds provisions, as well as provisions that allow the issuer
to redeem or call the stock. The right to payment of preferred stock is
generally subordinate to rights associated with a corporation's debt securities.
Foreign Government Securities (International and Emerging Markets only).
Foreign government securities which the International Fund may invest in
generally consist of obligations issued or backed by the national, state or
provincial government or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
These securities also include debt securities of "quasi-government agencies" and
debt securities denominated in multinational currency units of an issuer. The
International Fund will not invest a material percentage of its assets in
sovereign debt.
Foreign Currency Transactions (Bond, Yield Plus and Intermediate only). The
Funds may engage in foreign currency transactions as described below. The US
dollar value of assets held by the Bond or Yield Plus Funds may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and each Fund may incur costs in connection with
conversions between various currencies. The Bond and Yield Plus Funds will
engage in foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market,
through forward and futures contracts to purchase or sell foreign currencies or
by purchasing and writing put and call options on foreign currencies. The Funds
may purchase and write these contracts for the purpose of protecting against
declines in the dollar value of foreign securities it holds and against
increases in the dollar cost of foreign securities it plans to acquire.
A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date upon which the parties enter the contract, at a price set at
the time the contract is made. These contracts are traded directly between
currency traders (usually large commercial banks) and their customers. Foreign
currency futures contracts are traded on exchanges and are
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subject to procedures and regulations applicable to other futures contracts.
Forward foreign currency exchange contracts and foreign currency futures
contracts may protect a Fund from uncertainty in foreign currency exchange
rates, and may also limit potential gains from favorable changes in such rates.
Put and call options on foreign currencies are traded on securities and
commodities exchanges, in the over-the-counter market, and privately among major
recognized dealers in such options. The Yield Plus and Bond Market Funds may
purchase and write these options for the purpose of protecting against declines
in the dollar value of foreign securities it holds and against increases in the
dollar cost of foreign securities it plans to acquire. If a rise is anticipated
in the dollar value of a foreign currency in which securities to be acquired are
denominated, the increased cost of such securities may be offset in whole or in
part by purchasing calls or writing puts on that foreign currency. If a decline
in the dollar value of a foreign currency is anticipated, the decline in value
of portfolio securities denominated in that currency may be in whole or in part
by writing calls or purchasing puts on that foreign currency. However, certain
currency rate fluctuations would cause the option to expire unexercised, and
thereby cause a Fund to lose the premium it paid and its transaction costs.
Foreign Currency (International and Emerging Markets only). The
International Fund has authority to deal in forward foreign currency exchange
contracts (including those involving the US dollar) as a hedge against possible
variations in the exchange rate between various currencies. This is accomplished
through individually negotiated contractual agreements to purchase or to sell a
specified currency at a specified future date and price set at the time of the
contract. The International Fund's dealings in forward foreign currency exchange
contracts may be with respect to a specific purchase or sale of a security, or
with respect to its Fund positions generally. The International Fund is not
obligated to hedge its portfolio positions and will enter into such transactions
only to the extent, if any, deemed appropriate by the Adviser. Forward
commitments generally provide a cost-effective way of defending against losses
due to foreign currency depreciation in which the securities are denominated.
In addition to the forward exchange contracts, the International Fund may
also purchase or sell listed or OTC foreign currency options and foreign
currency futures and related options as a short or long hedge against possible
variations in foreign currency exchange rates. The cost to the International
Fund of engaging in foreign currency transactions varies with such factors as
the currencies involved, the length of the contract period and the market
conditions then prevailing. Transactions involving forward exchange contracts
and futures contracts and options thereon are subject to certain risks. Put and
call options on currency may also be used to hedge against fluctuation in
currency notes when forward contracts and/or futures are deemed to be not cost
effective. Options will not be used to provide leverage in any way. See "Risk
Factors -- Futures Contracts and Options on Futures" for further discussion of
the risks associated with such investment techniques.
Certain differences exist among these hedging instruments. For example,
foreign currency options provide the holder thereof the rights to buy or sell a
currency at a fixed price on a future date. A futures contract on a foreign
currency is an agreement between two parties to buy and sell a specified amount
of a currency for a set price on a future date. Futures contracts and options on
futures contracts are traded on boards of trade of futures exchanges. The
International Fund will not speculate in foreign security or currency options or
futures or related options.
The International Fund may not hedge its positions with respect to the
currency of a particular country to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfolio
denominated or quoted in that particular foreign currency. The Fund will not
enter into a position hedging commitment if, as a result thereof, it would have
more than 10% of the value of its assets committed to such contracts. The Fund
will not enter into a forward contract with a term of more than one year.
Zero Coupon Securities (Money Market, Government, Bond, Yield Plus and
Intermediate only). These securities are notes, bonds and debentures that: (1)
do not pay current interest and are issued at a substantial discount from par
value; (2) have been stripped of their unmatured interest coupons and receipts;
or (3) pay no interest until a stated date one or more years into the future.
These securities also include certificates representing interests in such
stripped coupons and receipts.
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Because the Underlying Funds accrue taxable income from zero coupon
securities without receiving regular interest payments in cash, each Underlying
Fund may be required to sell portfolio securities in order to pay a dividend
depending, among other things, upon the proportion of shareholders who elect to
receive dividends in cash rather than reinvesting dividends in additional shares
of the Underlying Funds. Investing in these securities might also force the
Underlying Funds to sell portfolio securities to maintain portfolio liquidity.
Because a zero coupon security pays no interest to its holder during its
life or for a substantial period of time, it usually trades at a deep discount
from its face or par value and will be subject to greater fluctuations in market
value in response to changing interest rates than debt obligations of comparable
maturities that make regular distributions of interest.
Eurodollar Certificates of Deposit (ECDs), Eurodollar Time Deposits (ETDs)
and Yankee Certificates of Deposit (YCDs) (Money Market, Government, Bond, Yield
Plus and Intermediate only). ECDs are US dollar denominated certificates of
deposit issued by foreign branches of domestic banks. ETDs are US dollar
denominated deposits in foreign banks or foreign branches of US banks. YCDs are
US dollar denominated certificates of deposit issued by US branches of foreign
banks.
Different risks than those associated with the obligations of domestic
banks may exist for ECDs, ETDs and YCDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks, such as loan
limitations, examinations and reserve, accounting, auditing, recordkeeping and
public reporting requirements.
Special Situations and Illiquid Securities (all Underlying Funds). The
Underlying Funds and the Advisor believe that carefully selected investments in
joint ventures, cooperatives, partnerships, private placements, unlisted
securities, and other similar vehicles (collectively, "special situations")
could enhance the Underlying Fund's capital appreciation potential. These
investments are generally illiquid. The Underlying Funds currently does not
intend to invest more than 5% of its net assets in all types of illiquid
securities or securities that are not readily marketable, including special
situations. In no case will the Underlying Funds invest more than 15% of its net
assets in illiquid securities (except the Money Market and US Government Money
Market Funds, which will invest no more than 10%). Due to foreign ownership
restrictions, the Underlying Funds may invest periodically in illiquid
securities which are or become illiquid due to restrictions on foreign ownership
imposed by foreign governments. Said securities may be more difficult to price
and trade. The absence of a regular trading market for illiquid securities
imposes additional risks on investment in these securities. Illiquid securities
may be difficult to value and may often be disposed of only after considerable
expense and delay.
Cash Reserves (all Underlying Funds except Money Market). For defensive
purposes, the Underlying Funds may temporarily invest, without limitation, in
high quality short-term fixed income securities. Such securities may be used to
invest uncommitted cash balances or to maintain liquidity to meet shareholder
redemptions. These securities include obligations issued or guaranteed as to
principal and interest by the US Government, its agencies or instrumentalities
and repurchase agreements collateralized by these obligations, commercial paper,
bank certificates of deposit, bankers' acceptances and time deposits. When using
this strategy, the weighted average maturity of securities held by an Underlying
Fund will decline, and thereby possibly cause its yield to decline as well.
The S&P 500 Index. The S&P 500 Index is composed of 500 common stocks which
are chosen by Standard & Poor's Corporation ("Standard & Poor's") to best
capture the price performance of a large cross-section of the US publicly traded
stock market. The Index is structured to approximate the general distribution of
industries in the US economy. The inclusion of a stock in the S&P 500 Index in
no way implies that Standard & Poor's believes the stock to be an attractive
investment, nor is Standard & Poor's a sponsor or in any way affiliated with the
Index Fund. The 500 securities, most of which trade on the New York Stock
Exchange, represent approximately 75% of the market value of all US common
stocks. Each stock in the S&P 500 Index is weighted by its market
capitalization. That is, each security is weighted by its total market value
relative to the total market
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values of all the securities in the Index. Component stocks included in the S&P
500 Index are chosen with the aim of achieving a distribution at the index level
representative of the various components of the US GNP and therefore do not
represent the 500 largest companies. Aggregate market value and trading activity
are also considered in the selection process. A limited percentage of the Index
may include Canadian securities. No other foreign securities are eligible for
inclusion.
Information Regarding Standard & Poor's Corporation. "Standard & Poor's,"
"S&P," "Standard & Poor's 500," and "500" are trademarks of Standard & Poor's
and have been licensed for use by SSgA Fund. The S&P 500 Index Fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's. Standard & Poor's
makes no representation or warranty, express or implied, to the shareholders of
the S&P 500 Index Fund regarding the advisability of investing in securities
generally or in the S&P 500 Index Fund particularly or the ability of the S&P
500 Index to track general stock market performance. Standard & Poor's only
relationship to the S&P 500 Index Fund is the licensing of the trademarks and
tradenames of Standard & Poor's including the S&P 500 Index, which is
determined, composed and calculated by Standard & Poor's without regard to the
Fund. Standard & Poor's has no obligation to take the needs of the shareholders
of the S&P 500 Index Fund into consideration in determining, composing or
calculating this Index. Standard & Poor's is not responsible for and has not
participated in the determination of the prices and amount of the S&P 500 Index
Fund or the timing of the issuance or sale of the shares or in the determination
or calculation of the equation by which the shares of the S&P 500 Index Fund are
to be redeemed. Standard & Poor's has no obligation or liability in connection
with the administration, marketing or trading of the Fund.
STANDARD & POOR'S DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE INDEX OR ANY DATA INCLUDED THEREIN AND STANDARD & POOR'S SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. STANDARD & POOR'S
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE S&P
500 INDEX FUND OR THE SHAREHOLDERS OF THE S&P 500 INDEX FUND OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN. STANDARD &
POOR'S MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL STANDARD & POOR'S HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS)
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The MSCI EAFE Index. The MSCI EAFE Index is an arithmetic, market
value-weighted average of the performance of over 1,000 securities listed on the
stock exchanges of the following countries: Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the
United Kingdom. These are the countries listed in the MSCI EAFE Index as of the
date of this Prospectus. Countries may be added to or deleted from the list.
The Russell Indexes. The Russell 2000(R) Index consists of the smallest
2,000 companies in the Russell 3000(R) Index, representing approximately 12% of
the Russell 3000 Index total market capitalization. The Russell 3000 Index is
composed of 3,000 large US companies, as determined by market capitalization,
representing approximately 98% of the total US equity market. The purpose of the
Russell 2000 Index is to provide a comprehensive representation of the
investable US small-capitalization equity market. The average market
capitalization is $421 million.
The Lehman Brothers Aggregate Bond Index. The Bond Fund will measure its
performance against the Lehman Brothers Aggregate Bond Index (the "LBAB Index").
The Fund also intends to maintain an average maturity and duration similar to
that of the LBAB Index. The duration of the LBAB Index as of August 31, 1996 was
4.77 years. The LBAB Index is made up of the Government/Corporate Bond Index,
the Mortgage-Backed Securities Index and the Asset-Backed Index. The
Government/Corporate Bond Index includes the Government and Corporate Bond
Indices. The LBAB Index includes fixed rate debt issues rated investment grade
or higher by
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Moody's, S&P or Fitch, in that order. All in the LBAB Index issues have at least
one year to maturity and an outstanding par value of at least $100 million.
The Lehman Brothers Intermediate Government/Corporate Bond Index ("LBIGC
Index"). The Intermediate Fund will measure its performance against, and also
intends to maintain an average maturity and duration similar to that of, the
LBIGC Index. The LBIGC Index is a subset of the Lehman Brothers
Government/Corporate Bond Index and it comprises all securities that appear in
this Index limited to those with maturities ranging from one to ten years only.
The LBIGC Index includes the Government and Corporate Bond Indices. The LBIGC
Index includes fixed rate debt issues rated investment-grade or higher by
Moody's, S&P or Fitch, in that order. All issues in the Index have at least one
year to maturity and an outstanding par value of at least $100 million.
Hedging Strategies and Related Investment Techniques
- ----------------------------------------------------
The Underlying Funds may seek to hedge its portfolio against movements in
the equity markets, interest rates and currency exchange rates through the use
of options, futures transactions, options on futures and forward foreign
currency exchange transactions. The Underlying Funds has authority to write
(sell) covered call and put options on their portfolio securities, purchase put
and call options on securities and engage in transactions in stock index
options, stock index futures and financial futures and related options on such
futures. The Underlying Funds may enter into such options and futures
transactions either on exchanges or in the over-the-counter ("OTC") markets.
Although certain risks are involved in options and futures transactions (as
discussed in the Prospectus and below), Advisor believes that, because the
Underlying Funds will only engage in these transactions for hedging purposes,
the options and futures portfolio strategies of the Underlying Funds will not
subject the Underlying Funds to the risks frequently associated with the
speculative use of options and futures transactions. Although the use of hedging
strategies by the Underlying Funds are intended to reduce the volatility of the
net asset value of the Underlying Fund's shares, the Underlying Fund's net asset
value will nevertheless fluctuate. There can be no assurance that the Underlying
Fund's hedging transactions will be effective.
Writing Covered Call Options. The Underlying Funds are authorized to write
(sell) covered call options on the securities in which it may invest and to
enter into closing purchase transactions with respect to such options. Writing a
call option obligates the Underlying Funds to sell or deliver the option's
underlying security, in return for the strike price, upon exercise of the
option. By writing a call option, the Underlying Funds receives an option
premium from the purchaser of the call option. Writing covered call options is
generally a profitable strategy if prices remain the same or fall. Through
receipt of the option premium, the Underlying Funds would seek to mitigate the
effects of a price decline. By writing covered call options, however, the
Underlying Funds gives up the opportunity, while the option is in effect, to
profit from any price increase in the underlying security above the option
exercise price. In addition, the Underlying Fund's ability to sell the
underlying security will be limited while the option is in effect unless the
Underlying Funds effects a closing purchase transaction.
Writing Covered Put Options. The Underlying Funds are authorized to write
(sell) covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When the Underlying Funds writes a put option, it takes the opposite side
of the transaction from the option's purchaser. In return for receipt of the
premium, the Underlying Funds assumes the obligation to pay the strike price for
the option's underlying instrument if the other party to the option chooses to
exercise it. The Underlying Funds may seek to terminate its position in a put
option it writes before exercise by closing out the option in the secondary
market at its current price. If the secondary market is not liquid for an option
the Underlying Funds has written, however, the Underlying Funds must continue to
be prepared to pay the strike price while the option is outstanding, regardless
of price changes, and must continue to set aside assets to cover its position.
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The Underlying Funds may write put options as an alternative to purchasing
actual securities. If security prices rise, the Underlying Funds would expect to
profit from a written put option, although its gain would be limited to the
amount of the premium it received. If security prices remain the same over time,
it is likely that the Underlying Funds will also profit, because they should be
able to close out the option at a lower price. If security prices fall, the
Underlying Funds would expect to suffer a loss. This loss should be less than
the loss the Underlying Funds would have experienced from purchasing the
underlying instrument directly, however, because the premium received for
writing the option should mitigate the effects of the decline.
Purchasing Put Options. The Underlying Funds are authorized to purchase put
options to hedge against a decline in the market value of its portfolio
securities. By buying a put option the Underlying Funds has the right (but not
the obligation) to sell the underlying security at the exercise price, thus
limiting the Underlying Fund's risk of loss through a decline in the market
value of the security until the put option expires. The amount of any
appreciation in the value of the underlying security will be partially offset by
the amount of the premium paid by the Underlying Funds for the put option and
any related transaction costs. Prior to its expiration, a put option may be sold
in a closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Underlying Fund's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option it
has purchased. The Underlying Funds will not purchase put options on securities
(including stock index options discussed below) if as a result of such purchase,
the aggregate cost of all outstanding options on securities held by the
Underlying Funds would exceed 5% of the market value of the Underlying Fund's
total assets.
Purchasing Call Options. The Underlying Funds are also authorized to
purchase call options. The features of call options are essentially the same as
those of put options, except that the purchaser of a call option obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price (call options on futures contracts are settled by purchasing the
underlying futures contract). The Underlying Funds will purchase call options
only in connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Underlying Funds are
authorized to engage in transactions in stock index options and financial
futures, and related options. The Underlying Funds may purchase or write put and
call options on stock indices to hedge against the risks of market-wide stock
price movements in the securities in which the Underlying Funds invests. Options
on indices are similar to options on securities except that on exercise or
assignment, the parties to the contract pay or receive an amount of cash equal
to the difference between the closing value of the index and the exercise price
of the option times a specified multiple. The Underlying Funds may invest in
stock index options based on a broad market index, such as the S&P 500 Index, or
on a narrow index representing an industry or market segment. The Underlying
Fund's investments in foreign stock index futures contracts and foreign interest
rate futures contracts, and related options, are limited to only those contracts
and related options that have been approved by the Commodity Futures Trading
Commission ("CFTC") for investment by United States investors. Additionally,
with respect to the Underlying Funds' investments in foreign options, unless
such options are specifically authorized for investment by order of the CFTC,
the Underlying Funds will not make such investments.
The Underlying Funds may also purchase and sell stock index futures
contracts and other financial futures contracts ("futures contracts") as a hedge
against adverse changes in the market value of its portfolio securities as
described below. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a security for a set price on a future date. Unlike
most other futures contracts, a stock index futures contract does not require
actual delivery of securities, but results in cash settlement based upon the
difference in value of the index between the time the contract was entered into
and the time of its settlement. The Underlying Funds may effect transactions in
stock index futures contracts in connection with equity securities in which it
invests and in financial futures contracts in connection with debt securities in
which it invests, if any. Transactions by the Underlying Funds in stock index
futures and financial futures are subject to limitations as described below
under "Restrictions on the Use of Futures Transactions."
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The Underlying Funds may sell futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Underlying Fund's securities portfolio that might otherwise result. When the
Underlying Funds are not fully invested in the securities markets and
anticipates a significant market advance, the Underlying Funds may purchase
futures in order to gain rapid market exposure that may partially or entirely
offset increases in the cost of securities that the Underlying Funds intends to
purchase. As such purchases are made, an equivalent amount of futures contracts
will be terminated by offsetting sales. It is anticipated that, in a substantial
majority of these transactions, the Underlying Funds will purchase such
securities upon termination of the long futures position, whether the long
position results from the purchase of a futures contract or the purchase of a
call option, but under unusual circumstances (e.g., the Underlying Funds
experiences a significant amount of redemptions), a long futures position may be
terminated without the corresponding purchase of securities.
The Underlying Funds also is authorized to purchase and write call and put
options on futures contracts and stock indices in connection with its hedging
activities. Generally, these strategies would be utilized under the same market
and market sector conditions (i.e., conditions relating to specific types of
investments) during which the Underlying Funds enters into futures transactions.
The Underlying Funds may purchase put options or write call options on futures
contracts and stock indices rather than selling the underlying futures contract
in anticipation of a decrease in the market value of securities. Similarly, the
Underlying Funds can purchase call options, or write put options on futures
contracts and stock indices, as a substitute for the purchase of such futures to
hedge against the increased cost resulting from an increase in the market value
of securities which the Underlying Funds intends to purchase.
The Underlying Funds are also authorized to engage in options and futures
transactions on US and foreign exchanges and in options in the OTC markets ("OTC
options"). In general, exchange traded contracts are third-party contracts
(i.e., performance of the parties' obligations is guaranteed by an exchange or
clearing corporation) with standardized strike prices and expiration dates. OTC
options transactions are two-party contracts with price and terms negotiated by
the buyer and seller. See "Restrictions on OTC Options" below for information as
to restrictions on the use of OTC options.
The Underlying Funds are authorized to purchase or sell listed or OTC
foreign security or currency options, foreign security or currency futures and
related options as a short or long hedge against possible variations in foreign
exchange rates and market movements. Such transactions could be effected with
respect to hedges on non-US dollar denominated securities owned by the
Underlying Funds, sold by the Underlying Funds but not yet delivered, or
committed or anticipated to be purchased by the Underlying Funds. As an
illustration, the Underlying Funds may use such techniques to hedge the stated
value in US dollars of an investment in a yen-denominated security. In such
circumstances, for example, the Underlying Funds can purchase a foreign currency
put option enabling it to sell a specified amount of yen for US dollars at a
specified price by a future date. To the extent the hedge is successful, a loss
in the value of the yen relative to the US dollar will tend to be offset by an
increase in the value of the put option.
Restrictions on the Use of Futures Transactions. The purchase or sale of a
futures contract differs from the purchase or sale of a security in that no
price or premium is paid or received. Instead, an amount of cash or securities
acceptable to the broker and the relevant contract market, which varies, but is
generally about 5% of the contract amount, must be deposited with the broker.
This amount is known as "initial margin" and represents a "good faith" deposit
assuring the performance of both the purchaser and seller under the futures
contract. Subsequent payments to and from the broker, called "variation margin,"
are required to be made on a daily basis as the price of the futures contract
fluctuates making the long and short positions in the futures contracts more or
less valuable, a process known as "marking to market." At any time prior to the
settlement date of the future contract, the position may be closed out by taking
an opposite position which will operate to terminate the position in the futures
contract. A final determination of variation margin is then made, additional
cash is required to be paid to or released by the broker and the purchaser
realizes a loss or gain. In addition, a nominal commission is paid on each
completed sale transaction.
34
<PAGE>
Regulations of the CFTC applicable to the Underlying Funds require that all
of the Underlying Fund's futures and options on futures transactions constitute
bona fide hedging transactions and that an Underlying Fund not enter into such
transactions if, immediately thereafter, the sum of the amount of initial margin
deposits on the Underlying Fund's existing futures positions and premiums paid
for related options would exceed 5% of the market value of the Underlying Fund's
total assets.
Restrictions on OTC Options. The Underlying Funds will engage in OTC
options, including OTC stock index options, OTC foreign security and currency
options and options on foreign security and currency futures, only with member
banks of the Federal Reserve System and primary dealers in US Government
securities or with affiliates of such banks or dealers which have capital of at
least $50 million or whose obligations are guaranteed by an entity having
capital of at least $50 million. The Underlying Funds will acquire only those
OTC options for which Advisor believes the Underlying Funds can receive on each
business day at least two independent bids or offers (one of which will be from
an entity other than a party to the option).
The Staff of the SEC has taken the position that purchased OTC options and
the assets used as cover for written OTC options are illiquid securities.
Therefore, the Underlying Funds has adopted an operating policy pursuant to
which it will not purchase or sell OTC options (including OTC options on futures
contracts) if, as a result of such transaction, the sum of: (1) the market value
of outstanding OTC options held by the Underlying Funds; (2) the market value of
the underlying securities covered by outstanding OTC call options sold by the
Underlying Funds; (3) margin deposits on the Underlying Fund's existing OTC
options on futures contracts; and (4) the market value of all other assets of
the Underlying Funds that are illiquid or are not otherwise readily marketable,
would exceed 10% of the net assets of the Underlying Funds, taken at market
value. However, if an OTC option is sold by the Underlying Funds to a primary US
Government securities dealer recognized by the Federal Reserve Bank of New York
and the Underlying Funds has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Underlying
Funds will treat as illiquid such amount of the underlying securities as is
equal to the repurchase price less the amount by which the option is
"in-the-money" (current market value of the underlying security minus the
option's strike price). The repurchase price with primary dealers is typically a
formula price which is generally based on a multiple of the premium received for
the option plus the amount by which the option is "in-the-money."
Asset Coverage for Futures and Options Positions. The Underlying Funds will
not use leverage in its options and futures strategies. Such investments will be
made for hedging purposes only. The Underlying Funds will hold securities or
other options or futures positions whose values are expected to offset its
obligations under the hedge strategies. The Underlying Funds will not enter into
an option or futures position that exposes the Underlying Funds to an obligation
to another party unless it owns either: (1) an offsetting position in securities
or other options or futures contracts; or (2) cash, receivables and short-term
debt securities with a value sufficient to cover its potential obligations. The
Underlying Funds will comply with guidelines established by the SEC with respect
to coverage of options and futures strategies by mutual funds, and if the
guidelines so require will set aside cash and high grade liquid debt securities
in a segregated account with its custodian bank in the amount prescribed. The
Underlying Fund's custodian shall maintain the value of such segregated account
equal to the prescribed amount by adding or removing additional cash or liquid
securities to account for fluctuations in the value of securities held in such
account. Securities held in a segregated account cannot be sold while the
futures or option strategy is outstanding, unless they are replaced with similar
securities. As a result, there is a possibility that segregation of a large
percentage of the Underlying Fund's assets could impede portfolio management or
the Underlying Fund's ability to meeting redemption requests or other current
obligations.
Risk Factors in Options, Futures, Forward and Currency Transactions.
Utilization of options and futures transactions to hedge the Underlying Funds'
portfolios involves the risk of imperfect correlation in movements in the price
of options and futures and movements in the price of securities or currencies
which are the subject of the hedge. If the price of the options or futures moves
more or less than the price of hedged securities or currencies, the Underlying
Funds will experience a gain or loss which will not be completely offset by
movements in the price of the subject of the hedge. The successful use of
options and futures also depends on Advisor's ability to correctly predict price
movements in the market involved in a particular options or futures transaction.
35
<PAGE>
To compensate for imperfect correlations, the Underlying Funds may purchase or
sell stock index options or futures contracts in a greater dollar amount than
the hedged securities if the volatility of the hedged securities is historically
greater than the volatility of the stock index options or futures contracts.
Conversely, the Underlying Funds may purchase or sell fewer stock index options
or futures contracts, if the historical price volatility of the hedged
securities is less than that of the stock index options or futures contracts.
The risk of imperfect correlation generally tends to diminish as the maturity
date of the stock index option or futures contract approaches. Options are also
subject to the risks of an illiquid secondary market, particularly in strategies
involving writing options, which the Underlying Funds cannot terminate by
exercise. In general, options whose strike prices are close to their underlying
instruments' current value will have the highest trading volume, while options
whose strike prices are further away may be less liquid.
The Underlying Funds intends to enter into options and futures
transactions, on an exchange or in the OTC market, only if there appears to be a
liquid secondary market for such options or futures or, in the case of OTC
transactions, the Advisor believes the Underlying Funds can receive on each
business day at least two independent bids or offers. However, there can be no
assurance that a liquid secondary market will exist at any specific time. Thus,
it may not be possible to close an options or futures position. The inability to
close options and futures positions also could have an adverse impact on the
Underlying Fund's ability to effectively hedge its portfolio. There is also the
risk of loss by the Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or related option.
The exchanges on which options on portfolio securities and currency options
are traded have generally established limitations governing the maximum number
of call or put options on the same underlying security or currency (whether or
not covered) which may be written by a single investor, whether acting alone or
in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written in one or more accounts or
through one or more brokers). "Trading limits" are imposed on the maximum number
of contracts which any person may trade on a particular trading day.
TAXES
The Life Solutions Funds intend to qualify for treatment as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended ("the Code"). As a RIC, the Life Solutions Funds will not be
liable for federal income taxes on taxable net investment income and capital
gain net income (capital gains in excess of capital losses) that it distributes
to its shareholders, provided that the Life Solutions Funds distribute annually
to shareholders at least 90% of net investment income and net short-term capital
gain for the taxable year ("Distribution Requirement"). For the Life Solutions
Funds to qualify as a RIC they must abide by all of the following requirements:
(1) at least 90% of the Life Solutions Funds' gross income each taxable year
must be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies, or other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies ("Income Requirement"); (2) less than 30% of the
Life Solutions Funds' gross income each taxable year must be derived from the
sale or other disposition of securities and certain options, futures contracts,
forward contracts and foreign currencies held for less than three months
("Short-Short Limitation"); (3) at the close of each quarter of the Life
Solutions Funds' taxable year, at least 50% of the value of its total assets
must be represented by cash and cash items, US Government securities, securities
of other RICs, and other securities, with such other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the total
assets of the Life Solutions Funds and that does not represent more than 10% of
the outstanding voting securities of such issuer; and (4) at the close of each
quarter of the Life Solutions Funds' taxable year, not more than 25% of the
value of its assets may be invested in securities (other than US Government
securities or the securities of other RICs) of any one issuer.
The Life Solutions Funds will be subject to a nondeductible 4% excise tax
to the extent it fails to distribute by the end of any calendar year an amount
at least equal to the sum of: (1) 98% of i ordinary income for that year; (2)
98% of capital gain net income for the one-year period ending on October 31 of
that year; and (3) certain undistributed amounts from the preceding calendar
year. For this and other purposes, dividends declared in October, November or
December of any calendar year and made payable to shareholders of record in such
month will be deemed to have been received on December 31 of such year if the
dividends are paid by the Life Solutions Funds subsequent to December 31 but
prior to February 1 of the following year.
36
<PAGE>
If a shareholder receives a distribution taxable as long-term capital gain
with respect to shares of a Life Solutions Fund and redeems or exchanges the
shares without having held the shares for more than one year, then any loss on
the redemption or exchange will be treated as long-term capital loss to the
extent of the capital gain distribution.
Issues Related to Hedging and Option Investments. The Underlying Funds'
ability to make certain investments may be limited by provisions of the Code
that require inclusion of certain unrealized gains or losses in the Underlying
Funds' income for purposes of the Income Requirement, the Short-Short Limitation
and the Distribution Requirement, and by provisions of the Code that
characterize certain income or loss as ordinary income or loss rather than
capital gain or loss. Such recognition, characterization and timing rules will
affect investments in certain futures contracts, options, foreign currency
contracts and debt securities denominated in foreign currencies.
Foreign Income Taxes. Investment income received by the Underlying Funds
from sources within foreign countries may be subject to foreign taxes withheld
at the source. The United States has entered into tax treaties with many foreign
countries which would entitle the Underlying Funds to a reduced rate of such
taxes or exemption from taxes on such income. It is impossible to determine the
effective rate of foreign tax for the Underlying Funds in advance since the
amount of the assets to be invested within various countries is not known.
If the Underlying Funds invest in an entity that is classified as a passive
foreign investment company ("PFIC") for federal income tax purposes, the
application of certain provisions of the Code applying to PFICs could result in
the imposition of certain federal income taxes on the Underlying Funds. It is
anticipated that any taxes on the Underlying Funds with respect to investments
in PFICs would be insignificant. Under US Treasury regulations issued in 1992
for PFICs, the Underlying Funds can elect to mark-to-market its PFIC holdings in
lieu of paying taxes on gains or distributions therefrom.
Foreign shareholders should consult with their tax advisors as to if and
how the federal income tax and its withholding requirements applies to them.
State and Local Taxes. Depending upon the extent of the Underlying Funds'
activities in states and localities in which their offices are maintained, their
agents or independent contractors are located or it is otherwise deemed to be
conducting business, the Underlying Funds may be subject to the tax laws of such
states or localities.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Life Solutions Funds and their shareholders.
Circumstances among investors may vary and each investor is encouraged to
discuss investment in the Life Solutions Funds with the investor's tax Advisor.
FINANCIAL STATEMENTS
Unaudited financial statements for the Life Solutions Funds, including
notes to the financial statements and financial highlights, will be available
within four to six months from the later of the date of this Statement of
Additional Information or the date on which the Life Solutions Funds first
accept a subscription from an unaffiliated shareholder. Audited financial
statements for the Life Solutions Funds will be available within 60 days
following the end of the Life Solutions Funds' then current fiscal year. When
available, copies of the financial statements can be obtained without charge by
calling Distributor at (800) 647-7327.
37
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Ratings of Debt Instruments
- ---------------------------
Moody's Investors Service, Inc. ("Moody's") -- Long Term Debt Ratings.
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
Standard & Poor's Corporation ("S&P"). The ratings are based, in varying
degrees, on the following considerations: (1) The likelihood of default --
capacity and willingness of the obligator as to the timely payment of interest
and repayment of principal in accordance with the terms of the obligation; (2)
The nature of and provisions of the obligation; and (3) The protection afforded
by, and relative position of, the obligation in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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<PAGE>
Ratings of Commercial Paper
- ---------------------------
Moody's. Moody's short-term debt ratings are opinions of the ability of
issuers to repay punctually senior debt obligations. These obligations have an
original maturity not exceeding one year, unless explicitly noted. Moody's
employs the following three designations, all judged to be investment grade, to
indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained. Issuers rated
Prime-3 (or supporting institutions) have an acceptable ability for repayment of
senior short-term obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection measurements and may
require relatively high financial leverage. Adequate alternate liquidity is
maintained. Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P. An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered shot-term in the relevant
market. Ratings are graded into several categories, ranging from A-1 for the
highest quality obligations to D for the lowest. These categories are as
follows:
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch's Investors Service, Inc. ("Fitch"). Commercial paper rated by Fitch
reflects Fitch's current appraisal of the degree of assurance of timely payment
of such debt. An appraisal results in the rating of an issuer's paper as F-1,
F-2, F-3, or F-4.
F-1 -- This designation indicates that the commercial paper is regarded as
having the strongest degree of assurance for timely payment.
F-2 -- Commercial paper issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than those issues rated F-1.
39
<PAGE>
Duff and Phelps, Inc. Duff & Phelps' short-term ratings are consistent with
the rating criteria utilized by money market participants. The ratings apply to
all obligations with maturities of under one year, including commercial paper,
the uninsured portion of certificates of deposit, unsecured bank loans, master
notes, bankers acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-backed commercial paper is also rated
according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps' short-term ratings is the
refinement of the traditional '1' category. The majority of short-term debt
issuers carry the highest rating, yet quality differences exist within that
tier. As a consequence, Duff & Phelps has incorporated gradations of '1+' (one
plus) and '1-' (one minus) to assist investors in recognizing those differences.
Duff 1+--Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free US Treasury short-term
obligations.
Duff 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1- -- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.
Good Grade. Duff 2--Good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
Satisfactory Grade. Duff 3--Satisfactory liquidity and other
protection factors qualify issue as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is
expected.
Non-Investment Grade. Duff 4--Speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
Default. Duff 5--Issuer failed to meet scheduled principal and/or
interest payments.
IBCA, Inc. In addition to conducting a careful review of an institution's
reports and published figures, IBCA's analysts regularly visit the companies for
discussions with senior management. These meetings are fundamental to the
preparation of individual reports and ratings. To keep abreast of any changes
that may affect assessments, analysts maintain contact throughout the year with
the management of the companies they cover.
IBCA's analysts speak the languages of the countries they cover, which is
essential to maximize the value of their meetings with management and to
properly analyze a company's written materials. They also have a thorough
knowledge of the laws and accounting practices that govern the operations and
reporting of companies within the various countries.
Often, in order to ensure a full understanding of their position, companies
entrust IBCA with confidential data. While these data cannot be disclosed in
reports, they are taken into account when assigning our ratings. Before dispatch
to subscribers, a draft of the report is submitted to each company to permit
correction of any factual errors and to enable clarification of issues raised.
40
<PAGE>
IBCA's Rating Committees meet at regular intervals to review all ratings
and to ensure that individual ratings are assigned consistently for institutions
in all the countries covered. Following the Committee meetings, ratings are
issued directly to subscribers. At the same time, the company is informed of the
ratings as a matter of courtesy, but not for discussion.
A1+--Obligations supported by the highest capacity for timely repayment.
A1--Obligations supported by a very strong capacity for timely repayment.
A2--Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
B1--Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business, economic, or
financial conditions than for obligations in higher categories.
B2--Obligations for which the capacity for timely repayment is susceptible
to adverse changes in business, economic or financial conditions.
C1--Obligations for which there is an inadequate capacity to ensure timely
repayment.
D1--Obligations which have a high risk of default or which are currently in
default.
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PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Part A -- None.
Part B -- Annual Reports for the SSgA Funds incorporated by reference
to October 30, 1996 electronic filing via EDGAR on Form N-30D.
(b) Exhibits
<TABLE>
<CAPTION>
Incorporated by Reference
Name of Exhibit or Exhibit Number
--------------- -----------------
<S> <C>
1. First Amended and Restated Post-Effective Amendment #35
Master Trust Agreement
(a) Amendment No. 1 Post-Effective Amendment #35
(b) Amendment No. 2 Post-Effective Amendment #35
(c) Amendment No. 3 Post-Effective Amendment #35
(d) Amendment No. 4 Post-Effective Amendment #35
(e) Amendment No. 5 Post-Effective Amendment #35
(f) Amendment No. 6 Post-Effective Amendment #35
(g) Amendment No. 7 Post-Effective Amendment #35
(h) Amendment No. 8 Post-Effective Amendment #39
(i) Amendment No. 9 Exhibit 1(i)
2. Bylaws Pre-Effective Amendment #1
3. Voting Trust Agreement None
4. Specimen Security None
5. (a) Investment Advisory Agreement Post-Effective Amendment #35
(b) Letter agreement incorporating Post-Effective Amendment #35
the Yield Plus and Bond Market Funds
within the Investment Advisory
Agreement
(c) Letter agreement incorporating the Post-Effective Amendment #35
US Treasury Money Market and US
Treasury Obligations Funds
within the Investment Advisory
Agreement
(d) Letter agreement incorporating Post-Effective Amendment #35
the Growth and Income and
Intermediate Funds within the
Investment Advisory Agreement
42
<PAGE>
(e) Letter agreement incorporating Post-Effective Amendment #35
the Emerging Markets Fund and
the Prime Money Market
Portfolio within the Investment
Advisory Agreement
(f) Letter agreement incorporating Post-Effective Amendment #35
the Tax Free Money Market
Fund within the Investment
Advisory Agreement
(g) Letter agreement incorporating Post-Effective Amendment #35
the Small Cap, Active International
and Real Estate Equity Funds
within the Investment
Advisory Agreement
6. Distribution Agreements
(a) Distribution Agreement Post-Effective Amendment #35
(Class A Shares)
(a)(i) Letter agreement incorporating Post-Effective Amendment #35
the Yield Plus and Bond Market
Funds within the Distribution Agreement
(a)(ii)Letter agreement incorporating the Post-Effective Amendment #35
US Treasury Money Market and US
Treasury Obligations Funds within
the Distribution Agreement
(a)(iii)Letter agreement incorporating Post-Effective Amendment #35
the Growth and Income and
Intermediate Funds within the
Distribution Agreement
(a)(iv) Letter agreement incorporating Post-Effective Amendment #35
the Emerging Markets
Fund and the Prime Money Market
Portfolio within the Distribution
Agreement
(a)(v) Letter agreement incorporating Post-Effective Amendment #35
Class A shares of the Tax Free
Money Market Fund within
the Distribution Agreement
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<PAGE>
(a)(vi) Letter agreement incorporating Post-Effective Amendment #35
the Small Cap, Active International
and Real Estate Equity Funds
within the Distribution Agreement
(b) Distribution Agreement Post-Effective Amendment #23
(regarding Class B Shares
of the Money Market and
US Government Money
Market Funds)
(b)(i) Letter agreement incorporating To be filed by amendment
the Class B Shares of the Tax
Free Money Market Fund within
the Distribution Agreement
(c) Distribution Agreement Post-Effective Amendment #23
(regarding Class C Shares
of the Money Market and
US Government Money Market Funds)
(c)(i) Letter agreement incorporating the To be filed by amendment
Class C Shares of the Tax Free
Money Market Fund within the
Distribution Agreement
7. Bonus, profit sharing, or None
pension plans
8. (a) Custodian Contract Post-Effective Amendment #35
(b) Letter agreement incorporating Post-Effective Amendment #35
the Yield Plus and Bond Market
Funds within the Custodian Contract
(c) Letter agreement incorporating the US Post-Effective Amendment #35
Treasury Money Market and US
Treasury Obligations Funds within
the Custodian Contract
(d) Letter agreement incorporating Post-Effective Amendment #35
the Growth and Income and
Intermediate Funds within the
Custodian Contract
(e) Letter agreement incorporating Post-Effective Amendment #35
the Emerging Markets
Fund and the Prime Money Market
Portfolio within the Custodian Contract
44
<PAGE>
(f) Fee Schedule, dated February 17, Post-Effective Amendment #35
1994, to Custodian Agreement
(g) Letter agreement incorporating the Post-Effective Amendment #35
Tax Free Money Market Fund
within the Custodian Contract
(h) Letter agreement incorporating Post-Effective Amendment #35
the Small Cap, Active International
and Real Estate Equity Funds
within the Custodian Contract
9. (a)(i) Transfer Agency and Post-Effective Amendment #35
Service Agreement
(a)(ii) Letter agreement incorporating Post-Effective Amendment #35
the Yield Plus and Bond Market
Funds within the Transfer Agency
and Service Agreement
(a)(iii)Letter agreement incorporating the US Post-Effective Amendment #35
Treasury Money Market and US
Treasury Obligations Funds within
the Transfer Agency and Service
Agreement
(a)(iv) Letter agreement incorporating Post-Effective Amendment #35
the Growth and Income and
Intermediate Funds
within the Transfer Agency and
Service Agreement
(a)(v) Letter agreement incorporating Post-Effective Amendment #35
the Emerging Markets Fund
and the Prime Money Market Portfolio
within the Transfer Agency and
Service Agreement
(a)(vi) Letter agreement incorporating the Post-Effective Amendment #35
Tax Free Money Market Fund
within the Transfer Agency and
Service Agreement
(a)(vii) Letter agreement incorporating Post-Effective Amendment #35
the Small Cap, Active International
and Real Estate Equity Funds
within the Transfer Agency and
Service Agreement
45
<PAGE>
(b)(i) Administration Agreement Post-Effective Amendment #35
(b)(ii) Letter agreement incorporating Post-Effective Amendment #35
the Yield Plus and Bond Market
Funds within the Administration
Agreement
(b)(iii) Letter agreement incorporating the Post-Effective Amendment #35
US Treasury Money Market and US
Treasury Obligations Funds within
the Administration Agreement
(b)(iv) Letter agreement incorporating Post-Effective Amendment #35
the Growth and Income and
Intermediate Funds within the
Administration Agreement
(b)(v) Letter agreement incorporating Post-Effective Amendment #35
the Emerging Markets
Fund and the Prime Money Market
Portfolio within the Administration
Agreement
(b)(vi) Letter agreement incorporating the Post-Effective Amendment #35
Tax Free Money Market Fund
within the Administration Agreement
(b)(vii) Letter agreement incorporating Post-Effective Amendment #35
the Small Cap, Active International
and Real Estate Equity Funds
within the Administration Agreement
10. Opinion of Counsel
(a) Relating to The Seven Seas Series Pre-Effective Amendment #1
Money Market Fund
(b) Relating to The Seven Seas Series Post-Effective Amendment #5
US Government Money Market Fund
(c) Relating to The Seven Seas Series Post-Effective Amendment #8
S&P 500 Index, S&P Midcap Index,
Matrix Equity, International
European Index, International Pacific
Index and Short Term Government
Securities Funds
(d) Relating to The Seven Seas Series Post-Effective Amendment #11
Yield Plus and Bond Market Funds
46
<PAGE>
(e) Relating to The Seven Seas Series Post-Effective Amendment #13
US Treasury Money Market and
Treasury Obligations Funds
(f) Relating to The Seven Seas Series Post-Effective Amendment #16
Growth and Income and Intermediate
Funds
(g) Relating to The Seven Seas Series Post-Effective Amendment #19
Emerging Markets Fund and
the Prime Money Market Portfolio
(h) Relating to Class A, Class B and Class Post-Effective Amendment #22
C Shares The Seven Seas Series Money
Market and US Government Money
Market Funds
(i) Relating to Class A, Class B and Post-Effective Amendment #23
Class C Shares of The Seven Seas
Series Tax Free Money Market Fund
(j) Relating to The Seven Seas Series Post-Effective Amendment #28
Active International Fund
(k) Relating to The Seven Seas Series Post-Effective Amendment #29
Real Estate Equity Fund
(l) Relating to SSgA Life Solutions Funds To be filed by amendment
11. Other Opinions: Consent of None
Independent Accountants
12. Financial Statements Omitted None
from Item 23
13. Letter of Investment Intent
(a) The Seven Seas Series Money Pre-Effective Amendment #1
Market Fund
(b) The Seven Seas Series US Post-Effective Amendment #5
Government Money Market
Fund
(c) The Seven Seas Series Post-Effective Amendment #10
Government Securities,
Index, Midcap Index, Matrix,
European Index and Pacific
Index Funds
47
<PAGE>
(d) The Seven Seas Series Yield Post-Effective Amendment #11
Plus and Bond Market Funds
(e) The Seven Seas Series US Treasury Post-Effective Amendment #15
Money Market and US Treasury
Obligations Funds
(f) The Seven Seas Series Growth and Post-Effective Amendment #16
Income and Intermediate Funds
(g) The Seven Seas Series Emerging Post-Effective Amendment #20
Markets Fund and the Prime
Money Market Portfolio
(h) Class B and C Shares of The Seven Post-Effective Amendment #25
Seas Series Money Market and
US Government Money Market
Funds
(i) The Seven Seas Series Tax Free Post-Effective Amendment #25
Money Market Fund (Class A,
B and C Shares)
(j) The Seven Seas Series Active Post-Effective Amendment #28
International Fund
14. Prototype Retirement Plan None
15. Distribution Plans pursuant to
Rule 12b-1
(a) Plan of Distribution for the Post-Effective Amendment #35
Government Securities, Index,
Midcap Index, Matrix, European
Index and Pacific Index Funds
as approved by the Board of
Trustees
(a)(i)Addendum to the Plan of Distribution Post-Effective Amendment #35
incorporating the Yield Plus and
Bond Market Funds into the Plan
(a)(ii)Addendum to the Plan of Distribution Post-Effective Amendment #35
incorporating the Money Market and
US Government Money Market Funds
into the Plan (Class A Shares)
(a)(iii)Addendum to the Plan of Distribution Post-Effective Amendment #35
incorporating the US Treasury Money
Market and US Treasury Obligations
Funds
48
<PAGE>
(a)(iv)Addendum to the Plan of Distribution Post-Effective Amendment #35
incorporating the Growth and Income
and Intermediate Funds
(a)(v) Addendum to the Plan of Distribution Post-Effective Amendment #35
incorporating the Emerging Markets
Fund and the Prime Money
Market Portfolio
(a)(vi) Addendum to the Plan of Distribution Post-Effective Amendment #35
incorporating the Class A Shares of
the Tax Free Money Market Fund
(a)(vii)Addendum to the Plan of Distribution Post-Effective Amendment #35
incorporating the Small Cap, Active
International and Real Estate Equity
Funds
(b) Plan of Distribution for the Money Post-Effective Amendment #23
Market and US Government Money
Market Funds (Class B Shares)
as approved by the Board of Trustees
(b)(i) Addendum to the Plan of Distribution To be filed by amendment
incorporating the Class B Shares of
the Tax Free Money Market Fund
(c) Plan of Distribution for the Money Post-Effective Amendment #23
Market and US Government Money
Market Funds (Class C Shares) as
approved by the Board of Trustees
(c)(i) Addendum to the Plan of Distribution To be filed by amendment
incorporating the Class C Shares of
the Tax Free Money Market Fund
(d) Shareholder Servicing Agreement, Post-Effective Amendment #12
by and between The Seven Seas
Series Fund and State Street
Bank and Trust Company
(d)(i) Shareholder Servicing Agreement, Post-Effective Amendment #39
by and between The Seven Seas Series
Fund and State Street Brokerage
Services, Inc.
49
<PAGE>
(d)(ii)Shareholder Servicing Agreement, by Post-Effective Amendment #39
and between The Seven Seas Series
Fund and State Street Bank and Trust
Company, Metropolitan Division of
Commercial Banking Services
(e) Form of Agreement Pursuant Post-Effective Amendment #22
to Rule 12b-1 Plan (relating to
Class B Shares) as approved by
the Board of Trustees
(f) Form of Agreement Pursuant to Post-Effective Amendment #22
Rule 12b-1 Plan (relating to Class C
Shares) as approved by the Board
of Trustees
16. Computation of Performance Post-Effective Amendment #39
Quotation
17. Financial Data Schedule Post-Effective Amendment #38
</TABLE>
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of February 28, 1997
-------------- -------------------------
Shares of beneficial interest
Par Value $0.001
SSgA Funds
Money Market Fund
Class A Shares 1,789
Class B Shares 1
Class C Shares 1
US Government Money Market Fund
Class A Shares 256
Class B Shares 1
Class C Shares 1
Matrix Equity Fund 1,162
Small Cap Fund 1,669
S&P 500 Index Fund 2,253
Active International Fund 886
50
<PAGE>
International Pacific Index 1
Yield Plus Fund 231
Bond Market Fund 279
Growth and Income Fund 851
Intermediate Fund 520
US Treasury Money Market Fund 7
US Treasury Obligations Fund 1
Prime Money Market Fund 70
Emerging Markets Fund 1,772
Tax Free Money Market Fund
Class A Shares 47
Class B Shares 1
Class C Shares 1
Real Estate Equity Fund 1
Item 27. Indemnification
Indemnification is provided to officers and Trustees of the Registrant
pursuant to Section 6.4 of Article VI of Registrant's First Amended and Restated
Master Trust Agreement, which reads as follows:
"Section 6.4 Indemnification of Trustees, Officers, etc. The Trust shall
indemnify (from the assets of the Sub-Trust or Sub-Trusts in question) each of
its Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise [hereinafter referred to as
"Covered Person"]) against all liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise with which such person may be or may
have been threatened, while in office or thereafter, or by reason of being or
having been such a Trustee or officer, director or trustee, except with respect
to any matter as to which it has been determined that such Covered Person had
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(such conduct referred to hereafter as "Disabling Conduct"). A determination
that the Covered Person is entitled to indemnification may be made by (i) a
final decision on the merits by a court or other body before whom the proceeding
was brought that the person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of Disabling
Conduct, or (iii) a reasonable
51
<PAGE>
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Trust as defined in section
2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. Expenses, including accountants' and counsel
fees so incurred by any such Covered Person (but excluding amounts paid in
satisfaction of judgments, in compromise or as fines or penalties), may be paid
from time to time by the Sub-Trust in question in advance of the final
disposition of any such action, suit or proceeding, provided that the Covered
Person shall have undertaken to repay the amounts so paid to the Sub-Trust in
question if it is ultimately determined that indemnification of such expenses is
not authorized under this Article VI and (i) the Covered Person shall have
provided security for such undertaking, (ii) the Trust shall be insured against
losses arising by reason of any lawful advances, or (iii) a majority of a quorum
of the disinterested Trustees who are not a party to the proceeding, or an
independent legal counsel in a written opinion, shall have determined, based on
a review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification."
The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties under the Investment Advisory Agreement or on the part of the Adviser, or
for a loss resulting from a breach of fiduciary duty with respect to the receipt
of compensation for services, the Adviser shall not be subject to liability to
the Registrant or to any shareholder of the Registrant for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services under the Investment Advisory Agreement or
for any losses that may be sustained in the purchase, holding or sale of any
security.
The Distribution Agreements relating to Class A, Class B and Class C Shares
provide that in the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties under the Distribution Agreement,
the Distributor, its officers, directors and any controlling person (within the
meaning of Section 15 of the 1933 Act) ("Distributor") shall be indemnified by
the Registrant from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Distributor may incur under the 1933 Act or under common law or otherwise
arising out of or based upon any alleged untrue statement of a material fact
contained in the Registration Statement, Prospectus or Statement of Additional
Information or arising out of or based upon any alleged omission to state a
material fact required to be stated in said documents or necessary to make the
statements not misleading.
Registrant provides the following undertaking:
"Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a Trustee, officer, or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether
52
<PAGE>
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue."
Item 28. Business and Other Connections of Investment Adviser.
The Investment Management Division of State Street Bank and Trust Company
("State Street") serves as adviser to the Registrant. State Street, a
Massachusetts bank, currently manages large institutional accounts and
collective investment funds. The business, profession, vocation or employment of
a substantial nature which each director or officer of the investment adviser is
or has been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or trustee,
is as follows:
<TABLE>
<CAPTION>
Capacity
Name With Adviser Business Name and Address*
- ---- ------------ --------------------------
<S> <C> <C>
Tenley E. Albright, MD Director Chairman, Vital Sciences, Inc.
Joseph A. Baute Director Former Chairman and CEO,
Markem Corporation
I. MacAlister Booth Director Chairman, President and CEO
Polaroid Corporation
Marshall N. Carter Chairman and CEO State Street Bank and Trust Company
James I. Cash, Jr. Director The James E. Robison Professor
of Business Administration
Harvard Business School
Truman S. Casner Director Partner, Ropes & Gray
Nader F. Darehshori Director Chairman, President and CEO
Houghton Mifflin Company
Lois D. Jubiler Director Chief Technological Officer
Colgate-Palmolive Company
Charles F. Kaye Director President, Transportation
Investments, Inc.
George H. Kidder Director Senior Partner
Hemenway & Barnes
John M. Kucharski Director Chairman, President and CEO
EG&G, Inc.
David B. Perini Director Chairman and President
Perini Corporation
Dennis J. Picard Director Chairman and CEO
Raytheon Company
53
<PAGE>
Bernard W. Reznicek Director Chairman, President and CEO
Boston Edison Company
David A. Spina Vice Chairman State Street Bank and Trust Company
Robert E. Weissman Director President and COO
The Dun & Bradstreet Corp.
</TABLE>
* Address of all individuals: State Street Boston Corporation, 225 Franklin
Street, Boston, Massachusetts 02110
Item 29. Principal Underwriters
(a) Russell Fund Distributors, Inc., also acts as principal underwriter for
Frank Russell Investment Company.
(b) The directors and officers of Russell Fund Distributors, Inc., their
principal business address, and positions and offices with the Registrant and
Russell Fund Distributors, Inc. are set forth below:
<TABLE>
<CAPTION>
Name and Principal Business Position and Offices with
Address* Underwriter Position with Registrant
- --------------------------- ------------------------- ------------------------
<S> <C> <C>
Lynn L. Anderson Director and CEO Trustee, Chairman of the Board,
and President
Karl J. Ege Secretary and General Counsel None
J. David Griswold Associate General Counsel Secretary
and Assistant Secretary
Mary E. Hughs Assistant Secretary None
John C. James Assistant Secretary None
Randall P. Lert Director None
Eric A. Russell Director and President None
Norma P. Schellberg Treasurer and Controller None
</TABLE>
*Address of all individuals: 909 A Street, Tacoma, Washington 98402
54
<PAGE>
Item 30. Location of Accounts and Records
The Registrant's Administrator, Frank Russell Investment Management
Company, 909 A Street, Tacoma, Washington 98402, will maintain the physical
possession of the books and records required by subsection (b)(4) of Rule 31a-1
under the Investment Company Act of 1940. All other accounts, books and
documents required by Rule 31a-1 are maintained in the physical possession of
Registrant's investment adviser, transfer agent, and custodian, State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts, 02110 and
1776 Heritage Drive, North Quincy, Massachusetts 02171.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) The Registrant hereby undertakes to file an amendment to the
registration satement with certified financial statements which need
not be certified within four to six months from the effective date of
this Registration Statement.
(c) The Registrant hereby undertakes to furnish to each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, The Registrant, SSgA Funds, has duly caused this
Post-Effective Amendment No. 40 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Boston,
and Commonwealth of Massachusetts, on the 9th day of April, 1997.
By: /s/ Lynn L. Anderson
------------------------------------
Lynn L. Anderson, President,
Treasurer and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities as
indicated on July 17, 1996.
Signature Title
--------- -----
/s/ Lynn L. Anderson Trustee, President, Treasurer and
-------------------- Chairman of the Board
Lynn L. Anderson
/s/ George W. Weber Senior Vice President and
-------------------- Fund Treasurer
George W. Weber
/s/ Steven J. Mastrovich Trustee
------------------------
Steven J. Mastrovich
/s/ William L. Marshall Trustee
------------------------
William L. Marshall
/s/ Patrick J. Riley Trustee
------------------------
Patrick J. Riley
/s/ Richard D. Shirk Trustee
------------------------
Richard D. Shirk
/s/ Bruce D. Taber Trustee
------------------------
Bruce D. Taber
/s/ Henry W. Todd Trustee
------------------------
Henry W. Todd
<PAGE>
Exhibit Index
-------------
Exhibit Number Description
-------------- -----------
1(i) Amendment No. 9 to the First Amended and
Restated Master Trust Agreement
EXHIBIT 1(i)
SSgA FUNDS
AMENDMENT NO. 9 TO
THE FIRST AMENDED AND RESTATED MASTER TRUST AGREEMENT
Establishment of Additional Sub-Trusts
THIS AMENDMENT NO. 9 to the First Amended and Restated Master Trust Agreement,
dated October 13, 1993 (also referred to as the Agreement and Declaration of
Trust), is made as of the 24th day of March, 1997:
WITNESSETH:
-----------
WHEREAS, pursuant to the Agreement, the Trustees have previously established and
designated the SSgA Money Market Fund, SSgA US Government Money Market Fund, the
SSgA S&P 500 Index Fund, SSgA Small Cap Fund, SSgA Matrix Equity Fund, SSgA
Active International Fund, SSgA International Pacific Index Fund, SSgA Bond
Market Fund, SSgA Yield Plus Fund, SSgA US Treasury Money Market Fund, SSgA US
Treasury Obligations Fund, SSgA Growth and Income Fund, SSgA Intermediate Fund,
SSgA Emerging Markets Fund, SSgA Prime Money Market Fund, SSgA Tax Free Money
Market Fund and the SSgA Real Estate Equity Fund as 17 sub-trusts of the Trust;
and
WHEREAS, the Trustees have the authority under Section 4.1 of the Agreement to
establish and designate additional separate and distinct sub-trusts and to fix
and determine certain relative rights and preferences as between the shares of
the Sub-trusts, without shareholder approval;
WHEREAS, the Trustees hereby desire to establish and designate the SSgA Life
Solutions Income and Growth Fund, the SSgA Life Solutions Balanced Fund, and the
SSgA Life Solutions Growth Fund as additional sub-trusts with the relative
rights and preferences set forth in Section 4.2 of the Agreement;
NOW, THEREFORE, the first paragraph of Section 4.2 of the Agreement is hereby
amended to read in pertinent part as follows:
"Section 4.2 Establishment and Designation of Sub-Trusts. Without
limiting the authority of the Trustees set forth in Section 4.1 to
establish and designate any further Sub-Trusts, the Trustees hereby
establish and designate the following Sub-Trusts: SSgA Money Market Fund,
SSgA US Government Money Market Fund, SSgA S&P 500 Index Fund, SSgA Small
Cap Index Fund, SSgA Matrix Equity Fund, SSgA Active International Fund,
SSgA International Pacific Index Fund, SSgA Bond Market Fund, SSgA Yield
Plus Fund, SSgA US Treasury Money Market Fund, SSgA US Treasury Obligations
Fund, SSgA Growth and Income Fund, SSgA Intermediate Fund, and SSgA Prime
Money Market Fund, SSgA Emerging Markets Fund, SSgA Tax Free Money Market
Fund, SSgA Real Estate Equity Fund, SSgA Life Solutions Income and Growth
Fund, SSgA Life Solutions Balanced Fund, and SSgA Life Solutions Growth
Fund. The Shares of each Sub-Trust and any Shares of any further Sub-Trusts
that may from time to time be established and designated by the Trustees
shall (unless the Trustees otherwise determine with respect to some further
Sub-Trust at the time of establishing and designating the same) have the
following relative rights and preferences:"
The undersigned hereby certifies that the Amendment set forth above has been
duly adopted in accordance with the provisions of the Master Trust Agreement.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the day and
year first above written.
SSgA FUNDS
/s/ J. David Griswold
----------------------
J. David Griswold
Secretary
